Proficient Auto Logistics Inc

Note 1 — Nature of operations

AH Acquisition Corp. was formed on June 13, 2023, pursuant to the laws of the State of Delaware to become a holding company for the consolidation of several operating companies within the automobile transportation industry. Subsequently, on October 17, 2023, AH Acquisition Corp. legally changed its name to Proficient Auto Logistics, Inc (“Proficient,” the “Company,” or “We”).

Proficient is a leading non-union, specialized freight company focused on providing auto transportation and logistics services. The Company offers a broad range of auto transportation and logistics services, primarily focused on transporting finished vehicles from automotive production facilities, marine ports of entry, or regional rail yards to auto dealerships around the country. We have developed a differentiated business model due to our scale, breadth of geographic coverage, and embedded customer relationships with leading auto original equipment manufacturing companies (“OEMs”). Our customers range from large, global auto companies, such as General Motors, BMW, Stellantis, and Mercedes Benz, to electric vehicle (“EV”) producers, such as Tesla and Rivian. Additional customers include auto dealers, auto auctions, rental car companies, and auto leasing companies. Proficient operates an asset-based truckload service (“Truckload”) on behalf of the manufacturers as well as various third-party logistics management companies or brokers. In addition, Proficient provides third party logistics to other transportation companies under an asset-light freight model (“Brokerage”).

Note 2 — Summary of significant accounting policies

Basis of Presentation— The condensed consolidated financial statements and footnotes included in this Quarterly Report include the accounts of Proficient and should be read in conjunction with the consolidated financial statements and footnotes related to the Company’s Registration Statement on Form S-1 (333-279346). The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

On May 13, 2024, Proficient Auto Logistics, Inc. (“Proficient”) completed the initial public offering (the “IPO”) of its common stock. Prior to the IPO, Proficient had entered into agreements (the “Combination Agreements”) to acquire in multiple, separate acquisitions (the “Combinations”) five operating businesses and their respective affiliated entities, as applicable, operating under the following names: (i) Delta Automotive Services, Inc. (which converted to Delta Automotive Services, LLC in an F-reorganization on April 29, 2024), doing business as Delta Auto Transport, Inc. (“Delta”), (ii) Deluxe Auto Carriers, Inc. (“Deluxe”), (iii) Sierra Mountain Group, Inc. (“Sierra”), (iv) Proficient Auto Transport, Inc. (“Proficient Transport”), and (v) Tribeca Automotive Inc. (“Tribeca” and, together with Delta, Deluxe, Sierra, and Proficient Transport, the “Founding Companies”). On May 13, 2024, in connection with the closing of the IPO, Proficient also completed the acquisitions of all the Founding Companies. The Combinations are accounted for as business combinations under ASC 805. Under this method of accounting, Proficient Auto Logistics, Inc. is treated as the “accounting acquirer.”

Proficient has been identified as the designated accounting acquirer (“Successor”) of each of the Founding Companies and Proficient Transport has been identified as the designated accounting predecessor (“Predecessor”) to the Company. As a result, the unaudited condensed consolidated financial statements as of, and for the three and six months ended, June 30, 2024 for Proficient and unaudited condensed consolidated financial statements for the period starting April 1, 2024 through May 12, 2024 and January 1, 2024 through May 12, 2024 for Proficient Transport are included in this Quarterly Report on Form 10-Q. A black-line between the Successor and Predecessor periods has been placed in the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity (Deficit), Condensed Consolidated Statements of Cash Flows and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods. Please refer to Note 3, “Business Combinations.”

Principles of Consolidation— The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and accounts have been eliminated. The condensed consolidated financial statements in the Successor periods includes the impact of push-down accounting with acquisition related costs pushed down to the corresponding reporting entity.

