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, $ par value per share, outstanding as of November 14, 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 | 44 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 57 |
| Item 4 | Controls and Procedures | 57 |
| PART II – Other Information | ||
| Item 1. | Legal Procedures | 58 |
| Item 1A. | Risk Factors | 58 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58 |
| Item 3. | Defaults Upon Senior Securities | 58 |
| Item 4. | Mine Safety Disclosures | 58 |
| Item 5. | Other Information | 58 |
| Item 6. | Exhibits | 59 |
| SIGNATURES | 60 | |
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).
| 2 |
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.
| 4 |
Item 1. Financial Statements
| 5 |
TITAN ENVIRONMENTAL SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2024 (UNAUDITED) AND DECEMBER 31, 2023
| SEPTEMBER 30, | 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, MEZZANINE EQUITY, AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| 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 | ||||||||
| Finance lease liability, current | ||||||||
| 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 | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Series B Redeemable Convertible Preferred Stock, par value $, and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred stock, shares authorized: | ||||||||
| Series A Convertible Preferred Stock, par value $, and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, par value, $, shares authorized, and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ EQUITY(DEFICIT) | $ | $ | ||||||
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
| For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES (INCOME) | ||||||||||||||||
| Salaries and salary related costs | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Intangible asset impairment | ||||||||||||||||
| Goodwill impairment | ||||||||||||||||
| Total Operating expenses | ||||||||||||||||
| ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on sale of equipment | ( | ) | ( | ) | ||||||||||||
| Gain on sale of customer contracts | ||||||||||||||||
| Other income (expenses), net | ||||||||||||||||
| Loss on extinguishment of convertible debt and issuance of Series B Preferred Stock | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of convertible debt and issuance of common share rights | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DEEMED DIVIDENDS ATTRIBUTABLE TO ACCRETION OF SERIES B PREFERRED STOCK TO REDEMPTION VALUE | ( | ) | ( | ) | ||||||||||||
| DEEMED DIVIDEND RELATED TO ISSUANCE OF WARRANTS | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders | ( | ) | $ | ( | ) | ( | ) | ( | ) | |||||||
| Basic and diluted net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
TITAN ENVIRONMENTAL SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’
EQUITY(DEFICIT) /MEMBERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
Redeemable Series B Preferred Stock | Members’ | Series A Preferred Stock (1) | Series B Preferred Stock (2) | Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of Warrants | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of share rights | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Series B Preferred Offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Series B Preferred Offering costs | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Series A Preferred shares issued in relation to guarantee agreement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred shares issued in relation to an acquisition of a business | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Remeasurement of Series B Preferred Stock to redemption value | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock due to exercise of share rights | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred due to extinguishment of debt | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Remeasurement of Series B Preferred Stock to redemption value | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
Redeemable Series B Preferred Stock | Members’ | Series A Preferred Stock (1) | Series B Preferred Stock (2) | Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Contributions, net of distributions | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Effect of reverse acquisition | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Cancelation of Series C Preferred Stock for options | - | - | ( | ) | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||
| Exchange of debt, preferred stock and common stock for common stock rights | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| For the Nine Months Ended September 30, | ||||||||
2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Provision for credit losses | ( | ) | ||||||
| Gain on lease termination | ( | ) | ||||||
| Goodwill impairment | ||||||||
| Loss on disposal of property, plant and equipment | ||||||||
| Loss on extinguishment of convertible debt and issuance of Series B Preferred Stock and warrants | ||||||||
| Intangible asset Impairment | ||||||||
| Forgiveness of debt | ( | ) | ||||||
| Debt cancelled in exchange for customer contracts | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Change in fair value of derivative liability and derivative expense | ( | ) | ( | ) | ||||
| Amortization of discounts and convertible options on debt | ||||||||
| Loss on extinguishment and issuance of share rights | ||||||||
| 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 | ||||||||
| Finance lease liability | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisition of business | ( | ) | ||||||
| Disposal of property and equipment | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Subscription receivable | ||||||||
| Proceeds received from issuance of warrants | ||||||||
| Loan origination fees | ( | ) | ||||||
| Series B Offering | ||||||||
| Series B Offering Costs | ( | ) | ||||||
| Proceeds from convertible notes payable | ||||||||
| Repayments of convertible notes payable | ( | ) | ||||||
| Proceeds from convertible note payables - related parties | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Proceeds from note payables - 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 | ||||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Series A shares issued related to Guarantee agreement | ||||||||
| Exercise of Share rights into common stock | ||||||||
| Termination of lease | ||||||||
| Remeasurement of Series B Preferred Shares to redemption value | ||||||||
| Non-cash transactions related to reverse acquisition | ||||||||
| Settlement of note payable | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 9 |
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
trucking business provides waste and recycling collection and transportation services for industrial generators, commercial
contractors and transfer station operators in Michigan, performed by the Company’s wholly-owned subsidiaries, Titan Trucking,
LLC (“Titan Trucking”) and Standard Waste Services. LLC (“Standard”). The Company’s digester business
is conducted by its wholly-owned subsidiary Recoup Technologies, Inc. (“Recoup”), which provides technology-enabled
solutions for food waste processing, including onsite digestors for food waste along with cloud-based software tracking and
analytics solutions. On October 31, 2024, the Company sold all of the capital stock of Recoup for a purchase price equal to $
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 $
On May 31, 2024, the Company completed its acquisition of Standard. In accordance with ASC 805, the transaction was treated as a business combination (Note 3 – Business Combinations).
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 September 30, 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 nine months ended September 30, 2024, the Company had a net loss of $
The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these consolidated financial statements. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
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 period-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 September 30, 2024 and December 31, 2023, the Company allocated $
| 12 |
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 an impairment write-down would be necessary for finite long-lived intangible assets as of September 30, 2024 and December 31, 2023 (Note 5 – Intangibles, Net).
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. At September 30, 2024, the Company had 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 (Note 6 – Goodwill).
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 nine months ended September 30, 2024 and 2023
was $
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.
Redeemable Series B Preferred Stock
The Company applies the guidance enumerated in ASC 480, when determining the classification and measurement of preferred stock. Preferred stock subject to mandatory redemption, if any, is classified as a liability and is measured at fair value. The Company classifies conditionally redeemable preferred stock, which includes preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as mezzanine equity. At all other times, the Company classifies its preferred stock in stockholders’ equity. The Company subsequently measures mezzanine equity based on whether the instrument is currently redeemable or whether or not it is probable the instrument will become redeemable. Given the assessed probability that the instrument will become redeemable, the Company has elected to adjust the value of the Series B Preferred shares to its maximum redemption amount at each reporting date, including amounts representing dividends not currently declared or paid, but which will be payable under the redemption feature.
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.
| 13 |
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 were satisfied at the point in time when products were shipped to the customer, which is when the customer had title and control. Therefore, the Company’s product sale contracts had a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products. When revenue was earned on digester equipment related services, such as management advisory fees and digester maintenance and repair services, fees were recognized as the services were performed based on service milestones. The Company offered customers subscriptions to software which aided in the use of its Digester products; software revenue was recognized over time for the course of the subscription. For product sales, the Company invoiced 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 nine and three months ended September 30, 2024 and 2023:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 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 concentration risk associated with these customers or vendors will have a materially adverse effect on the business. The Company’s concentration of revenue is as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Customer A | % | % | * | % | % | |||||||||||
| Customer B | * | % | * | % | * | % | % | |||||||||
| Customer C | * | % | * | % | * | % | % | |||||||||
* 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 September 30, 2024 | As of December 31, 2023 | |||||||
| Customer A | * | % | ||||||
| * 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.
| 14 |
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 (loss) income per common share is computed by dividing net (loss) 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 September 30, 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.
| September 30, 2024 | September 30, 2023 | |||||||
| Series A Preferred Stock | ||||||||
| Series C Preferred Stock (1) | ||||||||
| Convertible Notes | ||||||||
| Warrants | ||||||||
| Total common stock equivalents | ||||||||
| (1) |
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 of TraQiQ for the period prior to May 19, 2023. Titan’s equity structure, prior to the combination with 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 Rights 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.
| 15 |
Advertising and Marketing Costs
Costs
associated with advertising are charged to expense as occurred. For the nine months ended September 30, 2024 and 2023, the advertising
and marketing costs were $
Recently Issued Accounting Standards
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 Company expects to adopt the guidance in its financial statements for the year ending December 31, 2024 and thereafter. The Company is currently evaluating the impact of adopting this ASU on our 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.
| 16 |
NOTE 3 – BUSINESS COMBINATIONS
Standard Waste Services, LLC Business Combination
On
May 31, 2024 (the “Standard acquisition date”), the Company completed a transaction to acquire Standard. The total
purchase consideration in connection with the acquisition was approximately $
Standard is a provider of contracted commercial roll-off and front-load waste services, including dumpster compactor rentals, to customers principally in Southeast Michigan. Standard provides services to both commercial and industrial customers.
The transaction was accounted for under the acquisition method of accounting and accordingly, the results of Standard’s operations are included within the Trucking Segment for the three and nine months ended September 30, 2024 related to the activity subsequent to the acquisition date.
