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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended December 31, 2022


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

For the transition period from ______________ to _____________

Commission file number 000-54218

EVO Transportation & Energy Services, Inc.

(Exact name of registrant as specified in its charter)


Delaware		37-1615850
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
2075 West Pinnacle Peak Rd. Suite 130 Phoenix, AZ 85027
(Address of principal executive offices) (Zip Code)

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

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

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

Common Stock, $0.0001 par value per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the Registrant’s 2023 second fiscal quarter was approximately $36.8 million based on the price of $.10 per share, the price at which the Registrant’s common equity was last sold as of the last business day of the Registrant’s 2023 second fiscal quarter as reported on the OTC Expert Market.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

As of November 16, 2023, there were 435,200,219 shares of the registrant’s common stock, par value $0.0001, outstanding.

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS		ii
PART I		1
	ITEM 1. BUSINESS	1
	ITEM 1A. RISK FACTORS	5
	ITEM 1B. UNRESOLVED STAFF COMMENTS	19
	ITEM 2. PROPERTIES	19
	ITEM 3. LEGAL PROCEEDINGS	19
	ITEM 4. MINE SAFETY DISCLOSURE	19
PART II		20
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	20
	ITEM 6. SELECTED FINANCIAL DATA	20
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	29
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	31
	ITEM 9A. CONTROLS AND PROCEDURES	31
	ITEM 9B. OTHER INFORMATION	33
PART III		34
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	34
	ITEM 11. EXECUTIVE COMPENSATION	38
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	43
	ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	49
	ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	50
PART IV		52
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES	52
EXHIBIT INDEX		53
SIGNATURES		63

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; our growth strategy and potential acquisition candidates; our relationship with the United States Postal Service; gasoline, diesel and natural gas prices; management’s expectations regarding market trends and competition in the transportation industry, government tax credits and other incentives, insurance and environmental and safety considerations; and any statements of belief and any statements of assumptions underlying any of the foregoing. When used in this report, the words “anticipate”, “will”, “believe”, “expects”, “intends”, “estimates”, “projects”, “target”, “goals”, “plans”, “objectives”, “should”, “future,”, “seek”, “may”, “could”, “likely” or similar expressions or the negative of these terms may identify forward-looking statements as they relate to EVO Transportation & Energy Services, Inc., a Delaware corporation (“EVO,” the “Company,” “we,” “us” or “our”), its subsidiaries or management.

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 EVO’s 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 this report) 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:

•

Our ability to recruit and retain qualified drivers;

•

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

•

The expected freight environment, including freight demand and volumes;

•

Future third-party service provider relationships and availability;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

The impacts of the COVID-19 global pandemic;

•

General political, regulatory, economic and market conditions;

•

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

•

The flexibility of our model to adapt to market conditions.

The preceding list is not intended to be an exhaustive list of all of the topics addressed by our forward-looking statements and should be read in conjunction with other cautionary statements that are included herein or elsewhere. Although the forward-looking statements in this report reflect our good faith judgment based on available information, they are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, among others, those discussed in this report in Item 1A. Risk Factors. In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. As a result of these and other potential risks and uncertainties, our forward-looking statements should not be relied on or viewed as predictions of future events. All forward-looking statements in this report are made only as of the date of this document and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements for any reason, including to conform these statements to actual results or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the date we file this report.

We qualify all of our forward-looking statements by this cautionary note.

iii

PART I

Item 1. Business.

Our Business

EVO Transportation & Energy Services, Inc. (“EVO” and, together with its direct and indirect subsidiaries, the “Company”) is a truckload carrier serving the United States Postal Service (“USPS”) and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or compressed natural gas (“CNG”). EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.

Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.

Service and Product Offering

Mail Transportation

We transport freight for the USPS and believe we are one of its largest ground transportation suppliers. We competitively bid on transportation contracts that specify the movement of freight between processing facilities, distribution centers and other postal locations. Customer contracts with the USPS are typically two to four years in term and may be renewed with the incumbent supplier if appropriate service has been performed in accordance with contract requirements including, but not limited to, USPS performance standards, McNamara-O’Hara Service Contract Act (“SCA”) requirements, Department of Transportation (“DOT”) regulations (federal and state) and all other applicable local and state regulations and if the supplier continues to meet the requirements of the USPS.

As of December 31, 2022, we held over 200 contracts with the USPS. Of these contracts, 15 were Dynamic Route Optimization (“DRO”) contracts and EVO believes it is one of the largest service providers of this contract type. Our mail transportation operations generated $278.5 million in revenue in 2022, or 90% of our total revenues.

Freight and Brokerage Services

In addition to our USPS mail transportation and delivery services, we provide freight and brokerage services to a variety of corporate customers. Our freight and brokerage services generated $31.2 million of revenues in 2022, or 10% of our total revenues.

History

The Company was incorporated in the State of Delaware on October 22, 2010 under the name “Minn Shares Inc.” From December 2010 until November 2016, Minn Shares Inc. was considered a public “shell” company and dedicated its operations to seeking a potential merger or acquisition partner. On November 22, 2016, Minn Shares Inc. and Titan CNG LLC, a Delaware limited liability company in the business of owning and operating compressed natural gas fueling stations (“Titan”), entered into an agreement and plan of securities exchange whereby the members of Titan acquired approximately 90% of Minn Shares Inc. outstanding shares. Following the closing, the business plan of Titan became the business plan of Minn Shares Inc. and all former officers of Minn Shares Inc. resigned and were replaced by officers designated by Titan. On August 31, 2017, the Company changed its name from “Minn Shares Inc.” to “EVO Transportation & Energy Services, Inc.”

Following the November 2016 public shell reverse merger transaction, the Company’s primary strategy was to seek growth through acquisitions. The Company completed the following acquisitions subsequent to November 2016:

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

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On June 1, 2018, EVO acquired Thunder Ridge Transport, Inc. (“Thunder Ridge”). Thunder Ridge is based in Springfield, Missouri and is engaged in the truckload carrier business.

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On November 16, 2018, EVO acquired W.E. Graham, Inc., a trucking company based in Memphis, Tennessee and is engaged in the truckload carrier business.

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On January 2, 2019, EVO acquired Sheehy Mail, Inc. (“Sheehy”). Sheehy is based in Waterloo, Wisconsin and is engaged in the truckload carrier business.

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On February 1, 2019, EVO acquired Ursa Major Corporation (“Ursa”) and J.B. Lease Corporation (“JB Lease”). Ursa and JB Lease are based in Oak Creek, Wisconsin and are engaged in the truckload carrier business.

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On July 15, 2019, EVO 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 truckload carrier business.

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On September 16, 2019, EVO 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 and are engaged in the truckload carrier business.

Strategy

Two of the top USPS priorities for its supply base are on-time service scores and safety performance. The USPS demands a 95% on-time service score for its suppliers and a satisfactory safety rating, including real-time reporting requirements for accidents. EVO’s USPS strategy is anchored around high-performance execution in both of these areas: providing flawless operational excellence and minimizing omitted trips and performing with a best-in-class safety record. We have a dedicated contracting team focused not only on bidding on new contracts but more importantly, providing concierge level service and responding to any and all inquiries from the USPS on a real-time basis. We believe that by executing on these priorities, EVO will continue to be a favored USPS supplier, maximizing new bid opportunities and contract renewal prospects.

Over the past few years the USPS has consolidated the number of carriers it utilizes and EVO expects further consolidation of this transportation supplier base as the USPS redesigns its network under its “Delivering for America” plan. As the USPS affects a number of contracting, technology and programmatic changes and requirements, we believe it may become more difficult for suppliers to meet the raised USPS standards. We believe EVO’s scale and resources surpass many of our competitors and best position us to successfully bid on large and more complex solicitations. EVO has invested significantly in information systems and personnel that allow us to better manage our USPS contracts and generate data to support day-to-day operations. For example, implementation of a transportation management system (TMS) and a telematics platform has allowed us to meet the scheduling and reporting needs of the USPS. These capabilities are likely to only grow in criticality as the USPS continues to upgrade and transition its systems into the future. EVO plans to continue to invest in solutions that allow us to better compete for additional USPS business currently provided by other suppliers.

The USPS adopted a robust environmental sustainability plan that includes a stated commitment to reducing greenhouse gas emissions through increased procurement of services from alternative fuels carriers. We intend to continue to evaluate additional vehicles powered by alternative energy, including electrically powered vehicles. We believe our shared commitment with the USPS to reducing emissions positions the Company to grow our business relationship with the USPS in the future.

Additionally, the Company was an early participant in the DRO (now LRO) program with the USPS. We believe our existing relationship with the USPS and experience with the LRO program provide the Company additional competitive advantages when bidding on these contracts.

In addition to serving the USPS, EVO plans to accelerate its customer diversification efforts, both organically and inorganically through M&A activity. Utilizing our technology platform, fleet, and network, EVO plans to grow its non-USPS business through new customer acquisition and growth of existing customer accounts. By having a more balanced customer base, EVO will be able to better redeploy its capacity and minimize the impact of any losses of USPS contracts or another individual customer’s business.

Market Overview

Competition

In fiscal year 2022, our largest customer, the USPS spent over $6 billion on ground transportation and transportation services. The USPS ground transportation industry is highly competitive and fragmented. As of 2022, the USPS had over 1,800 local distribution and processing network transportation suppliers. EVO competes primarily with other transportation companies

for contracts with the USPS, including both asset and asset-light companies. We believe the USPS is looking to further reduce the number of counterparties it transacts with.

The USPS awards its contracts through a competitive bid process and often opts to renew contracts with incumbent service providers if appropriate services have been performed and pricing is competitive with the market. The Company believes that the principal differentiating factors in its business relative to competition, are service, efficiency, technology, pricing, and alternative fuels capabilities. Additionally, the Company was an early participant in the DRO (now LRO) program with the USPS. We believe our existing relationship with the USPS and experience with the LRO program provide the Company additional competitive advantages when bidding on these contracts.

More generally, EVO also competes with other trucking and asset light freight companies for the business of non-USPS freight customers.

Our Target Customers

The USPS is our primary customer, but we also seek to provide truckload and brokerage services to other non-USPS corporate clients. While EVO will continue to bid on new USPS contract solicitations, it is focused strategically on adding new customers and growing its non-USPS revenue base to create a more balanced book of business.

Principal Customers and Suppliers

The USPS is the Company’s primary customer, and for the years ended December 31, 2022 and 2021, the USPS accounted for approximately 90% and 87%, respectively, of the Company’s revenue. As a result, the Company’s trucking operations are highly dependent on the USPS. For a discussion of the risks associated with the possible loss of the USPS as a customer or a significant reduction in the Company’s relationship with the USPS, refer to Item 1A. Risk Factors of this report.

