SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X].QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended October 31, 2017
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to __________
Commission file number 333-216960
Freight Solution, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8506 Strong Avenue, Orangevale, California
(Address of principal
(Registrant’s telephone number including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Copies of communications to:
Blair Krueger, Esq.
7486 La Jolla Boulevard
La Jolla, California 92037
Telephone: (858) 405-7385
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ] (Do not check if a smaller reporting company)
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant’s common stock outstanding as of December 11, 2017 was 22,000,000 shares.
FREIGHT SOLUTION, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
Interim Financial Statements (unaudited)
Balance Sheets of Freight Solution, Inc. at October 31, 2017 (Unaudited) and April 30, 2017 (Audited)
Statements of Operations of Freight Solution, Inc. for the Six Months and Three Months Ended October 31, 2017 and 2016 (Unaudited)
Statements of Stockholders Deficit for the Six Months Ended October 31, 2017 (Unaudited) and for the Period April 28, 2016 (Inception) Through April 30, 2017 (Audited)
Statement of Cash Flows of Freight Solution, Inc. for the Six Months Ended October 31, 2017 and 2016 (Unaudited)
Notes to the Financial Statements (Unaudited)
Management’s Discussion and Analysis
Quantitative and Qualitative Disclosures about Market Risk.
Controls and Procedures
PART II. OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
PART I. FINANCIAL INFORMATION
Item 1.Interim Financial Statements (unaudited)
FREIGHT SOLUTION, INC.
October 31, 2017
April 30, 2017
Total Current Assets
Intangible assets, net
Deferred offering costs
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable and accrued expense
Nonrelated party loans
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value; 25,000,000 shares authorized; none issued or outstanding
Common stock, $0.001 par value; 100,000,000 shares authorized; 22,000,000 and 15,000,000 shares issued and outstanding as of October 31, 2017 and April 30, 2017, respectively
Additional paid in capital
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
See notes to financial statements.
FREIGHT SOLUTION, INC.
STATEMENTS OF OPERATIONS
For the three month
October 31, 2017
For the three month period ended
October 31, 2016
Cost of revenue
Development costs – internal use software
Administrative and other costs
Legal and professional fees
Loss before income tax
Provision for income tax
Basic and diluted loss per share
Weighted average common shares outstanding – basic and diluted
For the six month
October 31, 2017
For the six month
October 31, 2016
Cost of revenue
Development costs – internal use software
Administrative and other costs
Legal and professional fees
Loss before income tax
Provision for income tax
Basic and diluted loss per share
Weighted average common shares outstanding – basic and diluted
See notes to financial statements.
FREIGHT SOLUTION, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Amount
Balance – April 28, 2016 (date of inception) shares issued for organizational services – officers compensation
Shares issued for intangible assets – April 29, 2016
Balance – April 30, 2016 (audited)
Balance – April 30, 2017 (audited)
Shares issued pursuant to direct public offering – August 29, 2017, net of deferred offering costs of $34,161
Balance – October 31, 2017 (unaudited)
See notes to financial statements.
FREIGHT SOLUTION, INC.
STATEMENTS OF CASH FLOWS
For the six month
October 31, 2017
For the six month
October 31, 2016
CASH FLOW FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to cash (used in) operating activities:
Change in prepaid expense
Change in deferred offering costs
Change in accounts payable
Net Cash (Used in) Operating Activities
CASH FLOW FROM INVESTING ACTIVITIES
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
Payments on nonrelated party loans
Loans from nonrelated parties
Net Cash Provided by Financing Activities
CHANGE IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Non-cash operating activities:
Offset deferred offering costs against additional paid in capital
See notes to financial statements.
FREIGHT SOLUTION, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2017 (UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
We were incorporated on April 28, 2016 (date of inception) under the laws of the State of Nevada, as Freight Solution, Inc. The Company acquired the business of its founder Mr. Shane Ludington (Freight Solution, Inc. and hereinafter be collectively referred to as “FSI”, the “Company”, “we” or “us”).
The Company is developing an internet and smartphone app based software product that will match shipments with available drivers. The software as a service will focus on less-than-truckload (“LTL”) services that allows shippers to connect with truck drivers in the same way that city dwellers can find a ride home. This software as a service will allow shippers, based on a pre-negotiated price, to deliver products at an affordable cost and on time to its ultimate destination.
The Company’s year-end is April 30.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim financial statements (October 31, 2017 (unaudited)) and basis of presentation
The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of results for a full fiscal year. These financial statements should be read along with the financial statements of the Company for the period ended April 30, 2017 (audited) and notes thereto.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value. There were no cash equivalents as of October 31, 2017 and April 30, 2017, respectively.
We recognize revenue when all of the conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the consumer; (3) the amount of fees to be paid by the consumer is fixed or determinable; and (4) the collection of fees or product revenue is probable.
The Company will record revenue when realizable and earned and when product has been shipped to the consumer or our services have been rendered to the consumer.
FREIGHT SOLUTION, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2017 (UNAUDITED)
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising costs are anticipated to be expensed as incurred; however there were no advertising costs for the six months ended October 31, 2017 or 2016, respectively.
Fair value of financial instruments
We adopted the Financial Accounting Standards Board's (the “FASB”) Accounting Codification Standard No. 820 (“ASC 820”), Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and Topic 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
Earnings per share
The Company follows ASC Topic 260 to account for earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability for each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax asset will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income tax in the period of change.
FREIGHT SOLUTION, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2017 (UNAUDITED)
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred income tax may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities. As of April 30, 2017 and October 31, 2017, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.
The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.
The Company classifies tax-related penalties and net interest as income tax expense. For the six month periods ended October 31, 2017 and 2016, respectively, no income tax expense was recorded.
The Company evaluated recent accounting pronouncements through October 31, 2017 and believe that none of them would have a material effect on the Company’s financial statements. Management also believes that other recently issued, but not yet effective accounting pronouncements, if adopted, would again not have a material effect on the accompanying financial statements.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is development stage and, accordingly, has not yet generated revenues from operations. Since inception, the Company has been engaged in financing activities and executing its business plan of operations and incurring costs and expenses related to its direct public offering. As a result, the Company incurred accumulated net losses for the period April 28, 2016 (date of inception) through October 31, 2017 totaling $253,112. Negative working capital for the Company as of October 31, 2017 was $202,273. The Company’s activities and the payment of such activities has been primarily through debt financing and through the deferral of accounts payable and other expenses.
The Company intends to raise further capital (beyond its self-directed public offering) through the sale of equity securities, an offering of debt securities, or borrowings from financial institutions and possibly related and nonrelated parties who may lend to the Company. Management believes that its actions to secure additional funding will likely provide the Company the opportunity to continue as a going concern. There is no guarantee the Company will be successful in achieving any of these objectives.
The ability of the Company to continue as a going concern is dependent upon management’s ability to raise capital from the sale of its equity and, ultimately, the achievement of operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that may result from this uncertainty.
NOTE 4 – INTANGIBLE ASSETS
Intangible assets with finite lives are amortized over their estimated useful life. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance on either an asset's useful life or carrying value involve significant judgment.
On April 29, 2016 the Company acquired certain intangible assets from its founder which consisted of a business plan, along with costs related to development of internal-use software to be used in its operations. The total value attributable to the intangible assets purchased by the Company was $4,000. This amount is less than the actual costs paid for by our founder. Our founder incurred more than $10,000 in expense over a period of two years to further develop and refine the Company’s business plan and operations.
FREIGHT SOLUTION, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2017 (UNAUDITED)
NOTE 4 – INTANGIBLE ASSETS (continued)
Intangible assets includes the following:
October 31, 2017
April 30, 2017
Intangible assets consisting of certain development costs and purchased software
Less: Accumulated amortization
Net property and equipment
For the six month period ended October 31, 2016 we recognized $2,000 in amortization expense. Intangible assets were placed in service by us on April 29th, 2016. The Company amortized these assets over a period of twelve (12) months which has been deemed its useful life. As of October 31, 2017 these assets were fully amortized.
