EVO Transportation & Energy Services, Inc. - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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 000-54218

Minn Shares Inc.

(Exact name of registrant as specified in its charter)

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 (Exchange Act) 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 ☒  No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ☒  No ☐  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒ 

As of August 11, 2017, there were 420,804 shares of the registrant’s common stock, par value $0.0001, outstanding.

MINN SHARES INC.

INDEX

MINN SHARES INC.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

See notes to unaudited consolidated financial statements.

MINN SHARES INC.

Consolidated Statements of Operations (Unaudited)

See notes to unaudited consolidated financial statements.

MINN SHARES INC.

Consolidated Statements of Cash Flows (Unaudited)

See notes to unaudited consolidated financial statements.

MINN SHARES INC.

Supplemental disclosure of cash flow information:

Cash paid for interest for the six months ended December 31, 2017 and 2016 was $170,780 and $30,220, respectively.

Supplemental disclosure of non-cash activity:

During the six months ended June 30, 2017 and 2016, the Company had $246,512 of construction in progress purchases in accounts payable.

On February 1, 2017, the Company acquired EVO to further its business relationship alignment with the Company’s business model to acquire existing CNG stations. The following is the allocation of the assets and liabilities as of June 30, 2017:

During the six months ended June 30, 2016, the Company converted $99,235 of consulting expense into subordinated notes payable to stockholders.

During the six months ended June 30, 2016, the Company converted $127,108 of accounts payable - related party into subordinated notes payable to stockholders.

During the six months ended June 30, 2016, the Company converted $85,599 of long term notes payable related party into $21,556 and $64,043 of subordinated convertible senior notes payable to members and subordinated notes payable to members, respectively.

See notes to unaudited consolidated financial statements.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Basis of Presentation and Securities Exchange

These financial statements represent the consolidated financial statements of Minn Shares Inc. (“Minn Shares”), its wholly owned subsidiaries, Titan CNG LLC (“Titan”) and Environmental Alternative Fuels, LLC (“EAF”), Titan’s wholly-owned subsidiaries, El Toro, Titan Diamond Bar LLC (“Diamond Bar”), and Titan Blaine, LLC (“Blaine”), and EAF’s wholly-owned subsidiary, EVO CNG, LLC (“EVO”) (collectively, the “Company”).

On November 22, 2016, Titan and its members entered into an Agreement and Plan of Securities Exchange with Minn Shares whereby Minn Shares acquired all of the equity interests of Titan and Titan became a wholly-owned subsidiary of Minn Shares (the “Titan Securities Exchange”). Minn Shares issued 248,481 shares of its Common Stock to acquire Titan, which resulted in the former Titan equity holders owning approximately 91.25% of the outstanding Common Stock after the consummation of the Titan Securities Exchange.

At the closing of the Titan Securities Exchange, all of the units issued and outstanding for Titan immediately prior to the closing of the Titan Securities Exchange were converted into 248,481 shares of common stock, par value $0.0001 per share (“Common Stock”) of Minn Shares. The Company did not have any stock options or warrants to purchase shares of its capital stock outstanding at the time of the Titan Securities Exchange.

Because the former members of Titan owned approximately 91.25% of the combined company on completion of the Titan Securities Exchange, the transaction was accounted for as a recapitalization through a reverse acquisition, with no goodwill or other intangibles recorded. As such, the financial information reflects the historical financial information of Titan, Diamond Bar and Blaine and the remaining assets and liabilities of Minn Shares brought over at historical cost. Minn Shares’ results of operation, which were de minimis, are included in the Company’s financial statements from the date of acquisition, November 22, 2016. Costs of the transaction have been charged to operations. The capital structure of the Company has been retroactively adjusted to reflect that of Minn Shares with all shares being adjusted based on the exchange ratio of equity interest in connection with the Titan Securities Exchange.

As a result of the Titan Securities Exchange, Minn Shares acquired the business of Titan and Titan subsidiaries El Toro, Diamond Bar and Blaine as of November 22, 2016, and will continue the existing business operations of Titan, El Toro, Diamond Bar and Blaine as a publicly traded company under the name Minn Shares Inc.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for completed financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the consolidated financial statements of the Company as of June 30, 2017. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the operating results for the full year. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements and related disclosures for the year ended December 31, 2016 filed with the Securities and Exchange Commission on April 18, 2017.

On February 1, 2017, Minn Shares, EAF, EVO, and Danny R. Cuzick (“Danny Cuzick”), Damon R. Cuzick (“Damon Cuzick”), Theril H. Lund and Thomas J. Kiley (together with Danny Cuzick and Damon Cuzick, the “EAF Members”) consummated the transactions contemplated by that certain Agreement and Plan of Securities Exchange dated January 11, 2017 (the “EAF Exchange Agreement”), by and among Minn Shares, EAF, EVO and the EAF Members. Pursuant to the EAF Exchange Agreement, Minn Shares acquired all of the membership interests in EAF (the “EAF Interests”) from the EAF Members. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in California, Texas, Arizona and Wisconsin.

In determining the accounting acquirer in the transactions contemplated by the EAF Exchange Agreement, management considered the Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) 805—Business Combinations. Specifically, management considered the guidance in ASC 810-10, which generally provides that the acquirer in a business combination transaction is determined by identifying the existence of a controlling financial interest, which can typically be determined by the ownership of a majority voting interest. Because the Minn Shares stockholders continued to own all of the outstanding shares of Common Stock on completion of the transactions contemplated by the EAF Exchange Agreement, management determined that Minn Shares was the accounting acquirer in the EAF transaction. However, because the Convertible Notes issued as consideration pursuant to the EAF Exchange Agreement could convert to a majority of the issued and outstanding Common Stock, management will continue to evaluate the accounting treatment for the EAF transaction.

On April 6, 2017, the Company effected a 50-for-1 reverse stock split of its common stock pursuant to which each 50 shares of issued and outstanding common stock became one share of common stock (the “Reverse Split”). No fractional shares were issued as a result of the Reverse Split. All references to numbers of shares of Common Stock and per share amounts give retroactive effect to the Reverse Split for all periods presented.

Going Concern

The Company is an early stage company in the process of acquiring several businesses in the vehicle fuels industry. As of June 30, 2017 the Company acquired EAF, which was financed through approximately $13.6 million of debt of which $3.8 million is contemplated to be repaid through a successful secondary offering before the December 31, 2017 due date. As of June 30, 2017, the Company has a working capital deficit of approximately $8.5 million which management anticipates rectifying with additional public or private offerings. The Company also is evaluating certain cash flow improvement measures. However, there can be no assurance that the Company will be successful in these efforts.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Note 1 - Description of Business and Summary of Significant Accounting Policies

The Company is a compressed natural gas (“CNG”) service business based in Peoria, Arizona. Titan is the management company and El Toro, Diamond Bar, and Blaine are CNG service stations. El Toro was formed during 2013 and began operations during 2015. El Toro, located in Lake Forest, California, is a comprehensive natural gas vehicle solutions provider that offers products and services to corporate and municipal fleet operators as well as individual consumers. As of June 30, 2017, El Toro ceased operations. The Company has evaluated El Toro’s assets for impairment and has determined that no impairment is necessary because the Company intends to redeploy the assets or sell the assets for an amount equal to or greater than the carrying value of the assets. Blaine and Diamond Bar were formed in 2015. In March 2016 Diamond Bar began operations of its CNG station under a lease agreement with the State of California South Coast Air Quality Management District (“SCAQMD”) in Diamond Bar, California. The Company is currently constructing Blaine, a private station, for Walters Recycling & Refuse, Inc. (“Walters”) in Blaine, Minnesota, which it will operate under a seven year take-or-pay contract with Walters. These subsidiaries also intend to provide comprehensive natural gas vehicle solutions to corporate and municipal fleet operators as well. 

On February 1, 2017, pursuant to the EAF Exchange Agreement, Minn Shares acquired all of the membership interests of EAF. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in California, Texas, Arizona and Wisconsin.

Minn Shares Inc. was incorporated in the State of Delaware on October 22, 2010.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Minn Shares Inc., its subsidiaries, Titan and EAF, Titan’s wholly owned subsidiaries, El Toro, Diamond Bar and Blaine, and EAF’s wholly owned subsidiary, EVO. All intercompany accounts and transactions have been eliminated in consolidation.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to recognition and measurement of identifiable assets acquired and liabilities assumed in business combinations, accounts receivable, estimated useful lives and impairment on property and equipment, and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant. 

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance. No allowance for doubtful accounts was recorded for the six months ended June 30, 2017.

Concentrations of Credit Risk

During the six months ended June 30, 2017 and 2016, five and one customers accounted for 91% and 13%, respectively of total revenues. At June 30, 2017, four customers accounted for 83% of total accounts receivable.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from five to 40 years, and the shorter of the estimated economic life or related lease terms for leasehold improvements.

