TRANSPORTATION & LOGISTICS SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) - Marketscreener.com

FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified using terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Factors that may affect the results of our operations include, among others: our ability to successfully execute our business strategies, including integration of acquisitions and the future acquisition of other businesses to grow our Company; customers’ cancellation on short notice of master service agreements from which we derive a significant portion of our revenue or our failure to renew such master service agreements on favorable terms or at all; our ability to attract and retain key personnel and skilled labor to meet the requirements of our labor-intensive business or labor difficulties which could have an effect on our ability to bid for and successfully complete contracts; the ultimate geographic spread, duration and severity of the coronavirus outbreak and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or ameliorate its effects; our failure to compete effectively in our highly competitive industry, which could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance; our ability to adopt and master new technologies and adjust certain fixed costs and expenses to adapt to our industry’s and customers’ evolving demands; our history of losses, deficiency in working capital and a stockholders’ deficit and our inability to achieve sustained profitability; material weaknesses in our internal control over financial reporting and our ability to maintain effective controls over financial reporting in the future; our substantial indebtedness, which could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations; the impact of new or changed laws, regulations or other industry standards that could adversely affect our ability to conduct our business; and changes in general market, economic, social and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.
Other important factors which could cause our actual results to differ materially from the forward-looking statements in this document include, but are not limited to, those discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed elsewhere in this report and as set forth from time to time in our other public filings and public statements. You should read this report in its entirety and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even in the event that our situation changes in the future, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
The COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and their third-party suppliers and sellers. To serve our customers while also providing for the safety of our employees and service providers, we have adapted numerous aspects of our logistics and transportation processes. We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address federal, state, and local standards as well as to implement standards or processes that we determine to be in the best interests of our employees, customers, and communities.
The impact of the pandemic and actions taken in response to it had some effects on our results of operations. Effects of the pandemic have included increased fulfillment costs, primarily due to investments in employee hiring, pay, and benefits, as well as costs to maintain safe workplaces, and higher shipping costs. We expect to continue to be affected by possible procurement and shipping delays, supply chain interruptions, higher product demand in certain categories, lower product demand in other categories, and increased fulfillment costs and cost of sales as a percentage of net sales and it is not possible to determine the duration and spread of the pandemic or such actions, the ultimate impact on our results of operations during 2022, or whether other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations.
Transportation and Logistics Systems, Inc. (“TLSS” or the “Company”) was incorporated under the laws of the State of Nevada, on July 25, 2008. The Company operates through its active subsidiaries as a logistics and transportation company specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services for predominantly online retailers.
We are primarily an asset-based point-to-point delivery company. An asset-based delivery company, as compared to a non-asset-based delivery company, owns its own transportation equipment. We employ our own drivers and use the services of independent contractors who may use their own vehicles.
Between June 18, 2018 and September 30, 2020, we operated through two New Jersey-based subsidiaries. Those subsidiaries were Prime EFS, LLC, which conducted a last-mile business focused on deliveries to retail consumers for our primary customer in New York, New Jersey and Pennsylvania (“Prime EFS”), and Shypdirect, LLC (“Shypdirect”), which formed in July 2018 and focused on, and conducted, our long-haul and mid-mile delivery businesses.
The great bulk of Prime EFS’s business prior to September 30, 2020 was conducted pursuant to the Delivery Service Provider program (the “Prime EFS DSP Program”) of Amazon Logistics, Inc., a subsidiary of Amazon.com, Inc. (“Amazon”). In June 2020, Amazon gave notice to Prime EFS that Amazon would not be renewing the Prime EFS DSP Program agreement when that agreement terminated effective September 30, 2020. Amazon made clear to Prime EFS that Amazon’s decision not to renew the DSP agreement was part of a well-publicized initiative by Amazon to restructure how it would be delivering its last-mile services and did not reflect the quality of the services provided by Prime EFS. Prime EFS ceased operations on September 30, 2020 due to Amazon’s non-renewal of the Prime EFS DSP Program.