Safety and Risk Management

The Company considers safety, risk and regulatory compliance to be a key focus of all operations. Through this focus, the Company is consistently identifying risks, developing a proactive approach to improving overall safety performance and reducing employee injuries. Of the many tools used by the Company, items such as on-board cameras, trucks equipped with accident-avoidance devices, and training on defensive driving continue to be effective in reducing vehicle accidents and injuries.

Because the Company’s primary business is transportation on public roadways, we are regulated by the Federal Motor Carrier Safety Administration (“FMCSA”), a division of the DOT, and the Occupational Safety and Health Administration (“OSHA”). The Company operates its business to exceed the requirements of these agencies, and currently maintains a Satisfactory rating with the FMCSA.

The primary safety related risks associated with the transportation industry consist of damage to Company equipment or third parties involved in a vehicle accident, personal injury to others involved in an accident and injuries sustained to employees. The Company maintains insurance coverage for all operations to exceed the requirements of the FMCSA, and reviews its coverage on an annual basis.

To the extent that the Company subcontracts any portion of its business to third-party trucking companies, those companies operate under their own DOT authority, and provide their own liability and workers compensation insurance, which the Company has the right to audit. All third-party trucking companies contracted with the Company must meet the Company's insurance and safety requirements. All third-party trucking companies must also list the Company as additional insured on all insurance policies and contain a Waiver of Subrogation on their workers' compensation policies.

Fuel

In 2022, we used approximately 9.0 million gallons of diesel and approximately 1.0 million gas gallon equivalents (“GGEs”) of CNG. Our fuel costs are typically passed on to customers.

The Company actively manages its fuel purchasing network in an effort to maintain adequate fuel supplies and reduce its fuel costs. The Company primarily purchases its fuel through a network of retail truck chains with which it has negotiated volume purchasing discounts. The Company seeks to reduce its fuel costs by routing its drivers to truck stops with which the Company has negotiated volume purchase discounts when fuel prices at such stops are lower than the bulk rate paid for fuel at the Company’s terminals. The Company stores fuel in above-ground storage tanks at some of its facilities. As of December 31,

2022 and 2021, the Company had no liabilities related to commodity hedging instruments recorded in the accompanying consolidated balance sheets. Shortages of fuel, increases in fuel prices, or rationing of petroleum products could have a material adverse effect on the Company’s operations and profitability.

Operations

Fleet

We operate an active fleet of over 900 power units and 1,500 trailers with a mix of owned and leased assets and we also utilize short-term rental agreements for some of our fleet. Our vehicles currently operate on either diesel fuel, gasoline and CNG, and we are also pursuing opportunities to introduce other alternative fuel vehicles, including electric vehicles, into our fleet. We intend to continue to replace our existing fleet with more efficient diesel, CNG and other alternative fuel vehicles.

Operations Centers

We manage regional operations centers with major centers of operations in Oak Creek, Wisconsin, Austin, Texas, Laurel, Maryland, and Newark, New Jersey. Other significant operations centers include Des Moines, Iowa, Columbus, Ohio, St. Louis, Missouri, Madison, Wisconsin, Atlanta, Georgia and Indianapolis, Indiana.

Technology

We utilize a suite of systems for transportation management, electronic logging, customer relationship management, brokerage, maintenance, accounting, recruiting, HR, payroll and camera systems. These systems include Omnitracs, Salesforce, NetSuite, Ten Street, APlus, Lytx and others.

Seasonality

During the fourth quarter, the Company typically experiences surges pertaining to online holiday shopping the length of the holiday season (shopping days between Thanksgiving and Christmas) and benefits from holiday surge pricing on USPS contracts. The Company’s freight trucking operations and, in general, the transportation industry, experience slower seasonal activity in the first quarter. Freight revenues in the first quarter are typically lower due to less consumer demand, fewer revenue earning days, 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 accident claims and costs due to higher accident frequency from adverse road conditions.

Government Regulation and Environmental Matters

The Company’s operations are regulated and licensed by various federal, state and local government agencies. The Company and its drivers must comply with the safety and fitness regulations of the DOT and the agencies within the states that regulate transportation, including those regulations relating to operating authority, safety, drug- and alcohol-testing, hours-of-service, hazardous materials transportation, financial reporting, testing and specification of equipment and product-handling requirements. Weight and equipment dimensions also are subject to government regulations. The Company is subject to regulations relating to fuel emissions, environmental protection, drivers’ hours-of-service, driver eligibility requirements, on-board reporting of operations, collective bargaining, ergonomics and other matters affecting safety, insurance and operating methods. Other agencies, such as the United States Environmental Protection Agency (“EPA”) and the United States Department of Homeland Security (“DHS”), also regulate the Company’s equipment, operations, drivers and the environment.

The DOT, through the FMCSA, imposes safety and fitness regulations on the Company and its drivers, including rules that restrict drivers' hours-of-service. The FMCSA has adopted a data-driven Compliance, Safety and Accountability (“CSA”) program as its safety enforcement and compliance model. The CSA program holds motor carriers and drivers accountable for their role in safety by evaluating and ranking fleets and individual drivers on certain safety-related standards. To promote improvement in all CSA categories, including those both over and under the established scoring threshold, the Company has procedures in place to address areas where it has exceeded the thresholds and the Company periodically reviews all safety-related policies, programs and procedures for their effectiveness and revises them, as necessary, to establish improvement targets. The Company believes its established policies, programs and procedures are adequate to address safety-related concerns but can give no assurance these measures will be effective. The FMCSA issues three categories of safety ratings: satisfactory, conditional and unsatisfactory. All operating authorities granted by the DOT that are operated by the Company currently have a “satisfactory” FMCSA rating.

The Company is also subject to various labor laws and regulations. The contracts that the Company holds with USPS are subject to the SCA that is administered by the Department of Labor (the “DOL”). The SCA, among other things, requires that the Company pay its drivers a minimum hourly wage as determined by the DOL as well as provide a bona fide fringe benefit package to its drivers.

The Company is also subject to various environmental laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from its vehicles (including engine idling) and facilities, and adverse impacts to the environment, including to the soil, groundwater and surface water. The Company has implemented programs designed to monitor and address identified environmental risks. Historically, the Company’s environmental compliance costs have not had a material adverse effect on its results of operations.

Employees

As of December 31, 2022, the Company had 1,760 employees, consisting of 1,200 full-time employees and 560 part-time employees. The Company employed 1,491 drivers as of December 31, 2022.

Company Website

The Company’s website may be accessed at www.evotransinc.com. All of our filings with the Securities and Exchange Commission can be accessed free of charge through our website as soon as reasonably practicable after filing. This includes annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports filed or furnished on Form 8-K and all related amendments.

Item 1A. Risk Factors.

Risks Related to the Company

If we do not generate substantial revenue or obtain sufficient additional capital, we may be unable to pursue our objectives. This raises substantial doubt related to our ability to continue as a going concern.

As disclosed in the notes to our consolidated financial statements included in this annual report, numerous factors raise substantial doubt about our ability to continue as a going concern. Specific factors include the following:

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our historical operating losses, net losses and cash used in operations;

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continued net losses during 2021 and 2022 after excluding the nonrecurring revenue that resulted from the USPS settlement agreements and the nonrecurring gains that resulted from the extinguishment of certain debt obligations;

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continued cash used in operations during 2021 and 2022 after excluding the nonrecurring cash receipts that resulted from the USPS settlement agreements;

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continued working capital deficit and stockholders’ deficit as of September 30, 2023;

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the structure of our factoring arrangement;

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existing defaults on certain of our debt obligations; and

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uncertainty regarding our ability to obtain additional financing in the future.

If we are unable to improve our liquidity position, we might be unable to continue as a going concern. This could significantly reduce or eliminate the value of our investors’ investment in the Company.

Our level of indebtedness could adversely affect our financial condition and our ability to fulfill our obligations and operate our business.

We have incurred significant liabilities, and our ongoing capital needs are extensive relative to our current cash position. Unless we are able to restructure some or all of our outstanding debt and/or raise sufficient capital to fund continued operations and our debt obligations, we may be unable to pay these obligations as they become due. In the past, we have been unable to pay our obligations as they have become due.

We have a history of losses and may incur additional losses in the future.

In 2022, we incurred a net loss of $18.2 million, which included a $5.3 million pre-tax loss on the extinguishment of certain debt obligations. In 2021, we reported net income of $14.3 million, which included $34.8 million of nonrecurring pre-tax revenue resulting from the USPS settlement agreements, as well as a $11.0 million pre-tax gain on the extinguishment of certain debt obligations. We may continue to incur losses, the amount of our losses may increase, and we may never achieve or sustain profitability, any of which would adversely affect our business, prospects and financial condition and may cause the price of

EVO's common stock to fall. In addition, to try to achieve or sustain profitability, we may take actions that result in material costs or material asset or goodwill impairments.

We have identified seven material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

As of December 31, 2022, we identified seven deficiencies in internal control that are considered to be material weaknesses and other deficiencies that are considered to be significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal controls, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. In addition, management has concluded that our disclosure controls and procedures were not effective as of December 31, 2022 due to the material weaknesses in our internal control over financial reporting described in Item 9A of this Annual Report on Form 10-K. As a result, we will be required to expend significant resources to develop the necessary documentation and testing procedures required by Section 404, and there is a risk that we will not comply with all of the necessary requirements. The material weaknesses may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations. Additionally, if we cannot remediate the material weaknesses in internal controls or if we identify additional material weaknesses in internal controls that cannot be remediated in a timely manner, investors and others with whom we do business may lose confidence in the reliability of our financial statements, and in our ability to obtain equity or debt financing could suffer.

In addition, while we expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. If we are unable to timely comply with all of these requirements, potential investors might deem our financial statements to be unreliable and our ability to obtain additional capital could suffer.

We are heavily reliant on our factoring arrangement, and any reductions to our ability to obtain credit under the factoring arrangement could significantly impact our liquidity.

We obtain liquidity under an accounts receivable factoring arrangement with Triumph Business Capital (the "Factor"). Pursuant to the terms of the agreement, from time to time, we sell to the Factor certain of our accounts receivable balances on a recourse basis for approved accounts. The Factor remits 95% of the contracted accounts receivable balance for a given month to us with the remaining balance, less fees, to be forwarded once the Factor collects the full accounts receivable balance from the factoring customer. This is one of our primary sources of liquidity.

The Factor has no obligation to purchase the full amount of accounts receivable balances or unearned future contract amounts that we offer to sell, and there can be no assurance that the Factor will continue to purchase accounts receivable or unearned future contract amounts at the same levels as it has in the past. If the Factor determines in its sole discretion to decrease the amount it advances under the factoring arrangement or to terminate the factoring agreement entirely and we are unable to obtain a replacement source of credit on substantially similar terms, it would significantly decrease our liquidity, which would likely have a material adverse effect on our business, operating results and financial condition.