The purchase price was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition on a provisional basis. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired and, as such, the excess was allocated to goodwill.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.
| Estimated | ||||
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Property and equipment | ||||
| Prepaid expenses and other current assets | ||||
| Other receivables | ||||
| Right-of-use-asset | ||||
| Goodwill | ||||
| $ | ||||
| Liabilities: | ||||
| Accounts payable and accrued expenses | $ | ( | ) | |
| Accrued payroll and related taxes | ( | ) | ||
| Operating lease liability, current | ( | ) | ||
| Finance lease liability, current | ( | ) | ||
| Notes payable | ( | ) | ||
| Operating lease liability, noncurrent | ( | ) | ||
| Finance lease liability, noncurrent | ( | ) | ||
| $ | ( | ) | ||
| Net fair value of assets (liabilities) acquired | $ | |||
| 17 |
Certain estimated fair values for the acquisition, including goodwill, anticipated intangible assets, and property and equipment, are not yet finalized. The purchase price was preliminarily allocated based on information available at the acquisition date and is subject to change as the Company completes its analysis of the fair values at the date of the acquisition during the measurement period not to exceed one year, as permitted under ASC 805.
As
a result of the acquisition, the Company recognized a total of $
Standard’s results of operations are included in our consolidated financial statements from the date of the transaction within its Trucking segment. If the transaction had occurred on the beginning of the year ended December 31, 2023, unaudited pro forma consolidated results for 2024 and 2023, would have been as follows:
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 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 are not necessarily indicative of the results of operations that actually would have occurred, nor are they necessarily indicative of future consolidated results.
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 “Titan acquisition date”). Pursuant to the terms of the Titan Merger Agreement, Merger Sub was merged with and into Titan Trucking on the Titan 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.
| 18 |
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 Titan acquisition date. Titan Trucking’s historical consolidated financial statements have replaced the Company’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 purchase consideration:
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses and other current assets | ||||
| Inventory | ||||
| Property and equipment | ||||
| 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) acquired | $ | |||
| 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 Titan acquisition date. Fair values 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 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:
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 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 are not necessarily indicative of the results of operations that actually would have occurred, nor are they necessarily indicative of future consolidated results.
The
pro forma combined results of operations for the nine months ended September 30, 2023, included stock-based compensation of $
| 20 |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Containers | $ | $ | ||||||
| Trucks and tractors | ||||||||
| Trailers | ||||||||
| Shop equipment | ||||||||
| Furniture | ||||||||
| Leasehold improvements | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net book value | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2024 were $
NOTE 5 – INTANGIBLES, NET
Intangible assets consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Customer Lists | $ | $ | ||||||
| Intellectual Property | ||||||||
| Tradenames | ||||||||
| Noncompete Agreement | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Net book value | $ | $ | ||||||
During the nine months ended
September 30, 2024, 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 intangible assets were less than their carrying amount. Therefore, the Company performed an
impairment assessment of the intangible assets. The quantitative impairment test indicated the fair value of the intangible assets
were that was lower than their carrying value, and as a result, the intangibles were impaired with an impairment expense of $
Amortization
expense from intangible assets was $
| 21 |
NOTE 6 – GOODWILL
The
Company had two reporting units, its Trucking Segment and its Digester Segment. Due to the Titan Merger and the resulting
recognition of goodwill from the reverse acquisition, the Company initially recognized goodwill of $
During
the year ended December 31, 2023, and as a result of the financial performance of the former 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 $
During
the nine months ended September 30, 2024, and as a result of the financial performance of the former 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 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 nine months ended September 30, 2023 and 2024 was as follows:
| Trucking | Digester | |||||||
| Goodwill: | ||||||||
| Balance as of January 1, 2023 | $ | $ | ||||||
| Balance as of March 31, 2023 | ||||||||
| Goodwill recognized | ||||||||
| Impairment | ( | ) | ||||||
| Balance as of June 30, 2023 | ||||||||
| Balance as of September 30, 2023 | $ | $ | ||||||
| Goodwill: | ||||||||
| Balance as of January 1, 2024 | $ | $ | ||||||
| Impairment | ||||||||
| Goodwill recognized | ||||||||
| Balance as of March 31, 2024 | ||||||||
| Balance as of June 30, 2024 | ||||||||
| Impairment | ( | ) | ||||||
| Balance as of September 30, 2024 | $ | $ | ||||||
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Detail of accounts payable and accrued expenses as of September 30, 2024 and December 31, 2023 was as follows:
| September 30, | 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
Operating Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), operating lease liabilities, and operating lease liabilities, non-current. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. None of the leases entered into have an implicit rate, the Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. Incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease, which is recognized when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company has operating leases for real estate.
On
April 1, 2023, Titan Trucking entered into a
Average lease terms and discount rates are as follows:
| September 30, | 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 September 30, 2024, were as follows:
| For the Years Ended, | ||||
| December 31, | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 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 $
| 23 |
Financing Leases
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Weighted average remaining lease term (in years) | N/A | |||||||
| Weighted average discount rate | % | N/A | ||||||
| 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’s finance lease costs consisted 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.
| 24 |
On
December 15, 2022, Titan Trucking entered into a $
The Company’s notes payables balance as of September 30, 2024 and December 31, 2023, consisted of the following:
| September 30, | December 31, | |||||||||||||||||
| 2024 | 2023 | |||||||||||||||||
| Current | Non-current | Current | Non-current | |||||||||||||||
| Collateralized Instalment Loans | (a) | $ | $ | $ | $ | |||||||||||||
| Note Payables: | ||||||||||||||||||
| Keystone | (b) | |||||||||||||||||
| Issued prior to Titan Merger: | ||||||||||||||||||
| Michaelson Capital | (c) | |||||||||||||||||
| Loanbuilder | (d) | |||||||||||||||||
| Individual | (e) | |||||||||||||||||
| Kabbage Funding Loans | (f) | |||||||||||||||||
| Related Parties: | ||||||||||||||||||
| Standard Waste Promissory Note (1) | (g) | |||||||||||||||||
| Standard Waste Promissory Note (2) | (h) | |||||||||||||||||
| Titan Holdings 2 | (i) | |||||||||||||||||
| Titan Holdings 5 | (j) | |||||||||||||||||
| Miller | (k) | |||||||||||||||||
| J. Rizzo | (l) | |||||||||||||||||
| C. Rizzo | (m) | |||||||||||||||||
| Celli | (n) | |||||||||||||||||
| Total outstanding principal | ||||||||||||||||||
| Less: discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total notes payable | ||||||||||||||||||
| Less: Notes payable – related parties | ||||||||||||||||||
| Notes payable | $ | $ | $ | $ | ||||||||||||||
Guarantee of Debt
On
May 31, 2024, the Company entered into a Guaranty Fee Agreement pursuant to which certain outstanding indebtedness owed by the
Company to the sellers of Standard is guaranteed. Pursuant to the Guaranty Fee Agreement, Charles B. Rizzo personally guaranteed the
obligations of Standard and the Company. In exchange for providing the guarantees, the Company agreed to provide compensation
consisting of a deposit fee, a guarantee fee, and an annual fee. The guarantee fee consisted of
shares of common stock or the equivalent shares of Series A Preferred Stock, and the deposit fee consisted of
shares of common stock or the equivalent shares of Series A Preferred Stock. The annual fee consists of
Collateralized Instalment Loans:
| (a) |
| 25 |
Note Payables:
| (b) |
Note Payables issued prior to Titan Merger:
| (c) |
|
| 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: (1) to
pay $
On
July 31, 2024, the Company and Michaelson agreed to a Forbearance Agreement that amended the Michaelson Note Payable (the
“July Michaelson Amendment”). As a result, the interest rate of the Michaelson Note
increased to
| |
| (d) |
On
June 15, 2023, the Company entered into a settlement agreement on Loanbuilder – 3. In accordance with ASC 470-60, “Troubled
Debt Restructuring by Debtors,” each of the four Loanbuilder Notes were accounted for as a troubled debt restructuring
due to their respective settlement agreements. As a result of the Loanbuilder - 3 settlement agreement, the Company recorded a net
gain on extinguishment of debt of $
Excluding
the Loanbuilder - 3 repayments, and as of September 30, 2024, the Company had 21 remaining required monthly repayments of $ |
| 26 |
| (e) | |
| (f) |
Related Parties:
| (g) | |
| (h) |
| (i) |
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 September 30, 2024, Titan had
In
July of 2024, the Company sold two customer contracts in exchange for total proceeds of $ |
| (j) |
On
May 30, 2024, the Company and the stockholder, agreed to a promissory note for a principal amount of $
|
| (k) |
On
February 23, 2024, the Company and Miller agreed to a promissory note for a principal amount of $
On
May 30, 2024, the Company and Miller agreed to a promissory note for a principal amount of $ |
| (l) |
The Company
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 September 30, 2024, Titan had borrowed $ |
| (m) | |
| (n) |
Interest
expense on these notes for the nine and three months ended September 30, 2024 was $
| 27 |
Principal maturities for the next five years and thereafter as of September 30, 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 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
| 28 |
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 Promissory Note (the “Diagonal Note”) to
1800 Diagonal Lending, LLC (“Diagonal”) with a principal balance of $
On
April 17, 2023, the Company issued a
| 29 |
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 September 30, 2024 and December 31, 2023 were as follows:
| September 30, | December 31, | |||||||||||||||||
