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Form 10-Q EVO Transportation & For: Sep 30

June 30, 2022 3:03 PM EDT
10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

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

For the transition period from ______________ to ______________

 

Commission file number 000-54218

 

EVO Transportation & Energy Services, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

37-1615850

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

2075 West Pinnacle Peak Rd. Suite 130

Phoenix, AZ 85027

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 877-973-9191

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically 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 ☐ No

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of June 27, 2022, there were 16,387,944 shares of the registrant’s common stock, par value $0.0001, outstanding.

Explanatory Note


We have been delayed in filing this Quarterly Report on Form 10-Q (this “Q3 2021 Quarterly Report”). Immediately following the filing of this Q3 2021 Quarterly Report, we expect to file our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2020 10-K”). Unless otherwise noted, the disclosures in this Q3 2021 Quarterly Report speak as of September 30, 2021 and for the three-month and nine-month periods then ended.

 

 

 


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

INDEX

 

 

Page No.

 

 

PART I – FINANCIAL INFORMATION

2

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

2

 

 

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

33

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

42

 

 

Item 4. Controls and Procedures

42

 

 

PART II – OTHER INFORMATION

45

 

 

Item 1. Legal Proceedings

45

 

 

Item 1A. Risk Factors

45

 

 

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

45

 

 

Item 3. Defaults Upon Senior Securities

45

 

 

Item 4. Mine Safety Disclosures

45

 

 

Item 5. Other Information

45

 

 

Item 6. Exhibits

45

 

 

EXHIBIT INDEX

46

 

 

SIGNATURES

47

 

 

 

i


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets (unaudited)

 

 

 

September 30,
2021

 

 

December 31,
2020

 

($ in thousands, except share and per share data)

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

6,713

 

 

$

26,644

 

Accounts receivable - trade, net

 

 

27,194

 

 

 

13,033

 

Alternative fuels tax credit receivable

 

 

312

 

 

 

1,054

 

Due from related party

 

 

10

 

 

 

40

 

Prepaids and other current assets

 

 

3,569

 

 

 

2,205

 

Total current assets

 

 

37,798

 

 

 

42,976

 

Non-current assets

 

 

 

 

 

 

Property and equipment, net

 

 

28,800

 

 

 

28,240

 

Goodwill

 

 

23,837

 

 

 

23,837

 

Intangible assets, net

 

 

4,406

 

 

 

5,087

 

Operating lease right-of-use assets, net

 

 

7,784

 

 

 

10,473

 

Finance lease right-of-use assets, net

 

 

24,786

 

 

 

27,913

 

Deposits and other long-term assets

 

 

4,938

 

 

 

3,797

 

Total non-current assets

 

 

94,551

 

 

 

99,347

 

Total assets

 

$

132,349

 

 

$

142,323

 

Liabilities, Temporary Equity and Stockholders’ Deficit

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

10,981

 

 

$

11,698

 

Accrued expenses and other current liabilities

 

 

15,115

 

 

 

18,589

 

Accrued interest - related party

 

 

2,606

 

 

 

2,249

 

Embedded derivative liability

 

 

871

 

 

 

2,278

 

Warrant liabilities

 

 

9,021

 

 

 

11,264

 

Advances under factoring arrangements, current portion

 

 

17,422

 

 

 

24,397

 

Current portion of long-term debt

 

 

21,640

 

 

 

12,727

 

Current portion of long-term debt - related party

 

 

24,861

 

 

 

50,252

 

Operating lease liabilities, current portion

 

 

4,038

 

 

 

3,801

 

Finance lease liabilities, current portion

 

 

4,632

 

 

 

4,597

 

Total current liabilities

 

 

111,187

 

 

 

141,852

 

Non-current liabilities

 

 

 

 

 

 

Advances under factoring arrangements, less current portion

 

 

5,635

 

 

 

 

Long-term debt, less current portion

 

 

7,322

 

 

 

24,737

 

Long-term debt, less current portion - related party

 

 

11,497

 

 

 

3,379

 

Operating lease liabilities, less current portion

 

 

3,731

 

 

 

6,553

 

Finance lease liabilities, less current portion

 

 

21,883

 

 

 

24,884

 

Deferred tax liability

 

 

60

 

 

 

17

 

Total non-current liabilities

 

 

50,128

 

 

 

59,570

 

Total liabilities

 

 

161,315

 

 

 

201,422

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Temporary Equity

 

 

 

 

 

 

Series A Redeemable Convertible Preferred stock, $0.0001 par value; 10,000,000 shares authorized,
 
100,000 shares issued and outstanding, includes accrued and undeclared dividends $125 (September 30, 2021) and $98 (December 31, 2020) liquidation preference $425 (September 30, 2021) and $398 (December 31, 2020)

 

 

425

 

 

 

398

 

Series B Redeemable Convertible Preferred stock, $0.0001 par value; 3,075,000 shares authorized,
 
2,050,000 shares issued and outstanding, includes accrued and undeclared dividends $935 (September 30, 2021) and $475 (December 31, 2020) liquidation preference $7,085 (September 30, 2021) and $6,625 (December 31, 2020)

 

 

7,085

 

 

 

6,625

 

Redeemable common stock, at redemption value; 2,240,000 (September 30, 2021 and December 31, 2020)

 

 

1,200

 

 

 

1,200

 

Stockholders’ deficit

 

 

 

 

 

 

Common stock, $0.0001 par value; 100,000,000 shares authorized; 12,972,815 (September 30, 2021 and December 31, 2020) shares issued and outstanding

 

 

2

 

 

 

2

 

Common stock subscribed and not yet issued 330 (September 30, 2021) and 80 (December 31, 2020)

 

 

 

 

 

 

Common stock issuable

 

 

4,390

 

 

 

3,474

 

Additional paid-in capital

 

 

32,153

 

 

 

30,821

 

Accumulated deficit

 

 

(74,221

)

 

 

(101,619

)

Total stockholders’ deficit

 

 

(37,676

)

 

 

(67,322

)

Total liabilities, temporary equity, and stockholders’ deficit

 

$

132,349

 

 

$

142,323

 

See notes to unaudited condensed consolidated financial statements.

2


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

($ in thousands, except share and per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Trucking

 

$

68,769

 

 

$

52,133

 

 

$

179,160

 

 

$

159,258

 

Other

 

 

 

 

 

 

 

 

34,758

 

 

 

 

CNG

 

 

91

 

 

 

256

 

 

 

281

 

 

 

808

 

Total revenue

 

 

68,860

 

 

 

52,389

 

 

 

214,199

 

 

 

160,066

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Payroll, benefits and related

 

 

25,689

 

 

 

25,404

 

 

 

69,394

 

 

 

78,135

 

Purchased transportation

 

 

17,303

 

 

 

7,546

 

 

 

38,024

 

 

 

23,023

 

Fuel

 

 

7,278

 

 

 

5,023

 

 

 

19,131

 

 

 

16,948

 

Equipment rent

 

 

3,736

 

 

 

2,086

 

 

 

9,275

 

 

 

7,743

 

Maintenance and supplies

 

 

2,642

 

 

 

2,263

 

 

 

7,357

 

 

 

7,753

 

General and administrative

 

 

6,335

 

 

 

4,858

 

 

 

17,121

 

 

 

14,086

 

Operating supplies and expenses

 

 

3,748

 

 

 

3,705

 

 

 

11,308

 

 

 

11,722

 

Depreciation and amortization

 

 

4,009

 

 

 

3,816

 

 

 

11,371

 

 

 

10,931

 

Insurance and claims

 

 

1,918

 

 

 

2,077

 

 

 

6,881

 

 

 

7,617

 

Loss on sale of fixed assets

 

 

41

 

 

 

 

 

 

78

 

 

 

 

Change in fair value of contingent consideration

 

 

 

 

 

 

 

 

 

 

 

296

 

CNG expenses

 

 

24

 

 

 

95

 

 

 

218

 

 

 

386

 

Total operating expenses

 

 

72,723

 

 

 

56,873

 

 

 

190,158

 

 

 

178,640

 

Operating income (loss)

 

 

(3,863

)

 

 

(4,484

)

 

 

24,041

 

 

 

(18,574

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,784

)

 

 

(3,083

)

 

 

(9,686

)

 

 

(10,148

)

Change in fair value of embedded derivative liability

 

 

1,311

 

 

 

815

 

 

 

1,407

 

 

 

661

 

Change in fair value of warrant liabilities

 

 

481

 

 

 

(1,726

)

 

 

2,243

 

 

 

5,534

 

Gain (loss) on extinguishment of debt

 

 

10,163

 

 

 

46

 

 

 

10,953

 

 

 

(10,010

)

Other miscellaneous income

 

 

10

 

 

 

34

 

 

 

14

 

 

 

34

 

Total other expense

 

 

9,181

 

 

 

(3,914

)

 

 

4,931

 

 

 

(13,929

)

Income (loss) before income taxes

 

 

5,318

 

 

 

(8,398

)

 

 

28,972

 

 

 

(32,503

)

(Provision) benefit for income taxes

 

 

11

 

 

 

(37

)

 

 

(1,574

)

 

 

(142

)

 

 

$

5,329

 

 

$

(8,435

)

 

$

27,398

 

 

$

(32,645

)

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

 

$

(0.42

)

 

$

0.89

 

 

$

(1.68

)

Diluted

 

$

0.16

 

 

$

(0.42

)

 

$

0.83

 

 

$

(1.68

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,891,398

 

 

 

20,270,915

 

 

 

30,377,872

 

 

 

19,906,638

 

Diluted

 

 

33,536,838

 

 

 

20,270,915

 

 

 

33,358,162

 

 

 

19,906,638

 

 

See notes to unaudited condensed consolidated financial statements.

3


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)

For the Nine Months Ended September 30, 2021

 

 

 

Common Stock

 

 

Common Stock Subscribed

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

($ in thousands, except share data)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Issuable

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance - December 31, 2020

 

 

15,212,815

 

 

$

2

 

 

 

80

 

 

$

 

 

$

3,474

 

 

$

30,821

 

 

$

(101,619

)

 

$

(67,322

)

Obligation to issue common stock - related party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

916

 

 

 

 

 

 

 

 

 

916

 

Issuance of warrants to extinguish debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,224

 

 

 

 

 

 

1,224

 

Common stock issued for services - related party

 

 

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

232

 

 

 

 

 

 

232

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152

)

 

 

 

 

 

(152

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,223

 

 

 

31,223

 

Balance - March 31, 2021

 

 

15,212,815

 

 

 

2

 

 

 

330

 

 

 

 

 

 

4,390

 

 

 

32,116

 

 

 

(70,396

)

 

 

(33,888

)

Issuance of warrants to extinguish debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

68

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

117

 

 

 

 

 

 

117

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

 

 

 

(153

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,154

)

 

 

(9,154

)

Balance - June 30, 2021

 

 

15,212,815

 

 

 

2

 

 

 

330

 

 

 

 

 

 

4,390

 

 

 

32,139

 

 

 

(79,550

)

 

 

(43,019

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

178

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(155

)

 

 

 

 

 

(155

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,329

 

 

 

5,329

 

Balance - September 30, 2021

 

 

15,212,815

 

 

$

2

 

 

 

330

 

 

$

 

 

$

4,390

 

 

$

32,153

 

 

$

(74,221

)

 

$

(37,676

)

 

See notes to unaudited condensed consolidated financial statements.