Shypdirect conducted its business as a carrier under a relay program service agreement with Amazon Logistics, Inc., last amended on August 24, 2020 (the “Program Agreement”). Under that agreement, Shypdirect provided transportation services, including receiving, loading, storing, transporting, delivering, unloading and related services for Amazon and its customers. On July 17, 2020, Amazon notified Shypdirect that Amazon had elected to terminate the Program Agreement between Amazon and Shypdirect effective as of November 14, 2020 (the “Shypdirect Termination Notice”). On August 3, 2020, Amazon offered to withdraw the Shypdirect Termination Notice and extend the term of the Program Agreement to and including May 14, 2021, conditioned on Prime EFS executing, for nominal consideration, a separation agreement with Amazon under which Prime EFS would agree to cooperate in an orderly transition of its Amazon last-mile delivery business to other service providers, Prime EFS would release any and all claims it may have against Amazon, and Prime EFS would covenant not to sue Amazon (the “Aug. 3 Proposal”). On August 4, 2020, the Company, Prime EFS and Shypdirect accepted the Aug. 3 Proposal. The Program Agreement expired on May 14, 2021. In June 2021, Shypdirect ceased its tractor trailer and box truck delivery services to Amazon, and in July 2021, Shypdirect ceased all operations.
For the six months ended June 30, 2022, four customers represented 70.0% of the Company’s total net revenues (19.8%, 20.4%, 19.8% and 10.0%, respectively). For the six months ended June 30, 2021, two customers, Amazon and Federal Express, represented 51.1% and 17.7% of the Company’s total net revenues, respectively. During the years ended December 31, 2021 and 2020, one customer, Amazon, represented 28.5% and 96.7% of our total net revenues. Approximately 28.5% of our revenue of $5,495,146 for the year ended December 31, 2021 was attributable to Shypdirect’s now terminated mid-mile and long-haul business with Amazon. The termination of the Prime EFS last-mile business with Amazon on September 30, 2020 had a material adverse impact on the operations of Prime EFS beginning in the 4th fiscal quarter of 2020 and the termination of Shypdirect’s Amazon mid-mile and long-haul business, which was effective on or about May 14, 2021, had a material adverse impact on operations of Shypdirect beginning in the 2nd fiscal quarter of 2021. This impact caused Prime EFS and Shypdirect to become insolvent and to cease operations.
On August 16, 2021, Prime EFS and Shypdirect, executed Deeds of Assignment for the Benefit of Creditors in the State of New Jersey pursuant to N.J.S.A. §2A:19-1, et seq. (the “ABC Statute”), assigning all Prime EFS and Shypdirect assets to Terri Jane Freedman as Assignee for the Benefit of Creditors (the “Assignee”) and filing for dissolution. An “Assignment for the Benefit of Creditors,” “general assignment” or “ABC” in New Jersey is a state-law, voluntary, judicially-supervised corporate liquidation and unwinding similar to the Chapter 7 bankruptcy process found in the United States Bankruptcy Code. In an ABC, debtor companies, here Prime EFS and Shypdirect, together referred to as the “Assignors,” execute Deeds of Assignment, assigning all of their assets to the Assignee chosen by the Company, who acts as a fiduciary similar to a Chapter 7 trustee in bankruptcy. On September 7, 2021, the ABCs were filed with the Bergen County Clerk in Bergen County, New Jersey and filed with the Surrogate Court in the appropriate county, initiating a judicial proceeding. The Assignee has been charged with liquidating the assets for the benefit of the Prime EFS and Shypdirect creditors pursuant to the provisions of the ABC Statute.
As a result of Prime EFS and Shypdirect’s filing of the executed Deeds of Assignment for the Benefit of Creditors on September 7, 2021, the Assignee assumed all authority to manage Prime EFS or Shypdirect. Additionally, Prime EFS and Shypdirect no longer conduct any business and are not permitted by the Assignee and ABC Statute to conduct any business. For these reasons, effective September 7, 2021, we relinquished control of Prime EFS and Shypdirect. Therefore, we deconsolidated Prime EFS and Shypdirect effective with the filing of executed Deeds of Assignment for the Benefit of Creditors in September 2021. Further, on October 13, 2021, Prime EFS and Shypdirect filed for dissolution with the Secretary of State of New Jersey. Our results of operations for the years ended December 31, 2021 and 2020 include the results of Prime EFS and Shypdirect prior to the September 7, 2021 filing of the executed Deeds of Assignment for the Benefit of Creditors with the State of New Jersey.