| 2024 | 2023 | |||||||||||||||||
| Current | Non-current | Current | Non-current | |||||||||||||||
| Convertible Notes Payable: | ||||||||||||||||||
| Calvary Fund – 2023 Bridge Notes | (a) | $ | $ | $ | $ | |||||||||||||
| Cavalry Fund – 2024 Bridge Note | (b) | |||||||||||||||||
| Evergreen – Bridge Notes | (c) | |||||||||||||||||
| Keystone Capital – Bridge Note | (d) | |||||||||||||||||
| Seven Knots – Bridge Note | (e) | |||||||||||||||||
| Individual #2 – Bridge Note | (f) | |||||||||||||||||
| Individual #3 – Bridge Note | (g) | |||||||||||||||||
| Individual #4 – Bridge Note | (h) | |||||||||||||||||
| Individual #5 – Bridge Note | (i) | |||||||||||||||||
| Chambers - Bridge Note | (j) | |||||||||||||||||
| Schiller – Bridge Note | (k) | |||||||||||||||||
| Related Parties: | ||||||||||||||||||
| Miller – Bridge Notes | (l) | |||||||||||||||||
| Titan 5 – Bridge Note | (m) | |||||||||||||||||
| Celli – Bridge Notes | (n) | |||||||||||||||||
| FC Advisory – Bridge Note | (o) | |||||||||||||||||
| Total outstanding principal | ||||||||||||||||||
| Less: discounts | ( | ) | ( | ) | ||||||||||||||
| Total convertible notes payable | ||||||||||||||||||
| Convertible notes payable – related parties | ||||||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ||||||||||||||
| 30 |
Convertible Notes Payable:
| (a) |
As
of September 30, 2024, $ |
| (b) | |
| (c) |
As
of September 30, 2024, $ |
| (d) |
As of September 30, 2024, the Keystone Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and Keystone Capital agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (e) |
As of September 30, 2024, the Seven Knots Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and Seven Knots agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (f) |
As of September 30, 2024, the Individual #2 Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and the investor agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (g) |
As of September 30, 2024, the Individual #3 Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and the investor agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (h) |
As of September 30, 2024, the Individual #4 Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and the investor agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| 31 |
| (i) |
As of September 30, 2024, the Individual #5 Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and the investor agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (j) | |
| (k) |
Related Parties:
| (l) |
As of September 30, 2024, the Miller Bridge Notes were past their original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and Miller agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (m) |
As of September 30, 2024, the Titan 5 Bridge Note was past its original maturity date. Effective July 29, 2024 and through December 31, 2024, the Company and Titan 5 agreed to waive all events of default and all claims to related default interest, with the exception of any default interest that accrued prior to July 29, 2024. |
| (n) |
The Celli Bridge Notes contain a “rollover rights” conversion feature that enables
the holders to convert all or part of the Celli Bridge Note’s principal and accrued interest in the event of a public offering
or private placement of the Company’s equity, equity linked, or debt securities into purchase consideration for said public or
private offering. In the event of default, the Celli Bridge Notes accrue interest at a rate of |
| (o) |
In
the event of default, the FC Advisory Bridge Note accrues interest at a rate of |
Interest
expense due to convertible notes payable for the nine and three months ended September 30, 2024 was $
| 32 |
Convertible note payables principal maturities for the next year as of September 30, 2024 were as follows:
| Remainder of 2024 | $ | |||
| 2025 | ||||
| Total principal payments | ||||
| Less: debt discounts | ( | ) | ||
| Total convertible notes payable | $ |
NOTE 11 – DERIVATIVE LIABILITIES
The Company had 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 September 30, 2024 and December 31, 2023, the Company did not have any of these convertible notes payable outstanding. Please see Note 10 – Convertible Notes Payable for more information.
On
February 12, 2021, the Company granted warrants (the “Platinum Point Warrants”) that had a term of and
an exercise price of $
The fair value of the Platinum Point Warrants derivative liability was 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 September 30, 2024 and December 31, 2023:
Nine Months Ended September 30, 2024 |
Year Ended December 31, 2023 |
|||||||
| Expected term (years) | N/A | |||||||
| Expected volatility | N/A | % | % | |||||
| Expected dividend yield | N/A | % | % | |||||
| Risk-free interest rate | N/A | % | % | |||||
The derivative liabilities as of September 30, 2024 and December 31, 2023 were as follows:
September 30, 2024 | December 31, 2023 | |||||||
| Fair value of the Platinum Point Warrants ( | ||||||||
| $ | $ | |||||||
Activity related to the derivative liabilities for the nine months ended September 30, 2024 were as follows:
| Beginning balance as of December 31, 2023 | $ | |||
| Change in fair value of warrant - derivative liability | ( | ) | ||
| Ending balance as of September 30, 2024 | $ |
| 33 |
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 nine and three months ended September 30, 2024 were $
NOTE 14 – STOCKHOLDERS’ EQUITY AND MEZZANINE 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 replaced the historical financial statements of TraQiQ for the period prior to May 19, 2023. Titan Trucking’s equity structure, prior to the combination with TraQiQ, 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
Members’ Equity
As
of December 31, 2022, Titan Trucking had members’ equity of $
On
February 1, 2023, in exchange for the settlement of the $
| 34 |
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 the Nevada corporation (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 $ and is convertible into shares of the Company’s
common stock at any time commencing after the issuance date. The Series A Convertible Stock has voting rights equivalent to the voting
rights of the common stock the holder would receive upon conversion. Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary (a “Liquidation”), the Series A Holders shall be entitled to receive, on a pro-rata basis,
the first $
Series B Preferred Stock
As of September 30, 2024 and December 31, 2023, there were and shares of Series B Preferred Stock issued and outstanding, respectively. As a result of the redomicile and effective January 10, 2024, TraQiQ’s “Series B” class of preferred stock was eliminated.
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.
On July 17, 2023, prior to the redomicile, 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 former 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 the Company’s former Series B Convertible 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 shares of its former Series B Convertible Preferred Stock.
On March 29, 2024, the Company created a new series of Series B Convertible Preferred Stock consisting of shares with a redemption value of $ per share.
Optional Redemption
Beginning
on July 31, 2025, the Company has the option to redeem the outstanding shares by providing written notice 10 to 60 days in advance. The
Company has the option to redeem the outstanding shares at a premium of
Mandatory Redemption
The
Company will be required to redeem the outstanding shares when the Company receives written notice from any holder that holds at least
Series B Convertible Preferred Stock (a “Mandatory Redemption Event Notice”) that specifies a Mandatory Redemption
Event (as defined below) has occurred. The Company is required to provide written notice to all Holders and redeem the shares, for any
holder that provides this notice, in cash (either immediately or when the cash becomes available) at an amount equal to
A Mandatory Redemption Event is triggered either by (1) a Triggering Event occurring and the Company being notified by a Holder with at least shares or (2) by the Company’s common stock not being listed on a major exchange after July 31, 2025.
Dividend Rights
Holders
are entitled to receive cumulative dividends at a rate of
| ● | Accrued dividends are paid
at | |
| ● | The Company may elect to pay dividends in the form of common stock provided no Equity Conditions Failure has occurred, and such a payment would not cause the holder to exceed the Beneficial Ownership Limitation. |
| 35 |
| ○ | Equity Conditions Failure occurs if certain conditions are not met during a specified period, including the continued listing of common stock on a trading market, timely delivery of shares issuable upon conversion, compliance with trading market rules, and absence of any Triggering Event. | |
| ○ | The number of shares issued as a stock dividend is calculated based on the average volume-weighted average price (VWAP) of the common stock. |
Conversion Rights
Each share of Series B Convertible Preferred Stock can be converted into common stock as follows:
(a) Optional Conversion
| ● | Conversion rate is based on the Stated Value plus unpaid dividends divided by the Conversion Price. | |
| ● | Initial Conversion Price
is $ |
(b) Triggering Event Conversion
| ● | During a Triggering Event,
holders can convert their shares at | |
| ● | Conversion is subject to the Beneficial Ownership Limitation. |
(c) Mandatory Conversion
| ● | ||
| ● | Mandatory Conversion Notice must be delivered within five Trading Days after the Mandatory Conversion Measuring Period. |
Beneficial Ownership Limitation
Voting Rights
Series B Preferred Stock Offering
On
April 5, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) dated March 29, 2024 with an accredited
investor, pursuant to which, on such date and at later closings of the transactions contemplated by the SPA, such investor and the additional
investors who signed the SPA agreed to purchase shares of the Company’s Series B Convertible Preferred Stock. In addition, in connection
with the issuance of the Series B Preferred Stock, the purchasers received -year warrants to purchase shares of the Company’s
common stock. The warrants are exercisable at an exercise price of $
On
May 30, 2024, the Company issued shares of Series B Preferred Stock and warrants to purchase an aggregate of shares
of common stock for an aggregate purchase price of $
In connection with the issuance, the Company entered into a Registration Rights Agreement whereby the Company agreed to file a registration statement registering the resale of the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the warrants within 20 calendar days of the earlier of (i) the date of the consummation of the listing of the Common Stock on any of the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or their respective successors and (ii) the six-month anniversary of the Registration Rights Agreement (the “Trigger Date”). The Company agreed to use its best efforts to have the registration statement declared “effective” within 60 calendar days from the Trigger Date.
The
Company determined the Series B Preferred Stock is classified as temporary mezzanine equity because redemption could be required at
(1) a fixed or determinable date, (2) at the option of the holder, and (3) upon occurrence of a contingent event. The Company valued
the redemption feature based on the present value of future cash flows using the following assumptions, (1) term of
years, (2) dividend rate of %
and (3) effective interest rate of %.