 

4


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)

For the Nine Months Ended September 30, 2020

 

 

 

Common Stock

 

 

Common Stock Subscribed

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

($ in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Issuable

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance - December 31, 2019

 

 

14,333,834

 

 

$

1

 

 

 

8,664

 

 

$

12

 

 

$

3,474

 

 

$

38,611

 

 

$

(54,771

)

 

$

(12,673

)

Reclassification of warrants from equity classified to liability classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,648

)

 

 

 

 

 

(7,648

)

Common stock issued for accrued interest

 

 

8,664

 

 

 

 

 

 

(8,664

)

 

 

(12

)

 

 

 

 

 

12

 

 

 

 

 

 

 

Issuance of common stock for cash - related party

 

 

1,260,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,150

 

 

 

 

 

 

3,150

 

Redemption of common stock for Series B
   redeemable preferred stock - related party

 

 

(1,260,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,150

)

 

 

 

 

 

(3,150

)

Issuance of warrants as deemed dividend - related
  party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(455

)

 

 

 

 

 

(455

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

368

 

 

 

 

 

 

368

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

(30

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,702

)

 

 

(13,702

)

Balance - March 31, 2020

 

 

14,342,498

 

 

 

1

 

 

 

 

 

 

 

 

 

3,474

 

 

 

30,846

 

 

 

(68,473

)

 

 

(34,152

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

 

 

 

(153

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,508

)

 

 

(10,508

)

Balance - June 30, 2020

 

 

14,342,498

 

 

 

1

 

 

 

 

 

 

 

 

 

3,474

 

 

 

30,715

 

 

 

(78,981

)

 

 

(44,791

)

Common stock issued for Finkle contingent
   consideration liability

 

 

870,317

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

297

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Series A Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Series B Redeemable Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(154

)

 

 

 

 

 

(154

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,435

)

 

 

(8,435

)

Balance - September 30, 2020

 

 

15,212,815

 

 

$

2

 

 

 

 

 

$

 

 

 

3,474

 

 

$

30,876

 

 

$

(87,416

)

 

$

(53,064

)

 

See notes to unaudited condensed consolidated financial statements

5


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

For the Nine Months
Ended September 30,

 

($ in thousands)

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

27,398

 

 

$

(32,645

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

11,371

 

 

 

10,931

 

Non-cash lease expense

 

 

2,903

 

 

 

3,042

 

Loss on sale of fixed assets

 

 

78

 

 

 

206

 

Amortization of debt discount and debt issuance costs

 

 

793

 

 

 

1,819

 

Deferred income taxes

 

 

43

 

 

 

(255

)

Stock-based compensation expense

 

 

527

 

 

 

428

 

Non-cash interest expense

 

 

4,768

 

 

 

2,758

 

Bad debt expense

 

 

1

 

 

 

57

 

Change in fair value of embedded derivative liability

 

 

(1,407

)

 

 

(661

)

Change in fair value of warrant liabilities

 

 

(2,243

)

 

 

(5,534

)

Change in fair value of contingent consideration

 

 

 

 

 

296

 

(Gain) loss on extinguishment of debt

 

 

(10,953

)

 

 

10,010

 

Changes in assets and liabilities

 

 

 

 

 

 

Accounts receivable - trade

 

 

(14,162

)

 

 

(4,705

)

Alternative fuels tax credit receivable

 

 

742

 

 

 

1,460

 

Due from related party

 

 

30

 

 

 

 

Other assets

 

 

(2,502

)

 

 

(2,303

)

Accounts payable

 

 

(721

)

 

 

(7,048

)

Accrued expenses and other current liabilities

 

 

(2,924

)

 

 

3,534

 

Accrued interest - related party

 

 

357

 

 

 

844

 

Operating lease liabilities

 

 

(4,092

)

 

 

(3,253

)

Net cash provided by (used in) operating activities

 

 

10,007

 

 

 

(21,019

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of equipment

 

 

(7,132

)

 

 

(61

)

Proceeds from sale of assets

 

 

315

 

 

 

430

 

Net cash provided by (used in) investing activities

 

 

(6,817

)

 

 

369

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from sale of common stock, preferred stock and warrants

 

 

 

 

 

6,150

 

Proceeds from issuance of debt

 

 

5,749

 

 

 

10,000

 

Payments of principal on debt

 

 

(4,306

)

 

 

(4,430

)

Proceeds from issuance of debt - related party

 

 

 

 

 

6,150

 

Payments of principal on debt - related party

 

 

(18,513

)

 

 

(266

)

Payment of prepayment penalty fees - related party

 

 

(777

)

 

 

 

Advances from factoring arrangements

 

 

147,233

 

 

 

132,294

 

Payments on factoring arrangements

 

 

(149,451

)

 

 

(122,461

)

Debt issuance costs

 

 

 

 

 

(296

)

Payments on finance lease liabilities

 

 

(3,056

)

 

 

(2,487

)

Net cash provided by (used in) financing activities

 

 

(23,121

)

 

 

24,654

 

Net increase in cash

 

 

(19,931

)

 

 

(17,384

)

Cash - beginning of year

 

 

26,644

 

 

 

3,274

 

Cash - end of year

 

$

6,713

 

 

$

(14

)

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Income tax paid

 

$

783

 

 

$

1

 

Interest paid

 

$

471

 

 

$

3,046

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for finance lease liabilities

 

$

1,636

 

 

$

18,490

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

1,507

 

 

$

3,379

 

Fair value of warrants and common stock issued in connection with financing arrangements

 

$

2,208

 

 

$

 

Held-for-sale assets sold for noncash consideration

 

$

 

 

$

450

 

 

See notes to unaudited condensed consolidated financial statements.

6


 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed 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. 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. In connection with providing our mail transportation and delivery services to the USPS and our freight services to other corporate customers, we outsource the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from 10 main terminals 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.

Going Concern

As of September 30, 2021, the Company had a cash balance of $6.7 million, a working capital deficit of $73.4 million, stockholders’ deficit of $37.7 million, and material debt and lease obligations of $122.7 million, which include term loan borrowings under a financing agreement with Antara Capital. During the nine months ended September 30, 2021, the Company reported cash provided by operating activities of $10.0 million that included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements and net income of $27.4 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 nine months ended September 30, 2021:

During the fourth quarter of 2020, one of the Company's subsidiaries borrowed $17.0 million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act (the “Main Street Loan”) and during the first quarter of 2021 used all of the net proceeds 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 Company entered into agreements with the USPS to settle claims submitted by the Company seeking additional compensation for transportation services provided under certain Dynamic Route Optimization (“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.
During the first quarter of 2021, the Company entered into an agreement with the Factor (as defined in Note 5, Factoring Arrangements) related to the application of $17.5 million and $7.1 million of proceeds received from the USPS in February and January of 2021, respectively, arising out of the settlement agreements described above. Pursuant to the agreement, the parties acknowledged that the Factor previously applied approximately $1.6 of the $7.1 million of proceeds received in January 2021 plus approximately $0.6 million of funds held in reserve against a balance of $3.0 million for advances that the Factor made to the Company in September 2020 (the “Gross Purchase Advance Facility”) and agreed that the Factor would remit $11.0 million of net proceeds to the Company and that the Factor would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $6.9 million due under the factoring arrangement in 48 equal monthly installments beginning January 1, 2022 and that the Factor would apply funds held in reserve against the approximately $0.8 million remaining balance of the Gross Purchase Advance Facility. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.
During the first and second quarters of 2021, the Company entered into agreements with certain noteholders to purchase promissory notes previously issued by the Company in the principal amount of $4.0 million by paying $0.6 million in cash and issuing warrants to purchase an aggregate of up to 1,481,453 shares of the Company’s common stock at a price of $0.01 per share. The Company also agreed to exchange the warrant, previously issued to a noteholder, to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.

7


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

During the second quarter of 2020, the Company obtained a loan in the amount of $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company used the entire loan amount for qualifying expenses, and the entire amount borrowed under the loan, including all accrued interest, was forgiven by the United States Small Business Administration (“SBA”) in July 2021.

 

The following significant transactions and events affecting the Company’s liquidity occurred following the nine months ended September 30, 2021:

During the first quarter of 2022, the Company obtained a Bridge Loan and Executive Loans, both as described in Note 13, Subsequent Events, in the aggregate amount of approximately $9.8 million.
During the first quarter of 2022, the Company entered into amendments to certain secured convertible promissory notes in the aggregate principal amount of $9.5 million to permit immediate conversion of those notes, and the holders representative converted those notes into warrants to purchase 7,553,750 shares of common stock of the Company at a price of $0.01 per share.

 

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:

The counterparty to the Company’s accounts receivable factoring arrangement is not obligated to purchase the Company’s accounts receivable or make advances to the Company under such arrangement;
The Company is currently in default on certain of its debt obligations (Refer to Note 6, Debt, for further discussion); and
There can be no assurance that the Company will be able to obtain additional financing in the future via the incurrence of additional indebtedness or via the sale of the Company’s common stock or preferred stock.

 

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:

Negotiating with related parties and 3rd parties to refinance existing debt and lease obligations;
Potential future public or private debt or equity offerings;
Acquiring new profitable contracts and negotiating revised pricing for existing contracts;
Profitably expanding trucking revenue;
Cost reduction efforts;
Improvements to operations to gain driver efficiencies;
Purchases of trucks and trailers to reduce purchased transportation and rental vehicles; and
Replacement of older trucks with newer trucks to lower the overall cost of ownership and improve cash flow through reduced maintenance and fuel costs.

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. 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.

 

8


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

Refer to Notes 5 and 6 for further information regarding the Company’s factoring and debt obligations. Refer to Note 13, Subsequent Events, for further information regarding changes in the Company’s debt obligations and liquidity subsequent to September 30, 2021.

Seasonality

Results of operations generally follow seasonal patterns in the transportation industry. Freight volumes in the first quarter are typically lower due to less consumer demand, consumers reducing shipments following the holiday season, and inclement weather. At the same time, operating costs generally increase, and tractor productivity decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs due to higher accident frequency from harsh weather. Combined, these factors typically result in lower operating profitability as compared to other periods. Further, beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to online holiday shopping, the length of the holiday season (shopping days between Thanksgiving and Christmas), and holiday surge pricing on USPS contracts.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s December 31, 2020 Annual Report on Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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.

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):

 

9


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,329

 

 

$

(8,435

)

 

$

27,398

 

 

$

(32,645

)

Accrued and undeclared preferred stock dividends in arrears

 

 

(164

)

 

 

(164

)

 

 

(487

)

 

 

(368

)

Issuance of warrants as deemed dividend - related party

 

 

 

 

 

 

 

 

 

 

 

(455

)

Net income (loss) available to common stockholders - numerator for basic EPS

 

 

5,165

 

 

 

(8,599

)

 

 

26,911

 

 

 

(33,468

)

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

   $4.0 million Secured Convertible Promissory Notes

 

 

27

 

 

 

 

 

 

258

 

 

 

 

   Redeemable Series A Preferred stock

 

 

9

 

 

 

 

 

 

27

 

 

 

 

   Redeemable Series B Preferred stock

 

 

155

 

 

 

 

 

 

460

 

 

 

 

Subtotal

 

 

191

 

 

 

 

 

 

745

 

 

 

 

Adjusted net income (loss) available to common stockholders - numerator for diluted EPS

 

$

5,356

 

 

$

(8,599

)

 

$

27,656

 

 

$

(33,468

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic EPS - weighted average common shares outstanding

 

 

30,891,398

 

 

 

20,270,915

 

 

 

30,377,872

 

 

 

19,906,638

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

   $4.0 million Secured Convertible Promissory Notes

 

 

196,802

 

 

 

 

 

 

639,259

 

 

 

 

   Redeemable Series A Preferred stock

 

 

138,597

 

 

 

 

 

 

132,647

 

 

 

 

   Redeemable Series B Preferred stock

 

 

2,310,041

 

 

 

 

 

 

2,208,384

 

 

 

 

Subtotal

 

 

2,645,440

 

 

 

 

 

 

2,980,290

 

 

 

 

Denominator for diluted EPS - adjusted weighted average common shares outstanding

 

 

33,536,838

 

 

 

20,270,915

 

 

 

33,358,162

 

 

 

19,906,638

 

Basic EPS

 

$

0.17

 

 

$

(0.42

)

 

$

0.89

 

 

$

(1.68

)

Diluted EPS

 

$

0.16

 

 

$

(0.42

)

 

$

0.83

 

 

$

(1.68

)

 

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:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock options

 

 

10,420,249

 

 

 

9,354,250

 

 

 

10,420,249

 

 

 

9,354,250

 

Warrants

 

 

12,606,255

 

 

 

20,031,255

 

 

 

12,606,255

 

 

 

20,031,255

 

Common stock to be issued upon conversion of
   $
4.0 million Secured Convertible Promissory Notes

 

 

 

 

 

1,712,690

 

 

 

 

 

 

1,712,690

 

Common stock to be issued upon conversion of
   Redeemable Series A Preferred stock

 

 

 

 

 

129,622

 

 

 

 

 

 

129,622

 

Common stock to be issued upon conversion of
   Redeemable Series B Preferred stock

 

 

 

 

 

2,156,712

 

 

 

 

 

 

2,156,712

 

Common stock to be issued upon conversion of
   Four convertible promissory notes with an aggregate principal
   amount of $
9.5 million

 

 

7,490,000

 

 

 

7,385,000

 

 

 

7,490,000

 

 

 

7,385,000

 

Common stock and warrant to be issued for purchase
   of fixed assets

 

 

2,348,000

 

 

 

2,348,000

 

 

 

2,348,000

 

 

 

2,348,000

 

Total

 

 

32,864,504

 

 

 

43,117,529

 

 

 

32,864,504

 

 

 

43,117,529

 

 

Revenue Recognition

In accordance with ASC 606-10-50, the Company disaggregates Trucking revenue from contracts with its customers between USPS revenue and Freight revenue as follows:

10


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

($ in thousands)

 

For the Three Months
Ended September 30,

 

 

For the Nine Months
Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

USPS revenue

 

$

59,546

 

 

$

45,607

 

 

$

155,849

 

 

$

139,148

 

Freight revenue

 

 

6,976

 

 

 

6,224

 

 

 

20,098

 

 

 

18,784

 

Other revenue

 

 

2,247

 

 

 

302

 

 

 

3,213

 

 

 

1,326

 

Total Trucking revenue

 

$

68,769

 

 

$

52,133

 

 

$

179,160

 

 

$

159,258

 

 

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 $7.1 million to one of the Company’s subsidiaries as additional compensation for transportation services provided to the USPS under certain DRO contracts. Subsequently, on February 19, 2021, the Company and the USPS entered into an additional settlement agreement whereby the USPS agreed to pay approximately $17.5 million to certain other Company subsidiaries as additional compensation for transportation services provided to the USPS under other DRO contracts. In connection with the settlement agreements, the Company and the USPS agreed to make certain adjustments to the Company’s DRO contracts, including rate adjustments effective for the fourth quarter of 2020 and future periods. As a result of those adjustments, the USPS agreed to pay an additional $3.8 million to the Company for transportation services provided in the fourth quarter of 2020. The USPS has made all payments associated with these settlement agreements and they were received by the Factor (as defined in Note 5, Factoring Arrangements) on behalf of the Company during the first quarter of 2021. 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. All 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.

