EVO Transportation & Energy Services, Inc. - Quarter Report: 2019 June (Form 10-Q)

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 June 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)

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  ☒

Securities registered pursuant to Section 12(b) of the Act:

As of May 4, 2020, there were 14,333,834 shares of the registrant’s common stock, par value $0.0001, outstanding.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

INDEX

EVO TRANSPORTATION & ENERGY SERVICES, INC.

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Balance Sheets

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Operations (Unaudited)

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

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

For the Six Months Ended June 30, 2019

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)
For the Six Months Ended June 30, and 2018

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

See notes to unaudited condensed consolidated financial statements.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

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 and Energy Services, Inc. (“EVO, Inc.” or the “Company”) is a holding company based in Phoenix, Arizona, that owns eight operating subsidiaries: W.E. Graham Inc. (“Graham”), EVO Equipment Leasing, LLC (“Leasing”), Titan CNG, LLC (“Titan”), Thunder Ridge Transport, Inc. (“Thunder Ridge”), Ursa Major Corporation (“Ursa”), J.B. Lease Corporation (“JB Lease”), Sheehy Mail Contractors, Inc. (“Sheehy”), and Environmental Alternative Fuels, LLC (“EAF”), which are in the businesses of fulfilling United States Postal Service (“USPS”) and corporate contracts for freight trucking services and compressed natural gas (“CNG”) service stations. During the second quarter of 2019, the Company owned seven CNG stations located in California, Texas, Arizona, and Wisconsin. Of these stations, four were company operated, two were inactive, and one was operated by a third-party management company. The Company’s two reportable segments are Trucking and CNG.

The Company’s non-reportable segments include support services that the Company’s subsidiaries provide to customers (including repair and maintenance shop services and equipment leasing) as well as corporate expenses.

Sheehy Acquisition

On January 4, 2019, but effective January 2, 2019, the Company acquired all of the outstanding equity interests of Sheehy. See Note 2 – Acquisition – Sheehy for more information regarding the Sheehy Acquisition.

Ursa Acquisition

On February 1, 2019, the Company acquired all of the outstanding equity interests of Ursa and JB Lease. See Note 2 – Acquisition – Ursa and JB Lease for more information regarding the Ursa Acquisition.

Going Concern

As of June 30, 2019, the Company has a working capital deficit of approximately $34.5 million, stockholders’ deficit of approximately $9.7 million, and negative operating cash flows of $14.6 million for the six months ended June 30, 2019. Management anticipates rectifying these deficits with additional public and private offerings. Also, the Company is evaluating certain cash flow improvement measures including, consolidating costs with the acquired entities, the purchase of vehicles to reduce purchased transportation, and repricing contracts with USPS. However, there can be no assurance that the Company will be successful in these efforts. Further, for the six months ended June 30, 2019, USPS accounted for substantially all of the Company’s total consolidated revenues. The loss of USPS as a customer or a significant reduction in the Company’s relationship with USPS would have a material adverse effect on the Company’s business.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern for the next 12 months from the issuance of these condensed consolidated financial statements within this Quarterly Report on Form 10-Q. However, the above conditions raise substantial doubt about the Company’s ability to do so. 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 should the Company be unable to continue as a going concern for the next 12 months from the issuance of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q.

To meet its current and future obligations, the Company has taken the following steps to capitalize the business and successfully achieve its business plan during 2019:

The cash balance as of June 30, 2019 was $7,564,504. The cash balance, combined with funding received from the debt transactions occurring subsequent to June 30, 2019 (see Note 13 – Subsequent Events), provides the Company sufficient liquidity to cover the negative cash flows generated from operations through the second quarter of 2020 Management is in the process of identifying sources of capital through debt refinancing and equity investments through one or more private placements.

Seasonality

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of EVO, Inc. and its subsidiaries, JB Lease, Ursa, Sheehy, Graham, Leasing, Titan, Thunder Ridge, and EAF; Titan’s wholly owned subsidiaries, Titan El Toro, LLC, Titan Diamond Bar, LLC, and Titan Blaine LLC; Thunder Ridge’s wholly owned subsidiary, Thunder Ridge Logistics, LLC; and EAF’s wholly owned subsidiary, EVO CNG, LLC. All intercompany accounts and transactions have been eliminated upon consolidation.