Construction in process represents the accumulated costs of assets not yet placed in service and primarily relates to equipment purchases and architectural fees for a CNG station being constructed by Blaine.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Goodwill and Intangible Assets

Goodwill represents the excess of fair value over the net assets of the business acquired. Goodwill is evaluated for impairment annually or when a triggering event indicates it is more likely than not that an impairment may be necessary. Definite-lived intangible assets are amortized over their estimated useful lives. In addition, amortized intangible assets are reviewed for impairment annually or when indicators of impairment exist. No impairment expense was recognized during the six months ended June 30, 2017.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The Company has evaluated El Toro’s assets for impairment and has determined that no impairment is necessary because the Company intends to redeploy the assets or sell the assets for an amount equal to or greater than the carrying value of the assets.

Net Loss per Share of Common Stock

Basic loss per share is computed by dividing net loss available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the period. Diluted loss per share reflects the potential dilution that would occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock.

Securities totaling 103,333 and 0 for the three and six months ended June 30, 2017 and 2016, respectively, have been excluded from loss per share because their effect would have been anti-dilutive. 

Revenue Recognition

The Company’s revenues primarily consist of CNG fuel sales. These revenues are recognized in accordance with GAAP, which requires that the following four criteria must be met before revenue can be recognized:

(i) persuasive evidence of an arrangement exists:

(ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to the customer or services have been rendered;

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

(iii) the price is fixed or determinable; and

(iv) collectability is reasonably assured.

Applying these factors, the Company typically recognizes revenue from the sale of natural gas fuel at the time the fuel is dispensed. The Company is eligible to receive, at times, a federal alternative fuels tax credit when a gasoline gallon equivalent of CNG is sold as vehicle fuel. Based on the service relationship with its customers, either the Company or its customers claims the credit. The Company records its volumetric excise tax credits (“VETC”), if any, as revenue in its statements of operations as the credits are fully refundable. See the discussion under VETC below for further information.

Volumetric Excise Tax Credit

For 2016, the VETC credit was $0.50 per gasoline gallon equivalent of CNG that is sold as a vehicle fuel. The American Taxpayer Relief Act, signed into law on January 2, 2013, reinstated VETC for 2013 and made it retroactive to January 1, 2012. The Tax Increase Prevention Act, signed into law on December 19, 2014, reinstated VETC for the 2014 calendar year and made it retroactive to January 1, 2014. The Company did not record any VETC revenues in 2012, 2013 or 2014. In December 2015, the VETC was extended through December 31, 2016 and made retroactive to January 1, 2015. As a result, VETC revenues for the six months ended June 30, 2016 was $60,263.

As of June 30, 2017 the VETC has not been extended into 2017.

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The Company’s temporary differences result primarily from depreciation.

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed for the six months ended June 30, 2017 and 2016. Tax years that remain subject to examination include 2013 through the current year for federal and state, respectively.

Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.

Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350) (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We do not expect the adoption of ASU 2016-13 will have a material impact on our consolidated financial statements.

In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 address multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liability, and classification on the statements of cash flows. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted in any interim or annual period. An entity that elects early adoption must adopt all the amendments in the same period, and any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. We early adopted this ASU for the first quarter of 2017; due to our valuation allowance for income taxes, it has no impact on our consolidated financial statements and therefore it was not necessary to apply it retrospectively to 2016 for comparability.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. The Company is still assessing the impact of the amendments in this ASU; however, the disclosure will be significant to the Company.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. For a lessor, the accounting applied is also largely unchanged from previous guidance. The new rules will be effective for the Company in the first quarter of 2019. The Company is in the process of evaluating the impact the amendment will have on its consolidated financial position or results of operations.

Note 2 - Acquisitions

EAF

On February 1, 2017, pursuant to the EAF Exchange Agreement, Minn Shares acquired all of the membership interests of EAF. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in California, Texas, Arizona and Wisconsin.

In determining the accounting acquirer in the transactions contemplated by the EAF Exchange Agreement, management considered the Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) 805—Business Combinations. Specifically, management considered the guidance in ASC 810-10, which generally provides that the acquirer in a business combination transaction is determined by identifying the existence of a controlling financial interest, which can typically be determined by the ownership of a majority voting interest. Because the Minn Shares stockholders continued to own all of the outstanding shares of Common Stock on completion of the transactions contemplated by the EAF Exchange Agreement, management determined that Minn Shares was the accounting acquirer in the EAF transaction. However, because the Convertible Notes issued as consideration pursuant to the EAF Exchange Agreement could convert to a majority of the issued and outstanding Common Stock, management will continue to evaluate the accounting treatment for the EAF transaction.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

The following unaudited table summarized the preliminary fair value allocation of the assets acquired and liabilities assumed at the acquisition date which were based on the best information available at the time the financial statements were issued and is subject to change.

The following table summarizes the unaudited pro forma results of the Company giving effect to the acquisition as if it had occurred on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results of operations of the Company had this acquisition occurred at the beginning of the years presented, nor is it necessarily indicative of future results.

The Company is evaluating the allocation of intangible assets as required under ASC 805-10-50-2 because the accounting for this business combination is incomplete at the time the financial statements were issued.

As consideration for the EAF Interests, Minn Shares issued a promissory note to an EAF member in the principal amount of $3.8 million (the “Senior Promissory Note”) that bears interest at 7.5%, with a default interest rate of 12.5% per year and has a maturity date of the earlier of (a) the date that is ten days after the initial closing of a private offering of capital stock of Minn Shares in an amount not less than $10 million (a “Private Offering”); (b) December 31, 2017 or a (c) declaration by the noteholder of an event of default under the Senior Promissory Note.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Also as consideration for the EAF Interests, Minn Shares issued convertible promissory notes to the EAF Members in the aggregate principal amount of $9.5 million (the “Convertible Notes”). The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026. The Convertible Notes are convertible into 1,400,000 shares (the “Transaction Shares”) of Common Stock, subject to adjustment for any stock splits, combinations or similar transactions, representing approximately 81.1% of the Company’s total outstanding shares of Common Stock on a post transaction basis. Accordingly, the conversion of the Convertible Notes will result in a change in control of the Company, all else being equal. The number of Transaction Shares will be increased to equal 70% of the issued and outstanding Common Stock if the issuance of Common Stock pursuant to a private offering of Common Stock of up to $2 million and the conversion of the Company’s subordinated notes payable to members and Senior Bridge Notes, convertible promissory notes, and certain accounts payable into Common Stock would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding Common Stock. Pursuant to the terms of the EAF Exchange Agreement, the EAF Members are entitled to demand registration rights and piggyback registration rights with respect to the Transaction Shares upon customary terms, limitations, exceptions and conditions. The Convertible Notes are secured by all of the assets of EAF and the EAF Interests, which the Company pledged to the EAF Members as security for the Convertible Notes.

Each Convertible Note is convertible at the applicable holder’s option beginning on the first anniversary of the date of issuance of the Convertible Notes, including at any time within 90 days after the holder’s receipt of notice of consummation of (1) a reorganization, merger or similar transaction where Minn Shares is not the surviving or resulting entity or (2) the sale of all or substantially all of Minn Shares’ assets, subject to customary restrictions. Each holder’s conversion option is subject to a monthly limit of the number of shares of Common Stock equal to 10% of the thirty day average trading volume of shares of Common Stock during the prior calendar month. The Convertible Notes are also subject to mandatory conversion at the Company’s option beginning on the first anniversary of the date of issuance of the Convertible Notes if: (i) the closing price of the Common Stock is greater than (A) 150% of the price at which a share of Common Stock is sold in a Private Offering or (B) $10.00 if a Private Offering has not occurred by December 31, 2017 and (ii) the average daily trading volume of shares of Common Stock has equaled 100,000 or more for the 30 days prior to the applicable date. Upon a conversion of the Convertible Notes, accrued interest may also be converted at the greater of (i) the amount of interest to be converted divided by the exchange ratio of 0.1357, subject to adjustment for stock splits or combinations, or (ii) the amount of interest to be converted divided by the closing price of the Common Stock on the trading day preceding the conversion date.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, the Company issued promissory notes to the EAF Members in the aggregate principal amount of $250,000 that bear interest at 6% per annum with a default rate of 11% per annum and a maturity date of the earlier of (a) the closing of a Private Offering; (b) 180 days from the date of the notes and (c) declaration by a holder of an event of default under the holder’s note (the “Working Capital Notes”). The Company failed to pay the outstanding balance on these notes by July 31, 2017, and as a result these notes are in default. However, the Company is in negotiations with the noteholders of these notes to extend the maturity date of these notes.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, the Company guaranteed a note from an EAF member to EAF dated January 30, 2017 in the principal amount of $4 million (the “EAF Note”). The EAF Note is secured by all assets of EAF and is guaranteed by EAF. The EAF Note bears interest at 7.5% per annum with a default rate of 12.5% per annum and has a maturity date of the earlier of (a) February 1, 2020 and (b) declaration by the noteholder of an event of default under the EAF Note.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 3 - Balance Sheet Disclosures

Property and equipment are summarized as follows:

Depreciation expense for the six months ended June 30, 2017 and 2016 was $298,786 and $102,624, respectively.

