Attached files
| file | filename |
|---|---|
| EX-32.1 - Transportation & Logistics Systems, Inc. | ex32-1.htm |
| EX-31.2 - Transportation & Logistics Systems, Inc. | ex31-2.htm |
| EX-31.1 - Transportation & Logistics Systems, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File No. 001-34970
Transportation and Logistics Systems, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 26-3106763 | |
| (State or Other Jurisdiction | IRS Employer | |
| of Organization) | Identification Number |
| 5500 Military Trail, Suite 22-357 | ||
| Jupiter, Florida | 33458 | |
| (Address of principal executive offices) | (Zip code) |
(833) 764-1443
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | Non accelerated filer [X] | Smaller reporting company [X] |
| Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class | Outstanding as of August 14, 2020 | |
| Common Stock, $0.001 | 1,263,686,663 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC.
FORM 10-Q
June 30, 2020
INDEX
| 2 |
| TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 1,431,173 | $ | 50,026 | ||||
| Accounts receivable, net | 923,535 | 963,771 | ||||||
| Prepaid expenses and other current assets | 1,769,895 | 1,246,555 | ||||||
| Total Current Assets | 4,124,603 | 2,260,352 | ||||||
| OTHER ASSETS: | ||||||||
| Security deposit | 207,250 | 76,500 | ||||||
| Property and equipment, net | 672,772 | 240,406 | ||||||
| Right of use assets, net | 1,621,290 | 1,750,430 | ||||||
| Total Other Assets | 2,501,312 | 2,067,336 | ||||||
| TOTAL ASSETS | $ | 6,625,915 | $ | 4,327,688 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Convertible notes payable, net of put premium of $0 and $385,385 and debt discounts of $2,275,670 and $2,210,950, respectively | $ | 4,126,079 | $ | 3,634,344 | ||||
| Notes payable, current portion, net of debt discount of $0 and $762,112, respectively | 4,252,538 | 2,425,003 | ||||||
| Note payable - related party | 500,000 | 500,000 | ||||||
| Accounts payable | 1,000,450 | 1,517,082 | ||||||
| Accrued expenses | 624,261 | 627,990 | ||||||
| Insurance payable | 3,201,872 | 2,948,261 | ||||||
| Contingency liability | 440,000 | 440,000 | ||||||
| Lease liabilities, current portion | 353,575 | 333,126 | ||||||
| Derivative liability | 62,813,098 | 2,135,939 | ||||||
| Due to related parties | 222,322 | 325,445 | ||||||
| Accrued compensation and related benefits | 1,233,565 | 886,664 | ||||||
| Total Current Liabilities | 78,767,760 | 15,773,854 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Notes payable, net of current portion | 510,766 | - | ||||||
| Lease liabilities, net of current portion | 1,300,180 | 1,440,258 | ||||||
| Total Long-term Liabilities | 1,810,946 | 1,440,258 | ||||||
| Total Liabilities | 80,578,706 | 17,214,112 | ||||||
| Commitments and Contingencies (See Note 9) | ||||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, par value $0.001; authorized 10,000,000 shares: | ||||||||
| Series B convertible preferred stock, par value $0.001 per share; 1,700,000 shares designated; 1,700,000 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively (Liquidation value $1,700 and $1,700, respectively) | 1,700 | 1,700 | ||||||
| Series C preferred stock, par value $0.001 per share; 1 shares designated; No shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | - | - | ||||||
| Common stock, par value $0.001 per share; 4,000,000,000 shares authorized; 499,900,491 and 11,832,603 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 499,900 | 11,833 | ||||||
| Common stock issuable, par value $0.001 per share; 0 and 25,000 shares | - | 25 | ||||||
| Additional paid-in capital | 75,966,151 | 47,715,878 | ||||||
| Accumulated deficit | (150,420,542 | ) | (60,615,860 | ) | ||||
| Total Shareholders’ Deficit | (73,952,791 | ) | (12,886,424 | ) | ||||
| Total Liabilities and Shareholders’ Deficit | $ | 6,625,915 | $ | 4,327,688 | ||||
| See accompanying notes to unaudited condensed consolidated financial statements. |
| 1 |
| TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| REVENUES | $ | 8,558,815 | $ | 8,101,412 | $ | 17,193,875 | $ | 13,904,619 | ||||||||
| COST OF REVENUES | 6,997,856 | 7,522,973 | 14,853,605 | 13,072,675 | ||||||||||||
| GROSS PROFIT | 1,560,959 | 578,439 | 2,340,270 | 831,944 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Compensation and related benefits | 662,503 | 3,608,670 | 1,404,548 | 7,717,214 | ||||||||||||
| Legal and professional fees | 2,487,896 | 566,242 | 2,902,706 | 1,071,082 | ||||||||||||
| Rent | 175,261 | 86,406 | 339,611 | 185,237 | ||||||||||||
| General and administrative expenses | 196,368 | 930,203 | 441,651 | 1,595,535 | ||||||||||||
| Impairment loss | - | 1,724,591 | - | 1,724,591 | ||||||||||||
| Total Operating Expenses | 3,522,028 | 6,916,112 | 5,088,516 | 12,293,659 | ||||||||||||
| LOSS FROM OPERATIONS | (1,961,069 | ) | (6,337,673 | ) | (2,748,246 | ) | (11,461,715 | ) | ||||||||
| OTHER (EXPENSES) INCOME: | ||||||||||||||||
| Interest expense | (1,940,912 | ) | (1,377,051 | ) | (4,987,639 | ) | (2,597,443 | ) | ||||||||
| Interest expense - related parties | (22,438 | ) | (121,078 | ) | (129,576 | ) | (147,639 | ) | ||||||||
| Loan fees | (601,121 | ) | (601,121 | ) | ||||||||||||
| Gain on debt extinguishment, net | 5,968,560 | 43,823,897 | 6,243,594 | 43,917,768 | ||||||||||||
| Other income | 107,137 | - | 174,968 | - | ||||||||||||
| Derivative expense, net | (69,806,610 | ) | (41,653,345 | ) | (69,661,771 | ) | (55,037,605 | ) | ||||||||
| Total Other (Expenses) Income | (65,694,263 | ) | 71,302 | (68,360,424 | ) | (14,466,040 | ) | |||||||||
| LOSS FROM CONTINUING OPERATIONS | (67,655,332 | ) | (6,266,371 | ) | (71,108,670 | ) | (25,927,755 | ) | ||||||||
| LOSS FROM DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations | - | (695,087 | ) | - | (681,426 | ) | ||||||||||
| NET LOSS | (67,655,332 | ) | (6,961,458 | ) | (71,108,670 | ) | (26,609,181 | ) | ||||||||
| Deemed dividend related to ratchet adjustment | - | - | (18,696,012 | ) | - | |||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (67,655,332 | ) | $ | (6,961,458 | ) | $ | (89,804,682 | ) | $ | (26,609,181 | ) | ||||
| NET LOSS PER COMMON SHARE - BASIC AND DILUTED | ||||||||||||||||
| Net loss from continuing operations | $ | (0.26 | ) | $ | (0.63 | ) | $ | (0.66 | ) | $ | (3.42 | ) | ||||
| Loss from discontinued operations | (0.00 | ) | (0.07 | ) | (0.00 | ) | (0.09 | ) | ||||||||
| Net loss per common share - basic and diluted | $ | (0.26 | ) | $ | (0.70 | ) | $ | (0.66 | ) | $ | (3.51 | ) | ||||
| WEIGHTED AVERAGE COMMON SHARE OUTSTANDING: | ||||||||||||||||
| Basic and diluted | 261,417,292 | 9,891,525 | 136,885,211 | 7,573,522 | ||||||||||||
| See accompanying notes to unaudited condensed consolidated financial statements. |
| 2 |
| TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT |
| FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 |
| (Unaudited) |
| Preferred Stock | Preferred Stock | Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Issuable | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | - | $ | - | 1,700,000 | 1,700 | 11,832,603 | 11,833 | 25,000 | 25 | 47,715,878 | (60,615,860 | ) | (12,886,424 | ) | ||||||||||||||||||||||||||||||
| Reduction of put premium upon conversion | - | - | - | - | - | - | - | - | 73,725 | - | 73,725 | |||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | - | - | - | - | 5,290,406 | 5,290 | - | - | 336,229 | - | 341,519 | |||||||||||||||||||||||||||||||||
| Beneficial conversion effect related to debt conversions | - | - | - | - | - | - | - | - | 172,720 | - | 172,720 | |||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued in connection with convertible debt | - | - | - | - | - | - | - | - | 262,872 | - | 262,872 | |||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | - | - | - | - | 31,250 | - | 31,250 | |||||||||||||||||||||||||||||||||
| Reclassification of warrants from equity to derivative liabilities | - | - | - | - | - | - | - | - | (11,381,885 | ) | - | (11,381,885 | ) | |||||||||||||||||||||||||||||||
