Stockholders' Deficit and Warrants

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Stockholders' Deficit and Warrants

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.

Redeemable Common Stock

On January 2, 2019, the Company acquired all of the outstanding equity interests in Sheehy for 2,240,000 shares of the Company’s common stock. 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. Under the Sheehy acquisition agreement, at any time from April 1, 2020, until October 31, 2020, the Sheehy stockholders may request the Company to net settle in cash any number of the 2,240,000 common shares from the acquisition with a fair market value of up to $1.2 million as of the date of the redemption request. Since the redemption of these shares of common stock represents a contingent event outside the control of the Company, the aggregate amount the Company may be required to pay to redeem these shares has been presented in temporary equity in the accompanying consolidated balance sheets.

On April 7, 2020, the Sheehy stockholders notified the Company of their intent to exercise the redemption right, requesting $1.2 million in exchange for an unspecified number of shares of common stock to be determined by the establishment of a fair market value as set forth in the agreement. Because the exercise notice did not specify a number of shares subject to the notice as required by the acquisition agreement, the Company has asserted it does not have the obligation to do so under the terms of the acquisition agreement. The redemption period set forth in the acquisition agreement has since lapsed.

Series A Preferred Stock

On April 13, 2018, the Company issued 100,000 shares of Series A Preferred stock containing 15:1 voting rights to a related party for advisory services rendered to the Company. The fair value of the services rendered was assessed at $0.2 million.

Dividends

Generally, the holders of the Series A Preferred Stock are entitled to receive if, when, and as declared by the board of directors, an annual non-compounding dividend, payable at the rate of 8% and payable quarterly in arrears in cash, or, at the Company’s option, an annual non-compounding dividend of 12%, payable quarterly in arrears in the form of shares of Series A Preferred Stock at a rate of $3.00 per share. Such dividends will begin to accrue as of the date on which the Series A Preferred Stock is

issued and will accrue whether or not declared and whether or not there will be funds legally available for the payment of dividends.

Accrued and unpaid dividends upon conversion will automatically be converted into shares of the Company’s common stock, par value $0.0001 per share. An assumed value of $3.00 per share of common stock will be used to determine the number of shares of common stock to be issued for such accrued and unpaid dividends.

Liquidation Preference

In the event of any liquidation, the holders of record of shares of Series A Preferred Stock will be entitled to receive, prior and in preference to any distributions of any assets of the Company to the holders of the common stock out of the assets of the Company legally available therefor, $3.00 per share of Series A Preferred Stock, plus accrued and unpaid dividends on each share of Series A Preferred Stock (liquidation price).

Redemption

At the option of the holder and upon written notice to the Company, the Series A Preferred Stock will be redeemable at any time after August 1, 2018, at the liquidation price at $3.00 per share, plus all declared and unpaid dividends. In addition, the Company will have an ongoing right to purchase all or any portion of the outstanding shares of the Series A Preferred Stock. The redemption rights require the Company to present the Series A Preferred Stock in temporary equity in the accompanying balance sheets.

Voting Rights

Generally, holders of shares of Series A Preferred Stock are entitled to vote with the holders of common stock as a single class on all matters submitted to a vote of the stockholders and are entitled to 15 votes for each share of Series A Preferred Stock held on the record date for the determination of the stockholders entitled to vote or, if no record date is established, on the date the vote is taken.

Conversion Rights

Each share of Series A Preferred Stock will convert to one fully paid and nonassessable share of the Company’s common stock at any time at the option of the holder or the Company, subject to adjustments for stock dividends, splits, combinations and similar events. If the Company is the party electing to exercise the conversion right, it must provide five days’ prior notice to the holders of the Series A Preferred Stock during which the holders of Series A Preferred Stock may elect to exercise their redemption right to receive cash in lieu of the common stock that would otherwise be issued by the Company in connection with the conversion. If the closing price on all domestic securities exchanges on which the common stock may at the time be listed exceeds $6.00 per share for 30 consecutive trading days and the daily trading volume of the common stock is at least 20,000 shares for that same period, each share of Series A Preferred Stock will automatically convert to one share of the Company’s common stock.

