Form 10-K EVO Transportation & For: Dec 31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _____________
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Securities registered pursuant to Section 12(b) of the Act: None.
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Act). Yes
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the Registrant’s 2021 second fiscal quarter was approximately $
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of June 27, 2022, there were
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements reflect management’s current view about future events. When used in this report, the words “anticipate”, “will”, “believe”, “expects”, “intends”, “estimates”, “projects”, “target”, “goals”, “plans”, “objectives”, “should”, “future,”, “seek”, “may”, “could”, “likely” or similar expressions or the negative of these terms identify forward-looking statements as they relate to EVO Transportation & Energy Services, Inc., a Delaware corporation (“EVO,” the “Company,” “we,” “us” or “our”), its subsidiaries or management. The forward-looking statements in this report generally relate to: EVO’s growth strategy and potential acquisition candidates, EVO’s relationship with the United States Postal Service, gasoline, diesel, and natural gas prices, management’s expectations regarding market trends and competition in the transportation industry, government tax credits and other incentives, insurance, and environmental and safety considerations.
Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause EVO’s results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of this report) relating to the Company’s industry, its operations and results of operations, and any businesses that may be acquired by it. These factors include, among other factors:
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The preceding list is not intended to be an exhaustive list of all of the topics addressed by our forward-looking statements. Although the forward-looking statements in this report reflect our good faith judgment based on available information, they are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, among others, those discussed in this report in Item 1A. Risk Factors. In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. As a result of these and other potential risks and uncertainties, our forward-looking statements should not be relied on or viewed as predictions of future events. All forward-looking statements in this report are made only as of the date of this document and, except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, including to conform these statements to actual results or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the date we file this report.
We qualify all of our forward-looking statements by this cautionary note.
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PART I
Item 1. Business.
Our Business
EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. We believe EVO is the second largest surface transportation company serving the USPS, with a diversified fleet of tractors, straight trucks, and other vehicles that currently operate on either diesel fuel or compressed natural gas (“CNG”). In certain markets, we fuel our vehicles at one of our three CNG stations that serve other customers as well. We are actively engaged in reducing CO2 emissions by operating on CNG, pursuing opportunities to use other alternative fuels, and by optimizing the routing efficiency of our operations to reduce fuel usage. We operate from our headquarters in Phoenix, Arizona and from 10 main terminals located throughout the United States.
EVO has grown primarily through acquisitions, and we have completed seven acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers. In 2021, we generated $270.7 million in revenue, which includes $34.8 million of nonrecurring revenue. We have been actively integrating the acquisitions we have made under common leadership and technology and are now operating under a single umbrella brand.
Service and Product Offering
Mail Transportation
We transport mail and freight by truck for the USPS and other customers. We competitively bid on transportation contracts that procure and specify the movement of mail between processing facilities and destination post offices. Customer contracts are typically four years in term and most often are renewed with the incumbent supplier if appropriate service has been performed in accordance with contract requirements including, but not limited to, USPS performance standards, Service Contract Act requirements, Department of Transportation (“DOT”) regulations (federal and state), and all other applicable local and state regulations.
As of December 31, 2021, we held over 250 contracts with the USPS. Of these, 15 were Dynamic Route Optimization contracts and the remainder were traditional highway route contracts. Our mail transportation operations generated $270.7 million in revenue in 2021 (which includes $34.8 million of nonrecurring revenue), or 89% of our total revenues.
Freight and Brokerage Services
In addition to our USPS mail transportation and delivery services, we provide freight and brokerage services to various corporate customers. Our freight and brokerage services generated $33.0 million of revenues in 2021, or 11% of our total revenues.
Compressed Natural Gas Fueling
We own three CNG fueling stations that serve our fleet and other customers. Those stations are located in Fort Worth, TX, Oak Creek, WI, and Tolleson, AZ and accommodate class 8 trucks and trailers. We have two additional CNG fueling stations located in Jurupa Valley, CA and San Antonio, TX that are no longer operational. Most of our CNG customers fuel at our stations under long term contracts and we have a small number of retail customers. Our CNG fueling operations generated $0.4 million of revenues in 2021, or less than 1% of our total revenues.
History
The Company was incorporated in the State of Delaware on October 22, 2010 under the name “Minn Shares Inc.” From December 2010 until November 2016, Minn Shares Inc. was considered a public “shell” company and dedicated its operations to seeking a potential merger or acquisition partner. On November 22, 2016, the Company and Titan CNG LLC, a Delaware limited liability company in the business of owning and operating compressed natural gas fueling stations (“Titan”), entered into an agreement and plan of securities exchange whereby the members of Titan acquired approximately 90% of the Company’s outstanding shares. Following the closing, the business plan of Titan became the business plan of the Company and all former officers of the Company resigned and were replaced by officers designated by Titan. On August 31, 2017, the Company changed its name from “Minn Shares Inc.” to “EVO Transportation & Energy Services, Inc.”
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Following the November 2016 public shell reverse merger transaction, the Company’s primary strategy was to seek growth through acquisitions. The Company completed the following acquisitions subsequent to November 2016:
Strategy
In 2014, the USPS announced that it intends to significantly reduce its supplier base from over 4,000 surface transportation contractors to less than 1,000 by 2022. As part of this consolidation effort, the USPS began implementing the Dynamic Route Optimization (“DRO”) program and consolidating contracts, which is designed to manage fewer relationships and work with larger prime contractors. Although the DRO program has evolved since its announcement and now operates more like traditional static USPS contracts, we expect additional USPS contracts to come available in the next several years as the USPS continues to consolidate contracts.
We believe EVO is well positioned to take on more business with the USPS as the postal service consolidates vendors and solicits larger contracts for which bigger suppliers are better equipped to bid. We have a dedicated team focused on bidding on new contracts and responding to any inquiries from the USPS on existing contracts. We believe we have an industry-leading ability to provide the USPS with the information and service levels they desire as we bid on new contracts, and we intend to continue to expand both organically and through acquisitions to provide greater coverage to the USPS.
We have invested meaningfully in information systems and personnel which we believe will allow us to be effective in managing DRO/consolidation and other USPS contracts. For example, continuing implementation of a transportation management system has allowed us to meet the scheduling and reporting needs of the USPS under its DRO and other programs. Our acquisitive growth strategy has also enabled us to achieve a greater scale than many of our regional and local competitors, which gives us the ability to competitively bid on a high percentage of available contracts.
Our largest customer, the USPS, adopted a robust environmental sustainability plan that includes a stated commitment to reducing greenhouse gas emissions through increased procurement of services from alternative fuels carriers. We have a dedicated focus on reducing emissions through operating routes as efficiently as possible as well as by operating vehicles on CNG. In addition, in certain markets we fuel our vehicles at one of our three operating CNG stations that serve other customers as well. We intend to continue to acquire additional vehicles powered by alternative fuels, including electrically powered
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vehicles. We believe our shared commitment with the USPS to reducing emissions positions the Company to grow our business relationship with the USPS in the future.
We intend to leverage our infrastructure to serve additional customers beyond the USPS. By utilizing our technology platform, network of terminals, and in some cases an ability to offer freight products with similar next day options, we are able to offer transportation services to corporate customers at competitive rates while also improving margins. We will continue to invest in our technology solutions in order to offer industry-leading service to our customers.
We also plan to continue our focus on sustainable operations, both by continuing to utilize our company owned CNG stations and developing transit lanes utilizing CNG trucks near our CNG stations and by acquiring additional vehicles powered by alternative fuels, including electrically powered vehicles. Since January 2019, we completed the acquisition of Sheehy of Waterloo, Wisconsin, which operates the largest fleet of CNG trucks servicing the USPS. We also completed the acquisition of Ursa in 2019, which is based one mile from our Oak Creek CNG station.
Market Overview
Competition
The U.S. mail surface transportation industry is estimated to represent an approximately $5 billion subset of the broader transportation market. The USPS trucking industry is highly competitive and fragmented. In 2014, the USPS had active contracts with over 4,000 transportation contractors, and it publicly announced its goal to reduce that number to below 1,000 by 2022. Although the DRO program has evolved since its announcement and now operates more like traditional static USPS contracts, we expect additional USPS contracts to come available in the next several years as the USPS continues to consolidate contracts.
The Company competes primarily with other transportation companies for contracts with the USPS. We also compete with other motor carriers for the services of drivers, independent contractors and management employees. Our largest customer, the USPS, typically awards its contracts competitively and often renews contracts with incumbent service providers if appropriate services have been performed. The Company believes that the principal differentiating factors in its business, relative to competition, are service, efficiency, pricing, and its focus on alternative fuels, which aligns with the USPS’s stated preference for contractors who prioritize alternative energy options. Additionally, the Company was an early adopter of the DRO program with the USPS. We believe our existing relationship with the USPS and experience with the DRO program provide the Company an additional competitive advantage when bidding on these contracts.
Our Target Customers
The USPS is our primary target customer, but we also seek to provide freight trucking and brokerage services to various corporate customers.
Principal Customers and Suppliers
The USPS is the Company’s primary customer, and for the years ended December 31, 2021 and 2020, the USPS accounted for approximately 89% and 87%, respectively, of the Company’s revenue. As a result, the Company’s trucking operations are highly dependent on the USPS. For a discussion of the risks associated with the possible loss of the USPS as a customer or a significant reduction in the Company’s relationship with the USPS, refer to Item 1A. Risk Factors of this report.
Safety and Risk Management
The Company considers Safety, Risk and Regulatory compliance to be a key focus of all operations. Through this focus, the Company is consistently identifying risks, developing a proactive approach to improving overall Safety performance and reducing employee injuries. Of the many tools used by the company, items such as on-board cameras, trucks equipped with accident-avoidance devices, and training on defensive driving continue to be effective in reducing vehicle accidents and injuries.
Because the Company’s primary business is transportation on public roadways, we are regulated by the Federal Motor Carrier Safety Administration (FMCSA), a division of the US Department of Transportation (DOT), and the Occupational Safety and Health Administration (OSHA). The Company operates its business to exceed the requirements of these agencies, and currently maintains a Satisfactory rating with the FMCSA.
The primary safety related risks associated with the transportation industry consist of damage to Company equipment or third parties involved in a vehicle accident, personal injury to others involved in an accident, and injuries sustained to employees.
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The Company maintains insurance coverage for all operations to exceed the requirements of the FMCSA, and consistently reviews its coverage on an annual basis.
To the extent that the Company subcontracts any portion of its business to third party trucking companies, those companies operate under their own DOT authority, and provide their own liability and workers compensation insurance, which the Company has the right to audit from time to time. All third-party trucking companies contracted with the Company must meet the Company's insurance requirements and safety requirements by being rated as Satisfactory by the FMCSA. All third-party trucking companies must also list the Company as additional insured on all insurance policies and contain a Waiver of Subrogation on their workers compensation policy.
Fuel
In 2021, we used approximately 7.75 million gallons of diesel and approximately 1.35 million gas gallon equivalents (“GGEs”) of CNG. Our fuel costs are typically passed on to customers. In addition, we qualified for a retroactive tax credit of $0.50 per GGE for roughly 0.7 million of the GGEs utilized in 2021 and a tax credit of $0.30 per GGE for the remaining approximately 0.635 million GGES utilized in 2021. These tax credits expired on December 31, 2021.
The Company actively manages its fuel purchasing network in an effort to maintain adequate fuel supplies and reduce its fuel costs. The Company purchases its fuel through a network of retail truck stops with which it has negotiated volume purchasing discounts. The Company seeks to reduce its fuel costs by routing its drivers to truck stops with which the Company has negotiated volume purchase discounts when fuel prices at such stops are lower than the bulk rate paid for fuel at the Company’s terminals. The Company stores fuel in aboveground storage tanks at some of its facilities.
The Company believes the most effective protection against fuel cost increases is to maintain a fuel-efficient fleet by incorporating fuel efficiency measures and focusing on alternative fuel vehicles, particularly CNG vehicles that can leverage the Company’s current and future CNG fueling stations. The Company may periodically enter into various commodity hedging instruments to mitigate a portion of the effect of fuel price fluctuations. As of December 31, 2021 and 2020, the Company had no liabilities related to commodity hedging instruments recorded in the accompanying consolidated balance sheets. Shortages of fuel, increases in fuel prices, or rationing of petroleum products could have a material adverse effect on the Company’s operations and profitability.
Operations
Fleet
We operate a substantial fleet of tractors, trailers, straight trucks, and local delivery vehicles. We own a significant portion of our fleet, but we also utilize leases and short-term rental agreements for some of our vehicles and trailers. Our vehicles currently operate on either diesel fuel or CNG, and we are also pursuing opportunities to introduce other alternative fuel vehicles, including electric vehicles, into our fleet. We intend to continue to replace our existing fleet with more efficient diesel, CNG and other alternative fuel vehicles.
Operations Centers
We manage regional operations centers with major centers of operations in Oak Creek, Wisconsin, Austin, Texas, Laurel, Maryland, and Newark, New Jersey. Other operations centers include Des Moines, Iowa, Columbus, Ohio, St. Louis, Missouri, Madison, Wisconsin, and Milwaukee, Wisconsin.
Technology
We utilize a suite of systems for transportation management, electronic logging, customer relationship management, brokerage, maintenance, accounting, recruiting, HR, payroll and camera systems. These systems include Omnitracs, Salesforce, NetSuite, Ten Street, APlus, Lytx, and others. We expect these systems to provide increased operational efficiencies and revenue maximization.
Seasonality
Due to seasonal increases in USPS volume, the Company’s truck utilization and revenue typically increase during the last quarter of each calendar year. Correspondingly, operating expenses increase, fuel efficiency declines because of engine idling, and harsh weather creates higher accident frequency, increased claims, and higher equipment repair expenditures.
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Government Regulation and Environmental Matters
The Company’s operations are regulated and licensed by various federal, state, and local government agencies. The Company and its drivers must comply with the safety and fitness regulations of the DOT and the agencies within the states that regulate transportation, including those regulations relating to operating authority, safety, drug- and alcohol-testing, hours-of-service, hazardous materials transportation, financial reporting, testing and specification of equipment, and product-handling requirements. Weight and equipment dimensions also are subject to government regulations. The Company also may become subject to new or more restrictive regulations relating to fuel emissions, environmental protection, drivers’ hours-of-service, driver eligibility requirements, on-board reporting of operations, collective bargaining, ergonomics and other matters affecting safety, insurance and operating methods. Other agencies, such as the United States Environmental Protection Agency (“EPA”) and the United States Department of Homeland Security (“DHS”), also regulate the Company’s equipment, operations, drivers and the environment.
The DOT, through the Federal Motor Carrier Safety Administration (“FMCSA”), imposes safety and fitness regulations on the Company and its drivers, including rules that restrict driver hours-of-service. The FMCSA has adopted a data-driven Compliance, Safety and Accountability (the “CSA”) program as its safety enforcement and compliance model. The CSA program holds motor carries and drivers accountable for their role in safety by evaluating and ranking fleets and individual drivers on certain safety-related standards. To promote improvement in all CSA categories, including those both over and under the established scoring threshold, the Company has procedures in place to address areas where it has exceeded the thresholds and the Company periodically reviews all safety-related policies, programs and procedures for their effectiveness and revises them, as necessary, to establish improvement. The Company believes its established policies, programs and procedures are adequate to address safety-related concerns but can give no assurance these measures will be effective. The FMCSA issues three categories of safety ratings: satisfactory, conditional, and unsatisfactory. All operating authorities granted by the DOT that are operated by the Company currently have a “satisfactory” FMCSA rating.
The Company is also subject to various labor laws and regulations. The contracts that the Company holds with USPS are subject to the McNamara-O’Hara Service Contract Act (“SCA”) that is administered by the Department of Labor. The SCA, among other things, requires that the Company pay its drivers a minimum hourly wage as determined by the DOL as well as provide a bona fide fringe benefit package to its drivers.
The Company is also subject to various environmental laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, and adverse impacts to the environment, including to the soil, groundwater and surface water. The Company has implemented programs designed to monitor and address identified environmental risks. Historically, the Company’s environmental compliance costs have not had a material adverse effect on its results of operations.
Employees
As of December 31, 2021, the Company had approximately 1,744 employees, consisting of approximately 1,272 full-time employees and approximately 472 part-time employees. The Company employed approximately 1,494 drivers as of December 31, 2021. The Company is not a party to any collective bargaining agreements.
Company Website
The Company’s website may be accessed at www.evotransinc.com. All of our filings with the Securities and Exchange Commission can be accessed free of charge through our website as soon as reasonably practicable after filing. This includes annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports filed or furnished on Form 8-K and all related amendments.
Item 1A. Risk Factors.
Risks Related to the Company
If we do not obtain sufficient additional capital or generate substantial revenue, we may be unable to pursue our objectives. This raises substantial doubt related to our ability to continue as a going concern.
As disclosed in the notes to our consolidated financial statements included in this report, numerous factors raise substantial doubt about our ability to continue as a going concern. Specific factors include the following:
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If we are unable to improve our liquidity position, we might be unable to continue as a going concern. This could significantly reduce or eliminate the value of our investors’ investment in the Company.
The Company’s level of indebtedness could adversely affect its financial condition and its ability to fulfill its obligations and operate its business.
The Company has incurred significant liabilities, and the Company’s ongoing capital needs are extensive relative to its current cash position. Unless the Company is able to restructure some or all of its outstanding debt and/or raise sufficient capital to fund its continued operations and its debt obligations, the Company will be unable to pay these obligations as they become due. The Company has been unable to pay its obligations under its liabilities as they have become due in the past.
The Company is heavily reliant on its factoring arrangement, and any reductions to the Company’s ability to obtain credit under its factoring arrangement could significantly impact the Company’s liquidity.
The Company obtains liquidity under an accounts receivable factoring arrangement with a financial institution (the “Factor”). Pursuant to the terms of the agreement, the Company, from time to time, sells to the Factor certain of its accounts receivable balances on a recourse basis for approved accounts. The Factor may also advance payment, in its discretion, for unearned future contract amounts. The Factor remits 95% of the purchased accounts receivable balance and accepted unearned future contract amounts for a given month to the Company (the “Advance Amount”) with the remaining balance, less fees, to be forwarded once the Factor collects the full accounts receivable balance or unearned future contract amount, as applicable, from the customer. This is one of our primary sources of liquidity.
The Factor has no obligation to purchase the full amount of accounts receivable balances or unearned future contract amounts that the Company offers to sell, and there can be no assurance that the Factor will continue to purchase accounts receivable or unearned future contract amounts at the same levels as it has in the past. If the Factor determines in its sole discretion to decrease the amount it advances under the factoring arrangement or to terminate the factoring agreement entirely and we are unable to obtain a replacement source of credit on substantially similar terms, it would significantly decrease the Company’s liquidity, which would likely have a material adverse effect on our business, operating results, and financial condition.
We have a limited operating history on which to base an investment decision.
EVO did not begin trucking operations until June 2018. Thus, we are subject to all the risks associated with any business enterprise with a limited operating history. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of operation. When evaluating our business and prospects, you must consider the risks, expenses and difficulties that we may encounter as a company that acquired substantially all of its operations in the past three years.
We will need substantial additional capital to fund our growth plans and operate our business.
We require substantial additional capital to fund our capital expenditures and debt service to achieve profitability and to otherwise execute on our business plan. The most likely sources of such additional capital include private placements and public offerings of shares of our capital stock, including shares of our common stock or securities convertible into or exchangeable for our common stock, debt financing or funds from potential strategic transactions. We may seek additional capital from available sources, which may include hedge funds, private equity funds, venture capitalists, lenders/banks and other financial institutions, as well as additional private placements. Any financings in which we sell shares of our capital stock will likely be dilutive to our current stockholders. If we raise additional capital by incurring debt, a portion of our cash flow would have to be dedicated to the payment of principal and interest on such indebtedness. In addition, typical loan agreements also might contain restrictive covenants that may impair our operating flexibility. Such loan agreements, loans, or debentures would also provide for default under certain circumstances, such as failure to meet certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such
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lender which would be senior to the rights of our stockholders. A judgment creditor would have the right to foreclose on any of our assets resulting in a material adverse effect on our business, operating results or financial condition.
Our ability to raise additional capital may depend in part on our success in meeting sales and operating goals. We currently have no committed sources of additional capital and there is no assurance that additional financing will be available in the amounts or at the times required, or if it is, on terms acceptable or favorable to us. If we are unable to obtain additional financing when and if needed, our business will be materially impacted and our investors may lose the value of their entire investment.
Potential inquiries into or audits of our Paycheck Protection Program loan, as well as the results of any such inquiries or audits, could have a significant adverse effect on us and our financial condition.
We applied for and received a $10 million Paycheck Protection Program ("PPP") loan under the CARES Act. On May 8, 2020, we received a letter from the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives demanding that we return the PPP loan. We elected not to return the PPP loan proceeds as requested and our PPP loan was subsequently forgiven. Also, the United States Small Business Administration ("SBA") has stated that it intends to audit the PPP loan application of any company, like us, that received PPP loan proceeds of more than $2 million. Our decision to retain the PPP loan may require members of our management team to devote attention to future correspondence and requests from the Select Subcommittee, the SBA, or other regulators, which would reduce the amount of time available to management to focus on our operations and strategic initiatives. If we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP loan, or it is otherwise determined that we were ineligible to receive the PPP loan, we may be subject to penalties, including significant civil, criminal and administrative penalties.
We have a history of losses and may incur additional losses in the future.
In 2021, we reported net income of $14.3 million that included $34.8 million of nonrecurring pre-tax revenue resulting from the USPS settlement agreements, as well as a $11.0 million pre-tax gain on the extinguishment of certain debt obligations. In 2020, we incurred a net loss of $46.8 million. We may continue to incur losses, the amount of our losses may increase, and we may never achieve or sustain profitability, any of which would adversely affect our business, prospects and financial condition and may cause the price of our common stock to fall. In addition, to try to achieve or sustain profitability, we may take actions that result in material costs or material asset or goodwill impairments.
We may experience impairment of our long-lived assets and our goodwill.
Long-lived assets, including property, plant and equipment, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. Long-lived assets are considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. We also periodically evaluate our goodwill for potential impairment. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the carrying value is higher than the fair value, the goodwill is considered impaired. Once an asset is considered impaired, an impairment loss is recorded within operating expense for the difference between the asset’s carrying value and its fair value. For assets held and used in the business, management generally determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.
We may incur significant costs to comply with public company reporting requirements and other costs associated with being a public company.
We may incur significant costs associated with our public company reporting requirements and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costlier. As a public company, we are required to comply with rules and regulations of the SEC, including expanded disclosure and more complex accounting rules. We will need to implement additional finance and accounting systems, procedures and controls to satisfy these reporting requirements. In addition, we may need to hire additional legal and accounting staff to enable us to comply with these reporting requirements. These costs could have an adverse effect on our financial condition and limit our ability to realize our objectives.
We may not be able to meet the internal control reporting requirements imposed by the SEC.
As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the
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Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. If we are unable to timely comply with all of these requirements, potential investors might deem our financial statements to be unreliable and our ability to obtain additional capital could suffer.
We have identified seven material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
The Company identified seven deficiencies in internal control that it considered to be material weaknesses and other deficiencies that it considered to be significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal controls, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. In addition, the Company’s management has concluded that our disclosure controls and procedures were not effective as of December 31, 2021 due to the material weaknesses in our internal control over financial reporting described in Item 9A of this Annual Report on Form 10-K. As a result, we will be required to expend significant resources to develop the necessary documentation and testing procedures required by Section 404, and there is a risk that we will not comply with all of the necessary requirements. The material weaknesses may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations. Additionally, if we cannot remediate the material weaknesses in internal controls or if we identify additional material weaknesses in internal controls that cannot be remediated in a timely manner, investors and others with whom we do business may lose confidence in the reliability of our financial statements, and in our ability to obtain equity or debt financing could suffer.
We partially funded the construction of certain of our fueling stations using grant funds that we are required to repay if we do not satisfy certain operational metrics.
EVO CNG, LLC received grants in the amounts of $0.4 million and $0.1 million to assist in the construction and equipping of our San Antonio and Fort Worth fueling stations, respectively. The grants must be repaid if EVO CNG, LLC sells, transfers, destroys or otherwise loses title, possession, ownership or control of the equipment funded with the grants during the terms of the respective grant agreements. Our San Antonio fueling station is not operating, which might increase the risk that we will lose title, possession, ownership or control of the equipment at that station and that we will be required to repay the grant we received related to that station.
We depend on certain key personnel, and our operating performance may be adversely impacted by the loss of any such key personnel.
Our ability to execute our business plans and objectives depends, in large part, on our ability to attract and retain qualified personnel. Competition for personnel is intense and there can be no assurance that we will be able to attract and retain personnel. In particular, we are dependent upon the services of our management team. Our inability to utilize the services of our management team members could have an adverse effect on us and there would likely be a difficult transition period in finding replacements for any of them. The execution of our strategic plan will place increasing demands on our management and operations. If we lose or are unable to obtain the services of key personnel, our ability to manage our business and implement our strategic plan could be delayed or hindered, which could have a material adverse effect on our business, financial condition and results of operations.
We are controlled by our current executive officers, directors and principal stockholders.
Our executive officers, directors and principal stockholders beneficially own a substantial majority of our outstanding common stock. Accordingly, our executive officers, directors and principal stockholders will have the ability to exert substantial influence over our business affairs, including electing directors, appointing officers, determining officers’ compensation, issuing additional equity securities or incurring additional debt, effecting or preventing a merger, sale of assets or other corporate transaction and amending our articles of incorporation.
We may not successfully manage our recent and planned growth.
We have expanded our business through acquiring additional companies that provide contract trucking services to the USPS and leveraging our expanded operations to bid on additional USPS trucking contracts. We plan to continue to expand through acquisitions, bidding on additional USPS trucking contracts, and expanding both our freight and brokerage operations in the
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future. Any expansion of operations we have undertaken or may undertake entail and will entail risks and such actions may involve specific operational activities that may negatively impact our profitability. Consequently, investors must assume the risk that (i) such expansion may ultimately involve expenditures of funds beyond the resources available to us at that time, and (ii) management of such expanded operations may divert management’s attention and resources away from its existing operations. These factors may have a material adverse effect on our present and prospective business activities.
Risks Related to the Company’s Operations
The Company derives substantially all of its revenue from one customer, the loss of which would have a material adverse effect on the Company’s business.