 

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 adoption of this guidance on January 1, 2021 did not have a material impact on the Company’s consolidated financial statements.

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 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

11


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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

Goodwill consists of the following:

 

($ in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

Beginning balance

 

$

23,837

 

 

$

23,837

 

Acquisitions

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

 

 

$

23,837

 

 

$

23,837

 

 

All of the Company’s goodwill is included in its Trucking segment.

Intangible assets consist of the following:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

($ in thousands)

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

 

$

4,604

 

 

$

(1,923

)

 

$

2,681

 

 

$

4,604

 

 

$

(1,499

)

 

$

3,105

 

Trade names

 

 

2,416

 

 

 

(848

)

 

 

1,568

 

 

 

2,416

 

 

 

(640

)

 

 

1,776

 

Non-competition agreements

 

 

325

 

 

 

(168

)

 

 

157

 

 

 

325

 

 

 

(119

)

 

 

206

 

 

 

$

7,345

 

 

$

(2,939

)

 

$

4,406

 

 

$

7,345

 

 

$

(2,258

)

 

$

5,087

 

 

Amortization expense for the three months ended September 30, 2021 and 2020, was $0.2 million and $0.2 million, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020, was $0.7 million and $0.7 million, respectively. The weighted-average remaining useful life of the finite-lived intangible assets was 8.0 years as of September 30, 2021, of which the weighted-average remaining useful life for the customer relationships was 8.1 years, for the trade names was 8.5 years, and for the non-competition agreements was 2.5 years.

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 two operating and reportable segments are Trucking and CNG Fueling Stations. Corporate and Unallocated represents expenses that are not allocated to a reportable segment including corporate general and administrative expenses and other corporate costs such as change in fair value of warrant liabilities, change in fair value of embedded derivative liability, gain (loss) on extinguishment of debt, and interest expense on certain debt obligations.

 

Trucking. The Company’s Trucking segment provides surface transportation services to the USPS and other customers.

 

CNG Fueling Stations. 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.

12


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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.

 

 

 

For the Three Months Ended September 30, 2021

 

($ in thousands)

 

Trucking

 

 

CNG Fueling
Stations

 

 

Corporate and
Unallocated

 

 

Total

 

Revenue

 

$

68,769

 

 

$

91

 

 

$

 

 

$

68,860

 

Operating expenses, excluding depreciation and amortization

 

$

(63,814

)

 

$

(196

)

 

$

(4,704

)

 

$

(68,714

)

Depreciation and amortization

 

$

(4,009

)

 

$

 

 

$

 

 

$

(4,009

)

Operating loss

 

$

946

 

 

$

(105

)

 

$

(4,704

)

 

$

(3,863

)

 

 

 

For the Nine Months Ended September 30, 2021

 

($ in thousands)

 

Trucking

 

 

CNG Fueling
Stations

 

 

Corporate and
Unallocated

 

 

Total

 

Revenue

 

$

213,918

 

 

$

281

 

 

$

 

 

$

214,199

 

Operating expenses, excluding depreciation and amortization

 

$

(165,494

)

 

$

(800

)

 

$

(12,493

)

 

$

(178,787

)

Depreciation and amortization

 

$

(11,371

)

 

$

 

 

$

 

 

$

(11,371

)

Operating loss

 

$

37,053

 

 

$

(519

)

 

$

(12,493

)

 

$

24,041

 

 

 

 

For the Three Months Ended September 30, 2020

 

($ in thousands)

 

Trucking

 

 

CNG Fueling
Stations

 

 

Corporate and
Unallocated

 

 

Total

 

Revenue

 

$

52,133

 

 

$

256

 

 

$

 

 

$

52,389

 

Operating expenses, excluding depreciation and amortization

 

$

(49,828

)

 

$

(252

)

 

$

(2,977

)

 

$

(53,057

)

Depreciation and amortization

 

$

(3,758

)

 

$

(56

)

 

$

(2

)

 

$

(3,816

)

Operating loss

 

$

(1,453

)

 

$

(52

)

 

$

(2,979

)

 

$

(4,484

)

 

 

 

For the Nine Months Ended September 30, 2020

 

($ in thousands)

 

Trucking

 

 

CNG Fueling
Stations

 

 

Corporate and
Unallocated

 

 

Total

 

Revenue

 

$

159,258

 

 

$

808

 

 

$

 

 

$

160,066

 

Operating expenses, excluding depreciation and amortization

 

$

(158,414

)

 

$

(744

)

 

$

(8,551

)

 

$

(167,709

)

Depreciation and amortization

 

$

(10,752

)

 

$

(175

)

 

$

(4

)

 

$

(10,931

)

Operating loss

 

$

(9,908

)

 

$

(111

)

 

$

(8,555

)

 

$

(18,574

)

 

For the nine months ended September 30, 2021 and 2020, the revenue from one customer accounted for approximately 89% and 87%, respectively, of total consolidated revenue.

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 one of the Company’s officers. Under the agreement, the Company pays a monthly fee for this technology based on the number of devices installed across the Company’s fleet. During the three and nine months ended September 30, 2021, the Company recognized expense of approximately $0.1 million and $0.5 million, respectively, related to this software technology, and there were no amounts owed as of September 30, 2021 and December 31, 2020. During the three and nine months ended September 30, 2020, the Company recognized expense of approximately $0.3 million and $0.8 million related to this software technology, respectively.

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 $2.6 million and $2.2 million as of September 30, 2021, and December 31, 2020, respectively.

13


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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 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 $0.9 million in cash and investments held in the SEI captive insurance member account. The pledged collateral remains the exclusive property of SEI and any interest earned on the pledged collateral during the term of the agreement will accrue exclusively to the benefit of SEI. The Company has no claim to the pledged collateral or any accrued interest. The letter agreement expired on March 1, 2020, however, the CPSA requires the consent of the Company in order for it to be terminated and the Company has not to date granted its consent.

Purchase of Fixed Assets

On October 15, 2019, the Company entered into an agreement with an existing stockholder to purchase used CNG tractors in exchange for 1,174,800 shares of the Company’s common stock and a warrant to purchase 1,174,800 shares of the Company’s common stock at an exercise price of $2.50 per share. Although the Company has taken possession of the tractors, the issuance of the common stock and the warrant has not yet occurred. Accordingly, the Company has recorded $3.5 million related to the tractors within property and equipment, net on its consolidated balance sheets, with an associated $3.5 million related to the Company’s obligation to issue the common stock and the warrant to purchase common stock within common stock issuable.

 

For information regarding additional related-party transactions, see Note 6, Debt, Note 7, Stockholders’ Deficit and Warrants, and Note 13, Subsequent Events.

Note 5 – Factoring Arrangements

 

Certain of the Company’s wholly-owned subsidiaries have entered into accounts receivable factoring arrangements with a financial institution (the “Factor”) with termination dates that started in September 2021 but automatically renew for successive one-year periods (absent either party's written election to terminate, which has not occurred). Pursuant to the terms of the agreements, the Company, from time to time, sells to the Factor certain of its accounts receivable balances on a recourse basis for credit-approved accounts. The Factor remits 95% of the contracted accounts receivable balance 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 from the customer.

 

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. Earned and unearned components included in Advances from factoring arrangement are as follows:

 

($ in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

Purchased accounts receivable

 

$

14,771

 

 

$

7,924

 

Unearned future contract advances

 

 

8,286

 

 

 

16,473

 

Total

 

$

23,057

 

 

$

24,397

 

 

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 Summary of Significant Accounting Policies. Pursuant to the agreement, the parties agreed that the Factor would remit $11.0 million of net proceeds to the Company and that the Factor would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $6.9 million due under the factoring arrangement in 48 equal monthly installments beginning January 1, 2022 and that the Factor would apply funds held in reserve against the approximately $0.8 million remaining balance of advances made to the Company during September 2020. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.

 

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 4% floor) plus 2.0% (resulting in rate of 6% as of September 30, 2021 and December 31, 2020). There is also a factor fee of 0.25% of the

14


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

face amount of the invoice factored and an associated penalty increase for purchased accounts that remain unpaid for 31 days. Total interest and financing fees for factored receivables for the three and nine months ended September 30, 2021 were $0.4 million and $0.9 million, respectively. Total interest and financing fees for factored receivables for the three and nine months ended September 30, 2020 were $0.4 million and $1.5 million, respectively. The fees are included in interest expense in the condensed consolidated statements of operations.

Note 6 - Debt

 

Antara Financing Agreement

On September 16, 2019, the Company entered into a $24.5 million financing agreement (the “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. Pursuant to the Financing Agreement, the Company initially borrowed $22.4 million and borrowed the remaining $2.1 million during October 2019 (the “Term Loan”). All of the Company’s subsidiaries were originally guarantors under the Financing Agreement. The Term Loan is secured by all assets of the Company and its subsidiaries, including pledges of all equity in the Company’s subsidiaries and is not subject to registration rights. The Financing Agreement contains covenants, subject to specific exceptions, that limit (i) the making of investments, (ii) the incurrence of additional indebtedness, (iii) the incurrence of liens, (iv) payments and asset transfers with restricted junior loan parties or subsidiaries, including dividends, (v) transactions with shareholders and affiliates, (vi) asset dispositions and acquisitions, among others. The Term Loan bears interest at 12% per annum and had an original maturity date of September 16, 2022. Until December 31, 2019, interest on the Term Loan was paid in kind and capitalized as additional principal, and the Company had the option to pay interest on the capitalized interest in cash or in kind. After December 31, 2019, monthly interest payments were due in cash, and all outstanding principal and interest will be due on the maturity date. The Term Loan may be prepaid at any time, subject to payment of a prepayment premium of (1) 7% for each early payment made or coming due on or prior to September 16, 2020, (2) after September 16, 2020, 5% for each early payment made or coming due on or prior to September 16, 2021, and (3) thereafter, no premium shall be due. Proceeds were to be used to (i) effect the Ritter acquisition, (ii) to refinance and retire existing indebtedness, and (iii) general working capital needs.

 

Concurrently, and in connection with the Financing Agreement, the Company issued two warrants (the “$0.01 Warrant” and the “$2.50 Warrant” and collectively, the “Antara Warrants”) to Antara Capital to purchase an aggregate of 4,375,000 shares of common stock of the Company (the “Antara Warrant Shares”). The $0.01 Antara Warrant grants Antara Capital the right to purchase up to 3,350,000 Antara Warrant Shares at an exercise price of $0.01 per share and is exercisable for five years from the date of issuance. The $2.50 Antara Warrant grants Antara Capital the right to purchase up to 1,025,000 Antara Warrant Shares at an exercise price of $2.50 per share, subject to adjustment for certain distributions, stock splits, and issuances of common stock, and is exercisable for ten years from the date of issuance. If the fair market value of the Antara Warrant Shares is greater than the related exercise price at the end of the exercise period (the Warrant Shares are “in the money”), then any outstanding Antara Warrants that are in the money will be automatically deemed to be exercised immediately prior to the end of the exercise period. Pursuant to the Antara Warrants, the Company granted Antara Capital preemptive rights to purchase its pro rata share, determined based on the number of shares held by Antara Capital or into which Antara Capital’s Antara Warrants are exercisable, of capital stock issued by the Company after the issuance date of the Antara Warrants, subject to certain excepted issuances.

 

The Company issued a warrant for 1,500,000 shares of common stock to Antara at an exercise price of $0.01 per share (the “Side Letter Warrant”) subject to the Company's potential acquisition of LoadTrek, a GPS system designed for the trucking industry, owned by a related party. If the Company were to successfully complete an acquisition of certain assets of LoadTrek or meet financial performance metrics set forth in the warrant agreement, all or a portion of the shares underlying the Side Letter Warrant were subject to cancellation. The Company did not acquire the LoadTrek assets and the Side Letter Warrant was subsequently amended to remove the cancellation provision and, therefore, none of the shares underlying the warrant were cancelled.

 

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,

15


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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 $9.0 million debt discount that is amortized to interest expense over the term of the Term Loan.

 

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 $3.2 million of term loan commitments (the “Incremental Term Loans”) and borrowed $3.2 million from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement. The Incremental Term Loans bear interest at 12% per annum, with monthly interest payments due in cash and all outstanding principal and interest due on the maturity date. The Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020, and (ii) 5% of each prepayment made after September 16, 2020, but on or prior to September 16, 2021, with no premium due after September 16, 2021. Pursuant to the Incremental Amendment, the collateral agent and other lenders agreed to forbear from exercising certain rights, remedies, powers, privileges, and defenses under the Financing Agreement and the other related loan documents during the forbearance period with respect to certain events of default and/or expected or anticipated events of default arising under the Financing Agreement. The Incremental Amendment also suspended the accrual of interest at the post-default rate until the end of the forbearance period. The Company paid a 2% financing fee in connection with its entry into the Incremental Amendment. The Company also reimbursed the Collateral Agent for $0.1 million of fees, costs, and expenses previously accrued under the Financing Agreement and in addition paid fees, costs, and expenses of the Collateral Agent and the lenders newly incurred in connection with the Incremental Amendment.

 

In connection with the Incremental Amendment, the Company issued a warrant (the “Antara Warrant 2020”) to Antara Capital to purchase 3,650,000 shares (the “Antara Warrant Shares 2020”) of the Company’s common stock at an exercise price of $2.50 per share, subject to adjustment for certain distributions, stock splits, and issuances of common stock, as an incentive. The issuance of this warrant results in an additional debt discount that is amortized to interest expense over the term of the debt using the effective interest method. The Antara Warrant 2020 is exercisable for ten years from the date of issuance. If the fair market value of the Antara Warrant Shares 2020 is greater than $2.50 at the end of the exercise period, then the Antara Warrant 2020 will be deemed to be exercised automatically and immediately prior to the end of the exercise period. Pursuant to the Antara Warrant 2020, the Company granted Antara Capital preemptive rights to purchase its pro rata share, determined based on the number of shares held by Antara Capital or into which warrants held by Antara Capital (including the Antara Warrant 2020) are exercisable, of capital stock issued by the Company after the issuance date of the Antara Warrant 2020, subject to certain excepted issuances.

 

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 $3.1 million in term loan commitments (the “Second Incremental Term Loans”) and borrowed $3.1 million from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement. The Second Incremental Term Loans bear interest at 12% per annum, with monthly interest payments due in cash and all outstanding principal and interest due on the maturity date. The Second Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020 and (ii) 5% of each prepayment made after September 16, 2020 but on or prior to September 16, 2021, with no premium due after September 16, 2021. The Second Incremental Amendment also suspends the accrual of interest at the post-default rate until the end of the forbearance period. The forbearance period was scheduled to terminate on the earliest of (a) September 30, 2020, (b) the occurrence of any event of default other than the specified defaults, or (c) the date on which any breach of any of the conditions or agreements, including without limitation the affirmative covenants, provided in the Incremental Amendment or Second Incremental Amendment occurs. The Company paid all fees, costs, and expenses of the collateral agent and the lenders incurred in connection with the Incremental Amendment and the Second Incremental Amendment.

 

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.

16


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

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 3,250,000 shares of the Company’s Common Stock at an exercise price of $2.50 per share as an incentive. The Company accounted for this issuance to Antara as an extinguishment of the existing debt and the execution of a new debt instrument. The Company recorded a $10.1 million loss on extinguishment of debt related to unamortized debt discount and debt issuance costs, which was recorded within gain (loss) on extinguishment of debt in the consolidated statement of operations for the nine months ended September 30, 2020.

 

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 $10,000,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, and (iv) extended the timelines under which the Company and its subsidiaries are required to comply with certain affirmative covenants set forth in the Financing Agreement, Incremental Amendment, and Second Incremental Amendment.

 

The Omnibus Amendment contained the following additional covenants:

The Company was required to either (a) fully consummate the acquisition by EVO Equipment Leasing, LLC of 89 used CNG tractors on or before January 3, 2021 or (b) issue 1,174,800 shares of the Company’s common stock to the lenders. The Company did not fully consummate the acquisition of the used CNG tractors by January 3, 2021 and became obligated on that date to issue the 1,174,800 shares of the Company’s common stock to the lenders.
The Company was required to issue to each of the lenders ratably warrants authorizing such lender to, on or after January 1, 2021, purchase its ratable share of up to 500,000 shares of the voting common stock of the Company at the price of $0.01 per share with a 10 year expiration. If the Company or any of its subsidiaries had not repaid or partially repaid the obligations with the net proceeds (in the amount of at least $25.0 million) of a financing under the “Main Street Lending Program” on or before December 31, 2020, then the Company was required to issue an additional 1,000,000 warrants to the lenders. The Company had not repaid the $25.0 million by December 31, 2020. Therefore, the Company was required to issue warrants to purchase an aggregate of 1,500,000 shares of the Company’s common stock to the lenders.
All warrants previously issued to lenders, at the election of the lender holding same, will be exchanged without any cash consideration for warrants to purchase for $0.01 per share voting common stock of the Company at the rate of 0.64 warrants for shares of voting common stock of the Company. As a result, warrants to purchase an aggregate of 7,925,000 shares of the Company’s common stock at a price of $2.50 per share were exchanged for an aggregate of 5,072,000 shares of the Company’s common stock at a price of $0.01 per share.

 

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 500,000 shares of the voting common stock of the Company at the price of $0.01 per share, the change in fair value resulting from the warrant exchange, and the fees paid to Antara on its 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 1,174,800 shares of the Company's common stock as interest expense during the first quarter of 2021.

 

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 $17.0 million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. Pursuant to the Second Omnibus Amendment, the forbearance period was terminated and the collateral agent and other lenders agreed to waive all existing defaults or events of default under the Financing Agreement that occurred and were continuing as of the date of the Second Omnibus Amendment. The Second Omnibus Amendment also removed or revised certain covenants contained in the Financing Agreement and prior amendments to the Financing Agreement, including the

17


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

EBITDA-based financial covenant included in the Financing Agreement, and extended the maturity date of the term loans under the Financing Agreement to the date that is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first. Under the Second Omnibus Amendment, interest on the term loans under the Financing Agreement is payable in kind at the rate of 14.5% per annum for the first eight full or partial calendar quarters following the effective date of the Second Omnibus Amendment and is payable in cash at the rate of 12.0% per annum commencing with the ninth calendar quarter following the effective date. As a result of the Main Street Loan, Second Omnibus Amendment, and related agreements, payment of the principal balance of the term loans is subject and subordinate to the prior payment in full of all obligations under the Main Street Loan. The Company accounted for the Second Omnibus Amendment as a modification of the Financing Agreement.

 

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 $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Loan, which is memorialized by a Note dated April 15, 2020 issued by the Company, was scheduled to mature on April 15, 2022 and bore interest at a rate of 1.00% per annum, payable monthly commencing on November 15, 2020. The Company was able to prepay the Note at any time prior to maturity with no prepayment penalties. The principal amount of the Loan and accrued interest were eligible for forgiveness after eight weeks if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels. The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan was forgiven by the SBA in July 2021, which was recognized as a $10.1 million gain on extinguishment of debt in the consolidated statements of operations for the three and nine months ended September 30, 2021.

 

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 $17.0 million (the “Main Street Loan”) serviced by Commerce Bank of Arizona, Inc. (the “Bank”) as lender under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. The Borrowers and the Bank subsequently entered into a Modification Agreement to the Loan Agreement dated December 22, 2020 (the “Modification Agreement”) and a Second Modification Agreement to the Loan Agreement dated December 23, 2020 (the “Second Modification Agreement”). During the first quarter of 2021, the Borrowers used all of the net proceeds of the Main Street Loan to refinance a portion of the amount outstanding under the Financing Agreement discussed above under the caption “Forbearance Agreement and Incremental Amendment to Financing Agreement” and to pay related prepayment premiums.

 

The Main Street Loan has a five-year term and bears interest at a rate equal to the sum of (i) 3% percent per year plus (ii) the rates per year quoted by Bank as Bank’s three month LIBOR rate based upon quotes of the London Interbank Offered Rate, as quoted for U.S. Dollars by Bloomberg, or other comparable services selected by the Bank (the “LIBOR Index”). Such interest rate will change once every third month on the fifth day of the month and will be the LIBOR Index on the day which is two banking days prior to the date the change becomes effective.

 

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 quarterly on the 14th day of the last month of each calendar quarter (i.e., March 14, June 14, September 14, and December 14 of each year), with the first interest payment due on March 14, 2022. In addition, on December 14, 2023 and December 14, 2024, the Borrowers must make an annual payment of principal plus accrued but unpaid interest in an amount equal to fifteen percent (15%) of the outstanding principal balance of the Main Street Loan. The entire outstanding principal balance of the Main Street Loan, together with all accrued and unpaid interest, is due and payable in full on December 14, 2025. The Borrowers may prepay the Main Street Loan at any time without incurring any prepayment penalties.

 

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

18


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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 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 Danny Cuzick’s consent to the contribution, the Company agreed to (a) indemnify Danny Cuzick for up to $0.5 million in connection with Danny Cuzick’s guaranty of certain obligations of the Company and its subsidiaries to Mercedes-Benz Financial Services USA LLC and (b) issue to Danny 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. The Company capitalized the estimated fair value of the Cuzick Warrant on its balance sheet as a discount on the Main Street Loan, which is amortized using the effective interest method into interest expense over the term of the Main Street Loan.

 

19


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

Debt (with unrelated parties) consists of:

 

($ in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

 

(a) Main Street Loan

 

$

17,428

 

(1)

$

17,033

 

 

(b) PPP Loan

 

 

 

 

 

10,000

 

 

(c) $1.3 million note payable

 

 

580

 

 

 

683

 

 

(d) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)

 

 

526

 

 

 

1,099

 

(2)

(e) $0.3 million note payable

 

 

93

 

 

 

149

 

 

(f) Thunder Ridge supplier advance

 

 

853

 

 

 

881

 

 

(g) Various notes payable acquired from JB Lease

 

 

704

 

 

 

1,726

 

 

(h) $0.8 million note payable

 

 

331

 

 

 

504

 

 

(i) $3.8 million note payable

 

 

1,898

 

 

 

2,403

 

 

(j) Failed sale-leaseback obligations

 

 

5,104

 

 

 

484

 

 

(k) Notes payable to two financing companies

 

 

874

 

 

 

1,082

 

 

(l) Finkle equipment notes

 

 

1,842

 

 

 

2,907

 

 

Total before debt issuance costs and debt discount

 

 

30,233

 

 

 

38,951

 

 

Debt issuance costs

 

 

(980

)

 

 

(1,147

)

 

Debt discount

 

 

(291

)

 

 

(340

)

 

 

 

 

28,962

 

 

 

37,464

 

 

Less current portion

 

 

(21,640

)

 

 

(12,727

)

 

Long-term debt, less current portion

 

$

7,322

 

 

$

24,737

 

 

(1) Classified as a current liability as of September 30, 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.

(a)
Main Street Loan

The $17.4 million loan bears interest at a rate equal to 3% percent per year plus the LIBOR Index. Beginning December 14, 2022, the Borrowers must make quarterly interest payments, and the Borrowers must make payments equal to 15% of the outstanding principal balance plus capitalized interest on each of December 14, 2023 and December 14, 2024. The entire outstanding principal balance, together with all accrued and unpaid interest, is due and payable in full on December 14, 2025.

The Company classified the $17.4 million unpaid principal balance, which includes $0.4 million of capitalized interest, as a current liability as of September 30, 2021 due to the existence of one or more covenant violations. As of September 30, 2021 and December 31, 2020, the unamortized debt discount was $0.3 million and $0.3 million, respectively, and the unamortized debt issuance costs were $1.0 million and $1.1 million, respectively.

(b)
PPP Loan

The $10.0 million PPP Loan was scheduled to mature on April 15, 2022 and bore interest at a rate of 1.00% per annum. The principal amount of the Loan and accrued interest were eligible for forgiveness after eight weeks if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels. The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan, including accrued interest, was forgiven by the SBA in July 2021.

(c)
$1.3 million note payable

The $1.3 million note payable was issued December 31, 2014, with interest adjusted to the SBA LIBOR base rate, plus 2.35%. The note matures March 2024, is secured by substantially all of Titan’s business assets and is personally guaranteed by certain former members of Titan including a member of our board of directors and certain of his relatives, and beneficial owners of more than 5% of our undiluted shares of common stock. The note is a co-borrower arrangement between Titan and El Toro with the proceeds received by El Toro.

(d)
$4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)

The Secured Convertible Notes were issued during August 2018. The Company paid debt issuance costs of $0.5 million in connection with the Secured Convertible Notes. They bear interest at 9%, compounded quarterly, with principal due two years after

20


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

issuance and are secured by all the assets of the Company. The holder may agree, at its discretion, to add accrued interest in lieu of payment to the principal balance of the Secured Convertible Notes on the first day of each calendar quarter.

The Secured Convertible Notes are convertible into shares (the “Note Shares”) of the Company’s common stock at a conversion rate of $2.50 per share of common stock at the Holder’s option: 1) at any time after the first anniversary of the date of issuance or 2) at any time within 90 days after a “triggering event,” including a sale, reorganization, merger, or similar transaction where the Company is not the surviving entity. The Secured Convertible Notes are also subject to mandatory conversion at any time after the first anniversary of the date of issuance if the average volume of shares of common stock traded on the Nasdaq Capital Market, NYSE American Market or a higher tier of either exchange is 100,000 or more for the 10 trading days prior to the applicable date. Such a mandatory conversion has not occurred.

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 1% of the outstanding principal amount of the Secured Convertible Notes each 30 days if the Registration Statement is not declared effective by the SEC within 180 days of the filing date of the Registration Statement. During the nine months ended September 30, 2021, the Company incurred $0.1 million and paid $0 in liquidated damages to noteholders. During the nine months ended September 30, 2020, the Company incurred $0.4 million and paid $0.1 million in liquidated damages to noteholders.

As additional consideration for the Secured Convertible Notes, the Company issued warrants to the Holders to purchase 1,602,000 shares of common stock at an exercise price of $2.50 per share, exercisable for ten years from the date of issuance. The fair value of the warrants issued determined using the Black Scholes pricing model was $0.7 million, calculated with a ten-year term; 65% volatility; 2.89%, 2.85% or 3.00% discount rates and the assumption of no dividends.

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 $0.6 million. The Note Purchase Agreements provide for various releases by the Holders and their respective representatives, successors, and assigns, including releases arising out of or related to the Secured Convertible Notes and the Secured Convertible Note Agreements. Pursuant to the Note Purchase Agreements, the Company agreed to purchase the Secured Convertible Notes and the Secured Convertible Note Agreements from the Holders in exchange for approximately $0.1 million in cash to the Holders and to issue to the Holders warrants to purchase an aggregate of up to 231,453 shares of common stock of the Company at a price of $0.01 per share. The Company recognized the estimated fair value of the warrants as a $0.2 million increase in additional paid-in capital and recognized a $0.4 million gain on extinguishment of debt in the consolidated statement of operations for the nine months ended September 30, 2021. During the nine months ended September 30, 2021 $0.1 million of interest was added to the principal balance. In March 2022, the Company accepted a Secured Convertible Note in the principal amount of $0.25 million as contribution for a loan under the Bridge Loan described in Note 13, Subsequent Events.

(e)
$0.3 million note payable

The $0.3 million note payable was issued during November 2018, with interest at 3% and a maturity date of October 2022. The note calls for quarterly principal payments on January, April, July, and October 1st of $18,750 plus the related accrued interest.

(f)
Thunder Ridge supplier advance

Thunder Ridge signed an agreement with a supplier on August 31, 2017, in which $1.0 million was advanced to Thunder Ridge during 2017. The advance bears interest at 8.5%, is collateralized by substantially all of Thunder Ridge’s assets, is guaranteed by a member of management, and has a July 2022 maturity date.

(g)
Various notes payable acquired from JB Lease

The various notes payable acquired from JB Lease were issued to multiple lenders with interest rates ranging from 3.9% to 5.1% per annum. The notes have maturity dates ranging from September 2019 to August 2024. These notes are collateralized by transportation equipment and guaranteed by certain stockholders of the Company.

(h)
$0.8 million note payable

21


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

The $0.8 million note payable to a financing company was issued February 11, 2019, with interest at 10.2% per annum and a maturity date of February 11, 2023. The note is collateralized by certain equipment and guaranteed by a member of management.

(i)
$3.8 million note payable

The $3.8 million note payable to a financing company was issued January 23, 2019, with interest at 10.1% per annum and a maturity date of February 23, 2024. The note is collateralized by certain equipment and guaranteed by a member of management.

(j)
Failed sale-leaseback obligations

Certain notes payable acquired from Sheehy were payable to a bank with interest rates of 4.35% to 4.375% per annum and were scheduled to mature between September 2020 and December 2021. During September 2020, the Company sold certain assets that are collateral for the notes payable to a third party for aggregate proceeds of $0.7 million, used such proceeds to extinguish the notes payable, and entered into a lease agreement with the third party under which the Company agreed to lease back the assets. In addition, during the nine months ended September 30, 2021 the Company entered into four sale-leaseback arrangements to provide approximately $4.9 million in cash proceeds for previously purchased equipment. Because these lease backs are classified as finance leases, the Company determined that it did not relinquish control of the assets to the buyer-lessor. Therefore, the Company accounted for the transactions as failed sale-leasebacks whereby the Company continues to depreciate the assets and recorded financing obligations for the consideration received from the buyer-lessor. No gain or loss was recognized on these transactions.

(k)
Notes payable to two financing companies

Notes payable to two financing companies issued in February 2019 and October 2019 with maturity dates in March 2023 and October 2024, respectively. The interest rates range from 4.5% to 8.94%, and the notes are collateralized by certain equipment.

(l)
Finkle equipment notes

Equipment notes payable with interest rates ranging from 5.2% to 11.8% and maturity dates between May 2020 and September 2025. The notes are collateralized by equipment.

Debt (with related parties) consists of:

 

($ in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

 

(a) Antara Financing Agreement

 

$

18,021

 

(1)

$

33,616

 

(2)

(b) Four promissory notes with an aggregate principal amount of $9.5 million

 

 

9,500

 

 

 

9,500

 

 

(c) $3.8 million senior promissory note

 

 

3,800

 

(1)

 

3,800

 

(3)

(d) $4.0 million promissory note

 

 

4,000

 

(1)

 

4,000

 

(3)

(e) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)

 

 

 

 

 

3,280

 

(3)

(f) $2.5 million promissory note - stockholder

 

 

1,566

 

 

 

1,732

 

(3)

(g) $6.4 million promissory note - stockholder

 

 

6,367

 

 

 

6,111

 

(3)

(h) Notes payable acquired from Ritter

 

 

410

 

 

 

439

 

 

Total before debt issuance costs and debt discount

 

 

43,664

 

 

 

62,478

 

 

Debt issuance costs

 

 

(18

)

 

 

(36

)

 

Debt discount

 

 

(7,288

)

 

 

(8,811

)

 

 

 

 

36,358

 

 

 

53,631

 

 

Less current portion

 

 

(24,861

)

 

 

(50,252

)

 

Long-term debt, less current portion - related party

 

$

11,497

 

 

$

3,379

 

 

(1) Classified as a current liability as of September 30, 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.

(a)
Antara Financing Agreement

The $18.0 million of Term Loans bear interest at 14.5% per annum. The maturity date is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan (March 15, 2026) or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first. Beginning with the Omnibus Amendment and ending on December 14, 2020, interest was paid in kind at a rate of 17% per annum. Beginning December 14, 2020, interest on the Term Loans is payable in kind at 14.5% per annum for the first eight full or partial calendar quarters following December 14, 2020

22


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

and is payable in cash at the rate of 12.0% per annum commencing with the ninth calendar quarter following the effective date. All outstanding principal and interest is due on the maturity date. During the first quarter of 2021 used 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, which resulted in an approximately $1.7 million loss on extinguishment of debt (which includes $0.8 million of prepayment penalty fees) being recognized in the consolidated statement of operations for the nine months ended September 30, 2021.

The Company classified the $18.0 million unpaid principal balance, which includes capitalized interest, as a current liability as of September 30, 2021 due to the existence of one or more covenant violations. The Company also classified the $33.6 million unpaid principal balance, which includes capitalized interest, 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. As of September 30, 2021 and December 31, 2020, the unamortized debt discount was $1.0 million and $2.0 million, respectively.

(b)
Four promissory notes with an aggregate principal amount of $9.5 million

 

The four promissory notes were issued to the former EAF members with interest at 1.5%, issued February 1, 2017, and mature February 1, 2026. These convertible promissory notes are secured by substantially all of the assets of EAF. The Company imputed an interest rate of 5.1% on the promissory notes. The discount is accreted over the period from the date of issuance to the date the promissory notes are due using the effective interest rate method. These promissory notes are convertible into 7,000,000 shares of the Company's common stock. The holder’s conversion option is limited on a monthly basis to the number of shares of common stock equal to 10% of the thirty (30) day average trading volume of shares of common stock during the prior calendar month. Further, $35,000 is the minimum amount of principal or capitalized interest the holder must convert per conversion. As of September 30, 2021 and December 31, 2020, the unamortized debt discount was $6.0 million and $6.5 million, respectively. Subsequent to December 31, 2021, these notes were amended to permit the immediate conversion in full into warrants to purchase common stock at $0.01 per share and converted into 7,533,750 warrants.

(c)
$3.8 million senior promissory note

The $3.8 million senior promissory note was issued on February 1, 2017, to a former EAF member with interest at 7.5% and default interest of 12.5% per annum, an original maturity of the earlier of (a) December 2017; (b) ten days after the initial closing of a private offering of capital stock of the Company in an amount not less than $10 million; or (c) an event of default.

During April 2018, the promissory note’s maturity date was extended to July 2019. The senior promissory note is unsecured. No principal and interest payments are due until maturity.

In connection with the Financing Agreement, amounts due under the senior promissory note were subordinated and extended to November 2022. Additionally, the holder agreed not to receive, accept, or demand payment under the subordinated obligation until all obligations under the Financing Agreement have been paid in full, except that the holder may continue to receive regularly scheduled interest payments so long as holder has not been informed that an event of default has occurred and is continuing under the Financing Agreement.

Also in connection with the Financing Agreement and as consideration for the subordination of the subordinated promissory note and the promissory note described below, the Company issued a warrant to the holder to purchase an aggregate of 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.2 million. As of September 30, 2021 and December 31, 2020, the remaining unamortized debt discount was $0.1 million and $0.2 million, respectively. The Company classified the $3.8 million unpaid principal balance as a current liability as of September 30, 2021 and December 31, 2020 due to the existence of one or more covenant violations.

(d)
$4.0 million promissory note

 

The $4.0 million promissory note was issued on February 1, 2017, to a former EAF member with interest at 7.5% and an original maturity date of February 2020. The note is guaranteed by substantially all the assets of EAF and the Company. No principal and interest payments are due until maturity.

 

In connection with the Financing Agreement, amounts due under the promissory note were subordinated and extended to November 2022. Additionally, the holder agreed not to receive, accept, or demand payment under the subordinated obligation until all

23


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

obligations under the Financing Agreement have been paid in full, except that the holder may continue to receive regularly scheduled interest payments so long as holder has not been informed that an event of default has occurred and is continuing under the Financing Agreement.

 

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 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.3 million. As of September 30, 2021 and December 31, 2020, the remaining unamortized debt discount was $0.1 million and $0.2 million, respectively. The Company classified the $4.0 million unpaid principal balance as a current liability as of September 30, 2021 and December 31, 2020 due to the existence of one or more covenant violations.

(e)
$4.0 million Secured Convertible Promissory Notes ("Secured Convertible Notes")

Represents the portion of the Secured Convertible Notes issued during 2018 (discussed above) whereby the noteholder was a related party.

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 $3,000,000 dated July 20, 2018 issued by the Company to DTII and the note purchase agreement and security agreement related thereto (the “DTII Agreements”). The Company denied all claims asserted by Midwest and DTII and would have asserted various defenses to the Draft Complaint had it been filed.

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 $500,000 in cash to Midwest and issued to Midwest a warrant to purchase up to 1,250,000 shares of common stock of the Company at a price of $0.01 per share. The Company also agreed to exchange the warrant issued to DTII in connection with the DTII Note to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.

The Company recognized the estimated incremental fair value related to the warrant issuance and exchange as a $1.1 million increase in additional paid-in capital and recognized a $2.1 million gain on extinguishment of debt in the consolidated statement of operations for the nine months ended September 30, 2021.

(f)
$2.5 million promissory note - stockholder

In connection with the Company's June 1, 2018 acquisition of all of the issued and outstanding shares of Thunder Ridge, this $2.5 million promissory note was issued to a stockholder, 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

24


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

of stock in Thunder Ridge to Peck. The Company classified the $1.7 million unpaid principal balance as a current liability as of December 31, 2020 due to the existence of one or more covenant violations.

(g)
$6.4 million promissory note – stockholder

 

The $6.4 million promissory note was issued February 2, 2019 to a stockholder, with interest at 9% per annum and an original maturity date of August 31, 2020. The note is collateralized by all of the assets of Ursa and JB Lease. Principal and interest payments commenced June 1, 2019, with a final payment of $6.4 million due at maturity. On August 30, 2019, the note was extended to November 2022. The Company classified the $6.1 million unpaid principal balance as a current liability as of December 31, 2020 due to the existence of one or more covenant violations not based on financial metrics.

(h)
Notes payable acquired from Ritter

 

Note payable to a related party that was assumed as a liability in the Ritter acquisition. The note has an interest rate of 7.0% and matures in December 2028.

Note 7 - Stockholders’ Deficit and Warrants

 

Sale of Common Stock

 

On February 27, 2020, the Company sold a total of 1,260,000 shares of its common stock to Danny Cuzick (“Cuzick”) and R. Scott Wheeler (“Wheeler”) for aggregate gross proceeds of $3.2 million pursuant to the terms of a subscription agreement. The Company did not pay any underwriter discounts or commissions in connection with the sale of the shares. The shares of common stock sold have the right to convert into securities which bear the same terms as those offered to satisfy the Liquidity Milestone defined in the Incremental Amendment (such securities being the Series B Preferred Stock discussed below).

Common Stock Subscribed

During the fourth quarter of 2019, the Company agreed to issue 8,664 shares of common stock to settle a note payable and the associated accrued interest. The Company issued these shares during the first quarter of 2020.

 

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 1,200,000 and 60,000 shares of its common stock held by Cuzick and Wheeler, respectively, and (ii) agreed to issue 1,000,000 and 50,000 shares of its Series B Preferred Stock to Cuzick and Wheeler, respectively. The Company accounted for this exchange as a $3.2 million increase in Series B Preferred Stock and a $3.2 million decrease in common stock and additional paid-in capital.

 

In addition, on March 24, 2020, the Company sold a total of 1,000,000 shares of its Series B Preferred Stock to Cuzick for aggregate gross proceeds of $3.0 million pursuant to the terms of a subscription agreement. On March 27, 2020, in a separate agreement, the Company and Cuzick entered into a waiver and warrant agreement pursuant to which Cuzick waived certain rights granted via the subscription agreement in exchange for the Company agreeing to issue to Cuzick warrants to purchase up to 3,250,000 shares of Common Stock at an exercise price of $2.50 per share. The Company accounted for the issuance of warrants at their estimated fair value as a dividend via a $0.5 million reduction of additional paid-in capital.

Warrants

 

As further described in Note 6, Debt, the Company issued the following warrants in connection with the Financing Agreement:

In September 2019, the Company issued warrants to purchase an aggregate of 4,375,000 shares of the Company’s common stock to the lenders. The Company also issued the Side Letter Warrant to the lenders to purchase an additional 1,500,000 shares of the Company’s common stock. The total fair value of these warrants of $7.4 million, which the Company recorded as an additional debt discount, will be amortized to interest expense over the remaining term of the Financing Agreement.
In September 2019, as consideration for the subordination of previously issued promissory notes, the Company issued a warrant to the noteholder to purchase an aggregate of 350,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The total fair value of this warrant of $0.5 million, which the Company recorded as an additional debt discount on the promissory notes, will be amortized to interest expense over the remaining term of the promissory notes.

25


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

In February 2020, as a result of the Incremental Amendment, the Company issued the Antara Warrant 2020 to Antara Capital to purchase 3,650,000 shares of the Company’s common stock at an exercise price of $2.50 per share.
In March 2020, as a result of the Waiver Agreement, the Company issued 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.
In October 2020, as a result of the Omnibus Amendment, the Company issued to the lenders warrants to purchase an aggregate of up to 500,000 shares of the voting common stock of the Company at the price of $0.01 per share.
In October 2020, as a result of the Omnibus Amendment, the Company exchanged, without any cash consideration, all warrants previously issued to the lenders for warrants to purchase for $0.01 per share voting common stock of the Company at the rate of 0.64 warrants for shares of voting common stock of the Company. As a result, warrants to purchase an aggregate of 7,925,000 shares of the Company’s common stock at a price of $2.50 per share were exchanged for an aggregate of 5,072,000 shares of the Company’s common stock at a price of $0.01 per share.
In December 2020, as a result of failing to timely repay certain obligations under the Financing Agreement with the net proceeds (in the amount of at least $25.0 million) of a financing under the "Main Street Lending Program” on or before December 31, 2020, the Company issued to the lenders warrants to purchase an aggregate of up to 1,000,000 shares of the voting common stock of the Company at the price of $0.01 per share. The Company recorded the $0.8 million estimated fair value of the warrants as an increase to interest expense in the fourth quarter of 2020.

 

As further described in Note 6, Debt, in connection with the December 2020 Main Street Loan, the Company contributed 100% of the issued and outstanding equity of EAF to 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 Danny Cuzick’s consent to the contribution, the Company issued to him 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. The Company did not pay any underwriter discounts or commissions in connection with the issuance of the Cuzick Warrant.

 

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 during each reporting period. The following table summarizes such warrants outstanding and exercisable as of September 30, 2021 and December 31, 2020 that are liability-classified.

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual Term

 

September 30, 2021

 

 

 

 

 

 

 

 

 

Outstanding

 

 

16,022,000

 

 

$

0.52

 

 

 

5.1

 

Exercisable

 

 

16,022,000

 

 

$

0.52

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Outstanding

 

 

16,022,000

 

 

$

0.52

 

 

 

5.8

 

Exercisable

 

 

16,022,000

 

 

$

0.52

 

 

 

 

 

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 September 30, 2021 and December 31, 2020.

 

 

Number of
Shares

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual Term

 

September 30, 2021

 

 

 

 

 

 

 

 

 

Outstanding

 

 

11,087,708

 

 

$

2.37

 

 

 

7.1

 

Exercisable

 

 

11,087,708

 

 

$

2.37

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Outstanding

 

 

8,856,255

 

 

$

2.91

 

 

 

7.4

 

Exercisable

 

 

8,522,922

 

 

$

2.91

 

 

 

 

 

26


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 8 – Stock-Based Compensation

Stock Options

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 $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. The repricing was accounted for as a stock option modification whereby the incremental fair value of each option was determined using the Black-Scholes option pricing model at the date of the modification, and $0.2 million was recognized related to vested options as incremental compensation expense during the three months ended September 30, 2021. The Company will recognize the remaining $0.1 million of incremental compensation expense resulting from the modification on a straight-line basis over the remaining requisite service periods.

During the third quarter of 2021, the Board of Directors granted an employee 750,000 stock options with an exercise price of $1.50 per share and a 10-year life. One-third (1/3) of the options vested and became exercisable on the grant date, one-third (1/3) vest and become exercisable approximately 11 months after the date of grant, and one-third (1/3) vest and become exercisable approximately 23 months after the date of grant. During the third quarter of 2021, the Board of Directors also granted 211,000 stock options as compensation to board members with an exercise price of $1.50 and a 10-year life. 111,000 of the options vested and became exercisable on the grant date. The remaining 100,000 stock options vest and become exercisable on the first anniversary of the date of grant.

Warrants – Stock-Based Compensation

During the first quarter of 2021, the Company issued to an employee warrants to purchase 750,000 shares of the Company’s common stock. The warrants were issued with a 10-year life and an exercise price equal to the lesser of $2.50 per share and the price at which stock options were to be granted to the Company's officers in 2021. One-third (1/3) of the warrants vested and became exercisable on the grant date, one-third (1/3) vested and became exercisable on March 31, 2021, and one-third (1/3) vested and became exercisable on June 30, 2021. During the third quarter of 2021, the exercise price of the warrants was set at $1.50 per share pursuant to the terms of the warrant agreement. Except for the reduction in exercise price, all terms and conditions of the warrants remain the same. During the nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $0.2 million related to these warrants.

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

The Company’s derivative liability embedded 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 of the fair value

27


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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 $0.01 per share are measured at fair value using the Black-Scholes option-pricing model and are classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The warrant liabilities are presented as current liabilities on the consolidated balance sheets and are 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 income (expense) in its consolidated statements of operations. The inputs and assumptions used in the Black-Scholes option-pricing model include: (1) the Company's stock price; (2) the exercise price of the warrant; (3) the expected term of the warrant; (4) the Company's expected stock price volatility; (5) the Company's expected dividends; and (6) the risk-free interest rate.

 

The Company's liability-classified warrants issued with an exercise price of greater than $0.01 per share are measured at fair value using the Monte Carlo simulation model and are classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The warrant liabilities are presented as current liabilities on the consolidated balance sheets and are 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 income (expense) or as compensation expense in its consolidated statements of operations. The inputs and assumptions used in the Monte Carlo model include: (1) the Company's stock price; (2) the Company's expected stock price volatility; and (3) the risk-free interest rate.

 

The following table provides a reconciliation for the opening and closing balances of both liabilities for the periods presented:

($ in thousands)

 

Derivative Liability

 

 

Warrant Liabilities

 

Balance at December 31, 2020

 

$

2,278

 

 

$

11,264

 

Issuances

 

 

 

 

 

 

Net change in fair value

 

 

(1,407

)

 

 

(2,243

)

Balance at September 30, 2021

 

$

871

 

 

$

9,021

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

$

1,021

 

 

$

 

Issuances

 

 

 

 

 

11,099

 

Net change in fair value

 

 

(661

)

 

 

(5,534

)

Balance at September 30, 2020

 

$

360

 

 

$

5,565

 

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented.

The Company’s obligations under its debt agreements are carried at amortized cost. The fair value of the Company’s obligations under its convertible notes and the Term Loans under the Antara Financing Agreement are considered Level 3 liabilities of the fair value hierarchy because fair value was estimated using significant unobservable inputs. The fair value of the Company’s other debt arrangements are considered Level 2 liabilities of the fair value hierarchy because fair value is estimated using inputs other than quoted prices that are observable for the liability such as interest rates and yield curves. The estimated fair value of the Company’s Term Loans under the Antara Financing Agreement was $9.0 million as of September 30, 2021, and its carrying value was $17.0 million as of September 30, 2021. The estimated fair value of the Company’s Term Loans under the Antara Financing Agreement was $15.9 million as of December 31, 2020, and its carrying value was $31.6 million as of December 31, 2020. The carrying value of the Company’s remaining debt obligations approximates fair value, and was $48.3 million and $59.0 million as of September 30, 2021, and December 31, 2020, respectively.

28


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 10 – Leases

Related Party Leases

The Company has various lease obligations with related parties for trucks, office space and terminals expiring at various dates through January 2029. During the nine months ended September 30, 2021 and 2020 the Company incurred approximately $1.1 million and $1.2 million of related party lease costs, respectively. During the three months ended September 30, 2021 and 2020 the Company incurred approximately $0.4 million and $0.4 million of related party lease costs, respectively. At September 30, 2021 and December 31, 2020, the Company had the following balances recorded in the condensed consolidated balance sheets related to its lease arrangements with related parties:

 

($ in thousands)

 

Classification

 

September 30,
2021

 

 

December 31,
2020

 

Assets

 

 

 

 

 

 

 

 

Operating leases

 

Right-of-use-asset

 

$

2,421

 

 

$

3,300

 

Finance leases

 

Right-of-use-asset

 

 

 

 

 

444

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

Operating leases

 

Operating lease liabilities, current portion

 

 

1,096

 

 

 

1,118

 

Finance leases

 

Finance lease liabilities, current portion

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

Non-current:

 

 

 

 

 

 

 

 

Operating leases

 

Operating lease liabilities, less current portion

 

 

1,163

 

 

 

1,956

 

Finance leases

 

Finance lease liabilities, less current portion

 

 

 

 

 

414

 

 

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 $0.2 million, which the Company has fully reserved for and is included in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets at September 30, 2021 and December 31, 2020. No payments have been made to date.

 

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

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 $2 million. However, we are not currently party to or aware of any contemplated proceeding with the Select Subcommittee, the SBA, or any other governmental authority with respect to our PPP loan.

29


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

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

 

As of September 30, 2021 and December 31, 2020, the Company had commitments to purchase natural gas on a take-or-pay basis with three vendors. It is anticipated these are normal purchases that will be necessary for sales, and that any penalties for failing to meet minimum volume requirements will be immaterial. As of September 30, 2021 and December 31, 2020, the estimated remaining liability under the take-or-pay arrangements was approximately $0.2 million and $0.9 million, respectively.

 

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 $0.9 million in excess cash and investments held in the captive under the SEI member account to satisfy the Company’s collateral deposit requirement following the Company's acquisition of Sheehy. The letter agreement between the Company and SEI expired on March 1, 2020, however, the underlying Collateral Security Pledge Agreement among the Company, SEI and the captive has not expired and requires the Company’s consent for its amendment. The Company will be responsible for providing sufficient collateral to satisfy the security deposit with the captive if and when it comes to terms with SEI. The Company is also responsible for providing any additional collateral that may requested by the captive. See Note 4, Related Parties – Off Balance Sheet Arrangements – Collateral Security Pledge Agreement for terms of the agreement.

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 no upfront cost to EAF, and EAF agreed to use Southwest Gas to transport natural gas to the station through its infrastructure. The term was originally five years but has since been modified to ten years. Each year of the ten-year term, EAF is required to make a payment to Southwest Gas equal to $0.1 million minus the amount of delivery and demand charges paid by EAF during the applicable contract year. EAF is required to provide financial security in the form of a letter of credit originally in the amount of $0.5 million, which amount may decrease annually during the term of the agreement and was equal to $0.2 million and $0.3 million as of September 30, 2021 and December 31, 2020.

Contingent Consideration

 

On July 15, 2019, the Company acquired Courtlandt and Brown Enterprises L.L.C. (“Courtlandt”) and Finkle Transport Inc. (“Finkle”). Finkle and Courtlandt are engaged in the business of fulfilling government contracts for freight trucking services, as well as providing freight trucking services to non-government entities. The purchase consideration included: (i) 1,250,000 shares of the Company’s common stock; (ii) $1.25 million in cash paid at closing; and (iii) an earnout of up to approximately 1,000,000 additional shares of the Company’s common stock, subject to the attainment of a specified performance target (Finkle and Courtlandt post-acquisition EBITDA) in the 12 months after the acquisition date. The Company recorded an estimated contingent liability related to the earnout of $0 as of the acquisition date and December 31, 2019, respectively. During June 2020, the Company determined that the post-acquisition EBITDA performance target had been achieved, the Company became obligated to issue 870,317 shares of its common stock to satisfy the contingent consideration, and the Company recognized $0.3 million of expense representing the estimated fair value of these shares. The shares of common stock were subsequently issued by the Company during July 2020. The estimated fair value of the Company's common stock were measured using Level 3 inputs, see Note 9, Fair Value Measurements.

30


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 12 - Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

Note 13 - 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 $9 million (the "Bridge Loan") from Antara and has the ability to borrow up to an additional $3 million from Antara prior to May 31, 2022, and also borrowed $825,000 (the "Executive Loans") from the Executive Lenders. $200,000 of the amount the Company borrowed from the Executive Lenders was borrowed in exchange for Batuta's surrender of a Secured Convertible Note in the principal amount of $200,000 dated August 8, 2018 that Batuta previously purchased from Dane Capital Fund LP. The Bridge Loan and Executive Loans bear interest at 14% per annum and have a maturity date of the earlier of (i) demand by Antara at any time prior to the date on which a collateral agent designated by Antara has been granted a valid and enforceable, perfected, first priority lien on the collateral described in the Bridge Loan Agreement, subject only to permitted liens, on terms reasonably acceptable to the Antara, and (ii) May 31, 2022. Interest on the Bridge Loan and Executive Loans will accrue until the principal balances are repaid.

 

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 $100,000 if the effect of such default is to accelerate the maturity of any such indebtedness; and any representation or warranty made in connection with the Bridge Loan Agreement being materially false.

 

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 11,969,667 warrants to purchase Company common stock at $0.01 per share and granted the Executive Lenders an aggregate of 1,097,219 warrants to purchase Company common stock at $0.01 per share (collectively, the "Bridge Loan Warrants"), subject to certain adjustments. Each Bridge Loan Warrant may be exercised for cash or on a cashless basis, pursuant to the terms of such warrants, for a period of five years from the date of issuance.

 

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 one share of Series C Preferred Stock (the "Series C Preferred").

 

Under the Certificate of Designations, prior to a payment default under the Bridge Loan (a "Bridge Loan Triggering Event") and following the date on which all principal and accrued interest (including default interest) payable under the Bridge Loan has been

31


EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

paid-in-full (the date of such payment-in-full, the "Bridge Loan Discharge Date"), the holder of Series C Preferred will have no voting rights except as otherwise required by law. Under the Certificate of Designations, upon the occurrence of a Bridge Loan Triggering Event through and including the Bridge Loan Discharge Date, the holders of Series C Preferred will vote together with the holders of the Company's common stock as a single class on any matter presented to the holders of the Company's common stock for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting) or on which such holders of common stock are otherwise entitled to act (each, a "Shareholder Matter"), and the holders of Series C Preferred will be entitled to cast a number of votes on any Shareholder Matter equal to the total number of votes of all non-holders of Series C Preferred entitled to vote on any such Shareholder Matter plus 10. In addition, the Certificate of Designations provides that governance mechanisms that could have the effect of limiting, reducing or adversely affecting the Series C Preferred holders’ voting or board-appointment rights under the Certificate of Designations will require the consent of holders of a majority of the then outstanding (the "Series C Majority") Series C Preferred.

 

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, one director to the Board (who shall, unless the majority of the Series C Preferred elects otherwise in its sole discretion, also serve as a member of each Board committee) and (ii) upon the occurrence of a Bridge Loan Triggering Event through and including the Bridge Loan Discharge Date, a majority of the members of the Board.

 

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 May 31, 2022 to June 30, 2022. Also on May 31, 2022, Danny Cuzick and Scott Wheeler resigned from the Board, and the Board appointed Raph Posner and Chetan Bansal, both of whom are employees of Antara, to serve as members of the Board. In connection with his resignation from the Board, Danny Cuzick and the Company entered into a board observer agreement whereby the Company appointed Danny Cuzick as a non-voting Board observer.

 

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 $0.01 per share. On March 11, 2022, Danny Cuzick, individually and as holders representative on behalf of each of Damon Cuzick, Thomas Kiley, and Theril Lund, exercised the right to convert the Convertible Notes into warrants to purchase shares of common stock of the Company at an exercise price of $0.01 per share. As a result, the Company granted Messrs. Cuzick, Cuzick, Kiley, and Lund an aggregate of 7,533,750 warrants to purchase Company common stock at $0.01 per share (collectively, the "Convertible Note Warrants"). Each Convertible Note Warrant may be exercised for cash or on a cashless basis, pursuant to the terms of such warrants, for a period of five years from the date of issuance.

32


 

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

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Some of the statements in this report may contain forward-looking statements that reflect management’s current view about future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “anticipate,” “will,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” and similar expressions or the negative of these terms. Many of these forward-looking statements are located in this report under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. The forward-looking statements in this report generally relate to: (i) our growth strategy and potential acquisition candidates; (ii) management’s expectations regarding market trends and competition in the vehicle fuels industry, gasoline, diesel, and natural gas prices, government tax credits and other incentives, and environmental and safety considerations; (iii) our beliefs regarding the sufficiency of working capital and cash flows, and our continued ability to renew or obtain financing on reasonable terms when necessary; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020) 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:

Our ability to recruit and retain qualified drivers;
Future equipment (including tractor and box truck) prices, our equipment purchasing plans, and our equipment turnover (including expected tractor trade-ins);
The expected freight environment, including freight demand and volumes;
Future third-party service provider relationships and availability;
Future contracted pay rates with independent contractors and compensation arrangements with drivers;
Future supply, demand, use and prices of crude oil, gasoline, diesel, natural gas and other vehicle fuels, such as electricity, hydrogen, renewable diesel, biodiesel and ethanol;
Our expectations regarding the market’s perception of the benefits of conventional and renewable natural gas relative to gasoline and diesel and other alternative vehicle fuels and electronically powered vehicles, including with respect to factors such as supply, cost savings, environmental benefits and safety;
The competitive environment in which we operate, and the nature and impact of competitive developments in our industry;
Potential adoption of government policies or programs that favor vehicles or vehicle fuels other than natural gas, including long-standing support for gasoline and diesel-powered vehicles and growing support for electric and hydrogen-powered vehicles;
The impact of, or potential for changes to, emissions requirements applicable to vehicles powered by gasoline, diesel, natural gas or other vehicle fuels, as well as emissions and other environmental regulations and pressures on crude oil and natural gas drilling, production, importing or transportation methods and fueling stations for these fuels;
Developments in our products and services offering, including any new business activities we may pursue in the future;
The success and importance of any acquisitions, divestitures, investments or other strategic relationships or transactions;
The general strategies adopted by the USPS with respect to its third party surface transportation suppliers;
The impacts of the COVID-19 global pandemic;
General political, regulatory, economic and market conditions;

33


 

Our need for and access to additional capital to fund our business or repay our debt, through selling assets or pursuing equity, debt or other types of financing; and
The flexibility of our model to adapt to market conditions.

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

Background and Recent Developments

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. During the nine months ended September 30, 2021, we generated $190.6 million in revenues (which includes $34.8 million of nonrecurring revenue) from the USPS. We have been actively integrating the acquisitions we have made under common leadership and technology and are now operating under a single umbrella brand.

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

Three Months Ended September 30, 2021, as compared with the Three Months Ended September 30, 2020

Trucking Segment

 

Trucking revenue: The majority of Trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration and are priced on a rate per mile basis which varies by contract. The USPS contracts also include a monthly fuel adjustment. Trucking revenue was $68.8 million and $52.1 million during the three months ended September 30, 2021 and 2020, respectively. The $16.7 million, or 32.1%, increase in Trucking revenue from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of increased fuel prices.

 

34


 

Payroll, benefits and related: 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 $25.7 million and $25.4 million during the three months ended September 30, 2021 and 2020, respectively. Despite a 32.1% increase in trucking revenue from the three months ended September 30, 2020 to the three months ended September 30, 2021, payroll, benefits and related expense increased only $0.3 million, or 1.2%, from the three months ended September 30, 2020 to the three months ended September 30, 2021 due to a $9.8 million, or 130.7%, increase in purchased transportation expense from the three months ended September 30, 2020 to the three months ended September 30, 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 $17.3 million and $7.5 million during the three months ended September 30, 2021 and 2020, respectively. The $9.8 million, or 130.7%, increase in purchased transportation expense from the three months ended September 30, 2020 to the three months ended September 30, 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.

 

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 $7.3 million and $5.0 million during the three months ended September 30, 2021 and 2020, respectively. The $2.3 million, or 46.0%, increase in fuel expense is due primarily to the 32.1% increase in trucking revenue combined with an increase in the average DOE fuel price to $3.36 per gallon for the three months ended September 30, 2021 from $2.43 per gallon for the three months ended September 30, 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 $3.7 million and $2.1 million during the three months ended September 30, 2021 and 2020, respectively. The $1.6 million, or 76.2%, increase in equipment rent expense from the three months ended September 30, 2020 to the three months ended September 30, 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 $2.6 million and $2.3 million during the three months ended September 30, 2021 and 2020, respectively. The $0.3 million or 13.0%, increase in maintenance and supplies expense from the three months ended September 30, 2020 to the three months ended September 30, 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 $1.9 million and $2.1 million during the three months ended September 30, 2021 and 2020, respectively. The $0.2 million, or 9.5%, decrease in insurance and claims expense from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to lower premiums and fewer significant, nonrecurring claims.

 

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the Trucking segment. Operating supplies and expenses was $3.7 million and $3.7 million during the three months ended September 30, 2021 and 2020, respectively.

 

CNG Fueling Stations Segment

 

CNG revenue: Revenue for the CNG stations was $0.1 million and $0.3 million for the three months ended September 30, 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 less than $0.1 million for the three months ended September 30, 2021 and 2020, respectively.

EVO Consolidated

 

General and administrative: General and administrative expense was $6.3 million and $4.9 million for the three months ended September 30, 2021 and 2020, respectively. The $1.4 million, or 28.6%, increase in general and administrative expense from the three

35


 

months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to increases in compensation and benefits and accounting and auditing professional fees.

Depreciation and amortization: Depreciation and amortization expense was $4.0 million and $3.8 million for the three months ended September 30, 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 $2.8 million and $3.1 million for the three months ended September 30, 2021 and 2020, respectively. The $0.3 million, or 9.7%, decrease in interest expense from the three months ended September 30, 2020 to the three months ended September 30, 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 $10.2 million gain on extinguishment of debt during the three months ended September 30, 2021 is due to the extinguishment of the outstanding principal and accrued interest on the Paycheck Protection Program Loan, which was forgiven by the SBA in July 2021.

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.

 

Nine Months Ended September 30, 2021, as compared with the Nine Months Ended September 30, 2020

Trucking Segment

 

Trucking revenue: The majority of Trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration and are priced on a rate per mile basis which varies by contract. The USPS contracts also include a monthly fuel adjustment. Trucking revenue was $179.2 million and $159.3 million during the nine months ended September 30, 2021 and 2020, respectively. The $19.9 million, or 12.5%, increase in Trucking revenue from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of increased fuel prices.

 

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: 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 $69.4 million and $78.1 million during the nine months ended September 30, 2021 and 2020, respectively. Despite a 12.5% increase in trucking revenue from the nine months ended September 30, 2020 to the nine months ended September 30, 2021, payroll, benefits and related expense decreased $8.7 million, or 11.1%, from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 due to a $15.0 million, or 65.2%, increase in purchased transportation expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021.

 

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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 $38.0 million and $23.0 million during the nine months ended September 30, 2021 and 2020, respectively. The $15.0 million, or 65.2%, increase in purchased transportation expense from the nine months ended September 30, 2020 to the nine months ended September 30, 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.

 

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 $19.1 million and $16.9 million during the nine months ended September 30, 2021 and 2020, respectively. The $2.2 million, or 13.0%, increase in fuel expense is due primarily to the 12.5% increase in trucking revenue combined with an increase in the average DOE fuel price to $3.15 per gallon for the nine months ended September 30, 2021 from $2.58 per gallon for the nine months ended September 30, 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 $9.3 million and $7.7 million during the nine months ended September 30, 2021 and 2020, respectively. The $1.6 million, or 20.8%, increase in equipment rent expense from the nine months ended September 30, 2020 to the nine months ended September 30, 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 $7.4 million and $7.8 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 5.1%, decrease in maintenance and supplies expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to reduced maintenance spend on existing equipment in advance of the planned refreshing of our fleet 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 $6.9 million and $7.6 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.7 million, or 9.2%, decrease in insurance and claims expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to lower premiums and fewer significant, nonrecurring claims.

 

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the Trucking segment. Operating supplies and expenses was $11.3 million and $11.7 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 3.4%, decrease in operating supplies and expenses from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to more cost efficient completion of certain routes.