We may need substantial additional capital to fund our growth plans and operate our business.

We may require substantial additional capital to fund our capital expenditures, service our debt, refinance existing debt, fund strategic relationships, respond to competitive pressures and to otherwise execute on our business plan. The most likely sources of such additional capital are private placements and public offerings of shares of our capital stock, including shares of EVO’s common stock or securities convertible into or exchangeable for EVO’s common stock, debt financing or funds from potential strategic transactions. We may seek additional capital from available sources, which may include hedge funds, private equity funds, venture capitalists, lenders/banks and other financial institutions, as well as additional private placements. Any financings in which we sell shares of our capital stock will likely be dilutive to our current stockholders. If we raise additional capital by incurring debt, a portion of our cash flow would have to be dedicated to the payment of principal and interest on such indebtedness. In addition, typical loan agreements also might contain restrictive covenants that may impair our operating flexibility. Such loan agreements, loans or debentures would also provide for default under certain circumstances, such as failure to meet certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such lender which would be senior to the rights of our stockholders. A

judgment creditor would have the right to foreclose on any of our assets resulting in a material adverse effect on our business, operating results or financial condition.

Our ability to raise additional capital may depend in part on our success in meeting sales and operating goals. We currently have no committed sources of additional capital and there is no assurance that additional financing will be available in the amounts or at the times required, or if it is, on terms acceptable or favorable to us. If we are unable to obtain additional financing when and if needed, our business will be materially impacted and our investors may lose the value of their entire investment.

In the event of an economic downturn or disruption in the credit markets, our indebtedness could place us at a competitive disadvantage in terms of our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from meeting our debt obligations compared to our competitors that are less leveraged.

This could have negative consequences that include: (i) increased vulnerability to adverse economic, industry or competitive developments; (ii) cash flows from operations that are committed to payment of principal and interest, thereby reducing our ability to use cash for our operations, capital expenditures and future business opportunities; (iii) increased interest rates that would affect our variable rate debt; (iv) potential noncompliance with financial covenants, borrowing conditions and other debt obligations, where applicable; (v) lack of financing for working capital, capital expenditures, product development, debt service requirements and general corporate or other purposes; and (vi) limits on our flexibility to plan for, or react to, changes in our business, market conditions or in the economy.

We may experience impairment of our long-lived assets and our goodwill.

Long-lived assets, including property, plant and equipment, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. Long-lived assets are considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. We also periodically evaluate our goodwill for potential impairment. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the carrying value is higher than the fair value, the goodwill is considered impaired. Once an asset is considered impaired, an impairment loss is recorded within operating expense for the difference between the asset’s carrying value and its fair value. For assets held and used in the business, management generally determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.

We depend on certain key personnel, and our operating performance may be adversely impacted by the loss of any such key personnel.

Our ability to execute our business plans and objectives depends, in large part, on our ability to attract and retain qualified personnel. Competition for personnel is intense and there can be no assurance that we will be able to attract and retain personnel. In particular, we are dependent upon the services of our management team. Our inability to utilize and retain the services of our management team members could have an adverse effect on us and there would likely be a difficult transition period in finding replacements for any of them. The execution of our strategic plan will place increasing demands on our management and operations. If we lose or are unable to obtain the services of key personnel, our ability to manage our business and implement our strategic plan could be delayed or hindered, which could have a material adverse effect on our business, financial condition and results of operations.

We are controlled by our principal stockholder, Antara Capital Master Fund LP, and it appointed two directors to the EVO board of directors.

Our principal stockholder beneficially owns a substantial majority of our outstanding common stock and it appointed two directors to the EVO board in June 2022. Accordingly, it has the ability to exert substantial influence over our business affairs, including electing directors, appointing officers, determining officers’ compensation, issuing additional equity securities or

incurring additional debt, effecting or preventing a merger, sale of assets or other corporate transaction and amending our articles of incorporation.

We incur significant costs to comply with public company reporting requirements and other costs associated with being a public company.

We incur significant costs associated with our public company reporting requirements and other rules implemented by the Securities and Exchange Commission. Compliance with such rules and regulations increases our administrative costs and make some activities more time-consuming and costlier as compared to our peers that are not subject to public company reporting requirements. As a public company, we are required to comply with rules and regulations of the SEC, including expanded disclosure and more complex accounting rules. We also must implement additional finance and accounting systems, procedures and controls to satisfy these reporting requirements. In addition, we hire additional legal and accounting staff and consultants to enable us to comply with these reporting requirements. These costs could have an adverse effect on our financial condition and could limit our ability to realize our objectives.

Risks Related to the Company’s Operations

We derive substantially all of our revenue from one customer, the loss of which would have a material adverse effect on our business.

Approximately 90% of our 2022 revenue was generated from the USPS. The loss or reduction of business from this customer would have a material adverse effect on our business.

Economic conditions may adversely affect the USPS and its ability to remain solvent. The United States Government Accountability Office has in the past described the USPS’s financial condition as “deteriorating and unsustainable.” The USPS’s financial difficulties can negatively impact our results of operations and financial condition and our ability to comply with the covenants in our debt agreements, especially if the USPS were to delay or default on payments to us.

There can be no assurance that our relationship with the USPS will continue as presently in effect. In 2021, the USPS announced its “Delivering for America” plan to transform the USPS. If we are not able to achieve its business objectives while adhering to the USPS’s initiatives under that plan, there would likely be a material adverse effect on our business, operating results and financial condition.

Additionally, our contracts with the USPS are terminable for convenience by the USPS upon advance notice ranging from 60 days for some contracts to 180 days for DRO contracts. A default in performance by us under one USPS contract can constitute a cross-default allowing the USPS to terminate some or all of our other contracts with the USPS. A reduction in, or termination of, our services by the USPS would have a material adverse effect on our business, operating results and financial condition.

We have significant ongoing capital expenditure requirements. If we are unable to obtain additional capital on favorable terms or at all, we may not be able to execute on our business plans and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

Our business is capital intensive. Capital expenditures focus primarily on equipment replacement and, to a lesser extent, facilities, equipment growth and investments in information technology. We also expect to devote substantial financial resources to grow our operations and fund our acquisition activities. As a result of our funding requirements, we may need to raise funds through the sale of additional equity or debt securities or seek additional financing through other arrangements to increase our cash resources. Any sale of additional equity or debt securities may result in dilution to its stockholders. Public or private financing may not be available in amounts or on terms acceptable to us, if at all.

If we are unable to obtain additional financing, we may be required to delay, reduce the scope of or eliminate our growth initiatives or future acquisition activities, which could adversely affect its business, financial condition and operating results. In such case, we may also operate our existing equipment (including tractors and trailers) for longer periods, which would result in increased maintenance costs, which would in turn reduce our operating income.

We may not successfully manage our recent and planned growth.

We have expanded our business through acquiring additional companies that provide contract trucking services to the USPS and leveraging our expanded operations to bid on additional USPS trucking contracts. We plan to continue to expand through acquisitions, bidding on additional USPS trucking contracts and expanding both our freight and brokerage operations in the future. Any expansion of operations we have undertaken or may undertake entail and will entail risks and such actions may involve specific operational activities that may negatively impact our profitability. Consequently, investors must assume the

risk that (i) such expansion may ultimately involve expenditures of funds beyond the resources available to us at that time, and (ii) management of such expanded operations may divert management’s attention and resources away from its existing operations. These factors may have a material adverse effect on our present and prospective business activities.

We may not make acquisitions in the future, which could impede growth, or if we do, we may not be successful in integrating any acquired businesses, either of which could have a material adverse effect on our business.

Historically, a key component of our growth strategy has been to pursue acquisitions of complementary businesses. Our growth could be impeded if we do not make any acquisitions. If we make acquisitions, we can make no assurances that we will be successful in negotiating, consummating or integrating the acquisitions. If we succeed in consummating future acquisitions, our business, financial condition and results of operations, may be materially adversely affected because:

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some of the acquired businesses may not achieve anticipated revenue, earnings or cash flows;

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we may assume liabilities that were not disclosed to us or otherwise exceed our estimates;

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we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical or financial problems;

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acquisitions could disrupt our ongoing business, distract our management and divert our resources;

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we may experience difficulties operating in markets in which we have had no or only limited direct experience;

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we may incur transactions costs and acquisition-related integration costs;

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we could lose customers, employees and drivers of any acquired company;

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we may incur additional indebtedness; and

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we may issue additional shares of EVO’s common stock, which would dilute the ownership of our then-existing stockholders.

Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.

We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, cross-selling to strategic accounts, process improvements, workforce productivity and further back-office optimization. If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.

Our business is affected by general economic and business risks that are largely beyond our control.

The trucking industry is cyclical and is dependent on a number of factors, many of which are beyond our control. We believe that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets in general, including excess tractor capacity in comparison with shipping demand and recessionary economic cycles.

We are also subject to cost increases outside of our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver wages, subcontractor rates, interest rates, taxes, tolls, license and registration fees, insurance, equipment and healthcare for our employees.

Our suppliers’ business levels also may be negatively affected by adverse economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations. A significant interruption in the normal supply chain for equipment or parts could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.

Additional events outside of our control, such as strikes or other work stoppages at our facilities or at customer, port, border or other shipping locations, or actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements could lead to reduced economic demand, reduced availability of credit or temporary closing of the shipping locations or U.S. borders. Such events or enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs.

The trucking industry is highly competitive and fragmented, and our business and results of operations may suffer if we are unable to adequately address downward pricing and other competitive pressures.

We compete with many truckload carriers of varying sizes, including some that may have greater access to equipment, a wider range of services, greater capital resources, less indebtedness or other competitive advantages. We also compete with smaller, regional service providers that cover specific shipping lanes or that offer niche services. Numerous competitive factors could impair our ability to maintain or improve profitability. These factors include the following:

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many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit our ability to maintain or increase freight rates, may require us to reduce our freight rates or may limit our ability to maintain or expand our business;

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some shippers, including the USPS, have reduced or may reduce the number of carriers they use by selecting core carriers as approved service providers and in some instances we may not be selected;

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many customers, including the USPS, solicit bids from multiple carriers for their shipping needs, which may depress freight rates or result in a loss of business to competitors;

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the continuing trend toward consolidation in the trucking industry may result in more large carriers with greater financial resources and other competitive advantages, and we may have difficulty competing with them;

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advances in technology may require us to increase investments in our equipment and systems in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments;

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we may have higher exposure to litigation risks as compared to smaller carriers; and

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smaller carriers may build economies of scale with procurement aggregation providers, which may improve the smaller carriers’ abilities to compete with us.

Driver shortages and increases in driver compensation could adversely affect our profitability and ability to maintain or grow our business.

