Cash paid for interest for the years ended
December 31, 2017 and 2016 was $449,564 and $222,279, respectively.
On February 1, 2017, the Company acquired
EVO to further its business model to acquire existing CNG stations. The following is the allocation of the assets and liabilities
as of February 1, 2017:
During the year ended December 31, 2016,
Titan converted $217,008 of consulting expense into subordinated notes payable to stockholders.
During the year ended December 31, 2016,
Titan converted $127,108 of accounts payable - related party into subordinated notes payable to members.
During the year ended December 31, 2016,
the Company had $310,887 construction in progress purchases in accounts payable.
During the year ended December 31, 2016,
Titan converted $85,599 of long term notes payable related into $21,556 and $64,043 of subordinated senior notes payable to stockholders
and subordinated notes payable to stockholders, respectively.
On November 22, 2016, Titan and the holders
of 100% of the outstanding equity interests of Titan entered into an Agreement and Plan of Securities Exchange with EVO Inc. EVO
Inc. acquired 100% of the equity interests in Titan and Titan became a wholly owned subsidiary of EVO Inc. The following is the
allocation of the assets and liabilities acquired:
Notes to Consolidated Financial Statements
Basis of Presentation and Securities
Exchange
These financial statements represent the
consolidated financial statements of EVO Transportation & Energy Services, Inc., formerly Minn Shares Inc. (“EVO Inc.”
or the “Company”), its wholly owned subsidiaries, Titan CNG LLC (“Titan”) and Environmental Alternative
Fuels, LLC (“EAF”), Titan’s wholly-owned subsidiaries, Titan El Toro LLC (“El Toro”), Titan Diamond
Bar LLC (“Diamond Bar”), and Titan Blaine, LLC (“Blaine”), and EAF’s wholly-owned subsidiary, EVO
CNG, LLC (“EVO CNG”).
On November 22, 2016, Titan and its members
entered into an Agreement and Plan of Securities Exchange with EVO Inc. whereby EVO Inc. acquired all of the equity interests of
Titan and Titan became a wholly-owned subsidiary of EVO Inc. (the “Titan Securities Exchange”). The Company issued
248,481 shares of common stock, par value $0.0001 per share (“Common Stock”), to acquire Titan, which resulted in the
former Titan equity holders owning approximately 91.25% of the outstanding shares of the Company’s Common Stock after the
consummation of the Titan Securities Exchange.
At the closing of the Titan Securities
Exchange, all of the issued and outstanding units of Titan immediately prior to the closing of the Titan Securities Exchange were
converted into 248,481 shares of the Company’s Common Stock. The Company did not have any stock options or warrants to purchase
shares of its capital stock outstanding at the time of the Titan Securities Exchange.
Cash and cash equivalents
|
|
$
|
3,377
|
|
Accounts payable
|
|
|
(54,036
|
)
|
Convertible promissory note - related party
|
|
|
(405,103
|
)
|
Reverse acquisition
|
|
$
|
455,762
|
|
Because the former members of Titan owned
approximately 91.25% of the combined company on completion of the Titan Securities Exchange, the transaction was accounted for
as a recapitalization through a reverse acquisition, with no goodwill or other intangibles recorded. As such, the consolidated
financial information reflects the historical financial information of Titan, El Toro, Diamond Bar and Blaine and the remaining
assets and liabilities of EVO Inc. brought over at historical cost. EVO Inc.’s results of operations, which were de minimis,
are included in the Company’s consolidated financial statements from the date of acquisition, November 22, 2016. Costs of
the transaction have been charged to operations. The capital structure of the Company has been retroactively adjusted to reflect
that of EVO Inc. with all shares being adjusted based on the exchange ratio of equity interest in connection with the Titan Securities
Exchange.
As a result of the Titan Securities Exchange,
EVO Inc. acquired the business of Titan and its subsidiaries Diamond Bar, Blaine and El Toro as of November 22, 2016, and continued
the existing business operations of Titan as a publicly traded company under the name EVO Transportation & Energy Services,
Inc.
Effective August 31, 2017, the Company
amended its certificate of incorporation to change its name from “Minn Shares Inc.” to “EVO Transportation &
Energy Services, Inc.” by filing an amendment to the certificate of incorporation of the Company. In connection with the
name change, the Company changed its ticker symbol on the OTC Pink Marketplace from “MSHS” to “EVOA.”
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
On February 1, 2017, EVO Inc., EAF, EVO
CNG, and Danny R. Cuzick (“Danny Cuzick”), Damon R. Cuzick (“Damon Cuzick”), Theril H. Lund and Thomas
J. Kiley (together with Danny Cuzick and Damon Cuzick, the “EAF Members”) consummated the transactions contemplated
by that certain Agreement and Plan of Securities Exchange dated January 11, 2017 (the “EAF Exchange Agreement”). Pursuant
to the EAF Exchange Agreement, EVO Inc. acquired all of the membership interests in EAF (the “EAF Interests”) from
the EAF Members. EAF, together with EVO CNG, is a compressed natural gas fueling station company with six fueling stations in California,
Texas, Arizona and Wisconsin.
In determining the accounting acquirer
in the transactions contemplated by the EAF Exchange Agreement, management considered the Financial Accounting Standards Board’s
Accounting Standard Codification (“ASC”) 805—Business Combinations. Specifically, management considered the guidance
in ASC 810-10, which generally provides that the acquirer in a business combination transaction is determined by identifying the
existence of a controlling financial interest, which can typically be determined by the ownership of a majority voting interest.
Because the EVO, Inc. stockholders continued to own all of the outstanding shares of Common Stock on completion of the transactions
contemplated by the EAF Exchange Agreement, management determined that EVO Inc. was the accounting acquirer in the EAF transaction.
However, because the Convertible Notes issued as consideration pursuant to the EAF Exchange Agreement could convert to a majority
of the issued and outstanding Common Stock, management will continue to evaluate the accounting treatment for the EAF transaction.
On April 6, 2017, the Company effected
a 50-for-1 reverse stock split of its Common Stock pursuant to which each 50 shares of issued and outstanding Common Stock became
one share of Common Stock (the “Reverse Split”). No fractional shares were issued as a result of the Reverse Split.
All references to numbers of shares of Common Stock and per share amounts give retroactive effect to the Reverse Split for all
periods presented.
Going Concern
The Company is an early stage company in
the process of acquiring several businesses in the transportation and vehicle fuels industry. As of December 31, 2017, the Company
has a working capital deficit of approximately $6.6 million and negative equity of approximately $12.8 million. In addition, the
Company is in violation of its bank covenants. Management anticipates rectifying with additional public and private offerings.
Also, the Company is evaluating certain cash flow improvement measures. However, there can be no assurance that the Company will
be successful in these efforts.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise doubt
about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that
may result should the Company be unable to continue as a going concern.
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 2018:
During April 2018, the Company paid the
working capital notes of $250,000 in full.