Accounts Receivable— Accounts receivable represents customer obligations due under normal trade terms. The Company reviews accounts receivable on a continuing basis to determine if any receivables are potentially uncollectible. The Company writes off uncollectible receivables based on specifically identified amounts determined to be uncollectible. Based on the information available, the Company recorded an allowance for credit losses of approximately $21,182 and $634,913 at June 30, 2024 (Successor) and December 31, 2023 (Predecessor), respectively. Actual write-offs could differ from management’s estimate.

Business Combinations — The Company accounts for business combinations using the acquisition method pursuant to ASC 805, Business Combinations. For each acquisition, the Company recognizes the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. Valuations of certain assets acquired, including customer relationships, developed technology and trade names involve significant judgment and estimation. The Company uses independent valuation specialists to help determine fair value of certain assets and liabilities. Valuations utilize significant estimates, such as forecasted revenues and profits. Changes in these estimates could significantly impact on the value of certain assets and liabilities.

Goodwill— Goodwill is recorded when the purchase price paid in a business combination exceeds the fair value of assets acquired and liabilities assumed. Goodwill is reviewed for impairment on an annual basis, or upon an occurrence of an event or changes in circumstances that indicate that the carrying value may not be recoverable. In the absence of any indications of potential impairment, the evaluation of goodwill is performed during the fourth quarter of each year.

Goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. When testing goodwill for impairment, the Company may first perform a qualitative assessment to determine whether the fair value of a reporting unit is less than its carrying amount. The Company then completes a quantitative impairment test if the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than the carrying value of its assets. If the estimated fair value of the reporting unit exceeds the carrying value, goodwill is not considered impaired, and no additional steps are needed. If, however, the fair value of the reporting unit is less than its carrying value, then the amount of the impairment loss is the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Intangible Assets, Net — The Company’s intangible assets consist of acquired customer relationships and trade names. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

When determining the fair value of acquired intangible assets, management makes significant estimates and assumptions, including, but not limited to, expected long-term market growth, customer retention, future expected operating expenses, costs of capital and appropriate discount rates. Finite-lived intangible assets are amortized using the straight-line method over their respective estimated useful lives.

Stock-Based Compensation — Restricted Stock Units (“RSUs”) have been granted to eligible employees of the Company. As the requirement to remain employed for the necessary service period and the performance vesting criteria are based on the performance of the Company, the Company has pushed down the related compensation expense and has recorded the compensation within stock-based compensation within the consolidated statement of operations. In accounting for stock-based compensation awards, the Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. For compensation expense for time-vesting awards is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. The estimated fair value of the RSU’s was determined using the fair value of the Company’s common stock on the grant date.

Fair Value Measurements— The Company determines fair value based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, as determined by either the principal market or the most advantageous market in which it transacts. The Company applies fair value accounting for all the financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions about current market conditions and require significant management judgment or estimation.

As of June 30, 2024 and December 31, 2023, the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and other current assets and liabilities approximates fair value due to the short maturities of these instruments. Certain assets, including goodwill, intangible assets and other long-lived assets, are also subject to measurement at fair value on a nonrecurring basis if they are deemed to be impaired as a result of an impairment review. The earn-out liability is contingent consideration that is measured at the estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the condensed consolidated statements of operations. Contingent consideration is measured at fair value using a discounted cash flow model utilizing significant unobservable inputs including the probability of achieving each of the potential milestones. The Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration will be recorded in the condensed consolidated statements of operations. The contingent liability expected to be settled at December 31, 2024.

Segment Reporting— In accordance with ASC 280,Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available and are regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM primarily evaluates performance based on operational results from the services provided by the Company’s Truckload and Brokerage segments, which represent the Company’s operating segments for the six months ended June 30, 2024 (Successor), for the three months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor), respectively. The Company’s CODM has been identified to collectively include the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer.

*New Accounting Pronouncements —*In November 2023, the FASB issued ASU 2023-07,*Segment Reporting (Topic 280):*Improvements to Reportable Segment Disclosures, which would require enhanced disclosures about significant segment expenses and information used to assess segment performance. This standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact this standard will have on its disclosures and does not believe there will be a material impact from adoption.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which would require additional transparency for income tax disclosures, including the income tax rate reconciliation table and cash taxes paid both in the United States and foreign jurisdictions. This standard is effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact this standard will have on its disclosures.

