evoa-10q_20190930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

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

For the transition period from ______________ to ______________

Commission file number 000-54218

EVO Transportation & Energy Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware		37-1615850
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2075 West Pinnacle Peak Rd. Suite 130

Phoenix, AZ 85027

(Address of principal executive offices) (Zip Code)

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

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 26, 2021, there were 15,212,815 shares of the registrant’s common stock, par value $0.0001, outstanding.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

INDEX

	Page No.

PART I – FINANCIAL INFORMATION	2

Item 1. Condensed Consolidated Financial Statements (unaudited)	2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	47

Item 3. Quantitative and Qualitative Disclosures About Market Risk	54

Item 4. Controls and Procedures	54

PART II – OTHER INFORMATION	57

Item 1. Legal Proceedings	57

Item 1A. Risk Factors	57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3. Defaults Upon Senior Securities	57

Item 4. Mine Safety Disclosures	57

Item 5. Other Information	57

Item 6. Exhibits	57

EXHIBIT INDEX	58

SIGNATURES	60

EVO TRANSPORTATION & ENERGY SERVICES, INC.

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets (unaudited)

	September 30, 2019			December 31, 2018
($ in thousands, except per share data)	(Unaudited)
Assets
Current assets
Cash	$	1,967		$	1,630
Accounts receivable - trade, net		10,398			6,370
Accounts receivable - trade, related party	—				41
Alternative fuels tax credit receivable		1,476			268
Due from related party		402			—
Prepaids and other current assets		5,241			288
Total current assets		19,484			8,597
Non-current assets
Property, equipment, and land, net		42,905			7,604
Goodwill		23,889			2,887
Intangibles, net		6,298			3,037
Right-of-use assets, net		15,047			—
Deposits and other long-term assets		2,176			526
Total non-current assets		90,315			14,054
Total assets	$	109,799		$	22,651
Liabilities, Redeemable Stock, and Stockholders’ Deficit
Current liabilities
Accounts payable	$	11,278		$	4,139
Accounts payable - related party	—				337
Accrued expenses		9,175			5,085
Accrued interest - related party		1,404			923
Embedded derivative liability		851			—
Advances under factoring arrangements		18,544			5,331
Advance from related parties	—				324
Current portion of long-term debt		18,583			586
Current portion of long-term debt - related party		10,172			6,262
Operating lease liabilities, current portion		3,742			—
Finance lease liabilities, current portion		953			—
Total current liabilities		74,702			22,987
Non-current liabilities
Long-term debt, less current portion		15,828			4,096
Long-term debt, less current portion - related party		8,875			6,005
Advances from suppliers		940			978
Operating lease liabilities, less current portion		7,310			—
Finance lease liabilities, less current portion		2,955			—
Deferred tax liability		238			—
Total non-current liabilities		36,146			11,079
Total liabilities		110,848			34,066
Commitments and contingencies (Note 12)
Redeemable stock
Series A Redeemable Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 100,000 shares issued and outstanding, includes accrued and undeclared dividends $35 (September 30, 2019) and $17 (December 31, 2018) liquidation preference $335 (September 30, 2019) and $251 (December 31, 2018)		335			251
Redeemable common stock, at redemption value		1,200			—
Stockholders’ deficit
Common stock, $0.0001 par value; 100,000,000 shares authorized; 7,199,696 (September 30, 2019) and 2,258,530 (December 31, 2018) shares issued and outstanding		1			—
Common stock subscribed and not yet issued 7,090,582 (September 30, 2019) and 500,000 (December 31, 2018)		14,993			415
Additional paid-in capital		23,140			9,976
Accumulated deficit		(40,718	)		(22,057	)
Total stockholders’ deficit		(2,584	)		(11,666	)
Total liabilities, redeemable stock, and stockholders’ deficit	$	109,799		$	22,651

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands, except per share data)	2019			2018			2019			2018
Revenue
Trucking	$	47,159		$	8,235		$	111,375		$	10,212
CNG		97			415			708			1,112
Total revenue		47,256			8,650			112,083			11,324
Operating expenses
Payroll, benefits and related		26,362			2,818			55,632			3,517
Purchased transportation		4,559			2,088			18,702			2,740
Fuel		5,240			709			13,932			943
Equipment rent		3,846			2,719			10,058			3,032
Maintenance and supplies		3,613			144			8,312			165
General and administrative		4,645			1,268			8,740			3,214
Operating supplies and expenses		2,866			77			6,394			122
Depreciation and amortization		2,036			100			4,794			510
Insurance and claims		2,193			334			4,804			404
CNG expenses		(243	)		341			565			837
Total operating expenses		55,117			10,598			131,933			15,484
Operating loss		(7,861	)		(1,948	)		(19,850	)		(4,160	)
Other income (expense)
Interest expense		(2,172	)		(783	)		(4,639	)		(1,553	)
Realized and unrealized gains on derivative liability, net		—			17			11			29
Gain on conversion of accounts payable - related party		173			—			173			—
Gain on extinguishment of related party interest		—			—			—			157
Gain on extinguishment of liabilities		—			—			—			657
Warrant expense		—			(199	)		—			(589	)
Other miscellaneous income		79			—			79			—
Total other expense		(1,920	)		(965	)		(4,376	)		(1,299	)
Loss before income taxes		(9,781	)		(2,913	)		(24,226	)		(5,459	)
Benefit for income taxes		5,565			—			5,565			—
Net loss	$	(4,216	)	$	(2,913	)	$	(18,661	)	$	(5,459	)
Accrued and undeclared preferred stock dividends		9			300			18			300
Net loss available to common stockholders	$	(4,225	)	$	(3,213	)	$	(18,679	)	$	(5,759	)
Basic and diluted weighted average common shares outstanding		12,732,285			1,409,249			8,578,215			1,100,800
Basic and diluted net loss per common share	$	(0.33	)	$	(2.28	)	$	(2.18	)	$	(5.23	)

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

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

For the Nine Months Ended September 30, 2019

	Common Stock				Common Stock Subscribed						Additional Paid-in			Accumulated			Total Stockholders’
($ in thousands)	Shares		Amount		Shares			Amount			Capital			Deficit			Deficit
Balance - January 1, 2019		2,258,530	$	—		500,000		$	415		$	9,976		$	(22,057	)	$	(11,666	)
Accounts payable converted to common stock		10,000		—		—			—			10			—			10
Common stock issued for services - related party		10,000		—		—			—			25			—			25
Fair value of common stock issued for the purchase of Sheehy Mail Contractors, Inc.		—		—		2,240,000			2,285			—			—			2,285
Fair value of common stock issued for the purchase of Ursa Major Corporation		—		—		800,000			816			—			—			816
Fair value of stock-based compensation		—		—		—			—			86			—			86
Fair value of warrant-based compensation		—		—		—			—			14			—			14
Series A Redeemable Preferred stock dividend		—		—		—			—			(6	)		—			(6	)
Net loss		—		—		—			—			—			(7,435	)		(7,435	)
Balance - March 31, 2019		2,278,530		—		3,540,000			3,516			10,105			(29,492	)		(15,871	)
Fair value of common stock issued for the purchase of Ursa Major Corporation		800,000		—		(800,000	)		(816	)		816			—			—
Fair value of common stock issued for the purchase of Thunder Ridge Transportation, Inc.		500,000		—		(500,000	)		(415	)		415			—			—
Accounts payable-related party converted to common stock		117,092		—		—			—			293			—			293
Issuance of common stock for payment of Senior Bridge notes interest		14,074		—		—			—			14			—			14
Fair value of stock-based compensation		—		—		—			—			86			—			86
Fair value of warrant-based compensation		—		—		—			—			13			—			13
Common stock issued for cash		—		—		4,560,000			11,400			—			—			11,400
Series A Redeemable Preferred stock dividend		—		—		—			—			(3	)		—			(3	)
Net loss		—		—		—			—			—			(7,010	)		(7,010	)
Balance - June 30, 2019		3,709,696		—		6,800,000			13,685			11,739			(36,502	)		(11,078	)
Fair value of common stock issued for the purchase of Sheehy Mail Contractors, Inc.		2,240,000		1		(2,240,000	)		(2,285	)		1,084			—			(1,200	)
Fair value of common stock issued for the purchase of Finkle Transport, Inc.		1,250,000		—		—			—			1,987			—			1,987
Fair value of common stock issued for the purchase of the Ritter Companies		—		—		2,440,982			3,466			—			—			3,466
Fair value of warrants issued in connection with Antara financing arrangement, net of issuance costs		—		—		—			—			7,648			—			7,648
Fair value of common stock issued in connection with Antara financing arrangement		—		—		89,600			127			—			—			127
Stock-based compensation expense		—		—		—			—			930			—			930
Adjustment to accounts payable-related party converted to common stock		—		—		—			—			(173	)		—			(173	)
Accretion of Series A Redeemable Preferred stock		—		—		—			—			(66	)		—			(66	)
Series A Redeemable Preferred stock dividend		—		—		—			—			(9	)		—			(9	)
Net loss		—		—		—			—			—			(4,216	)		(4,216	)
Balance - September 30, 2019		7,199,696	$	1		7,090,582		$	14,993		$	23,140		$	(40,718	)	$	(2,584	)

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

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

For the Nine Months Ended September 30, 2018

	Common Stock				Common Stock Subscribed				Additional Paid-in			Accumulated			Total Stockholders’
($ in thousands)	Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balance - December 31, 2017, as stated		429,308	$	—		—	$	—	$	1,300		$	(14,075	)	$	(12,775	)
Revision		—		—		—		—		—			(1,388	)		(1,388	)
Balance - January 1, 2018, as revised		429,308		—		—		—		1,300			(15,463	)		(14,163	)
Fair value of warrants issued with stock		—		—		—		—		35			—			35
Issuance of common stock for cash		1,000,000		—		—		—		2,500			—			2,500
Net income		—		—		—		—		—			102			102
Balance - March 31, 2018		1,429,308		—		—		—		3,835			(15,361	)		(11,526	)
Fair value of warrants issued with stock		—		—		—		—		(35	)		—			(35	)
Issuance of common stock for exchange of bridge notes and interest-related party		405,676		—		—		—		1,425			—			1,425
Issuance of common stock for exchange of bridge notes and interest		142,684		—		—		—		453			—			453
Stock-based compensation expense		—		—		—		—		560			—			560
Fair value of warrants issued to guarantee debt		—		—		—		—		390			—			390
Related party accounts payable converted to common stock		50,000		—		—		—		150			—			150
Accounts payable converted to common stock		43,400		—		—		—		36			—			36
Common stock issued for the purchase of Thunder Ridge Transport, Inc.		—		—		500,000		415		—			—			415
Series A Redeemable Preferred stock dividend		—		—		—		—		—			(5	)		(5	)
Net loss		—		—		—		—		—			(2,648	)		(2,648	)
Balance - June 30, 2018		2,071,068		—		500,000		415		6,814			(18,014	)		(10,785	)
Stock-based compensation expense		—		—		—		—		233			—			233
Fair value of warrants issued with Secured convertible promissory notes		—		—		—		—		747			—			747
Fair value of warrants issued for services		—		—		—		—		75			—			75
Issuance of common stock for exchange of Convertible promissory notes - related party		187,462		—		—		—		156			—			156
Fair value of warrants issued with conversion of Convertible promissory notes		—		—		—		—		124			—			124
Series A Redeemable Preferred stock dividend		—		—		—		—		—			(6	)		(6	)
Net loss		—		—		—		—		—			(2,913	)		(2,913	)
Balance - September 30, 2018		2,258,530	$	—		500,000	$	415	$	8,149		$	(20,933	)	$	(12,369	)

See notes to unaudited condensed consolidated financial statements

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Nine Months Ended September 30,
($ in thousands)	2019			2018
Cash flows from operating activities
Net loss	$	(18,661	)	$	(5,459	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		4,794			510
Non-cash lease expense		2,145			—
Loss on sale of assets		191			—
Amortization of debt discount and debt issuance costs		847			635
Deferred income taxes		(5,610	)		—
Stock option and warrant-based compensation		1,129			793
Non-cash interest expense		2,219			—
Bad debt expense (recovery)		—			(37	)
Realized gain on derivative liability		(11	)		(49	)
Gain on conversion of accounts payable to common stock		(186	)		—
Gain on extinguishment of convertible promissory notes		—			(814	)
Common stock issued for services - related party		25			—
Common stock issued for interest		14			—
Redeemable Series A Preferred stock issued for services		—			300
Warrant expense		—			589
Other		—			46
Changes in assets and liabilities
Accounts receivable		702			(1,245	)
Accounts receivable - related party		41			—
Alternative fuels tax credit receivable		(1,178	)		68
Due from related party		(145	)		—
Other assets		(3,258	)		(244	)
Accounts payable		(1,008	)		(692	)
Accounts payable - related party		(45	)		(72	)
Accrued expenses		(240	)		1,211
Accrued interest - related party		482			235
Operating lease liabilities		(2,399	)		—
Net cash used in operating activities		(20,152	)		(4,225	)
Cash flows from investing activities
Acquisitions, net of cash acquired		(19,482	)		—
Purchases of equipment		(1,736	)		—
Proceeds from sale of assets		192			—
Net cash used in investing activities		(21,026	)		—
Cash flows from financing activities
Proceeds from sale of common stock and warrants		11,400			2,500
Proceeds from issuance of debt		26,768			4,005
Payments of principal on debt		(8,336	)		(135	)
Proceeds from sale-leaseback		1,889			—
Proceeds from issuance of debt - related party		400			—
Payments of principal on debt - related party		(362	)		(1,055	)
Payments on fuel advance		(38	)		(8	)
Advances from factoring arrangements		114,101			480
Payments on factoring arrangements		(102,641	)		—
Debt issuance costs		(678	)		(525	)
Payments on finance lease liability		(664	)		—
Payments on related party advances		(324	)		—
Net cash provided by financing activities		41,515			5,262
Net increase in cash		337			1,037
Cash - beginning of period		1,630			84
Cash - end of period	$	1,967		$	1,121
Supplemental disclosure of cash flow information:
Income tax paid	$	7		$	—
Interest paid	$	3,271		$	429
Supplemental schedule of non-cash investing and financing activities:
Fair value of common stock and redeemable common stock issued for acquisitions	$	8,553		$	415
Debt issued to sellers for acquisitions	$	6,430		$	2,500
Fixed assets acquired with debt issuance	$	234		$	—
Issuance of common stock for exchange of bridge notes and interest – related party	$	—		$	1,425
Issuance of common stock for exchange of bridge notes and interest	$	—		$	453
Common stock for settlement of accounts payable - related party	$	120		$	150
Common stock for settlement of accounts payable	$	10		$	36
Conversion of related party notes payable to common stock	$	—		$	156
Fair value of warrants, net of issuance costs, and common stock issued in connection with Antara financing arrangement	$	7,775		$	—
Debt discount related to secured convertible promissory notes	$	—		$	3,294

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of Business

EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. We are a surface transportation company serving the USPS with approximately 1,000 vehicles in operation as of September 30, 2019. Of these, approximately 200 vehicles operate on compressed natural gas (“CNG”) which makes us the largest user of alternative fuels amongst transportation companies serving the USPS. In certain markets, we fuel our vehicles at one of our five dedicated CNG stations which serve other customers as well. We operate from our headquarters in Phoenix, Arizona and from 15 facilities in 17 states.

We have grown primarily through acquisitions, and we have completed seven acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers.

The Company completed the following acquisitions subsequent to November 2016:

•

On February 1, 2017, the Company acquired Environmental Alternative Fuels, LLC (“EAF”) and its wholly owned subsidiary, EVO CNG, LLC. EVO CNG, LLC is engaged in the business of operating compressed natural gas fueling stations.

•

On June 1, 2018, the Company acquired Thunder Ridge Transport, Inc. (“Thunder Ridge”). Thunder Ridge is based in Springfield, Missouri and 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 November 16, 2018, the Company acquired W.E. Graham, Inc., a trucking company based in Memphis, Tennessee that provides freight and shipping services on behalf of the USPS across Tennessee, Georgia, Alabama and Mississippi.