Basis of Presentation

The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on May 30, 2019. The results of operations for the six months ended June 30, 2019, are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 amounts that are based on management’s best estimates and judgments. The most significant estimates relate to revenue recognition; goodwill and long-lived intangible asset valuations; fixed-asset impairment assessments; debt discount; contingencies; valuations of stock consideration paid for acquisitions related to Ursa, JB Lease, and Sheehy; and going concern. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Recently Issued Accounting Pronouncements

Accounting Pronouncement Adopted in 2019

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 retained earnings 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”).

In July 2018, the FASB issued ASU 2018-11, Leases (ASC Topic 842): Targeted Improvements, which addresses certain issues related to the implementation of ASC Topic 842, including, presentation on the statement of cash flows for sales type and direct financing leases, and transition disclosures related to ASC Topic 250. The transition disclosures related to ASC Topic 250 clarify that entities are not required to disclose the impacts of adopting ASC Topic 842 on net income or related per share amounts in both interim and annual reporting periods. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, but can be early adopted.

Adoption Method and Approach – The Company adopted ASU 2016-02 and ASU 2018-11, 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 following package of practical expedients:

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

The required disclosures regarding the current period impact of adopting ASC Topic 842 on the condensed consolidated balance sheet are presented below:

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-Employee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07, equity-classified non-employee 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 non-employee share-based payment awards with such conditions. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): 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 does not plan early adoption of this update and does not expect the adoption of the update to materially change its current accounting methods; therefore, the Company does not expect the adoption to have a material impact on its 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. When effective, the Company does not anticipate that ASU 2017-04 will have a material impact on its future 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 Company is evaluating the effects that the adoption of this guidance will have on its 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 guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of the new standard. 

Reclassifications

Certain amounts in the 2018 condensed consolidated financial statements have been reclassified to conform to the 2019 presentation. These 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 require, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Sheehy

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

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

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

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

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

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.

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

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

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Ursa and JB Lease

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

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

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

Thunder Ridge

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

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

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.

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

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

W.E. Graham

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Pro Forma Information

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 - Balance Sheet Disclosures

Accounts receivable - trade are summarized as follows:

Property, equipment, and land are summarized as follows:

Depreciation expense for the six months ended June 30, 2019 and 2018, was $2,030,579 and $247,734, respectively.

Goodwill consists of the following:

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Intangible assets consist of the following:

Amortization expense for the six months ended June 30, 2019 and 2018, was $404,189 and $161,868, respectively. Future amortization expense will be approximately as follows:

The favorable lease and accumulated amortization were reclassified with the adoption of ASC 842 into right-of -use assets.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Accrued expenses consist of the following:

Note 4 - Segment Reporting

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

Trucking. Trucking is comprised of domestic freight trucking and surface transportation services to the USPS, with the USPS generally granting four-year contracts through a bid process.

CNG Fueling Stations. The Company operates five CNG fueling stations located in California, Texas, Arizona, and Wisconsin. Revenue is derived from agreements with high-volume fleet operators. In most instances each station has a principal customer comprising a majority of the revenue.

In determining its reportable segments, the Company’s management focuses on financial information, such as operating revenue, operating expense categories, operating ratios, and operating income as well as on key operating statistics to make operating decisions.

The trucking segment includes $11,423,431 of goodwill in the six months ended June 30, 2019.

The following tables summarize operating activities by segment.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2019 and 2018, the revenues from one customer accounted for approximately 99% and 26%, respectively of total consolidated revenues.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables summarize total assets by segment:

Note 5 - Related Party Transactions

Accounts Payable - Related Party

The Company’s accounts payable - related party consist of guaranteed payments and expense reimbursement to Titan members and purchased technology from an entity owned by an officer of the Company. Accounts payable - related party was $0 and $337,345 as of June 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 $292,730 to settle the Separation Agreement with a former officer to settle $37,500 of advances and approximately $300,000 of the accounts payable - related party.

During the six months ended June 30, 2019, the Company leased software technology for operations from an entity owned by an officer of the Company and recognized expense of approximately $260,000.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Due from Related Party

The related party balances as of January 2, 2019, were acquired as part of the Sheehy acquisition (see Note 2 – Acquisitions – Sheehy). 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 $150,000 to SEI to fully repay the balance due to the officer and reduce the payable due to SEI.

