Acquisitions

6 Months Ended

Jun. 30, 2019

Acquisition [Abstract]

Acquisitions

Note 2 - Acquisitions

The acquisitions described below were each accounted for as business combinations, which require, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill.

The Company expects the acquisitions to increase the scale of operations and improve margins due to combined revenues and operations, which will produce operational synergies with the CNG stations and the freight trucking services, which is the basis for the acquisition and comprises the resulting recording of goodwill. In addition, the acquisitions expand the Company's geographic reach.

Sheehy

On January 4, 2019, but effective January 2, 2019, the Company acquired Sheehy. The Company acquired all of the outstanding equity interests from the Sheehy stockholders in exchange for 2,240,000 shares of the Company's common stock. Sheehy is a trucking company based in Waterloo, Wisconsin, and was founded in 1968 to service multiple contracts with USPS dedicated to over-the-road transport of mail between cities throughout the Midwest. Sheehy also provides general freight contracting. With the acquisition, Sheehy became a wholly owned subsidiary of EVO, Inc. 

Under the Sheehy acquisition agreement, at any time from April 1, 2020, until October 31, 2020, the Sheehy stockholders may request the Company to net settle in cash any number of the 2,240,000 common shares from the acquisition with a fair market value of up to $1,200,000 (the "Put Option"). The fair value as of acquisition of the Put Option determined using the Black-Scholes pricing model was $58,129, calculated with a 1.83-year term; 40% volatility; 2.51%, discount rate, and the assumption of no dividends. The Company evaluates the fair value of the Put Option quarterly and for the six months ended June 30, 2019, determined there was no change in the fair value.

On April 7, 2020, the Sheehy stockholders notified the Company of its intent to exercise the Put Option requesting $1,200,000 in exchange for 2,240,000 shares of common stock by the establishment of a fair market value as set forth in the agreement.

On January 4, 2019, Sheehy Enterprises, Inc. ("SEI"), a related party and Sheehy entered into an equipment lease agreement with an effective date of January 2, 2019 (the "Equipment Lease"), whereby SEI agreed to lease to Sheehy certain truck and trailer equipment owned by SEI. The Company paid $400,000 to SEI as an initial payment. The Company agreed to pay SEI an amount equal to $83,333 per month for 48 months.

In connection with the Sheehy acquisition and the associated Lease Agreement, the Company issued a promissory note (the "Sheehy Note") in the principal amount of $400,000 to SEI as an initial payment under the Lease Agreement. The Sheehy Note bears interest at the rate of 5.65% per annum and had an initial maturity date of March 3, 2019. The Sheehy Note provides for up to four automatic extensions of the maturity date of 30 days each, provided that the Sheehy Note is not in default as of the date of each extension. If the principal and accrued interest on the Sheehy Note are not repaid by the end of the final maturity date extension term, then the principal and accrued interest amount of the Sheehy Note will increase to $450,000 and the balance of the Sheehy Note will automatically convert into shares of the Company's common stock at a rate of $2.50 per share. As of the final maturity extension date, the principal amount of $400,000 was outstanding. In accordance with the terms of the Sheehy Note, the principal amount increased to $450,000. There also were intercompany receivables and payables due by and between EVO and certain entities owned by SEI shareholders (see Note 5 – Related Party Transactions – Due from Related Party). On November 18, 2019, the Company entered into an Intercompany Debt Repayment and Settlement Agreement (the "Intercompany Agreement") by and between the Company, the stockholder, SEI and North American Dispatch Systems ("NADS"). Pursuant to this agreement, EVO assigned $402,058 of their outstanding receivable balance due from NADS as partial payment of the Sheehy Note. The remaining principal amount due, plus accrued interest on the Sheehy Note of $39,947 was paid in the form of 35,156 shares of EVO common stock. No gain on settlement of related party debt was recorded.

The following table summarizes the fair value allocation of the assets acquired and liabilities assumed at the acquisition date and the consideration paid for the acquisition.

