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

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

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

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

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

As of ~~January 21,~~June 27, 2022, there were ~~15,213,145~~16,387,944 shares of the registrant’s common stock, par value $0.0001, outstanding.

We have been delayed in filing this Quarterly Report on Form 10-Q (this ~~“Q1 2020~~“Q3 2021 Quarterly Report”). Immediately following the filing of this ~~Q1 2020~~Q3 2021 Quarterly Report, we expect to file ~~our Quarterly Reports on Form 10-Q for the three-month periods ended June 30, 2020 and September 30, 2020 and~~ our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the “2020 10-K”). Unless otherwise noted, the disclosures in this ~~Q1 2020~~Q3 2021 Quarterly Report speak as of ~~March 31, 2020~~September 30, 2021 and for the three-month ~~period~~and nine-month periods then ended.


	March 31, 2020			December 31, 2019			September 30, 2021			December 31, 2020
($ in thousands, except per share data)
($ in thousands, except share and per share data)
Assets
Current assets
Cash	$	3,327		$	3,274		$	6,713		$	26,644
Accounts receivable - trade, net		10,990			11,683			27,194			13,033
Alternative fuels tax credit receivable		2,534			2,442			312			1,054
Due from related party		131			—			10			40
Prepaids and other current assets		3,398			2,765			3,569			2,205
Total current assets		20,380			20,164			37,798			42,976
Non-current assets
Property and equipment, net		39,394			41,731			28,800			28,240
Goodwill		23,837			23,837			23,837			23,837
Intangible assets, net		5,810			6,045			4,406			5,087
Operating lease right-of-use assets, net		13,820			13,749			7,784			10,473
Finance lease right-of-use assets, net		12,753			3,436			24,786			27,913
Assets held for sale		—			450
Deposits and other long-term assets		3,700			2,326			4,938			3,797
Total non-current assets		99,314			91,574			94,551			99,347
Total assets	$	119,694		$	111,738		$	132,349		$	142,323
Liabilities, Temporary Equity and Stockholders’ Deficit
Current liabilities
Accounts payable	$	16,960		$	16,262		$	10,981		$	11,698
Accrued expenses and other current liabilities		4,059			12,880			15,115			18,589
Accrued interest - related party		1,680			1,482			2,606			2,249
Embedded derivative liability		1,066			1,021			871			2,278
Warrant liabilities		2,865			—			9,021			11,264
Advances under factoring arrangements		24,976			18,046
Advances under factoring arrangements, current portion								17,422			24,397
Current portion of long-term debt		6,955			5,681			21,640			12,727
Current portion of long-term debt - related party		48,199			25,656			24,861			50,252
Operating lease liabilities, current portion		4,443			4,161			4,038			3,801
Finance lease liabilities, current portion		2,197			1,196			4,632			4,597
Total current liabilities		113,400			86,385			111,187			141,852
Non-current liabilities
Advances under factoring arrangements, less current portion								5,635			—
Long-term debt, less current portion		9,168			12,109			7,322			24,737
Long-term debt, less current portion - related party		2,984			12,012			11,497			3,379
Operating lease liabilities, less current portion		9,153			9,374			3,731			6,553
Finance lease liabilities, less current portion		11,130			2,615			21,883			24,884
Deferred tax liability		278			375			60			17
Total non-current liabilities		32,713			36,485			50,128			59,570
Total liabilities		146,113			122,870			161,315			201,422
Commitments and contingencies (Note 11)
Temporary Equity
Series A Redeemable Convertible Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 100,000 shares issued and outstanding, includes accrued and undeclared dividends $71 (March 31, 2020) and $41 (December 31, 2019) liquidation preference $371 (March 31, 2020) and $341 (December 31, 2019)		371			341
Series B Redeemable Convertible Preferred stock, $0.0001 par value; 3,075,000 shares authorized, 2,050,000 shares issued and outstanding, includes accrued and undeclared dividends $12 (March 31, 2020) and $0 (December 31, 2019) liquidation preference $6,162 (March 31, 2020) and $0 (December 31, 2019)		6,162			—
Redeemable common stock, at redemption value; 2,240,000 (March 31, 2020 and December 31, 2019)		1,200			1,200
Series A Redeemable Convertible Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 100,000 shares issued and outstanding, includes accrued and undeclared dividends $125 (September 30, 2021) and $98 (December 31, 2020) liquidation preference $425 (September 30, 2021) and $398 (December 31, 2020)								425			398
Series B Redeemable Convertible Preferred stock, $0.0001 par value; 3,075,000 shares authorized, 2,050,000 shares issued and outstanding, includes accrued and undeclared dividends $935 (September 30, 2021) and $475 (December 31, 2020) liquidation preference $7,085 (September 30, 2021) and $6,625 (December 31, 2020)								7,085			6,625
Redeemable common stock, at redemption value; 2,240,000 (September 30, 2021 and December 31, 2020)								1,200			1,200
Stockholders’ deficit
Common stock, $0.0001 par value; 100,000,000 shares authorized; 12,102,498 (March 31, 2020) and 12,093,834 (December 31, 2019) shares issued and outstanding		1			1
Common stock subscribed and not yet issued $0 (March 31, 2020) and 8,664 (December 31, 2019)		—			12
Common stock, $0.0001 par value; 100,000,000 shares authorized; 12,972,815 (September 30, 2021 and December 31, 2020) shares issued and outstanding								2			2
Common stock subscribed and not yet issued 330 (September 30, 2021) and 80 (December 31, 2020)								—			—
Common stock issuable		3,474			3,474			4,390			3,474
Additional paid-in capital		30,846			38,611			32,153			30,821
Accumulated deficit		(68,473	)		(54,771	)		(74,221	)		(101,619	)
Total stockholders’ deficit		(34,152	)		(12,673	)		(37,676	)		(67,322	)
Total liabilities, temporary equity, and stockholders’ deficit	$	119,694		$	111,738		$	132,349		$	142,323


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands, except per share data)	2020			2019
($ in thousands, except share and per share data)							2021			2020			2021			2020
Revenue
Trucking	$	55,406		$	28,091		$	68,769		$	52,133		$	179,160		$	159,258
Other								—			—			34,758			—
CNG		320			285			91			256			281			808
Total revenue		55,726			28,376			68,860			52,389			214,199			160,066
Operating expenses
Payroll, benefits and related		27,531			12,996			25,689			25,404			69,394			78,135
Purchased transportation		8,093			6,196			17,303			7,546			38,024			23,023
Fuel		7,141			3,753			7,278			5,023			19,131			16,948
Equipment rent		3,238			2,848			3,736			2,086			9,275			7,743
Maintenance and supplies		2,833			2,003			2,642			2,263			7,357			7,753
General and administrative		4,944			2,140			6,335			4,858			17,121			14,086
Operating supplies and expenses		3,857			1,746			3,748			3,705			11,308			11,722
Depreciation and amortization		3,470			1,236			4,009			3,816			11,371			10,931
Insurance and claims		2,560			1,143			1,918			2,077			6,881			7,617
Loss on sale of fixed assets								41			—			78			—
Change in fair value of contingent consideration								—			—			—			296
CNG expenses		186			635			24			95			218			386
Total operating expenses		63,853			34,696			72,723			56,873			190,158			178,640
Operating loss		(8,127	)		(6,320	)
Operating income (loss)								(3,863	)		(4,484	)		24,041			(18,574	)
Other income (expense)
Interest expense		(3,624	)		(1,115	)		(2,784	)		(3,083	)		(9,686	)		(10,148	)
Change in fair value of embedded derivative liability		(45	)		—			1,311			815			1,407			661
Change in fair value of warrant liabilities		8,235			—			481			(1,726	)		2,243			5,534
Loss on extinguishment of debt		(10,086	)		—
Gain (loss) on extinguishment of debt								10,163			46			10,953			(10,010	)
Other miscellaneous income								10			34			14			34
Total other expense		(5,520	)		(1,115	)		9,181			(3,914	)		4,931			(13,929	)
Loss before income taxes		(13,647	)		(7,435	)
Income (loss) before income taxes								5,318			(8,398	)		28,972			(32,503	)
(Provision) benefit for income taxes		(55	)		—			11			(37	)		(1,574	)		(142	)
Net loss	$	(13,702	)	$	(7,435	)
Accrued and undeclared preferred stock dividends in arrears		42			6
Issuance of warrants as deemed dividend - related party		455			—
Net loss available to common stockholders	$	(14,199	)	$	(7,441	)
Basic and diluted weighted average common shares outstanding		19,902,498			3,339,356
Basic and diluted net loss per common share	$	(0.71	)	$	(2.23	)
							$	5,329		$	(8,435	)	$	27,398		$	(32,645	)
Earnings per share:
Basic							$	0.17		$	(0.42	)	$	0.89		$	(1.68	)
Diluted							$	0.16		$	(0.42	)	$	0.83		$	(1.68	)
Weighted average shares outstanding:
Basic								30,891,398			20,270,915			30,377,872			19,906,638
Diluted								33,536,838			20,270,915			33,358,162			19,906,638

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


	For the Three Months Ended March 31,						For the Nine Months Ended September 30,
($ in thousands)	2020			2019			2021			2020
Cash flows from operating activities
Net loss	$	(13,702	)	$	(7,435	)
Net income (loss)							$	27,398		$	(32,645	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		3,470			1,236			11,371			10,931
Non-cash lease expense		958			749			2,903			3,042
Gain on sale of assets		(8	)		(6	)
Loss on sale of fixed assets								78			206
Amortization of debt discount and debt issuance costs		946			254			793			1,819
Deferred income taxes		(97	)		—			43			(255	)
Stock option and warrant-based compensation		368			100
Stock-based compensation expense								527			428
Non-cash interest expense		711			27			4,768			2,758
Bad debt expense								1			57
Change in fair value of embedded derivative liability		45			—			(1,407	)		(661	)
Bad debt expense		—			27
Change in fair value of warrant liabilities		(8,235	)		—			(2,243	)		(5,534	)
Loss on extinguishment of debt		10,086			—
Realized gain on derivative liability		—			(11	)
Gain on conversion of accounts payable to common stock		—			(12	)
Common stock issued for services - related party		—			25
Change in fair value of contingent consideration								—			296
(Gain) loss on extinguishment of debt								(10,953	)		10,010
Changes in assets and liabilities
Accounts receivable - trade		693			1,468			(14,162	)		(4,705	)
Accounts receivable - related party		—			41
Alternative fuels tax credit receivable		(92	)		30			742			1,460
Due from related party		(1	)		—			30			—
Other assets		(2,018	)		157			(2,502	)		(2,303	)
Accounts payable		698			(2,459	)		(721	)		(7,048	)
Accounts payable - related party		—			91
Accrued expenses and other current liabilities		(8,822	)		(1,056	)		(2,924	)		3,534
Accrued interest - related party		198			173			357			844
Operating lease liabilities		(1,079	)		(749	)		(4,092	)		(3,253	)
Net cash used in operating activities		(15,881	)		(7,350	)
Net cash provided by (used in) operating activities								10,007			(21,019	)
Cash flows from investing activities
Acquisitions, net of cash acquired		—			1,243
Right-of-use asset deposit		—			(400	)
Purchases of equipment		(36	)		(19	)		(7,132	)		(61	)
Proceeds from sale of assets		8			186			315			430
Net cash provided by (used in) investing activities		(28	)		1,010			(6,817	)		369
Cash flows from financing activities
Proceeds from sale of common stock, preferred stock and warrants		6,150			—			—			6,150
Proceeds from issuance of debt		—			4,902			5,749			10,000
Payments of principal on debt		(1,731	)		(4,668	)		(4,306	)		(4,430	)
Line of credit, net		—			(6	)
Proceeds from issuance of debt - related party		6,150			400			—			6,150
Payments of principal on debt - related party		(99	)		(28	)		(18,513	)		(266	)
Payments on fuel advance		—			(3	)
Advances from factoring arrangements, net		6,340			6,361
Payment of prepayment penalty fees - related party								(777	)		—
Advances from factoring arrangements								147,233			132,294
Payments on factoring arrangements								(149,451	)		(122,461	)
Debt issuance costs		(296	)		—			—			(296	)
Payments on finance lease liability		(552	)		(151	)
Net cash provided by financing activities		15,962			6,807
Payments on finance lease liabilities								(3,056	)		(2,487	)
Net cash provided by (used in) financing activities								(23,121	)		24,654
Net increase in cash		53			467			(19,931	)		(17,384	)
Cash - beginning of period		3,274			1,630
Cash - end of period	$	3,327		$	2,097
Cash - beginning of year								26,644			3,274
Cash - end of year							$	6,713		$	(14	)

Supplemental disclosure of cash flow information:
Supplemental disclosures of cash flow information:
Income tax paid	$	—		$	—		$	783		$	1
Interest paid	$	1,320		$	473		$	471		$	3,046

Supplemental schedule of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for finance lease liabilities	$	5,974		$	—		$	1,636		$	18,490
Right-of-use assets obtained in exchange for operating lease liabilities	$	3,379		$	—		$	1,507		$	3,379
Fair value of warrants and common stock issued in connection with financing arrangements							$	2,208		$	—
Held-for-sale assets sold for noncash consideration	$	450		$	—		$	—		$	450
Fair value of common stock and redeemable common stock issued for acquisitions	$	—		$	3,101
Debt issued to sellers for acquisitions	$	—		$	6,430
Fixed assets acquired from the issuance of debt	$	—		$	230
Common stock for settlement of accounts payable	$	—		$	10

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

Description of Business

EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. We believe EVO is the second largest surface transportation company serving the USPS, with a diversified fleet of tractors, straight trucks, and other vehicles that currently operate on either diesel fuel or compressed natural gas (“CNG”). In certain markets, we fuel our vehicles at 1 of our 3 CNG stations that serve other customers as well. We are actively engaged in reducing CO2 emissions by operating on CNG, pursuing opportunities to use other alternative fuels, and by optimizing the routing efficiency of our operations to reduce fuel usage. In connection with providing our mail transportation and delivery services to the USPS and our freight services to other corporate customers, we outsource the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from 10 main terminals located throughout the United States.

We have grown primarily through acquisitions, and we have completed 7 acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers.

~~The Company completed the following acquisitions in 2019:~~

•

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

•

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

•

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

•

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

Going Concern

As of ~~March 31, 2020,~~September 30, 2021, the Company had a cash balance of $~~3.3~~6.7 million, a working capital deficit of $~~93.0~~73.4 million, stockholders’ deficit of $~~34.2~~37.7 million, and material debt and lease obligations of $~~119.2~~122.7 million, which include term loan borrowings under a financing agreement with Antara Capital. During the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, the Company reported cash ~~used in~~provided by operating activities of $~~15.9~~10.0 million that included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements and a net ~~loss~~income of $~~13.7~~27.4 ~~million.~~million that included $

34.8 million of pre-tax nonrecurring revenue from the USPS settlement agreements and a $

711.0

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

million pre-tax gain on extinguishment of debt.

The following significant transactions and events affecting the Company’s liquidity occurred during the ~~three~~nine months ended ~~March 31, 2020:~~September 30, 2021:

•

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

•

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

~~The following significant transactions and events affecting the Company’s liquidity occurred following the three months ended March 31, 2020:~~

•

~~During the second quarter of 2020, the Ritter Companies obtained a loan in the amount of $10.0~~ million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company used the entire loan amount for qualifying expenses, and the entire amount borrowed under the loan, including accrued interest, was forgiven by the United States Small Business Administration (“SBA”) in July 2021, which will be recognized as a gain on extinguishment of the PPP loan in the Company's 2021 financial statements.

•

During the fourth quarter of 2020, one of the ~~Company~~ Company's subsidiaries borrowed $17.0 million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act (the “~~Main~~“Main Street Loan”) and during the first quarter of 2021 used all of the net proceeds ~~to refinance a portion of the amount outstanding under the Antara Financing Agreement and to pay related prepayment premiums.~~ ~~The entire outstanding principal balance of the Main Street Loan, together with all accrued and unpaid interest, is due and payable in full on~~ ~~December 14, 2025~~.

•

~~During the first quarter of 2021, the Company used the proceeds from its borrowings under the Main Street Priority Loan Program~~ to pay down the aggregate principal amount due tounder the Antara Financing Agreement, including capitalized interest, from $~~31.7~~33.6 million to $16.7 million.

•

During the first quarter of 2021, the Company entered into agreements with the USPS to settle claims submitted by the Company seeking additional compensation for transportation services provided under certain Dynamic Route Optimization (“DRO”) contracts. The Company received a total of $~~28.4~~28.5 million related to these claims and also renegotiated the contractual rates per mile for some of its DRO contracts on a prospective basis.

•

During the first quarter of 2021, the Company entered into an agreement with ~~its factoring lender (“Triumph”~~the Factor (as defined in Note 5, Factoring Arrangements) related to the application of $17.5 million and $7.1 million of proceeds received from the USPS in February and January of 2021, respectively, arising out of the settlement agreements described above. Pursuant to the agreement, the parties acknowledged that ~~Triumph~~the Factor previously applied approximately $1.6 of the $7.1 million of proceeds received in January 2021 plus approximately $0.6 million of funds held in reserve against a balance of $3.0 million for advances that ~~Triumph~~the Factor made to the Company in September 2020 (the “Gross Purchase Advance Facility”) and agreed that ~~Triumph~~the Factor would remit $11.0 million of net proceeds to the Company and that ~~Triumph~~the Factor would retain approximately $6.9 million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $~~6.9~~$6.9 million due under the factoring arrangement in 48 equal monthly installments beginning January 1, 2022 and that ~~Triumph~~the Factor would apply funds held in reserve against the approximately $0.8 million remaining balance of the Gross Purchase Advance Facility. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.

•

During the first and second quarters of 2021, the Company entered into agreements with certain noteholders to purchase promissory notes previously issued by the Company in the principal amount of $~~0.6~~4.0 million by paying $~~0.1~~0.6 million in cash and issuing warrants to purchase an aggregate of up to ~~231,453~~1,481,453 shares of the Company’s common stock at a price of $0.01 per share. The Company also agreed to exchange the warrant, previously issued to a noteholder, to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

•

During the second quarter of 2020, the Company obtained a loan in the amount of $10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company used the entire loan amount for qualifying expenses, and the entire amount borrowed under the loan, including all accrued interest, was forgiven by the United States Small Business Administration (“SBA”) in July 2021.

~~While these~~The following significant transactions and events ~~resulted~~affecting the Company’s liquidity occurred following the nine months ended September 30, 2021:

•

During the first quarter of 2022, the Company obtained a Bridge Loan and Executive Loans, both as described in ~~an overall increase~~Note 13, Subsequent Events, in the ~~Company’s cash balance as~~aggregate amount of ~~December 31, 2021, an overall reduction~~approximately $9.8 million.