For the three and nine months ended September 30, 2024 the Series B Preferred Stock related to the Offering was accreted $
| Balance as of December 31, 2023 | $ | |||
| Balance of March 31, 2024 | ||||
| Issuance of Series B Preferred Stock due to Offering | ||||
| Accretion of Series B issuances | ||||
| Issuance of Series B Preferred Stock | ||||
| Accretion of Series B issuances | ||||
| Issuance of Series B Preferred Stock | ||||
| Series B Preferred Stock conversion of liability | ||||
| Accretion of Series B issuances | ||||
| Balance as of June 30, 2024 | $ | |||
| Issuance of Series B Preferred Stock | ||||
| Accretion of Series B issuances | ||||
| Accretion of Series B Preferred Stock due to Offering | ||||
| Accretion of Series B issuances | ||||
| Accretion of Series B issuances | ||||
| Balance as of September 30, 2024 | $ |
| 36 |
Additional Series B Preferred Stock Issuances
On
April 12, 2024, the Company issued
shares of Series B Preferred Stock to extend the term of the Michaelson Note until June 30, 2024 (Note 9 – Note Payables). The
redemption feature is recorded at fair value and will be accreted to redemption value when it is deemed probable to be exercised.
The Company valued the redemption feature at fair value based on the present value of future cash flows using the following
assumptions, (1) term, (2) dividend rate, (2) effective interest rate, (3) and redemption value of $
On
June 25, 2024, the Company issued
shares of Series B Preferred Stock to investors in exchange for equity interests for proceeds received in prior periods. The
redemption feature is recorded at fair value and will be accreted to redemption value when it is deemed probable to be exercised.
The Company valued the redemption feature at fair value based on the present value of future cash flows using the following
assumptions, (1) term, (2) dividend rate, (2) effective interest rate, (3) and redemption value of $
On
July 2, 2024, the Company signed four Exchange Subscription Agreements with four of the Company’s lenders (Note 9 –
Notes Payable). In accordance with the terms of the Exchange Subscription Agreements, an aggregate of $
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 September 30, 2024 the Company had shares of common stock authorized. As of September 30, 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 and nine months ended September 30, 2024, the Company issued and shares of common stock due to exercises of share rights from common stock rights, respectively.
Warrants
As a result of the redomicile and effective January 10, 2024, all the Company’s outstanding warrants were assumed by the Nevada corporation and now represent warrants to acquire shares of the Nevada corporation common stock. The following schedule summarizes the changes in the Company’s common stock warrants during the nine months ended September 30, 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 September 30, 2024 | $ | – | $ | $ | ||||||||||||||||
| Exercisable at September 30, 2024 | $ | – | $ | $ | ||||||||||||||||
| Balance at December 31, 2022 | $ | - | $ | $ | ||||||||||||||||
| Warrants acquired concurrent with the Titan Merger | $ | – | $ | $ | ||||||||||||||||
| Warrants granted | $ | - | $ | $ | ||||||||||||||||
| Warrants exercised/ exchanged | $ | - | $ | - | $ | - | ||||||||||||||
| Warrants expired/cancelled | $ | - | $ | - | $ | - | ||||||||||||||
| Balance at September 30, 2023 | $ | – | $ | $ | ||||||||||||||||
| Exercisable at September 30, 2023 | $ | – | $ | $ | ||||||||||||||||
| 37 |
On
December 28, 2023, the Company issued
On
January 5, 2024, the Company issued
On
May 30, 2024, the Company issued shares of Series B Preferred Stock and warrants for an aggregate purchase price of $
On
July 2, 2024, the Company signed four Exchange Subscription Agreements with four of the Company’s lenders (Note 9 – Notes
Payable). In accordance with the terms of the Exchange Subscription Agreements, an aggregate of $
On August 12, 2024, the Company issued Calvary Fund
I
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 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. Pursuant to the Series B Preferred Exchange
Agreement Sikka also exchanged shares of the Company’s common stock and a payment of receivable from the Company for
unreimbursed advances in the amount of $
On July 20, 2023, the Company entered into the REI Exchange Agreement with 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.
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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. On August 5, 2024, of Series B share rights were converted to common stock.
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 the Nevada corporation, 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 the Nevada corporation, which has substantially the same rights and preferences as the Company’s original Series B Rights to Acquire Common Stock. At September 30, 2024, there were Series A Rights outstanding and Series B Rights outstanding.
The TraQiQ Inc. 2020 Equity Incentive Plan was initially approved by the Company’s Board of Directors on November 23, 2020. In conjunction with the reincorporation and effective January 10, 2024, the Company adopted the Titan Environmental Solutions Inc. 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan limits the shares of common stock authorized to be awarded as stock awards to shares. The 2023 Plan terminates upon the earlier of 1) the earliest date at which all shares awarded under the plan have been satisfied in full or terminated and there remain no new shares authorized to be issued under the plan, or 2) the tenth anniversary of the plan’s effective date.
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number | Grant Date | Contractual | ||||||||||
| Shares | Fair Value | Term (years) | ||||||||||
| Nonvested at December 31, 2022 | $ | - | ||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures | $ | - | ||||||||||
| Nonvested at March 31, 2023 | ||||||||||||
| Acquired concurrent with the Titan Merger (vested and unreleased) | $ | - | ||||||||||
| Acquired concurrent with the Titan Merger (unvested) | $ | |||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | ( | ) | $ | - | ||||||||
| Forfeitures | $ | - | ||||||||||
| Outstanding (nonvested) at June 30, 2023 | $ | |||||||||||
| Outstanding (vested and unreleased) at June 30, 2023 | $ | - | ||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures and cancelations | ( | ) | $ | - | ||||||||
| Vested and released | ( | ) | $ | - | ||||||||
| Total outstanding at September 30, 2023 | $ | - | ||||||||||
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As of June 30, 2023, there were shares of common stock related to restricted stock grants that were vested and unissued. On September 13, 2023, the Company signed a Cancellation of Restricted Stock Grants Agreement with Sikka and two directors which rescinded and annulled of the vested and unreleased shares and the unvested shares. Consequently, the obligation to issue shares was eliminated.
Stock-based compensation from restricted stock awards for the nine months ended September 30, 2024 and 2023 was $ and $, respectively. Stock-based compensation from restricted stock awards for the three months ended September 30, 2024 and 2023 was $ and $, respectively. As of September 30, 2024, there remained $ of unrecognized stock-based compensation from restricted stock awards. The total fair value of restricted shares that vested during the nine months ended September 30, 2024 and 2023 was $ and $, respectively. The fair value of the vested and unreleased shares on the date of the Titan Merger was $.
On the Titan Merger acquisition date, the Company awarded shares of Series C Preferred Stock that vested immediately to its chief executive officer, and as a result recorded $ of stock-based compensation (Note 14 – Stockholders’ Equity and Mezzanine Equity). On September 28, 2023, the Company and the chief executive officer signed a cancellation agreement and the Series C Preferred Stock shares were rescinded. Under the terms of the cancellation agreement, the Company agreed to issue ten-year stock options to acquire a number of shares of common stock of the Company in order to provide the chief executive officer an equity interest in the Company commensurate with the value of the original stock award. Such options will have an exercise price equal to the sale price of the common stock in the next public offering of common stock consummated by the Company.
The fair value of the Series C Preferred Stock was determined using observable inputs (level 2 fair value measurement) with a market approach technique. The main input for the Series C Preferred Stock fair value was the price of the Company’s common stock as of the date of the grant. As a result of the redomicile, each share of 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, which has substantially the same rights and preferences as the TraQiQ Series C Preferred Stock (Note 1 – Organization and Nature of Operations).
NOTE 16 – 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.
Related Party Commitments
On April 1, 2023, Titan Trucking entered into a
As of September 30, 2024 and December 31, 2023, the
Company owed a related party vendor $
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
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In
conjunction with the acquisition of Standard (Note 3 – Business Combinations), the Company engaged the Sellers for consulting services
in the period following the Standard Acquisition. Dominic Campo and Sharon Campo each signed a consulting agreement (the “Standard
Consulting Agreements”) with the Company.
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 sought unspecified damages, attorney and expert fees and other unspecified litigation costs. Titan Trucking 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. As of September 30, 2024 and December 31, 2023, no accruals for loss contingencies had been recorded as the outcome of this litigation was neither probable nor reasonably estimable. Subsequent to the nine months ended September 30, 2024, on October 25, 2024, Titan Trucking entered into a mutual release with the plaintiff which discharges Titan Trucking and any and all of its executive officers, employees, experts, and attorneys from the claims in this litigation and all other claims, demands, liabilities, causes of action, and damages, including attorneys’ fees, sanctions, interest, costs, and expenses, whether known or unknown, through and including October 25, 2024.
In July 2023, a complaint was filed against us and Ajay Sikka, a director of our company and our former chief executive officer, in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois titled Alta Waterford, LLC v. TraQiQ, Inc. and Ajay Sikka (Case No. 23LA00000476) for breach of contract. In the complaint, the plaintiff alleges that we 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 Mr. Sikka.
The
complaint seeks damages in the amount of $
In May 2024, the Court signed a new order with an updated schedule. Consistent with that new order, the Company still anticipates conducting deposition discovery in the weeks and months ahead, but the matter is now scheduled for a bench trial in Illinois (no jury) in May 2025. As of September 30, 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.
