UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _____________
Commission file number
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
(Address of principal executive offices) (Zip Code) |
||
Registrant’s telephone number, including area code:
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 |
|
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act:
(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the Registrant’s 2023 second fiscal quarter was approximately $
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of November 16, 2023, there were
TABLE OF CONTENTS
i
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; our growth strategy and potential acquisition candidates; our relationship with the United States Postal Service; gasoline, diesel and natural gas prices; management’s expectations regarding market trends and competition in the transportation industry, government tax credits and other incentives, insurance and environmental and safety considerations; and any statements of belief and any statements of assumptions underlying any of the foregoing. When used in this report, the words “anticipate”, “will”, “believe”, “expects”, “intends”, “estimates”, “projects”, “target”, “goals”, “plans”, “objectives”, “should”, “future,”, “seek”, “may”, “could”, “likely” or similar expressions or the negative of these terms may identify forward-looking statements as they relate to EVO Transportation & Energy Services, Inc., a Delaware corporation (“EVO,” the “Company,” “we,” “us” or “our”), its subsidiaries or management.
Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause EVO’s results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of this report) relating to the Company’s industry, its operations and results of operations, and any businesses that may be acquired by it. These factors include, among other factors:
ii
The preceding list is not intended to be an exhaustive list of all of the topics addressed by our forward-looking statements and should be read in conjunction with other cautionary statements that are included herein or elsewhere. Although the forward-looking statements in this report reflect our good faith judgment based on available information, they are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, among others, those discussed in this report in Item 1A. Risk Factors. In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. As a result of these and other potential risks and uncertainties, our forward-looking statements should not be relied on or viewed as predictions of future events. All forward-looking statements in this report are made only as of the date of this document and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements for any reason, including to conform these statements to actual results or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the date we file this report.
We qualify all of our forward-looking statements by this cautionary note.
iii
PART I
Item 1. Business.
Our Business
EVO Transportation & Energy Services, Inc. (“EVO” and, together with its direct and indirect subsidiaries, the “Company”) is a truckload carrier serving the United States Postal Service (“USPS”) and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or compressed natural gas (“CNG”). EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.
Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.
Service and Product Offering
Mail Transportation
We transport freight for the USPS and believe we are one of its largest ground transportation suppliers. We competitively bid on transportation contracts that specify the movement of freight between processing facilities, distribution centers and other postal locations. Customer contracts with the USPS are typically two to four years in term and may be renewed with the incumbent supplier if appropriate service has been performed in accordance with contract requirements including, but not limited to, USPS performance standards, McNamara-O’Hara Service Contract Act (“SCA”) requirements, Department of Transportation (“DOT”) regulations (federal and state) and all other applicable local and state regulations and if the supplier continues to meet the requirements of the USPS.
As of December 31, 2022, we held over 200 contracts with the USPS. Of these contracts, 15 were Dynamic Route Optimization (“DRO”) contracts and EVO believes it is one of the largest service providers of this contract type. Our mail transportation operations generated $278.5 million in revenue in 2022, or 90% of our total revenues.
Freight and Brokerage Services
In addition to our USPS mail transportation and delivery services, we provide freight and brokerage services to a variety of corporate customers. Our freight and brokerage services generated $31.2 million of revenues in 2022, or 10% of our total revenues.
History
The Company was incorporated in the State of Delaware on October 22, 2010 under the name “Minn Shares Inc.” From December 2010 until November 2016, Minn Shares Inc. was considered a public “shell” company and dedicated its operations to seeking a potential merger or acquisition partner. On November 22, 2016, Minn Shares Inc. and Titan CNG LLC, a Delaware limited liability company in the business of owning and operating compressed natural gas fueling stations (“Titan”), entered into an agreement and plan of securities exchange whereby the members of Titan acquired approximately 90% of Minn Shares Inc. outstanding shares. Following the closing, the business plan of Titan became the business plan of Minn Shares Inc. and all former officers of Minn Shares Inc. resigned and were replaced by officers designated by Titan. On August 31, 2017, the Company changed its name from “Minn Shares Inc.” to “EVO Transportation & Energy Services, Inc.”
Following the November 2016 public shell reverse merger transaction, the Company’s primary strategy was to seek growth through acquisitions. The Company completed the following acquisitions subsequent to November 2016:
1
Strategy
Two of the top USPS priorities for its supply base are on-time service scores and safety performance. The USPS demands a 95% on-time service score for its suppliers and a satisfactory safety rating, including real-time reporting requirements for accidents. EVO’s USPS strategy is anchored around high-performance execution in both of these areas: providing flawless operational excellence and minimizing omitted trips and performing with a best-in-class safety record. We have a dedicated contracting team focused not only on bidding on new contracts but more importantly, providing concierge level service and responding to any and all inquiries from the USPS on a real-time basis. We believe that by executing on these priorities, EVO will continue to be a favored USPS supplier, maximizing new bid opportunities and contract renewal prospects.
Over the past few years the USPS has consolidated the number of carriers it utilizes and EVO expects further consolidation of this transportation supplier base as the USPS redesigns its network under its “Delivering for America” plan. As the USPS affects a number of contracting, technology and programmatic changes and requirements, we believe it may become more difficult for suppliers to meet the raised USPS standards. We believe EVO’s scale and resources surpass many of our competitors and best position us to successfully bid on large and more complex solicitations. EVO has invested significantly in information systems and personnel that allow us to better manage our USPS contracts and generate data to support day-to-day operations. For example, implementation of a transportation management system (TMS) and a telematics platform has allowed us to meet the scheduling and reporting needs of the USPS. These capabilities are likely to only grow in criticality as the USPS continues to upgrade and transition its systems into the future. EVO plans to continue to invest in solutions that allow us to better compete for additional USPS business currently provided by other suppliers.
The USPS adopted a robust environmental sustainability plan that includes a stated commitment to reducing greenhouse gas emissions through increased procurement of services from alternative fuels carriers. We intend to continue to evaluate additional vehicles powered by alternative energy, including electrically powered vehicles. We believe our shared commitment with the USPS to reducing emissions positions the Company to grow our business relationship with the USPS in the future.
Additionally, the Company was an early participant in the DRO (now LRO) program with the USPS. We believe our existing relationship with the USPS and experience with the LRO program provide the Company additional competitive advantages when bidding on these contracts.
In addition to serving the USPS, EVO plans to accelerate its customer diversification efforts, both organically and inorganically through M&A activity. Utilizing our technology platform, fleet, and network, EVO plans to grow its non-USPS business through new customer acquisition and growth of existing customer accounts. By having a more balanced customer base, EVO will be able to better redeploy its capacity and minimize the impact of any losses of USPS contracts or another individual customer’s business.
Market Overview
Competition
In fiscal year 2022, our largest customer, the USPS spent over $6 billion on ground transportation and transportation services. The USPS ground transportation industry is highly competitive and fragmented. As of 2022, the USPS had over 1,800 local distribution and processing network transportation suppliers. EVO competes primarily with other transportation companies
2
for contracts with the USPS, including both asset and asset-light companies. We believe the USPS is looking to further reduce the number of counterparties it transacts with.
The USPS awards its contracts through a competitive bid process and often opts to renew contracts with incumbent service providers if appropriate services have been performed and pricing is competitive with the market. The Company believes that the principal differentiating factors in its business relative to competition, are service, efficiency, technology, pricing, and alternative fuels capabilities. Additionally, the Company was an early participant in the DRO (now LRO) program with the USPS. We believe our existing relationship with the USPS and experience with the LRO program provide the Company additional competitive advantages when bidding on these contracts.
More generally, EVO also competes with other trucking and asset light freight companies for the business of non-USPS freight customers.
Our Target Customers
The USPS is our primary customer, but we also seek to provide truckload and brokerage services to other non-USPS corporate clients. While EVO will continue to bid on new USPS contract solicitations, it is focused strategically on adding new customers and growing its non-USPS revenue base to create a more balanced book of business.
Principal Customers and Suppliers
The USPS is the Company’s primary customer, and for the years ended December 31, 2022 and 2021, the USPS accounted for approximately 90% and 87%, respectively, of the Company’s revenue. As a result, the Company’s trucking operations are highly dependent on the USPS. For a discussion of the risks associated with the possible loss of the USPS as a customer or a significant reduction in the Company’s relationship with the USPS, refer to Item 1A. Risk Factors of this report.
Safety and Risk Management
The Company considers safety, risk and regulatory compliance to be a key focus of all operations. Through this focus, the Company is consistently identifying risks, developing a proactive approach to improving overall safety performance and reducing employee injuries. Of the many tools used by the Company, items such as on-board cameras, trucks equipped with accident-avoidance devices, and training on defensive driving continue to be effective in reducing vehicle accidents and injuries.
Because the Company’s primary business is transportation on public roadways, we are regulated by the Federal Motor Carrier Safety Administration (“FMCSA”), a division of the DOT, and the Occupational Safety and Health Administration (“OSHA”). The Company operates its business to exceed the requirements of these agencies, and currently maintains a Satisfactory rating with the FMCSA.
The primary safety related risks associated with the transportation industry consist of damage to Company equipment or third parties involved in a vehicle accident, personal injury to others involved in an accident and injuries sustained to employees. The Company maintains insurance coverage for all operations to exceed the requirements of the FMCSA, and reviews its coverage on an annual basis.
To the extent that the Company subcontracts any portion of its business to third-party trucking companies, those companies operate under their own DOT authority, and provide their own liability and workers compensation insurance, which the Company has the right to audit. All third-party trucking companies contracted with the Company must meet the Company's insurance and safety requirements. All third-party trucking companies must also list the Company as additional insured on all insurance policies and contain a Waiver of Subrogation on their workers' compensation policies.
Fuel
In 2022, we used approximately 9.0 million gallons of diesel and approximately 1.0 million gas gallon equivalents (“GGEs”) of CNG. Our fuel costs are typically passed on to customers.
The Company actively manages its fuel purchasing network in an effort to maintain adequate fuel supplies and reduce its fuel costs. The Company primarily purchases its fuel through a network of retail truck chains with which it has negotiated volume purchasing discounts. The Company seeks to reduce its fuel costs by routing its drivers to truck stops with which the Company has negotiated volume purchase discounts when fuel prices at such stops are lower than the bulk rate paid for fuel at the Company’s terminals. The Company stores fuel in above-ground storage tanks at some of its facilities. As of December 31,
3
2022 and 2021, the Company had no liabilities related to commodity hedging instruments recorded in the accompanying consolidated balance sheets. Shortages of fuel, increases in fuel prices, or rationing of petroleum products could have a material adverse effect on the Company’s operations and profitability.
Operations
Fleet
We operate an active fleet of over 900 power units and 1,500 trailers with a mix of owned and leased assets and we also utilize short-term rental agreements for some of our fleet. Our vehicles currently operate on either diesel fuel, gasoline and CNG, and we are also pursuing opportunities to introduce other alternative fuel vehicles, including electric vehicles, into our fleet. We intend to continue to replace our existing fleet with more efficient diesel, CNG and other alternative fuel vehicles.
Operations Centers
We manage regional operations centers with major centers of operations in Oak Creek, Wisconsin, Austin, Texas, Laurel, Maryland, and Newark, New Jersey. Other significant operations centers include Des Moines, Iowa, Columbus, Ohio, St. Louis, Missouri, Madison, Wisconsin, Atlanta, Georgia and Indianapolis, Indiana.
Technology
We utilize a suite of systems for transportation management, electronic logging, customer relationship management, brokerage, maintenance, accounting, recruiting, HR, payroll and camera systems. These systems include Omnitracs, Salesforce, NetSuite, Ten Street, APlus, Lytx and others.
Seasonality
During 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 benefits from holiday surge pricing on USPS contracts. The Company’s freight trucking operations and, in general, the transportation industry, experience slower seasonal activity in the first quarter. Freight revenues in the first quarter are typically lower due to less consumer demand, fewer revenue earning days, 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 accident claims and costs due to higher accident frequency from adverse road conditions.
Government Regulation and Environmental Matters
The Company’s operations are regulated and licensed by various federal, state and local government agencies. The Company and its drivers must comply with the safety and fitness regulations of the DOT and the agencies within the states that regulate transportation, including those regulations relating to operating authority, safety, drug- and alcohol-testing, hours-of-service, hazardous materials transportation, financial reporting, testing and specification of equipment and product-handling requirements. Weight and equipment dimensions also are subject to government regulations. The Company is subject to regulations relating to fuel emissions, environmental protection, drivers’ hours-of-service, driver eligibility requirements, on-board reporting of operations, collective bargaining, ergonomics and other matters affecting safety, insurance and operating methods. Other agencies, such as the United States Environmental Protection Agency (“EPA”) and the United States Department of Homeland Security (“DHS”), also regulate the Company’s equipment, operations, drivers and the environment.
The DOT, through the FMCSA, imposes safety and fitness regulations on the Company and its drivers, including rules that restrict drivers' hours-of-service. The FMCSA has adopted a data-driven Compliance, Safety and Accountability (“CSA”) program as its safety enforcement and compliance model. The CSA program holds motor carriers and drivers accountable for their role in safety by evaluating and ranking fleets and individual drivers on certain safety-related standards. To promote improvement in all CSA categories, including those both over and under the established scoring threshold, the Company has procedures in place to address areas where it has exceeded the thresholds and the Company periodically reviews all safety-related policies, programs and procedures for their effectiveness and revises them, as necessary, to establish improvement targets. The Company believes its established policies, programs and procedures are adequate to address safety-related concerns but can give no assurance these measures will be effective. The FMCSA issues three categories of safety ratings: satisfactory, conditional and unsatisfactory. All operating authorities granted by the DOT that are operated by the Company currently have a “satisfactory” FMCSA rating.
4
The Company is also subject to various labor laws and regulations. The contracts that the Company holds with USPS are subject to the SCA that is administered by the Department of Labor (the “DOL”). The SCA, among other things, requires that the Company pay its drivers a minimum hourly wage as determined by the DOL as well as provide a bona fide fringe benefit package to its drivers.
The Company is also subject to various environmental laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, and adverse impacts to the environment, including to the soil, groundwater and surface water. The Company has implemented programs designed to monitor and address identified environmental risks. Historically, the Company’s environmental compliance costs have not had a material adverse effect on its results of operations.
Employees
As of December 31, 2022, the Company had 1,760 employees, consisting of 1,200 full-time employees and 560 part-time employees. The Company employed 1,491 drivers as of December 31, 2022.
Company Website
The Company’s website may be accessed at www.evotransinc.com. All of our filings with the Securities and Exchange Commission can be accessed free of charge through our website as soon as reasonably practicable after filing. This includes annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports filed or furnished on Form 8-K and all related amendments.
Item 1A. Risk Factors.
Risks Related to the Company
If we do not generate substantial revenue or obtain sufficient additional capital, we may be unable to pursue our objectives. This raises substantial doubt related to our ability to continue as a going concern.
As disclosed in the notes to our consolidated financial statements included in this annual report, numerous factors raise substantial doubt about our ability to continue as a going concern. Specific factors include the following:
If we are unable to improve our liquidity position, we might be unable to continue as a going concern. This could significantly reduce or eliminate the value of our investors’ investment in the Company.
Our level of indebtedness could adversely affect our financial condition and our ability to fulfill our obligations and operate our business.
We have incurred significant liabilities, and our ongoing capital needs are extensive relative to our current cash position. Unless we are able to restructure some or all of our outstanding debt and/or raise sufficient capital to fund continued operations and our debt obligations, we may be unable to pay these obligations as they become due. In the past, we have been unable to pay our obligations as they have become due.
We have a history of losses and may incur additional losses in the future.
In 2022, we incurred a net loss of $18.2 million, which included a $5.3 million pre-tax loss on the extinguishment of certain debt obligations. In 2021, we reported net income of $14.3 million, which included $34.8 million of nonrecurring pre-tax revenue resulting from the USPS settlement agreements, as well as a $11.0 million pre-tax gain on the extinguishment of certain debt obligations. We may continue to incur losses, the amount of our losses may increase, and we may never achieve or sustain profitability, any of which would adversely affect our business, prospects and financial condition and may cause the price of
5
EVO's common stock to fall. In addition, to try to achieve or sustain profitability, we may take actions that result in material costs or material asset or goodwill impairments.
We have identified seven material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
As of December 31, 2022, we identified seven deficiencies in internal control that are considered to be material weaknesses and other deficiencies that are considered to be significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal controls, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. In addition, management has concluded that our disclosure controls and procedures were not effective as of December 31, 2022 due to the material weaknesses in our internal control over financial reporting described in Item 9A of this Annual Report on Form 10-K. As a result, we will be required to expend significant resources to develop the necessary documentation and testing procedures required by Section 404, and there is a risk that we will not comply with all of the necessary requirements. The material weaknesses may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations. Additionally, if we cannot remediate the material weaknesses in internal controls or if we identify additional material weaknesses in internal controls that cannot be remediated in a timely manner, investors and others with whom we do business may lose confidence in the reliability of our financial statements, and in our ability to obtain equity or debt financing could suffer.
In addition, while we expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. If we are unable to timely comply with all of these requirements, potential investors might deem our financial statements to be unreliable and our ability to obtain additional capital could suffer.
We are heavily reliant on our factoring arrangement, and any reductions to our ability to obtain credit under the factoring arrangement could significantly impact our liquidity.
We obtain liquidity under an accounts receivable factoring arrangement with Triumph Business Capital (the "Factor"). Pursuant to the terms of the agreement, from time to time, we sell to the Factor certain of our accounts receivable balances on a recourse basis for approved accounts. The Factor remits 95% of the contracted accounts receivable balance for a given month to us with the remaining balance, less fees, to be forwarded once the Factor collects the full accounts receivable balance from the factoring customer. This is one of our primary sources of liquidity.
The Factor has no obligation to purchase the full amount of accounts receivable balances or unearned future contract amounts that we offer to sell, and there can be no assurance that the Factor will continue to purchase accounts receivable or unearned future contract amounts at the same levels as it has in the past. If the Factor determines in its sole discretion to decrease the amount it advances under the factoring arrangement or to terminate the factoring agreement entirely and we are unable to obtain a replacement source of credit on substantially similar terms, it would significantly decrease our liquidity, which would likely have a material adverse effect on our business, operating results and financial condition.
We may need substantial additional capital to fund our growth plans and operate our business.
We may require substantial additional capital to fund our capital expenditures, service our debt, refinance existing debt, fund strategic relationships, respond to competitive pressures and to otherwise execute on our business plan. The most likely sources of such additional capital are private placements and public offerings of shares of our capital stock, including shares of EVO’s common stock or securities convertible into or exchangeable for EVO’s common stock, debt financing or funds from potential strategic transactions. We may seek additional capital from available sources, which may include hedge funds, private equity funds, venture capitalists, lenders/banks and other financial institutions, as well as additional private placements. Any financings in which we sell shares of our capital stock will likely be dilutive to our current stockholders. If we raise additional capital by incurring debt, a portion of our cash flow would have to be dedicated to the payment of principal and interest on such indebtedness. In addition, typical loan agreements also might contain restrictive covenants that may impair our operating flexibility. Such loan agreements, loans or debentures would also provide for default under certain circumstances, such as failure to meet certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such lender which would be senior to the rights of our stockholders. A
6
judgment creditor would have the right to foreclose on any of our assets resulting in a material adverse effect on our business, operating results or financial condition.
Our ability to raise additional capital may depend in part on our success in meeting sales and operating goals. We currently have no committed sources of additional capital and there is no assurance that additional financing will be available in the amounts or at the times required, or if it is, on terms acceptable or favorable to us. If we are unable to obtain additional financing when and if needed, our business will be materially impacted and our investors may lose the value of their entire investment.
In the event of an economic downturn or disruption in the credit markets, our indebtedness could place us at a competitive disadvantage in terms of our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our debt obligations compared to our competitors that are less leveraged.
This could have negative consequences that include: (i) increased vulnerability to adverse economic, industry or competitive developments; (ii) cash flows from operations that are committed to payment of principal and interest, thereby reducing our ability to use cash for our operations, capital expenditures and future business opportunities; (iii) increased interest rates that would affect our variable rate debt; (iv) potential noncompliance with financial covenants, borrowing conditions and other debt obligations, where applicable; (v) lack of financing for working capital, capital expenditures, product development, debt service requirements and general corporate or other purposes; and (vi) limits on our flexibility to plan for, or react to, changes in our business, market conditions or in the economy.
We may experience impairment of our long-lived assets and our goodwill.
Long-lived assets, including property, plant and equipment, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. Long-lived assets are considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. We also periodically evaluate our goodwill for potential impairment. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the carrying value is higher than the fair value, the goodwill is considered impaired. Once an asset is considered impaired, an impairment loss is recorded within operating expense for the difference between the asset’s carrying value and its fair value. For assets held and used in the business, management generally determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.
We depend on certain key personnel, and our operating performance may be adversely impacted by the loss of any such key personnel.
Our ability to execute our business plans and objectives depends, in large part, on our ability to attract and retain qualified personnel. Competition for personnel is intense and there can be no assurance that we will be able to attract and retain personnel. In particular, we are dependent upon the services of our management team. Our inability to utilize and retain the services of our management team members could have an adverse effect on us and there would likely be a difficult transition period in finding replacements for any of them. The execution of our strategic plan will place increasing demands on our management and operations. If we lose or are unable to obtain the services of key personnel, our ability to manage our business and implement our strategic plan could be delayed or hindered, which could have a material adverse effect on our business, financial condition and results of operations.
We are controlled by our principal stockholder, Antara Capital Master Fund LP, and it appointed two directors to the EVO board of directors.
Our principal stockholder beneficially owns a substantial majority of our outstanding common stock and it appointed two directors to the EVO board in June 2022. Accordingly, it has the ability to exert substantial influence over our business affairs, including electing directors, appointing officers, determining officers’ compensation, issuing additional equity securities or
7
incurring additional debt, effecting or preventing a merger, sale of assets or other corporate transaction and amending our articles of incorporation.
We incur significant costs to comply with public company reporting requirements and other costs associated with being a public company.
We incur significant costs associated with our public company reporting requirements and other rules implemented by the Securities and Exchange Commission. Compliance with such rules and regulations increases our administrative costs and make some activities more time-consuming and costlier as compared to our peers that are not subject to public company reporting requirements. As a public company, we are required to comply with rules and regulations of the SEC, including expanded disclosure and more complex accounting rules. We also must implement additional finance and accounting systems, procedures and controls to satisfy these reporting requirements. In addition, we hire additional legal and accounting staff and consultants to enable us to comply with these reporting requirements. These costs could have an adverse effect on our financial condition and could limit our ability to realize our objectives.
Risks Related to the Company’s Operations
We derive substantially all of our revenue from one customer, the loss of which would have a material adverse effect on our business.
Approximately 90% of our 2022 revenue was generated from the USPS. The loss or reduction of business from this customer would have a material adverse effect on our business.
Economic conditions may adversely affect the USPS and its ability to remain solvent. The United States Government Accountability Office has in the past described the USPS’s financial condition as “deteriorating and unsustainable.” The USPS’s financial difficulties can negatively impact our results of operations and financial condition and our ability to comply with the covenants in our debt agreements, especially if the USPS were to delay or default on payments to us.
There can be no assurance that our relationship with the USPS will continue as presently in effect. In 2021, the USPS announced its “Delivering for America” plan to transform the USPS. If we are not able to achieve its business objectives while adhering to the USPS’s initiatives under that plan, there would likely be a material adverse effect on our business, operating results and financial condition.
Additionally, our contracts with the USPS are terminable for convenience by the USPS upon advance notice ranging from 60 days for some contracts to 180 days for DRO contracts. A default in performance by us under one USPS contract can constitute a cross-default allowing the USPS to terminate some or all of our other contracts with the USPS. A reduction in, or termination of, our services by the USPS would have a material adverse effect on our business, operating results and financial condition.
We have significant ongoing capital expenditure requirements. If we are unable to obtain additional capital on favorable terms or at all, we may not be able to execute on our business plans and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.
