Toppoint Holdings Inc(TOPP) - 2024 Q4 - Annual Report

Part I Business Toppoint Holdings Inc. specializes in recycling export truckload services, holding significant market share and expanding its geographic and service offerings - The company holds a significant market share in the waste paper export drayage market, accounting for approximately 34% of volumes through New Jersey's ports and 30% through Philadelphia's ports[29] - Toppoint serves a growing client base that includes Fortune 500 waste companies and over 280 recycling centers, with the number of clients growing at a CAGR of approximately 53.17% from 2016 to 2023[30][31] - The company is expanding its geographic footprint, having entered markets in Florida, Maryland, and Mexico in 2023-2024, with plans to explore Canada, the UK, and Australia[29][50] Key Performance Indicators (Waste Paper) - 2023 vs. 2024 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Orders Completed | ~2,576 | ~2,831 | | Loads Completed (NLC) | 16,641 | 18,094 | | Tons Transported | ~465,948 | ~506,632 | Recent Developments Recent strategic developments include new partnerships, Latin American expansion, and cold-chain logistics, aiming to boost future revenue and efficiency - Secured a new import drayage partnership expected to generate over $1 million in additional revenue in 2025[33] - Expanded into Ensenada, Mexico, through a new trucking partnership to enhance non-ferrous metal exports[33] - Launched cold-chain logistics services to diversify revenue streams[33] - Strengthened its partnership with Waste Management, adding 1,000 new loads and up to $2 million in additional annual revenue for 2025[33] Growth Strategies The company's growth strategy is centered on deepening relationships with existing clients to increase wallet share, expanding physical infrastructure, enhancing IT capabilities, and exploring strategic alliances - Focus on increasing business from current national and global clients by servicing more of their markets[58] - Plan to invest in storage and warehousing capabilities to support fleet growth and potentially enter new trucking segments[58] - Continue to improve IT infrastructure to optimize operations and enhance data analytics[58] - Selectively explore strategic alliances, investments, and acquisitions to accelerate growth[58] Regulations Operating in a highly regulated industry, the company faces compliance challenges, particularly with new DOL rules potentially reclassifying independent contractors as employees, increasing costs - The company and its owner-operators must comply with safety and fitness regulations from the DOT and FMCSA, including CSA, drug and alcohol testing, and hours-of-service rules[69] - A new Department of Labor rule, effective March 11, 2024, implements an "economic reality test" to determine worker classification, making it more likely that independent contractors could be classified as employees[70] - If independent contractor drivers are reclassified as employees, the company could face significant additional costs related to taxes, workers' compensation, unemployment benefits, and other employee-related liabilities[70] Risk Factors The company faces significant operational, legal, and stock ownership risks, including intense competition, reliance on owner-operators, potential driver reclassification, and stock price volatility Operational and Industry Risks Operational risks include intense competition, customer concentration, reliance on owner-operators, fuel price volatility, and cybersecurity threats, all impacting business stability - The company operates in a highly competitive and fragmented truckload industry, facing pressure on freight rates and competition from larger carriers with greater resources[77][80] - A significant portion of revenue is concentrated in a small number of large customers, with the top ten accounting for approximately 58% of total revenue in fiscal year 2024[102][49] - The business model relies heavily on owner-operators, exposing the company to risks of driver turnover and competition for attracting and retaining independent contractors[90][91] - The company is dependent on its information technology systems, and a cybersecurity breach could cause significant business disruption[118][119] Legal and Compliance Risks Legal and compliance risks are significant, primarily due to potential reclassification of independent contractor drivers as employees, exacerbated by a class-action lawsuit and new DOL rules - A class action lawsuit was filed on January 12, 2024, against the company's subsidiary, Toppoint Inc., alleging misclassification of truck drivers as independent contractors[94] - The Department of Labor's rule, effective March 11, 2024, makes it more likely that a worker will be classified as an employee, which could adversely affect the company's business model and financial condition if its independent contractors are reclassified[95][96] - The company is subject to extensive regulation by the DOT and FMCSA, and increased costs of compliance or violations could materially harm the business[140] Risks Related to Ownership of Our Common Stock Stock ownership risks include extreme price volatility due to small public float, management's discretion over IPO proceeds, no anticipated dividends, and potential dilution from future issuances - The company has loaned a substantial portion ($6 million) of its IPO proceeds to a third-party borrower as a long-term debt investment, subjecting the company to credit risk and limiting capital flexibility[153] - As a company with a small public float, the stock price may experience extreme volatility unrelated to operating performance[150] - The company does not anticipate paying dividends in the foreseeable future, meaning returns for shareholders will depend on stock price appreciation[154] - Bylaws designate the Eighth Judicial District Court of Clark County, Nevada as the exclusive forum for most stockholder disputes, which could limit a stockholder's ability to choose a judicial forum[171] Cybersecurity The company's cybersecurity framework, overseen by the board and CFO, includes risk assessments and security measures, with no material incidents