On May 31, 2024 (the “Standard acquisition date”), the Company completed a transaction to acquire Standard. Titan agreed to issue shares of Series A as consideration and an additional shares of Series A because Closing did not occur prior to February 2, 2024, for a total of shares of Series A Preferred. The other shares have not been issued to the Sellers yet because they are being held back to satisfy any indemnification claims made by Titan, which is in accordance with the terms of the agreement. These will be released on the 12th month anniversary of the Closing, provided there are no valid claims.
NOTE 17 – 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. Prior to October 31, 2024, the Company operated and reported 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 former Digester Segment, which was sold by the Company on October 31, 2024, primarily generated 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.
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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 are as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | $ | $ | $ | ||||||||||||
| Digester | ||||||||||||||||
| Corporate / Other | ||||||||||||||||
| Total Company | $ | $ | $ | $ | ||||||||||||
Gross profit for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | $ | $ | $ | ||||||||||||
| Digester | ||||||||||||||||
| Corporate / Other | ( | ) | ||||||||||||||
| Total Company | $ | $ | $ | $ | ||||||||||||
Net income (loss) before provision for income taxes for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Digester | ( | ) | ( | ) | ( | ) | ||||||||||
| Corporate / Other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Depreciation and amortization for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking (1) | $ | $ | $ | $ | ||||||||||||
| Digester | ||||||||||||||||
| Corporate / Other | ||||||||||||||||
| Total Company | $ | $ | $ | $ | ||||||||||||
| (1) |
Total assets and capital expenditures, for each reportable segment was as follows:
| Assets | Capital expenditures | |||||||||||||||||||||||
| September 30, | December 31, | For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Trucking | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Digester | ||||||||||||||||||||||||
| Corporate / Other | ||||||||||||||||||||||||
| Total Company | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
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NOTE 18 – SUBSEQUENT EVENTS
Sale of Subsidiary Recoup Technologies, Inc. (“Recoup”)
On October 31, 2024, the Company entered into a Stock Purchase Agreement dated as of October 31, 2024 (the “Purchase Agreement”) among the Company and its wholly-owned subsidiary Recoup, and Recoup Partners, LLC, a Delaware limited liability company (the “Purchaser”), and consummated the transactions contemplated by the Purchase Agreement, including the sale of Recoup to the Purchaser. Recoup is in the business of marketing an aerobic digestion technology solution for the disposal of food waste at the point of generation.
Pursuant
to the Purchase Agreement, the Purchaser purchased from the Company all of the capital stock of Recoup for a purchase price equal to
$
Titan Group Partners, LLC
The Company entered into an agreement with Titan Partners LLC for which
the Company will borrow a minimum of $
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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 consolidated financial statements as of and for the nine and three months ended September 30, 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 Annual Report on Form 10-K for the year ended December 31, 2023. 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
During the periods covered by this quarterly report on Form 10-Q, we operated two distinct lines of business. The first is our Trucking Segment, composed of Titan Trucking, LLC (“Titan Trucking”), and Standard Waste Services, LLC (“Standard”). Titan Trucking and Standard are non-hazardous solid waste management companies providing waste and recycling collection and transportation services for industrial generators, commercial contractors and transfer station operators in Michigan. Titan Trucking and Standard maintain a fleet of roll off and tractor trailer trucks to perform their services. The Trucking Segment operates in a highly recession resistant industry given the ongoing generation of waste and recyclable materials. The Trucking Segment’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 line of business was our former Digester Segment, made up of Recoup Technologies, Inc., which, as discussed below, was sold on October 31, 2024 and provided technology enabled solutions for food waste processing including onsite Digestors for food waste along with cloud-based software tracking and analytics solutions.
Sale and of Subsidiary Recoup Technologies, Inc. (“Recoup”)
On October 31, 2024, we entered into a Stock Purchase Agreement dated as of October 31, 2024 (the “Purchase Agreement”) among our company and our wholly-owned subsidiary Recoup, and Recoup Partners, LLC, a Delaware limited liability company (the “Purchaser”), and consummated the transactions contemplated by the Purchase Agreement, including the sale of Recoup to the Purchaser. Recoup is in the business of marketing an aerobic digestion technology solution for the disposal of food waste at the point of generation.
Pursuant to the Purchase Agreement, the Purchaser purchased from us all of the capital stock of Recoup for a purchase price equal to $1,000,000, which consisted of a promissory note receivable to be paid by the Purchaser to us in the principal amount of $250,000 and the cancellation and release by certain affiliates of the Purchaser of our indebtedness obligations in the aggregate amount of $750,000. We also agreed that, for a period of five years from the closing date, we will not engage in a business that competes with the business of Recoup.
Standard Waste Services, LLC Business Combination
On May 31, 2024 (the “Standard acquisition date”), we completed a transaction to acquire Standard. The total purchase consideration in connection with the acquisition was approximately $16.1 million. The purchase price consisted of $4,652,500 of cash (inclusive of a $652,500 cash deposit paid on January 8, 2024), the issuance of two note payables with an aggregate principal value of $2,859,898, and the issuance of 612,000 shares of Series A Preferred Stock valued at $8,568,000.
Standard is a provider of contracted commercial roll-off and front-load waste services, including dumpster compactor rentals, to customers principally in Southeast Michigan. Standard provides services to both commercial and industrial customers.
The transaction was accounted for under the acquisition method of accounting, and accordingly, the results of Standard’s operations are included within the Trucking Segment for 2024.
The purchase price was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition on a provisional basis. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired and, as such, the excess was allocated to goodwill.
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The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.
| Estimated | ||||
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | 2,545 | ||
| Accounts receivable | 1,387,932 | |||
| Property and equipment | 5,174,422 | |||
| Prepaid expenses and other current assets | 12,900 | |||
| Other receivables | 1,600 | |||
| Right-of-use-asset | 294,431 | |||
| Goodwill | 13,864,967 | |||
| $ | 20,738,797 | |||
| Liabilities: | ||||
| Accounts payable and accrued expenses | $ | (947,180 | ) | |
| Accrued payroll and related taxes | (46,189 | ) | ||
| Operating lease liability, current | (83,654 | ) | ||
| Finance lease liability, current | (29,230 | ) | ||
| Notes payable | (3,271,231 | ) | ||
| Operating lease liability, noncurrent | (210,778 | ) | ||
| Finance lease liability, noncurrent | (70,137 | ) | ||
| $ | (4,658,399 | ) | ||
| Net fair value of assets (liabilities) Acquired | $ | 16,080,398 | ||
Certain estimated fair values for the acquisition, including goodwill, anticipated intangible assets, and property, and equipment, are not yet finalized. The purchase price was preliminarily allocated based on information available at the acquisition date and is subject to change as we complete our analysis of the fair values at the date of the acquisition during the measurement period not to exceed one year, as permitted under ASC 805.
As a result of the acquisition, we recognized a total of $13.9 million of goodwill within the Trucking Segment. Goodwill represents the value expected to be created through new customer relationships for our company, access to new market opportunities, and expected growth opportunities. The goodwill resulting from the acquisition is susceptible to future impairment charges.
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 JR, 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 issued to the Titan Trucking owners 630,900 shares of our now designated Series A Preferred Stock. Concurrent to the Titan Merger, our then- 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.
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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 purchase consideration:
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | 69,104 | ||
| Accounts receivable | 369,338 | |||
| Prepaid expenses and other current assets | 17,893 | |||
| Inventory | 64,894 | |||
| Property and equipment | 1,134 | |||
| Intangible assets | 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, we redomiciled from a California corporation into a Nevada corporation (the “redomicile”). As a result of the redomicile, our 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.
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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.”
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”.
Authorization of Reverse Stock Split
On September 10, 2024, 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 100 shares of our common stock, at an exact ratio at the discretion of the board of directors, at any time prior to September 10, 2025. 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.
Going Concern
For the nine months ended September 30, 2024, we had a net loss of $18,167,196. Our working capital was a deficit of $16,344,202 as of September 30, 2024 (deficit of $10,935,108 as of December 31, 2023). As a result of these factors, management has concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year after the date that the consolidated financial statements are issued. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these consolidated financial statements. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
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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 nine and three months ended September 30, 2024 were $8,510 and $2,193, respectively, and $10,862 and $5,037, respectively for the nine and three months ended September 30, 2023.