On April 2, 2018, the Company and a related
party note holder agreed to extend the maturity date of the $3,800,000 promissory note through July 2019.
On April 13, 2018, the Company consummated
the following transactions:
|
●
|
The Company issued 275,583 common shares in exchange for certain Senior Bridge Notes in the aggregate principal amount of approximately $689,000, with the per share price for shares of common stock equal to $2.50.
|
|
|
|
|
●
|
The Company issued 268,057 common
shares in exchange for the Junior Bridge Notes in the aggregate principal amount of approximately $1,340,261, with the per share
price for shares of common stock equal to $5.00.
|
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 Jerry Moyes. Each Unit consists of (i) one share of the Company’s common
stock, par value $0.0001 per share (“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 did not pay any commissions
in connection with the sale of these Units.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies
The Company is a holding company based
in Peoria, Arizona that owns two operating subsidiaries, Titan and EAF, that compete in the compressed natural gas (“CNG”)
service business. Titan is the management company that oversees operations of the El Toro, Diamond Bar, and Blaine CNG service
stations. El Toro was formed during 2013 and began operations during 2015. El Toro, located in Lake Forest, California, operated
as a comprehensive natural gas vehicle solutions provider that offered products and services to corporate and municipal fleet
operators as well as individual consumers. As of June 30, 2017, El Toro ceased operations. Blaine and Diamond Bar were formed
in 2015. In March 2016, Diamond Bar began operations of its CNG station under a lease agreement with the State of California South
Coast Air Quality Management District (“SCAQMD”) in Diamond Bar, California. The Company discontinued construction
of the private CNG station for Walters Recycling & Refuse, Inc. (“Walters”) in Blaine, Minnesota, during the fourth
quarter of 2017.
The Company was incorporated in the State
of Delaware on October 22, 2010.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of EVO Transportation & Energy Services, Inc and its subsidiaries, Titan and EAF, Titan’s
wholly owned subsidiaries, El Toro, Diamond Bar and Blaine, and EAF’s wholly owned subsidiary, EVO CNG. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The consolidated financial statements
include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to revenue
recognition, goodwill and long-lived intangible asset valuations and impairment assessments, business combinations, debt discount,
and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be
significant. The preparation of 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors
its positions with, and the credit quality of, the financial institutions with which it invests.
Accounts Receivable
The Company provides an allowance for doubtful
accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and
a review of the current status of the accounts receivable. It is reasonably possible that the Company's estimate of the allowance
for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining
the allowance. As of December 31, 2017 and 2016, the Company has recorded an allowance of $37,007 and $0, respectively
Federal Alternative Fuels Tax Credit receivable
Federal Alternative Fuels Tax Credit ("AFTC")
(formerly known as Volumetric Excise Tax Credit or VETC) receivable are the excise tax refunds to be received from the Federal
Government on CNG fuel sales.
Concentrations of Credit Risk
The Company grants credit in the normal
course of business to customers in the United States. The Company periodically performs credit analysis and monitors the financial
condition of its customers to reduce credit risk. As of December 31, 2017 three customers accounted for 75% of the Company's total
accounts receivable, and four and one customer accounted for and 76% and 13% of the Company's total revenues for the years ended
December 31, 2017 and 2016, respectively.
Property, Equipment and Land
Property, equipment and land are stated
at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging
from five to 15 years.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Goodwill and Intangible Assets
The Company evaluates goodwill on an annual
basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include,
but are not limited to 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or
3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a
two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair value of the
applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination
of the income or discounted cash flows approach and the market approach, which utilizes comparable companies' data. If the carrying
amount of a reporting unit exceeds the reporting unit's fair value, management performs the second step of the goodwill impairment
test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's
goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair
value, if any, is recognized as an impairment loss. The Company's evaluation of goodwill completed during the year resulted in
an impairment of $3,993,730.
Intangible assets consist of finite lived
and indefinite lived intangibles. The Company's finite lived intangibles include favorable leases, customer relationships and the
trade name. Finite lived intangibles are amortized over their estimated useful lives. For the Company's lease related intangibles,
the estimated useful life is based on the agreement of a one-time payment of $1 and the term of the mortgages, with the properties
owned by the Company of approximately five years. For the Company’s trade names and customer list the estimated lives are
based on life cycle of a customer of approximately 5 years, The Company evaluates the recoverability of the finite lived intangibles
whenever an impairment indicator is present. For the year ended December 31, 2017 the test results indicated an impairment
of $106,270 to customer lists.
Assets Held for Sale
The Company classifies assets as being
held for sale when the following criteria are met: management has committed to a plan to sell the asset; the asset is available
for immediate sale in its present condition; an active program to locate a buyer and other actions required to complete the plan
to sell the asset have been initiated; the sale of the asset is highly probable, and transfer of the asset is expected to qualify
for recognition as a completed sale, within one year; the asset is being actively marketed for sale at a price that is reasonable
in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn.
Deposits
Deposits consist of a security deposit for the El Toro lease and other deposits which are contractually
required and of a long-term nature.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Long-Lived Assets
The Company evaluates the recoverability
of long-lived assets whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.
Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant
adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the
amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated
undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying
value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount
by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available.
If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted
value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future
cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ
from assumed and estimated amounts.
During the year ended December 31, 2017,
the Company recorded asset impairment charges of $806,217 related to El Toro and Blaine. There were no impairments of the Company’s
long-lived assets for the year ended December 31, 2016.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Deferred Rent Obligation
The Company has entered into operating
lease agreements for a CNG station which contain provisions for future rent increases or periods in which rent payments are reduced.
The Company records monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months
of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent obligation,
which is reflected as a separate line item in the accompanying balance sheets.
Hedging Activities
The Company periodically enters into commodity
derivative contracts to manage its exposure to gas price volatility.
GAAP require recognition of all derivative
instruments on the balance sheets as either assets or liabilities measured at fair value. Subsequent changes in a derivative’s
fair value are recognized currently in earnings unless specific hedge accounting criteria are met. Gains and losses on derivative
hedging instruments must be recorded in either other comprehensive income or current earnings, depending on the nature and designation
of the instrument.
Management of the Company has determined
that the administrative effort required to account for derivative instruments as cash flow hedges is greater than the financial
statement presentation benefit. As a result, the Company marks its derivative instruments to fair value and records the changes
in fair value as a component of other income and expense. Cash settlements from the Company's price risk management activities
are likewise shown as a component of other income and expense and as a component of operating cash flows on the statements of cash
flows.
Net Loss per Share of Common Stock
Basic loss per share is computed by dividing
net loss available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding
for the period. Diluted loss per share reflects the potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock. For the years presented, potential dilutive securities had an anti-dilutive
effect and were not included in the calculation of diluted net loss per common share.