Construction in process contains amounts paid or accrued for construction of the Blaine CNG station that has not been placed into service as of June 30, 2017.

Intangible assets and goodwill consist of the following:

Amortization expense for the six months ended June 30, 2017 and 2016 was $52,500 and $0, respectively.

Amortization expense for the intangibles will be approximately $126,000 annually through 2022 and $21,000 in 2023

Accrued expenses consist of the following:

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Related Party Transactions

Accounts Payable - Related Party

The Company’s accounts payables - related party consist of guaranteed payments and expense reimbursement to members. Accounts payable - related party was $365,345 and $261,060 as of June 30, 2017 and December 31, 2016, respectively.

Advances Related Party

During the six months ended June 30, 2017, an EAF member advanced $130,612 to the Company.

During the year ended December 31, 2016, a Titan member advanced $2,000 to the Company.

During the year ended December 31, 2016 an El Toro member advanced $35,500 to the Company.

Accrued Interest - Related Party

The Company’s accrued interest - related party are the accrued interest payments on stockholders’ subordinated convertible senior notes payable and convertible promissory notes payable to stockholders. Accrued interest - related party was $390,859 and $164,368 as of June 30, 2017 and December 31, 2016, respectively.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 5 - Long-Term Debt

Long-term debt consists of:

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Maturities of long-term obligations are as follows:

Note 6 - Derivative Instruments

The Company periodically enters into various commodity hedging instruments to mitigate a portion of the effect of natural gas price fluctuations, as summarized in the table below. Open derivative positions are accounted for on a fair value basis at the consolidated balance sheet date, and any unrealized gain or loss is included in other expense on the consolidated statement of operations. Gains and losses from settled transactions are also recorded in other expense on the consolidated statement of operations. The Company does not have any derivative contracts designated as cash flow hedges.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

The following table summarizes the fair value of the derivatives recorded in the consolidated balance sheets, by category.

As of June 30, 2017, the Company was party to one open derivative positions outstanding summarized below:

Note 7 - Fair Value Measurements

The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the six months ended June 30, 2017, using quoted prices in active markets for identical assets and liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

The following assets are measured at fair value on a recurring basis:

The fair value of these derivative swap contracts is based on market prices posted on the New York Mercantile Exchange for natural gas. The Company determines the fair value of its derivative instruments under the income approach using a discounted cash flow model. The valuation model requires a variety of inputs, including contractual terms, projected natural gas prices, discount rates, and credit risk adjustments, as appropriate. The Company’s estimates of fair value of derivatives include consideration of the counterparty’s creditworthiness, the Company’s creditworthiness, and the time value of money. The consideration of these factors results in an estimated exit price for each derivative asset or liability under a marketplace participant’s view. All of the significant inputs are observable, either directly or indirectly; therefore, the Company’s derivative instruments are included within the Level 2 fair value hierarchy.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Note 8 - Stockholders’ Equity

On April 6, 2017, the Company effected a 50-for-1 reverse stock split of its common stock pursuant to which each 50 shares of issued and outstanding common stock became one share of common stock (the “Reverse Split”). No fractional shares were issued as a result of the Reverse Split. All references to numbers of shares of common stock and per share amounts give retroactive effect to the Reverse Split for all periods presented.

In connection with the completion of the Securities Exchange, 104,179 outstanding Class A units were valued at predecessor cost, which resulted in no value to the units with the resulting liability assumed recorded at a loss in the statement of operations. 

During the six months ended June 30, 2017, the Company issued 103,333 units for $3.00 per units, with each unit consisting of one share of common stock and one equity-classified warrant to purchase one share of common stock.

The fair value of the warrants is estimated on the date of issuance using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the expected term of the warrant, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. Expected volatilities used in the valuation model are based on the average volatility of the Company’s stock. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant.

As of June 30, 2017, the authorized share capital of the Company consisted of 100,000,000 shares of common stock with a par value of $0.0001 per share. There were 420,804 and 317,207 shares of common stock issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.

As of June 30, 2017, the authorized share capital of the Company consisted of 10,000,000 shares of preferred stock with a par value of $0.0001 per share. There were no shares of preferred stock issued and outstanding as of June 30, 2017.

Note 9 - Commitments and Contingencies

Operating Leases

The Company leases office space in Minnesota on a month to month basis with payments of $977 per month.

Titan entered into an operating lease agreement which expires in February 2019, with an option to extend to February 2024. In November 2014 the lease was amended to add El Toro as a co-lessee. The monthly payments range from $10,000 to $11,604. The lease calls for rent increases over the term of the lease. The Company records rent expense on a straight line basis using average rent for the term of the lease. The excess of the expense over cash rent paid is shown as deferred rent.

Rent expense for the six months ended June 30, 2017 and 2016 was approximately $57,000.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Future minimum lease payments under these leases are approximately as follows:

Litigation

In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.

Grant Agreement

In 2013, Titan was the recipient of two grants in the amount of $300,000 and $150,000 from the California Energy Commission (“CEC”) and SCAQMD. The grant funds were used to complete the construction of a facility on El Toro Road as contemplated in the grant agreements. The grant proceeds are subject to repayment if the Company does not satisfy certain operational metrics contained in the grant agreements. The Company believes that it can satisfy these objectives, although it has not historically satisfied them and cannot provide assurance that such future events will occur. In addition, the use of Titan on the project could be construed as requiring amendments to the grant agreements or consent from the CEC or SCAQMD, neither of which has been obtained by the Company.

During 2016, EVO was the recipient of a grant in the amount of $400,000 from the Texas Commission on Environmental Quality. The grant funds were used to complete the construction of the Company’s San Antonio facility as contemplated in the grant agreement. The grant proceeds are subject to repayment if the Company does not satisfy certain operational metrics contained in the grant agreements. The Company believes that it can satisfy these objectives, although it cannot provide assurance that such future events will occur. The grant agreement expires in August 2020. The Company records the grant proceeds as a reduction of the cost of the respective station.

Walters Recycling and Refuse Station

In June 2016 Blaine entered into a compressed natural gas fuel station agreement with Walters, an unrelated third party. Under the agreement Blaine will construct, at its sole expense, a CNG dispensing system (the “System”) on a portion of the property owned by Walters. The System must include certain required elements as defined in the contract and will only be used for the purpose of filling Walters’ vehicles and authorized Blaine vehicles and trailers. Titan was required to have the System fully operational by June 2017. Because the System was not fully operational by June 2017, Walters may terminate the agreement with 30 days written notice to Blaine. Walters has not terminated this agreement, and Blaine continues to discuss construction of the system with Walters. If the agreement is terminated, Blaine will be required to return the property to its pre-construction condition. Blaine shall retain ownership of all unattached movable components of the System. In addition, Blaine is responsible for all costs relating to installing the utilities required for the System as well as the costs for all ongoing system and property maintenance. The term of the agreement will be for a period of seven years and will commence on the date the System becomes fully operational and is first used by Walters, as defined in the agreement. Walters has the right to renew the agreement for four additional two year renewal periods. Beginning on the commencement date and through the contract term, Walters agrees to purchase 144,000 GGE, annually, of CNG, as defined, exclusively from Blaine. The rate charged to Walters includes an initial six month rate which is then adjusted as stated in the agreement.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

SCAQMD

In December 2015, Diamond Bar entered into a transfer of ownership and lease arrangement with the SCAQMD. This property has an existing CNG station previously owned and operated by the SCAQMD. Thirty days after the date of the agreement, SCAQMD transferred to Diamond Bar, without charge, all of their rights and interests in the existing assets. The agreement also specifies that Diamond Bar lease the property for $1 and identifies certain commitments agreed to by the parties. Some of the more significant ones are as follows:

* Within 180 days from the contract execution, Diamond Bar, using its best efforts, shall sell any surplus assets and provide SCAQMD with 90% of the net proceeds, as defined. To date Diamond Bar has not had any surplus assets to sell.

* Diamond Bar is also required to comply with certain provisions in the agreement with regards to the operation and maintenance of the station.

* Diamond Bar, at its expense and upon written consent from SCAQMD, can remodel, redecorate or otherwise make improvements and replacements of and to all or any part of the leased premises.

* Diamond Bar is required to install specific station upgrades, as defined, and is responsible for the cost of these upgrades. All upgrades must be completed within eight months of the execution date. Any improvements made to the premises remain the property of Diamond Bar and can be removed by Diamond Bar.

* The fueling rate charged to the SCAQMD will be based on actual utility costs, taxes and a fee not to exceed $0.50 per GGE. Currently the rate charged is substantially equal to the market rate charged to all other customers.

* The contract ends December 31, 2020. SCAQMD can extend the contract for a period not to exceed five years starting January 1, 2021 at no additional cost. Either party may terminate the contract with sixty days’ notice. If the SCAQMD terminates without cause they will be required to either purchase the property necessary for the operation of the CNG station or reimburse Diamond Bar for the cost of removing the property. If Diamond Bar terminates the contract without cause, the SCAQMD shall have the option to either purchase the property necessary for the operation of the station or require Diamond Bar to remove the property at no cost to SCAQMD.

MINN SHARES INC.

Notes to Unaudited Consolidated Financial Statements

Contingent Liability

The Company is a guarantor on a $4,000,000 loan from a former EAF member and has pledged the Company’s assets. The note bears interest of 7.5% per annum and has a maturity date of the earlier of (a) February 1, 2020 and (b) declaration by the noteholder of an event of default under the loan.

Long-Term Take-or-Pay Natural Gas Supply Contracts

As of June 30, 2017, the Company had commitments to purchase CNG on a take-or-pay basis of approximately $545,000. It is anticipated these are normal purchases that will be necessary for sales, and no cash settlements will be made related to the purchase commitments.

Note 10 - Subsequent Events

On July 31, 2017, the Company failed to pay the outstanding balance on four promissory notes issued to the former EAF members in the original aggregate principal amount of $250,000, and as a result these notes are in default. However, the Company is in negotiations with the noteholders to extend the maturity date of these notes. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Some of the statements in this report may contain forward-looking statements that reflect management’s current view about future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “anticipate,” “will,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” and similar expressions or the negative of these terms. Many of these forward-looking statements are located in this report under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. The forward-looking statements in this report generally relate to: (i) our growth strategy and potential acquisition candidates; (ii) management’s expectations regarding market trends and competition in the vehicle fuels industry, gasoline, diesel, and natural gas prices, government tax credits and other incentives, and environmental and safety considerations; (iii) our beliefs regarding the sufficiency of working capital and cash flows, and our continued ability to renew or obtain financing on reasonable terms when necessary; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016) relating to the Company’s industry, its operations and results of operations, and any businesses that may be acquired by it. These factors include, among other factors:

Although management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. We qualify all of our forward-looking statements by these cautionary statements.

Background and Recent Developments

Minn Shares Inc., a Delaware corporation (“Minn Shares”), was incorporated in the State of Delaware on October 22, 2010. From December 2001 until November 22, 2016, Minn Shares did not engage in any business activities other than for the purpose of collecting and distributing its assets, paying, satisfying and discharging any existing debts and obligations and doing other acts required to liquidate and wind up its business and affairs. The business purpose of Minn Shares was to seek the acquisition of or merger with an existing company.

Securities Exchanges with Titan CNG and Environmental Alternative Fuels, LLC

On November 22, 2016, Minn Shares, Titan CNG LLC (“Titan,” and together with Minn Shares and Titan, “we,” “us,” “our” or the “Company”) and the members of Titan entered into a securities exchange agreement, which closed on the same date.

On February 1, 2017, Minn Shares, Environmental Alternative Fuels, LLC, a Delaware limited liability company (“EAF”), EVO CNG, LLC, a Delaware limited liability company and a wholly-owned subsidiary of EAF (“EVO”), and Danny R. Cuzick (“Danny Cuzick”), Damon R. Cuzick (“Damon Cuzick”), Theril H. Lund and Thomas J. Kiley (together with Danny Cuzick and Damon Cuzick, the “EAF Members”) consummated the transactions contemplated by that certain Agreement and Plan of Securities Exchange dated January 11, 2017 (the “EAF Exchange Agreement”), by and among Minn Shares, EAF, EVO and the EAF Members. Pursuant to the EAF Exchange Agreement, Minn Shares acquired all of the membership interests in EAF (the “EAF Interests”) from the EAF Members. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in California, Texas, Arizona and Wisconsin.

As the result of the Titan securities exchange, which was accounted for as a reverse acquisition, a discussion of the past financial results of Minn Shares is not pertinent, and the historical financial results of Titan, the accounting acquirer, prior to the securities exchange are considered the historical financial results of the Company.

The following discussion highlights our plan of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. The following discussion and analysis are based on Titan’s financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

The following discussion and analysis provides information which management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The discussion should be read in conjunction with our audited financial statements and related notes and the other financial information included elsewhere in this Annual Report.

General Overview

Titan was formed in July 2012 and is the parent company of the wholly owned subsidiaries Titan Blaine, LLC (“Blaine”), formed in 2015, Titan Diamond Bar LLC (“Diamond Bar”), formed in 2015, and Titan El Toro LLC (“El Toro”), which was formed in 2013 and fully acquired in 2016. Titan is a natural gas vehicle (“NGV”) fueling company based in Peoria, Arizona. Titan was established to take advantage of the growing U.S. demand for natural gas as a vehicle fuel source. We acquire, build and operate public and private compressed natural gas (“CNG”) filling stations. During February 2015 Titan opened its first station, Titan El Toro, in Lake Forest, California. In March 2016 Titan assumed ownership of a CNG station from the State of California South Coast Air Quality Management District (“SCAQMD”) in Diamond Bar, California. We intend to upgrade the capability of this facility and expand it beyond its current client base. We are also investing in the construction and operation of a private station for Walters Recycling & Refuse in Blaine, Minnesota.

EAF was originally organized on March 28, 2012 under the name “Clean-n-Green Alternative Fuels, LLC” in the State of Delaware. Effective May 1, 2012, EAF changed its name to “Environmental Alternative Fuels, LLC.” EVO, EAF’s wholly owned subsidiary, was originally organized in the State of Delaware on April 1, 2013 under the name “EVO Trillium, LLC” and subsequently changed its name to “EVO CNG, LLC” effective March 1, 2016. Together, EAF and EVO operate six compressed natural gas fueling stations located in California, Texas, Arizona and Wisconsin.

Going Concern

The Company is an early stage company in the process of acquiring several businesses in the vehicle fuels industry.  As of June 30, 2017 the Company has closed one acquisition which was financed through approximately $13.6 million of debt of which $3.8 million is contemplated to be repaid through a successful secondary offering before the December 31, 2017 due date.  As of June 30, 2017, the Company has a working capital deficit of approximately $8.5 million which management anticipates rectifying with additional public or private offerings. The Company also is evaluating certain cash flow improvement measures. However, there can be no assurance that the Company will be successful in these efforts.

The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Sources of Revenue

Titan was founded in 2012 and for the first four years only had management fee revenues. Beginning in 2016 Titan generated revenues from CNG stations El Toro and Diamond Bar, and with the acquisition of EAF the Company generated revenue from six stations beginning February 2017.

Investments in Affiliates

Titan was invested in an affiliate through January 1, 2016. The investment was recorded using the equity method of accounting with Titan’s proportionate share of net income or loss of the investee included as a separate line item in the statements of operation. The Company ordinarily would discontinue applying the equity method once the investment (and net advances) were reduced to zero, however Titan was committed to provide further financial support for the investee and through the guarantee of substantially all the assets of the Company by a Small Business Administration (“SBA”) note. The affiliate was the following:

Key Trends

In general, CNG has become the primary alternative fueling choice for truck and bus fleets operating in the $134 billion fleet fueling market. Natural gas is sold on a gas gallon equivalent (“GGE”) basis and as of January 2017 was selling at an average price nationally of approximately $2.11 per GGE versus average prices of gasoline and diesel of $2.32 and $2.58 per gallon, respectively, in January 2017. Management believes that fleets operating under long term fueling contracts, which represent a large part of the natural gas vehicle fueling market, are paying under $2.00 per GGE. We expect this price advantage to remain intact for the foreseeable future, which creates a strong economic incentive for vehicle operators to switch to CNG. In addition, CNG is a significantly cleaner fuel than is gasoline or diesel. With increased focus on the environment, the benefits from natural gas powered vehicles have an immediate positive impact on the issues of air quality, U.S. energy security and public health. Using renewable CNG can result in greater than 95% less greenhouse gases than traditional petroleum products. And because CNG fuel systems are completely sealed, CNG vehicles produce no evaporative emissions, which are a common hazard when using liquid fuel. Also, CNG creates less engine wear, thereby making its use even more desirable. As of October 2016, there are fewer than 1,000 public CNG stations in the United States, compared to over 124,000 gasoline stations across the country. According to the U.S. Energy Information Administration, demand for natural gas fuels in the United States increased by approximately 45% during the period from January 1, 2012 through December 31, 2015, with the number of total CNG stations growing at a compound annual growth rate of 14% since 2009.

During 2016 and 2017, lower oil prices decreased the pricing advantage of CNG compared to diesel and gasoline. As a result, the adoption of natural gas as a fuel choice for fleets has slowed relative to previous periods, especially amongst smaller fleets. However, this impact is partially offset by a general decrease in the cost of natural gas as well as ongoing adoption of new CNG trucks by larger fleets. In addition, public companies and municipalities in particular are continuing to adopt the use of CNG as a vehicle fuel source for environmental reasons.

The natural gas vehicle industry is the beneficiary of federal and state incentives promoting the use of natural gas as a vehicle fuel choice. Titan received $450,000 of state grants to assist in the development of our El Toro station which was completed for approximately $2 million. In addition, we have historically received a $0.50 per GGE federal tax credit for each GGE sold. In some cases, we share this credit with our customers.