Results of Operations and Financial Condition for the Nine Months Ended September 30, 2024 as Compared to the Nine Months Ended September 30, 2023
| For the Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | Var ($) | Var (%) | |||||||||||||
| REVENUE | $ | 8,300,038 | $ | 5,568,224 | $ | 2,731,814 | 49 | % | ||||||||
| COST OF REVENUES | 7,173,029 | 4,703,784 | 2,469,245 | 52 | % | |||||||||||
| GROSS PROFIT | 1,127,009 | 864,440 | 262,569 | (30 | )% | |||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | 1,553,215 | 1,177,855 | 375,360 | 32 | % | |||||||||||
| Stock based compensation | - | 5,590,485 | (5,590,485 | ) | (100 | )% | ||||||||||
| Professional fees | 2,650,840 | 2,131,902 | 518,938 | 24 | % | |||||||||||
| Depreciation and amortization expense | 580,529 | 674,879 | (94,350 | ) | (14 | )% | ||||||||||
| General and administrative expenses | 1,089,747 | 682,583 | 407,164 | 60 | % | |||||||||||
| Intangible asset impairment | 5,508,595 | - | 5,508,595 | 100 | % | |||||||||||
| Goodwill Impairment | 4,853,142 | 15,669,287 | (10,816,145 | ) | (69 | )% | ||||||||||
| Total Operating Expenses | 16,236,068 | 25,926,991 | (9,690,923 | ) | (37 | )% | ||||||||||
| OPERATING LOSS | (15,109,059 | ) | (25,062,551 | ) | 9,953,492 | (40 | )% | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Change in fair value of derivative liability | 17,500 | 33,261 | (15,761 | ) | (47 | )% | ||||||||||
| Interest expense, net of interest income | (2,764,744 | ) | (676,726 | ) | (2,088,018 | ) | 309 | % | ||||||||
| Other income | 214,175 | 141,468 | 72,707 | 51 | % | |||||||||||
| Loss on sale of equipment | (88,148 | ) | - | (88,148 | ) | 100 | % | |||||||||
| Gain on sale of customer contracts | 370,000 | - | 370,000 | 100 | % | |||||||||||
| Loss on extinguishment of convertible debt and issuance of Series B Preferred Stock | (806,920 | ) | - | (806,920 | ) | 100 | % | |||||||||
| Loss on extinguishment of convertible debt and issuance of common share rights | - | (116,591,322 | ) | 116,591,322 | (100 | )% | ||||||||||
| Total other income (expense) | (3,058,137 | ) | (117,093,319 | ) | 114,035,182 | (97 | )% | |||||||||
| Provision for income taxes | - | - | - | - | % | |||||||||||
| NET LOSS | (18,167,196 | ) | (142,155,870 | ) | 123,988,674 | (87 | )% | |||||||||
| DEEMED DIVIDENDS ATTRIBUTABLE TO ACCRETION OF SERIES B PREFERRED STOCK TO REDEMPTION VALUE | (4,103,849 | ) | - | (4,103,849 | ) | 100 | % | |||||||||
| DEEMED DIVIDEND RELATED TO ISSUANCE OF WARRANTS | (862,289 | ) | - | (862,289 | ) | 100 | % | |||||||||
| Net loss available to common stockholders | (23,133,334 | ) | (142,155,870 | ) | (119,022,536 | ) | 84 | % | ||||||||
Revenue
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Product sales and related product services | $ | 1,308,821 | $ | 935,209 | ||||
| Waste collection and sales | 6,991,217 | 4,633,015 | ||||||
| Total revenue | $ | 8,300,038 | $ | 5,568,224 | ||||
| 48 |
For the nine months ended September 30, 2024 compared to September 30, 2023, our revenues increased by $2,731,814, or 49%, from $5,568,224 to $8,300,038. The increase was primarily as a result of the acquisition of Standard on May 31, 2024, and the resulting revenue generated by the combined operations of our company and Standard. The acquisition of Standard resulted in the expansion of our Trucking Segment and our revenue from waste collection and sales. 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 during the period. Additionally, expanded the sales operations of our Digester Segment which increased the revenue from product sales and related product services.
Cost of Revenue
For the nine months ended September 30, 2024 compared to September 30, 2023, our cost of revenue increased by $2,469,245, or 52%, from $4,703,784 to $7,173,029. The increase was primarily as a result of the acquisition of Standard on May 31, 2024, and the resulting increased revenue caused by the combined operations of our company and Standard. We also have continued to expand the Trucking Segment operations through acquisition of new containers and other fixed assets which also resulted in increased cost of revenues.
Operating Expenses
For the nine months ended September 30, 2024 compared to September 30, 2023, our salary and salary-related costs increased by $375,360 or 32%, from $1,177,855 to $1,553,215. The increase was primarily due to the increased personnel costs associated with the acquisition of Standard and increases to the operational activity of Recoup and Titan Trucking.
For the nine months ended September 30, 2024 compared to September 30, 2023, our professional fees increased by $518,938, or 24%, from $2,131,902 to $2,650,840. The increase was attributed primarily to consulting, accounting and legal fees incurred due to our acquisition activities.
For the nine months ended September 30, 2024 compared to September 30, 2023, our depreciation and amortization expense decreased by $94,350, or 14%, from $674,879 to $580,529. Subsequent to September 30, 2023, we recognized the Titan Merger intangible assets at a lower final value than compared to the Titan Merger preliminary values as a measurement period adjustment. As a result, the depreciation and amortization expense for the nine months ended September 30, 2024, is lower than the depreciation and amortization expense from the nine months ended September 30, 2023.
For the nine months ended September 30, 2024 compared to September 30, 2023, our general and administrative expenses increased by $407,163, or 60%, from $682,583 to $1,089,746. The increase was primarily due to our increased operational and sales activities, the addition of leases, and the acquisition of Standard.
Impairment of Intangible Assets
During the nine months ended September 30, 2024, 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 intangible assets were less than their carrying amount. Therefore, the Company performed an impairment assessment of the intangible assets. The quantitative impairment test indicated the fair value of the intangible assets were lower than their carrying value, and as a result, the intangibles were impaired with an impairment expense of $ 5,508,595 during the nine months ended September 30, 2024.
Impairment of Goodwill
During the nine months ended September 30, 2024, 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 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 $4,853,142 the nine months ended September 30, 2024.
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 September 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 $15,669,287 during the nine months ended September 30, 2023.
Stock-Based Compensation
On the Titan Merger acquisition date, we awarded 70,100 shares of Series C Preferred Stock that vested immediately to our chief executive officer, and as a result recorded $5,590,485 of stock-based compensation. During the nine months ended September 30, 2023, we and our chief executive officer signed a cancellation agreement and the shares of Series C Preferred Stock were rescinded. There was no stock-based compensation expense for the nine months ended September 30, 2024.
Interest Expense, net of Interest Income
For the nine months ended September 30, 2024 compared to September 30, 2023, our interest expense, net of interest income increased by $2,088,018, or 309%, from $676,726 to $2,764,744. 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 and the acquisition of Standard. Interest expense also increased due to our issuance and sale of new debt instruments following the Titan Merger, as well as increased interest rates due to loans entering default.
Sale of Customer Contracts
During the nine months ended September 30, 2024 we recognized a gain on sale of customer contacts of $370,000. We sold two customer contracts in exchange for total proceeds of $370,000, inclusive of debt cancellation of $220,000 and $50,000 of expenses paid on behalf of our company.
Net Loss
For the nine months ended September 30, 2024 compared to September 30, 2023, our net loss decreased by $123,988,674, or 87% from $142,155,870 to $18,167,196 due mainly to the decrease in loss on extinguishment of share rights, decreased stock based compensation, and decrease in goodwill impairment expense. The decrease was offset by increased salaries and salary related costs, increased professional fees, and increased general and administrative expenses.
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Results of Operations and Financial Condition for the Three Months Ended September 30, 2024 as Compared to the Three Months Ended September 30, 2023
| For the Three Months Ended | ||||||||||||||||
| September 30, | September 30, | Three Months | ||||||||||||||
| 2024 | 2023 | Var ($) | Var (%) | |||||||||||||
| REVENUE | 3,883,105 | 2,606,653 | 1,276,452 | 49 | % | |||||||||||
| COST OF REVENUES | 3,446,900 | 1,962,725 | 1,484,175 | 76 | % | |||||||||||
| GROSS PROFIT | 436,205 | 643,928 | (207,723 | ) | (32 | )% | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | 453,174 | 559,208 | (106,034 | ) | (19 | )% | ||||||||||
| Stock based compensation | - | 2,278 | (2,278 | ) | (100 | )% | ||||||||||
| Professional fees | 620,284 | 1,207,231 | (586,947 | ) | (49 | % | ||||||||||
| Depreciation and amortization expense | 193,824 | 426,337 | (232,513 | ) | (55 | )% | ||||||||||
| General and administrative expenses | 318,470 | 268,534 | 49,936 | 19 | % | |||||||||||
| Goodwill impairment | 5,508,595 | - | 5,508,595 | 100 | % | |||||||||||
| Intangible asset impairment | 4,853,142 | 4,853,142 | 100 | % | ||||||||||||
| Total Operating Expenses | 11,947,489 | 2,463,588 | 9,483,901 | 79 | % | |||||||||||
| OPERATING LOSS | (11,511,284 | ) | (1,819,660 | ) | 9,276,178 | (81 | )% | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Change in fair value of derivative liability | - | 23,609 | (23,609 | ) | (100 | )% | ||||||||||
| Interest expense, net of interest income | (1,520,478 | ) | (237,895 | ) | (1,282,583 | ) | 539 | % | ||||||||
| Other income | 2,547 | 38,047 | (35,500 | ) | (93 | )% | ||||||||||
| Loss on sale of equipment | (88,148 | ) | - | (88,148 | ) | 100 | % | |||||||||
| Gain on sale of customer contracts | 370,000 | - | 370,000 | 100 | % | |||||||||||
| Loss on extinguishment and issuance of Series B Preferred Stock | (806,920 | ) | - | (806,920 | ) | 100 | % | |||||||||
| Loss on extinguishment and on issuance of share rights | - | (116,591,322 | 116,591,322 | (100 | )% | |||||||||||
| Total other income (expense) | (2,042,999 | ) | (116,767,561 | ) | 114,724,562 | (98 | )% | |||||||||
| Provision for income taxes | - | - | - | 100 | % | |||||||||||
| NET LOSS | (13,554,283 | ) | (118,587,221 | ) | 105,032,938 | (89 | )% | |||||||||
| DEEMED DIVIDEND RELATED TO SERIES B PREFERRED STOCK | (145,473 | ) | - | (145,473 | ) | 100 | % | |||||||||
| Net loss available to common stockholders | (13,699,756 | ) | (118,587,221 | ) | 104,887,465 | (88 | )% | |||||||||
Revenue
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Product sales and related product services | $ | 423,084 | $ | 751,034 | ||||
| Waste collection and sales | 3,460,021 | 1,855,619 | ||||||
| Total revenue | $ | 3,883,105 | $ | 2,606,653 | ||||
| 50 |
For the three months ended September 30, 2024 compared to September 30, 2023, our revenues increased by $1,276,452, or 49%, from $2,606,653 to $3,883,105. The increase was primarily as a result of the acquisition of Standard on May 31, 2024, and the resulting revenue generated by the combined operations of our Company and Standard. The acquisition of Standard resulted in the growth of our Trucking segment and increased sales from waste collection and sales. 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 from waste collection and sales.