Revenue Recognition
The Company's revenues primarily consist
of CNG fuel sales. These revenues are recognized in accordance with GAAP, which requires that the following four criteria must
be met before revenue can be recognized:
(i) persuasive evidence of an arrangement
exists;
(ii) delivery has occurred and title and
the risks and rewards of ownership have been transferred to the customer or services have been rendered;
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
(iii) the price is fixed or determinable;
and
(iv) collectability is reasonably assured.
Applying these factors, the Company typically
recognizes revenue from the sale of natural gas fuel at the time the fuel is dispensed. The Company is eligible to receive, at
times, a federal alternative fuels tax credit ("AFTC") when a gasoline gallon equivalent of CNG is sold as vehicle fuel.
Based on the service relationship with its customers, either the Company or its customers claims the credit. The Company records
its alternative minimum fuel credits if any, as revenue in its statements of operations as the credits are fully refundable.
Alternative Fuels Tax Credit
For 2017 and 2016, the AFTC credit was
$0.50 per gasoline gallon equivalent of CNG that is sold as a vehicle fuel. AFTC revenues for the years ended December 31, 2017
and 2016, were $128,340 and $129,549 respectively. This incentive originally expired on December 31, 2016, but was retroactively
extended through December 31, 2017, with the Bipartisan Budget Act of 2018.
Advertising Costs
The Company expenses advertising costs
as incurred. Advertising expense for the years ended December 31, 2017 and 2016 was de minimis.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Income Taxes
The Company recognizes deferred tax liabilities
and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future years. The Company's temporary differences result primarily
from depreciation.
The Company evaluates its tax positions
taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions will
more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold
are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period
assessed as general and administrative expenses. However, no interest or penalties have been assessed as of December 31, 2017 and
2016. Tax years that remain subject to examination include 2014 through the current year for federal and state, respectively.
Deferred income taxes are provided for
temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of the enactment.
In evaluating the ultimate realization
of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will
be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income
tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation
of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.
The Tax Cuts and Jobs Act ("Tax Act")
was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including
limitations on the deductibility of interest expense and executive compensation, eliminating the corporate alternative minimum
tax ("AMT") and changing how existing AMT credits can be realized, changing the rules related to uses and limitations
of net operating loss carryforwards created in tax years beginning after December 31, 2017, and the transition of U.S. international
taxation from a worldwide tax system to a territorial tax system. The Company’s accounting for the following elements of
the Tax Act is incomplete, and it is not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments
were recorded.
The Company must assess whether valuation
allowances assessments are affected by various aspects of the Tax Act. Since, as discussed above, the Company has recorded no amounts
related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance
has not been completed and no changes to valuation allowances as a result of the Tax Act have been recorded.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements
In July 2017, the Financial Accounting
Standards Board (“FASB”) issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from
Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round
Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public
Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”).
Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered
in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round
features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced
based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified
as equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify,
freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11 is effective for annual
reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is
permitted, including in an interim period. 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 and therefore the Company does not expect the adoption to have
a material impact on its consolidated financial statements.
In March 2016, the FASB issued Accounting
Standards Update (“ASU”) 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based
payment award transactions including accounting for income taxes and classification of excess tax benefits on the statement of
cash flows, forfeitures and minimum statutory tax withholding requirements. For the Company, ASU 2016-09 is effective for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. 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 and therefore
the Company does not expect the adoption to have a material impact on its consolidated financial statements.
In January 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 does not plan early adoption
of this update and does not expect the adoption of the update to materially change its current accounting methods and
therefore the Company does not expect the adoption to have a material impact on its consolidated financial statements.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 1 - Description of Business
and Summary of Significant Accounting Policies (continued)
In June 2016, FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments.
The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments
that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach
with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities
will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment
model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for
annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning
after December 15, 2018, and interim periods therein. 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 and therefore the Company does not expect the adoption
to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition
to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial
Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer
of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature,
amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization
and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing
estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments
in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay
the effective date by one year. The proposed deferral may permit early adoption but would not allow adoption any earlier than
the original effective date of the standard. Based on our current revenue streams we do not expect the adoption of ASU 2014-09
to have a material impact on the amount and timing of our revenue recognition from the superseded revenue standard. We have identified
other changes primarily related to the presentation and disclosure of revenues.
In February 2016, the FASB issued ASU 2016-02,
“Leases” (“ASU 2016-02”), which will require lessees to recognize a right-of-use asset and a lease liability
for all leases that are not short-term in nature. For a lessor, the accounting applied is also largely unchanged from previous
guidance. The new rules will be effective for the Company in the first quarter of 2019. The Company is in the process of evaluating
the impact the amendment will have on its consolidated financial position or results of operations.
Subsequent Events
The Company has evaluated all subsequent
events through the auditors' report date, which is the date the financial statements were available for issuance. With the exception
of those matters discussed in Note 5 and Note 10, there were no material subsequent events that required recognition or additional
disclosure in these financial statements.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 2 - Acquisition
EAF
On February 1, 2017, the Company entered
into a securities exchange agreement (the “EAF Exchange Agreement”) with Environmental Alternative Fuels, LLC, a Delaware
limited liability company (“EAF”), EVO CNG, LLC, a Delaware limited liability company and a wholly owned subsidiary
of EAF (“EVO”), pursuant to which the Company acquired all of the membership interests in EAF (the “EAF Interests”)
from the EAF Members. EAF, together with EVO, is a compressed natural gas fueling station company with six fueling stations in
California, Texas, Arizona and Wisconsin. The EAF Exchange Agreement further aligns the Company's business model to acquire existing
CNG stations.
The following table summarizes the fair value allocation of the assets acquired and liabilities assumed
at the acquisition date.
Prepaid assets
|
|
$
|
32,118
|
|
Goodwill
|
|
|
3,993,730
|
|
Customer list
|
|
|
220,000
|
|
Trade mark
|
|
|
86,000
|
|
Favorable lease
|
|
|
307,000
|
|
Property and equipment
|
|
|
8,154,667
|
|
Deposits and other long-term assets
|
|
|
152,117
|
|
Derivative liability
|
|
|
(82,632
|
)
|
Promissory notes – related party
|
|
|
(8,050,000
|
)
|
Convertible promissory note - related party
|
|
|
(9,500,000
|
)
|
Debt discount
|
|
|
4,687,000
|
|
The Company has evaluated, and expects
the goodwill and other intangibles will most likely be deductible for income tax purposes.
The Company engaged a third party valuation
specialist to determine the fair value of the land, buildings, and equipment, and the EAF intangible assets. The Company incurred
a total of approximately $250,000 in transaction closing costs, which were expensed as incurred as general and administrative
expenses in the consolidated statement of operations, for the year ended December 31, 2016.