Driver shortages could require us to spend more to attract and retain drivers. The market for qualified drivers is intensely competitive, which may subject us to increased payments for driver compensation. Also, because of the competition for drivers, we may face difficulty maintaining or increasing our number of drivers. Compliance and enforcement initiatives included in the CSA program implemented by the FMCSA and regulations of the DOT relating to driver time and safety and fitness could also reduce the availability of qualified drivers. In addition, we experience regular driver turnover, which requires us to continually recruit a substantial number of drivers in order to operate our existing equipment. If we are unable to continue to attract and retain a sufficient number of drivers, we could be required to operate with fewer trucks and face difficulty meeting customer demands or be forced to forego business that would otherwise be available to us, which could adversely affect our profitability and ability to maintain or grow our business.

Increased prices for, or decreases in the availability of, new equipment, design changes of new engines, future use of autonomous tractors and volatility in the value of used equipment could adversely affect our results of operations and cash flows.

We are subject to risk with respect to higher prices for new tractors and trailers. We have at times experienced an increase in prices for new tractors and trailers and the resale value of the tractors have not always increased to the same extent. Prices have increased and may continue to increase, due, in part, to (i) government regulations applicable to newly manufactured tractors and diesel engines, (ii) increases in commodity prices, (iii) shortages of component parts, such as semiconductors, and (iv) and due to the pricing discretion of equipment manufacturers in periods of high demand. Compliance with EPA regulations has increased the cost of our new tractors and could impair equipment productivity, result in lower fuel mileage and increase our operating expenses. These adverse effects, combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values realized from the disposition of these vehicles, could increase our costs or otherwise materially adversely affect our business, financial condition and results of operations as the regulations become effective. Furthermore, future use of autonomous tractors could increase the price of new tractors and decrease the value of used non-autonomous tractors.

A depressed market for used equipment could require us to trade our revenue equipment at depressed values or to record losses on disposal or impairments of the carrying values of our revenue equipment that is not protected by residual value arrangements. Used equipment prices are subject to substantial fluctuations based on freight demand, supply of new and used equipment,

availability and terms of financing, the presence of buyers for export to foreign countries and commodity prices for scrap metal. If there is a deterioration of resale prices, it could have a material adverse effect on our business, financial condition and results of operations. We have seen a softening of the used equipment market recently.

Certain of our revenue equipment financing arrangements have balloon payments at the end of the finance terms equal to the values we expect to be able to obtain in the used market. To the extent the used market values are lower than such balloon payments, we may be forced to sell the equipment at a loss and our results of operations would be materially adversely affected.

Insurance and claims expenses could significantly reduce our profitability.

We are exposed to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation, group health and group dental. We have insurance coverage with third-party insurance carriers, but we assume a significant portion of the risk associated with these claims due to our self-insured retention and deductibles, which can make our insurance and claims expense higher or more volatile. Additionally, we face the risks of increasing premiums and collateral requirements and the risk of carriers or underwriters leaving the transportation sector, which may materially affect our insurance costs or make insurance more difficult to find, as well as increase our collateral requirements. We could experience increases in our insurance premiums in the future if we decide to increase our coverage or if our claims experience deteriorates.

In addition, we are subject to changing conditions and pricing in the insurance marketplace and the cost or availability of various types of insurance may change dramatically in the future. If our insurance or claims expense increases, and we are unable to offset the increase with higher freight rates, our results of operations could be materially and adversely affected. Our results of operations may also be materially and adversely affected if we experience a claim in excess of our coverage limits, a claim for which coverage is not provided or a covered claim for which our insurance company fails to perform.

If we are required to accrue or pay additional amounts because claims prove to be more severe than our recorded liabilities, our financial condition and results of operations may be materially adversely affected.

We accrue the costs of the uninsured portion of pending claims based on estimates derived from our evaluation of the nature and severity of individual claims and an estimate of future claims development based upon historical claims development trends. Actual settlement of our retained claim liabilities could differ from our estimates due to a number of uncertainties, including evaluation of severity, legal costs and claims that have been incurred but not reported. Due to our high retained amounts, we have significant exposure to fluctuations in the number and severity of claims. If we are required to accrue or pay additional amounts because our estimates are revised or the claims ultimately prove to be more severe than originally assessed, our financial condition and results of operations may be materially adversely affected.

We face litigation risks that could have a material adverse effect on the operation of our business.

Our business is subject to the risk of litigation by employees, applicants, subcontractors, customers, vendors, government agencies, stockholders and other parties through private actions, class actions, administrative proceedings, regulatory actions and other processes. We and our peers are subject to lawsuits alleging violations of various federal and state wage and hour laws regarding, among other things, minimum wage, meal and rest periods, overtime eligibility and failure to pay for all hours worked. A number of these lawsuits have resulted in the payment of substantial settlements or damages by other carriers.

The cost to defend, settle and resolve litigation may be significant. Not all claims are covered by our insurance (including wage and hour claims), and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the extent we experience claims that are uninsured, exceed our coverage limits, involve significant aggregate use of our retention amounts, or cause increases in future premiums, the resulting expenses could have a material adverse effect on our business, financial condition and results of operations.

We may be subject, and have been subject in the past, to litigation resulting from trucking accidents. The number and severity of litigation claims may be worsened by distracted driving by both truck drivers and other motorists. These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and increases of our insurance costs.

We rely significantly on our information technology systems, a disruption, failure or security breach of which or an inability to keep pace with technological advances could have a material adverse effect on our business.

We rely on information technology throughout all areas of our business to initiate, track and complete deliveries; process financial and nonfinancial data; compile results of operations for internal and external reporting; and achieve operating efficiencies and growth. Each of our information technology systems may be susceptible to various interruptions, including equipment or network failures, failed upgrades or replacement of software, user error, power outages, natural disasters, cyber-attacks, theft or misuse of data, terrorist attacks, computer viruses, hackers, or other security breaches. We may in the future experience security breaches and other interruptions of our information technology systems despite our best efforts to prevent

them. Our efforts to mitigate exposure to these risks through the establishment and maintenance of technology security programs and disaster recovery plans may not be sufficient. A significant disruption, failure or security breach in our information technology systems, or those of our technology and communications services vendors, could have a material adverse effect on our business, which could include operational disruptions, loss of confidential information, external reporting delays or errors, legal claims or damage to our business reputation.

We also could experience an inability to keep pace with technological advances, resulting in our information technology platforms becoming obsolete or our competitors developing related or similar service offerings more effective than ours. Furthermore, we make strategic investments in technology that naturally entail risks and uncertainties, some of which are beyond our control. For example, we may not be able to derive value from strategic investments or we may incur higher than expected costs in realizing a return on such investments or overestimate the benefits that we receive or realize from such investments. Therefore, we cannot provide assurance that any of our strategic investments will generate anticipated financial returns. If our strategic investments fail to meet our expectations, our business and results of operations may be adversely impacted.

In addition, we are currently dependent on a single vendor platform to support certain information technology functions. If the stability or capability of such vendor is compromised and we were forced to migrate to a new platform, it could materially adversely affect our business, financial condition and results of operations.

Some of our employees work remotely, which may increase the cybersecurity risks to our business, including an increased demand for information technology resources, increased risk of phishing, and other cybersecurity attacks.

We have, and will continue to have, a portion of our employee population that works from home full-time or under flexible work arrangements, and we have provided associates with expanded remote network access options which enable them to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks. Our employees working remotely may expose us to cybersecurity risks through: (i) unauthorized access to sensitive information as a result of increased remote access, including our employees’ use of Company-owned and personal devices and videoconferencing functions and applications to remotely handle, access, discuss, or transmit confidential information, (ii) increased exposure to phishing and other scams as cybercriminals may, among other things, install malicious software on our systems and equipment and access sensitive information, and (iii) violation of international, federal or state-specific privacy laws. We believe that the increased number of employees working remotely has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time. A significant disruption of our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from our violation of privacy laws could each have a material adverse effect on our business.

Our agreements with subcontracted operators expose us to risks that we do not face with our company drivers.

We rely, in part, upon independent subcontractors to perform the services for which we contract with customers. Our reliance on subcontractors creates numerous risks for our business. If our subcontractors fail to meet our contractual obligations or otherwise fail to perform in a manner consistent with our requirements, we may be required to utilize alternative service providers at potentially higher prices or with some degree of disruption of the services that we provide to customers. If we fail to deliver on time, if our contractual obligations are not otherwise met, or if the costs of our services increase, then our profitability and customer relationships could be harmed.

The financial condition and operating costs of our subcontractors are affected by conditions and events that are beyond our control and may also be beyond their control. Adverse changes in the financial condition of the subcontractors or increases in their equipment or operating costs could cause them to seek higher revenues or to cease their business relationships with us. The prices we charge our customers could be impacted by such issues, which may in turn limit pricing flexibility with customers, resulting in fewer customer contracts and decreasing our revenues.

If one of our subcontractors is subject to negative publicity, it could reflect on us and have a material adverse effect on our business, brand and financial performance. Under certain laws, we could also be subject to allegations of liability for the activities of our subcontractors.

Subcontractors are third-party service providers, as compared to company drivers who are employed by us. As independent business owners, the subcontractors may make business or personnel decisions that conflict with our best interests. For example, if a load is unprofitable, route distance is too far from home or personal scheduling conflicts arise, a subcontractor may deny loads of freight from time to time. In these circumstances, we must be able to timely deliver the freight in order to maintain relationships with our customers.

If our employees were to unionize, our operating costs could increase and our ability to compete could be impaired.

None of our employees are currently represented under a collective bargaining agreement; however, we always face the risk that our employees will try to unionize. Further, Congress or one or more states could approve legislation and/or the National Labor Relations Board (the “NLRB”) could render decisions or implement rule changes that could significantly affect our business and our relationship with employees, including actions that could substantially liberalize the procedures for union organization. In addition, we can offer no assurance that the Department of Labor will not adopt new regulations or interpret existing regulations in a manner that would favor the agenda of unions. We believe the applicability of the SCA to our employees reduces the likelihood of organizational activity.

Any attempt to organize by our employees could result in increased legal and other associated costs and divert management attention, and if we entered into a collective bargaining agreement, the terms could negatively affect our costs, efficiency and ability to generate acceptable returns on the affected operations. In particular, the unionization of our employees could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects because:

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restrictive work rules could hamper our efforts to improve and sustain operating efficiency and could impair our service reputation and limit our ability to provide next-day services;

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a strike or work stoppage could negatively impact our profitability and could damage customer and employee relationships; and

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an election and bargaining process could divert management’s time and attention from our overall objectives and impose significant expenses.

Higher health care costs and labor costs could adversely affect our financial condition and results of operations.