Cost of Revenue
For the three months ended September 30, 2024 compared to September 30, 2023, our cost of revenue increased by $1,484,175, or 76%, from $1,962,725 to $3,446,900. The increase was primarily as a result of the acquisition of Standard on May 31, 2024, and the resulting increased revenue caused by the combined operations of our company and Standard. We also have continued to expand the Trucking Segment operations through acquisition of new containers and other fixed assets which also resulted in increased cost of revenues.
Operating Expenses
For the three months ended September 30, 2024 compared to September 30, 2023, our salary and salary-related costs decreased by $106,034 or 19%, from $559,208 to $453,174. The decrease was due to cost synergies that resulted from the acquisition of Standard as the Company was able to consolidate and reduce operational positions.
For the three months ended September 30, 2024 compared to September 30, 2023, our professional fees decreased by $586,947, or 49%, from $1,207,231 to $620,284. The decrease was attributed primarily to decreased consulting, accounting and legal fees incurred due to our acquisition activities.
For the three months ended September 30, 2024 compared to September 30, 2023, our depreciation and amortization expense decreased by $232,513, or 55%, from $426,337 to $193,824. Subsequent to September 30, 2023, we recognized the Titan Merger intangible assets at a lower final value than compared to the Titan Merger preliminary values as a measurement period adjustment. As a result, the depreciation and amortization expense for the nine months ended September 30, 2024, is lower than the depreciation and amortization expense from the nine months ended September 30, 2023.
For the three months ended September 30, 2024 compared to September 30, 2023, our general and administrative expenses increased by $49,936, or 19%, from $268,534 to $318,470. The increase was primarily due to our increased operational and sales activities, the addition of leases, and the acquisition of Standard.
Impairment of Intangible Assets
During the three months ended September 30, 2024, 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 intangible assets were less than their carrying amount. Therefore, the Company performed an impairment assessment of the intangible assets. The quantitative impairment test indicated the fair value of the intangible assets were lower than their carrying value, and as a result, the intangibles were impaired with an impairment expense of $ 5,508,595 during the three months ended September 30, 2024.
Impairment of Goodwill
During the three months ended September 30, 2024, 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 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 $4,853,142 the three months ended September 30, 2024.
Interest Expense, net of Interest Income
For the three months ended September 30, 2024 compared to September 30, 2023, our interest expense, net of interest income increased by $1,282,583, or 539%, from $237,895 to $1,520,478. 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 and acquisition of Standard. Interest expense also increase due to our issuance and sale of new debt instruments following the Titan Merger, as well as increased interest rates due to loans entering default.
| 51 |
Sale of Customer Contract
During the three months ended September 30, 2024, we recognized a gain on sale of customer contacts of $370,000. We sold two customer contracts in exchange for total proceeds of $370,000, inclusive of debt cancellation of $220,000 and $50,000 of expenses paid on behalf of the Company.
Net Loss
For the three months ended September 30, 2024 compared to September 30, 2023, our net loss decreased by $105,032,938, or 89% from $118,587,221 to $13,554,283 mainly due to the decrease in loss on extinguishment and on issuance of share rights, decrease in stock based compensation and decrease in professional fees. The decrease was offset by increased interest expense and the goodwill impairment.
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. Prior to October 31, 2024, we operated and reported 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 former Digester Segment, which we sold on October 31, 2024, primarily generated revenues and incurred expenses through the production and sale of ‘digester’ equipment to customers. The segment also generated revenue through related services such as digester maintenance and software services.
We believe that this structure reflects its current operational and financial management, and that it provides the best structure for us 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 management’s decision to organize our company around the different revenue generating activities of the segments. Total revenues for each reportable segment are as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | 6,991,217 | $ | 4,633,015 | $ | 3,460,021 | $ | 1,855,619 | ||||||||
| Digester | 1,308,821 | 935,172 | 423,084 | 751,034 | ||||||||||||
| Corporate / Other | - | 37 | - | - | ||||||||||||
| Total Company | $ | 8,300,038 | $ | 5,568,224 | $ | 3,883,105 | $ | 2,606,653 | ||||||||
Gross profit (loss) for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | 246,904 | $ | 317,539 | $ | 292,653 | $ | 182,611 | ||||||||
| Digester | 880,105 | 546,955 | 143,552 | 461,317 | ||||||||||||
| Corporate / Other | - | (54 | ) | - | - | |||||||||||
| Total Company | $ | 1,127,009 | $ | 864,440 | $ | 436,205 | $ | 643,928 | ||||||||
Net income (loss) before provision for income taxes for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking | $ | (2,566,098 | ) | $ | (2,840,419 | ) | $ | (397,697 | ) | $ | (1,230,479 | ) | ||||
| Digester | (10,465,771 | ) | (15,666,486 | ) | (10,521,568 | ) | 85,398 | |||||||||
| Corporate / Other | (5,135,327 | ) | (123,648,965 | ) | (2,635,018 | ) | (117,442,140 | ) | ||||||||
| Total Company | $ | (18,167,196 | ) | $ | (142,155,870 | ) | $ | (13,554,283 | ) | $ | (118,587,221 | ) | ||||
Depreciation and amortization for each reportable segment was as follows:
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Trucking (1) | $ | 683,210 | $ | 368,456 | $ | 350,417 | $ | 142,145 | ||||||||
| Digester | 528,967 | 413,090 | 177,609 | 270,845 | ||||||||||||
| Corporate / Other | - | - | - | - | ||||||||||||
| Total Company | $ | 1,212,177 | $ | 781,546 | $ | 528,026 | $ | 412,090 | ||||||||
| (1) | Depreciation and amortization expense of $631,648 and $334,203 for the nine and three months ended September 30, 2024, respectively, and $316,893 and $124,957 for the nine and three months ended September 30, 2023, respectively, is classified as cost of services on the consolidated statement of operations and included in the Trucking Segment depreciation and amortization because it is information reviewed by the CODM. |
Total assets and capital expenditures, for each reportable segment was as follows:
| Assets | Capital expenditures | |||||||||||||||||||||||
| September 30, | December 31, | For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Trucking | $ | 27,625,323 | $ | 8,804,653 | $ | 1,060,974 | $ | 173,626 | $ | 142,629 | $ | - | ||||||||||||
| Digester | 2,375,547 | 13,122,976 | - | - | - | - | ||||||||||||||||||
| Corporate / Other | 194,996 | 247,845 | - | - | - | - | ||||||||||||||||||
| Total Company | $ | 30,195,866 | $ | 22,175,474 | $ | 1,060,974 | $ | 173,626 | $ | 142,629 | $ | - | ||||||||||||
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, 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.