On November 18, 2019, and pursuant to the Intercompany Agreement, the Company assigned $374,890 of the NADS receivable balance to SEI as full payment of the SEI payable. The remaining NADS receivable of $402,058 was assigned to SEI as a partial payment of the Sheehy Note (See Note 2 – Acquisitions – Sheehy). The remaining principal amount due of $47,942 plus accrued interest of $39,947 was paid in the form of 35,156 shares of EVO common stock.

Advances from Related Party

As of June 30, 2019, and December 31, 2018, advances from EAF members were $286,929 and $324,429, respectively.

Accounts Receivable – Related Party

The Company sold an immaterial amount of CNG to an officer’s company. As of June 30, 2019, and December 31, 2018, accounts receivable – related party was $0 and $40,571, respectively.

Accrued Interest - Related Party

The Company’s accrued interest - related party consists of the accrued interest payments on stockholders’ and related party debt. Accrued interest - related party was $1,230,531 and $922,471 as of June 30, 2019, and December 31, 2018, respectively.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Off Balance Sheet Arrangements - Collateral Security Pledge Agreement

On January 31, 2019, the Company entered into a Collateral Security Pledge Agreement with SEI to satisfy the Sheehy captive insurance security deposit requirement for 2019 (see Note 11 - Commitments and Contingencies – Off Balance Sheet Arrangements – Captive Insurance). Under the agreement SEI has pledged a total of $327,975 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 agreement expired on March 1, 2020, and the Company is in negotiation with SEI to extend the agreement.

For further information regarding related-party transactions, see Note 2 for acquisitions. In addition, the Company entered into multiple related-party transactions as described in Notes 8, 9, and 10.

Note 6 - Factoring

The Company entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”), which has been extended to February 18, 2021. Pursuant to the terms of the agreement, 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:

Financing costs are comprised of an interest rate of Prime plus 7.5% (13% at June 30, 2019, and December 31, 2018) plus a factor fee of 0.25% of the face amount of the invoice factored based upon number of days the Advance Amount remains outstanding. Total interest and financing fees for factored receivables for the six months ended June 30, 2019 and 2018 were $528,947 and $133,331, respectively. The fees are included in interest expense in the condensed consolidated statement of operations.

Note 7 - Line-of-Credit

The Company had two line-of-credit agreements with a bank that provided for a borrowing capacity of $421,738. The amounts outstanding bear interest at 6.75% and are secured by equipment. As of June 30, 2019, and December 31, 2018, the outstanding balance was $0 and $316,589, respectively. During October 2018, the Company paid the $100,000 line-of-credit in full and extended the $321,739 line-of-credit’s maturity to April 2019. During April 2019, the line-of-credit was paid in full.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 8 - Long-Term Debt

Long-term debt consists of:

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Maturities of long-term obligations are as follows:

During September 2019, $7,800,000 of debt obligations, due on demand and through August 2020, were subordinated and extended to November 2022 pursuant to the Antara Financing Agreement as discussed in Note 13.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Amortization of debt issuance and debt discount costs are as follows:

Note 9 - 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 $2,500,000 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 $393,356 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 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 $9,179 through the Black-Scholes Pricing Model calculated with a five-year term; 49% volatility; 2.85% discount rate, and the assumption of no dividends.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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 his last day of employment with the Company was October 9, 2017. On April 1, 2019, the Company issued 117,092 shares of common stock with an approximate fair value of $292,730 to settle the Separation Agreement with him to settle $37,500 of advances and approximately $300,000 of the accounts payable - related party.

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. 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 $11,400,000. 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 $2,057,098, calculated with a ten-year term; 60% volatility, 2.49% discount rates; and the assumption of no dividends.

Common Stock Subscribed

As of June 30, 2019, the Company agreed to issue 2,240,000 and 4,560,000 shares of common stock pursuant to the Sheehy acquisition and the sale of 2019 Units, respectively.

Subsequent to June 30, 2019, the Sheehy common stock was issued.

As of December 31, 2018, the Company agreed to issue 500,000 shares of common stock pursuant to the Thunder Ridge acquisition. During the second quarter of 2019 the shares of common stock were issued.