With the passage in 2010 of the United States Patient Protection and Affordable Care Act (the “PPACA”), we are required to provide health care benefits to all full-time employees who meet certain minimum requirements of coverage and affordability, or otherwise be subject to a payment per employee based on the affordability criteria set forth in the PPACA. Additionally, some states and localities have passed laws mandating the provision of certain levels of health benefits by some employers. The PPACA also requires individuals to obtain coverage or face individual penalties, so employees who are currently eligible but have elected not to participate in the health care plans offered by us may ultimately find it more advantageous to do so. It is also possible that by making changes or failing to make changes in the health care plans we offer, we will have difficulty attracting and retaining employees, including drivers. The costs and other effects of these healthcare requirements may significantly increase our health care coverage costs and could materially adversely affect our financial condition and results of operations.

Seasonality and the impact of weather and other catastrophic events adversely affect our trucking operations and profitability.

Our tractor productivity decreases during the winter season because inclement weather impedes operations. At the same time, operating expenses increase due to, among other things, a decline in fuel efficiency because of engine idling and adverse road conditions that creates higher accident frequency, increased accident claims and higher cold weather-related equipment maintenance and repair expenditures. We may also suffer from weather-related or other events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions, which may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy our assets or the assets of our customers or otherwise adversely affect the business or financial condition of our customers, any of which could adversely affect our results or make our results more volatile.

The COVID-19 pandemic, other similar outbreaks and government responses thereto may have a material adverse impact on our business, financial condition and results of operations.

The continued spread and impact of novel coronavirus (“COVID-19”) and government responses thereto might materially negatively impact our future results of operations and financial condition. COVID-19 has created, and any other outbreaks of similar contagious diseases or other adverse public health developments could create, significant volatility, uncertainty and economic disruption. COVID-19 or another similar outbreak could negatively impact our business in numerous ways, including, but not limited to, the following:

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our revenue may be reduced due to a decrease in demand for our services or the transportation markets in general as a result of the global economic downturn;

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our operations may be disrupted or impaired if a significant portion of our drivers or other employees are unable to work due to illness;

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we may experience a loss of business or increased costs resulting from supply chain disruptions and changing transportation needs caused by the nationwide emergency response to the pandemic;

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we may experience workforce issues and incur severance payments as a result of adjusting our workforce to market conditions, and we may subsequently experience retention issues and driver shortages;

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our management may be distracted as they are focused on mitigating the effects of COVID-19 on our business operations while protecting the health of our workforce, which has required, and will continue to require, a large investment of time and resources; and

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we may be at greater risk for cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current and continuing environment of remote connectivity.

The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the geographic scope, severity and duration of the pandemic; governmental, business and other actions in response to the pandemic (which could include limitations on our operations or mandates to provide services in a specified manner); the impact of the pandemic on economic activity; the response of the overall economy and the financial markets; expenses we have incurred and may incur in the future in connection with our response to the pandemic; the health of and the effect on our workforce and our ability to meet staffing needs; and the potential effects on our internal controls, including those over financial reporting, as a result of changes in working environments. In 2020, services we provide the USPS were deemed “essential” such that we were required to continue operations during “lockdowns” and similar restrictive measures limiting business activity generally.

In response to the spread of COVID-19, we modified our business practices for the continued health and safety of our employees. Specifically, we implemented measures to enhance the sanitization process of our equipment and properties, increased the social distancing of our employees by working remotely where possible, and provided driving associates with personal protective equipment (“PPE”). We may take further actions, or be required to take further actions, that are in the best interests of our employees in the future. The implementation of health and safety practices, including federal or state vaccine mandates and similar measures, could impact our productivity and costs, which could have a material adverse impact on our business, financial condition and results of operations. In addition, the focus on managing and mitigating the impacts of COVID-19 on our business may cause us to divert or delay the application of our resources toward existing or new initiatives or investments, which could have a material adverse impact on our results of operations.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also exacerbate many of the other risks set forth in this Annual Report on Form 10-K, including those relating to our financial performance and debt obligations. There are no comparable recent events that provide guidance as to the effect the COVID-19 global pandemic may have, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

We may be adversely affected by fluctuations in the price or availability of diesel fuel and gasoline.

Fuel is one of our largest operating expenses. Fuel prices fluctuate greatly due to factors beyond our control, such as political events, price and supply decisions by oil producing countries and cartels, terrorist activities, environmental laws and regulations, armed conflicts, depreciation of the dollar against other currencies, world supply and demand imbalances, and hurricanes and other natural or man-made disasters, each of which may lead to an increase in the cost of fuel. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because our operations are dependent upon fuel, significant fuel cost increases, shortages or supply disruptions could materially and adversely affect our results of operations and financial condition. Although our customers generally reimburse us for fuel expenses, the calculations of those reimbursements typically lag the change in the Department of Energy's fuel index. As a result, those reimbursements might be for amounts lower than our fuel costs as fuel prices fluctuate.

Costs associated with our use of natural gas vehicles (“NGVs”) could exceed the related benefits that we are able to realize, which could adversely affect our results of operations and cash flows.

Higher costs associated with purchasing and repairing NGVs might exceed any benefits attributable to our use of NGVs. For example, there are a limited number of original equipment manufacturers of NGVs and the engines, fuel tanks and other equipment required to upfit a gasoline or diesel engine to run on natural gas, which can increase costs related to purchasing and repairing NGVs as well limit the supply of NGVs available to purchase and therefore our ability to add to our fleet. Also, some of the higher costs of owning and operating NGVs have historically been offset by federal and state government incentives, including those that offset part or all of the additional up-front cost to acquire NGVs or convert vehicles to run on natural gas, those that waive vehicle weight limits for NGVs, and those that offer tax credits. However, those incentives may not continue. If those government incentives are discontinued or not renewed, our operating costs could significantly increase.

In addition to potential increases in expenses and other operating costs related to our use of NGVs, if technologies are developed that either reduce the emissions in gasoline and diesel-powered vehicles or improve the operating capabilities of electric, solar or other alternative fuel technology vehicles, the benefits of NGVs could be significantly reduced. Any such reduction could adversely affect our ability to retain existing freight contracts when they are up for renewal and receive new contracts, which would adversely impact our financial performance.

Risks Related to Regulatory and Governmental Matters

The trucking industry is highly regulated and changes in existing laws or regulations, or liability under existing or future laws or regulations, could have a material adverse effect on our results of operations and profitability.

We operate in the United States pursuant to operating authority granted by the DOT. We, along with our leased labor drivers, must also comply with governmental regulations regarding safety, equipment, environmental protection and operating methods. Examples include regulation of equipment weight, equipment dimensions, fuel emissions, driver hours-of-service, driver eligibility requirements and on-board reporting of operations. We may become subject to new or more restrictive regulations relating to such matters that may require changes in our operating practices, influence the demand for transportation services or require us to incur significant additional costs. Possible changes to laws and regulations include:

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increasingly stringent environmental laws and regulations, including changes intended to address fuel efficiency and greenhouse gas emissions that are attributed to climate change;

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restrictions, taxes or other controls on emissions;

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regulation specific to the energy market and logistics providers to the industry;

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changes in the hours-of-service regulations, which govern the amount of time a driver may drive in any specific period;

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driver and vehicle electronic logging device requirements;

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requirements leading to accelerated purchases of new tractors, trucks or trailers;

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mandatory limits on vehicle weight and size;

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driver hiring restrictions;

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increased bonding or insurance requirements; and

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security requirements imposed by the DHS.

From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels and emissions, which may increase our or our subcontracted providers’ operating costs, require capital expenditures or adversely impact the recruitment of drivers. In addition, we could lose revenue if our customers divert business from us because we have not complied with their sustainability guidelines or requirements.

Safety-related evaluations and rankings under the CSA program could adversely impact our relationships with our customers and our ability to maintain or grow our fleet, either of which could have a material adverse effect on our results of operations and profitability.

The CSA program includes compliance and enforcement initiatives designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. The FMCSA issues three categories of safety ratings: satisfactory, conditional and unsatisfactory. As of December 31, 2022, all DOT operating authority numbers operated by us currently have a “satisfactory” FMCSA rating.

Our CSA scores are dependent upon our safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in the CSA program or the underlying methodology used by the FMCSA to determine a carrier’s safety rating could change and, as a result, our ability to maintain an acceptable score could be adversely impacted. If the FMCSA adopts rulemakings in the future that revise the methodology used to determine a carrier’s safety rating in a manner that incorporates more stringent standards, then our CSA scores could be adversely affected. If we receive an unacceptable CSA score, our relationships with customers could be damaged, which could result in a loss of business or otherwise adversely affect our business.

The CSA program affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier’s safety record. The methodology for determining a carrier’s DOT safety rating relies upon implementation of Behavioral Analysis and Safety Improvement Categories (“BASIC”) applicable to the on-road safety performance of the carrier’s drivers and certain of those rating results are provided on the FMCSA’s Carrier Safety Measurement System website. As a result, certain current and potential drivers may no longer be eligible to drive for us, our fleet could be ranked poorly as compared to our peers, and our safety rating could be adversely impacted. The occurrence of future deficiencies could affect driver recruiting and retention by causing high-quality drivers to seek employment (in the case of company drivers) or contracts (in the case of third-party drivers) with other carriers, or could cause our customers to direct their business away from us and to carriers with better fleet safety rankings, either of which would adversely affect our results of operations and productivity. Additionally, we may incur greater than expected expenses in our attempts to improve our scores as a result of poor rankings. Those carriers and drivers identified under the CSA program as exhibiting poor BASIC scores are prioritized for interventions, such as warning letters and roadside investigations, either of which may adversely affect our results of operations.

The requirements of CSA could also shrink the trucking industry’s pool of drivers if drivers with unfavorable scores leave the industry. As a result, the costs to attract, train and retain qualified drivers could increase. A shortage of qualified drivers could also increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations and profitability.

We are subject to environmental and worker health and safety laws and regulations that may expose us to significant costs and liabilities and have a material adverse effect on our results of operations, competitive position and financial condition.

We are subject to stringent and comprehensive federal, state and local environmental and worker health and safety laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from our vehicles (including engine idling) and facilities, the health and safety of our workers in conducting operations and adverse impacts to the environment. Under certain environmental laws, we could be subject to strict liability, without regard to fault or legality of conduct, for costs relating to contamination at we own or operate or previously owned or operated and at third-party sites where we disposed of waste, as well as costs associated with the clean-up of releases arising from accidents involving our vehicles. We often operate in industrial areas, where truck terminals and other industrial activities are located, and where soil, groundwater or other forms of environmental contamination have occurred from historical or recent releases and for which we may incur remedial or other environmental liabilities. We also maintain aboveground fuel storage tanks at some of our facilities and vehicle maintenance operations at certain of our facilities. Our operations involve the risks of fuel spillage or seepage into the environment, environmental damage and unauthorized hazardous material spills, releases or disposal actions, among others.