Recent Developments

On January 1, 2016, Titan exchanged ownership and $876,000 in debt and interest for an additional 80% ownership in Titan El Toro, LLC. As a result, Titan now owns 100% of El Toro. With the combination, the debt and interest were converted to notes payable in Titan at 12% interest and mature in December 2020.

On January 1, 2016, Titan issued eight subordinated notes payable to members (the “Junior Bridge Notes”) with a maturity date of December 31, 2020 for approximately $876,000, as well as 64,387 (equivalent to 56,608 common shares) Class A Membership Units in Titan. Titan issued an additional Junior Bridge Note on January 1, 2016 for approximately $99,000 to evidence pre-existing indebtedness. The Junior Bridge Notes bear interest at 12% per year with a default rate of 15% per year. The Junior Bridge Notes are secured by a subordinate security interest on substantially all assets of Titan.

On February 29, 2016, Titan issued five promissory notes payable to members (the “Senior Bridge Notes”) with an original maturity date of June 28, 2016 for approximately $672,000, as well as 14,762 (equivalent to 18,806 common shares) Class A Membership Units. The Senior Bridge Notes originally bore interest at 12% per year with a default interest rate of 15% per year. Two of the Senior Bridge Notes were originally long-term debt of Titan outstanding at December 31, 2015, and converted into Senior Bridge Notes. In the event of a default under the Senior Bridge Notes, Titan is required to pay the holder a stated number of Class A Membership Units on the date of default and each 90 day interval thereafter until all amounts due have been paid in full. Effective July 2016, the maturity date of the Senior Bridge Notes was extended to September 30, 2016, and effective March 14, 2016, the interest rate was increased from 12% to 16%. The default interest rate was increased from 15% to 18%. As part of that first amendment, the note holders received 3,359 (equivalent to 2,953 common shares) Class A Membership Units in Titan. In September 2016, the Senior Bridge Notes were amended to extend the maturity date to January 31, 2017, and Titan paid a fee for the extension of 1% of the outstanding principal balance to the note holders. The Company subsequently extended the maturity date of the notes to October 31, 2017. The Company paid a fee of 1% of the outstanding principal balance on the notes on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the maturity date of the notes. The notes are secured by a subordinate security interest on substantially all of the Company’s assets and are personally guaranteed by Scott Honour and Kirk Honour.

On July 26, 2016, Titan issued an additional Senior Bridge Note for $200,000 with 16% interest and an original maturity date of October 2016. In September 2016, this Senior Bridge Note was amended to extend the maturity date to January 31, 2017, and Titan paid a fee for the extension of 1% of the outstanding principal balance to the note holder. The Company paid a 1% fee on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the due date of this Senior Bridge Note to October 31, 2017. In the event of default the holder is entitled to receive 1,000 (equivalent to 879 common shares) Class A Membership Units. Titan issued 5,000 (equivalent to 4,395 common shares) Class A Membership Units to this noteholder in connection with the issuance of this Senior Bridge Note.

On September 26, 2016, Titan issued an additional Senior Bridge Note for $150,000 with 16% interest and an original maturity date of January 2017. Titan issued 3,750 (equivalent to 3,297 common shares) Class A Membership Units to this noteholder in connection with the issuance of this Senior Bridge Note and received the proceeds from this note in October 2016. Subsequent to March 31, 2017, the Company paid a 1% fee to extend the maturity date of this note to July 31, 2017 and paid an additional 1% fee to extend the maturity date to October 31, 2017. In the event of default the holder of this Senior Bridge Note is entitled to receive 750 (equivalent to 659 common shares) Class A Membership Units. 

On November 22, 2016, Minn Shares issued three convertible promissory notes (the “Minn Shares Notes”) in the aggregate principal amount of $405,103 to Joseph H. Whitney, The Globe Resources Group, LLC and Richard E. Gilbert. The Minn Shares notes bear interest at the rate of 12% per annum and mature in November 2019 unless earlier converted. Each Minn Shares Note is convertible at the holder’s option as follows: (i) upon the sale by Minn Shares of not less than $7,500,000 of its equity securities at a conversion price equal to the price per security issued in such offering, (ii) upon a corporate transaction such as a merger, consolidation or asset sale involving either the sale of all or substantially all of the Minn Shares’ assets or the transfer of at least 50% of Minn Shares’ equity securities at a conversion price equal to the enterprise value of Minn Shares, as established by the consideration payable in the corporate transaction or (iii) on or after the maturity date at a conversion price equal to the quotient of $20 million divided by the number of shares of Minn Shares stock outstanding on a fully diluted basis. The Minn Shares Notes are subject to mandatory conversion upon the conversion into equity securities of the Junior Bridge Notes and Senior Bridge Notes upon the same conversion terms as the Junior Bridge Notes and Senior Bridge Notes.

On January 31, 2017, Titan issued an additional Senior Bridge Note in the principal amount of $400,000. This Senior Bridge Note bears interest at 16% per year with a default interest rate of 18% per year and matures on April 30, 2017. In the event of a default under this Senior Bridge Note, Minn Shares is required to issue 1,758 shares of Common Stock to the holder on the date of default and each 90 day interval thereafter until all amounts due have been paid in full. This Senior Bridge Note is secured by a subordinate security interest on substantially all of the Company’s and Titan’s assets. In connection with this Senior Bridge Note, on January 31, 2017, Minn Shares issued 8,792 shares of Common Stock. Subsequent to March 31, 2017, the Company paid a 1% fee to extend the maturity date of this note to July 31, 2017 and paid an additional 1% fee to extend the maturity date to October 31, 2017. 

On February 1, 2017, pursuant to the EAF Exchange Agreement, Minn Shares acquired all of the membership interests of EAF. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in California, Texas, Arizona and Wisconsin.

As consideration for the EAF Interests, Minn Shares issued a promissory note in the principal amount of $3.8 million to Danny Cuzick (the “Senior Promissory Note”) and convertible promissory notes in the aggregate principal amount of $9.5 million to the EAF Members (the “Convertible Notes”). The Senior Promissory Note bears interest at 7.5% per year with a default interest rate of 12.5% per year and has a maturity date of the earlier of (a) the date that is ten days after the initial closing of a private offering of capital stock of Minn Shares in an amount not less than $10 million (a “Private Offering”); (b) December 31, 2017 and (c) declaration by Danny Cuzick of an event of default under the Senior Promissory Note. The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026.  

The Convertible Notes are convertible into 1,400,000 shares (the “Transaction Shares”) of Minn Shares’ Common Stock, subject to adjustment for any stock splits, combinations or similar transactions, representing approximately 81.1% of Minn Shares’ total outstanding shares of Common Stock on a post-transaction basis. Accordingly, the conversion of the Convertible Notes will result in a change in control of Minn Shares, all else being equal. The number of Transaction Shares will be increased to equal 70% of the issued and outstanding Common Stock if the issuance of Common Stock pursuant to a private offering of Common Stock of up to $2 million and the conversion of Minn Shares’ and Titan’s junior bridge notes, senior bridge notes, convertible promissory notes, and certain accounts payable into Common Stock would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding Common Stock. Pursuant to the terms of the EAF Exchange Agreement, the EAF Members are entitled to demand registration rights and piggyback registration rights with respect to the Transaction Shares upon customary terms, limitations, exceptions and conditions. The Convertible Notes are secured by all of the assets of EAF and the EAF Interests, which Minn Shares pledged to the EAF Members as security for the Convertible Notes. 

Each Convertible Note is convertible at the applicable holder’s option beginning on the first anniversary of the date of issuance of the Convertible Notes, including at any time within 90 days after the holder’s receipt of notice of consummation of (1) a reorganization, merger or similar transaction where Minn Shares is not the surviving or resulting entity or (2) the sale of all or substantially all of Minn Shares’ assets, subject to customary restrictions. Each holder’s conversion option is subject to a monthly limit of the number of shares of Common Stock equal to 10% of the thirty day average trading volume of shares of Common Stock during the prior calendar month. The Convertible Notes are also subject to mandatory conversion at Minn Shares’ option beginning on the first anniversary of the date of issuance of the Convertible Notes if: (i) the closing price of the Common Stock is greater than (A) 150% of the price at which a share of Common Stock is sold in a Private Offering or (B) $10.00 if a Private Offering has not occurred by December 31, 2017 and (ii) the average daily trading volume of shares of Common Stock has equaled 100,000 or more for the 30 days prior to the applicable date. Upon a conversion of the Convertible Notes, accrued interest may also be converted at the greater of (i) the amount of interest to be converted divided by the exchange ratio of 0.1357, subject to adjustment for stock splits or combinations, or (ii) the amount of interest to be converted divided by the closing price of the Common Stock on the trading day preceding the conversion date.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, Minn Shares issued promissory notes to the EAF Members in the aggregate principal amount of $250,000 that bear interest at 6% per annum with a default rate of 11% per annum and a maturity date of the earlier of (a) the closing of a Private Offering; (b) 180 days from the date of the notes and (c) declaration by a holder of an event of default under the holder’s note. The Company expects to amend these notes in the near future to extend the maturity date of the notes to October 31, 2017.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, Minn Shares guaranteed a note from Danny Cuzick to EAF dated January 30, 2017 in the principal amount of $4 million (the “EAF Note”). The EAF Note is secured by all assets of EAF and is guaranteed by EAF. The EAF Note bears interest at 7.5% per annum with a default rate of 12.5% per annum and has a maturity date of the earlier of (a) February 1, 2020 and (b) declaration by Danny Cuzick of an event of default under the EAF Note.

