BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

BUSINESS COMBINATIONS

NOTE 3 – BUSINESS COMBINATIONS

Titan Trucking, LLC Reverse Acquisition

The Company’s subsidiary Titan Merger Sub Corp. (“Merger Sub”), Titan Trucking and the owners of Titan Trucking (“Titan Trucking owners”) entered into a merger agreement (the “Titan Merger Agreement”) on May 19, 2023 (the “acquisition date”). Pursuant to the terms of the Titan Merger Agreement, Merger Sub was merged with and into Titan Trucking on the acquisition date with Titan Trucking surviving as a wholly-owned subsidiary of the Company (the “Titan Merger”). For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Under the terms of the Titan Merger Agreement, the Company agreed to pay the Titan Trucking owners 630,900 shares of the Company’s Series A Preferred Stock. Concurrent to the Titan Merger, the Company’s chief executive officer and one of the Company’s directors resigned from their respective positions and a new chief executive officer, chief operating officer and chief financial officer were appointed. Additionally, the new chief executive officer and chief operating officer were both appointed as directors of the Company.

In accordance with ASC 805 – Business Combinations, the Titan Merger was accounted for as a reverse acquisition with Titan Trucking being deemed the accounting acquirer of Titan. Titan Trucking, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Titan at their fair values as of the acquisition date. Titan Trucking’s historical consolidated financial statements have replaced Titan’s historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger with retroactive adjustments to Titan’s legal capital to reflect the legal capital of Titan. Titan remains the continuing registrant and reporting company.

Titan Trucking was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Titan Trucking owners owned approximately 65% of the voting interests of the combined company immediately following the transaction; (2) the Titan Merger resulted in significant changes to the combined company’s Board of Directors; (3) the Titan Merger resulted in significant changes to the management of the combined company.

The Company accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan Trucking was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to quoted market capitalization of the Company at the acquisition date. The purchase consideration was as follows:

Titan Environmental Solutions Inc. market capitalization at closing	$	27,162,222
Total purchase consideration	$	27,162,222

The Company recorded all tangible and intangible assets and liabilities at their estimated fair values on the acquisition date. The following represents the allocation of the estimated purchase consideration:

	Estimated
Description	Fair Value
Assets:
Cash	$	69,104
Accounts receivable		369,338
Prepaid expenses and other current assets		17,893
Inventory		64,894
Fixed assets		1,134
Intangible assets		6,471,621
Goodwill		26,880,916
	$	33,874,900
Liabilities:
Accounts payable and accrued expenses	$	(1,009,993	)
Customer deposits		(311,544	)
Accrued payroll and related taxes		(21,077	)
Derivative liability		(219,171	)
Convertible notes payable		(1,466,382	)
Convertible notes payable – related parties		(102,851	)
Notes payable		(3,579,160	)
Notes payable – related parties		(2,500	)
	$	(6,712,678	)
Net fair value of assets (liabilities)	$	27,162,222

The Company assessed the fair values of the tangible and intangible assets and liabilities and the amount of goodwill to be recognized as of the acquisition date. Fair values are preliminary and were based on management’s estimates and assumptions. The intangible assets acquired were specific to the Company’s Recoup subsidiary.

The fair value of the intellectual property intangible asset was measured using the multiple periods excess earnings method (“MPEEM”). Significant inputs used to measure the fair value include an estimated useful life of ten (10) years, an estimate of projected revenue and costs associated with existing customers, an estimated technology obsolescence adjustment, and a discount rate of 12.7%.

The fair value of the tradenames intangible asset was measured using the relief from royalty method. Significant inputs used to measure the fair value include an estimated projected revenue from the tradename, a pre-tax royalty rate of 1%, and a discount rate of 12.7%.

The fair value of the customer list intangible asset was measured using the modified MPEEM. Significant inputs used to measure the fair value include an estimated useful life of ten (10) years, an estimate of projected revenue and costs associated with the new customers, an estimated customer attrition rate, and a discount rate of 12.7%.

The fair value of the noncompete agreement intangible asset was measured with a discounted cash flow analysis that compared projected cash flows during the noncompete agreement period with and without the agreement. Significant inputs used to measure the fair value include an estimate of time for the parties involved to identify the product, bring in the technology, and start the manufacturing process. As well as the estimated risk that the parties involved would choose to compete without the agreement in place and a discount rate of 12.7%. The noncompete agreement prevents the parties involved from directly or indirectly engaging in, or being interested in, any business or entity that engages in any business substantially similar to the Recoup Digester business for a period of five (5) years.

Goodwill arising from the acquisition consisted of new customer relationships for the Company, access to new product market opportunities and expected growth opportunities. Total acquisition costs incurred were approximately $450,000, which was recorded as a component of professional fees expenses during the three months ended June 30, 2023.

The approximate revenue for Titan (excluding the operations of Titan Trucking) was $568,000 for the three months ended March 31, 2024. The approximate gross profit for Titan (excluding the operations of Titan Trucking) was $411,000 for the three months ended March 31, 2024.

The following supplemental pro-forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the year ended December 31, 2023:

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
Total revenue	$	1,755,750		$	1,145,367
Net loss	$	(2,258,944	)	$	(27,574,837	)
Pro forma loss per common share	$	(0.01	)	$	(0.83	)
Pro forma weighted average number of common shares basic and diluted		222,067,042			33,060,136

The pro forma combined results of operations for the three months ended March 31, 2023, included stock-based compensation of $5,590,485 and goodwill impairment expense of $20,364,001. The pro forma combined results of operations are not necessarily indicative of the results of operations that actually would have occurred, nor are they necessarily indicative of future consolidated results.