| 52 |
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:
| For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss | $ | (18,167,196 | ) | $ | (142,155,870 | ) | $ | (13,554,283 | ) | $ | (118,587,221 | ) | ||||
| Interest expense, net of interest income | 2,764,744 | 676,726 | 1,520,478 | 237,895 | ||||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Depreciation and amortization (a) | 1,212,177 | 991,772 | 528,027 | 551,294 | ||||||||||||
| (14,190,275 | ) | (140,487,372 | ) | (11,505,778 | ) | (117,798,032 | ) | |||||||||
| Non-recurring, non-cash transactions: | ||||||||||||||||
| Change in fair value of derivative liability (b) | (17,500 | ) | (33,261 | ) | - | (23,609 | ) | |||||||||
| Stock-based compensation (c) | - | 5,590,485 | - | 2,278 | ||||||||||||
| Goodwill Impairment (d) | 4,853,142 | 15,669,287 | 4,853,142 | - | ||||||||||||
| Loss on extinguishment and issuance of Series B Preferred Stock (e) | 806,920 | - | 806,920 | - | ||||||||||||
| Loss on extinguishment and issuance of share rights (f) | - | 116,591,322 | - | 116,591,322 | ||||||||||||
| Intangibles Impairment (g) | 5,508,595 | - | 5,508,595 | - | ||||||||||||
| Adjusted EBITDA | $ | (3,039,118 | ) | $ | (2,669,539 | ) | $ | (337,121 | ) | $ | (1,228,041 | ) | ||||
| (a) | This amount includes $631,648 and $316,893, respectively, for the nine months ended September 30, 2024 and 2023, and $334,203 and $124,957, respectively, for the three months ended September 30, 2024 and 2023, of depreciation expense included in cost of revenues in the consolidated statement of operations. |
| (b) | This amount reflects the change in fair value of our derivative liability during the period ended. |
| (c) | Represents incentive-based stock compensation. |
| (d) | This represents the goodwill impairment expense related to the Digester reporting unit. |
| (e) | On July 2, 2024, we signed four Exchange Subscription Agreements with four of our lenders. In accordance with the terms of the Exchange Subscription Agreements, an aggregate of $500,000 of principal owed to the lenders was cancelled in exchange for the issuance of 50,453 units which included 50,453 warrants to purchase 100 shares of common stock each and 50,453 shares of Series B Convertible Preferred Stock. Each warrant has a five-year term and an exercise of $0.06 per share. As a result, we recognized a loss on extinguishment and issuance of Series B Preferred Stock of $806,920. |
| (f) | On July 17, 2023, we entered into Exchange Agreements with five holders of our convertible note payables pursuant to which $1,944,000 of convertible notes and $75,263 of accrued interest were cancelled in exchange for 38,800,764 Series A Rights. On July 17, 2023, we also entered into Exchange Agreements with two accredited investors, including a director of our company, pursuant to which such investors exchanged 220,135 shares of our Series B Convertible Preferred Stock into an aggregate of 22,013,500 Series A Rights. Additionally, 5,000,000 shares of our common stock and a payment of receivable owed by our company for unreimbursed advances in the amount of $100,000 were exchanged for an aggregate of 7,000,000 additional Series A Rights. On July 20, 2023, we entered into an Exchange Agreement with a shareholder pursuant to which the shareholder exchanged 14,118,233 shares of Common Stock and 1,250,000 shares of Series B Preferred Stock for 108,729,363 Series A Rights and 30,388,873 Series B Rights. As a result of these exchanges, we recognized a loss of $116,591,322 during the three and nine months ended September 30, 2023. |
| (g) | This represents the intangibles impairment expense related to the Digester reporting unit. |
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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 September 30, 2024, we had $75,573 in cash compared to $103,578 at December 31, 2023, a decrease of $28,005, resulting primarily from increased operating activities. As of September 30, 2024, we had $1,823,403 in accounts receivable compared to $970,629 at December 31, 2023, an increase of approximately $852,774 primarily caused by the acquisition of Standard.
As of September 30, 2024, we had total current assets of approximately $2.4 million and total current liabilities of approximately $18.7 million, or negative working capital of approximately $16.3 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 $5.4 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 convertible notes payable, an increase in related party notes payable, and an increase in note payables.
As of September 30, 2024, we had undiscounted obligations in the amount of approximately $10.6 million relating to the payment of indebtedness due within one year. We anticipate meeting our cash obligations on our current indebtedness as of September 30, 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 our Trucking Segment 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 nine months ended September 30, 2024 and 2023, our capital expenditures were $1.1 million and $0.2 million, respectively.
We expect our capital expenditures for next 12 months will grow as we continue to expand the Trucking Segment’s 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
Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (564,775 | ) | $ | (2,153,563 | ) | ||
| Net cash used in investing activities | (5,619,633 | ) | (7,202 | ) | ||||
| Net cash provided by financing activities | 6,156,403 | 2,732,531 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (28,005 | ) | $ | 571,766 | |||
Operating Activities. The net cash provided by operating activities for the nine months ended September 30, 2024 was primarily used to fund a net loss of approximately $18.2 million, adjusted for non-cash expenses in the aggregate amount of approximately $13.4 million. Non-cash expenses were primarily made up of goodwill impairment of $4,853,142, intangibles impairment of $5,508,595, amortization of debt discounts of $1,224,855, and depreciation and amortization of $1,212,177. Approximately $4.2 million 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 the right-of-use asset, a decrease in accounts receivable, and a decrease in prepaid expenses. The cash generated was offset primarily by a decrease in the operating lease liability and an increase in inventory.
The net cash used in operating activities for the nine months ended September 30, 2023 was primarily used to fund a net loss of approximately $142 million, adjusted for non-cash expenses in the aggregate amount of approximately $139 million. Non-cash expenses were primarily made up of approximately $117 million of loss on extinguishment and issuance of share rights, approximately $15.7 million of goodwill impairment and approximately $5.6 million of stock compensation expense. Approximately $1.2 million 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 accrued payroll and payroll taxes and an increase in the right of use asset. The cash generated was offset by an increase in accounts receivable, a decrease in the operating lease liability, and an increase in prepaid expenses.
Investing Activities. During the nine months ended September 30, 2024, our cash used in investing activities was composed of approximately $1,061,000 used for the acquisition of property and equipment and $4,652,500 of cash used to acquire Standard. The cash used was offset by cash inflows of approximately $94,000 from the disposal of property and equipment.
During the nine months ended September 30, 2023, our cash used in investing activities was compose primarily of approximately $174,000 used to acquire property and equipment, offset by the net cash received as a result of the Titan Merger and the proceeds from the disposal of property and equipment.
Financing Activities. There was approximately $6.2 million in cash generated from financing activities during the nine months ended September 30, 2024. This was primarily due to proceeds from notes payable of approximately $1,907,000, proceeds from the issuance of warrants of $650,001, proceeds from related party note payables of $775,000, proceeds from convertible notes payable of $712,500, net proceeds from the offering of Series B preferred stock of $4,222,000, and proceeds from related party convertible note payables of $63,000. Cash provided from financing activities was offset by approximately $1,706,000 of repayments of notes payable, $290,000 of offering costs, and $140,000 of repayments of related party notes payable.
There was $2.7 million in cash generated from financing activities during the nine months ended September 30, 2023. This was primarily due to proceeds from convertible notes of $2.6 million, proceeds from notes payable – related parties of $841,000 and proceeds from convertible notes – related parties of $500,000. Cash provided from financing activities was offset by approximately $1.2 million of repayments of notes payable and $208,000 of repayments of notes payable – related parties.
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Non-Cash Investing and Financing Activities. During the nine months ended September 30, 2024 we note that there was approximately $6.0 million of non-cash activity. The non-cash activity included investors exercising share rights into common stock for $1,266, and the remeasurement of Series B Preferred Stock its redemption value of approximately $1,520,940. Additionally, Series A Preferred Stock was issued to in relation to a guarantee agreement for $3,010,000 and a lease was terminated during the period resulting in a non-cash transaction of approximately $1,129,000.
During the nine months ended September 30, 2023 we note that there was approximately $27 million of non-cash activity related to the recapitalization of equity due to the our reverse merger transaction. Additionally, we settled a note payable as a contribution to equity for $170,000.
Cash Payments for Interest and Income Taxes. We had approximately $797,000 and $276,000 of cash payments for interest expense for the nine months ended September 30, 2024 and 2023, respectively. There were no cash payments for income taxes for the nine months ended September 30, 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 Annual Report on Form 10-K for the year ended December 31, 2023 should be reviewed for a greater understanding of how our financial performance is recorded and reported.
During the second quarter of 2024, there was a new class of Redeemable Preferred Series B Stock that was designated and treated as mezzanine equity. Preferred stock subject to mandatory redemption, if any, is classified as a liability and is measured at fair value. We classify conditionally redeemable preferred stock, which includes preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as mezzanine equity. We subsequently measure mezzanine equity based on whether the instrument is currently redeemable or whether or not it is probable the instrument will become redeemable. Given the assessed probability that the instrument will become redeemable, we have elected to adjust the value of the Series B Preferred shares to its maximum redemption amount at each reporting date, including amounts representing dividends not currently declared or paid, but which will be payable under the redemption feature. There were no additional 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 September 30, 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, except 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 sought unspecified damages, attorney and expert fees and other unspecified litigation costs. Titan Trucking 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. As of September 30, 2024 and December 31, 2023, no accruals for loss contingencies had been recorded as the outcome of this litigation was neither probable nor reasonably estimable. On October 25, 2024, Titan Trucking entered into a mutual release with the plaintiff which discharges Titan Trucking and any and all of its executive officers, employees, experts, and attorneys from the claims in this litigation and all other claims, demands, liabilities, causes of action, and damages, including attorneys’ fees, sanctions, interest, costs, and expenses, whether known or unknown, through and including October 25, 2024.
As of September 30, 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
Other than those we previously disclosed in our current reports on Form 8-K as filed with the SEC or except as disclosed below, there have been no unregistered sales of our equity securities during the period covered by this quarterly report that would be required to be disclosed in this quarterly report pursuant to Item 701 of Regulation S-K.
On August 12, 2024, we issued to an accredited investor a 5% OID Promissory Note in the principal amount of $525,000 for a purchase price of $500,000. In connection with the issuance thereof, we issued to such accredited investor a warrant to purchase 10,000,000 shares of common stock. The warrant is exercisable any time after issuance until August 12, 2029 at an exercise price of $0.06 per share.
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 September 30, 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 September 30, 2024, none of our directors or officers
(as defined in Rule 16a-1(f) of the Exchange Act)
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Item 6. Exhibits
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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: November 14, 2024 | By: | /s/ Glen Miller |
| Glen Miller | ||
| Chief Executive Officer (principal executive officer) | ||
| Date: November 14, 2024 | By: | /s/ Michael Jansen |
| Michael Jansen | ||
| Chief Financial Officer (principal financial and accounting officer) | ||
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