Assets acquired
Accounts receivable - trade	$	375,951
Accounts receivable - fuel tax credit		30,397
Prepaid expenses		464,462
Property and equipment		4,128,926
Other long-term assets		2,750
Due from related parties		252,058
Trade name		310,000
Customer relationships		410,000
Non-competition agreement		80,000
Goodwill		4,065,326
Total assets acquired		10,119,870
Liabilities assumed
Accounts payable		(2,907,594	)
Accrued expenses		(1,240,597	)
Long-term debt		(2,639,146	)
Finance lease		(1,047,733	)
Total liabilities assumed		(7,835,070	)
Net assets acquired	$	2,284,800
Consideration paid
Fair value of 2,240,000 shares of common stock issuable	$	2,284,800
Total	$	2,284,800

The Company accounted for the acquisition as a business combination in accordance with FASB ASC Topic 805, Business Combinations.  The acquired assets and liabilities of Sheehy were recorded at their preliminary acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The final determination of these preliminary fair values is subject to completion of an assessment of the acquisition-date fair values of acquired assets and liabilities. As of June 30, 2019, the Company has not completed the Sheehy allocation between identifiable intangible assets and goodwill.

The amount of revenue and net loss from Sheehy included in the Company's condensed consolidated statement of operations for the period from January 2, 2019 to June 30, 2019, was $10,683,319 and $(3,595,718), respectively.

The Company has evaluated the goodwill and determined no portion of the goodwill is deductible for income tax purposes.

Ursa and JB Lease

On February 1, 2019, the Company purchased all the outstanding interests in Ursa for 800,000 shares of the Company's common stock. In connection with the Ursa acquisition Leasing acquired JB Lease, an affiliate of Ursa. As consideration for JB Lease, $2,500,000 in cash was paid to the stockholders, approximately $11,200,000 in existing JB Lease indebtedness was assumed, and a promissory note in the principal amount of $6,430,000 was issued to the stockholders (the "JB Lease Note") with a maturity date of August 2020. The JB Lease Note is interest-free until June 1, 2019, and is secured by 100% of the equity in Ursa and JB Lease. Beginning June 1, 2019, the JB Lease Note provides for monthly principal and interest payments of $50,000 and bears interest at a rate of 9% per annum, which interest is payable monthly in advance beginning June 1, 2019. Ursa is a national carrier specializing in contract transportation for USPS. Additionally, Ursa provides supply chain solutions for many local and national accounts. The Company operates coast to coast in the lower 48 states with the majority of its customers located in the Upper Midwest. JB Lease operates multiple truck service centers, which provide maintenance and repairs to outside fleet vehicles as well as its Company-owned fleet. The revenue producing truck centers operate under the name TruckServ with locations in Janesville and Waukesha, Wisconsin. The Company's corporate offices are located in Oak Creek, Wisconsin. With the acquisition, Ursa and JB Lease became wholly owned subsidiaries of EVO, Inc. and Leasing, respectively.

The following table summarizes the fair value allocation of the assets acquired and liabilities assumed at the acquisition date and the consideration paid for the acquisition.

Assets acquired
Cash	$	3,742,892
Account receivable - trade		579,188
Other short-term assets		1,646,343
Property and equipment		15,509,169
Trade name		1,300,000
Customer relationships		720,000
Non-competition agreement		80,000
Goodwill		4,470,824
Long-term assets		31,640
Total assets acquired		28,080,056
Liabilities assumed
Accounts payable		(5,640,689	)
Accrued expenses		(1,494,505	)
Long-term debt		(11,198,862	)
Total liabilities assumed		(18,334,056	)
Net assets acquired	$	9,746,000
Consideration paid
Fair value of 800,000 shares of common stock issuable	$	816,000
Cash		2,500,000
Promissory note		6,430,000
Total	$	9,746,000

The Company accounted for the acquisition as a business combination in accordance with the FASB ASC Topic 805, Business Combinations. The acquired assets and liabilities of Ursa and JB Leasing were recorded at their preliminary acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The final determination of these preliminary fair values is subject to completion of an assessment of the acquisition-date fair values of acquired assets and liabilities. As of June 30, 2019, the Company has not completed the Ursa and JB Lease allocation between identifiable intangible assets and goodwill.