•

During the first quarter of 2022, the Company entered into amendments to certain secured convertible promissory notes in the ~~Company’s working capital deficit as~~aggregate principal amount of ~~December 31, 2021,~~$9.5 million to permit immediate conversion of those notes, and ~~an overall extension~~the holders representative converted those notes into warrants to purchase 7,553,750 shares of common stock of the ~~maturity dates for the Company’s debt obligations, the~~ Company ~~continues to have~~at a ~~working capital deficit and stockholders’ deficit as~~price of ~~December 31, 2021 and (after excluding the impacts of the USPS settlement agreements and the forgiveness of the PPP loan discussed above) continues to incur net losses during 2021.~~ $0.01 per share.

As a result of these circumstances, the Company believes its existing cash, together with any positive cash flows from operations, may not be sufficient to support working capital and capital expenditure requirements for the next 12 months, and the Company may be required to seek additional financing from outside sources.

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

•

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

•

The Company is currently in default on certain of its debt obligations (Refer to Note 7,6, Debt, for further discussion); and

•

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

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

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

•

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

•

Potential future public or private debt or equity offerings;

•

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

•

Profitably expanding trucking revenue;

•

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

•

Improvements to operations to gain driver efficiencies;

•

Purchases of trucks and trailers to reduce purchased transportation and rental vehicles; and

•

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

Notwithstanding management’s plans, there can be no assurance that the Company will be successful in its efforts to address its current liquidity and capital resource constraints. These conditions raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Refer to Notes 65 and ~~7 to the unaudited condensed consolidated financial statements~~6 for further information regarding the Company’s ~~debt~~factoring and ~~factoring~~debt obligations. Refer to Note 13, ~~to the consolidated financial statements~~Subsequent Events, for further information regarding changes in the Company’s debt obligations and liquidity subsequent to ~~March 31, 2020.~~September 30, 2021.

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

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

pertaining to online holiday shopping, the length of the holiday season (shopping days between Thanksgiving and Christmas), and holiday surge pricing on USPS contracts.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and therefore should be read in conjunction with the Company’s December 31, ~~2019~~2020 Annual Report on Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the three and nine months ended ~~March 31, 2020~~September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. The balance sheet at December 31, ~~2019~~2020 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to goodwill and long-lived asset valuations, purchase price allocations related to the Company’s business combinations, valuation allowance on deferred income tax assets, and the valuation of our common stock, preferred stock, warrants and stock-based awards.

~~Net Loss~~Earnings (Loss) per Share of Common Stock

Basic ~~net loss~~earnings (loss) per share of common stock attributable to common stockholders is calculated by dividing net ~~loss~~income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible notes payable and preferred stock using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net loss per share of common stock attributable to common stockholders when their effect is dilutive.

The following table presents the computation of basic and diluted earnings (loss) per share (amounts in thousands, except share data):

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Numerator:
Net income (loss)	$	5,329		$	(8,435	)	$	27,398		$	(32,645	)
Accrued and undeclared preferred stock dividends in arrears		(164	)		(164	)		(487	)		(368	)
Issuance of warrants as deemed dividend - related party		—			—			—			(455	)
Net income (loss) available to common stockholders - numerator for basic EPS		5,165			(8,599	)		26,911			(33,468	)
Effect of dilutive securities:
$4.0 million Secured Convertible Promissory Notes		27			—			258			—
Redeemable Series A Preferred stock		9			—			27			—
Redeemable Series B Preferred stock		155			—			460			—
Subtotal		191			—			745			—
Adjusted net income (loss) available to common stockholders - numerator for diluted EPS	$	5,356		$	(8,599	)	$	27,656		$	(33,468	)

Denominator:
Denominator for basic EPS - weighted average common shares outstanding		30,891,398			20,270,915			30,377,872			19,906,638
Effect of dilutive securities:
$4.0 million Secured Convertible Promissory Notes		196,802			—			639,259			—
Redeemable Series A Preferred stock		138,597			—			132,647			—
Redeemable Series B Preferred stock		2,310,041			—			2,208,384			—
Subtotal		2,645,440			—			2,980,290			—
Denominator for diluted EPS - adjusted weighted average common shares outstanding		33,536,838			20,270,915			33,358,162			19,906,638
Basic EPS	$	0.17		$	(0.42	)	$	0.89		$	(1.68	)
Diluted EPS	$	0.16		$	(0.42	)	$	0.83		$	(1.68	)

The following table presents the potentially dilutive shares that were excluded from the computation of diluted ~~net loss~~earnings (loss) per share of common stock attributable to common stockholders, because either their effect was ~~anti-dilutive:~~anti-dilutive or they are contingently issuable shares that were not issuable assuming the end of the reporting period was the end of the contingency period:


					Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		2021		2020		2021		2020
Stock options		7,914,250		4,819,250		10,420,249		9,354,250		10,420,249		9,354,250
Warrants		20,031,255		4,296,255		12,606,255		20,031,255		12,606,255		20,031,255
Common stock to be issued upon conversion of Secured convertible promissory notes		1,637,946		1,626,856
Common stock to be issued upon conversion of $4.0 million Secured Convertible Promissory Notes						—		1,712,690		—		1,712,690
Common stock to be issued upon conversion of Redeemable Series A Preferred stock		123,605		107,742		—		129,622		—		129,622
Common stock to be issued upon conversion of Redeemable Series B Preferred stock		2,053,932		—		—		2,156,712		—		2,156,712
Common stock to be issued upon conversion of Convertible promissory notes - related parties		7,332,500		7,227,500
Common stock to be issued upon conversion of Four convertible promissory notes with an aggregate principal amount of $9.5 million						7,490,000		7,385,000		7,490,000		7,385,000
Common stock and warrant to be issued for purchase of fixed assets		2,348,000		—		2,348,000		2,348,000		2,348,000		2,348,000
Total		41,441,488		18,077,603		32,864,504		43,117,529		32,864,504		43,117,529

Revenue Recognition

In accordance with ASC 606-10-50, the Company disaggregates Trucking revenue from contracts with its customers between USPS revenue and Freight revenue as follows:

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


($ in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
USPS revenue	$	59,546	$	45,607	$	155,849	$	139,148
Freight revenue		6,976		6,224		20,098		18,784
Other revenue		2,247		302		3,213		1,326
Total Trucking revenue	$	68,769	$	52,133	$	179,160	$	159,258

United States Postal Service Settlement

On January 19, 2021, the Company and the USPS entered into a settlement agreement whereby the USPS agreed to pay approximately $7.1 million to one of the Company’s subsidiaries as additional compensation for transportation services provided to the USPS under certain DRO contracts. Subsequently, on February 19, 2021, the Company and the USPS entered into an additional settlement agreement whereby the USPS agreed to pay approximately $17.5 million to certain other Company subsidiaries as additional compensation for transportation services provided to the USPS under other DRO contracts. In connection with the settlement agreements, the Company and the USPS agreed to make certain adjustments to the Company’s DRO contracts, including rate adjustments effective for the fourth quarter of 2020 and future periods. As a result of those adjustments, the USPS agreed to pay an additional $3.8 million to the Company for transportation services provided in the fourth quarter of 2020. The USPS has made all payments associated with these settlement agreements and they were received by the Factor (as defined in Note 5, Factoring Arrangements) on behalf of the Company during the first quarter of 2021. In addition, amounts totaling $6.3 million that were previously paid by the USPS to the Company during 2020 became subject to the terms of the settlement agreements and were recognized as a deferred gain as of December 31, 2020. All aforementioned amounts totaling $34.8 million were recognized as other revenue during the first quarter of 2021 in the consolidated statement of operations. Such amounts are for transportation services provided during 2020 and prior years, are not subject to refund, and are not contingent upon the Company providing future transportation services.

($ in thousands)

For the Three Months
Ended March 31,

2020

2019

USPS revenue

$
48,183

$
25,243

Freight revenue

6,575

2,848

Other revenue

648

—

Total Trucking revenue

$
55,406

$
28,091

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted

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

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

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

•

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

•

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

•

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

From a lessee perspective, the Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the Right-of-Use (“ROU”) assets and lease liabilities.

~~The Company’s adoption of ASU No. 2016-02 did~~ no~~t have a material impact to the Company’s consolidated statements of operations or its consolidated statements of cash flows, and the Company determined there was~~ 0 ~~cumulative-effect adjustment to beginning accumulated deficit on its January 1, 2019 consolidated balance sheet.~~

~~In January 2017,~~ the FASB issued ASU ~~2017-04,~~No. 2019-12, ~~Intangibles - Goodwill and Other~~Income Taxes (Topic ~~350) (“ASU 2017-04”),~~740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment~~Income Taxes. ToASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to 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 allocatedgeneral principles in Topic 740 and amends existing guidance 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 ~~early adopted~~ ~~the guidance for the year ended December 31, 2019 on a prospective basis. Such adoption did~~ no~~t have a material impact on its consolidated financial statements.~~

~~In June 2018, the FASB issued~~improve consistent application. ASU ~~2018-07,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity~~ ~~- Equity-Based Payments to Non-Employees~~.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Under ASU 2018-07, equity-classified nonemployee share-based payment awards are measured at the grant date fair value on the grant date. The probability of satisfying performance conditions must be considered for equity-classified nonemployee share-based payment awards with such conditions. ASU 2018-072019-12 is effective for fiscal years beginning after December 15, ~~2018, with early adoption permitted. The~~ ~~adoption~~ ~~of this standard on~~ ~~January 1, 2019~~ ~~did~~ no~~t have a material impact to the Company’s 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~~2020 and interim periods ~~beginning after December 15, 2019. Early adoption is permitted.~~within those fiscal years. The adoption of this guidance on January 1, ~~2020~~ ~~did~~ no~~t have a material impact on the Company’s disclosures.~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,~~ which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This ASU requires up-front implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to be amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This new accounting standard will be effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The ~~prospectiveadoption~~ ~~of this guidance on~~ ~~January 1, 2020~~2021 did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements to be Adopted

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

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

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. Adoption of the standard requires using either the modified retrospective or the retrospective approach. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Topic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

modified or exchanged in order to reduce diversity in practice. The standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating and assessing the impact this guidance will have on its consolidated financial statements.

~~Reclassifications~~

~~Certain amounts in the 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation, which include $16.3~~ ~~million reclassified from current portion of long-term debt to current portion of long-term debt - related party, $0.9~~ ~~million~~

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~reclassified from advances from suppliers to long-term debt, $2.7~~ ~~million reclassified from long-term debt to long-term debt - related party, and $2.5~~ ~~million reclassified from accrued expenses and other current liabilities to accounts payable. The reclassifications had no effect on previously reported results of operations or accumulated deficit.~~

~~Out of Period Adjustments~~

~~In the course of preparing our first quarter 2020 unaudited condensed consolidated financial statements, we revisited our previous accounting cla~~ssification for warrants and identified an error related to the presentation of certain warrants resulting in an understatement of noncurrent liabilities and their related change in fair value from September 16, 2019 to December 31, 2019. The underlying warrant agreements contain an anti-dilution protection feature for the warrant holders (commonly referred to as a “down round”) that does not meet the U.S. GAAP definition of a "down round." As a result, these warrants do not meet the criterion to be indexed to valuation inputs based on the Company’s own stock and must be classified as a liability measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations during each reporting period. ~~Accordingly, we corrected this error during the first quarter of 2020 by recording a $7.7~~ ~~million decrease in additional paid-in capital, a $0.6~~ ~~million increase in debt discount and a $5.7~~ ~~million increase in noncurrent warrant liabilities in the consolidated balance sheet, and a $2.6~~ ~~million change in fair value of warrant liabilities in the statement of operations. In addition, during the first quarter of 2020 we recognized $2.05~~ million of Trucking revenue that should have been recorded during the fourth quarter of 2019. Finally, we applied the incorrect incremental borrowing rate to certain leases during the period from September 16, 2019 through December 31, 2019 and recognized a $~~1.3~~ ~~million increase in finance lease ROU assets and lease liabilities and a $0.6~~ ~~million increase in operating lease ROU assets and lease liabilities during the first quarter of 2020.~~

~~Based on consideration of both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99,~~ ~~Materiality, and Staff Accounting Bulletin No. 108,~~ ~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements~~, we determined that the errors, individually and in the aggregate, are not material to our previously issued annual and interim consolidated financial statements. Furthermore, we determined that correcting the errors in the current period would not materially misstate our annual or interim consolidated financial statements. Therefore, no restatement or revision of our prior period annual or interim consolidated financial statements is required.

~~Note 2 - Acquisitions~~

The acquisitions described below were each accounted for as business combinations which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date in the Company’s consolidated balance sheets. The primary intangible assets recognized are customer relationships and trade names, which were valued using the excess earnings method and relief from royalty method, respectively. T~~he more significant assumptions inherent in the valuations include~~ ~~estimated revenue growth rates, operating margins, customer attrition rates, royalty rates, and the appropriate risk-adjusted discount rates used to discount the projected cash flows.~~ We valued property and equipment using a combination of the income approach, the market approach, and the cost approach, which is based on the current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors. Transaction costs for all of the acquisitions are immaterial and were expensed as incurred in general and administrative expenses in the consolidated statements of operations. Any excess of the fair value of consideration transferred over the fair value of the net assets acquired is recognized as goodwill. The Company’s underlying accounting records do not support t~~he disclosure of revenue and earnings of each acquiree since each respective acquisition date included in the consolidated income statements for the reporting periods presented~~ ~~and any attempt to report them would be impracticable.~~

~~Sheehy~~

~~On January 4, 2019, but effective January 2, 2019, the Company acquired Sheehy. The Company acquired all of the outstanding equity interests from the Sheehy stockholders in exchange for~~ ~~2,240,000~~ ~~shares of the Company’s common stock.~~

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

~~On April 7, 2020, the Sheehy stockholders notified the Company of their intent to exercise the redemption right, requesting $1.2~~ million in exchange for an unspecified number of shares of common stock to be determined by the establishment of a fair market value as set forth in the agreement. Because the exercise notice did not specify a number of shares subject to the notice as required by the acquisition agreement, the Company has asserted it does not have the obligation to do so under the terms of the acquisition agreement. The redemption period set forth in the acquisition agreement has since lapsed.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

On January 2, 2019, Sheehy Enterprises, Inc. (“SEI”), a related party, and Sheehy entered into an equipment lease agreement (the “Equipment Lease”), whereby SEI agreed to lease to Sheehy certain truck and trailer equipment owned by SEI. The Company agreed to pay SEI an amount equal to $~~92,000~~ ~~per month for approximately~~ ~~44 months, in addition to a promissory note (the “Sheehy Note”) in the principal amount of $0.4~~ ~~million to SEI. The Sheehy Note bears interest at the rate of~~ ~~5.65% per annum and had an initial~~ ~~maturity date of March 3, 2019~~. The Sheehy Note provides for up to four automatic extensions of the maturity date of 30 days each, provided that the Sheehy Note is not in default as of the date of each extension. If the principal and accrued interest on the Sheehy Note are not repaid by the end of the final maturity date extension term, then the principal and accrued interest amount of the Sheehy Note increases to $~~0.45~~ ~~million and the balance of the Sheehy Note automatically converts into shares of the Company’s common stock at a rate of $2.50~~ ~~per share. As of the final maturity extension date, the principal amount of $0.4~~ ~~million was outstanding. In accordance with the terms of the Sheehy Note, the principal amount increased to $0.45~~ ~~million. There also were intercompany receivables and payables due by and between EVO and certain entities owned by SEI shareholders (see~~ ~~Note 5 – Related Party Transactions – Due from Related Party~~). On November 18, 2019, the Company entered into an Intercompany Debt Repayment and Settlement Agreement (the “Intercompany Agreement”) by and between the Company, the stockholder, SEI and North American Dispatch Systems (“NADS”). Pursuant to this agreement, EVO assigned $~~0.4~~ ~~million of their outstanding receivable balance due from NADS as partial payment of the Sheehy Note. The remaining principal amount due, plus accrued interest on the Sheehy Note of $40,000~~ ~~was paid in the form of~~ ~~35,156~~ ~~shares of EVO common stock. No gain on settlement of related party debt was recorded. No further amounts are owed on the Sheehy Note.~~

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

($ in thousands)

Assets acquired

Accounts receivable - trade
$
376

Alternative fuels tax credit receivable

30

Due from related party

252

Prepaid expenses and other current assets

302

Property and equipment

3,091

Goodwill

4,051

Trade names

320

Customer relationships

650

Non-competition agreements

90

Right-of-use assets

5,878

Other long-term assets

3

Total assets acquired

15,043

Liabilities assumed

Accounts payable

(2,908
)
Accrued expenses

(1,183
)
Debt

(2,639
)
Operating lease liabilities

(4,476
)
Finance lease liabilities

(1,552
)
Total liabilities assumed

(12,758
)
Net assets acquired
$
2,285

Consideration paid

Fair value of 2,240,000 shares of common stock issuable
$
2,285

Total
$
2,285

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

~~Ursa and JB Lease~~

~~On February 1, 2019, the Company purchased all of the outstanding interests in Ursa for~~ ~~800,000~~ ~~shares of the Company’s common stock. In connection with the Ursa acquisition the Company acquired JB Lease, an affiliate of Ursa. As consideration for JB Lease, $2.5~~ ~~million in cash was paid to the Ursa stockholders, approximately $11.2~~ ~~million in existing JB Lease indebtedness was assumed, and a promissory note in the principal amount of approximately $6.4~~ ~~million was issued to the Ursa stockholders (the “JB Lease Note”) with a~~ ~~maturity date of August 2020~~. The JB Lease Note is interest-free until June 1, 2019, and is secured by 100% of the equity in Ursa and JB Lease. Beginning June 1, 2019, the JB Lease Note provides for monthly principal and interest payments of $~~50,000~~ ~~and bears interest at a rate of~~ 9~~% per annum, which interest is payable monthly in advance beginning June 1, 2019.~~ ~~On August 30, 2019, the maturity date of the JB Lease Note was extended to November 2022.~~

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

($ in thousands)

Assets acquired

Cash

$
3,743

Account receivable - trade

579

Prepaids and other current assets

1,646

Property and equipment

15,509

Goodwill

6,881

Trade names

1,300

Customer relationships

200

Non-competition agreements

80

Right-of-use assets

2,180

Other long-term assets

32

Total assets acquired

32,150

Liabilities assumed

Accounts payable

(5,641
)
Accrued expenses

(1,493
)
Operating lease liabilities

(2,180
)
Long-term debt

(11,199
)
Deferred tax liabilities

(1,891
)
Total liabilities assumed

(22,404
)
Net assets acquired

$
9,746

Consideration paid

Fair value of 800,000 shares of common stock issuable

$
816

Cash

2,500

Promissory note

6,430

Total

$
9,746

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

~~Finkle and Courtlandt~~

~~On July 19, 2019, but effective~~ ~~July 15, 2019, the Company acquired all of the outstanding equity interests in Finkle and Courtlandt in exchange for the following purchase consideration: (i)~~ ~~1,250,000~~ ~~shares of the Company’s common stock; (ii) $1.25~~ ~~million in cash paid at closing; and (iii) an earnout of up to approximately~~ ~~1,000,000~~ additional shares of the Company’s common stock, subject to the attainment of a specified performance target (Finkle and Courtlandt post-acquisition EBITDA) in the 12 months after the acquisition date. T~~he Company recorded an estimated contingent liability related to the~~ ~~earnout of $~~0 as of the acquisition date and December 31, 2019, respectively. The acquisition date fair value of the liability is included in purchase consideration and subsequent changes in the liability are included in general and administrative expense in the condensed consolidated statement of operations.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

($ in thousands)

Assets acquired

Cash

$
2

Prepaid expenses and other current assets

113

Property and equipment

6,778

Goodwill

2,384

Trade names

60

Customer relationships

700

Non-competition agreements

5

Right-of-use assets

2,172

Total assets acquired

12,214

Liabilities assumed

Accrued expenses

(199
)
Debt

(5,049
)
Operating lease liabilities

(2,105
)
Finance lease liabilities

(113
)
Deferred tax liability

(1,511
)
Total liabilities assumed

(8,977
)
Net assets acquired

$
3,237

Consideration paid

Fair value of 1,250,000 shares of common stock

$
1,987

Cash

1,250

Fair value of contingent consideration

—

Total

$
3,237

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

~~Ritter Companies~~

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

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

($ in thousands)

Assets acquired

Cash

$
1,134

Accounts receivable - trade

3,774

Prepaid expenses and other current assets

830

Property and equipment

13,650

Goodwill

8,704

Trade names

190

Customer relationships

310

Non-competition agreements

110

Right-of-use assets

1,515

Other long-term assets

426

Total assets acquired

30,643

Liabilities assumed

Accounts payable and accrued expenses

(2,105
)
Debt

(499
)
Operating lease liabilities

(1,515
)
Deferred tax liabilities

(2,447
)
Total liabilities assumed

(6,566
)
Net assets acquired

$
24,077

Consideration paid

Cash

$
20,611

Fair value of 2,440,982 shares of common stock

3,466

Total

$
24,077

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

~~Consolidated Pro Forma Information (Unaudited)~~

The following unaudited pro forma information combines the historical operations of the Company and the acquired companies giving effect to the business combinations as if they had been consummated on January 1, 2019, the beginning of the comparative period presented.