The following unaudited pro forma summary
presents consolidated information of the Company as if the business combination had occurred on January 1, 2016. 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.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 2 - Acquisition
(continued)
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
As reported
|
|
$
|
2,096,903
|
|
|
$
|
482,895
|
|
Proforma (uaudited)
|
|
$
|
2,283,906
|
|
|
$
|
3,128,509
|
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(9,160,893
|
)
|
|
$
|
(2,933,543
|
)
|
Proforma (unaudited)
|
|
$
|
(9,168,596
|
)
|
|
$
|
(3,348,579
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(23.09
|
)
|
|
$
|
(9.25
|
)
|
Proforma (unaudited)
|
|
$
|
(23.11
|
)
|
|
$
|
(10.56
|
)
|
As consideration for the EAF Interests,
the Company issued a promissory note to an EAF member in the principal amount of $3.8 million (the “Senior Promissory Note”)
that bears interest at 7.5%, with a default interest rate of 12.5% per year and has a maturity date of the earlier of (a) the date
that is ten days after the initial closing of a private offering of capital stock of the Company in an amount not less than $10
million (a “Private Offering”); (b) December 31, 2017 or a (c) declaration by the noteholder of an event of default
under the Senior Promissory Note. Subsequent to year end the promissory note's maturity was extended until July 2019.
Also, as consideration for the EAF Interests, the Company convertible promissory notes to the EAF Members
in the aggregate principal amount of $9.5 million (the “Convertible Notes”). The Convertible Notes bear interest at
1.5% per year and have a maturity date of February 1, 2026. The Convertible Notes are convertible into 1,400,000 shares (the “Transaction
Shares”) of the Company’s common stock, par value $0.0001 per share (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, the conversion of the Convertible Notes will result in a change
in control of the Company. The number of Transaction Shares will be increased 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. Pursuant to the terms of the Exchange Agreement, the EAF Members are entitled to demand registration rights and piggyback
registration rights with respect to the Transaction Shares upon customary terms, limitations, exceptions and conditions. The Convertible
Notes are secured by all of the assets of EAF and the EAF Interests, which the Company pledged to the EAF Members as security for
the Convertible Notes.
Each Convertible Note is convertible at
the applicable holder’s option upon (1) consummation of a reorganization, merger or similar transaction where the Company
is not the surviving or resulting entity or (2) the sale of all or substantially all of the Company’s assets, subject to
customary restrictions. The Convertible Notes are also subject to mandatory conversion at the Company’s option beginning
on the first anniversary of the date of issuance of the Convertible Notes if: (i) the closing price of the Common Stock is greater
than (A) 150% of the price at which a share of Common Stock is sold in a Private Offering or (B) $10.00 if a Private Offering
has not occurred by December 31, 2017 and (ii) the average daily trading volume of shares of Common Stock has equaled 100,000
or more for the 30 days prior to the applicable date. Upon a conversion of the Convertible Notes, accrued interest may also be
converted at the greater of (i) the amount of interest to be converted divided by the exchange ratio of 0.1357, subject to adjustment
for stock splits or combinations, or (ii) the amount of interest to be converted divided by the closing price of the Common Stock
on the trading day preceding the conversion date.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 2 - Acquisition
(continued)
In connection with the closing of the Exchange Agreement, on February 1, 2017, the Company issued promissory
notes to the EAF Members in the aggregate principal amount of $250,000 that bear interest at 6% per annum with a default rate of
11% per annum and a maturity date of the earlier of (a) the closing of a Private Offering; (b) 180 days from the date of the notes
and (c) declaration by a holder of an event of default under the holder’s note (the “Working Capital Notes”).
Subsequent to year end the notes were paid in full.
In connection with the closing of the
EAF Exchange Agreement, on February 1, 2017, the Company guaranteed a note from EAF to an EAF member dated January 30, 2017 in
the principal amount of $4,000,000 (the “EAF Note”). The EAF Note is secured by all assets of EAF and is guaranteed
by EAF. The EAF Note bears interest at 7.5% per annum with a default rate of 12.5% per annum and has a maturity date of the earlier
of (a) February 1, 2020 and (b) declaration by the noteholder of an event of default under the EAF Note.
El Toro
On January 1, 2016, certain accredited
investors contributed their current membership interests, as well as mezzanine debt and other liabilities totaling approximately
$973,000 owed to Titan El Toro, LLC in exchange for Junior Bridge Notes in the amount of $973,000 and 64,387 Class A Membership
Units in Titan CNG, LLC. In addition, members of El Toro agreed to contribute their membership interest in exchange for 10,892
Class A Membership Units in the Company. The Company acquired the remaining 80% of El Toro to further its business relationship
in alignment with the Company’s business model to acquire existing CNG stations.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 2 - Acquisition
(continued)
As required by ASC 805,
Accounting for
Business Combinations
, when a company has a pre-existing ownership in another company and an acquisition is completed where
control is obtained of the acquired company, the buyer must first measure the acquisition-date fair value of its previously held
equity interest in the acquired company and recognize either (1) a gain for the excess of the fair value of the previously held
interest over its carrying value or (2) a loss for the excess of carrying value over fair value. As a result of this acquisition,
the Company recorded a $28,090 gain for the excess fair value over its carrying cost of El Toro. Management determined that the
asset approach was the most appropriate methodology to determine the estimated fair value at the date of acquisition. As a result
of the recentness of the procurement of El Toro’s assets and debt, management has determined that the estimated fair value
is not materially different than the historical carrying values. The fair value of El Toro was as follows:
|
|
January 1,
2016
|
|
Prepaid rent
|
|
$
|
34,287
|
|
Property and equipment
|
|
|
1,271,617
|
|
Deposits
|
|
|
38,669
|
|
Total assets acquired
|
|
|
1,344,573
|
|
|
|
|
|
|
Checks written in excess of bank balance
|
|
|
3,434
|
|
Accounts payable
|
|
|
68,145
|
|
Accounts payable - related party
|
|
|
55,249
|
|
Deferred rent
|
|
|
24,147
|
|
Accrued expenses
|
|
|
1,566
|
|
Accrued interest - related party
|
|
|
122,582
|
|
Subordinated notes payable to members
|
|
|
700,826
|
|
Long-term debt
|
|
|
1,300,000
|
|
Net liabilities acquired
|
|
$
|
(931,376
|
)
|
Note 3 - Balance Sheet Disclosures
Accounts receivable are summarized as follows:
|
|
December 31,
|
|
|
|
2017
|
|
Accounts receivable
|
|
$
|
187,426
|
|
Allowance for doubtful accounts
|
|
|
(37,007
|
)
|
|
|
$
|
150,419
|
|
Property, equipment and land are summarized
as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Equipment
|
|
$
|
3,919,589
|
|
|
$
|
664,276
|
|
Buildings
|
|
|
3,259,179
|
|
|
|
161,467
|
|
Land
|
|
|
975,899
|
|
|
|
-
|
|
Computer equipment
|
|
|
37,627
|
|
|
|
42,109
|
|
Site development
|
|
|
-
|
|
|
|
401,462
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
46,728
|
|
|
|
|
8,192,294
|
|
|
|
1,316,042
|
|
Less accumulated depreciation
|
|
|
(451,871
|
)
|
|
|
(213,793
|
)
|
|
|
$
|
7,740,423
|
|
|
$
|
1,102,249
|
|
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 3 - Balance Sheet Disclosures
(continued)
Depreciation expense for the years ended
December 31, 2017 and 2016 was $549,630 and $210,892, respectively.