NOTE 5 – RELATED PARTY TRANSACTIONS
The Company recorded compensation expense of $11,000 from the issuance of common stock to its founder for organizational services. This expense was recorded during our initial reporting period April 28, 2016 (inception) through April 30, 2016. The Company recorded its purchase of $4,000 in intangible assets from its founder on April 29, 2016 (see Note 4 - Intangible Assets).
No related party transactions occurred during the six months ended October 31, 2017.
NOTE 6 – NONRELATED PARTY NOTES PAYABLE
As of and through October 31, 2017, the Company executed several promissory notes with nonrelated parties in the aggregate of $59,871 of which $19,269 was outstanding at the end of the period. The unsecured promissory notes bear interest at 0% per annum and are due and payable upon demand. The Company in connection with its direct public offering repaid $48,500 in principal on two unrelated party notes. The two loans were unsecured and carried no interest rate or specific repayment terms
NOTE 7 – INCOME TAXES
At October 31, 2017, the Company had a net operating loss carryforward of $253,112, which begins to expire in 2035.
Components of net deferred tax asset, including a valuation allowance. These amounts are as follows for October 31, 2017 and April 30, 2017, respectively:
October 31, 2017
April 30, 2017
Deferred tax asset:
Net operating loss carryforward
Total deferred tax asset
Less: Valuation allowance
Net deferred tax asset
Valuation allowance for deferred tax assets as of October 31, 2017 and April 30, 2017 was $88,589 and $53,289, respectively. In assessing the recovery of the deferred tax asset, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not deferred tax assets will not be realized and recognized a full valuation allowance for each period presented.
FREIGHT SOLUTION, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2017 (UNAUDITED)
NOTE 7 – INCOME TAXES (continued)
Reconciliation between statutory rate and the effective tax rate for both periods then ended and as of October 31, 2017 and April 30, 2017:
Federal statutory rate
State taxes, net of federal benefit
Change in valuation allowance
Effective tax rate
NOTE 8 – SHARE CAPITAL
The Company is authorized to issue 100,000,000 shares of its $0.001 par value common stock and 25,000,000 shares of its $0.001 par value preferred stock.
On April 28, 2016, the Company issued to its founder, an officer and director of the Company, 11,000,000 shares of its $0.001 par value common stock at a price of $0.001 per share for services provided upon organization. The services were valued at $11,000.
On April 29, 2016, the Company issued to its founder 4,000,000 shares of its $0.001 par value common stock at a price of $0.001 per share for certain intangible assets (see Note 4 - Intangible Assets). Mr. Shane Ludington, our sole officer and director, incurred more than $10,000 in developing or acquiring the intangible assets for which we recorded their value at $4,000.
On August 23, 2017 the Company completed its direct public offering. The offering was conducted through a registration statement filed on Form S-1. The Company issued 7,000,000 shares of its common stock to 34 investors. The investors paid $0.01 per share for a combined investment of $70,000.
Deferred offering costs
Deferred offering expense consisted of accounting fees, legal fees and other fees incurred through the balance sheet date related to our direct public offering. Upon completion of our direct public offering we offset deferred offering costs of $34,161 against net offering proceeds of $70,000. We recorded an offset of $34,161 in costs against additional paid in capital during the period.
As of October 31, 2017 and April 30, 2017, there were 22,000,000 and 15,000,000 shares of common stock issued and outstanding, respectively. No shares of preferred stock have been issued for either of the periods.
NOTE 9 – SUBSEQUENT EVENTS
The Company evaluated all events that occurred after the balance sheet date of October 31, 2017 through the date the financial statements were issued. The following occurred:
During November 2017, the Company received an additional $750 in non-related party loans.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward looking statements: Statements about our future expectations are “forward-looking statements” and are not guarantees of future performance. When used herein, the words “may,” “will,” “should,” “anticipate,” “believe,” “appear,” “intend,” “plan,” “expect,” “estimate,” “approximate,” and similar expressions are intended to identify such forward-looking statements. These statements involve risks and uncertainties inherent in our business, including those set forth under the caption “Risk Factors,” in this Report, and are subject to change at any time. Our actual results could differ materially from these forward-looking statements. This “Quarterly Report” on Form 10-Q does not have any statutory safe harbor for this forward looking statement. We undertake no obligation to update publicly any forward-looking statements.
Management’s Discussion and Analysis should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
The following discussion of the Company’s financial condition and the results of operations should be read in conjunction with the Financial Statements and footnotes thereto appearing elsewhere in this Report.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company’s fluctuations in sales and operating results; (b) risks associated with operations; (c) regulatory, competitive and contractual risks; (d) development risks; (e) the ability to achieve initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of a sales and marketing force, new products and services, along with customer service; and (f) pending litigation.
We were incorporated on April 28, 2016. Most of our operational activity through October 31, 2017 involved execution of our business plan, business development, coding and smart-app development (for smart phones such as Apple and Android), development of our smart-phone applications for use in a LTL service management system, as well as preparation of the Company’s financial statements, internal controls and corporate governance efforts required in anticipation of our recently completed direct public offering.
We are a development stage company and have limited financial resources. We have not established a source of equity or debt financing. Our independent registered public accounting firm has included an explanatory paragraph in their report emphasizing the uncertainty of our ability to remain as a going concern.
We are building an LTL service management company that we believe will provide comprehensive LTL management solutions for the freight delivery business. We are developing a proprietary LTL service application and control platform that will provide an Uber/Lyft transformation to the logistics industry from the ground up. We believe our software functionality, when fully developed, will provide scalability to the user by enabling them to launch a smartphone app or internet based service that provides on-demand service to logistics consumers (shippers). Both will connect willing shippers to logistics providers (commercial truck drivers or long haul drivers). Our mobile app will allow shippers to connect with truck drivers in the same way that major city dwellers can find a ride home that is an alternative to a cab ride. Based on capacity demands, shippers can find the driver that is best suited to their freight demands for a pre-determined price. This is the freight solution way. Our application allows you to move full or less than truckload freight with an easy tap of your finger. To capture these opportunities, we must identify significant cost savings and define an economic return for the logistics consumer. Our intended software we believe will become a building block in the design, development, and the arrangement of LTL management services for SMB’s and large multinational organizations.
Our intended software and services will outline a three-step method for providing shippers with what we believe to be a comprehensive approach providing a smartphone and web-based application for logistics providers focusing on the less-than-truckload (LTL) services offered and utilizing an Uber-type product allowing truck drivers to enhance and optimize their assets (their long haul equipment) through sophisticated analysis and algorithms. Shippers will be able to augment their usual fleet of logistic providers when capacity demands exceed their typical network. The trucker or logistics provider will be able to respond directly to the shippers needs and pick up additional loads that would a LTL truck to FTL specs. These extra loads fill a truck that otherwise remains empty, or bobtailing it. We believe this approach is required for proper logistics decisions to be made and will help us in creating long-lasting customer relationships with both shippers and truck drivers.