($ in thousands, except per share data)

For the Three Months
Ended March 31,

2019

Revenue

$
44,967

Net loss

$
(5,614
)
Net loss available to common stockholders

$
(5,620
)
Basic and diluted weighted-average common stock
outstanding

7,364,560

Basic and diluted loss per common stock, as reported

$
(0.76
)

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

The unaudited pro forma condensed consolidated financial information does not purport to represent the actual results of operations that the Company would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined companies may achieve

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

after the identified transactions. The unaudited pro forma condensed combined financial information does not reflect any cost savings that may be realized as a result of the acquisitions and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.

~~Divestiture~~

On January 13, 2020, the Company entered into and consummated a definitive agreement to sell substantially all of the assets of its Truckserv maintenance operations, representing those assets related to third party maintenance services provided to operators of commercial vehicles, for a purchase price of $~~0.45~~ ~~million. The purchase price is receivable as follows: (i) $10,000~~ ~~per month, for~~ ~~fifteen months, payable by application against the interest otherwise payable under the JB Lease Note and (ii) $0.3~~ million applied as partial payment of the outstanding principal balance of the JB Lease Note, which payment was effective on the closing date. The related assets have been presented as held for sale on the consolidated balance sheet as of December 31, 2019. No material gain or loss was recognized during the three months ended March 31, 2020 and 2019. This divestiture is not considered a strategic shift that will have a major effect on our operations or financial results; therefore, it is not reported as a discontinued operation.

Note 32 - Balance Sheet Disclosures

Goodwill consists of the following:


($ in thousands)	March 31, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Beginning balance	$	23,837	$	2,887		$	23,837	$	23,837
Acquisitions		—		22,020			—		—
Reclassified to Assets held for sale		—		(149	)
Reduction of goodwill		—		(1,018	)
Acquisition measurement period adjustment		—		97
Impairment							—		—
	$	23,837	$	23,837		$	23,837	$	23,837

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

Intangible assets consist of the following:


	March 31, 2020							December 31, 2019							September 30, 2021							December 31, 2020
($ in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	4,604	$	(1,039	)	$	3,565	$	4,604	$	(898	)	$	3,706	$	4,604	$	(1,923	)	$	2,681	$	4,604	$	(1,499	)	$	3,105
Trade names		2,416		(426	)		1,990		2,416		(348	)		2,068		2,416		(848	)		1,568		2,416		(640	)		1,776
Non-competition agreements		325		(70	)		255		325		(54	)		271		325		(168	)		157		325		(119	)		206
	$	7,345	$	(1,535	)	$	5,810	$	7,345	$	(1,300	)	$	6,045	$	7,345	$	(2,939	)	$	4,406	$	7,345	$	(2,258	)	$	5,087

Amortization expense for the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ was $0.2 million and $0.2 million, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020, was $0.7 million and $0.7 million, respectively. The weighted-average remaining useful life of the finite-lived intangible assets was ~~8.7~~8.0 years as of ~~March 31, 2020,~~September 30, 2021, of which the weighted-average remaining useful life for the customer relationships was ~~8.7~~8.1 years, for the trade names was ~~9.4~~8.5 years, and for the non-competition agreements was ~~4.0~~2.5 years.

Note 43 - Segment Reporting

The Company uses the "management approach" to determine its operating and reportable segments. The management approach focuses on the financial information that the Company's chief operating decision maker uses to evaluate performance and allocate resources to the Company's operations. The Company’s 2 operating and reportable segments are Trucking and CNG Fueling Stations. Corporate and Unallocated represents expenses that are not allocated to a reportable segment including corporate general and administrative expenses and other corporate costs such as change in fair value of warrant liabilities, change in fair value of embedded derivative liability, ~~loss~~gain (loss) on extinguishment of debt, and interest expense on certain debt obligations.

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

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

CNG Fueling Stations. We own 3 CNG fueling stations that serve our fleet and other customers. Those stations are located in Fort Worth, TX, Oak Creek, WI, and Tolleson, AZ and accommodate class 8 trucks and trailers. We have 2 additional CNG fueling stations located in Jurupa Valley, CA and San Antonio, TX that are no longer operational.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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


	For the Three Months Ended March 31, 2020												For the Three Months Ended September 30, 2021
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total			Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	55,406		$	320		$	—		$	55,726		$	68,769		$	91		$	—		$	68,860
Operating expenses, excluding depreciation and amortization	$	(57,186	)	$	(325	)	$	(2,873	)	$	(60,384	)	$	(63,814	)	$	(196	)	$	(4,704	)	$	(68,714	)
Depreciation and amortization	$	(3,408	)	$	(61	)	$	(1	)	$	(3,470	)	$	(4,009	)	$	—		$	—		$	(4,009	)
Operating loss	$	(5,187	)	$	(67	)	$	(2,873	)	$	(8,127	)	$	946		$	(105	)	$	(4,704	)	$	(3,863	)


	For the Three Months Ended March 31, 2019												For the Nine Months Ended September 30, 2021
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total			Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	28,091		$	285		$	—		$	28,376		$	213,918		$	281		$	—		$	214,199
Operating expenses, excluding depreciation and amortization	$	(31,474	)	$	(687	)	$	(1,299	)	$	(33,460	)	$	(165,494	)	$	(800	)	$	(12,493	)	$	(178,787	)
Depreciation and amortization	$	(1,093	)	$	(141	)	$	(2	)	$	(1,236	)	$	(11,371	)	$	—		$	—		$	(11,371	)
Operating loss	$	(4,476	)	$	(543	)	$	(1,301	)	$	(6,320	)	$	37,053		$	(519	)	$	(12,493	)	$	24,041


	For the Three Months Ended September 30, 2020
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	52,133		$	256		$	—		$	52,389
Operating expenses, excluding depreciation and amortization	$	(49,828	)	$	(252	)	$	(2,977	)	$	(53,057	)
Depreciation and amortization	$	(3,758	)	$	(56	)	$	(2	)	$	(3,816	)
Operating loss	$	(1,453	)	$	(52	)	$	(2,979	)	$	(4,484	)


	For the Nine Months Ended September 30, 2020
($ in thousands)	Trucking			CNG Fueling Stations			Corporate and Unallocated			Total
Revenue	$	159,258		$	808		$	—		$	160,066
Operating expenses, excluding depreciation and amortization	$	(158,414	)	$	(744	)	$	(8,551	)	$	(167,709	)
Depreciation and amortization	$	(10,752	)	$	(175	)	$	(4	)	$	(10,931	)
Operating loss	$	(9,908	)	$	(111	)	$	(8,555	)	$	(18,574	)

For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ the revenue from one customer accounted for approximately 8789% and 9087%, respectively, of total consolidated revenue.

Note 76 - Debt

Antara Financing Agreement

~~Concurrently with the Ritter acquisition on~~On September 16, 2019, the Company entered into a $24.5 million financing agreement (the “Financing Agreement”) among the Company, each subsidiary of the Company, various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent. Pursuant to the Financing Agreement, the Company initially borrowed $22.4 million and borrowed the remaining $2.1 million during October 2019 (the “Term Loan”). All of the Company’s subsidiaries were originally guarantors under the Financing Agreement. The Term Loan is secured by all assets of the Company and its subsidiaries, including pledges of all equity in the Company’s subsidiaries and is not subject to registration rights. The Financing Agreement contains covenants, subject to specific exceptions, that limit (i) the making of investments, (ii) the incurrence of additional indebtedness, (iii) the incurrence of liens, (iv) payments and asset transfers with restricted junior loan parties or subsidiaries, including dividends, (v) transactions with shareholders and affiliates, (vi) asset dispositions and acquisitions, among others. The Term Loan bears interest at 12% per annum and had an original maturity date of September 16, 2022. Until December 31, 2019, interest on the Term Loan was paid in kind and capitalized as additional principal, and the Company had the option to pay interest on the capitalized interest in cash or in kind. ~~All interest payments on the Term Loan during 2019 were in kind.~~ After December 31, 2019, monthly interest payments were due in cash, and all outstanding principal and interest will be due on the maturity date. The Term Loan may be prepaid at any time, subject to payment of a prepayment premium of (1) 7% for each early payment made or coming due on or prior to September 16, 2020, (2) after September 16, 2020, 5% for each early payment made or coming due on or prior to September 16, 2021, and (3) thereafter, 0 premium shall be due. Proceeds were to be used to (i) effect the Ritter acquisition, (ii) to refinance and retire existing indebtedness, and (iii) general working capital needs.

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

Concurrently, and in connection with the Financing Agreement, the Company issued 2 warrants (the “$0.01 Warrant” and the “$2.50 Warrant” and collectively, the “Antara Warrants”) to Antara Capital to purchase an aggregate of 4,375,000 shares of common stock of the Company (the “Antara Warrant Shares”). The $0.01 Antara Warrant grants Antara Capital the right to purchase up to 3,350,000 Antara Warrant Shares at an exercise price of $~~0.01~~$0.01 per share and is exercisable for five years from the date of issuance. The $2.50 Antara Warrant grants Antara Capital the right to purchase up to 1,025,000 Antara Warrant Shares at an exercise price of $2.50 per share, subject to adjustment for certain distributions, stock splits, and issuances of common stock, and is exercisable for ten years from the date of issuance. If the fair market value of the Antara Warrant Shares is greater than the related exercise price at the end of the exercise period (the Warrant Shares are “in the money”), then any outstanding Antara Warrants that are in the money will be automatically deemed to be exercised immediately prior to the end of the exercise period. Pursuant to the Antara Warrants, the Company granted Antara Capital preemptive rights to purchase its pro rata share, determined based on the number of shares held by Antara Capital or into which Antara Capital’s Antara Warrants are exercisable, of capital stock issued by the Company after the issuance date of the Antara Warrants, subject to certain excepted issuances.

The Company issued a warrant for 1,500,000 shares of common stock to Antara at an exercise price of $0.01 per share (the “Side Letter Warrant”) subject to anthe Company's potential acquisition ~~agreement between the Company and LoadTrek.~~of LoadTrek, is a GPS system designed for the trucking industry, owned by a related party. If the Company were to successfully complete an acquisition of certain assets of LoadTrek or meet financial performance metrics set forth in the warrant agreement, all or a portion of the shares underlying the Side Letter Warrant were subject to cancellation. The Company did not acquire the LoadTrek assets and the Side Letter Warrant was subsequently amended to remove the cancellation provision and, therefore, none of the shares underlying the warrant were cancelled.

Since the Term Loan, Antara Warrants, and Side Letter Warrant were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and warrants as a combined arrangement. Since the Antara Warrants and Side Letter Warrants are liability classified we recorded these items at their fair value and the residual proceeds were allocated to the Term Loan. The non-lender fees incurred to establish the financing arrangement were allocated to the Term Loan and capitalized on the Company’s balance sheet as debt issuance costs, which are amortized using the effective interest method into interest expense over the term of the Term Loan.

The Term Loan was further evaluated for the existence of embedded features to be bifurcated from the amount allocated to the debt component. The Term Loan agreement contains a mandatory prepayment feature that was determined to be an embedded derivative,

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease in its carrying

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

value. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $9.0 million debt discount that ~~will be~~is amortized to interest expense over the term of the Term Loan.

Forbearance Agreement and Incremental Amendment to Financing Agreement

During February 2020, the Company entered into a Forbearance Agreement and Incremental Amendment to Financing Agreement (the “Incremental Amendment”), pursuant to which the Company obtained an additional $3.2 million of term loan commitments (the “Incremental Term Loans”) and borrowed $3.2 million from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement. The Incremental Term Loans bear interest at 12% per annum, with monthly interest payments due in cash and all outstanding principal and interest due on the maturity date. The Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020, and (ii) 5% of each prepayment made after September 16, 2020, but on or prior to September 16, 2021, with 0 premium due after September 16, 2021. Pursuant to the Incremental Amendment, the collateral agent and other lenders agreed to forbear from exercising certain rights, remedies, powers, privileges, and defenses under the Financing Agreement and the other related loan documents during the forbearance period with respect to certain events of default and/or expected or anticipated events of default arising under the Financing Agreement. The Incremental Amendment also suspended the accrual of interest at the post-default rate until the end of the forbearance period. The Company paid a 2% financing fee in connection with its entry into the Incremental Amendment. The Company also reimbursed the Collateral Agent for $0.1 million of fees, costs, and expenses previously accrued under the Financing Agreement and in addition paid fees, costs, and expenses of the Collateral Agent and the lenders newly incurred in connection with the Incremental Amendment.

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

The Company accounted for the Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the Antara Warrant 2020 and fees paid to Antara on its balance sheet as a discount on the Incremental Term Loans, which is amortized using the effective interest method into interest expense over the term of the Incremental Term Loans.

Amendment to Forbearance Agreement and Second Incremental Amendment to Financing Agreement

During March 2020, the Company entered into an amendment to forbearance agreement and second incremental amendment to financing agreement (the “Second Incremental Amendment”), pursuant to which the Company obtained an additional $3.1 million in term loan commitments (the “Second Incremental Term Loans”) and borrowed $3.1 million from Antara Capital on the same terms as its existing term loan commitments provided under the Financing Agreement. The Second Incremental Term Loans bear interest at 12% per annum, with monthly interest payments due in cash and all outstanding principal and interest due on the maturity date. The Second Incremental Term Loans may be prepaid at any time, subject to payment of a prepayment premium equal to (i) 7% of each prepayment made on or prior to September 16, 2020 and (ii) 5% of each prepayment made after September 16, 2020 but on or prior to September 16, 2021, with 0 premium due after September 16, 2021. The Second Incremental Amendment also suspends the accrual of interest at the post-default rate until the end of the forbearance period. The forbearance period was scheduled to terminate on the earliest of (a) September 30, 2020, (b) the occurrence of any event of default other than the specified defaults, or (c) the date on which any breach of any of the conditions or agreements, including without limitation the affirmative covenants, provided in the Incremental Amendment or Second Incremental Amendment occurs. The Company paid all fees, costs, and expenses of the collateral agent and the lenders incurred in connection with the Incremental Amendment and the Second Incremental Amendment.

The Company accounted for the Second Incremental Amendment as a modification of the Financing Agreement. The Company capitalized the fees paid to Antara on its balance sheet as a discount on the Second Incremental Term Loans, which is amortized using the effective interest method into interest expense over the term of the Second Incremental Term Loans.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Waiver and Agreement to Issue Warrant

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Effective March 31, 2020, the Company entered into a Waiver and Agreement to Issue Warrant (the “Waiver Agreement”) with Antara Capital and the collateral agent, which modified a certain affirmative covenant and waived another affirmative covenant in the Financing Agreement and, in exchange, the Company agreed to issue to Antara Capital a warrant to purchase up to 3,250,000 shares of the Company’s Common Stock at an exercise price of $2.50 per share as an incentive. The Company accounted for this issuance to Antara as an extinguishment of the existing debt and the execution of a new debt instrument. The Company recorded a $10.1 million loss on extinguishment of debt related to unamortized debt discount and debt issuance costs, which was recorded within ~~loss~~gain (loss) on extinguishment of debt in the consolidated statement of operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

Second Amendment to Forbearance Agreement and Omnibus Amendment to Loan Agreement

During October 2020, the Company entered into a second amendment to forbearance agreement and omnibus amendment to loan documents (the “Omnibus Amendment”). The Omnibus Amendment (i) extended the forbearance period until December 31, 2020, (ii) joined EVO Holding Company, LLC as a borrower under the Financing Agreement, (iii) authorized the Company and/or its subsidiaries to incur unsecured indebtedness of up to $10,000,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, and (iv) extended the timelines under which the Company and its subsidiaries are required to comply with certain affirmative covenants set forth in the Financing Agreement, Incremental Amendment, and Second Incremental Amendment.

The Omnibus Amendment contained the following additional covenants:

•

The Company was required to either (a) fully consummate the acquisition by EVO Equipment Leasing, LLC of 89 used CNG tractors on or before January 3, 2021 or (b) issue 1,174,800 shares of the Company’s common stock to the lenders. The Company did not fully consummate the acquisition of the used CNG tractors by January 3, 2021 and became obligated on that date to issue the 1,174,800 shares of the Company’s common stock to the lenders.

•

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

•

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

The Company ~~classified~~accounted for the Omnibus Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the warrants to purchase 500,000 shares of the voting common stock of the Company at the price of $~~31.7~~0.01 per share, the change in fair value resulting from the warrant exchange, and the fees paid to Antara on its balance sheet as an additional discount on the Financing Agreement, which is amortized using the effective interest method into interest expense over the term of the Financing Agreement. The Company recognized the estimated fair value of the 1,174,800 shares of the Company's common stock as interest expense during the first quarter of 2021.