Note 3 — Business combinations

On December 21, 2023, Proficient Auto Logistics, Inc. entered into agreements to acquire in multiple, separate acquisitions five operating businesses and their respective affiliated entities, as applicable: (i) Delta, (ii) Deluxe, (iii) Sierra, (iv) Proficient Transport, and (v) Tribeca. The closing of the acquisitions occurred concurrently with the closing of the Company’s IPO of its common stock on May 13, 2024.

The various agreements to acquire the Founding Companies are briefly described below:

The acquisitions were accounted for using the acquisition method of accounting, in accordance with ASC 805, Business Combinations. Proficient Auto Logistics, Inc was the accounting acquirer, and the Company elected to apply pushdown accounting. The table below presents the consideration transferred and the allocation of the total consideration to tangible and intangible assets acquired and liabilities assumed from the acquisition of the Founding Companies based on the respective fair values as of May 13, 2024:

The Company recognized intangible assets as follows:

The Combinations resulted in $127,428,122 of goodwill consisting largely of the expected synergies from combining operations as well as the value of the workforce. As a result of the types of acquisitions the Company engaged in in 2024, asset, stock acquisitions, and stock acquisitions with the 338(h)(10) election made, only a portion of the total goodwill reported will be tax deductible.. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

The following unaudited pro forma information combines the historical operations (in thousands) of the Company and the Founding Companies giving effect to the Combinations, and related transactions as if consummated on January 1, 2023, the comparative period presented.

Earn-out liability

As part of the Company’s acquisition of Deluxe, the purchase price consideration included an earn-out provision which provides that the Company will make earn-out payments, fifty percent (50%) in cash and fifty percent (50%) in shares of common stock, to Deluxe under certain terms and conditions related to Deluxe Auto’s EBITDA for the period commencing on January 1, 2024 and ending on December 31, 2024. As of June 30, 2024, the Company recognized a contingent liability of $3,095,114 on the balance sheet.

Note 4 — Goodwill

The changes in the carrying amount of goodwill are as follows:

Note 5 — Intangible assets, net

Amortization expense related to finite lived intangible assets is included in depreciation and amortization expenses in the consolidated statement of operations was $1,076,445 for the three and six months ended June 30, 2024 for the Successor.

As of June 30, 2024, the expected amortization expense associated with the Company’s identifiable intangible assets with estimable useful lives over the next five years was as follows:

As of June 30, 2024, the weighted average amortization period for all intangible assets was 14.3 years.

Note 6 — Property and equipment

Property and equipment, at cost, consist of the following as of:

The Company recorded depreciation expense of $3,420,587, $3,420,587, $934,988, $295,651, $1,215,374 and $624,718 in the condensed consolidated statements of comprehensive income for the six months ended June 30, 2024 (Successor), for the three months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor), respectively.

The Company recorded a gain on the disposal of equipment $7,911, $7,911, $235,081, $0, $55,976 and $39,578 in the condensed consolidated statements of comprehensive income for six months ended June 30, 2024 (Successor), for the three months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor), respectively.

Note 7 — Accrued liabilities

Accrued liabilities consist of the following as of:

Note 8 — Income taxes

The income tax provision differs from the amount determined by applying the U.S. federal tax rate as follows:

The Founding Companies’ tax years 2019 and forward remain subject to examination by federal and state jurisdictions. The Founding Companies are not currently under an IRS examination as of the date these financials were available to be issued.