•

On January 2, 2019, the Company acquired Sheehy Mail Contractors, Inc. (“Sheehy”). Sheehy is based in Waterloo, Wisconsin and 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 February 1, 2019, the Company acquired Ursa Major Corporation (“Ursa”) and JB Lease Corporation (“JB Lease”). Ursa and JB Lease are based in Oak Creek, Wisconsin and are engaged in the business of fulfilling government contracts for freight trucking services, as well as providing freight trucking services to non-government entities.

•

On July 15, 2019, the Company acquired Courtlandt and Brown Enterprises L.L.C. (“Courtlandt”) and Finkle Transport Inc. (“Finkle”). Finkle and Courtlandt are based in Newark, New Jersey and are engaged in the business of fulfilling government contracts for freight trucking services, as well as providing freight trucking services to non-government entities.

•

On September 16, 2019, the Company, through its wholly-owned subsidiary EVO Holding Company, LLC, acquired John W. Ritter, Inc. (“JWR”), Ritter Transportation Systems, Inc. (“Ritter Transportation”), Ritter Transport, Inc. (“Ritter Transport”), and Johmar Leasing Company, LLC (“Johmar,” and together with JWR, Ritter Transportation, and Ritter Transport, the “Ritter Companies”). The Ritter Companies are based in Laurel, Maryland. The Ritter Companies are engaged in the business of fulfilling government contracts for freight trucking services, as well as providing freight trucking services to non-government entities.

Going Concern

As of September 30, 2019, the Company had a cash balance of $2.0 million, a working capital deficit of $55.2 million, stockholders’ deficit of $2.6 million, and material debt and lease obligations of $69.4 million, which included term loan borrowings under a financing agreement with Antara Capital. During the nine months ended September 30, 2019, the Company reported cash used in operating activities of $20.2 million and a net loss of $18.7 million.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following significant transactions and events affecting the Company’s liquidity occurred following the nine months ended September 30, 2019:

•

During the fourth quarter of 2019, the Company borrowed the remaining $2.1 million available under the Financing Agreement.

•

During the first quarter of 2020, the Company entered into Forbearance Agreements and Incremental Amendments to the Financing Agreement with Antara Capital and obtained an additional $6.3 million in term loan commitments and the lenders agreed to forbear from exercising certain rights, remedies, powers, privileges, and defenses under the Financing Agreement during the forbearance period. These incremental borrowings were subject to the same terms as the Company’s existing term loan commitments with Antara Capital. During the fourth quarter of 2020, in connection with the Company’s borrowing under the Main Street Priority Loan Program (as subsequently discussed), the Company paid down the aggregate principal amount due to Antara, including capitalized interest, from $22.5 million at September 30, 2019 (and $31.7 million after the fourth quarter 2019 and first quarter 2020 borrowings) to $16.7 million, the forbearance period related to the remaining Antara debt was terminated and all existing defaults and events of defaults were waived, and the maturity date of the remaining outstanding term loan balance under the Antara Financing Agreement was extended from September 16, 2022 to the earlier of the date that is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan or the date that is ninety-one days after the date the Main Street Loan is paid in full.

•

During the first quarter of 2020, the Company sold a total of 1,260,000 shares of its common stock and 1,000,000 shares of its Series B preferred stock to related parties for aggregate gross proceeds of $6.2 million pursuant to the terms of subscription agreements.

•

During the second quarter of 2020, the Company obtained a loan in the amount of $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The principal amount of the loan and accrued interest are eligible for forgiveness, and the Company has submitted a request for such forgiveness.

•

During the fourth quarter of 2020, the Company borrowed $17.0 million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act (the “Main Street Loan”) and used all of the net proceeds to refinance a portion of the amount outstanding under the Antara Financing Agreement and to pay related prepayment premiums. The entire outstanding principal balance of the Main Street Loan, together with all accrued and unpaid interest, is due and payable in full on December 14, 2025.

•

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 work performed under Dynamic Route Optimization (“DRO”) contracts since 2018. The Company received a total of $28.4 million related to this historical work performed and also renegotiated the contractual rates per mile for some of its DRO contracts on a prospective basis.

•

During the first quarter of 2021, the Company entered into an agreement with its factoring lender (“Triumph”) related to the application of $17.5 million of proceeds received from the USPS arising out of prior underpayments on certain DRO contracts. Pursuant to the agreement, the parties agreed that Triumph would remit $11.0 million of net proceeds to the Company and that Triumph would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $6.9 million due under the factoring arrangement in 48 equal monthly installments beginning January 1, 2022, and that Triumph will apply funds held in reserve against the approximately $0.8 million remaining balance for advances that Triumph made to the Company in September 2020. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.

•

During the first and second quarters of 2021, the Company entered into agreements with certain noteholders to purchase promissory notes previously issued by the Company in the principal amount of $0.6 million by paying $0.1 million in cash and issuing warrants to purchase an aggregate of up to 231,453 shares of the Company’s common stock at a price of $0.01 per share.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

While these transactions and events resulted in an overall increase in the Company’s cash balance as of March 31, 2021, an overall reduction in the Company’s working capital deficit as of March 31, 2021, and an overall extension of the maturity dates for the Company’s debt obligations, the Company continues to have a working capital deficit and stockholders’ deficit as of March 31, 2021 and continues to incur net losses for 2021. As a result of these circumstances, the Company believes its existing cash, together with any positive cash flows from operations, may not be sufficient to support working capital and capital expenditure requirements for the next 12 months, and the Company may be required to seek additional financing from outside sources.

In evaluating the Company’s ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:

•

The counterparty to the Company’s accounts receivable factoring arrangement is not obligated to purchase the Company’s accounts receivable or make advances to the Company under such arrangement;

•

The Company is currently in default on certain of its debt obligations; and

•

There can be no assurance that the Company will be able to obtain additional financing in the future via the incurrence of additional indebtedness or via the sale of the Company’s common stock or preferred stock.

As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.

Management’s plans to mitigate the Company’s current conditions include:

•

Negotiating with related parties and 3^rd parties to refinance existing debt and lease obligations;

•

Potential future public or private debt or equity offerings;

•

Acquiring new profitable contracts and negotiating revised pricing for existing contracts;

•

Profitably expanding trucking revenue;

•

Cost reduction efforts, including eliminating redundant costs across the companies acquired during 2019 and 2018;

•

Improvements to operations to gain driver efficiencies;

•

Purchases of trucks and trailers to reduce purchased transportation; and

•

Replacement of older trucks with newer trucks to lower the overall cost of ownership and improve cash flow through reduced maintenance and fuel costs.

Notwithstanding management’s plans, there can be no assurance that the Company will be successful in its efforts to address its current liquidity and capital resource constraints. These conditions raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these condensed consolidated financial statements within the Company’s Form 10-Q. The condensed 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, 6, 7 and 11 to the condensed consolidated financial statements for further information regarding the Company’s debt, factoring, and lease obligations, including the future maturities of such obligations. Refer to Note 14 to the condensed consolidated financial statements for further information regarding changes in the Company’s debt obligations and liquidity subsequent to September 30, 2019.

Seasonality

Results of operations generally follow seasonal patterns in the transportation industry. Freight volumes in the first quarter are typically lower due to less consumer demand, consumers reducing shipments following the holiday season, and inclement weather. At the same time, operating costs generally increase, and tractor productivity decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs due to higher accident frequency from harsh weather. Combined, these factors typically result in lower operating profitability as compared to other periods.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Further, beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to online holiday shopping, the length of the holiday season (shopping days between Thanksgiving and Christmas), and holiday surge pricing on USPS contracts.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s December 31, 2018 Annual Report on Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The condensed 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, warrants and stock-based awards.

Net Loss per Share of Common Stock

Basic net loss per share of common stock attributable to common stockholders is calculated by dividing net 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 senior notes 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 potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

	Three and Nine Months Ended September 30, 2019		Three and Nine Months Ended September 30, 2018
Stock options		6,319,250		4,300,000
Warrants		15,081,255		4,296,255
Common stock to be issued upon conversion of Secured convertible promissory notes		1,673,516		1,602,000
Common stock to be issued upon conversion of Redeemable Series A Preferred stock		134,097		100,000
Common stock to be issued upon conversion of Subordinated convertible senior notes payable to stockholders		—		31,984
Contingent common stock to be issued upon conversion of related-party accounts payable		—		89,092
Common stock to be issued upon conversion of Convertible promissory notes - related parties		7,280,000		7,000,000
Total		30,488,118		17,419,331

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 – Leases (ASC Topic 842), which established the new Accounting Standards Codification (“ASC”) Topic 842, Leases, standard. The new standard requires lessees to recognize assets and liabilities arising from both operating and financing leases on the balance sheet. For public business entities, the new standard was effective for fiscal years beginning after December 15, 2018. Companies may apply the amendments in ASU 2016-02 using a modified retrospective approach with an adjustment to accumulated deficit as of either the beginning of the current year (“ASC Topic 840 Comparative Approach”) or the beginning of the earliest period presented (“ASC Topic 842 Comparative Approach”).

Adoption Method and Approach – The Company adopted ASU 2016-02 Leases (ASC Topic 842), on January 1, 2019 by applying the ASC Topic 840 Comparative Approach, resulting in the recognition of right-of-use assets and lease liabilities related to its operating and financing leases. Comparative information related to periods prior to January 1, 2019 continues to be reported under the legacy guidance in ASC Topic 840.

Practical Expedients – As permitted under ASU 2016-02 (and related ASUs), management elected to apply the package of practical expedients:

•

Lease Identification – An entity need not reassess whether any expired or existing contracts are or contain leases

•

Lease Classification – An entity need not reassess the lease classification for any expired or existing leases (for example, all existing leases that were classified as operating leases in accordance with ASC Topic 840 are now classified as operating leases, and all existing leases that were classified as capital leases in accordance with ASC Topic 840 are now classified as finance leases).

•

Initial Direct Costs – An entity need not reassess initial direct costs for any existing leases.

From a lessee perspective, 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 the Right-of-Use (“ROU”) assets and lease liabilities.

Adoption Date Impact – The required disclosures regarding the adoption date impact of ASC Topic 842 on the condensed consolidated balance sheet are presented below (in thousands).

	December 31, 2018		Opening Balance Adjustments			January 1. 2019
Assets
Operating lease right-of-use assets	$	—	$	4,381		$	4,381
Favorable lease, net	$	142	$	(142	)	$	—

Liabilities
Operating lease liabilities	$	—	$	4,239		$	4,239

The Company’s adoption of ASU No. 2016-02 did not have a material impact to the Company’s condensed consolidated statements of operations or its condensed consolidated statements of cash flows, and the Company determined there was no cumulative-effect adjustment to beginning accumulated deficit on the condensed consolidated balance sheet.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07, equity-classified nonemployee share-based payment awards are measured at the grant date fair value on the grant date. The probability of satisfying performance conditions must be considered for equity-classified nonemployee share-based payment awards with such conditions. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of this standard did not have a material impact to the Company’s condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Accounting Pronouncements to be Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects the adoption of ASU 2017-04 will not have a material impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This new accounting standard will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this guidance in the 2020 annual period did not have a material impact on the Company’s disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This ASU requires up-front implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to be amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This new accounting standard will be effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance in the 2020 annual period did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance changes the accounting for estimated credit losses pertaining to certain types of financial instruments including, but not limited to, trade and lease receivables. This pronouncement will be effective for fiscal years beginning after December 15, 2022. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating and assessing the impact this guidance will have on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company is currently evaluating and assessing the impact this guidance will have on its condensed consolidated financial statements.

Revision of Previously Issued Financial Statements

During the preparation of the condensed consolidated financial statements for the period ended September 30, 2019, the Company identified an error related to an unrecorded liability within the previously issued financial statements for the year ended December 31, 2017. The previously disclosed amount for net loss for the year ended December 31, 2017 was understated by $1.4 million. Additionally, the previously disclosed amounts for current liabilities and accumulated deficit were understated by $1.4 million as of December 31, 2017 and at each of the subsequent annual and quarterly balance sheet dates through June 30, 2019. The error had no impact on earnings or earnings per share for the interim or annual periods of 2018 and subsequent years.

The Company assessed the materiality of the error, both quantitatively and qualitatively, and concluded that the error was not material to any of its previously reported financial statements for annual or interim periods based upon qualitative aspects of the error. However, as the error was large quantitatively, the Company determined that the correction of this error would have a material effect on the financial results for the three and nine months ended September 30, 2019. Accordingly, previously issued financial statements have been revised to correct the error. The revision applies to the previously reported amount for accumulated deficit in the consolidated statement of stockholders’ deficit as of January 1, 2018 and the previously reported amounts for current liabilities and accumulated deficit in the consolidated balance sheets as of March 31, 2018, June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019, and June 30, 2019.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The effect of this revision on the Company’s consolidated balance sheet information is as follows:

	As of January 1, 2018
(in thousands)	Previously Reported			Adjustment			As Revised
Accumulated deficit	$	(14,075	)	$	(1,388	)	$	(15,463	)

	As of March 31, 2018
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	5,969		$	1,388		$	7,357
Accumulated deficit		(13,973	)		(1,388	)		(15,361	)

	As of June 30, 2018
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	11,434		$	1,388		$	12,822
Accumulated deficit		(16,626	)		(1,388	)		(18,014	)

	As of September 30, 2018
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	12,534		$	1,388		$	13,922
Accumulated deficit		(19,845	)		(1,388	)		(21,233	)

	As of December 31, 2018
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	21,599		$	1,388		$	22,987
Accumulated deficit		(20,669	)		(1,388	)		(22,057	)

	As of March 31, 2019
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	50,370		$	1,388		$	51,758
Accumulated deficit		(28,110	)		(1,388	)		(29,498	)

	As of June 30, 2019
(in thousands)	Previously Reported			Adjustment			As Revised
Current liabilities	$	51,427		$	1,388		$	52,815
Accumulated deficit		(35,123	)		(1,388	)		(36,511	)

Reclassifications

Certain amounts in the 2018 condensed consolidated financial statements have been reclassified to conform to the 2019 presentation. The reclassifications had no effect on previously reported results of operations or retained deficit.

Note 2 - Acquisitions

The acquisitions described below were each accounted for as business combinations which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date in the Company’s condensed consolidated balance sheets. The primary intangible assets recognized are customer relationships and trade names, which were valued using the excess earnings method and relief from royalty method, respectively. The more significant assumptions inherent in the valuations include estimated revenue growth rates, operating margins, customer attrition rates, royalty rates, and the appropriate risk-adjusted discount rates used to discount the projected cash flows. We valued property and equipment using a combination of the income approach, the market approach, and the cost approach, which is based on the current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors. Transaction costs for all of the acquisitions are immaterial and were expensed as incurred in general and administrative expenses in the condensed consolidated statements of operations. Any excess of the fair value of consideration transferred over the fair value of the net assets acquired is recognized as goodwill.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Under the Sheehy acquisition agreement, at any time from April 1, 2020, until October 31, 2020, the Sheehy stockholders may request the Company to net settle in cash any number of the 2,240,000 common shares from the acquisition with a fair market value of up to $1.2 million as of the date of the redemption request.

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

On January 2, 2019, Sheehy Enterprises, Inc. (“SEI”), a related party, and Sheehy entered into an equipment lease agreement (the “Equipment Lease”), whereby SEI agreed to lease to Sheehy certain truck and trailer equipment owned by SEI. The Company agreed to pay SEI an amount equal to $92,000 per month for approximately 44 months, in addition to a promissory note (the “Sheehy Note”) in the principal amount of $0.4 million to SEI. 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 increases to $0.45 million and the balance of the Sheehy Note automatically converts 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 $0.4 million was outstanding. In accordance with the terms of the Sheehy Note, the principal amount increased to $0.45 million. 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 $0.4 million 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 $40,000 was paid in the form of 35,156 shares of EVO common stock. No gain on settlement of related party debt was recorded. No further amounts are owed on the Sheehy Note.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

($ in thousands)
Assets acquired
Accounts receivable - trade	$	376
Alternative fuels tax credit receivable		30
Due from related party		252
Prepaid expenses and other current assets		302
Property and equipment		3,091
Goodwill		4,051
Trade names		320
Customer relationships		650
Non-competition agreements		90
Right-of-use assets		5,878
Other long-term assets		3
Total assets acquired		15,043
Liabilities assumed
Accounts payable		(2,908	)
Accrued expenses		(1,183	)
Debt		(2,639	)
Operating lease liabilities		(4,476	)
Finance lease liabilities		(1,552	)
Total liabilities assumed		(12,758	)
Net assets acquired	$	2,285
Consideration paid
Fair value of 2,240,000 shares of common stock issuable	$	2,285
Total	$	2,285

Goodwill of $4.1 million arising from the acquisition includes the expected synergies between Sheehy and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is deductible for income tax purposes, was assigned to the Company’s Trucking reporting unit.