Second Omnibus Amendment to Loan Documents

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

EBITDA-based financial covenant included in the Financing Agreement, and extended the maturity date of the term loans under the Financing Agreement to the date that is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first. Under the Second Omnibus Amendment, interest on the term loans under the Financing Agreement is payable in kind at the rate of 14.5% per annum for the first eight full or partial calendar quarters following the effective date of the Second Omnibus Amendment and is payable in cash at the rate of 12.0% per annum commencing with the ninth calendar quarter following the effective date. As a result of the Main Street Loan, Second Omnibus Amendment, and related agreements, payment of the principal balance ~~which includes~~of the term loans is subject and subordinate to the prior payment in full of all obligations under the Main Street Loan. The Company accounted for the Second Omnibus Amendment as a modification of the Financing Agreement.

Paycheck Protection Program Loan

On April 15, 2020, the Company obtained a loan (the “Loan”) from BOKF, N.A. (dba Bank of Oklahoma) in the amount of $~~0.9~~10.0 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Loan, which is memorialized by a Note dated April 15, 2020 issued by the Company, was scheduled to mature on April 15, 2022 and bore interest at a rate of 1.00% per annum, payable monthly commencing on November 15, 2020. The Company was able to prepay the Note at any time prior to maturity with 0 prepayment penalties. The principal amount of the Loan and accrued interest were eligible for forgiveness after eight weeks if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels. The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan was forgiven by the SBA in July 2021, which was recognized as a $10.1 million gain on extinguishment of debt in the consolidated statements of operations for the three and nine months ended September 30, 2021.

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

On December 29, 2020, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 (the “Loan Agreement”) and related documents (together with the Loan Agreement, the “Loan Documents”) for a loan in the amount of up to $17.0 million (the “Main Street Loan”) serviced by Commerce Bank of Arizona, Inc. (the “Bank”) as lender under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. The Borrowers and the Bank subsequently entered into a Modification Agreement to the Loan Agreement dated December 22, 2020 (the “Modification Agreement”) and a Second Modification Agreement to the Loan Agreement dated December 23, 2020 (the “Second Modification Agreement”). During the first quarter of 2021, the Borrowers used all of the net proceeds of the Main Street Loan to refinance a portion of the amount outstanding under the Financing Agreement discussed above under the caption “Forbearance Agreement and Incremental Amendment to Financing Agreement” and to pay related prepayment premiums.

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

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

The Loan Documents contain customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, cross default under other credit facilities, breaches of representations and covenants, and the occurrence of certain events. The Loan Documents also contain customary remedies for a facility of this type, exercisable following the occurrence of an event of default, including, among others, the rights to terminate the Bank’s commitment under Loan Agreement, accelerate the maturity date, foreclose the liens and security interests securing the Main Street Loan, and all other rights and remedies available under the Loan Documents and applicable law. As security for the Main Street Loan, the Borrowers granted the Bank a security interest in and to

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

substantially all of their respective properties, and the Company guaranteed the payment and performance of the Borrower’s obligations under the Loan Documents.

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Debt (with unrelated parties) consists of:


($ in thousands)	September 30, 2021				December 31, 2020
(a) Main Street Loan	$	17,428		(1)	$	17,033
(b) PPP Loan		—				10,000
(c) $1.3 million note payable		580				683
(d) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)		526				1,099		(2)
(e) $0.3 million note payable		93				149
(f) Thunder Ridge supplier advance		853				881
(g) Various notes payable acquired from JB Lease		704				1,726
(h) $0.8 million note payable		331				504
(i) $3.8 million note payable		1,898				2,403
(j) Failed sale-leaseback obligations		5,104				484
(k) Notes payable to two financing companies		874				1,082
(l) Finkle equipment notes		1,842				2,907
Total before debt issuance costs and debt discount		30,233				38,951
Debt issuance costs		(980	)			(1,147	)
Debt discount		(291	)			(340	)
		28,962				37,464
Less current portion		(21,640	)			(12,727	)
Long-term debt, less current portion	$	7,322			$	24,737

(1) Classified as a current liability as of ~~March 31, 2020 due to the occurrence of one or more covenant violations, including violation of the EBITDA-based financial covenant. The Company also classified the $25.4~~ ~~million unpaid principal balance, which includes $0.9~~ ~~million of capitalized interest, as a current liability as of December 31, 2019~~September 30, 2021 due to the existence of one or more covenant violations.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Debt (with unrelated parties) consists of:~~

($ in thousands)

March 31,
2020

December 31,
2019

(a) $1.3 million note payable

$
782

$
814

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

1,028

(1)

1,005

(c) $0.3 million note payable

206

225

(d) Three equipment notes payable

16

24

(e) Thunder Ridge supplier advance

881

890

(f) Various notes payable acquired from JB Lease

3,054

3,575

(g) $0.8 million note payable

633

673

(h) $0.3 million note payable

163

224

(i) $3.8 million note payable

3,053

3,203

(j) Equipment notes payable acquired from Sheehy

287

614

(k) Notes payable acquired from Sheehy

744

787

(l) Notes payable to two financing companies

1,331

1,400

(m) Finkle equipment notes

3,999

4,450

Total before debt issuance costs and debt discount

16,177

17,884

Debt issuance costs

(22
)

(38
)
Debt discount

(32
)

(56
)

16,123

17,790

Less current portion

(6,955
)

(5,681
)
Long-term debt, less current portion

$
9,168

$
12,109

~~(1)~~(2) Classified as a current liability as of ~~March~~December 31, 2020 due to the existence of one or more covenant violations.

(a)

Main Street Loan

The $17.4 million loan bears interest at a rate equal to 3% percent per year plus the LIBOR Index. Beginning December 14, 2022, the Borrowers must make quarterly interest payments, and the Borrowers must make payments equal to 15% of the outstanding principal balance plus capitalized interest on each of December 14, 2023 and December 14, 2024. The entire outstanding principal balance, together with all accrued and unpaid interest, is due and payable in full on December 14, 2025.

The Company classified the $17.4 million unpaid principal balance, which includes $0.4 million of capitalized interest, as a current liability as of September 30, 2021 due to the existence of one or more covenant violations. As of September 30, 2021 and December 31, 2020, the unamortized debt discount was $0.3 million and $0.3 million, respectively, and the unamortized debt issuance costs were $1.0 million and $1.1 million, respectively.

(b)

PPP Loan

The $10.0 million PPP Loan was scheduled to mature on April 15, 2022 and bore interest at a rate of 1.00% per annum. The principal amount of the Loan and accrued interest were eligible for forgiveness after eight weeks if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels. The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan, including accrued interest, was forgiven by the SBA in July 2021.

(c)

$1.3 million note payable

The $1.3 million note payable was issued December 31, 2014, with interest adjusted to the SBA LIBOR base rate, plus 2.35%. The note matures March 2024, is secured by substantially all of Titan’s business assets and is personally guaranteed by certain former members of Titan including a member of our board of directors and certain of his relatives, and beneficial owners of more than 5% of our undiluted shares of common stock. The note is a co-borrower arrangement between Titan and El Toro with the proceeds received by El Toro. ~~In 2016, the Company issued~~ ~~35,491~~ ~~units (equivalent to~~ ~~31,203~~ ~~common shares) to those members as compensation for the guarantee.~~

~~(b)~~(d)

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

The Secured Convertible Notes were issued during August 2018. The Company paid debt issuance costs of $0.5 million in connection with the Secured Convertible Notes. They bear interest at 9%, compounded quarterly, with principal due two years after

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

issuance and are secured by all the assets of the Company. The holder may agree, at its discretion, to add accrued interest in lieu of payment to the principal balance of the Secured Convertible Notes on the first day of each calendar quarter. ~~The Secured Convertible Notes may not be prepaid prior to the first anniversary of the date of issuance, but may be prepaid without penalty after the first anniversary of the date of issuance.~~

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

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

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company incurred $0.1 million and paid $0 in liquidated damages to noteholders. During the nine months ended September 30, 2020, the Company incurred $~~0.1~~0.4 million and paid $0.1 million in liquidated damages to noteholders.

As additional consideration for the Secured Convertible Notes, the Company issued warrants to the Holders to purchase 1,602,000 shares of common stock at an exercise price of $2.50 per share, exercisable for ten years from the date of issuance. The fair value of the warrants issued determined using the Black Scholes pricing model was $0.7 million, calculated with a ten-year term; 65% volatility; 2.89%, 2.85% or 3.00% discount rates and the assumption of 0 dividends.

AsIn March and April 2021, the Company entered into certain Note Purchase Agreements and Releases (the “Note Purchase Agreements”) between the Company and certain holders (the “Holders”) of ~~March 31, 2020~~the Secured Convertible Notes in the principal amount of $0.6 million. The Note Purchase Agreements provide for various releases by the Holders and ~~December 31, 2019,~~their respective representatives, successors, and assigns, including releases arising out of or related to the ~~unamortized debt discount was~~Secured Convertible Notes and the Secured Convertible Note Agreements. Pursuant to the Note Purchase Agreements, the Company agreed to purchase the Secured Convertible Notes and the Secured Convertible Note Agreements from the Holders in exchange for approximately $0.1 million in cash to the Holders and to issue to the Holders warrants to purchase an aggregate of up to 231,453 shares of common stock of the Company at a price of $0.01 per share. The Company recognized the estimated fair value of the warrants as a $0.2 million ~~respectively,~~increase in additional paid-in capital and recognized a $0.4 million gain on extinguishment of debt in the ~~unamortized debt issuance costs were~~consolidated statement of operations for the nine months ended September 30, 2021. During the nine months ended September 30, 2021 $0.1 million ~~and $0.2~~ ~~million, respectively. During the three months ended March 31, 2020 $0.1~~ ~~million~~of interest was added to the principal balance. ~~The~~In March 2022, the Company ~~classified~~accepted a Secured Convertible Note in the principal amount of $~~1.0~~0.25 million ~~unpaid principal balance,~~as contribution for a loan under the Bridge Loan described in ~~addition to the $~~Note 13, ~~3.1~~Subsequent Events ~~million portion of the Secured Convertible Notes held by a related party, as a current liability as of March 31, 2020 due to the existence of one or more covenant violations.~~.

~~(c)~~(e)

$0.3 million note payable

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

~~(d)~~

~~Three equipment notes payable~~

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

~~(e)~~(f)

Thunder Ridge supplier advance

Thunder Ridge signed an agreement with a supplier on August 31, 2017, in which $1.0 million was advanced to Thunder Ridge during 2017. The advance bears interest at 8.5%, is collateralized by substantially all of Thunder Ridge’s assets, is guaranteed by a member of management, and has a July 2022 maturity date.

~~(f)~~(g)

Various notes payable acquired from JB Lease

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

~~(g)~~(h)

$0.8 million note payable

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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

~~(h)~~

~~$0.3 million note payable~~

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

(i)

$3.8 million note payable

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

(j)

~~Equipment~~Failed sale-leaseback obligations

Certain notes payable acquired from Sheehy

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

~~The notes payable acquired from Sheehy are~~ were payable to a bank with interest rates of 4.35% to 4.375% per ~~annum. The notes payable~~annum and were scheduled to mature between September 2020 and December 2021. During September 2020, the Company sold certain assets that are collateral for the notes payable to a third party for aggregate proceeds of $0.7 million, used such proceeds to extinguish the notes payable, and entered into a lease agreement with the third party under which the Company agreed to lease back the assets. In addition, during the nine months ended September 30, 2021 the Company entered into 4 sale-leaseback arrangements to provide approximately $4.9 million in cash proceeds for previously purchased equipment. Because these lease backs are ~~collateralized by substantially all~~classified as finance leases, the Company determined that it did not relinquish control of the ~~Sheehy assets.~~assets to the buyer-lessor. Therefore, the Company accounted for the transactions as failed sale-leasebacks whereby the Company continues to depreciate the assets and recorded financing obligations for the consideration received from the buyer-lessor. NaN

Notes payable to two financing companies issued in February 2019 and October 2019 with maturity dates in March 2023 and October 2024, respectively. The interest rates range from 4.5% to 8.94%, and the notes are collateralized by certain equipment.

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

The $~~31.7~~18.0 million of Term Loans bear interest at 1214.5% per annum. The maturity date is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan (March 15, 2026) or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first. Beginning with the Omnibus Amendment and ending on December 14, 2020, interest was paid in kind at a rate of 17% per annum. Beginning December 14, 2020, interest on the Term Loans is payable in kind at 14.5% per annum for the first eight full or partial calendar quarters following December 14, 2020

and ~~have a maturity date~~is payable in cash at the rate of ~~September 16, 2022~~12.0~~. Until December 31, 2019, interest on~~% per annum commencing with the ~~term loan was paid in kind and capitalized as additional principal, and~~ninth calendar quarter following the ~~Company had the option to pay interest on the capitalized interest in cash or in kind. After December 31, 2019, monthly interest payments are due in cash.~~effective date. All outstanding principal and interest is due on the maturity date. During the first quarter of 2021 used all of the net proceeds from the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement (including capitalized interest) from $33.6 million to $16.7 million, which resulted in an approximately $1.7 million loss on extinguishment of debt (which includes $0.8 million of prepayment penalty fees) being recognized in the consolidated statement of operations for the nine months ended September 30, 2021.

The Company classified the $18.0 million unpaid principal balance, which includes capitalized interest, as a current liability as of September 30, 2021 due to the existence of one or more covenant violations. The Company also classified the $33.6 million unpaid principal balance, which includes capitalized interest, as a current liability as of December 31, 2020 due to the probability of recurrence of covenant violations, other than the EBITDA-based covenant, during 2021. As of ~~March~~September 30, 2021 and December 31, 2020, the unamortized debt discount was $~~1.7~~1.0 million and ~~the unamortized debt issuance costs were less than~~ $~~0.1~~ ~~million. As of December 31, 2019, the unamortized debt discount was $8.6~~2.0 million, ~~and the unamortized debt issuance costs were $0.5~~ ~~million.~~respectively.

The four promissory notes were issued to the former EAF members with interest at 1.5%, issued February 1, 2017, and mature February 1, 2026. These convertible promissory notes are secured by substantially all of the assets of EAF. The Company imputed an interest rate of 5.1% on the promissory notes. The discount is accreted over the period from the date of issuance to the date the promissory notes are due using the effective interest rate method. These promissory notes are convertible into 7,000,000 shares of the Company's common stock. The holder’s conversion option is limited on a monthly basis to the number of shares of common stock equal to 10% of the thirty (30) day average trading volume of shares of common stock during the prior calendar month. Further, $35,000 is the minimum amount of principal or capitalized interest the holder must convert per conversion. As of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the unamortized debt discount was $~~6.9~~6.0 million and $~~7.1~~6.5 million, respectively. Subsequent to December 31, 2021, these notes were amended to permit the immediate conversion in full into warrants to purchase common stock at $0.01 per share and converted into 7,533,750 warrants.

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

During April 2018, the promissory note’s maturity date was extended to July 2019. The senior promissory note is unsecured. NaN principal and interest payments are due until maturity.

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

Also in connection with the Financing Agreement and as consideration for the subordination of the subordinated promissory note and the promissory note described below, the Company issued a warrant to the holder to purchase an aggregate of 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.2 million. As of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the remaining unamortized debt discount was $~~0.2~~0.1 million and $0.2 million, respectively.

The Company classified the $3.8 million unpaid principal balance as a current liability as of ~~March~~September 30, 2021 and December 31, 2020 due to the existence of one or more covenant ~~violations not based on financial metrics.~~violations.

The $4.0 million promissory note was issued on February 1, 2017, to a former EAF member with interest at 7.5% and an original maturity date of February ~~2020~~.2020. The note is guaranteed by substantially all the assets of EAF and the Company. NaN principal and interest payments are due until maturity.

In connection with the Financing Agreement, amounts due under the promissory note were subordinated and extended to November 2022. Additionally, the holder agreed not to receive, accept, or demand payment under the subordinated obligation until all

obligations under the Financing Agreement have been paid in full, except that the holder may continue to receive regularly scheduled interest payments so long as holder has not been informed that an event of default has occurred and is continuing under the Financing Agreement.

Also in connection with the Financing Agreement and as consideration for the subordination of the promissory note and the senior promissory note described above, the Company issued a warrant to the holder to purchase an aggregate of 350,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant is exercisable for five years from the date of issuance. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model, and the portion of the fair value attributable to the senior promissory note was $0.3 million. As of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the remaining unamortized debt discount was $~~0.2~~0.1 million and $0.2 million, respectively.

The Company classified the $4.0 million unpaid principal balance as a current liability as of ~~March~~September 30, 2021 and December 31, 2020 due to the existence of one or more covenant ~~violations not based on financial metrics.~~violations.

Represents the portion of the Secured Convertible Notes issued during 2018 (discussed above) whereby the noteholder iswas a related party.

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

The Settlement Agreement provided for various releases among the parties and their respective representatives, successors, and assigns, including releases arising out of or related to the DTII Note, ~~13,~~ the DTII Agreements, and all facts, events and occurrences described in the Draft Complaint. The Company denied any liability regarding the Draft Complaint in connection with the Settlement Agreement. Pursuant to the Settlement Agreement, the Company agreed to purchase from Midwest, as successor to DTII, the DTII Note and the DTII Agreements. As consideration for the DTII Note and DTII Agreements, the Company paid $~~Subsequent Events~~500,000, in cash to Midwest and issued to Midwest a warrant to purchase up to 1,250,000 shares of common stock of the ~~noteholder is no longer~~Company at a price of $0.01 per share. The Company also agreed to exchange the warrant issued to DTII in connection with the DTII Note to purchase up to 1,200,000 shares of common stock of the Company at a price of $2.50 per share for (i) a warrant to purchase up to 950,000 shares of common stock of the Company at a price of $2.50 per share and (ii) a warrant to purchase up to 250,000 shares of common stock of the Company at a price of $0.01 per share.

The Company recognized the estimated incremental fair value related ~~party.~~to the warrant issuance and exchange as a $1.1 million increase in additional paid-in capital and recognized a $2.1 million gain on extinguishment of debt in the consolidated statement of operations for the nine months ended September 30, 2021.

In connection with the Company's June 1, 2018 acquisition of all of the issued and outstanding shares of Thunder Ridge, this $2.5 million promissory note was issued to a stockholder, with interest at 6% (interest in the event of a default at 9%) and a maturity date of the earlier of (a) the date the Company raises $40.0 million in public or private offerings of debt or equity; (b) December 31, 2018, or (c) termination of Trey Peck’s employment with the Company by the Company without cause or by Trey Peck for good reason. The note is collateralized by all of the assets of Thunder Ridge and is also secured by the Thunder Ridge Shares (“TR Shares”). The maturity date of the promissory note has been subsequently amended to extend it to November 30, 2022. Effective with the most recent extension in August 2019, the Company paid Peck approximately $0.15 million in principal and increased the monthly principal payments to $20,000. The note calls for monthly principal payments, with all accrued and unpaid interest due and payable on the maturity date. If the Company fails to repay the amounts outstanding under the 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

The Company classified the $~~1.9~~1.7 million unpaid principal balance as a current liability as of ~~March~~December 31, 2020 due to the existence of one or more covenant ~~violations not based on financial metrics.~~violations.