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 $234,000.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Dividends

Generally, the holders of the Preferred Stock are entitled to receive if, when, and as declared by the Board of Directors, an annual non-compounding dividend, payable at the rate of 8% and payable quarterly in arrears in cash, or, at the Company’s option, an annual non-compounding dividend of 12%, payable quarterly in arrears in the form of shares of Preferred Stock at a rate of $3.00 per share. Such dividends begin to accrue as of the date on which the Preferred Stock is issued and will accrue whether declared and whether there are funds legally available for the payment of dividends. As of June 30, 2019, and December 31, 2018, accrued dividends of $26,459 and $17,227, respectively included in preferred stock on the accompanying balance sheet.

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

Liquidation Preference

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

Redemption

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

Voting Rights

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

Conversion Rights

Each share of Preferred Stock will convert to one fully paid and non-assessable share of the Company’s common stock at any time at the option of the holder or the Company, subject to adjustments for stock dividends, splits, combinations, and similar events. If the closing price on all domestic securities exchanges on which the Common Stock may at the time be listed exceeds $6.00 per share for 30 consecutive trading days and the daily trading volume of the common stock is at least 20,000 shares for that same period, each share of Preferred Stock will automatically convert to one share of the Company’s common stock.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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. 

As of June 30, 2019, there were 1,430,750 shares reserved for grant. Subsequently, a total of 1,650,000 options were granted which resulted in the total number of options granted exceeding the number of options available under the Amended 2018 Plan. 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.

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 (the “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 vest ratably over three years with one-quarter (1/4) of the options vest and become exercisable on the grant date) 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.

The Board of Directors may suspend or terminate the Amended 2018 Plan or any portion thereof at any time, and may amend the Amended 2018 Plan from time to time in such respects as the Board of Directors may deem advisable in order that incentive awards under the Amended 2018 Plan will conform to any change in applicable laws or regulations or in any other respect the Board of Directors may deem to be in the best interests of the Company, provided, however, that amendments to the Amended 2018 Plan will not be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or NASDAQ or similar regulatory body. No termination, suspension or amendment of the Amended 2018 Plan may adversely affect any outstanding incentive award without the consent of the affected participant.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Restricted stock awards are made by the issuance to the participant of the actual shares represented by that grant. Any shares of restricted stock issued are registered in the name of the participant and bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award. Shares of restricted stock granted under the Amended 2018 Plan may not be sold, transferred, pledged, or assigned until the termination of the applicable period of restriction. After the last day of the period of restriction, shares of restricted stock become freely transferable by the participant. During the period of restriction, a participant holding shares of restricted stock granted under the Amended 2018 Plan may exercise full voting rights with respect to those shares, unless otherwise specified in the applicable award agreement. As of June 30, 2019, and December 31, 2018, there were no shares of restricted stock awarded.

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 the Company’s 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. During the six months ended June 30, 2019, and 2018, the Company has recorded stock-based compensation expense of $172,524 and $383,223, respectively, associated with stock options. As of June 30, 2019, and 2018, the Company has estimated approximately $656,000 and $7,664,000 respectively, of future compensation costs related to the unvested portions of outstanding stock options. 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. As of June 30, 2019, and 2018, there was no intrinsic value to the stock options.

The following table presents the activity for options outstanding:

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents the composition of options outstanding and exercisable:

*Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used:

Warrants

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 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 $747,223, calculated with a ten-year term; 65% volatility, 2.89%, 2.85%, or 3.00% discount rates; and the assumption of no dividends.

During the year ended December 31, 2018, the Company issued 999,999 warrants contingent on continued employment. The warrants vest in three tranches of 333,333 warrants each year during 2019, 2020, and 2021. The fair value of the warrants issued, determined using the Black-Scholes pricing model, was $149,390, calculated with 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 six months ended June 30, 2019, and 2018, the Company has recorded warrant-based compensation expense of $27,000 and $0, respectively, associated with the warrants.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

During the year ended December 31, 2018, the Company issued 161,100 warrants for services. The fair value of the warrants issued, determined using the Black-Scholes pricing model, was $75,340, calculated with a five-year term; 49% volatility; 2.85% discount rate, and the assumption of no dividends. See additional disclosure regarding warrant issuances within this note.

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 “2018 Units”) at a price of $2.50 per 2018 Unit in exchange for the Company’s promissory notes - stockholders in the aggregate principal amount of $468,655. Each 2018 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 $87,294.

The following table presents the activity for warrants outstanding:

The following tables present the composition of warrants outstanding and exercisable: