Item 2.01 Completion of Acquisition or Disposition of Assets

(a)-(e). On December 28, 2022, (the “Effective Date”), APSI simultaneously entered into a series of agreements for the purchase of all of the issued and outstanding stock held by the shareholders of Tradition Transportation Group, Inc., an Indiana corporation (“Tradition”). Those agreements are discussed below.

Stock Purchase Agreement

On December 28, 2022, APSI entered into a Stock Purchase and Sale Agreement (the “SPA”) with Mr. Davis to purchase 745,196 shares of common stock (the “Shares”) of Tradition Transportation Group, Inc., an Indiana corporation, for Twenty-Eight Million Five Hundred Forty-Eight Thousand Four Hundred Fifty-Eight and 76/100 Dollars ($28,548,458.76) in United States Dollars (the “Purchase Price”), which is equal to Thirty-Eight and 31/100 Dollars ($38.31) per share. The Shares represent all of the issued and outstanding shares of Tradition.

Mr. Davis is the Chief Operating Officer and a director of Tradition.

Per the SPA, the Purchase Price was delivered and was agreed to be delivered in the following proportions:

Mr. Carnes provided the funds for the Down Payment, and APSI wrote a promissory note to him with the principal amount of the note being the price of the Down Payment, Two Hundred Twenty-Five Thousand United States Dollars ($225,000.00). This promissory note is discussed in more detail in “ITEM 7.” of this Item 2.01 under “Related Party Transactions.”

Also, per the SPA, APSI and Mr. Davis agreed that within 30 days of the date of the SPA, December 28, 2022, APSI shall file a registration statement (registered offering) with the SEC. Subsequently, the first payment should be anticipated to be made within 90 days after the SEC qualifies the registration statement.

Multiparty Stock Purchase Agreement

On December 28, 2022, Mr. Davis entered into the Multiparty Stock Purchase Agreement (the “MSPA”) between Mr. Davis and Timothy E. Evans, James L. Evans, and Bulwark Capital, L.L.C. (each a “Tradition Seller” and altogether the “Tradition Sellers”). Pursuant to the MSPA, Mr. Davis purchased 270,001 shares from Timothy E. Evans, a director, and the President and CEO of Tradition, 224,000 shares from James L. Evans a director, and the Vice President of Tradition, and 206,000 shares from Bulwark Capital, LLC, which is owned by Joseph J. Montel, who is a director, and the Corporate Secretary and General Counsel of Tradition. The total amount of shares purchased was 700,001 (the “T-Shares”) for Twenty-Six Million Eight Hundred and Seventeen Thousand Thirty-Eight and 31/100 Dollars ($26,817,038.31) (the “MSPA Purchase Price”).

While APSI did not directly enter into the MSPA, Mr. Davis legally assigned his rights in the MSPA to APSI, as later described in the Contract Assignment agreement.

The MSPA includes the following terms:

The Tradition Sellers and Mr. Davis agreed that the MSPA would be assignable to APSI. The MSPA also contained a form promissory note, a form assignment and pledge of stock agreement, and a form contract assignment agreement as attachments.

Promissory Notes

The Promissory Notes were entered into on December 28, 2022 between Mr. Davis and each Tradition Seller. The terms of the three promissory notes are below:

The description of the Promissory Notes issued by Mr. Davis to Timothy E. Evans, James L. Evans, and Bulwark Capital, L.L.C. are qualified by reference to the full text of the conformed copies of such documents attached to this Current Report on Form 8-K as Exhibit 10.33, Exhibit 10.34, and Exhibit 10.35 respectively.

Assignment and Pledge of Stock Agreements

The assignment and pledge of stock agreements were entered into on December 28, 2022 by and between Mr. Davis and each of the Tradition Sellers. These agreements secured the indebtedness, related to the Promissory Notes. Per these agreements, the Tradition Sellers have a security interest in the T-Shares until their respective Promissory Notes are paid in full. Also, per this agreement, default occurs if their respective Promissory Notes, assignment and pledge of stock agreements, or the MSPA are defaulted on, or if the T-Shares are sold or transferred, without written consent of the respective Tradition Seller, to anyone other than APSI.

The description of the assignment and pledge of stock agreements by and between Mr. Davis and Timothy E. Evans, James L. Evans, and Bulwark Capital, L.L.C. are qualified by reference to the full text of the conformed copies of such documents attached to this Current Report on Form 8-K as Exhibit 10.36, Exhibit 10.37, and Exhibit 10.38 respectively.

The contract assignment agreement is described below.

Contract Assignment Agreement

Simultaneously with the SPA, on December 28, 2022, APSI and Mr. Davis signed a “Contract Assignment” agreement that assigned Mr. Davis’ rights in the right, title and interest in, to and under the MSPA to APSI, provided that APSI expressly assume all of the obligations of Mr. Davis under the MSPA, the Promissory Notes, and the assignment and pledge of stock agreements between Mr. Davis and each Tradition Seller.

The SPA and MSPA closed on December 28, 2022 (the “Closing”). As a result of the Closing, Tradition became a wholly owned subsidiary of APSI.

The aforementioned agreements included customary representations, warranties, and covenants by the respective parties and conditions.

The descriptions of the SPA, MSPA, and Contract Assignment agreement are qualified by reference to the full text of the conformed copies of such documents, which are attached as Exhibit 2.1, Exhibit 2.2, and Exhibit 2.3, respectively.

(f) Form 10 Disclosure

Immediately prior to the Acquisition described in detail above pursuant to which Tradition became a wholly owned subsidiary of the Company, the Company was a “shell company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Item 2.01(f) of Form 8-K states that if the registrant was a “shell” company, such as the Company was immediately before the Acquisition, then the registrant must disclose on a Current Report on Form 8-K the information that would be required if the registrant were filing a general form for registration of securities on Form 10. Accordingly, this Current Report on Form 8-K includes all of the information that would be included in a Form 10.

ITEM 1. BUSINESS

The disclosure in this “Business” section relates primarily to Tradition, an operating company that became a wholly owned subsidiary of the Company at the Closing. Prior to the Closing, the Company did not have any material operations and was a shell company as such term is defined in Rule 12b-2 of the Exchange Act.

Organizational History of the Company

The Company was originally incorporated in Nevada on December 9, 2010, as NC Solar Inc. with the goal of developing solar energy collection farms on commercial and/or industrial buildings located on distressed, blighted and/or underutilized commercial land in North Carolina and other southern states of the United States. On June 6, 2014, management changed and, on August 12, 2014, the Company changed its name to Aqua Power Systems Inc.

On December 1, 2020, the Eight Judicial District Court of Nevada entered an order appointing Small Cap Compliance, LLC as custodian of the Company, authorizing and directing it to, among other things, take any action reasonable, prudent and for the benefit of the Company, including reinstating the Company under Nevada law, appointing officers and convening a meeting of stockholders. Small Cap Compliance, LLC was not a shareholder of the Company on the date that it applied to serve as a custodian of the Company.

On December 7, 2020, Small Cap Compliance, LLC filed the Certificate of Reinstatement for the Company, thereby reinstating the Company, appointed Stephen W. Carnes as the sole officer and director of the Company, and amended the Company’s Certificate of Incorporation to authorize the issuance of up to one million shares of Series B Preferred Stock.

On March 3, 2021, the Eight Judicial District Court of Nevada entered an order approving Small Cap Compliance, LLC’s actions, without prejudice to the claims of interested parties as to dilution of their interest, terminated Small Cap Compliance, LLC’s custodianship of the Company, and discharged Small Cap Compliance as the custodian of the Company.

On April 27, 2022, Robert Morris and the board of directors of APSI agreed in a Unanimous Written Consent of the Board of Directors In Lieu of Special Meeting that Mr. Morris would become a director of APSI to help with acquisitions, effective May 1, 2022.

The Company’s business purpose is to identify, research and if determined to meet the Company’s criteria, acquire an interest in business opportunities available for the Company to leverage. 

On December 28, 2022, pursuant to the Closing and completion of the Acquisition, the Company acquired Tradition, and Tradition thereafter became a wholly owned subsidiary of the Company, and the business of Tradition became the primary business of the Company.

Overview of the Business of Tradition

Tradition was incorporated under the laws of the state of Indiana on September 16, 2015. Tradition is headquartered in Angola, Indiana, and provides freight transportation, brokerage, truck leasing and financing, warehousing and fulfillment services throughout the United States, and manufactures and sells bolts and fasteners, and creates custom plates, cages, and embeds.

Karr Transportation Asset Purchase

On July 27, 2022, Tradition’s wholly owned subsidiaries, Tradition Transportation, L.L.C. and Tradition Leasing Systems, L.L.C. (together the “Purchaser”), both subsidiaries discussed in more detail below, entered into an asset purchase agreement (“Karr Asset Purchase Agreement”) with Karr Transportation, Inc., an Arkansas corporation, Beers Investment Group, LLC, an Arkansas limited liability company, and its shareholders, Kelly Beers and Albert Beers (“Karr Sellers”). As a result of this agreement, Tradition acquired the following:

Per the Karr Asset Purchase Agreement, the parties entered into two separate agent agreements, one with Tradition Transportation Company, L.L.C. (“Trucking Agent Contract”) and one with Freedom Freight Solutions, L.L.C. (“Freedom Agent Contract”) for the total consideration of $200,000. Both Agreements provide a cap on commissions of $3,299,999, minus any payments for drivers, mechanics, or operating staff (“Cap”).

The Trucking Agent Contract provides that the Karr Sellers, having substantial experience in the freight motor carrier industry and having customers, who have freight shipping needs for their cargo of general commodities, would refer their customers to Tradition Trucking Company, LLC for a commission of six percent (6%) of line-haul revenues on Tradition Transportation Company, LLC assets. The aforementioned commission is subject to (a) Line Haul Revenue being defined as the “Freight Charge” and/or “Pay Gross” within Tradition Transportation, L.L.C.’s software system, and Line Haul does not include additional charges for fuel surcharge, accessorial charges, project management, detention, tarping, stop offs, etc., and (b) revenues, excluding any amounts not paid within 90 days from the date of invoice, or amounts collected by Tradition Transportation, L.L.C. with the assistance of an outside collection agency or an attorney.

The Freedom Agent Contract provides that the Karr Sellers, having substantial experience in the freight motor carrier industry and having customers, who have transportation brokerage service needs for their cargo of general commodities, would refer their customers to Freedom Freight Solutions, LLC for a commission of six percent (6%) of the margin on revenues generated through Freedom Freight Solutions, LLC.

Finally, the Purchaser and Karr Sellers agreed to enter into a mutually agreeable lease for use of the property commonly known as 4106 Highway 62 East, Mountain Home, Arkansas 72653, at the rate of three thousand dollars ($3,000) per month for the office space and one thousand five hundred dollars ($1,500) per month for the repair shop space. The term of the lease was six (6) months from the date of Closing, with Purchaser having the right to extend the term under the same terms and costs for two (2) additional six (6) month periods. Intent is for current dispatch and operations offices, two (2) additional offices occupied by accounting, and non-exclusive use of the break area, kitchen and restrooms; together with the three (3) bay maintenance facility, office currently used, and up to ten (10) parking spaces for semi-trucks and trailers (additional to employee and customer parking).

The Karr Asset Purchase Agreement has a term of the lesser of a period ending upon payment of the Cap, and a period of 5 years. Otherwise, at the written option of the parties, the Karr Asset Purchase agreement may be terminated by either party upon 30 days written notice. The Karr Asset Purchase Agreement is qualified by reference to the full text of the document attached as Exhibit 10.4 to this Current Report on Form 8-K.

EDSCO Purchase and Sale

On January 31, 2022, Tradition’s wholly owned subsidiary, Anthem Anchor Bolts & Fasteners, LLC (“Anthem”), discussed in more detail below, and EDSCO Holding Company, LLC (“EDSCO”) entered into an asset purchase and sale agreement. In this agreement, Anthem acquired the following inventory and equipment of EDSCO Holding Company, LLC for the purchase price of $447,918.52 (the “EDSCO Purchase Price”): a 2011 Chevy Truck, a Trailer, a Nissan forklift, a Yale forklift, a Clark Forklift, a 250 Amp Mig Welder, a 2 1/2 Double head landis Threader, a 1 1/4 single head landis, a 1 1/4 rotary bender, a 200 ton Bulldozer, a do all saw, a Tesker 236 threader, a Tesker 215 roll threader, a Tesker 210 roll threader, a Reed B 112 Roll threader, a Landis Lanurol roll threader, a Plasma table, a Landis cut threader, a Floor scale, an additional 250 amp mig welder, various tools, a Bar Snapper, a Plasma Water Table, a Small bending unit, a Pallet Racking machine, and a Mult-function Printer (altogether the “EDSCO Assets”).

The EDSCO Purchase Price was paid by wire transfer initiated on February 7, 2022 and EDSCO delivered to Anthem a bill of sale to transfer and vest in Anthem good and marketable title to the EDSCO Assets, free and clear of all encumbrances. EDSCO had been operating at 300 East Railroad Street, Waterloo, DeKalb County, Indiana 46793 (the “EDSCO Location”). As part of the closing, the owner of the EDSCO Location provided Tradition until September 30, 2022, to relocate. The rent paid to the owner of the property was paid up-front.

Anthem was relocated to 210 South Progress Drive, Kendallville, Indiana 46755, further discussed in “Item 3. Properties.” Anthem, due to this acquisition, is a manufacturer of bolts, nuts, and fasteners, and creates custom plates, cages, and embeds. The asset purchase and sale agreement between EDSCO Holding Company, LLC and Anthem Anchor Bolts and Fasteners, LLC is qualified by reference to the full text of the full document attached as Exhibit 10.3 to this Current Report on Form 8-K.

Wholly Owned Subsidiaries

Tradition Transportation Company, L.L.C.

Tradition Transportation Company, L.L.C. was organized as an Indiana Limited Liability Company on January 22, 2016. Through this subsidiary, Tradition operates its tractor and trailer fleets, which are discussed below.

Tradition Leasing Systems, L.L.C.

Tradition Leasing Systems, L.L.C. was organized as an Indiana Limited Liability Company on September 17, 2016. Through this subsidiary Tradition engages in equipment acquisition and disposition.

Tradition Logistics, L.L.C.

Tradition Logistics, L.L.C. was organized as an Indiana Limited Liability Company on January 1, 2016. This subsidiary operates six (6) warehouses with four (4) in Indiana, specifically Angola, Indianapolis, Greenfield, and Greenwood; and two (2) located in Georgia, specifically Statesboro and Savannah, and provides time-sensitive warehousing, logistics and freight management to all 48 continental states and, as needed, internationally (into Mexico and Canada).

Freedom Freight Solutions, LLC

Freedom Freight Solutions, L.L.C. was organized as an Indiana Limited Liability Company on May 3, 2018. This subsidiary identifies and qualifies third party carriers, and connects the loads to the drivers.

Tradition Transportation Sales & Service, Inc.

Tradition Transportation Sales & Service, Inc. was organized as an Indiana Limited Liability Company on September 17, 2015. This subsidiary is principally engaged in providing mechanical repair and maintenance services for tractors and trailers that Tradition utilizes. It operates with the primary focus of maintenance cost reduction, expediting redeployment of equipment, and to serve as a back-stop to safety vehicle inspections.

Anthem Anchor Bolts and Fasteners, LLC

Anthem Anchor Bolts and Fasteners, LLC was organized as an Indiana Limited Liability Company on January 21, 2022, for the transaction with EDSCO Holding Company, LLC, as described above. This was formed as a small exploratory step into the supply of metal bolts, nuts, and other industrial fasteners. This company will serve Tradition Transportation Sales & Service, Inc. as a vendor.

Industry Overview, Competition, and Market Opportunity

Trucking is the primary means of serving the North American transportation market. Trucking continues to attract shippers due to the mode’s cost advantages relative to air transportation and flexibility relative to rail. Truckload growth is largely tied to U.S. economic activity such as GDP growth and industrial production and moves in line with changes in sales, inventory and production within various sectors of the U.S. economy, including manufactured goods, construction products and bulk commodities.

The U.S. truckload industry sector comprises the use of dry van and specialty equipment. Both dry van and specialty equipment are used to transport goods over a long-haul and on a regional basis. Dry van carriers represent an integral component of the transportation supply chain for most retail and manufactured goods in North America. Specialty carriers employ equipment such as flat-bed trucks, temperature-controlled trailers, over-sized trailers and bulk transport, dump, and waste equipment. These carriers can transport temperature-controlled products and bulk commodities such as specialty chemicals and petrochemicals. Specialty equipment offering is characterized by higher equipment costs and more extensive driver training requirements relative to dry van offerings, resulting in higher barriers to entry and creating opportunities for differentiated value propositions for customers.

The American Trucking Associations (“ATA”) has published, on its website, https://www.trucking.org/economics-and-industry-data, the following information, regarding trends in the truck freight industry in 2021:

The ATA also published that, as of June 2022, 95.7% of fleets operate ten or fewer trucks and 99.7% operate less than 100, and the number of for-hire carriers on file with the Federal Motor Carrier Safety Administration totaled 1,102,799, private carriers totaled 718,594, there were 153,191 carriers identified as both for-hire and private carriers, and other interstate motor carriers totaled 37,718. 

As seen above, the U.S. truckload industry is large and fragmented, characterized by many small carriers. Some of Tradition’s competitors include J.B. Hunt, Old Dominion Freight Line, Schneider, ACME Truck Line Inc., Crete Carrier, C.H. Robinson, CRST, Knight Logistics, Swift, and Werner Enterprises.

Regulations and initiatives to improve the safety of the U.S. trucking industry have impacted industry dynamics. Tradition believes the recent trend is for industry regulation to become progressively more restrictive and complex, which constrains the overall supply of trucks and drivers in the industry. See “Regulation” below for more information on the regulatory environment of the industry. Tradition believes smaller carriers will likely be challenged to maintain the utilization required for acceptable profitability under this regulatory framework.

Because the trucking industry is very fragmented, with most carriers operating ten or fewer trucks, and highly regulated, as described below in “Regulation,” Tradition believes that this industry primed for consolidation.

Tradition’s Service Offerings

Freight transportation services, brokerage services, equipment leasing services, and warehouse leasing are Tradition’s main services offerings.

Due to the EDSCO Purchase and Sale described above, Tradition has entered the manufacturing space and now manufactures bolts, nuts, and fasteners, and create custom plates, cages, and embeds. Tradition’s manufacturing business is described later in “Manufacturing” and includes information related to Tradition’s customers, competition, vendors, and the industry.

Freight Transportation Services

Tradition’s “Freight Transportation Services” consist of the outbound and inbound movement of freight and make up about 50% of its total revenue, as of its fiscal year ended December 31, 2021. Tradition offers dry van, temperature-controlled, and flatbed specialized transportation services across all 48 contiguous states. The description of Tradition’s fleet and trailers is described in more detail below in “Tractor and Trailer Fleets.”

Brokerage Services

Tradition’s “Brokerage Services” make up about 35% of its total revenue, as of its fiscal year ended December 31, 2021. These services include freight management, fulfillment, relabeling and repackaging, outbound logistics, supply chain management, warehouse management, inventory management, and shipment and tracking notification.

Equipment Leasing Services

Tradition’s “Equipment Leasing Services” consist of the financing of owner-operator trucks and make up about 7% of its total revenue, as of its fiscal year ended December 31, 2021. Tradition offers a variety of leasing options including long-term, short-term, subleasing options. Customers can also purchase equipment from Tradition. Customers can lease or purchase late-model power units from Kenworth, Peterbilt, and Freightliner. Tradition also offers leasing on state-of-the-art trailers from Wabash, and Great Dane. Tradition’s leasing system’s state of the art financial management technology helps simplify the leasing process.

Warehouse Leasing Services

Tradition’s “Warehouse Leasing Services” make up about 8% of its total revenue, as of its fiscal year ended December 31, 2021. Tradition has six (6) warehouses with four (4) in Indiana, specifically Angola, Indianapolis, Greenfield, and Greenwood; and two (2) located in Georgia, specifically Statesboro and Savannah. The warehouses provide more than 1.8 million sq. ft. of warehouse compacity, specifically:

Services include warehousing and fulfillment, and drayage, or the moving of freight from a container ship to a warehouse.

Tractor and Trailer Fleets

Tradition operates a fleet of approximately 162 company-owned tractors and approximately 303 trailers. Additionally, Tradition leases approximately 64 tractors and 248 trailers. Tradition’s tractor fleet includes technology including electronic logging devices (“ELDs”), electronic speed limiters, electronic roll stability, and Samsara forward facing dash cams. Each of Tradition’s company tractors is also equipped with onboard communication units that offer real time freight positioning to its customers and instant communication between its drivers and Tradition.

Tractors and trailers represent Tradition’s most substantial capital investments. In general, Tradition expects to operate a tractor for approximately 3 years and 360,000 miles of operation, and trailers for approximately 10 years of operation. Tradition depreciates or finances its equipment over their useful lives and down to salvage values that Tradition expects to represent fair market value at the expected time of sale. Tradition’s ongoing capital expenditures are significant, and its annual depreciation expense is expected to be approximately equal to maintenance capital expenditures, net of proceeds of dispositions, assuming a constant percentage of leased versus owned equipment and a constant trade cycle.

Tradition’s company tractors have an average model year of 2020 and its trailers have average model year of 2017, as of December 28, 2022.

Tradition’s Competitive Strengths

Tradition’s management and the diversification of its business model are its primary strengths. Tradition’s service offerings are based in assets and non-assets. Tradition manages its customer portfolio through type of products and services by each customer and by percentage of business Tradition will do with each customer based on annual sales and product types. Tradition is managed this way to allow it to balance its annual revenues, and have the ability to grow and gain market share. Tradition’s technology and management teams are guided through this process as Tradition reviews its operations quarterly with its business development teams and operations management.

Tradition’s competitive strengths provide it with a strong foundation to continue to improve its profitability and stockholder value and are discussed in more detail below:

Complementary mix of services to afford flexibility and stability throughout economic cycles

Tradition’s service offerings have unique characteristics and are subject to differing market forces, which Tradition believes allows it to respond effectively through economic cycles.

Tradition’s Freight Transportation Services, Brokerage Services, Warehousing Leasing Services, and Equipment Leasing Services involve assets and non-assets. These services, along with Tradition’s manufacturing business, complement and support one another, and create opportunities for cross selling.

Technology

Tradition has integrated general and industry-specific technology into its front and back-end office operations, allowing Tradition to run efficiently and effectively. Tradition is focused on continual implementation of the digital initiatives that Tradition believes are re-engineering it to be a market leader in growth and profitability over the next decade. Some examples of the technologies that Tradition uses are as follows:

Diverse and resilient customer base

Tradition maintains a diverse customer base that fall within a broad spectrum of geographies and end markets. Tradition’s customers are described in more detail below.

Maintenance system designed to optimize life cycle investment and minimize operating costs

Tradition’s fleet represents its largest capital investment, a visible representation of Tradition’s brand for customers and drivers and a large portion of its controllable costs. Tradition selects, maintains and disposes of its fleet based on rigorous analysis of its investments and operating costs.

Over the past several years, Tradition has developed a disciplined and effective maintenance program designed to actively manage these assets based on the amount of miles a tractor is driven for preventive maintenance and replacement of parts. Tradition’s owned and lease-purchase units are serviced at approved vendors according to its Maintenance Program Schedule: (1) A Service – Performed every 35,000 miles, (2) B Service – Performed every 17,500 miles, (3) C Service – Performed every 250,000 miles, and (4) D Service – Performed every 150,000 miles. Tradition believes this approach, coupled with its approved vendors, helps it effectively manage its maintenance cost per mile, keeps drivers on the road efficiently and creates an attractive asset and record for resale.

Motivated management team focused on tactical execution and leadership in the truckload market

Tradition’s senior corporate staff has a combined 110 years of industry knowledge and experience. Tradition’s Chief Executive Officer, Timothy E. Evans, has over 30 years of experience in the transportation and warehousing industry. Joseph Montel, Tradition’s company Secretary and General Counsel has nearly 30 years of experience in transportation, banking, corporate, securities, and real estate. James L. Evans, Tradition’s Vice President, has been involved in the transportation, logistics, and warehousing industry for more than 30 years. Joseph M. Davis, Tradition’s Chief Operating Officer, has more than 20 years of experience in the industry and has been on the operations side for most of that time. Tradition believes its leadership team is well-positioned to execute its strategy and remains a key driver of its financial and operational success.

Customer Relationships

Tradition maintains a diverse customer base that includes a large base of nearly 500 active customers, including Meijer Distribution, Inc. Therma-Tru Corp., Dunham’s Distribution Center, Bridgestone, and C.H. Robinson. Tradition’s customers fall within a broad spectrum of geographies and end markets, including building materials, transportation, automotive, manufacturing, grocery stores, containers and packaging, and food and drink. For the fiscal year ended December 31, 2021, Tradition’s largest customer accounted for approximately 13% of Tradition’s revenue.

Tradition’s Business Strategies

Tradition believes it possesses the ability to scale, infrastructure and service offerings to compete effectively in its markets, its opportunity for further improvement is significant, and its strategies are designed to enhance stockholder value.

Improve profitability and grow revenue

Strategic investments and growth strategies

Owner operators

In addition to the company drivers that Tradition employs, it enters into contracts with independent contractors or owner operators, to many of whom Tradition leases tractors. Owner operators may operate their own tractors and provide their services to Tradition under contractual arrangements. Except for generally providing owner operators with the use of its trailers, owner operators are responsible for the ownership and operating expenses of their tractors, and are compensated by Tradition primarily on a rate per mile basis. By operating safely and productively, independent contractors can improve their own profitability and Tradition’s. Tradition believes that the fleet of independent contractors it engages provides significant advantages that primarily arise from the motivation of business ownership. Owner operators tend to produce more miles per tractor per week. As of December 28, 2022, Tradition has approximately 132 owner operators.

Owner operators have access to medical, dental and vision insurance, as well as safety and referral bonus programs.

Human Capital Resources

General

As of December 28, 2022, Tradition has two hundred and fifteen (215) full-time employees. Sixty (60) of the full-time employees are its drivers, and one-hundred twenty-two (122) are office personnel. Tradition also has one hundred and thirty two (132) owner operator drivers. None of Tradition’s employees are covered by a collective bargaining agreement.

To attract and retain the best-qualified talent, Tradition offers competitive benefits, including, medical, dental and vision insurance, as well as life insurance and a 401k. Owner operators have access to medical, dental and vision insurance, as well as safety and referral bonus programs.

In addition to Tradition’s hiring criteria, its tractors are equipped with electronic speed limiters, automatic transmissions, lane departure and collision warning systems, air disc brakes and high performance wide brake drums, electronic roll stability and, more recently, forward-facing cameras.

Trademarks

Tradition has a word mark and a design mark on “Tradition Transportation Company, LLC,” which were registered on March 12, 2019.

Regulation

Transportation Regulations

Tradition’s operations are regulated and licensed by various government agencies, including the Department of Transportation (“DOT”), Environmental Protection Agency (“EPA”) and the Department of Homeland security (“DHS”). These and other federal and state agencies also regulate Tradition’s equipment, operations, drivers and third-party carriers.

The DOT, through the Federal Motor Carrier Safety Administration (“FMCSA”), imposes safety and fitness regulations on Tradition and its drivers, including rules that restrict driver hours-of-service. Changes to such hours-of-service rules can negatively impact Tradition’s productivity and affect its operations and profitability by reducing the number of hours per day or week its drivers may operate and/or disrupt Tradition’s network. However, in August 2019, the FMCSA issued a proposal to make changes to its hours-of-service rules that would allow truck drivers more flexibility with their 30-minute rest break and with dividing their time in the sleeper berth. It also would extend by two hours the duty time for drivers encountering adverse weather, and extend the short haul exemption by lengthening the drivers’ maximum on-duty period from 12 hours to 14 hours.  In June 2020 the FMCSA adopted a final rule substantially as proposed, which became effective in September 2020. Certain industry groups have challenged these rules in court, and it remains unclear what, if anything, will come from such challenges. Any future changes to hours-of-service rules could materially adversely affect Tradition’s results of operations and profitability.

There are two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce. Tradition currently has a satisfactory DOT safety rating for Tradition’s U.S. operations under this method, which is the highest available rating under the current safety rating scale. If Tradition were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect its business, as some customers and potential customers may not want to utilize the services of a carrier with such a rating. In January 2016, the FMCSA published a Notice of Proposed Rulemaking outlining a revised safety rating measurement system, which would replace the current methodology. Under the proposed rule, the current three safety ratings of “satisfactory,” “conditional” and “unsatisfactory” would be replaced with a single safety rating of “unfit,” and a carrier would be deemed fit when no rating was assigned. Moreover, the proposed rules would use roadside inspection data in addition to investigations and onsite reviews to determine a carrier’s safety fitness on a monthly basis. Under the current rules, a safety rating can only be given upon completion of a comprehensive onsite audit or review. Under the proposed rules, a carrier would be evaluated each month and could be given an “unfit” rating if the data collected from roadside inspections, investigations and onsite reviews did not meet certain standards. The proposed rule underwent a public comment period extending into May 2016 and several industry groups and lawmakers have expressed their disagreement with the proposed rule, arguing that it violates the requirements of the Fixing America’s Surface Transportation Act (the “FAST Act”), and that the FMCSA must first finalize its review of the Compliance, Safety, Accountability program (“CSA”) scoring system, described in further detail below. Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA withdrew the Notice of Proposed Rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a new rulemaking related to a similar process may be initiated in the future. Therefore, it is uncertain if, when or under what form any such rule could be implemented. The FMCSA has also indicated that it is in the early phases of a new study on the causation of crashes. Although it remains unclear whether such study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regard to safety and fitness.

In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards. The CSA program analyzes data from roadside inspections, moving violations, crash reports from the last two years and investigation results. The data is organized into seven categories. Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold. Currently, these scores do not have a direct impact on a carrier’s safety rating. However, the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers, (ii) cause Tradition’s customers to direct their business away from Tradition and to carriers with higher fleet rankings, (iii) subject Tradition to an increase in compliance reviews and roadside inspections, (iv) cause Tradition to incur greater than expected expenses in Tradition’s attempts to improve unfavorable scores or (v) increase Tradition’s insurance expenses, any of which could adversely affect Tradition’s results of operations and profitability.

Under the CSA, these scores were initially made available to the public in five of the seven categories. However, pursuant to the FAST Act which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system. During this period of review by the FMCSA, Tradition will continue to have access to its own scores and will still be subject to intervention by the FMCSA when such scores are above the intervention thresholds. A study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate, and reliable. In late June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response to the study. Such changes include the testing and possible adoption of a revised risk modeling theory, potential collection and dissemination of additional carrier data and revised measures for intervention thresholds. The adoption of such changes is contingent on the results of the new modeling theory and additional public feedback. Therefore, it is unclear if, when and to what extent such changes to the CSA program will occur. However, any changes that increase the likelihood of Tradition receiving unfavorable scores could materially adversely affect Tradition’s results of operations and profitability.

In May 2020 the FMCSA announced that effective immediately it is making permanent a pilot program that will not count a crash in which a motor carrier was not at fault when calculating the carrier’s safety measurement profile, called the Crash Preventability Demonstration Program (“CPDP”). The CPDP will expand the types of eligible crashes, modify the Safety Measurement System to exclude crashes with not preventable determinations from the prioritization algorithm and note the not preventable determinations in the Pre-Employment Screening Program. Under the program, carriers with eligible crashes that occurred on or after August 2019, may submit a Request for Data Review with the required police accident report and other supporting documents, photos or videos through the FMCSA’s DataQs website. If the FMCSA determines the crash was not preventable, it will be listed on the Safety Measurement System but not included when calculating a carrier’s Crash Indicator Behavior Analysis and Safety Improvement Category measure in SMS. Additionally, the not preventable determinations will be noted on a driver’s Pre-Employment Screening Program report.

The final rule requiring the use of ELDs was published in December 2015. This rule required drivers of commercial motor vehicles that are required to keep logs to be ELD-compliant by December 2017. Use of automatic onboard recording devices was permitted until December 2019, at which time use of ELDs became required. Tradition was fully converted to ELDs by the December 2019 deadline. Tradition believes that more effective hours-of-service enforcement under this rule may improve Tradition’s competitive position by causing all carriers to adhere more closely to hours-of-service requirements.

In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements. Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles. The final rule became effective in January 2017, with a compliance date in January 2020. In December 2019, however, the FMCSA announced a final rule extending by three years the date for state driver’s licensing agencies to comply with certain Drug and Alcohol Clearinghouse requirements. The December 2016 commercial driver’s license rule required states to request information from the Clearinghouse about individuals prior to issuing, renewing, upgrading or transferring a CDL. This new action will allow states’ compliance with the requirement, which was set to begin January 2020, to be delayed until January 2023. That being said, the FMCSA has indicated it will allow states the option to voluntarily query Clearinghouse information beginning January 2020. The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule; however, upon implementation, the rule may reduce the number of available drivers in an already constrained driver market. Pursuant to a new rule finalized by the FMCSA, effective November 2021, states are required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver’s license and must revoke a driver’s commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.

In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens. However, the proposal also requires a second sample using either urine or an oral swab test if a hair test is positive, if a donor is unable to provide a sufficient amount of hair for faith-based or medical reasons, or due to an insufficient amount or length of hair. The proposal specifically requires that the second test be done simultaneously at the collection event or when directed by the medical review officer after review and verification of laboratory-reported results for the hair specimen. DHHS indicated the two-test approach is intended to protect federal workers from issues that have been identified as limitations of hair testing, and related legal deficiencies identified in two prior court cases. The ATA has voiced concerns with the new guidelines, characterizing them as “weak” and “misguided,” and specially taking issue with the second sample requirement, which the ATA feels diminishes the value of hair testing. It is unclear if, and when, a final rule may be put in place. Any final rule may reduce the number of available drivers. Tradition currently performs urine testing and will continue to monitor any developments in this area to ensure compliance.

Other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver-training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made final in December 2016, with a compliance date in February 2020. However, in May 2020, the FMCSA approved an interim rule delaying implementation of the final rule by two years which extended the compliance date to February 2022. In July 2017, the DOT announced that it would no longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future. In May 2021, however, the Cullum Owings Large Truck Safe Operating Speed Act was reintroduced into the U.S. House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H. The effect of these rules, to the extent they become effective, could result in a decrease in fleet production and driver availability, either of which could materially adversely affect Tradition’s business, financial condition and results of operations.

The Infrastructure Investment and Jobs Act (“IIJA”), signed into law by President Biden in November 2021, created an apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce. The provision drew certain mechanics from the bills introduced in Congress in 2019 related to lowering the age requirements for interstate commercial driving. The FMCSA announced the establishment of this apprenticeship program in January 2022 in an effort to help the industry’s ongoing driver shortage. The program is open to 18 to 20-year-old drivers who already hold intrastate commercial driver’s licenses and sets a strict training regimen for participating drivers and carriers to comply with. Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information. It remains unclear whether any regulatory changes will stem from the apprenticeship program.

In December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws. The FMCSA’s decision has been appealed by labor groups, and multiple lawsuits have been filed in federal courts seeking to overturn the decision. In January 2021, the Ninth Circuit upheld the FMCSA’s determination that federal law does preempt California’s meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles. Other current and future state and local wage and hour laws, including laws related to employee meal breaks and rest periods, may also vary significantly from federal law. Further, driver piece rate compensation, which is an industry standard, has been attacked as non-compliant with state minimum wage laws and lawsuits have recently been filed and/or adjudicated against carriers demanding compensation for sleeper berth time, layovers, rest breaks and pre-trip and post-trip inspections, the outcome of which could have major implications for the treatment of time that drivers spend off-duty (whether in a truck’s sleeper berth or otherwise) under applicable wage laws. Both of these issues adversely impact Tradition and the industry as a whole, with respect to the practical application of the laws, thereby resulting in additional cost. As a result, Tradition, along with other companies in Tradition’s industry, are subject to an uneven patchwork of wage and hour laws throughout the United States. In the past, certain legislators have proposed federal legislation to preempt state and local wage and hour laws; however, passage of such legislation is uncertain. Tradition’s fleet currently complies with all local laws.

Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractor drivers in the trucking industry are employees rather than independent contractors. Federal legislation has been introduced in the past that would make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractor drivers and to increase the penalties for companies who misclassify their employees and are found to have violated employees’ overtime and/or wage requirements. The most recent example being the Protecting the Rights to Organize (“PRO”) Act, which was passed by the House of Representatives and received by the Senate in March 2021 and remains with the Senate’s Committee on Health, Education, Labor, and Pensions.  The PRO Act proposes to apply the “ABC Test” for classifying workers under Federal Fair Labor Standards Act claims.  It is unknown whether any of the proposed legislation will become law or whether any industry-based exemptions from any resulting law will be granted. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors and impose notice requirements based on employment or independent contractor status and fines for failure to comply. Some states have put initiatives in place to increase their revenue from items such as unemployment, workers’ compensation and income taxes and a reclassification of independent contractors as employees would help states with this initiative.

Recently, courts in certain states have issued decisions that could result in a greater likelihood that independent contractors would be judicially classified as employees in such states. In September 2019, California enacted A.B. 5 (“AB5”), a new law that changed the landscape of the state’s treatment of employees and independent contractors. AB5 provides that the three-pronged “ABC Test” must be used to determine worker classification in wage-order claims. Under the ABC Test, a worker is presumed to be an employee—and the burden to demonstrate their independent contractor status is on the hiring company through satisfying all 3 of the following criteria:

How AB5 will be enforced is still to be determined. In January 2021, however, the California Supreme Court ruled that the ABC Test could apply retroactively to all cases not yet final as of the date the original decision was rendered, April 30, 2018. While AB5 was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to invalidate AB5. The Ninth Circuit Court of Appeals rejected the reasoning behind the injunction in April 2021, ruling that AB5 is not pre-empted by federal law, but granted a stay of the AB5 mandate in June 2021 (preventing its application and temporarily continuing the injunction) while the CTA petitioned the U.S. Supreme Court (the “Supreme Court”) to review the decision. In November 2021, the Supreme Court requested that the U.S. solicitor general weigh in on the case. The injunction was lifted on August 29, 2022. There is not yet much clarity on how AB5 will be enforced. Further, the matter is not settled, as the CTA is pursuing the case from the beginning and has requested another injunction. It is also possible AB5 will spur similar legislation in states other than California, which could adversely affect Tradition’s results of operations and profitability.

Further, class actions and other lawsuits have been filed against certain members of the trucking industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers’ compensation and health care coverage. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If independent contractors Tradition contracts with are determined to be employees, Tradition would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.

Environmental Regulations

From time to time Tradition engages in the transportation of hazardous substances, most notably molten aluminum. Additionally, some of Tradition’s tractor terminals are located in areas where groundwater or other forms of environmental contamination could occur. Tradition’s operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. Certain of Tradition’s facilities have wash facilities, waste oil or fuel storage tanks and fueling islands. If Tradition is involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances Tradition transports, if soil or groundwater contamination is found at Tradition’s facilities or results from Tradition’s operations, or if Tradition is found to be in violation of applicable laws or regulations, Tradition could be subject to cleanup costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on Tradition’s business, financial condition and results of operations.

In August 2011, the National Highway Traffic Safety Administration (the “NHTSA”) and the EPA adopted a new rule that established the first-ever fuel economy and greenhouse gas standards for medium and heavy-duty vehicles, including the tractors Tradition employs (the “Phase 1 Standards”). The Phase 1 Standards apply to tractor model years 2014 to 2018 and require the achievement of an approximate 20 percent reduction in fuel consumption by the 2018 model year, which equates to approximately four gallons of fuel for every 100 miles traveled. In addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the “Phase 2 Standards”). In October 2016, the EPA and NHTSA published the final rule mandating that the Phase 2 Standards will apply to trailers beginning with model year 2018 and tractors beginning with model year 2021. The Phase 2 Standards require nine percent and 25 percent reductions in emissions and fuel consumption for trailers and tractors, respectively, by 2027. The final rule was effective in December 2016, but has since faced challenges and delays.  In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment). The outcome of such proposal is still undetermined. Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S. Court of Appeals for the District of Columbia. In November 2021, a panel for the U.S. Court of Appeals for the District of Columbia ruled in favor of the association challenging the standards and vacated all portions of the Phase 2 Standards that applied to trailers, and consequently, the Phase 2 Standards will only require reductions in emissions and fuel consumption for tractors.

In January 2020, the EPA announced it is seeking input on reducing emissions of nitrogen oxides and other pollutants from heavy-duty trucks. The EPA anticipates taking final action on the new plan, commonly referred to as the “Cleaner Trucks Initiative.” On August 5, 2021, U.S. EPA announced an update to the Cleaner Trucks Initiative called the Clean Trucks Plan. The Clean Trucks Plan plans to reduce GHG and other harmful air pollutants from heavy-duty trucks through a series of rulemakings over the next three years. Further, the EPA is targeting 2027 for these new standards to take effect and is also working on enacting more stringent greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024.

The California Air Resources Board (“CARB”) also adopted emission control regulations that will be applicable to all heavy-duty tractors that pull 53-foot or longer box-type trailers within the State of California. The tractors and trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling resistance tires and retrofitted with SmartWay-approved aerodynamic technologies. Enforcement of these CARB regulations for 2011 model year equipment began in January 2010 and have been phased in over several years for older equipment. In addition, in February 2017 CARB proposed “California Phase 2” standards that would generally align with the federal Phase 2 Standards, with some minor additional requirements, and as proposed would stay in place even if the federal Phase 2 Standards are affected. In February 2019, the California Phase 2 standards became final. Thus, even though the trailer provisions of the Phase 2 Standards were removed, Tradition will still need to ensure that Tradition’s fleet that operates in California is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect Tradition’s operating results and profitability. CARB has also recently announced intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future. Whether these regulations will ultimately be adopted remains unclear. Tradition will continue monitoring its compliance with the CARB regulations. Federal and state lawmakers also have proposed potential limits on carbon emissions under a variety of climate-change proposals. Compliance with such regulations has increased the cost of Tradition’s new tractors, may increase the cost of any new trailers that will operate in California, and could impair equipment productivity and increase Tradition’s operating expenses. These adverse effects, combined with the uncertainty as to the reliability of the newly designed diesel engines and the residual values of these vehicles, could materially increase Tradition’s costs or otherwise materially adversely affect Tradition’s business, financial condition and results of operations. In June 2020 CARB also passed the Advanced Clean Trucks (“ACT”) regulation, which became effective in March 2021 and generally requires original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024. Under ACT, by 2045, every new tractor sold in California will need to be zero-emission. While ACT does not apply to those simply operating tractors in California, it could affect the cost and/or supply of traditional diesel tractors and may lead to similar legislation in other states or at the federal level.

In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle. These restrictions could force Tradition to purchase on-board power units that do not require the engine to idle or to alter Tradition’s drivers’ behavior, which could result in increased costs.

In addition to the foregoing laws and regulations, Tradition’s operations are subject to other federal, state and local environmental laws and regulations, many of which are implemented by the EPA and similar state agencies. Such laws and regulations generally govern the management and handling of hazardous materials, discharge of pollutants into the air, surface water and other environmental media, and groundwater preservation and disposal of certain various substances. Tradition does not believe that its compliance with these statutory and regulatory measures has had a material adverse effect on its business, financial condition and results of operations.

Food Safety Regulations

In April 2016, the Food and Drug Administration (“FDA”) published a final rule establishing requirements for shippers, loaders, carriers by motor vehicle and rail vehicle and receivers engaged in the transportation of food, to use sanitary transportation practices to ensure the safety of the food they transport as part of the Food Safety Modernization Act (“FSMA”). This rule sets forth requirements related to (i) the design and maintenance of equipment used to transport food, (ii) the measures taken during food transportation to ensure food safety, (iii) the training of carrier personnel in sanitary food transportation practices and (iv) maintenance and retention of records of written procedures, agreements and training related to the foregoing items. These requirements took effect for larger carriers such as Tradition in April 2017. The FSMA is applicable to Tradition not only as a carrier, but Tradition is also considered a shipper when acting in the role of broker. Tradition believes it has been in compliance with the FSMA since the compliance date. However, if Tradition is found to be in violation of applicable laws or regulations related to the FSMA or if Tradition transports food or goods that are contaminated or are found to cause illness and/or death, Tradition could be subject to substantial fines, lawsuits, penalties and/or criminal and civil liability, any of which could have a material adverse effect on its business, financial condition and results of operations.

As the FDA continues its efforts to modernize food safety, it is likely additional food safety regulations will take effect in the future. In July 2020, the FDA released its “New Era of Smarter Food Safety” blueprint, which creates a ten year roadmap to create a more digital, traceable and safer food system. This blueprint builds on the work done under the FSMA, and while it is still unclear what, if any, changes to the current governing framework may ultimately take effect, further regulation in this area could negatively affect Tradition’s business by increasing its compliance obligations and related expenses going forward.

Executive and Legislative Climate

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”). The IRA seeks to reduce the carbon emissions in the U.S. by roughly 40% by 2030. It incentivizes the use of alternative forms of fuel, such as biodiesel and renewable fuel mixtures, and provides a tax credit for battery electric or hydrogen fuel cell heavy-duty vehicles. Electric trucks are still more expensive than diesel trucks, and some states, like California and Texas have had issues with their power grids, which have affected electric vehicles. Tradition will need to monitor the price of tractors and fuel to determine whether electric trucks will be practical for its use in the near future.

President Biden also has indicated an intention to make substantial changes to the current U.S. tax laws during his administration, including changes to the way capital gains are treated. Any changes to U.S. tax laws may have an adverse impact on Tradition’s business and profitability.

The United States Mexico Canada Agreement (“USMCA”) was entered into effect in July 2020.  The USMCA is designed to modernize food and agriculture trade, advance rules of origin for automobiles and trucks, and enhance intellectual property protections, among other matters, according to the Office of the U.S. Trade Representative. It is difficult to predict at this stage what could be the impact of the USMCA on the economy, including the transportation industry.  However, given the amount of North American trade that moves by truck, it could have a significant impact on supply and demand in the transportation industry, and could adversely impact the amount, movement and patterns of freight Tradition transports.

The IIJA was signed into law by President Biden in November 2021.  The roughly $1.2 trillion bill contains an estimated $550 billion in new spending, which will impact transportation. In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations. Among provisions in the law specific to trucking is the aforementioned apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce. It remains unclear how the IIJA will be implemented into and effect Tradition’s industry. The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on Tradition’s operations.  

Given COVID-19’s considerable effect on Tradition’s industry, the FMCSA issued and/or extended various temporary responsive measures throughout the year. Although, to date, these measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures remain unclear and could have a negative impact on Tradition’s operations.

In November 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) published an emergency temporary standard (the “Emergency Rule”) requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require any employees who remain unvaccinated to produce a negative COVID-19 test result on at least a weekly basis before coming to work.  The Emergency Rule has been blocked by the Supreme Court. Effective January 2022, the U.S. is prohibiting unvaccinated foreigners from crossing the U.S.-Mexico border and U.S.-Canada border. Furthermore, effective January 2022, Canada is prohibiting unvaccinated foreigners, including U.S. citizens, from crossing their border. These border requirements, as well as any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause Tradition’s unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave Tradition or the trucking industry, especially Tradition’s unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of Tradition’s unvaccinated employees, especially its unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if Tradition is unable to recruit and retain drivers.  Any vaccination, testing or mask mandates that are interpreted as applying to drivers would significantly reduce the pool of drivers available to Tradition and its industry, which would further impact the extreme shortage of available drivers.   Accordingly, any vaccination, testing or mask mandates, if allowed to go into effect, could have a material adverse effect on Tradition’s business, financial condition, and results of operations.

For further discussion regarding these laws and regulations, please see the section entitled “Item 1A. Risk Factors.”

Seasonality

In the trucking industry, revenue has historically decreased as customers reduce shipments following the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses have generally increased, with fuel efficiency declining because of engine idling and weather, causing more physical damage equipment repairs and insurance claims and costs. For the reasons stated, first quarter results historically have been lower than results in each of the other three quarters of the year. Over the past several years, Tradition has seen increases in demand at varying times, including surges between Thanksgiving and the year-end holiday season.

Manufacturing

As described above in “EDSCO Purchase and Sale,” Tradition’s wholly owned subsidiary, Anthem Anchor Bolts and Fasteners, LLC, is a manufacturer of bolts, nuts, and fasteners, and creates custom plates, cages, and embeds. Most of Tradition’s customers are in the construction and manufacturing markets. The construction market includes general, electrical, plumbing, sheet metal, and road contractors. Tradition is not reliant on any number of customers. The manufacturing market includes both original equipment manufacturers and maintenance and repair operations. This business is highly competitive. Competitors include both large distributors located primarily in large cities and smaller distributors located in cities throughout the United States. Tradition believes that the principal competitive factors affecting the markets for its products are customer service and convenience. Tradition is not reliant on any single vendor. This is not a seasonal business.

ITEM 1A. RISK FACTORS

The following is a summary of certain risk factors relating to the activities of our Company and Tradition, our wholly owned subsidiary, and the ownership of the Company’s securities which should be carefully considered before making an investment decision relating to the Company’s securities and must be read in conjunction with, the detailed information appearing elsewhere in this Form 8-K including the Financial Statements and accompanying notes. The risks and uncertainties described below are those the Company and Tradition currently believe to be material, but they are not the only ones Tradition and the Company face.

Risks Generally Related to the Company’s and Tradition’s Business and Industry

We only have one member of our senior management team and two members of the board of directors.

Our senior management team consists of our Chief Executive Officer, President, Treasurer, and Secretary, Stephen W. Carnes. He also serves as our director with Robert Morris. We would benefit from having a larger board of directors that could bring additional perspective and knowledge. Lacking that perspective and experience will make it difficult for our Company to grow. If Stephen W. Carnes was to leave the Company, this could adversely affect our business and the results of operations. Further, Stephen W. Carnes may not commit full time to our affairs. In addition, potential conflicts of interest could create the risk that management may have an incentive to act adversely to the interests of other non-management stockholders, if any. A conflict of interest may arise between management’s personal pecuniary interest and its fiduciary duty to stockholders.

Stockholders will not receive disclosure or information regarding a prospective business.

Management is not required to and will not provide shareholders with disclosure or information regarding prospective business opportunities. Moreover, a prospective business opportunity may not result in a benefit to shareholders or prove to be more favorable to shareholders than any other investment that may be made by shareholders and investors. 

We likely will complete only the acquisition of Tradition.

Given our limited financial resources, which have mainly been provided by our Chief Executive Officer, our competition with similar companies that are looking for potential acquisitions and have more resources than us, and other considerations, it is likely we will only complete only the acquisition of Tradition. Accordingly, the prospects for our success may be solely dependent upon the performance of Tradition. In this case, we will not be able to diversify our operations or benefit from the possible diversification of risks or offsetting of losses, unlike other entities which may have the resources to complete several business transactions or asset acquisitions in different industries or different areas of a single industry so as to diversify risks and offset losses.

Tradition’s business is subject to economic, business and regulatory factors affecting the truckload industry that are largely beyond its control, any of which could have a material adverse effect on its results of operations.

The truckload industry is highly cyclical, and Tradition’s business is dependent on a number of factors that may have a negative impact on its results of operations, many of which are beyond its control. Tradition believes that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets that could have a material adverse effect, such as:

Economic conditions that decrease shipping demand or increase the supply of available tractors and trailers can exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity. The risks associated with these factors are heightened when the U.S. economy is weakened. Some of the principal risks during such times are as follows:

Tradition is also subject to cost increases outside its control that could materially reduce its profitability if Tradition is unable to increase Tradition’s rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver and office employee wages, purchased transportation costs, interest rates, taxes, tolls, license and registration fees, insurance, revenue equipment and related maintenance, tires and other components and healthcare and other benefits for Tradition’s employees. Further, Tradition may not be able to appropriately adjust Tradition’s costs to changing market demands. In order to maintain high variability in Tradition’s business model, it is necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more difficult to match Tradition’s staffing level to its business needs. Further, Tradition may not be able to appropriately adjust its costs to changing market demands.

In addition, events outside Tradition’s control, such as deterioration of U.S. transportation infrastructure and reduced investment in such infrastructure, strikes or other work stoppages at Tradition’s facilities or at customer, port, border or other shipping locations, pandemics, armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to Tradition’s equipment, driver dissatisfaction, reduced economic demand and freight volumes, reduced availability of credit, increased prices for fuel or temporary closing of the shipping locations or U.S. borders. Such events or enhanced security measures in connection with such events could impair Tradition’s operating efficiency and productivity and result in higher operating costs.

Regarding Tradition’s manufacturing business, a downturn in the economy and other factors may affect customer spending, which could harm Tradition’s operating results.

In general, Tradition’s sales represent spending on discretionary items or consumption needs by its customers. This spending is affected by many factors, including, among others:

A downturn or political conflict regionally, nationally, or internationally could negatively impact sales.

Tradition operates in the highly competitive and fragmented truckload carrier industry, and numerous competitive factors could impair its ability to improve its profitability and materially adversely affect its results of operations.

Numerous competitive factors could impair Tradition’s ability to improve its profitability and materially adversely affect its results of operations, including:

Regarding Tradition’s manufacturing business, Tradition may not be able to compete effectively against its competitors, which could harm its business and operating results.

The industrial, construction, and maintenance supply industry, although consolidating, still remains a large, fragmented industry that is highly competitive. Tradition believes that sales of industrial, construction, and maintenance industry supplies will become more concentrated over the next few years, which may make the industry even more competitive. Tradition’s current or future competitors include companies with similar or greater market presence, name recognition, and financial, marketing, and other resources, and Tradition believes they will continue to challenge Tradition with their product selection, financial resources, and services. Increased competition or the adoption by competitors of aggressive pricing strategies and sale methods could cause us to lose market share or to reduce Tradition’s prices or increase its spending, thus eroding its margins.

Tradition may not be able to effectively manage and implement its organic growth strategies.

While Tradition currently believes it can grow its profits and cash flows organically through further penetration of existing customers and by expanding its customer base, Tradition may not be able to effectively and successfully implement such strategies and realize its stated goals. Tradition’s goals may be negatively affected by a failure to further penetrate its existing customer base, cross-sell its service offerings, pursue new customer opportunities, manage the operations and expenses of new or growing service offerings or otherwise achieve growth of its service offerings. Successful execution of Tradition’s business strategies may not result in Tradition achieving its current business goals.

Tradition has several major customers, the loss of one or more of which could have a material adverse effect on its business.

A significant portion of Tradition’s operating revenue is generated from a number of major customers, the loss of one or more of which could have a material adverse effect on its business. For fiscal year 2021, Tradition’s largest customer accounted for approximately 13% of its operating revenue. Economic and capital markets conditions may adversely affect Tradition’s customers and their ability to remain solvent. Tradition’s customers’ financial difficulties can negatively impact its business and operating results and financial condition. Generally, Tradition does not have contractual relationships with its customers that guarantee any minimum volumes, and its customer relationships may not continue as presently in effect. Tradition generally does not have long-term contractual relationships with its customers, including its dedicated customers, and certain of these contracts contain clauses that permit cancellation on a short-term basis without cause, and accordingly any of its customers may not continue to utilize its services, renew its existing contracts or continue at the same volume levels. Despite the existence of contract arrangements with Tradition’s customers, certain of its customers may nonetheless engage in competitive bidding processes that could negatively impact its contractual relationship. In addition, certain of Tradition’s major customers may increasingly use their own truckload and delivery fleets, which would reduce its freight volumes. A reduction in or termination of Tradition’s services by one or more of its major customers could have a material adverse effect on Tradition’s business and operating results.

Tradition’s profitability may be materially adversely impacted if its capital investments do not match customer demand for invested resources or if there is a decline in the availability of funding sources for these investments.

Tradition’s operations require significant investments. The amount and timing of capital investments depend on various factors, including anticipated volume levels and the price and availability of assets. If anticipated demand differs materially from actual usage, Tradition’s capital-intensive Freight Transportation segment may have too much or too little capacity. Moreover, across Tradition’s reportable segments resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. Tradition’s ability to properly select freight and adapt to changes in customer transportation requirements is important to efficiently deploy resources and make capital investments in trucks, trailers, and containers (with respect to Tradition’s Freight Transportation segment) or obtain qualified third-party capacity at a reasonable price (with respect to Tradition’s Brokerage segment). Although Tradition’s business volume is not highly concentrated, its customers’ financial failures or loss of customer business may also affect it.

Tradition may not be able to successfully implement its company growth strategy of diversifying its revenue base and expanding its capabilities.

Tradition’s company growth strategy entails selectively diversifying its revenue base, as Tradition has done with its service offerings, and venturing into the manufacturing space. This strategy involves certain risks, and Tradition may not overcome these risks, in which case Tradition’s business, financial position and operating results could be materially and adversely affected. In connection with Tradition’s company growth strategy, Tradition has in the past made selective acquisitions, made new investments in technology and in office, service and warehouse centers, increased sales and marketing efforts and hired new drivers and associates. Tradition expects to continue to pursue its company growth strategy, and this exposes Tradition to certain risks, including:

Fluctuations in the price or availability of fuel or surcharge collection may increase Tradition’s costs of operations, which could materially adversely affect its profitability.

Fuel is one of Tradition’s largest operating expenses. Diesel fuel prices fluctuate greatly due to factors beyond Tradition’s control, such as supply and demand, political events, terrorist activities, armed conflicts, commodity futures trading, depreciation of the dollar against other currencies, weather events and other natural disasters, which could increase in frequency and severity due to climate change, as well as other man-made disasters, each of which may lead to an increase in the cost of fuel. Fuel prices also are affected by the rising demand for fuel in developing countries, including China, and could be materially adversely affected by the use of crude oil and oil reserves for purposes other than fuel production and by diminished drilling activity. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because Tradition’s operations are dependent upon diesel fuel, significant diesel fuel cost increases, shortages, rationings, or supply disruptions would materially adversely affect Tradition’s business, financial condition and results of operations.

Increases in fuel costs, to the extent not offset by rate per mile increases or fuel surcharges, have a material adverse effect on Tradition’s operations and profitability. While Tradition has fuel surcharge programs in place with a majority of Tradition’s customers, which historically have helped Tradition offset the majority of the negative impact of rising fuel prices associated with loaded or billed miles, Tradition also incurs fuel costs that cannot be recovered even with respect to customers with which Tradition maintains fuel surcharge programs, such as those associated with non-revenue generating miles, the time when Tradition’s engines are idling and fuel for refrigeration units on Tradition’s refrigerated trailers. Moreover, the terms of each customer’s fuel surcharge program vary, and certain customers have sought to modify the terms of their fuel surcharge programs to minimize recoverability for fuel price increases. In addition, because Tradition’s fuel surcharge recovery lags behind changes in fuel prices, Tradition’s fuel surcharge recovery may not capture the increased costs Tradition pays for fuel, especially when prices are rising. This could lead to fluctuations in Tradition’s levels of reimbursement, which have occurred in the past. During periods of low freight volumes, shippers can use their negotiating leverage to impose fuel surcharge policies that provide a lower reimbursement of Tradition’s fuel costs. There is no assurance that Tradition’s fuel surcharge program can be maintained indefinitely or will be sufficiently effective. Tradition’s results of operations would be negatively affected to the extent Tradition cannot recover higher fuel costs or fail to improve Tradition’s fuel price protection through its fuel surcharge program.

Regarding Tradition’s manufacturing business, increases in energy costs and the cost of raw materials used in its products could impact its cost of goods and distribution and occupancy expenses, which may result in lower operating margins.

Costs of raw materials used in Tradition’s products (e.g., steel) and energy costs have been rising during the last several years, which has resulted in increased production costs for Tradition’s vendors. Those vendors typically look to pass their increased costs along to Tradition through price increases. The fuel costs of Tradition’s distribution operation have risen as well. While Tradition typically tries to pass increased vendor prices and fuel costs through to its customers or to modify Tradition’s activities to mitigate the impact, Tradition may not be successful. Failure to fully pass these increased prices and costs through to Tradition’s customers or to modify its activities to mitigate the impact would have an adverse effect on Tradition’s operating margins.

Difficulties attracting and retaining qualified drivers, including through owner-operators, could materially adversely affect Tradition’s profitability and ability to maintain or grow its fleet.

Like many truckload carriers, from time to time Tradition may experience difficulty in attracting and retaining sufficient numbers of qualified drivers, including through owner-operators, and driver shortages may recur in the future. Tradition’s challenge with attracting and retaining qualified drivers stems from intense market competition and Tradition’s driver quality standards, which subjects Tradition to increased payments for driver compensation and owner-operator contracted rates. Failure to recruit high-quality, safe drivers that meet Tradition’s testing standards could diminish the safety of its fleet and could have a materially adverse effect on its customer relationships and its business.

Tradition’s company drivers are generally compensated on a per-mile basis, and the rate per-mile generally increases with the drivers’ length of service. Owner-operators contracting with Tradition are generally compensated on a percentage of revenue basis. The compensation Tradition offers its drivers and owner-operators is also subject to market conditions and labor supply. Tradition may in future periods increase company driver and owner-operator compensation, which will be more likely to the extent that economic conditions improve and industry regulation exacerbates driver shortages forcing driver compensation higher. The average trucking company will have a turnover rate of roughly 95% annually. Tradition’s turnover rate, one-hundred and twenty-four percent (124%), in the last twelve (12) months, requires Tradition to continually recruit a substantial number of company drivers in order to operate Tradition’s revenue-producing fleet equipment, including trucks and specialty equipment. If Tradition is unable to continue to attract and retain a sufficient number of high-quality company drivers, and contract with suitable owner-operators, Tradition could be required to adjust its compensation packages, or operate with fewer trucks and face difficulty meeting shipper demands, all of which could adversely affect Tradition’s profitability and ability to maintain its size or grow.

Tradition’s use of owner-operators to provide a portion of its truck fleet exposes it to different risks than it faces with its owned trucks.

Tradition may contract with more owner-operators and use more owner-operator trucks than some of its competitors. Tradition is therefore more dependent on owner-operator trucks than some of its competitors. Failure to maintain owner-operator business and relationships and increased industry competition for owner-operators could have a materially adverse effect on Tradition’s operating results.

During times of increased economic activity, Tradition faces heightened competition for owner-operators from other carriers. To the extent Tradition’s turnover increases, Tradition may be required to increase owner-operator compensation or take other measures to remain an attractive option for owner-operators. If Tradition cannot attract sufficient owner-operators, or it becomes economically difficult for owner-operators to survive, Tradition may not be able to maintain the percentage of Tradition’s fleet provided by owner-operators or maintain Tradition’s delivery schedules.

Tradition provides financing to certain qualified owner-operators who qualify for financing in order to lease trucks from Tradition. If Tradition is unable to provide such financing in the future, due to liquidity constraints or other restrictions, Tradition may experience a decrease in the number of owner-operators available to fully operate its assets. Further, if owner-operators operating the trucks Tradition finance default under or otherwise terminate the financing arrangement and Tradition is unable to find a replacement owner-operator, Tradition may incur losses on amounts owed to Tradition with respect to the truck in addition to any losses Tradition may incur as a result of the idling of the truck.

Tradition’s lease contracts with owner-operators are governed by federal and other leasing regulations, which impose specific requirements on us and owner-operators. It is possible that Tradition could face lawsuits alleging the violation of leasing obligations or failure to follow the contractual terms, which could result in liability.

Tradition utilizes owner-operators to complete its services. These owner-operators are subject to similar regulation requirements, such as the electronic on-board recording and driver Hours of Service (HOS) requirements that apply to larger carriers, which may have a more significant impact on their operations, causing them to exit the transportation industry. Aside from when these third parties may use Tradition’s trailing equipment to fulfill loads, Tradition does not own the revenue equipment or control the drivers delivering these loads. The inability to obtain reliable third-party owner-operators could have a material adverse effect on Tradition’s operating results and business growth.

Tradition depends on third-party service providers, particularly in Tradition’s Brokerage segment, and service instability from these providers could increase Tradition’s operating costs and reduce its ability to offer brokerage services, which could materially adversely affect its revenue, business, financial condition, results of operations and customer relationships.

Tradition’s Brokerage Services segment is dependent upon the services of third-party carriers, including other truckload carriers. For this business, Tradition does not own or control the transportation assets that deliver to Tradition’s customers’ freight and Tradition does not employ the providers directly involved in delivering the freight. These third-party providers may seek other freight opportunities and/or require increased compensation in times of improved freight demand or tight truckload capacity. If Tradition is unable to secure the services of these third parties or if Tradition becomes subject to increases in the prices Tradition must pay to secure such services, its business, financial condition and results of operations may be materially adversely affected, and Tradition may be unable to serve its customers on competitive terms. Tradition’s ability to secure sufficient equipment or other transportation services may be affected by many risks beyond Tradition’s control, including equipment shortages, increased equipment prices, new entrants with different business models, interruptions in service due to labor disputes, driver shortage, changes in regulations impacting transportation and changes in transportation rates.

Difficulty in obtaining materials, equipment, goods and services from Tradition’s vendors and suppliers could adversely affect Tradition’s Freight Transportation, Brokerage, and Equipment Leasing segments.

Tradition primarily use Love’s Travel Stops & Country Stores, Inc.’s network for fueling and on road repairs, and Tradition is dependent upon its suppliers for certain products and materials, including Tradition’s tractors and trailers. If Tradition fails to maintain favorable relationships with its vendors and suppliers, or if its vendors and suppliers are unable to provide the products and materials Tradition needs or undergo financial hardship, Tradition could experience difficulty in obtaining needed goods and services because of production interruptions, limited material availability or other reasons, or Tradition may not be able to obtain favorable pricing or other terms. As a result, Tradition’s business and operations could be adversely affected.

Furthermore, a decrease in vendor output may have a materially adverse effect on Tradition’s ability to purchase a quantity of new revenue equipment that is sufficient to sustain Tradition’s desired growth rate and to maintain a late-model fleet. Tractor and trailer vendors may reduce their manufacturing output in response to lower demand for their products in economic downturns or shortages of component parts. Currently, tractor and trailer manufacturers are experiencing significant shortages of semiconductor chips and other component parts and supplies, including steel, forcing many manufacturers to curtail or suspend their production, which has led to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on Tradition’s business, financial condition, and results of operations, particularly Tradition’s maintenance expense and driver retention.

If Tradition is unable to recruit, develop and retain its key associates, its business, financial condition and operating results could be adversely affected.

Tradition is highly dependent upon the services of certain key employees, including its team of executive officers and managers. The loss of any of their services could negatively impact Tradition’s operations and future profitability. Inadequate succession planning or unexpected departure of key executive officers could cause substantial disruption to Tradition’s business operations, deplete its institutional knowledge base and erode its competitive advantage. Additionally, Tradition must continue to recruit, develop and retain skilled and experienced managers if Tradition is to realize its goal of expanding its operations and continuing its growth. Failure to recruit, develop and retain a core group of managers could have a materially adverse effect on Tradition’s business.

Developments in labor and employment law and any unionizing efforts by employees could have a material adverse effect on Tradition’s results of operations.

Tradition faces the risk that Congress, federal agencies or one or more states could approve legislation or regulations significantly affecting its businesses and its relationship with its employees which would have substantially liberalized the procedures for union organization. None of Tradition’s employees are currently covered by a collective bargaining agreement, but any attempt by its employees to organize a labor union could result in increased legal and other associated costs. Additionally, given the National Labor Relations Board’s “speedy election” rule, Tradition’s ability to timely and effectively address any unionizing efforts would be difficult. If Tradition entered into a collective bargaining agreement with its employees, the terms could materially adversely affect its costs, efficiency and ability to generate acceptable returns on the affected operations.

Insurance and claims expenses could significantly reduce Tradition’s earnings.

Tradition’s future insurance and claims expense might exceed historical levels, which could reduce its earnings. Estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult.

Tradition believes its aggregate insurance limits should be sufficient to cover reasonably expected claims, it is possible that the amount of one or more claims could exceed Tradition’s aggregate coverage limits. If any claim were to exceed Tradition’s coverage, Tradition would bear the excess. Insurance carriers have raised premiums for many businesses, including transportation companies. As a result, Tradition’s insurance and claims expense could increase, or Tradition could raise its deductible when its policies are renewed or replaced. Tradition’s operating results and financial condition could be materially and adversely affected if (i) cost per claim, premiums, or the number of claims significantly exceeds its estimates, (ii) Tradition experiences a claim in excess of its coverage limits, (iii) Tradition’s insurance carriers fail to pay on its insurance claims or (iv) Tradition experiences a claim for which coverage is not provided.

Tradition operates in a highly regulated industry, and increased direct and indirect costs of compliance with, or liability for violations of, existing or future regulations could have a material adverse effect on its business.

Tradition, its drivers, and its equipment are regulated by the DOT, the EPA, the DHS and other agencies in states in which it operates. For further discussion of the laws and regulations applicable to Tradition, its drivers, and its equipment, please see "Regulation" under “Item 1. Business.” Future laws and regulations may be more stringent, require changes in Tradition’s operating practices, influence the demand for transportation services or require Tradition to incur significant additional costs. Higher costs incurred by Tradition, or by Tradition’s suppliers who pass the costs onto Tradition through higher supplies and materials pricing, or liabilities Tradition may incur related to its failure to comply with existing or future regulations could adversely affect its results of operations.

If the independent contractors Tradition contracts with are deemed by regulators or judicial process to be employees, its business, financial condition and results of operations could be materially adversely affected.

Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractor drivers in the trucking industry are employees rather than independent contractors. Companies that use lease-purchase independent contractor programs, such as Tradition, have been more susceptible to reclassification lawsuits. If the independent contractors with whom Tradition contracts are determined to be employees, Tradition would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings, and Tradition’s business, financial condition and results of operations could be materially adversely affected. For further discussion of legislation regarding independent contractors, please see “Regulation” under “Item 1. Business.”

Safety-related evaluations and rankings under CSA could materially adversely affect Tradition’s profitability and operations, its ability to maintain or grow its fleet and its customer relationships.

Under the CSA program, fleets are evaluated and ranked against their peers based on certain safety-related standards. As a result, Tradition’s fleet could be ranked poorly as compared to peer carriers, which could have an adverse effect on its business, financial condition and results of operations. The occurrence of future deficiencies could affect driver recruitment by causing high-quality drivers to seek employment with other carriers or limit the pool of available drivers or could cause Tradition’s customers to direct their business away from Tradition and to carriers with higher fleet safety rankings, either of which would materially adversely affect Tradition’s business, financial condition and results of operations. In addition, future deficiencies could increase Tradition’s insurance expenses. Further, Tradition may incur greater than expected expenses in its attempts to improve unfavorable scores.

None of Tradition’s subsidiaries are currently exceeding the established intervention thresholds in the seven CSA safety-related categories. If Tradition were to receive unfavorable ratings, Tradition may be prioritized for an intervention action or roadside inspection, either of which could materially adversely affect Tradition’s business, financial condition and results of operations. In addition, customers may be less likely to assign loads to Tradition. For further discussion of the CSA program, please see “Regulation” under “Item 1. Business.”

Receipt of an unfavorable DOT safety rating could have a material adverse effect on Tradition’s operations and profitability.

Tradition currently has a satisfactory DOT safety rating, which is the highest available rating under the current safety rating scale. If Tradition were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect Tradition’s business, financial condition and results of operations as customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict its operations. For further discussion of the DOT safety rating system, please see “Regulation” under “Item 1. Business.”

Changes in U.S. tax laws and regulations may impact Tradition’s effective tax rate and may adversely affect its business, financial condition and operating results.

Significant reform of the U.S. tax laws, including significant changes related to federal tax rates, interest expense deductions, capital expenditure deductions and the taxation of business entities, could adversely affect Tradition. Tradition benefits from certain tax provisions relating to capital expenditure deductions. Reform could have a material adverse effect on Tradition’s growth opportunities, business and results of operations.

Changes to trade regulation, quotas, duties or tariffs, caused by the changing U.S. and geopolitical environments or otherwise, may increase Tradition’s costs and materially adversely affect its business.

The imposition of additional tariffs or quotas or changes to certain trade agreements, including tariffs applied to goods traded between the United States and China, could harm Tradition’s Warehouse Leasing and Equipment Leasing service segments, and among other things, increase the costs of the materials used by Tradition’s suppliers to produce new revenue equipment or increase the price of fuel. Such cost increases for Tradition’s revenue equipment suppliers would likely be passed on to Tradition, and to the extent fuel prices increase, Tradition may not be able to fully recover such increases through rate increases or its fuel surcharge program, either of which could have a material adverse effect on Tradition’s business.

Tradition’s operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

Tradition is subject to various environmental laws and regulations dealing with the hauling and handling of hazardous materials, waste and other oil, fuel storage tanks, air emissions from Tradition’s vehicles and facilities, engine idling and discharge and retention of storm water. Tradition’s truck terminals often are located in industrial areas where groundwater or other forms of environmental contamination could occur. Tradition’s operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. Certain of Tradition’s facilities have waste oil or fuel storage tanks and fueling islands. If Tradition is involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances Tradition transports, if soil or groundwater contamination is found at Tradition’s facilities or results from its operations, or if Tradition is found to be in violation of applicable environmental laws or regulations, Tradition could owe cleanup costs and incur related liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on Tradition’s business and operating results.

EPA regulations limiting exhaust emissions became more restrictive in 2010. In 2010, an executive memorandum was signed directing the NHTSA and the EPA to develop new, stricter fuel efficiency standards for heavy trucks. In 2011, the NHTSA and the EPA adopted final rules that established the first-ever fuel economy and greenhouse gas standards for medium-and heavy-duty vehicles. These standards apply to model years 2014 to 2018, which are required to achieve an approximate 20 percent reduction in fuel consumption by model year 2018, and equates to approximately four gallons of fuel for every 100 miles traveled. In June 2015, the EPA and NHTSA jointly proposed new stricter standards that would apply to trailers beginning with model year 2018 and tractors beginning with model year 2021.

In October 2016, the EPA and NHTSA formally published the Final Rule for Phase 2 of the GHG emissions and fuel efficiency standards for medium and heavy-duty engines and vehicles. On August 5, 2021, U.S. EPA announced an update to the Cleaner Trucks Initiative called the Clean Trucks Plan. The Clean Trucks Plan plans to reduce GHG and other harmful air pollutants from heavy-duty trucks through a series of rulemakings over the next three years. Further, the EPA is targeting 2027 for these new standards to take effect and is also working on enacting more stringent greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024. For further discussion of the laws and regulations applicable to Tradition, its drivers, and its equipment, please see "Regulation" under “Item 1. Business.”

Tradition is subject to various claims and lawsuits in the ordinary course of business, and increases in the amount or severity of these claims and lawsuits could adversely affect us.

Tradition is exposed to various claims and litigation related to commercial disputes, personal injury, property damage, environmental liability and other matters. Developments in regulatory, legislative or judicial standards, material changes to litigation trends, or a catastrophic accident or series of accidents, involving any or all of property damage, personal injury, and environmental liability could have a material adverse effect on Tradition’s operating results, financial condition and liquidity.

Tradition has significant ongoing capital requirements that could affect its profitability if Tradition is unable to generate sufficient cash from operations or obtain financing on favorable terms.

The truckload industry generally, and Tradition’s Equipment Leasing and Warehouse Leasing services segments, are capital intensive and asset heavy. Tradition expects to pay for projected capital expenditures with cash flows from operations, proceeds from equity sales or financing available under its existing debt instruments. Tradition’s total capital expenditures in its fiscal year ended December 31, 2021 were $21,950,374. If Tradition were unable to generate sufficient cash from operations, Tradition would need to seek alternative sources of capital, including financing, to meet its capital requirements. In the event that Tradition is unable to generate sufficient cash from operations or obtain financing on favorable terms in the future, Tradition may have to limit its fleet size, enter into less favorable financing arrangements or operate its revenue equipment for longer periods, any of which could have a materially adverse effect on its profitability.

The seasonal pattern generally experienced in the trucking industry may affect Tradition’s periodic results during traditionally slower shipping periods and winter months.

In the trucking industry, revenue generally follows a seasonal pattern which may affect Tradition’s operating results. Tradition typically experiences a seasonal surge in sales during the fourth quarter of Tradition’s fiscal year as a result of holiday sales. After the December holiday season and during the remaining winter months, Tradition’s freight volumes are typically lower because some customers reduce shipment levels. Tradition’s operating expenses have historically been higher in the winter months because of cold temperatures and other adverse winter weather conditions which result in decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs. Revenue can also be affected by adverse weather conditions, holidays and the number of business days during a given period because revenue is directly related to the available working days of shippers. From time to time, Tradition may also suffer short-term impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could harm Tradition’s results of operations or make its results of operations more volatile.

Tradition is increasingly dependent on data networks and systems, including tracking and communications systems, and significant systems disruptions, including those caused by cybersecurity breaches, could adversely affect Tradition’s business.

Tradition’s policy of increasingly using technology to improve productivity and reduce costs means that its business is reliant on the efficient, stable and uninterrupted operation of its data networks and systems, including tracking and communications systems. Tradition’s computer systems are used in various aspects of its business, including load planning and receiving, dispatch of drivers and third-party capacity providers, freight and container tracking, customer billing and account monitoring, automation of tasks, producing financial and other reports and other general functions and purposes. Tradition is currently dependent on two vendors, Transport Pro, for fleet and transportation management software, and Camelot Software, for warehouse management systems. Tradition is in the process of converting its transportation management software from Transport Pro to TMW by Trimble Transportation Enterprise Solutions, Inc. (“Trimble”) and will be dependent on Trimble, once the conversion process is complete. If the stability or capability of such vendors is compromised, it could adversely affect Tradition’s revenue, customer service, driver turnover rates and data preservation. Additionally, if any of Tradition’s critical information or communications systems fail or become unavailable, Tradition could have to perform certain functions manually, which could temporarily affect the efficiency and effectiveness of its operations.

Tradition’s operations and those of its technology and communications service providers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, terrorist attacks, internet failures, computer viruses, malware, hacking and other events beyond Tradition’s control. More sophisticated and frequent cyber-attacks within the United States in recent years have also increased security risks associated with information technology systems. In the event of a cyber-attack, breach or other such event, Tradition’s business and operations could be adversely affected in the event of a system failure, disruption or security breach that causes a delay, or interruption or impairment of Tradition’s services and operations.

Tradition may not make acquisitions in the future, which could impede growth, or if it does, Tradition may not be successful in integrating any acquired businesses, either of which could have a material adverse effect on Tradition’s business.

Historically, a key component of Tradition’s growth strategy has been to pursue acquisitions of complementary businesses and/or assets. As discussed in “Karr Transportation Asset Purchase” and “EDSCO Purchase and Sale,” in “ITEM 1. BusIness,” Tradition acquired assets in two separate deals in 2022. The EDSCO Purchase and Sale is complimentary, but different to Tradition’s core business, and Tradition cannot assure that it will be successful in integrating all of or portions of the aforementioned acquisitions. Further, Tradition may not be successful in identifying, negotiating or consummating any future acquisitions. If Tradition succeeded in consummating future acquisitions, any acquisitions Tradition undertakes could involve numerous risks that could have a materially adverse effect on Tradition’s business and operating results, including:

Tradition’s existing and future indebtedness could limit its flexibility in operating its business or adversely affect its business and our liquidity position.

As of December 31, 2021, Tradition had $11,834,070 in aggregate principal amount of indebtedness for borrowed money outstanding, consisting of $6,303,914 notes payable to its new primary bank, payable in various monthly installments through July 2026, $5,006,853 outstanding under Tradition’s installment notes payable to various financial institutions through October 2026, and $523,303 payable in varying monthly installments through May 2026 in obligations outstanding under capital leases. Tradition also has an outstanding promissory note to Robin C. Montel, in the amount of $2,050,000 without interest, payments to begin February 1, 2023 and end January 15, 2028.

Tradition’s indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions.

Any indebtedness Tradition incurs and restrictive covenants contained in the agreements related thereto could:

The occurrence of any one of these events could have a material adverse effect on Tradition’s business, financial condition and operating results or cause a significant decrease in Tradition’s liquidity and impair Tradition’s ability to pay amounts due on Tradition’s indebtedness. Significant repayment penalties may limit its flexibility.

Tradition and/or APSI may need to obtain additional financing which may not be available or, if it is available, may result in a reduction in the percentage ownership of APSI’s then-existing shareholders.

Tradition and/or APSI may need to raise additional funds in order to:

Additional financing may not be available on terms favorable to Tradition and/or APSI, or at all. If adequate funds are not available or are not available on acceptable terms, Tradition’s ability to fund its expansion strategy, Tradition and/or APSI’s ability to take advantage of unanticipated opportunities or acquisitions, Tradition’s ability to develop or enhance technology or services or otherwise respond to competitive pressures could be significantly limited. Because there are companies similar to Tradition and APSI with more capital, if Tradition and APSI cannot obtain additional financing, Tradition and APSI’s business opportunities will be severely limited and prevent Tradition’s and APSI’s growth. If APSI raises additional funds by issuing equity or convertible debt securities, the percentage ownership of APSI’s then-existing shareholders may be reduced, and holders of these securities may have rights, preferences or privileges senior to those of APSI’s then-existing shareholders.

The requirements of APSI remaining a public company may strain Tradition’s resources and distract Tradition’s management, which could make it difficult to manage Tradition’s business.

We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements are time-consuming and expensive and could have a negative effect on Tradition’s business, results of operations and financial condition. We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) including maintaining internal controls over financial reporting, and if we fail to continue to comply, Tradition’s business could be harmed, and the price of our securities could decline.

Tradition could be negatively impacted by the COVID-19 outbreak or other similar outbreaks.

Covid-19 has had a considerable effect on Tradition’s industry and its business, as discussed previously in “Regulation” under “Item 1. Business.” The first two weeks of the Covid-19 pandemic created uncertainty, which affected Tradition’s operations, but Tradition adapted by cleaning work facilities more often, and making sure its drivers have the support and facilities to efficiently do their job. Tradition’s operations, particularly in areas of increased COVID-19 infections, could be further disrupted.  Negative financial results, operational disruptions, driver and non-driver absences, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, including its variants, other similar outbreaks, or a recession, could have a material adverse effect on Tradition’s liquidity, reduce credit options available to Tradition, make it more difficult to obtain amendments, extensions, and waivers, and adversely impact Tradition’s ability to effectively meet its short- and long-term obligations. Furthermore, government vaccination, testing, and mask mandates could increase Tradition’s turnover and make recruiting more difficult, particularly among its driver and maintenance personnel.

The outbreak of COVID-19 has significantly increased uncertainty in the economy. Risks related to a slowdown or recession are described in Tradition’s risk factor titled “Tradition’s business is subject to economic, business and regulatory factors affecting the truckload industry that are largely beyond its control, any of which could have a material adverse effect on its results of operations.”

Developments related to COVID-19 have been unpredictable and the extent to which further developments could impact Tradition’s operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain. Such developments may include the duration of the virus, the distribution and availability of vaccines, vaccine hesitancy, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak.

Risks Related to the Ownership of APSI’s Capital Stock

Stephen W. Carnes is the Chief Executive Officer and a director of APSI and has a controlling interest in APSI, which gives him the right to direct APSI.

Stephen W. Carnes has a controlling equity interest of 96.6% of the total voting stock of APSI through his ownership of 500,000 Series B Preferred Shares, each of which has voting rights of 1,000 votes per share. Mr. Carnes has the ability, through his ownership of Series B Preferred Shares, to elect directors of his choosing and thus, is able to control the direction of APSI. Mr. Carnes’ interests may diverge from those of the other stockholders and this divergence may have a significant impact on APSI. The loss of Mr. Carnes may also have a significant impact on the direction of APSI’s business and the shareholders of APSI.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, Tradition’s ability to operate Tradition’s business and investors’ views of us.

We are required to comply with Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of APSI’s common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and Tradition’s business may be harmed.

Rule 144 Related Risk

Per Rule 144 promulgated under the Securities Act, which permits the resale of the shares of Common Stock, subject to various terms and conditions, will generally not apply to APSI’s common stock until one year after APSI ceases to be a “shell company” under SEC regulations and all Form 10 required information has been filed with the SEC. APSI exited shell company status as of the December 28^th 2022 Acquisition, and APSI has filed the required Form 10 information in this Current Report.  The one year waiting period before Rule 144 began as of the filing of this Current Report. As a result, your ability to sell your shares may be limited.

Provisions of APSI’s Certificate of Incorporation, as amended, and Bylaws may delay or prevent a take-over which may not be in the best interests of our shareholders.

Provisions of APSI’s Certificate of Incorporation and Bylaws may be deemed to have anti-takeover effects, which include, among others, when and by whom special meetings of APSI’s shareholders may be called, and may delay, defer or prevent a takeover attempt. In addition, APSI’s Certificate of Incorporation authorizes the issuance of shares of preferred stock with such rights and preferences as may be determined from time to time by APSI’s board of directors in their sole discretion. APSI’s board of directors may, without shareholder approval, issue shares of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of APSI’s common stock.

The application of the “penny stock” rules could adversely affect the market price of APSI’s common shares and increase your transaction costs to sell those shares.

The SEC has adopted Rule 3a51-1, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

The market price for our common stock is particularly volatile which could lead to wide fluctuations in our share price. You may be unable to sell your common stock shares at or above your purchase price, or at all, which may result in substantial losses to you.

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock shares will be at any time, or if our common stock shares will ever be able to trade, or as to what effect the sale of shares or the availability of common stock shares for sale at any time will have on the prevailing market price.

APSI has never paid dividends on our common stock and has no plans to do so in the future.

Holders of shares of APSI’s common stock are entitled to receive such dividends as may be declared by APSI’s board of directors. To date, APSI has paid no cash dividends on APSI’s shares of common stock and APSI does not expect to pay cash dividends on APSI common stock in the foreseeable future. APSI intends to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in APSI’s common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.