On November 13, 2020, we formed a wholly owned subsidiary, Shyp FX, Inc., a company incorporated under the laws of the State of New Jersey (“Shyp FX”). On January 15, 2021, through Shyp FX, we executed an asset purchase agreement (“APA”) and closed a transaction to acquire substantially all of the assets and certain liabilities of Double D Trucking, Inc., a northern New Jersey-based logistics provider specializing in servicing Federal Express over the past 25 years (“DDTI”), including last-mile delivery services using vans and box trucks. The purchase price was $100,000 of cash and a promissory note of $400,000. The principal assets involved in the acquisition were vehicles for cargo transport, system equipment for vehicle tracking and navigation of vehicles, and delivery route rights together with assumption of associated customer relationships. We concluded that the operations of Shyp FX, which is exclusively dedicated to servicing Federal Express routes in northern New Jersey, no longer fit into our long-term growth plans. Shyp FX sold substantially all its asset and specific liabilities in a transaction that closed in June 2022.
On November 16, 2020, we formed a wholly owned subsidiary, TLSS Acquisition, Inc., a company incorporated under the laws of the State of Delaware (“TLSS Acquisition”). On March 24, 2021, TLSS Acquisition acquired all the issued and outstanding shares of capital stock of Cougar Express, Inc., a New York-based full-service logistics provider specializing in pickup, warehousing, and delivery services in the tri-state area (“Cougar Express”). The purchase price was $2,000,000 of cash plus cash for the acquisition of security deposits, a cash payment equal to 50% of the difference between cash and accounts receivable acquired and accounts payable assumed, less the assumption of truck loans and leases, and a promissory note of $350,000. The previous owner of Cougar Express is barred from competing with the Cougar Express business for five years. Cougar Express was a family-owned full-service transportation business that has been in operation for more than 30 years providing one-to-four person deliveries and offering white glove services. It utilizes its own fleet of trucks, warehouse/driver/office personnel and on-call subcontractors from its convenient and secure New York JFK airport area location, allowing it to pick-up and deliver throughout the New York tri-state area. Cougar Express serves a diverse base of approximately 50 commercial accounts, which are freight forwarders that work with some of the most notable retail businesses in the country. We believe that the acquisition of Cougar Express fits our current business plan, given Cougar Express’s demographic location, services offered, and diversified customer base, and given that it would provide us with a long-standing, well-run profitable operation as a step to begin replacing the revenue it lost as a result of Amazon terminating its delivery service provider business. Furthermore, we believe that, because Cougar Express is strategically based in New York and serves the tri-state area, organic growth opportunities will be available for expanding its footprint into our primary base of operations in New Jersey, as well as efficiencies that could be derived by leveraging Shypdirect’s operational capabilities.
On February 21, 2021, the Company formed a wholly owned subsidiary, Shyp CX, Inc., a company incorporated under the laws of the State of New York (“Shyp CX”). Shyp CX does not engage in any revenue-generating operations.
On August 4, 2022, the Company’s wholly-owned subsidiary, Cougar Express, closed on its acquisition of all outstanding stock of JFK Cartage, Inc., a New York-based full-service logistics provider specializing in pickup, warehousing and delivery services in the tri-state area (“JFK Cartage”). Joan Ton, the sole shareholder of JFK Cartage, from whom the shares were acquired, is an unrelated party (the “Seller”). The effective date of the acquisition was July 31, 2022. With annual revenues of $3.6 million in 2021 and approximately $2.0 million for the first six months of 2022, JFK Cartage operates from a 30,000 square foot warehouse with ten drive-in doors and is strategically located approximately six miles from JFK International Airport. JFK Cartage has been in business since 2008 and has been providing warehousing, cross-dock services, pickup and deliveries, and general trucking, handling airfreight, trade show freight, expedited and hotshot demand work, LTL/cartage as well as FTL, reverse logistics, white glove and residential delivery services to a broad base of over 95 commercial accounts and residential customers. JFK Cartage operates a wide-ranging fleet of specialty vehicles, from its Sprinter vans to full 53-ft. tractor trailers. JFK Cartage, with its assets, fleet and warehouse is believed to be one of the largest leading cartage agents serving the New York Tri-State area.
The total purchase price after closing adjustments was $1,098,487. The Company: (i) paid $401,552 in cash at closing; and (ii) entered into a $696,935 promissory note with the Seller, $98,448 of which is payable weekly, in the amount of 25% of accounts receivable collected, but in any event, no later than October 4, 2022, with the remaining balance of $598,487, payable in three annual installments of $199,496, with interest at 5.0% percent per annum on July 31 2023, 2024 and 2025, respectively. Additionally, Cougar Express assumed a $503,065 Small Business Administration (“SBA”) loan; and (iv) assumed $151,389 of accrued liabilities and other notes payable of the Seller.