Series B Preferred Stock

On March 24, 2020, the Company filed a Certificate of Designation of Rights and Preferences of Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorizes the Company to issue up to 3,075,000 shares of Series B Preferred Stock. The Series B Preferred Stock ranks senior in preference and priority to the Company’s common stock and on par with the Company’s Series A Preferred Stock with respect to dividend and liquidation rights. The approval of the holders of at least a majority of the Series B Preferred Stock, voting together as a separate class, is required for the Company to amend the Certificate of Designation, including by merger or otherwise, to alter or repeal the preferences, rights, privileges or powers of the Series B Preferred Stock in a manner that would adversely affect the rights of the holders of the Series B Preferred Stock. The Certificate of Designation states that the Company will not issue any other class of shares of preferred stock ranking senior to the Series B Preferred Stock.

Dividends

An annual, non-compounding dividend accrues on the Series B Preferred Stock at a rate of 10% per annum for five years from the date the Preferred Stock is issued. The dividend is payable, if and when declared by the Board of Directors, in arrears in the form of shares of Series B Preferred Stock at a rate of $3.00 per share, or, at the Company’s option, quarterly in arrears in cash. Such dividends will not accrue with respect to shares of Series B Preferred Stock issued as dividends, will begin to accrue as of the date on which the Series B Preferred Stock is issued, and will accrue whether or not declared and whether or not there

will be funds legally available for the payment of dividends. For the avoidance of doubt, no dividends shall accrue on the Series B Preferred Stock after March 23, 2025.

Liquidation Preference

The holders of the Series B Preferred Stock are entitled to a liquidation preference of $3.00 per share of Series B Preferred Stock plus any accrued but unpaid dividends upon the liquidation of the Company.

Redemption

The Series B Preferred Stock may be redeemed by the Company at any time at a redemption price equal to $3.00 plus all accrued but unpaid dividends, and each holder of Series B Preferred Stock may cause the Company to redeem the holder’s Series B Preferred Stock at any time after March 23, 2025 at a redemption price equal to $3.00 plus all accrued but unpaid dividends. The redemption rights require the Company to present the Series B Preferred Stock in temporary equity in the accompanying balance sheet.

Voting Rights

Holders of Series B Preferred Stock are entitled to four votes for each share of Series B Preferred Stock held on the record date for the determination of the stockholders entitled to vote or, if no record date is established, on the date the vote is taken.

Conversion Rights

The Series B Preferred Stock is convertible at any time at the option of the holder or the Company at an initial conversion ratio of one share of common stock for each share of Series B Preferred Stock, subject to adjustments for stock dividends, splits, combinations and similar events. If the Company is the party electing to exercise the conversion right, it must provide five days’ prior notice to the holders of the Series B Preferred Stock during which the holders of Series B Preferred Stock may elect to exercise their redemption right to receive cash in lieu of the common stock that would otherwise be issued by the Company in connection with the conversion. In addition, each share of Series B Preferred Stock will automatically convert to one share of common stock (i) if the closing price on all domestic securities exchanges on which the common stock may at the time be listed exceeds $3.00 per share for 90 consecutive trading days and the average daily trading volume of the common stock is at least 20,000 shares for that same period; (ii) immediately prior to closing a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) relating to an offer and sale of shares of common stock that generates gross proceeds of at least $25.0 million; or (iii) immediately prior to effectiveness of a registration statement under the Securities Act covering shares of common stock sold in a private offering that generates gross proceeds of at least $25.0 million. If the automatic conversion of Series B Preferred Stock pursuant to subpart (ii) or (iii) of the previous sentence occurs prior to the fifth anniversary of the date of issuance of the Series B Preferred Stock, then all dividends that would have accrued with respect to the Series B Preferred Stock for the period from the conversion date to the fifth anniversary of the issuance date will be deemed to automatically accrue and be treated as accrued and unpaid dividends on such Series B Preferred Stock as of immediately prior to conversion.

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.

•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 as a component of other income (expense) during each reporting period. The following table summarizes such warrants outstanding and exercisable as of December 31, 2021 and 2020 that are liability-classified.

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
December 31, 2021:
Outstanding		16,022,000	$	0.52		4.8
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 December 31, 2021 and 2020 and is inclusive of the warrants disclosed in Note 8, Stock-Based Compensation, that are equity-classified:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
December 31, 2021:
Outstanding		11,087,708	$	2.37		6.9
Exercisable		11,087,708	$	2.37
December 31, 2020:
Outstanding		8,856,255	$	2.91		7.4
Exercisable		8,522,922	$	2.91