Our business is capital intensive. Capital expenditures focus primarily on equipment replacement and, to a lesser extent, facilities, equipment growth and investments in information technology. We also expect to devote substantial financial resources to grow our operations and fund our acquisition activities. As a result of our funding requirements, we may need to raise funds through the sale of additional equity or debt securities or seek additional financing through other arrangements to increase our cash resources. Any sale of additional equity or debt securities may result in dilution to its stockholders. Public or private financing may not be available in amounts or on terms acceptable to us, if at all.
If we are unable to obtain additional financing, we may be required to delay, reduce the scope of or eliminate our growth initiatives or future acquisition activities, which could adversely affect its business, financial condition and operating results. In such case, we may also operate our existing equipment (including tractors and trailers) for longer periods, which would result in increased maintenance costs, which would in turn reduce our operating income.
We may not successfully manage our recent and planned growth.
We have expanded our business through acquiring additional companies that provide contract trucking services to the USPS and leveraging our expanded operations to bid on additional USPS trucking contracts. We plan to continue to expand through acquisitions, bidding on additional USPS trucking contracts and expanding both our freight and brokerage operations in the future. Any expansion of operations we have undertaken or may undertake entail and will entail risks and such actions may involve specific operational activities that may negatively impact our profitability. Consequently, investors must assume the
8
risk that (i) such expansion may ultimately involve expenditures of funds beyond the resources available to us at that time, and (ii) management of such expanded operations may divert management’s attention and resources away from its existing operations. These factors may have a material adverse effect on our present and prospective business activities.
We may not make acquisitions in the future, which could impede growth, or if we do, we may not be successful in integrating any acquired businesses, either of which could have a material adverse effect on our business.
Historically, a key component of our growth strategy has been to pursue acquisitions of complementary businesses. Our growth could be impeded if we do not make any acquisitions. If we make acquisitions, we can make no assurances that we will be successful in negotiating, consummating or integrating the acquisitions. If we succeed in consummating future acquisitions, our business, financial condition and results of operations, may be materially adversely affected because:
Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.
We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, cross-selling to strategic accounts, process improvements, workforce productivity and further back-office optimization. If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.
Our business is affected by general economic and business risks that are largely beyond our control.
The trucking industry is cyclical and is dependent on a number of factors, many of which are beyond our control. We believe that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets in general, including excess tractor capacity in comparison with shipping demand and recessionary economic cycles.
We are also subject to cost increases outside of our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver wages, subcontractor rates, interest rates, taxes, tolls, license and registration fees, insurance, equipment and healthcare for our employees.
Our suppliers’ business levels also may be negatively affected by adverse economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations. A significant interruption in the normal supply chain for equipment or parts could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.
Additional events outside of our control, such as strikes or other work stoppages at our facilities or at customer, port, border or other shipping locations, or actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements could lead to reduced economic demand, reduced availability of credit or temporary closing of the shipping locations or U.S. borders. Such events or enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs.
9
The trucking industry is highly competitive and fragmented, and our business and results of operations may suffer if we are unable to adequately address downward pricing and other competitive pressures.
We compete with many truckload carriers of varying sizes, including some that may have greater access to equipment, a wider range of services, greater capital resources, less indebtedness or other competitive advantages. We also compete with smaller, regional service providers that cover specific shipping lanes or that offer niche services. Numerous competitive factors could impair our ability to maintain or improve profitability. These factors include the following:
Driver shortages and increases in driver compensation could adversely affect our profitability and ability to maintain or grow our business.
Driver shortages could require us to spend more to attract and retain drivers. The market for qualified drivers is intensely competitive, which may subject us to increased payments for driver compensation. Also, because of the competition for drivers, we may face difficulty maintaining or increasing our number of drivers. Compliance and enforcement initiatives included in the CSA program implemented by the FMCSA and regulations of the DOT relating to driver time and safety and fitness could also reduce the availability of qualified drivers. In addition, we experience regular driver turnover, which requires us to continually recruit a substantial number of drivers in order to operate our existing equipment. If we are unable to continue to attract and retain a sufficient number of drivers, we could be required to operate with fewer trucks and face difficulty meeting customer demands or be forced to forego business that would otherwise be available to us, which could adversely affect our profitability and ability to maintain or grow our business.
Increased prices for, or decreases in the availability of, new equipment, design changes of new engines, future use of autonomous tractors and volatility in the value of used equipment could adversely affect our results of operations and cash flows.
We are subject to risk with respect to higher prices for new tractors and trailers. We have at times experienced an increase in prices for new tractors and trailers and the resale value of the tractors have not always increased to the same extent. Prices have increased and may continue to increase, due, in part, to (i) government regulations applicable to newly manufactured tractors and diesel engines, (ii) increases in commodity prices, (iii) shortages of component parts, such as semiconductors, and (iv) and due to the pricing discretion of equipment manufacturers in periods of high demand. Compliance with EPA regulations has increased the cost of our new tractors and could impair equipment productivity, result in lower fuel mileage and increase our operating expenses. These adverse effects, combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values realized from the disposition of these vehicles, could increase our costs or otherwise materially adversely affect our business, financial condition and results of operations as the regulations become effective. Furthermore, future use of autonomous tractors could increase the price of new tractors and decrease the value of used non-autonomous tractors.
A depressed market for used equipment could require us to trade our revenue equipment at depressed values or to record losses on disposal or impairments of the carrying values of our revenue equipment that is not protected by residual value arrangements. Used equipment prices are subject to substantial fluctuations based on freight demand, supply of new and used equipment,
10
availability and terms of financing, the presence of buyers for export to foreign countries and commodity prices for scrap metal. If there is a deterioration of resale prices, it could have a material adverse effect on our business, financial condition and results of operations. We have seen a softening of the used equipment market recently.
Certain of our revenue equipment financing arrangements have balloon payments at the end of the finance terms equal to the values we expect to be able to obtain in the used market. To the extent the used market values are lower than such balloon payments, we may be forced to sell the equipment at a loss and our results of operations would be materially adversely affected.
Insurance and claims expenses could significantly reduce our profitability.
We are exposed to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation, group health and group dental. We have insurance coverage with third-party insurance carriers, but we assume a significant portion of the risk associated with these claims due to our self-insured retention and deductibles, which can make our insurance and claims expense higher or more volatile. Additionally, we face the risks of increasing premiums and collateral requirements and the risk of carriers or underwriters leaving the transportation sector, which may materially affect our insurance costs or make insurance more difficult to find, as well as increase our collateral requirements. We could experience increases in our insurance premiums in the future if we decide to increase our coverage or if our claims experience deteriorates.
In addition, we are subject to changing conditions and pricing in the insurance marketplace and the cost or availability of various types of insurance may change dramatically in the future. If our insurance or claims expense increases, and we are unable to offset the increase with higher freight rates, our results of operations could be materially and adversely affected. Our results of operations may also be materially and adversely affected if we experience a claim in excess of our coverage limits, a claim for which coverage is not provided or a covered claim for which our insurance company fails to perform.
If we are required to accrue or pay additional amounts because claims prove to be more severe than our recorded liabilities, our financial condition and results of operations may be materially adversely affected.
We accrue the costs of the uninsured portion of pending claims based on estimates derived from our evaluation of the nature and severity of individual claims and an estimate of future claims development based upon historical claims development trends. Actual settlement of our retained claim liabilities could differ from our estimates due to a number of uncertainties, including evaluation of severity, legal costs and claims that have been incurred but not reported. Due to our high retained amounts, we have significant exposure to fluctuations in the number and severity of claims. If we are required to accrue or pay additional amounts because our estimates are revised or the claims ultimately prove to be more severe than originally assessed, our financial condition and results of operations may be materially adversely affected.
We face litigation risks that could have a material adverse effect on the operation of our business.
Our business is subject to the risk of litigation by employees, applicants, subcontractors, customers, vendors, government agencies, stockholders and other parties through private actions, class actions, administrative proceedings, regulatory actions and other processes. We and our peers are subject to lawsuits alleging violations of various federal and state wage and hour laws regarding, among other things, minimum wage, meal and rest periods, overtime eligibility and failure to pay for all hours worked. A number of these lawsuits have resulted in the payment of substantial settlements or damages by other carriers.
The cost to defend, settle and resolve litigation may be significant. Not all claims are covered by our insurance (including wage and hour claims), and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the extent we experience claims that are uninsured, exceed our coverage limits, involve significant aggregate use of our retention amounts, or cause increases in future premiums, the resulting expenses could have a material adverse effect on our business, financial condition and results of operations.
We may be subject, and have been subject in the past, to litigation resulting from trucking accidents. The number and severity of litigation claims may be worsened by distracted driving by both truck drivers and other motorists. These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and increases of our insurance costs.
We rely significantly on our information technology systems, a disruption, failure or security breach of which or an inability to keep pace with technological advances could have a material adverse effect on our business.
We rely on information technology throughout all areas of our business to initiate, track and complete deliveries; process financial and nonfinancial data; compile results of operations for internal and external reporting; and achieve operating efficiencies and growth. Each of our information technology systems may be susceptible to various interruptions, including equipment or network failures, failed upgrades or replacement of software, user error, power outages, natural disasters, cyber-attacks, theft or misuse of data, terrorist attacks, computer viruses, hackers, or other security breaches. We may in the future experience security breaches and other interruptions of our information technology systems despite our best efforts to prevent
11
them. Our efforts to mitigate exposure to these risks through the establishment and maintenance of technology security programs and disaster recovery plans may not be sufficient. A significant disruption, failure or security breach in our information technology systems, or those of our technology and communications services vendors, could have a material adverse effect on our business, which could include operational disruptions, loss of confidential information, external reporting delays or errors, legal claims or damage to our business reputation.
We also could experience an inability to keep pace with technological advances, resulting in our information technology platforms becoming obsolete or our competitors developing related or similar service offerings more effective than ours. Furthermore, we make strategic investments in technology that naturally entail risks and uncertainties, some of which are beyond our control. For example, we may not be able to derive value from strategic investments or we may incur higher than expected costs in realizing a return on such investments or overestimate the benefits that we receive or realize from such investments. Therefore, we cannot provide assurance that any of our strategic investments will generate anticipated financial returns. If our strategic investments fail to meet our expectations, our business and results of operations may be adversely impacted.
In addition, we are currently dependent on a single vendor platform to support certain information technology functions. If the stability or capability of such vendor is compromised and we were forced to migrate to a new platform, it could materially adversely affect our business, financial condition and results of operations.
Some of our employees work remotely, which may increase the cybersecurity risks to our business, including an increased demand for information technology resources, increased risk of phishing, and other cybersecurity attacks.
We have, and will continue to have, a portion of our employee population that works from home full-time or under flexible work arrangements, and we have provided associates with expanded remote network access options which enable them to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks. Our employees working remotely may expose us to cybersecurity risks through: (i) unauthorized access to sensitive information as a result of increased remote access, including our employees’ use of Company-owned and personal devices and videoconferencing functions and applications to remotely handle, access, discuss, or transmit confidential information, (ii) increased exposure to phishing and other scams as cybercriminals may, among other things, install malicious software on our systems and equipment and access sensitive information, and (iii) violation of international, federal or state-specific privacy laws. We believe that the increased number of employees working remotely has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time. A significant disruption of our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from our violation of privacy laws could each have a material adverse effect on our business.
Our agreements with subcontracted operators expose us to risks that we do not face with our company drivers.
We rely, in part, upon independent subcontractors to perform the services for which we contract with customers. Our reliance on subcontractors creates numerous risks for our business. If our subcontractors fail to meet our contractual obligations or otherwise fail to perform in a manner consistent with our requirements, we may be required to utilize alternative service providers at potentially higher prices or with some degree of disruption of the services that we provide to customers. If we fail to deliver on time, if our contractual obligations are not otherwise met, or if the costs of our services increase, then our profitability and customer relationships could be harmed.
The financial condition and operating costs of our subcontractors are affected by conditions and events that are beyond our control and may also be beyond their control. Adverse changes in the financial condition of the subcontractors or increases in their equipment or operating costs could cause them to seek higher revenues or to cease their business relationships with us. The prices we charge our customers could be impacted by such issues, which may in turn limit pricing flexibility with customers, resulting in fewer customer contracts and decreasing our revenues.
If one of our subcontractors is subject to negative publicity, it could reflect on us and have a material adverse effect on our business, brand and financial performance. Under certain laws, we could also be subject to allegations of liability for the activities of our subcontractors.
Subcontractors are third-party service providers, as compared to company drivers who are employed by us. As independent business owners, the subcontractors may make business or personnel decisions that conflict with our best interests. For example, if a load is unprofitable, route distance is too far from home or personal scheduling conflicts arise, a subcontractor may deny loads of freight from time to time. In these circumstances, we must be able to timely deliver the freight in order to maintain relationships with our customers.
12
If our employees were to unionize, our operating costs could increase and our ability to compete could be impaired.
None of our employees are currently represented under a collective bargaining agreement; however, we always face the risk that our employees will try to unionize. Further, Congress or one or more states could approve legislation and/or the National Labor Relations Board (the “NLRB”) could render decisions or implement rule changes that could significantly affect our business and our relationship with employees, including actions that could substantially liberalize the procedures for union organization. In addition, we can offer no assurance that the Department of Labor will not adopt new regulations or interpret existing regulations in a manner that would favor the agenda of unions. We believe the applicability of the SCA to our employees reduces the likelihood of organizational activity.
Any attempt to organize by our employees could result in increased legal and other associated costs and divert management attention, and if we entered into a collective bargaining agreement, the terms could negatively affect our costs, efficiency and ability to generate acceptable returns on the affected operations. In particular, the unionization of our employees could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects because:
Higher health care costs and labor costs could adversely affect our financial condition and results of operations.
With the passage in 2010 of the United States Patient Protection and Affordable Care Act (the “PPACA”), we are required to provide health care benefits to all full-time employees who meet certain minimum requirements of coverage and affordability, or otherwise be subject to a payment per employee based on the affordability criteria set forth in the PPACA. Additionally, some states and localities have passed laws mandating the provision of certain levels of health benefits by some employers. The PPACA also requires individuals to obtain coverage or face individual penalties, so employees who are currently eligible but have elected not to participate in the health care plans offered by us may ultimately find it more advantageous to do so. It is also possible that by making changes or failing to make changes in the health care plans we offer, we will have difficulty attracting and retaining employees, including drivers. The costs and other effects of these healthcare requirements may significantly increase our health care coverage costs and could materially adversely affect our financial condition and results of operations.
Seasonality and the impact of weather and other catastrophic events adversely affect our trucking operations and profitability.
Our tractor productivity decreases during the winter season because inclement weather impedes operations. At the same time, operating expenses increase due to, among other things, a decline in fuel efficiency because of engine idling and adverse road conditions that creates higher accident frequency, increased accident claims and higher cold weather-related equipment maintenance and repair expenditures. We may also suffer from weather-related or other events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions, which may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy our assets or the assets of our customers or otherwise adversely affect the business or financial condition of our customers, any of which could adversely affect our results or make our results more volatile.
The COVID-19 pandemic, other similar outbreaks and government responses thereto may have a material adverse impact on our business, financial condition and results of operations.
The continued spread and impact of novel coronavirus (“COVID-19”) and government responses thereto might materially negatively impact our future results of operations and financial condition. COVID-19 has created, and any other outbreaks of similar contagious diseases or other adverse public health developments could create, significant volatility, uncertainty and economic disruption. COVID-19 or another similar outbreak could negatively impact our business in numerous ways, including, but not limited to, the following:
13
The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the geographic scope, severity and duration of the pandemic; governmental, business and other actions in response to the pandemic (which could include limitations on our operations or mandates to provide services in a specified manner); the impact of the pandemic on economic activity; the response of the overall economy and the financial markets; expenses we have incurred and may incur in the future in connection with our response to the pandemic; the health of and the effect on our workforce and our ability to meet staffing needs; and the potential effects on our internal controls, including those over financial reporting, as a result of changes in working environments. In 2020, services we provide the USPS were deemed “essential” such that we were required to continue operations during “lockdowns” and similar restrictive measures limiting business activity generally.
In response to the spread of COVID-19, we modified our business practices for the continued health and safety of our employees. Specifically, we implemented measures to enhance the sanitization process of our equipment and properties, increased the social distancing of our employees by working remotely where possible, and provided driving associates with personal protective equipment (“PPE”). We may take further actions, or be required to take further actions, that are in the best interests of our employees in the future. The implementation of health and safety practices, including federal or state vaccine mandates and similar measures, could impact our productivity and costs, which could have a material adverse impact on our business, financial condition and results of operations. In addition, the focus on managing and mitigating the impacts of COVID-19 on our business may cause us to divert or delay the application of our resources toward existing or new initiatives or investments, which could have a material adverse impact on our results of operations.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also exacerbate many of the other risks set forth in this Annual Report on Form 10-K, including those relating to our financial performance and debt obligations. There are no comparable recent events that provide guidance as to the effect the COVID-19 global pandemic may have, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.
We may be adversely affected by fluctuations in the price or availability of diesel fuel and gasoline.
Fuel is one of our largest operating expenses. Fuel prices fluctuate greatly due to factors beyond our control, such as political events, price and supply decisions by oil producing countries and cartels, terrorist activities, environmental laws and regulations, armed conflicts, depreciation of the dollar against other currencies, world supply and demand imbalances, and hurricanes and other natural or man-made disasters, each of which may lead to an increase in the cost of fuel. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because our operations are dependent upon fuel, significant fuel cost increases, shortages or supply disruptions could materially and adversely affect our results of operations and financial condition. Although our customers generally reimburse us for fuel expenses, the calculations of those reimbursements typically lag the change in the Department of Energy's fuel index. As a result, those reimbursements might be for amounts lower than our fuel costs as fuel prices fluctuate.
Costs associated with our use of natural gas vehicles (“NGVs”) could exceed the related benefits that we are able to realize, which could adversely affect our results of operations and cash flows.
Higher costs associated with purchasing and repairing NGVs might exceed any benefits attributable to our use of NGVs. For example, there are a limited number of original equipment manufacturers of NGVs and the engines, fuel tanks and other equipment required to upfit a gasoline or diesel engine to run on natural gas, which can increase costs related to purchasing and repairing NGVs as well limit the supply of NGVs available to purchase and therefore our ability to add to our fleet. Also, some of the higher costs of owning and operating NGVs have historically been offset by federal and state government incentives, including those that offset part or all of the additional up-front cost to acquire NGVs or convert vehicles to run on natural gas, those that waive vehicle weight limits for NGVs, and those that offer tax credits. However, those incentives may not continue. If those government incentives are discontinued or not renewed, our operating costs could significantly increase.
14
In addition to potential increases in expenses and other operating costs related to our use of NGVs, if technologies are developed that either reduce the emissions in gasoline and diesel-powered vehicles or improve the operating capabilities of electric, solar or other alternative fuel technology vehicles, the benefits of NGVs could be significantly reduced. Any such reduction could adversely affect our ability to retain existing freight contracts when they are up for renewal and receive new contracts, which would adversely impact our financial performance.
Risks Related to Regulatory and Governmental Matters
The trucking industry is highly regulated and changes in existing laws or regulations, or liability under existing or future laws or regulations, could have a material adverse effect on our results of operations and profitability.
We operate in the United States pursuant to operating authority granted by the DOT. We, along with our leased labor drivers, must also comply with governmental regulations regarding safety, equipment, environmental protection and operating methods. Examples include regulation of equipment weight, equipment dimensions, fuel emissions, driver hours-of-service, driver eligibility requirements and on-board reporting of operations. We may become subject to new or more restrictive regulations relating to such matters that may require changes in our operating practices, influence the demand for transportation services or require us to incur significant additional costs. Possible changes to laws and regulations include:
From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels and emissions, which may increase our or our subcontracted providers’ operating costs, require capital expenditures or adversely impact the recruitment of drivers. In addition, we could lose revenue if our customers divert business from us because we have not complied with their sustainability guidelines or requirements.
Safety-related evaluations and rankings under the CSA program could adversely impact our relationships with our customers and our ability to maintain or grow our fleet, either of which could have a material adverse effect on our results of operations and profitability.
The CSA program includes compliance and enforcement initiatives designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. The FMCSA issues three categories of safety ratings: satisfactory, conditional and unsatisfactory. As of December 31, 2022, all DOT operating authority numbers operated by us currently have a “satisfactory” FMCSA rating.
Our CSA scores are dependent upon our safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in the CSA program or the underlying methodology used by the FMCSA to determine a carrier’s safety rating could change and, as a result, our ability to maintain an acceptable score could be adversely impacted. If the FMCSA adopts rulemakings in the future that revise the methodology used to determine a carrier’s safety rating in a manner that incorporates more stringent standards, then our CSA scores could be adversely affected. If we receive an unacceptable CSA score, our relationships with customers could be damaged, which could result in a loss of business or otherwise adversely affect our business.
15
The CSA program affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier’s safety record. The methodology for determining a carrier’s DOT safety rating relies upon implementation of Behavioral Analysis and Safety Improvement Categories (“BASIC”) applicable to the on-road safety performance of the carrier’s drivers and certain of those rating results are provided on the FMCSA’s Carrier Safety Measurement System website. As a result, certain current and potential drivers may no longer be eligible to drive for us, our fleet could be ranked poorly as compared to our peers, and our safety rating could be adversely impacted. The occurrence of future deficiencies could affect driver recruiting and retention by causing high-quality drivers to seek employment (in the case of company drivers) or contracts (in the case of third-party drivers) with other carriers, or could cause our customers to direct their business away from us and to carriers with better fleet safety rankings, either of which would adversely affect our results of operations and productivity. Additionally, we may incur greater than expected expenses in our attempts to improve our scores as a result of poor rankings. Those carriers and drivers identified under the CSA program as exhibiting poor BASIC scores are prioritized for interventions, such as warning letters and roadside investigations, either of which may adversely affect our results of operations.
The requirements of CSA could also shrink the trucking industry’s pool of drivers if drivers with unfavorable scores leave the industry. As a result, the costs to attract, train and retain qualified drivers could increase. A shortage of qualified drivers could also increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations and profitability.
We are subject to environmental and worker health and safety laws and regulations that may expose us to significant costs and liabilities and have a material adverse effect on our results of operations, competitive position and financial condition.
We are subject to stringent and comprehensive federal, state and local environmental and worker health and safety laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from our vehicles (including engine idling) and facilities, the health and safety of our workers in conducting operations and adverse impacts to the environment. Under certain environmental laws, we could be subject to strict liability, without regard to fault or legality of conduct, for costs relating to contamination at we own or operate or previously owned or operated and at third-party sites where we disposed of waste, as well as costs associated with the clean-up of releases arising from accidents involving our vehicles. We often operate in industrial areas, where truck terminals and other industrial activities are located, and where soil, groundwater or other forms of environmental contamination have occurred from historical or recent releases and for which we may incur remedial or other environmental liabilities. We also maintain aboveground fuel storage tanks at some of our facilities and vehicle maintenance operations at certain of our facilities. Our operations involve the risks of fuel spillage or seepage into the environment, environmental damage and unauthorized hazardous material spills, releases or disposal actions, among others.
Increasing efforts to control air emissions, including greenhouse gases, may have an adverse effect on us. Federal and state lawmakers have implemented various climate change initiatives and greenhouse gas regulations and may implement additional initiatives in the future, all of which could increase the cost of new tractors, impair productivity and increase our operating expenses.
Compliance with environmental laws and regulations may also increase the price of our equipment and otherwise affect the economics of our business by requiring changes in operating practices or by influencing the demand for, or the costs of providing, transportation services. For example, regulations issued by the EPA and various state agencies that require progressive reductions in exhaust emissions from diesel engines have resulted in higher prices for tractors and diesel engines and increased operating and maintenance costs. Also, in order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle. These restrictions could require us to alter our drivers’ behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. We are also subject to potentially stringent rulemaking related to sustainability practices, including conservation of resources by decreasing fuel consumption. This increased focus on sustainability practices may result in new regulations and/or customer requirements that could adversely impact our business. Historically, our environmental compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that future compliance will not have a material adverse effect on our business and operating results.