Increasing efforts to control air emissions, including greenhouse gases, may have an adverse effect on us. Federal and state lawmakers have implemented various climate change initiatives and greenhouse gas regulations and may implement additional initiatives in the future, all of which could increase the cost of new tractors, impair productivity and increase our operating expenses.

Compliance with environmental laws and regulations may also increase the price of our equipment and otherwise affect the economics of our business by requiring changes in operating practices or by influencing the demand for, or the costs of providing, transportation services. For example, regulations issued by the EPA and various state agencies that require progressive reductions in exhaust emissions from diesel engines have resulted in higher prices for tractors and diesel engines and increased operating and maintenance costs. Also, in order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle. These restrictions could require us to alter our drivers’ behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. We are also subject to potentially stringent rulemaking related to sustainability practices, including conservation of resources by decreasing fuel consumption. This increased focus on sustainability practices may result in new regulations and/or customer requirements that could adversely impact our business. Historically, our environmental compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that future compliance will not have a material adverse effect on our business and operating results.

If we have operational spills or accidents or if we are found to be in violation of, or otherwise liable under, environmental or worker health or safety laws or regulations, we could incur significant costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of our operations in a particular area. The occurrence of any one or more of these developments could have a material adverse effect on our results of operations, competitive position and financial condition. Environmental and worker health and safety laws are becoming increasingly more stringent and there can be no assurances that compliance with, or liabilities under, existing or future environmental and worker health or safety laws or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.

If our subcontractors are deemed by regulators or judicial process to be employees, our business and results of operations could be adversely affected.

Tax and other regulatory authorities have in the past sought to assert that subcontractors in the trucking industry are employees rather than independent contractors. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If our subcontractors are determined to be employees, we would incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.

Potential inquiries into or audits of our Paycheck Protection Program loan, as well as the results of any such inquiries or audits, could have a significant adverse effect on us and our financial condition.

We applied for and received a $10 million Paycheck Protection Program (“PPP”) loan under the CARES Act. 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. 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. Our decision to retain the PPP loan may require members of our management team to devote attention to future correspondence and requests from the Select Subcommittee, the SBA, or other regulators, which would reduce the amount of time available to management to focus on our operations and strategic initiatives. If we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP loan, or it is otherwise determined that we were ineligible to receive the PPP loan, we may be subject to penalties, including significant civil, criminal and administrative penalties.

Risks Related to Our Securities

Shares of EVO's common stock are thinly-traded on OTC-Expert, and our stockholders may be unable to sell their shares.

The shares of EVO’s common stock are thinly-traded on OTC-Expert, meaning that the number of persons interested in purchasing our shares of common stock at or near ask prices at any given time may be relatively small or non-existent. There can be no assurance that a broader or more active trading market will ever develop or, if developed, that it will be sustained. There can be no assurance that EVO’s stockholders will ever be able to resell their shares at or near ask prices or at all.

The price of EVO's common stock could be highly volatile.

EVO’s common stock will be subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of EVO’s common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of EVO’s common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of EVO’s common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of EVO’s common stock. No assurance can be given that an active market in EVO’s common stock will develop or be sustained. If an active market does not develop, holders of EVO’s common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all.

EVO’s common stock is subject to the “penny stock” rules of the SEC, which restrict transactions in our stock and may reduce the value of an investment in our stock.

EVO's common stock is currently regarded as a “penny stock” because our shares are not listed on a national stock exchange or quoted on the NASDAQ Market within the United States and EVO's common stock has a market price less than $5.00 per share. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide a customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction. To the extent these requirements may be applicable; they will reduce the level of trading activity in the secondary market for EVO's common stock and may severely and adversely affect the ability of broker-dealers to sell EVO's common stock.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make EVO's common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, as well as a smaller reporting company. For so long as we remain an emerging growth company and/or a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies or smaller reporting companies. These exemptions include:

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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting of Section 404(b) of the Sarbanes-Oxley Act;

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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

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reduced disclosure obligations regarding executive compensation; and

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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict whether investors will find EVO's common stock less attractive if we rely on these exemptions. If some investors find EVO's common stock less attractive as a result, we will experience greater difficulty raising equity capital, there may be a less active trading market for EVO's common stock, and the stock price may be more volatile.

We have never paid and do not expect to pay cash dividends on our shares.

We have never paid cash dividends, and we anticipate that any future profits received from operations will be retained for operations. We do not anticipate the payment of cash dividends on our capital stock in the foreseeable future and any decision to pay dividends will depend upon our profitability, available cash and other factors. Therefore, no assurance can be given that there will ever be any cash dividend or distribution in the future.

We may in the future issue additional shares of EVO's common stock which would reduce investors’ ownership interests in EVO and which may dilute EVO's share value.

EVO's certificate of incorporation authorizes the issuance of 610,000,000 shares consisting of: (i) 600,000,000 shares of common stock, par value $0.0001 per share; and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share. The future issuance of all or part of our remaining authorized common stock or preferred stock may result in substantial dilution in the percentage of EVO's common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for EVO's common stock.

EVO's certificate of incorporation permits the board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to stockholders.

EVO’s board of directors, without any action by its stockholders, may amend EVO’s certificate of incorporation from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that EVO has authority to issue. The board of directors may also classify or reclassify any unissued common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of any class or series of stock. Thus, the board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of EVO’s common stock. For example, the Series C Preferred Stock authorized by the board of directors in March 2022 and the Series D Preferred Stock authorized by the board of directors in July 2022 rank senior in preference and priority to EVO's common stock with respect to dividend and liquidation rights and, generally votes with the common stock on an as converted basis on all matters presented for a vote of the holders of common stock. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies. The Series C Preferred Stock and the Series D Preferred Stock, as well as any other series of preferred stock that the board of directors may authorize in the future could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of EVO’s common stock.

Item 1B. Unresolved Staff Comments.

As a smaller reporting company, EVO is not required to provide disclosure under this item.

Item 2. Properties.

Our principal corporate office is located at 2075 West Pinnacle Peak Rd. Suite 130, Phoenix, AZ 85027 and consists of 6,359 square feet of space. We occupy this office under a 65-month office lease agreement dated November 27, 2019 with monthly rental payments increasing from $12,188 to $13,248 over the initial term of the lease.

We also lease the following properties as main terminals for our trucking operations:

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We lease property in Grimes, IA for a maintenance shop, truck storage, and parking for monthly rent of approximately $10,000. The lease term expires in June 2028.

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We lease property in Laurel, MD for office and maintenance shop space, truck storage, and parking under multiple leases for aggregate monthly rent of approximately $30,000. The lease terms expire in February 2028 and August 2029.

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We lease property in Hazelwood and Springfield, MO for office and maintenance shop space, truck storage, and parking for monthly rent of approximately $5,000 and $3,700, respectively. The lease terms expire in October 2024 and July 2026, respectively.

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We lease property in Newark, NJ for office and maintenance shop space, truck storage, and parking for monthly rent of $70,000. The lease term expires in March 2028.

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We lease property in Columbus, OH for office and maintenance shop space, truck storage, and parking for monthly rent of $5,145. The lease term expires in June 2027.

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We lease property in Austin, TX for office and maintenance shop space, truck storage, and parking for monthly rent of $19,000. The lease term expires in April 2027.

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We lease property at two locations in Madison, WI for office and maintenance shop space, truck storage, and parking for aggregate monthly rent of approximately $14,000. The lease terms expire in August 2024 and January 2029.

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We lease property in Oak Creek, WI for office and maintenance shop space, truck storage, and parking for monthly rent of approximately $17,000. The lease term expires in January 2029.

We lease various additional properties throughout the United States for our trucking operation, none of which are individually material, for operating sites, remote offices, and parking facilities.

Through our subsidiaries, Titan and EAF, we also own or lease six natural gas fueling stations located in California, Texas, Arizona and Wisconsin, three of which were operating as of December 31, 2022.

We believe all of our properties are suitable and adequate for current operating needs.

Item 3. Legal Proceedings.

See Part II, Item 8, Note 10, Commitment and Contingencies, to the Consolidated Financial Statements included herein.

Item 4. Mine Safety Disclosure.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Stock

EVO's certificate of incorporation authorizes the issuance of up to 600,000,000 shares of common stock, par value $0.0001 per share. EVO's common stock trades under the symbol “EVOA” on the OTC Expert Market maintained by the OTC Markets Group Inc.; however, no public market has yet developed for our common stock.

As of November 16, 2023, there were 192 holders of record of our common stock.

Dividend Policy

EVO has not paid any cash dividends since inception and does not anticipate or contemplate paying dividends in the foreseeable future. Dividends accrue and are payable on our Series C Preferred Stock and Series D Preferred Stock. It is the present intention of management to utilize all available funds for the development of the Company’s business. See Part II, Item 8, Note 6, Temporary Equity, Stockholders' Deficit and Warrants, to the Consolidated Financial Statements included herein.

Recent Sales of Unregistered Securities

Refer to the heading “Securities Purchase Agreement” within Note 1, Description of Business and Summary of Significant Accounting Policies, for information regarding the warrants issued to Antara, Exchanging Creditors, two former board members and to key equityholders and members of management in connection with the Recapitalization Transactions.

Securities Authorized for Issuance under Equity Compensation Plans

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Item 6. Selected Financial Data.

As a smaller reporting company, EVO is not required to provide disclosure under this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management's discussion and analysis of financial condition and results of operations should be read together with “Business” in Part I, Item 1 of this Annual Report, as well as the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1A. “Risk Factors” and Part I “Forward-looking Statements” of this Annual Report, and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed.

Company Overview

EVO Transportation & Energy Services, Inc. is a truckload carrier serving the USPS and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or CNG. EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.

Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.

Key Trends & Anticipated Future Trends

Under its “Delivering for America Plan,” the USPS is undergoing a massive transformation of its transportation network. A key component of this is a reorganization around regional processing and distribution centers. In addition, the USPS has transitioned most of its air freight to ground networks. We believe the USPS will favor larger and more reliable suppliers that can ensure continued high service performance and continuity during this transition.

EVO further expects a more active market-based approach to USPS renewals. We believe this approach favors larger suppliers like EVO that can provide competitive pricing by leveraging scale and pricing analytics.

The USPS has also started evaluating insourcing opportunities and transitioning contracts to more asset-light companies. We believe outsourced asset-based ground transportation suppliers will continue to service the vast majority of USPS contracts. In addition, we believe any shift in business to these threats is more likely to come from the smaller suppliers who are unable to compete as cost effectively over the long-term.

We intend to continue bidding on new and existing USPS contract opportunities as they arise. USPS contracts are bid competitively and performed in accordance with various requirements, including, but not limited to requirements under the Service Contract Act, Department of Transportation regulations (federal and state), and other applicable local and state regulations. The USPS evaluates the bids based on price, past performance, operational plans, financial resources, safety scores and the use of innovation or alternative fuels. EVO's USPS contracts typically have two or four year terms and can be renewed with the incumbent carrier after expiration of the initial term.