Note 9 — Line of credit

As of June 30, 2024 and December 31, 2023, Proficient Transport had an outstanding balance on a revolving line of credit of $0 and $3,450,129, respectively. The revolving line of credit for Proficient Transport is with a financial institution which provides for borrowings up to $18,000,000 subject to a borrowing base calculation of Qualified Accounts Receivable plus Qualified Rolling Stock (trucks, tractors, and trailers that transport goods in interstate commerce purchased on the line). Interest is payable monthly at the Prime Rate plus 0.75% per annum, but no less than 4% per annum (9.25% as of June 30, 2024 and 9.25% as of December 31, 2023, respectively). Borrowings against the line of credit are secured by all assets of Proficient Transport. The line of credit requires Proficient Transport to comply with certain restrictive covenants, including but not limited to a debt service coverage ratio, tangible net worth plus subordinated debt, and liabilities to tangible net worth plus subordinated debt ratio. Proficient Transport was in compliance with all other covenants for the as of June 30, 2024 and December 31, 2023. Subsequent to June 30, 2024, this line of credit was closed on July 9, 2024.

In June 2024, Proficient Transport entered into a revolving line of credit agreement with a financial institution which provides for borrowing up to $12,000,000 subject to a borrowing base calculation of Qualified Accounts Receivable. Interest is payable monthly at the Prime Rate plus 0.00% per annum, but no less than 3% annum (8.50% as of June 30, 2024). Borrowings against the line of credit are secured by all Proficient Transport’s assets and matures in June 2026, when all accrued interest and unpaid principal is due. As of June 30, 2024, Proficient Transport had an outstanding balance on this line of $0.

In May 2024, Deluxe entered into a line of credit agreement with a bank. Under this agreement, Deluxe, or any of its subsidiaries or affiliates, may request the issuance of letters of credit by the bank or any bank affiliate, subject to the bank’s approval and the terms of the agreement. The agreement also establishes a credit facility (the “Facility”) with a maximum borrowing base of $6,000,000, calculated as the lesser of the maximum principal amount or 80% of qualified accounts, plus an applicable percentage of qualified inventory, subject to adjustments and reserves as deemed necessary by the bank. In May 2024, the agreement was amended and extended to August 2024. As of June 30, 2024, the Facility bears interest at a rate per annum which is equal to the sum of Daily SOFR plus 225 basis points was 7.63% (5.38% +2.25%). As of June 30, 2024, Deluxe had an outstanding balance of $2,911,720 under this Facility. The agreement contains certain financial and nonfinancial covenants. Deluxe was not in compliance with its covenants as of June 30, 2024. Deluxe obtained a waiver from its bank and paid off the Line of Credit on August 8, 2024.

Note 10 — Long-term debt

Long-term debt consists of the following as of:

Predecessor

Successor

In May 2024, as part of the Combinations, the Company no longer qualified for its $1,751,832 loan under the Economic Injury Disaster Loan (“EIDL”) assistance program administered by the U.S. Small Business Administration (“SBA”). As a result of the noncompliance with the program, the Company paid off their SBA loan on August 14, 2024. The SBA loan is classified as a current liability within its balance sheet as of June 30, 2024.

Future maturities of long-term debt are as follows:

The Company had no capitalized debt issuance costs during the period ended June 30, 2024 (Successor) and December 31, 2023 (Predecessor), respectively. Amortization expense related to the debt issuance costs totaled $7,952, $7,952, $4,795, $1,516, $6,558, and $3,279 for six months ended June 30, 2024 (Successor), for the three months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor), respectively, and was recorded within interest expense on the condensed consolidated statements of comprehensive income.

Note 11 — Leases

Lessee— The following table presents certain information related to lease costs for finance and operating leases as of:

As of June 30, 2024 (Successor) and December 31, 2023 (Predecessor), the weighted-average discount rate for operating leases was 7.00% and 0.86%, respectively. The weighted-average remaining lease term as of June 30, 2024 (Successor) and December 31, 2023 (Predecessor), was 10.6 and less than a year, respectively. As of June 30, 2024 (Successor) and December 31, 2023 (Predecessor), the weighted-average discount rate for finance leases was 12.08% and 9.26%, respectively and the weighted-average remaining lease term was 1.56 years and 1.07 years, respectively.