| Deemed dividend related to price protection | - | - | - | - | - | - | - | - | 18,696,012 | (18,696,012 | ) | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (3,453,338 | ) | (3,453,338 | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | - | - | 1,700,000 | 1,700 | 17,123,009 | 17,123 | 25,000 | 25 | 55,906,801 | (82,765,210 | ) | (26,839,561 | ) | |||||||||||||||||||||||||||||||
| Cancellation of issuable shares | - | - | - | - | - | - | (25,000 | ) | (25 | ) | 25 | - | - | |||||||||||||||||||||||||||||||
| Reduction of put premium upon conversion | - | - | - | - | - | - | - | - | 311,660 | - | 311,660 | |||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion, accrued interest and fees | - | - | - | - | 412,573,593 | 412,573 | - | - | 2,317,667 | - | 2,730,240 | |||||||||||||||||||||||||||||||||
| Beneficial conversion effect related to debt conversions | - | - | - | - | - | - | - | - | 15,531,703 | - | 15,531,703 | |||||||||||||||||||||||||||||||||
| Common shares issued for cashless warrant exercise | - | - | - | - | 70,203,889 | 70,204 | - | - | (70,204 | ) | - | - | ||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | - | - | - | - | 1,963,291 | - | 1,963,291 | |||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | - | - | - | - | 5,208 | - | 5,208 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (67,655,332 | ) | (67,655,332 | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | - | $ | - | 1,700,000 | $ | 1,700 | 499,900,491 | $ | 499,900 | - | $ | - | $ | 75,966,151 | $ | (150,420,542 | ) | $ | (73,952,791 | ) | ||||||||||||||||||||||||
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Common Stock Issuable | Additional Paid-in | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 4,000,000 | 4,000 | - | - | 4,220,837 | 4,220 | - | - | 7,477,422 | (15,222,936 | ) | (7,737,294 | ) | |||||||||||||||||||||||||||||||
| Warrants issued in connection with debt | - | - | - | - | - | - | - | - | 63,581 | - | 63,581 | |||||||||||||||||||||||||||||||||
| Cumulative effect adjustment for change in derivative accounting | - | - | - | - | - | - | - | - | - | 453,086 | 453,086 | |||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | - | 2,670,688 | 2,671 | - | - | 2,748,137 | - | 2,750,808 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (19,647,723 | ) | (19,647,723 | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 4,000,000 | 4,000 | - | - | 6,891,525 | 6,891 | - | - | 10,289,140 | (34,417,573 | ) | (24,117,542 | ) | |||||||||||||||||||||||||||||||
| Shares issued for debt and warrant modifications | - | - | - | - | 700,000 | 700 | 700,000 | 700 | 17,932,600 | - | 17,934,000 | |||||||||||||||||||||||||||||||||
| Shares issued for conversion of preferred shares | (4,000,000 | ) | (4,000 | ) | - | - | 2,600,000 | 2,600 | - | - | 1,400 | - | - | |||||||||||||||||||||||||||||||
| Return and cancellation of shares for disposal of Save On | - | - | - | - | (1,000,000 | ) | (1,000 | ) | 57,987 | - | 56,987 | |||||||||||||||||||||||||||||||||
| Stock options granted | - | - | - | - | - | - | - | - | 700,816 | - | 700,816 | |||||||||||||||||||||||||||||||||
| Warrants issued in connection with debt | - | - | - | - | - | - | - | - | 672,864 | - | 672,864 | |||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | - | 230,000 | 230 | - | - | 2,465,270 | - | 2,465,500 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (6,961,458 | ) | (6,961,458 | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | - | $ | - | - | $ | - | 9,421,525 | $ | 9,421 | 700,000 | $ | 700 | $ | 32,120,077 | $ | (41,379,031 | ) | $ | (9,248,833 | ) | ||||||||||||||||||||||||
| See accompanying notes to unaudited condensed consolidated financial statements. |
| 3 |
| TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (71,108,670 | ) | $ | (26,609,181 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 28,144 | 617,632 | ||||||