The following discussion highlights the results of our operations and the principal factors that have affected the Company’s consolidated financial condition as well as its liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on the unaudited condensed consolidated financial statements contained in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such unaudited condensed consolidated financial statements and the related notes thereto.
Critical Accounting Policies and Significant Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our unaudited condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Significant estimates included in the accompanying unaudited condensed consolidated financial statements and footnotes include the valuation of accounts receivable, the useful life of property and equipment, the valuation of intangible assets, the valuation of assets acquired and liabilities assumed, the valuation of right of use assets and related liabilities, assumptions used in assessing impairment of long-lived assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, the valuation of derivative liabilities, the valuation of beneficial conversion features, and the value of claims against the Company.
We have identified the accounting policies below as critical to our business operation:
Accounts receivable 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.
Impairment of long-lived assets
In accordance with ASC Topic 360, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
On January 1, 2019, we adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. We will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited condensed consolidated statements of operations.
Revenue recognition and cost of revenue
We adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer service orders, including significant judgments.
We recognize revenues and the related direct costs of such revenue which generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees as of the date the freight is delivered which is when the performance obligation is satisfied. In accordance with ASC Topic 606, we recognize revenue on a gross basis. Our payment terms are net seven days from acceptance of delivery. We do not incur incremental costs obtaining service orders from our customers, however, if we did, because all our customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that we recognize arises from deliveries of packages on behalf of the Company’s customers. Primarily, our performance obligations under these service orders correspond to each delivery of packages that we make under the service agreements. Control of the delivery transfers to the recipient upon delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.
Management has reviewed the revenue disaggregation disclosure requirements pursuant to ASC 606 and determined that no further disaggregation disclosure is required to be presented.
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation -Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. We have elected to recognize forfeitures as they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment.
Deconsolidation of subsidiaries
The Company accounts for a gain or loss on deconsolidation of a subsidiary or derecognition of a group of assets in accordance with ASC 810-10-40-5. The Company measures the gain or loss as the difference between (a) the aggregate of fair value of any consideration received, the fair value of any retained noncontrolling investment and the carrying amount of any noncontrolling interest in the former subsidiary at the date the subsidiary is deconsolidated and (b) the carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the group of assets.
Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation.
We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
For the three and six months ended June 30, 2022 compared with the three and six months ended June 30, 2021
For the three months ended June 30, 2022, our revenues were $1,404,560 as compared to $1,574,494 for the three months ended June 30, 2021, a decrease of $169,934, or 10.8%. This decrease was primarily a result of a decrease in revenue attributable to Shypdirect’s mid-mile and long-haul business with Amazon of $412,656, a decrease in revenue from other customers of $9,010, and a decrease in revenues generate from our Shyp FX business of $51,655. These decreases were offset from an increase in revenues generated from our acquired company Cougar Express, of $303,387.
For the six months ended June 30, 2022, our revenues were $2,663,893 as compared to $3,066,193 for the six months ended June 30, 2021, a decrease of $402,300, or 13.1%. This decrease was primarily a result of a decrease in revenue attributable to Shypdirect’s mid-mile and long-haul business with Amazon of $1,567,927, a decrease in revenue from other customers of $45,723, and a decrease in revenues generate from our Shyp FX business of $15,056, offset business. These decreases were offset from an increase in revenues generated from our acquired company Cougar Express, of $1,226,406.
During the six months ended June 30, 2021, one customer, Amazon, represented 51.1% of the Company’s total net revenues which was attributable to Shypdirect’s now terminated mid-mile and long-haul business with Amazon.
On June 21, 2022, we sold substantially all the assets of Shyp FX in an all-cash transaction. For the six months ended June 30, 2022 and 2021, we generated revenues from our Shyp FX operation of $528,488 and $543,544, respectively. Subsequent to June 21, 2022 we will no longer being generating this revenue.
We continue to: (i) seek to replace the lost Amazon business with other, non-Amazon, customers; (ii) explore other strategic relationships; and (iii) identify potential acquisition opportunities, while continuing to execute our restructuring plan.