As of June 30, 2024 (Successor), future maturities of the lease liabilities were as follows:

Lessor — The Company finances various types of transportation-related equipment to independent third parties under lease contracts which are generally for a term of one to eight years and contain an option for the lessee to return or purchase the equipment at a bargain purchase price. The Company classifies these leases as a sales-type lease. The Company assesses a third party’s ability to pay based on the financial capacity and intention to pay, considering all relevant facts and circumstances, including past experiences with that third party or similar third parties. For those leases classified as sales-type leases where collectability is not probable at lease commencement, the Company does not derecognize the underlying asset, and the payments received for these leases are recorded as deposit liabilities. Deposit liabilities of $1,549,374 and $348,134 were reported in accrued liabilities on the condensed consolidated balance sheet as of June 30, 2024 (Successor) and December 31, 2023 (Predecessor), respectively. The determination of collectability is an ongoing assessment, at the time that collectability is determined probable, the liability and assets will be derecognized with a corresponding earnings recognition.

Lease receivables are carried at the aggregate of lease payments receivable plus the estimated residual value of the leased assets and any initial direct costs incurred to originate these leases, less unearned income, which is accreted to interest income over the lease term using the interest method. Lease receivables of $18,160 and $35,055 are reported as net investment in leases on the condensed consolidated balance sheet as of June 30, 2024 (Successor) and December 31, 2023 (Predecessor), respectively.

For the three and six months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor), the Company recorded sales-type lease revenue of $0, $0, $0, $0, $25,000 and $0, respectively, within operating revenue on the condensed consolidated statement of comprehensive income.

For the three and six months ended June 30, 2024 (Successor), for the period from January 1, 2024 to May 12, 2024 (Predecessor), for the period from April 1, 2024 to May 12, 2024 (Predecessor), for the six months ended June 30, 2023 (Predecessor), and for the three months ended June 30, 2023 (Predecessor),the Company recorded interest income of $104, $104, $273, $60, $1,410, and $823, respectively, within interest expense, net on the condensed consolidated statements of comprehensive income.

As of June 30, 2024 (Successor), future minimum lease payments expected to be collected were as follows:

Note 12 — Stockholders’ Equity and Preferred Stock

Series A preferred stock (Predecessor)

Proficient Transport was authorized to issue 10,000,000 shares of Series A preferred stock, with a par value of $0.01 per share. The holders of Series A preferred stock were entitled to vote as common shareholders and had certain liquidation preferences to every other class or series of stock. The Series A preferred stock was redeemable at the option of the Series A preferred stockholders at the greater of the fair market value of the Series A preferred stock at the date of redemption or a value determined using a discounted cash flow model, as defined. The Series A preferred stock was eliminated in connection with the business combinations (Note 3) on May 13, 2024.

The Series A preferred stock earned a cumulative preferred return equal to 8% per annum on the sum of $1.00 per share invested plus accrued and unpaid Series A returns. The Series A returns accrue on a quarterly basis and will be fully cumulative, whether or not declared by Proficient Transport’s Board of Directors.

Since the holder of the Series A preferred stock has the option to redeem their shares at any time, the Series A preferred stock is considered contingently redeemable, and accordingly, is classified as mezzanine equity on the condensed consolidated balance sheet as of December 31, 2023.

The Series A preferred stock is recorded at its redemption of $8,880,672 as of December 31, 2023, respectively. The accumulated but undistributed preferred returns were approximately $5,813,749 as of December 31, 2023, respectively.

Activity related to the Series A preferred stock for the period ended May 12, 2024 and December 31, 2023 is as follows:

Stockholders’ Equity (Successor)

The Company is authorized to issue 50,000,000 shares of common stock, which has a par value of $0.01 per share.

In May 2024, the Company issued 404,177 shares of common stock for vested RSU’s.