| Amortization of debt discount to interest expense | 2,768,270 | 2,310,580 | ||||||
| Amortization of debt discount to interest expense - related party | - | 26,383 | ||||||
| Stock-based compensation and consulting fees | 1,999,749 | 5,216,308 | ||||||
| Stock-based compensation and consulting fees - discontinued operations | - | 700,816 | ||||||
| Non-cash loan fees | - | 601,121 | ||||||
| Other non-cash interest and fees | 8,180 | - | ||||||
| Interest expense related to debt default | 1,531,335 | - | ||||||
| Derivative expense, net | 69,661,771 | 55,037,605 | ||||||
| Non-cash portion of gain on extinguishment of debt, net | (6,296,141 | ) | (44,031,110 | ) | ||||
| Rent expense | 9,511 | 14,112 | ||||||
| Loss on disposal of property and equipment | - | 47,022 | ||||||
| Impairment loss | - | 1,724,591 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 40,236 | (486,226 | ) | |||||
| Prepaid expenses and other current assets | (523,340 | ) | (81,662 | ) | ||||
| Assets of discontinued operations | - | (53,193 | ) | |||||
| Due from related party | - | (81,489 | ) | |||||
| Security deposit | (130,750 | ) | (34,350 | ) | ||||
| Accounts payable and accrued expenses | 19,411 | 1,420,925 | ||||||
| Insurance payable | 253,611 | 294,702 | ||||||
| Liabilities of discontinued operations | - | 10,954 | ||||||
| Accrued compensation and related benefits | 346,901 | 238,622 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (1,391,782 | ) | (3,115,838 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Decrease in cash from disposal of subsidiary | - | (5,625 | ) | |||||
| Purchase of property and equipment | (460,510 | ) | (51,256 | ) | ||||
| Proceeds from sale of property and equipment | - | 81,000 | ||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (460,510 | ) | 24,119 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable - related party | - | 2,500,000 | ||||||
| Proceeds from convertible notes payable | 1,880,000 | - | ||||||
| Repayment of convertible notes payable | (257,139 | ) | (273,579 | ) | ||||
| Net proceeds from notes payable | 4,479,662 | 6,631,020 | ||||||
| Repayment of notes payable | (2,765,961 | ) | (5,697,856 | ) | ||||
| Net proceeds from notes payable - related party | - | 255,000 | ||||||
| Repayment of notes payable - related party | - | (495,000 | ) | |||||
| Net payments on related parties advances | (103,123 | ) | (3,793 | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,233,439 | 2,915,792 | ||||||
| NET INCREASE (DECREASE) IN CASH | 1,381,147 | (175,927 | ) | |||||
| CASH, beginning of period | 50,026 | 296,196 | ||||||
| CASH, end of period | $ | 1,431,173 | $ | 120,269 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 1,107,788 | $ | 2,239,463 | ||||
| Income taxes | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Debt discounts recorded | $ | 262,872 | $ | 1,222,986 | ||||
| Increase in derivative liability and debt discount | $ | 1,702,473 | $ | - | ||||
| Increase in right of use asset and lease liability | $ | - | $ | 631,723 | ||||
| Conversion of debt and accrued interest for common stock | $ | 3,063,579 | $ | - | ||||
| Reclassification of accrued interest to debt | $ | 89,262 | $ | - | ||||
| Decrease in put premium and paid-in capital | $ | 385,385 | $ | - | ||||
| Reclassification of warrant value from equity to derivative liabilities | $ | 11,381,885 | $ | - | ||||
| Deemed dividend related to price protection | $ | 18,696,012 | $ | - | ||||
| See accompanying notes to unaudited condensed consolidated financial statements. |
| 4 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Transportation and Logistics Systems, Inc. (“TLSS” or the “Company”), formerly PetroTerra Corp., was incorporated under the laws of the State of Nevada, on July 25, 2008. The Company operates through its subsidiaries as a leading logistics and transportation company specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery and line haul services for predominantly online retailers.