Our business operations will be comprised of two segments; a) software (Apple iOs and Android APK based systems, as well as web based formats) and b) software integration services for the commercial shippers market. Our software division works with the assistance of an established coding and smart-app development firm. The coding and smart-app development firm is located in San Diego, California. The coding and smart-app development firm provides a selection of experienced developers for us to use on our product, and the hourly rate ranges from $75.00 to $200.00 per hour. We are billed by the hour and on an as needed basis. We are under no contractual agreement with the firm. We developed our initial LTL and logistics management software framework primarily through the efforts of our founder, and the efforts of a coding and smart-app development firm with which the Company works with on an as “needed basis.” We have not had any material discussions regarding the acquisition of software for services products, nor do we have any agreements (written or oral) in place in order to do so. The software framework and design has been developed, no software application distributor or reseller relationship has been formalized; the Company intends to seek help from outside sales representatives and marketing consultants to develop a professional sales and marketing strategy to capitalize on our technologies. With further financing we intend to create and staff an in-house coding and smart-app development group, which we believe may develop new versions of the applications or services, of a similar nature to business development in LTL management service solutions. The Company continues to work on the development of its LTL management service solutions services through the management and industry knowledge skills of our founder, as well as through a coding and smart-app development firm which has been working with us on an as needed basis and as our current and future budget allows.
To date no saleable product or service has been developed through these efforts. The services segment of our operations will seek to staff with a team with the skills necessary in technology and logistics management service. Contract sizes may vary. While we cannot estimate the size of contracts, availability of contracts are solely based on the industry observations. None of these observations are based on any formal study. Initially our clients (or shippers) we believe may come from referrals, or business relationships that our founder has through general marketing in the industry. We cannot predict when those referrals will occur, or if at all, through Mr. Ludington or others.
Our plan to continue as a going concern is to reach the point where we begin generating sufficient revenues from our LTL service management products and services to meet our obligations on a timely basis. The Company has not yet acquired or internally fully developed any of these intended services. We may not be able to acquire or internally develop any services in the future because of a lack of available funds or financing to do so. In order for us to develop or acquire any services, we must be able to secure the necessary financing, beyond just the proceeds of our recently completed direct public offering. In the early stages of our operations, we will continue to keep costs to a minimum. The cost to develop our business plan as currently outlined will be in excess of $300,000. We have no established current sources of funds to undertake the business plan as outlined. Until we obtain funding, if ever, we will keep our operating costs as low as possible with our founder, and Chief Executive Officer providing substantially all of the work on his own without any cash compensation. This methodology would result in our development stage extending for at least two to three years. We however believe that our services division (once developed, if at all) may begin to generate revenues earlier than the software division (once developed, if at all). If we are unable to obtain adequate funding or financing, the Company faces the ultimate likelihood of business failure. There are no assurances that we will be able to raise any funds or establish any financing program for the Company’s growth.
Based on industry reports, nearly 70 percent of all freight moved in the United States travels by truck. It is believed by most that without trucks and driver, the U.S. economy would come to a screeching halt. Despite the importance of the industry progress has been slow to move freight easily and with electronic assistance due to the fragmentation of the industry. The fragmentation requires tens of thousands of small operators requiring intermediaries to transact business with shippers. These intermediaries (brokers) typically rely on the telephone to engage the two parties. This is definitely not the most efficient or cost-effective means of moving freight in the age of on-demand commerce.
There are a number of mobile application operators entering into the shipping/logistics paradigm. These mobile application operators believe by replacing the traditional middleman linking truckers to shippers and vice versa, the developing applications are shaping up to be transformative to the industry. This is believed to be the direction the industry is heading, such as Uber was for the taxi business. These mobile application operators believe by leveraging the Uber-like similarities transporting freight can be as easy as moving people were. Algorithms which are central them to Uber and its transformation of the taxi business, these very same mathematical calculations using sophisticated software code can fill the needs between the shipper and trucker. Matching the two electronically through the Internet-of-things, while providing financial logistics, along with billing and payment, all handled by the application.
We believe that the large LTL management market and the geographically fragmented service provider landscape will seek to utilize sophisticated LTL service management systems to solve market barriers. This industry transformation will accelerate shipping, reduce costs, and remove the middleman using a sophisticated algorithm all in a smart-phone, which presents a unique opportunity for our Company.
We believe the following will assist us in capitalizing on the expected growth in the commercial LTL management market: (1) Scalability. We believe our LTL service management system will be a scalable solution, designed to serve the underserved, fragmented LTL management market. (2) Comprehensive Solution. We believe that our intended product will provide both shipper and trucker the ability to connect and schedule transport at a competitive price, based on distance, weight size and several other customary variables. (3) Analytical Expertise. Our founder and his network of personal contacts have an extensive LTL service management experience which we will seek to capitalize on the combined expertise. (4) Speed of Implementation. We believe that a fully-developed LTL service management system will be quickly implemented, providing additional insight into the usage of the shippers’ assets.
Key elements of our growth strategy shall include: (1) Core Product Enhancement. We plan to enhance core product user interface and functionality with new features and offerings as soon as reasonably practicable. (2) Focus on Markets. We intend to grow our market by: (a) securing contracts in local and national markets, (b) entering new commercial markets, (c) leveraging development opportunities, and (d) adding focused LTL logistics management solutions to our portfolio. (3) Acquire Complementary Businesses. We plan to acquire businesses that complement and expand our intended LTL management information services, technology, customer base and geographic coverage. (4) Align with Logistics Operators. We believe establishing relationships with small to medium size operators will enable us to reach and attract a broader customer base. (5) Strategic Alliances. We plan to team with other industry businesses that have complementary features to our LTL service management system, when fully developed, reducing development cost and opening doors to other shippers and truckers. (6) National Expansion. We intend to expand nationally through partnerships and alliances, moving beyond our initial geographic focus.
The Company’s objective is to become a provider of LTL service management solutions and other related services for small to medium sized business entities in Southwestern region of the US. The Company is pursuing the following strategy to achieve this objective: (1) Enhance Technical Expertise. We will seek to enhance our technical expertise by hiring and training of information technology personnel with industry experience. (2) Create a Geographic Presence. We will seek to create a geographically optimized reputation and market our intended LTL management information services. (3) Quality, Service and Support. Our employees and selected tech professionals will follow documented and standardized methodologies to ensure that we provide a consistent approach to projects, thereby fostering uniform quality and cost-efficient solutions for the end-users. (4) Customer Base. Our intended products and services will most likely permit interaction with diverse points of contact decision makers. (5) Alliances with Industry Leaders. We expect to create key alliances and relationships with freight delivery business vendors, and service providers. We will pursue key alliances and relationships in order to expand our offerings and remain current with the advances in the logistics industry as well as information management technology. (6) Multiple Sales Channels. We believe that we can attract a direct sales force that will focus exclusively on the sale of our intended LTL service management product and services.
This Quarterly Report includes limited market and industry data and forecasts that we obtained from our own research, publicly available information, industry periodicals and surveys. Industry publications and surveys generally state that the information contained herein has been obtained from sources deemed reliable. While we have not been able to verify such information to the extent that we deem qualified in its entirety we have determined based on our knowledge to be sufficient and accurate for presentation. Unless otherwise noted, statements as to market position as related to market competitors these are all approximated. Industry and market data could be proven wrong because of the method by which sources obtained their data and because information cannot always be verified with certainty due to limits on availability and reliability of raw data, the voluntary nature of the data gathering process, limitations and other uncertainties. We do not know all or tested all of these assumptions regarding general economic conditions. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.”
Our business plan execution and success are predicated upon the Company obtaining the necessary financing either through additional equity or debt beyond our recently completed direct public offering. If we are not able to obtain the necessary levels of financing as determined by the above steps, we will not be able to meet or achieve any of our time-line objectives. Even if we complete 75% or 50% of our additional financing objectives, we most likely will not be able to pursue our timeline goals or action steps. In that case the Company will be forced to proceed piecemeal using primarily the services of our founder, and possibly limited use of outside contractors when and if funds are obtained. Our founder devotes in excess of twenty (20) hours a week to our business efforts. There is no realistic way to predict the timing or completion in that scenario.
Without additional financing to our recently completed direct public offering proceeds we will not be able to pursue our business plan or its timeline objectives, and the Company may fail entirely.