The $6.4 million promissory note was issued February 2, 2019 to a stockholder, with interest at 9% per annum and an original maturity date of August 31, 2020. The note is collateralized by all of the assets of Ursa and JB Lease. Principal and interest payments commenced June 1, 2019, with a final payment of $6.4 million due at maturity. On August 30, 2019, the note was extended to November 2022. The Company classified the $6.1 million unpaid principal balance as a current liability as of ~~March~~December 31, 2020 due to the existence of one or more covenant violations not based on financial metrics.

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

Note 87 - Stockholders’ Deficit and Warrants

Sale of Common Stock

On February 27, 2020, the Company sold a total of 1,260,000 shares of its common stock to Danny Cuzick (“Cuzick”) and R. Scott Wheeler (“Wheeler”) for aggregate gross proceeds of $3.2 million pursuant to the terms of a subscription agreement. The Company did 0t pay any underwriter discounts or commissions in connection with the sale of the shares. The shares of common stock sold have the right to convert into securities which bear the same terms as those offered to satisfy the Liquidity Milestone defined in the Incremental Amendment (such securities being the Series B Preferred Stock discussed below).

On October 9, 2017, management of the Company terminated the employment of the Company’s president. In connection with the termination, the Company and former president entered into a Mutual Separation Agreement dated October 9, 2017 (the “Separation Agreement”). ~~Pursuant to the Separation Agreement, the Company and former president agreed that (i) his last day of employment with the Company was October 9, 2017, (ii) he will be paid an aggregate of $0.1~~ ~~million within ten business days after the Company raises an aggregate of $2.0~~ ~~million in any combination of public or private debt or equity securities offerings, and (iii) in satisfaction of $0.2 million of deferred compensation, the Company will issue~~ ~~89,092~~ ~~shares of its common stock within ten business days after the Company raises an aggregate of $2.0~~ ~~million in any combination of public or private debt or equity securities offerings.~~ ~~On April 1, 2019, the Company issued~~ ~~117,092~~ ~~shares of common stock with an approximate fair value of $0.1~~ ~~million to settle the Separation Agreement with the former officer. The settlement included $38,000~~ ~~of advances from related party and approximately $0.3~~ ~~million of accounts payable - related party. The Company recorded a gain of $0.2~~ ~~million associated with the issuance of this common stock, which is included in gain on conversion of accounts payable – related party in the accompanying consolidated statement of operations.~~

Common Stock Subscribed

During the fourth quarter of 2019, the Company agreed to issue 8,664 shares of common stock to settle a note payable and the associated accrued interest. The Company issued these shares during the first quarter of 2020.

~~Redeemable Common Stock~~

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

~~Series B Preferred Stock~~

On March 24, 2020, the Company filed a Certificate of Designation of Rights and Preferences of Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorizes the Company to issue up to ~~3,075,000~~ ~~shares of Series B Preferred Stock.~~ ~~The Series B Preferred Stock ranks senior in preference and priority to the Company’s common~~

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

~~Dividends~~

~~An annual, non-compounding dividend accrues on the Series B Preferred Stock at a rate of~~ 10~~% per annum for~~ ~~five years~~ ~~from the date the Preferred Stock is issued. The dividend is payable, if and when declared by the Board of Directors, in arrears in the form of shares of Series B Preferred Stock at a rate of $3.00~~ per share, or, at the Company’s option, quarterly in arrears in cash. Such dividends will not accrue with respect to shares of Series B Preferred Stock issued as dividends, will begin to accrue as of the date on which the Series B Preferred Stock is issued, and will accrue whether or not declared and whether or not there will be funds legally available for the payment of dividends. For the avoidance of doubt, no dividends shall accrue on the Series B Preferred Stock after March 23, 2025.

~~Liquidation Preference~~

~~The holders of the Series B Preferred Stock are entitled to a liquidation preference of $3.00~~ ~~per share of Series B Preferred Stock plus any accrued but unpaid dividends upon the liquidation of the Company.~~

~~Redemption~~

~~The Series B Preferred Stock may be redeemed by the Company at any time at a redemption price equal to $3.00~~ ~~plus all accrued but unpaid dividends,~~ and each holder of Series B Preferred Stock may cause the Company to redeem the holder’s Series B Preferred Stock at any time after March 23, 2025 at a redemption price equal to $3.00 plus all accrued but unpaid dividends. The redemption rights require the Company to present the Series B Preferred Stock in temporary equity in the accompanying balance sheet.

~~Voting Rights~~

~~Holders of Series B Preferred Stock are entitled to~~ 4 ~~votes for each share of Series B Preferred Stock held on the record date for the determination of the stockholders entitled to vote or, if no record date is established, on the date the vote is taken.~~

~~Conversion Rights~~

~~The Series B Preferred Stock is convertible at any time at the option of the holder or the Company at an initial conversion ratio of~~ 1 share of common stock for each share of Series B Preferred Stock, subject to adjustments for stock dividends, splits, combinations and similar events. If the Company is the party electing to exercise the conversion right, it must provide ~~five days~~’ prior notice to the holders of the Series B Preferred Stock during which the holders of Series B Preferred Stock may elect to exercise their redemption right to receive cash in lieu of the common stock that would otherwise be issued by the Company in connection with the conversion. In addition, each share of Series B Preferred Stock will automatically convert to one share of common stock (i) if the closing price on all domestic securities exchanges on which the common stock may at the time be listed exceeds $~~3.00~~ ~~per share for 90 consecutive trading days and the average daily trading volume of the common stock is at least~~ ~~20,000~~ shares for that same period; (ii) immediately prior to closing a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) relating to an offer and sale of shares of common stock that generates gross proceeds of at least $~~25.0~~ million; or (iii) immediately prior to effectiveness of a registration statement under the Securities Act covering shares of common stock sold in a private offering that generates gross proceeds of at least $~~25.0~~ million. If the automatic conversion of Series B Preferred Stock pursuant to subpart (ii) or (iii) of the previous sentence occurs prior to the fifth anniversary of the date of issuance of the Series B Preferred Stock, then all dividends that would have accrued with respect to the Series B Preferred Stock for the period from the conversion date to the fifth anniversary of the issuance date will be deemed to automatically accrue and be treated as accrued and unpaid dividends on such Series B Preferred Stock as of immediately prior to conversion.

Redemption of Common Stock and Issuance of Series B Preferred Stock

On March 24, 2020, in accordance with the terms of the common stock subscription agreement, the Company entered into a stock redemption agreement with each of Cuzick and Wheeler, pursuant to which (i) the Company redeemed 1,200,000 and 60,000 shares of its common stock held by Cuzick and Wheeler, respectively, and (ii) agreed to issue 1,000,000 and 50,000 shares of its Series B Preferred Stock to Cuzick and Wheeler, respectively. The Company accounted for this exchange as a $3.2 million increase in Series B Preferred Stock and a $3.2 million decrease in common stock and additional paid-in capital.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

In addition, on March 24, 2020, the Company sold a total of 1,000,000 shares of its Series B Preferred Stock to Cuzick for aggregate gross proceeds of $3.0 million pursuant to the terms of a subscription agreement. On March 27, 2020, in a separate agreement, the Company and Cuzick entered into a waiver and warrant agreement pursuant to which Cuzick waived certain rights granted via the subscription agreement in exchange for the Company agreeing to issue to Cuzick warrants to purchase up to 3,250,000 shares of Common Stock at an exercise price of $2.50 per share. The Company accounted for the issuance of warrants at their estimated fair value as a dividend via a $0.5 million reduction of additional paid-in capital.

Warrants

As further described in Note 7,6, Debt, the Company issued the following warrants in connection with the Financing Agreement:

•

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

•

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

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

•

In February 2020, as a result of the Incremental Amendment, the Company issued the Antara Warrant 2020 to Antara Capital to purchase 3,650,000 shares of the Company’s common stock at an exercise price of $2.50 per share.

•

In March 2020, as a result of the Waiver Agreement, the Company issued to Antara Capital a warrant to purchase up to 3,250,000 shares of the Company’s common Stock at an exercise price of $2.50 per share.

•

In October 2020, as a result of the Omnibus Amendment, the Company issued to the lenders warrants to purchase an aggregate of up to 500,000 shares of the voting common stock of the Company at the price of $0.01 per share.

•

In October 2020, as a result of the Omnibus Amendment, the Company exchanged, without any cash consideration, all warrants previously issued to the lenders for warrants to purchase for $0.01 per share voting common stock of the Company at the rate of 0.64 warrants for shares of voting common stock of the Company. As a result, warrants to purchase an aggregate of 7,925,000 shares of the Company’s common stock at a price of $2.50 per share were exchanged for an aggregate of 5,072,000 shares of the Company’s common stock at a price of $0.01 per share.

•

In December 2020, as a result of failing to timely repay certain obligations under the Financing Agreement with the net proceeds (in the amount of at least $25.0 million) of a financing under the "Main Street Lending Program” on or before December 31, 2020, the Company issued to the lenders warrants to purchase an aggregate of up to 1,000,000 shares of the voting common stock of the Company at the price of $0.01 per share. The Company recorded the $0.8 million estimated fair value of the warrants as an increase to interest expense in the fourth quarter of 2020.

As further described in Note 6, Debt, in connection with the December 2020 Main Street Loan, the Company contributed 100% of the issued and outstanding equity of EAF to EVO Holding with the consent of Danny Cuzick as the holder of certain previously disclosed promissory notes that are secured in part by the assets of EAF. In consideration of Danny Cuzick’s consent to the contribution, the Company issued to him the Cuzick Warrant to purchase up to 1,000,000 shares of common stock of the Company at the cost of $0.01 per share. Danny Cuzick is a member of the Company’s Board. The Company did not pay any underwriter discounts or commissions in connection with the issuance of the Cuzick Warrant.

All of the aforementioned warrants are not considered indexed to the Company's common stock and, therefore, are required to be classified as liabilities and measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations during each reporting period. The following table summarizes such warrants outstanding and exercisable as of ~~March 31, 2020~~September 30, 2021 and December 31, 2019. The warrants outstanding and exercisable as of December 31, 2019 were incorrectly accounted for as equity-classified awards in additional paid-in capital as of December 31, 2019. Refer to Note 1,2020 that are liability-classified. ~~Description of Business and Summary of Significant Accounting Policies - Out of Period Adjustments, for further discussion.~~


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
December 31, 2019
September 30, 2021
Outstanding		6,225,000	$	0.42		5.5		16,022,000	$	0.52		5.1
Exercisable		6,225,000	$	0.42		—		16,022,000	$	0.52
March 31, 2020
December 31, 2020
Outstanding		16,375,000	$	1.71		8.2		16,022,000	$	0.52		5.8
Exercisable		16,375,000	$	1.71		—		16,022,000	$	0.52

~~Prior~~In addition to the issuance of the aforementioned liability-classified warrants, the Company has issued warrants with different terms that are considered indexed to the Company's common stock and, therefore, are classified in additional paid-in capital and are not required to be measured at fair value at each reporting date. The following table summarizes such equity-classified warrants outstanding and exercisable as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019.~~2020.


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
September 30, 2021
Outstanding		11,087,708	$	2.37		7.1
Exercisable		11,087,708	$	2.37
December 31, 2020
Outstanding		8,856,255	$	2.91		7.4
Exercisable		8,522,922	$	2.91

3126

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Number of
Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Term

December 31, 2019

Outstanding

8,856,255

$
2.91

8.4

Exercisable

8,189,589

$
2.66

—

March 31, 2020

Outstanding

8,856,255

$
2.91

8.1

Exercisable

8,189,589

$
2.66

—

Note 8 – Stock-Based Compensation

Stock Options

During the third quarter of 2021, the Company reduced the exercise price of certain stock options previously granted to certain named executive officers of the Company and other key employees from an original exercise price of $2.50 per share to an exercise price of $1.50 per share, which the board of directors determined was equal to or greater than the fair market value of the Company’s common stock. A total of 4,394,999 options were subject to the exercise price reduction. The repricing was accounted for as a stock option modification whereby the incremental fair value of each option was determined using the Black-Scholes option pricing model at the date of the modification, and $0.2 million was recognized related to vested options as incremental compensation expense during the three months ended September 30, 2021. The Company will recognize the remaining $0.1 million of incremental compensation expense resulting from the modification on a straight-line basis over the remaining requisite service periods.

During the third quarter of 2021, the Board of Directors granted an employee 750,000 stock options with an exercise price of $1.50 per share and a 10-year life. One-third (1/3) of the options vested and became exercisable on the grant date, one-third (1/3) vest and become exercisable approximately 11 months after the date of grant, and one-third (1/3) vest and become exercisable approximately 23 months after the date of grant. During the third quarter of 2021, the Board of Directors also granted 211,000 stock options as compensation to board members with an exercise price of $1.50 and a 10-year life. 111,000 of the options vested and became exercisable on the grant date. The remaining 100,000 stock options vest and become exercisable on the first anniversary of the date of grant.

Warrants – Stock-Based Compensation

During the first quarter of 2021, the Company issued to an employee warrants to purchase 750,000 shares of the Company’s common stock. The warrants were issued with a 10-year life and an exercise price equal to the lesser of $2.50 per share and the price at which stock options were to be granted to the Company's officers in 2021. One-third (1/3) of the warrants vested and became exercisable on the grant date, one-third (1/3) vested and became exercisable on March 31, 2021, and one-third (1/3) vested and became exercisable on June 30, 2021. During the third quarter of 2021, the exercise price of the warrants was set at $1.50 per share pursuant to the terms of the warrant agreement. Except for the reduction in exercise price, all terms and conditions of the warrants remain the same. During the nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $0.2 million related to these warrants.

Note 9 – Fair Value Measurements

Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy.

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 ‑ Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 ‑ Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 ‑ Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Recurring Fair Value Measurements

The Company’s derivative liability embedded in its September 2019 Financing Agreement related to the mandatory prepayment feature is measured at fair value using a probability-weighted discounted cash flow model and is classified as a Level 3 liability of the fair value

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

hierarchy due to the use of significant unobservable inputs. The liability is presented as an embedded derivative liability on the consolidated balance sheets and is subject to remeasurement to fair value at the end of each reporting period, with the change in fair value recognized as a component of other expense in its consolidated statements of operations. The assumptions used in the discounted cash flow model include: (1) management's estimates of the probability and timing of future cash flows and related events; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt.

The Company's liability-classified warrants issued with an exercise price of $0.01 per share are measured at fair value using the Black-Scholes option-pricing model and are classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The warrant liabilities are presented as current liabilities on the consolidated balance sheets and are subject to remeasurement to fair value at the end of each reporting period, with the change in fair value recognized as a component of other ~~expense~~income (expense) in its consolidated statements of operations. The inputs and assumptions used in the Black-Scholes option-pricing model include: (1) the Company's stock price; (2) the exercise price of the warrant; (3) the expected term of the warrant; (4) the Company's expected stock price volatility; (5) the Company's expected dividends; and (6) the risk-free interest rate.

The Company's liability-classified warrants issued with an exercise price of greater than $~~2.50~~0.01 per share are measured at fair value using the Monte Carlo simulation model and are classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The warrant liabilities are presented as ~~noncurrent~~current liabilities on the consolidated balance sheets and are subject to remeasurement to fair value at the end of each reporting period, with the change in fair value recognized as a component of other income (expense) or as compensation expense in its

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

consolidated statements of operations. The inputs and assumptions used in the Monte Carlo model include: (1) the Company's stock price; (2) the Company's expected stock price volatility; and (3) the risk-free interest rate.

The following table provides a reconciliation for the opening and closing balances of both liabilities ~~from September 16, 2019 to March 31, 2020:~~for the periods presented:

($ in thousands)

Derivative

Warrants

Balance at September 16, 2019

$
850

$
—

Net change in fair value

171

—

Balance at December 31, 2019

1,021

—

Issuances

—

11,100

(1)
Net change in fair value

45

(8,235
)
(2)
Balance at March 31, 2020

$
1,066

$
2,865

~~(1) Includes $8.3~~ ~~million correction of a prior period error. Refer to Note 1,~~ ~~Description of Business and Summary of Significant Accounting Policies - Out of Period Adjustments, for further discussion.~~

~~(2) Includes $(2.6) million correction of a prior period error. Refer to Note 1,~~ ~~Description of Business and Summary of Significant Accounting Policies - Out of Period Adjustments, for further discussion.~~


($ in thousands)	Derivative Liability			Warrant Liabilities
Balance at December 31, 2020	$	2,278		$	11,264
Issuances		—			—
Net change in fair value		(1,407	)		(2,243	)
Balance at September 30, 2021	$	871		$	9,021

Balance at December 31, 2019	$	1,021		$	—
Issuances		—			11,099
Net change in fair value		(661	)		(5,534	)
Balance at September 30, 2020	$	360		$	5,565

There were 0 transfers between Level 1, Level 2, and Level 3 during the periods presented.

The Company’s obligations under its debt agreements are carried at amortized cost. The fair value of the Company’s obligations under its convertible 0tes and the Term Loans under the Antara Financing Agreement are considered Level 3 liabilities of the fair value hierarchy because fair value was estimated using significant unobservable inputs. The fair value of the Company’s other debt arrangements are considered Level 2 liabilities of the fair value hierarchy because fair value is estimated using inputs other than quoted prices that are observable for the liability such as interest rates and yield curves. The estimated fair value of the Company’s Term Loans under the Antara Financing Agreement was $~~19.6~~9.0 million as of ~~March 31, 2020,~~September 30, 2021, and its carrying value was $~~29.9~~17.0 million as of ~~March 31, 2020.~~September 30, 2021. The estimated fair value of the Company’s Term Loans under the Antara Financing Agreement was $~~16.9~~15.9 million as of December 31, ~~2019,~~2020, and its carrying value was $~~16.3~~31.6 million as of December 31, ~~2019.~~2020. The carrying value of the Company’s remaining debt obligations approximates fair value, and was $~~37.4~~48.3 million and $~~39.2~~59.0 million as of ~~March 31, 2020,~~September 30, 2021, and December 31, ~~2019,~~2020, respectively.