On March 30, 2017 (the “Closing Date”), TLSS and Save On Transport Inc. (“Save On”) entered into a Share Exchange Agreement, dated as of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, on the Closing Date, Save On became a wholly-owned subsidiary of TLSS (the “Reverse Merger”). Save On was incorporated in the state of Florida and started business on July 12, 2016. This transaction was treated as a reverse merger and recapitalization of Save On for financial reporting purposes because the Save On shareholders retained an approximate 80% controlling interest in the post-merger consolidated entity. Save On was considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Reverse Merger were replaced with the historical financial statements of Save On before the Reverse Merger. The balance sheets at their historical cost basis of both entities were combined at the Closing Date and the results of operations from the Closing Date forward include the historical results of Save On and results of TLSS from the Closing Date forward. On May 1, 2019, the Company entered into a share exchange agreement with Save On and Steven Yariv, whereby the Company returned all of the stock of Save On to Steven Yariv in exchange for Mr. Yariv conveying 1,000,000 shares of common stock of the Company back to the Company. In addition, the Company granted an aggregate of 80,000 options to certain employees of Save On. On April 16, 2019, Mr. Yariv ceased to be an officer or director of the Company.
On June 18, 2018 (the “Acquisition Date”), the Company completed the acquisition of 100% of the issued and outstanding membership interests of Prime EFS, LLC, a New Jersey limited liability company (“Prime EFS”), from its members pursuant to the terms and conditions of a Stock Purchase Agreement entered into among the Company and the Prime EFS members on the Acquisition Date (the “SPA”). Prime EFS is a New Jersey based transportation company with a focus on deliveries for on-line retailers in New York, New Jersey and Pennsylvania.
On July 24, 2018, the Company formed Shypdirect LLC (“Shypdirect”), a company organized under the laws of New Jersey. Shypdirect is a transportation company with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office.
On June 19, 2020, Amazon Logistics, Inc. (“Amazon”) notified Prime EFS in writing (the “Prime EFS Termination Notice”), that Amazon does not intend to renew its Delivery Service Partner (DSP) Agreement with Prime EFS when that agreement (the “In-Force Agreement”) expires. In the Prime EFS Termination Notice, Amazon stated that the In-Force Agreement expires on September 30, 2020.
Additionally, on July 17, 2020, Amazon notified Shypdirect that Amazon had elected to terminate the Amazon Relay Carrier Terms of Service (the “Program Agreement”) between Amazon and Shypdirect effective as of November 14, 2020 (the “Shypdirect Termination Notice”). On August 3, 2020, Amazon offered to withdraw the Shypdirect Termination Notice and extend the term of the Program Agreement to and including May 14, 2021, conditioned on Prime EFS executing, for nominal consideration, a separation agreement with Amazon under which Prime EFS agrees to cooperate in an orderly transition of its Amazon last-mile delivery business to other service providers, Prime EFS releases any and all claims it may have against Amazon, and Prime EFS covenants not to sue Amazon (the “Aug. 3 Proposal”). On August 4, 2020, the Company, Prime EFS and Shypdirect accepted the Aug. 3 Proposal.
Approximately 59.3% and 39.4% (for a total of 98.7%) of the Company’s revenue of $17,193,875 for the six months ended June 30, 2020 was attributable to Prime EFS’s last-mile DSP business and Shypdirect’s mid-mile and long-haul business with Amazon, respectively. The termination of the Amazon last-mile business will have a material adverse impact on the Company’s business in the 4th fiscal quarter of 2020 and thereafter. If the Amazon mid-mile and long-haul business is discontinued after May 14, 2021 it would have a material adverse impact on the Company’s business in 2nd fiscal quarter of 2021 and thereafter.