For the three months ended June 30, 2022, our cost of revenues was $1,013,550 compared to $1,345,538 for the three months ended June 30, 2021, a decrease of $331,988, or 24.7%. For the six months ended June 30, 2022, our cost of revenues was $1,984,552 compared to $3,244,316 for the six months ended June 30, 2021, a decrease of $1,259,764, or 38.8%. Cost of revenues consists of truck and van rental fees, insurance, gas, maintenance, parking and tolls, and compensation and related benefits. In the first quarter of 2021, Prime EFS received a bill for approximately $304,000 for excess wear and tear on trucks that were rented for its last-mile DSP business that terminated in September 2020, which is included in cost of sales.
For the three months ended June 30, 2022, we had a gross profit of $391,010, or 27.8% of revenues, as compared to gross profit of $228,956, or 14.5% of revenues, for the three months ended June 30, 2021, an increase of $162,054, or 70.8%. For the six months ended June 30, 2022, we had a gross profit of $679,341, or 25.5% of revenues, as compared to a gross loss of $(178,123), or (5.8)% of revenues, for the six months ended June 30, 2021, an increase of $857,464, or 481.4%.
As discussed above, during the three months ended March 31, 2021, Prime EFS received a bill for approximately $304,000 for excess wear and tear on trucks that were rented for its last-mile DSP business that terminated in September 2020. Additionally, during the three and six months ended June 30, 2021, the gross profit (loss) primarily resulted from a decrease in revenues and a decrease in operational efficiencies in Prime EFS and Shypdirect due to the termination of the Amazon last-mile business and decrease in revenues from our mid-mile and long-haul business.
For the three months ended June 30, 2022, total operating expenses amounted to $1,395,470 as compared to $1,948,375 for the three months ended June 30, 2021, a decrease of $552,905, or 28.4%. For the six months ended June 30, 2022, total operating expenses amounted to $3,484,654 as compared to $3,177,680 for the six months ended June 30, 2021, an increase of $306,974, or 9.7%. For the three and six months ended June 30, 2022 and 2021, operating expenses consisted of the following:
Compensation and related benefits $ 693,343 $ 344,053 $ 2,049,753 $ 712,662 Legal and professional Fees
Compensation and related benefits
For the three months ended June 30, 2022, compensation and related benefits amounted to $693,343 as compared to $344,053 for the three months ended June 30, 2021, an increase of $349,290, or 101.5%. During the three months ended June 30, 2022, in connection with the issuance of common shares to executive officers and directors, we recorded stock-based compensation of $204,034. Additionally, compensation and related benefits increased by $145,256 which as primarily attributable to the hiring of our chief executive officer and chief financial officer in January 2022.
For the six months ended June 30, 2022, compensation and related benefits amounted to $2,049,753 as compared to $712,662 for the six months ended June 30, 2021, an increase of $1,337,091, or 187.6%. During the six months ended June 30, 2022, in connection with the issuance of common shares to executive officers and directors, we recorded stock-based compensation of $1,040,167. Additionally, compensation and related benefits increased by $296,924 which as primarily attributable to the hiring of our chief executive officer and chief financial officer in January 2022.
For the three months ended June 30, 2022, legal and professional fees were $339,003 as compared to $452,915 for the three months ended June 30, 2021, a decrease of $113,912, or 25.1%. During the three months ended June 30, 2022, we had a decrease in accounting fees of $832, a decrease in consulting fees of $28,641, a decrease in other professional fees of $62,081, and a decrease in legal fees of $22,358.
For the six months ended June 30, 2022, legal and professional fees were $688,497 as compared to $983,453 for the six months ended June 30, 2021, a decrease of $294,956, or 30.0%. During the six months ended June 30, 2022, we had a decrease in accounting fees of $7,234, a decrease in consulting fees of $135,453, a decrease in other professional fees of $137,374, and a decrease in legal fees of $14,895.
For the three months ended June 30, 2022, rent expense was $110,957 as compared to $233,601 for the three months ended June 30, 2021, a decrease of $122,644, or 52.5%. For the six months ended June 30, 2022, rent expense was $212,294 as compared to $367,556 for the six months ended June 30, 2021, a decrease of $155,262, or 42.2%. These decreases were attributable to the abandonment of our leased properties which were vacated due to the cessation of the operations of Prime EFS and Shypdirect. As of December 31, 2021, we abandoned all of our leased properties, except for the Cougar Express premises. The lease of our subsidiary, Cougar Express, expired on December 31, 2021. Cougar Express is holding over in the facility while it attempts to negotiate a lease renewal with its landlord. In May 2022, we signed a stipulation of Settlement with the landlord and we are paying monthly rent of $33,275 plus common area maintenance and insurance through September 2022 at which time we must vacate the premises.