It is our plan to seek additional financing from either equity financing or through debt instruments. These efforts will most likely occur after our direct public offering is complete and the aggregate proceeds have been received. Company’s management has, through relationships and strategic partnerships, begun the necessary work on a portion of our intended LTL service management products that we believe will be desired in the marketplace as well as our intended LTL service management integration services. Our founder primarily provided these services through the date of this Quarterly Report. Our business plan requires further execution and completion of these tasks which will require us hiring additional employees or outside contractors and consultants. With the level of sophistication and expertise that our founder, and Chief Executive Officer possesses, as well as the industry professionals that he knows, the Company should be able to make progress in its development of our intended LTL service management system and services, but currently no specific timeframe can be provided at this time. Most if not all of these efforts are predicated on the Company obtaining the necessary financing to accomplish these steps. If financing is not available on terms reasonable to the Company and its shareholders, then the steps laid out for this business plan will not occur as planned and may never occur.
We currently have no sources of financing and no commitments for financing. There are no assurances that we will obtain sufficient financing or necessary resources to enter into contractual agreements with developers or sales and marketing firms. We currently do not have sufficient cash or other resources to commence the use of outside contractors or service providers with industry experience. If we do not receive sufficient funding or financing, our business could likely be maintained with minimal operations for a period of 12 months because our founder, we believe will continue providing services without cost. We do not have a formal agreement in place with our founder, covering for past or future services. His plan is to provide substantially all of the administrative and planning work, programming and marketing efforts on his own without any cash or equity consideration. Our founder will continue to seek other sources of funding on behalf of the Company.
As a corporate policy, we generally will not incur any cash obligations that we cannot satisfy with immediately available resources, of which there are currently none. We believe that the perception that many people have of a public company make it more likely that they will accept restricted securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies on this matter. Our conclusion is based solely on our own observations. There are no assurances that we will be successful in any of these efforts even if we become a public entity. Additionally, the issuance of restricted stock will dilute the ownership interest of all of our stockholders.
Result of Operations for the six month period ended October 31, 2017 as Compared to the six month period ended October 31, 2016
Expenses - Expenses for the six month period ended October 31, 2017 were $100,857. Internal use coding and smart-app development costs were $47,600. The Company completely amortized its purchased coding and smart-app development costs over the prior twelve month period ended October 31, 2017. The Company incurred $46,257 in administrative and other costs associated with operations. The Company incurred legal and professional fees of $7,000. These legal and professional costs were not associated with our recently completed direct public offering efforts and therefor expensed. Expenses for the six month period ended October 31, 2016 was $57,900. Internal use coding and smart-app development costs were $28,400. The Company incurred $22,500 in administrative and other costs associated with our operations. The Company amortized $2,000 of its purchased coding and smart-app development costs. The Company incurred legal and professional fees of $5,000. Expenses for the six month period ended October 31, 2017 are significantly higher than expenses for the six month period ended October 31, 2016, and are not necessarily indicative of a full years operations for the Company’s business due to its recently completed public offering.
Loss before provision for income taxes - Loss before provision for incomes taxes for the six month period ended October 31, 2017 was $100,857. Loss before provision for incomes taxes for the six month period ended October 31, 2016 was $57,900. We recorded no provision for federal or state income taxes for either period. We have not generated any revenues from our intended LTL service management products or LTL management information services.
Basic and diluted loss per share - Basic and diluted loss per share for the six month period ended October 31, 2017 was $0.01 per share. Basic and diluted number of shares outstanding was 17,701,087. Basic and diluted loss per share for the six month period ended October 31, 2016 was $0.00 per share. Basic and diluted number of shares outstanding was 15,000,000.
Result of Operations for the three month period ended October 31, 2017 as Compared to the three month period ended October 31, 2016
Expenses - Expenses for the three month period ended October 31, 2017 were $48,215. Internal use coding and smart-app development costs were $22,000. The Company completely amortized its purchased coding and smart-app development costs over the prior twelve month period ended October 31, 2017. The Company incurred $19,215 in administrative and other costs associated with operations. The Company incurred legal and professional fees of $7,000. These legal and professional costs were not associated with our recently completed direct public offering efforts and therefor expensed. Expenses for the three month period ended October 31, 2016 was $32,500. Internal use coding and smart-app development costs were $14,400. The Company incurred $12,100 in administrative and other costs associated with our operations. The Company amortized $1,000 of its purchased coding and smart-app development costs. The Company incurred legal and professional fees of $5,000. Expenses for the three month period ended October 31, 2017 are significantly higher than expenses for the three month period ended October 31, 2016, and are not necessarily indicative a full years operations for the Company’s business due to its recently completed public offering.
Loss before provision for income taxes - Loss before provision for incomes taxes for the three month period ended October 31, 2017 was $48,215. Loss before provision for incomes taxes for the three month period ended October 31, 2016 was $32,500. We recorded no provision for federal or state income taxes for either period. We have not generated any revenues from our intended LTL service management products or LTL management information services.
Basic and diluted loss per share - Basic and diluted loss per share for the three month period ended October 31, 2017 was $0.00 per share. Basic and diluted number of shares outstanding was 20,402,174. Basic and diluted loss per share for the three month period ended October 31, 2016 was $0.00 per share. Basic and diluted number of shares outstanding was 15,000,000.
Since acquiring the business plan most of our resources and work have been devoted to executing our business, writing of software code, testing and modification of our intended LTL services management system, implementing financial systems and internal controls, and preparing for our recently completed direct public offering. When these procedures are completed, which we believe may occur over the next few months, we will focus once again on our product and service offerings as well as push the internal development of our software. We have developed a robust framework and design, as well completed our coding of a beta version of the intended software. We believe professional coding and software programmers are needed to develop and complete our software and smart-app development. This includes attracting software developers or coders, and developing and perfecting a marketing plan, including the development and launch of a saleable product suite, will range cost us more than $300,000 and $500,000. If we are able to secure funding to outsource these steps, of which there are no assurances, we can commence the launch of our intended LTL service management system product and LTL management information services for the end user (shippers) and the logistics provider (the truck driver). If we are able to use internal resources only (primarily the services of our founder, and Chief Executive Officer), the process will take much longer and our initial launch may be limited to a much smaller target market. If we are unable to raise any funds, development costs would have to be provided solely by our founder, to the extent that he is capable and willing to provide such services. While we engaged the services of an established coding and smart-app development firm, their function and assistance to us is limited by our availability of financing and payment terms. Our goal would be to have software product, and other related services available, multiple sales channels and a comprehensive website/smartphone app up and running within one year, but there is no way of estimating what the likelihood of achieving that goal would be.
Private capital, if sought, we believe will be sought from business associates of our founder, or through private investors referred to us. To date, we have not sought any funding source and have not authorized any person or entity to seek out funding on our behalf. If a market for our shares ever develops, of which there can be no assurances, we may use restricted shares of our common stock to compensate employees, consultants and independent contractors wherever possible. We cannot predict the likelihood or source of raising capital or funds that may be needed to complete the development of our business plan and its stages as outlined above.
We embarked upon an effort to become a public company and, by doing so, have incurred and will continue to incur additional significant expenses for legal, accounting and related services. Once we become a public entity, subject to the reporting requirements of the Exchange Act of 1934, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses including annual reports and proxy statements, if required. We estimate that these costs will be $75,000 per year over the next few years and may be significantly higher if our business volume and transactional activity increases but should be lower during our first year of being public because our overall business volume (and financial transactions) will be lower, and we will not yet be subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we exceed $75 million in market capitalization (if ever). These obligations will certainly reduce our ability and resources to expand our business plan and activities. We hope to be able to use our status as a public company to increase our ability to use noncash means of settling outstanding obligations (i.e. issuance of restricted shares of our common stock) and compensate independent contractors who provide professional services to us, although there can be no assurances that we will be successful in any of these efforts. We will also reduce compensation levels paid to management (if we attract or retain outside personnel to perform this function) if there is insufficient cash generated from operations to satisfy these costs.