 

CNG Fueling Stations Segment

 

CNG revenue: Revenue for the CNG stations was $0.3 million and $0.8 million for the nine months ended September 30, 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 $0.2 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.

 

EVO Consolidated

 

General and administrative: General and administrative expense was $17.1 million and $14.1 million for the nine months ended September 30, 2021 and 2020, respectively. The $3.0 million, or 21.3%, increase in general and administrative expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to increases in compensation and benefits and accounting and auditing professional fees.

 

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Depreciation and amortization: Depreciation and amortization expense was $11.4 million and $10.9 million for the nine months ended September 30, 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 $9.7 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 4.0%, decrease in interest expense from the nine months ended September 30, 2020 to the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2021 is due primarily 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

Nine Months Ended September 30, 2021, as compared with the Nine Months Ended September 30, 2020

Changes in Liquidity

Cash and Cash Equivalents. Cash and cash equivalents were $6.7 million and $26.6 million at September 30, 2021 and December 31, 2020, respectively. The decrease is primarily attributable to cash used in financing activities during the nine months ended September 30, 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 operations was $10.0 million during the nine months ended September 30, 2021, which included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements. Net cash used in operating activities was $21.0 million during the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the Company had net income of $27.4 million. For the nine months ended September 30, 2020, the Company had a net loss of $32.6 million.

For nine months ended September 30, 2021, the net income included $5.9 million in adjustments for non-cash items and $23.3 million of cash used for changes in working capital. Non-cash items primarily consisted of $11.4 million in depreciation and amortization, $4.8 million in non-cash interest expense, non-cash lease expense of $2.9 million, stock-based compensation expense of $0.5 million, and amortization of debt discount and debt issuance costs of $0.8 million, partially offset by a gain on extinguishment of debt of $11.0 million, a $2.2 million change in fair value of warrant liabilities, and a $1.4 million change in fair value of embedded derivative liability.

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For the nine months ended September 30, 2020, the net loss was partially offset by $23.1 million in adjustments for non-cash items and further reduced by $11.5 million of cash used for changes in working capital. Non-cash items primarily consisted of $10.9 million in depreciation and amortization, loss on extinguishment of debt of $10.0 million, $2.8 million in non-cash interest expense, non-cash lease expense of $3.0 million, stock option and warrant-based compensation expense of $0.4 million, and amortization of debt discount and debt issuance costs of $1.8 million, partially offset by a $5.5 million change in fair value of warrant liabilities and a $0.7 million change in fair value of embedded derivative liability.

Investing Activities. Net cash used in investing activities was $6.8 million for the nine months ended September 30, 2021, and net cash provided by investing activities was $0.4 million for the nine months ended September 30, 2020. The net cash used in investing activities during the nine months ended September 30, 2021 is primarily related to $7.1 million of capital expenditures. The net cash provided by investing activities during the nine months ended September 30, 2020 is related to proceeds from the sale of fixed assets.

Financing Activities. Net cash used in financing activities was $23.1 million for the nine months ended September 30, 2021. Net cash provided by financing activities was $24.7 million for the nine months ended September 30, 2020. The cash used in financing activities during the nine months ended September 30, 2021 primarily consisted of $149.5 million in payments on factoring arrangements, $22.8 million in payments of debt principal, and $3.1 million in payments on finance lease liabilities, partially offset by $147.2 million in advances from factoring receivables and $5.7 million of proceeds from the issuance of debt. The cash provided by financing activities during the nine months ended September 30, 2020 primarily consisted of $132.3 million in advances from factoring receivables, proceeds of $16.2 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 $122.5 million in payments on factoring arrangements, $4.7 million in payments of debt principal, and $2.5 million in payments on finance lease liabilities.

Sources of Liquidity

Our primary historical and future sources of liquidity are cash on hand ($6.7 million at September 30, 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 September 30, 2021, the Company had a cash balance of $6.7 million, a working capital deficit of $73.4 million, stockholders’ deficit of $37.7 million, and material debt and lease obligations of $122.7 million, which include term loan borrowings under a financing agreement with Antara Capital. During the nine months ended September 30, 2021, the Company reported cash provided by operating activities of $10.0 million that included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements and net income of $27.4 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 nine months ended September 30, 2021:

During the fourth quarter of 2020, one of the Company's subsidiaries borrowed $17.0 million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act (the “Main Street Loan”) and during the first quarter of 2021 used all of the net proceeds 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 Company entered into agreements with the USPS to settle claims submitted by the Company seeking additional compensation for transportation services provided under certain Dynamic Route Optimization (“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.
During the first quarter of 2021, the Company entered into an agreement with the Factor (as defined in Note 5, Factoring Arrangements) related to the application of $17.5 million and $7.1 million of proceeds received from the USPS in February

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and January of 2021, respectively, arising out of the settlement agreements described above. Pursuant to the agreement, the parties acknowledged that the Factor previously applied approximately $1.6 of the $7.1 million of proceeds received in January 2021 plus approximately $0.6 million of funds held in reserve against a balance of $3.0 million for advances that the Factor made to the Company in September 2020 (the “Gross Purchase Advance Facility”) and agreed that the Factor would remit $11.0 million of net proceeds to the Company and that the Factor would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $6.9 million due under the factoring arrangement in 48 equal monthly installments beginning January 1, 2022 and that the Factor would apply funds held in reserve against the approximately $0.8 million remaining balance of the Gross Purchase Advance Facility. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.
During the first and second quarters of 2021, the Company entered into agreements with certain noteholders to purchase promissory notes previously issued by the Company in the principal amount of $4.0 million by paying $0.6 million in cash and issuing warrants to purchase an aggregate of up to 1,481,453 shares of the Company’s common stock at a price of $0.01 per share. The Company also agreed to exchange the warrant, previously issued to a noteholder, to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.
During the second quarter of 2020, the Company obtained a loan in the amount of $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company used the entire loan amount for qualifying expenses, and the entire amount borrowed under the loan, including all accrued interest, was forgiven by the United States Small Business Administration (“SBA”) in July 2021.

 

The following significant transactions and events affecting the Company’s liquidity occurred following the nine months ended September 30, 2021:

During the first quarter of 2022, the Company obtained a Bridge Loan and Executive Loans, both as described in Note 13, Subsequent Events, in the aggregate amount of approximately $9.8 million.
During the first quarter of 2022, the Company entered into amendments to certain secured convertible promissory notes in the aggregate principal amount of $9.5 million to permit immediate conversion of those notes, and the holders representative converted those notes into warrants to purchase 7,553,750 shares of common stock of the Company at a price of $0.01 per share.

 

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:

The counterparty to the Company’s accounts receivable factoring arrangement is not obligated to purchase the Company’s accounts receivable or make advances to the Company under such arrangement;
The Company is currently in default on certain of its debt obligations (Refer to Note 6, Debt, for further discussion); and
There can be no assurance that the Company will be able to obtain additional financing in the future via the incurrence of additional indebtedness or via the sale of the Company’s common stock or preferred stock.

 

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:

Negotiating with related parties and 3rd parties to refinance existing debt and lease obligations;
Potential future public or private debt or equity offerings;
Acquiring new profitable contracts and negotiating revised pricing for existing contracts;
Profitably expanding trucking revenue;

40


 

Cost reduction efforts;
Improvements to operations to gain driver efficiencies;
Purchases of trucks and trailers to reduce purchased transportation and rental vehicles; and
Replacement of older trucks with newer trucks to lower the overall cost of ownership and improve cash flow through reduced maintenance and fuel costs.

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. 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 5 and 6 to the unaudited condensed consolidated financial statements for further information regarding the Company’s factoring and debt obligations. Refer to Note 13 to the consolidated financial statements for further information regarding changes in the Company’s debt obligations and liquidity subsequent to September 30, 2021.

Off-Balance Sheet Arrangements

Refer to Note 11, Commitments and Contingencies – Captive Insurance.

Critical Accounting Policies

Our critical accounting policies have not changed from the information reported in our Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards

See Note 1 to the unaudited condensed consolidated financial statements, included in Part 1, Item 1 of this Quarterly Report, incorporated by reference herein.

Seasonality

Discussion regarding the impact of seasonality on our business is included in Note 1 to the unaudited condensed consolidated financial statements, included in Part 1, Item 1 of this Quarterly Report, incorporated by reference herein.

Inflation

Inflation can have an impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages, and other costs to increase, which would adversely affect our results of operations unless freight and rates correspondingly increased.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide disclosure under this item.

Item 4. 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 September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. 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 September 30, 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 Quarterly Report on Form 10-Q 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.

The Company’s internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on financial statements.

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.

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The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses were:

The Company had not fully implemented the necessary internal controls under the COSO (2013 Framework) to design, test and evaluate the operating effectiveness of its internal control over financial reporting;
The Company’s management and board of directors had insufficient oversight of the design and operating effectiveness of the Company’s disclosure controls and internal control over financial reporting including the appropriate segregation of duties and effective controls over certain information technology general controls (“ITGCs”) for IT systems that are relevant to the preparation of the financial statements;
The Company had insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;
The Company failed to maintain effective controls over the period-end financial reporting process, including controls with respect to identification of unrecorded liabilities; revenue reconciliations to ensure appropriate revenue recognition; accounting for leasing transactions; payroll reconciliations; preparation and disclosure of provision for income taxes; and account-level reconciliations in the general ledger, resulting in numerous adjusting entries identified by the Company and identified through audit procedures;
The Company failed to maintain effective controls over the recording of business combinations to ensure purchase accounting was properly reconciled in the general ledger;
The Company did not have sufficient internal personnel resources to review the financial statements and notes to the financial statements prepared by external consultants and professionals to ensure accuracy and completeness; and
The Company failed to maintain effective controls over journal entries, both recurring and nonrecurring, and did not maintain proper segregation of duties. Journal entries were not always accompanied by sufficient supporting documentation and were not adequately reviewed and approved for validity, completeness and accuracy. In most instances, persons responsible for reviewing journal entries for validity, completeness and accuracy were also responsible for preparation.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management intends to implement the remediation steps discussed below to address the material weaknesses and to improve our internal control over financial reporting.

Management’s Remediation Plan

In light of the control deficiencies identified at September 30, 2021, and described in the section titled “Evaluation of Internal Controls and Procedures,” we have designed and plan to implement the specific remediation initiatives described below:

We have designed and implemented more robust corporate governance including: (1) direct oversight of our internal controls by the audit committee of our board of directors; (2) review of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q by our audit committee prior to filing with the SEC; and (3) communication of our Code of Business Conduct and Ethics to our employees and consultants.
We have implemented procedures designed to ensure timely review of the consolidated financial statements, notes to our consolidated financial statements, and our Annual and Quarterly Reports on Forms 10-K and 10-Q by our chief executive officer, chief financial officer, our board of directors, and our audit committee, prior to filing with the SEC.
We intend to develop and implement enhanced internal control review procedures and documentation standards aligned with the COSO 2013 Framework.
We have designed and are in the process of implementing a formalized financial reporting process that includes balance sheet and other reconciliations, properly prepared, supported and reviewed journal entries, properly segregated duties, and properly completed and approved close checklist and calendar.
We have purchased, designed and implemented a new technology platform (Netsuite) to support the formalized financial reporting process described above.
We have hired additional experienced individuals to prepare and approve the consolidated financial statements and footnote disclosures in accordance with US GAAP.

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We have relied and will continue to rely upon outside professionals to assist with our external reporting requirements to ensure timely filing of our required reports with the SEC.
We have initiated efforts to ensure our employees understand the continued importance of internal controls and compliance with corporate policies and procedures. We have implemented a reporting and certification process for management involved in the performance of internal controls and the preparation of the Company’s consolidated financial statements. This certification process will be conducted quarterly and managed by our internal audit consultant.

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.

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PART II – OTHER INFORMATION

None.

Item 1A. Risk Factors.

For a detailed discussion of certain risk factors that could affect the Company’s operations, financial condition or results for future periods, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which we intend to file promptly following the filing of this report.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

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EVO TRANSPORTATION & ENERGY SERVICES, INC.

EXHIBIT INDEX

Form 10-Q for the Quarterly Period Ended SEPTEMBER 30, 2021

 

Exhibit

 

Description

 

 

 

31.1

 

Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

31.2

 

Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

32.1

 

Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002*

 

 

 

32.2

 

Certification of the Company’s Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002*

 

 

 

99.1

 

EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (1)

 

 

 

99.2

 

EVO Transportation & Energy Services, Inc. 2021 Long-Term Incentive Plan (1)

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith

(1)
Filed as an exhibit to the Company’s current report on Form 8-K, as filed with the SEC on September 3, 2021 and incorporated herein by this reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

EVO TRANSPORTATION & ENERGY SERVICES, INC.

 

 

Date: June 30, 2022

By:

 

/s/ Thomas J. Abood

 

 

 

Thomas J. Abood

 

 

 

Chief Executive Officer

 

 

 

Principal Executive Officer

 

 

 

 

Date: June 30, 2022

By:

 

/s/ Eugene Putnam

 

 

 

Eugene Putnam

 

 

 

Chief Financial Officer

 

 

 

Principal Financial Officer

 

47




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