General and administrative expenses
For the three months ended June 30, 2022, general and administrative expenses were $252,167 as compared to $301,732 for the three months ended June 30, 2021, a decrease of $49,565, or 16.4%. For the six months ended June 30, 2022, general and administrative expenses were $534,110 as compared to $497,935 for the six months ended June 30, 2021, an increase of $36,175, or 7.3%. These (decreases) increases were primarily attributable to the acquisition of Double D Trucking and Cougar Express in 2021 and were offset by decreases in general and administrative expenses due to cost-cutting measures taken. We expect general and administrative expenses to decrease in 2022 due to these cost cutting measures.
Due to a reduction in our revenues and the loss of its Amazon revenues, during the second quarter of 2021, we abandoned one of our leased premises. Accordingly, during the three and six months ended June 30, 2021, we wrote the remaining balance of this right of use asset and recorded a loss on lease abandonment of $616,074. We did not have a loss from lease abandonment in the 2022 periods.
For the three months ended June 30, 2022, loss from operations amounted to $1,004,460 as compared to $1,719,419 for the three months ended June 30, 2021, a decrease of $714,959, or 41.6%. For the six months ended June 30, 2022, loss from operations amounted to $2,805,313 as compared to $3,355,803 for the six months ended June 30, 2021, a decrease of $550,490, or 16.4%.
Total other income (expenses) includes interest expense, derivative expense, gain on debt extinguishment, gain on sale of assets of subsidiary, settlement expense, and other income. For the three and six months ended June 30, 2022 and 2021, other income (expenses) consisted of the following:
For the three months ended June 30, 2022 and 2021, aggregate interest expense was $1,895 and $157,888, respectively, a decrease of $155,993, or 98.8%. For the six months ended June 30, 2022 and 2021, aggregate interest expense was $9,762 and $263,589, respectively, a decrease of $253,827, or 96.3%. The decrease in interest expense was attributable to a decrease in interest-bearing loans due to the conversion of debt to equity and repayment of debt, and a decrease in the amortization of original issue discount.
During the three and six months ended June 30, 2022, we recorded a gain from the sale of assets of our subsidiary, Shyp FX, of $296,689.
For the three and six months ended June 30, 2021, the aggregate net gain on extinguishment of debt was $1,505,088 and $1,564,941. We did have any gain from debt extinguishment in the 2022 periods. The gains on debt extinguishment in 2021 were attributable to the settlement of convertible debt and warrants, the conversion of convertible debt, and the settlement of other payables.
During the three and six months ended June 30, 2022, we recorded settlement income (expense) of $700 and $(227,811) in connection with the settlement of a lawsuit, respectively.
During the three and six months ended June 30, 2021, we recorded other income of $75,787 and $183,822, respectively, compared to $0 in the 2022 periods. Other income was primarily related to the collection of rental income from the sublease of excess office, warehouse, and parking spaces. We no longer receive sublease income.
For the three and six months ended June 30, 2021, derivative income was $3,979,289 and $3,284,306, respectively. During the three and six months ended June 30, 2021, we recorded a derivative expense related to the adjustment to derivative liabilities to fair value.
Due to factors discussed above, for the three months ended June 30, 2022 and 2021, net (loss) income amounted to $(708,966) and $3,682,857, respectively. For the three months ended June 30, 2022 and 2021, net (loss) income attributable to common shareholders, which included a deemed dividend related to beneficial conversion features on preferred stock and the dividends accrued on Series E and Series G preferred stock of $106,834 and $156,097, amounted to $(815,800), or $(0.00) per basic and diluted common share, and $3,526,760, or $0.00 per basic and diluted common share, respectively. For the six months ended June 30, 2022 and 2021, net (loss) income amounted to $(2,746,197) and $1,413,677, respectively. Additionally, for the six months ended June 30, 2022 and 2021, net (loss) income attributable to common shareholders, which included a deemed dividend related to beneficial conversion features on preferred stock and the dividends accrued on Series E and Series G preferred stock of $215,885 and $985,933, amounted to $(2,962,082), or $(0.00) per basic and diluted common share, and $427,744, or $0.00 per basic and diluted common share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On June 30, 2022 and December 31, 2021, we had a cash balance of $5,778,706 and $6,067,692, respectively. Our working capital was $5,736,499 on June 30, 2022. We reported a net decrease in cash for the six months ended June 30, 2022 as compared to December 31, 2021 of $288,986 primarily as a result of net cash proceeds received from the sale of Series G preferred stock units of $855,000, cash proceeds from the exercise of warrants of $245,714, and net cash proceeds received from the sale of the assets of Shyp FX of $748,500, offset by the use of net cash for the repayment of notes payable of $295,596, and by cash used in operations of $1,818,604.