Ursa and JB Lease

On February 1, 2019, the Company purchased all of the outstanding interests in Ursa for 800,000 shares of the Company’s common stock. In connection with the Ursa acquisition the Company acquired JB Lease, an affiliate of Ursa. As consideration for JB Lease, $2.5 million in cash was paid to the Ursa stockholders, approximately $11.2 million in existing JB Lease indebtedness was assumed, and a promissory note in the principal amount of approximately $6.4 million was issued to the Ursa 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. On August 30, 2019, the maturity date of the JB Lease Note was extended to November 2022.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

($ in thousands)
Assets acquired
Cash	$	3,743
Account receivable - trade		579
Prepaids and other current assets		1,646
Property and equipment		15,509
Goodwill		6,881
Trade names		1,300
Customer relationships		200
Non-competition agreements		80
Right-of-use assets		2,180
Other long-term assets		32
Total assets acquired		32,150
Liabilities assumed
Accounts payable		(5,641	)
Accrued expenses		(1,493	)
Operating lease liabilities		(2,180	)
Long-term debt		(11,199	)
Deferred tax liabilities		(1,891	)
Total liabilities assumed		(22,404	)
Net assets acquired	$	9,746
Consideration paid
Fair value of 800,000 shares of common stock issuable	$	816
Cash		2,500
Promissory note		6,430
Total	$	9,746

Goodwill of $6.9 million arising from the acquisition includes the expected synergies between Ursa, JB Lease and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s Trucking reporting unit.

Finkle and Courtlandt

On July 19, 2019, but effective July 15, 2019, the Company acquired all of the outstanding equity interests in Finkle and Courtlandt in exchange for the following purchase consideration: (i) 1,250,000 shares of the Company’s common stock; (ii) $1.25 million in cash paid at closing; and (iii) an earnout of up to approximately 1,000,000 additional shares of the Company’s common stock, subject to the attainment of a specified performance target in the 12 months after the acquisition date. The Company recorded an estimated contingent liability related to the earnout of $0 as of the acquisition date and September 30, 2019, respectively. The acquisition date fair value of the liability is included in purchase consideration and subsequent changes in the liability are included in general and administrative expense in the condensed consolidated statement of operations. The estimated fair value of the contingent liability was measured using Level 3 inputs, see Note 10, Fair Value Measurements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

($ in thousands)
Assets acquired
Cash	$	2
Prepaid expenses and other current assets		113
Property and equipment		6,778
Goodwill		2,384
Trade names		60
Customer relationships		700
Non-competition agreements		5
Right-of-use assets		2,172
Total assets acquired		12,214
Liabilities assumed
Accrued expenses		(199	)
Debt		(5,049	)
Operating lease liabilities		(2,105	)
Finance lease liabilities		(113	)
Deferred tax liability		(1,511	)
Total liabilities assumed		(8,977	)
Net assets acquired	$	3,237
Consideration paid
Fair value of 1,250,000 shares of common stock	$	1,987
Cash		1,250
Fair value of contingent consideration		—
Total	$	3,237

Goodwill of $2.4 million arising from the acquisition includes the expected synergies between Finkle, Courtlandt and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s Trucking reporting unit.

Ritter Companies

On September 16, 2019, the Company acquired all of the outstanding equity interests in the Ritter Companies in exchange for the issuance of 2,440,982 shares of the Company’s common stock and approximately $20.6 million paid in cash at closing. The Company financed the acquisition via the September 2019 Financing Agreement, see Note 7, Debt.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

($ in thousands)
Assets acquired
Cash	$	1,134
Accounts receivable - trade		3,774
Prepaid expenses and other current assets		830
Property and equipment		13,650
Goodwill		8,704
Trade names		190
Customer relationships		310
Non-competition agreements		110
Right-of-use assets		1,515
Other long-term assets		426
Total assets acquired		30,643
Liabilities assumed
Accounts payable and accrued expenses		(2,105	)
Debt		(499	)
Operating lease liabilities		(1,515	)
Deferred tax liabilities		(2,447	)
Total liabilities assumed		(6,566	)
Net assets acquired	$	24,077
Consideration paid
Cash	$	20,611
Fair value of 2,440,982 shares of common stock		3,466
Total	$	24,077

Goodwill of $8.7 million arising from the acquisition includes the expected synergies between the Ritter Companies and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s Trucking reporting unit.

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 $2.9 million as outlined below.

As partial consideration for the Thunder Ridge shares, the Company issued a promissory note dated June 1, 2018, in the principal amount of $2.5 million (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 million 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”). The Company and Peck have entered into subsequent amendments to the Purchase Agreement that extended the maturity date of the TR Note until November 2022. Effective with the most recent extension in August 2019, the Company paid Peck approximately $0.15 million in principal and increased the monthly principal payments to $20,000. 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.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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 (a) 500,000 shares of common stock, par value $0.0001 per share (“Common Stock”) (issued during May 2019) valued at $0.4 million.

Further, Peck received warrants for employment to be issued upon the first anniversary: (i) 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 estimates the fair value of the warrants to be approximately $0.15 million. The Warrants are exercisable five years from the issuance date.

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

($ in thousands)
Assets acquired
Accounts receivable - trade	$	2,062
Prepaids and other current assets		160
Trade names		460
Non-competition agreement		40
Customer relationships		2,330
Goodwill		2,887
Deposits		205
Property and equipment		208
Total assets acquired		8,352
Liabilities assumed
Accounts payable		(1,027	)
Accrued expenses		(1,573	)
Factored receivable advance		(1,231	)
Lines-of-credit		(422	)
Long-term debt		(187	)
Fuel discount advance		(997	)
Total liabilities assumed		(5,437	)
Net assets acquired	$	2,915
Consideration paid
Fair value of 500,000 shares of common stock	$	415
Promissory note		2,500
Total	$	2,915

Goodwill of $2.9 million arising from the acquisition includes the expected synergies between Thunder Ridge and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s Trucking reporting unit.

W.E. Graham

The Company purchased 100% of the outstanding member interests of Graham, on November 18, 2018, for a $0.2 million cash payment and a $0.3 million note payable.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Pro Forma Information

The following unaudited pro forma information combines the historical operations of the Company and the acquired companies giving effect to the business combinations as if they had been consummated on January 1, 2018, the beginning of the comparative periods presented.

($ in thousands, except per share data)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	51,929		$	43,751		$	146,842		$	129,440
Net loss	$	(3,329	)	$	(4,680	)	$	(23,718	)	$	(9,429	)
Net loss available to common stockholders	$	(3,338	)	$	(4,980	)	$	(23,736	)	$	(9,729	)
Basic and diluted weighted-average common stock outstanding		15,005,617			8,140,231			11,901,637			8,110,170
Basic and diluted loss per common stock, as reported	$	(0.22	)	$	(0.61	)	$	(1.99	)	$	(1.20	)

The unaudited pro forma condensed combined financial information has been presented for comparative purposes only and includes certain adjustments such as depreciation and amortization expense related to the recognition of assets acquired at estimated fair values, interest expense relating to the September 2019 Financing Agreement, the issuance of common shares as purchase consideration, and the related income tax effects.

The unaudited pro forma condensed combined financial information does not purport to represent the actual results of operations that the Company would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined companies may achieve after the identified transactions. The unaudited pro forma condensed combined financial information does not reflect any cost savings that may be realized as a result of the acquisitions and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.

Note 3 - Balance Sheet Disclosures

Property and equipment are summarized as follows:

($ in thousands)	September 30, 2019			December 31, 2018
Tractors, trailers, and other vehicles	$	35,629		$	378
Equipment		6,302			3,330
Buildings		3,849			3,849
Land		976			976
Leasehold improvements		314			—
Office and computer equipment		23			38
		47,093			8,571
Less accumulated depreciation		(4,188	)		(967	)
	$	42,905		$	7,604

Depreciation expense for the nine months ended September 30, 2019 and 2018, was $3.4 million and $0.4 million, respectively. Depreciation expense for the three months ended September 30, 2019 and 2018, was $1.4 million and $0.1 million, respectively.

Goodwill consists of the following:

($ in thousands)	September 30, 2019			December 31, 2018
Beginning balance	$	2,887		$	—
Acquisitions		22,020			2,887
Reduction of goodwill		(1,018	)		—
	$	23,889		$	2,887

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Intangible assets consist of the following:

	September 30, 2019							December 31, 2018
($ in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	4,604	$	(736	)	$	3,868	$	2,744	$	(312	)	$	2,432
Trade names		2,416		(274	)		2,142		546		(117	)		429
Favorable leases		—		—			—		307		(165	)		142
Non-competition agreements		325		(37	)		288		40		(6	)		34
	$	7,345	$	(1,047	)	$	6,298	$	3,637	$	(600	)	$	3,037

Amortization expense for the nine months ended September 30, 2019 and 2018, was $0.6 million and $0.1 million, respectively. Amortization expense for the three months ended September 30, 2019 and 2018, was $0.2 million and $0.0 million, respectively.

Note 4 - Segment Reporting

The Company’s two reportable segments are Trucking and CNG Fueling Stations.

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

CNG Fueling Stations. The Company operates five CNG fueling stations which serves the Company’s fleet and other customers. These stations are located in Jurupa Valley, CA; Fort Worth, TX; Oak Creek, WI; Tolleson, AZ; and San Antonio, TX and accommodate class 8 trucks and trailers.

The following tables present the Company’s financial information by segment. Management does not use assets by segment to evaluate performance or allocate resources. Therefore, we do not disclose assets by segment.

	For the Nine Months Ended September 30, 2019
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	111,375		$	708		$	—		$	112,083
Operating expenses excluding depreciation and amortization	$	(120,799	)	$	(746	)	$	(5,594	)	$	(127,139	)
Depreciation and amortization	$	(4,260	)	$	(377	)	$	(157	)	$	(4,794	)
Net loss	$	(16,183	)	$	(453	)	$	(2,025	)	$	(18,661	)

	For the Three Months Ended September 30, 2019
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	47,159		$	97		$	—		$	47,256
Operating expenses excluding depreciation and amortization	$	(50,449	)	$	205		$	(2,837	)	$	(53,081	)
Depreciation and amortization	$	(1,785	)	$	(113	)	$	(138	)	$	(2,036	)
Net loss	$	(6,293	)	$	181		$	1,896		$	(4,216	)

	For the Nine Months Ended September 30, 2018
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	10,212		$	1,112		$	—		$	11,324
Operating expenses excluding depreciation and amortization	$	(11,111	)	$	(2,147	)	$	(1,716	)	$	(14,974	)
Depreciation and amortization	$	(97	)	$	(413	)	$	—		$	(510	)
Net loss	$	(1,151	)	$	(1,846	)	$	(2,462	)	$	(5,459	)

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

	For the Three Months Ended September 30, 2018
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	8,235		$	415		$	—		$	8,650
Operating expenses excluding depreciation and amortization	$	(9,007	)	$	(1,560	)	$	69		$	(10,498	)
Depreciation and amortization	$	(14	)	$	(86	)	$	—		$	(100	)
Net loss	$	(907	)	$	(1,628	)	$	(378	)	$	(2,913	)

For the nine months ended September 30, 2019 and 2018, the revenue from one customer accounted for approximately 89% and 98%, respectively, of total consolidated revenue.

Note 5 - Related Party Transactions

Accounts Payable – Related Party

The Company’s accounts payable - related party consist of guaranteed payments and expense reimbursements to stockholders. Accounts payable – related party was $0 million and $0.3 million as of September 30, 2019 and December 31, 2018, respectively.

On April 1, 2019, the Company issued 117,092 shares of common stock with an approximate fair value of $0.1 million pursuant to the Separation Agreement with a former officer to settle $38,000 of advances and approximately $0.3 million of accounts payable – related party. The Company recorded a gain of $0.2 million associated with the issuance of this common stock, which is included in gain on conversion of accounts payable – related party in the accompanying condensed consolidated statement of operations.

On February 15, 2019, the Company entered into an agreement to lease software technology for operations from a company owned by one of the Company’s officers. Under the agreement, the Company pays a monthly fee for this technology based on the number of devices installed across the Company’s fleet. During the three months and nine months ended September 30, 2019, the Company recognized expense of approximately $0.1 million and $0.3 million related to this software technology, respectively, and the amount included in accounts payable as of September 30, 2019 was $0.1 million.

Due from Related Party

Certain related party receivable and payable balances were acquired as part of the Sheehy acquisition (see Note 2 – Acquisitions – Sheehy) as of January 2, 2019. SEI and NADS are companies controlled by the former owner of Sheehy who currently is an officer of the Company. The transactions representing the balance due to SEI and due from NADS at January 2, 2019 were for ordinary course business transactions incurred prior to the acquisition. The balance due to the officer on the acquisition date represents personal funds advanced to Sheehy for general working capital purposes prior to the acquisition. On January 7, 2019, the Company transferred a total of $0.15 million to SEI to fully repay the balance due to the officer and reduce the payable due to SEI.

($ in thousands)	September 30, 2019			January 2, 2019 (Acquisition date)
Due to Sheehy Enterprises, Inc.	$	(375	)	$	(440	)
Due from North American Dispatch Systems		777			777
Officer		—			(85	)
	$	402		$	252

On November 7, 2019, and pursuant to the Intercompany Agreement, the Company assigned $0.4 million of the NADS receivable balance to SEI as full payment of the SEI payable. The remaining NADS receivable of $0.4 million was assigned to SEI as a partial payment of the Sheehy Note (See Note 2 – Acquisitions – Sheehy). The remaining principal amount due of $48,000 plus accrued interest of $40,000 was paid in the form of 35,156 shares of EVO common stock.

Advances - Related Party

As of September 30, 2019, and December 31, 2018, advances from EAF members were $0 and $0.3 million, respectively.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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 $1.4 million and $0.9 million as of September 30, 2019, and December 31, 2018, respectively.

Off Balance Sheet Arrangements - Collateral Security Pledge Agreement

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 12, Commitments and Contingencies – Captive Insurance). The letter agreement references a Collateral Security Pledge Agreement among SEI, Sheehy and the insurance captive (“CSPA”). Under the CSPA, SEI has pledged a total of $0.3 million in cash and investments held in the SEI captive insurance member account. The pledged collateral remains the exclusive property of SEI and any interest earned on the pledged collateral during the term of the agreement will accrue exclusively to the benefit of SEI. The Company has no claim to the pledged collateral or any accrued interest. The letter agreement expired on March 1, 2020, however, the CSPA requires the consent of the Company in order for it to be terminated and the Company is in negotiation with SEI to extend the agreement.

For information regarding additional related-party transactions, see Note 2, Acquisitions, Note 7, Debt, and Note 8, Redeemable Stock and Stockholders’ Deficit.

Accounts Receivable – Related Party

During the year ended December 31, 2018, the Company sold CNG to an officer’s company and recognized revenue of $0.1 million. As of September 30, 2019 and December 31, 2018, accounts receivable – related party was $0 and $41,000, respectively.

Note 6 – Factoring Arrangements

Certain of the Company’s wholly-owned subsidiaries have entered into accounts receivable factoring arrangements with a financial institution (the “Factor”) with termination dates starting in January 2021. Pursuant to the terms of the agreements, the Company, from time to time, sells to the Factor certain of its accounts receivable balances on a recourse basis for credit-approved accounts. The Factor remits 95% of the contracted accounts receivable balance for a given month to the Company (the “Advance Amount”) with the remaining balance, less fees, to be forwarded once the Factor collects the full accounts receivable balance from the customer.