During the year ended December 31, 2017
the Company recorded impairment of $806,217 for El Toro’s fixed assets and construction in progress
Construction in progress contains amounts
accrued for construction of the Blaine CNG station that had not been placed into service as of December 31, 2016.
During the year ended December 31, 2017
the construction of the Blaine CNG Station was terminated.
Intangible assets consist of the following:
|
|
2017
|
|
Goodwill
|
|
$
|
3,993,730
|
|
Favorable lease
|
|
|
307,000
|
|
Customer relationships
|
|
|
113,730
|
|
Trade name
|
|
|
86,000
|
|
|
|
|
4,606,730
|
|
Less Impairment
|
|
|
(4,100,000
|
)
|
|
|
|
506,730
|
|
Less Amortization
|
|
|
(161,446
|
)
|
|
|
$
|
345,284
|
|
During the year ended December 31, 2017
the Company impaired total goodwill of $3,993,73 and customer lists for $106,270. Amortization expense for the years ended December
31, 2017 and 2016 was $161,446 and $0, respectively. Future amortization expense will be approximately as follows:
Year Ending December 31,
|
|
|
|
2018
|
|
$
|
118,000
|
|
2019
|
|
|
111,100
|
|
2020
|
|
|
106,000
|
|
2021
|
|
|
10,200
|
|
|
|
$
|
345,300
|
|
Accrued expenses consist of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Federal alternative fuels tax credit
|
|
$
|
562,513
|
|
|
$
|
-
|
|
Accounting fees
|
|
|
290,438
|
|
|
|
56,839
|
|
Legal fees
|
|
|
217,590
|
|
|
|
25,547
|
|
Compensation and related payroll taxes
|
|
|
72,420
|
|
|
|
-
|
|
Deferred rent
|
|
|
13,233
|
|
|
|
13,149
|
|
Credit cards
|
|
|
12,527
|
|
|
|
32,061
|
|
|
|
$
|
1,168,720
|
|
|
$
|
127,596
|
|
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 4 - Related Party Transactions
Accounts Payable - Related Party
The Company's accounts payables - related
party consist of guaranteed payments and expense reimbursement to members. Accounts payable - related party was $409,838 and $261,060
for the years ended December 31, 2017 and 2016, respectively.
Advances Related Party
During the year ended December 31, 2017,
an EVO member advanced $332,859 to the Company
During the year ended December 31, 2016,
a Titan member advanced $2,000 to the Company.
During the year ended December 31, 2016
an El Toro member advanced $35,500 to the Company.
Accrued Interest - Related Party
The Company's accrued interest - related
party are the accrued interest payments on stockholders' and related party debt. Accrued interest - related party was $927,421
and $164,368 for the years ended December 31, 2017 and 2016, respectively.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 5 - Long-Term Debt
Long-term debt consists of:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
$1,300,000 SBA note payable issued December 31, 2014, with interest at 5.50% for the first five years, then adjusted to the SBA LIBOR base rate, plus 2.35% for the remaining five years. The note required interest only payments for the first twelve months and commencing during January 2016 calls for monthly principle and interest payments of $15,288. The note matures March 2024, is secured by substantially all of the Company’s business assets and is personally guaranteed by certain members. The note is a co-borrower arrangement between Titan and El Toro with the proceeds received by El Toro. The Company issued to members 35,491 units (equivalent to 31,203 common shares) in Titan as compensation for the guarantee. The Company was in violation of the note's covenants as of December 31, 2017 and 2016.
|
|
$
|
1,093,691
|
|
|
$
|
1,194,989
|
|
Six subordinated senior notes payable to stockholders (“Senior Bridge Notes”) with interest at 12%. In connection with the notes payable, the note holders were issued 25,541 Class A Membership Units (equivalent to 22,455 common shares). In the event of a default the Company is required to pay the holder a stated number of Class A Membership Units on the date of default and each 90 day interval thereafter until all amounts due have been paid in full. Effective July 2016, the maturity date of the Senior Bridge Notes was extended to September 30, 2016 and allowed for an interest rate increase from 12% to 16% effective March 14, 2016. The default interest rate was increased from 15% to 18%. As part of the first amendment, the note holders received 3,359 Class A Membership Units (equivalent to 2,953 common shares) in Titan. In September 2016, the Senior Bridge Notes were amended to extend the due date to April 30, 2017 and the Company paid a fee for the extension of 1% of the outstanding principal balance to the note holders. The Company subsequently extended the maturity date of the notes to October 31, 2017. The Company paid a fee of 1% of the outstanding principal balance on the notes on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the maturity date of the notes. The notes are secured by a subordinate security interest on substantially all of the Company’s assets and are personally guaranteed by two stockholders. The Senior Bridge Notes were not extended at the maturity. Subsequent to year end approximately $689,000 of the Senior Bridge Notes and related interest were converted into 275,583 shares of common stock.
|
|
|
1,421,556
|
|
|
|
1,021,556
|
|
Nine subordinated notes payable to stockholders with interest at 12%, with maturity at December 2020, secured by a subordinate security interest on substantially all assets of the Company. Subsequent to year approximately $1,166,373 of the junior bridge notes and related interest of $173,888 were converted into 268,507 shares of common stock.
|
|
|
1,166,373
|
|
|
|
1,166,373
|
|
Three convertible promissory notes to stockholders with interest at 12%, with maturity on or after November 2019. At the next equity financing the holder at their discretion may elect to convert the principal and interest at a conversion price equal to the price per security issued in such offering. These notes are also subject to mandatory conversion in the event that the Senior Bridge Notes and subordinated notes discussed above convert to equity, and any mandatory conversion will be on the same terms as those received by the holders of the Senior Bridge Notes and subordinated notes. The promissory notes are unsecured.
|
|
|
437,505
|
|
|
|
405,103
|
|
A promissory note to a former EAF member with interest at 7.5%, with maturity during December 2017, 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 at discretion of the member. Subsequent to year end the promissory note's maturity date was extended to July 2019.
|
|
|
3,800,000
|
|
|
|
-
|
|
A senior promissory note to a former EAF member with interest at 7.5%, with maturity during February 2020, the note is guaranteed by substantially all the assets of the Company.
|
|
|
4,000,000
|
|
|
|
-
|
|
Four working capital notes to former EAF members with interest at 6%, with maturity upon the earlier of July 2017 or the date of closing a private offering of at least $2 million. Subsequent to year end the working capital notes were paid in full.
|
|
|
250,000
|
|
|
|
-
|
|
Four promissory notes to former EAF members with interest at 1.5%, with maturity during February 2026. The promissory notes are convertible into 1,400,000 shares. 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. See note 2 above for additional discussion regarding the conversion mechanics of these convertible notes.