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 10 – Leases

Related Party Leases

The Company has various lease obligations with related parties for trucks, office space and terminals expiring at various dates through January 2029. During the nine months ended September 30, 2021 and 2020 the Company incurred approximately $1.1 million and $1.2 million of related party lease costs, respectively. During the three months ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~ the Company incurred approximately $0.4 million and $0.4 million of related party lease costs, respectively. At ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the Company had the following balances recorded in the condensed consolidated balance sheets related to its lease arrangements with related parties:

($ in thousands)

Classification

March 31,
2020

December 31,
2019

Assets

Operating leases

Right-of-use-asset

$
4,127

$
4,390

Finance leases

Right-of-use-asset

476

497

Liabilities

Current:

Operating leases

Operating lease liabilities, current portion

1,032

1,005

Finance leases

Finance lease liabilities, current portion

71

70

Non-current:

Operating leases

Operating lease liabilities, less current portion

2,805

3,074

Finance leases

Finance lease liabilities, less current portion

433

451

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~


($ in thousands)	Classification	September 30, 2021		December 31, 2020
Assets
Operating leases	Right-of-use-asset	$	2,421	$	3,300
Finance leases	Right-of-use-asset		—		444

Liabilities
Current:
Operating leases	Operating lease liabilities, current portion		1,096		1,118
Finance leases	Finance lease liabilities, current portion		—		71

Non-current:
Operating leases	Operating lease liabilities, less current portion		1,163		1,956
Finance leases	Finance lease liabilities, less current portion		—		414

~~Sale-Leaseback~~

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

Note 12 - Income Taxes

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

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

Note 13 - Subsequent Events

~~Paycheck Protection Program~~Bridge Loan

On ~~April 15, 2020,~~March 11, 2022, the Company ~~obtained~~and certain subsidiary guarantors of the Company entered into a ~~loan~~Senior Secured Loan and Executive Loan Agreement (the ~~“Loan”~~"Bridge Loan Agreement") with Antara Capital Master Fund LP ("Antara") and each of Thomas J. Abood, the Company's chief executive officer, Damon R. Cuzick, the Company's chief operating officer, Bridgewest Growth Fund LLC, an entity affiliated with Billy (Trey) Peck Jr., the Company's executive vice president - business development, and Batuta Capital Advisors LLC ("Batuta" and together with Mr. Abood, Mr. Cuzick, and Bridgewest Growth Fund LLC, the "Executive Lenders"), an entity affiliated with Alexandre Zyngier, a member of the Company's board of directors.

Pursuant to the Loan Agreement, the Company borrowed $9 million (the "Bridge Loan") from ~~BOKF, N.A. (dba Bank~~Antara and has the ability to borrow up to an additional $3 million from Antara prior to May 31, 2022, and also borrowed $825,000 (the "Executive Loans") from the Executive Lenders. $200,000 of ~~Oklahoma)~~the amount the Company borrowed from the Executive Lenders was borrowed in exchange for Batuta's surrender of a Secured Convertible Note in the principal amount of $~~10.0~~200,000 ~~million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief,~~dated August 8, 2018 that Batuta previously purchased from Dane Capital Fund LP. The Bridge Loan and ~~Economic Security (“CARES”) Act. The Loan, which is memorialized by a Note dated April 15, 2020 issued by the Company, was scheduled to mature on~~ ~~April 15, 2022~~ ~~and bore~~Executive Loans bear interest at ~~a rate of~~ ~~1.00~~14% per annum ~~payable~~and have ~~monthly~~ ~~commencing on November 15, 2020. The Company was able to prepay~~a maturity date of the ~~Note~~earlier of (i) demand by Antara at any time prior to ~~maturity with~~the date on which a collateral agent designated by Antara has been granted a valid and enforceable, perfected, first priority lien on the collateral described in the Bridge Loan Agreement, subject only to permitted liens, on terms reasonably acceptable to the Antara, and (ii) 0May 31, 2022. ~~prepayment penalties. The principal amount of~~Interest on the Bridge Loan and ~~accrued interest were eligible for forgiveness after~~ Executive Loans will accrue until the principal balances are repaid.~~eight weeks~~ if the Company used the Loan proceeds for qualifying expenses, including payroll, rent, and utilities and the Company maintained its payroll levels. The Company used the entire Loan amount for qualifying expenses, and the entire amount borrowed under the Loan was forgiven by the SBA in July 2021.

On May 8, 2020, we received a letter from the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives demanding that we return the PPP loan that we applied for and received under the CARES Act. We elected not to return the PPP loan proceeds as requested and our PPP loan was subsequently forgiven. Also, the United States Small Business Administration ("SBA") has stated that it intends to audit the PPP loan application of any company, like us, that received PPP loan proceeds of more than $2 ~~million. However, we are not currently party to or aware of any contemplated proceeding with the Select Subcommittee, the SBA, or any other governmental authority with respect to our PPP loan.~~

~~Issuance of Contingent Consideration~~

~~During June 2020, the Company determined that the performance target specified in the Finkle acquisition had been achieved, the Company became obligated to issue~~ ~~870,317~~ ~~shares of its common stock to satisfy the contingent consideration, and the Company recognized $0.3~~ ~~million of expense representing the estimated fair value of these shares. The shares of common stock were subsequently issued by the Company during July 2020.~~

~~Second Amendment to Forbearance Agreement and Omnibus Amendment to Loan Agreement~~

~~During October 2020,~~In the event of a default, the lenders have the right to terminate their obligations under the Bridge Loan Agreement and to accelerate the payment on any unpaid principal amount of all outstanding loans. As defined in the Bridge Loan Agreement, events of default include, but are not limited to: failure by the Company ~~entered into a second amendment~~ to ~~forbearance agreement~~pay any amount due under the Bridge Loan Agreement when due; default by the Company or any of its subsidiaries for failure to pay amounts due and ~~omnibus amendment~~payable under any indebtedness in an amount in excess of $100,000 if the effect of such default is to ~~loan documents (the “Omnibus Amendment”). The Omnibus Amendment (i) extended~~accelerate the ~~forbearance period until December 31, 2020, (ii) joined EVO Holding Company, LLC~~maturity of any such indebtedness; and any representation or warranty made in connection with the Bridge Loan Agreement being materially false.

In connection with the Bridge Loan Agreement, and as a ~~borrower~~condition to the Company drawing the Bridge Loan pursuant to the Bridge Loan Agreement, on March 11, 2022, the Company granted Antara 11,969,667 warrants to purchase Company common stock at $0.01 per share and granted the Executive Lenders an aggregate of 1,097,219 warrants to purchase Company common stock at $0.01 per share (collectively, the "Bridge Loan Warrants"), subject to certain adjustments. Each Bridge Loan Warrant may be exercised for cash or on a cashless basis, pursuant to the terms of such warrants, for a period of five years from the date of issuance.

On March 11, 2022, and pursuant to the Bridge Loan Agreement, the Company filed a Certificate of Designations of Series C Non-Participating Preferred Stock (the "Certificate of Designations") with the Secretary of State of the State of Delaware, which authorizes the Company to issue up to 1 share of Series C Preferred Stock (the "Series C Preferred").

Under the Certificate of Designations, prior to a payment default under the ~~Financing Agreement, (iii) authorized~~Bridge Loan (a "Bridge Loan Triggering Event") and following the ~~Company and/or its subsidiaries to incur unsecured indebtedness of up to $10,000,000~~date on which all principal and accrued interest (including default interest) payable under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, and (iv) extended the timelines under which the Company and its subsidiaries are required to comply with certain affirmative covenants set forth in the Financing Agreement, Incremental Amendment, and Second Incremental Amendment.Bridge Loan has been

~~The Omnibus Amendment contained the following additional covenants:~~

~~(i)~~

~~The Company was required to either (a) fully consummate the acquisition by EVO Equipment Leasing, LLC of~~ 89 ~~used CNG tractors on or before January 3, 2021 or (b) issue~~ ~~1,174,800~~ ~~shares of the Company’s common stock to the lenders.~~

3531

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

~~The Company did not fully consummate~~paid-in-full (the date of such payment-in-full, the ~~acquisition~~"Bridge Loan Discharge Date"), the holder of Series C Preferred will have no voting rights except as otherwise required by law. Under the Certificate of Designations, upon the occurrence of a Bridge Loan Triggering Event through and including the Bridge Loan Discharge Date, the holders of Series C Preferred will vote together with the holders of the ~~used CNG tractors by January 3, 2021 and became obligated~~Company's common stock as a single class on ~~that date~~any matter presented to ~~issue~~ the ~~1,174,800~~ ~~shares~~holders of the ~~Company’s~~Company's common stock for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting) or on which such holders of common stock are otherwise entitled to act (each, a "Shareholder Matter"), and the holders of Series C Preferred will be entitled to cast a number of votes on any Shareholder Matter equal to the ~~lenders.~~total number of votes of all non-holders of Series C Preferred entitled to vote on any such Shareholder Matter plus 10. In addition, the Certificate of Designations provides that governance mechanisms that could have the effect of limiting, reducing or adversely affecting the Series C Preferred holders’ voting or board-appointment rights under the Certificate of Designations will require the consent of holders of a majority of the then outstanding (the "Series C Majority") Series C Preferred.

In addition, the Certificate of Designations grants the Series C Majority the exclusive right, voting separately as a class, to elect or appoint (i) prior to a Bridge Loan Triggering Event, 1 director to the Board (who shall, unless the majority of the Series C Preferred elects otherwise in its sole discretion, also serve as a member of each Board committee) and (ii) upon the occurrence of a Bridge Loan Triggering Event through and including the Bridge Loan Discharge Date, a majority of the members of the Board.

The Series C Majority may elect to waive or decline to exercise any or all voting or Board-appointment rights granted under the Certificate of Designations, in whole or in part, on either a revocable or irrevocable basis.

On March 18, 2022, and pursuant to the Bridge Loan Agreement, the Board adopted amended and restated bylaws of the Company (the "A&R Bylaws"). The A&R Bylaws amend the Company's prior bylaws to conform to the Certificate of Designations with respect to the voting and procedural mechanisms applicable to the Series C Preferred on Shareholder Matters, and also to conform titles of Company officers to the titles previously approved by the Board.

On May 31, 2022, the Company, Antara, and the Executive Lenders entered into a Loan Extension Agreement (the "Extension Agreement") pursuant to which the maturity date of the Bridge Loan was ~~required~~extended from May 31, 2022 to ~~issue~~June 30, 2022. Also on May 31, 2022, Danny Cuzick and Scott Wheeler resigned from the Board, and the Board appointed Raph Posner and Chetan Bansal, both of whom are employees of Antara, to serve as members of the Board. In connection with his resignation from the Board, Danny Cuzick and the Company entered into a board observer agreement whereby the Company appointed Danny Cuzick as a non-voting Board observer.

Amendments to and Conversion of Secured Convertible Promissory Notes

On March 11, 2022, the Company entered into amendments (the "Convertible Note Amendments") to certain secured convertible promissory notes (the "Convertible Notes") dated February 1, 2017 with Danny Cuzick, individually and as holders representative on behalf of each of Damon Cuzick, Thomas Kiley, and Theril Lund. The Convertible Note Amendments permitted the ~~lenders ratably warrants authorizing such lender~~holder of each note and Danny Cuzick in his capacity as holders representative to ~~on or after January 1, 2021, purchase its ratable share~~convert the full amount of upoutstanding principal and accrued interest, without limitation related to ~~500,000~~trading volume of the Company's common stock, into either shares of ~~the voting~~ common stock of the Company or warrants to purchase shares of common stock of the company at ~~the~~an exercise price of $0.01 per ~~share with a~~ ~~10 year~~ ~~expiration. If~~share. On March 11, 2022, Danny Cuzick, individually and as holders representative on behalf of each of Damon Cuzick, Thomas Kiley, and Theril Lund, exercised the ~~Company or any of its subsidiaries had not repaid or partially repaid~~right to convert the ~~obligations with the net proceeds (in the amount of at least $25.0~~ ~~million) of a financing under the “Main Street Lending Program” on or before December 31, 2020, then the Company was required to issue an additional~~ ~~1,000,000~~Convertible Notes into warrants to ~~the lenders. The Company had not repaid the $25.0~~ ~~million by December 31, 2020. Therefore, the Company was required to issue warrants to~~ purchase ~~an aggregate of~~ ~~1,500,000~~ ~~shares of the Company’s common stock to the lenders. The Company recorded the $0.8~~ ~~million estimated fair value of the warrants as an increase to interest expense in the fourth quarter of 2020.~~

~~(iii)~~

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

During the fourth quarter of 2020, the Company accounted for the Omnibus Amendment as a modification of the Financing Agreement. The Company capitalized the estimated fair value of the warrants to purchase ~~500,000~~ ~~shares of the voting common stock of the Company at the price of $0.01~~ per share, the change in fair value resulting from the warrant exchange, and the fees paid to Antara on its balance sheet as an additional discount on the Financing Agreement, which is amortized using the effective interest method into interest expense over the term of the Financing Agreement.

~~Second Omnibus Amendment to Loan Documents~~

On December 14, 2020, the Company entered into a second omnibus amendment to loan documents (the “Second Omnibus Amendment”) to, among other things, authorize EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc., each of which is a subsidiary owned directly or indirectly by the Company, to obtain a Main Street Loan in the amount of up to $~~17.0~~ million under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. Pursuant to the Second Omnibus Amendment, the forbearance period was terminated and the collateral agent and other lenders agreed to waive all existing defaults or events of default under the Financing Agreement that occurred and were continuing as of the date of the Second Omnibus Amendment. The Second Omnibus Amendment also removed or revised certain covenants contained in the Financing Agreement and prior amendments to the Financing Agreement, including the EBITDA-based financial covenant included in the Financing Agreement, and extended the maturity date of the term loans under the Financing Agreement to the date that is ninety-one days after the fifth anniversary of the closing date of the Main Street Loan or the date that is ninety-one days after the date of payment in full in cash of all obligations in respect of the Main Street Loan, whichever occurs first. ~~Under the Second Omnibus Amendment, interest on the term loans under the Financing Agreement is payable in kind at the rate of~~ ~~14.5% per annum for the first eight full or partial calendar quarters following the effective date of the Second Omnibus Amendment and is payable in cash at the rate of~~ ~~12.0% per annum commencing with the ninth calendar quarter following the effective date.~~ As a result of the Main Street Loan, Second Omnibus Amendment, and related agreements, payment of the principal balance of the term loans is subject and subordinate to the prior payment in full of all obligations under the Main Street Loan.

~~During the fourth quarter of 2020, the Company accounted for the Second Omnibus Amendment as a modification of the Financing Agreement.~~

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

On December 29, 2020, EVO Holding Company, LLC, Ritter Transport, Inc., John W. Ritter Trucking, Inc., Johmar Leasing Company, LLC, and Ritter Transportation Systems, Inc. (collectively, the “Borrowers”), each of which is a subsidiary owned directly or indirectly by the Company, entered into a Loan Agreement dated December 14, 2020 (the “Loan Agreement”) and related documents (together with the Loan Agreement, the “Loan Documents”) for a loan in the amount of up to $~~17.0~~ million (the “Main Street Loan”) serviced by Commerce Bank of Arizona, Inc. (the “Bank”) as lender under the Main Street Priority Loan Program authorized by Section 13(3) of the Federal Reserve Act. The Borrowers and the Bank subsequently entered into a Modification Agreement to the Loan Agreement dated December 22, 2020 (the “Modification Agreement”) and a Second Modification Agreement to the Loan Agreement dated December 23, 2020 (the “Second Modification Agreement”).During the first quarter of 2021, the Borrowers used all of the net proceeds of the Main Street Loan to refinance a portion of the amount outstanding under the Financing Agreement discussed above under the caption “Forbearance Agreement and Incremental Amendment to Financing Agreement” and to pay related prepayment premiums.

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

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

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

~~In connection with the Main Street Loan, the Company contributed~~ ~~100~~% of the issued and outstanding equity of Environmental Alternative Fuels, LLC (“EAF”) to EVO Holding Company, LLC (“EVO Holding”) with the consent of Danny Cuzick as the holder of certain previously disclosed promissory notes that are secured in part by the assets of EAF. In consideration of Danny Cuzick’s consent to the contribution, the Company agreed to (a) indemnify Danny Cuzick for up to $~~0.5~~ million in connection with Danny Cuzick’s guaranty of certain obligations of the Company and its subsidiaries to Mercedes-Benz Financial Services USA LLC and (b) issue to Danny Cuzick a warrant (the “Cuzick Warrant”) to purchase up to ~~1,000,000~~ shares of common stock of the Company at ~~the cost of $0.01~~ per share. Danny Cuzick is a member of the Company’s Board. During the fourth quarter of 2020, the Company capitalized the estimated fair value of the Cuzick Warrant on its balance sheet as a discount on the Main Street Loan, which is amortized using the effective interest method into interest expense over the term of the Main Street Loan.

~~United States Postal Service Settlement~~

~~On January 19, 2021, the Company and the USPS entered into a settlement agreement whereby the USPS agreed to pay approximately $7.1~~ million to one of the Company’s subsidiaries as additional compensation for transportation services provided to the USPS under certain Dynamic Route Optimization (“DRO”) contracts. Subsequently, on February 19, 2021, the Company and the USPS entered into an ~~additional settlement agreement whereby the USPS agreed to pay approximately $17.5~~ million to certain other Company subsidiaries as additional compensation for transportation services provided to the USPS under other DRO contracts. In connection with the settlement agreements, the Company and the USPS agreed to make certain adjustments to the Company’s DRO contracts, including rate adjustments effective for the fourth quarter of 2020 and future periods. As a result of those adjustments, the USPS agreed to pay an additional $~~3.8~~ million to the Company for transportation services provided in the fourth quarter of 2020. The USPS has made all payments associated with these settlement agreements and were received by Triumph (as defined below) on behalf of the Company during the first quarter of 2021. ~~In addition, amounts totaling $6.3~~ million that were previously paid by the USPS to the Company during 2020 became subject to the terms of the settlement agreements and are recognized as a deferred gain as of December 31, 2020. All aforementioned amounts totaling $~~34.7~~ million will be recognized as other operating revenue during the first quarter of 2021. Such amounts are for transportation services provided during 2020 and prior years, are not subject to refund, and are not contingent upon the Company providing future transportation services.

~~Agreement with Triumph Business Capital~~

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

On March 9, 2021, the Company and Advance Business Capital LLC d/b/a Triumph Business Capital (“Triumph”), the Company’s factoring lender, entered into a Letter-of-Intent and Memo of Understanding (the “Triumph LOI”) related to the application of $~~17.5~~ ~~million and $7.1~~ million of proceeds received from the USPS in February and January of 2021, respectively, arising out of the settlement agreements described above. Pursuant to the agreement, the parties acknowledged that Triumph previously applied approximately $~~1.6~~ ~~of the $7.1 million of proceeds received in January 2021 plus approximately $0.6~~ ~~million of funds held in reserve against a balance of $3.0~~ ~~million for advances that Triumph made to the Company in September 2020 (the “Gross Purchase Advance Facility”) and agreed that Triumph would remit $11.0~~ ~~million of net proceeds to the Company and that Triumph would retain approximately $6.9~~ million of net proceeds and apply that amount to reduce the outstanding principal amount of the Company’s factoring advances. The parties further agreed that the Company will repay the remaining balance of approximately $~~6.9~~ ~~million due under the factoring arrangement in~~ 48 ~~equal~~ ~~monthly~~ ~~installments beginning~~ ~~January 1, 2022~~ ~~and that Triumph would apply funds held in reserve against the approximately $0.8~~ million remaining balance of the Gross Purchase Advance Facility. The parties also agreed to work together to wind down their factoring relationship, including waiver of any applicable termination fees.