While the Company will seek to replace its last-mile DSP Amazon business and supplement its mid-mile and long-haul Amazon business, such initiatives are consistent with its already existing business plan to: (i) seek new last-mile, mid-mile and long-haul business with other, non-Amazon, customers; (ii) explore other strategic relationships; and (iii) identify potential acquisition opportunities, while continuing to execute our restructuring plan, commenced in February 2020.
TLSS and its wholly-owned subsidiaries, Prime EFS and Shypdirect are hereafter referred to as the “Company”.
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of presentation and principles of consolidation
The condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and disclosures necessary for comprehensive presentation of financial position, results of operations or cash flow. However, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these unaudited interim condensed consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2019, and notes thereto included in the Company’s annual report on Form 10-K, filed on May 29, 2020.
The Company follows the same accounting policies in the preparation of its annual and interim reports. The results of operations in interim periods are not necessarily an indication of operating results to be expected for the full year.
The unaudited condensed consolidated financial statements of the Company include the accounts of TLSS and its wholly owned subsidiaries, Save On (through April 30, 2019), Prime EFS and Shypdirect. All intercompany accounts and transactions have been eliminated in consolidation.
On May 1, 2019, the Company entered into a Share Exchange Agreement with Save On and Steven Yariv, whereby the Company returned all of the stock of Save On to Steven Yariv in exchange for Mr. Yariv conveying 1,000,000 shares of common stock of the Company back to the Company. Pursuant to Accounting Standard Codification (“ASC”) 205-20-45, the financial statement in which net income or loss of a business entity is reported shall report the results of operations of the discontinued operation in the period in which a discontinued operation either has been disposed of or is classified as held for sale. Accordingly, beginning in the second quarter of 2019, the period that Save On was disposed of, the Company reflects Save On as a discontinued operation and such presentation is retroactively applied to all periods presented in the accompanying condensed consolidated financial statements.
Going concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, for the six months ended June 30, 2020, the Company had a net loss of $71,108,670 and net cash used in operations was $1,391,782. Additionally, the Company had an accumulated deficit, shareholders’ deficit, and a working capital deficit of $150,420,542, $73,952,791 and $74,643,157, respectively, at June 30, 2020. Furthermore, the Company failed to make required payments of principal and interest on certain of its convertible debt instruments and notes payable (see Note 6).
On June 19, 2020, Amazon notified Prime EFS by the Prime EFS Termination Notice that it does not intend to renew the In-Force Agreement when that agreement expires. In the Prime EFS Termination Notice, Amazon stated that the In-Force Agreement expires on September 30, 2020. Additionally, on July 17, 2020, pursuant to the ShypdDirect Termination Notice, Amazon notified Shypdirect that Amazon had elected to terminate the Program Agreement between Amazon and Shypdirect effective as of November 14, 2020 (see Note 1). However, on August 3, 2020, Amazon offered pursuant to the Aug. 3 Proposal to withdraw the Shypdirect Termination Notice and extend the term of the Program Agreement to and including May 14, 2021, conditioned on Prime EFS executing, for nominal consideration, a separation agreement with Amazon under which Prime EFS agrees to cooperate in an orderly transition of its Amazon last-mile delivery business to other service providers, Prime EFS releases any and all claims it may have against Amazon, and Prime EFS covenants not to sue Amazon. On August 4, 2020, the Company, Prime EFS and Shypdirect accepted the Aug. 3 Proposal. It is management’s opinion that these factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. In April 2020, the Company’s subsidiaries, Prime EFS and Shypdirect, entered into Paycheck Protection Program promissory notes with M&T Bank in the aggregate amount of $3,446,152 (see Note 7). Management cannot provide assurance that the Company will ultimately achieve profitable operations, become cash flow positive, or raise additional debt and/or equity capital.
The Company will continue to: (i) seek to replace its last-mile DSP Amazon business and supplement its mid-mile and long-haul Amazon business with other, non-Amazon, customers; (ii) explore other strategic relationships; and (iii) identify potential acquisition opportunities, while continuing to execute our restructuring plan, commenced in February 2020. The Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of common shares and from the issuance of convertible promissory notes and notes payable, there is no assurance that it will be able to continue to do so. If the Company is unable to replace its Amazon business, to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail its operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
Use of estimates
The preparation of the condensed consolidated financial statements, in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates included in the accompanying unaudited condensed consolidated financial statements and footnotes include the valuation of accounts receivable, the useful life of property and equipment, the valuation of intangible assets, the valuation of right of use assets and related liabilities, assumptions used in assessing impairment of long-lived assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, the valuation of derivative liabilities, and the value of claims against the Company.
Fair value of financial instruments
The Financial Accounting Standards Board (“FASB”) issued ASC 820 — Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 2020. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
| ● | Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| ● | Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| ● | Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2020 and December 31, 2019:
| At June 30, 2020 | At December 31, 2019 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Derivative liabilities | — | — | $ | 62,813,098 | — | — | $ | 2,135,939 | ||||||||||||||||
A roll-forward of the level 3 valuation financial instruments is as follows:
| For
the Six Months ended June 30, 2020 | For
the Six Months ended June 30, 2019 | |||||||
| Balance at beginning of period | $ | 2,135,939 | $ | 7,888,684 | ||||
| Initial valuation of derivative liabilities included in debt discount | 1,702,474 | - | ||||||
| Initial valuation of derivative liabilities included in derivative expense | 14,892,068 | - | ||||||
| Gain on extinguishment of debt related to April 9, 2019 modifications | - | (61,841,708 | ) | |||||
| Gain on extinguishment of debt related to repayment/conversion of debt | (22,068,971 | ) | (246,110 | ) | ||||
| Reclassification of warrants from equity to derivative liabilities | 11,381,885 | - | ||||||
| Cumulative effect adjustment for change in derivative accounting | - | (838,471 | ) | |||||
| Change in fair value included in derivative (gain) expense | 54,769,703 | 55,037,605 | ||||||
| Balance at end of period | $ | 62,813,098 | $ | - | ||||
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
The Company accounts for its derivative financial instruments, consisting of certain conversion options embedded in our convertible instruments and warrants, at fair value using level 3 inputs. The Company determined the fair value of these derivative liabilities using the Black-Scholes option pricing model, binomial lattice models, or other accepted valuation practices. When determining the fair value of its financial assets and liabilities using these methods, the Company is required to use various estimates and unobservable inputs, including, among other things, expected terms of the instruments, expected volatility of its stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
The carrying amounts reported in the condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s convertible notes payable and promissory note obligations approximate fair value, as the terms of these instruments are consistent with terms available in the market for instruments with similar risk.
Cash and cash equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At June 30, 2020 and December 31, 2019, the Company did not have any cash equivalents.
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At June 30, 2020, cash balances in excess of FDIC insured levels amounted to approximately $1,014,000. There were no balances in excess of FDIC insured levels as December 31, 2019. The Company has not experienced any losses in such accounts through June 30, 2020.
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Property and equipment
Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives of five to six years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Intangible asset
Intangible assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life, less any impairment charges.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether it obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Segment reporting
The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. On May 1, 2019, the Company disposed of its Save On business segment and the results of operations of Save On are included in discontinued operations. Accordingly, during the three months ended June 30, 2020 and 2019, the Company believes that it operates in one operating segment related to deliveries for on-line retailers in New York, New Jersey, Pennsylvania and other areas, and tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office.
Derivative financial instruments
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all of its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10-05-4, Derivatives and Hedging and 815-40, Contracts in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. In accordance with the guidance presented in the ASU 2017-11, the fair value of derivative liabilities associated with certain convertible notes as of December 31, 2018 of $838,471 and the offsetting effect of reclassifying such debt to stock-settled debt for which the Company recorded a put premium liability of $385,385 was reclassified by means of a cumulative-effect adjustment to opening accumulated deficit as of January 1, 2019 in the amount of $453,086.
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
Revenue recognition and cost of revenue
The Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer service orders, including significant judgments.
For the Company’s Prime EFS and Shypdirect business activities, the Company recognizes revenues and the related direct costs of such revenue which generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees as of the date the freight is delivered which is when the performance obligation is satisfied. In accordance with ASC Topic 606, the Company recognizes revenue on a gross basis. Our payment terms are net seven days from acceptance of delivery. The Company does not incur incremental costs obtaining service orders from its Prime EFS and Shypdirect customers, however, if the Company did, because all of Prime EFS and Shypdirect customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that the Company recognizes arises from deliveries of packages on behalf of the Company’s customers. Primarily, the Company’s performance obligations under these service orders correspond to each delivery of packages that the Company makes under the service agreements. Control of the package transfers to the recipient upon delivery. Once this occurs, the Company has satisfied its performance obligation and the Company recognizes revenue.
For the Company’s Save On business activities, through the date of disposition on May 1, 2019, the Company recognized revenues and the related direct costs of such revenue which included carrier fees and dispatch costs as of the date the freight was delivered by the carrier which was when the performance obligation is satisfied. Customer payments received prior to delivery were recorded as a deferred revenue liability and related carrier fees if paid prior to delivery were recorded as a deferred expense asset. In accordance with ASC Topic 606, the Company recognized revenue on a gross basis. Our payment terms for corporate customers were net 30 days from acceptance of delivery and individual customers generally were required to pay in advance. The Company did not incur incremental costs obtaining service orders from its Save On customers, however, if the Company did, because all of the Save On customer’s contracts were less than a year in duration, any contract costs incurred were expensed rather than capitalized. The revenue that the Company recognized arose from service orders it received from its Save On customers. The Company’s performance obligations under these service orders corresponded to each delivery of a vehicle that the Company made for its customer under the service orders; as a result, each service order generally contained only one performance obligation based on the delivery to be completed.
Management has reviewed the revenue disaggregation disclosure requirements pursuant to ASC 606 and determined that no further disaggregation disclosure is required to be presented.
Basic and diluted loss per share
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method) and shares issuable for convertible debt (using the as-if converted method). These common stock equivalents may be dilutive in the future.
Potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
| June 30, 2020 | June 30, 2019 | |||||||
| Stock warrants | 561,568,464 | 1,442,434 | ||||||
| Stock options | 80,000 | - | ||||||
| Convertible debt | 698,058,084 | 4,415,776 | ||||||
| Series A convertible preferred stock | - | 8,333,333 | ||||||
| Series B convertible preferred stock | 1,700,000 | - | ||||||
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment.
Recent Accounting Pronouncements
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. In accordance with the guidance presented in the ASU 2017-11, the fair value of derivative liabilities associated with certain convertible notes as of December 31, 2018 of $838,471 and the offsetting effect of reclassifying such debt to stock-settled debt for which the Company recorded a put premium liability of $385,385 was reclassified by means of a cumulative-effect adjustment to opening accumulated deficit as of January 1, 2019 in the amount of $453,086.
In August 2018, the FASB issued ASU 2018-13 to modify the disclosure requirements on fair value measurements. The amendments are effective for years beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. Most amendments should be applied retrospectively, but certain amendments will be applied prospectively. The adoption of this standard did not have an impact on the Company’s consolidated financial position, results of operations and cash flows.
There are currently no other accounting standards that have been issued but not yet adopted that we believe will have a significant impact on our consolidated financial position, results of operations or cash flows upon adoption.
NOTE 3 – DISCONTINUED OPERATIONS
On May 1, 2019, the Company entered into a Share Exchange Agreement with Save On and Steven Yariv, whereby the Company returned all of the stock of Save On to Steven Yariv in exchange for Mr. Yariv conveying 1,000,000 shares of common stock of the Company back to the Company. In addition, the Company granted an aggregate of 80,000 options to certain employees of Save On. Mr. Yariv ceased to be an officer or director of the Company effective with the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission on April 16, 2019.
Pursuant to ASC 205-20-45, the financial statement in which net income or loss of a business entity is reported shall report the results of operations of the discontinued operation in the period in which a discontinued operation either has been disposed of or is classified as held for sale. Accordingly, the Company reflects Save On as discontinued operations beginning in the second quarter of 2019, the period that Save On was disposed of and retroactively for all periods presented in the accompanying condensed consolidated financial statements. The business of Save On are considered discontinued operations because: (a) the operations and cash flows of Save On were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations. As of June 30, 2020 and December 31, 2019, the Company did not have any remaining assets and liabilities classified as discontinued operations in the Company’s condensed consolidated financial statements as of June 30, 2020 and December 31, 2019.
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