|
|
|
9,500,000
|
|
|
|
-
|
|
Debt discount*
|
|
|
(4,257,358
|
)
|
|
|
-
|
|
|
|
|
17,411,767
|
|
|
|
3,788,021
|
|
Less current portion
|
|
|
(2,765,247
|
)
|
|
|
(1,142,855
|
)
|
|
|
$
|
14,646,520
|
|
|
$
|
2,645,166
|
|
*
|
Of our total indebtedness of approximately $21,669,000 as of December 31, 2017, approximately $2,800,000 is classified as current debt. We are in violation of the covenants related to the SBA loan. We received a waiver with respect to those covenant violations for the year ended December 31, 2016, but have not received a waiver for current violations of these covenants as of December 31, 2017 and through the date of filing of this Form 10-K. On February 1, 2017, pursuant to the EAF Exchange Agreement, EVO Inc. acquired all of the membership interests of EAF. As consideration for the membership interests, EVO Inc. issued convertible promissory notes to the former members of EAF in the aggregate principal amount of $9.5 million (the “Convertible Notes”). The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026. The Convertible Notes are convertible into 1,400,000 shares (the “Transaction Shares”) of EVO Inc. common stock, subject to adjustment for stock splits, combinations or similar transactions, which represents approximately 81.1% of EVO Inc.’s total outstanding shares of common stock on a post-transaction basis. Accordingly, the conversion of the Convertible Notes would result in a change in control of the Company. The number of Transaction Shares will be increased to equal 70% of the issued and outstanding shares of EVO Inc. common stock if the issuance of common stock pursuant to a private offering of common stock of up to $2 million and the conversion into common stock of EVO Inc.’s subordinated notes payable to members, Senior Bridge Notes, convertible promissory notes, and certain accounts payable would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding common stock
|
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 5 - Long-Term Debt (continued)
The Company engaged a third-party
financial advisory firm to assist in the determination of the purchase price allocation under the guidance of ASC Topic 805.
The advisory firm calculated, with assistance and collaboration of management, the value of the $9.5 million-dollar debt to
be $4,813,000, generating a debt discount $4,687,000; with accretion at December 31, 2017 the remaining discount is
$4,257,358.
Maturities of long-term obligations are
as follows:
Year Ending December 31,
|
|
Related Party Notes
|
|
|
Other Notes
|
|
|
Total
|
|
2018
|
|
$
|
1,671,556
|
|
|
$
|
1,093,691
|
|
|
$
|
2,765,517
|
|
2019
|
|
|
4,237,505
|
|
|
|
-
|
|
|
|
4,237,505
|
|
2020
|
|
|
5,166,373
|
|
|
|
-
|
|
|
|
5,166,373
|
|
2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2022
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Thereafter
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
9,500,000
|
|
|
|
$
|
20,575,434
|
|
|
$
|
1,093,691
|
|
|
$
|
21,669,125
|
|
Note 6 - Derivative Instruments
The Company periodically enters into
various commodity hedging instruments to mitigate a portion of the effect of natural gas price fluctuations, as summarized in
the table below. Open derivative positions are accounted for on a fair value basis at the consolidated balance sheet date,
and any unrealized gain or loss is included in other expense on the consolidated statement of operations. Gains and losses
from settled transactions are also recorded in other expense on the consolidated statement of operations. The Company does
not have any derivative contracts designated as cash flow hedges. The realized loss and unrealized loss for the year ended
December 31, 2017 was $21,220 and $39,026, respectively.
The following table summarizes the fair
value of the derivatives recorded in the consolidated balance sheets, by category.
|
|
Fair Value at
December 31,
|
|
|
|
2017
|
|
Current commodity derivative liability
|
|
$
|
32,186
|
|
Long-term commodity derivative liability
|
|
|
11,420
|
|
Total derivative liability
|
|
$
|
43,606
|
|
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 6 - Derivative Instruments (continued)
As of December 31, 2017, the Company was
party to one open derivative positions outstanding summarized below:
Type
|
|
|
Term
|
|
|
Volume
Hedged (Dth)
|
|
|
Index
|
|
|
Fixed Price ($/Dth)
|
|
|
Swap
|
|
|
|
March 2015 - February 2019
|
|
|
|
95,000
|
|
|
|
NYM-LDS
|
|
|
$
|
3.82
|
|
Note 7 - Stockholders' Equity
On April 6, 2017, the Company effected
a 50-for-1 reverse stock split of its common stock pursuant to which each 50 shares of issued and outstanding common stock became
one share of common stock (the “Reverse Split”). No fractional shares were issued as a result of the Reverse Split.
All references to numbers of shares of common stock and per share amounts give retroactive effect to the Reverse Split for all
periods presented.
During the year ended December 31, 2017,
the Company issued 103,334 units for $3.00 per unit, with each unit consisting of one share of common stock and one equity-classified
warrant to purchase one share of common stock.
During the year ended December 31,2017,
the Company issued 8,791 shares of common stock in connection with the issuance of a senior bridge note.
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 5 year 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 option is based on the United States Treasury yield curve in effect at the time of grant. The
warrants were valued at $77,500 with all of the outstanding warrants exercisable and have a weighted average remaining contractual
life of 4.25 years.
In connection with the completion of the
Titan Securities Exchange, 104,179 outstanding Class A units were valued at predecessor cost, which resulted in no value to the
units with the resulting liability assumed recorded at a loss in the statement of operations.
As of December 31, 2017, the authorized share capital of the
Company consisted of 100,000,000 shares of common stock with a par value of $0.0001 per share. There were 429,308 and 317,183 shares
of common stock issued and outstanding as of December 31, 2017 and 2016.
As of December 31, 2017, the authorized
share capital of the Company consisted of 10,000,000 shares of preferred stock with a par value of $0.0001 per share. There were
no shares of preferred stock issued and outstanding as of December 31, 2017.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 8 - Commitments and Contingencies
Operating Leases
The Company leased office space in Minnesota
on a month to month basis with payments of $977 per month through June 2017.
Titan entered into an operating lease agreement
which expires in February 2019, with an option to extend to February 2024. In November 2014 the lease was amended to add El Toro,
as a co-lessee. The monthly payments range from $10,000 to $11,604. The lease calls for rent increases over the term of the lease.
The Company records rent expense on a straight line basis using average rent for the term of the lease. The excess of the expense
over cash rent paid is shown as deferred rent.
Rent expense for the years ended December
31, 2017 and 2016 was approximately $132,000 and $138,000, respectively.
EAF leases the properties to EVO under
the terms of oral leases for one-time payments of $1.00. The EAF Tolleson, EAF Oak Creek, EAF San Antonio and EAF Lake Arlington
properties are each subject to two mortgages related to the Promissory Note and the Senior Promissory Note for $4,000,000 and $3,800,000,
respectively. The property underlying the EAF Jurupa Valley and EAF Fort Worth stations is leased by EVO from third parties.