The Company engaged a third-party valuation specialist to determine the fair value of the Ursa and JB Lease intangible assets. The Company incurred a total of approximately $15,000 in transaction closing costs, which were expensed as incurred and included in general and administrative expenses in the condensed consolidated statement of operations during the six months ended June 30, 2019.

The amount of revenue and net loss from Ursa and JB Lease included in the Company's condensed consolidated statement of operations for the period from February 1, 2019 to June 30, 2019, was $23,254,479 and $(2,752,274), respectively.

The Company has evaluated the goodwill and determined no portion of the goodwill is deductible for income tax purposes.

Thunder Ridge

On June 1, 2018, pursuant to the Thunder Ridge Purchase Agreement, the Company acquired all of the issued and outstanding shares of Thunder Ridge for total consideration of $2,915,000 as outlined below. Thunder Ridge is based in Springfield, Missouri, and is engaged in the business of fulfilling government contracts for freight trucking services and includes operations in Missouri, Kansas, Iowa, Tennessee, New York, Pennsylvania, Maryland, and Texas. With the acquisition, Thunder Ridge became a wholly owned subsidiary of EVO, Inc. 

As consideration for the Thunder Ridge shares, the Company issued a promissory note dated June 1, 2018 in the principal amount of $2,500,000 (the "TR Note"). The TR Note bears interest at 6% per year with a default interest rate of 9% per year and had an original maturity date of the earlier of (a) the date the Company raises $40,000,000 in public or private offerings of debt or equity; (b) December 31, 2018, or (c) termination of Billy (Trey) Peck's ("Peck") employment with the Company by the Company without cause or by Peck for good reason. The TR Note is secured by all of the assets of Thunder Ridge pursuant to a security agreement dated June 1, 2018 between the Company, Thunder Ridge, and Peck and is also secured by the Thunder Ridge Shares ("TR Shares"). On December 26, 2018, the Company and Peck entered into an amendment to the Purchase Agreement (the "First Purchase Agreement Amendment"). The First Purchase Agreement Amendment extends the December 31, 2018 portion of the original maturity date to February 28, 2019. On February 28, 2019, the Company and Peck entered into another amendment to the Purchase Agreement (the "Second Purchase Agreement Amendment"). The Second Purchase Agreement Amendment extends the December 31, 2018 portion of the original maturity date to April 30, 2019. On April 30, 2019, the Company and Peck entered into a fourth amendment to the Purchase Agreement (the "Fourth Purchase Agreement Amendment"). The Fourth Purchase Agreement Amendment extended the April 30, 2019 portion of the original maturity date to June 30, 2019. The TR Note called for monthly principal payments of approximately $14,000. As of June 30, 2019, and December 31, 2018, the outstanding balance was $2,224,359 and $2,386,778, respectively. On August 30, 2019, the note was extended until November 2022. Effective with the extension, the Company paid Peck approximately $150,000 in principal and increased the monthly principal payments to $20,000. All accrued and unpaid interest will be due and payable on the maturity date.

If the Company fails to repay the amounts outstanding under the TR Note on or before November 30, 2022, then at the option of Peck, the Company shall immediately surrender all right, title and interest in all of the outstanding shares of stock in Thunder Ridge to Peck.

As additional consideration for the TR Shares and pursuant to a subscription agreement with Peck, on June 1, 2018, the Company agreed to issue to Peck 500,000 shares of common stock, par value $0.0001 per share ("Common Stock") (issued during May 2019) valued at $415,000. 