Substantially all of the Company’s revenue is generated from the USPS, the loss or reduction of which would have a material adverse effect on the Company’s business.
Economic conditions may adversely affect the USPS and its ability to remain solvent. The United States Government Accountability Office described the USPS’s financial condition as “deteriorating and unsustainable” and reported that the USPS lost approximately $69 billion from fiscal years 2007 through 2018. The USPS’s financial difficulties can negatively impact the Company’s results of operations and financial condition and the Company’s ability to comply with the covenants in its debt agreements, especially if the USPS were to delay or default on payments to us. There can be no assurance that the Company’s relationship with the USPS will continue as presently in effect. Additionally, the Company’s contracts with the USPS are terminable for convenience by the USPS upon advance notice ranging from 60 days for some contracts to 180 days for DRO contracts. A default in performance by the Company under one USPS contract can constitute a cross-default allowing the USPS to terminate some or all of the Company’s other contracts with the USPS. A reduction in, or termination of, the Company’s services by the USPS would have a material adverse effect on the Company’s business and operating results.
The Company has significant ongoing capital expenditure requirements. If the Company is unable to obtain additional capital on favorable terms or at all, it may not be able to execute on its business plans and its business, financial condition, results of operations, cash flows and prospects may be adversely affected.
The Company’s business is capital intensive. Its capital expenditures focus primarily on equipment replacement and, to a lesser extent, facilities, equipment growth, and investments in information technology. The Company also expects to devote substantial financial resources to grow its operations and fund its acquisition activities. As a result of the Company’s funding requirements, it likely will need to raise funds through the sale of additional equity or debt securities or seek additional financing through other arrangements to increase its cash resources. Any sale of additional equity or debt securities may result in dilution to its stockholders. Public or private financing may not be available in amounts or on terms acceptable to the Company, if at all.
If the Company is unable to obtain additional financing, it may be required to delay, reduce the scope of, or eliminate future acquisition activities or growth initiatives, which could adversely affect its business, financial condition and operating results. In such case, the Company may also operate its equipment (including tractors and trailers) for longer periods, which would result in increased maintenance costs, which would in turn reduce its operating income.
The Company’s trucking business is affected by general economic and business risks that are largely beyond its control.
The Company’s trucking business is cyclical and is dependent on a number of factors, many of which are beyond our control. The Company believes that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets in general, including excess tractor capacity in comparison with shipping demand and recessionary economic cycles.
The Company also is subject to cost increases outside of its control that could materially reduce its profitability if it is unable to increase its rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver wages, subcontractor rates, interest rates, taxes, tolls, license and registration fees, insurance, equipment and healthcare for its employees.
The Company’s suppliers’ business levels also may be negatively affected by adverse economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to its operations. A significant interruption in the Company’s normal supply chain could disrupt its operations, increase its costs and negatively impact its ability to serve its customers.
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In addition, events outside the Company’s control, such as strikes or other work stoppages at its facilities or at customer, port, border or other shipping locations, or actual or threatened 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 reduced economic demand, reduced availability of credit or temporary closing of the shipping locations or United States borders. Such events or enhanced security measures in connection with such events could impair the Company’s operating efficiency and productivity and result in higher operating costs.
The trucking industry is highly competitive and fragmented, and the Company’s business and results of operations may suffer if it is unable to adequately address downward pricing and other competitive pressures.
The Company competes with many truckload carriers of varying sizes, including some that may have greater access to equipment, a wider range of services, greater capital resources, less indebtedness or other competitive advantages. The Company also competes with smaller, regional service providers that cover specific shipping lanes or that offer niche services. Numerous competitive factors could impair the Company’s ability to maintain or improve its profitability. These factors include the following:
Driver shortages and increases in driver compensation could adversely affect the Company’s profitability and ability to maintain or grow its trucking business.
Driver shortages could require the Company to spend more to attract and retain drivers. The market for qualified drivers is intensely competitive, which may subject the Company to increased payments for driver compensation. Also, because of the competition for drivers, the Company may face difficulty maintaining or increasing its number of drivers. Compliance and enforcement initiatives included in the CSA program implemented by the FMCSA and regulations of the DOT relating to driver time and safety and fitness could also reduce the availability of qualified drivers. In addition, the Company experiences regular driver turnover, which requires the Company to continually recruit a substantial number of drivers in order to operate existing equipment. If the Company is unable to continue to attract and retain a sufficient number of drivers, it could be required to operate with fewer trucks and face difficulty meeting customer demands or be forced to forego business that would otherwise be available to it, which could adversely affect its profitability and ability to maintain or grow its business.
Increased prices for, or decreases in the availability of, new equipment and decreases in the value of used equipment could adversely affect the Company’s results of operations and cash flows.
Investment in new equipment is a significant part of the Company’s annual capital expenditures, and the Company’s trucking business operates optimally with an available supply of tractors and trailers from equipment manufacturers to operate and grow its business. In recent years, manufacturers have raised the prices of new equipment significantly due to increased costs of materials and parts shortages. If new equipment prices increase more than anticipated, the Company could incur higher depreciation and rental expenses than anticipated. If the Company is unable to fully offset any such increases in expenses with freight rate increases and/or improved fuel economy, its results of operations and cash flows could be adversely affected.
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The Company may also face difficulty in purchasing new equipment due to decreased supply. From time to time, some original equipment manufacturers (OEM) of tractors and trailers may reduce their manufacturing output due to lower demand for their products in economic downturns or a shortage of component parts. Component suppliers may either reduce production or be unable to increase production to meet OEM demand, creating periodic difficulty for OEMs to react in a timely manner to increased demand for new equipment and/or increased demand for replacement components as economic conditions change. The COVID-19 pandemic and resulting supply chain disruptions have particularly limited OEMs' ability to satisfy demand. In those situations, the Company may face reduced supply levels and increased acquisition costs. An inability to continue to obtain an adequate supply of new tractors or trailers for its operations could have a material adverse effect on its business, results of operations and financial condition.
During prolonged periods of decreased tonnage levels, the Company and other trucking companies may make strategic fleet reductions, which could result in an increase in the supply of used equipment. When the supply exceeds the demand for used equipment, the general market value of used equipment decreases. Used equipment prices are also subject to substantial fluctuations based on availability of financing and commodity prices for scrap metal. A depressed market for used equipment could require the Company to trade its equipment at depressed values or to record losses on disposal or an impairment of the carrying values of its equipment that is not protected by residual value arrangements. Trades at depressed values and decreases in proceeds under equipment disposals and impairment of the carrying values of its equipment could adversely affect its results of operations and financial condition.
Seasonality and the impact of weather and other catastrophic events adversely affect the Company’s trucking operations and profitability.
The Company’s tractor productivity decreases during the winter season because inclement weather impedes operations. At the same time, operating expenses increase due to, among other things, a decline in fuel efficiency because of engine idling and harsh weather that creates higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions, which may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy its assets or the assets of its customers or otherwise adversely affect the business or financial condition of its customers, any of which could adversely affect its results or make its results more volatile.
The trucking industry is highly regulated and changes in existing laws or regulations, or liability under existing or future laws or regulations, could have a material adverse effect on its results of operations and profitability.
The Company operates in the United States pursuant to operating authority granted by the DOT. The Company, as well as its company and leased labor drivers, must also comply with governmental regulations regarding safety, equipment, environmental protection and operating methods. Examples include regulation of equipment weight, equipment dimensions, fuel emissions, driver hours-of-service, driver eligibility requirements, and on-board reporting of operations. The Company may become subject to new or more restrictive regulations relating to such matters that may require changes in its operating practices, influence the demand for transportation services or require it to incur significant additional costs. Possible changes to laws and regulations include:
From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels and emissions, which may increase the Company’s or its third party providers’ operating costs,
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require capital expenditures or adversely impact the recruitment of drivers. The Company also could lose revenue if its customers divert business from it because it has not complied with their sustainability requirements.
Safety-related evaluations and rankings under the CSA program could adversely impact the Company’s relationships with its trucking customers and its ability to maintain or grow its fleet, each of which could have a material adverse effect on its results of operations and profitability.
The Compliance, Safety and Accountability (the “CSA”) program includes compliance and enforcement initiatives designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. The FMCSA issues three categories of safety ratings: satisfactory, conditional, and unsatisfactory. As of December 31, 2020, all DOT operating authority numbers operated by the Company currently have a “satisfactory” FMCSA rating.
The Company’s CSA scores are dependent upon its safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in the CSA program or the underlying methodology used by the FMCSA to determine a carrier’s safety rating could change and, as a result, the Company’s ability to maintain an acceptable score could be adversely impacted. If the FMCSA adopts rulemakings in the future that revise the methodology used to determine a carrier’s safety rating in a manner that incorporates more stringent standards, then the Company’s CSA scores could be adversely affected. If the Company receives an unacceptable CSA score, its relationships with customers could be damaged, which could result in a loss of business or otherwise adversely affect the Company.
The CSA program affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier’s safety record. The methodology for determining a carrier’s DOT safety rating relies upon implementation of Behavioral Analysis and Safety Improvement Categories (“BASIC”) applicable to the on-road safety performance of the carrier’s drivers and certain of those rating results are provided on the FMCSA’s Carrier Safety Measurement System website. As a result, certain current and potential drivers may no longer be eligible to drive for the Company, the Company’s fleet could be ranked poorly as compared to its peer firms, and the Company’s safety rating could be adversely impacted. The occurrence of future deficiencies could affect driver recruiting and retention by causing high-quality drivers to seek employment (in the case of company drivers) or contracts (in the case of third party drivers) with other carriers, or could cause the Company’s customers to direct their business away from the Company and to carriers with better fleet safety rankings, either of which would adversely affect the Company’s results of operations and productivity. Additionally, the Company may incur greater than expected expenses in its attempts to improve its scores as a result of poor rankings. Those carriers and drivers identified under the CSA program as exhibiting poor BASIC scores are prioritized for interventions, such as warning letters and roadside investigations, either of which may adversely affect the Company’s results of operations.
The requirements of CSA could also shrink the trucking industry’s pool of drivers if drivers with unfavorable scores leave the industry. As a result, the costs to attract, train and retain qualified drivers could increase. A shortage of qualified drivers could also increase driver turnover, decrease asset utilization, limit growth and adversely impact the Company’s results of operations and profitability.
The Company is subject to environmental and worker health and safety laws and regulations that may expose it to significant costs and liabilities and have a material adverse effect on its results of operations, competitive position and financial condition.
The Company is subject to stringent and comprehensive federal, state, and local environmental and worker health and safety laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, the health and safety of its workers in conducting operations, and adverse impacts to the environment. Under certain environmental laws, the Company could be subject to strict liability, without regard to fault or legality of conduct, for costs relating to contamination at facilities the Company owns or operates or previously owned or operated and at third-party sites where the Company disposed of waste, as well as costs associated with the clean-up of releases arising from accidents involving the Company’s vehicles. The Company often operates in industrial areas, where truck terminals and other industrial activities are located, and where soil, groundwater or other forms of environmental contamination have occurred from historical or recent releases and for which the Company may incur remedial or other environmental liabilities. The Company also maintains aboveground fuel storage tanks at some of its facilities and vehicle maintenance operations at certain of its facilities. The Company’s operations involve the risks of fuel spillage or seepage into the environment, environmental damage and unauthorized hazardous material spills, releases or disposal actions, among others.
Increasing efforts to control air emissions, including greenhouse gases, may have an adverse effect on the Company. Federal and state lawmakers have implemented various climate-change initiatives and greenhouse gas regulations and may implement additional initiatives in the future, all of which could increase the cost of new tractors, impair productivity and increase the Company’s operating expenses.
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Compliance with environmental laws and regulations may also increase the price of the Company’s equipment and otherwise affect the economics of the Company’s trucking business by requiring changes in operating practices or by influencing the demand for, or the costs of providing, transportation services. For example, regulations issued by the EPA and various state agencies that require progressive reductions in exhaust emissions from diesel engines have resulted in higher prices for tractors and diesel engines and increased operating and maintenance costs. Also, in order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as the Company’s, may idle. These restrictions could force the Company to alter its drivers’ behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. The Company is also subject to potentially stringent rulemaking related to sustainability practices, including conservation of resources by decreasing fuel consumption. This increased focus on sustainability practices may result in new regulations and/or customer requirements that could adversely impact the Company’s business. Historically, the Company’s environmental compliance costs have not had a material adverse effect on its results of operations; however, there can be no assurance that such costs will not be material in the future or that future compliance will not have a material adverse effect on the Company’s business and operating results.
If the Company has operational spills or accidents or if it is found to be in violation of, or otherwise liable under, environmental or worker health or safety laws or regulations, the Company could incur significant costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of the Company’s operations in a particular area. The occurrence of any one or more of these developments could have a material adverse effect on our results of operations, competitive position and financial condition. Environmental and worker health and safety laws are becoming increasingly more stringent and there can be no assurances that compliance with, or liabilities under, existing or future environmental and worker health or safety laws or regulations will not have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Insurance and claims expenses could significantly reduce the Company’s profitability.
The Company is exposed to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation, group health and group dental. The Company has insurance coverage with third-party insurance carriers, but it assumes a significant portion of the risk associated with these claims due to its self-insured retention and deductibles, which can make its insurance and claims expense higher or more volatile. Additionally, the Company faces the risks of increasing premiums and collateral requirements and the risk of carriers or underwriters leaving the transportation sector, which may materially affect its insurance costs or make insurance more difficult to find, as well as increase its collateral requirements. The Company could experience increases in its insurance premiums in the future if it decides to increase its coverage or if its claims experience deteriorates. In addition, the Company is subject to changing conditions and pricing in the insurance marketplace and the cost or availability of various types of insurance may change dramatically in the future. If the Company’s insurance or claims expense increases, and the Company is unable to offset the increase with higher freight rates, its results of operations could be materially and adversely affected. The Company’s results of operations may also be materially and adversely affected if it experiences a claim in excess of its coverage limits, a claim for which coverage is not provided or a covered claim for which its insurance company fails to perform.
Difficulty in obtaining goods and services from the Company’s vendors and suppliers could adversely affect the Company’s business.
The Company is dependent upon its vendors and suppliers, including equipment manufacturers, for tractors, trailers and other products and materials. The Company believes that it has positive vendor and supplier relationships and is generally able to obtain favorable pricing and other terms from such parties. If the Company fails to maintain amenable relationships with its vendors and suppliers, or if its vendors and suppliers are unable to provide the products and materials the Company needs or undergo financial hardship, the Company could experience difficulty in obtaining needed goods and services, and subsequently, its business and operations could be adversely affected.
The Company’s contractual agreements with its sub-contracted operators expose it to risks that it does not face with its company drivers.
The Company relies, in part, upon independent sub-contractors to perform the services for which it contracts with customers. The Company’s reliance on sub-contractors creates numerous risks for the Company’s business.
If the Company’s sub-contractors fail to meet the Company’s contractual obligations or otherwise fail to perform in a manner consistent with the Company’s requirements, the Company may be required to utilize alternative service providers at potentially higher prices or with some degree of disruption of the services that the Company provides to customers. If the Company fails to deliver on time, if its contractual obligations are not otherwise met, or if the costs of its services increase, then the Company’s profitability and customer relationships could be harmed.
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The financial condition and operating costs of the Company’s sub-contractors are affected by conditions and events that are beyond the Company’s control and may also be beyond their control. Adverse changes in the financial condition of the Company’s sub-contractors or increases in their equipment or operating costs could cause them to seek higher revenues or to cease their business relationships with the Company. The prices the Company charges its customers could be impacted by such issues, which may in turn limit pricing flexibility with customers, resulting in fewer customer contracts and decreasing the Company’s revenues.
Sub-contractors typically use tractors, trailers and other equipment bearing the Company’s trade names and trademarks. If one of the Company’s sub-contractors is subject to negative publicity, it could reflect on the Company and have a material adverse effect on the Company’s business, brand and financial performance. Under certain laws, the Company could also be subject to allegations of liability for the activities of its sub-contractors.
Sub-contractors are third-party service providers, as compared to company drivers who are employed by the Company. As independent business owners, the Company’s sub-contractors may make business or personnel decisions that conflict with the Company’s best interests. For example, if a load is unprofitable, route distance is too far from home or personal scheduling conflicts arise, a sub-contractor may deny loads of freight from time to time. In these circumstances, the Company must be able to timely deliver the freight in order to maintain relationships with customers.
If the Company’s sub-contractors are deemed by regulators or judicial process to be employees, the Company’s business and results of operations could be adversely affected.
Tax and other regulatory authorities have in the past sought to assert that sub-contractors in the trucking industry are employees rather than independent contractors. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If the Company’s sub-contractors are determined to be its employees, it 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.
The Company is dependent on computer and communications systems, and a systems failure or data breach could cause a significant disruption to its business.
The Company’s business depends on the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure. The Company currently maintains its computer systems at multiple locations, including several of its offices and terminals and third-party data centers, along with computer equipment at each of its terminals. The Company’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, data breaches (including cyber-attacks or cyber intrusions over the internet, malware and the like) and other events generally beyond its control. Although the Company believes that it has robust information security procedures and other safeguards in place, as cyber threats continue to evolve, it may be required to expend additional resources to continue to enhance its information security measures and investigate and remediate any information security vulnerabilities. A significant cyber incident, including system failure, security breach, disruption by malware or other damage, could interrupt or delay the Company’s operations, damage its reputation, cause a loss of customers, agents or third party capacity providers, expose the Company to a risk of loss or litigation, or cause the Company to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on its results of operations and financial position.
If the Company’s employees were to unionize, the Company’s operating costs could increase and its ability to compete could be impaired.
None of the Company’s employees are currently represented under a collective bargaining agreement; however, the Company always faces the risk that its employees will try to unionize. Further, Congress or one or more states could approve legislation and/or the National Labor Relations Board (the NLRB) could render decisions or implement rule changes that could significantly affect the Company’s business and its relationship with employees, including actions that could substantially liberalize the procedures for union organization. For example, in December 2014, the NLRB implemented a final rule amending the agency’s representation-case proceedings that govern the procedures for union representation. Pursuant to this amendment, union elections can now be held within 10 to 21 days after the union requests a vote, which makes it easier for unions to successfully organize all employees, in all industries. In addition, the Company can offer no assurance that the Department of Labor will not adopt new regulations or interpret existing regulations in a manner that would favor the agenda of unions. The Company believes the applicability of the SCA to Company employees reduces the likelihood of organizational activity.
Any attempt to organize by the Company’s employees could result in increased legal and other associated costs and divert management attention, and if the Company entered into a collective bargaining agreement, the terms could negatively affect its costs, efficiency and ability to generate acceptable returns on the affected operations. In particular, the unionization of the
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Company’s employees could have a material adverse effect on its business, financial condition, results of operations, cash flows and prospects because:
Higher health care costs and labor costs could adversely affect the Company’s financial condition and results of operations.
With the passage in 2010 of the United States Patient Protection and Affordable Care Act (the PPACA), the Company is required to provide health care benefits to all full-time employees that meet certain minimum requirements of coverage and affordability, or otherwise be subject to a payment per employee based on the affordability criteria set forth in the PPACA. Many of these requirements have been phased in over a period of time, with the majority of the most impactful provisions affecting the Company having begun in the second quarter of 2015. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. The PPACA also requires individuals to obtain coverage or face individual penalties, so employees who are currently eligible but have elected not to participate in the Company’s health care plans may ultimately find it more advantageous to do so. It is also possible that by making changes or failing to make changes in the health care plans the Company offers it will have difficulty attracting and retaining employees, including drivers. The costs and other effects of these healthcare requirements may significantly increase the Company’s health care coverage costs and could materially adversely affect its financial condition and results of operations.
The COVID-19 pandemic and other similar outbreaks may have a material adverse impact on our business, financial condition, and results of operations in the future.
The continued spread and impact of novel coronavirus (COVID-19) might materially negatively impact our future results of operations and financial condition. COVID-19 has created, and any other outbreaks of similar contagious diseases or other adverse public health developments could create, significant volatility, uncertainty and economic disruption. COVID-19 or another similar outbreak could negatively impact our business in numerous ways, including, but not limited to, the following:
The extent to which the COVID-19 pandemic impacts the Company will depend on numerous evolving factors and future developments that we are not able to predict, including: the geographic scope, severity, and duration of the pandemic; governmental, business and other actions in response to the pandemic (which could include limitations on the Company’s operations or mandates to provide services in a specified manner); the impact of the pandemic on economic activity; the response of the overall economy and the financial markets; expenses we have incurred and may incur in the future in connection with our response to the pandemic; the health of and the effect on our workforce and our ability to meet staffing needs; and the potential effects on our internal controls, including those over financial reporting, as a result of changes in working environments. In 2020, services the Company provides USPS were deemed “essential” such that the Company was required to continue operations during “lockdowns” and similar restrictive measures limiting business activity generally.
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In response to the spread of COVID-19, we modified our business practices for the continued health and safety of our employees. Specifically, we implemented measures to enhance the sanitization process of the Company’s equipment and properties, increased the social distancing of our employees by working remotely where possible, and provided driving associates with personal protective equipment (PPE). We may take further actions, or be required to take further actions, that are in the best interests of our employees in the future. The implementation of health and safety practices, including federal or state vaccine mandates and similar measures, could impact our productivity and costs, which could have a material adverse impact on our business, financial condition, and results of operations. In addition, the focus on managing and mitigating the impacts of COVID-19 on our business may cause us to divert or delay the application of our resources toward existing or new initiatives or investments, which could have a material adverse impact on our results of operations.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also exacerbate many of the other risks set forth in this Annual Report on Form 10-K, including those relating to our financial performance and debt obligations. There are no comparable recent events that provide guidance as to the effect the COVID-19 global pandemic may have, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.
The Company may be adversely affected by fluctuations in the price or availability of CNG and diesel fuel.
Fuel is one of the Company’s largest operating expenses. Fuel prices fluctuate greatly due to factors beyond the Company’s control, such as political events, price and supply decisions by oil producing countries and cartels, terrorist activities, environmental laws and regulations, armed conflicts, depreciation of the dollar against other currencies, world supply and demand imbalances, and hurricanes and other natural or man-made disasters, each of which may lead to an increase in the cost of fuel. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because the Company’s operations are dependent upon fuel, significant fuel cost increases, shortages or supply disruptions could materially and adversely affect its results of operations and financial condition. Although the Company's customers generally reimburse it for fuel expenses, those reimbursements are typically at fuel prices applicable to the preceding month. As a result, those reimbursements might be for amounts lower than the Company's fuel costs as fuel prices fluctuate.
Our use of natural gas vehicles “NGVs” might not produce expected competitive advantages, and costs associated with using NGVs could exceed the related benefits that we are able to realize, both of which could adversely affect the Company’s results of operations and cash flows.
We operate NGVs because we believe our use of NGVs provides us with a competitive advantage when bidding on USPS and other freight contracts. However, higher costs associated with purchasing and repairing NGVs might exceed any benefits attributable to our use of NGVs. For example, there are a limited number of original equipment manufacturers of NGVs and the engines, fuel tanks and other equipment required to upfit a gasoline or diesel engine to run on natural gas, which can increase costs related to purchasing and repairing NGVs as well limit the supply of NGVs available to purchase and therefore our ability to add to our fleet. Also, some of the higher costs of owning and operating NGVs have historically been offset by federal and state government incentives, including those that offset part or all of the additional up-front cost to acquire NGVs or convert vehicles to run on natural gas, those that waive vehicle weight limits for NGVs, and those that offer tax credits. However, those incentives may not continue. If those government incentives are discontinued or not renewed, our operating costs could significantly increase.
In addition to potential increases in expenses and other operating costs related to our use of NGVs, if technologies are developed that either reduce the emissions in gasoline and diesel-powered vehicles or improve the operating capabilities of electric, solar, or other alternative fuel technology vehicles, the benefits of NGVs could be significantly reduced. Any such reduction could adversely affect our ability to retain existing freight contracts when they are up for renewal and receive new contracts, which would adversely impact our financial performance.
Risks Related to Our Securities
There is no established trading market for our common stock, and our stockholders may be unable to sell their shares.
There is no established market, private or public, for any of our securities and there can be no assurance that a trading market will ever develop or, if developed, that it will be maintained. There can be no assurance that the Company’s stockholders will ever be able to resell their shares.
Our common stock is subject to the “penny stock” rules of the SEC, which restrict transactions in our stock and may reduce the value of an investment in our stock.
Our common stock is currently regarded as a “penny stock” because our shares are not listed on a national stock exchange or quoted on the NASDAQ Market within the United States and our common stock has a market price less than $5.00 per share. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to
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provide a customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction. To the extent these requirements may be applicable; they will reduce the level of trading activity in the secondary market for our common stock and may severely and adversely affect the ability of broker-dealers to sell our common stock.
We are an “emerging growth company” and a "smaller reporting company," and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, as well as a smaller reporting company. For so long as we remain an emerging growth company and/or a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies or smaller reporting companies. These exemptions include:
We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, we will experience greater difficulty raising equity capital, there may be a less active trading market for our common stock, and our stock price may be more volatile.
We have never paid and do not expect to pay cash dividends on our shares.
We have never paid cash dividends, and we anticipate that any future profits received from operations will be retained for operations. We do not anticipate the payment of cash dividends on our capital stock in the foreseeable future and any decision to pay dividends will depend upon our profitability, available cash and other factors. Therefore, no assurance can be given that there will ever be any cash dividend or distribution in the future.
We may in the future issue additional shares of our common stock which would reduce investors’ ownership interests in the Company and which may dilute our share value.
Our certificate of incorporation authorizes the issuance of 110,000,000 shares consisting of: (i) 100,000,000 shares of common stock, par value $0.0001 per share; and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share. The future issuance of all or part of our remaining authorized common stock or preferred stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
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The Company’s certificate of incorporation permits the board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring the Company in a manner that might result in a premium price to the Company’s stockholders.
The Company’s board of directors, without any action by the Company’s stockholders, may amend the Company’s certificate of incorporation from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that the Company has authority to issue. The board of directors may also classify or reclassify any unissued common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of any class or series of stock. Thus, the board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of the Company’s common stock. For example, the Series A Preferred Stock authorized by the board of directors in April 2018, the Series B Preferred Stock authorized by the board of directors in March 2020, and the Series C Preferred Stock authorized by the board of directors in March 2022 all rank senior in preference and priority to the Company’s common stock with respect to dividend and liquidation rights and, generally votes with the common stock on an as converted basis on all matters presented for a vote of the holders of common stock, including directors, and entitle the holders of Series A Preferred Stock to fifteen votes for each share of Series A Preferred Stock held and the holders of Series B Preferred Stock to four votes for each share of Series B Preferred Stock held. Upon certain triggering events, the holder of our Series C preferred Stock is entitled to exercise a majority vote on all matters presented for a vote of the holders of common stock and to appoint a majority of our board of directors. The Series A Preferred stock, Series B Preferred stock, and Series C Preferred Stock, as well as any other series of preferred stock that the board of directors may authorize in the future could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of the Company’s common stock.
Item 1B. Unresolved Staff Comments.
As a smaller reporting company, the Company is not required to provide disclosure under this item.
Item 2. Properties.
Our principal corporate office is located at 2075 West Pinnacle Peak Rd. Suite 130, Phoenix, AZ 85027 and consists of 6,359 square feet of space. We occupy this office under a 65-month office lease agreement dated November 27, 2019 with monthly rental payments increasing from $12,188 to $13,248 over the initial term of the lease.
We also lease the following properties as main terminals for our trucking segment:
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We lease various additional properties throughout the United States for our trucking segment, none of which are individually material, for operating sites, remote offices, and parking facilities.
Through our subsidiaries, Titan and EAF, we also own or lease six natural gas fueling stations located in California, Texas, Arizona and Wisconsin, three of which are currently operating.
We believe all of our properties are suitable and adequate for current operating needs.
Item 3. Legal Proceedings.
On March 19, 2018, Whisler Holdings, LLC, Mitesh Kalthia, and Jean M. Noutary, the owners of the property leased by El Toro for the Company’s El Toro station, initiated a lawsuit in the Superior Court of Orange County, California, related to the lease agreement for the El Toro station. The complaint alleges breach of contract and sought money damages, costs, attorneys’ fees and other appropriate relief. On October 11, 2018, the court issued a default judgement in favor of the plaintiff in the amount of approximately $0.2 million, which the Company has fully reserved for and is included in Accrued expenses on the accompanying consolidated balance sheets at December 31, 2021 and 2020. No payments have been made to date.
The Company is involved in litigation and claims primarily arising in the normal course of business, which include claims for personal injury, employment-related, or property damage incurred in relation to the transportation of mail and freight. The Company’s insurance program for liability, physical damage, cargo damage and workers’ compensation involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts that management considers to be adequate. Based on its knowledge of the facts and the advice of outside counsel, the Company believes the resolution of claims and pending litigation will not have a material adverse effect on it, taking into account existing reserves.
Item 4. Mine Safety Disclosure.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Common Stock
Our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.0001 per share. Our common stock trades under the symbol “EVOA” on the OTC Expert Market maintained by the OTC Markets Group Inc.; however, no public market has yet developed for our common stock.
As of June 27, 2022, there were 188 holders of record of our common stock.
Dividend Policy
The Company has not paid any cash dividends since inception and does not anticipate or contemplate paying dividends in the foreseeable future. Dividends accrue on our Series A Preferred Stock and Series B Preferred Stock on a cumulative basis but are payable upon declaration of the board of directors. Nominal dividends also accrue and are payable on our Series C Preferred Stock. It is the present intention of management to utilize all available funds for the development of the Company’s business.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Item 6. Selected Financial Data.
As a smaller reporting company, the Company is not required to provide disclosure under this item.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management's discussion and analysis of financial condition and results of operations should be read together with “Business” in Part I, Item 1 of this Annual Report, as well as the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1A. “Risk Factors” and Part I “Forward-looking Statements” of this Annual Report, and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed.
Company Overview
EVO Transportation & Energy Services, Inc. is a transportation provider serving the USPS and other customers. We believe we are the second largest surface transportation company serving the USPS, with a diversified fleet of tractors, straight trucks, and other vehicles that currently operate on either diesel fuel or CNG. In certain markets, we fuel our vehicles at one of our three CNG stations that serve other customers as well. We operate from our headquarters in Phoenix, Arizona and from 10 main terminals strategically located throughout the United States.
We have grown primarily through acquisitions, and we have completed seven acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers. We have been actively integrating the acquisitions we have made under common leadership and technology and are now operating under a single brand.
Key Trends & Anticipated Future Trends
The USPS has for more than 100 years contracted with private carriers to transport mail among its processing plants and between such plants and post office locations. In 2016, the USPS began implementing a new Dynamic Route Optimization ("DRO") initiative to retool its private carrier contracting strategy. For decades, the USPS hired private carriers to transport mail over specific routes on a set schedule at fixed prices under its Highway Contract Routes ("HCR") program. The DRO initiative aims to replace fixed-price HCR contracts with rate-per-mile DRO contracts that have varying departure times, lines of travel, and mail types transported based on mail volume. By “optimizing” its routes, the USPS seeks to reduce mileage and lower its transportation costs. The DRO program has evolved since conception and now operates more like the HCR program.
Nonetheless, we believe the USPS’s distribution strategy under the DRO initiative is causing a fundamental change to its contracting activity with private carriers. Historically, HCR contracts often were awarded to smaller carriers capable of performing under a limited number of fixed-price, -route, and -cost contracts. In 2014, the USPS had contracts with more than 4,000 carriers, many servicing the same or overlapping territories. With the implementation of the DRO program, the USPS stated the goal to manage fewer relationships and reduce its number of carriers to fewer than 1,000 by 2022. The USPS has stated that it is aiming to consolidate many contracts within a defined geographical area into one contract with a single carrier. Accordingly, DRO contracts are being awarded to carriers with larger service territories that have the capacity to increase or reduce services to adjust for changes in mail volume.
We expect the USPS to continue its contract consolidation efforts in the foreseeable future. In its five-year strategic plan for fiscal years 2020 through 2024, the USPS reported it intends to continue to deploy dynamic routing technologies and processes for plant-to-plant and plant-to-post office transportation and to expand carrier relationships where best aligned to improve service reliability, lower costs, and increase capabilities. We believe the USPS’s consolidation efforts can help the Company grow organically through new contracting opportunities.
We believe that the USPS’s intent to increase its reliance on surface transportation providers will also help the Company grow organically. In its ten-year strategic plan announced in March of 2021, the USPS outlined its intent to shift a portion of its mail and package volume from air transport to surface transportation. Specifically, over the next ten years the USPS intends to shift up to 43% of its first class mail volume that is transported by air to surface transportation.
We intend to continue bidding on new and existing USPS contract opportunities as they arise. USPS contracts are bid competitively and performed in accordance with various requirements, including, but not limited to requirements under the Service Contract Act, Department of Transportation regulations (federal and state), and other applicable local and state regulations. The USPS evaluates the bids based on price, past performance, operational plans, financial resources, and the use of innovation or alternative fuels. USPS contracts typically have four-year terms, but can range from two to six years, and often are renewed with the incumbent carrier after expiration of the initial term.
In addition to organic growth, the Company expects to further increase its footprint into the transportation industry by acquiring, owning, and operating transportation companies. The Company intends to target acquisition candidates that have won contracts
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to provide trucking services for the USPS. Our CNG business complements this expansion strategy since fueling our CNG trucks at our own stations in cases where our routes are located near our CNG facilities will allow us to implement cost saving strategies that will increase profitability and increase our presence in this space.
We experienced significant growth in USPS contract revenue through acquisitions and organic growth from 2018 through 2021. We obtained a total of 237 USPS contracts pursuant to our acquisitions of Thunder Ridge on June 1, 2018, Graham on November 18, 2018, Sheehy Mail on January 2, 2019, Ursa and JB Lease on February 1, 2019, Courtlandt and Finkle on July 15, 2019, and the Ritter Companies on September 16, 2019.
Sources of Revenue
Our USPS trucking operations generates revenue for our trucking segment from transportation services under multi-year contracts with the USPS, generally on a rate per mile basis that adjusts monthly for fuel pricing indexes.
Our freight trucking operations generates revenue for our trucking segment by providing both irregular and dedicated route and cross-border transportation services of various products, goods, and materials for a diverse customer base.
Our CNG station revenue is derived predominately pursuant to contractual fuel purchase commitments. These contracts typically include a stand-ready obligation to supply natural gas daily. The CNG stations are also open to individual consumers. In addition to revenue earned from our customers, we may also earn alternative fuel tax credits through certain federal programs. These programs are generally short-term in nature and require legislation to be passed extending the term.
Results from Operations
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
Trucking Segment
Trucking revenue: The majority of Trucking revenue is derived from the USPS. The remainder of the revenue is primarily derived from corporate freight hauling. The USPS contracts are typically four years in duration with pricing varying by contract. The vast majority of the USPS contracts include a monthly fuel adjustment. Trucking revenue was $268.9 million and $228.3 million during the years ended December 31, 2021 and 2020, respectively. The $40.6 million, or 17.8%, increase in trucking revenue from 2020 to 2021 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of fuel prices increasing throughout 2021.
Other revenue: During the first quarter of 2021, the Company entered into agreements with the USPS to settle claims submitted by the Company seeking additional compensation for transportation services provided under certain DRO contracts. The Company received a total of $28.5 million related to these claims and also renegotiated the contractual rates per mile for some of its DRO contracts on a prospective basis. In addition, amounts totaling $6.3 million that were previously paid by the USPS to the Company during 2020 became subject to the terms of the settlement agreements and were recognized as a deferred gain as of December 31, 2020. The aforementioned amounts totaling $34.8 million were recognized as other revenue during the first quarter of 2021 in the consolidated statement of operations. Such amounts are for transportation services provided during 2020 and prior years, are not subject to refund, and are not contingent upon the Company providing future transportation services. Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, for further discussion.
Payroll, benefits and related: Of the Company’s approximately 1,700 employees at year-end, approximately 1,500 were drivers. Driver wages are fixed per contract with USPS and are eligible for renegotiation with USPS on a bi-annual basis. In addition to an hourly wage that is set by the Department of Labor, drivers also earn an incremental hourly rate for benefits. Payroll, benefits and related expense was $98.3 million and $105.5 million during the years ended December 31, 2021 and 2020, respectively. Despite a 17.8% increase in trucking revenue from 2020 to 2021, payroll, benefits and related expense was substantially flat from 2020 to 2021 due to a $29.9 million, or 76.9%, increase in purchased transportation expense from 2020 to 2021.
Purchased transportation: Purchased transportation represents payments to subcontracted third-party companies. These contracts are negotiated on a rate per mile basis and the subcontracting company is responsible for supplying all resources to perform the service including, but not limited to labor, equipment, fuel and associated expenses. Purchased transportation expense was $68.8 million and $38.9 million during the years ended December 31, 2021 and 2020, respectively. The $29.9 million, or 76.9%, increase in purchased transportation expense from 2020 to 2021 is primarily due to the use of subcontracted third-party company resources to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.
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Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors. Fuel expense was $28.2 million and $22.9 million during the years ended December 31, 2021 and 2020, respectively. The $5.3 million, or 23.1%, increase in fuel expense from 2020 to 2021 is primarily due to the 17.8% increase in trucking revenue combined with an increase in the average DOE fuel price to $3.28 per gallon in 2021 from $2.56 per gallon in 2020.
Equipment rent: The Company rents and leases a portion of its trucks and trailers through a combination of short-term rental arrangements and long-term lease arrangements. Equipment rent expense was $13.4 million and $10.7 million during the years ended December 31, 2021 and 2020, respectively. The $2.7 million, or 25.2%, increase in equipment rent expense from 2020 to 2021 is primarily due to the need to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.
Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet. Maintenance and supplies expense was $10.9 million and $10.2 million during the years ended December 31, 2021 and 2020, respectively. The $0.7 million, or 6.9%, increase in maintenance and supplies expense from 2020 to 2021 is primarily due to an increase in the size of the fleet combined with increased maintenance costs for the existing fleet, which the Company is in process of refreshing with newer equipment.
Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers compensation expense related to the trucking segment of the business. Insurance and claims expense was $8.9 million and $9.8 million during the years ended December 31, 2021 and 2020, respectively. The $0.9 million, or 9.2%, decrease in insurance and claims expense from 2020 to 2021 is primarily due to lower premiums and fewer significant, nonrecurring claims.
Operating supplies and expenses: Operating supplies and expenses include all other direct costs in the trucking segment. Operating supplies and expenses were $15.3 million and $16.1 million during the years ended December 31, 2021 and 2020, respectively. The $0.8 million, or 5.0%, decrease in operating supplies and expenses from 2020 to 2021 is primarily due to more cost efficient completion of certain routes.
CNG Fueling Stations Segment
CNG revenue: Revenue for the CNG stations was $0.4 million and $1.0 million during the years ended December 31, 2021 and 2020, respectively.
CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees. CNG operating expense was $0.3 million and $0.5 million during the years ended December 31, 2021 and 2020, respectively.
Impairment of long-lived assets: Long-lived assets impairment expense was $0 and $2.3 million during the years ended December 31, 2021 and 2020, respectively. Substantially all of the impairment expense during the year ended December 31, 2020 is related to the CNG fueling stations segment and is due primarily to the compression of commodity prices.
EVO Consolidated
General and administrative: General and administrative expense was $25.5 million and $18.5 million during the years ended December 31, 2021 and 2020, respectively. The $7.0 million, or 37.8%, increase in general and administrative expense from 2020 to 2021 is primarily due to the increases in compensation and benefits of $3.9 million and accounting and auditing professional fees by $2.2 million.
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Depreciation and amortization: Depreciation and amortization expense was $15.2 million and $14.8 million during the years ended December 31, 2021 and 2020, respectively. The slight increase is due to an increase in finance lease right-of-use asset amortization expense being substantially offset by a decrease in depreciation expense.
Interest expense: Interest expense was $12.7 million and $15.0 million during the years ended December 31, 2021 and 2020, respectively. The $2.3 million, or 15.3%, decrease in interest expense from 2020 to 2021 is primarily due to during the first quarter of 2021 the Company using all of the net proceeds of the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement, including capitalized interest, from $33.6 million to $16.7 million. Refer to Note 6, Debt, for a description of these activities.
Gain / loss on extinguishment of debt: The $11.0 million gain on extinguishment of debt during the year ended December 31, 2021 is due to: (1) the $10.1 million gain on extinguishment of the outstanding principal and accrued interest on the Paycheck Protection Program Loan, which was forgiven by the SBA in July 2021; (2) the $2.5 million gain on the partial extinguishment of the $4.0 million Secured Convertible Promissory Notes during March and April 2021; and (3) the $1.7 million loss on extinguishment resulting from using all of the net proceeds from the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement (including capitalized interest) from $33.6 million to $16.7 million during the first quarter of 2021. The $10.0 million loss on extinguishment of debt during the year ended December 31, 2020 is primarily due to the $10.1 million loss on extinguishment of debt relating to the Company's March 31, 2020 Waiver and Agreement to Issue Warrant (the “Waiver Agreement”) with Antara Capital and the collateral agent. The Waiver Agreement modified a certain affirmative covenant and waived another affirmative covenant in the Antara Financing Agreement and, in exchange, the Company agreed to issue to Antara Capital a warrant to purchase up to 3,250,000 shares of the Company’s Common Stock at an exercise price of $2.50 per share as an incentive. Refer to Note 6, Debt, for further discussion.
Change in fair value of embedded derivative liability: The Antara Financing Agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Refer to Note 6, Debt, and Note 9, Fair Value Measurements, for further discussion.
Change in fair value of warrant liabilities: The Company previously issued certain warrants that are not considered indexed to the Company's common stock and, therefore, are required to be classified as liabilities and measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations during each reporting period. The change in fair value of substantially all of the warrants classified as liabilities is recognized in other income (expense). Refer to Note 7, Stockholders' Deficit and Warrants, and Note 9, Fair Value Measurements, for further discussion.
Liquidity and Capital Resources
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
Changes in Liquidity
Cash and Cash Equivalents. Cash and cash equivalents were $7.3 million and $26.6 million at December 31, 2021 and 2020, respectively. The decrease is primarily attributable to cash used in financing activities during the year ended December 31, 2021, which includes the Company using the proceeds received from its borrowings under the Main Street Priority Loan Program during the fourth quarter of 2020 to pay down the aggregate principal amount due to Antara, including capitalized interest, from $33.6 million to $16.7 million during the first quarter of 2021.
Operating Activities. Net cash provided by operating activities was $23.5 million during the year ended December 31, 2021, which included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements. Net cash used in operating activities was $10.0 million during the year ended December 31, 2020. For the years ended December 31, 2021 and 2020, the Company had net income of $14.3 million and a net loss of $46.8 million, respectively.
For 2021, the net income included $18.0 million in adjustments for non-cash items and $8.7 million of cash used by changes in working capital. Non-cash items primarily consisted of $15.2 million in depreciation and amortization, $6.0 million in non-cash interest expense, non-cash lease expense of $4.0 million, the $2.5 million change in fair value of warrant liabilities, the amortization of debt discount and debt issuance costs of $1.1 million, $0.2 million loss on sale of assets, and stock-based compensation expense of $0.6 million, partially offset by a $11.0 million gain on extinguishment of debt, the $0.8 million change in fair value of embedded derivative liability, and a $0.1 million adjustment for deferred income taxes.
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For 2020, the net loss included $40.2 million in adjustments for non-cash items and $3.4 million of cash provided by changes in working capital. Non-cash items primarily consisted of $14.8 million in depreciation and amortization, $10.0 million in loss on extinguishment of debt, $5.5 million in non-cash interest expense, $2.3 million in impairment charges, non-cash lease expense of $4.5 million, amortization of debt discount and debt issuance costs of $2.1 million, $1.3 million loss on sale of assets, and stock option and warrant-based compensation expense of $0.5 million, partially offset by a $0.4 million adjustment for deferred income taxes.
Investing Activities. Net cash used in investing activities was $7.1 million for the year ended December 31, 2021. Net cash provided by investing activities was $0.9 million for the year ended December 31, 2020. The net cash used in investing activities during 2021 is primarily related to $7.4 million of capital expenditures. The net cash provided by investing activities during 2020 is related to $1.0 million proceeds from the sale of fixed assets offset by $0.1 million of capital expenditures.
Financing Activities. Net cash used in financing activities was $35.7 million for the year ended December 31, 2021 and net cash provided by financing activities was $32.5 million for the year ended December 31, 2020. The cash used in financing activities during 2021 primarily consisted of $225.8 million in payments on factoring arrangements, $24.1 million in payments of debt principal, and $5.9 million in payments on finance lease liabilities, partially offset by $214.3 million in advances from factoring receivables and $6.5 million of proceeds from the issuance of debt. The cash provided by financing activities during 2020 primarily consisted of $185.4 million in advances from factoring receivables, proceeds of $32.8 million from the issuance of debt, and $6.2 million in proceeds from the sale of common stock, preferred stock and warrants, partially offset by $180.8 million in payments on factoring arrangements, $6.8 million in payments of debt principal, and $3.6 million in payments on finance lease liabilities.
Sources of Liquidity
Our primary historical and future sources of liquidity are cash on hand ($7.3 million at December 31, 2021), the incurrence of additional indebtedness, the sale of the Company’s common stock or preferred stock, and advances under our accounts receivable factoring arrangements. However, there can be no assurance that we will be able to obtain additional financing in the future via the incurrence of additional indebtedness or the sale of the Company’s common stock or preferred stock.
Uses of Liquidity
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, and payments for fuel, maintenance and supplies, and other expenses. We also use large amounts of cash and credit for principal and interest payments, as well as operating and finance lease liabilities and capital expenditures to fund the replacement and/or growth in our tractor and trailer fleet.
Going Concern
As of December 31, 2021, we had a cash balance of $7.3 million, a working capital deficit of $93.4 million, stockholders’ deficit of $50.9 million, and material debt and lease obligations of $114.4 million, which included term loan borrowings under a financing agreement with Antara Capital. During the year ended December 31, 2021, we reported cash provided by operating activities of $23.5 million that included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements and net income of $14.3 million that included $34.8 million of pre-tax nonrecurring revenue from the USPS settlement agreements and a $11.0 million pre-tax gain on extinguishment of debt.
The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2021:
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The following significant transactions and events affecting the Company’s liquidity occurred following the year ended December 31, 2021:
As a result of these circumstances, the Company believes its existing cash, together with any positive cash flows from operations, may not be sufficient to support working capital and capital expenditure requirements for the next 12 months, and the Company may be required to seek additional financing from outside sources.
In evaluating the Company’s ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:
As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.
Management’s plans to mitigate the Company’s current conditions include:
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Notwithstanding management’s plans, there can be no assurance that the Company will be successful in its efforts to address its current liquidity and capital resource constraints. These conditions raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements within the Company’s Form 10-K. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.
Refer to Notes 1, 5, 6 and 10 to the consolidated financial statements for further information regarding our debt, factoring, and lease obligations, including the future maturities of such obligations. Refer to Note 14, Subsequent Events, to the consolidated financial statements for further information regarding changes in our debt obligations and liquidity subsequent to December 31, 2021.
Off-Balance Sheet Arrangements
Refer to Note 11, Commitments and Contingencies – Off Balance Sheet Arrangements – Captive Insurance.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses recorded during the reporting periods.
On a periodic basis we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. For further information on our significant accounting policies, refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.
We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Purchase Accounting
We are required to estimate the fair value of the assets acquired and liabilities assumed in business combinations as of the acquisition date, including identified intangible assets. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill. The fair values are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant).
The most significant fair value estimates include intangible assets (customer relationships and trade names) subject to amortization that were determined based primarily on the acquiree’s projected cash flows. The projected cash flows include various assumptions, including estimated revenue growth rates, operating margins, customer attrition rates, royalty rates, and the appropriate risk-adjusted discount rates used to discount the projected cash flows.
Goodwill
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in its Trucking reporting unit.
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Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
The impairment test process requires valuation of the reporting unit, which we determine using primarily the income, or discounted cash flows, approach. The assumptions about future cash flows and growth rates are based on the reporting unit's long-term forecast and are subject to review and approval by senior management. A reporting unit’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
During the years ended December 31, 2021 and 2020, the annual impairment test did not result in an impairment of goodwill.
Long-Lived Assets
The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available.
If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The assumptions about future cash flows and growth rates are based on the asset group’s long-term forecast and are subject to review and approval by senior management. An asset group’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
Impairment expense of $2.3 million was recorded during the year ended December 31, 2020 related to the CNG Fueling Stations asset group.
Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options
Our executive officers, directors and principal stockholders beneficially own a substantial majority of the Company’s outstanding common stock. The Company’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when the Company issues other equity instruments for which the common stock is the underlying security. We first use primarily the income, or discounted cash flows, approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) the Company's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
28
The estimated fair value of the Company’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options the Company issues.
Stock-Based Compensation
The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of subjective assumptions, including the estimated fair value of the Company’s common stock, the expected term of the award, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the award. The expected term represents the period of time the awards are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the awards, we use the simplified method to estimate the expected term for our stock-based compensation awards. Under the simplified method, the expected term of an award is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the awards. We assume no dividend yield because dividends on our common stock are not expected to be paid in the near future, which is consistent with our history of not paying dividends on our common stock.
Deferred Income Tax Assets and Liabilities
The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.
We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 31, 2021, the Company had federal and state net operating losses of approximately $44.7 million and $30.2 million, respectively. As of December 31, 2020, the Company had federal and state net operating losses of approximately $50.5 million and $30.1 million, respectively. As of December 31, 2021, the Company has approximately $3.6 million of federal net operating losses available to offset future taxable income for 20 years and will begin to expire in 2036. The remaining $41.1 million of federal net operating losses are carried forward indefinitely to offset future taxable income up to an 80% limitation of taxable income in the year of use. The state net operating losses began to expire in 2022. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.
29
Recently Issued Accounting Pronouncements
Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.
Seasonality and Inflation
Due to increased USPS volume, the Company’s revenue and activity typically increase during the last quarter of each calendar year. At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company’s assets or adversely affect the business or financial condition of customers, any of which could adversely affect the Company’s results or make the Company’s results more volatile.
To some extent, we experience seasonality with the CNG business. Natural gas vehicle fuel amounts consumed by some of our customers tend to be higher in summer months when fleet vehicles use more fuel to power their air conditioning systems. Natural gas commodity prices tend to be higher in the fall and winter months due to increased overall demand for natural gas for heating during these periods. With the USPS contracts the trucking segment experiences a significant increase in business from the last week of November through the end of December.
Since our inception, inflation has not significantly affected our operating results. However, costs for construction, repairs, maintenance, electricity and insurance are all subject to inflationary pressures, which could affect our ability to maintain our stations adequately, build new stations, expand our existing facilities or pursue additional CNG production projects, or could materially increase our operating costs.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, the Company is not required to provide disclosure under this item.
30
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page |
Report of Independent Registered Public Accounting Firm |
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
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|
|
|
|
F-4 |
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|
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|
F-5 |
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|
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|
|
F-6 |
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
EVO Transportation & Energy Services, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of EVO Transportation & Energy Services, Inc. and subsidiaries (a Delaware corporation) (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company’s current liabilities exceeded its current assets by $93.4 million and its total liabilities exceeded its total assets by $42.1 million as of December 31, 2021. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2021.
June 30, 2022
F-1
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Balance Sheets
|
|
December 31, |
|
|||||
($ in thousands, except share and per share data) |
|
2021 |
|
|
2020 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Accounts receivable - trade, net |
|
|
|
|
|
|
||
Alternative fuels tax credit receivable |
|
|
|
|
|
|
||
Due from related party |
|
|
|
|
|
|
||
Prepaids and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Non-current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets, net |
|
|
|
|
|
|
||
Finance lease right-of-use assets, net |
|
|
|
|
|
|
||
Deposits and other long-term assets |
|
|
|
|
|
|
||
Total non-current assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities, Temporary Equity and Stockholders’ Deficit |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Accrued interest - related party |
|
|
|
|
|
|
||
Embedded derivative liability |
|
|
|
|
|
|
||
Warrant liabilities |
|
|
|
|
|
|
||
Advances under factoring arrangements, current portion |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Current portion of long-term debt - related party |
|
|
|
|
|
|
||
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
Finance lease liabilities, current portion |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Non-current liabilities |
|
|
|
|
|
|
||
Advances under factoring arrangements, less current portion |
|
|
|
|
|
— |
|
|
Long-term debt, less current portion |
|
|
|
|
|
|
||
Long-term debt, less current portion - related party |
|
|
|
|
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|
||
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Finance lease liabilities, less current portion |
|
|
|
|
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|
||
Deferred tax liability |
|
|
|
|
|
|
||
Total non-current liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Temporary Equity |
|
|
|
|
|
|
||
Series A Redeemable Convertible Preferred stock, $ |
|
|
|
|
|
|
||
Series B Redeemable Convertible Preferred stock, $ |
|
|
|
|
|
|
||
Redeemable common stock, at redemption value; |
|
|
|
|
|
|
||
Stockholders’ deficit |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Common stock subscribed and not yet issued |
|
|
|
|
|
— |
|
|
Common stock issuable |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities, temporary equity, and stockholders’ deficit |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
F-2
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Operations
|
|
For the Years Ended |
|
|||||
($ in thousands, except share and per share data) |
|
2021 |
|
|
2020 |
|
||
Revenue |
|
|
|
|
|
|
||
Trucking |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
— |
|
|
CNG |
|
|
|
|
|
|
||
Total revenue |
|
|
|
|
|
|
||
Operating expenses |
|
|
|
|
|
|
||
Payroll, benefits and related |
|
|
|
|
|
|
||
Purchased transportation |
|
|
|
|
|
|
||
Fuel |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Operating supplies and expenses |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Equipment rent |
|
|
|
|
|
|
||
Maintenance and supplies |
|
|
|
|
|
|
||
Insurance and claims |
|
|
|
|
|
|
||
Impairment of long lived assets |
|
|
|
|
|
|
||
Loss on sale of fixed assets |
|
|
|
|
|
|
||
Change in fair value of contingent consideration |
|
|
|
|
|
|
||
CNG expenses |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
Other income (expense) |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Change in fair value of embedded derivative liability |
|
|
|
|
|
( |
) |
|
Change in fair value of warrant liabilities |
|
|
( |
) |
|
|
|
|
Gain (loss) on extinguishment of debt |
|
|
|
|
|
( |
) |
|
Other miscellaneous income |
|
|
|
|
|
|
||
Total other expense |
|
|
( |
) |
|
|
( |
) |
Income (loss) before income taxes |
|
|
|
|
|
( |
) |
|
(Provision) benefit for income taxes |
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Earnings per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
( |
) |
|
Diluted |
|
$ |
|
|
$ |
( |
) |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
See notes to consolidated financial statements.
F-3
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2021 and 2020
|
|
Common Stock |
|
|
Common Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
($ in thousands, except share data) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Issuable |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
||||||||
Balance - December 31, 2019 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||||
Reclassification of warrants from equity classified to liability classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Common stock issued for accrued interest |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Issuance of common stock for cash - related party |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Redemption of common stock for Series B redeemable preferred stock - related party |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of warrants as deemed dividend - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Common stock issued for Finkle contingent consideration liability |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Common stock issued for services - related party |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series A redeemable preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Series B redeemable preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance - December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Obligation to issue common stock - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of warrants to extinguish debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Common stock issued for services - related party |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series A redeemable preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Series B redeemable preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance - December 31, 2021 |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
See notes to consolidated financial statements.
F-4
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Cash Flows
|
|
For the Years Ended December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Loss on sale of assets |
|
|
|
|
|
|
||
Amortization of debt discount and debt issuance costs |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
|
|
|
|
||
Impairment of long-lived assets |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Bad debt expense |
|
|
|
|
|
|
||
Change in fair value of embedded derivative liability |
|
|
( |
) |
|
|
|
|
Change in fair value of warrant liabilities |
|
|
|
|
|
( |
) |
|
Change in fair value of contingent consideration |
|
|
|
|
|
|
||
(Gain) loss on extinguishment of debt |
|
|
( |
) |
|
|
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
||
Accounts receivable - trade |
|
|
( |
) |
|
|
( |
) |
Alternative fuels tax credit receivable |
|
|
|
|
|
|
||
Due from related party |
|
|
|
|
|
|
||
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Accrued interest - related party |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
||
Net cash provided by (used in) investing activities |
|
|
( |
) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from sale of common stock, preferred stock and warrants |
|
|
|
|
|
|
||
Proceeds from issuance of debt |
|
|
|
|
|
|
||
Payments of principal on debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of debt - related party |
|
|
|
|
|
|
||
Payments of principal on debt - related party |
|
|
( |
) |
|
|
( |
) |
Payment of prepayment penalty fees - related party |
|
|
( |
) |
|
|
|
|
Advances from factoring arrangements |
|
|
|
|
|
|
||
Payments on factoring arrangements |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
|
|
|
( |
) |
|
Payments on finance lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Net increase in cash |
|
|
( |
) |
|
|
|
|
Cash - beginning of year |
|
|
|
|
|
|
||
Cash - end of year |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Income tax paid |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Fair value of warrants and common stock issued in connection with financing arrangements |
|
$ |
|
|
$ |
|
||
Held-for-sale assets sold for noncash consideration |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
F-5
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Description of Business
EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. EVO serves the USPS with a diversified fleet of tractors, straight trucks, and other vehicles that currently operate on either diesel fuel or compressed natural gas (“CNG”). In certain markets, we fuel our vehicles at
We have grown primarily through acquisitions, and we have completed
Going Concern
As of December 31, 2021, the Company had a cash balance of $
The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2021:
F-6
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The following significant transactions and events affecting the Company’s liquidity occurred following the year ended December 31, 2021:
As a result of these circumstances, the Company believes its existing cash, together with any positive cash flows from operations, may not be sufficient to support working capital and capital expenditure requirements for the next 12 months, and the Company may be required to seek additional financing from outside sources.
In evaluating the Company’s ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:
As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.
Management’s plans to mitigate the Company’s current conditions include:
Notwithstanding management’s plans, there can be no assurance that the Company will be successful in its efforts to address its current liquidity and capital resource constraints. These conditions raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements within the Company’s Form 10-K. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.
F-7
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Refer to Notes 5, 6, and 10 to the consolidated financial statements for further information regarding the Company’s factoring, debt, and lease obligations, including the future maturities of such obligations. Refer to Note 14, Subsequent Events, to the consolidated financial statements for further information regarding changes in the Company’s debt obligations and liquidity subsequent to December 31, 2021.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to goodwill and long-lived asset valuations, purchase price allocations related to the Company’s business combinations, valuation allowance on deferred income tax assets, and the valuation of our common stock, preferred stock, warrants and stock-based awards.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts where accounts may exceed federally insured limits at times. There were
Accounts Receivable
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of the accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance. Receivable balances are written off against the allowance for doubtful accounts when, in the judgment of management, they are considered uncollectible.
Federal Alternative Fuels Tax Credit Receivable
Federal Alternative Fuels Tax Credit (“AFTC”) (formerly known as Volumetric Excise Tax Credit) receivable are the excise tax refunds to be received from the Federal Government on CNG fuel sales.
Concentrations of Credit Risk
The Company grants credit in the normal course of business to customers in the United States. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.
As of December 31, 2021 and 2020, the USPS accounted for
F-8
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense as incurred. Gains and losses on disposals of revenue equipment are included in operations as they are a normal, recurring component of our operations. Depreciation is provided utilizing the straight-line method over the following estimated useful lives.
|
|
Years |
|
|
Tractors |
|
|
|
|
Trailers |
|
|
|
|
Equipment |
|
|
|
|
Buildings |
|
|
|
|
Leasehold improvements |
|
|
|
|
Goodwill
Goodwill represents the excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed. We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in the Trucking reporting unit, which has a negative carrying value as of December 31, 2021 and 2020.
Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
The Company performed its annual goodwill impairment tests for 2021 and 2020 by completing quantitative impairment analyses of the Trucking reporting unit goodwill, and management concluded the goodwill was not impaired.
Intangible Assets
The Company's intangible assets consist of customer relationships, trade names and non-competition agreements. The Company carries these intangible assets at cost, less accumulated amortization. Amortization is recorded on a straight-line basis over the estimated useful lives of the respective assets. Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. There were
Assets Held for Sale
Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets.
F-9
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The Company recorded long-lived asset impairment charges of $
Debt Issuance Costs
Certain fees and costs incurred to obtain long-term financing are capitalized and included as a reduction in the carrying value of the related debt in the consolidated balance sheets, net of accumulated amortization. These costs are amortized to interest expense using the effective interest method over the term of the related debt.
Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options
Our executive officers, directors and principal stockholders beneficially own a substantial majority of the Company’s outstanding common stock. The Company’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when the Company issues other equity instruments for which the common stock is the underlying security. We first use primarily the income, or discounted cash flows, approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) the Company's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The estimated fair value of the Company’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options the Company issues.
Stock-Based Compensation
The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense on a straight-line basis over the awards’ vesting period and accounts for forfeitures as they occur.
Some of the Company’s currently outstanding awards provide for the acceleration of vesting of all shares underlying the award upon the occurrence of the Company completing an aggregate of at least $
F-10
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Earnings (Loss) per Share of Common Stock
Basic earnings (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible notes payable and preferred stock using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net loss per share of common stock attributable to common stockholders when their effect is dilutive.
The following table presents the computation of basic and diluted earnings (loss) per share (amounts in thousands, except share data):
|
|
For the Years Ended |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Accrued and undeclared preferred stock dividends in arrears |
|
|
( |
) |
|
|
( |
) |
Issuance of warrants as deemed dividend - related party |
|
|
— |
|
|
|
( |
) |
Net income (loss) available to common stockholders - numerator for basic EPS |
|
|
|
|
|
( |
) |
|
Effect of dilutive securities: |
|
|
|
|
|
|
||
$ |
|
|
|
|
|
— |
|
|
Redeemable Series A Preferred stock |
|
|
|
|
|
— |
|
|
Redeemable Series B Preferred stock |
|
|
|
|
|
— |
|
|
Subtotal |
|
|
|
|
|
— |
|
|
Adjusted net income (loss) available to common stockholders - numerator for diluted EPS |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Denominator for basic EPS - weighted average common shares outstanding |
|
|
|
|
|
|
||
Effect of dilutive securities: |
|
|
|
|
|
|
||
$ |
|
|
|
|
|
— |
|
|
Redeemable Series A Preferred stock |
|
|
|
|
|
— |
|
|
Redeemable Series B Preferred stock |
|
|
|
|
|
— |
|
|
Subtotal |
|
|
|
|
|
— |
|
|
Denominator for diluted EPS - adjusted weighted average common shares outstanding |
|
|
|
|
|
|
||
Basic EPS |
|
$ |
|
|
$ |
( |
) |
|
Diluted EPS |
|
$ |
|
|
$ |
( |
) |
|
F-11
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The following table presents the potentially dilutive shares that were excluded from the computation of diluted earnings (loss) per share of common stock attributable to common stockholders, because either their effect was anti-dilutive or they are contingently issuable shares that were not issuable assuming the end of the reporting period was the end of the contingency period:
|
|
For the Years Ended |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Stock options |
|
|
|
|
|
|
||
Warrants |
|
|
|
|
|
|
||
Common stock to be issued upon conversion of $ |
|
|
— |
|
|
|
|
|
Common stock to be issued upon conversion of Redeemable Series A Preferred stock |
|
|
— |
|
|
|
|
|
Common stock to be issued upon conversion of Redeemable Series B Preferred stock |
|
|
— |
|
|
|
|
|
Common stock to be issued upon conversion of Four convertible promissory notes with an |
|
|
|
|
|
|
||
Common stock and warrant to be issued for purchase of fixed assets |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Revenue Recognition
Trucking
USPS – USPS trucking operations generates revenue from transportation services under multi-year contracts with the USPS, generally on a rate per mile basis that adjusts monthly for fuel pricing indexes.
Freight
F-12
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
CNG Fueling Stations
The Company’s CNG is sold predominately pursuant to contractual commitments. These contracts typically include a stand-ready obligation to supply natural gas daily.
Management has determined that that the Company acts as the principal (rather than the agent) with respect to its Trucking and CNG operations because it is primarily responsible for fulfilling the promise to provide the specified good or service and has discretion in establishing the price for the specified good or service. Accordingly, the Company recognizes revenue on a gross basis.
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
USPS revenue |
|
$ |
|
|
$ |
|
||
Freight revenue |
|
|
|
|
|
|
||
Other revenue |
|
|
|
|
|
|
||
Total Trucking revenue |
|
$ |
|
|
$ |
|
||
United States Postal Service Settlement
On January 19, 2021, the Company and the USPS entered into a settlement agreement whereby the USPS agreed to pay approximately $
F-13
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
of operations. Such amounts are for transportation services provided during 2020 and prior years, are not subject to refund, and are not contingent upon the Company providing future transportation services.
Loss Contingencies
From time to time, we are involved in litigation, claims, contingencies and other legal matters. We record a charge equal to at least the minimum estimated liability for a loss contingency borne by the Company when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of the loss can be reasonably estimated. We expense legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.
Income Taxes
Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.
In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has
Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The
Accounting Pronouncements to be Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance changes the accounting for estimated credit losses pertaining to certain types of financial instruments including, but not limited to, trade and lease receivables. This pronouncement will be effective for fiscal years beginning after December 15, 2022. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method be applied for all convertible
F-14
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. Adoption of the standard requires using either the modified retrospective or the retrospective approach. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Topic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are modified or exchanged in order to reduce diversity in practice. The standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.
Note 2 - Balance Sheet Disclosures
Accounts receivable are summarized as follows:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Accounts receivable – trade |
|
$ |
|
|
$ |
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Property and equipment consist of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Tractors, trailers and other vehicles |
|
$ |
|
|
$ |
|
||
Equipment |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Office equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation expense for the years ended December 31, 2021 and 2020, was $
Intangible assets consist of the following:
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
($ in thousands) |
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Trade names |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Non-competition agreements |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization expense for the years ended December 31, 2021 and 2020, was $
F-15
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Future amortization expense will be approximately as follows:
Year Ending December 31, |
|
|
|
|
($ in thousands) |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Goodwill consists of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Acquisitions |
|
|
|
|
|
|
||
Impairment |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
All of the Company's goodwill is included in its Trucking reporting unit.
Accrued expenses and other current liabilities consist of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Purchased transportation |
|
$ |
|
|
$ |
|
||
Compensation, related taxes and benefits |
|
|
|
|
|
|
||
Deferred revenue |
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Note 3 - Segment Reporting
The Company uses the "management approach" to determine its operating and reportable segments. The management approach focuses on the financial information that the Company's chief operating decision maker uses to evaluate performance and allocate resources to the Company's operations. The Company’s
Trucking. The Company’s Trucking segment provides surface transportation services to the USPS and other customers.
CNG Fueling Stations. We own
The following tables present the Company’s financial information by segment. Management does not use assets by segment to evaluate performance or allocate resources. Therefore, we do not disclose assets by segment.
F-16
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
|
|
Year Ended December 31, 2021 |
|
|||||||||||||
($ in thousands) |
|
Trucking |
|
|
CNG |
|
|
Corporate |
|
|
Total |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Operating expenses, excluding depreciation, |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Depreciation and amortization |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
Operating income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
|
|
Year Ended December 31, 2020 |
|
|||||||||||||
($ in thousands) |
|
Trucking |
|
|
CNG |
|
|
Corporate |
|
|
Total |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Operating expenses, excluding depreciation, |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Depreciation and amortization |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Impairment |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Operating loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
F-17
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 4 - Related Party Transactions
Accounts Payable - Related Party
On February 15, 2019, the Company entered into an agreement to lease software technology for operations from a company owned by an individual who served as one of the Company’s officers until October 2020. Under the agreement, the Company paid a monthly fee for this technology based on the number of devices installed across the Company’s fleet. During the years ended December 31, 2021 and 2020, the Company recognized expense of approximately $
Accrued Interest - Related Party
The Company’s accrued interest - related party consists of the accrued interest payments on stockholders’ and related party debt. Accrued interest - related party was $
Off Balance Sheet Arrangements - Collateral Security Pledge Agreement
On January 2, 2019 the Company acquired all of the outstanding equity interests in Sheehy Mail Contractors, Inc. ("Sheehy"). Sheehy is engaged in the business of fulfilling government contracts for freight trucking services, as well as providing freight trucking services to non-government entities. On January 31, 2019, the Company entered into a letter agreement with a related party, SEI, to satisfy the Sheehy captive insurance security deposit requirement for 2019 (see Note 11, Commitments and Contingencies – Off Balance Sheet Arrangements – Captive Insurance). The letter agreement references a Collateral Security Pledge Agreement among SEI, Sheehy and the insurance captive (“CSPA”). Under the CSPA, SEI has pledged a total of $
Purchase of Fixed Assets
On October 15, 2019, the
For information regarding additional related-party transactions, see Note 6, Debt, Note 7, Stockholders’ Deficit and Warrants and Note 14, Subsequent Events.
Note 5 – Factoring Arrangements
For long-term contracts with credit worthy customers, the Factor may advance, at their discretion, unearned future contract amounts. Unearned advances are secured by all factored and non-factored long-term contract cash receipts, which are remitted directly to the Factor by the customer.
F-18
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Purchased accounts receivable |
|
$ |
|
|
$ |
|
||
Unearned future contract advances |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
On March 9, 2021, the Company and the Factor entered into a Letter-of-Intent and Memo of Understanding related to the application of proceeds received from the USPS in the first quarter of 2021, arising out of the settlement agreements described in Note 1, Description of Business and Significant Accounting Policies. Pursuant to the agreement, the parties agreed that the Factor would remit $
The Factor may require, at their discretion at any time, the Company to repay unearned future contract advances or purchased accounts receivable that have not been paid by the customer. Financing costs are primarily comprised of an interest rate of Prime (subject to a
F-19
Note 6 - Debt
Antara Financing Agreement
On September 16, 2019,
The Company issued a warrant for
F-20
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Since the Term Loan, Antara Warrants, and Side Letter Warrant were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and warrants as a combined arrangement. Since the Antara Warrants and Side Letter Warrants are liability classified we recorded these items at their fair value and the residual proceeds were allocated to the Term Loan. The non-lender fees incurred to establish the financing arrangement were allocated to the Term Loan and capitalized on the Company’s balance sheet as debt issuance costs, which are amortized using the effective interest method into interest expense over the term of the Term Loan.
The Term Loan was further evaluated for the existence of embedded features to be bifurcated from the amount allocated to the debt component. The Term Loan agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease in its carrying value. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $
Forbearance Agreement and Incremental Amendment to Financing Agreement
During February 2020, the Company entered into a Forbearance Agreement and Incremental Amendment to Financing Agreement (the “Incremental Amendment”), pursuant to which the Company obtained an additional $
The Company accounted for the Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the Antara Warrant 2020 and fees paid to Antara on its balance sheet as a discount on the Incremental Term Loans, which is amortized using the effective interest method into interest expense over the term of the Incremental Term Loans.
Amendment to Forbearance Agreement and Second Incremental Amendment to Financing Agreement
During March 2020, the Company entered into an amendment to forbearance agreement and second incremental amendment to financing agreement (the “Second Incremental Amendment”), pursuant to which the Company obtained an additional $
F-21
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The Company accounted for the Second Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the fees paid to Antara on its balance sheet as a discount on the Second Incremental Term Loans, which is amortized using the effective interest method into interest expense over the term of the Second Incremental Term Loans.
Waiver and Agreement to Issue Warrant
Effective March 31, 2020, the Company entered into a Waiver and Agreement to Issue Warrant (the “Waiver Agreement”) with Antara Capital and the collateral agent, which modified a certain affirmative covenant and waived another affirmative covenant in the Financing Agreement and, in exchange, the Company agreed to issue to Antara Capital a warrant to purchase up to
Second Amendment to Forbearance Agreement and Omnibus Amendment to Loan Agreement
During October 2020, the Company entered into a second amendment to forbearance agreement and omnibus amendment to loan documents (the “Omnibus Amendment”). The Omnibus Amendment (i) extended the forbearance period until December 31, 2020, (ii) joined EVO Holding Company, LLC as a borrower under the Financing Agreement, (iii) authorized the Company and/or its subsidiaries to incur unsecured indebtedness of up to $
The Omnibus Amendment contained the following additional covenants:
The Company accounted for the Omnibus Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the warrants to purchase
F-22
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
balance sheet as an additional discount on the Financing Agreement, which is amortized using the effective interest method into interest expense over the term of the Financing Agreement. The Company recognized the estimated fair value of the
Second Omnibus Amendment to Loan Documents
On December 14, 2020, the Company entered into a second omnibus amendment to loan documents (the “Second Omnibus Amendment”) to, among other things, authorize EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc., each of which is a subsidiary owned directly or indirectly by the Company, to obtain a Main Street Loan in the amount of up to $
Paycheck Protection Program Loan
On April 15, 2020, the Company obtained a loan (the “Loan”) from BOKF, N.A. (dba Bank of Oklahoma) in the amount of $
Main Street Priority Loan Program Facility with Commerce Bank of Arizona, Inc.
On December 29, 2020, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 (the “Loan Agreement”) and related documents (together with the Loan Agreement, the “Loan Documents”) for a loan in the amount of up to $
The Main Street Loan has a
F-23
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Accrued but unpaid interest on the Main Street Loan for loan year one (i.e., the period of December 14, 2020 to December 14, 2021) will be added to the principal amount of the Main Street Loan on December 14, 2021. Following the end of loan year one, interest on the Main Street Loan will be payable
The Loan Documents contain customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, cross default under other credit facilities, breaches of representations and covenants, and the occurrence of certain events. The Loan Documents also contain customary remedies for a facility of this type, exercisable following the occurrence of an event of default, including, among others, the rights to terminate the Bank’s commitment under Loan Agreement, accelerate the maturity date, foreclose the liens and security interests securing the Main Street Loan, and all other rights and remedies available under the Loan Documents and applicable law. As security for the Main Street Loan, the Borrowers granted the Bank a security interest in and to substantially all of their respective properties, and the Company guaranteed the payment and performance of the Borrower’s obligations under the Loan Documents.
In connection with the Main Street Loan, the Company contributed
Debt (with unrelated parties) consists of:
|
|
December 31, |
|
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
|
||
(a) Main Street Loan |
|
$ |
|
(1) |
$ |
|
|
||
(b) PPP Loan |
|
|
— |
|
|
|
|
|
|
(c) $1.3 million note payable |
|
|
|
|
|
|
|
||
(d) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”) |
|
|
|
|
|
|
(2) |
||
(e) $0.3 million note payable |
|
|
|
|
|
|
|
||
(f) Thunder Ridge supplier advance |
|
|
|
|
|
|
|
||
(g) Various notes payable acquired from JB Lease |
|
|
|
|
|
|
|
||
(h) $0.8 million note payable |
|
|
|
|
|
|
|
||
(i) $3.8 million note payable |
|
|
|
|
|
|
|
||
(j) Failed sale-leaseback obligations |
|
|
|
|
|
|
|
||
(k) Notes payable to three financing companies |
|
|
|
|
|
|
|
||
(l) Finkle equipment notes |
|
|
|
|
|
|
|
||
Total before debt issuance costs and debt discount |
|
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Debt discount |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt, less current portion |
|
$ |
|
|
$ |
|
|
||
(1) Classified as a current liability as of December 31, 2021 due to the existence of one or more covenant violations.
(2) Classified as a current liability as of December 31, 2020 due to the existence of one or more covenant violations.
F-24
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The $
The Company classified the $
The $
The
The Secured Convertible Notes were issued during August 2018. The Company paid debt issuance costs of $
The Secured Convertible Notes also provide that the Company will prepare and file with the Securities and Exchange Commission (“SEC”), as promptly as reasonably practical following the issuance date of the Secured Convertible Notes, but in no event later than 45 days following the issuance date, a registration statement on Form S-1 (the “Registration Statement”) covering the resale of the common stock and the warrant shares and as soon as reasonably practical thereafter to effect such registration. The Company is required to pay liquidated damages of
F-25
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
In March and April 2021, the Company entered into certain Note Purchase Agreements and Releases (the “Note Purchase Agreements”) between the Company and certain holders (the “Holders”) of the Secured Convertible Notes in the principal amount of $
The $
The various notes payable acquired from JB Lease were issued to multiple lenders with interest rates ranging from
The $
The $
Certain notes payable acquired from Sheehy were payable to a bank with interest rates of
F-26
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Notes payable to three financing companies issued in February and October 2019 and the fourth quarter of 2021 with maturity dates in
Equipment notes payable with interest rates ranging from
Debt (with related parties) consists of:
|
|
December 31, |
|
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
|
||
(a) Antara Financing Agreement |
|
$ |
|
(1) |
$ |
|
(2) |
||
(b) Four promissory notes with an aggregate principal amount of $9.5 million |
|
|
|
|
|
|
|
||
(c) $3.8 million senior promissory note |
|
|
|
(1) |
|
|
(3) |
||
(d) $4.0 million promissory note |
|
|
|
(1) |
|
|
(3) |
||
(e) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”) |
|
|
— |
|
|
|
|
(3) |
|
(f) $2.5 million promissory note - stockholder |
|
|
|
|
|
|
(3) |
||
(g) $6.4 million promissory note - stockholder |
|
|
|
|
|
|
(3) |
||
(h) Notes payable acquired from Ritter |
|
|
|
|
|
|
|
||
Total before debt issuance costs and debt discount |
|
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Debt discount |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt, less current portion - related party |
|
$ |
|
|
$ |
|
|
||
(1) Classified as a current liability as of December 31, 2021 due to the existence of one or more covenant violations.
(2) Classified as a current liability as of December 31, 2020 due to the probability of recurrence of covenant violations, other than the EBITDA-based covenant, during 2021.
(3) Classified as a current liability as of December 31, 2020 due to the existence of one or more covenant violations.
The $
The Company classified the $
F-27
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
of issuance to the date the promissory notes are due using the effective interest rate method. These promissory notes are convertible into
The $
In connection with the Financing Agreement and the Main Street Loan, amounts due under the senior promissory note were subordinated and extended to the earlier of
Also in connection with the Financing Agreement and as consideration for the subordination of the senior promissory note and the $
The $
In connection with the Financing Agreement and the Main Street Loan, amounts due under the promissory note were subordinated and extended to the earlier of
Also in connection with the Financing Agreement and as consideration for the subordination of the promissory note and the senior promissory note described above, the Company issued a warrant to the holder to purchase an aggregate of
Represents the portion of the Secured Convertible Notes issued during 2018 (discussed above) whereby the noteholder was a related party.
F-28
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
On March 17, 2021, the Company entered into a Settlement Agreement and Releases dated March 12, 2021 (the “Settlement Agreement”) between the Company, Midwest Bank (“Midwest”), Dan Thompson II, LLC (“DTII”), Antara Capital LP, Antara Capital Master Fund LP, Antara Capital GP, LLC, Antara Capital Fund GP LLC, CEOF Holdings, LP and Himanshu Gulati (collectively, “Antara Group”), and Danny R. Cuzick, individually and as Holders’ Representative on behalf of Damon R. Cuzick, Theril H. Lund, and Thomas J. Kiley (the “Individual Parties”) related to a draft complaint that Midwest and DTII sent to the Company on or about November 5, 2020 (the “Draft Complaint”), asserting claims based on breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract and unjust enrichment. The Draft Complaint related to that certain Secured Convertible Promissory Note (the “DTII Note”) in the principal amount of $
The Settlement Agreement provided for various releases among the parties and their respective representatives, successors, and assigns, including releases arising out of or related to the DTII Note, the DTII Agreements, and all facts, events and occurrences described in the Draft Complaint. The Company denied any liability regarding the Draft Complaint in connection with the Settlement Agreement. Pursuant to the Settlement Agreement, the Company agreed to purchase from Midwest, as successor to DTII, the DTII Note and the DTII Agreements. As consideration for the DTII Note and DTII Agreements, the Company paid $
The Company recognized the estimated incremental fair value related to the warrant issuance and exchange as a $
In connection with the Company's June 1, 2018 acquisition of all of the issued and outstanding shares of Thunder Ridge, this $
The $
Note payable to a related party that was assumed as a liability in the Ritter acquisition. The note has an interest rate of
F-29
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Maturities of long-term obligations are as follows:
Year Ending December 31, |
|
Related Party |
|
|
Other Notes |
|
|
Total |
|
|||
($ in thousands) |
|
|
|
|
|
|
|
|
|
|||
2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 |
|
|
|
|
|
|
(1) |
|
|
|||
2024 |
|
|
|
|
|
|
(1) |
|
|
|||
2025 |
|
|
|
|
|
|
(1) |
|
|
|||
2026 |
|
|
|
(1) |
|
— |
|
|
|
|
||
Thereafter |
|
|
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|||
Total debt issuance costs and debt discount |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
(1) Includes $
Note 7 – Stockholders’ Deficit and Warrants
Sale of Common Stock
On February 27, 2020,
Common Stock Subscribed
During the fourth quarter of 2019, the Company agreed to issue
Redeemable Common Stock
On January 2, 2019, the Company acquired all of the outstanding equity interests in Sheehy for
On April 7, 2020, the Sheehy stockholders notified the Company of their intent to exercise the redemption right, requesting $
Series A Preferred Stock
On April 13, 2018,
Dividends
Generally, the holders of the Series A Preferred Stock are entitled to receive if, when, and as declared by the board of directors, an annual non-compounding dividend, payable at the rate of
F-30
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
issued and will accrue whether or not declared and whether or not there will be funds legally available for the payment of dividends.
Accrued and unpaid dividends upon conversion will automatically be converted into shares of the Company’s common stock, par value $
Liquidation Preference
In the event of any liquidation, the holders of record of shares of Series A Preferred Stock will be entitled to receive, prior and in preference to any distributions of any assets of the Company to the holders of the common stock out of the assets of the Company legally available therefor, $
Redemption
At the option of the holder and upon written notice to the Company, the Series A Preferred Stock will be redeemable at any time after August 1, 2018, at the liquidation price at $
Voting Rights
Conversion Rights
Each share of Series A Preferred Stock will convert to one fully paid and nonassessable share of the Company’s common stock at any time at the option of the holder or the Company, subject to adjustments for stock dividends, splits, combinations and similar events. If the Company is the party electing to exercise the conversion right, it must provide
Series B Preferred Stock
On March 24, 2020,
Dividends
An annual, non-compounding dividend accrues on the Series B Preferred Stock at a rate of
F-31
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
will be funds legally available for the payment of dividends. For the avoidance of doubt, no dividends shall accrue on the Series B Preferred Stock after March 23, 2025.
Liquidation Preference
The holders of the Series B Preferred Stock are entitled to a liquidation preference of $
Redemption
The Series B Preferred Stock may be redeemed by the Company at any time at a redemption price equal to $
Voting Rights
Conversion Rights
The Series B Preferred Stock is convertible at any time at the option of the holder or the Company at an initial conversion ratio of
Redemption of Common Stock and Issuance of Series B Preferred Stock
On March 24, 2020, in accordance with the terms of the common stock subscription agreement, the Company entered into a stock redemption agreement with each of Cuzick and Wheeler, pursuant to which (i) the Company redeemed
In addition, on March 24, 2020, the Company sold a total of
Warrants
As further described in Note 6, Debt, the Company issued the following warrants in connection with the Financing Agreement:
F-32
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
As further described in Note 6, Debt, in connection with the December 2020 Main Street Loan, the Company contributed
All of the aforementioned warrants are not considered indexed to the Company's common stock and, therefore, are required to be classified as liabilities and measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations as a component of other income (expense) during each reporting period.
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|||
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
December 31, 2020: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
F-33
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
In addition to the issuance of the aforementioned liability-classified warrants, the Company has issued warrants with different terms that are considered indexed to the Company's common stock and, therefore, are classified in additional paid-in capital and are not required to be measured at fair value at each reporting date. The following table summarizes such equity-classified warrants outstanding and exercisable as of December 31, 2021 and 2020 and is inclusive of the warrants disclosed in Note 8, Stock-Based Compensation, that are equity-classified:
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|||
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
December 31, 2020: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
Note 8 – Stock-Based Compensation
Stock Options
On April 12, 2018, the Company’s board of directors approved the EVO Transportation and Energy Services, Inc. 2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which a total of
The Amended 2018 Plan provides for awards of non-statutory stock options, incentive stock options, and restricted stock awards within the meaning of Section 422 of the Internal Revenue Code and stock purchase rights to purchase shares of the Company’s common stock.
The Amended 2018 Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted and to determine whether and to what extent stock options and stock purchase rights are to be granted, the number of shares of common stock to be covered by each award, the vesting schedule of stock options and all other terms and conditions of each award. Stock options have a maximum term of
The fair value of each award is estimated on the date of grant. Stock option values are estimated using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management’s judgment. The expected option terms are calculated based on the “simplified” method for “plain vanilla” options due to our limited exercise information. The “simplified method” calculates the expected term as the average of the vesting term and the original contractual term of the options. Expected volatilities used in the valuation model are based on the selected comparable companies. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant. The valuation model assumes no dividends. There is no estimated forfeiture rate.
As described in Note 1, Description of Business and Summary of Significant Accounting Policies, some of the Company’s stock options contain a provision that provides for the acceleration of vesting upon the Company completing an aggregate of at least $
F-34
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
From February 2020 through December 2020,
During the third quarter of 2021, the Company reduced the exercise price of certain stock options previously granted to certain named executive officers of the Company and other key employees from an original exercise price of $
During the third quarter of 2021,
During the years ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense of $
The following table presents the stock option activity for the year ended December 31, 2021:
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding - December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
||
Outstanding - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31:
|
|
2021 |
|
|
2020 |
|
||
Approximate risk-free rate |
|
|
|
|
||||
Expected life (in years) |
|
|
|
|
||||
Dividend yield |
|
|
% |
|
|
% |
||
Volatility |
|
|
|
|
||||
F-35
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The weighted-average grant-date fair value of options granted was $
Warrants – Stock-Based Compensation
During the first quarter of 2021,
There was no stock-based compensation warrant activity during the year ended December 31, 2020.
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding - December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Outstanding - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Note 9 – Fair Value Measurements
Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy.
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1 ‑ Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 ‑ Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 ‑ Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
Recurring Fair Value Measurements
in its September 2019 Financing Agreement related to the mandatory prepayment feature is measured at fair value using a probability-weighted discounted cash flow model and is classified as a Level 3 liability
F-36
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
of the fair value hierarchy due to the use of significant unobservable inputs. The liability is presented as an embedded derivative liability on the consolidated balance sheets and is subject to remeasurement to fair value at the end of each reporting period, with the change in fair value recognized as a component of other expense in its consolidated statements of operations. The assumptions used in the discounted cash flow model include: (1) management's estimates of the probability and timing of future cash flows and related events; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt.
The Company's liability-classified warrants issued with an exercise price of $
The Company's liability-classified warrants issued with an exercise price greater than $
The following table provides a reconciliation for the opening and closing balances of both liabilities from December 31, 2019 to December 31, 2021:
($ in thousands) |
|
Derivative Liability |
|
|
Warrant Liabilities |
|
||
Balance at December 31, 2019 |
|
$ |
|
|
$ |
— |
|
|
Issuances |
|
|
— |
|
|
|
|
|
Net change in fair value |
|
|
|
|
|
( |
) |
|
Balance at December 31, 2020 |
|
|
|
|
|
|
||
Issuances |
|
|
— |
|
|
|
— |
|
Net change in fair value |
|
|
( |
) |
|
|
|
|
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
||
There were
The Company’s obligations under its debt agreements are carried at amortized cost. The fair value of the Company’s obligations under its convertible
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property and equipment, lease right-of-use assets, goodwill and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill. In the event an impairment is required, the asset is adjusted to fair value, using market-based assumptions.
Long Lived Assets
F-37
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
During the year ended December 31, 2020, the Company recorded a $
Our impairment testing of long-lived assets utilizes significant unobservable inputs (Level 3) to determine fair value. When quoted market prices are not available, the fair value of an asset group for long-lived asset impairment testing is determined using primarily an income approach. The income approach is based on projected future (debt-free) cash flows that are discounted to present value. The appropriate discount rate is based on the asset group’s weighted-average cost of capital that takes market participant assumptions into consideration.
Management’s cash flow forecast used in these valuations were developed in conjunction with management’s periodically updated cash flow and profitability forecasts and its resulting revised outlook for business performance, including consideration of recent performance and trends, the projected impact of the COVID-19 pandemic, strategic initiatives, and industry trends. Assumptions used in the valuations are similar to those that would be used by market participants performing an independent valuation of the asset group. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
Note 10 – Leases
The Company determines if an arrangement is a lease at inception. The Company has various obligations under operating and finance lease arrangements related primarily to the rental of trucks and trailers, maintenance and support facilities, office space, and parking yards. Many of these leases include one or more options, at the Company’s discretion, to renew and extend the agreement beyond the current lease expiration date. These options are included in the calculation of the Company’s lease liability when it becomes reasonably certain the option will be exercised. The Company’s lease agreements typically do not include options to purchase the leased property, nor do they contain material residual value guarantees or material restrictive covenants. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all leases, as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from ROU assets and lease liabilities.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, and are recognized at the lease commencement date based on the present value of the lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments; however, the implicit rate in the lease is not readily determinable for all the leases. In such cases, the Company uses an estimate of the incremental borrowing rate to discount lease payments based on information available at lease commencement.
Operating lease costs are recognized on a straight-line basis over the term of the lease within operating supplies and expenses, equipment rent expense, and general and administrative expense. Finance lease costs consist of amortization expense and interest expense. Finance lease right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term to amortization expense, and the carrying amount of the lease liability is adjusted to reflect interest expense. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in equipment rent in the period in which the obligation for those payments is incurred.
F-38
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
At December 31, 2021 and 2020, the Company had the following balances recorded in the consolidated balance sheets related to its lease arrangements:
($ in thousands) |
|
Classification |
|
December 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Right-of-use-asset |
|
$ |
|
|
$ |
|
||
Finance leases |
|
Right-of-use-asset |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, current portion |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Non-current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, less current portion |
|
|
|
|
|
|
||
Components of lease cost are as follows:
($ in thousands) |
|
Year Ended |
|
|
Year Ended |
|
||
Finance lease costs: |
|
|
|
|
|
|
||
Amortization of ROU assets |
|
$ |
|
|
$ |
|
||
Interest on lease assets |
|
|
|
|
|
|
||
Operating lease costs |
|
|
|
|
|
|
||
Short-term lease costs |
|
|
|
|
|
|
||
Variable lease costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information and non-cash activity related to our leases are as follows:
($ in thousands) |
|
Year Ended |
|
|
Year Ended |
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance lease interest expense |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Non-cash activity |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Weighted-average remaining lease term and discount rate for our leases are as follows:
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
|
|
|
|
||
Finance leases |
|
|
% |
|
|
% |
||
Operating leases |
|
|
% |
|
|
% |
||
F-39
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Maturities of lease liabilities by fiscal year for our leases are as follows:
($ in thousands) |
|
Operating |
|
|
Finance |
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
$ |
|
|
$ |
|
||
Less: Imputed interest |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
$ |
|
||
Related Party Leases
The Company has various lease obligations with related parties for trucks, office space and terminals expiring at various dates through
($ in thousands) |
|
Classification |
|
December 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Right-of-use-asset |
|
$ |
|
|
$ |
|
||
Finance leases |
|
Right-of-use-asset |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, current portion |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Non-current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, less current portion |
|
|
— |
|
|
|
|
|
Note 11 - Commitments and Contingencies
Litigation
In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.
On March 19, 2018, Whisler Holdings, LLC, Mitesh Kalthia, and Jean M. Noutary, the owners of the property leased by El Toro for the Company’s El Toro station, initiated a lawsuit in the Superior Court of Orange County, California, related to the lease agreement for the El Toro station. The complaint alleges breach of contract and sought money damages, costs, attorneys’ fees and other appropriate relief. On October 11, 2018, the court issued a default judgement in favor of the plaintiff in the amount of approximately $
Except as described above and with respect to claims covered by insurance, there are no other currently pending material legal or governmental proceedings and, as far as we are aware, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject.
PPP Loan
F-40
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
On May 8, 2020, we received a letter from the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives demanding that we return the PPP loan that we applied for and received under the CARES Act. We elected not to return the PPP loan proceeds as requested and our PPP loan was subsequently forgiven. Also, the United States Small Business Administration ("SBA") has stated that it intends to audit the PPP loan application of any company, like us, that received PPP loan proceeds of more than $
Long-Term Take-or-Pay Natural Gas Supply Contracts
At December 31, 2021 and 2020, the Company had commitments to purchase natural gas on a take-or-pay basis with
Off Balance Sheet Arrangements – Captive Insurance
Prior to the acquisition, Sheehy was self-insured for certain insurance risks with a captive insurance company under SEI. Upon the acquisition of Sheehy from SEI in January 2019, the Company became a member of the captive and Sheehy was transferred to the EVO member account. As a member of the captive, the Company is required to maintain a collateral deposit. The collateral deposit requirement is calculated at the renewal date of March 1st each year and is based on the prior three years of premium experience. The collateral deposit may be satisfied with either cash and/or investment collateral held in the captive or with a letter of credit. SEI agreed to pledge approximately $
Letter of Credit
EAF entered into an incremental natural gas facilities agreement dated February 24, 2014 with Southwest Gas Corporation (“Southwest Gas”). Under the terms of the agreement, Southwest Gas agreed to install a pipeline connecting an EAF CNG station to its existing infrastructure at
Contingent Consideration
On
F-41
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 12 - Employee Benefit Plan
Note 13 - Income Taxes
Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.
In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than
Income tax provision (benefit) reported in the consolidated statements of operations is comprised of the following:
|
|
For the Years Ended |
|
|||||
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Current provision (benefit) |
|
|
|
|
|
|
||
Federal |
|
$ |
|
|
$ |
— |
|
|
State, net of state tax credits |
|
|
|
|
|
|
||
Total current provision (benefit) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred provision (benefit) |
|
|
|
|
|
|
||
Federal |
|
|
|
|
|
( |
) |
|
State and local |
|
|
|
|
|
( |
) |
|
Valuation allowance |
|
|
( |
) |
|
|
|
|
Total deferred provision (benefit) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Total income tax provision (benefit) |
|
$ |
|
|
$ |
|
||
F-42
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income (loss), compared to the income tax provision (benefit) in the consolidated statements of operations:
|
|
For the Years Ended |
|
|
|
|||||||||
|
|
December 31, |
|
|
|
|||||||||
($ in thousands) |
|
2021 |
|
|
|
|
2020 |
|
|
|
||||
Expected federal tax (benefit) |
|
$ |
|
|
% |
|
$ |
( |
) |
|
% |
|||
|
|
|
|
|
|
|
|
|
|
|
||||
State tax provision, net of federal benefit |
|
|
|
|
% |
|
|
( |
) |
|
% |
|||
Prior year true up |
|
|
|
|
% |
|
|
( |
) |
|
% |
|||
Change in tax rate |
|
|
— |
|
|
% |
|
|
|
|
- |
% |
||
Effect of increase in valuation allowance |
|
|
( |
) |
|
- |
% |
|
|
|
|
- |
% |
|
Change in fair value of warrant liability |
|
|
|
|
% |
|
|
( |
) |
|
% |
|||
PPP loan forgiveness |
|
|
( |
) |
|
- |
% |
|
|
— |
|
|
% |
|
Interest |
|
|
|
|
% |
|
|
— |
|
|
% |
|||
Other permanent differences |
|
|
|
|
% |
|
|
|
|
- |
% |
|||
Provision (benefit) |
|
$ |
|
|
% |
|
$ |
|
|
- |
% |
|||
The effective tax rates for the income tax provision for the years ended December 31, 2021 and 2020 are
The following are the components of the Company’s net deferred taxes for federal and state income taxes:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2021 |
|
|
2020 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Accrued expenses and other |
|
$ |
|
|
$ |
|
||
Advancement income |
|
|
— |
|
|
|
|
|
Debt discount |
|
|
|
|
|
|
||
Interest |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Lease liabilities |
|
|
|
|
|
|
||
Loss carryforwards |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
Lease assets |
|
|
( |
) |
|
|
( |
) |
Fixed assets and intangible assets |
|
|
( |
) |
|
|
( |
) |
Total deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Net non-current deferred tax liability |
|
$ |
( |
) |
|
$ |
( |
) |
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the lack of sustained profitability in recent years. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.
On the basis of this evaluation, as of December 31, 2021 and 2020, a valuation allowance of $
F-43
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
of which would be an increase in reported net income. The amount of any such tax benefit associated with release of the Company's valuation allowance in a particular reporting period may be material.
As of December 31, 2021, the Company had federal and state net operating losses of approximately $
For the years ended December 31, 2021 and 2020, the Company had
Note 14 - Subsequent Events
Bridge Loan
On March 11, 2022, the Company and certain subsidiary guarantors of the Company entered into a Senior Secured Loan and Executive Loan Agreement (the "Bridge Loan Agreement") with Antara Capital Master Fund LP ("Antara") and each of Thomas J. Abood, the Company's chief executive officer, Damon R. Cuzick, the Company's chief operating officer, Bridgewest Growth Fund LLC, an entity affiliated with Billy (Trey) Peck Jr., the Company's executive vice president - business development, and Batuta Capital Advisors LLC ("Batuta" and together with Mr. Abood, Mr. Cuzick, and Bridgewest Growth Fund LLC, the "Executive Lenders"), an entity affiliated with Alexandre Zyngier, a member of the Company's board of directors.
Pursuant to the Loan Agreement, the Company borrowed $
In the event of a default, the lenders have the right to terminate their obligations under the Bridge Loan Agreement and to accelerate the payment on any unpaid principal amount of all outstanding loans. As defined in the Bridge Loan Agreement, events of default include, but are not limited to: failure by the Company to pay any amount due under the Bridge Loan Agreement when due; default by the Company or any of its subsidiaries for failure to pay amounts due and payable under any indebtedness in an amount in excess of $
In connection with the Bridge Loan Agreement, and as a condition to the Company drawing the Bridge Loan pursuant to the Bridge Loan Agreement, on March 11, 2022, the Company granted Antara
On March 11, 2022, and pursuant to the Bridge Loan Agreement, the Company filed a Certificate of Designations of Series C Non-Participating Preferred Stock (the "Certificate of Designations") with the Secretary of State of the State of Delaware, which authorizes the Company to issue up to
F-44
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
In addition, the Certificate of Designations grants the Series C Majority the exclusive right, voting separately as a class, to elect or appoint (i) prior to a Bridge Loan Triggering Event,
The Series C Majority may elect to waive or decline to exercise any or all voting or Board-appointment rights granted under the Certificate of Designations, in whole or in part, on either a revocable or irrevocable basis.
On March 18, 2022, and pursuant to the Bridge Loan Agreement, the Board adopted amended and restated bylaws of the Company (the "A&R Bylaws"). The A&R Bylaws amend the Company's prior bylaws to conform to the Certificate of Designations with respect to the voting and procedural mechanisms applicable to the Series C Preferred on Shareholder Matters, and also to conform titles of Company officers to the titles previously approved by the Board.
On May 31, 2022, the Company, Antara, and the Executive Lenders entered into a Loan Extension Agreement (the "Extension Agreement") pursuant to which the maturity date of the Bridge Loan was extended from
Amendments to and Conversion of Secured Convertible Promissory Notes
On March 11, 2022, the Company entered into amendments (the "Convertible Note Amendments") to certain secured convertible promissory notes (the "Convertible Notes") dated February 1, 2017 with Danny Cuzick, individually and as holders representative on behalf of each of Damon Cuzick, Thomas Kiley, and Theril Lund. The Convertible Note Amendments permitted the holder of each note and Danny Cuzick in his capacity as holders representative to convert the full amount of outstanding principal and accrued interest, without limitation related to trading volume of the Company's common stock, into either shares of common stock of the Company or warrants to purchase shares of common stock of the company at an exercise price of $
F-45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Dismissal of Marcum and appointment of Grant Thornton LLP
As previously disclosed in a current report filed with the SEC on September 8, 2021, the audit committee of the Company’s board of directors approved the dismissal of Marcum and approved the appointment of Grant Thornton LLP (“Grant Thornton”) as the Company’s new independent registered public accounting firm.
During the two most recent fiscal years ended December 31, 2020 and 2019, and through the date of Marcum’s dismissal, (1) there were no disagreements between the Company and Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Marcum would have caused them to make reference thereto in their reports on the Company’s financial statements for such years and (2) there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K except as previously disclosed.
During the two most recent fiscal years ended December 31, 2020 and 2019, and through the subsequent interim period preceding Grant Thornton's engagement, the Company did not consult with Grant Thornton on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and Grant Thornton did not provide either a written report or oral advice to the Company that Grant Thornton concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its principal executive and principal financial officers, is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act rules 13a-15 and 15d-15, the Company performed an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive and financial officers regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, the Company’s management, including its principal executive and financial officers have concluded that our disclosure controls and procedures were not effective as of December 31, 2021, due to the material weaknesses in our internal control over financial reporting described below in “Evaluation of Internal Controls and Procedures” including limitations in management’s evaluation of internal controls as a result of insufficient documentation of internal controls under the standards of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K, when read with the notes thereto, present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Evaluation of Internal Controls and Procedures
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
32
The Company’s internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on the Company’s evaluation, it identified material weaknesses in internal control over financial reporting described below, and management concluded that our internal control over financial reporting was not effective as described below. The Company also took steps seeking to mitigate and remediate these material weaknesses as described under “Management’s Remediation Plan and Status of Remediation Efforts” below.
The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses were:
Changes in Internal Controls over Financial Reporting
There have been no significant changes to the Company’s internal controls over financial reporting that occurred during our last fiscal quarter of the year ended December 31, 2021, that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting. Our management has implemented or intends to implement, as applicable, the remediation steps discussed below to address the material weaknesses and to improve our internal control over financial reporting.
33
Management’s Remediation Plan and Status of Remediation Efforts
In light of the control deficiencies identified at December 31, 2021, and described in the section titled “Evaluation of Internal Controls and Procedures,” we have designed and either have implemented or plan to implement the specific remediation initiatives described below:
While the Company believes the steps taken to date and those planned for implementation will improve the effectiveness of its internal control over financial reporting, it has not completed all remediation efforts identified above. Accordingly, the Company has and will continue to perform additional procedures and employ additional tools and resources it determines necessary to ensure that its consolidated financial statements are fairly stated in all material respects.
The Company has engaged third party advisors to undertake, under management’s supervision, a comprehensive examination and analysis of the facts and circumstances giving rise to the material weaknesses as they relate to control activities. The Company will make further changes and improve its internal control over financial reporting following management’s review and development of the complete remediation plan that is responsive to the findings of the examination.
The Company believes the remediation measures will strengthen the Company’s internal control over financial reporting and remediate the material weaknesses identified. Management will continue to monitor the effectiveness of these remediation measures and will make changes and take other actions that are appropriate given the circumstances.
Item 9B. Other Information.
None.
34
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
(a) Identification of Directors and Executive Officers.
The following table sets forth certain information regarding the Company’s officers and directors as of December 31, 2020. All ages are stated as of May 31, 2022.
Name |
|
Age |
|
|
Position |
|
Thomas J. Abood |
|
|
59 |
|
|
Chief Executive Officer, Director |
Eugene Putnam |
|
|
62 |
|
|
Chief Financial Officer |
Damon R. Cuzick |
|
|
42 |
|
|
Chief Operating Officer |
R. Scott Wheeler |
|
|
65 |
|
|
Chief Administrative Officer |
Billy (Trey) Peck Jr. |
|
|
38 |
|
|
Executive Vice President |
Raj Kapur |
|
|
63 |
|
|
SVP and Chief Accounting Officer |
Patrick Seul |
|
|
38 |
|
|
Executive Vice President, General Counsel and Secretary |
Scott M. Honour |
|
|
55 |
|
|
Director |
Raph Posner |
|
|
41 |
|
|
Director |
Scott C. Smith |
|
|
63 |
|
|
Director |
Mark Anderson |
|
|
60 |
|
|
Director |
Alexandre Zyngier |
|
|
52 |
|
|
Chairman of the Board |
Anthony Coelho |
|
|
80 |
|
|
Director |
Michael Bayles |
|
|
38 |
|
|
Director |
Chetan Bansal |
|
|
48 |
|
|
Director |
Thomas J. Abood. Mr. Abood has served as Chief Executive Officer of the Company since September 20, 2019, has served as a director of the Company since November 2016 and as the chair of our nominating committee since February 7, 2019. From 1994 to 2014, Mr. Abood was an owner and Executive Vice President, General Counsel and Secretary of Dougherty Financial Group LLC. His principal responsibilities included leadership and management of DFG’s investment advisory business division (2004-2014) and supervision of its legal, compliance and human resources departments. Prior to 1994, Mr. Abood was an associate at the law firm of Skadden, Arps, Slate, Meagher & Flom. Mr. Abood is a member of the Board of Directors and chair of the Audit Committee of NELSON Worldwide, LLC, a national architectural, interior design and engineering firm, a trustee of the Board of Trustees of SBH Funds, a family of investment companies sponsored by the investment advisory firm Segall Bryant and Hamill and a director and chair of the compensation committee of Perception Capital Corp II, a special purpose acquisition corporation. Mr. Abood is past Chair (2018 – 2020) and member (2011 – 2021) of the Board of the Directors of MacPhail Center for Music, past Chair (2013 – 2021) and member (2011 – 2021) of the Archdiocesan Finance Council of the Archdiocese of St. Paul and Minneapolis, past Chair (2020) and member (2016 – present) of the Board of Directors of Citation Jet Pilots, Inc., past Chair (2014 – 2016) and member (2001 – 2017) of the Board of Governors of the University of St. Thomas School of Law, past Chair (2008 -2010) and member (2000 – 2010) of the Board of Directors of the Minnesota Children’s Museum and past President (2016) and Governor (2009 -2011, 2015 – 2017), The Minikahda Club. Mr. Abood received his JD degree from Georgetown University Law Center, cum laude and his BBA from University of Notre Dame, magna cum laude. We believe that Mr. Abood’s legal and management experience described above, his significant investing experience and his experience serving on various boards make him well qualified to serve as our chief executive officer and as a member of our board of directors.
Eugene Putnam. Mr. Putnam has served as the Company’s chief financial officer since July 22, 2019. Prior to joining the Company, Mr. Putnam served as an industry advisor to a private equity firm from March 2017 through September 2017 and prior to that, served as President and Chief Financial Officer of Universal Technical Institute, Inc. (“UTI”) from March 2011 until November 2016. Mr. Putnam served as Executive Vice President and Chief Financial Officer of UTI from July 2008 to March 2011 and as UTI’s interim Chief Financial Officer from January 2008 to July 2008. From June 2005 to May 2007, Mr. Putnam served as Executive Vice President and Chief Financial Officer of Aegis Mortgage Corporation. From July 2003 to June 2005, Mr. Putnam served as President of Coastal Securities L.P., and from March 2001 to March 2003, Mr. Putnam served as Executive Vice President and Chief Financial Officer of Sterling Bancshares, Inc. Mr. Putnam also spent 14 years as Director of Investor Relations and in various corporate finance positions with SunTrust Banks, Inc. Mr. Putnam received his MBA from the University of North Carolina at Chapel Hill and holds a BS in Economics from the University of California, Los Angeles.
35
Damon R. Cuzick. Mr. Cuzick has served as chief operating officer of the Company since October 2020, a role he previously held from February 2017 to September 2018. Mr. Cuzick previously served as president of the Company from September 2018 to October 2020. Mr. Cuzick has been an active businessman and company owner since 2004. In 2004, Mr. Cuzick co-founded both March Development Company, a commercial real estate development company focused on retail shopping centers and office buildings in Phoenix, Arizona, and Cuzick Van Pelt Commercial Group, a related brokerage company. The companies combined for over $40 million in annual sales, and in 2007 merged into Don Bennett Partners, another real estate development company. Mr. Cuzick continued working at Don Bennett Partners until he sold his interest in that company in 2008. From 2008 to 2015, Mr. Cuzick worked with his father, Danny Cuzick, at Freightliner of Arizona, a class 8 truck dealership. Mr. Cuzick’s responsibilities at Freightliner of Arizona included the design, development and construction of a new state-of-the-art corporate headquarters in Tolleson, Arizona and the acquisition of a competing dealership in Tucson, Arizona. In 2012, Mr. Cuzick, his father and two additional partners formed EVO CNG, LLC, a company dedicated to building compressed natural gas fueling stations for the class 8 trucking industry. Mr. Cuzick has acted as the Chief Operating Officer of EVO CNG since its inception, overseeing the development of six CNG stations in Texas, Arizona, California and Wisconsin, as well as customer service, sales and day-to-day operations.
R. Scott Wheeler. Scott Wheeler served as a director of the Company from August 2018 and as a member of our compensation committee since February 7, 2019 until May 2022. Mr. Wheeler has also served as the chief administrative officer of the Company since January 2021. From January 2018 to September 2019, he served as the president of Daseke, Inc. (NASDAQ: DSKE), the largest provider of flatbed and specialized transportation in North America, and he served as a member of the Board of Directors of Daseke from December 2016 to September 2019. Previously, he served as the Chief Financial Officer and Executive Vice President of Daseke from February 2015 to January 2018 and as Daseke’s Senior Vice President and Corporate Chief Financial Officer from August 2012 to February 2015. Mr. Wheeler has extensive expertise in building and managing high growth organizations, as he was instrumental in growing Daseke from $50 million in revenue to a $1.7 billion run rate. He has also served on several boards, including Compass Bank-Dallas, and was named the Dallas Business Journals CFO of the year in 2015.
Billy (Trey) Peck Jr. Mr. Peck has served as the Company’s executive vice president of business and corporate development since October 2020, a role he previously held from June 2018 until March 2020. Mr. Peck previously served as chief operating officer of the Company from March 2020 to October 2020. In his role as executive vice president of business and corporate development, he led the Company’s development of new and existing contracts with the USPS. He also assisted in initial set up of new service sites for new contract arrangements with the USPS. Mr. Peck previously served as chief executive officer of Thunder Ridge Transport, Inc. (“Thunder Ridge”), a transportation company engaged in the business of fulfilling government and corporate contracts for freight trucking services. Under Mr. Peck’s leadership, Thunder Ridge’s annual revenues grew from approximately $2.5 million in 2011 to approximately $50 million in 2018. Mr. Peck’s background in leading and operating a transportation business, particularly one that contracts with the USPS, supports his current position. Mr. Peck has an executive Master of Business Administration degree from Nova Southeastern University and a Bachelor of Arts in Business Administration from Flagler College.
Patrick Seul. Mr. Seul has served as EVO’s executive vice president, general counsel, and secretary since June 2021. Prior to joining EVO, Patrick was a shareholder in the corporate and securities group of Fredrikson & Byron, P.A. in Minneapolis, where he worked from May 2016 to June 2021. From 2010 to April 2016, he practiced as a corporate attorney in Chicago. Patrick received his JD from the Northwestern Pritzker School of Law, cum laude, and his BA from the University of Notre Dame.
Raj Kapur. Mr. Kapur has served as the Company’s SVP and Chief Accounting Officer since May 2022. Raj has over twenty-five years of accounting and finance experience in high technology, manufacturing ,and software organizations such as MGC Pure Chemicals, Zounds, Gould Electronics, and Honeywell. Prior to joining the Company, Raj served as corporate controller at MGC Pure Chemicals since March 2019. Previously, Raj served as corporate controller then as chief financial officer of Zounds Hearing Inc. from April 2007 until February 2019. He acquired his Bachelor of Science in Accounting from Arizona State University and a Masters in Business Administration from the University of Phoenix. Raj is a Certified Public Accountant in Arizona.
Scott M. Honour. Mr. Honour has served as a director of the Company since November 2016, as chairman of our board of directors from October 2020 until June 2020 and as a member of our audit committee since February 2019, and is a Co-founder of Titan, predecessor of the Company. Mr. Honour also serves as Managing Partner of Northern Pacific Group, a Wayzata, Minnesota based private equity firm. Previously, from 2002 to 2012, he was Senior Managing Director of The Gores Group, a
36
Los Angeles based private equity firm with $4 billion of capital under management. Prior to that, Mr. Honour was a Managing Director at UBS Investment Bank from 2000 to 2002 and an investment banker at DLJ from 1991 to 2000. He began his career at Trammell Crow Company in 1988. Mr. Honour also co-founded YapStone, Inc. in 1999. Mr. Honour serves as chairperson of the board of directors of Sustainable Opportunities Acquisition Corp. Mr. Honour holds a BS in business administration and a BA in economics from Pepperdine University and an MBA in finance and marketing from the Wharton School of the University of Pennsylvania. We believe that Mr. Honour’s significant experience in transaction planning and private equity investments make him well qualified to serve as a member of our board of directors.
Scott C. Smith. Scott Smith has served as a director of the Company since August 2018 and as the chair of our compensation committee since February 2019 and has an extensive background as a seasoned HR executive with over 30 years of experience in managing human resources for private and publicly traded companies. He brings a proven track record of aligning HR functions with business strategies to drive growth. Mr. Smith currently serves as the managing partner for TowerHunter, a boutique executive search company he co-founded with notable clients in the healthcare, insurance, financial services, and logistics sectors. In addition, he is a managing partner for Fahrenheit Group, a financial services and human resources consulting and professional services firm headquartered in Richmond, Va. He is currently a board member for the Greater Phoenix Chamber of Commerce. Previously, Mr. Smith served in senior HR positions at Washington Inventory Service, VLSI Technology and American Express as well as the co-president of the Arizona Human Resources Executive Forum. We believe that Mr. Smith’s significant human resources and general business experience make him well qualified to serve as a member of our board of directors.
Mark Anderson. Mark Anderson has served as a director of the Company since October 2018 and as the chair of our audit committee since February 2019. Mr. Anderson brings over 30 years of experience in audit, accounting and finance with professional designations as a Certified Public Accountant and a Chartered Global Management Accountant. He is currently the Chief Financial Officer of Delta Dental of Arizona, a $300 million dental service corporation that is part of the $20 billion Delta Dental Plans Association. He has led the company through the last 17 years of significant growth as the finance leader with additional responsibilities that include information technology, risk management, human resources and facilities management. Mr. Anderson has also worked closely with the CEO and other executives on strategic planning and business development initiatives. Mr. Anderson also serves as staff for the Audit/Investment Committee and the Finance Committee.
His previous experience includes over 10 years at UnitedHealth Group starting out as the controller for Lifemark/Evercare and culminating in his role as Vice President of Finance for the Ovations Division. His other roles at UHG included Director of Business Development over projects in Missouri, Michigan and Hawaii, and Executive Director over Arizona Health Concepts, a Medicaid health plan based in Arizona.
Prior to joining UHG, Mr. Anderson worked for over 6 years as an associate and senior accountant for CBIZ/Mayer Hoffman McCann (formerly Miller Wagner & Co, CPA’s), a regional CPA firm in Phoenix, Arizona where he gained experience in audit, corporate and individual tax, and business consulting.
Mr. Anderson has served on several boards as audit committee chair and board chair including the Arizona Society of Certified Public Accountants, Southwest Human Development, and the Arizona Coyotes Foundation.
Mr. Anderson holds a B.S. in Accounting from Brigham Young University and is a Certified Public Accountant in the state of Arizona. He and his wife have lived in Phoenix, Arizona for over 32 years and are the parents of four children and three grandchildren. We believe that Mr. Anderson’s significant accounting expertise and his experience serving as a board member and audit committee member for companies in a variety of industries make him well qualified to serve as a member of our board of directors.
Alexandre Zyngier. Alexandre Zyngier has served as a director of the Company since December 2020, as chairman of our board of directors since June 2022, and as a member of our audit committee since April 2021. Mr. Zyngier has been the Managing Director of Batuta Advisors since founding it in August 2013. The firm pursues high return investment and advisory opportunities in the distressed and turnaround sectors. Mr. Zyngier has over 20 years of investment, strategy, and operating experience. He has served as a director of Atari SA since 2014 and as a director of Schmitt Industries since 2021. Mr. Zyngier also previously served as a director of Torchlight Energy Resources Inc. from 2016 until 2021, as a director of Applied Minerals Inc. from 2017 until 2019, and as a director of AudioEye, Inc. from 2015 until 2020. Before starting Batuta Advisors, Mr. Zyngier was a portfolio manager at Alden Global Capital from February 2009 until August 2013, investing in public and private opportunities. He has also worked as a portfolio manager at Goldman Sachs & Co. and Deutsche Bank Co. Additionally, he
37
was a strategy consultant at McKinsey & Company and a technical brand manager at Procter & Gamble. Mr. Zyngier holds an MBA in Finance and Accounting from the University of Chicago and a BS in Chemical Engineering from UNICAMP in Brazil.
Anthony Coelho. Tony Coelho has served as a director of the Company since May 2021 and as a member of our compensation committee since August 2021. Mr. Coelho was a prominent member of the U.S. House of Representatives from 1978 – 1989. While a member of the House of Representatives, he authored the Americans with Disabilities Act, widely recognized as one of the most important pieces of civil rights legislation in the last 40 years. After leaving Congress, he joined Wertheim Schroder & Company, an investment banking firm in New York, and became president and CEO of Wertheim Schroder Financial Services from 1990 to 1995. From 1995 to 1997, he served as chairman and CEO of an education and training technology company that he established and subsequently sold. In 1998, President Clinton appointed him as the U.S. Commissioner General for the World’s Fair in Lisbon, Portugal. He served as general chairman of the presidential campaign of former Vice President Al Gore from April 1999 until June 2000. Since 1997, Mr. Coelho has worked independently as a business and political consultant. Mr. Coelho also served as chairman of the President’s Committee on Employment of People with Disabilities from 1994 to 2001. He previously served as chairman of the board of the Epilepsy Foundation and chairman of the board for the American Association for People with Disabilities. Mr. Coelho has served on a number of boards, including those of Circus Circus, Warren Resources, Kaiser Resources and Cyberonics. Since 1991, he has been a member of the board of Service Corporation International (NYSE: SCI), a publicly traded company, as its lead independent director. Mr. Coelho has been a member of the board of directors of Esquire Financial Holdings, Inc. (NASDAQ: ESQ), a publicly traded company, since 2010 and has served as chairman of its board since August 2018. He has also served as a director of AudioEye, Inc. (NASDAQ: AEYE), a publicly traded company, since 2014 and serves as chair of its nominating and corporate governance committee and on its compensation and audit committees. Mr. Coelho earned a Bachelor of Arts degree in Political Science from Loyola Marymount University in 1964. We believe that Mr. Coelho’s political acumen and contacts, as well as his extensive executive, financial and business experience, qualify him to serve as a director.
Michael Bayles. Michael Bayles has served as a director of the Company and as a member of our compensation committee, audit committee, and nominating and corporate governance committee since March 202. He previously served as restructuring advisor to the Company from May 2020 to October 2020 and as chief restructuring officer and a member of the Board from October 2020 until his resignation in March 2021. Mr. Bayles has served as vice president of investments of Slam Corp, a special purpose acquisition company, since March 2021. Mr. Bayles previously served as an analyst at Antara Capital from May 2018 until May 2020, and as a credit analyst at GLG Partners from May 2016 to December 2017. Prior to GLG Partners, Mr. Bayles was vice president at Avenue Capital Group from September 2008 to April 2016. Mr. Bayles has a bachelor’s degree in economics from the Wharton School of the University of Pennsylvania. We believe that Mr. Bayles’s significant restructuring and credit analysis experience make him well qualified to serve as a member of the Board.
Chetan Bansal. Chetan Bansal has served as Partner and Co-Head of Investment Research at Antara since March 2020, and has served as Chief Development Officer and as a member of the board of directors of Slam Corp. since February 2021. Mr. Bansal has 25 years of experience as a private market investor. Mr. Bansal specializes in providing capital and advice to early-stage, hyper-growth companies in varying capacities, including as a board member, minority owner and strategic investor. In addition, Mr. Bansal has significant experience investing in public market special situations, bankruptcies, stressed high-yield credit and levered equities. Prior to Antara, Mr. Bansal was Managing Director and Head of Illiquid Credit Solutions Group at BTIG from January 2019 to February 2020. Before joining BTIG, Mr. Bansal managed his family office from December 2017 to December 2018. Prior to that, Mr. Bansal co-managed a proprietary investment portfolio at Jefferies from January 2015 to September 2017. Prior to Jefferies, Mr. Bansal was a Director of Research at Citigroup, in its Distressed Debt Trading Group, from August 2008 to April 2012. Prior to Citigroup, Mr. Bansal spent six years in Silicon Valley, including four years at Cisco Systems in the Business Development Group from September 2001 to 2005, where he was charged with venture investments and strategic acquisitions. During his time at Crown Capital Partners from 1997 to 1999, Mr. Bansal wrote the business plan for Fresh Direct, a successful online grocer based in New York City, and sat on the boards of Cisco Systems Strategic India Counsel from 2003 to 2004, and board observer seats at Plaxo Inc from 2004 to 2005, which was acquired in 2008 by Comcast and CXO Systems from 2003 to 2004, which was acquired in 2004 by Cisco Systems. Mr. Bansal’s growth-stage equity investments include Via-On-Demand-Transit, an advanced micro-mobility company and SentinelOne, a cyber-security technology company. Mr. Bansal earned a Masters in Business Administration from the University of Chicago, Booth School of Business and a Bachelor of Arts in Computer Science from Northwestern University. The Company believes that Mr. Bansal’s significant investing and special situations experience make him well qualified to serve as a member of the
38
Board.
Raph Posner. Raph Posner has served as General Counsel & Chief Compliance Officer (GC/CCO) of Antara since February 2021. Prior to Antara, Raph spent five years as the General Counsel, Chief Compliance Officer & Legal Analyst at Warlander Asset Management, a credit hedge fund, where he was the sole in-house lawyer responsible for all legal and regulatory matters within the firm and responsible for assisting the firm in evaluating legal and regulatory risk related to prospective and existing investments. Prior to Warlander, Raph spent nearly eight years at MatlinPatterson Global Advisers, in a variety of legal roles. At MatlinPatterson, Raph was personally responsible for overseeing all legal and regulatory matters related to the firm’s private equity portfolio companies. Prior to MatlinPatterson, Raph was an associate with the law firm Bracewell LLP and prior to that began his legal career as an associate with the law firm Hawkins, Delafield & Wood LLP. Raph earned a Bachelor of Arts from Georgetown University and a Juris Doctorate from The Georgetown University Law Center. The Company believes that Mr. Posner’s significant legal and regulatory experience make him well qualified to serve as a member of the Board.
Arrangements or Understandings pursuant to which Executive Officers and Directors were Appointed
The Company acquired all of the outstanding equity interests of Titan CNG LLC, a Delaware limited liability company, on November 22, 2016 pursuant to an Agreement and Plan of Securities Exchange by and among the Company, Titan CNG LLC, and the holders of 100% of the outstanding equity interests of Titan CNG LLC. At the effective time of the securities exchange, the Company increased the size of its board of directors from three to four members and appointed Scott M. Honour and Thomas J. Abood as directors.
On January 11, 2017, the Company acquired all of the membership interests of Environmental Alternative Fuels, LLC, a Delaware limited liability company (“EAF”), under a securities exchange agreement with EAF, EVO CNG, LLC, a Delaware limited liability company and wholly-owned subsidiary of EAF, and the members of EAF. In connection with the closing of the securities exchange, the Company increased the size of its board of directors and appointed Danny Cuzick as a director and Damon Cuzick as chief operating officer of the Company. Danny and Damon Cuzick were the principal equity holders of EAF Damon Cuzick subsequently was appointed to serve as president of the Company in September 2018.
On June 1, 2018, the Company entered into an equity purchase agreement with Billy (Trey) Peck Jr., pursuant to which the Company acquired all of the issued and outstanding shares in Thunder Ridge from Mr. Peck and Thunder Ridge became a wholly-owned subsidiary of the Company. In connection with the acquisition, the Company entered into an employment agreement with Mr. Peck to serve as executive vice president of business development for the Company.
(b) Family Relationships.
Danny R. Cuzick, one of our former directors, is the father of Damon R. Cuzick, our chief operating officer and former president. There are no other family relationships among our directors or executive officers.
(c) Involvement in Certain Legal Proceedings.
To our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no federal or state judicial or administrative orders, judgments or decrees or findings, no violations of any federal or state securities law, and no violations of any federal commodities law material to the evaluation of the ability and integrity of any director (existing or proposed) or executive officer (existing or proposed) of the Company during the past ten (10) years.
39
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Company’s securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company, or written representations that no applicable filings were required, the Company believes that all such filings were filed on a timely basis for the fiscal year ended December 31, 2021, except that (i) Amy Harp failed to timely file a Form 3 in connection with her appointment as controller; (ii) Danny Cuzick failed to file one Form 4 reporting one transaction; (iii) Billy (Trey) Peck, Jr. failed to timely file a Form 4 reporting one transaction; (iv) R. Scott Wheeler failed to timely file two Forms 4 reporting two transactions; (v) Alex Zyngier failed to timely file a Form 4 reporting one transaction; and (vi) Tony Coelho failed to timely file a Form 3 in connection with his appointment to the Board and a Form 4 reporting one transaction.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which is attached as Exhibit 14.1 to the Company’s Form 10-K filed on March 28, 2011.
Board Committees
On February 7, 2019, the Board established three standing committees: the Audit Committee, the Compensation Committee, and the Nominating Committee. The Audit and Compensation committees have written charters, copies of which are included as Exhibits 99.1 and 99.2 to the Company’s Annual Report on Form 10-K filed on May 30, 2019. The Nominating Committee has not yet completed its charter. The Board determined that Mark M. Anderson, a member of our Board and Audit Committee of our Board, qualifies as an “audit committee financial expert” as that term is defined by Item 407(d)(5)(ii) of Regulation S-K.
The following table sets forth certain information regarding the composition of each standing committee:
Name |
|
Audit |
|
Compensation |
|
Nominating |
Scott M. Honour |
|
X |
|
|
|
|
Michael Bayles |
|
X |
|
X |
|
X |
Thomas J. Abood |
|
|
|
|
|
X (Chair) |
Anthony Coelho |
|
|
|
X |
|
|
Scott C. Smith |
|
|
|
X (Chair) |
|
|
Mark Anderson |
|
X (Chair) |
|
|
|
|
Alexandre Zyngier |
|
X |
|
|
|
|
Audit Committee
Our Audit Committee is comprised of four members, three of whom are independent directors as defined under the rules of NASDAQ, and is responsible for performing such tasks as (i) appointing, compensating, retaining and overseeing our independent registered public accounting firm; (ii) meeting with management and representatives of our independent registered public accounting firm to review our internal and external financial reporting, including periodically without management present; (iii) reviewing the scope of the independent registered public accounting firm’s examination and audit procedures to be utilized; (iv) considering comments by the registered public accounting firm regarding internal controls and accounting procedures and management’s response to those comments; and (v) pre-approving any audit and non-audit services to be provided by our independent registered public accounting firm. The Board determined that Mr. Anderson qualifies as an “audit committee financial expert” as that term is defined by Item 407(d)(5)(ii) of Regulation S-K.
40
Compensation Committee
Our Compensation Committee is comprised of three members, two of whom are independent directors as defined under the rules of NASDAQ, and is responsible for performing such tasks as (i) assisting in defining our executive compensation philosophy and administering our compensation plans; (ii) reviewing management’s recommendations with respect to the salaries and any bonuses paid and equity grants awarded to executives; (iii) reviewing our retirement plans and employee benefits, if we adopt any; (iv) overseeing and evaluating compensation-related risks; and (v) reviewing and recommending to the full board for approval the compensation-related discussion appearing in our annual proxy statement or information statement or other filings with the SEC.
Nominating Committee
Our Nominating Committee is comprised of Mr. Abood and Mr. Bayles and has not yet adopted a charter.
Stockholder Nominations of Director Candidates for Election to the Board
The Nominating Committee will consider director candidates recommended by stockholders. The Nominating Committee does not intend to alter the manner in which it evaluates candidates based on whether or not the candidate was recommended by a stockholder. To nominate a director for election at our next meeting of stockholders, a stockholder must submit such nomination in writing to our Chief Executive Officer at 2075 West Pinnacle Peak Rd. Suite 130, Phoenix, AZ 85027 not later than the 10th day following the day on which public announcement of the date of our next meeting of stockholders is first made by the Company. The Nominating Committee has not specified minimum criteria for director nominees, but the Nominating Committee will evaluate all candidates properly nominated based on the criteria set forth above.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth all of the compensation awarded to, earned by or paid to (i) each individual who served as the Company’s principal executive officer during the fiscal year ended December 31, 2021; and (ii) the two most highly compensated executive officers other than the principal executive officer who were serving as Company executives as of December 31, 2021 and who earned total compensation in excess of $100,000 during such fiscal year (collectively, the “named executive officers”).
Name and Principal Position |
|
Year |
|
Salary |
|
|
Bonus |
|
Stock |
|
Option |
|
|
Non-Equity |
|
Nonqualified |
|
All Other |
|
|
Total |
|
||||
Thomas J. Abood |
|
2021 |
|
$ |
334,614 |
|
|
— |
|
— |
|
$ |
95,668 |
|
|
— |
|
— |
|
$ |
100,000 |
|
(1) |
$ |
530,282 |
|
Chief Executive Officer |
|
2020 |
|
$ |
328,851 |
|
|
— |
|
— |
|
$ |
6,391 |
|
|
— |
|
— |
|
— |
|
|
$ |
335,242 |
|
|
R. Scott Wheeler |
|
2021 |
|
$ |
167,304 |
|
|
— |
|
— |
|
$ |
247,500 |
|
|
— |
|
— |
|
— |
|
|
$ |
414,804 |
|
|
Chief Administrative Officer |
|
2020 |
|
— |
|
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
— |
|
||||
Damon R. Cuzick |
|
2021 |
|
$ |
257,229 |
|
|
— |
|
— |
|
$ |
79,785 |
|
|
— |
|
— |
|
— |
|
|
$ |
337,014 |
|
|
Chief Operating Officer |
|
2020 |
|
$ |
210,689 |
|
|
— |
|
— |
|
$ |
40,541 |
|
|
— |
|
— |
|
— |
|
|
$ |
251,230 |
|
|
(1) Pursuant to the terms of his employment agreement, Mr. Abood is entitled to a non-accountable travel supplement of $25,000 per quarter.
As of December 31, 2021, the Company had approximately 1,744 employees, consisting of 1,272 full-time employees and 472 part-time employees.
The employment agreements with our named executive officers are summarized below.
Except for the Amended 2018 Plan, the 2021 AIP, and the 2021 LTIP (all summarized in Item 12 below), no retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees.
Employment Agreements
We have used employment agreements as a means to attract and retain our named executive officers. These are more fully discussed below. We believe that these agreements provide our named executive officers with the assurance that their employment is a long-term arrangement and provide us with the assurance that the officers’ services will be available to us for the foreseeable future.
Thomas J. Abood
41
On April 10, 2020, the Company entered into an amended and restated executive employment agreement with Thomas J. Abood as further amended on November 4, 2020 (the “Abood Employment Agreement”), amending and restating Mr. Abood’s previous employment agreement dated September 23, 2019, pursuant to which he first agreed to serve as the Company’s chief executive officer. The Abood Employment Agreement has an initial term ending December 31, 2023. Mr. Abood is eligible to earn an annual base salary of $300,000, incentive compensation based on his performance as determined by the board of directors, provided that Mr. Abood’s target annual bonus will be not less than 100% of his base salary, and additional awards of stock options pursuant to any plans or arrangements the Company may have in effect from time to time.
Beginning October 1, 2020, the Company pays Mr. Abood a non-accountable quarterly transportation supplement of $25,000. Pursuant to the Abood Employment Agreement, the Company agreed to grant Mr. Abood options to purchase 1,200,000 shares of the Company’s common stock at a price of $2.50 per share. 25% of the options vested on the grant date and the remaining options vest in equal annual installments on the first, second and third anniversary of the effective date of the Abood Employment Agreement.
If Mr. Abood is terminated without cause or he resigns with good reason, he is eligible to receive severance, subject to his execution and non-revocation of a release of claims in favor of the Company and its officers, directors and affiliates, equal to his annual base salary. The Abood Employment Agreement includes a customary confidentiality covenant and four-month post-termination non-solicitation and non-interference covenants.
R. Scott Wheeler
On February 1, 2021, the Company entered into an executive employment agreement with R. Scott Wheeler (the “Wheeler Employment Agreement”) pursuant to which Mr. Wheeler agreed to serve as chief administrative officer of the Company. The Wheeler Employment Agreement has an initial term of one year, with automatic one-year extensions (absent notice to the contrary) upon the expiration of the initial term or any renewal term. Under the Wheeler Employment Agreement, Mr. Wheeler is eligible to earn an annual base salary $200,000, incentive compensation based on Mr. Wheeler’s performance as determined by the Company’s board of directors, and awards of stock options pursuant to any plans or arrangements the Company may have in effect from time to time. Pursuant to the Wheeler Employment Agreement, the Company agreed to grant Mr. Wheeler warrants to purchase 750 ,000 shares of the Company’s common stock at a price of $1.50 per share. 250,000 of the warrants vested on the grant date and the remaining warrants vested in equal annual installments of 250,000 each on the two calendar quarter ends immediately succeeding the effective date of the Wheeler Employment Agreement.
If Mr. Wheeler is terminated without cause or he resigns with good reason, he will be eligible to earn severance, subject to his execution and non-revocation of a release of claims in favor of the Company and its officers, directors and affiliates, equal to any unpaid base salary, reimbursement for unpaid expenses and all other accrued payments or benefits through his termination date, plus twelve months of his base salary at the level in effect immediately prior to his termination date. The Wheeler Employment Agreement also includes a customary confidentiality covenant and one-year post-termination non-solicitation and non-interference covenants.
Damon Cuzick
On February 1, 2017, the Company entered into an employment agreement with Damon Cuzick (the “Damon Cuzick Employment Agreement”) as amended as of January 1, 2021. The Damon Cuzick Employment Agreement provides for an initial term of four years, with automatic extensions (absent notice to the contrary) of one year upon the expiration of the initial term or any renewal term. Under the Damon Cuzick Employment Agreement, Mr. Cuzick is eligible to earn base compensation of $250,000 per year, incentive compensation based on Mr. Cuzick’s performance as determined by the Company’s board of directors and awards of stock options pursuant to any plans or arrangements the Company may have in effect from time to time.
If Mr. Cuzick’s employment is terminated without cause or he resigns with good reason, he would receive severance, subject to his execution and non-revocation of a release of claims in favor of the Company and its officers, directors and affiliates, equal to any unpaid base salary, reimbursement for unpaid expenses and all other accrued payments or benefits through his termination date, plus the greater of: (1) his monthly base salary at the level in effect immediately prior to his termination date, multiplied by number of full or partial months, if any, in the period beginning on his termination date and ending on the date his initial employment term would have ended, if later than his termination date or (2) one-half of his annual base salary at the level in effect immediately prior to his termination date. The Damon Cuzick Employment Agreement also includes a customary confidentiality covenant and two-year post-termination non-solicitation and non-interference covenants.
42
Outstanding Equity Awards at Fiscal Year-End
The following table shows information concerning unexercised options outstanding as of December 31, 2021 for our named executive officers.
Name |
|
Grant Date |
|
Number of |
|
|
Number of |
|
|
|
Option |
|
|
Option |
|||
Thomas J. Abood |
|
September 23, 2019 |
|
|
1,250,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
September 23, 2029 |
|
|
April 12, 2018 |
|
|
100,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
April 12, 2028 |
|
|
April 10, 2020 |
|
|
900,000 |
|
|
|
300,000 |
|
(1) |
|
|
1.50 |
|
|
April 10, 2030 |
|
|
December 27, 2020 |
|
|
23,231 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
December 27, 2030 |
Damon R. Cuzick |
|
April 12, 2018 |
|
|
1,000,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
April 12, 2028 |
|
|
February 27, 2020 |
|
|
300,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
February 27, 2030 |
|
|
December 27, 2020 |
|
|
17,769 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
December 27, 2030 |
R. Scott Wheeler |
|
September 1, 2018 |
|
|
100,000 |
|
|
|
— |
|
|
|
|
2.50 |
|
|
September 1, 2028 |
|
|
May 7, 2020 |
|
|
20,000 |
|
|
|
— |
|
|
|
|
2.50 |
|
|
May 7, 2030 |
|
|
February 1, 2021 |
|
|
750,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
February 1, 2031 |
Director Compensation
The following table summarizes the compensation paid to each non-employee director in the fiscal year ended December 31, 2021:
Name |
|
Fees earned |
|
|
Stock |
|
|
Option |
|
|
All other |
|
|
Total |
|
|||||
Michael Bayles |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Danny R. Cuzick |
|
$ |
46,500 |
|
|
$ |
— |
|
|
$ |
1,576 |
|
|
$ |
— |
|
|
$ |
48,076 |
|
Scott M. Honour |
|
$ |
64,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
64,500 |
|
Alexandre Zyngier |
|
$ |
48,500 |
|
|
$ |
— |
|
|
$ |
11,077 |
|
|
$ |
— |
|
|
$ |
59,577 |
|
R. Scott Wheeler |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Scott Smith |
|
$ |
58,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
58,500 |
|
Mark M. Anderson |
|
$ |
65,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
65,000 |
|
Tony Coelho |
|
$ |
39,000 |
|
|
$ |
— |
|
|
$ |
10,276 |
|
|
$ |
— |
|
|
$ |
49,276 |
|
43
The Company granted 10-year non-qualified stock options to purchase shares of the Company’s common stock to the following directors pursuant to the Amended 2018 Plan as follows:
Name |
|
Options Granted |
|
|
Grant Date |
|
||
Danny R. Cuzick |
|
|
5,500 |
|
|
August 3, 2021 |
|
|
Tony Coelho |
|
|
100,000 |
|
|
August 3, 2021 |
|
|
Scott M. Honour |
|
|
— |
|
|
— |
|
|
R. Scott Wheeler |
|
|
— |
|
|
— |
|
|
Scott Smith |
|
|
— |
|
|
— |
|
|
Mark M. Anderson |
|
|
— |
|
|
— |
|
|
Michael Bayles |
|
|
— |
|
|
— |
|
|
Alexandre Zyngier |
|
|
105,500 |
|
|
August 3, 2021 |
|
|
Chetan Bansal |
|
|
— |
|
|
— |
|
|
Raph Posner |
|
|
— |
|
|
|
— |
|
All of the options are exercisable at a price of $1.50 per share, which the Board determined was the fair market value of the Company’s common stock on the respective grant date of each award. All of the options vested on the grant date.
Effective October 1, 2018, we paid all of our directors an annual retainer of $20,000 ($25,000 for the chairperson of the board), plus $1,000 for each board or committee meeting the director attends by person ($500 for each meeting attended via telephone). Effective May 18, 2021, we pay all of our non-employee directors, except as otherwise noted, an annual retainer of $50,000 ($60,000 for the chairperson of the board), plus $1,000 for each board or committee meeting the director attends by person ($500 for each meeting attended via telephone), as well as an annual equity retainer of $60,000 in a combination of 50% stock options and 50% restricted stock units. In addition, we pay annual retainers of $10,000, $5,000, and $5,000 to the chair of our audit, compensation, and nominating committee, respectively. Prior to May 18, 2021, each non-employee director had the option to elect, prior to the first payment of any of the foregoing compensation and in each January thereafter, to receive the compensation described in this paragraph for the calendar year of the election in cash, shares or options of the Company’s stock at a price per share equal to the greater of $2.50 or the closing price per share on the first Monday that is also a trading day of the applicable calendar year.
On October 9, 2020, the Board appointed Michael Bayles to serve as a member of the Company’s Board. Mr. Bayles was appointed to fill a vacancy on the Board and did not serve on any committees of the Board. Mr. Bayles was appointed to serve as a member of the Board until such time as he is no longer serving as the Company’s chief restructuring officer. Mr. Bayles resigned as the Company’s chief restructuring officer and as a member of the Company’s Board effective March 12, 2021. On March 11, 2022, pursuant to the Bridge Loan Agreement, the Board appointed Michael Bayles to return as a member of the Board. Mr. Bayles was appointed to fill a newly-created vacancy on the Board. In March 2022, Mr. Bayles was appointed to serve on our compensation committee, audit committee, and nominating and corporate governance committee.
On December 14, 2020, the Board appointed Alexandre Zyngier to serve as a member of the Company’s Board. Mr. Zyngier was appointed to fill a vacancy on the Board. In April 2021, Mr. Zyngier was appointed to serve on our audit committee, and on June 8, 2022, Mr. Zyngier was appointed as chairman of the Board.
On May 13, 2021, the Board appointed Anthony Coelho to serve as a member of the Board. Mr. Coelho was appointed to fill a vacancy on the Board. In August 2021, Mr. Coelho was appointed to serve on our compensation committee.
On May 31, 2022, Danny Cuzick and Scott Wheeler resigned as members of the Board and the Board appointed Chetan Bansal and Raph Posner to fill the resulting vacancies. The Company does not pay Messrs. Bansal and Posner annual retainers.
44
Except as summarized in the previous paragraphs, no members of our board of directors are currently compensated for their services. Our directors are reimbursed for reasonable expenses incurred in connection with their service and may be compensated by certain stockholders to the extent they were initially appointed as designees on behalf of such holders.
Compensation Committee Interlocks and Insider Participation
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
45
Compensation Committee Report
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners
The following table lists, as of June 27, 2022, the number of shares of our common stock beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each of our named executive officers and directors; and (iii) all of our officers and directors as a group. Applicable percentage ownership is based on 16,387,944 shares of common stock outstanding as of June 27, 2022, together with applicable options and warrants for each stockholder. Unless otherwise indicated, the address of each person listed below is in the care of EVO Transportation & Energy Services, Inc. 2075 West Pinnacle Peak Rd. Suite 130, Phoenix, AZ 85027.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants currently exercisable or exercisable within 60 days. Shares of our capital stock issuable pursuant to options or warrants are deemed to be outstanding for purposes of computing the beneficial ownership percentage of the person or group holding such options or warrants but are not deemed to be outstanding for purposes of computing the beneficial ownership percentage of any other person.
Name of Beneficial Owner or Identity of Group(1) |
|
Number of Shares |
|
|
Series A Preferred |
|
|
Series B Preferred |
|
|||||||||||||||||
5% Beneficial Owners |
|
Shares |
|
|
|
Percent |
|
|
Shares |
|
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
||||||
Jerry Moyes 2710 E. Old Tower Road Phoenix, |
|
|
2,000,000 |
|
(2) |
|
|
11.50 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dan Thompson 16415 54th Avenue North |
|
|
1,200,000 |
|
(3) |
|
|
6.82 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Antara Capital Master Fund LP 500 Fifth Avenue, |
|
|
23,884,221 |
|
(4) |
|
|
60.92 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Manchester Explorer LP 3 West Hill Place, Boston, |
|
|
3,200,000 |
|
(5) |
|
|
17.79 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Michael Ritter |
|
|
1,220,491 |
|
|
|
|
7.45 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Matthew Ritter |
|
|
1,220,491 |
|
|
|
|
7.45 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Clifford Finkle |
|
|
1,060,158 |
|
|
|
|
6.47 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
James Finkle |
|
|
1,060,159 |
|
|
|
|
6.47 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
John P. Yeros & Laura R. Yeros, JTWROS |
|
|
1,274,650 |
|
(6) |
|
|
7.25 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Theril Lund |
|
|
904,050 |
|
(7) |
|
|
5.23 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Midwest Bank 613 Hwy 10 East, PO Box 703 |
|
|
1,250,000 |
|
(8) |
|
|
7.09 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
John Sheehy |
|
|
2,275,156 |
|
(9) |
|
|
13.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Danny R. Cuzick 8285 W. Lake Pleasant |
|
|
19,386,580 |
|
(14) |
|
|
62.06 |
% |
|
|
100,000 |
|
|
|
|
100.00 |
% |
|
|
2,000,000 |
|
|
|
97.56 |
% |
Executive Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Thomas J. Abood |
|
|
3,065,068 |
|
(11) |
|
|
15.86 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Damon R. Cuzick |
|
|
2,255,068 |
|
(12) |
|
|
12.10 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Eugene Putnam |
|
|
418,577 |
|
(13) |
|
|
2.49 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Scott M. Honour 315 E. Lake St. Suite 301 |
|
|
355,173 |
|
(14) |
|
|
2.14 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Raph Posner 55 Hudson Yards, 47th Floor, Suite C |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
R. Scott Wheeler 14925 Havenshire Place |
|
|
1,021,704 |
|
(15) |
|
|
5.89 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
50,000 |
|
|
|
2.44 |
% |
Scott Smith 12424 W. Dove Wing Way |
|
|
171,250 |
|
(16) |
|
|
1.11 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Mark Anderson 18010 N. 14th Street Phoenix, |
|
|
180,000 |
|
(17) |
|
|
1.09 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
46
Alexandre Zyngier 650 Halstead Ave., Ste 201B2, |
|
|
321,493 |
|
(18) |
|
|
1.92 |
% |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Tony Coelho 6 Trellis Path, Doylestown, |
|
|
50,000 |
|
(19) |
|
* |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Michael Bayles 55 Hudson Yards, 47th Floor, Suite C |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Chetan Bansal 55 Hudson Yards, 47th Floor, Suite C |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
All executive officers and directors as a group |
|
|
10,126,328 |
|
(20) |
|
|
39.47 |
% |
|
|
— |
|
|
|
|
|
100.00 |
% |
|
|
50,000 |
|
|
|
2.44 |
% |
* Less than 1%
47
Securities Authorized for Issuance Under Equity Compensation Plans
On April 12, 2018, the Company’s board of directors adopted an equity compensation plan (the “2018 Plan”) to retain and incentivize key personnel to drive the success of the Company. On August 13, 2018, the Board approved an Amended and Restated 2018 Stock Incentive Plan (the “Amended 2018 Plan”), amending and restating the 2018 Plan in its entirety. The principal provisions of the Amended 2018 Plan are summarized below. This summary is not a complete description of all the Amended 2018 Plan’s provisions and is qualified in its entirety by reference to the Amended 2018 Plan, which is filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Capitalized terms used but not defined herein have the meanings set forth in the Amended 2018 Plan.
Amended 2018 Plan
Administration
The Board delegated the administration of the Amended 2018 Plan to the Compensation Committee of the Board. The Board and any Committee to which it may delegate the administration of the Amended 2018 Plan from time to time are collectively referred to in the Amended 2018 Plan as the “Administrator.”
The Administrator may delegate to one or more Committees and/or sub-Committees, or to one or more officers of the Company such administrative duties or powers as it may deem advisable. The Administrator may, by resolution, authorize one or more officers of the Company to do one or both of the following on the same basis as the Administrator: (i) designate employees to be recipients of awards under the Amended 2018 Plan and (ii) determine the size of any such awards; provided, however, that the Committee may not delegate such responsibilities to any such officer for awards granted to an employee who is an officer or director of the Company or the beneficial owner of more than 10% of the Company’s common stock; the resolution providing such authorization sets forth the total number of awards such officer(s) may grant; and the officer(s) must report periodically to the Administrator regarding the nature and scope of the awards granted pursuant to the authority delegated.
Except as otherwise provided in the Amended 2018 Plan, the Administrator will have all of the powers vested in it under the provisions of the Amended 2018 Plan, including but not limited to exclusive authority to determine, in its sole discretion, whether an award will be granted; the individuals to whom, and the time or times at which, awards will be granted; the number of shares subject to each award; the exercise price of Options granted hereunder; and the performance criteria, if any, and any other terms and conditions of each award. The Administrator will have full power and authority to administer and interpret the Amended 2018 Plan, to make and amend rules, regulations and guidelines for administering the Amended 2018 Plan, to prescribe the form and conditions of the respective Agreements evidencing each award (which may vary from Participant to Participant), to amend or revise Agreements evidencing any award (to the extent the amended terms would be permitted by the Amended 2018 Plan and provided that no such revision or amendment, except as is authorized in Section 14 of the Amended 2018 Plan, may impair the terms and conditions of any award that is outstanding on the date of such revision or amendment to the material detriment of the Participant in the absence of the consent of the Participant), and to make all other determinations necessary or advisable for the administration of the Amended 2018 Plan (including to correct any defect, omission or inconsistency in the Amended 2018 Plan or any Agreement, to the extent permitted by law and the Amended 2018 Plan). The Administrator’s interpretation of the Amended 2018 Plan, and all actions taken and determinations made by the Administrator pursuant to the power vested in it under the Amended 2018 Plan will be conclusive and binding on all parties concerned.
Eligibility
Any employee, director, or consultant may participate in the Amended 2018 Plan; provided, however, that only employees are eligible to receive incentive stock options. Additionally, the Company may grant certain performance-based awards to “covered employees” in compliance with Section 162(m) of the Internal Revenue Code. These covered employees include our executive officers. Section 162(m) generally limits the corporate tax deduction for compensation paid to executive officers that is not “performance-based” to $1,000,000 per executive officer. “Performance-based” compensation meeting certain requirements is not counted against the $1,000,000 limit and generally remains fully deductible for tax purposes.
48
Shares Available for Awards
The stock to be awarded or optioned under the Plan (the “share authorization”) will consist of authorized but unissued or reacquired shares of common stock. The maximum aggregate number of shares of common stock reserved and available for awards under the Amended 2018 Plan originally was 6,250,000 shares and subsequently was increased to 12,000,000 shares, subject to adjustment for any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other similar change in the corporate structure or shares of the Company. Any adjustment determination made by the Administrator will be final, binding and conclusive.
Type of Awards and Terms and Conditions
The Amended 2018 Plan provides that the Administrator may grant awards to eligible participants in any of the following forms, subject to such terms, conditions and provisions as the Administrator may determine to be necessary or desirable:
Options. Options may either be incentive stock options, which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code, or non-qualified stock options. Options vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or any subsidiary, the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. Non-qualified stock options vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of non-qualified stock options. The exercise price of each share subject to a non-qualified stock option will be determined by the Administrator at the time of grant but must be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as stockholders with respect to any shares covered by the award until the award is exercised and a stock certificate or book entry evidencing such shares is issued or made, respectively.
Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the awards beginning on the grant date, but have no other rights as stockholders with respect to such shares.
Performance Awards. Performance awards, which may be denominated in cash or shares, are earned upon achievement of performance objectives during a performance period established by the Administrator. Recipients of performance awards have no rights as stockholders with respect to any shares covered by the awards until the date a stock certificate or book entry evidencing such shares is issued or made, respectively.
Stock Appreciation Rights. A stock appreciation right may be granted independent of, or in tandem with, a previously or contemporaneously granted stock option, as determined by the Administrator. Generally, upon exercise of a stock appreciation right, the recipient will receive cash, shares of Company stock, or a combination of cash and stock, with a value equal to the excess of: (i) the fair market value of a specified number of shares of Company stock on the date of the exercise, over (ii) a specified exercise price. Stock appreciation rights vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of stock appreciation rights. Recipients of stock appreciation rights have no rights as a stockholder with respect to any shares covered by the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively.
Stock Bonuses. Stock bonuses consist of awards of shares granted to a participant subject to such terms and conditions as determined by the Administrator. Recipients of stock bonuses have all rights of stockholders with respect to such shares, provided that the Administrator may impose restrictions on the assignment or transfer of stock bonuses.
49
Amendments of the Amended 2018 Plan
The Board may from time to time, insofar as permitted by law, suspend or discontinue the Amended 2018 Plan or revise or amend it in any respect. However, to the extent required by applicable law or regulation or as except as provided under the Amended 2018 Plan itself, the Board may not, without stockholder approval, revise or amend the Amended 2018 Plan to (i) materially increase the number of shares subject to the Amended 2018 Plan, (ii) change the designation of participants, including the class of employees, eligible to receive awards, (iii) decrease the price at which options or stock appreciation rights may be granted, (iv) cancel, regrant, repurchase for cash, or replace options or stock appreciation rights that have an exercise price in excess of the fair market value of the common stock with other awards, or amend the terms of outstanding options or stock appreciation rights to reduce their exercise price, (v) materially increase the benefits accruing to participants under the Amended 2018 Plan, or (vi) make any modification that will cause incentive stock options to fail to meet the requirements of Internal Revenue Code Section 422.
Term
The Administrator may grant awards pursuant to the Amended 2018 Plan until it is discontinued or terminated; provided, however, that ISOs may not be granted after August 13, 2028.
Change of Control
Unless otherwise provided in the terms of an award, upon a change of control of the Company, as defined in the Amended 2018 Plan, the Administrator may provide for one or more of the following: (i) the acceleration of the exercisability, vesting, or lapse of the risks of forfeiture of any or all awards (or portions thereof); (ii) the complete termination of the Amended 2018 Plan and the cancellation of any or all awards (or portions thereof) that have not been exercised, have not vested, or remain subject to risks of forfeiture, as applicable in each case as of the effective date of the change of control; (iii) that the entity succeeding the Company by reason of such change of control, or the parent of such entity, must assume or continue any or all awards (or portions thereof) outstanding immediately prior to the change of control or substitute for any or all such awards (or portions thereof) a substantially equivalent award with respect to the securities of such successor entity, as determined in accordance with applicable laws and regulations; or (iv) that participants holding outstanding awards will become entitled to receive, with respect to each share of common stock subject to such award (whether vested or unvested, as determined by the Administrator pursuant to the Amended 2018 Plan) as of the effective date of any such change of control, cash in an amount equal to (1) for participants holding options or stock appreciation rights, the excess of the fair market value of such common stock on the date immediately preceding the effective date of such change of control over the exercise price per share of options or stock appreciation rights, or (2) for participants holding awards other than options or stock appreciation rights, the fair market value of such common stock on the date immediately preceding the effective date of such change of control. The Administrator need not take the same action with respect to all awards (or portions thereof) or with respect to all participants.
Payment
Upon exercise of an option granted under the Amended 2018 Plan, and as permitted in the Administrator’s discretion, the option holder may pay the exercise price in cash (or cash equivalent), by surrendering previously-acquired unencumbered shares of Company common stock, by withholding shares of Company common stock from the number of shares that would otherwise be issuable upon exercise of the option (e.g., a net share settlement), through broker-assisted cashless exercise (if compliant with applicable securities laws and any insider trading policies of the Company), another form of payment authorized by the Administrator, or a combination of any of the foregoing. If the exercise price is paid, in whole or in part, with Company common stock, the then-current fair market value of the stock delivered or withheld will be used to calculate the number of shares required to be delivered or withheld.
Transfer Restrictions
Unless permitted by law and expressly permitted by the Amended 2018 Plan or underlying award agreement, no award will be transferable, other than by will or by the laws of descent and distribution. The Administrator may permit a recipient of a non-qualified stock option to transfer the award by gift to his or her “immediate family” or to certain trusts or partnerships (as defined and permitted by applicable federal securities law).
50
Forms of Agreement
The Administrator has approved forms of agreement to govern incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units. The foregoing summaries of the Amended 2018 Plan and the forms of the agreements do not purport to be complete and are qualified in their entirety by reference to the text of the Amended 2018 Plan and to the text of the forms of agreement, all of which are filed as exhibits to this Annual Report on Form 10-K.
2021 AIP and LTIP
On August 17, 2021, the Compensation Committee of the Board approved the EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (the “2021 AIP”), to provide the terms of annual bonus opportunities to be granted to the Company’s executive officers and other participating employees. The purposes of the 2021 AIP are to maintain a competitive level of total cash compensation and to align the interests of the Company’s executives and other employees with those of the Company’s shareholders and with the strategic objectives of the Company.
The 2021 AIP provides the Company’s executive officers and other participating employees with an opportunity to earn cash incentive compensation based upon the achievement of performance goals over a specified performance period. All of the Company’s executive officers and certain other employees designated as eligible employees from time to time are eligible to participate in the 2021 AIP. The 2021 AIP focuses on achievement of certain annual objectives and goals, as determined by the Compensation Committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of such specified goals. Under the 2021 AIP, the payout opportunity is contingent upon meeting the threshold performance levels, and thereafter varies for performance above and below the pre-established target performance levels, subject to a maximum award level. With respect to the Company’s chief executive officer, the target award equals 50% of 2021 base salary, and with respect to the Company’s other named executive officers the target award equals 40% of base salary, all as adjusted based upon meeting or exceeding the performance levels established by the Compensation Committee for 2021, and cannot exceed a maximum payment limit specified by the Compensation Committee. The 2021 AIP also provides that each named executive officer’s award will be forfeited if such executive officer’s employment does not continue through December 31 of the applicable plan year.
The performance metrics on which awards under the 2021 AIP will be granted include 2021 revenue and EBITDA, and payment of incentive awards under the 2021 AIP is dependent upon achievement of defined goals for each performance metric. However, the Compensation Committee retains the discretion to increase, reduce or eliminate any incentive award that becomes payable under the 2021 AIP. Awards under the 2021 AIP will be granted for services provided in calendar year 2021 and will be payable in 2022. Incentive awards under the 2021 AIP are paid in cash following the end of calendar year 2021 and after the Compensation Committee has determined and certified the level of performance achieved and the incentive awards earned.