There are no current plans to seek private investment. We do not have any current plans to raise funds through the sale of securities except as set forth herein. We hope to be able to use our status as a public company to enable us to use non-cash means of settling obligations and compensate persons and/or firms providing services to us, although there can be no assurances that we will be successful in any of those efforts. We believe that the perception that many people have of a public company make it more likely that they will accept restricted securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies of this matter. Our conclusion is based on our own beliefs and the advice that we have received from various business professionals. Issuing shares of common stock to such persons instead of paying cash to them may increase our chances to establish and expand our business and business opportunities. Having shares of our common stock may also give persons a greater feeling of identity with us which may result in referrals. However, these actions, if successful, will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of Company because the shares may be issued to parties or entities committed to supporting existing management. The Company may offer shares of its common stock to settle a portion of the professional fees incurred in connection with its Registration statement. No negotiations have taken place with any professional and no assurances can be made as to the likelihood that any professional will accept shares in settlement of obligations due them.
As of October 31, 2017 and April 30, 2017, respectively, we owed approximately $235,000 and $169,000 in connection with coding and smart-app development costs incurred, consulting services due and owing. We have not entered into any formal agreements, written or oral, with any vendors or other providers for payment of services or expenses. There are no other significant liabilities as of October 31, 2017. Based on the foregoing we exist month to month primarily on the ability of our founder to negotiate either the delay of or payment plans to be put in place with respect to our expenses. Our current use of funds in operations is $5,000 to $6,000 per month, with a deferral of $10,000 to $12,500 per month for certain other expenses related to our software developers and other.
As of October 31, 2017 and April 30, 2017, we owed $19,269 and $43,371 in connection with interest-free demand loans from several unrelated parties, respectively. The proceeds of which were used for basic working capital purposes.
As of October 31, 2017 and April 30, 2017, we owed $216,000 and $126,000, respectively to our ‘as needed’ basis coding and smart-app development firm and other consultants. The coding and smart-app development firm and/or consultants do not perform their function or services pursuant to any formal agreements with the Company. The coding and smart-app development firm has been working with us on a deferral basis and we expect to continue in this manner until we have sufficient financing in place. We do not foresee any time in the near future that we will enter into any formal agreements with these vendors.
Recently Issued Accounting Pronouncements
Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of the notes to our unaudited Financial Statements for information regarding new accounting pronouncements.
Critical Accounting Policies
The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made. Note 2 to the financial statements, included elsewhere in this Quarterly Report, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Pursuant to Item 305(e) of Regulation of S-K (§229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures
Management's Quarterly Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of October 31, 2017.
This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. As we are a non-accelerated filer, management's report is not subject to attestation by our registered public accounting firm.
This Quarterly Report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section , and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Limitations on the Effectiveness of Controls
Management has confidence in its internal controls and procedures. The Company’s management believes that a control system, no matter how well designed and operated can provide only reasonable assurance and cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitation in all internal control systems, no evaluation of controls can provide absolute assurance that all control issuers and instances of fraud, if any, within the Company have been detected.
Changes in Internal Controls
There were no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended October 31, 2017 that have materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
There are no legal proceedings which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.
Item 1a – Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. We have elected to include this information as additional disclosure reporting due to our recently completed direct public offering (August 23, 2017).
The following risk factors should be considered in connection with an evaluation of our business:
In addition to other information in this Quarterly Report (the “Report”), the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, result of operations, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, if and when a trading market for our securities is established, the trading price of our securities could decline, and you may lose all or part of your investment.
THE SECURITIES BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THE ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE FILING, INCLUDING ALL EXHIBITS, AND CAREFULLY CONSIDER, AMONG OTHER FACTORS THE FOLLOWING RISK FACTORS.
You should be aware that there are substantial risks for an investment in our common stock. You should carefully consider these risk factors, along with the other information included in the Company’s Registration statement filed on Form S-1, its Annual Report filed on Form 10-K or this Quarterly Report, before you decide to invest in our common stock.
If any of the following risks were to occur, such as our business, financial condition, results of operations and/or other prospects, any of these could materially affect our likelihood of success. If that happens, the market price of our common stock, if any, could decline, and prospective investors would lose all or part of their investment in our common stock.
Risks Related to the Business
1.The Company has virtually no financial resources. Our independent registered public accounting firm’s report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
The Company is an early stage company with virtually no financial resources. We have negative working capital of $202,273 and accumulated deficit of $253,112 as of October 31, 2017. Our independent registered public accounting firm’s report included an explanatory paragraph in their opinion on our financial statements as of and for the period ended April 30, 2017 that states that “the Company’s losses from operations raise substantial doubt about its ability to continue as a going concern”. We will be required to seek additional financing beyond amounts received from our recently completed direct public offering. Additional financing sought may be in the form of equity or debt from sources yet to be identified. Once we complete our direct public offering (which we most recently did), most efforts of management will be redirected to the further execution of our business plan and the pursuit of revenue producing activities. Despite the success of our recently completed direct public offering, management will seek additional financing to further pursue and execute on our business plan and the pursuit of revenue producing activities. No assurances can be given that we will generate sufficient revenue (or any at all) or obtain financing needed to continue as a going concern.
Current resources and source of working capital funds, primarily consist of loans from unrelated third parties who are current or former business associates of our founder, President and Chief Executive Officer. These sources we believe to be sufficient to keep our business operations functioning for the next three to nine months. While we do not have a formal agreement with our founder, nor the unrelated third parties to fund the Company’s working capital needs, we believe that our founder’s plan is to perform most of the work required on his own without any cash compensation while he seeks other sources of funding, as well as seek the delay or deferral of payment to third party vendors and unrelated third parties which have currently helped with our working capital needs to date. Much of the initial work on the Company’s software system has been through the efforts of Mr. Ludington, as well as from our use of employees from a reputable coding and smart-app development firm with which we have contracted. We will spend generally between $10,000 and $15,000 per month in operational expenses not related to our recently completed direct public offering. We have not generated any revenues from our operations, and our expenses will continue to accrue or be deferred until sufficient additional financing is obtained. Additional financing may be obtained through our founder, family members of our founder or others familiar with our founder’s professional work experience. To date, the Company received interest free loans and secured the deferral of payment for services from our third party vendors to fund our operations. No assurances can be provided that we will continue to receive funds from these sources or continue our operations beyond a month-to-month basis.
2.The Company is dependent on the services of our founder, whose lack of experience in the technical market and limited availability may cause our business operations to fail or cease; we will need to engage and retain additional qualified employees and/or consultants to further implement our business strategy.
Company’s operations and business strategy is dependent upon the services and business acumen of Mr. Ludington, our founder and Chief Executive Officer. Mr. Ludington is under no contractual obligation to remain employed by us. If he should choose to leave us for any reason, or if he becomes ill and is unable to work for an extended period of time before we hire additional personnel, our operations could fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop and execute our business along the lines described in this Quarterly Report. We would most certainly fail without the services of Mr. Ludington or an appropriate replacement.
We intend to acquire key-man life insurance on the life of Mr. Ludington naming us as the beneficiary when and if we have the necessary resources to do so. We have not yet procured or sought out key-man life insurance, and there is no guarantee that we will be able to obtain such key-man life insurance in the future on Mr. Ludington. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and/or independent contractors to further the Company’s business efforts.