In May 2024, the Company completed its IPO of its common stock and issued 14,333,333 shares of its common stock at a price of $15.00 per share for total gross proceeds of $215,000,000 and net proceeds of $192,273,599 after underwriting fees and transaction costs.

In connection with the Combinations, the Company issued 6,848,795 shares of its common stock to the Sellers. Please see Note 3 for additional information.

In connection with its IPO, the Company granted the underwriters of its IPO a customary 30-day over-allotment option to buy up to an additional 2,149,999 shares of common stock from the Company at the IPO price, less underwriting discounts and commissions. In June 2024, the Company issued 1,435,000 shares of its common stock pursuant to the partial exercise of the over-allotment option. The shares were sold at the initial public offering price of $15.00 per share for total gross proceeds of $21,500,000 and net proceeds of $20,018,250 after underwriting fees and transaction costs, before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. All of the shares of common stock were sold by the Company.

Note 13 — Stock-based compensation

Restricted Stock Units (Successor)

In May 2024, the Company adopted its 2024 Long-Term Incentive Plan (“the 2024 Plan”). The 2024 Plan provides for the grant of incentive stock options (“ISOs”) to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees and directors, including employees of our affiliates. After taking into account restricted stock units granted in connection with the IPO in concurrent business combinations (Note 3), the maximum number of shares of our common stock that may be issued under our 2024 Plan will not exceed 3,260,000 shares.

The awards under the 2024 Plan vest on a graded vesting schedule, generally, over a period betweenone (1) andfive (5) years after the grant date. The Company uses straight line vesting to record compensation expense, which results in greater compensation expense earlier in the vesting period after an award is granted. All awards granted are settled in common stock.

If an employee terminates employment with the Company prior to awards vesting, the unvested awards are forfeited and the historical compensation expense for unvested options is reversed in the period of termination.

Shares subject to stock awards granted under the 2024 Plan that expire or terminate without being exercised in full do not reduce the number of shares available for issuance under the 2024 Plan. Additionally, shares become available for future grants under the 2024 Plan if they were stock awards issued under the 2024 Plan and we repurchase them or they are forfeited. This includes shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award.

The following summarizes grants made of equity awards under the 2024 Plan, as amended, on the dates indicated:

Total compensation expense related to these restricted stock awards was $6.6 million for the six and three months ended June 30, 2024, respectively. As of June 30, 2024, there was a total of $17,922,309 of unrecognized compensation expense related to these restricted stock awards, which is expected to be recognized over the next four years.

A summary of all restricted stock/units outstanding as of December 31, 2023 and activity during the six months ended June 30, 2024 is presented below:

Phantom Stock Plan (Predecessor)— In June 2018, Proficient Transport granted a phantom stock award of 565,463 units (the “Units”), of which 188,488 Units vested immediately, to a member of the Board of Directors of Proficient Transport. The remaining 376,975 Units vested in connection with the business combination (Note 3) on May 13, 2024. There were no outstanding units as of June 30, 2024.

Note 14 — Segment reporting

The Company’s business is organized intotwo operating segments, which represent Company’s reportable segments. The Truckload segment offers automobile transport and contract services under an asset-based model. The Company’s contract service offering devotes the use of equipment to specific customers and provides transportation services through long-term contracts. The Company’s Brokerage segments offers transportation services utilizing an asset-light model focusing on outsourcing transportation of loads to third-party carriers.

The following table summarizes information about our reportable segments:

Assets and other balance sheet information are not disclosed by reportable segment as the Company does not track assets by reportable segment and certain assets are not specific to any reportable segment.** **

Note 15 – Loss per share

Basic loss per share is based upon the weighted average common shares outstanding during each year. Diluted loss per share is based on the basic weighted earnings per share with additional weighted common shares for common stock equivalents. During the three and six months ended June 30, 2024, the Company had outstanding restricted shares of common stock to certain of our employees and directors, under the Company’s restricted stock award plans. The diluted shares include the dilutive effect of restricted stock units based on the treasury stock method.