~~Settlement Agreement and Release~~

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

The Settlement Agreement provided for various releases among the parties and their respective representatives, successors, and assigns, including releases arising out of or related to the DTII Note, the DTII Agreements, and all facts, events and occurrences described in the Draft Complaint. The Company denied any liability regarding the Draft Complaint in connection with the Settlement Agreement. Pursuant to the Settlement Agreement, the Company agreed to purchase from Midwest, as successor to DTII, the DTII Note and the DTII Agreements. As consideration for the DTII Note and DTII Agreements, the Company paid $~~500,000~~ ~~in cash to Midwest and issued to Midwest a warrant to purchase up to~~ ~~1,250,000~~ ~~shares of common stock of the Company at a~~exercise price of $0.01 per share. ~~The~~As a result, the Company ~~also agreed to exchange the warrant issued to DTII in connection with the DTII Note~~granted Messrs. Cuzick, Cuzick, Kiley, and Lund an aggregate of 7,533,750 warrants to purchase ~~up to~~ ~~1,200,000~~ ~~shares of~~Company common stock ~~of the Company~~ at ~~a price of $2.50~~ ~~per share for (i) a warrant to purchase up to~~ ~~950,000~~ ~~shares of common stock of the Company at a price of $2.50~~ ~~per share and (ii) a warrant to purchase up to~~ ~~250,000~~ ~~shares of common stock of the Company at a price of~~ $0.01 per ~~share.~~

~~Purchase and Cancellation of Secured Convertible Promissory Notes~~

~~In March and April 2021,~~share (collectively, the ~~Company entered into certain~~"Convertible Note ~~Purchase Agreements and Releases (the “Note Purchase Agreements”~~Warrants") ~~between the Company and certain holders (the “Holders”) of Secured Convertible Promissory Notes (the “2018 Convertible Notes”) in the principal amount of $555,000~~ ~~issued by the Company in July and August 2018 to the Holders and the note purchase agreements and security agreements related thereto (the “2018~~. Each Convertible Note ~~Agreements”).~~

~~The Note Purchase Agreements provide~~Warrant may be exercised for ~~various releases by the Holders and their respective representatives, successors, and assigns, including releases arising out of~~cash or related to the 2018 Convertible Notes and the 2018 Convertible Note Agreements. Pursuant to the Note Purchase Agreements, the Company agreed to purchase the 2018 Convertible Notes and the 2018 Convertible Note Agreements from the Holders. As consideration for the 2018 Convertible Notes and the 2018 Convertible Note Agreements, the Company agreed to pay approximately $~~92,000~~ ~~in cash to the Holders and to issue to the Holders warrants (the “Holder Warrants”) to purchase an aggregate of up to~~ ~~231,453~~ ~~shares of common stock of the Company at~~on a ~~price of $0.01~~ ~~per share.~~

~~2021 AIP and LTIP~~

On August 17, 2021, the Compensation Committee of the Board approved the EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (the “2021 AIP”), to provide the terms of annual bonus opportunities to be granted to the Company’s executive officers and other participating employees. The purposes of the 2021 AIP are to maintain a competitive level of total cash compensation and to

~~EVO TRANSPORTATION & ENERGY SERVICES, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~align the interests of the Company’s executives and other employees with those of the Company’s shareholders and with the strategic objectives of the Company.~~

The 2021 AIP provides the Company’s executive officers and other participating employees with an opportunity to earn cash incentive compensation based upon the achievement of performance goals over a specified performance period. All of the Company’s executive officers and certain other employees designated as eligible employees from time to time are eligible to participate in the 2021 AIP. The 2021 AIP focuses on achievement of certain annual objectives and goals, as determined by the Compensation Committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of such specified goals. Under the 2021 AIP, the payout opportunity is contingent upon meeting the threshold performance levels, and thereafter varies for performance above and below the pre-established target performance levels, subject to a maximum award level. With respect to the Company’s chief executive officer, the target award equals 50~~% of 2021 base salary, and with respect to the Company’s other named executive officers the target award equals~~ 40% of base salary, all as adjusted based upon meeting or exceeding the performance levels established by the Compensation Committee for 2021, and cannot exceed a maximum payment limit specified by the Compensation Committee. The 2021 AIP also provides that each named executive officer’s award will be forfeited if such executive officer’s employment does not continue through December 31 of the applicable plan year.

The performance metrics on which awards under the 2021 AIP will be granted include 2021 revenue and EBITDA, and payment of incentive awards under the 2021 AIP is dependent upon achievement of defined goals for each performance metric. However, the Compensation Committee retains the discretion to increase, reduce or eliminate any incentive award that becomes payable under the 2021 AIP. Awards under the 2021 AIP will be granted for services provided in calendar year 2021 and will be payable in 2022. Incentive awards under the 2021 AIP are paid in cash following the end of calendar year 2021 and after the Compensation Committee has determined and certified the level of performance achieved and the incentive awards earned.

~~Stock Option Repricing~~

On September 1, 2021, the Company reduced the exercise price of certain stock options previously granted to certain named executive officers of the Company and other key employees from an original exercise price of $~~2.50~~ ~~per share to an exercise price of $1.50~~ ~~per share, which the board of directors determined was equal to or greater than the fair market value of the Company’s common stock. A total of~~ ~~4,394,999~~ ~~options were subject to the exercise price reduction, including~~ ~~2,473,231~~ ~~options held by Thomas Abood, the Company’s chief executive officer,~~ ~~1,317,769~~ ~~options held by Damon Cuzick, the Company’s chief operating officer,~~ ~~418,577~~ ~~options held by Eugene Putnam, the Company’s chief financial officer, and~~ ~~20,000~~ ~~options held by Billy (Trey) Peck, Jr., the Company’s executive vice president. Also, as a result of the option repricing, the strike price of the warrant to purchase~~ ~~750,000~~ ~~shares of common stock issued to R. Scott Wheeler, the Company’s chief administrative officer, in February 2021 equals $1.50~~cashless basis, pursuant to the terms of such warrants, for a period of five years from the ~~warrant. Except for the reduction in exercise price, all terms and conditions~~date of ~~the options and warrant remain the same.~~issuance.

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

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020. Some of the statements in this report may contain forward-looking statements that reflect management’s current view about future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “anticipate,” “will,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” and similar expressions or the negative of these terms. Many of these forward-looking statements are located in this report under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. The forward-looking statements in this report generally relate to: (i) our growth strategy and potential acquisition candidates; (ii) management’s expectations regarding market trends and competition in the vehicle fuels industry, gasoline, diesel, and natural gas prices, government tax credits and other incentives, and environmental and safety considerations; (iii) our beliefs regarding the sufficiency of working capital and cash flows, and our continued ability to renew or obtain financing on reasonable terms when necessary; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

Forward-looking statements are based on information available to management at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Such statements reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019)~~2020) relating to the Company’s industry, its operations and results of operations, and any businesses that may be acquired by it. These factors include, among other factors:

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

EVO Transportation & Energy Services, Inc. is a transportation provider serving the United States Postal Service (“USPS”) and other customers. We believe EVO is the second largest surface transportation company serving the USPS, with a diversified fleet of tractors, straight trucks, and other vehicles that currently operate on either diesel fuel or compressed natural gas (“CNG”). In certain markets, we fuel our vehicles at one of our three CNG stations that serve other customers as well. We are actively engaged in reducing CO2 emissions by operating on CNG, pursuing opportunities to use other alternative fuels, and by optimizing the routing efficiency of our operations to reduce fuel usage. We operate from our headquarters in Phoenix, Arizona and from 10 main terminals located throughout the United States.

EVO has grown primarily through acquisitions, and we have completed seven acquisitions since our initial business combination in 2016. We have also grown organically by obtaining new contracts from the USPS and other customers. During the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, we generated ~~$48.2~~$190.6 million in revenues (which includes $34.8 million of nonrecurring revenue) from the USPS. We have been actively integrating the acquisitions we have made under common leadership and technology and are now operating under a single umbrella brand.

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

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

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

Three Months Ended ~~March 31, 2020,~~September 30, 2021, as compared with the Three Months Ended ~~March 31, 2019~~September 30, 2020

Substantially all of the increases in Trucking revenue and operating expenses from the three months ended March 31, 2019 to the three months ended March 31, 2020 are due to the three months ended March 31, 2019 including the acquisition of, and partial-quarter results of operations for, Sheehy, Ursa and JB Lease while the three months ended March 31, 2020 include full-quarter results of operations for Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.

Trucking revenue: The majority of Trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration and are priced on a rate per mile basis which varies by contract. The USPS contracts also include a monthly fuel adjustment. Trucking revenue was $68.8 million and $52.1 million during the three months ended September 30, 2021 and 2020, respectively. The $16.7 million, or 32.1%, increase in Trucking revenue from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of increased fuel prices.

Payroll, benefits and related: Driver wages are fixed per contract with USPS and are eligible for renegotiation with USPS on a bi-annual basis. In addition to an hourly wage that is set by the Department of Labor, drivers also earn an incremental hourly rate for benefits. Payroll, benefits and related expense was $25.7 million and $25.4 million during the three months ended September 30, 2021 and 2020, respectively. Despite a 32.1% increase in trucking revenue from the three months ended September 30, 2020 to the three months ended September 30, 2021, payroll, benefits and related expense increased only $0.3 million, or 1.2%, from the three months ended September 30, 2020 to the three months ended September 30, 2021 due to a $9.8 million, or 130.7%, increase in purchased transportation expense from the three months ended September 30, 2020 to the three months ended September 30, 2021.

Purchased transportation: Purchased transportation represents payments to subcontracted third-party companies. These contracts are negotiated on a rate per mile basis and the subcontracting company is responsible for supplying all resources to perform the service including, but not limited to, labor, equipment, fuel and associated expenses. Purchased transportation expense was $17.3 million and $7.5 million during the three months ended September 30, 2021 and 2020, respectively. The $9.8 million, or 130.7%, increase in purchased transportation expense from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to the use of subcontracted third-party company resources to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.

Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors. Fuel expense was $7.3 million and $5.0 million during the three months ended September 30, 2021 and 2020, respectively. The $2.3 million, or 46.0%, increase in fuel expense is due primarily to the 32.1% increase in trucking revenue combined with an increase in the average DOE fuel price to $3.36 per gallon for the three months ended September 30, 2021 from $2.43 per gallon for the three months ended September 30, 2020.

Equipment rent: The Company rents and leases ~~the majority~~a portion of its trucks and trailers through a combination of ~~short~~short-term rental arrangements and long-term lease arrangements. ~~Efforts are currently underway~~Equipment rent expense was $3.7 million and $2.1 million during the three months ended September 30, 2021 and 2020, respectively. The $1.6 million, or 76.2%, increase in equipment rent expense from the three months ended September 30, 2020 to ~~rebalance~~ the ~~fleet towards having more company-owned assets, subject~~three months ended September 30, 2021 is primarily due to ~~financing availability.~~the need to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.

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

~~Operating supplies and expenses:~~ ~~Operating~~ Maintenance and supplies expense ~~includes all other direct costs~~was $2.6 million and $2.3 million during the three months ended September 30, 2021 and 2020, respectively. The $0.3 million or 13.0%, increase in maintenance and supplies expense from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to an increase in the ~~Trucking segment.~~size of the fleet combined with increased maintenance costs for the existing fleet, which the Company is in process of refreshing with newer equipment.

Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers compensation expense related to the trucking segment of the business. Insurance and claims expense was $1.9 million and $2.1 million during the three months ended September 30, 2021 and 2020, respectively. The $0.2 million, or 9.5%, decrease in insurance and claims expense from the three months ended September 30, 2020 to the three months ended September 30, 2021 is primarily due to lower premiums and fewer significant, nonrecurring claims.

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the Trucking segment. Operating supplies and expenses was $3.7 million and $3.7 million during the three months ended September 30, 2021 and 2020, respectively.

CNG revenue: Revenue for the CNG stations was ~~$0.3~~$0.1 million and $0.3 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively.

CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees. CNG operating expense was less than $0.1 million for the three months ended September 30, 2021 and 2020, respectively.

General and administrative: General and administrative expense was ~~$4.9~~$6.3 million and ~~$2.1~~$4.9 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. The $1.4 million, or 28.6%, increase in general and administrative expense ~~is due primarily~~from the three

months ended September 30, 2020 to the three months ended ~~March 31, 2019 including the acquisition of,~~September 30, 2021 is primarily due to increases in compensation and ~~partial-quarter results of operations for, Sheehy, Ursa~~benefits and ~~JB Lease while the three months ended March 31, 2020 include full-quarter results of operations for Sheehy, Ursa, JB Lease, Finkle, Courtlandt~~accounting and ~~the Ritter Companies.~~auditing professional fees.

Depreciation and amortization: Depreciation and amortization expense was ~~$3.5~~$4.0 million and ~~$1.2~~$3.8 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. The slight increase is due to an increase in ~~depreciation and~~finance lease right-of-use asset amortization expense is due primarily to the three months ended March 31, 2019 including the acquisition of, and partial-quarter results of operations for, Sheehy, Ursa and JB Lease while the three months ended March 31, 2020 include full-quarter results of operations for Sheehy, Ursa, JB Lease, Finkle, Courtlandt and the Ritter Companies.being substantially offset by a decrease in depreciation expense.

Interest expense: Interest expense ~~increased to $3.6~~was $2.8 million and $3.1 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~from $1.1~~respectively. The $0.3 million, ~~for~~or 9.7%, decrease in interest expense from the three months ended ~~March 31, 2019. The increase in interest expense is due primarily to: (1)~~September 30, 2020 to the ~~incurrence of interest expense during~~ three months ended ~~March 31, 2020 on debt obligations used~~September 30, 2021 is primarily due to ~~finance~~during the first quarter of 2021 the Company using all of the ~~Company’s 2019 acquisitions, including~~net proceeds of the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement, ~~as well as the debt obligations assumed in connection with such acquisitions; and (2) the various debt financing activities undertaken during the three months ended March 31, 2020 relating~~including capitalized interest, from $33.6 million to ~~the Antara Financing Agreement.~~$16.7 million. Refer to Note 7,6, Debt, for a description of these activities.

Gain (loss) on extinguishment of debt: The $10.2 million gain on extinguishment of debt during the three months ended September 30, 2021 is due to the extinguishment of the outstanding principal and accrued interest on the Paycheck Protection Program Loan, which was forgiven by the SBA in July 2021.

Change in fair value of embedded derivative liability: The Antara Financing Agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Refer to Note 7,6, Debt, and Note 9, Fair Value Measurements, for further discussion.

Change in fair value of warrant liabilities: ~~During 2019 and the three months ended March 31, 2020, the~~The Company previously issued certain warrants that are not considered indexed to the Company's common stock and, therefore, are required to be classified as liabilities and measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations during each reporting period. The change in fair value of substantially all of the warrants classified as liabilities is recognized in other income (expense). Refer to Note 8,7, Stockholders' Deficit and Warrants, and Note 9, Fair Value Measurements, for further discussion.

Nine Months Ended September 30, 2021, as compared with the Nine Months Ended September 30, 2020

Trucking revenue: The majority of Trucking revenue is derived from the USPS. The remainder of the revenue is derived from corporate freight hauling. The USPS contracts are typically four years in duration and are priced on a rate per mile basis which varies by contract. The USPS contracts also include a monthly fuel adjustment. Trucking revenue was $179.2 million and $159.3 million during the nine months ended September 30, 2021 and 2020, respectively. The $19.9 million, or 12.5%, increase in Trucking revenue from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to revenue from new USPS contracts, along with increased fuel surcharge revenue as a result of increased fuel prices.

Other revenue: During the first quarter of 2021, the Company entered into agreements with the USPS to settle claims submitted by the Company seeking additional compensation for transportation services provided under certain DRO contracts. The Company received a total of $28.5 million related to these claims and also renegotiated the contractual rates per mile for some of its DRO contracts on a prospective basis. In addition, amounts totaling $6.3 million that were previously paid by the USPS to the Company during 2020 became subject to the terms of the settlement agreements and were recognized as a deferred gain as of December 31, 2020. The aforementioned amounts totaling $34.8 million were recognized as other revenue during the first quarter of 2021 in the consolidated statement of operations. Such amounts are for transportation services provided during 2020 and prior years, are not subject to refund, and are not contingent upon the Company providing future transportation services. Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, for further discussion.

Payroll, benefits and related: Driver wages are fixed per contract with USPS and are eligible for renegotiation with USPS on a bi-annual basis. In addition to an hourly wage that is set by the Department of Labor, drivers also earn an incremental hourly rate for benefits. Payroll, benefits and related expense was $69.4 million and $78.1 million during the nine months ended September 30, 2021 and 2020, respectively. Despite a 12.5% increase in trucking revenue from the nine months ended September 30, 2020 to the nine months ended September 30, 2021, payroll, benefits and related expense decreased $8.7 million, or 11.1%, from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 due to a $15.0 million, or 65.2%, increase in purchased transportation expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021.

Purchased transportation: Purchased transportation represents payments to subcontracted third-party companies. These contracts are negotiated on a rate per mile basis and the subcontracting company is responsible for supplying all resources to perform the service including, but not limited to, labor, equipment, fuel and associated expenses. Purchased transportation expense was $38.0 million and $23.0 million during the nine months ended September 30, 2021 and 2020, respectively. The $15.0 million, or 65.2%, increase in purchased transportation expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to the use of subcontracted third-party company resources to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.

Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors. Fuel expense was $19.1 million and $16.9 million during the nine months ended September 30, 2021 and 2020, respectively. The $2.2 million, or 13.0%, increase in fuel expense is due primarily to the 12.5% increase in trucking revenue combined with an increase in the average DOE fuel price to $3.15 per gallon for the nine months ended September 30, 2021 from $2.58 per gallon for the nine months ended September 30, 2020.

Equipment rent: The Company rents and leases a portion of its trucks and trailers through a combination of short-term rental arrangements and long-term lease arrangements. Equipment rent expense was $9.3 million and $7.7 million during the nine months ended September 30, 2021 and 2020, respectively. The $1.6 million, or 20.8%, increase in equipment rent expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to the need to service the aforementioned new USPS contracts that generated the increase in revenue from 2020 to 2021.

Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet. Maintenance and supplies expense was $7.4 million and $7.8 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 5.1%, decrease in maintenance and supplies expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to reduced maintenance spend on existing equipment in advance of the planned refreshing of our fleet with newer equipment.

Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers compensation expense related to the trucking segment of the business. Insurance and claims expense was $6.9 million and $7.6 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.7 million, or 9.2%, decrease in insurance and claims expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to lower premiums and fewer significant, nonrecurring claims.

Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the Trucking segment. Operating supplies and expenses was $11.3 million and $11.7 million during the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 3.4%, decrease in operating supplies and expenses from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to more cost efficient completion of certain routes.

CNG revenue: Revenue for the CNG stations was $0.3 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.

CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees. CNG operating expense was $0.2 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.

General and administrative: General and administrative expense was $17.1 million and $14.1 million for the nine months ended September 30, 2021 and 2020, respectively. The $3.0 million, or 21.3%, increase in general and administrative expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to increases in compensation and benefits and accounting and auditing professional fees.