Despite Mr. Ludington’s experience through his current and past professional employment, he has little to no experience in the smart phone application development market. Additionally, Mr. Ludington has limited time to devote to the Company due to his other professional commitments. In order to compensate for his lack of experience in this market and perceived limits on time, the Company and Mr. Ludington have available to them the coding and smart-app development firm, which can expand their involvement and activity with our product development. This firm and its people are readily accessible and can expand capacity or provide additional services to the Company as it grows. There can be no assurance that the Company and its management will be able to overcome Mr. Ludington’s lack of experience and limited availability to achieve our business objectives.
3.Because we recently commenced operations, we face a high risk of business failure.
We recently incorporated in April 2016. Most of our efforts to date as a corporation have been related to executing our business plan and expanding our operations, which include the development and programming for our LTL service management system which consists of software and complicated algorithms to be used in a smart-phone application by the average user. We have had no revenues. We face a high risk of business failure. The likelihood of success for our Company must be considered in light of its significant expenses, complications and delays frequently encountered with a new business and the competitive environment in which the Company will operate. There can be no assurance that future revenues from the Company’s LTL service management product or other services will occur or be significant enough or that we will be able to sell it at a profit, if at all. Future revenues and/or profits, if any, will depend on many factors, including, but not limited to market acceptance of the Company’s LTL service management products or other services and the successful implementation of our strategy.
4.Because we have no saleable product or service, acquired or developed, we face a high risk of business failure.
The Company has not yet acquired or fully developed any product or services that are saleable in the marketplace. We may not be able to acquire or internally develop any product or services in the future because of the lack of funds or financing to do so. In order for us to fully develop or acquire any products or services, we must be able to secure the necessary financing, beyond just the proceeds of our recently completed direct public offering. In the early stages of our operations, we intend to keep costs to a minimum. The cost to develop our product or services as currently outlined will be in excess of $300,000. We have no established source of funds to undertake the business strategy as outlined. Until we obtain funding, if ever, we will keep our operating costs as low as possible with our founder, and Chief Executive Officer providing most of the administrative and other functions on his own without any cash compensation. We currently use the services of a coding and smart-app development firm with which the Company has been working with on an as “needed basis.” We do not plan to pay them in full or even partially pay them for their services. Any payments that may occur would be over an extended period of time, even once we complete our direct public offering. We currently do not have any specific payment terms with this firm to continue with their services, and we may need to seek the services of another firm to replace them if they require payment for services that we cannot meet at the time. This methodology may result in our product development being extended for another two to three years. We believe that our LTL management information services segment (once developed, if at all) may generate revenues earlier than the LTL service management system products (software) segment (once developed, if at all). If we are unable to obtain adequate funding or financing, the Company faces the likelihood of business failure. There are no assurances that we will be able to raise any funds or establish any financing for the Company’s growth.
In addition, the Company’s profitability, if any, could be materially and adversely impacted if any one or more of its acquired or developed technological products or services were to experience poor operating results. The Company’s ability to achieve profitability will be dependent on the ability of its intended products or services to generate sufficient operating cash flow to fund intended growth and/or acquisitions. There can be no assurance that the Company’s results of operations will be profitable or that our strategy will be successful or even begin to generate any revenues.
5.We may not have or ever have the resources or ability to implement and manage our growth strategy.
Although the Company expects to experience growth based on the ability to implement and execute its business strategy, actual operations may never occur because the business plan may never be fully implemented because of the lack of funds in order to do so. If the Company’s business plan and growth strategy are implemented, of which no assurances can be provided, a significant strain on management, operating systems and/or financial resources will be imposed. Failure by the Company’s management to manage this expected growth, if it occurs, or unexpected difficulties are encountered during this growth, could have a material adverse impact on the Company’s results of operations or financial condition.
The Company’s ability to operate profitable revenue generating product or service lines (if we are able to establish any product or service lines at all) will depend upon a number of factors, including (i) identifying appropriate and satisfactory distribution channels, (ii) generating sufficient funds from our then existing operations or obtaining third-party financing or additional capital to develop new product and/or service lines, (iii) the Company’s management team and its financial and accounting controls and (iv) staffing, training and retention of skilled personnel. Certain of these factors most likely will be beyond the Company’s control and may be adversely affected by the economy or actions taken by competing businesses. Moreover, potential products or services that may meet the Company’s focus and other criteria for developing new products and/or services, if we are able to develop or acquire them at all, are believed to be severely limited. There can be no assurance that the Company will be able to execute and manage a growth strategy effectively or at all.
6.We may not be successful in hiring technical personnel because of the competitive market for qualified technical people.
The Company’s success depends largely on its ability to attract, hire, train and retain highly qualified technical and industry knowledgeable personnel to provide the Company’s services. Competition for such personnel is intense. There can be no assurance that the Company will be successful in attracting and retaining the technical and industry specific personnel it requires to conduct and expand its operations successfully and to differentiate itself from its competition. The Company’s results of operations and growth prospects could be materially adversely affected if the Company were unable to attract, hire, train and retain such qualified personnel.
7.Our reliance on referrals from outside contacts to develop business may not be effective.
The Company initially will rely on our founder, and Chief Executive Officer, Mr. Ludington, for a majority of its business leads and believes that other LTL industry consultants may be an important source of business referrals in the foreseeable future. However, as is typical within the industry, there are no contractual requirements that these industry consultants or outside reps will use or recommend the Company’s services in connection with product sales or the sale of specific services offered by the Company. We currently have no contracts or agreements in place with any outside sales reps or business professionals (industry consultants). No assurances can be given that using independent outside sales reps will result in any meaningful numbers of sales leads or referrals.
8.Fluctuations in our financial results make quarterly comparisons and financial forecasting difficult.
The Company’s future or projected quarterly operating results may vary and reduced levels of earnings or continued losses may be experienced in one or more quarters. Fluctuations in the Company’s quarterly operating results could result from a variety of factors, including changes in the levels of revenues derived from LTL service management applications development, and/or LTL service managed services, the size and timing of significant orders, changes in the mix of employee and subcontractors on projects, the timing of new offerings by the Company or its competitors, new office openings by the Company, changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced services offered by the Company or its competitors, changes in operating expenses, availability of qualified technical personnel, disruptions in sources of related services and services, the effect of potential acquisitions and industry and general economic factors. The Company will have limited or no control over many of these factors. The Company’s expense levels we believe will be based upon, in part, on its expectations as to future or projected revenues. If revenue levels are below expectations, operating results are likely to be adversely affected.
Because of these fluctuations and uncertainties, our operating results may fail to meet the expectations of investors. If this happens, any trading price of our common stock would almost certainly be materially adversely affected.
9.We will face competition from businesses with significantly greater resources and name recognition.
The markets in which the Company intends to operate are characterized by intense competition from several types of solution and technical service providers. These include value added resellers (VARs), LTL and logistics management systems integrators and freight delivery business consultants, as well as computer, hardware and other software providers. In addition, there can be no assurance that the Company’s prospective and potential clients will not seek to further develop their in-house capabilities and perform internally more or all of the services that the Company intends to offer. The Company expects to face further intense competition from new market entrants and alliances among competitors as the convergence of information processing and telecommunications used in the LTL management systems continue. Many current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be better able to respond or adapt to new or emerging technologies and changes than the Company. They may be able to devote greater resources to the development, marketing and sales of services than the Company. There can be no assurance that the Company will be able to compete successfully. The Company generally expects to encounter intense competition. The Company will compete for revenues with other software providers that offer similar services or with limited adaption used in place of ours. In addition, the Company will face numerous competitors, both strategic and financial, in attempting to obtain competitive services. Many actual and potential competitors we believe are part of much larger organizations with substantially greater financial, marketing and other resources than us. There is no assurance that the Company will be able to compete effectively against any of our future competitors.
10.Our potential users of our intended software and services operate in a highly regulated industry, and changes in existing regulations or violations of existing or future regulations could have a material adverse effect on our business, results of operations and profitability.