A reconciliation of the numerator (net loss) and denominator (weighted average number of shares outstanding of the basic loss per share) for the three and six months ended June 30, 2024 and is as follows:

The Company excluded 1,255,508 of RSU’s from the computation of weighted-average number of shares of common stock in computing the diluted loss per share for the periods presented because including them would have had an anti-dilutive effect.

Note 16 — Commitments and contingencies

The Company is involved in certain claims and pending litigation primarily arising in the normal course of business. The majority of these claims relate to workers compensation, auto collision and liability, and physical and cargo damage. The Company expenses legal fees as incurred and accrues for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Independent Contractors Misclassification Class Action

In May 2020, a brokerage employee filed claim against Sierra Mountain Group, Inc. and an officer of the Company in Sacramento County Superior Court in California. The putative class alleges that Sierra misclassified owner/operators as independent contractors, not as employees, in violation of the California Labor Code applicable to employees (meal and rest breaks, minimum wage, etc.). Sierra denies liability and filed a counterclaim against the Plaintiff for costs and attorneys’ fees.

In August 2023, all parties have reached an agreement on material settlement terms and have signed a Memorandum of Understanding pursuant to which the defined class action would be paid approximately $4,000,000 pending approval of a long-term settlement agreement currently in process. The $4,000,000 was recorded as an expense in the fiscal year ending December 31, 2022 and a contingent liability has been recorded within accrued liabilities on the condensed consolidated balance sheet as of June 30, 2024.

Former Employee Class Action

In May 2024, a former employee filed claim against Deluxe Auto Carriers, Inc., in Riverside County Superior Court in California. The putative class alleges that Deluxe failed to pay for meal and rest periods for time worked, off the clock work, overtime, business expenses, itemized wage statements, among other things. The Company is still evaluating this contingency and has included its best estimate of potential liability within accrued liabilities on the condensed consolidated balance sheet as of June 30, 2024.

Delinquent Filings with Department of Labor

Deluxe Auto Carriers, Inc. is currently delinquent in its filings of their Retirement Plan Information Returns with the Department of Labor (DOL) for Plan years 2019 through 2022. This delinquency could result in penalties and interest from the DOL and the Internal Revenue Service (IRS); however, there are voluntary correction programs available to Deluxe for remediation and compliance with these reporting agencies and the Company is actively working to put such agreements into effect. As of June 30, 2024, the Company does not have a reasonable estimate for any potential penalties or interest.

Note 17 — Subsequent events

On August 8, 2024, PAL Stock Acquiror, Inc. and PAL Merger Sub, LLC, subsidiaries of the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Auto Transport Group, LC, (“ATG”), each Seller identified therein and Chris Baldwin, solely in his capacity as the representative of the Sellers, pursuant to which the Company will acquire ATG, which provides vehicle transportation and shipping services in the Mountain Western region utilizing a fleet of 76 tractors and 76 trailers. The Company agreed to pay the sellers cash consideration of approximately $28.7 million and to issue to the sellers 1.02 million shares of the Company’s common stock, par value $0.01 per share. The purchase price is subject to customary post-closing adjustments. Consummation of the transaction is subject to the satisfaction or waiver of customary closing conditions. The Merger Agreement may be terminated by the Buyer or the Sellers if the Closing does not occur before August 31, 2024.

On August 14, 2024, Delta paid off its SBA Loan. At the time payoff the loan had an outstanding balance of $1,752,990 which included interest.** **

On August 8, 2024, Deluxe paid off and closed its line of credit. At the time of closing the line of credit had an outstanding balance of $4,129,935.** **

On July 9, 2024, Proficient Auto terminated its line of credit. At the time of termination the revolving line of credit had an outstanding balance of $0. Also on July 9, 2024, Proficient Auto paid off its real estate loan with the same institution. The payoff amount was $671,872.