For long-term contracts with credit worthy customers, the Factor may advance, at their discretion, unearned future contract amounts. Unearned advances are secured by all factored and non-factored long-term contract cash receipts, which are remitted directly to the Factor by the customer. Earned and unearned components included in Advances from factoring arrangement are as follows:

($ in thousands)	September 30, 2019		December 31, 2018
Purchased accounts receivable	$	8,774	$	5,331
Unearned future contract advances		9,770		—
Total	$	18,544	$	5,331

The Factor may require, at their discretion at any time, the Company to repay unearned future contract advances or purchased accounts receivable that have not been paid by the customer. Financing costs are primarily comprised of an interest rate of Prime plus 2.0% (resulting in rates of 6.5% and 7.5% as of September 30, 2019 and December 31, 2018, respectively). There is also a factor fee of 0.25% of the face amount of the invoice factored and an associated penalty increase for purchased accounts that remain unpaid for 31 days. Total interest and financing fees for factored receivables for the nine months ended September 30, 2019 and 2018 were $1.2 million and $0.2 million, respectively. The fees are included in interest expense in the condensed consolidated statements of operations.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 7 - Debt

Line of Credit

The Company had two line-of-credit agreements with a bank that provided for an aggregate borrowing capacity of $0.4 million. Amounts outstanding bear interest at 6.75% and are secured by equipment. During October 2018, the Company paid the $0.1 million line-of-credit in full and extended the $0.3 million line-of-credit’s maturity to April 2019. As of December 31, 2019, the outstanding balance was $0.3 million. The line-of-credit was paid in full during April 2019.

Antara Financing Agreement

Concurrently with the Ritter acquisition on September 16, 2019, the Company entered into a $24.5 million financing agreement (the “Financing Agreement”) among the Company, each subsidiary of the Company, various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent. Pursuant to the Financing Agreement, the Company initially borrowed $22.4 million (the “Term Loan”) and borrowed the remaining $2.1 million during October 2019. All of the Company’s subsidiaries are guarantors under the Financing Agreement. The Term Loan is secured by all assets of the Company and its subsidiaries, including pledges of all equity in the Company’s subsidiaries and is not subject to registration rights. The Financing Agreement contains covenants that limit (i) the making of investments, (ii) the incurrence of additional indebtedness, (iii) the incurrence of liens, (iv) payments and asset transfers with restricted junior loan parties or subsidiaries, including dividends, (v) transactions with shareholders and affiliates, (vi) asset dispositions and acquisitions, among others. The Term Loan bears interest at 12% per annum and has a maturity date of September 16, 2022. Until December 31, 2019, interest on the Term Loan will be paid in kind and capitalized as additional principal, and the Company has the option to pay interest on the capitalized interest in cash or in kind. All interest payments on the Term Loan through September 30, 2019 were in kind. After December 31, 2019, monthly interest payments will be due in cash, and all outstanding principal and interest will be due on the maturity date. The Term Loan may be prepaid at any time, subject to payment of a prepayment premium of (1) 7% for each early payments made or coming due on or prior to September 16, 2020, (2) after September 16, 2020, 5% for each early payment made or coming due on or prior to September 16, 2021, and (3) thereafter, no premium shall be due. Proceeds are to be used to (i) effect the Ritter acquisition, (ii) to refinance and retire existing indebtedness, and (iii) general working capital needs.

In connection with the Financing Agreement, the Company issued 98,000 shares of common stock of the Company valued at $0.1 million as an advisory fee to a third-party financial advisor.

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

The Company issued a warrant for 1,500,000 shares of common stock to Antara at an exercise price of $0.01 per share (the “Side Letter Warrant”) subject to an acquisition agreement between the Company and LoadTrek. LoadTrek is a GPS system designed for the trucking industry, owned by a related party. If the Company were to successfully complete an acquisition of certain assets of LoadTrek or meet financial performance metrics set forth in the warrant agreement, all or a portion of the shares underlying the Side Letter Warrant were subject to cancellation. Neither the acquisition of the LoadTrek assets nor the achievement of the financial performance metrics ultimately occurred and, therefore, none of the shares underlying the warrant were cancelled.

Since the Term Loan, Antara Warrants, and Side Letter Warrant were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and warrants as a combined arrangement, and estimated the fair values of the debt and warrants to allocate the proceeds on a relative fair value basis between the debt and warrants. The non-lender fees incurred to establish the financing arrangement were allocated to the debt and warrants on a relative fair value basis and capitalized on the

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Company’s balance sheet. The Company allocated $0.5 million of fees to 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 condensed consolidated statement of operations. Any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease in its carrying value. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $9.0 million debt discount that will be amortized to interest expense over the term of the Term Loan.

Refer to Note 14, Subsequent Events, for additional agreements entered into subsequent to September 30, 2019 related to the Antara Financing Agreement.

The Company has classified the $22.5 million unpaid principal balance, which includes $0.1 million of capitalized interest, as a current liability as of September 30, 2019.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Debt consists of:

	September 30, 2019			December 31, 2018
($ in thousands)	(Unaudited)
(a) $24.5 million Term Loan	$	22,512		$	—
(b) $1.3 million note payable		863			951
(c) Four promissory notes with an aggregate principal amount of $9.5 million		9,500			9,500
(d) One subordinated senior note payable to a stockholder with interest at 16% and maturity during October 2017.		75			75
(e) $3.8 million senior promissory note		3,800			3,800
(f) $4.0 million promissory note		4,000			4,000
(g) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)		4,184			4,040
(h) $2.5 million promissory note - stockholder		2,032			2,387
(i) $0.3 million note payable		244			281
(j) Three equipment notes payable		30			101
(k) Thunder Ridge supplier advance		940			978
(l) $6.4 million promissory note - stockholder		6,423			—
(m) Various notes payable acquired from JB Lease		5,037			—
(n) $0.8 million note payable		718			—
(o) $0.3 million note payable		240			—
(p) $3.8 million note payable		3,350			—
(q) Equipment notes payable acquired from Sheehy		879			—
(r) Notes payable acquired from Sheehy		829			—
(s) $0.2 million note payable		182			—
(t) Notes payable acquired from Ritter		499			—
(u) Finkle equipment notes		5,364			—
(v) $0.4 million promissory note - stockholder		400			—
Line of credit		—			317
Total before debt issuance cost and debt discount		72,101			26,430
Debt issuance costs		(744	)		(416	)
Debt discount		(16,959	)		(8,087	)
		54,398			17,927
Less current portion		(28,755	)		(6,848	)
	$	25,643		$	11,079

(a)	$24.5 million Term Loan

The $24.5 million Term Loan bears interest at 12% per annum and has a maturity date of September 16, 2022. Until December 31, 2019, interest on the term loan will be paid in kind and capitalized as additional principal, and the Company has the option to pay interest on the capitalized interest in cash or in kind. After December 31, 2019, monthly interest payments will be due in cash, and all outstanding principal and interest will be due on the maturity date.

As of September 30, 2019, the unamortized debt discount was $9.0 million and the unamortized debt issuance costs were $0.5 million.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(b)	$1.3 million note payable

The $1.3 million note payable was issued December 31, 2014, with interest adjusted to the SBA LIBOR base rate, plus 2.35%. The note matures March 2024, is secured by substantially all of Titan’s business assets and is personally guaranteed by certain former members of Titan including a member of our board of directors and certain of his relatives, and beneficial owners of more than 5% of our of our common stock. The note is a co-borrower arrangement between Titan and El Toro with the proceeds received by El Toro. In 2016, the Company issued 35,491 units (equivalent to 31,203 common shares) to those members as compensation for the guarantee. The Company was not in compliance with the financial ratio covenants at December 31, 2018. Subsequent to year end, the financial ratio covenants were waived for 2018 and eliminated for all future periods.

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

The four promissory notes were issued to the former EAF members with interest at 1.5%, issued February 1, 2017, and mature February 1, 2026. These convertible promissory notes are secured by substantially all of the assets of EAF. The Company imputed an interest rate of 5.1% on the promissory notes. The discount is accreted over the period from the date of issuance to the date the promissory notes are due using the effective interest rate method.

These promissory notes were originally initially convertible into 1,400,000 shares (the “Transaction Shares”) of the Company’s common stock (the “Common Stock”), subject to adjustment for any stock splits, combinations or similar transactions, representing approximately 81.1% of the Company’s total outstanding shares of Common Stock on a post-transaction basis. Accordingly, conversion of these convertible promissory notes would result in a change in control of the Company. The number of Transaction Shares was subject to increase to equal 70% of the issued and outstanding Common Stock if the issuance of Common Stock pursuant to a private offering of Common Stock of up to $2 million and the conversion of the Company’s subordinated notes payable to members and Senior Bridge Notes, convertible promissory notes, and certain accounts payable into Common Stock would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding Common Stock. The Company evaluated the embedded conversion feature under ASC 815 for the variable number of shares issuable and determined that, at the date of issuance, the conversion feature had no value as it was substantially out of the money and there was no market for the shares. During October 2018, the Company amended these convertible promissory notes to eliminate the variable number of shares issuable under the conversion feature to a fixed amount of 7,000,000 shares upon conversion. The Company recorded a gain on extinguishment of debt at the date of the amendment of the convertible promissory notes at the fair value of the original 1,400,000 shares issuable of $0.9 million, a discount on debt of $2.5 million for the new conversion feature and a discount on debt of $5.0 million related to imputed interest at 12.8%.

As of September 30, 2019 and December 31, 2018, the unamortized debt discount was $7.2 million and $7.5 million, respectively.

(d)	$0.1 million subordinated senior note payable - stockholder

One subordinated senior note payable to a stockholder with interest at 16% and maturity during October 2017 that was paid off in 2019.

The subordinated senior note payable is one of six that were initially issued throughout 2016 and 2017 (the “Senior Bridge Notes”). The Senior Bridge Notes were not extended at maturity. During 2018, $0.7 million of the Senior Bridge Notes and related interest were converted into 275,583 shares of common stock.

(e)	$3.8 million senior promissory note

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

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Also in connection with the Financing Agreement and as consideration for the subordination of the subordinated promissory note and the promissory note described below, the Company issued a warrant to the holder to purchase an aggregate of 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.2 million. As of September 30, 2019, the remaining unamortized debt discount was $0.2 million.

(f)	$4.0 million promissory note

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

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

Also in connection with the Financing Agreement and as consideration for the subordination of the promissory note and the senior promissory note described above, the Company issued a warrant to the holder to purchase an aggregate of 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.3. As of September 30, 2019, the remaining unamortized debt discount was $0.3 million.

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

The Secured Convertible Notes were issued during August 2018. The Company paid debt issuance costs of $0.5 million in connection with the Secured Convertible Notes. They bear interest at 9%, compounded quarterly, with principal due two years after issuance and are secured by all the assets of the Company. The holder may agree, at its discretion, to add accrued interest in lieu of payment to the principal balance of the Secured Convertible Notes on the first day of each calendar quarter. The Secured Convertible Notes may not be prepaid prior to the first anniversary of the date of issuance, but may be prepaid without penalty after the first anniversary of the date of issuance.

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Secured Convertible Notes also provide that the Company will prepare and file with the Securities and Exchange Commission (“SEC”), as promptly as reasonably practical following the issuance date of the Secured Convertible Notes, but in no event later than 45 days following the issuance date, a registration statement on Form S-1 (the “Registration Statement”) covering the resale of the common stock and the warrant shares and as soon as reasonably practical thereafter to effect such registration. The Company is required to pay liquidated damages of 1% of the outstanding principal amount of the Secured Convertible Notes each 30 days if the Registration Statement is not declared effective by the SEC within 180 days of the filing date of the Registration Statement. During the nine months ended September 30, 2019, the Company incurred and paid $0.1 million in liquidated damages to noteholders.

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

As of September 30, 2019 and December 31, 2018, the unamortized debt discount was $0.3 million and $0.6 million, respectively, and the unamortized debt issuance costs were $0.2 million and $0.4 million, respectively. The amount of capitalized interest included in the principal balance at each point in time was $0.2 million and $35,000, respectively.

(h)	$2.5 million promissory note – stockholder

The $2.5 million promissory note was issued on June 1, 2018 to a stockholder, with interest at 6% and a maturity date of the earlier of (a) the date the Company raises $40.0 million in public or private offerings of debt or equity; (b) December 31, 2018, or (c) termination of Peck’s employment with the Company by the Company without cause or by Peck for good reason. The note is collateralized by all of the assets of Thunder Ridge. The maturity date of the promissory note has been subsequently amended to extended it to November 30, 2022. The note calls for monthly principal payments, with all accrued and unpaid interest due and payable on the maturity date.

(i)	$0.3 million note payable

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

(j)	Three equipment notes payable

The three equipment notes are payable to banks and were acquired in the Thunder Ridge acquisition with interest rates ranging from 2.99% to 6.92%, with maturity dates between September 2020 and January 2023. The notes are collateralized by equipment.

(k)	Thunder Ridge supplier advance

Thunder Ridge signed an agreement with a supplier on August 31, 2017, in which $1.0 million was advanced to Thunder Ridge during 2017. The advance bears interest at 8.5% and is collateralized by substantially all of Thunder Ridge’s assets. As Thunder Ridge purchases fuel from the supplier’s station, Thunder Ridge reduces its fuel advance liability by $0.25 per gallon purchase. Purchases made during the year ended December 31, 2018, were nominal. With the Thunder Ridge acquisition, the maturity date was extended from December 31, 2018 to June 2021.

(l)	$6.4 million promissory note – stockholder

The $6.4 million promissory note was issued February 2, 2019 to a stockholder, with interest at 9% per annum and an original maturity date of August 31, 2020. The note is collateralized by all of the assets of Ursa and JB Lease. Principal and interest payments commenced June 1, 2019, with a final payment of $6.4 million due at maturity. On August 30, 2019, the note was extended to November 2022.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(m)	Various notes payable acquired from JB Lease

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

(n)	$0.8 million note payable

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

(o)	$0.3 million note payable

The $0.3 million note payable to a financing company was issued January 22, 2019, with interest at 10.6% per annum and a maturity date of January 22, 2023. The note is collateralized by certain equipment and guaranteed by a member of management.

(p)	$3.8 million note payable

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

(q)	Equipment notes payable acquired from Sheehy

The equipment notes payable acquired from Sheehy, payable to various financing companies, have maturity dates varying from June 2020 to August 2020 and interest rates ranging from 3.1% to 4.1% per annum. The notes are guaranteed by stockholders and secured by the equipment and a general business security interest.

(r)	Notes payable acquired from Sheehy

The notes payable acquired from Sheehy are payable to a bank with interest rates of 4.35% to 4.375% per annum. The notes mature between September 2020 and December 2021 and are collateralized by substantially all the Sheehy assets. The notes are subject to certain restrictive covenants. The Company was not in compliance with the financial ratio covenants at September 30, 2019, and has classified the related balance as a current liability.

(s)	$0.2 million note payable

The $0.2 million note payable to a financing company was issued during February 2019, with interest at 8.94% per annum and a maturity date during March 2023. The note is collateralized by certain equipment.

(t)	Notes payable acquired from Ritter

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

(u)	Finkle equipment notes

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

(v)	$0.4 million promissory note – stockholder

The $0.4 million promissory note was issued January 2, 2019 to a stockholder (the “Sheehy Note”), with interest at 5.65% per annum with maturity within 60 days of issuance. The note automatically renews a maximum of four times for 30 days. If the renewals have been exhausted, the note will increase in value to $0.45 million and convert to shares of common stock at $2.50 per share. As of the final maturity extension date, the principal amount of $0.4 million was outstanding. In accordance with the terms of the Sheehy Note, the principal amount increased to $0.45 million. On November 18, 2019, the Sheehy Note and all accrued interest was deemed to be paid in full under the terms of the Intercompany Agreement (See Note 5 – Related Party Transactions – Due from Related Party).