Also on August 17, 2021, the Compensation Committee approved the EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (the “2021 LTIP”), pursuant to which the Company expects to make annual long term incentive awards based on shares of the Company’s common stock, including restricted stock units (“RSUs”) and non-statutory stock options. Awards under the 2021 will be made under and pursuant to the terms of the Amended 2018 Plan. Under the 2021 LTIP, the Compensation Committee will make time-based RSU and stock option awards to key employees, including the named executive officers. The value of the 2021 LTIP awards will be based upon a percentage of the named executive officer’s salary. Under the 2021 LTIP, a named executive officer’s 2021 LTIP award is comprised of 50% of time-based RSUs and 50% stock options. Time-based RSU awards under the 2021 LTIP will vest three years from the date of grant, and stock option awards will vest ratably in one-third increments on each of the first, second and third anniversaries of the date of the grant conditional upon continued employment with the Company.
51
Equity Compensation Plan Information
The table below provides summary information about the securities issuable under our equity compensation plans as of December 31, 2021:
Plan category |
|
Number of |
|
|
Weighted- |
|
|
Number of |
|
|||
Equity compensation plans approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Equity compensation plans not approved by security holders |
|
|
10,920,249 |
|
|
$ |
1.96 |
|
|
|
1,079,751 |
|
Total |
|
|
10,920,249 |
|
(1) |
$ |
1.96 |
|
|
|
1,079,751 |
|
(1) On March 18, 2022, the Company and Danny Cuzick entered into amended and restated option agreements, as a result of which options to purchase an aggregate of 2,900,000 shares of the Company’s common stock previously granted to Danny Cuzick are no longer subject to or governed by the Company’s Amended 2018 Plan. As a result, subsequent to December 31, 2021, the number of securities remaining available for future issuance under the Amended 2018 Plan increased by 2,900,000 shares.
Transactions with Related Persons
Guarantee of Titan Tradition Facility
On December 31, 2014, Titan entered into a co-borrower arrangement for a $1,300,000 U.S. Small Business Administration (SBA) note with Titan El Toro LLC. The proceeds from the note were received by Titan El Toro LLC, a wholly owned subsidiary of Titan that operated our Titan El Toro fueling station, and the note payable is recorded by Titan El Toro LLC. The note is a ten-year term note with interest fixed at 5.50% for the first five years, then adjusted to the SBA LIBOR Base Rate, plus 2.35% for the remaining five years. The note requires monthly principal and interest payments of $15,288. The note is secured by substantially all of Titan’s business assets and is personally guaranteed by certain of Titan’s former founders, managing members and directors, including Scott M. Honour, a member of our board of directors and prior chairman of the board, and certain of his relatives.
EAF Promissory Notes
On February 1, 2017, the Company issued a senior promissory note (the “Senior Promissory Note”) in the principal amount of $3.8 million to Danny Cuzick in consideration for the acquisition by the Company of all of the equity securities of EAF pursuant to an Agreement and Plan of Securities Exchange dated January 11, 2017 (the “Exchange Agreement”). The Senior Promissory Note bears interest at 7.5% per year with a default interest rate of 12.5% per year and originally had a maturity date of the earlier of (a) the date that is ten days after the initial closing of a private offering of the Company’s capital stock in an amount not less than $10 million (a “Private Offering”); (b) December 31, 2017 and (c) declaration by Danny Cuzick of an event of default under the Senior Promissory Note. On April 2, 2018, the Company and Danny Cuzick entered into an amendment to the Senior Promissory Note to extend the maturity date of the note to the earlier of (a) July 1, 2019 and (c) declaration by Danny Cuzick of an event of default under the note.
52
Pursuant to the Exchange Agreement, the Company also issued $9.5 million in aggregate principal amount of secured convertible promissory notes (the “Convertible Notes”) to Danny Cuzick, Damon R. Cuzick, Theril H. Lund, and Thomas J. Kiley (collectively, the “EAF Members”) in consideration for their membership interests in EAF. The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026.
On April 22, 2019, the Company and Danny Cuzick, as noteholder representative on behalf of each EAF Member, entered into amendments to each Convertible Note to, among other changes, amend the exchange ratio at which the outstanding principal under the Convertible Notes may be converted into shares of the Company’s common stock. As amended, the aggregate principal balance of the Convertible Notes is convertible into a fixed amount of 7,000,000 shares of common stock, subject to adjustment for any stock splits, combinations, or similar transactions, representing approximately 75% of the Company’s total outstanding shares of common stock on a post-transaction basis. Accordingly, the conversion of the Convertible Notes would result in a change in control of the Company at the time of the amendments.
Each Convertible Note is convertible at the holder’s option upon (1) consummation of a reorganization, merger or similar transaction where the Company is not the surviving or resulting entity or (2) the sale of all or substantially all of the Company’s assets, subject to customary restrictions. The Convertible Notes are also subject to mandatory conversion at the Company’s option beginning on the first anniversary of the issue date if: (i) the closing price of the common stock is greater than $10.00 and (ii) the average daily trading volume of shares of common stock has equaled 100,000 or more for the 30 days prior to the applicable date. Upon a conversion of the Convertible Notes, accrued interest may also be converted into shares of common stock at the greater of (1) 1.357, subject to adjustment for stock splits or combinations, or (2) the closing price of a share of common stock as reported on the business day that immediately precedes the date of the notice of conversion provided by the party making the election. In March 2022, the Company and Danny Cuzick, in his individual capacity and as holders representative, entered into amendments to the Convertible Notes to permit immediate conversion of the Convertible Notes. Danny Cuzick, individually and as holders representative, subsequently converted the Convertible Notes into warrants to purchase 7,533,750 shares of common stock of the Company at a price of $0.01 per share. For a description of those amendments and warrants, see Note 14, Subsequent Events.
In connection with the closing of the Exchange Agreement, on February 1, 2017, the Company guaranteed a note from EAF to Danny R. Cuzick dated January 30, 2017 in the principal amount of $4 million (the “EAF Note”). The EAF Note is secured by all assets of EAF. The EAF Note bears interest at 7.5% per annum with a default rate of 12.5% per annum and has a maturity date of the earlier of (a) February 1, 2020 and (b) declaration by the noteholder of an event of default under the EAF Note.
On September 16, 2019, Danny Cuzick subordinated his right to payment under the Senior Promissory Note, Convertible Note, and EAF Note to the obligations owing by the Company to Antara Capital Master Fund LP under the financing agreement (the “Antara Financing Agreement”) among the Company, each subsidiary of the Company, various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent. Danny Cuzick agreed not to receive, accept, or demand payment under the subordinated obligations until all obligations under the Antara Financing Agreement have been paid in full. Danny Cuzick may continue to receive regularly scheduled interest payments so long as the collateral agent has not delivered notice that an event of default has occurred and is continuing under the Antara Financing Agreement.
Danny R. Cuzick is a former member of the Company’s Board of Directors. Damon R. Cuzick is the Chief Operating Officer of the Company.
Sheehy Enterprises, Inc. Option Acquisition Agreement
On September 5, 2018, the Company entered into an acquisition option agreement (the “Option Agreement”) with Sheehy Enterprises, Inc., a Wisconsin corporation (“Sheehy Enterprises”), John Sheehy, and Robert Sheehy, pursuant to which the Company acquired the option to purchase from Sheehy Enterprises, and Sheehy Enterprises acquired the option to sell to the Company, all of the membership interests (the “Sheehy Mail Interests”) in Sheehy Mail, Inc., a Wisconsin corporation and wholly-owned subsidiary of Sheehy Enterprises (“Sheehy Mail”).
On January 4, 2019 but effective January 2, 2019, the Company, Sheehy Enterprises, John Sheehy, and Robert Sheehy consummated the transactions contemplated by the Option Agreement and the Company acquired all of the Sheehy Mail Interests in exchange for 2,240,000 shares of Company common stock. Pursuant to the Option Agreement, on January 4, 2019, Sheehy Enterprises and Sheehy Mail entered into an equipment lease agreement with an effective date of January 2, 2019 (the “Equipment Lease”), whereby Sheehy Enterprises agreed to lease to Sheehy Mail certain truck and trailer equipment owned by Sheehy Enterprises in exchange for monthly payments totaling an aggregate of $4,000,000 over a period of up to 48 months.
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On January 4, 2019 but dated and effective January 2, 2019, in connection with the amendment to the Lease Agreement, the Company issued a promissory note (the “Sheehy Note”) in the principal amount of $400,000 to Sheehy Enterprises as an initial payment under the Lease Agreement. The Sheehy Note bears interest at the rate of 5.65% per annum and has an initial maturity date of March 3, 2019. The Sheehy Note provides for up to four automatic extensions of the maturity date of 30 days each, provided that the Sheehy Note is not in default as of the date of each extension. If the principal and accrued interest on the Sheehy Note is not repaid by the end of the final maturity date extension term, then the principal amount of the Sheehy Note will increase to $450,000 and the balance of the Sheehy Note will automatically convert into shares of the Company’s common stock at a rate of $2.50 per share.
On February 15, 2019, the Company entered into a LoadTrek Service Agreement (the “LoadTrek Agreement”) with North American Dispatch Systems, LLC (“NADS”). Pursuant to the LoadTrek Agreement, NADS agreed to provide the Company with telematics hardware and subscription-based software services for transportation management, safety and compliance, and route tracking. During the years ended December 31, 2020 and 2019, the Company paid $1.1 million and $0.4 million, respectively, to NADS for services under the LoadTrek Agreement. On February 9, 2021, the Company and NADS entered into an amendment to the LoadTrek Agreement (the “LoadTrek Amendment”) pursuant to which NADS granted the Company expanded rights to return hardware under the LoadTrek Agreement and therefore shorten the term applicable to returned hardware. Under the LoadTrek Agreement, the Company agreed to pay NADS $6,000 per month for 24 months, with the first payment due on or before January 31, 2021. The amount of consideration payable to NADS in under both the LoadTrek Agreement and LoadTrek Amendment was determined by arms-length negotiations between the Company and NADS and not pursuant to any specific formula or principle.
On April 16, 2019, Sheehy Enterprises and Sheehy Mail entered into an amendment to the Equipment Lease, pursuant to which the parties (i) acknowledged the Sheehy Note as an initial payment under the Equipment Lease and (ii) agreed to reduce the number of monthly payments due under the Lease Agreement to account for the initial payment.
On November 18, 2019, the Company entered into an intercompany debt repayment and settlement agreement (the “Intercompany Agreement”) among the Company, Sheehy Mail, John Sheehy, Sheehy Enterprises, and North American Dispatch Systems (“NADS”), pursuant to which the Company assigned to Sheehy Enterprises the Company’s right to payment of a $776,948 outstanding account receivable owing from NADS in full satisfaction of a $374,890 outstanding account payable owing from the Company to Sheehy Enterprises and in partial satisfaction of a promissory note issued by the Company to Sheehy Enterprises on January 2, 2019 with an outstanding principal balance of $450,000 (the “SEI Note”). The Company also agreed to pay, on or before November 29, 2019, the remaining principal amount due of $47,942 plus accrued interest of $39,947 on the SEI Note in the form of the issuance of 35,156 shares of the Company’s common stock at $2.50 per share.
Sheehy Enterprises and NADS are affiliates of John Sheehy. Mr. Sheehy previously served as chief operating officer and chief information officer the Company and is the beneficial owner of more than 5% of our outstanding common stock. The amount of consideration payable to Sheehy Enterprises in connection with the sale of the Sheehy Mail Interests was determined by arms-length negotiations between the Company and Sheehy Enterprises prior to John Sheehy’s appointment as the Company’s chief operating officer, and not pursuant to any specific formula or principle.
Amendments to Thunder Ridge Transport, Inc. Equity Purchase Agreement
In connection with the Company's June 1, 2018 acquisition of all of the issued and outstanding shares of Thunder Ridge, the Company issued a $2.5 million promissory note was issued Billy (Trey) Peck, Jr., the Company’s executive vice president of business and corporate development , with interest at 6% (interest in the event of a default at 9%) and a maturity date of the earlier of (a) the date the Company raises $40.0 million in public or private offerings of debt or equity; (b) December 31, 2018, or (c) termination of Trey Peck’s employment with the Company by the Company without cause or by Trey Peck for good reason. The note is collateralized by all of the assets of Thunder Ridge and is also secured by the Thunder Ridge Shares (“TR Shares”). The maturity date of the promissory note has been subsequently amended to extend it to November 30, 2022. Effective with the most recent extension in August 2019, the Company paid Peck approximately $0.15 million in principal and increased the monthly principal payments to $20,000. The note calls for monthly principal payments, with all accrued and unpaid interest due and payable on the maturity date. If the Company fails to repay the amounts outstanding under the note on or before November 30, 2022, then at the option of Peck, the Company shall immediately surrender all right, title and interest in all of the outstanding shares of stock in Thunder Ridge to Peck.
Redemption of Common Stock and Issuance of Series B Preferred Stock
On March 24, 2020, the Company entered into a stock redemption agreement with each of Danny Cuzick and R. Scott Wheeler, pursuant to which (i) the Company redeemed 1,200,000 and 60,000 shares of its Common Stock held by Danny Cuzick and R. Scott Wheeler, respectively, and (ii) agreed to issue 1,000,000 and 50,000 shares of its Series B Preferred Stock to Danny
54
Cuzick and R. Scott Wheeler, respectively, in exchange therefor. A summary of the rights and preferences of the Series B Preferred Stock is included under the caption “Series B Preferred Stock” above.
In addition, on March 24, 2020, the Company sold a total of 1,000,000 shares of its Series B Preferred Stock to Danny Cuzick for aggregate gross proceeds of $3,000,000 pursuant to the terms of a subscription agreement. In its original form, the subscription agreement granted Danny Cuzick the right to require the Company to repurchase shares of Series B Preferred Stock from Danny Cuzick for an aggregate amount up to fifty percent of the USPS Reimbursements (the “Put Option”). On March 27, 2020, the Company and Danny Cuzick entered into a waiver and warrant agreement pursuant to which Danny Cuzick waived his right to exercise the Put Option in exchange for the Company agreeing to issue to Danny Cuzick warrants to purchase up to 3,250,000 shares of Common Stock at an exercise price of $2.50 per share.
Contribution of the Equity of Environmental Alternative Fuels, LLC to EVO Holding Company, LLC
As discussed in more detail in Item 7 – Management’s Discussion and Analysis of Financial condition and Results of Operations, on December 29, 2020, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc., each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 and related documents for a loan in the amount of up to $17.0 million (the “Main Street Loan”) serviced by Commerce Bank of Arizona, Inc. as lender under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. In connection with the Main Street Loan, the Company contributed 100% of the issued and outstanding equity of Environmental Alternative Fuels, LLC (“EAF”) to EVO Holding Company, LLC (“EVO Holding”) with the consent of Danny Cuzick as the holder of certain previously disclosed promissory notes that are secured in part by the assets of EAF. In consideration of Mr. Cuzick’s consent to the contribution, the Company agreed to (a) indemnify Mr. Cuzick for up to $500,000 in connection with Mr. Cuzick’s guaranty of certain obligations of the Company and its subsidiaries to Mercedes-Benz Financial Services USA LLC and (b) issue to Mr. Cuzick a warrant (the “Cuzick Warrant”) to purchase up to 1,000,000 shares of common stock of the Company at the cost of $0.01 per share. Danny Cuzick is a member of the Company’s Board of Directors.
Antara Capital Amendments
During the year ended December 31, 2020, the Company entered into various amendments to the September 2019 Antara Capital Financing Agreement and related agreements, including warrants, with Antara Capital, the beneficial owner of more than 5% of our outstanding common stock. For a description of those transactions, see Note 6, Debt.
Stock Option Repricing
On September 1, 2021, the Company reduced the exercise price of certain stock options previously granted to certain named executive officers of the Company and other key employees from an original exercise price of $2.50 per share to an exercise price of $1.50 per share, which the Board of Directors determined was equal to or greater than the fair market value of the Company’s common stock. A total of 4,394,999 options were subject to the exercise price reduction, including 2,473,231 options held by Thomas Abood, the Company’s chief executive officer, 1,317,769 options held by Damon Cuzick, the Company’s chief operating officer, 418,577 options held by Eugene Putnam, the Company’s chief financial officer, and 20,000 options held by Billy (Trey) Peck, Jr., the Company’s executive vice president of business development. Also, as a result of the option repricing, the strike price of the warrant to purchase 750,000 shares of common stock issued to R. Scott Wheeler, the Company’s chief administrative officer, in February 2021 equals $1.50 pursuant to the terms of the warrant. Except for the reduction in exercise price, all terms and conditions of the options and warrant remained the same following the exercise price reduction.
Bridge Loan and Executive Loans
In March 2022, the Company entered into the Bridge Loan Agreement and various related documents with Antara, certain officers and directors of the Company, and entities affiliated with certain officers and directors of the Company. For a description of those transactions, see Note 14, Subsequent Events.
Amended and Restated Option Agreements
On March 18, 2022, the Company and Danny Cuzick entered into amended and restated option agreements, as a result of which options to purchase an aggregate of 2,900,000 shares of the Company’s common stock previously granted to Danny Cuzick are no longer subject to or governed by the Company’s Amended 2018 Plan. The amended and restated option agreements did not change any of the economic or other material provisions of the original option agreements they amended.
55
Other Related Transactions
Director Independence
Our securities are not listed on a national securities exchange or on any inter-dealer quotation system which has a requirement that a majority of directors be independent. We evaluate independence by the standards for director independence set forth in the NASDAQ Listing Rules.
Under NASDAQ Rule 5605(a)(2)(A), a director is not considered to be independent if he or she also is an executive officer or employee of the corporation. In considering a director’s independence, the board of directors considers any related-party transactions that currently exist or have occurred during the timeframes specified by NASDAQ Listing Rule 5605(a)(2) and whether the director has any relationships that, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The board of directors determined that Scott Honour, Scott Smith, Mark Anderson, Alexandre Zyngier, and Tony Coelho are “independent” within the meaning of NASDAQ Listing Rules. Thomas J. Abood, Michael Bayles, Raph Posner, and Chetan Bansal are not independent directors.
Item 14. Principal Accounting Fees and Services
The following summarizes the fees we were billed for audit and non-audit services rendered for the fiscal years ended December 31, 2021 and 2020. Marcum LLP ("Marcum") was our independent registered public accounting firm from January 7, 2019 until September 1, 2021, when the audit committee of our board of directors approved the dismissal of Marcum and appointed Grant Thornton LLP ("Grant Thornton") as our independent registered public accounting firm, whose PCAOB Firm ID is
Audit Fees
Audit fees consist primarily of audit work performed in preparation of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q, and compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. Grant Thornton’s audit fees billed were $706,288 and $731,540 for the years ended December 31, 2021 and 2020, respectively.
Audit-Related Fees
Audit-related fees consist of fees charged by our accountants for assurance and related services that are related to the performance of the audit or review of our annual and quarterly financial statements. Grant Thornton's audit-related fees billed were $0 and $0 for the years ended December 31, 2021 and 2020, respectively.
Tax Fees
Tax fees consist of fees for professional services rendered by our accountants for tax compliance, tax advice, and tax planning. Grant Thornton's tax fees billed were $0 and $0 for the years ended December 31, 2021 and 2020, respectively.
All Other Fees
Other fees consist of fees for products and services provided by our accountants other than the services reported under the headings “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above. Other fees billed by Grant Thornton in the fiscal years ended December 31, 2021 and 2020 were $0 and $48,000, respectively.
Audit Committee’s Pre-Approval Process
On February 7, 2019, our board of directors established an audit committee of the board. Under our current policy, the audit committee approves in advance all fees and services provided by our independent registered public accounting firm. Our audit committee pre-approved all audit and permissible non-audit services performed by our independent registered public accounting firm for the years ended December 31, 2021 and 2020.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
Financial Statements
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Report of Independent Registered Public Accounting Firm |
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F-Error! Bookmark not defined. |
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F-2 |
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F-5 |
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F-6 |
Financial Statement Schedules
None.
Exhibits
See the Exhibit Index immediately following the signature page to this annual report on Form 10-K, which is incorporated herein by reference.
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EXHIBIT INDEX
The exhibits listed below are filed with this annual report on Form 10-K. Certain exhibits and schedules to the documents listed below have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any omitted exhibits and schedules upon request to the SEC; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.
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Exhibit |
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Description |
2.1 |
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2.2 |
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2.3 |
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2.4 |
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2.5 |
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2.6 |
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2.7 |
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2.8 |
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2.9 |
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2.10 |
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2.11 |
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2.12 |
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2.13 |
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2.14 |
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2.15 |
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3.1 |
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3.2 |
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Certificate of Amendment to Certificate of Incorporation (8) |
3.3 |
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Certificate of Amendment to Certificate of Incorporation (10) |
3.4 |
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3.5 |
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3.6 |
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3.7 |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
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Senior Promissory Note, dated February 1, 2017, by Minn Shares Inc. in favor of Danny R. Cuzick (4) |
4.7 |
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Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Danny R. Cuzick (4) |
4.8 |
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Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Damon R. Cuzick (4) |
4.9 |
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Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Theril H. Lund (4) |
4.10 |
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Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Thomas J. Kiley (4) |
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4.11 |
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4.12 |
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4.13 |
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Covenant Waiver Letter, dated February 21, 2019, from Tradition Capital Bank (25) |
4.14 |
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4.15 |
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4.16 |
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4.17 |
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4.18 |
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4.19 |
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4.20 |
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4.21 |
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4.22 |
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4.23 |
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10.1+ |
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Employment Agreement, dated February 1, 2017, between Minn Shares Inc. and Damon R. Cuzick (4) |
10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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10.9 |
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Fuel Purchase Agreement, dated October 1, 2013, between EAF and Central Freight Lines, Inc. (8) |
10.10 |
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Natural Gas Service and Pipeline Agreement, dated November 12, 2014, between EAF and LDC, llc (8) |
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10.11 |
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10.12 |
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10.13 |
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10.14 |
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EVO Transportation & Energy Services, Inc. 2018 Stock Incentive Plan (17) |
10.15 |
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Form of EVO Transportation & Energy Services, Inc. Option Agreement (17) |
10.16 |
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10.17 |
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10.18 |
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10.19 |
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10.20+ |
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10.21 |
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10.22 |
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Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($3.00) (13) |
10.23 |
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Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($5.00) (13) |
10.24 |
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Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($7.00) (13) |
10.25 |
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10.26 |
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10.27 |
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10.28 |
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10.29 |
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10.30 |
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10.31 |
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10.32 |
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10.33 |
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10.34 |
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10.35 |
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10.36 |
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10.37 |
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10.38 |
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10.39 |
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10.40 |
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10.41 |
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10.42 |
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10.43 |
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10.44 |
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10.45 |
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10.46 |
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10.48 |
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10.49 |
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10.55 |
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10.56 |
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10.58 |
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10.59 |
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10.60 |
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10.61 |
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10.62 |
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10.63+ |
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10.64 |
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10.65 |
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10.66 |
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10.67 |
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10.68 |
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10.69 |
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Lease dated February 1, 2019 between Ursa Major Corporation and Ursa Group, LLC (42) |
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10.70 |
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Lease dated February 1, 2019 between Ursa Major Corporation and Ursa Oak Creek LLC (42) |
10.71 |
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10.72 |
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10.73* |
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10.74 |
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10.75 |
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10.76 |
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10.77 |
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10.78 |
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Lease Agreement dated April 26, 2015 between HP Lumina, LLC and Edwards Mail Service, Inc. (42) |
10.79+ |
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10.80+ |
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10.81 |
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10.82 |
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10.83 |
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10.84 |
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10.85 |
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10.86 |
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10.87 |
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10.88 |
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10.89 |
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10.90 |
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10.91 |
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10.92 |
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10.93 |
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10.94 |
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10.95 |
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10.96 |
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10.97 |
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10.98* |
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10.99* |
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10.100*+ |
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10.101*+ |
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10.102*+ |
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14.1 |
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16.1 |
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Letter from Lurie, LLP to the Securities and Exchange Commission dated February 7, 2017 (6) |
16.2 |
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Letter from Lurie, LLP to the Securities and Exchange Commission dated April 17, 2017 (7) |
16.3 |
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Letter from EKS&H LLLP to the Securities and Exchange Commission dated October 2, 2018 (19) |
16.4 |
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16.5 |
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Letter from Marcum LLP to the Securities and Exchange Commission dated September 8, 2021 (43) |
21.1* |
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31.1* |
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31.2* |
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Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s annual report on Form 10-K for the year ended December 31, 2021 |
32.1* |
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32.2* |
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99.1 |
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Inline XBRL Taxonomy Extension Schema Document |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
+ Management contract or compensatory plan or arrangement.
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65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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EVO TRANSPORTATION & ENERGY SERVICES, INC. |
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Date: June 30, 2022 |
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/s/ Thomas J. Abood |
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Thomas J. Abood |
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Chief Executive Officer |
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Principal Executive Officer |
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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/s/ Thomas J. Abood |
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Chief Executive Officer & Director |
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June 30, 2022 |
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Thomas J. Abood |
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/s/ Eugene S. Putnam, Jr. |
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Chief Financial Officer |
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June 30, 2022 |
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Eugene S. Putnam, Jr. |
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/s/ Raj Kapur |
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Chief Accounting Officer |
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June 30, 2022 |
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Raj Kapur |
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/s/ Alexandre Zyngier |
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Director |
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June 30, 2022 |
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Alexandre Zyngier |
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/s/ Chetan Bansal |
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Director |
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June 30, 2022 |
|||
Chetan Bansal |
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/s/ Scott M. Honour |
|
Director |
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June 30, 2022 |
|||
Scott M. Honour |
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/s/ Raph Posner |
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Director |
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June 30, 2022 |
|||
Raph Posner |
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/s/ Mark M. Anderson |
|
Director |
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June 30, 2022 |
|||
Mark M. Anderson |
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|||
/s/ Scott Smith |
|
Director |
|
June 30, 2022 |
|||
Scott Smith |
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|||
/s/ Tony Coelho |
|
Director |
|
June 30, 2022 |
|||
Tony Coelho |
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|||
/s/ Michael Bayles |
|
Director |
|
June 30, 2022 |
|||
Michael Bayles |
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66
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