EAF Jurupa Valley
. EVO leases the
property for the Jurupa Valley station from a third-party under the terms of a month-to-month oral lease for a one-time payment
of $1.00.
EAF Fort Worth
. EVO leases the property
for the EAF Fort Worth station from a third-party under a lease agreement with an initial 10-year term expiring December 2023.
Base rent payable by EVO for the initial term consists of a one-time payment equal to $1. Under the terms of the lease, EVO agreed
to install and maintain at its own cost a natural gas fuel line, compressors, operating equipment, storage tanks, dispensers and
any other equipment necessary to supply the CNG fueling needs of fleet vehicles owned by the third party.
Future minimum lease payments under these
leases are approximately as follows:
Year Ending December 31,
|
|
|
|
2018
|
|
$
|
139,000
|
|
2019
|
|
|
23,000
|
|
|
|
$
|
162,000
|
|
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 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 Scott Honour, Kirk Honour, and John Yeros. The complaint alleges 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 seeks money damages, interest, costs, disbursements, attorneys’ fees and other equitable relief.
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 seeks money damages, costs, attorneys’ fees and other appropriate relief.
Grant Agreement
In 2013, Titan was the recipient of two
grants in the amount of $300,000 and $150,000 from the California Energy Commission (“CEC”) and SCAQMD. The grant funds
were used to complete the construction of a facility on El Toro Road as contemplated in the grant agreements. The grant proceeds
are subject to repayment if the Company does not satisfy certain operational metrics contained in the grant agreements, and the
Company is not in compliance with those metrics. In addition, the use of Titan on the project could be construed as requiring amendments
to the grant agreements or consent from the CEC or SCAQMD, neither of which has been obtained by the Company.
During 2016, EVO was the recipient of
a grant in the amount of $400,000 from the Texas Commission on Environmental Quality. The grant funds were used to complete the
construction of the Company’s San Antonio facility as contemplated in the grant agreement. The grant proceeds are subject
to repayment if the Company does not satisfy certain operational metrics contained in the grant agreements.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 8 - Commitments and Contingencies
(continued)
Walters Recycling and Refuse Station
In June 2016 Blaine entered into a compressed
natural gas fuel station agreement (the “Agreement”) with Walters, an unrelated third party. Under the Agreement Blaine
agreed to construct, at its sole expense, a CNG dispensing system (the “System”) on a portion of the property owned
by Walters. Titan was required to have the System fully operational by June 2017. Titan did not meet the operational deadline
as defined, and the project was cancelled per the Agreement.
SCAQMD
In December 2015, Diamond Bar entered into
a transfer of ownership and lease arrangement with the SCAQMD. This property has an existing CNG station previously owned and operated
by the SCAQMD. Thirty days after the date of the agreement, SCAQMD transferred to Diamond Bar, without charge, all of their rights
and interests in the existing assets. The agreement also specifies that Diamond Bar lease the property for $1 and identifies certain
commitments agreed to by the parties. Some of the more significant ones are as follows:
|
●
|
Within 180 days from the contract execution, Diamond Bar, using its best efforts, shall sell any surplus assets and provide SCAQMD with 90% of the net proceeds, as defined. To date Diamond Bar has not had any surplus assets to sell.
|
|
|
|
|
●
|
Diamond Bar is also required to comply with certain provisions in the agreement with regards to the operation and maintenance of the station.
|
|
|
|
|
●
|
Diamond Bar, at their expense and upon written consent from SCAQMD, can remodel, redecorate or otherwise make improvements and replacements of and to all or any part of the leased premises.
|
|
|
|
|
●
|
Diamond Bar was required, within eight months of the execution date, to install specific station upgrades, as defined, and was responsible for the cost of these upgrades. All upgrades must be completed within eight months of the execution date. Any improvements made to the premises remain the property of Diamond Bar and can be removed by Diamond Bar.
|
|
|
|
|
●
|
The fueling rate charged to the SCAQMD is based on actual utility costs, taxes and a fee not to exceed $0.50 per GGE. Currently the rate charged is substantially equal to the market rate charged to all other customers.
|
|
|
|
|
●
|
The contract ends December 31, 2020. SCAQMD can extend the contract for a period not to exceed five years starting January 1, 2021 at no additional cost. Either party may terminate the contract with sixty days’ notice. If the SCAQMD terminates without cause they will be required to either purchase the property necessary for the operation of the CNG station or reimburse Diamond Bar for the cost of removing the property. If Diamond Bar terminates the contract without cause, the SCAQMD shall have the option to either purchase the property necessary for the operation of the station or require Diamond Bar to remove the property at no cost to SCAQMD.
|
Long-Term Take-or-Pay Natural Gas Supply
Contracts
At December 31, 2017, the Company had
commitments to purchase CNG on a take-or-pay basis of approximately $545,000, which has not been enforced by the Company. It
is anticipated these are normal purchases that will be necessary for sales, and no cash settlements will be made related to the
purchase commitments.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 9 - Income Taxes
Deferred income tax assets have been reduced
by a valuation allowance as it is more likely than not that they will not be realized because it cannot demonstrate that it is
more likely than not that it will realize the benefit of that asset. In addition, future utilization of the available net operating
loss carryforward may be limited under Internal Revenue Code Section 382 as a result of changes in ownership. In November 2016,
the Company experienced an ownership change as a result of an issuance of its common stock. Utilization of the Company's net operating
loss may be subject to substantial limitation.
There are no significant matters determined
to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC 740 “Income Taxes”
(“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements,
that have been recorded on the Company’s financial statements for the years ended December 31, 2017 and 2016. The Company
does not anticipate a material change to unrecognized tax benefits in the next twelve months.
It is the Company’s practice to recognize
penalties and/or interest related to income tax matters in the interest and penalties expense. There are no interest and penalties
recognized in the statements of operations or accrued on the balance sheets.
The Company files tax returns in the United
States, in various states including California, Colorado and Minnesota. The Company’s United States federal income tax filings
for tax years 2043 through 2017 remain open to examination. In general, the Company’s various state tax filings remain open
for tax years 2013 to 2017.