We believe that our existing working capital and our future cash flows from operating activities will provide sufficient cash to enable us to meet our operating needs and debt requirements for the next twelve months.
Additionally, we are seeking to raise capital through additional debt and/or equity financings to fund our operations in the future. Although we have historically raised capital from sales of shares of common stock, the sale of Series E and Series G preferred stock, and from the issuance of convertible promissory notes and notes payable, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital or secure additional lending in the future, management expects that we will need to curtail our operations.
Sale of Series G Preferred Stock
On December 31, 2021, the Company entered into Securities Purchase Agreements with investors pursuant to which the Investors agreed to purchase units, severally and not jointly, which consisted of an aggregate of (i) 615,000 shares of Series G and (ii) Warrants to purchase 615,000,000 shares of the Company’s common stock which are equal to 1,000 warrants for each for each share of Series G purchased (the “December 2021 Series G Offering”). The gross proceeds to the Company were $6,150,000, or $10.00 per unit. The Company paid fees of $615,507, paid cash of $54,933 for the settlement of disputed penalties related the Series E, and received net proceeds of $5,479,560 The initial exercise price of the Warrants related to the December 2021 Series G Offering is $0.01 per share, subject to adjustment. Additionally, the Company issued 123,000,000 warrants to the placement agent at an initial exercise price of $0.01 per share.
On January 25, 2022, the Company entered into Securities Purchase Agreements with investors pursuant to which the Investors agreed to purchase units, severally and not jointly, which consisted of an aggregate of (i) 70,000 shares of Series G and (ii) Warrants to purchase 70,000,000 shares of the Company’s common stock which are equal to 1,000 warrants for each share of Series G purchased (the “January 2022 Series G Offering”). The gross proceeds to the Company were $700,000, or $10.00 per unit. The Company paid placement agent fees of $70,000 and received net proceeds of $630,000. On March 4, 2022, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Investor agreed to purchase units, severally and not jointly, which consisted of an aggregate of (i) 25,000 shares of Series G and (ii) Warrants to purchase 25,000,000 shares of the Company’s common stock which are equal to 1,000 warrants for each for each share of Series G purchased (the “March 2022 Series G Offering”). The gross proceeds to the Company were $250,000, or $10.00 per unit. The Company paid placement agent fees of $25,000 and received net proceeds of $225,000. The initial exercise price of the Warrants related to the January 2022 and March 2022 Series G Offerings is $0.01 per share, subject to adjustment. Additionally, the Company issued 19,000,000 warrants to the placement agent at an initial exercise price of $0.01 per share. The aggregate cash fees of $95,000 was charged against the proceeds of the offering in additional paid-in capital and there is no effect on equity for the placement agent warrants.
Net cash flows used in operating activities for the six months ended June 30, 2022 amounted to $1,818,604. During the six months ended June 30, 2022, net cash used in operating activities was primarily attributable to net loss of $2,746,197, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $377,500, stock-based compensation of $1,040,167, stock-based professional fees of $8,333, and a non-cash gain from the sale of the assets of Shyp FX of $296,689, and changes in operating assets and liabilities such as a decrease in accounts receivable of $8,094, an increase in prepaid expenses and other current assets of $156,126, an increase in security deposit of $6,245, an decrease in accounts payable and accrued expenses of $50,014, an increase in insurance payable of $42,424, and a decrease in accrued compensation and related benefits of $39,151.