While we are a technology driven business, our potential users operate in the United States pursuant to operating authority granted to them by the Department of Transportation, or DOT. Our potential user’s drivers must comply with the safety and fitness regulations of DOT, including those relating to drug and alcohol testing and hours-of-service. Such matters as equipment weight, aerodynamics and dimensions are subject to government regulations. Our potential user’s may become subject to new or more restrictive regulations relating to fuel emissions, drivers' hours-of-service, ergonomics, on-board reporting of operations, collective bargaining, security at ports and other matters affecting safety or operating methods. Other agencies, such as the Environmental Protection Agency, or EPA, and the Department of Homeland Security regulate their equipment, operations and drivers. Several proposed and pending regulations also may have a material adverse effect on our potential user’s business, results of operations and profitability that will in turn effect our business and prospects. Future laws and regulations may be more stringent, require changes in our potential user’s operating practices, influence the demand for transportation services, or require them to incur significant additional costs. Higher costs incurred by our potential user’s and their suppliers who will ultimately pass the costs onto the user’s and ultimately onto us through higher prices which could adversely affect our results of operations and the planned use of our intended product and services.
In the aftermath of the September 11, 2001 terrorist attacks, federal, state and municipal authorities implemented and continue to implement various security measures, including checkpoints and travel restrictions on large trucks. The Transportation Security Administration, or TSA, has adopted regulations that require determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat. This could reduce the pool of qualified drivers, which could require our intended user’s to increase driver compensation, limit their growth, or cause their tractors to sit idle, which will in turn could affect us negatively and hurt our chances of success. These regulations also could limit the availability of equipment for hazardous material shipments and as a result, our intended customers may fail to meet the needs of their customers or may incur increased expenses because of these regulations in turn affecting our prospects. These security measures could indirectly negatively impact our results of operations.
11.Our intended users business is subject to certain factors that affect the freight delivery business and are largely beyond their control, any of which could have a material adverse effect on our results of operations.
While we are a technology driven business our potential users are subject to certain conditions and events that affect the freight delivery business and that are largely beyond their control, any of which could have a material adverse effect on the results of their operations as well as our operations. These include license and registration fees, tolls, strikes or other work stoppages at customer, port, border or other shipping locations, damage or deterioration of infrastructure, roadways, railways or bridges, taxes associated with infrastructure repair or maintenance, actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or groups located in a foreign state or heightened security requirements which could lead to reduced economic demand, reduced availability of credit or temporary closing of shipping locations, transportation routes or U.S. borders. Such conditions or events or enhanced security measures in connection with such events could impair our intended users’ business as well as our operating efficiency and productivity and result in higher operating costs far outweighing any chance for our product and services to make a profit.
12.Our intended users have significant ongoing capital requirements that could adversely affect financial condition, results of operations and cash flows if they are unable to generate sufficient cash from operations.
The freight delivery business is capital-intensive. Historically, we believe that many of our potential users have been dependent on cash from operations, borrowings from financial institutions and leases to expand and upgrade revenue equipment. We believe that additional expenditures will be required to upgrade and expand their revenue equipment fleet. If they, the intended users of our product and services are unable to generate sufficient cash from operations and obtain borrowing on favorable terms in the future, they may have to limit their fleet size, enter into less favorable financing arrangements or operate their revenue equipment for longer periods of time. Accordingly, our potential users may be unable to decrease the age of, or expand, their revenue equipment fleet, which would materially and adversely affect their financial condition which in turn would materially and adversely affect our business by less use of our intended product and services or no use at all.
13.There are significant potential conflicts of interest.
Our personnel will be required to commit substantial time to our affairs and, accordingly, our personnel may have a conflict of interest in allocating management time among business activities. In the course of other business activities, certain key personnel may become aware of business opportunities which may be appropriate for presentation to us, as well as other businesses with which they are affiliated. As such, there may be conflicts of interest in determining to which entity a particular business opportunity should be presented to.
In an effort to resolve such potential conflicts of interest, we have entered into a written agreement with Mr. Ludington specifying that any business opportunities that he may become aware of independently or directly through his association with us (as opposed to disclosure to him of such business opportunities by management or consultants associated with other business entities) would be presented by him solely to the Company. A copy of this agreement was filed as Exhibit 10.1 to our Form S-1 registration statement.
We cannot provide any assurance that our efforts to eliminate the potential impact of conflicts of interest will be effective.
14.We will need to establish additional relationships with local software coders and information technology (IT) consultants to fully develop and market our company and its intended products and/or services.
We do not possess all of the resources necessary to develop and commercialize our intended LTL service management products and/or LTL management information services on a large commercial scale. We will need to develop and establish a network of third-party agents that will help us in carrying out our intended market rollout, as well as develop and then enhance marketing and sales strategy through arrangements with software coders and other information technology consultants to develop and commercialize our planned LTL management information services. If we are unable to enlist the services of third-party vendors, or seek out the necessary IT consultants, our business will suffer.
15.On June 16, 2017 we became subject to the periodic reporting requirements of Section 15(d) of the Exchange Act. This requires us to incur audit and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
Following the effective date of our Registration statement filed on Form S-1, we were required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will now be required to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will be required to review and assist in the preparation of these very reports. Costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will affect the amount of time spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. We may be exposed to potential risks resulting from any new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
16.Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
We will not be required to provide an assessment of the effectiveness of internal controls over financial reporting until our second annual report after the completion of our direct public offering. And our auditor’s attestation of management’s evaluation of effectiveness of the internal controls is not required as long as we are an emerging growth company under the Jumpstart Our Business Startups Act and/or a smaller reporting company as that term is defined. Despite these requirements, any delayed implementation of our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated. Investors relying upon this misinformation may make an uninformed investment decision.
17.We are an emerging growth company within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions from reporting requirements that are available to emerging growth companies, our financial statements may not be comparable to companies that comply with public company effective dates.
We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
18.The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we will be required to comply with numerous financial reporting and legal requirements, including those pertaining to annual audits, quarterly review and reporting and internal controls. The costs of this compliance could be quite significant. If revenues are insufficient, or we cannot satisfy many of these costs through the issuance of shares, we may be unable to satisfy these costs through the normal course of business which would result in being unable to continue as a going concern.
19.Having only one director limits our ability to establish effective independent corporate governance procedures and increases the control of our founder and Chief Executive Officer.
We have only one director who serves as our sole executive officer. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation or audit issues. In addition, currently a vote of the board of directors is decided in favor of our chairman (who is our founder and Chief Executive Officer), which gives him complete control over all corporate issues and decisions.
Until we have a larger board of directors that include some independent members, if ever, there will be limited oversight of our founder and Chief Executive Officer’s decisions and activities and little ability for minority shareholders to challenge or reverse those actions and decisions.
Risks Related to Our Common Stock
20.The Company sold shares without the assistance of an underwriter.
Our shares of common stock were offered on our behalf by Mr. Ludington, our founder and Chief Executive Officer, on a best-efforts basis. No broker-dealer was retained as an underwriter and no broker-dealer was under any obligation to purchase any shares of common stock. There were no firm commitments to purchase any of the shares. The sale of a small number of shares of common stock increases the likelihood of no market ever developing for our common stock.
21.Only a few persons purchased shares of our common stock; they may lose their entire investment without us being able to develop a market for our shares.
While all of our offering was sold, a limited number of investors purchased our shares, despite this we may be unable to create a public market of any kind for the shares sold. In such an event, it is highly likely that the entire investment of by investors in our common stock would be lost.
22.Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized (100,000,000) shares but unissued (78,000,000) shares. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute common stock book value, and that dilution may be material.
23.The interests of shareholders may be hurt because we can issue shares of our common stock to individuals or entities that support existing management with such issuances serving to enhance management’s ability to maintain control.
Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued common shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests of existing management which may not be the same as the interests of other shareholders. Our ability to issue shares without shareholder approval serves to enhance existing management’s ability to maintain control of our company.
24.Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability that may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our Articles of Incorporation at Article XI provide for indemnification as follows: “No director or officer of the corporation shall be personally liable to the corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer: (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of an Article by the stockholders of the corporation shall be prospective only, and shall not adversely affect any limitation of the personal liability of a director or officer of the corporation for acts or omissions prior to such repeal or modification.”
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
25.Currently, there is no established public market for our securities, and there can be no assurances that any established public market will ever develop or that our common stock will be quoted for trading and, even if quoted, it is likely to be subject to significant price fluctuations.
Prior to this Quarterly Report, there has not been any established trading market for our common stock, and no public market whatsoever for our securities. While a market maker has been formerly approached to file an application with FINRA on our behalf, they may not be successful. The market maker is expected to file that application in order to be able to quote our shares of common stock on the OTCBB maintained by FINRA. This market maker will only file this application upon the effectiveness of our registration statement. There can be no assurance that this market maker’s application, will be accepted by FINRA nor can we estimate as to how much time this application requires. We are not permitted to file such application on our own behalf. If this application is accepted by FINRA, there can be no assurances as to whether –
(i)any market for our shares will develop;
(ii)the prices at which our common stock will trade; or
(iii)the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
If our shares of common stock are able to be quoted on the OTCBB, we will then try, through a broker-dealer and it’s clearing firm, to become eligible with the Depository Trust Company (“DTC”) in order to permit our shares to trade electronically. Generally if an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCBB), means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all companies on the OTCBB. What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company’s stock is going to trade with any volume. There are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of the Company and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
Because of the anticipated low price of the securities being registered, many brokerage firms may not be willing to effect transactions in these securities. Purchasers of our securities should be aware that any market that develops in our stock will be subject to the penny stock restrictions.
26.Any market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions pertaining to low priced stocks may create a lack of liquidity and make trading difficult or impossible.
The trading of our securities, if any, will be in the over-the-counter bulletin board market which is commonly referred to as the “OTCBB” as maintained by FINRA. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of, our securities.
Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
the basis on which the broker or dealer made the suitability determination; and
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions’ payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Additionally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their securities.
27.The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by sales persons;
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
28.Any trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws that prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible for us to sell shares in those states.
Currently there is no established public market for our common stock, there can be no assurance that any established public market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary trading of our common stock. We currently do not intend to and may not be able to qualify securities for resale in at least 18 states which do not offer manual exemptions (or may offer manual exemptions but may not to offer one to us if we are considered to be a shell company at the time of application) and require shares to be qualified before they can be resold by our shareholders. Accordingly, investors should consider the secondary market for our securities to be a limited one.
29.Our board of directors (consisting of one person, our founder and sole officer) has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate control over us.
Our articles of incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock, and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
30.The ability of our founder to control our business may limit or eliminate minority shareholders’ ability to influence corporate affairs.
Our founder owns an aggregate of 68% of our outstanding common stock. Because of his beneficial stock ownership, our founder continues to be in a position to continue to elect our board of directors, decide all matters requiring stockholder approval and determine our policies. The interests of our founder may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. Minority shareholders would have no way of overriding decisions made by our founder. This level of control may also have an adverse impact on the market value of our shares because our founder may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community, or may sell sufficient numbers of shares to significantly decrease our price per share.
31.A significant amount of our presently issued and outstanding common shares are restricted under Rule 144 of the Securities Act, as amended. When the restriction on any or all of these shares is lifted, and the shares are sold in the open market, the price of our common stock could be adversely affected.
Most of the presently outstanding shares of common stock (15,000,000 shares of 22,000,000 shares of common stock) are “restricted securities” as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. Rule 144 provides in essence that a person who is not an affiliate and has held restricted securities for a prescribed period of at least six (6) months if purchased from a reporting issuer or twelve (12) months (as is the case herein) if purchased from a non-reporting Company, may, under certain conditions, sell all or any of his shares without volume limitation, in brokerage transactions. Affiliates, however, may not sell shares in excess of 1% of the Company’s outstanding common stock every three months. As a result of revisions to Rule 144 which became effective on February 15, 2008, there is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for at least 90 consecutive days) after the restricted securities have been held by the owner for the aforementioned prescribed period of time. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
All 15,000,000 issued and outstanding shares of our restricted common stock are owned by our founder, which consists of 11,000,000 and 4,000,000 shares issued for organizational services and intangible assets, respectively, which may be sold commencing one year from the date our offering was completed.
32.We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
33.Because we are not subject to compliance rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors (currently one person) are independent directors, we do not currently have independent audit or compensation committees. As a result, our directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters. As a result, our investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors or members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
34.You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.
The date our registration statement became effective, we were automatically subject to certain informational requirements of the Exchange Act, as amended and we are required to file periodic reports (i.e., annual, quarterly and material events) with the SEC which shall be immediately available to the public for inspection and copying. In the event that during the year that our registration statement became effective (which occurred on June 15, 2017), these reporting obligations may be automatically suspended by us under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8-A (of which we have no current plans to file). Again if this action occurs after the year in which our registration statement becomes effective (after June 15, 2018), we may be no longer be obligated to file such periodic reports with the SEC and therefore access to our business information could be even more restricted. After our registration statement filed on Form S-1 became effective (June 15, 2017), we are required to deliver periodic reports to security holders as proscribed by the Exchange Act, as amended. However, we are not required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners are not required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. Access to information regarding our business and operations will be limited.
35.If we are designated a shell company your ability to resell your shares would be limited.
A significant portion of our presently issued and outstanding shares of our common stock are “restricted securities” as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. The SEC has adopted final rules amending Rule 144 which have become effective on February 15, 2008. Pursuant to the new Rule 144, one year must elapse from the time a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, ceases to be a “shell company” and files a Form 8-K addressing Item 5.06 with such information as may be required in a Form 10 Registration Statement with the SEC, before a restricted shareholder can resell their holdings in reliance on Rule 144. The Form 10 information or disclosure is equivalent to the information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act. Under amended Rule 144, restricted or unrestricted securities that were initially issued by a reporting or non-reporting shell company or a company that was at any time previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met:
1) the issuer of the securities that was formerly a reporting or non-reporting shell company has ceased to be a shell company;
2) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
3) the issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months (or shorter period that the Issuer was required to file such reports and materials), other than Form 8-K reports; and
4) at least one year has elapsed from the time the issuer filed the current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
At the present time, we are not classified as a “shell company” under Rule 405 of the Securities Act Rule 12b-2 of the Exchange Act. To the extent the Company is designated a shell you would be unable to sell your shares under Rule 144.
For all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the future involves a high degree of risk.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of our equity securities during the period covered by this quarterly report.
Item 3 – Defaults upon Senior Securities
Item 4 – Mine Safety Disclosures
Item 5 – Other Information
Item 6 – Exhibits
The following documents for Freight Solution, Inc. are filed as an integral part of this Quarterly Report on Form 10-Q and may be included by reference as listed below:
Articles of Incorporation
Code of Business Conduct and Ethics, Freight Solution, Inc.
Section 302 Certification
Section 302 Certification
Section 906 Certification
XBRL Instance Document#
XBRL Taxonomy Extension Schema#
XBRL Taxonomy Extension Calculation Linkbase#
XBRL Taxonomy Extension Definition Linkbase#
XBRL Taxonomy Extension Labels Linkbase#
XBRL Taxonomy Extension Presentation Linkbase#
* - Filed with our Form S-1 Registration Statement dated March 27, 2017.
# The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FREIGHT SOLUTION, INC.
Date: December 11, 2017
/s/ Shane Ludington
Chairman, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Quarterly Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Shane Ludington
Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
December 11, 2017