Further, Peck received warrants for employment to be issued as follows: (i) on the first anniversary a warrant to purchase 333,333 shares of common stock at an exercise price of $3.00 per share (the "$3.00 Warrant"), (ii) on the second anniversary a warrant to purchase 333,333 shares of common stock at an exercise price of $5.00 per share (the "$5.00 Warrant"), and (iii) on the third anniversary a warrant to purchase 333,333 shares of common stock at an exercise price of $7.00 per share (the "$7.00 Warrant," and together with the $3.00 Warrant and $5.00 Warrant, the ("Warrants"). The Company estimated the fair value of the warrants on the date of grant to be approximately $149,000. The Warrants are exercisable five years from the issuance date.

The following table summarizes the fair value allocation of the assets acquired and liabilities assumed at the acquisition date and the consideration paid for the acquisition.

Assets acquired
Accounts receivable - trade	$	2,061,514
Prepaids		160,436
Trade names		460,000
Non-competition agreement		40,000
Customer relationships		2,330,000
Goodwill		2,887,281
Property and equipment		207,734
Deposits and other long-term assets		205,113
Total assets acquired		8,352,078
Liabilities assumed
Accounts payable		(1,027,316	)
Accrued expenses		(1,573,578	)
Factored receivable advance		(1,230,679	)
Lines-of-credit		(421,739	)
Long-term debt		(187,016	)
Fuel discount advance		(996,750	)
Total liabilities assumed		(5,437,078	)
Net assets acquired	$	2,915,000
Consideration paid
Fair value of 500,000 shares of common stock issuable	$	415,000
Promissory note		2,500,000
Total	$	2,915,000

The Company has evaluated the goodwill and determined no portion of the goodwill is deductible for income tax purposes.

The Company engaged a third-party valuation specialist to determine the fair value of the Thunder Ridge intangible assets. The Company incurred a total of approximately $50,000 in transaction closing costs, which were expensed as incurred and included in general and administrative expenses in the condensed consolidated statement of operations for the year ended December 31, 2018.

W.E. Graham

The Company purchased 100% of the outstanding member interests of Graham on November 18, 2018 for a $186,000 cash payment and a $300,000 note payable. This was an insignificant acquisition.

Pro Forma Information

The following unaudited pro forma summary presents condensed consolidated information of the Company as if the business combinations had occurred on January 1, 2018. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time or that may result in the future. The following table does not include pro forma financial information for Graham, as historical results were not available and not considered material.

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue
As reported	$	36,450,793		$	2,353,156		$	64,826,839		$	2,673,952
Add pro forma adjustments
Sheehy		-			6,683,364			-			13,111,139
Ursa and JB Lease		-			14,062,403			5,009,963			27,772,892
Thunder Ridge		-			4,024,575			-			10,321,719
Pro forma revenue	$	36,450,793		$	27,123,498		$	69,836,802		$	53,879,702
Net loss
As reported	$	(7,009,571	)	$	(2,648,537	)	$	(14,444,700	)	$	(2,545,820	)
Add pro forma adjustments
Sheehy		-			(334,083	)		-			(1,451,976	)
Ursa and JB Lease		-			(345,141	)		(102,726	)		(636,749	)
Thunder Ridge		-			(427,954	)		-			(760,939	)
Pro forma net loss	$	(7,009,571	)	$	(3,755,715	)	$	(14,547,426	)	$	(5,395,484	)
Net loss available to common stockholders
As reported	$	(7,012,803	)	$	(2,648,537	)	$	(14,453,932	)	$	(2,545,820	)
Pro forma net loss	$	(7,012,803	)	$	(3,755,715	)	$	(14,556,658	)	$	(7,941,303	)
Basic and diluted weighted-average common stock outstanding		8,101,717			1,924,457			4,760,969			1,443,972
Basic and diluted loss per common stock, as reported	$	(0.87	)	$	(1.38	)	$	(3.04	)	$	(1.76	)
Basic and diluted loss per common stock, pro forma	$	(0.87	)	$	(1.95	)	$	(3.06	)	$	(5.50	)