Net cash flows used in operating activities for the six months ended June 30, 2021 amounted to $1,919,434. During the six months ended June 30, 2021, net cash used in operating activities was primarily attributable to net income of $1,413,677, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $293,616, derivative income of $(3,284,306), amortization of debt discount of $83,548, gain on debt extinguishment of $(1,564,941), and loss on lease abandonment of $616,074, and changes in operating assets and liabilities such as a decrease in accounts receivable of $226,268, a decrease in prepaid expenses and other current assets of $34,917, a decrease in security deposit of $61,000, an increase in accounts payable and accrued expenses of $264,692, a decrease in insurance payable of $14,720, and a decrease in accrued compensation and related benefits of $28,330.
Net cash provided by investing activities for the six months ended June 30, 2022 amounted to $748,500 and consisted of net cash proceeds received from the sale of the assets of Shyp FX.
Net cash used in investing activities for the six months ended June 30, 2021 amounted to $2,123,115 and consisted of net cash used for the acquisition of DDTI and Cougar Express.
For the six months ended June 30, 2022, net cash provided by financing activities totaled $781,118. During the six months ended June 30, 2022, we received proceeds from the sale of Series G preferred shares of $855,000, and cash proceeds of $245,714 from the exercise of warrants, offset by the repayment of notes payable of $295,596 and the payment of liquidating damages of $24,000.
For the six months ended June 30, 2021, net cash provided by financing activities totaled $4,095,147. During the six months ended June 30, 2021, we received proceeds from the sale of Series E preferred shares of $3,590,500, cash proceeds of $685,714 from the exercise of warrants and an increase in amounts due to related party of $14,630, offset by the repayment of notes payable of $195,697.
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.
Historically, we have primarily funded our operations with proceeds from sales of convertible debt and convertible preferred stock. Since our inception, we have incurred recurring losses, including a loss from operations of $2,805,313 and $3,355,803 for the six months ended June 30, 2022 and 2021, respectively. Until such time that we implement our growth through acquisition strategy, we expect to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company.
During the year ended December 31, 2021, we issued an aggregate of 343,118 shares of our Series E preferred stock for net proceeds of $3,590,500 and issued an aggregate of 615,000 shares of our Series G preferred stock for net proceeds of $5,479,560. The proceeds were used for the acquisition of Cougar Express and DDTI, the repayment of debt, and for working capital purposes. Additionally, during the year ended December 31, 2021, we received proceeds of $4,226,383 from the exercise of stock warrants. Additionally, during the six months ended June 30, 2022, we issued an aggregate of 95,000 shares of our Series G preferred stock for net proceeds of $855,000 and received proceeds of $245,714 from the exercise of stock warrants. As such, we expect that our cash as of June 30, 2022 will be sufficient to fund the Company’s operations for at least the next twelve months from the date of the issuance of the financial statements.
The COVID-19 pandemic and resulting global disruptions have affected the Company’s businesses, as well as those of the Company’s customers and their third-party suppliers and sellers. To serve the Company’s customers while also providing for the safety of the Company’s employees and service providers, the Company has adapted numerous aspects of its logistics and transportation processes. The Company continues to monitor the rapidly evolving situation and expect to continue to adapt its operations to address federal, state, and local standards as well as to implement standards or processes that the Company determines to be in the best interests of its employees, customers, and communities. The impact of the pandemic and actions taken in response to it had some effects on the Company’s results of operations. Effects include increased fulfilment costs and cost of sales, primarily due to investments in employee hiring, pay, and benefits, as well as costs to maintain safe workplaces, and higher shipping costs. The Company continues to be affected by possible procurement and shipping delays, supply chain interruptions, higher product demand in certain categories, lower product demand in other categories, and increased fulfilment costs and cost of sales as a percentage of net sales and it is not possible to determine the duration and spread of the pandemic or such actions, the ultimate impact on the Company’s results of operations during 2022, or whether other currently unanticipated consequences of the pandemic are reasonably likely to materially affect the Company’s results of operations.
We believe that our existing working capital and future cash flow from operating activities will provide sufficient cash to enable us to meet our operating needs and debt requirements for the next twelve months. We are seeking to raise capital through additional debt and/or equity financings to fund our operations in the future. Although we have historically raised capital from sales of common and preferred shares and from the issuance of convertible promissory notes and notes payable, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital or secure additional lending in the near future, management expects that we will need to curtail our operations.
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
We do not believe that inflation has had a material impact on our business, revenues, or operating results during the periods presented.
Recently Enacted Accounting Standards
For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Note 2: Recent Accounting Pronouncements” in the unaudited condensed consolidated financial statements filed with this Quarterly Report.
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