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 8 - Redeemable Stock and Stockholders’ Deficit

On March 2, 2018, the Company issued 1,000,000 Units (the “Units”) at a price of $2.50 per Unit for an aggregate purchase price of $2.5 million pursuant to the terms of a subscription agreement between the Company and an investor. Each Unit consists of (i) one share of the Company’s common stock, and (ii) a detachable warrant to purchase one share of common stock at an exercise price of $2.50 per share exercisable for ten years from the date of issuance. The Company estimated the fair value of the warrants to be approximately $0.4 million through the Black Scholes Pricing Model, calculated with a ten-year term; 65% volatility; 2.94% discount rate and the assumption of no dividends. The Company did not pay any commissions in connection with the sale of these Units.

During the year ended December 31, 2018, the Company entered into subscription agreements effective as of July 31, 2018 to issue 187,462 units (the “Units”) at a price of $2.50 per Unit in exchange for the Company’s promissory notes - stockholders in the aggregate principal amount of $0.5 million. Each Unit consists of (i) one share of the Company’s common stock and (ii) a warrant to purchase one share of common stock at an exercise price of $2.50 per share exercisable for ten years from the date of issuance. The Company estimated the fair value of the warrants to be $0.1 million.

During March 2018, the Company entered into a Share Escrow Agreement (the “Escrow Agreement”) with certain of the Company’s stockholders, including entities affiliated with a director of the Company, and the Company’s former president. Pursuant to the terms of the Escrow Agreement, the stockholders party to the agreement placed an aggregate of 240,000 shares of Common Stock in escrow, to be held by the Company until such time as one or more third parties offer to purchase the escrowed shares and the Company approves such purchase or purchases. Seventy-five percent of the proceeds of the sale or sales of the escrowed shares will be paid to the Company and will be used by the Company first to repay any amounts outstanding under the SBA loan, and the remaining 25% of the proceeds will be paid pro rata to the stockholders party to the Escrow Agreement. In connection with the Escrow Agreement, the Company issued 240,000 warrants to purchase common stock to the stockholders party to the Escrow Agreement, which warrants have an exercise price of $6.11 per share and are exercisable for a period of five years. The Company estimated the value of the warrants to be $9,000 through the Black Scholes Pricing Model calculated with a five-year term; 49% volatility; 2.85% discount rate and the assumption of no dividends.

On October 9, 2017, management of the Company terminated the employment of the Company’s president. In connection with the termination, the Company and former president entered into a Mutual Separation Agreement dated October 9, 2017 (the “Separation Agreement”). Pursuant to the Separation Agreement, the Company and former president agreed that (i) his last day of employment with the Company was October 9, 2017, (ii) he will be paid an aggregate of $0.1 million within ten business days after the Company raises an aggregate of $2.0 million in any combination of public or private debt or equity securities offerings, and (iii) in satisfaction of $0.2 million of deferred compensation, the Company will issue 89,092 shares of its common stock within ten business days after the Company raises an aggregate of $2.0 million in any combination of public or private debt or equity securities offerings. The $0.1 million payment had not been rendered and the stock had not been issued as of December 31, 2018. The balances are included in accounts payable – related party. On April 1, 2019, the Company issued 117,092 shares of common stock with an approximate fair value of $0.1 million to settle the Separation Agreement with the former officer. The settlement included $38,000 of advances from related party and approximately $0.3 million of accounts payable - related party. The Company recorded a gain of $0.2 million associated with the issuance of this common stock, which is included in gain on conversion of accounts payable – related party in the accompanying condensed consolidated statement of operations.

On May 31, 2019, the Company sold Units (the “2019 Units”) at a price of $2.50 per 2019 Unit pursuant to the terms of a subscription agreement with certain accredited investors, including related parties. Each 2019 Unit consists of (i) one share of the Company’s common stock, par value $0.0001 per share, and (ii) a warrant to purchase one share of common stock at an exercise price of $2.50 per share exercisable for ten years from the date of issuance. The Company sold a total of 4,560,000 2019 Units for aggregate gross proceeds of $11.4 million. The Company did not pay underwriter discounts or commissions in connection with the sale of these 2019 Units. The fair value of the warrants issued determined using the Black-Scholes pricing model was $2.1 million, calculated with a ten-year term; 60% volatility, 2.49% discount rate; and the assumption of no dividends.

Common Stock Subscribed

During the nine months ended September 30, 2019, the Company agreed to issue 4,560,000 shares of common stock pursuant to the sale of the 2019 Units, 2,440,982 shares of common stock for the Ritter acquisition, and 89,600 shares of common stock as an advisory fee to a third-party financial advisor in connection with the Financing Agreement. All of these shares were subsequently issued in 2019.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

During the year ended December 31, 2018, the Company agreed to issue 500,000 shares of common stock pursuant to the Thunder Ridge acquisition. As of December 31, 2018, the Company had not yet issued these shares, which were subsequently issued in 2019.

Warrants

During the year ended December 31, 2018, the Company issued 1,602,000 warrants associated with the Secured convertible promissory notes. The fair value of the warrants issued determined using the Black Scholes pricing model was $0.7 million, calculated with a ten-year term; 65% volatility, 2.89%, 2.85% or 3.00% discount rates, and the assumption of no dividends.

As further described in Note 7, Debt, in connection with the September 2019 Financing Agreement, the Company issued warrants to purchase an aggregate of 4,375,000 shares of the Company’s common stock to the lenders. The Company also issued the Side Letter Warrant to the lenders to purchase an additional 1,500,000 shares of the Company’s common stock. The total fair value of these warrants of $7.4 million, which the Company recorded as an additional debt discount, will be amortized to interest expense over the remaining term of the 2019 Financing Agreement.

Also in connection with the Financing Agreement and as consideration for the subordination of previously issued promissory notes, in September 2019, the Company issued a warrant to the noteholder to purchase an aggregate of 350,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The total fair value of this warrant of $0.5 million, which the Company recorded as an additional debt discount on the promissory notes, will be amortized to interest expense over the remaining term of the promissory notes.

The following table summarizes the warrants outstanding and exercisable as of September 30, 2019 and December 31, 2018, and is inclusive of the warrants further described in Note 9, Stock-based Compensation:

	Number of Shares		Weighted Average Exercise Price
December 31, 2018:
Outstanding		4,296,255	$	3.34
Exercisable		3,296,256	$	2.84
September 30, 2019:
Outstanding		15,081,255	$	1.88
Exercisable		14,414,589	$	1.69

Series A Preferred Stock

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

Redeemable Common Stock

As further described in Note 2, Acquisitions, under the Sheehy acquisition agreement, the Sheehy stockholders may request the Company to net settle in cash any number of the 2,240,000 common shares from the acquisition with a fair market value of up to $1.2 million as of the date of the redemption request. Since the redemption of these shares of common stock represents a contingent event outside the control of the Company, the aggregate amount the Company may be required to pay to redeem these shares has been presented in temporary equity in the accompanying balance sheet.

Note 9 – Stock-based Compensation

Stock Options

On April 12, 2018, the Company’s board of directors approved the EVO Transportation and Energy Services, Inc. 2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which a total of 4,250,000 shares of common stock have been reserved for issuance to eligible employees, consultants, and directors of the Company. Further, on August 13, 2018, the board of directors approved the Company’s Amended and Restated 2018 Stock Incentive Plan (the “Amended 2018 Plan”), which amends and restates the Company’s 2018 Stock Incentive Plan. The Amended 2018 Plan increased options available for grant to 6,250,000.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Amended 2018 Plan provides for awards of non-statutory stock options, incentive stock options, and restrictive stock awards within the meaning of Section 422 of the Internal Revenue Code and stock purchase rights to purchase shares of the Company’s common stock.

The Amended 2018 Plan is administered by the board of directors, which has the authority to select the individuals to whom awards will be granted and to determine whether and to what extent stock options and stock purchase rights are to be granted, the number of shares of common stock to be covered by each award, the vesting schedule of stock options (generally straight-line over a period of four years), and all other terms and conditions of each award. Stock options have a maximum term of ten years, and it is the Company’s practice to grant options to employees with exercise prices equal to or greater than the estimated fair market value of its common stock. Options generally vest ratably over 3 years. One quarter (1/4) of the options vest and become exercisable on the grant date. The remaining vest and become exercisable ratably on the first, second, and third anniversary of the date of grant.

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, the majority of the Company’s stock options contain a provision that provides for the acceleration of vesting upon the Company completing an aggregate of at least $30 million of any combination of debt and/or equity financing transactions after the date of grant. During the nine months ended September 30, 2019, stock options to purchase an aggregate of 2,389,438 shares of common stock were accelerated upon the consummation of the Antara Financing Agreement.

During the nine months ended September 30, 2019 and 2018, the Company recognized stock-based compensation expense of $1.1 million and $0.8 million, respectively, related to stock options. During the three months ended September 30, 2019 and 2018, the expense was $1.0 million and $0.4 million, respectively. As of September 30, 2019, the Company had unrecognized stock-based compensation expense of approximately $0.3 million related to the unvested portions of outstanding stock options, which it expects to recognize over a weighted-average period of 0.8 years.

The following table presents the stock option activity for the nine months ended September 30, 2019:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2018		4,700,000		$	2.50		9.3	$	—
Granted		1,769,250			2.50
Exercised		—			—				—
Cancelled		(150,000	)		—
Outstanding - September 30, 2019		6,319,250		$	2.50		9.0	$	—
Exercisable - September 30, 2019		5,519,250		$	2.50		8.8	$	—

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the nine months ended September 30:

	2019	2018
Approximate risk-free rate	1.6% - 2.5%	2.8% - 3.1%
Expected life (in years)	5.3 - 7.0		7.0
Dividend yield	—%	—%
Volatility	41.3% - 44.3%	55%

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The weighted-average grant-date fair value of options granted was $0.35 and $0.27 per share during the nine months ended September 30, 2019 and 2018, respectively. The total fair value of options vested during the nine months ended September 30, 2019 and 2018 was $1.2 million and $0.3 million, respectively.

Warrants – Stock-based Compensation

The fair value of the warrants is estimated on the date of issuance using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the expected term of the warrants, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management’s judgment. Expected volatilities used in the valuation model are based on the average volatility of the Company’s stock. The risk-free rate for the expected term of the warrant is based on the United States Treasury yield curve in effect at the time of grant.

During the year ended December 31, 2018, the Company issued warrants to purchase 999,999 shares of the Company’s common stock contingent on continued employment. The warrants vest in three tranches of 333,333 shares each year during 2019, 2020 and 2021. The fair value of the warrants issued was determined using the Black Scholes pricing model was $149,390, calculated with a six, seven and eight-year terms, respectively, 55%, 51% and 53% volatility, respectively, 2.8%, 2.85% and 2.87% discount rate, respectively, and the assumption of no dividends. During the nine months ended September 30, 2019 and 2018, the Company has recorded stock-based compensation expense of $40,000 and $32,000, respectively, related to these warrants. During the three months ended September 30, 2019 and 2018, the expense was $13,000 and $14,000, respectively.

During the year ended December 31, 2018, the Company issued fully vested warrants to purchase 161,100 shares of the Company’s common stock for services. The fair value of the warrants issued was determined using the Black Scholes pricing model was $75,000. Calculated with a five-year term; 49% volatility; 2.85% discount rate and the assumption of no dividends.

There was no stock-based compensation warrant activity for the nine months ended September 30, 2019. The following table presents information related to stock-based compensation warrants outstanding and exercisable as of September 30, 2019 and December 31, 2018:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2018		1,161,099	$	4.65		6.9	$	—
Outstanding - September 30, 2019		1,161,099	$	4.65		6.1	$	—
Exercisable - September 30, 2019		494,433	$	2.84		6.0	$	—

Note 10 – 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).

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

The Company's derivative liability embedded in its September 2019 Financing Agreement 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 included as a component of accrued expenses on the condensed consolidated balance sheets and subject to remeasurement to fair value at the end of each reporting period. For the nine months ended September 30, 2019, there was no change in the fair value of the embedded derivative liability. 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.

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

The Company’s obligations under its debt agreements are carried at amortized cost. The fair value of the Company’s obligations under its convertible notes and September 2019 Financing Agreement are considered Level 3 liabilities of the fair value hierarchy because fair value was estimated using significant unobservable inputs. The fair value of the Company’s other debt arrangements are considered Level 2 liabilities of the fair value hierarchy because fair value is estimated using inputs other than quoted prices that are observable for the liability such as interest rates and yield curves. The estimated fair value of the Company’s September 2019 Financing Agreement was $14.0 million as of September 30, 2019, and its carrying value was $13.0 million as of September 30, 2019. The carrying value of the Company’s remaining debt obligations approximates fair value, and was $41.4 million and $17.9 million as of September 30, 2019, and December 31, 2018, respectively.

Note 11 – Leases

The Company determines if an arrangement is a lease at inception. The Company has various obligations under operating and finance lease arrangements related primarily to the rental of trucks and trailers, maintenance and support facilities, office space, and parking yards. Many of these leases include one or more options, at the Company’s discretion, to renew and extend the agreement beyond the current lease expiration date. These options are included in the calculation of the Company’s lease liability when it becomes reasonably certain the option will be exercised. The Company’s lease agreements typically do not include options to purchase the leased property, nor do they contain material residual value guarantees or material restrictive covenants.

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 and equipment rent 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.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

At September 30, 2019, the Company had the following balances recorded in the condensed consolidated balance sheet related to its lease arrangements:

($ in thousands)	Classification	September 30, 2019
Assets
Operating leases	Right-of-use-asset	$	11,448
Finance leases	Right-of-use-asset		3,599

Liabilities
Current:
Operating leases	Operating lease liabilities, current portion		3,742
Finance leases	Finance lease liabilities, current portion		953

Non-current:
Operating leases	Operating lease liabilities, less current portion		7,310
Finance leases	Finance lease liabilities, less current portion		2,955

Components of lease cost are as follows:

($ in thousands)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Finance lease costs:
Amortization of ROU assets	$	453	$	776
Interest on lease assets		250		271
Operating lease costs		772		2,881
Short-term lease costs		1,910		5,502
Variable lease costs		70		240
Total	$	3,455	$	9,670

Supplemental cash flow information and non-cash activity related to our leases are as follows:

($ in thousands)	Nine months ended September 30, 2019
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Financing cash flows from finance leases	$	664
Operating cash flows from finance lease interest expense		271
Operating cash flows from operating leases		3,173
Non-cash activity
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities – recognized as of ASC 842 adoption		1,493
Operating lease liabilities – recognized as of ASC 842 adoption		3,040
Finance lease liabilities – recognized as a result of 2019 business combinations		1,666
Operating lease liabilities – recognized as a result of 2019 business combinations		10,276

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Weighted-average remaining lease term and discount rate for our leases are as follows:

	September 30, 2019
Weighted-average remaining lease term (years)
Finance leases		3.8
Operating leases		5.1
Weighted-average discount rate
Finance leases		10	%
Operating leases		15	%

Maturities of lease liabilities by fiscal year for our leases are as follows:

($ in thousands)	Operating Leases			Finance Leases
Remainder of 2019	$	1,363		$	341
2020		4,681			1,517
2021		3,220			895
2022		2,161			871
2023		849			859
Thereafter		2,935			339
Total lease payments	$	15,209		$	4,822
Less: Imputed interest		(4,157	)		(914	)
Present value of lease liabilities	$	11,052		$	3,908

Future minimum lease commitments as of December 31, 2018, under ASC Topic 840, the predecessor to Topic 842, are as follows:

Year Ending December 31,
2019	$	1,655
2020		1,007
2021		552
2022		504
2023		187
Thereafter		39
	$	3,944

Related Party Leases

The Company has various lease obligations with related parties for trucks, office space and terminals expiring at various dates through September 2038. Over the term of the leases the approximate rent expense will be approximately $6.4 million.

Sale-Leaseback

During January 2019, the Company entered into a sale-leaseback transaction whereby it sold equipment for $0.2 million and concurrently entered into a finance lease agreement for the sold equipment with a 49-month term. Under the lease agreement, the Company will pay an initial monthly payment of $5,000 and a final payment of $19,000. The gain on the transaction was de minimis. The finance lease disclosures in this footnote are inclusive of this transaction.