reported to date - The Board of Directors oversees cybersecurity risk, while the Chief Financial Officer is primarily responsible for its assessment and management[182][183] - The company's risk management strategy includes regular risk assessments, two-factor authentication, user role-based security, and plans for data encryption and employee training[180] - As of the report date, the company has not identified any known cybersecurity threats or experienced any incidents that have had a material impact on its operations or financial condition[181] Properties The company leases its principal executive office from the CEO and operates various leased properties in New Jersey, Maryland, and Florida for parking and office space - The principal executive office at 1250 Kenas Road, North Wales, PA is leased from CEO Hok C Chan for $5,500 per month[186] - A key operational property is a 2-acre site at 697 Doremus Avenue, Newark, NJ, rented for $54,000 per month, used for parking and providing discounted parking to owner-operators[187] - The company prepaid $300,000 for a three-year office lease in Miami Beach, FL, covering the entire term from October 2022 to October 2025[188] Legal Proceedings The company is not currently aware of any legal proceedings or claims expected to have a material adverse effect on its business, financial condition, or operating results - The company states it is not currently aware of any legal proceedings that would have a material adverse effect on its business[190] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock began trading on NYSE American in January 2025 following its IPO, which generated $8.28 million in net proceeds, with $6 million allocated to a temporary debt investment - The company completed its IPO on January 23, 2025, selling 2,500,000 shares at $4.00 per share, resulting in net proceeds of approximately $8.28 million[198] - Of the IPO proceeds, approximately $6 million was used for a temporary debt investment scheduled for repayment between January 2026 and January 2028 with a 7% annual interest rate[206][153] - The company's common stock began trading on the NYSE American under the symbol "TOPP" on January 22, 2025[194][197] - The company does not expect to pay any cash dividends on its common stock in the foreseeable future, intending to retain earnings for business operations and growth[208] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2024, revenue decreased 11% to $16.0 million due to lower scrap paper export volume, leading to a 68% drop in net income and a 6.3% decline in loads completed Results of Operations Revenue decreased 11% to $16.0 million in 2024 due to scrap paper market downturns, while increased G&A expenses led to an operating loss and a 68% drop in net income Financial Performance Comparison (2024 vs. 2023) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $16,039,513 | $18,035,532 | (11)% | | Gross Profit | $2,337,802 | $2,649,153 | (12)% | | Gross Margin | 15% | 15% | 0% | | Income (Loss) from Operations | ($645,751) | $774,316 | (183)% | | Net Income | $174,871 | $542,351 | (68)% | - The 11% revenue decline in 2024 was mainly attributed to an industry-wide decrease in scrap paper export volume, which is the company's core commodity[215] - General and administrative expenses increased by 59% ($1.1 million) in 2024, primarily due to higher accrued compensation, accounting fees, bad debt expense, and a $150,000 litigation settlement[223] Other Performance Indicator (NLC) Total Number of Loads Completed (NLC) decreased by 6.3% in 2024 to 22,665, primarily driven by an 8.0% drop in Waste Paper loads due to industry downturns Number of Loads Completed (NLC) by Commodity (2024 vs. 2023) | Commodity | NLC 2024 | NLC 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Waste Paper | 16,641 | 18,094 | (8.0)% | | Waste Metal | 1,243 | 1,336 | (6.9)% | | Forestry | 271 | 340 | (20.3)% | | Import | 4,057 | 4,109 | (1.3)% | | Others | 453 | 310 | 46.1% | | Total | 22,665 | 24,189 | (6.3)% | - The total NLC decreased by 1,524 loads (6.3%) in 2024, primarily due to significant decreases in the Waste Paper, Forestry, and Waste Metal segments[232] Liquidity and Capital Resources Cash decreased significantly to $557,619 by year-end 2024, driven by negative operating cash flow and increased investing activities, partially offset by financing proceeds Summary of Cash Flow (2024 vs. 2023) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operating activities | ($593,734) | $2,008,219 | | Net cash from investing activities | ($1,211,981) | ($1,091,226) | | Net cash from financing activities | $907,358 | ($205,870) | | Net (decrease) increase in cash | ($898,357) | $711,123 | | Cash at end of period | $557,619 | $1,455,976 | - Cash from operating activities decreased by approximately $2.6 million, primarily due to lower net income and unfavorable changes in operating assets and liabilities[235] - Cash used in investing activities increased, mainly due to $1.2 million in purchases of property and equipment in 2024[236] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2024, due to a lack of robust financial reporting policies for SEC requirements - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[257] - The ineffectiveness is due to the company not having robust and formal financial reporting policies and procedures in place to address SEC disclosure requirements[258] - As a newly public company, the annual report does not include a management assessment or auditor attestation on internal control over financial reporting[259] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes CEO Hok C Chan and CFO John Feliciano III, with a five-member board comprising three independent directors overseeing key committees and ethical conduct Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Hok C Chan | 40 | Chief Executive Officer, Chairman | | John Feliciano III | 38 | Chief Financial Officer, Director | | Jimmy M. Wong | 69 | Independent Director | | Pablo A Santana | 38 | Independent Director | | Tan Ying Lo | 30 | Independent Director | - The Board has three independent directors who comprise the entirety of the Audit, Compensation, and Nominating and