If we have operational spills or accidents or if we are found to be in violation of, or otherwise liable under, environmental or worker health or safety laws or regulations, we could incur significant costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of our operations in a particular area. The occurrence of any one or more of these developments could have a material adverse effect on our results of operations, competitive position and financial condition. Environmental and worker health and safety laws are becoming increasingly more stringent and there can be no assurances that compliance with, or liabilities under, existing or future environmental and worker health or safety laws or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.
16
If our subcontractors are deemed by regulators or judicial process to be employees, our business and results of operations could be adversely affected.
Tax and other regulatory authorities have in the past sought to assert that subcontractors in the trucking industry are employees rather than independent contractors. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If our subcontractors are determined to be employees, we would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
Potential inquiries into or audits of our Paycheck Protection Program loan, as well as the results of any such inquiries or audits, could have a significant adverse effect on us and our financial condition.
We applied for and received a $10 million Paycheck Protection Program (“PPP”) loan under the CARES Act. On May 8, 2020, we received a letter from the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives demanding that we return the PPP loan. We elected not to return the PPP loan proceeds as requested and our PPP loan was subsequently forgiven. Also, the United States Small Business Administration (“SBA”) has stated that it intends to audit the PPP loan application of any company, like us, that received PPP loan proceeds of more than $2 million. Our decision to retain the PPP loan may require members of our management team to devote attention to future correspondence and requests from the Select Subcommittee, the SBA, or other regulators, which would reduce the amount of time available to management to focus on our operations and strategic initiatives. If we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP loan, or it is otherwise determined that we were ineligible to receive the PPP loan, we may be subject to penalties, including significant civil, criminal and administrative penalties.
Risks Related to Our Securities
Shares of EVO's common stock are thinly-traded on OTC-Expert, and our stockholders may be unable to sell their shares.
The shares of EVO’s common stock are thinly-traded on OTC-Expert, meaning that the number of persons interested in purchasing our shares of common stock at or near ask prices at any given time may be relatively small or non-existent. There can be no assurance that a broader or more active trading market will ever develop or, if developed, that it will be sustained. There can be no assurance that EVO’s stockholders will ever be able to resell their shares at or near ask prices or at all.
The price of EVO's common stock could be highly volatile.
EVO’s common stock will be subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of EVO’s common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of EVO’s common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of EVO’s common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of EVO’s common stock. No assurance can be given that an active market in EVO’s common stock will develop or be sustained. If an active market does not develop, holders of EVO’s common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all.
EVO’s common stock is subject to the “penny stock” rules of the SEC, which restrict transactions in our stock and may reduce the value of an investment in our stock.
EVO's common stock is currently regarded as a “penny stock” because our shares are not listed on a national stock exchange or quoted on the NASDAQ Market within the United States and EVO's common stock has a market price less than $5.00 per share. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide a customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction. To the extent these requirements may be applicable; they will reduce the level of trading activity in the secondary market for EVO's common stock and may severely and adversely affect the ability of broker-dealers to sell EVO's common stock.
17
We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make EVO's common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, as well as a smaller reporting company. For so long as we remain an emerging growth company and/or a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies or smaller reporting companies. These exemptions include:
We cannot predict whether investors will find EVO's common stock less attractive if we rely on these exemptions. If some investors find EVO's common stock less attractive as a result, we will experience greater difficulty raising equity capital, there may be a less active trading market for EVO's common stock, and the stock price may be more volatile.
We have never paid and do not expect to pay cash dividends on our shares.
We have never paid cash dividends, and we anticipate that any future profits received from operations will be retained for operations. We do not anticipate the payment of cash dividends on our capital stock in the foreseeable future and any decision to pay dividends will depend upon our profitability, available cash and other factors. Therefore, no assurance can be given that there will ever be any cash dividend or distribution in the future.
We may in the future issue additional shares of EVO's common stock which would reduce investors’ ownership interests in EVO and which may dilute EVO's share value.
EVO's certificate of incorporation authorizes the issuance of 610,000,000 shares consisting of: (i) 600,000,000 shares of common stock, par value $0.0001 per share; and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share. The future issuance of all or part of our remaining authorized common stock or preferred stock may result in substantial dilution in the percentage of EVO's common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for EVO's common stock.
EVO's certificate of incorporation permits the board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to stockholders.
EVO’s board of directors, without any action by its stockholders, may amend EVO’s certificate of incorporation from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that EVO has authority to issue. The board of directors may also classify or reclassify any unissued common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of any class or series of stock. Thus, the board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of EVO’s common stock. For example, the Series C Preferred Stock authorized by the board of directors in March 2022 and the Series D Preferred Stock authorized by the board of directors in July 2022 rank senior in preference and priority to EVO's common stock with respect to dividend and liquidation rights and, generally votes with the common stock on an as converted basis on all matters presented for a vote of the holders of common stock. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies. The Series C Preferred Stock and the Series D Preferred Stock, as well as any other series of preferred stock that the board of directors may authorize in the future could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of EVO’s common stock.
18
Item 1B. Unresolved Staff Comments.
As a smaller reporting company, EVO is not required to provide disclosure under this item.
Item 2. Properties.
Our principal corporate office is located at 2075 West Pinnacle Peak Rd. Suite 130, Phoenix, AZ 85027 and consists of 6,359 square feet of space. We occupy this office under a 65-month office lease agreement dated November 27, 2019 with monthly rental payments increasing from $12,188 to $13,248 over the initial term of the lease.
We also lease the following properties as main terminals for our trucking operations:
We lease various additional properties throughout the United States for our trucking operation, none of which are individually material, for operating sites, remote offices, and parking facilities.
Through our subsidiaries, Titan and EAF, we also own or lease six natural gas fueling stations located in California, Texas, Arizona and Wisconsin, three of which were operating as of December 31, 2022.
We believe all of our properties are suitable and adequate for current operating needs.
Item 3. Legal Proceedings.
See Part II, Item 8, Note 10, Commitment and Contingencies, to the Consolidated Financial Statements included herein.
Item 4. Mine Safety Disclosure.
Not applicable.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Common Stock
EVO's certificate of incorporation authorizes the issuance of up to 600,000,000 shares of common stock, par value $0.0001 per share. EVO's common stock trades under the symbol “EVOA” on the OTC Expert Market maintained by the OTC Markets Group Inc.; however, no public market has yet developed for our common stock.
As of November 16, 2023, there were 192 holders of record of our common stock.
Dividend Policy
EVO has not paid any cash dividends since inception and does not anticipate or contemplate paying dividends in the foreseeable future. Dividends accrue and are payable on our Series C Preferred Stock and Series D Preferred Stock. It is the present intention of management to utilize all available funds for the development of the Company’s business. See Part II, Item 8, Note 6, Temporary Equity, Stockholders' Deficit and Warrants, to the Consolidated Financial Statements included herein.
Recent Sales of Unregistered Securities
Refer to the heading “Securities Purchase Agreement” within Note 1, Description of Business and Summary of Significant Accounting Policies, for information regarding the warrants issued to Antara, Exchanging Creditors, two former board members and to key equityholders and members of management in connection with the Recapitalization Transactions.
Securities Authorized for Issuance under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Item 6. Selected Financial Data.
As a smaller reporting company, EVO is not required to provide disclosure under this item.
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management's discussion and analysis of financial condition and results of operations should be read together with “Business” in Part I, Item 1 of this Annual Report, as well as the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1A. “Risk Factors” and Part I “Forward-looking Statements” of this Annual Report, and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed.
Company Overview
EVO Transportation & Energy Services, Inc. is a truckload carrier serving the USPS and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or CNG. EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.
Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.
Key Trends & Anticipated Future Trends
Under its “Delivering for America Plan,” the USPS is undergoing a massive transformation of its transportation network. A key component of this is a reorganization around regional processing and distribution centers. In addition, the USPS has transitioned most of its air freight to ground networks. We believe the USPS will favor larger and more reliable suppliers that can ensure continued high service performance and continuity during this transition.
EVO further expects a more active market-based approach to USPS renewals. We believe this approach favors larger suppliers like EVO that can provide competitive pricing by leveraging scale and pricing analytics.
The USPS has also started evaluating insourcing opportunities and transitioning contracts to more asset-light companies. We believe outsourced asset-based ground transportation suppliers will continue to service the vast majority of USPS contracts. In addition, we believe any shift in business to these threats is more likely to come from the smaller suppliers who are unable to compete as cost effectively over the long-term.
We intend to continue bidding on new and existing USPS contract opportunities as they arise. USPS contracts are bid competitively and performed in accordance with various requirements, including, but not limited to requirements under the Service Contract Act, Department of Transportation regulations (federal and state), and other applicable local and state regulations. The USPS evaluates the bids based on price, past performance, operational plans, financial resources, safety scores and the use of innovation or alternative fuels. EVO's USPS contracts typically have two or four year terms and can be renewed with the incumbent carrier after expiration of the initial term.
EVO believes that freight market rates peaked during COVID, reaching multi-year highs. Rates have since reversed and EVO believes they will continue to remain challenging during 2023. We believe this may create new business opportunities as the USPS looks to resolicit many of its contracts and that larger, more cost-efficient carriers are well positioned to gain market share. In addition, we believe the USPS will be heavily focused on service performance and that those suppliers who cannot achieve high on time service scores will fall out of favor. We believe this also creates significant opportunity for EVO in the future.
In addition to growing the USPS business, the Company expects to further diversify its revenue base both organically through new sales and business development efforts and also through M&A transactions. The strategy of acquiring USPS carriers will be deemphasized as the Company looks to create a more balanced business.
Results from Operations
Year Ended December 31, 2022, Compared to Year Ended December 31, 2021
Trucking revenue: The majority of trucking revenue is derived from the USPS. The remainder of the revenue is primarily derived from corporate freight customers. USPS contracts are typically four years in duration and include a monthly fuel adjustment. Trucking revenue was $309.5 million and $268.9 million during the years ended December 31, 2022 and 2021, respectively. The $40.6 million, or 15.1%, increase in trucking revenue from 2021 to 2022 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of increased fuel prices.
21
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 and total paid miles 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: Payroll, benefits and related includes total compensation of drivers and non-drivers. Included in driver compensation is an incremental hourly rate for benefits. Payroll, benefits and related expense was $131.2 million and $107.4 million during the years ended December 31, 2022 and 2021, respectively. The $23.8 million, or 22.2%, increase in payroll, benefits and related expense is primarily due to the 15.1% increase in Trucking revenue combined with an increase in the use of employee drivers versus third-party subcontractors.
Purchased transportation: Purchased transportation represents payments to subcontracted third-party companies. These contracts are typically 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 $46.4 million and $68.8 million during the years ended December 31, 2022 and 2021, respectively. The $22.4 million, or 32.6%, decrease in purchased transportation expense is primarily due to an increased use of employee drivers versus subcontractors.
Fuel: Fuel expense is comprised of diesel, gasoline and CNG fuel required to operate the fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors. Fuel expense was $48.2 million and $28.2 million during the years ended December 31, 2022 and 2021, respectively. The $20.0 million, or 70.9%, increase in fuel expense is due primarily to the 15.1% increase in Trucking revenue, 32.6% decrease in purchased transportation and an increase in the average DOE fuel price from $3.28 to $5.00 per gallon.
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 $14.6 million and $13.4 million during the years ended December 31, 2022 and 2021, respectively. The $1.2 million, or 9.0%, increase in equipment rent expense is primarily due to the need to service new USPS contracts by acquiring additional trucks and trailers via new leasing and rental arrangements.
Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet. Maintenance and supplies expense was $15.8 million and $10.9 million during the years ended December 31, 2022 and 2021, respectively. The $4.9 million, or 45.0%, increase in maintenance and supplies expense 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.
Operating supplies and expenses: Operating and supplies expenses include all other direct costs in the Trucking operation. Operating supplies and expenses was $14.3 million and $15.3 million during the years ended December 31, 2022 and 2021, respectively. The $1.0 million, or 6.5%, decrease in operating supplies and expenses is primarily due to more cost efficient completion of certain routes.
General and administrative: General and administrative expense was $18.0 million and $16.3 million during the years ended December 31, 2022 and 2021, respectively. The $1.7 million, or 10.4%, increase is primarily due to an increase in professional fees and board of director fees and expenses.
Depreciation and amortization: Depreciation and amortization expense was $16.2 million and $15.2 million during the years ended December 31, 2022 and 2021, respectively. The increase is due to an increase in finance lease right-of-use asset amortization expense, partially offset by a decrease in depreciation expense.
Interest expense: Interest expense was $33.7 million and $12.7 million during the years ended December 31, 2022 and 2021, respectively. The $21.0 million, or 165.4%, increase in interest expense is primarily due to interest expense of $11.9 million associated with the issuance of warrants and the amortization of the debt discount related to the warrants in connection with the Bridge Loan Agreement, dated March 11, 2022. The increase is further due to a $7.7 million charge to interest expense
22
associated with the purchase of warrants by Antara Capital in connection with the recapitalization of the company in September 2022. In addition, the increase is due to $1.6 million of finance fees and additional debt issued of $9 million in connection with the Bridge Loan, and an increase in the interest rate on certain floating rate debt. Refer to Note 5, Debt, and Note 6, Temporary Equity, Stockholders’ Deficit and Warrants for further discussion.
Gain / loss on extinguishment of debt: The $5.3 million loss on extinguishment of debt during the year ended December 31, 2022 is primarily due to the $5.2 million loss on the extinguishment of the four promissory notes with an aggregate principal amount of $9.5 million as a result of the Convertible Note Amendments, dated March 11, 2022. The $11.0 million gain on extinguishment of debt during the year ended December 31, 2021 is due to: (1) the $10.1 million gain on extinguishment of the outstanding principal and accrued interest on the Paycheck Protection Program Loan, which was forgiven by the SBA in July 2021; (2) the $2.5 million gain on the partial extinguishment of the $4.0 million Secured Convertible Promissory Notes during March and April 2021; and (3) the $1.7 million loss on extinguishment resulting from using all of the net proceeds from the Main Street Loan to pay down the aggregate principal amount due under the Financing Agreement (including capitalized interest) from $33.6 million to $16.7 million during the first quarter of 2021. Refer to Note 5, Debt, for further discussion.
Change in fair value of embedded derivative liability: The 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 5, Debt, and Note 8, Fair Value Measurements, for further discussion.
Change in fair value of warrant liabilities: EVO previously issued certain warrants that are not considered indexed to EVO'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 6, Stockholders' Deficit and Warrants, and Note 8, Fair Value Measurements, for further discussion.
Liquidity and Capital Resources
Changes in Liquidity
Cash and Cash Equivalents. Cash and cash equivalents were $14.4 million and $6.3 million at December 31, 2022 and 2021, respectively. The increase is primarily attributable to cash provided by operating activities during the year ended December 31, 2022.
Operating Activities. Net cash provided by operating activities was $10.6 million during the year ended December 31, 2022. Net cash provided by operating activities was $23.5 million during the year ended December 31, 2021 which included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements. The decrease in net cash provided was primarily attributable to a $32.5 million increase in net loss, partially offset by a $20.1 million increase in accounts receivable collected.
Investing Activities. Net cash used in investing activities was $0.1 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively. The net cash used in investing activities during the years ended December 31, 2022 and 2021, is primarily related to $0.1 million and $7.4 million of capital expenditures, respectively.
Financing Activities. Net cash used in financing activities was $2.4 million and $35.7 million for the years ended December 31, 2022 and 2021, respectively. The cash used in financing activities during the year ended December 31, 2022 primarily consisted of $258.8 million in payments on factoring arrangements, $5.4 million in payments of debt principal, and $8.8 million in payments on finance lease liabilities, partially offset by $247.5 million in advances from factoring receivables, $9.6 million of proceeds from the issuance of debt and $13.8 million of proceeds from the issuance warrants. The cash used in financing activities during the year ended December 31, 2021 primarily consisted of $225.8 million in payments on factoring arrangements, $24.1 million in payments of debt principal, and $5.9 million in payments on finance lease liabilities, partially offset by $214.3 million in advances from factoring receivables and $6.5 million of proceeds from the issuance of debt.
Sources of Liquidity
Our primary historical and future sources of liquidity are cash on hand ($14.4 million at December 31, 2022), the incurrence of additional indebtedness, the sale of EVO’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 EVO’s common stock or preferred stock.
23
Uses of Liquidity
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, and payments for fuel, maintenance and supplies, and other expenses. We also use large amounts of cash and credit for principal and interest payments, as well as operating and finance lease liabilities and capital expenditures to fund the replacement and/or growth in our tractor and trailer fleet.
Going Concern
As of December 31, 2022, we had a cash balance of $14.4 million, a working capital deficit of $67.2 million, stockholders’ deficit of $15.7 million, and material debt and lease obligations of $105.6 million, which included term loan borrowings under a financing agreement with Antara Capital. During the year ended December 31, 2022, we reported cash provided by operating activities of $10.6 million and net loss of $18.2 million that included a $5.3 million loss on extinguishment of debt.
The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2022:
24
The issuance of one share of Series D Non-Participating Preferred Stock to Antara Capital on July 13, 2022 resulted in a change of control of the Company, with Antara Capital having voting control on Series D Shareholder Matters. The consideration for the issuance of Series D Non-Participating Preferred Stock to Antara Capital was Antara Capital's agreement to enter into the Third Extension Agreement, and the Company did not receive any cash consideration.
Despite the occurrence of the Recapitalization Transactions, the Company believes its existing cash, together with any positive cash flows from operations, may not be sufficient to support working capital and capital expenditure requirements for the next 12 months, and the Company may be required to seek additional financing from outside sources.
In evaluating the Company’s ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:
As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.
Management’s plans to mitigate the Company’s current conditions include:
25
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 12 months from the issuance of these consolidated financial statements within EVO’s Form 10-K. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.
Refer to Notes 1, 4, 5 and 9 to the consolidated financial statements for further information regarding our debt, factoring, and lease obligations, including the future maturities of such obligations.
Off-Balance Sheet Arrangements
Refer to Note 10, Commitments and Contingencies – Off Balance Sheet Arrangements – Captive Insurance.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses recorded during the reporting periods.
On a periodic basis we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. For further information on our significant accounting policies, refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.
We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Goodwill
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in its Trucking reporting unit.
Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
The impairment test process requires valuation of the reporting unit, which we determine using primarily the income, or discounted cash flows, approach. The assumptions about future cash flows and growth rates are based on the reporting unit's long-term forecast and are subject to review and approval by senior management. A reporting unit’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
During the years ended December 31, 2022 and 2021, the annual impairment test did not result in an impairment of goodwill.
26
Long-Lived Assets
The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available.
If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The assumptions about future cash flows and growth rates are based on the asset group’s long-term forecast and are subject to review and approval by senior management. An asset group’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options
Our executive officers, directors and principal stockholders beneficially own a substantial majority of EVO’s outstanding common stock. EVO’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when EVO issues other equity instruments for which the common stock is the underlying security. We first use primarily the income or discounted cash flows approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) EVO's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The estimated fair value of EVO’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options EVO issues.
Stock-Based Compensation
The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of subjective assumptions, including the estimated fair value of EVO’s common stock, the expected term of the award, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the award. The expected term represents the period of time the awards are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the awards, we use the simplified method to estimate the expected term for our stock-based compensation awards. Under the simplified method, the expected term of an award is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the awards. We assume no dividend yield because dividends on our common stock are not expected to be paid in the near future, which is consistent with our history of not paying dividends on our common stock.
Deferred Income Tax Assets and Liabilities
The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the
27
use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.
We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 31, 2022, the Company had federal and state net operating losses of approximately $38.4 million and $26.7 million, respectively. As of December 31, 2021, the Company had federal and state net operating losses of approximately $44.7 million and $30.2 million, respectively. As of December 31, 2022, the Company has approximately $0.7 million of federal net operating losses available to offset future taxable income for 20 years and will begin to expire in 2036. The remaining $37.7 million of federal net operating losses are carried forward indefinitely to offset future taxable income up to an 80% limitation of taxable income in the year of use. The state net operating losses began to expire in 2022. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.
Recently Issued Accounting Pronouncements
Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.
Seasonality and Inflation
Due to increased USPS volume associated with the holiday rush from the end of November through year end, the Company’s revenue and business activity typically increase during the last quarter of each calendar year. In the winter months, operating expenses generally increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures.
The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company’s assets or adversely affect the business or financial condition of customers, any of which could adversely affect the Company’s results or make the Company’s results more volatile.
The Company has experienced inflationary pressures in the normal course of business including cost of equipment, driver wages, healthcare and benefits, insurance, parts and supplies and fuel. While the Company receives some revenue offsets from the USPS for costs like wage inflation and fuel, periods with inflationary pressures could adversely affect our financial results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, EVO is not required to provide disclosure under this item.
28
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page |
Report of Independent Registered Public Accounting Firm [PCAOB ID Number 248] |
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
EVO Transportation & Energy Services, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of EVO Transportation & Energy Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company’s current liabilities exceeded its current assets by $67.2 million and its total liabilities exceeded its total assets by $15.7 million as of December 31, 2022. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2021.
November 16, 2023
F-1
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Balance Sheets
|
|
December 31, |
|
|||||
($ in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Accounts receivable - trade, net |
|
|
|
|
|
|
||
Alternative fuels tax credit receivable |
|
|
|
|
|
|
||
Prepaids and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Non-current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets, net |
|
|
|
|
|
|
||
Finance lease right-of-use assets, net |
|
|
|
|
|
|
||
Deposits and other long-term assets |
|
|
|
|
|
|
||
Total non-current assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities, Temporary Equity and Stockholders’ Deficit |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Accrued interest - related party, current portion |
|
|
|
|
|
|
||
Embedded derivative liability |
|
|
|
|
|
|
||
Warrant liabilities |
|
|
|
|
|
|
||
Advances under factoring arrangements, current portion |
|
|
|
|
|
|
||
Long-term debt, current portion |
|
|
|
|
|
|
||
Long-term debt - related party, current portion |
|
|
|
|
|
|
||
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
Finance lease liabilities, current portion |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Non-current liabilities |
|
|
|
|
|
|
||
Advances under factoring arrangements, less current portion |
|
|
|
|
|
|
||
Long-term debt, less current portion |
|
|
|
|
|
|
||
Long-term debt - related party, less current portion |
|
|
|
|
|
|
||
Long-term accrued interest - related party, less current portion |
|
|
|
|
|
— |
|
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Finance lease liabilities, less current portion |
|
|
|
|
|
|
||
Deferred tax liability |
|
|
|
|
|
|
||
Total non-current liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Temporary Equity |
|
|
|
|
|
|
||
Series A Redeemable Convertible Preferred stock, $ |
|
|
— |
|
|
|
|
|
Series B Redeemable Convertible Preferred stock, $ |
|
|
— |
|
|
|
|
|
Series C Redeemable Preferred stock, $ |
|
|
— |
|
|
|
|
|
Redeemable common stock, at redemption value; |
|
|
— |
|
|
|
|
|
Stockholders’ deficit |
|
|
|
|
|
|
||
Series D Non-Redeemable Preferred stock, $ |
|
|
— |
|
|
|
|
|
Common stock, $ |
|
|
|
|
|
|
||
Common stock issuable |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities, temporary equity, and stockholders’ deficit |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
F-2
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Operations
|
|
For the Years Ended |
|
|||||
($ in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
||
Revenue |
|
|
|
|
|
|
||
Trucking |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Total revenue |
|
|
|
|
|
|
||
Operating expenses |
|
|
|
|
|
|
||
Payroll, benefits and related |
|
|
|
|
|
|
||
Purchased transportation |
|
|
|
|
|
|
||
Fuel |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Operating supplies and expenses |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Equipment rent |
|
|
|
|
|
|
||
Maintenance and supplies |
|
|
|
|
|
|
||
Insurance and claims |
|
|
|
|
|
|
||
Loss on sale of fixed assets |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Operating income (loss) |
|
|
( |
) |
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Change in fair value of embedded derivative liability |
|
|
( |
) |
|
|
|
|
Change in fair value of warrant liabilities |
|
|
|
|
|
( |
) |
|
Gain (loss) on extinguishment of debt |
|
|
( |
) |
|
|
|
|
Other miscellaneous income |
|
|
|
|
|
|
||
Total other expense |
|
|
( |
) |
|
|
( |
) |
Income (loss) before income taxes |
|
|
( |
) |
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
|
( |
) |
|
$ |
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
|
|
Diluted |
|
$ |
( |
) |
|
$ |
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
See notes to consolidated financial statements.