On April 6, 2017, the Company effected a 50-for-1 reverse stock split of its common stock pursuant to which each 50 shares of issued and outstanding common stock became one share of common stock (the “Reverse Split”). No fractional shares were issued as a result of the Reverse Split. All references to numbers of shares of common stock and per share amounts give retroactive effect to the Reverse Split for all periods presented. 

Anticipated Future Trends

Although natural gas continues to be less expensive than gasoline and diesel in most markets, the price of natural gas has been significantly closer to the prices of gasoline and diesel in recent years as a result of declining oil prices, thereby reducing the price advantage of natural gas as a vehicle fuel. We anticipate that, over the long term, the prices for gasoline and diesel will continue to be higher than the price of natural gas as a vehicle fuel and will increase overall, which would improve the cost savings of natural gas as a vehicle fuel compared to diesel and gasoline. However, the amount of time needed for oil prices to recover from their recent decline is uncertain and we expect that adoption of natural gas as a vehicle fuel, growth in our customer base and gross revenue will be negatively affected until oil prices increase and this price advantage increases. Our belief that natural gas will continue, over the long term, to be a cheaper vehicle fuel than gasoline or diesel is based in large part on the growth in United States natural gas production in recent years. 

We believe natural gas fuels are well-suited for use by vehicle fleets that consume high volumes of fuel, refuel at centralized locations or along well-defined routes and/or are increasingly required to reduce emissions. As a result, we believe there will be growth in the consumption of natural gas as a vehicle fuel among vehicle fleets, and our goal is to capitalize on this trend, if and to the extent it materializes, and to enhance our leadership position in these markets. Our business plan calls for expanding our sales of natural gas fuels in the markets in which we operate, including heavy-duty trucking, waste haulers, airports, public transit, industrial and institutional energy users and government fleets, and pursuing additional markets as opportunities arise. If our business grows as we anticipate, our operating costs and capital expenditures may increase, primarily from the anticipated expansion of our station network, as well as the logistics of delivering natural gas fuel to our customers on-site.

We expect competition in the market for natural gas vehicle fuel to remain steady in the near-term. To the extent competition increases, we would be subject to greater pricing pressure, reduced operating margins and potentially fewer expansion opportunities. 

Sources of Liquidity and Anticipated Capital Expenditures and Other Uses of Cash

Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by financing activities, and cash provided by investors. We have recently begun to generate positive cash flow from our Diamond Bar station, which is offset by negative cash flow at our El Toro station. As of June 30, 2017, El Toro ceased operations, and we do not anticipate any future cash flow from our El Toro station. The Company has evaluated El Toro’s assets for impairment and has determined that no impairment is necessary because the Company intends to redeploy the assets or sell the assets for an amount equal to or greater than the carrying value of the assets.

Our business plan calls for approximately $2,000,000 in additional capital expenditures for 2017, primarily related to the construction and refurbishing of CNG fueling stations and potential acquisitions. Additionally, of our total indebtedness of approximately $17,687,000 as of June 30, 2017, approximately $6,600,000 is classified as current debt. We are in violation of certain covenants related to the SBA loan. We received a waiver with respect to those covenant violations for the year ended December 31, 2016 but have not received a waiver for current violations of those covenants as of June 30, 2017 and through the date of filing of this Form 10-Q. The subordinated senior notes payable to members are due on October 31, 2017. Our total consolidated interest payment obligations relating to our indebtedness was approximately $400,000 for the six months ended June 30, 2017.

We may also elect to invest additional amounts in companies, assets or joint ventures in the natural gas fueling infrastructure, vehicle or services industries, or use capital for other activities or pursuits. We will need to raise additional capital to fund any capital expenditures, investments or debt repayments that we cannot fund through available cash or cash generated by operations or that we cannot fund through other sources, such as with the sale of our stock. We may not be able to raise capital when needed on terms that are favorable to us, or at all. Any inability to raise capital may impair our ability to build new stations, develop natural gas fueling infrastructure, invest in strategic transactions or acquisitions or repay our outstanding indebtedness and may reduce our ability to grow our business and generate sustained or increased revenues. See “Liquidity and Capital Resources” below.

Business Risks and Uncertainties

Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Risk Factors – Risks Related to the Company” and “Risk Factors – Risks Related to the CNG Industry.”

Results from Operations

Three months ended June 30, 2017 as compared with the three months ended June 30, 2016

Revenue. Titan continues to devote substantially all of its efforts on establishing the business and has not generated significant revenues from the core business – to build and operate public and private CNG filling stations under the Titan NGV Fueling brand. El Toro revenue for the three months ended June 30, 2017 and 2016 was $18,071 and $21,442, respectively. Diamond Bar revenue for the three months ended 2017 and 2016 revenues was $67,010 and $76,187, respectively. The decrease between years is from station downtime for repairs and maintenance during 2017.

For the three months ended June 30, 2016, the Company recognized revenue of $12,888 from volumetric excise tax credit from El Toro. The tax credit has not been renewed for 2017.

Cost of goods sold. Cost of goods sold are comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit cards fees. The margins at El Toro for the three months ending June 30, 2017 and 2016 were approximately 20% and 7%, with the margin at Diamond Bar for the three months ending June 30, 2017 and 2016 approximating 56% and 55%. The difference in margins between stations is attributable to the electricity expense. El Toro pays for demand electricity in order to turn on the equipment immediately, which adds additional expense to the cost of goods sold. At Diamond Bar the demand feature is not required. In addition, the electricity at Diamond Bar is less expensive because it is purchased directly from SCAQMD, as defined by the lease agreement.

Operating expenses. Operating expenses increased for the three months ended June 30, 2017 from the three months ended June 30, 2016 for approximately $115,000. The increase is attributable to additional professional fees related to public company reporting.

Interest expense. Interest expense increased between the three months ended June 30, 2016 and 2017 due to the addition of total related-party debt of over $10,000,000, for which interest expense of approximately $215,000 was due to related parties and approximately $15,000 was paid on the SBA loan.

Six months ended June 30, 2017 as compared with the six months ended June 30, 2016.

Revenue. Titan continues to devote substantially all of its efforts on establishing the business and has not generated significant revenues from the core business – to build and operate public and private CNG filling stations under the Titan NGV Fueling brand. With the addition of EVO we had revenues for the six months ended June 30, 2017 of $1,070,714, with approximately $891,000 generated from EVO. El Toro and Diamond Bar revenues were $180,000 and $162,000 for the six months ended June 30, 2017 and 2016, respectively.

For the six months ended June 30, 2016, the Company recognized revenue of $60,263 from volumetric excise tax credit. The tax credit has not been renewed for 2017.

Cost of goods sold. Cost of goods sold are comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit cards fees. The margin at El Toro is at approximately 20%, with the margin at Diamond Bar approximating 56%. The difference in margins is attributable to the electricity expense. El Toro pays for demand electricity in order to turn on the equipment immediately, which adds additional expense to the cost of goods sold. At Diamond Bar the demand feature is not required. In addition, the electricity at Diamond Bar is less expensive because it is purchased directly from SCAQMD, as defined by the lease agreement. EVO’s margin is approximately 44% which is attributable to little down time for station maintenance, the stations are open 24/7 and the price of natural gas has been depressed the first half of 2017.

Operating expenses. Operating expenses increased for the six months ended June 30, 2017 from the six months ended June 30, 2016 from approximately $645,000 to approximately $1,270,000. EVO contributed $480,000 of this increase with acquisition, along with $150,000 increase in professional fees related to public company reporting.

Interest expense. Interest expense increased between the six months ended June 30, 2016 and 2017 due to the addition of total debt of over $10,000,000, for which interest expense of approximately $400,000 was due to related parties and approximately $30,000 was paid on the SBA loan.

Loss on acquisition of El Toro. As of January 1, 2016 Titan acquired the remaining 80% of El Toro. As a result of this acquisition, a loss of $717,011 on the deficit acquired from El Toro was recorded.

Six months ended June 30, 2017 as compared with the six months ended June 30, 2016

We had cash and cash equivalents of $264,369 and $24,944 at June 30, 2017 and 2016, respectively. During the six months ended June 30, 2017 and 2016, net cash used in operations was ($399,058) and ($475,321), respectively. We historically funded our operating losses primarily from the issuance of equity, convertible notes payable, member debt and SBA debt.

Changes in Liquidity

Cash and Cash Equivalents. Cash and cash equivalents were $262,369 at June 30, 2017 and $24,944 at June 30, 2016. The increase is primarily attributable to the issuance of equity during 2017 and financing in 2016.