During September 2019, the Company entered another sale-leaseback transaction in which the Company sold $2.0 million of fixed assets in exchange for $1.9 million in proceeds, of which $0.9 million was used to pay down equipment debt associated with the fixed assets sold. A $0.1 million loss on the sale was recorded for the difference between the value received and the carrying value of the assets that were sold. The new lease terms call for monthly payments of $48,000 and a final payment of $0.1 million. The operating lease disclosures are inclusive of this transaction, which became effective during October 2019.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 12 - Commitments and Contingencies

Litigation

In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.

On March 19, 2018, Whisler Holdings, LLC, Mitesh Kalthia, and Jean M. Noutary, the owners of the property leased by El Toro for the Company’s El Toro station, initiated a lawsuit in the Superior Court of Orange County, California, related to the lease agreement for the El Toro station. The complaint alleges breach of contract and sought money damages, costs, attorneys’ fees and other appropriate relief. On October 11, 2018, the court issued a default judgement in favor of the plaintiff in the amount of approximately $0.2 million, which the Company has fully reserved for and is included in Accrued expenses on the accompanying condensed consolidated balance sheet at September 30, 2019 and December 31, 2018. No payments have been made to date.

On January 22, 2018, certain holders of Senior Bridge Notes initiated a lawsuit in the District Court of Hennepin County, Minnesota against the Company, certain of its subsidiaries and certain stockholders. The complaint alleged breach of contract, breach of implied covenant of good faith and fair dealing, fraud/fraudulent misrepresentation, successor liability, unjust enrichment, and breach of fiduciary duty, and sought money damages, interest, costs, disbursements, attorneys’ fees and other equitable relief. On July 31, 2018, the Company paid approximately $1.0 million of principal and interest to the subordinated convertible senior notes payable stockholders in full settlement of this case.

Except as described above, there are no currently pending legal 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.

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

At September 30, 2019, the Company had commitments to purchase natural gas on a take-or-pay basis with three vendors. It is anticipated these are normal purchases that will be necessary for sales, and that any penalties for failing to meet minimum volume requirements will be immaterial. As of September 30, 2019, the estimated remaining liability under the take-or-pay arrangements was approximately $0.3 million.

Captive Insurance

Prior to the acquisition, Sheehy was self-insured for certain insurance risks with a captive insurance company under SEI. Upon the acquisition of Sheehy from SEI in January 2019 (see Note 2, Acquisitions – Sheehy), 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 security deposit. The security 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 security deposit may be satisfied with either cash and/or investment collateral held in the captive or with a letter of credit. The Company’s security deposit requirement for 2019 was $0.3 million, based on a single year of premium experience. SEI agreed to pledge excess cash and investments held in the captive under the SEI member account to satisfy the Company’s security deposit requirement for 2019. The letter agreement between the Company and SEI expired on March 1, 2020, however, the underlying Collateral Security Pledge Agreement among the Company, SEI and the captive has not expired and requires the Company’s consent for its amendment. The Company will be responsible for providing sufficient collateral to satisfy the security deposit with the captive if and when it comes to terms with SEI. The Company is also responsible for providing any additional collateral that may be requested by the captive. See Note 5, Related Party – Off Balance Sheet Arrangements - Collateral Security Pledge Agreement for terms of the agreement.

Letter of Credit

EAF entered into an incremental natural gas facilities agreement dated February 24, 2014 with Southwest Gas Corporation (“Southwest Gas”). Under the terms of the agreement, Southwest Gas agreed to install a pipeline connecting the station to its existing infrastructure at no upfront cost to EAF, and EAF agreed to use Southwest Gas to transport natural gas to the station through its infrastructure. The term was originally five years but has since been modified to

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

ten years. Each year of the ten-year term, EAF is required to make a payment to Southwest Gas equal to $70,565 minus the amount of delivery and demand charges paid by EAF during the applicable contract year. EAF is required to provide financial security in the form of a letter of credit originally in the amount of $510,763, which amount may decrease annually during the term of the agreement and was equal to $306,458 as of September 30, 2019 and December 31, 2018.

Note 13 - Income Taxes

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

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

Note 14 - Subsequent Events

Recent Tax Legislation

In late March 2020, the U.S. government enacted the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) in response to the COVID-19 pandemic. The Company has taken advantage of deferring payment of the employer portion of the social security taxes due on remaining payments from enactment of the CARES Act through December 31, 2020, with 50% due by December 31, 2021 and 50% due by December 31, 2022.

Impairment of Long-Lived Assets

In connection with the appointment of a new Chief Executive Officer effective October 1, 2019, the Company performed an analysis to evaluate the recoverability of the long-lived assets of the CNG Fueling Stations asset group. The Company measured the net carrying value of the asset group against the estimated undiscounted future cash flows associated with it. Because the sum of the expected future net cash flows were less than the net carrying value of the asset group, the Company recorded a $3.5 million impairment loss equal to the amount by which the net carrying value of the asset group exceeded its fair value as of October 1, 2019.

Purchase of Fixed Assets

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

Truckserv Enterprises, LLC.

On January 13, 2020, the Company entered into and consummated a definitive agreement to sell substantially all of the assets of its Truckserv maintenance operations, representing those assets related to third party maintenance services provided to operators of commercial vehicles, for a purchase price of $0.45 million. The purchase price is receivable as follows: (i) $10,000 per month, for fifteen months, payable by application against the interest otherwise payable under the JB Lease Note and (ii) $0.3 million applied as partial payment of the outstanding principal balance of the JB Lease Note, which payment was effective on the closing date.

Stock Options

During February 2020, the Board of Directors approved an increase of the number of available options in the Stock Incentive Plan to a total of 9,250,000 options. During April 2020, the Board of Directors approved an additional increase in the number of available options under the Stock Incentive Plan to a total of 12,000,000 options.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

During February 2020, the Board of Directors granted 70,000 stock options as compensation to board members with an exercise price of $2.50 and a 10-year life. The options vest ratably over three years. One-quarter (1/4) of the options vest and become exercisable on the grant date. The remaining vest and become exercisable ratably on the first, second, and third anniversaries of the date of grant.

From February 2020 through December 2020, the Board of Directors granted an additional 3,324,999 stock options with an exercise price of $2.50 and a 10-year life. For 1,380,000 of the stock options granted, one-quarter (1/4) vest and become exercisable on the grant date, with the remainder vesting and becoming exercisable ratably on the first, second, and third anniversaries of the date of grant. The remaining 1,944,999 stock options granted were fully vested and exercisable on the grant date.

Issuance of Common Stock for Debt

During February 2020, the Board of Directors approved the conversion of $0.1 million subordinated convertible senior notes payable and related interest into 21,000 shares of common stock.

Forbearance Agreement and Incremental Amendment to Financing Agreement

The Company previously filed a Current Report on Form 8-K on September 20, 2019, reporting, among other things, the Company’s entry into a $24.5 million Financing Agreement (the “Financing Agreement”) dated September 16, 2019 among the Company, each subsidiary of the Company, various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent (“Collateral Agent”).

On February 27, 2020, the Company entered into a Forbearance Agreement and Incremental Amendment to Financing Agreement (the “Incremental Amendment”), pursuant to which the Company obtained an additional $3.2 million of term loan commitments (the “Incremental Term Loans”) from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement.

The Incremental Term Loans bear interest at 12% per annum. Monthly interest payments will be due in cash, and all outstanding principal and interest will be due on the maturity date. The Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020, and (ii) 5% of each prepayment made after September 16, 2020, but on or prior to September 16, 2021, with no premium due after September 16, 2021.

Pursuant to the Incremental Amendment, the Collateral Agent and other lenders agreed to forbear from exercising certain rights, remedies, powers, privileges, and defenses under the Financing Agreement and the other related loan documents during the forbearance period with respect to certain events of default and/or expected or anticipated events of default arising under the Financing Agreement. The Incremental Amendment also suspended the accrual of interest at the post-default rate until the end of the forbearance period.

The Company paid a 2% financing fee in connection with its entry into the Incremental Amendment. The Company also reimbursed the Collateral Agent for $0.1 million of fees, costs, and expenses previously accrued under the Financing Agreement and in addition paid fees, costs, and expenses of the Collateral Agent and the lenders newly incurred in connection with the Incremental Amendment.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Antara Capital Warrant

In connection with the Incremental Amendment the Company issued a warrant (the “Antara Warrant 2020”) to Antara Capital to purchase 3,650,000 shares (the “Antara Warrant Shares 2020”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), at an exercise price of $2.50 per share, subject to adjustment for certain distributions, stock splits, and issuances of Common Stock, as an incentive. The issuance of this warrant results in an additional debt discount that will be amortized to interest expense over the term of the det using the effective interest method. The Antara Warrant 2020 is exercisable for ten years from the date of issuance. If the fair market value of the Antara Warrant Shares 2020 is greater than $2.50 at the end of the exercise period, then the Antara Warrant 2020 will be deemed to be exercised automatically and immediately prior to the end of the exercise period. Pursuant to the Antara Warrant 2020, the Company granted Antara Capital preemptive rights to purchase its pro rata share, determined based on the number of shares held by Antara Capital or into which warrants held by Antara Capital (including the Antara Warrant 2020) are exercisable, of capital stock issued by the Company after the issuance date of the Antara Warrants 2020, subject to certain excepted issuances.

Sale of Common Stock

On February 27, 2020, the Company sold a total of 1,260,000 shares of its Common Stock to related parties for aggregate gross proceeds of $3.2 million pursuant to the terms of a subscription agreement. The Company did not pay any underwriter discounts or commissions in connection with the sale of the shares. The shares of Common Stock sold have the right to convert into securities which bear the same terms as those offered to satisfy the Liquidity Milestone defined in the Incremental Amendment.

Amendment to Forbearance Agreement and Second Incremental Amendment to Financing Agreement

On March 24, 2020, the Company entered into an amendment to forbearance agreement and second incremental amendment to financing agreement (the “Second Incremental Amendment”), pursuant to which the Company obtained an additional $3.1 million in term loan commitments (the “Second Incremental Term Loans”) from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement.

The Second Incremental Term Loans bear interest at 12% per annum. Monthly interest payments will be due in cash, and all outstanding principal and interest will be due on the maturity date. The Second Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020 and (ii) 5% of each prepayment made after September 16, 2020 but on or prior to September 16, 2021, with no premium due after September 16, 2021.

The Second Incremental Amendment also suspends the accrual of interest at the post-default rate until the end of the forbearance period. The forbearance period was scheduled to terminate on the earliest of (a) September 30, 2020, (b) the occurrence of any event of default other than the Specified Defaults, or (c) the date on which any breach of any of the conditions or agreements, including without limitation the Affirmative Covenants, provided in the Incremental Amendment or Second Incremental Amendment occurs. The Company paid all fees, costs, and expenses of the Collateral Agent and the lenders incurred in connection with the Incremental Amendment and the Second Incremental Amendment.

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, pursuant to which modified a certain affirmative covenant and waived another affirmative covenant in the Financing Agreement and, in exchange, the Company agreed to issue to Antara Capital a warrant to purchase up to 3,250,000 shares of the Company’s Common Stock at an exercise price of $2.50 per share as an incentive. The issuance of this warrant results in an additional debt discount that will be amortized to interest expense over the term of the debt using the effective interest method.

Second Amendment to Forbearance Agreement and Omnibus Amendment to Loan Agreement

On October 20, 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)

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

joined EVO Holding Company, LLC as a borrower under the Financing Agreement, (iii) authorized the Company and/or its subsidiaries to incur unsecured indebtedness of up to $10,000,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, and (iv) extended the timelines under which the Company and its subsidiaries are required to comply with certain affirmative covenants set forth in the Financing Agreement, Incremental Amendment, and Second Incremental Amendment.

The Omnibus Amendment contained the following additional covenants:

(i)

The Company was required to either (a) fully consummate the acquisition by EVO Equipment Leasing, LLC of 89 used CNG tractors on or before December 31, 2020 or (b) issue 1,174,800 shares of the Company’s common stock to the lenders.

The Company did not fully consummate the acquisition of the used CNG tractors by December 31, 2020 and was required to issue the 1,174,800 shares of the Company’s common stock to the lenders.


	(ii)	The Company was required to issue to each of the lenders ratably warrants authorizing such lender to, on or after January 1, 2021, purchase its ratable share of up to 500,000 shares of the voting common stock of the Company at the price of $0.01 per share with a 10 year expiration. If the Company or any of its subsidiaries had not repaid or partially repaid the obligations with the net proceeds (in the amount of at least $25.0 million) of a financing under the “Main Street Lending Program” on or before December 31, 2020, then the Company was required to issue an additional 1,000,000 warrants to the lenders. The Company had not repaid the $25.0 million by December 31, 2020 and was therefore required to issue warrants to purchase an aggregate of 1,500,000 shares of the Company’s common stock to the lenders.

	(iii)	All warrants previously issued to lenders, at the election of the lender holding same, will be exchanged without any cash consideration for warrants to purchase for $0.01 per share voting common stock of the Company at the rate of 0.64 warrants for shares of voting common stock of the Company. As a result, warrants to purchase an aggregate of 7,925,000 shares of the Company’s common stock at a price of $2.50 per share were exchanged for an aggregate of 5,072,000 shares of the Company’s common stock at a price of $0.01 per share.

Second Omnibus Amendment to Loan Documents

On December 14, 2020, the Company entered into a second omnibus amendment to loan documents (the “Second Omnibus Amendment”) to, among other things, authorize EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc., each of which is a subsidiary owned directly or indirectly by the Company, to obtain a Main Street Loan in the amount of up to $17,033,000 under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. Pursuant to the Second Omnibus Amendment, the forbearance period was terminated and the Collateral Agent and other lenders agreed to waive all existing defaults or events of default under the Financing Agreement that occurred and were continuing as of the date of the Second Omnibus Amendment. The Second Omnibus Amendment also extended the maturity date of the term loans under the Financing Agreement to the date that is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first.

Redemption of Common Stock and Issuance of Series B Preferred Stock

On March 24, 2020, the Company entered into a stock redemption agreement with each of Danny Cuzick (“Cuzick”) and R. Scott Wheeler (“Wheeler”), pursuant to which (i) the Company redeemed 1,200,000 and 60,000 shares of its Common Stock, held by Cuzick and Wheeler, respectively, and (ii) agreed to issue 1,000,000 and 50,000 shares of its Series B Preferred Stock, par value $0.0001 per share (“Series B Preferred Stock”), to Cuzick and Wheeler, respectively.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

In addition, on March 24, 2020, the Company sold a total of 1,000,000 shares of its Series B Preferred Stock to Cuzick for aggregate gross proceeds of $3.0 million pursuant to the terms of a subscription agreement. The subscription agreement granted Cuzick the right to require the Company to repurchase shares of Series B Preferred Stock from Cuzick for an aggregate amount up to fifty percent of the USPS Reimbursements (the “Put Option”). On March 27, 2020, in a separate agreement, the Company and Cuzick entered into a waiver and warrant agreement pursuant to which Cuzick waived his right to exercise the Put Option in exchange for the Company agreeing to issue to Cuzick warrants to purchase up to 3,250,000 shares of Common Stock at an exercise price of $2.50 per share.

Series B Preferred Stock

On March 24, 2020, the Company filed a Certificate of Designation of Rights and Preferences of Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorizes the Company to issue up to 3,075,000 shares of Series B Preferred Stock.

The Series B Preferred Stock ranks senior in preference and priority to the Company’s Common Stock and on par with the Company’s Series A Preferred Stock with respect to dividend and liquidation rights and, except as provided in the Certificate of Designation or otherwise required by law, will vote with the Common Stock on an as converted basis on all matters presented for a vote of the holders of Common Stock, including the election of directors. Holders of Series B Preferred Stock are entitled to four votes for each share of Series B Preferred Stock held on the record date for the determination of the stockholders entitled to vote or, if no record date is established, on the date the vote is taken.