Corporate Governance committees[277][279][281] - The board has determined that Jimmy M. Wong qualifies as the "audit committee financial expert"[277] Executive Compensation Executive compensation for 2024 included CEO's salary and CFO's commission-based pay, with 2,250,000 shares available under the equity incentive plan and no director compensation Summary Compensation Table (2024) | Name and Principal Position | Year | Salary ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Hok C Chan, CEO | 2024 | 309,615 | - | 309,615 | | John Feliciano III, CFO | 2024 | - | 147,733* | 147,733* | - *CFO John Feliciano III's 2024 compensation was a 10% commission ($147,733) earned by his company, 4 John Trucking, on consulting fees paid by Toppoint[291] - The company established the Toppoint Holdings Inc. 2022 Equity Incentive Plan, authorizing 2,250,000 shares for issuance[298][309] - No director compensation was paid for the fiscal year ended December 31, 2024[297] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of April 15, 2025, directors and executive officers collectively own 42.9% of common stock, with CEO Hok C Chan as the largest beneficial owner, and 2,250,000 shares available for future equity issuance Beneficial Ownership as of April 15, 2025 | Name of Beneficial Owner | Number of Shares | Percent of Class | | :--- | :--- | :--- | | Directors and Executive Officers | | | | Hok C Chan | 7,500,000 | 42.9% | | All executive officers and directors (5 persons) | 7,500,000 | 42.9% | | Other Principal Shareholders | | | | Heung Ling Chan | 5,700,000 | 32.6% | - The company's 2022 Equity Incentive Plan has 2,250,000 shares of common stock available for future issuance, with no awards outstanding as of December 31, 2024[334] Certain Relationships and Related Transactions, and Director Independence The company engages in various related-party transactions, including leases, service agreements with the CFO's company, and significant loans to the CEO, while maintaining three independent directors - The company rents its principal executive office from CEO Hok C Chan and another office from his relative[335][340] - A services agreement is in place with 4 John Trucking, a company controlled by CFO John Feliciano III, for which a service fee of $147,733 was paid in 2024[340] - In 2024, the company issued a promissory note to CEO Hok C Chan for advances totaling $1.1 million, bearing an interest rate of 36.88%, which increases to 55% after maturity[340] - In 2024, the company paid $628,200 to a family member of the CEO for dispatch services and purchased $1,174,855 of truck chassis from the same related party[340] Principal Accountant Fees and Services TAAD LLP served as the principal accountant, billing $234,311 for audit services in 2024 and $177,710 in 2023, with no other services provided or billed Independent Auditor Fees (TAAD LLP) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $234,311 | $177,710 | | Audit-Related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $234,311 | $177,710 | - All fees for 2024 and 2023 were for audit services, with no fees for audit-related, tax, or other services[339][343][344] Part IV Exhibit and Financial Statement Schedules This section provides an index to the consolidated financial statements and a comprehensive list of exhibits filed with the Form 10-K, including corporate and material agreements - Lists all financial statements, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows[351] - Includes a detailed index of all exhibits filed with the report, such as corporate governance documents, material agreements (e.g., Underwriting Agreement, employment agreements), and required certifications[354][355] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm TAAD, LLP issued an unqualified opinion on the financial statements, emphasizing subsequent events including the January 2025 IPO and a $6 million loan to Golden Bridge Capital Management - The auditor, TAAD, LLP, provided an unqualified opinion on the financial statements[361] - An "Emphasis of a Matter" was included to draw attention to subsequent events, specifically the January 2025 IPO and a $6 million loan receivable agreement with Golden Bridge Capital Management[365] Financial Statements Data The financial statements show a decrease in 2024 net income to $174,871, stable total assets, reduced cash, and negative cash flow from operations, reflecting operational challenges Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,247,285 | $2,833,828 | | Total Assets | $4,985,912 | $4,956,307 | | Total Current Liabilities | $1,778,344 | $1,597,948 | | Total Liabilities | $2,444,038 | $2,589,304 | | Total Shareholders' Equity | $2,541,874 | $2,367,003 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $16,039,513 | $18,035,532 | | Income (loss) from operations | ($645,751) | $774,316 | | Net income | $174,871 | $542,351 | | Basic and diluted EPS | $0.01 | $0.04 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operating activities | ($593,734) | $2,008,219 | | Net cash used in investing activities | ($1,211,981) | ($1,091,226) | | Net cash from financing activities | $907,358 | ($205,870) | Notes to Consolidated Financial Statements Notes detail operations, accounting policies, legal matters including a driver classification lawsuit, extensive related-party transactions, and subsequent events like the January 2025 IPO and a $6 million loan - Revenue is recognized at a point in time when goods are delivered to the final destination, as this is when the performance obligation is met and control is transferred to the customer[247][391] - The company settled a lawsuit with Trend Intermodal Chassis Leasing LLC for $150,000 and is defending a class-action lawsuit alleging misclassification of truck drivers as independent contractors[419] - Subsequent to year-end, the company completed its IPO in January 2025, raising net proceeds of approximately $8.28 million, and subsequently lent $6 million to Golden Bridge Capital Management[434][436][439] - The company has numerous related-party transactions, including leases with the CEO and his family, service agreements with the CFO's company, and loans to/from the CEO[423][424][427]