Depreciation and amortization: Depreciation and amortization expense was $11.4 million and $10.9 million for the nine months ended September 30, 2021 and 2020, respectively. The slight increase is due to an increase in finance lease right-of-use asset amortization expense being substantially offset by a decrease in depreciation expense.

Interest expense: Interest expense was $9.7 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. The $0.4 million, or 4.0%, decrease in interest expense from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 is primarily due to during the first quarter of 2021 the Company using all of the net proceeds of the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement, including capitalized interest, from $33.6 million to $16.7 million. Refer to Note 6, Debt, for a description of these activities.

Gain (loss) on extinguishment of debt: The $11.0 million gain on extinguishment of debt during the nine months ended September 30, 2021 is due to: (1) the $10.1 million gain on extinguishment of the outstanding principal and accrued interest on the Paycheck Protection Program Loan, which was forgiven by the SBA in July 2021; (2) the $2.5 million gain on the partial extinguishment of the $4.0 million Secured Convertible Promissory Notes during March and April 2021; and (3) the $1.7 million loss on extinguishment resulting from using all of the net proceeds from the Main Street Loan to pay down the aggregate principal amount due under the Antara Financing Agreement (including capitalized interest) from $33.6 million to $16.7 million during the first quarter of 2021. The $10.0 million loss on extinguishment of debt during the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 is due primarily to the $10.1 million loss on extinguishment of debt relating to the Company's March 31, 2020 Waiver and Agreement to Issue Warrant (the “Waiver Agreement”) with Antara Capital and the

collateral agent. The Waiver Agreement modified a certain affirmative covenant and waived another affirmative covenant in the Antara Financing Agreement and, in exchange, the Company agreed to issue to Antara Capital a warrant to purchase up to 3,250,000 shares of the Company’s Common Stock at an exercise price of $2.50 per share as an incentive. Refer to Note 7,6, Debt, for further discussion.

Change in fair value of embedded derivative liability: The Antara Financing Agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations. Refer to Note 6, Debt, and Note 9, Fair Value Measurements, for further discussion.

Change in fair value of warrant liabilities: The Company previously issued certain warrants that are not considered indexed to the Company's common stock and, therefore, are required to be classified as liabilities and measured at fair value at each reporting date with the change in fair value being recognized in the Company's results of operations during each reporting period. The change in fair value of substantially all of the warrants classified as liabilities is recognized in other income (expense). Refer to Note 7, Stockholders' Deficit and Warrants, and Note 9, Fair Value Measurements, for further discussion.

~~Three~~Nine Months Ended ~~March 31, 2020,~~September 30, 2021, as compared with the ~~Three~~Nine Months Ended ~~March 31, 2019~~September 30, 2020

Cash and Cash Equivalents. Cash and cash equivalents were ~~$3.3~~$6.7 million and ~~$3.3~~$26.6 million at ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, respectively. The decrease is primarily attributable to cash used in financing activities during the nine months ended September 30, 2021, which includes the Company using the proceeds received from its borrowings under the Main Street Priority Loan Program during the fourth quarter of 2020 to pay down the aggregate principal amount due to Antara, including capitalized interest, from $33.6 million to $16.7 million during the first quarter of 2021.

Operating Activities. Net cash ~~used in~~provided by operations was ~~$15.9 million and $7.4~~$10.0 million during the ~~three~~nine months ended ~~March 31, 2020 and 2019, respectively.~~September 30, 2021, which included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements. Net cash used in operating activities was $21.0 million during the nine months ended September 30, 2020. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company had net income of $27.4 million. For the nine months ended September 30, 2020, ~~and 2019,~~ the Company had a net loss of ~~$13.7 million and $7.4 million, respectively.~~$32.6 million.

For ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, the net ~~loss was partially offset by $8.2~~income included $5.9 million in adjustments for non-cash items and ~~further reduced by $10.4~~$23.3 million of cash used for changes in working capital. Non-cash items primarily consisted of ~~$3.5~~$11.4 million in depreciation and amortization, $4.8 million in non-cash interest expense, non-cash lease expense of $2.9 million, stock-based compensation expense of $0.5 million, and amortization of debt discount and debt issuance costs of $0.8 million, partially offset by a gain on extinguishment of debt of $11.0 million, a $2.2 million change in fair value of warrant liabilities, and a $1.4 million change in fair value of embedded derivative liability.

For the nine months ended September 30, 2020, the net loss was partially offset by $23.1 million in adjustments for non-cash items and further reduced by $11.5 million of cash used for changes in working capital. Non-cash items primarily consisted of $10.9 million in depreciation and amortization, loss on extinguishment of debt of ~~$10.1~~$10.0 million, ~~$0.7~~$2.8 million in non-cash interest expense, non-cash lease expense of ~~$1.0~~$3.0 million, stock option and warrant-based compensation expense of $0.4 million, and amortization of debt discount and debt issuance costs of ~~$0.9~~$1.8 million, partially offset by a ~~$8.2~~$5.5 million change in fair value of warrant ~~liabilities.~~

~~For the three months ended March 31, 2019,~~ ~~the net loss was partially offset by $2.4 million in adjustments for non-cash items~~liabilities and ~~further reduced by $2.3 million of cash used for changes in working capital. Non-cash items primarily consisted of $1.2 million in depreciation and amortization, non-cash lease expense of~~a $0.7 million ~~stock option and warrant-based compensation expense~~change in fair value of ~~$0.1 million, and amortization of debt discount and debt issuance costs of $0.3 million~~.embedded derivative liability.

Investing Activities. Net cash used in investing activities was ~~less than $0.1~~$6.8 million for the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, and net cash provided by investing activities was ~~$1.0~~$0.4 million for the ~~three~~nine months ended ~~March 31, 2019.~~September 30, 2020. The net cash used in investing activities during the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 is primarily related to ~~purchases~~$7.1 million of ~~fixed assets.~~ capital expenditures. The net cash provided by investing activities during the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 is ~~primarily~~ related to proceeds from the ~~$3.7 million~~sale of ~~cash assumed in the acquisition of businesses exceeding the $2.5 million of cash paid for the acquisition of businesses.~~fixed assets.

Financing Activities. Net cash used in financing activities was $23.1 million for the nine months ended September 30, 2021. Net cash provided by financing activities was ~~$16.0 million and $6.8~~$24.7 million for the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2020. The cash used in financing activities during the nine months ended September 30, 2021 primarily consisted of $149.5 million in payments on factoring arrangements, $22.8 million in payments of debt principal, and ~~2019, respectively.~~$3.1 million in payments on finance lease liabilities, partially offset by $147.2 million in advances from factoring receivables and $5.7 million of proceeds from the issuance of debt. The cash provided by financing activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily consisted of ~~$6.3~~$132.3 million in ~~net~~ advances from factoring receivables, proceeds of ~~$6.2~~$16.2 million from the issuance of debt, and $6.2 million in proceeds from the sale of common stock, preferred stock and warrants, partially offset by ~~$1.8~~$122.5 million in payments on factoring arrangements, $4.7 million in payments of debt principal, and ~~$0.6~~$2.5 million in payments on finance lease liabilities.The cash provided by financing activities during the six months ended June 30, 2019 primarily consisted of $6.4 million in net advances from factoring receivables and proceeds of $5.3 million from the issuance of debt, partially offset by $4.7 million in payments of debt principal.

Our primary historical and future sources of liquidity are cash on hand ($~~3.3~~6.7 million at ~~March 31, 2020)~~September 30, 2021), the incurrence of additional indebtedness, the sale of the Company’s common stock or preferred stock, and advances under our accounts receivable factoring arrangements. However, there can be no assurance that we will be able to obtain additional financing in the future via the incurrence of additional indebtedness or the sale of the Company’s common stock or preferred stock.

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

As of ~~March 31, 2020,~~September 30, 2021, the Company had a cash balance of ~~$3.3~~$6.7 million, a working capital deficit of ~~$93.0~~$73.4 million, stockholders’ deficit of ~~$34.2~~$37.7 million, and material debt and lease obligations of ~~$119.2~~$122.7 million, which include term loan borrowings under a financing agreement with Antara Capital. During the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021, the Company reported cash ~~used in~~provided by operating activities of ~~$15.9~~$10.0 million that included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements and ~~reported~~net income of $27.4 million that included $34.8 million of pre-tax nonrecurring revenue from the USPS settlement agreements and a ~~net loss~~$11.0 million pre-tax gain on extinguishment of ~~$13.7 million.~~debt.

The following significant transactions and events affecting the Company’s liquidity occurred during the ~~three~~nine months ended ~~March 31, 2020:~~September 30, 2021:

~~The following significant transactions and events affecting the Company’s liquidity occurred following the three months ended March 31, 2020:~~

~~While these~~The following significant transactions and events ~~resulted~~affecting the Company’s liquidity occurred following the nine months ended September 30, 2021:

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

Refer to Notes 65 and 76 to the unaudited condensed consolidated financial statements for further information regarding the Company’s ~~debt~~factoring and ~~factoring~~debt obligations. Refer to Note 13 to the consolidated financial statements for further information regarding changes in the Company’s debt obligations and liquidity subsequent to ~~March 31, 2020.~~September 30, 2021.

Our critical accounting policies have not changed from the information reported in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards

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

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

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

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

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

In accordance with Exchange Act rules 13a-15 and 15d-15, the Company performed an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive and financial officers regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of ~~March 31, 2020,~~September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including its principal executive and financial officers have concluded that our disclosure controls and procedures were not effective as of ~~March 31, 2020,~~September 30, 2021, due to the material weaknesses in our internal control over financial reporting described below in “Evaluation of Internal Controls and Procedures” including limitations in management’s evaluation of internal controls as a result of insufficient documentation of internal controls under the standards of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

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

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

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

Based on the Company’s evaluation, it identified material weaknesses in internal control over financial reporting described below, and management concluded that our internal control over financial reporting was not effective as described below. The Company also took steps seeking to mitigate and remediate these material weaknesses as described under “Management’s Remediation Plan and Status of Remediation Efforts” below.

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

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

In light of the control deficiencies identified at ~~March 31, 2020,~~September 30, 2021, and described in the section titled “Evaluation of Internal Controls and Procedures,” we have designed and plan to implement the specific remediation initiatives described below:

While the Company believes the steps taken to date and those planned for implementation will improve the effectiveness of its internal control over financial reporting, it has not completed all remediation efforts identified above. Accordingly, the Company has and will continue to perform additional procedures and employ additional tools and resources it determines necessary to ensure that its consolidated financial statements are fairly stated in all material respects.

The Company has engaged third party advisors to undertake, under management’s supervision, a comprehensive examination and analysis of the facts and circumstances giving rise to the material weaknesses as they relate to control activities. The Company will make further changes and improve its internal control over financial reporting following management’s review and development of the complete remediation plan that is responsive to the findings of the examination.

The Company believes the remediation measures will strengthen the Company’s internal control over financial reporting and remediate the material weaknesses identified. Management will continue to monitor the effectiveness of these remediation measures and will make changes and take other actions that are appropriate given the circumstances.

For a detailed discussion of certain risk factors that could affect the Company’s operations, financial condition or results for future periods, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which we intend to file promptly following the filing of this report.

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

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


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


	Page No.

PART I – FINANCIAL INFORMATION	2

Item 1. Condensed Consolidated Financial Statements (unaudited)	2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	4033

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4642

Item 4. Controls and Procedures	4642

PART II – OTHER INFORMATION	4945

Item 1. Legal Proceedings	4945

Item 1A. Risk Factors	4945

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4945

Item 3. Defaults Upon Senior Securities	4945

Item 4. Mine Safety Disclosures	4945

Item 5. Other Information	4945

Item 6. Exhibits	4945

EXHIBIT INDEX	5046

SIGNATURES	5147


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


($ in thousands)	March 31, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Purchased accounts receivable	$	6,903	$	7,680	$	14,771	$	7,924
Unearned future contract advances		18,073		10,366		8,286		16,473
Total	$	24,976	$	18,046	$	23,057	$	24,397


($ in thousands)	March 31, 2020				December 31, 2019			September 30, 2021				December 31, 2020
(a) Antara Financing Agreement	$	31,653		(1)	$	25,377		$	18,021		(1)	$	33,616		(2)
(b) Four promissory notes with an aggregate principal amount of $9.5 million		9,500				9,500			9,500				9,500
(c) $3.8 million senior promissory note		3,800		(2)		3,800			3,800		(1)		3,800		(3)
(d) $4.0 million promissory note		4,000		(2)		4,000			4,000		(1)		4,000		(3)
(e) $4.0 million Secured Convertible Promissory Notes (“Secured Convertible Notes”)		3,067		(2)		3,000			—				3,280		(3)
(f) $2.5 million promissory note - stockholder		1,892		(2)		1,972			1,566				1,732		(3)
(g) $6.4 million promissory note - stockholder		6,111		(2)		6,417			6,367				6,111		(3)
(h) Notes payable acquired from Ritter		474				487			410				439
Total before debt issuance costs and debt discount		60,497				54,553			43,664				62,478
Debt issuance costs		(112	)			(615	)		(18	)			(36	)
Debt discount		(9,202	)			(16,270	)		(7,288	)			(8,811	)
		51,183				37,668			36,358				53,631
Less current portion		(48,199	)			(25,656	)		(24,861	)			(50,252	)
Long-term debt, less current portion - related party	$	2,984			$	12,012		$	11,497			$	3,379


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


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


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


	Common Stock					Common Stock Subscribed						Common Stock		Additional Paid-in			Accumulated			Total Stockholders’
($ in thousands)	Shares			Amount		Shares			Amount			Issuable		Capital			Deficit			Deficit
Balance - December 31, 2019		14,333,834		$	1		8,664		$	12		$	3,474	$	38,611		$	(54,771	)	$	(12,673	)
Reclassification of warrants from equity classified to liability classified		—			—		—			—			—		(7,648	)		—			(7,648	)
Common stock issued for accrued interest		8,664			—		(8,664	)		(12	)		—		12			—			—
Issuance of common stock for cash - related party		1,260,000			—		—			—			—		3,150			—			3,150
Redemption of common stock for Series B redeemable preferred stock - related party		(1,260,000	)		—		—			—			—		(3,150	)		—			(3,150	)
Issuance of warrants as deemed dividend - related party		—			—		—			—			—		(455	)		—			(455	)
Stock-based compensation expense		—			—		—			—			—		368			—			368
Series A Redeemable Preferred stock dividend		—			—		—			—			—		(30	)		—			(30	)
Series B Redeemable Preferred stock dividend		—			—		—			—			—		(12	)		—			(12	)
Net loss		—			—		—			—			—					(13,702	)		(13,702	)
Balance - March 31, 2020		14,342,498		$	1		—		$	—		$	3,474	$	30,846		$	(68,473	)	$	(34,152	)


	Common Stock				Common Stock Subscribed				Additional Paid-in			Accumulated			Total Stockholders’
($ in thousands)	Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balance - December 31, 2018		2,258,530	$	—		500,000	$	415	$	9,976		$	(22,057	)	$	(11,666	)
Accounts payable converted to common stock		10,000		—		—		—		10			—			10
Common stock issued for services - related party		10,000		—		—		—		25			—			25
Fair value of common stock issued for the purchase of Sheehy Mail Contractors, Inc.		—		—		2,240,000		2,285		—			—			2,285
Fair value of common stock issued for the purchase of Ursa Major Corporation		—		—		800,000		816		—			—			816
Fair value of stock-based compensation		—		—		—		—		86			—			86
Fair value of warrant-based compensation		—		—		—		—		14			—			14
Series A Redeemable Preferred stock dividend		—		—		—		—		(6	)		—			(6	)
Net loss		—		—		—		—		—			(7,435	)		(7,435	)
Balance - March 31, 2019		2,278,530	$	—		3,540,000	$	3,516	$	10,105		$	(29,492	)	$	(15,871	)


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


($ in thousands)	Derivative		Warrants
Balance at September 16, 2019	$	850	$	—
Net change in fair value		171		—
Balance at December 31, 2019		1,021		—
Issuances		—		11,100		(1)
Net change in fair value		45		(8,235	)	(2)
Balance at March 31, 2020	$	1,066	$	2,865


Exhibit		Description
~~3.1~~		~~Certificate of Designation of Rights and Preferences of Series B Preferred Stock of EVO Transportation & Energy Services, Inc.~~ ~~(1)~~

~~4.1~~		Forbearance Agreement and Incremental Amendment to Financing Agreement, dated February 27, 2020, among EVO Transportation & Energy Services, Inc., each subsidiary of EVO Transportation & Energy Services, Inc., various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent ~~(2)~~

~~4.2~~		Amendment to Forbearance Agreement and Second Incremental Amendment to Financing Agreement, dated March 24, 2020, among EVO Transportation & Energy Services, Inc., each subsidiary of EVO Transportation & Energy Services, Inc., various lenders from time to time party thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent ~~(1)~~

~~10.1~~		~~Warrant, dated February 27, 2020, between EVO Transportation & Energy Services, Inc. and Antara Capital Master Fund LP~~ ~~(2)~~

~~10.2~~		~~Form of Subscription Agreement, dated February 27, 2020~~ ~~(2)~~

~~10.3~~		~~Redemption Agreement, dated March 24, 2020, between EVO Transportation & Energy Services, Inc. and Danny Cuzick~~ ~~(1)~~

~~10.4~~		~~Redemption Agreement, dated March 24, 2020, between EVO Transportation & Energy Services, Inc. and R. Scott Wheeler~~ ~~(1)~~

~~10.5~~		~~Subscription Agreement, dated March 24, 2020, between EVO Transportation & Energy Services, Inc. and Danny Cuzick~~ ~~(1)~~

~~10.6~~		~~Waiver and Warrant Agreement, dated March 26, 2020, between EVO Transportation & Energy Services, Inc. and Danny Cuzick~~ ~~(1)~~

~~10.7~~		~~Waiver and Agreement to Issue Warrant, dated March 31, 2020, between EVO Transportation & Energy Services, Inc. and Antara Capital Master Fund LP~~ ~~(3)~~

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

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

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

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

99.1		EVO Transportation & Energy Services, Inc. 2021 Annual Incentive Plan (1)

99.2		EVO Transportation & Energy Services, Inc. 2021 Long-Term Incentive Plan (1)

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


~~(1)~~	~~Filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 30, 2020 and incorporated herein by this reference.~~
~~(2)~~	~~Filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 4, 2020 and incorporated herein by this reference.~~
~~(3)~~	~~Filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on April 7, 2020 and incorporated herein by this reference.~~


	EVO TRANSPORTATION & ENERGY SERVICES, INC.

Date: ~~January 31,~~June 30, 2022	By:	/s/ Thomas J. Abood
		Thomas J. Abood
		Chief Executive Officer
		Principal Executive Officer

Date: ~~January 31,~~June 30, 2022	By:	/s/ Eugene Putnam
		Eugene Putnam
		Chief Financial Officer
		Principal Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company