F-3
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2022 and 2021
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
($ in thousands, except share data) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Issuable |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
||||||||
Balance - December 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
||||
Obligation to issue common stock - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of warrants to extinguish debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Common stock issued for services - related party |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series A Redeemable Preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Series B Redeemable Preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance - December 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Issuance of common stock - related party |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
||
Conversion of convertible notes into warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of warrants from liability classified to equity classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Issuance of Series D Non-Redeemable Preferred stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Exercise of warrants into common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Issuance of equity classified warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Restructuring gain from related parties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series A Redeemable Preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Series B Redeemable Preferred stock dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Conversion of Series A Redeemable Preferred stock into common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Conversion of Series B Redeemable Preferred stock into common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance - December 31, 2022 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||||
See notes to consolidated financial statements.
F-4
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Consolidated Statements of Cash Flows
|
|
For the Years Ended December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net loss to net cash provided by operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Loss on sale of assets |
|
|
|
|
|
|
||
Amortization of debt discount and debt issuance costs |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Bad debt expense |
|
|
|
|
|
|
||
Change in fair value of embedded derivative liability |
|
|
|
|
|
( |
) |
|
Change in fair value of warrant liabilities |
|
|
( |
) |
|
|
|
|
Restructuring gain (loss) on Recapitalization Transaction |
|
|
( |
) |
|
|
— |
|
(Gain) loss on extinguishment of debt |
|
|
|
|
|
( |
) |
|
Changes in assets and liabilities |
|
|
|
|
|
|
||
Accounts receivable - trade |
|
|
|
|
|
( |
) |
|
Alternative fuels tax credit receivable |
|
|
|
|
|
|
||
Due from related party |
|
|
( |
) |
|
|
|
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
( |
) |
|
|
|
|
Accrued interest - related party |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from sale of common stock, preferred stock and warrants |
|
|
|
|
|
— |
|
|
Proceeds from issuance of debt |
|
|
— |
|
|
|
|
|
Payments of principal on debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of debt - related party |
|
|
|
|
|
— |
|
|
Payments of principal on debt - related party |
|
|
( |
) |
|
|
( |
) |
Debt extinguishment costs |
|
|
( |
) |
|
|
( |
) |
Advances from factoring arrangements |
|
|
|
|
|
|
||
Payments on factoring arrangements |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
— |
|
|
|
— |
|
Payments on finance lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash and restricted cash |
|
|
|
|
|
( |
) |
|
Cash and restricted cash - beginning of year |
|
|
|
|
|
|
||
Cash and restricted cash - end of year |
|
$ |
|
|
|
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Income tax paid |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for finance lease liabilities |
|
$ |
|
|
$ |
— |
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
$ |
— |
|
|
Restructuring gain from Recapitalization Transactions in additional paid-in capital |
|
$ |
|
|
$ |
— |
|
|
Fair value of warrants and common stock issued in connection with financing arrangements |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
F-5
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Description of Business
EVO Transportation & Energy Services, Inc. (“EVO” and, together with its direct and indirect subsidiaries, the “Company”) is a truckload carrier serving the USPS and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or CNG. EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.
Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.
Securities Purchase Agreement
On September 8, 2022, EVO, EVO Holding Company, LLC (“EVO Holding”), a subsidiary of EVO, and Antara Capital Master Fund LP (“Antara Capital”) entered into a Securities Purchase Agreement (the “SPA”) and consummated certain transactions involving the recapitalization of the Company (collectively the “Recapitalization Transactions”). This included the following:
F-6
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Amended and Restated Limited Liability Company Operating Agreement
In connection with the SPA, EVO, Antara Capital, and EVO Holding entered into an Amended and Restated Limited Liability Company Operating Agreement (the “A&R LLC Agreement”) for EVO Holding. Pursuant to the A&R LLC Agreement and the SPA, EVO Holding issued one convertible preferred membership interest in EVO Holding (the “Preferred Interest”) to Antara Capital. The Preferred Interest is convertible at Antara Capital’s election during the Conversion Period into
Going Concern
As of December 31, 2022, the Company had a cash balance of $
The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2022:
F-7
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The issuance of
In evaluating the Company’s ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:
As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.
Management’s plans to mitigate the Company’s current conditions include:
F-8
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
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 12 months from the issuance of these consolidated financial statements within EVO’s Form 10-K. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.
Refer to Notes 4, 5, and 9 to the consolidated financial statements for further information regarding our factoring, debt, and lease obligations, including the future maturities of such obligations. Refer to Note 13, Subsequent Events, for further information regarding changes in the Company’s debt obligations and liquidity subsequent to December 31, 2022.
Consolidation
The accompanying consolidated financial statements include the accounts of EVO and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Pushdown Accounting
As described in Note 5, Debt, on July 13, 2022, Antara Capital was issued one share of Series D Non-Participating Preferred Stock of EVO. With the issuance of Series D Non-Participating Preferred Stock, Antara Capital obtained voting control on shareholder matters resulting in a change of control of the Company. Antara Capital elected to not apply pushdown accounting.
Reclassifications
Certain reclassifications have been made to prior period's financial information to conform to the current period presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to goodwill and long-lived asset valuations, purchase price allocations related to the Company’s business combinations, valuation allowance on deferred income tax assets, and the valuation of our common stock, preferred stock, warrants and stock-based awards.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts where accounts may exceed federally insured limits at times. There were
Restricted Cash
We had restricted cash of $
Accounts Receivable
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of the accounts receivable. It is reasonably
F-9
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance. Receivable balances are written off against the allowance for doubtful accounts when, in the judgment of management, they are considered uncollectible.
Concentrations of Credit Risk
The Company grants credit in the normal course of business to customers in the United States. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.
As of December 31, 2022 and 2021, the USPS accounted for
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense as incurred. Gains and losses on disposals of equipment are included in operations as they are a normal, recurring component of our operations. Depreciation is provided utilizing the straight-line method over the following estimated useful lives.
|
|
Years |
Tractors |
|
|
Trailers |
|
|
Equipment |
|
|
Leasehold improvements |
|
Goodwill
Goodwill represents the excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed. We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in the Trucking reporting unit, which has a negative carrying value as of December 31, 2022 and 2021.
Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
The Company performed its annual goodwill impairment tests for 2022 and 2021 by completing quantitative impairment analyses of the Trucking reporting unit goodwill, and management concluded the goodwill was not impaired.
Intangible Assets
The Company's intangible assets consist of customer relationships, trade names and non-competition agreements. The Company carries these intangible assets at cost, less accumulated amortization. Amortization is recorded on a straight-line basis over the estimated useful lives of the respective assets. Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. There were
Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by
F-10
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. There was
Debt Issuance Costs
Certain fees and costs incurred to obtain long-term financing are capitalized and included as a reduction in the carrying value of the related debt in the consolidated balance sheets, net of accumulated amortization. These costs are amortized to interest expense using the effective interest method over the term of the related debt.
Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options
Our executive officers, directors and principal stockholders beneficially own a substantial majority of EVO’s outstanding common stock. EVO’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when EVO issues other equity instruments for which the common stock is the underlying security. We first use primarily the income, or discounted cash flows, approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) EVO's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The estimated fair value of EVO’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options EVO issues.
Stock-Based Compensation
The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense on a straight-line basis over the awards’ vesting period and accounts for forfeitures as they occur.
Some of EVO’s currently outstanding awards provide for the acceleration of vesting of all shares underlying the award upon the occurrence of the Company completing an aggregate of at least $
F-11
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Earnings (Loss) per Share of Common Stock
Basic earnings (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible notes payable and preferred stock using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net loss per share of common stock attributable to common stockholders when their effect is dilutive.
The following table presents the computation of basic and diluted earnings (loss) per share (amounts in thousands, except share data):
|
|
For the Years Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Accrued and undeclared preferred stock dividends in arrears |
|
|
( |
) |
|
|
( |
) |
Inducement to convert preferred stock into common stock |
|
|
( |
) |
|
|
— |
|
Net income (loss) available to common stockholders - numerator for basic EPS |
|
|
( |
) |
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
||
$ |
|
|
— |
|
|
|
|
|
Series A Redeemable Convertible Preferred stock |
|
|
— |
|
|
|
|
|
Series B Redeemable Convertible Preferred stock |
|
|
— |
|
|
|
|
|
Subtotal |
|
|
— |
|
|
|
|
|
Adjusted net income (loss) available to common stockholders - numerator for diluted EPS |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Denominator for basic EPS - weighted average common shares outstanding |
|
|
|
|
|
|
||
Effect of dilutive securities: |
|
|
|
|
|
|
||
$ |
|
|
— |
|
|
|
|
|
Series A Redeemable Convertible Preferred stock |
|
|
— |
|
|
|
|
|
Series B Redeemable Convertible Preferred stock |
|
|
— |
|
|
|
|
|
Subtotal |
|
|
— |
|
|
|
|
|
Denominator for diluted EPS - adjusted weighted average common shares outstanding |
|
|
|
|
|
|
||
Basic EPS |
|
$ |
( |
) |
|
$ |
|
|
Diluted EPS |
|
$ |
( |
) |
|
$ |
|
|
The following table presents the potentially dilutive shares that were excluded from the computation of diluted earnings (loss) per share of common stock attributable to common stockholders, because either their effect was anti-dilutive or they are contingently issuable shares that were not issuable assuming the end of the reporting period was the end of the contingency period:
|
|
For the Years Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Stock options |
|
|
|
|
|
|
||
Warrants |
|
|
|
|
|
|
||
Common stock to be issued upon conversion of Four convertible promissory notes with an aggregate principal amount of $ |
|
|
— |
|
|
|
|
|
Common stock and warrant to be issued for purchase of fixed assets |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
F-12
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Revenue Recognition
USPS – USPS trucking operations generates revenue from transportation services under multi-year contracts with the USPS.
Freight
In accordance with Accounting Standards Codification ("ASC") 606-10-50, the Company disaggregates Trucking revenue from contracts with its customers between USPS revenue and Freight revenue as follows:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
USPS revenue |
|
$ |
|
|
$ |
|
||
Freight revenue |
|
|
|
|
|
|
||
Other revenue |
|
|
|
|
|
|
||
Total Trucking revenue |
|
$ |
|
|
$ |
|
||
United States Postal Service Settlement
On January 19, 2021, the Company and the USPS entered into a settlement agreement whereby the USPS agreed to pay approximately $
F-13
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
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 $
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. Historically, the Company had
Loss Contingencies
From time to time, we are involved in litigation, claims, contingencies and other legal matters. We record a charge equal to at least the minimum estimated liability for a loss contingency borne by the Company when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of the loss can be reasonably estimated. We expense legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.
Income Taxes
Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.
In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has
F-14
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Topic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are modified or exchanged in order to reduce diversity in practice. The standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The
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 does not believe this standard will have a material impact 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.
Note 2 - Balance Sheet Disclosures
Accounts receivable are summarized as follows:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Accounts receivable – trade |
|
$ |
|
|
$ |
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Property and equipment consist of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Tractors, trailers and other vehicles |
|
$ |
|
|
$ |
|
||
Equipment |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Office equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation expense for the years ended December 31, 2022 and 2021, was $
F-15
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Intangible assets consist of the following:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
($ in thousands) |
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Trade names |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Non-competition agreements |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization expense for the years ended December 31, 2022 and 2021 was $
Future amortization expense will be approximately as follows:
Year Ending December 31, |
|
|
|
|
($ in thousands) |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Goodwill consists of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Acquisitions |
|
|
|
|
|
|
||
Impairment |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
All of the Company's goodwill is included in its Trucking reporting unit.
Accrued expenses and other current liabilities consist of the following:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Purchased transportation |
|
$ |
|
|
$ |
|
||
Compensation, related taxes and benefits |
|
|
|
|
|
|
||
Insurance |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
F-16
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 3 - Related Party Transactions
Accounts Payable - Related Party
On February 15, 2019, the Company entered into an agreement to lease software technology for operations from a company owned by an individual who served as one of the Company’s officers until October 2020. Under the agreement, the Company paid a monthly fee for this technology based on the number of devices installed across the Company’s fleet. The agreement was terminated in September 2022. During the years ended December 31, 2022 and 2021, the Company recognized expense of approximately $
Sheehy Settlement Agreement
On September 27, 2022, EVO, Sheehy Mail Contractors, Inc. ("Sheehy"), Sheehy Enterprises, Inc. (“SEI”), North American Dispatch Systems, LLC (“NADS”), John Sheehy (“J. Sheehy”), Robert Sheehy (“R. Sheehy” and, together with SEI, NADS, and J. Sheehy, the “Sheehy Parties”) entered into a Settlement Agreement (the “Sheehy Settlement Agreement”) which consummated the following: (i) terminated the services agreement with NADS with the receipt of $
Off Balance Sheet Arrangements - Collateral Security Pledge Agreement
On January 2, 2019 EVO acquired all of the outstanding equity interests in 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 10, 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”). In connection with the Sheehy Settlement Agreement, Sheehy pledged $
Creditor Exchange Agreements
As noted in Note 5, Debt, Danny Cuzick, John and Ursula Lampsa and Billy (Trey) Peck Jr. exchanged historical promissory notes issued by EVO and its subsidiaries for (i) warrants to purchase shares of common stock of EVO; (ii) a $
Amendments to Leases
In connection with the Recapitalization Transactions, Ursa Major Corporation, a wholly-owned subsidiary of EVO (“Ursa”), entered into two separate lease amendments with Ursa Oak Creek LLC and Ursa Group LLC. The amendments provided that the monthly “offset payments” under Ursa’s leases will continue until the earliest of (i) September 8, 2027, (ii) the date that the Takeback Note issued to John and Ursula Lampsa is satisfied in full, and (iii) the date the lease is terminated other than for Ursa’s breach. See Note 5, Debt, for further information regarding the Takeback Notes.
Purchase of Fixed Assets
On October 15, 2019, EVO
For information regarding additional related party transactions, see Note 5, Debt and Note 6, Stockholders’ Deficit and Warrants.
F-17
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 4 – Factoring Arrangements
On March 9, 2021, the Company and the Factor entered into a Letter-of-Intent and Memo of Understanding related to the application of certain 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 retain and apply approximately $
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Purchased accounts receivable |
|
$ |
|
|
$ |
|
||
Overadvances |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The Factor may require, at its discretion at any time, the Company to repay unearned future contract advances or purchased accounts receivable that have not been paid by the customer. Financing costs are primarily comprised of an interest rate of Prime (subject to a
F-18
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 5 - Debt
Antara Financing Agreement
On September 16, 2019, EVO
EVO issued a warrant for
Since the Term Loan, Antara Warrants and Side Letter Warrant were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and warrants as a combined arrangement. Since the Antara Warrants and Side Letter Warrants are liability classified we recorded these items at their fair value and the residual proceeds were allocated to the Term Loan. The non-lender fees incurred to establish the financing arrangement were allocated to the Term Loan and capitalized on the Company’s balance sheet as debt issuance costs, which are amortized using the effective interest method into interest expense over the term of the Term Loan.
The Term Loan was further evaluated for the existence of embedded features to be bifurcated from the amount allocated to the debt component. The Term Loan agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease in its carrying value. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $
F-19
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Forbearance Agreement and Incremental Amendment to Financing Agreement
During February 2020, the Company entered into a Forbearance Agreement and Incremental Amendment to Financing Agreement (the “Incremental Amendment”), pursuant to which the Company obtained an additional $
The Company accounted for the Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the Antara Warrant 2020 and fees paid to Antara Capital 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 $
The Company accounted for the Second Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the fees paid to Antara Capital on its balance sheet as a discount on the Second Incremental Term Loans, which is amortized using the effective interest method into interest expense over the term of the Second Incremental Term Loans.
Waiver and Agreement to Issue Warrant
Effective March 31, 2020, the Company entered into a Waiver and Agreement to Issue Warrant (the “Waiver Agreement”) with Antara Capital and the collateral agent, which modified a certain affirmative covenant and waived another affirmative
F-20
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
covenant in the Financing Agreement and, in exchange, EVO agreed to issue to Antara Capital a warrant to purchase up to
Second Amendment to Forbearance Agreement and Omnibus Amendment to Loan Agreement
During October 2020, the Company entered into a second amendment to forbearance agreement and omnibus amendment to loan documents (the “Omnibus Amendment”). The Omnibus Amendment (i) extended the forbearance period until December 31, 2020, (ii) added EVO Holding as a borrower under the Financing Agreement, (iii) authorized EVO and/or its subsidiaries to incur unsecured indebtedness of up to $
The Omnibus Amendment contained the following additional covenants:
The Company accounted for the Omnibus Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the warrants to purchase
The Paycheck Protection Program loan (the “PPP Loan”) was forgiven by the Small Business Adminstration (the “SBA”) in July 2021, which resulted in a $
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, 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 $
F-21
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
annum commencing with the ninth calendar quarter following the effective date. As a result of the Main Street Loan, the Second Omnibus Amendment, and related agreements, payment of the principal balance of the EVO 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. As of the date of this filing, interest is still being paid in kind at
Main Street Priority Loan Program Facility with Commerce Bank of Arizona, Inc.
On December 29, 2020, EVO Holding, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 (the “Loan Agreement”) and related documents (together with the Loan Agreement, the “Loan Documents”) for a loan in the amount of up to $
The Main Street Loan has a
Accrued but unpaid interest on the Main Street Loan for loan year one (i.e., the period of December 14, 2020 to December 14, 2021) will be added to the principal amount of the Main Street Loan on December 14, 2021. Following the end of loan year one, interest on the Main Street Loan will be payable
The Loan Documents contain customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, cross default under other credit facilities, breaches of representations and covenants, and the occurrence of certain events. The Loan Documents also contain customary remedies for a facility of this type, exercisable following the occurrence of an event of default, including, among others, the rights to terminate the Bank’s commitment under Loan Agreement, accelerate the maturity date, foreclose the liens and security interests securing the Main Street Loan, and all other rights and remedies available under the Loan Documents and applicable law. As security for the Main Street Loan, the Borrowers granted the Bank a security interest in and to substantially all of their respective properties, and the Company guaranteed the payment and performance of the Borrower’s obligations under the Loan Documents.
In connection with the Main Street Loan, EVO contributed
Bridge Loan and Executive Loans
On March 11, 2022, EVO and certain subsidiary guarantors of the Company entered into the Bridge Loan Agreement with Antara Capital and the Executive Lenders.
F-22
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Pursuant to the Bridge Loan Agreement, the Company borrowed $
In the event of a default, the lenders have the right to terminate their obligations under the Bridge Loan Agreement and to accelerate the payment on any unpaid principal amount of all outstanding loans. As defined in the Bridge Loan Agreement, events of default include, but are not limited to: failure by the Company to pay any amount due under the Bridge Loan Agreement when due; default by EVO or any of its subsidiaries for failure to pay amounts due and payable under any indebtedness in an amount in excess of $
In connection with the Bridge Loan Agreement, and as a condition to the Company drawing the Bridge Loan pursuant to the Bridge Loan Agreement, on March 11, 2022, EVO granted Antara Capital
Amendments to Bridge Loan and Executive Loans
On June 30, 2022, the Company, Antara Capital and the Executive Lenders entered into a Second Extension Agreement that extended the Bridge Loan maturity date from
On July 8, 2022, the Company, Antara Capital and the Executive Lenders entered into a Third Extension Agreement that extended the Bridge Loan maturity date from
On July 13, 2022, pursuant to the Third Extension Agreement, EVO filed the Series D Certificate of Designations with the Secretary of State of the State of Delaware, which authorized EVO to issue up to one share of Series D Non-Participating Preferred Stock.
Under the Series D Certificate of Designations, prior to a Bridge Loan Triggering Event and on and following the Bridge Loan Discharge Date, the holders of Series D Non-Participating Preferred Stock will vote together with the holders of EVO's common stock as a single class on any Series D Shareholder Matter, and the holders of Series D Non-Participating Preferred Stock will be entitled to cast a number of votes on any Series D Shareholder Matter equal to the total number of votes of all non-holders of Series D Non-Participating Preferred Stock entitled to vote on any such Series D Shareholder Matter plus 10. From the occurrence of a Bridge Loan Triggering Event to (but excluding) the Bridge Loan Discharge Date, the holders of Series D Non-Participating Preferred Stock (in their capacity as such) will have no voting rights except as otherwise required by law. In addition, the Series D Certificate of Designations provides that governance mechanisms that could have the effect of limiting,
F-23
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
reducing or adversely affecting the Series D Non-Participating Preferred Stock holders’ voting rights under the Series D Certificate of Designations will require the consent of the Series D Majority. The Series D Majority may elect to waive or decline to exercise any or all voting rights granted under the Series D Certificate of Designations, in whole or in part, on either a revocable or irrevocable basis.
The issuance of one share of Series D Non-Participating Preferred to Antara Capital on July 13, 2022, resulted in a change of control of the Company, with Antara Capital having voting control on Series D Shareholder Matters. The consideration for the issuance of Series D Non-Participating Preferred Stock to Antara Capital was Antara Capital's agreement to enter into the Third Extension Agreement, and the Company did not receive any cash consideration.
On July 15, 2022, the Company, Antara Capital and the Executive Lenders entered into a Fourth Extension Agreement that extended the Bridge Loan maturity date from
On August 12, 2022, the Company, Antara Capital and the Executive Lenders entered into a Fifth Extension Agreement that extended the Bridge Loan maturity date from
On September 8, 2022, the Company, Antara Capital and the Executive Lenders, in contemplation of the SPA discussed below, entered into a Sixth Extension Agreement that extended the Bridge Loan maturity date from
Amended and Restated Bridge Loan
On December 23, 2022, Antara Capital, CEOF, and Hudson Park entered into a Master Assignment and Assumption agreement pursuant to which Antara Capital sold and assigned its rights and obligations in a portion of the Bridge Loan and warrants with an exercise price per share of $
Amendments to and Conversion of Secured Convertible Promissory Notes
On March 11, 2022, EVO 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 EVO's common stock, into either shares of EVO's common stock or warrants to purchase shares of EVO's common stock at an exercise price of $
The Company accounted for the Convertible Note Amendments as an extinguishment of the existing debt and the execution of a new debt instrument. As a result, the Company recorded a $
Creditor Exchange Agreements
In connection with the Recapitalization Transactions, EVO and certain of its subsidiaries, EAF and EVO Equipment Leasing, LLC (collectively, the “EVO Parties”), entered into Exchange Agreements with each of Danny Cuzick, John and Ursula Lampsa, Billy (Trey) Peck Jr., Mohsin Meghji, and Robert Mendola (collectively, the “Exchanging Creditors”). The Exchange Agreements permitted the Exchanging Creditors to exchange existing promissory notes issued by EVO and its subsidiaries for the issuance and delivery of (i) warrants to purchase shares of EVO's common stock at an exercise price of $
F-24
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
stock at an exercise price of $
Pursuant to the Exchange Agreements, the Exchanging Creditors exchanged promissory notes issued by EVO and its subsidiaries in the aggregate amount of principal and accrued interest of approximately $
Each warrant issued to the Exchanging Creditors at an exercise price of $
The Takeback Notes bear interest at
In the event of a default, the Exchanging Creditors have the right to terminate their obligations under the Takeback Notes and to accelerate the payment on any unpaid principal amount of all outstanding loans ("mandatory prepayment"). As defined in the Takeback Notes, events of default include, but are not limited to: failure by EVO to pay any amount due under the Takeback Notes when due; a voluntary or involuntary case or other proceeding commenced by or against EVO seeking liquidation, reorganization or bankruptcy.
The Company concluded that the default interest rate, optional prepayment and mandatory prepayment features do not require bifurcation based on the derivative accounting scope exception in ASC 815 for certain contracts involving an entity’s own equity.