Operating Activities. Net cash used in operations was ($399,058) and ($428,419) as of June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, we had net losses of ($1,431,022) and ($1,421,034), respectively. Significant changes in working capital during these periods included:

Investing Activities. Net cash used in investing was $144,828. The cash was used to purchase construction in progress assets during 2017. The net cash used in the six months ended March 2016 were from a combination of cash from acquisition and from assets placed into service for total cash used in investing of $7,331.

Financing Activities. Net cash provided by financing activities was $783,311 and $488,598 for the six months ended June 30, 2017 and 2016, respectively. The cash provided by financing activities in 2017 was from $400,000 in subordinated notes payable, $310,000 from the purchase of common stock and $130,612 from stockholders advances offset by $49,536 in principal payments on the SBA loan and $7,765 in payments on the related party promissory note. The cash provided by financing activities in 2016 was generated from $650,000 subordinated notes payable, offset by a $150,000 payment on the line-of-credit, $46,902 principal payments on the SBA loan and advances from stockholders of $37,500.

Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of future operating losses, the level and timing of future sales and expenditures, working capital required to support our sales growth, the level of our outstanding indebtedness and principal and interest we are obligated to pay on our indebtedness, our capital expenditure requirements (which consist primarily of station construction), the continuing acceptance of our product in the marketplace, competing technologies, market and regulatory developments, ongoing facility requirements, and potential strategic transactions.

Debt Compliance

We have previously been and are out of compliance with technical covenants with our SBA Loan. We received a waiver to remedy the technical non-compliance under our SBA Loan for the year ended December 31, 2016 but have not received a waiver for current non-compliance as of June 30, 2017 and through the date of filing of this Form 10-Q. We expect to refinance the SBA Loan in the near term. 

Existing Indebtedness

On December 31, 2014, Titan entered into a co-borrower arrangement for a $1,300,000 U.S. Small Business Administration (SBA) note with El Toro. The proceeds from the note were received by El Toro and the note payable is recorded by El Toro. The note is a ten year term note with interest fixed at 5.50% for the first five years, then adjusted to the SBA LIBOR Base Rate, plus 2.35% for the remaining five years. The note requires monthly principal and interest payments of $15,288. The note is secured by substantially all of Titan’s business assets and is personally guaranteed by certain former members of Titan. Titan issued 35,491 (equivalent to 31,203 common shares) Class A Membership Units to those members as compensation for the guarantee. The note was obtained pursuant to a Loan Agreement with a bank dated December 31, 2014 (the facility governed by the Loan Agreement is hereinafter referred to as the “SBA Facility”). Titan was, as of December 31, 2016, and currently is, in violation of certain covenants under our SBA Facility. We received a waiver to remedy the technical non-compliance under our SBA Facility for the year ended December 31, 2016 but have not received a waiver for current non-compliance.

In addition to the SBA Facility, on January 1, 2016, Titan issued 64,387 (equivalent to 56,608 common shares) Class A Membership Units and Junior Bridge Notes in the aggregate principal amount of approximately $876,000 to eight accredited investors in exchange for mezzanine debt in El Toro plus approximately 80% of the membership interest in El Toro. Titan issued an additional Junior Bridge Note to a ninth accredited investor on January 1, 2016 for approximately $99,000 to evidence pre-existing indebtedness. The Junior Bridge Notes bear interest at the annual rate of 12% and mature on December 31, 2020. The Junior Bridge Notes are secured by a subordinate security interest on substantially all of Titan’s assets, including accounts receivable and rights to payment, which will remain in effect until such notes are repaid. The holders of the Junior Bridge Notes are the Alpeter Family Limited Partnership, Brian and Renae Clark, Falcon Capital LLC, Honour Capital LP, James Jackson, John Honour, Kirk Honour, Keith and Janice Clark, and Stephen and Jayne Clark.

On February 29, 2016, Titan issued five promissory notes payable to members (the “Senior Bridge Notes”) with an original maturity date of June 28, 2016 for approximately $672,000, as well as 16,791 (equivalent to 18,806 common shares) Class A Membership Units. The Senior Bridge Notes originally bore interest at 12% per year with a default interest rate of 15% per year. Two of the Senior Bridge Notes were originally long-term debt of Titan outstanding at December 31, 2015 and converted into Senior Bridge Notes. In the event of a default under the Senior Bridge Notes, Titan is required to pay the holder a stated number of Class A Membership Units on the date of default and each 90 day interval thereafter until all amounts due have been paid in full. Effective July 2016, the maturity date of the Senior Bridge Notes was extended to September 30, 2016 and effective March 14, 2016 the interest rate was increased from 12% to 16%. The default interest rate was increased from 15% to 18%. As part of that first amendment, the note holders received 3,359 (equivalent to 2,953 common shares) Class A Membership Units in Titan. In September 2016, the Senior Bridge Notes were amended to extend the maturity date to January 31, 2017 and Titan paid a fee for the extension of 1% of the outstanding principal balance to the note holders. The Company subsequently extended the maturity date of the notes to October 31, 2017. The Company paid a fee of 1% of the outstanding principal balance on the notes on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the maturity date of the notes. The notes are secured by a subordinate security interest on substantially all of the Company’s assets and are personally guaranteed by Scott Honour and Kirk Honour.

On July 26, 2016, we issued an additional Senior Bridge Note for $200,000 with 16% interest and an original maturity date of October 2016. In September 2016, this Senior Bridge Note was amended to extend the maturity date to January 31, 2017 and Titan paid a fee for the extension of 1% of the outstanding principal balance to the note holder. The Company paid a 1% fee on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the due date of this Senior Bridge Note to October 31, 2017. In the event of default the holder is entitled to receive 1,000 (equivalent to 1,120 common shares) Class A Membership Units. Titan issued 5,000 (equivalent to 5,600 common shares) Class A Membership Units to this noteholder in connection with the issuance of this Senior Bridge Note.

On September 26, 2016, Titan issued an additional Senior Bridge Note for $150,000 with 16% interest an original maturity date of January 2017. Titan issued 3,750 (equivalent to 4,200 common shares) Class A Membership Units to this noteholder in connection with the issuance of this Senior Bridge Note and received the proceeds from this note in October 2016. Subsequent to March 31, 2017, the Company paid a 1% fee to extend the maturity date of this note to July 31, 2017 and paid an additional 1% fee to extend the maturity date to October 31, 2017. In the event of default the holder of this Senior Bridge Note is entitled to receive 750 (equivalent to 840 common shares) Class A Membership Units.

On November 22, 2016, Minn Shares issued Minn Shares Notes in the aggregate principal amount of $405,103 to Joseph H. Whitney, The Globe Resources Group, LLC and Richard E. Gilbert. The Minn Shares notes bear interest at the rate of 12% per annum and mature in November 2019 unless earlier converted. Each Minn Shares Note is convertible at the holder’s option as follows: (i) upon the sale by Minn Shares of not less than $7,500,000 of its equity securities at a conversion price equal to the price per security issued in such offering, (ii) upon a corporate transaction such as a merger, consolidation or asset sale involving either the sale of all or substantially all of the Minn Shares’ assets or the transfer of at least 50% of Minn Shares’ equity securities at a conversion price equal to the enterprise value of Minn Shares, as established by the consideration payable in the corporate transaction or (iii) on or after the maturity date at a conversion price equal to the quotient of $20 million divided by the number of shares of Minn Shares stock outstanding on a fully diluted basis. The Minn Shares Notes are subject to mandatory conversion upon the conversion into equity securities of the Junior Bridge Notes and Senior Bridge Notes upon the same conversion terms as the Junior Bridge Notes and Senior Bridge Notes.

On January 31, 2017, Titan issued an additional Senior Bridge Note in the principal amount of $400,000. This Senior Bridge Note bears interest at 16% per year with a default interest rate of 18% per year and matures on April 30, 2017. In the event of a default under this Senior Bridge Note, Minn Shares is required to issue 1,758 shares of Common Stock to the holder on the date of default and each 90 day interval thereafter until all amounts due have been paid in full. This Senior Bridge Note is secured by a subordinate security interest on substantially all of the Minn Shares’ and Titan’s assets. In connection with this Senior Bridge Note, on January 31, 2017, Minn Shares issued 8,792 shares of Common Stock. Subsequent to March 31, 2017, the Company paid a 1% fee to extend the maturity date of this note to July 31, 2017 and paid an additional 1% fee to extend the maturity date to October 31, 2017.

On February 1, 2017, Minn Shares issued the Senior Promissory Note in the principal amount of $3.8 million to Danny Cuzick and Convertible Notes in the aggregate principal amount of $9.5 million to the EAF Members. The Senior Promissory Note bears interest at 7.5% per year with a default interest rate of 12.5% per year and has a maturity date of the earlier of (a) the date that is ten days after the initial closing of a private offering of capital stock of Minn Shares in an amount not less than $10 million (a “Private Offering”); (b) December 31, 2017 and (c) declaration by Danny Cuzick of an event of default under the Senior Promissory Note. The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026. 