As of December 31, 2017 and 2016, the Company
had federal net operating loss carry forwards of approximately $4.8 million and $197,000, respectively, for income tax purposes
that expire starting in 2037.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net operating loss
|
|
$
|
(9,232,187
|
)
|
|
$
|
(2,862,249
|
)
|
Summary of deferred tax assets and liabilities
are as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax asset
|
|
|
|
|
|
|
Accrued expenses and other
|
|
$
|
21,898
|
|
|
$
|
-
|
|
Depreciation
|
|
|
1,323,599
|
|
|
|
-
|
|
Stock based compensation
|
|
|
22,320
|
|
|
|
-
|
|
Loss carryforwards
|
|
|
2,675,488
|
|
|
|
79,953
|
|
Total deferred tax assets
|
|
|
4,043,305
|
|
|
|
79,953
|
|
Valuation allowance
|
|
|
(2,817,186
|
)
|
|
|
-
|
|
Net deferred tax asset
|
|
$
|
1,226,119
|
|
|
$
|
79,953
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
Debt discount
|
|
$
|
(1,226,119
|
)
|
|
$
|
-
|
|
Depreciation
|
|
$
|
-
|
|
|
$
|
(151,247
|
)
|
Total deferred tax liability
|
|
$
|
-
|
|
|
$
|
(71,294
|
)
|
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
Note 9 - Income Taxes (continued)
Components reflected in the consolidated
statements of operations are as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,449,137
|
)
|
|
|
59,852
|
|
State and local
|
|
|
(439,343
|
)
|
|
|
11,442
|
|
Valuation allowance
|
|
|
2,817,186
|
|
|
|
-
|
|
|
|
|
(71,294
|
)
|
|
|
71,294
|
|
Total income tax provision
|
|
$
|
(71,294
|
)
|
|
$
|
71,294
|
|
The following is a reconciliation of the
statutory federal income tax rate applied to pre-tax accounting net loss compared to the income taxes in the consolidated statements
of operations:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Income tax benefit at the statutory rate
|
|
|
(3,138,943
|
)
|
|
$
|
(974,581
|
)
|
Change resulting from
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal income tax
|
|
|
(333,592
|
)
|
|
|
(186,317
|
)
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
193,375
|
|
Pre-acquisition loss
|
|
|
-
|
|
|
|
1,025,765
|
|
Change in tax rate
|
|
|
576,444
|
|
|
|
-
|
|
Change in valuation
|
|
|
2,817,186
|
|
|
|
-
|
|
Non-deductible and other
|
|
|
7,611
|
|
|
|
13,052
|
|
|
|
$
|
(71,294
|
)
|
|
$
|
71,294
|
|
Note 10 - Subsequent Events
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 Jerry Moyes. Each Unit consists of (i) one share of the Company’s common
stock, par value $0.0001 per share (“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 did not pay any commissions
in connection with the sale of these Units.
In connection with the sale of Units, the
Company issued 89,092 shares of Common Stock on March 2, 2018, to Kirk Honour, the Company’s former president, pursuant to
the terms of the Separation Agreement between the Company and Kirk Honour dated October 9, 2017.
On or about March 20, 2018, the Company
entered into a Share Escrow Agreement (the “Escrow Agreement”) with certain of the Company’s shareholders, including
entities affiliated with Scott Honour, a director of the Company, and Kirk Honour, the Company’s former president. Pursuant
to the terms of the Escrow Agreement, the shareholders 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 offers to purchase the escrowed shares and the
Company approves such purchase or purchases. 75% 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 Tradition Capital Bank loan facility,
and the remaining 25% of the proceeds will be paid pro rata to the shareholders party to the Escrow Agreement. In connection with
the Escrow Agreement, the Company issued 240,000 warrants to purchase Common Stock to the shareholders 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.
EVO
TRANSPORTATION & ENERGY SERVICES, INC
Notes to Consolidated Financial Statements
On April 2, 2018, the Company and a related
party note holder agreed to extend the maturity date of the $3,800,000 promissory note through July 2019.
On April 12, 2018, the Company consummated
the following transactions:
|
●
|
The Company issued 275,583 common shares in exchange for certain Senior Bridge Notes in the aggregate principal amount of approximately $689,000, with the per share price for shares of common stock equal to $2.50.
|
|
|
|
|
●
|
The Company issued 268,057 common shares in exchange for the Junior Bridge Notes in the aggregate principal amount of approximately $1,340,261, with the per share price for shares of common stock equal to $5.00.
|
The Units and Common Stock described above
were offered and sold as part of private placements solely to “accredited investors” as that term is defined under
Rule 501(a) under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to exemptions from the registration
requirements of the Securities Act afforded by Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder.
The foregoing summary of the material terms
of the subscription agreements and warrant is not complete and is qualified in its entirety by reference to the subscription agreements
included as exhibits to this annual report on Form 10-K.
On April 13, 2018, the Company filed a Certificate of Designation
of Rights and Preferences of Series A Preferred Stock (the “Certificate of Designation”) with the Secretary of State
of the State of Delaware, which authorizes the Company to issue up to 100,000 shares of Series A Preferred Stock, par value $0.0001
per share (“Series A Preferred Stock”). The Series A Preferred Stock ranks senior in preference and priority to the
Company’s common 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 directors, and are entitled to fifteen votes for each share of Series A Preferred Stock held
on the record date for the determination of the stockholders entitled to vote or, if no record date is established, on the date
the vote is taken.
The Series A 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 A Preferred
Stock. The initial conversion ratio shall be adjusted in the event of any stock splits, stock dividends and other recapitalizations.
In addition, each share of Series A Preferred Stock will automatically convert to one share of Common Stock if the closing price
on all domestic securities exchanges on which the Common Stock may at the time be listed exceeds six dollars ($6.00) per share
for thirty (30) consecutive trading days and the daily trading volume of the Common Stock is at least twenty thousand (20,000)
shares for that same period.
The holders of the Series A Preferred Stock are entitled to
a liquidation preference of $3.00 per share of Series A Preferred Stock plus any accrued but unpaid dividends upon the liquidation
of the Company. The Series A 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 A Preferred Stock may cause the Company to redeem the holder’s
Series A Preferred Stock at any time after August 1, 2018 at a redemption price equal to $3.00 plus all accrued but unpaid dividends.
The approval of the holders of at least a majority of the Series
A 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 as to alter or repeal the preferences, rights, privileges or powers of the Series A Preferred Stock
in a manner that would adversely affect the rights of the holders of the Series A Preferred Stock.
A copy of the Certificate of Designation
is attached hereto and is incorporated herein by reference.
On April 12, 2018, the Company approved
the issuance of 100,000 shares of Series A Preferred to Danny R. Cuzick, a member of the Company’s board of directors, as
compensation for services rendered to the Company.
On April 12, 2018, the Board approved,
subject to subsequent shareholder approval, the adoption of the EVO Transportation & Energy Services, Inc. 2018 Stock Incentive
Plan (the "Plan"), which provides for the grant of options to purchase up to 4,250,000 shares of the Company’s
common stock.
Pursuant to the terms and conditions of the Plan, the Board granted 4,000,000 stock options on April 12,
2018. The stock options have an exercise price equal to $2.50 per share, each option shall terminate ten years from the date issued.
25% of the options vested on the grant date, and the remaining options vest in equal annual installments on the first, second and
third anniversary of the grant date. However, all unvested options vest immediately upon the Company’s closing on an aggregate
of at least $30,000,000 in any combination of public and private equity and debt financings after the grant date.
During February 2018, the Company entered
into a management agreement with a third-party to operate Titan Diamond Bar. The Company is currently negotiating with the third
party for the sale of station.