The Creditor Exchange Amendments constitutes as a troubled debt restructuring ("TDR") under ASC 470-60, Troubled Debt Restructuring, because the Company is experiencing financial difficulty and a concession has been granted by each Exchanging Creditor. As the TDR involves a partial settlement of debt through transfer of assets and grant of an equity interest, the carrying amount of the original debt is reduced by the cash paid and the fair value of the equity interests. When the reduced net carrying value of the debt exceeds the future undiscounted cash flows, the carrying amount is reduced to the amount of future undiscounted cash flows, including amounts contingently payable. A restructuring gain is recognized and is reduced by any third-party restructuring costs. Future cash payments will be recorded as reductions in the carrying amount of the debt. No further interest expense will be recognized, unless required in connection with contingent payments.
The Company recorded a total restructuring gain of approximately $
As three of the Exchanging Creditors are considered Related Parties, we recorded the restructuring gain associated with these parties as a capital contribution resulting in $
Amendment to Loan Agreement (Clean Energy)
On September 2, 2022, EVO, Thunder Ridge Transport, Inc., a wholly-owned subsidiary of EVO (“Thunder Ridge”), Billy (Trey) Peck Jr. and Clean Energy entered into a First Amendment to Loan and Security Agreement (the “Clean Energy Amendment”) that amended the Loan and Security Agreement between Thunder Ridge and Clean Energy dated August 31,
F-25
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
2017. The Clean Energy Amendment extended the maturity date of the loan from Clean Energy to Thunder Ridge from July 31, 2022 to March 31, 2023. Pursuant to the Clean Energy Amendment, Thunder Ridge agreed to pay Clean Energy (i) $
The amendment with Clean Energy was accounted for as a TDR because the Company is experiencing financial difficulty and the new payment structure results in the effective borrowing rate decreasing after the restructuring, which was determined to be a concession granted by Clean Energy. Since the future undiscounted cash flows of the restructured notes payable exceed the net carrying value of the original note payable due to the maturity date extension, the modification was accounted for prospectively with no gain or loss recorded in the unaudited Condensed Consolidated Statements of Operations.
Debt (with unrelated parties) consists of:
|
|
December 31, |
|
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
||
(a) Main Street Loan |
|
$ |
|
(1) |
$ |
|
(2) |
||
(b) $1.3 million note payable |
|
|
|
|
|
|
|
||
(c) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”) |
|
|
— |
|
|
|
|
|
|
(d) $0.3 million note payable |
|
|
— |
|
|
|
|
|
|
(e) Thunder Ridge supplier advance |
|
|
|
|
|
|
|
||
(f) Various notes payable acquired from J.B. Lease Corporation ("JB Lease") |
|
|
|
|
|
|
|
||
(g) $0.8 million note payable |
|
|
|
|
|
|
|
||
(h) $3.8 million note payable |
|
|
|
|
|
|
|
||
(i) Failed sale-leaseback obligations |
|
|
|
|
|
|
|
||
(j) Notes payable to three financing companies |
|
|
|
|
|
|
|
||
(k) Finkle equipment notes |
|
|
|
|
|
|
|
||
(l) Takeback Notes |
|
|
|
|
|
— |
|
|
|
Total before debt issuance costs and debt discount |
|
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Debt premiums / (discounts), net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt, less current portion |
|
$ |
|
|
$ |
|
|
||
(1) Classified as a current liability as of December 31, 2022 due to the existence of one or more covenant violations.
(2) Classified as a current liability as of December 31, 2021 due to the existence of one or more covenant violations.
The $
The Company classified the $
F-26
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The Secured Convertible Notes were issued during August 2018. The Company paid debt issuance costs of $
The Secured Convertible Notes also provide that the Company will prepare and file with the Securities and Exchange Commission (“SEC”), as promptly as reasonably practical following the issuance date of the Secured Convertible Notes, but in no event later than 45 days following the issuance date, a registration statement on Form S-1 (the “Registration Statement”) covering the resale of the common stock and the warrant shares and as soon as reasonably practical thereafter to effect such registration. The Company is required to pay liquidated damages of
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 $
Pursuant to the Bridge Loan Agreement in March 2022, the Company borrowed $
Pursuant to the Exchange Creditor Agreement, the remaining Secured Convertible Notes in the aggregate amount of principal and accrued interest of approximately $
The $
F-27
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The various notes payable acquired from JB Lease were issued to multiple lenders with interest rates ranging from
The $
The $
Certain notes payable acquired from Sheehy were payable to a bank with interest rates of
The Company issued notes payable to three financing companies in February and October 2019 and the fourth quarter of 2021 with maturity dates in
The Company issued equipment notes payable to several financing companies with interest rates ranging from
The Company issued two promissory notes with an aggregate principal amount of $
F-28
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Debt (with related parties) consists of:
|
|
December 31, |
|
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
||
(a) Antara Financing Agreement |
|
$ |
|
(1) |
$ |
|
(2) |
||
(b) Four promissory notes with an aggregate principal amount of $9.5 million |
|
|
— |
|
|
|
|
|
|
(c) Bridge Loan and Executive Loans |
|
|
|
|
|
— |
|
|
|
(d) $3.8 million senior promissory note |
|
|
— |
|
|
|
|
(2) |
|
(e) $4.0 million senior promissory note |
|
|
— |
|
|
|
|
(2) |
|
(f) $2.5 million promissory note - stockholder |
|
|
— |
|
|
|
|
|
|
(g) $6.4 million promissory note - stockholder |
|
|
— |
|
|
|
|
|
|
(h) Note payable acquired from Ritter |
|
|
|
|
|
|
|
||
(i) Takeback Notes |
|
|
|
|
|
— |
|
|
|
Total before debt issuance costs and debt discount |
|
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Debt premiums / (discounts), net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt, less current portion - related party |
|
$ |
|
|
$ |
|
|
||
(1) Classified as a current liability as of December 31, 2022 due to the existence of one or more covenant violations.
(2) Classified as a current liability as of December 31, 2021 due to the existence of one or more covenant violations.
The $
The Company classified the $
Refer to the discussion above regarding the Convertible Note Amendments, dated March 11, 2022, which resulted in the extinguishment of the four promissory notes due to their conversion into the Convertible Note Warrants. As of December 31, 2022 and 2021, the unamortized debt discount was $
F-29
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
On March 11, 2022, the $
The $
In connection with the Financing Agreement and the Main Street Loan, amounts due under the senior promissory note were subordinated and extended to the earlier of March 2026 and the payment in full of the Financing Agreement and the Main Street Loan. 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 $
Pursuant to the Exchange Creditor Agreement, the $
As of December 31, 2022 and 2021, the remaining unamortized debt discount was $
The $
In connection with the Financing Agreement and the Main Street Loan, amounts due under the promissory note were subordinated and extended to the earlier of March 2026 and the payment in full of the Financing Agreement and the Main Street Loan. 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 $
F-30
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Black-Scholes option pricing model, and the portion of the fair value attributable to the $
Pursuant to the Exchange Creditor Agreement, the $
As of December 31, 2022 and 2021, the remaining unamortized debt discount was $
In connection with EVO's June 1, 2018 acquisition of all of the issued and outstanding shares of Thunder Ridge, this $
Pursuant to the Exchange Creditor Agreement, the promissory note in the aggregate amount of principal and accrued interest of approximately $
The $
Pursuant to the Exchange Creditor Agreement, the senior promissory notes in the aggregate amount of principal and accrued interest of approximately $
Note payable to a related party were assumed as a liability in the Ritter acquisition. The note has an interest rate of
The Company issued three promissory notes with an aggregate principal amount of $
F-31
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Maturities of long-term obligations are as follows:
Year Ending December 31, |
|
Related Party |
|
|
Other Notes |
|
|
Total |
|
|||
($ in thousands) |
|
|
|
|
|
|
|
|
|
|||
2023 |
|
$ |
|
|
$ |
|
(1) |
$ |
|
|||
2024 |
|
|
|
|
|
|
(1) |
|
|
|||
2025 |
|
|
— |
|
|
|
|
(1) |
|
|
||
2026 |
|
|
|
(1) |
|
— |
|
|
|
|
||
2027 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|||
Total debt issuance costs and debt discount |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
(1) Includes $
Note 6 – Temporary Equity, Stockholders’ Deficit and Warrants
Charter Amendment
On September 8, 2022, EVO's Board and stockholders holding a majority of the voting power of the issued and outstanding shares of each class of our capital stock approved the amendment of EVO’s Certificate of Incorporation to increase the number of authorized shares of common stock, par value $
Conversion of Series A Redeemable Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock
In connection with the SPA, certain holders of EVO's Series A Redeemable Convertible Preferred stock and Series B Redeemable Convertible Preferred stock were issued warrants to purchase shares of common stock of EVO at an exercise price of $
Redeemable Common Stock
Pursuant to the Sheehy Agreement, SEI waived and agreed to not exercise the $
Series C Preferred Stock
On March 11, 2022, and pursuant to the Bridge Loan Agreement, EVO filed the Series C Certificate of Designations with the Secretary of State of the State of Delaware, which authorizes EVO to issue up to
Dividends
A dividend accrues on the Series C Preferred Stock at a rate of
F-32
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
shall not be entitled to participate in any distributions or payments to the holders of the common stock or any other class of stock of EVO.
Liquidation Preference
The holders of the Series C Preferred Stock are entitled to a liquidation preference of $
Redemption
The Series C Preferred Stock may be redeemed by EVO on the Bridge Loan Discharge Date at a redemption price equal to $
Voting Rights
In addition, the Series C 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,
Series D Preferred Stock
On July 13, 2022, and pursuant to the Bridge Loan Agreement, EVO filed the Series D Certificate of Designations with the Secretary of State of the State of Delaware, which authorizes EVO to issue up to
Dividends
A dividend accrues on the Series D Non-Participating Preferred Stock at a rate of
Liquidation Preference
The holders of the Series D Non-Participating Preferred Stock are entitled to a liquidation preference of $
Voting Rights
F-33
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
limiting, reducing or adversely affecting the Series D Non-Participating Preferred Stock holders’ voting or board-appointment rights under the Series D Certificate of Designations will require the consent of the Series D Majority.
Warrants
As further described in Note 5, Debt, EVO issued the following warrants in connection with the Financing Agreement:
As further described in Note 5, Debt, in connection with the December 2020 Main Street Loan, EVO contributed
As further described in Note 5, Debt, in connection with the March 2022 Bridge Loan Agreement, EVO granted Antara Capital and the Executive Lenders the Bridge Loan Warrants to purchase an aggregate of up to
As further described in Note 5, Debt, in connection with the March 2022 Convertible Note Amendments, EVO issued the Convertible Note Warrants to purchase an aggregate of up to
The following warrants were issued and exercised in connection with the SPA:
F-34
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
A summary of warrants activity for the year ended December 31, 2021 and 2022 is as follows:
|
|
Number of Warrants |
|
|
|||||
|
|
Equity Classified |
|
|
Liability Classified |
|
|
||
Balance at December 31, 2021 |
|
|
|
|
|
|
|
||
Issued in 2021 |
|
|
|
|
|
— |
|
|
|
Balance at December 31, 2021 |
|
|
|
|
|
|
|
||
Issued in 2022 |
|
|
|
|
|
|
|
||
Reclassified in 2022 |
|
|
|
|
|
( |
) |
|
|
Exercised in 2022 |
|
|
( |
) |
|
|
( |
) |
|
Forfeited in 2022 |
|
|
( |
) |
|
|
— |
|
|
Balance at December 31, 2022 |
|
|
|
|
|
|
|
||
All issued warrants that are not considered indexed to EVO'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 December 31, 2022 and 2021 that are liability-classified.
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|||
December 31, 2022: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
In addition to the liability-classified warrants, EVO has issued warrants with different terms that are considered indexed to EVOs common stock and, therefore, are classified in additional paid-in capital and are not required to be measured at fair value
F-35
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
at each reporting date. The following table summarizes such equity-classified warrants outstanding and exercisable as of December 31, 2022 and 2021 and is inclusive of the warrants disclosed in Note 7, Stock-Based Compensation, that are equity-classified:
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|||
December 31, 2022: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|||
Outstanding |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
$ |
|
|
|
|
|||
Note 7 – Stock-Based Compensation
Stock Options
On April 12, 2018, EVO’s board of directors approved the EVO Transportation and Energy Services, Inc. 2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which a total of
The Amended 2018 Plan provides for awards of non-statutory stock options, incentive stock options, and restricted stock awards within the meaning of Section 422 of the Internal Revenue Code and stock purchase rights to purchase shares of EVO’s common stock.
The Amended 2018 Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted and to determine whether and to what extent stock options and stock purchase rights are to be granted, the number of shares of EVO's common stock to be covered by each award, the vesting schedule of stock options and all other terms and conditions of each award. Stock options have a maximum term of
The fair value of each award is estimated on the date of grant. Stock option values are estimated using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management’s judgment. The expected option terms are calculated based on the “simplified” method for “plain vanilla” options due to our limited exercise information. The “simplified method” calculates the expected term as the average of the vesting term and the original contractual term of the options. Expected volatilities used in the valuation model are based on the selected comparable companies. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant. The valuation model assumes no dividends. There is no estimated forfeiture rate.
As described in Note 1, Description of Business and Summary of Significant Accounting Policies, some of EVO’s stock options contain a provision that provides for the acceleration of vesting upon the Company completing an aggregate of at least $
From February 2020 through December 2020, EVO's
F-36
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
vested and became exercisable on the grant date. The remaining vest and become exercisable ratably on the first, second, and third anniversaries of the date of grant.
During the third quarter of 2021, EVO reduced the exercise price of certain stock options previously granted to certain named executive officers of the Company and other key employees from an original exercise price of $
During the third quarter of 2021, EVO's
During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense of $
The following table presents the stock option activity for the year ended December 31, 2022:
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
||
Outstanding - December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable - December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31:
|
|
2022 |
|
|
2021 |
|
||
Approximate risk-free rate |
|
|
|
|
||||
Expected life (in years) |
|
|
|
|
||||
Dividend yield |
|
|
% |
|
|
% |
||
Volatility |
|
|
|
|
||||
The weighted-average grant-date fair value of options granted was $0
Warrants – Stock-Based Compensation
During the first quarter of 2021, EVO
F-37
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
During the third quarter of 2022, in connection with the Recapitalization Transaction, EVO
The following table presents information related to stock-based compensation warrants outstanding and exercisable as of December 31, 2022 and 2021:
|
|
Number of Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding - December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Outstanding - December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable - December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Note 8 – Fair Value Measurements
Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy.
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1 ‑ Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 ‑ Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 ‑ Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
Recurring Fair Value Measurements
in the 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 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 income (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.
F-38
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The Company's liability-classified warrants issued with an exercise price of $
The Company's liability-classified warrants issued with an exercise price of greater than $
The following table provides a reconciliation for the opening and closing balances of both liabilities from December 31, 2020 to December 31, 2022:
($ in thousands) |
|
Derivative Liability |
|
|
Warrant Liabilities |
|
||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
|
||
Issuances |
|
|
— |
|
|
|
— |
|
Net change in fair value |
|
|
( |
) |
|
|
|
|
Balance at December 31, 2021 |
|
|
|
|
|
|
||
Issuances |
|
|
— |
|
|
|
|
|
Exercises |
|
|
— |
|
|
|
( |
) |
Net change in fair value |
|
|
|
|
|
( |
) |
|
Reclassification of warrants from liability classified to equity classified |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
||
There were
The Company’s obligations under its debt agreements are carried at amortized cost. The fair value of the Company’s obligations under its convertible
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property and equipment, lease right-of-use assets, goodwill and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill. In the event an impairment is required, the asset is adjusted to fair value, using market-based assumptions.
Note 9 – Leases
The Company determines if an arrangement is a lease at inception. The Company has various obligations under operating and finance lease arrangements related primarily to the rental of trucks and trailers, maintenance and support facilities, office space, and parking yards. Many of these leases include one or more options, at the Company’s discretion, to renew and extend the agreement beyond the current lease expiration date. These options are included in the calculation of the Company’s lease liability when it becomes reasonably certain the option will be exercised. The Company’s lease agreements typically do not
F-39
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
include options to purchase the leased property, nor do they contain material residual value guarantees or material restrictive covenants. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all leases, as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from ROU assets and lease liabilities.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, and are recognized at the lease commencement date based on the present value of the lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments; however, the implicit rate in the lease is not readily determinable for all the leases. In such cases, the Company uses an estimate of the incremental borrowing rate to discount lease payments based on information available at lease commencement.
Operating lease costs are recognized on a straight-line basis over the term of the lease within operating supplies and expenses, equipment rent expense, and general and administrative expense. Finance lease costs consist of amortization expense and interest expense. Finance lease right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term to amortization expense, and the carrying amount of the lease liability is adjusted to reflect interest expense. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in equipment rent in the period in which the obligation for those payments is incurred.
At December 31, 2022 and 2021, the Company had the following balances recorded in the consolidated balance sheets related to its lease arrangements:
($ in thousands) |
|
Classification |
|
December 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Right-of-use-asset |
|
$ |
|
|
$ |
|
||
Finance leases |
|
Right-of-use-asset |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, current portion |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Non-current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Finance leases |
|
Finance lease liabilities, less current portion |
|
|
|
|
|
|
||
Components of lease cost are as follows:
($ in thousands) |
|
Year Ended |
|
|
Year Ended |
|
||
Finance lease costs: |
|
|
|
|
|
|
||
Amortization of ROU assets |
|
$ |
|
|
$ |
|
||
Interest on lease assets |
|
|
|
|
|
|
||
Operating lease costs |
|
|
|
|
|
|
||
Short-term lease costs |
|
|
|
|
|
|
||
Variable lease costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
F-40
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Supplemental cash flow information and non-cash activity related to our leases are as follows:
($ in thousands) |
|
Year Ended |
|
|
Year Ended |
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance lease interest expense |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Non-cash activity |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Weighted-average remaining lease term and discount rate for our leases are as follows:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
|
|
|
|
||
Finance leases |
|
|
% |
|
|
% |
||
Operating leases |
|
|
% |
|
|
% |
||
Maturities of lease liabilities by fiscal year for our leases are as follows:
($ in thousands) |
|
Operating |
|
|
Finance |
|
||
2023 |
|
$ |
|
|
$ |
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
$ |
|
|
$ |
|
||
Less: Imputed interest |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
$ |
|
||
Related Party Leases
The Company has various lease obligations with related parties for trucks, office space and terminals expiring at various dates through
($ in thousands) |
|
Classification |
|
December 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Right-of-use-asset |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, current portion |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Non-current: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
F-41
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
Note 10 - Commitments and Contingencies
Legal Contingencies
In the normal course of business, the Company is party to legal proceedings from time to time. The Company maintains insurance to cover certain actions and it establishes reserves for specific legal proceedings when the Company determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.
See Note 13, Subsequent Events, for descriptions of the settlement of the legal proceeding relating to Falcon Capital, LLC and Scott Honour and the settlement of the legal proceeding relating to Raymond James & Associates, Inc.
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 $
Long-Term Take-or-Pay Natural Gas Supply Contracts
At December 31, 2022 and 2021, the Company had commitments to purchase natural gas on a take-or-pay basis with
Off Balance Sheet Arrangements – Captive Insurance
Prior to the acquisition, Sheehy was 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. The letter agreement between the Company and SEI expired on March 1, 2020, however, in connection with the Sheehy Settlement Agreement, Sheehy has pledged $
Letters 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
F-42
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
As collateral for performance on contracts and as credit guarantees to banks and insurers, we are contingently liable for guarantees of subsidiary obligations under a standby letter of credit. As of December 31, 2022 and 2021, we had $
Note 11 - Employee Benefit Plan
Note 12 - Income Taxes
Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.
In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than
Income tax expense reported in the consolidated statements of operations is comprised of the following:
|
|
For the Years Ended |
|
|||||
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Current income tax expense |
|
|
|
|
|
|
||
Federal |
|
$ |
( |
) |
|
$ |
|
|
State, net of state tax credits |
|
|
|
|
|
|
||
Total current income tax expense |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred income tax expense |
|
|
|
|
|
|
||
Federal |
|
|
|
|
|
|
||
State and local |
|
|
( |
) |
|
|
|
|
Valuation allowance |
|
|
|
|
|
( |
) |
|
Total deferred income tax expense |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total income tax expense |
|
$ |
|
|
$ |
|
||
F-43
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income (loss), compared to the income tax expense in the consolidated statements of operations:
|
|
For the Years Ended |
|
|
|
|||||||||
|
|
December 31, |
|
|
|
|||||||||
($ in thousands) |
|
2022 |
|
|
|
|
2021 |
|
|
|
||||
Expected federal tax (benefit) |
|
$ |
( |
) |
|
% |
|
$ |
|
|
% |
|||
|
|
|
|
|
|
|
|
|
|
|
||||
State tax provision, net of federal benefit |
|
|
( |
) |
|
% |
|
|
|
|
% |
|||
Prior year true up |
|
|
|
|
- |
% |
|
|
|
|
% |
|||
Change in tax rate |
|
|
|
|
% |
|
|
— |
|
|
% |
|||
Effect of increase in valuation allowance |
|
|
|
|
- |
% |
|
|
( |
) |
|
- |
% |
|
Change in fair value of warrant liability |
|
|
( |
) |
|
% |
|
|
|
|
% |
|||
Equity-related interest |
|
|
|
|
- |
% |
|
|
— |
|
|
% |
||
Debt extinguishment |
|
|
|
|
- |
% |
|
|
— |
|
|
% |
||
PPP loan forgiveness |
|
|
— |
|
|
% |
|
|
( |
) |
|
- |
% |
|
Interest |
|
|
|
|
- |
% |
|
|
|
|
% |
|||
Other permanent differences |
|
|
( |
) |
|
% |
|
|
|
|
% |
|||
Income tax expense |
|
$ |
|
|
- |
% |
|
$ |
|
|
% |
|||
The effective tax rates for the income tax expense for the years ended December 31, 2022 and 2021 are -
The following are the components of the Company’s net deferred taxes for federal and state income taxes:
|
|
December 31, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Accrued expenses and other |
|
$ |
|
|
$ |
|
||
Debt discount |
|
|
|
|
|
|
||
Interest |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Lease liabilities |
|
|
|
|
|
|
||
Loss carryforwards |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
Lease assets |
|
|
( |
) |
|
|
( |
) |
Fixed assets and intangible assets |
|
|
( |
) |
|
|
( |
) |
Total deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Net non-current deferred tax liability |
|
$ |
( |
) |
|
$ |
( |
) |
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the lack of sustained profitability in recent years. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.
On the basis of this evaluation, as of December 31, 2022 and 2021, a valuation allowance of $
F-44
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
As of December 31, 2022, the Company had federal and state net operating losses of approximately $
For the years ended December 31, 2022 and 2021, the Company had
Note 13 - Subsequent Events
Loan Dispute Settlement
On April 14, 2023, EVO, Titan CNG LLC, a wholly-owned subsidiary of EVO (“Titan CNG”), Falcon Capital, LLC (“Falcon”) and Scott Honour (a former member of EVO’s board of directors), entered into a Settlement Agreement (the “Settlement Agreement”) pursuant to which the parties settled the dispute between EVO and Titan, on the one hand, and Falcon and Mr. Honour, on the other hand, relating to that certain Loan Agreement, dated December 31, 2014, among Tradition Capital Bank, Titan El Toro LLC and Titan CNG, certain equipment located in Fort Worth, Texas, and compensation for board service.
Pursuant to the Settlement Agreement, (i) the parties settled all claims relating to the lawsuit by Falcon against Titan CNG and EVO, (ii) EVO agreed to pay Falcon $
The Promissory Note matures on
Modification Agreement to the Main Street Priority Loan Program Facility
On April 19, 2023, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), EVO, as guarantor, and Commerce Bank of Arizona, Inc. (“Commerce”) entered into the Third Modification Agreement (the “Third Amendment”) of the Loan Agreement. The Third Amendment modifies (i) the financial reporting requirements of the Borrowers and EAF and (ii) permitted investments to include additional intercompany loans so long as the Borrowers’ debt service coverage ratio, as defined in the Third Amendment, is at least
On June 15, 2023, the Borrowers, EVO, as guarantor, and Commerce entered into the Fourth Modification Agreement (the “Fourth Amendment”) of the Loan Agreement. The Fourth Amendment modifies the interest rate of the loan to the Prime Rate plus the applicable margin of
Annual Incentive Plan
On May 30, 2023, the compensation committee (the “Compensation Committee”) of the Board approved the Annual Incentive Plan of EVO Transportation & Energy Services, Inc. (the “AIP”), to provide the terms of annual bonus opportunities to be granted to EVO’s executive officers and other participating employees. The purposes of the AIP are to provide additional incentives for employees who contribute to the improvement of operating results of the Company and to reward outstanding performance on the part of those individuals whose decisions and actions most significantly affect the growth, profitability and efficient operation of the Company. The AIP focuses on achievement of certain Company performance criteria, as determined by the Compensation Committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of specified performance goals.