An annual, non-compounding dividend accrues on the Series B Preferred Stock at a rate of 10% per annum for five years from the date the Preferred Stock is issued. The dividend is payable, if and when declared by the Board of Directors, in arrears in the form of shares of Series B Preferred Stock at a rate of $3.00 per share, or, at the Company’s option, quarterly in arrears in cash.

The holders of the Series B Preferred Stock are entitled to a liquidation preference of $3.00 per share of Series B Preferred Stock plus any accrued but unpaid dividends upon the liquidation of the Company. The Series B Preferred Stock may be redeemed by the Company at any time at a redemption price equal to $3.00 plus all accrued but unpaid dividends, and each holder of Series B Preferred Stock may cause the Company to redeem the holder’s Series B Preferred Stock at any time after March 23, 2025 at a redemption price equal to $3.00 plus all accrued but unpaid dividends.

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

The approval of the holders of at least a majority of the Series B Preferred Stock, voting together as a separate class, is required for the Company to amend the Certificate of Designation, including by merger or otherwise, to alter or repeal the preferences, rights, privileges or powers of the Series B Preferred Stock in a manner that would adversely affect the rights of the holders of the Series B Preferred Stock. The Certificate of Designation states that the Company will not issue any other class of shares of preferred stock ranking senior to the Series B Preferred Stock.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Paycheck Protection Program Loan

On April 15, 2020, the Company obtained a loan (the “Loan”) from BOKF, N.A. (dba Bank of Oklahoma) in the amount of $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

The Loan, which is memorialized by a Note dated April 15, 2020 issued by the Company, was scheduled to mature on April 15, 2022 and bore interest at a rate of 1.00% per annum, payable monthly commencing on November 15, 2020. The Company was able to prepay the Note at any time prior to maturity with no prepayment penalties. The principal amount of the Loan and accrued interest were eligible for forgiveness after eight weeks if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels.

The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan was forgiven by the United States Small Business Administration (“SBA”) in July 2021.

Issuance of Contingent Consideration

During June 2020, the Company determined that the performance target specified in the Finkle acquisition had been achieved, and the Company became obligated to issue 870,317 shares of its common stock to satisfy the contingent consideration. The shares of common stock were subsequently issued by the Company during July 2020.

COVID-19

Beginning in March 2020, the U.S. and global economies have reacted negatively in response to worldwide concerns due to the economic impacts of COVID-19. These trends, including a potential domestic or global recession, and any potential resulting direct and indirect negative impact to the Company, cannot be accurately predicted.

The Company continues to operate its business through the COVID-19 pandemic and has taken numerous additional precautions to ensure the safety of its employees. Specifically, management has implemented measures to enhance the sanitization process of the Company’s equipment and properties, increased the social distancing of its employees by working remotely where possible, and provided driving associates with personal protective equipment (PPE). The Company has incurred additional costs for PPE, sanitizing equipment, and longer work schedules due to distancing measures at facilities served by our drivers and has also lost revenues without corresponding cost reductions due to reduced customer demand driven by COVID-19.

We continue to monitor the rapidly evolving situation and guidance from federal, state and local public health authorities. As such, given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. The effects of COVID-19 to date have not been material to our financial statements. However, based on current trends and if the pandemic is not substantially contained in the near future, COVID-19 may have a material adverse impact on our future revenue growth as well as our overall profitability. Further, a sustained downturn may also result in a decrease in the fair value of our goodwill or other long-lived assets, causing them to exceed their carrying value. This may require us to recognize an impairment of those assets.

Main Street Priority Loan Program Facility with Commerce Bank of Arizona, Inc.

On December 29, 2020, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 (the “Loan Agreement”) and related documents (together with the Loan Agreement, the “Loan Documents”) for a loan in the amount of up to $17.0 million (the “Main Street Loan”) serviced by Commerce Bank of Arizona, Inc. (“Bank”) as lender under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. The Borrowers and the Bank subsequently entered into a Modification Agreement to the Loan Agreement dated December 22, 2020 (the “Modification Agreement”) and a Second Modification Agreement to the Loan Agreement dated December 23, 2020 (the “Second Modification Agreement”). The Borrowers used all of the net proceeds of the Main Street Loan to refinance a portion of the amount outstanding under the Financing Agreement discussed above under the caption “Forbearance Agreement and Incremental Amendment to Financing Agreement” and to pay related prepayment premiums.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Accrued but unpaid interest on the Main Street Loan for loan year one (i.e., the period of December 14, 2020 to December 14, 2021) will be added to the principal amount of the Main Street Loan on December 14, 2021. Following the end of loan year one, interest on the Main Street Loan will be payable quarterly on the 14th day of the last month of each calendar quarter (i.e., March 14, June 14, September 14, and December 14 of each year), with the first interest payment due on March 14, 2022. In addition, on December 14, 2023 and December 14, 2024, the Borrowers must make an annual payment of principal plus accrued but unpaid interest in an amount equal to fifteen percent (15%) of the outstanding principal balance of the Main Street Loan. The entire outstanding principal balance of the Main Street Loan, together with all accrued and unpaid interest, is due and payable in full on December 14, 2025. The Borrowers may prepay the Main Street Loan at any time without incurring any prepayment penalties.

The Loan Documents contain customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, cross default under other credit facilities, breaches of representations and covenants, and the occurrence of certain events. The Loan Documents also contain customary remedies for a facility of this type, exercisable following the occurrence of an event of default, including, among others, the rights to terminate 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 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.

Contribution of Equity of Environmental Alternative Fuels, LLC to EVO Holding Company, LLC

In connection with the Main Street Loan, the Company contributed 100% of the issued and outstanding equity of Environmental Alternative Fuels, LLC (“EAF”) to EVO Holding Company, LLC (“EVO Holding”) with the consent of Danny Cuzick as the holder of certain previously disclosed promissory notes that are secured in part by the assets of EAF. In consideration of Danny Cuzick’s consent to the contribution, the Company agreed to (a) indemnify Danny Cuzick for up to $0.5 million in connection with Danny Cuzick’s guaranty of certain obligations of the Company and its subsidiaries to Mercedes-Benz Financial Services USA LLC and (b) issue to Danny Cuzick a warrant (the “Cuzick Warrant”) to purchase up to 1,000,000 shares of common stock of the Company at the cost of $0.01 per share. Danny Cuzick is a member of the Company’s Board.

The Cuzick Warrant was offered and sold as part of a private placement solely to “accredited investors” as that term is defined under Rule 501(a) under the Securities Act pursuant to exemptions from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act. The Company did not pay any underwriter discounts or commissions in connection with the issuance of the Cuzick Warrant.

United States Postal Service Settlement

On January 19, 2021, the Company and the USPS entered into a settlement agreement whereby the USPS agreed to pay approximately $7.1 million to one of the Company’s subsidiaries for underpayments on transportation services provided to the USPS under certain Dynamic Route Optimization (“DRO”) contracts from January 14, 2018 to September 30, 2020. Subsequently, on February 19, 2021, the Company and the USPS entered into an additional settlement agreement whereby the USPS agreed to pay approximately $17.5 million to certain other Company subsidiaries for underpayments on transportation services provided to the USPS under other DRO contracts from January 14, 2018 to September 30, 2020. In connection with the settlement agreements, the Company and the USPS agreed to make certain adjustments to the Company’s DRO contracts, including rate adjustments effective for the fourth quarter of 2020 and future periods. As a result of those adjustments, the USPS agreed to pay an additional $3.8 million to the Company for transportation services provided in the fourth quarter of 2020. The USPS has made all payments associated with these settlement agreements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Agreement with Triumph Business Capital

On March 9, 2021, the Company and Advance Business Capital LLC d/b/a Triumph Business Capital (“Triumph”), the Company’s factoring lender, entered into a Letter-of-Intent and Memo of Understanding (the “Triumph LOI”) related to the application of $17.5 million of proceeds received from the USPS arising out of prior underpayments on certain DRO contracts. Pursuant to the Triumph LOI, the parties agreed that Triumph would remit $11.0 million of net proceeds to the Company and that Triumph would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that EVO will repay the remaining balance of approximately $6.9 million in 48 equal monthly installments beginning January 1, 2022, and that Triumph will apply funds held in reserve against the approximately $800,000 remaining balance for advances that Triumph made to the Company in September 2020. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.

Settlement Agreement and Release

On March 17, 2021, the Company entered into a Settlement Agreement and Releases dated March 12, 2021 (the “Settlement Agreement”) between the Company, Midwest Bank (“Midwest”), Dan Thompson II, LLC (“DTII”), Antara Capital LP, Antara Capital Master Fund LP, Antara Capital GP, LLC, Antara Capital Fund GP LLC, CEOF Holdings, LP and Himanshu Gulati (collectively, “Antara Group”), and Danny R. Cuzick, individually and as Holders’ Representative on behalf of Damon R. Cuzick, Theril H. Lund, and Thomas J. Kiley (the “Individual Parties”) related to a draft complaint that Midwest and DTII sent to the Company on or about November 5, 2020 (the “Draft Complaint”), asserting claims based on breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract and unjust enrichment. The Draft Complaint related to that certain Secured Convertible Promissory Note (the “DTII Note”) in the principal amount of $3,000,000 dated July 20, 2018 issued by the Company to DTII and the note purchase agreement and security agreement related thereto (the “DTII Agreements”). The Company denied all claims asserted by Midwest and DTII and would have asserted various defenses to the Draft Complaint had it been filed.

The Settlement Agreement provided for various releases among the parties and their respective representatives, successors, and assigns, including releases arising out of or related to the DTII Note, the DTII Agreements, and all facts, events and occurrences described in the Draft Complaint. The Company denied any liability regarding the Draft Complaint in connection with the Settlement Agreement. Pursuant to the Settlement Agreement, the Company agreed to purchase from Midwest, as successor to DTII, the DTII Note and the DTII Agreements. As consideration for the DTII Note and DTII Agreements, the Company paid $500,000 in cash to Midwest and issued to Midwest a warrant to purchase up to 1,250,000 shares of common stock of the Company at a price of $0.01 per share. The Company also agreed to exchange the warrant issued to DTII in connection with the DTII Note to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.

Purchase and Cancellation of Secured Convertible Promissory Notes

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 Secured Convertible Promissory Notes (the “2018 Convertible Notes”) in the principal amount of $0.6 million issued by the Company in July and August 2018 to the Holders and the note purchase agreements and security agreements related thereto (the “2018 Convertible Note Agreements”).

The Note Purchase Agreements provide for various releases by the Holders and their respective representatives, successors, and assigns, including releases arising out of or related to the 2018 Convertible Notes and the 2018 Convertible Note Agreements. Pursuant to the Note Purchase Agreements, the Company agreed to purchase the 2018 Convertible Notes and the 2018 Convertible Note Agreements from the Holders. As consideration for the 2018 Convertible Notes and the 2018 Convertible Note Agreements, the Company agreed to pay approximately $0.1 million in cash to the Holders and to issue to the Holders warrants (the “Holder Warrants”) to purchase an aggregate of up to 231,453 shares of common stock of the Company at a price of $0.01 per share.

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

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Some of the statements in this report may contain forward-looking statements that reflect management’s current view about future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “anticipate,” “will,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” and similar expressions or the negative of these terms. Many of these forward-looking statements are located in this report under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. The forward-looking statements in this report generally relate to: (i) our growth strategy and potential acquisition candidates; (ii) management’s expectations regarding market trends and competition in the vehicle fuels industry, gasoline, diesel, and natural gas prices, government tax credits and other incentives, and environmental and safety considerations; (iii) our beliefs regarding the sufficiency of working capital and cash flows, and our continued ability to renew or obtain financing on reasonable terms when necessary; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019) relating to the Company’s industry, its operations and results of operations, and any businesses that may be acquired by it. These factors include, among other factors:

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Our ability to recruit and retain qualified drivers;

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Future equipment (including tractor and box truck) prices, our equipment purchasing plans, and our equipment turnover (including expected tractor trade-ins);

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The expected freight environment, including freight demand and volumes;

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Future third-party service provider relationships and availability;

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Future contracted pay rates with independent contractors and compensation arrangements with drivers;

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Future supply, demand, use and prices of crude oil, gasoline, diesel, natural gas and other vehicle fuels, such as electricity, hydrogen, renewable diesel, biodiesel and ethanol;

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Our expectations regarding the market’s perception of the benefits of conventional and renewable natural gas relative to gasoline and diesel and other alternative vehicle fuels and electronically powered vehicles, including with respect to factors such as supply, cost savings, environmental benefits and safety;

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The competitive environment in which we operate, and the nature and impact of competitive developments in our industry;

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Potential adoption of government policies or programs that favor vehicles or vehicle fuels other than natural gas, including long-standing support for gasoline and diesel-powered vehicles and growing support for electric and hydrogen-powered vehicles;

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The impact of, or potential for changes to, emissions requirements applicable to vehicles powered by gasoline, diesel, natural gas or other vehicle fuels, as well as emissions and other environmental regulations and pressures on crude oil and natural gas drilling, production, importing or transportation methods and fueling stations for these fuels;

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Developments in our products and services offering, including any new business activities we may pursue in the future;

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The success and importance of any acquisitions, divestitures, investments or other strategic relationships or transactions;

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The general strategies adopted by the USPS with respect to its third party surface transportation suppliers;

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The impacts of the COVID-19 global pandemic;

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General political, regulatory, economic and market conditions;

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Our need for and access to additional capital to fund our business or repay our debt, through selling assets or pursuing equity, debt or other types of financing; and

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The flexibility of our model to adapt to market conditions.

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

Background and Recent Developments

EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. We are the second largest surface transportation company serving the USPS with approximately 1,000 vehicles in operation as of September 30, 2019. Of these, approximately 200 vehicles operate on compressed natural gas (“CNG”) which makes us the largest user of alternative fuels amongst transportation companies serving the USPS. In certain markets, we fuel our vehicles at one of our five dedicated CNG stations which serve other customers as well. We operate from our headquarters in Phoenix, Arizona and from 15 facilities in 17 states.

We have grown primarily through acquisitions, and we have completed six acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers. During 2019, we were awarded 114 additional contracts from the USPS which are expected to generate $15.2 million in annual revenue. We have been actively integrating the acquisitions we have made under common leadership and technology and are now operating under a single brand.

Sources of Revenue

Our USPS trucking operations generates revenue for our trucking segment from transportation services under multi-year contracts with the USPS, generally on a rate per mile basis that adjusts monthly for fuel pricing indexes.

Our freight trucking operations generates revenue for our trucking segment by providing both irregular and dedicated route and cross-border transportation services of various products, goods, and materials for a diverse customer base.

Our CNG station revenue is derived predominately pursuant to contractual fuel purchase commitments. These contracts typically include a stand-ready obligation to supply natural gas daily. The CNG stations are also open to individual consumers. In addition to revenue earned from our customers, we may also earn alternative fuel tax credits through certain federal programs. These programs are generally short-term in nature and require legislation to be passed extending the term.

Results from Operations

Three months ended September 30, 2019, as compared with the three months ended September 30, 2018

Trucking Segment

Substantially all of the increases in Trucking revenue and operating expenses from the three months ended September 30, 2018 to the three months ended September 30, 2019 are due to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 includes full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Trucking revenue: The Company earned trucking revenue for the first time in 2018 as a result of the Thunder Ridge and Graham acquisitions in June and November 2018, respectively. The majority of trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration and are priced on a rate per mile basis which varies by contract. The USPS contracts also include a monthly fuel adjustment.

Payroll, benefits and related: Of the Company’s 1,324 employees at September 30, 2019, 1,058 were drivers. Driver wages are fixed per contract with USPS and are eligible for renegotiation with USPS on a bi-annual basis. In addition to an hourly wage that is set by the Department of Labor, drivers also earn an incremental hourly rate for benefits.

Purchased transportation: Purchased transportation represents payments to subcontracted third party companies. These contracts are negotiated on a rate per mile basis and the subcontracting company is responsible for supplying all resources to perform the service including, but not limited to, labor, equipment, fuel and associated expenses. The Company utilized purchased transportation for less than 10% of the Company’s total miles for the three months ended September 30, 2019.

Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors.

Equipment rent: The Company rents and leases the majority of its trucks and trailers through a combination of short and long-term arrangements. Efforts are currently underway to rebalance the fleet towards having more company-owned assets to achieve the expected returns, subject to financing availability.

Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet.

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the trucking segment.

Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers comp expense related to the trucking segment of the business.

CNG Fueling Stations Segment

CNG revenue: Revenue for the CNG stations was $0.1 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively. The decrease resulted from an overall downward trend in CNG sales volume.

CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees.

EVO Consolidated

General and administrative: General and administrative expense was $4.6 million and $1.3 million for the three months ended September 30, 2019 and 2018, respectively. The increase in general and administrative expense is due primarily to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 included full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Depreciation and amortization: Depreciation and amortization expense was $2.0 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively. The increase in depreciation and amortization expense is due primarily to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 included full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Interest expense: Interest expense increased to $2.2 million for the three months ended September 30, 2019 from $0.8 million for the three months ended September 30, 2018. The increase in interest expense is due primarily to the incurrence of debt obligations to finance the Company’s 2019 acquisitions, including the September 2019 Financing Agreement, as well as the assumption of debt obligations in connection with such acquisitions.

Nine months ended September 30, 2019, as compared with the nine months ended September 30, 2018

Trucking Segment

Substantially all of the increases in Trucking revenue and operating expenses from the nine months ended September 30, 2018 to the nine months ended September 30, 2019 are due to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 includes full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Trucking revenue: The Company earned trucking revenue for the first time in 2018 as a result of the Thunder Ridge and Graham acquisitions in June and November 2018, respectively. The majority of trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration with pricing varying by contract. The USPS contracts also include a monthly fuel adjustment.

Purchased transportation: Purchased transportation represents payments to subcontracted third party companies. These contracts are negotiated on a rate per mile basis and the subcontracting company is responsible for supplying all resources to perform the service including, but not limited to, equipment, fuel and associated expenses. The Company utilized purchased transportation for less than 10% of the Company’s total miles for the nine months ended September 30, 2019.

Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors.

Equipment rent: The Company rents and leases a portion of its trucks and trailers through a combination of short and long-term arrangements. Efforts are currently underway to rebalance the fleet towards having more company-owned assets to achieve the expected returns, subject to financing availability.

Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet.

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the trucking segment.

Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers comp expense related to the trucking segment of the business.

CNG Fueling Stations Segment

CNG revenue: Revenue for the CNG stations was $0.7 million and $1.1 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease resulted from an overall downward trend in CNG sales volume.

CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees.

EVO Consolidated

General and administrative: General and administrative expense was $8.7 million and $3.2 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in general and administrative expense is due primarily to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 included full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Depreciation and amortization: Depreciation and amortization expense was $4.8 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in depreciation and amortization expense is due primarily to 2018 including the acquisition of, and partial-year results of operations for, Thunder Ridge while 2019 included full-year results of operations for Thunder Ridge as well as the acquisitions of, and partial-year results of operations for, Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Interest expense: Interest expense increased to $4.6 million for the nine months ended September 30, 2019 from $1.6 million for the nine months ended September 30, 2018. The increase in interest expense is due primarily to the incurrence of debt obligations to finance the Company’s 2019 acquisitions, including the September 2019 Financing Agreement, as well as the assumption of debt obligations in connection with such acquisitions.

Liquidity and Capital Resources

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018

Changes in Liquidity

Cash and Cash Equivalents. Cash and cash equivalents were $2.0 million and $1.6 million at September 30, 2019 and December 31, 2018, respectively. The increase is attributable to financing activities during the nine months ended September 30, 2019.

Operating Activities. Net cash used in operations was $20.2 million and $4.2 million during the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, the Company had a net loss of $18.7 million and $5.5 million, respectively. For 2019, the net loss was partially offset by $5.6 million in adjustments for non-cash items and further reduced by $7.0 million of cash used for changes in working capital. Non-cash items primarily consisted of $4.8 million in depreciation and amortization, $2.2 million in non-cash interest, non-cash lease expense of $2.1 million, stock option and warrant-based compensation expense of $1.1 million, and amortization of debt discount of $0.8 million, partially offset by a $5.6 million adjustment for deferred income taxes.

For the nine months ended September 30, 2018, the net loss was partially offset by $2.0 million in adjustments for non-cash items and further reduced by $0.7 million of cash used for changes in working capital. Non-cash items primarily consisted of $0.8 million in stock option and warrant-based compensation expense, amortization of debt discount of $0.6 million, $0.6 million in warrant expense, $0.5 million in depreciation and amortization, and $0.3 million related to redeemable Series A preferred stock issued for services, partially offset by a $0.8 million gain on the extinguishment of convertible promissory notes.

Investing Activities. Net cash used in investing activities was $21.0 million for the nine months ended September 30, 2019. The net cash used in investing activities during the nine months ended September 30, 2019 is primarily related to $19.5 million of cash consideration paid for acquisitions and $1.7 million of equipment purchases. There were no investing activities during the nine months ended September 30, 2018.

Financing Activities. Net cash provided by financing activities was $41.5 million and $5.3 million for the nine months ended September 30, 2019 and 2018, respectively. The cash provided by financing activities during the nine months ended September 30, 2019 primarily consisted of $114.1 million in advances from factoring receivables, proceeds of $26.8 million from the issuance of debt, and $11.4 million in proceeds from the sale of common stock and warrants, partially offset by $102.6 million in payments on factoring arrangements, and $8.7 million in payments of debt principal. The cash provided by financing activities during the nine months ended September 30, 2018 primarily consisted of gross proceeds of $4.0 million from the issuance of secured convertible debt and $2.5 million from the sale of common stock, partially offset by $1.2 million in payments of debt principal.

Sources of Liquidity

Our primary historical and future sources of liquidity are cash on hand ($2.0 million at September 30, 2019), the incurrence of additional indebtedness, the sale of the Company’s common stock or preferred stock, and advances under our accounts receivable factoring arrangements. However, there can be no assurance that we will be able to obtain additional financing in the future via the incurrence of additional indebtedness or the sale of the Company’s common stock or preferred stock.

Uses of Liquidity

Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, and payments for fuel, maintenance and supplies, and other expenses. We also use large amounts of cash and credit for principal and interest payments, as well as operating and finance lease liabilities and capital expenditures to fund the replacement and/or growth in our tractor and trailer fleet.

Going Concern

As of September 30, 2019, the Company had a cash balance of $2.0 million, a working capital deficit of $55.2 million, stockholders’ deficit of $2.6 million, and material debt and lease obligations of $69.4 million, which included term loan borrowings under a financing agreement with Antara Capital. During the nine months ended September 30, 2019 the Company reported cash used in operating activities of $20.2 million and reported a net loss of $18.7 million.

The following significant transactions and events affecting the Company’s liquidity occurred following the nine months ended September 30, 2019:

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During the fourth quarter of 2019, the Company borrowed the remaining $2.1 million available under the Financing Agreement.

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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:

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The counterparty to the Company’s accounts receivable factoring arrangement is not obligated to purchase the Company’s accounts receivable or make advances to the Company under such arrangement;

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The Company is currently in default on certain of its debt obligations; and

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Management’s plans to mitigate the Company’s current conditions include:

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Negotiating with related parties and 3^rd parties to refinance existing debt and lease obligations;

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Potential future public or private debt or equity offerings;

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Acquiring new profitable contracts and negotiating revised pricing for existing contracts;

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Profitably expanding trucking revenue

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Cost reduction efforts, including eliminating redundant costs across the companies acquired during 2019 and 2018;

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Improvements to operations to gain driver efficiencies;

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Purchases of trucks and trailers to reduce purchased transportation; and

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Replacement of older trucks with newer trucks to lower the overall cost of ownership and improve cash flow through reduced maintenance and fuel costs.

Off-Balance Sheet Arrangements

Refer to Note 12, Commitments and Contingencies – Captive Insurance.

Critical Accounting Policies

Our critical accounting policies have not changed from the information reported in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards

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

Seasonality

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

Inflation

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its principal executive and principal financial officers, is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act rules 13a-15 and 15d-15, the Company performed an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive and financial officers regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including its principal executive and financial officers have concluded that our disclosure controls and procedures were not effective as of September 30, 2019, due to the material weaknesses in our internal control over financial reporting described below in “Evaluation of Internal Controls and Procedures” including limitations in management’s evaluation of internal controls as a result of insufficient documentation of internal controls under the standards of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Evaluation of Internal Controls and Procedures

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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

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Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the Company’s evaluation, it identified material weaknesses in internal control over financial reporting described below, and management concluded that our internal control over financial reporting was not effective as described below.

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

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The Company had not fully implemented the necessary internal controls under the COSO (2013 Framework) to design, test and evaluate the operating effectiveness of its internal control over financial reporting;

•

The Company’s management and board of directors had insufficient oversight of the design and operating effectiveness of the Company’s disclosure controls and internal control over financial reporting;

•

The Company had insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;

•

The Company failed to maintain effective controls over the period-end financial reporting process, including controls with respect to identification of unrecorded liabilities; revenue reconciliations to ensure appropriate revenue recognition; payroll reconciliations; preparation and disclosure of provision for income taxes; and account-level reconciliations in the general ledger, resulting in numerous adjusting entries identified by the Company and identified through audit procedures;

•

The Company failed to maintain effective controls over the recording of business combinations to ensure purchase accounting was properly reconciled in the general ledger;

•

The Company did not have sufficient internal personnel resources to review the financial statements and notes to the financial statements prepared by external consultants and professionals to ensure accuracy and completeness; and

•

The Company failed to maintain effective controls over journal entries, both recurring and nonrecurring, and did not maintain proper segregation of duties. Journal entries were not always accompanied by sufficient supporting documentation and were not adequately reviewed and approved for validity, completeness and accuracy. In most instances, persons responsible for reviewing journal entries for validity, completeness and accuracy were also responsible for preparation.

Changes in Internal Control over Financial Reporting

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

Management’s Remediation Plan

In light of the control deficiencies identified at September 30, 2019, and described in the section titled “Evaluation of Internal Controls and Procedures,” we have designed and plan to implement the specific remediation initiatives described below:

•

We plan to design and implement more robust corporate governance including: (1) direct oversight of our internal controls by an audit committee of our board of directors; (2) review of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q by our audit committee prior to filing with the SEC; and (3) communication of our Code of Business Conduct and Ethics to our employees and consultants.

•

We intend to implement a procedure that ensures timely review of the consolidated financial statements, notes to our consolidated financial statements, and our Annual and Quarterly Reports on Forms 10-K and 10-Q by our chief executive officer, chief financial officer, our board of directors, and our audit committee, prior to filing with the SEC.

•

We intend to develop and implement enhanced internal control review procedures and documentation standards aligned with the COSO 2013 Framework.

•

We intend to design and implement a formalized financial reporting process that includes balance sheet and other reconciliations, properly prepared, supported and reviewed journal entries, properly segregated duties, and properly completed and approved close checklist and calendar.

•

We intend to hire additional experienced individuals to prepare and approve the consolidated financial statements and footnote disclosures in accordance with US GAAP.

•

We have relied and will continue to rely upon outside professionals to assist with our external reporting requirements to ensure timely filing of our required reports with the SEC.

We intend to initiate efforts to ensure our employees understand the continued importance of internal controls and compliance with corporate policies and procedures. We will implement a reporting and certification process for management involved in the performance of internal controls and the preparation of the Company’s consolidated financial statements. This certification process will be conducted quarterly and managed by our internal audit consultant.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

For a detailed discussion of certain risk factors that could affect the Company’s operations, financial condition or results for future periods, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

EXHIBIT INDEX

Form 10-Q for the Quarterly Period Ended SEPTEMBER 30, 2019

Exhibit		Description

2.1		Stock Purchase and Exchange dated July 15, 2019 between EVO Transportation & Energy Services, Inc., James C. Finkle, Jr., and Clifford Finkle IV (1)

2.2		Stock Exchange Agreement dated September 16, 2019, between EVO Transportation & Energy Services, Inc., EVO Holding Company, LLC, Matthew Ritter, and Michael Ritter (2)

2.3		Stock Purchase Agreement dated September 16, 2019, between EVO Transportation & Energy Services, Inc., EVO Holding Company, LLC, Matthew Ritter, and Michael Ritter (2)

2.4		Membership Interest Purchase Agreement dated September 16, 2019, among EVO Transportation & Energy Services, Inc., EVO Holding Company, LLC, Matthew Ritter, and Michael Ritter (2)

4.1		Financing Agreement, dated September 16, 2019, among EVO Transportation & Energy Services, Inc., each subsidiary of EVO Transportation & Energy Services, Inc., various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent (2)

10.1		Separation Agreement and Release, dated July 11, 2019, between EVO Transportation & Energy Services, Inc. and Michael Zientek (3)

10.2		Employment Agreement dated July15, 2019 between EVO Transportation & Energy Services, Inc. and Clifford Finkle IV (1)

10.3		Employment Agreement dated July15, 2019 between EVO Transportation & Energy Services, Inc. and James C. Finkle Jr. (1)

10.4		Subscription Agreement dated July15, 2019 between EVO Transportation & Energy Services, Inc. and Clifford Finkle IV (1)

10.5		Subscription Agreement dated July15, 2019 between EVO Transportation & Energy Services, Inc. and James C. Finkle Jr. (1)

10.6+		Employment Agreement dated July22, 2019 between EVO Transportation & Energy Services, Inc. and Eugene S. Putnam, Jr. (1)

10.7		Employment Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Matthew Ritter (2)

10.8		Employment Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Michael Ritter (2)

10.9		Director Nomination Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Antara Capital Master Fund LP (2)

10.10		Side Letter Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Antara Capital LP (2)

10.11		Subordination Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc., Danny Cuzick, and Cortland Capital Market Services LLC (2)

10.12		Subordination Agreement, dated September 16, 2019, between Environmental Alternative Fuels, LLC, Danny Cuzick, and Cortland Capital Market Services LLC (2)

10.13		Amendment to Promissory Note, dated August 30, 2019, between John Lampsa and Ursula Lampsa and EVO Equipment Leasing, LLC (2)

10.14		Extension of the Original Equity Purchase Agreement and Amendments Thereto, dated August 30, 2019, between EVO Transportation & Energy Services, Inc. and Billy (Trey) Peck Jr. (2)

10.15		Warrant, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Antara Capital Master Fund LP (2)

10.16		Warrant, dated September 16, 2019, between EVO Transportation & Energy Services, Inc. and Danny Cuzick (2)

10.17		Subscription Agreement, dated September 16, 2019, between EVO Transportation & Energy Services, Inc., Matthew Ritter and Michael Ritter (2)

10.18+		Employment Agreement, dated September 23, 2019, between EVO Transportation & Energy Services, Inc. and Thomas J. Abood (4)

10.19+		Option Agreement, dated September 23, 2019, between EVO Transportation & Energy Services, Inc. and Thomas J. Abood (4)

10.20+		Option Agreement, dated July 22, 2019, between EVO Transportation & Energy Services, Inc. and Eugene S. Putnam, Jr. (4)

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

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

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

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

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.

(1)	Filed as an Exhibit to the Company’s current report on Form 8-K filed with the SEC on July 25, 2019 and incorporated herein by reference.

(2)	Filed as an Exhibit to the Company’s current report on Form 8-K filed with the SEC on September 20, 2019 and incorporated herein by reference.

(3)	Filed as an Exhibit to the Company’s current report on Form 8-K filed with the SEC on July 17, 2019 and incorporated herein by reference.

(4)	Filed as an Exhibit to the Company’s current report on Form 8-K filed with the SEC on September 24, 2019 and incorporated herein by reference.

SIGNATURES

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

	EVO TRANSPORTATION & ENERGY SERVICES, INC.

Date: August 27, 2021	By:	/s/ Thomas J. Abood
		Thomas J. Abood
		Chief Executive Officer
		Principal Executive Officer

Date: August 27, 2021	By:	/s/ Eugene Putnam
		Eugene Putnam
		Chief Financial Officer
		Principal Financial Officer