The Convertible Notes are convertible into 1,400,000 shares (the “Transaction Shares”) of Minn Shares’ Common Stock, subject to adjustment for any stock splits, combinations or similar transactions, representing approximately 81.1% of Minn Shares’ total outstanding shares of Common Stock on a post-transaction basis. Accordingly, the conversion of the Convertible Notes will result in a change in control of Minn Shares, all else being equal. The number of Transaction Shares will be increased to equal 70% of the issued and outstanding Common Stock if the issuance of Common Stock pursuant to a private offering of Common Stock of up to $2 million and the conversion of Minn Shares’ and Titan’s junior bridge notes, senior bridge notes, convertible promissory notes, and certain accounts payable into Common Stock would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding Common Stock. Pursuant to the terms of the EAF Exchange Agreement, the EAF Members are entitled to demand registration rights and piggyback registration rights with respect to the Transaction Shares upon customary terms, limitations, exceptions and conditions. The Convertible Notes are secured by all of the assets of EAF and the EAF Interests, which Minn Shares pledged to the EAF Members as security for the Convertible Notes.

Each Convertible Note is convertible at the applicable holder’s option beginning on the first anniversary of the date of issuance of the Convertible Notes, including at any time within 90 days after the holder’s receipt of notice of consummation of (1) a reorganization, merger or similar transaction where Minn Shares is not the surviving or resulting entity or (2) the sale of all or substantially all of Minn Shares’ assets, subject to customary restrictions. Each holder’s conversion option is subject to a monthly limit of the number of shares of Common Stock equal to 10% of the thirty day average trading volume of shares of Common Stock during the prior calendar month. The Convertible Notes are also subject to mandatory conversion at Minn Shares’ option beginning on the first anniversary of the date of issuance of the Convertible Notes if: (i) the closing price of the Common Stock is greater than (A) 150% of the price at which a share of Common Stock is sold in a Private Offering or (B) $10.00 if a Private Offering has not occurred by December 31, 2017 and (ii) the average daily trading volume of shares of Common Stock has equaled 100,000 or more for the 30 days prior to the applicable date. Upon a conversion of the Convertible Notes, accrued interest may also be converted at the greater of (i) the amount of interest to be converted divided by the exchange ratio of 0.1357, subject to adjustment for stock splits or combinations, or (ii) the amount of interest to be converted divided by the closing price of the Common Stock on the trading day preceding the conversion date.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, Minn Shares issued promissory notes to the EAF Members in the aggregate principal amount of $250,000 that bear interest at 6% per annum with a default rate of 11% per annum and a maturity date of the earlier of (a) the closing of a Private Offering; (b) 180 days from the date of the notes and (c) declaration by a holder of an event of default under the holder’s note. The Company expects to amend these notes in the near future to extend the maturity date of the notes to October 31, 2017.

In connection with the closing of the EAF Exchange Agreement, on February 1, 2017, Minn Shares guaranteed a note from Danny Cuzick to EAF dated January 30, 2017 in the principal amount of $4 million (the “EAF Note”). The EAF Note is secured by all assets of EAF and is guaranteed by EAF. The EAF Note bears interest at 7.5% per annum with a default rate of 12.5% per annum and has a maturity date of the earlier of (a) February 1, 2020 and (b) declaration by Danny Cuzick of an event of default under the EAF Note.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses recorded during the reporting periods.

On a periodic basis we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. For further information on our significant accounting policies, see note 1 to our consolidated financial statements included in this report.

We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Basis of Presentation

Theses financial statements represent the consolidated financial statements of Minn Shares Inc., its wholly owned subsidiaries, Titan CNG LLC and Environmental Alternative Fuels, LLC, Titan’s wholly-owned subsidiaries, El Toro, Diamond Bar, and Blaine, and EAF’s wholly-owned subsidiary, EVO CNG, LLC (collectively, the “Company”). On November 22, 2016, Titan and its members entered into an Agreement and Plan of Securities Exchange with Minn Shares whereby Minn Shares acquired all of the equity interests of Titan and Titan became a wholly-owned subsidiary of Minn Shares (the “Titan Securities Exchange”). Minn Shares issued 248,481 shares of its Common Stock to acquire Titan, which resulted in the former Titan equity holders owning approximately 91.25% of the outstanding Common Stock after the consummation of the Titan Securities Exchange.

At the closing of the Titan Securities Exchange, all of the units issued and outstanding for Titan immediately prior to the closing of the Titan Securities Exchange were converted into 248,481 shares of Common Stock of Minn Shares. Titan did not have any stock options or warrants to purchase its membership interests outstanding at the time of the Titan Securities Exchange. 

Because the former members of Titan owned approximately 91.25% of the combined company on completion of the Titan Securities Exchange, the transaction was accounted for as a recapitalization through a reverse acquisition, with no goodwill or other intangibles recorded. As such, the financial information reflects the historical financial information of Titan, Diamond Bar and Blaine and the remaining assets and liabilities of Minn Shares brought over at historical cost. Minn Shares’ results of operation, which were de minimis, are included in the Company’s financial statements from the date of acquisition, November 22, 2016. Costs of the transaction have been charged to operations. The capital structure of the Company has been retroactively adjusted to reflect that of Minn Shares with all shares being adjusted based on the exchange ratio of equity interest in connection with the Titan Securities Exchange.

As a result of the Titan Securities Exchange, Minn Shares acquired the business of Titan and Titan subsidiaries El Toro, Diamond Bar and Blaine as of November 22, 2016, and will continue the existing business operations of Titan, El Toro, Diamond Bar and Blaine as a publicly-traded company under the name Minn Shares Inc. The consolidated financial statements were prepared in accordance with US GAAP. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, El Toro, Blaine, and Diamond Bar. All intercompany accounts and transactions have been eliminated in consolidation.

In determining the accounting acquirer in the transactions contemplated by the EAF Exchange Agreement, management considered the Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) 805—Business Combinations. Specifically, management considered the guidance in ASC 810-10, which generally provides that the acquirer in a business combination transaction is determined by identifying the existence of a controlling financial interest, which can typically be determined by the ownership of a majority voting interest. Because the Minn Shares stockholders continued to own all of the outstanding shares of Common Stock on completion of the transactions contemplated by the EAF Exchange Agreement, management determined that Minn Shares was the accounting acquirer in the EAF transaction. 

Going Concern

The Company is an early stage company in the process of acquiring several businesses in the vehicle fuels industry.  As of March 31, 2017 the Company has closed one acquisition which was financed through approximately $13.6 million of debt of which $3.8 million is contemplated to be repaid through a successful secondary offering before the December 31, 2017 due date.  As of March 31, 2017, the Company has a working capital deficit of approximately $8.5 million which management anticipates rectifying with additional public or private offerings. The Company also is evaluating certain cash flow improvement measures. However, there can be no assurance that the Company will be successful in these efforts.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from five to 40 years, and the shorter of the estimated economic life or related lease terms for leasehold improvements.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. 

Revenue Recognition

For the year ended December 31, 2016, the Company generated revenue from the sale of natural gas and a federal excise tax refund of $0.50 per GGE. The Company commences revenue recognition at the time the gas is dispensed as all of the following criteria have been met:

Applying these factors, we typically recognize revenue from the sale of natural gas fuel at the time it is dispensed.

Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards

See note 1 to our consolidated financial statements included in this report.

Seasonality and Inflation

To some extent, we experience seasonality in our results of operations. Natural gas vehicle fuel amounts consumed by some of our customers tend to be higher in summer months when buses and other fleet vehicles use more fuel to power their air conditioning systems. Natural gas commodity prices tend to be higher in the fall and winter months due to increased overall demand for natural gas for heating during these periods.

Since our inception, inflation has not significantly affected our operating results. However, costs for construction, repairs, maintenance, electricity and insurance are all subject to inflationary pressures, which could affect our ability to maintain our stations adequately, build new stations, expand our existing facilities or pursue additional CNG production projects, or could materially increase our operating costs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, Minn Shares is not required to provide disclosure under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive and principal financial officers, have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e), as of the end of the period subject to this Report. Based on this evaluation, the Company’s management, including its principal executive and principal financial officers, has concluded that our disclosure controls and procedures were not effective as of June 30, 2017 due to the material weaknesses in our internal control over financial reporting described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on April 18, 2017. Notwithstanding the material weaknesses that existed as of December 31, 2016 and June 30, 2017, management believes that the financial statements included in this report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management intends to implement certain remediation steps to address the material weaknesses described above as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. However, management has not yet implemented those remediation steps and expects remediation efforts to continue through the remainder of fiscal year 2017.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not a party to any material pending legal proceedings.

Item 1A. Risk Factors.

For a detailed discussion of certain risk factors that could affect the Company’s operations, financial condition or results for future periods, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

See the Exhibit Index immediately following the signature page to this report, which is incorporated herein by reference.

SIGNATURES

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.

MINN SHARES INC.

EXHIBIT INDEX

Form 10-Q for the Quarterly Period Ended JUNE 30, 2017

42