F-45
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
The Compensation Committee approved the following annual bonus opportunities for 2023 under the AIP: (i) to Mr. Bayles,
Restricted Stock Unit Award Agreements
On May 30, 2023, the Compensation Committee also approved (i) the form of restricted stock unit award agreement for employees (the “Employee RSU Award Agreement”) and (ii) the form of restricted stock unit award agreement for non-employee directors (the “Non-Employee Director RSU Award Agreement” and together with the Employee RSU Award Agreement, the “Award Agreements”), which set forth the terms and conditions for restricted stock unit (“RSU”) awards under the Amended and Restated 2018 Stock Incentive Plan. The RSUs are used to determine the number of shares of common stock of EVO to be issued to participants if such RSUs vest. Each RSU will vest in accordance with the schedule determined at the time of award, subject to the participant’s continued employment or service through the vesting date.
The Compensation Committee approved the following grants of RSUs: (i) to Mr. Bayles,
Asset Purchase and Sale Agreements
On July 20, 2023, EAF, a wholly-owned subsidiary of EVO, entered into the following agreements with Clean Energy, a California corporation: (a) the Asset Purchase and Sale Agreement and Joint Escrow Instructions (Tolleson) (the “Tolleson Agreement”) and (b) the Asset Purchase and Sale Agreement and Joint Escrow Instructions (Oak Creek) (the “Oak Creek Agreement,” and together with the Tolleson Agreement, the “Asset Purchase Agreements”).
The Tolleson Agreement provides for the sale of EAF’s real property in Tolleson, Arizona and the compressed natural gas fuel station located thereon to Clean Energy for a purchase price of $
The Asset Purchase Agreements contain customary representations, warranties and covenants by EAF and Clean Energy and are subject to customary closing conditions, including completion of due diligence by Clean Energy. The Company expects the sales under the Asset Purchase Agreements to close in the fourth quarter of 2023. The net proceeds from the sales under the Asset Purchase Agreements will be used for mandatory pay down of the Main Street Loan.
Equipment Purchase Agreement
On July 20, 2023, EAF entered into an Equipment Purchase Agreement (“Equipment Agreement”) with California Clean Energy, Inc. (“CCE”), whereby EAF agreed to sell certain equipment and other assets located in Fort Worth, Texas for a purchase price of $
The net proceeds from the sale under the Equipment Agreement were used for mandatory pay down of the Main Street Loan.
Sale of San Antonio, Texas Property
On June 2, 2023, EAF entered into an agreement (the “San Antonio Agreement”) with Brazos De Santos Partners, Ltd. (“BDSP”) whereby EAF agreed to sell certain of its land located in San Antonio, Texas for a purchase price of $
Raymond James Settlement
On January 22, 2021, EVO and Raymond James & Associates, Inc. (“Raymond James”) entered into a letter agreement (the “RJ Agreement”) pursuant to which Raymond James would provide certain investment banking services to EVO. The RJ Agreement was amended on September 26, 2021 and November 19, 2021. Pursuant to the RJ Agreement, as amended, EVO agreed to pay Raymond James certain fees and expenses upon the closing of certain transactions.
On November 22, 2022, Raymond James filed a demand for arbitration against EVO in which it alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The complaint alleged that EVO failed to pay $
F-46
EVO TRANSPORTATION & ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
On August 31, 2023, EVO and Raymond James agreed to settle all claims brought by Raymond James against EVO in the arbitration. In connection therewith, EVO made a payment of $
F-47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Dismissal of Marcum LLP and appointment of Grant Thornton LLP
As previously disclosed in a current report filed with the SEC on September 8, 2021, the audit committee of EVO’s board of directors approved the dismissal of Marcum LLP (“Marcum”) and approved the appointment of Grant Thornton LLP (“Grant Thornton”) as EVO’s new independent registered public accounting firm.
During the two most recent fiscal years ended December 31, 2022 and 2021, which includes the date of Marcum’s dismissal, (1) there were no disagreements between the Company and Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Marcum would have caused it to make reference thereto in its reports on the Company’s financial statements for such years and (2) there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K except as previously disclosed.
During the two most recent fiscal years ended December 31, 2022 and 2021, the Company did not consult with Grant Thornton on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and Grant Thornton did not provide either a written report or oral advice to the Company that Grant Thornton concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its principal executive and 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) ("Exchange Act") that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act rules 13a-15 and 15d-15, the Company performed an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive and financial officers regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, the Company’s management, including its principal executive and financial officers have concluded that our disclosure controls and procedures were not effective as of December 31, 2022, 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 and procedures in order to ensure that our financial statements included in this report were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K, when read with the notes thereto, present fairly in all material respects our financial position, results of operations and cash flows for the period presented in accordance with U.S. GAAP.
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.
31
The Company’s internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on the Company’s evaluation, it identified material weaknesses in internal control over financial reporting described below, and management concluded that our internal control over financial reporting was not effective as described below. The Company also took steps seeking to mitigate and remediate these material weaknesses as described under “Management’s Remediation Plan and Status of Remediation Efforts” below.
The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses were:
Changes in Internal Controls over Financial Reporting
There have been no significant changes to the Company’s internal controls over financial reporting that occurred during our last fiscal quarter of the year ended December 31, 2022, that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting. Our management has implemented or intends to implement, as applicable, the remediation steps discussed below to address the material weaknesses and to improve our internal control over financial reporting.
32
Management’s Remediation Plan and Status of Remediation Efforts
In light of the control deficiencies identified at December 31, 2022, and described in the section titled “Evaluation of Internal Controls and Procedures,” we have designed and either have implemented or plan to implement the specific remediation initiatives described below:
While the Company believes the steps taken to date and those planned for implementation will improve the effectiveness of its internal control over financial reporting, it has not completed all remediation efforts identified above. Accordingly, the Company has and will continue to perform additional procedures and employ additional tools and resources it determines necessary to ensure that its consolidated financial statements are fairly stated in all material respects.
The Company believes the remediation measures will strengthen the Company’s internal control over financial reporting and remediate the material weaknesses identified. Management will continue to monitor the effectiveness of these remediation measures and will make changes and take other actions that are appropriate given the circumstances.
Item 9B. Other Information.
None.
33
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
(a) Identification of Directors and Executive Officers.
The following table sets forth certain information regarding EVO's officers and directors as of December 31, 2022. All ages are stated as of November 16, 2023.
Name |
|
Age |
|
|
Position |
|
Michael Bayles |
|
|
40 |
|
|
Chief Executive Officer, Director |
Raj Kapur |
|
|
64 |
|
|
SVP and Chief Accounting Officer, Interim Chief Financial Officer |
Billy (Trey) Peck Jr. |
|
|
40 |
|
|
Executive Vice President - Business Development |
Patrick Seul |
|
|
39 |
|
|
Executive Vice President - General Counsel and Secretary |
Mark Anderson |
|
|
61 |
|
|
Director |
Chetan Bansal |
|
|
50 |
|
|
Director |
Anthony Coelho |
|
|
81 |
|
|
Director |
Raph Posner |
|
|
43 |
|
|
Director |
Scott C. Smith |
|
|
65 |
|
|
Director |
Alexandre Zyngier |
|
|
54 |
|
|
Director |
Michael Bayles. Mr. Bayles has served as EVO’s Chief Executive Officer since September 14, 2022 and has served as a director of EVO since March 11, 2022. He previously served as restructuring advisor to the Company from May 2020 to October 2020 and as chief restructuring officer and a member of the Board from October 2020 until March 2021. Mr. Bayles has served as vice president of investments of Slam Corp, a special purpose acquisition company, since March 2021. Mr. Bayles previously served as an analyst at Antara Capital from May 2018 until May 2020, and as a credit analyst at GLG Partners from May 2016 to December 2017. Prior to GLG Partners, Mr. Bayles was vice president at Avenue Capital Group from September 2008 to April 2016. Mr. Bayles has a bachelor’s degree in economics from the Wharton School of the University of Pennsylvania. We believe that Mr. Bayles’s significant restructuring and credit analysis experience make him well qualified to serve as Chief Executive Officer and as a member of the Board.
Raj Kapur. Mr. Kapur has served as EVO’s SVP and Chief Accounting Officer since May 2022. He has over 25 years of accounting and finance experience in high technology, manufacturing and software organizations such as MGC Pure Chemicals, Zounds, Gould Electronics and Honeywell. Prior to joining EVO, Raj served as corporate controller at MGC Pure Chemicals since March 2019. Mr. Kapur served as corporate controller then as chief financial officer of Zounds Hearing Inc. from April 2007 until February 2019. He acquired his Bachelor of Science in Accounting from Arizona State University and a Masters in Business Administration from the University of Phoenix. He is a Certified Public Accountant in Arizona.
Billy (Trey) Peck Jr. Mr. Peck has served as EVO’s Executive Vice President – Business Development since October 2020, a role he previously held from June 2018 until March 2020. Mr. Peck previously served as Chief Operating Officer of EVO from March 2020 to October 2020. In his role as Executive Vice President – Business Development, he leads the Company’s development of new and existing contracts with the USPS. He also assisted in the initial set up of new service sites for new contract arrangements with the USPS. Mr. Peck previously served as chief executive officer of Thunder Ridge Transport, Inc. (“Thunder Ridge”). Under Mr. Peck’s leadership, Thunder Ridge’s annual revenues grew from approximately $2.5 million in 2011 to approximately $50 million in 2018. Mr. Peck’s background in leading and operating a transportation business, particularly one that contracts with the USPS, supports his current position. Mr. Peck has an executive Master of Business Administration degree from Nova Southeastern University and a Bachelor of Arts in Business Administration from Flagler College.
Patrick Seul. Mr. Seul served as EVO’s Executive Vice President, General Counsel and Secretary from June 2021 to December 2022. Prior to joining EVO, he was a shareholder in the corporate and securities group of Fredrikson & Byron, P.A. in Minneapolis, where he worked from May 2016 to June 2021. From 2010 to April 2016, he practiced as a corporate attorney in Chicago. Mr. Seul received his JD from the Northwestern Pritzker School of Law, cum laude, and his BA from the University of Notre Dame.
34
Mark Anderson. Mr. Anderson has served as a director of EVO since October 2018, as the chair of the audit committee since February 2019 and as a member of our nominating and governance committee and operations committee since February 2023. Mr. Anderson brings over 30 years of experience in audit, accounting and finance with professional designations as a Certified Public Accountant and a Chartered Global Management Accountant. He is currently the Chief Financial Officer of Delta Dental of Arizona, a $320 million dental service corporation that is part of the $20 billion Delta Dental Plans Association. He has led Delta Dental of Arizona through the last 19 years of significant growth as the finance leader with additional responsibilities that have included underwriting, information technology, risk management, human resources and facilities management. Mr. Anderson has also worked closely with the CEO and other executives on strategic planning and business development initiatives. Mr. Anderson also serves as staff for the Audit/Investment Committee and the Finance Committee. His previous experience includes over 10 years at UnitedHealth Group starting out as the controller for Lifemark/Evercare and culminating in his role as Vice President of Finance in the Ovations Division. Prior to joining UHG, Mr. Anderson was associated with CBIZ/Mayer Hoffman McCann (formerly Miller Wagner & Co, CPA). Mr. Anderson has served on several boards as audit committee chair and board chair including the Arizona Society of Certified Public Accountants, Southwest Human Development and the Arizona Coyotes Foundation. Mr. Anderson holds a B.S. in Accounting from Brigham Young University and is a Certified Public Accountant in the state of Arizona. We believe that Mr. Anderson’s significant accounting expertise and his experience serving as a board member and audit committee member for companies in a variety of industries make him well qualified to serve as a member of our board of directors.
Chetan Bansal. Mr. Bansal has served as a director of EVO since June 2022. Mr. Bansal has served as Partner and Co-Head of Investment Research at Antara since March 2020, and has served as Chief Development Officer and as a member of the board of directors of Slam Corp. since February 2021. Mr. Bansal has over 25 years of experience as a private market investor. Mr. Bansal specializes in providing capital and advice to growth companies in varying capacities, including as a board member, minority owner and strategic investor. In addition, Mr. Bansal has significant experience investing in public market special situations, bankruptcies, stressed high-yield credit and levered equities. Prior to Antara, Mr. Bansal was Managing Director and Head of Illiquid Credit Solutions Group at BTIG from January 2019 to February 2020. Before joining BTIG, Mr. Bansal managed his family office from December 2017 to December 2018. Prior to that, Mr. Bansal co-managed a proprietary investment portfolio at Jefferies from January 2015 to September 2017. Prior to Jefferies, Mr. Bansal was a Director of Research at Citigroup, in its Distressed Debt Trading Group, from August 2008 to April 2012. Prior to Citigroup, Mr. Bansal spent six years in Silicon Valley, including four years at Cisco Systems in the Business Development Group from September 2001 to 2005, where he was charged with venture investments and strategic acquisitions. During his time at Crown Capital Partners from 1997 to 1999, Mr. Bansal wrote the business plan for Fresh Direct, a successful online grocer based in New York City, and sat on the boards of Cisco Systems Strategic India Counsel from 2003 to 2004, and board observer seats at Plaxo Inc from 2004 to 2005, which was acquired in 2008 by Comcast and CXO Systems from 2003 to 2004, which was acquired in 2004 by Cisco Systems. Mr. Bansal’s growth-stage equity investments include Via-On-Demand-Transit, an advanced micro-mobility company and SentinelOne, a cyber-security technology company. Mr. Bansal earned a Masters in Business Administration from the University of Chicago, Booth School of Business and a Bachelor of Arts in Computer Science from Northwestern University. We believe that Mr. Bansal’s significant investing and special situations experience make him well qualified to serve as a member of the Board.
Anthony Coelho. Mr. Coelho has served as a director of EVO since May 2021, as a member of our compensation committee since August 2021 and as the chair of our nominating and governance committee since February 2023. Mr. Coelho was a prominent member of the U.S. House of Representatives from 1978 to 1989. While a member of the House of Representatives, he authored the Americans with Disabilities Act, widely recognized as one of the most important pieces of civil rights legislation in the last 40 years. After leaving Congress, he joined Wertheim Schroder & Company, an investment banking firm in New York, and became president and CEO of Wertheim Schroder Financial Services from 1990 to 1995. From 1995 to 1997, he served as chairman and CEO of an education and training technology company that he established and subsequently sold. In 1998, President Clinton appointed him as the U.S. Commissioner General for the World’s Fair in Lisbon, Portugal. He served as general chairman of the presidential campaign of former Vice President Al Gore from April 1999 until June 2000. Since 1997, Mr. Coelho has worked independently as a business and political consultant. Mr. Coelho also served as chairman of the President’s Committee on Employment of People with Disabilities from 1994 to 2001. He previously served as chairman of the board of the Epilepsy Foundation and chairman of the board for the American Association for People with Disabilities. Mr. Coelho has served on a number of boards, including those of Circus Circus, Warren Resources, Kaiser Resources and Cyberonics. Since 1991, he has been a member of the board of Service Corporation International (NYSE: SCI), a publicly traded company, as its lead independent director. Mr. Coelho has been a member of the board of directors of Esquire Financial
35
Holdings, Inc. (NASDAQ: ESQ), a publicly traded company, since 2010 and has served as chairman of its board since August 2018. He has also served as a director of AudioEye, Inc. (NASDAQ: AEYE), a publicly traded company, since 2014 and serves as chair of its nominating and corporate governance committee and on its compensation and audit committees. Mr. Coelho earned a Bachelor of Arts degree in Political Science from Loyola Marymount University in 1964. We believe that Mr. Coelho’s political acumen and contacts, as well as his extensive executive, financial and business experience, make him well qualified to serve as a member of the Board.
Raph Posner. Mr. Posner has served as a director of EVO since June 2022 and as a member of our nominating and governance committee since February 2023. He has served as General Counsel & Chief Compliance Officer (GC/CCO) of Antara since February 2021. Prior to Antara, he spent five years as the General Counsel, Chief Compliance Officer & Legal Analyst at Warlander Asset Management, a credit hedge fund, where he was the sole in-house lawyer responsible for all legal and regulatory matters within the firm and responsible for assisting the firm in evaluating legal and regulatory risk related to prospective and existing investments. Prior to Warlander, Mr. Posner spent nearly eight years at MatlinPatterson Global Advisers, in a variety of legal roles. At MatlinPatterson, he was personally responsible for overseeing all legal and regulatory matters related to the firm’s private equity portfolio companies. Prior to MatlinPatterson, he was an associate with the law firm Bracewell LLP and prior to that began his legal career as an associate with the law firm Hawkins, Delafield & Wood LLP. Mr. Posner earned a Bachelor of Arts from Georgetown University and a Juris Doctorate from The Georgetown University Law Center. We believe that Mr. Posner’s significant legal and regulatory experience make him well qualified to serve as a member of the Board.
Scott C. Smith. Mr. Smith has served as a director of EVO since August 2018, as the chair of our compensation committee since February 2019 and as a member of our audit committee since February 2023. He has an extensive background as a seasoned human resources executive with over 30 years of experience in managing human resources for private and publicly traded companies. He brings a proven track record of aligning HR functions with business strategies to drive growth. Mr. Smith currently serves as the managing partner for TowerHunter, a boutique executive search company he co-founded with notable clients in the healthcare, insurance, financial services and logistics sectors. He is currently the Chairman of the Board for the Greater Phoenix Chamber of Commerce. In addition, he is a former managing partner for Fahrenheit Group, a financial services and human resources consulting and professional services firm headquartered in Richmond, Va. Previously, Mr. Smith served in senior HR positions at Washington Inventory Service, VLSI Technology and American Express, as well as the co-president of the Arizona Human Resources Executive Forum. We believe that Mr. Smith’s significant human resources and general business experience makes him well qualified to serve as a member of the Board.
Alexandre Zyngier. Mr. Zyngier has served as a director of EVO since December 2020, as chairman of our board of directors since June 2022, as a member of our audit committee since April 2021 and as a member of our compensation committee and our operations committee since February 2023. Mr. Zyngier has been the Managing Director of Batuta Advisors since founding it in August 2013. The firm pursues high return investment and advisory opportunities in the distressed and turnaround sectors. Mr. Zyngier has over 30 years of investment, strategy and operating experience. He has served as a director of Atari SA since 2014, as a director of Schmitt Industries since 2021 and as a Director of Arrival SA since 2023. Mr. Zyngier also previously served as a director of Torchlight Energy Resources Inc. from 2016 until 2021, as a director of Applied Minerals Inc. from 2017 until 2019, and as a director of AudioEye, Inc. from 2015 until 2020. Before starting Batuta Advisors, Mr. Zyngier was a portfolio manager at Alden Global Capital from February 2009 until August 2013, investing in public and private opportunities. He has also worked as a portfolio manager at Goldman Sachs & Co. and Deutsche Bank Co. Additionally, he was a strategy consultant at McKinsey & Company and a technical brand manager at Procter & Gamble. Mr. Zyngier holds an MBA in Finance and Accounting from the University of Chicago and a BS in Chemical Engineering from UNICAMP in Brazil. We believe that Mr. Zyngier’s extensive experience in investment and advisory services with various companies makes him well qualified to serve as a member of the Board and as chair.
Arrangements or Understandings pursuant to which Executive Officers and Directors were Appointed
On June 1, 2018, EVO entered into an equity purchase agreement with Billy (Trey) Peck Jr., pursuant to which EVO acquired all of the issued and outstanding shares in Thunder Ridge from Mr. Peck and Thunder Ridge became a wholly-owned subsidiary of EVO. In connection with the acquisition, EVO entered into an employment agreement with Mr. Peck to serve as executive vice president of business development for EVO.
(b) Family Relationships.
There are no family relationships among our directors or executive officers.
36
(c) Involvement in Certain Legal Proceedings.
To our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no federal or state judicial or administrative orders, judgments or decrees or findings, no violations of any federal or state securities law, and no violations of any federal commodities law material to the evaluation of the ability and integrity of any director (existing or proposed) or executive officer (existing or proposed) of the Company during the past 10 years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires EVO's directors and officers, and persons who beneficially own more than 10% of a registered class of EVO’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership of EVO’s securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish EVO with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to EVO, or written representations that no applicable filings were required, EVO believes that all such filings were filed on a timely basis for the fiscal year ended December 31, 2022, except that (i) Mr. Bansal failed to timely file a Form 3 in connection with his appointment to the Board; (ii) Mr. Danny Cuzick failed to timely file a Form 3 in connection with his greater than 10% stock ownership and failed to timely file Form 4s reporting three transactions; (iii) Mr. Peck failed to timely file a Form 4 reporting one transaction; (iv) Mr. Posner failed to timely file a Form 3 in connection with his appointment to the Board; (v) Mr. Smith failed to timely file a Form 4 reporting one transaction; and (vi) Mr. Zyngier failed to timely file a Form 4 reporting one transaction.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which is attached as Exhibit 14.1 to EVO’s Form 10-K filed on March 28, 2011.
Board Committees
On February 7, 2019, the Board established three standing committees: the Audit Committee, the Compensation Committee, and the Nominating Committee. The Audit and Compensation committees have written charters, copies of which are included as Exhibits 99.1 and 99.2 to EVO’s Annual Report on Form 10-K filed on May 30, 2019. The Nominating Committee has not yet completed its charter. The Board determined that Mr. Anderson, a member of our Board and Audit Committee, qualifies as an “audit committee financial expert” as that term is defined by Item 407(d)(5)(ii) of Regulation S-K.
The following table sets forth certain information regarding the composition of each standing committee as of December 31, 2022:
Name |
|
Audit |
|
Compensation |
|
Nominating |
Mark Anderson |
|
X (Chair) |
|
|
|
|
Chetan Bansal |
|
|
|
|
|
|
Michael Bayles |
|
|
|
|
|
|
Anthony Coelho |
|
|
|
X |
|
X (Chair) |
Raph Posner |
|
|
|
|
|
|
Scott C. Smith |
|
X |
|
X (Chair) |
|
|
Alexandre Zyngier |
|
X |
|
|
|
|
On February 16, 2023, the Board reconstituted the three standing committees and established the Operations Committee. The following table sets forth certain information regarding the composition of each standing committee as of November 16, 2023:
Name |
|
Audit |
|
Compensation |
|
Nominating |
|
Operations |
Mark Anderson |
|
X (Chair) |
|
|
|
X |
|
X |
Chetan Bansal |
|
|
|
|
|
|
|
|
Michael Bayles |
|
|
|
|
|
|
|
X (Chair) |
Anthony Coelho |
|
|
|
X |
|
X (Chair) |
|
|
Raph Posner |
|
|
|
|
|
X |
|
|
Scott C. Smith |
|
X |
|
X (Chair) |
|
|
|
|
Alexandre Zyngier |
|
X |
|
X |
|
|
|
X |
37
Audit Committee
As of December 31, 2022, our Audit Committee was comprised of three members, all of whom are independent directors as defined under the rules of NASDAQ, and is responsible for performing such tasks as (i) appointing, compensating, retaining and overseeing our independent registered public accounting firm; (ii) meeting with management and representatives of our independent registered public accounting firm to review our internal and external financial reporting, including periodically without management present; (iii) reviewing the scope of the independent registered public accounting firm’s examination and audit procedures to be utilized; (iv) considering comments by the registered public accounting firm regarding internal controls and accounting procedures and management’s response to those comments; and (v) pre-approving any audit and non-audit services to be provided by our independent registered public accounting firm. The Board determined that Mr. Anderson qualifies as an “audit committee financial expert” as that term is defined by Item 407(d)(5)(ii) of Regulation S-K.
Compensation Committee
As of December 31, 2022, our Compensation Committee was comprised of two members, both of whom are independent directors as defined under the rules of NASDAQ, and is responsible for performing such tasks as (i) assisting in defining our executive compensation philosophy and administering our compensation plans; (ii) reviewing management’s recommendations with respect to the salaries and any bonuses paid and equity grants awarded to executives; (iii) reviewing our retirement plans and employee benefits, if we adopt any; (iv) overseeing and evaluating compensation-related risks; and (v) reviewing and recommending to the full board for approval the compensation-related discussion appearing in our annual proxy statement or information statement or other filings with the SEC.
Nominating Committee
As of December 31, 2022, our Nominating Committee was comprised of one member and had not yet adopted a charter.
Stockholder Nominations of Director Candidates for Election to the Board
The Nominating Committee will consider director candidates recommended by stockholders. The Nominating Committee does not intend to alter the manner in which it evaluates candidates based on whether or not the candidate was recommended by a stockholder. To nominate a director for election at our next meeting of stockholders, a stockholder must submit such nomination in writing to our Chief Executive Officer at 2075 West Pinnacle Peak Road, Suite 130, Phoenix, AZ 85027 not later than the 10th day following the day on which public announcement of the date of our next meeting of stockholders is first made by EVO. The Nominating Committee has not specified minimum criteria for director nominees, but the Nominating Committee will evaluate all candidates properly nominated based on the criteria set forth above.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth all of the compensation awarded to, earned by or paid to (i) each individual who served as EVO’s principal executive officer during the fiscal year ended December 31, 2022; (ii) the two most highly compensated executive officers other than the principal executive officer who were serving as executive officers as of December 31, 2022 and who earned total compensation in excess of $100,000 during such fiscal year; and (iii) the individual for whom disclosure would have been provided pursuant to Regulation S-K but for the fact that such individual was not serving as an executive officer of EVO as of December 31, 2022 (collectively, the “named executive officers”).
Name and Principal Position |
|
Year |
|
Salary |
|
|
Bonus |
|
|
Stock |
|
Option |
|
|
Non-Equity |
|
Nonqualified |
|
All Other |
|
|
Total |
|
|||||
Michael Bayles |
|
2022 |
|
$ |
91,250 |
|
|
— |
|
|
— |
|
|
|
|
— |
|
— |
|
|
|
|
$ |
91,250 |
|
|||
Chief Executive Officer, Director |
|
2021 |
|
$ |
65,502 |
|
|
$ |
60,000 |
|
|
— |
|
|
|
|
— |
|
— |
|
|
|
|
$ |
125,502 |
|
||
Thomas J. Abood |
|
2022 |
|
$ |
326,538 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
$ |
326,538 |
|
|||
Chief Executive Officer |
|
2021 |
|
$ |
334,614 |
|
|
— |
|
|
— |
|
$ |
95,668 |
|
|
— |
|
— |
|
$ |
100,000 |
|
(1) |
$ |
530,282 |
|
|
Billy (Trey) Peck, Jr. |
|
2022 |
|
$ |
242,308 |
|
|
$ |
90,000 |
|
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
$ |
332,308 |
|
||
Executive Vice President - Business Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Eugene Putnam |
|
2022 |
|
$ |
266,154 |
|
|
$ |
92,000 |
|
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
$ |
358,154 |
|
||
Executive Vice President - Corporate Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Patrick Seul |
|
2022 |
|
$ |
290,064 |
|
|
$ |
120,000 |
|
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
$ |
410,064 |
|
||
Executive Vice President - General Counsel and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
38
(1) Pursuant to the terms of his employment agreement, Mr. Abood is entitled to a non-accountable travel supplement of $25,000 per quarter.
As of December 31, 2022, the Company had approximately 1,760 employees, consisting of 1,200 full-time employees and 560 part-time employees.
The employment agreements with our named executive officers are summarized below.
Except for the Amended 2018 Plan, the 2021 AIP and the 2021 LTIP (all summarized in Item 12 below), as of December 31, 2022, no other retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees. On May 30, 2023, EVO adopted the Annual Incentive Plan of EVO Transportation & Energy Services, Inc. (the “2023 AIP”) and the forms of restricted stock unit award agreements to be granted under the Amended 2018 Plan. See Part II, Item 8 of this Form 10-K in the Notes to the Consolidated Financial Statements, Note 13, “Subsequent Events,” for descriptions thereof.
Employment Agreements
Our executive compensation program is designed to attract and retain talent in our industry with the greatest potential to ensure we execute on the Company’s business goals to promote both short- and long-term profitable growth of the Company, and to create long-term stockholder value. In September 2022, the Company consummated certain transactions that constituted a recapitalization of the Company. In connection therewith, the Company made several changes to management as described below.
Thomas J. Abood
Mr. Abood served as Chief Executive Officer of EVO from September 2019 to September 2022. On April 10, 2020, EVO entered into an amended and restated executive employment agreement with Thomas J. Abood, as further amended on November 4, 2020 (the “Abood Employment Agreement”), amending and restating Mr. Abood’s previous employment agreement dated September 23, 2019, pursuant to which he first agreed to serve as EVO’s Chief Executive Officer. The Abood Employment Agreement had an initial term ending December 31, 2023. Mr. Abood was eligible to earn an annual base salary of $300,000, incentive compensation based on his performance as determined by the Board, and additional awards of stock options pursuant to any plans or arrangements the Company may have had in effect from time to time. Beginning October 1, 2020, EVO paid Mr. Abood a non-accountable quarterly transportation supplement of $25,000. Pursuant to the Abood Employment Agreement, EVO agreed to grant Mr. Abood options to purchase 1,200,000 shares of EVO’s common stock at a price of $2.50 per share. 25% of the options vested on the grant date and the remaining options vest in equal annual installments on the first, second and third anniversary of the effective date of the Abood Employment Agreement.
On September 12, 2022, the Abood Employment Agreement was terminated. On October 17, 2022, EVO and Mr. Abood entered into a Separation Agreement and Release (“Abood Separation Agreement”) pursuant to which (i) Mr. Abood was paid $81,009 as final pay, (ii) EVO agreed to pay Mr. Abood an aggregate of $300,000 over 12 months as separation pay and $33,901 for COBRA continuation coverage, (iii) the parties agreed to extend the maturity date of the Senior Secured Loan and Executive Loan Agreement, dated as of March 11, 2022, and (iv) increased the number of shares of the warrant held by Mr. Abood to 2,169,671 shares of EVO’s common stock. The amounts paid to Mr. Abood in 2022 are shown above in the Summary Compensation Table. Through September 30, 2023, EVO paid Mr. Abood $225,000 pursuant to the Abood Separation Agreement.
Michael Bayles
See “—Director Compensation” for a description of the payments to Mr. Bayles for his service as a member of the Board prior to his appointment as Chief Executive Officer.
On July 10, 2023, EVO entered into an executive employment agreement with Mr. Bayles (the “Bayles Employment Agreement”) pursuant to which Mr. Bayles serves as EVO’s Chief Executive Officer. See our Current Report on Form 8-K dated July 10, 2023 for a description of the Bayles Employment Agreement.
39
Billy (Trey) Peck, Jr.
On June 1, 2018, EVO entered into an employment agreement (the “Peck Employment Agreement”) with Mr. Peck pursuant to which Mr. Peck serves as EVO’s Executive Vice President – Business Development. Such agreement was amended on March 23, 2020 and January 1, 2021 (as amended, the “Peck Employment Agreement”). The Peck Employment Agreement provides for an initial term of four years, with automatic extensions (absent notice to the contrary) of one year upon the expiration of the initial term or any renewal term. Under the Peck Employment Agreement, Mr. Peck is entitled to base compensation of $225,000 per year, incentive compensation based on Peck’s performance as determined by the Board and awards of stock options pursuant to any plans or arrangements the Company may have in effect from time to time. If Mr. Peck is terminated without cause or he resigns with good reason, he will be entitled to receive severance, subject to his execution and non-revocation of a release of claims in favor of the Company and its officers, directors and affiliates, equal to any unpaid base salary, reimbursement for unpaid expenses and all other accrued payments or benefits through his termination date, plus the greater of: (i) his monthly base salary at the level in effect immediately prior to his termination date, multiplied by number of full or partial months, if any, in the period beginning on his termination date and ending on the date his initial employment term would have ended, if later than his termination date or (ii) one-half of his annual base salary at the level in effect immediately prior to his termination date. The Peck Employment Agreement also includes a customary confidentiality covenant and one-year post-termination non-solicitation and non-interference covenants. On June 23, 2023, the Peck Employment Agreement was further amended to increase base compensation to $250,000.
Eugene Putnam
Mr. Putnam served as EVO’s Chief Financial Officer from July 2019 to August 2022 and has served as Executive Vice President – Corporate Services since August 2022. On July 22, 2019, EVO entered into an executive employment agreement with Mr. Putnam (the “Putnam Employment Agreement”) pursuant to which Mr. Putnam served as EVO’s Chief Financial Officer. The Putnam Employment Agreement provided for an initial term of four years, with automatic extensions (absent notice to the contrary) of one year upon the expiration of the initial term or any renewal term. Under the Putnam Employment Agreement, Mr. Putnam was entitled to base compensation of $230,000 per year, incentive compensation based on Mr. Putnam’s performance as determined by the Board and awards of stock options pursuant to any plans or arrangements the Company may have in effect from time to time. The Putnam Employment Agreement also includes a customary confidentiality covenant and one-year post-termination non-solicitation and non-interference covenants. The Putnam Employment Agreement was terminated on July 21, 2023.
Patrick Seul
Mr. Seul served as EVO’s Executive Vice President, General Counsel and Secretary from June 2021 to December 2022. On June 21, 2021, EVO entered into an executive employment agreement with Mr. Seul (the “Seul Employment Agreement”) pursuant to which Mr. Seul served as EVO’s Executive Vice President, General Counsel and Secretary. The Seul Employment Agreement provided for an initial term of three years, with automatic extensions (absent notice to the contrary) of one year upon the expiration of the initial term or any renewal term. Under the Seul Employment Agreement, Mr. Seul was entitled to base compensation of $250,000 per year, incentive compensation based on Mr. Seul’s performance as determined by the Board. Upon commencement of Mr. Seul’s employment term, EVO agreed to grant Mr. Seul stock options to purchase 750,000 shares of common stock at a price per share equal to the lesser of $2.50 and the price at which options are granted to EVO’s executive officers and directors in 2021, 250,000 of which options vested upon issuance, 250,000 of which vested in June 2022, and 250,000 of which would have vested in June 2023. The Seul Employment Agreement was terminated on December 31, 2022. Pursuant to the Seul Employment Agreement, Mr. Seul was entitled to receive a severance payment and certain other payments equal to any unpaid base salary, reimbursement for unpaid expenses and all other accrued payments or benefits through his termination date. On November 23, 2022, EVO and Mr. Seul entered into a Retention Agreement (the “Seul Retention Agreement”) pursuant to which (i) Mr. Seul remained an employee of EVO through December 31, 2022, (ii) EVO agreed to
40
pay Mr. Seul a stay bonus of $45,000 and (iii) EVO agreed to pay Mr. Seul $125,000 in lieu of separation pay otherwise payable under the Seul Employment Agreement.
Outstanding Equity Awards at Fiscal Year-End
The following table shows the number of shares covered by exercisable options and unexerciseable options held by the named executive officers on December 31, 2022:
Name |
|
Grant Date |
|
|
Number of |
|
|
Number of |
|
|
|
Option |
|
|
Option |
|
|||||
Thomas J. Abood |
|
April 12, 2018 |
|
|
|
100,000 |
|
|
|
— |
|
|
|
|
2.50 |
|
|
April 12, 2028 |
|
||
|
|
September 23, 2019 |
|
|
|
1,250,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
September 23, 2029 |
|
||
|
|
April 10, 2020 |
|
|
|
900,000 |
|
|
|
300,000 |
|
(1) |
|
|
1.50 |
|
|
April 10, 2030 |
|
||
|
|
December 27, 2020 |
|
|
|
23,231 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
December 27, 2030 |
|
||
Michael Bayles |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Billy (Trey) Peck, Jr. |
|
December 27, 2020 |
|
|
|
20,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
December 27, 2030 |
|
||
Eugene Putnam |
|
July 22, 2019 |
|
|
|
400,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
July 22, 2029 |
|
||
|
|
December 27, 2020 |
|
|
|
18,577 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
December 27, 2030 |
|
||
Patrick Seul |
|
August 03, 2021 |
|
|
|
750,000 |
|
|
|
— |
|
|
|
|
1.50 |
|
|
August 03, 2031 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Director Compensation
The following table summarizes the compensation paid to each non-employee director in the fiscal year ended December 31, 2022:
Name |
|
Fees earned or paid in cash |
|
|
Stock |
|
|
Option |
|
|
All other |
|
|
Total |
|
|||||
Mark M. Anderson |
|
$ |
110,500 |
|
|
|
|
|
|
|
|
|
|
|
$ |
110,500 |
|
|||
Chetan Bansal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Anthony Coelho |
|
$ |
75,525 |
|
|
|
|
|
|
|
|
|
|
|
$ |
75,525 |
|
|||
Danny Cuzick (1) |
|
$ |
40,000 |
|
|
|
|
|
|
|
|
|
|
|
$ |
40,000 |
|
|||
Scott M. Honour (2) |
|
$ |
52,500 |
|
|
|
|
|
|
|
|
|
|
|
$ |
52,500 |
|
|||
Raph Posner |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Scott C. Smith |
|
$ |
82,800 |
|
|
|
|
|
|
|
|
|
|
|
$ |
82,800 |
|
|||
R. Scott Wheeler (3) |
|
$ |
— |
|
|
|
|
|
|
|
|
$ |
10,500 |
|
|
$ |
10,500 |
|
||
Alexandre Zyngier |
|
$ |
142,683 |
|
|
|
|
|
|
|
|
$ |
200 |
|
|
$ |
142,883 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
41
For 2022, non-employee directors earned an annual retainer of $50,000 and meeting fees of $1,000 for each board or committee meeting the director attended by person, or $500 for each meeting attended via teleconference. Effective June 1, 2022, the Chairman of the Board earned an additional annual retainer of $30,000. For 2022, the chairmen of the following committees earned the following: (i) Audit Committee, $10,000 annual retainer, (ii) Compensation Committee, $5,000 annual retainer and (iii) Nominating Committee, $5,000 annual retainer. In October 2022, the Board established the Operations Committee, for which Mr. Anderson earned an annual retainer of $10,000 and Mr. Zyngier earned an annual retainer of $20,000. From June 2022 to September 2022, the Board established an ad hoc oversight committee. Mr. Bayles earned a retainer of $20,000 per month for his service as chairman of the ad hoc oversight committee, Mr. Anderson earned a retainer of $5,000 per month to serve as a member of such committee and Mr. Zyngier earned a retainer of $15,000 per month to serve as a member of such committee. All retainers are payable quarterly in arrears.
Except as summarized in the previous paragraphs, no members of our board of directors are currently compensated for their services. Our directors are reimbursed for reasonable expenses incurred in connection with their service and may be compensated by certain stockholders to the extent they were initially appointed as designees on behalf of such holders.
Departure of Directors; Election of Directors
On March 11, 2022, the Board appointed Mr. Bayles as a member of the Board to fill a newly-created vacancy on the Board. He previously served on the Board from October 9, 2020 until March 12, 2021.
Mr. Bayles was appointed to serve on the Audit Committee, the Compensation Committee and the Nominating Committee. On September 14, 2022, the Board appointed Mr. Bayles as Chief Executive Officer of EVO and Mr. Bayles resigned from the Audit Committee, the Compensation Committee and the Nominating Committee.
On May 31, 2022, Messrs. Cuzick and Wheeler resigned as members of the Board and the Board appointed Messrs. Bansal and Posner to fill the resulting vacancies. The Company does not pay Messrs. Bansal and Posner annual retainers.
On June 8, 2022, Mr. Zyngier was appointed as chairman of the Board.
On October 5, 2022, Mr. Honour resigned as a member of the Board.
On October 17, 2022, Mr. Abood resigned as a member of the Board.
Compensation Committee Interlocks and Insider Participation
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
42
Compensation Committee Report
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners
The following table lists, as of November 16, 2023, the number of shares of our common stock beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each of our named executive officers and directors; and (iii) all of our officers and directors as a group. Applicable percentage ownership is based on 435,200,219 shares of common stock outstanding as of November 16, 2023, together with applicable options, warrants and restricted stock units for each stockholder. Unless otherwise indicated, the address of each person listed below is in the care of EVO Transportation & Energy Services, Inc., 2075 West Pinnacle Peak Road, Suite 130, Phoenix, AZ 85027.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options, warrants and restricted stock units currently exercisable or exercisable within 60 days. Shares of our capital stock issuable pursuant to options, warrants or restricted stock units are deemed to be outstanding for purposes of computing the beneficial ownership percentage of the person or group holding such options, warrants or restricted stock units but are not deemed to be outstanding for purposes of computing the beneficial ownership percentage of any other person.
Name of Beneficial Owner or Identity of Group(1) |
|
Number of Shares |
|
|
Series C Preferred |
|
|
Series D Preferred |
|
||||||||||||||||
5% Beneficial Owners |
|
Shares |
|
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
||||||
Antara Capital Master Fund LP |
|
|
345,503,483 |
|
|
|
|
79.39 |
% |
|
|
1 |
|
|
|
100.00 |
% |
|
|
1 |
|
|
|
100.00 |
% |
John Lampsa & Ursula Lampsa |
|
|
25,848,001 |
|
(2) |
|
|
5.83 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Danny R. Cuzick |
|
|
70,858,115 |
|
(3) |
|
|
15.01 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Executive Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Michael Bayles |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Thomas J. Abood |
|
|
2,296,527 |
|
(4) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Billy (Trey) Peck, Jr. |
|
|
10,095,177 |
|
(5) |
|
|
2.29 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Eugene Putnam |
|
|
332,848 |
|
(6) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Patrick Seul |
|
|
750,000 |
|
(7) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Scott M. Honour |
|
|
164,099 |
|
(8) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Raph Posner |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
R. Scott Wheeler |
|
|
903,375 |
|
(9) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Scott Smith |
|
|
633,997 |
|
(10) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Mark Anderson |
|
|
813,997 |
|
(11) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Alexandre Zyngier |
|
|
4,558,202 |
|
(12) |
|
|
1.04 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Tony Coelho |
|
|
733,997 |
|
(13) |
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Chetan Bansal |
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
All executive officers and directors as a group (12 persons) |
|
|
18,227,646 |
|
(14) |
|
|
4.16 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
* Less than 1%
43
Securities Authorized for Issuance Under Equity Compensation Plans
On April 12, 2018, the Board adopted an equity compensation plan (the “2018 Plan”) to retain and incentivize key personnel to drive the success of the Company. On August 13, 2018, the Board approved an Amended and Restated 2018 Stock Incentive Plan (the “Amended 2018 Plan”), amending and restating the 2018 Plan in its entirety. The principal provisions of the Amended 2018 Plan are summarized below. This summary is not a complete description of all the Amended 2018 Plan’s provisions and is qualified in its entirety by reference to the Amended 2018 Plan, which is filed as an exhibit to EVO’s Annual Report on Form 10-K for the year ended December 31, 2018. Capitalized terms used but not defined herein have the meanings set forth in the Amended 2018 Plan.
On May 30, 2023, the Compensation Committee approved the 2023 AIP and the forms of restricted stock unit award agreements to be granted under the Amended 2018 Plan. See Part II, Item 8 of this Form 10-K in the Notes to the Consolidated Financial Statements, Note 13, “Subsequent Events,” for descriptions thereof.
44
Amended 2018 Plan
Administration
The Board delegated the administration of the Amended 2018 Plan to the Compensation Committee of the Board. The Board and any committee to which it may delegate the administration of the Amended 2018 Plan from time to time are collectively referred to in the Amended 2018 Plan as the “Administrator.”
The Administrator may delegate to one or more committees and/or sub-committees, or to one or more officers of EVO such administrative duties or powers as it may deem advisable. The Administrator may, by resolution, authorize one or more officers of EVO to do one or both of the following on the same basis as the Administrator: (i) designate employees to be recipients of awards under the Amended 2018 Plan and (ii) determine the size of any such awards; provided, however, that the committee may not delegate such responsibilities to any such officer for awards granted to an employee who is an officer or director of EVO or the beneficial owner of more than 10% of EVO’s common stock; the resolution providing such authorization sets forth the total number of awards such officer(s) may grant; and the officer(s) must report periodically to the Administrator regarding the nature and scope of the awards granted pursuant to the authority delegated.
Except as otherwise provided in the Amended 2018 Plan, the Administrator will have all of the powers vested in it under the provisions of the Amended 2018 Plan, including but not limited to exclusive authority to determine, in its sole discretion, whether an award will be granted; the individuals to whom, and the time or times at which, awards will be granted; the number of shares subject to each award; the exercise price of Options granted hereunder; and the performance criteria, if any, and any other terms and conditions of each award. The Administrator will have full power and authority to administer and interpret the Amended 2018 Plan, to make and amend rules, regulations and guidelines for administering the Amended 2018 Plan, to prescribe the form and conditions of the respective Agreements evidencing each award (which may vary from Participant to Participant), to amend or revise Agreements evidencing any award (to the extent the amended terms would be permitted by the Amended 2018 Plan and provided that no such revision or amendment, except as is authorized in Section 14 of the Amended 2018 Plan, may impair the terms and conditions of any award that is outstanding on the date of such revision or amendment to the material detriment of the Participant in the absence of the consent of the Participant), and to make all other determinations necessary or advisable for the administration of the Amended 2018 Plan (including to correct any defect, omission or inconsistency in the Amended 2018 Plan or any Agreement, to the extent permitted by law and the Amended 2018 Plan). The Administrator’s interpretation of the Amended 2018 Plan, and all actions taken and determinations made by the Administrator pursuant to the power vested in it under the Amended 2018 Plan will be conclusive and binding on all parties concerned.
Eligibility
Any employee, director or consultant may participate in the Amended 2018 Plan; provided, however, that only employees are eligible to receive incentive stock options. Additionally, EVO may grant certain performance-based awards to “covered employees” in compliance with Section 162(m) of the Internal Revenue Code. These covered employees include our executive officers. Section 162(m) generally limits the corporate tax deduction for compensation paid to executive officers that is not “performance-based” to $1,000,000 per executive officer. “Performance-based” compensation meeting certain requirements is not counted against the $1,000,000 limit and generally remains fully deductible for tax purposes.
Shares Available for Awards
The stock to be awarded or optioned under the Plan (the “share authorization”) will consist of authorized but unissued or reacquired shares of common stock. The maximum aggregate number of shares of common stock reserved and available for awards under the Amended 2018 Plan originally was 6,250,000 shares and subsequently was increased to 12,000,000 shares, subject to adjustment for any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other similar change in the corporate structure or shares of EVO. Any adjustment determination made by the Administrator will be final, binding and conclusive.
45
Type of Awards and Terms and Conditions
The Amended 2018 Plan provides that the Administrator may grant awards to eligible participants in any of the following forms, subject to such terms, conditions and provisions as the Administrator may determine to be necessary or desirable:
Options. Options may either be incentive stock options, which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code, or non-qualified stock options. Options vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns stock possessing more than 10% of the total combined voting power of all classes of stock of EVO or its parent or any subsidiary, the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. Non-qualified stock options vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of non-qualified stock options. The exercise price of each share subject to a non-qualified stock option will be determined by the Administrator at the time of grant but must be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as stockholders with respect to any shares covered by the award until the award is exercised and a stock certificate or book entry evidencing such shares is issued or made, respectively.
Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the awards beginning on the grant date, but have no other rights as stockholders with respect to such shares.
Performance Awards. Performance awards, which may be denominated in cash or shares, are earned upon achievement of performance objectives during a performance period established by the Administrator. Recipients of performance awards have no rights as stockholders with respect to any shares covered by the awards until the date a stock certificate or book entry evidencing such shares is issued or made, respectively.
Stock Appreciation Rights. A stock appreciation right may be granted independent of, or in tandem with, a previously or contemporaneously granted stock option, as determined by the Administrator. Generally, upon exercise of a stock appreciation right, the recipient will receive cash, shares of EVO stock, or a combination of cash and stock, with a value equal to the excess of: (i) the fair market value of a specified number of shares of EVO stock on the date of the exercise, over (ii) a specified exercise price. Stock appreciation rights vest as determined by the Administrator, subject to applicable performance objectives and statutory limitations regarding the maximum term of stock appreciation rights. Recipients of stock appreciation rights have no rights as a stockholder with respect to any shares covered by the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively.
Stock Bonuses. Stock bonuses consist of awards of shares granted to a participant subject to such terms and conditions as determined by the Administrator. Recipients of stock bonuses have all rights of stockholders with respect to such shares, provided that the Administrator may impose restrictions on the assignment or transfer of stock bonuses.
46
Amendments of the Amended 2018 Plan
The Board may from time to time, insofar as permitted by law, suspend or discontinue the Amended 2018 Plan or revise or amend it in any respect. However, to the extent required by applicable law or regulation or as except as provided under the Amended 2018 Plan itself, the Board may not, without stockholder approval, revise or amend the Amended 2018 Plan to (i) materially increase the number of shares subject to the Amended 2018 Plan, (ii) change the designation of participants, including the class of employees, eligible to receive awards, (iii) decrease the price at which options or stock appreciation rights may be granted, (iv) cancel, regrant, repurchase for cash, or replace options or stock appreciation rights that have an exercise price in excess of the fair market value of the common stock with other awards, or amend the terms of outstanding options or stock appreciation rights to reduce their exercise price, (v) materially increase the benefits accruing to participants under the Amended 2018 Plan, or (vi) make any modification that will cause incentive stock options to fail to meet the requirements of Internal Revenue Code Section 422.
Term
The Administrator may grant awards pursuant to the Amended 2018 Plan until it is discontinued or terminated; provided, however, that ISOs may not be granted after August 13, 2028.
Change of Control
Unless otherwise provided in the terms of an award, upon a change of control of EVO, as defined in the Amended 2018 Plan, the Administrator may provide for one or more of the following: (i) the acceleration of the exercisability, vesting, or lapse of the risks of forfeiture of any or all awards (or portions thereof); (ii) the complete termination of the Amended 2018 Plan and the cancellation of any or all awards (or portions thereof) that have not been exercised, have not vested, or remain subject to risks of forfeiture, as applicable in each case as of the effective date of the change of control; (iii) that the entity succeeding EVO by reason of such change of control, or the parent of such entity, must assume or continue any or all awards (or portions thereof) outstanding immediately prior to the change of control or substitute for any or all such awards (or portions thereof) a substantially equivalent award with respect to the securities of such successor entity, as determined in accordance with applicable laws and regulations; or (iv) that participants holding outstanding awards will become entitled to receive, with respect to each share of common stock subject to such award (whether vested or unvested, as determined by the Administrator pursuant to the Amended 2018 Plan) as of the effective date of any such change of control, cash in an amount equal to (1) for participants holding options or stock appreciation rights, the excess of the fair market value of such common stock on the date immediately preceding the effective date of such change of control over the exercise price per share of options or stock appreciation rights, or (2) for participants holding awards other than options or stock appreciation rights, the fair market value of such common stock on the date immediately preceding the effective date of such change of control. The Administrator need not take the same action with respect to all awards (or portions thereof) or with respect to all participants.
Payment
Upon exercise of an option granted under the Amended 2018 Plan, and as permitted in the Administrator’s discretion, the option holder may pay the exercise price in cash (or cash equivalent), by surrendering previously-acquired unencumbered shares of Company common stock, by withholding shares of Company common stock from the number of shares that would otherwise be issuable upon exercise of the option (e.g., a net share settlement), through broker-assisted cashless exercise (if compliant with applicable securities laws and any insider trading policies of the Company), another form of payment authorized by the Administrator, or a combination of any of the foregoing. If the exercise price is paid, in whole or in part, with Company common stock, the then-current fair market value of the stock delivered or withheld will be used to calculate the number of shares required to be delivered or withheld.
Transfer Restrictions
Unless permitted by law and expressly permitted by the Amended 2018 Plan or underlying award agreement, no award will be transferable, other than by will or by the laws of descent and distribution. The Administrator may permit a recipient of a non-qualified stock option to transfer the award by gift to his or her “immediate family” or to certain trusts or partnerships (as defined and permitted by applicable federal securities law).
47
Forms of Agreement
The Administrator has approved forms of agreement to govern incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units. The foregoing summaries of the Amended 2018 Plan and the forms of the agreements do not purport to be complete and are qualified in their entirety by reference to the text of the Amended 2018 Plan and to the text of the forms of agreement, all of which are filed as exhibits to this Annual Report on Form 10-K.
2021 AIP and LTIP
On August 17, 2021, the Compensation Committee of the Board approved the EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (the “2021 AIP”), to provide the terms of annual bonus opportunities to be granted to the Company’s executive officers and other participating employees. The purposes of the 2021 AIP are to maintain a competitive level of total cash compensation and to align the interests of the Company’s executives and other employees with those of the Company’s shareholders and with the strategic objectives of the Company.
The 2021 AIP provides the Company’s executive officers and other participating employees with an opportunity to earn cash incentive compensation based upon the achievement of performance goals over a specified performance period. All of the Company’s executive officers and certain other employees designated as eligible employees from time to time are eligible to participate in the 2021 AIP. The 2021 AIP focuses on achievement of certain annual objectives and goals, as determined by the Compensation Committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of such specified goals. Under the 2021 AIP, the payout opportunity is contingent upon meeting the threshold performance levels, and thereafter varies for performance above and below the pre-established target performance levels, subject to a maximum award level. With respect to EVO’s chief executive officer, the target award equals 50% of 2021 base salary, and with respect to EVO’s other named executive officers the target award equals 40% of base salary, all as adjusted based upon meeting or exceeding the performance levels established by the Compensation Committee for 2021, and cannot exceed a maximum payment limit specified by the Compensation Committee. The 2021 AIP also provides that each named executive officer’s award will be forfeited if such executive officer’s employment does not continue through December 31 of the applicable plan year.
The performance metrics on which awards under the 2021 AIP were granted include 2021 revenue and EBITDA, and payment of incentive awards under the 2021 AIP is dependent upon achievement of defined goals for each performance metric. However, the Compensation Committee retains the discretion to increase, reduce or eliminate any incentive award that becomes payable under the 2021 AIP. Awards under the 2021 AIP will be granted for services provided in calendar year 2021 and will be payable in 2022. Incentive awards under the 2021 AIP are paid in cash following the end of calendar year 2021 and after the Compensation Committee has determined and certified the level of performance achieved and the incentive awards earned.
Also on August 17, 2021, the Compensation Committee approved the EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (the “2021 LTIP”), pursuant to which the Company expects to make annual long term incentive awards based on shares of EVO’s common stock, including restricted stock units (“RSUs”) and non-statutory stock options. Awards under the 2021 will be made under and pursuant to the terms of the Amended 2018 Plan. Under the 2021 LTIP, the Compensation Committee will make time-based RSU and stock option awards to key employees, including the named executive officers. The value of the 2021 LTIP awards will be based upon a percentage of the named executive officer’s salary. Under the 2021 LTIP, a named executive officer’s 2021 LTIP award is comprised of 50% of time-based RSUs and 50% stock options. Time-based RSU awards under the 2021 LTIP will vest three years from the date of grant, and stock option awards will vest ratably in one-third increments on each of the first, second and third anniversaries of the date of the grant conditional upon continued employment with the Company.
“See Note 13, Subsequent Events, for a description of the Annual Incentive Plan of EVO Transportation & Energy Services, Inc. and the restricted stock unit award agreements, each of which was approved in May 2023.”
48
Equity Compensation Plan Information
The table below provides summary information about the securities issuable under our equity compensation plans as of December 31, 2022:
Plan category |
|
Number of |
|
|
Weighted- |
|
|
Number of |
|
|||
Equity compensation plans approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Equity compensation plans not approved by security holders |
|
|
9,627,942 |
|
|
$ |
2.03 |
|
|
|
2,372,058 |
|
Total |
|
|
9,627,942 |
|
|
$ |
2.03 |
|
|
|
2,372,058 |
|
Transactions with Related Persons
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. The agreement was terminated in September 2022. During the years ended December 31, 2022 and 2021, the Company recognized expense of approximately $0 million and $0.6 million, respectively, related to this software technology, and $0 million and $0.1 million was owed as of December 31, 2022 and 2021, 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 $1.0 million and $2.7 million as of December 31, 2022 and 2021, respectively.
Sheehy Settlement Agreement
On September 27, 2022, EVO, Sheehy Mail Contractors, Inc. ("Sheehy"), Sheehy Enterprises, Inc. (“SEI”), North American Dispatch Systems, LLC (“NADS”), John Sheehy (“J. Sheehy”), Robert Sheehy (“R. Sheehy” and, together with SEI, NADS and J. Sheehy, the “Sheehy Parties”) entered into a Settlement Agreement (the “Sheehy Settlement Agreement”) which consummated the following: (i) terminated the services agreement with NADS with the receipt of $0.1 million over multiple installments through August 31, 2023; (ii) Sheehy agreed to pledge $0.8 million in cash collateral held in the SEI captive insurance member account, under the CSPA, on or before March 1, 2024; (iii) modified an equipment lease between Sheehy and SEI; and (iv) SEI waived and agreed to not exercise the $1.2 million put right with the receipt of $0.1 million over multiple installments through December 31, 2023. Accordingly, EVO is no longer obligated to redeem the common stock held by SEI. As of December 31, 2022 and 2021, redeemable common stock was $0 and $1.2 million, respectively.
Off Balance Sheet Arrangements - Collateral Security Pledge Agreement
On January 2, 2019 EVO acquired all of the outstanding equity interests in 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 10, 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”). In connection with the Sheehy Settlement Agreement, Sheehy pledged $0.8 million in cash collateral held in the SEI captive insurance member account, under the CSPA, on or before March 1, 2024, and SEI agreed to continue its collateral pledge until that time.
49
Creditor Exchange Agreements
As noted in Note 5, Debt, Danny Cuzick, John and Ursula Lampsa and Billy (Trey) Peck Jr. exchanged historical promissory notes issued by EVO and its subsidiaries for (i) warrants to purchase shares of EVO common stock; (ii) a $75,000 payment and (iii) the Takeback Notes resulting in a restructuring gain of approximately $9.0 million recorded within additional paid-in-capital as of December 31, 2022.
Amendments to Leases
In connection with the Recapitalization Transactions, Ursa Major Corporation, a wholly-owned subsidiary of EVO (“Ursa”), entered into two separate lease amendments with Ursa Oak Creek LLC and Ursa Group LLC. The amendments provided that the monthly “offset payments” under Ursa’s leases will continue until the earliest of (i) September 8, 2027, (ii) the date that the Takeback Note issued to John and Ursula Lampsa is satisfied in full, and (iii) the date the lease is terminated other than for Ursa’s breach. See Note 5, Debt, for further information regarding the Takeback Notes.
Purchase of Fixed Assets
On October 15, 2019, EVO entered into an agreement with an existing stockholder to purchase used CNG tractors in exchange for 1,174,800 shares of EVO’s common stock and a warrant to purchase 1,174,800 shares of EVO’s common stock at an exercise price of $2.50 per share. Although the transaction was not consummated, the Company recorded $3.5 million related to the tractors within property and equipment, net on its consolidated balance sheets included in this annual report, with an associated $3.5 million related to EVO’s obligation to issue the common stock and the warrant to purchase common stock within common stock issuable. In October 2023, EVO, the stockholder and his affiliated company entered into a settlement agreement to mutually rescind the transaction.
For information regarding additional related party transactions, see Note 5, Debt, and Note 6, Stockholders’ Deficit and Warrants.
Director Independence
Our securities are not listed on a national securities exchange or on any inter-dealer quotation system which has a requirement that a majority of directors be independent. We evaluate independence by the standards for director independence set forth in the NASDAQ Listing Rules.
Under NASDAQ Rule 5605(a)(2)(A), a director is not considered to be independent if he or she also is an executive officer or employee of the corporation. In considering a director’s independence, the Board considers any related party transactions that currently exist or have occurred during the timeframes specified by NASDAQ Listing Rule 5605(a)(2) and whether the director has any relationships that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board determined that Messrs. Anderson, Coelho, Smith and Zyngier are “independent” within the meaning of NASDAQ Listing Rules. Messrs. Bansal, Bayles and Posner are not independent directors.
Item 14. Principal Accounting Fees and Services
The following summarizes the fees we were billed for audit and non-audit services rendered for the fiscal years ended December 31, 2022 and 2021. Marcum LLP ("Marcum") was our independent registered public accounting firm from January 7, 2019 until September 1, 2021, when the Audit Committee approved the dismissal of Marcum and appointed Grant Thornton LLP ("Grant Thornton") as our independent registered public accounting firm, whose PCAOB Firm ID is
Audit Fees
Audit fees consist primarily of audit work performed in preparation of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q, and compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. Grant Thornton’s audit fees billed were $726,276 and $706,288 for the years ended December 31, 2022 and 2021, respectively.
Audit-Related Fees
Audit-related fees consist of fees charged by our accountants for assurance and related services that are related to the performance of the audit or review of our annual and quarterly financial statements. Grant Thornton's audit-related fees billed were $0 and $0 for the years ended December 31, 2022 and 2021, respectively.
50
Tax Fees
Tax fees consist of fees for professional services rendered by our accountants for tax compliance, tax advice, and tax planning. Grant Thornton's tax fees billed were $0 and $0 for the years ended December 31, 2022 and 2021, respectively.
All Other Fees
Other fees consist of fees for products and services provided by our accountants other than the services reported under the headings “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above. Other fees billed by Grant Thornton in the fiscal years ended December 31, 2022 and 2021 were $0 and $0, respectively.
Audit Committee’s Pre-Approval Process
On February 7, 2019, the Board established the Audit Committee. Under our current policy, the Audit Committee approves in advance all fees and services provided by our independent registered public accounting firm. The Audit Committee pre-approved all audit and permissible non-audit services performed by our independent registered public accounting firm for the years ended December 31, 2022 and 2021.
51
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Financial Statements
Statement |
|
Page |
|
|
|
Table of Contents |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
Financial Statement Schedules
None.
Exhibits
See the Exhibit Index immediately following the signature page to this annual report on Form 10-K, which is incorporated herein by reference.
52
EXHIBIT INDEX
The exhibits listed below are filed with this annual report on Form 10-K. Certain exhibits and schedules to the documents listed below have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any omitted exhibits and schedules upon request to the SEC; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.
53
Exhibit |
|
Description |
2.1 |
|
|
2.2 |
|
|
2.3 |
|
|
2.4 |
|
|
2.5 |
|
|
2.6 |
|
|
2.7 |
|
|
2.8 |
|
|
2.9 |
|
|
2.10 |
|
|
2.11 |
|
|
2.12 |
|
|
2.13 |
|
|
2.14 |
|
|
2.15 |
|
|
3.1 |
|
|
3.2 |
|
Certificate of Amendment to Certificate of Incorporation (8) |
3.3 |
|
Certificate of Amendment to Certificate of Incorporation (10) |
3.4 |
|
|
3.5 |
|
|
3.6 |
|
|
3.7 |
|
|
3.8 |
|
Amended and Restated Bylaws of EVO Transportation & Energy Services, Inc., dated March 18, 2022 (45) |
3.9 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
4.4 |
|
|
4.5 |
|
|
4.6 |
|
Senior Promissory Note, dated February 1, 2017, by Minn Shares Inc. in favor of Danny R. Cuzick (4) |
4.7 |
|
Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Danny R. Cuzick (4) |
4.8 |
|
Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Damon R. Cuzick (4) |
54
4.9 |
|
Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Theril H. Lund (4) |
4.10 |
|
Working Capital Note, dated February 1, 2017, by Minn Shares in favor of Thomas J. Kiley (4) |
4.11 |
|
|
4.12 |
|
|
4.13 |
|
Covenant Waiver Letter, dated February 21, 2019, from Tradition Capital Bank (25) |
4.14 |
|
|
4.15 |
|
|
4.16 |
|
|
4.17 |
|
|
4.18 |
|
|
4.19 |
|
|
4.20 |
|
|
4.21 |
|
|
4.22 |
|
|
4.23 |
|
|
4.24 |
|
|
4.25 |
|
|
4.26 |
|
|
4.27 |
|
|
10.1+ |
|
Employment Agreement, dated February 1, 2017, between Minn Shares Inc. and Damon R. Cuzick (4) |
55
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
10.8 |
|
|
10.9 |
|
Fuel Purchase Agreement, dated October 1, 2013, between EAF and Central Freight Lines, Inc. (8) |
10.10 |
|
Natural Gas Service and Pipeline Agreement, dated November 12, 2014, between EAF and LDC, LLC (8) |
10.11 |
|
|
10.12 |
|
|
10.13 |
|
|
10.14 |
|
EVO Transportation & Energy Services, Inc. 2018 Stock Incentive Plan (17) |
10.15 |
|
Form of EVO Transportation & Energy Services, Inc. Option Agreement (17) |
10.16 |
|
|
10.17 |
|
|
10.18 |
|
|
10.19 |
|
|
10.20+ |
|
|
10.21 |
|
|
10.22 |
|
Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($3.00) (13) |
10.23 |
|
Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($5.00) (13) |
10.24 |
|
Warrant dated June 1, 2018 issued to Billy (Trey) Peck Jr. ($7.00) (13) |
10.25 |
|
|
10.26 |
|
|
10.27 |
|
|
10.28 |
|
|
10.29 |
|
|
10.30 |
|
|
10.31 |
|
|
10.32 |
|
|
10.33 |
|
56
10.34 |
|
|
10.35 |
|
|
10.36 |
|
|
10.37 |
|
|
10.38 |
|
|
10.39 |
|
|
10.40 |
|
|
10.41 |
|
|
10.42 |
|
|
10.43+ |
|
|
10.44+ |
|
|
10.45+ |
|
|
10.46+ |
|
|
10.47 |
|
|
10.48 |
|
|
10.49 |
|
|
10.50 |
|
|
10.51 |
|
|
10.52 |
|
|
10.53 |
|
|
10.54+ |
|
|
10.55+ |
|
|
10.56+ |
|
|
10.57 |
|
|
10.58 |
|
|
10.59 |
|
|
10.60 |
|
57
10.61 |
|
|
10.62 |
|
|
10.63+ |
|
|
10.64 |
|
|
10.65 |
|
|
10.66 |
|
|
10.67 |
|
|
10.68 |
|
|
10.69 |
|
Lease dated February 1, 2019 between Ursa Major Corporation and Ursa Group, LLC (42) |
10.70 |
|
Lease dated February 1, 2019 between Ursa Major Corporation and Ursa Oak Creek LLC (42) |
10.71 |
|
|
10.72 |
|
|
10.73 |
|
|
10.74 |
|
|
10.75 |
|
|
10.76 |
|
|
10.77 |
|
|
10.78 |
|
Lease Agreement dated April 26, 2015 between HP Lumina, LLC and Edwards Mail Service, Inc. (42) |
10.79+ |
|
|
10.80+ |
|
|
10.81 |
|
|
10.82 |
|
|
10.83 |
|
|
10.84 |
|
|
10.85 |
|
|
10.86 |
|
|
10.87 |
|
|
10.88 |
|
|
10.89 |
|
|
10.90 |
|
|
10.91 |
|
|
10.92 |
|
|
10.93 |
|
58
10.94 |
|
|
10.95 |
|
|
10.96 |
|
|
10.97 |
|
|
10.98 |
|
Amended and Restated Option Agreement dated March 18, 2022 between EVO Transportation & Energy Services, Inc. and Danny Cuzick (59) |
10.99 |
|
Amended and Restated Option Agreement dated March 18, 2022 between EVO Transportation & Energy Services, Inc. and Danny Cuzick (59) |
10.100+ |
|
Amendment to Executive Employment Agreement dated November 4, 2020 between EVO Transportation & Energy Services, Inc. and Thomas Abood (59) |
10.101+ |
|
Amendment to Executive Employment Agreement effective January 1, 2021 between EVO Transportation & Energy Services, Inc. and Damon Cuzick (59) |
10.102+ |
|
Second Amendment to Executive Employment Agreement effective January 1, 2021 between EVO Transportation & Energy Services, Inc. and Billy (“Trey”) Peck, Jr. (59) |
10.103 |
|
|
10.104 |
|
|
10.105 |
|
|
10.106 |
|
|
10.107 |
|
|
10.108 |
|
|
10.109 |
|
|
10.110 |
|
|
10.111 |
|
|
10.112 |
|
|
10.113 |
|
|
10.114 |
|
|
10.115 |
|
|
10.116 |
|
|
10.117 |
|
|
10.118 |
|
|
10.119 |
|
|
10.120 |
|
|
10.121 |
|
|
10.122 |
|
59
10.123 |
|
|
10.124 |
|
|
10.125 |
|
|
10.126 |
|
|
10.127 |
|
|
10.128 |
|
|
10.129 |
|
|
10.130 |
|
|
10.131+ |
|
|
10.132 |
|
|
10.133 |
|
|
10.134 |
|
|
10.135+ |
|
Annual Incentive Plan of EVO Transportation & Energy Services, Inc. (55) |
10.136+ |
|
Form of Restricted Stock Unit Award Agreement (Employees) (55) |
10.137+ |
|
Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (55) |
10.138 |
|
|
10.139+ |
|
|
10.140 |
|
|
10.141 |
|
|
10.142 |
|
|
10.143+ |
|
|
10.144*+ |
|
|
10.145* |
|
|
10.146* |
|
|
10.147* |
|
|
14.1 |
|
|
16.1 |
|
Letter from Lurie, LLP to the Securities and Exchange Commission dated February 7, 2017 (6) |
16.2 |
|
Letter from Lurie, LLP to the Securities and Exchange Commission dated April 17, 2017 (7) |
16.3 |
|
Letter from EKS&H LLLP to the Securities and Exchange Commission dated October 2, 2018 (19) |
16.4 |
|
|
16.5 |
|
Letter from Marcum LLP to the Securities and Exchange Commission dated September 8, 2021 (43) |
17.1 |
|
Resignation Letter dated October 5, 2022 from Scott M. Honour (51) |
17.2 |
|
60
21.1* |
|
|
31.1* |
|
|
31.2* |
|
Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s annual report on Form 10-K for the year ended December 31, 2022 |
32.1* |
|
|
32.2* |
|
|
99.1 |
|
|
99.2 |
|
|
|
|
|
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
+ Management contract or compensatory plan or arrangement.
61
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
EVO TRANSPORTATION & ENERGY SERVICES, INC. |
|
|
|
|
Date: November 16, 2023 |
By: |
/s/ Michael Bayles |
|
|
Michael Bayles |
|
|
Chief Executive Officer |
|
|
Principal Executive Officer |
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
Title |
|
Date |
|||
|
|
|
|
|
|||
/s/ Michael Bayles |
|
Chief Executive Officer & Director |
|
November 16, 2023 |
|||
Michael Bayles |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ James Faught |
|
Chief Financial Officer |
|
November 16, 2023 |
|||
James Faught |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Raj Kapur |
|
Chief Accounting Officer |
|
November 16, 2023 |
|||
Raj Kapur |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Alexandre Zyngier |
|
Director |
|
November 16, 2023 |
|||
Alexandre Zyngier |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Chetan Bansal |
|
Director |
|
November 16, 2023 |
|||
Chetan Bansal |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Raph Posner |
|
Director |
|
November 16, 2023 |
|||
Raph Posner |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Mark M. Anderson |
|
Director |
|
November 16, 2023 |
|||
Mark M. Anderson |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Scott Smith |
|
Director |
|
November 16, 2023 |
|||
Scott Smith |
|
|
|
|
|||
|
|
|
|
|
|||
/s/ Tony Coelho |
|
Director |
|
November 16, 2023 |
|||
Tony Coelho |
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
||||
63