EVO believes that freight market rates peaked during COVID, reaching multi-year highs. Rates have since reversed and EVO believes they will continue to remain challenging during 2023. We believe this may create new business opportunities as the USPS looks to resolicit many of its contracts and that larger, more cost-efficient carriers are well positioned to gain market share. In addition, we believe the USPS will be heavily focused on service performance and that those suppliers who cannot achieve high on time service scores will fall out of favor. We believe this also creates significant opportunity for EVO in the future.

In addition to growing the USPS business, the Company expects to further diversify its revenue base both organically through new sales and business development efforts and also through M&A transactions. The strategy of acquiring USPS carriers will be deemphasized as the Company looks to create a more balanced business.

Results from Operations

Year Ended December 31, 2022, Compared to Year Ended December 31, 2021

Trucking revenue: The majority of trucking revenue is derived from the USPS. The remainder of the revenue is primarily derived from corporate freight customers. USPS contracts are typically four years in duration and include a monthly fuel adjustment. Trucking revenue was $309.5 million and $268.9 million during the years ended December 31, 2022 and 2021, respectively. The $40.6 million, or 15.1%, increase in trucking revenue from 2021 to 2022 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 and total paid miles 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: Payroll, benefits and related includes total compensation of drivers and non-drivers. Included in driver compensation is an incremental hourly rate for benefits. Payroll, benefits and related expense was $131.2 million and $107.4 million during the years ended December 31, 2022 and 2021, respectively. The $23.8 million, or 22.2%, increase in payroll, benefits and related expense is primarily due to the 15.1% increase in Trucking revenue combined with an increase in the use of employee drivers versus third-party subcontractors.

Purchased transportation: Purchased transportation represents payments to subcontracted third-party companies. These contracts are typically 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 $46.4 million and $68.8 million during the years ended December 31, 2022 and 2021, respectively. The $22.4 million, or 32.6%, decrease in purchased transportation expense is primarily due to an increased use of employee drivers versus subcontractors.

Fuel: Fuel expense is comprised of diesel, gasoline and CNG fuel required to operate the fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors. Fuel expense was $48.2 million and $28.2 million during the years ended December 31, 2022 and 2021, respectively. The $20.0 million, or 70.9%, increase in fuel expense is due primarily to the 15.1% increase in Trucking revenue, 32.6% decrease in purchased transportation and an increase in the average DOE fuel price from $3.28 to $5.00 per gallon.

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 $14.6 million and $13.4 million during the years ended December 31, 2022 and 2021, respectively. The $1.2 million, or 9.0%, increase in equipment rent expense is primarily due to the need to service new USPS contracts by acquiring additional trucks and trailers via new leasing and rental arrangements.

Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet. Maintenance and supplies expense was $15.8 million and $10.9 million during the years ended December 31, 2022 and 2021, respectively. The $4.9 million, or 45.0%, increase in maintenance and supplies expense is primarily due to an increase in the size of the fleet combined with increased maintenance costs for the existing fleet, which the Company is in process of refreshing with newer equipment.

Operating supplies and expenses: Operating and supplies expenses include all other direct costs in the Trucking operation. Operating supplies and expenses was $14.3 million and $15.3 million during the years ended December 31, 2022 and 2021, respectively. The $1.0 million, or 6.5%, decrease in operating supplies and expenses is primarily due to more cost efficient completion of certain routes.

General and administrative: General and administrative expense was $18.0 million and $16.3 million during the years ended December 31, 2022 and 2021, respectively. The $1.7 million, or 10.4%, increase is primarily due to an increase in professional fees and board of director fees and expenses.

Depreciation and amortization: Depreciation and amortization expense was $16.2 million and $15.2 million during the years ended December 31, 2022 and 2021, respectively. The increase is due to an increase in finance lease right-of-use asset amortization expense, partially offset by a decrease in depreciation expense.

Interest expense: Interest expense was $33.7 million and $12.7 million during the years ended December 31, 2022 and 2021, respectively. The $21.0 million, or 165.4%, increase in interest expense is primarily due to interest expense of $11.9 million associated with the issuance of warrants and the amortization of the debt discount related to the warrants in connection with the Bridge Loan Agreement, dated March 11, 2022. The increase is further due to a $7.7 million charge to interest expense

associated with the purchase of warrants by Antara Capital in connection with the recapitalization of the company in September 2022. In addition, the increase is due to $1.6 million of finance fees and additional debt issued of $9 million in connection with the Bridge Loan, and an increase in the interest rate on certain floating rate debt. Refer to Note 5, Debt, and Note 6, Temporary Equity, Stockholders’ Deficit and Warrants for further discussion.

Gain / loss on extinguishment of debt: The $5.3 million loss on extinguishment of debt during the year ended December 31, 2022 is primarily due to the $5.2 million loss on the extinguishment of the four promissory notes with an aggregate principal amount of $9.5 million as a result of the Convertible Note Amendments, dated March 11, 2022. The $11.0 million gain on extinguishment of debt during the year ended December 31, 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 Financing Agreement (including capitalized interest) from $33.6 million to $16.7 million during the first quarter of 2021. Refer to Note 5, Debt, for further discussion.

Change in fair value of embedded derivative liability: The 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 5, Debt, and Note 8, Fair Value Measurements, for further discussion.

Change in fair value of warrant liabilities: EVO previously issued certain warrants that are not considered indexed to EVO'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 6, Stockholders' Deficit and Warrants, and Note 8, Fair Value Measurements, for further discussion.

Liquidity and Capital Resources

Changes in Liquidity

Cash and Cash Equivalents. Cash and cash equivalents were $14.4 million and $6.3 million at December 31, 2022 and 2021, respectively. The increase is primarily attributable to cash provided by operating activities during the year ended December 31, 2022.

Operating Activities. Net cash provided by operating activities was $10.6 million during the year ended December 31, 2022. Net cash provided by operating activities was $23.5 million during the year ended December 31, 2021 which included $28.5 million of nonrecurring cash receipts from the USPS settlement agreements. The decrease in net cash provided was primarily attributable to a $32.5 million increase in net loss, partially offset by a $20.1 million increase in accounts receivable collected.

Investing Activities. Net cash used in investing activities was $0.1 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively. The net cash used in investing activities during the years ended December 31, 2022 and 2021, is primarily related to $0.1 million and $7.4 million of capital expenditures, respectively.

Financing Activities. Net cash used in financing activities was $2.4 million and $35.7 million for the years ended December 31, 2022 and 2021, respectively. The cash used in financing activities during the year ended December 31, 2022 primarily consisted of $258.8 million in payments on factoring arrangements, $5.4 million in payments of debt principal, and $8.8 million in payments on finance lease liabilities, partially offset by $247.5 million in advances from factoring receivables, $9.6 million of proceeds from the issuance of debt and $13.8 million of proceeds from the issuance warrants. The cash used in financing activities during the year ended December 31, 2021 primarily consisted of $225.8 million in payments on factoring arrangements, $24.1 million in payments of debt principal, and $5.9 million in payments on finance lease liabilities, partially offset by $214.3 million in advances from factoring receivables and $6.5 million of proceeds from the issuance of debt.

Sources of Liquidity

Our primary historical and future sources of liquidity are cash on hand ($14.4 million at December 31, 2022), the incurrence of additional indebtedness, the sale of EVO’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 EVO’s common stock or preferred stock.

Uses of Liquidity

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

Going Concern

As of December 31, 2022, we had a cash balance of $14.4 million, a working capital deficit of $67.2 million, stockholders’ deficit of $15.7 million, and material debt and lease obligations of $105.6 million, which included term loan borrowings under a financing agreement with Antara Capital. During the year ended December 31, 2022, we reported cash provided by operating activities of $10.6 million and net loss of $18.2 million that included a $5.3 million loss on extinguishment of debt.

The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2022:

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On March 11, 2022, EVO and certain subsidiary guarantors of the Company entered into a Senior Secured Loan and Executive Loan Agreement (the "Bridge Loan Agreement") with Antara Capital and Thomas J. Abood, EVO's former chief executive officer, Damon R. Cuzick, EVO's former chief operating officer, Bridgewest Growth Fund LLC, an entity affiliated with Billy (Trey) Peck Jr., EVO'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 EVO's board of directors (the “Board”). Pursuant to the Bridge Loan Agreement, EVO obtained a bridge loan in the amount of $9.0 million (the "Bridge Loan") from Antara Capital and also borrowed $0.8 million (the "Executive Loans") from the Executive Lenders. Refer to Note 5, Debt, for further discussion. Pursuant to the Bridge Loan Agreement, on March 11, 2022, Antara Capital appointed Michael Bayles as a member of EVO's Board, effective immediately. Mr. Bayles was appointed to fill a newly-created vacancy on the Board.

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On March 11, 2022, and pursuant to the Bridge Loan Agreement, EVO filed a Certificate of Designations of Series C Non-Participating Preferred Stock (the "Series C Certificate of Designations") with the Secretary of State of the State of Delaware, which authorized EVO to issue up to one share of Series C Preferred Stock, and issued to Antara Capital one share of Series C Preferred Stock. Refer to Note 6, Temporary Equity for further discussion.

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On March 11, 2022, EVO entered into amendments to certain secured convertible promissory notes in the aggregate principal amount of $9.5 million to permit immediate conversion of those notes, and the holders converted those notes into warrants to purchase 7,533,750 shares of EVO's common stock at an exercise price of $0.01 per share.

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On May 31, 2022, EVO, Antara Capital and the Executive Lenders entered into a Loan Extension Agreement that extended the Bridge Loan maturity date from May 31, 2022 to June 30, 2022 and the Executive Loans maturity date from June 3, 2022 to July 7, 2022.

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On June 30, 2022, EVO, Antara Capital and the Executive Lenders entered into a Second Extension Agreement that extended the Bridge Loan maturity date from June 30, 2022 to July 8, 2022 and the Executive Loans maturity date from July 7, 2022 to July 15, 2022.

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On July 8, 2022, EVO, Antara Capital and the Executive Lenders entered into a Third Extension Agreement that extended the Bridge Loan maturity date from July 8, 2022 to July 15, 2022 and the Executive Loans maturity date from July 15, 2022 to July 22, 2022. In addition, the Third Extension Agreement stipulated that on or before July 13, 2022, the Board of Directors of EVO shall have duly approved and filed with the Secretary of State of the State of Delaware a Certificate of Designations to evidence the issuance of a new series of Series D Non-Participating Preferred Stock, $0.0001 par value, that will, upon issuance, entitle Antara Capital (in its capacity as sole holder of the Series D Non-Participating Preferred Stock) to vote such number of votes per share that will allow Antara Capital to exercise 51% of the voting capital stock of EVO.

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On July 13, 2022, and pursuant to the Third Extension Agreement dated July 8, 2022, EVO filed a Certificate of Designations of Series D Non-Participating Preferred Stock (the "Series D Certificate of Designations") with the Secretary of State of the State of Delaware, which authorized EVO to issue up to one share of Series D Non-Participating Preferred Stock. Refer to Note 6, Stockholders' Deficit for further discussion.

The issuance of one share of Series D Non-Participating Preferred Stock to Antara Capital on July 13, 2022 resulted in a change of control of the Company, with Antara Capital having voting control on Series D Shareholder Matters. The consideration for the issuance of Series D Non-Participating Preferred Stock to Antara Capital was Antara Capital's agreement to enter into the Third Extension Agreement, and the Company did not receive any cash consideration.

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On July 15, 2022, EVO, Antara Capital and the Executive Lenders entered into a Fourth Extension Agreement that extended the Bridge Loan maturity date from July 15, 2022 to August 15, 2022 and the Executive Loans maturity date from July 22, 2022 to August 22, 2022.

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On August 12, 2022, EVO, Antara Capital and the Executive Lenders entered into a Fifth Extension Agreement that extended the Bridge Loan maturity date from August 15, 2022 to September 15, 2022 and the Executive Loans maturity date from August 22, 2022 to September 22, 2022.

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On September 8, 2022, EVO, Antara Capital and the Executive Lenders, in contemplation of the Securities Purchase Agreement discussed below, entered into a Sixth Extension Agreement that extended the Bridge Loan maturity date from September 15, 2022 to December 29, 2023 and the Executive Loans maturity date from September 22, 2022 to January 5, 2024.

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On September 8, 2022, EVO and Antara Capital entered into a Securities Purchase Agreement and consummated certain transactions involving the recapitalization of the Company. This includes the sale and issuance of new equity by EVO and the cancellation of certain indebtedness in exchange for equity of EVO and/or its subsidiaries. For more information regarding the Securities Purchase Agreement and the transactions, refer to the heading “Securities Purchase Agreement” within Note 1, Description of Business and Summary of Significant Accounting Policies.

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On December 23, 2022, Antara Capital, the Executive Lenders, Corbin ERISA Opportunity Fund Ltd ("CEOF") and Hudson Park amended and restated the Bridge Loan to reflect the assigned portions of the Bridge Loan to CEOF and Hudson Park. No changes were made to the Bridge Loan in connection with the assignment to CEOF and Hudson Park and no payments were made to the holders of the debt. This event is a transaction among debt holders.

Despite the occurrence of the Recapitalization Transactions, 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:

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

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As of December 31, 2022, the Company is not in compliance with certain covenants in its debt agreements (Refer to Note 5, Debt, for further discussion); and

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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 EVO’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:

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Cost reduction efforts;

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Improvements to operations to gain driver efficiencies;

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Purchases of trucks and trailers to reduce purchased transportation and truck rental expenses;

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

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

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Potential future public or private debt or equity offerings;

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

•

Profitably expanding trucking revenue.

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 12 months from the issuance of these consolidated financial statements within EVO’s Form 10-K. 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.

Refer to Notes 1, 4, 5 and 9 to the consolidated financial statements for further information regarding our debt, factoring, and lease obligations, including the future maturities of such obligations.

Off-Balance Sheet Arrangements

Refer to Note 10, Commitments and Contingencies – Off Balance Sheet Arrangements – Captive Insurance.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of consolidated financial statements 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 revenues and expenses recorded during the reporting periods.

On a periodic basis we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. For further information on our significant accounting policies, refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Goodwill

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in its Trucking reporting unit.

Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.

The impairment test process requires valuation of the reporting unit, which we determine using primarily the income, or discounted cash flows, approach. The assumptions about future cash flows and growth rates are based on the reporting unit's long-term forecast and are subject to review and approval by senior management. A reporting unit’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

During the years ended December 31, 2022 and 2021, the annual impairment test did not result in an impairment of goodwill.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available.

If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The assumptions about future cash flows and growth rates are based on the asset group’s long-term forecast and are subject to review and approval by senior management. An asset group’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options

Our executive officers, directors and principal stockholders beneficially own a substantial majority of EVO’s outstanding common stock. EVO’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when EVO issues other equity instruments for which the common stock is the underlying security. We first use primarily the income or discounted cash flows approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) EVO's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The estimated fair value of EVO’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options EVO issues.

Stock-Based Compensation

The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of subjective assumptions, including the estimated fair value of EVO’s common stock, the expected term of the award, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the award. The expected term represents the period of time the awards are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the awards, we use the simplified method to estimate the expected term for our stock-based compensation awards. Under the simplified method, the expected term of an award is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the awards. We assume no dividend yield because dividends on our common stock are not expected to be paid in the near future, which is consistent with our history of not paying dividends on our common stock.

Deferred Income Tax Assets and Liabilities

The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the

use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.

We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 31, 2022, the Company had federal and state net operating losses of approximately $38.4 million and $26.7 million, respectively. As of December 31, 2021, the Company had federal and state net operating losses of approximately $44.7 million and $30.2 million, respectively. As of December 31, 2022, the Company has approximately $0.7 million of federal net operating losses available to offset future taxable income for 20 years and will begin to expire in 2036. The remaining $37.7 million of federal net operating losses are carried forward indefinitely to offset future taxable income up to an 80% limitation of taxable income in the year of use. The state net operating losses began to expire in 2022. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.

Recently Issued Accounting Pronouncements

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

Seasonality and Inflation

Due to increased USPS volume associated with the holiday rush from the end of November through year end, the Company’s revenue and business activity typically increase during the last quarter of each calendar year. In the winter months, operating expenses generally increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures.

The Company also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy the Company’s assets or adversely affect the business or financial condition of customers, any of which could adversely affect the Company’s results or make the Company’s results more volatile.

The Company has experienced inflationary pressures in the normal course of business including cost of equipment, driver wages, healthcare and benefits, insurance, parts and supplies and fuel. While the Company receives some revenue offsets from the USPS for costs like wage inflation and fuel, periods with inflationary pressures could adversely affect our financial results.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, EVO is not required to provide disclosure under this item.

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page
Report of Independent Registered Public Accounting Firm [PCAOB ID Number 248]		F-1

Consolidated Balance Sheets		F-2

Consolidated Statements of Operations		F-3

Consolidated Statements of Changes in Stockholders’ Deficit		F-4

Consolidated Statements of Cash Flows		F-5

Notes to Consolidated Financial Statements		F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

EVO Transportation & Energy Services, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of EVO Transportation & Energy Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company’s current liabilities exceeded its current assets by $67.2 million and its total liabilities exceeded its total assets by $15.7 million as of December 31, 2022. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Tulsa, Oklahoma

November 16, 2023

F-1

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Consolidated Balance Sheets


	December 31,
($ in thousands, except share and per share data)	2022			2021
Assets
Current assets
Cash	$	14,429		$	6,325
Accounts receivable - trade, net		11,704			22,697
Alternative fuels tax credit receivable		263			287
Prepaids and other current assets		5,840			2,160
Total current assets		32,236			31,469
Non-current assets
Property and equipment, net		20,307			27,962
Goodwill		23,837			23,837
Intangible assets, net		3,317			4,180
Operating lease right-of-use assets, net		7,527			7,155
Finance lease right-of-use assets, net		31,086			24,391
Deposits and other long-term assets		7,411			7,520
Total non-current assets		93,485			95,045
Total assets	$	125,721		$	126,514
Liabilities, Temporary Equity and Stockholders’ Deficit
Current liabilities
Accounts payable	$	14,738		$	16,245
Accrued expenses and other current liabilities		18,091			19,744
Accrued interest - related party, current portion		1,033			2,743
Embedded derivative liability		1,552			1,513
Warrant liabilities		199			13,784
Advances under factoring arrangements, current portion		2,103			9,073
Long-term debt, current portion		20,445			22,135
Long-term debt - related party, current portion		30,041			33,164
Operating lease liabilities, current portion		2,201			3,045
Finance lease liabilities, current portion		9,009			4,448
Total current liabilities		99,412			125,894
Non-current liabilities
Advances under factoring arrangements, less current portion		3,586			5,202
Long-term debt, less current portion		4,316			7,455
Long-term debt - related party, less current portion		6,133			4,023
Long-term accrued interest - related party, less current portion		95			—
Operating lease liabilities, less current portion		5,420			4,114
Finance lease liabilities, less current portion		22,232			21,790
Deferred tax liability		208			97
Total non-current liabilities		41,990			42,681
Total liabilities		141,402			168,575
Commitments and contingencies (Note 10)
Temporary Equity
Series A Redeemable Convertible Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 0 (December 31, 2022) and 100,000 (December 31, 2021) shares issued and outstanding, includes accrued and undeclared dividends of $0 (December 31, 2022) and $134 (December 31, 2021) and liquidation preference of $0 (December 31, 2022) and $434 (December 31, 2021)		—			434
Series B Redeemable Convertible Preferred stock, $0.0001 par value; 3,075,000 shares authorized, 0 (December 31, 2022) and 2,050,000 (December 31, 2021) shares issued and outstanding, includes accrued and undeclared dividends of $0 (December 31, 2022) and $1,090 (December 31, 2021) and liquidation preference of $0 (December 31, 2022) and $7,240 (December 31, 2021)		—			7,240
Series C Redeemable Preferred stock, $0.0001 par value; 1 (December 31, 2022) and 0 (December 31, 2021) share authorized, issued and outstanding, includes accrued and undeclared dividends of $0 (December 31, 2022 and December 31, 2021) and liquidation preference of $0 (December 31, 2022 and December 31, 2021)		—			—
Redeemable common stock, at redemption value; 0 (December 31, 2022) and 2,240,000 (December 31, 2021)		—			1,200
Stockholders’ deficit
Series D Non-Redeemable Preferred stock, $0.0001 par value; 1 (December 31, 2022) and 0 (December 31, 2021) share authorized, issued and outstanding, includes liquidation preference of $0 (December 31, 2022 and December 31, 2021)		—			—
Common stock, $0.0001 par value; 600,000,000 (December 31, 2022) and 100,000,000 (December 31, 2021) shares authorized; 436,270,505 (December 31, 2022) and 15,213,145 (December 31, 2021) shares issued and outstanding		43			2
Common stock issuable		3,474			4,390
Additional paid-in capital		86,394			32,039
Accumulated deficit		(105,592	)		(87,366	)
Total stockholders’ deficit		(15,681	)		(50,935	)
Total liabilities, temporary equity, and stockholders’ deficit	$	125,721		$	126,514

See notes to consolidated financial statements.

F-2

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Consolidated Statements of Operations


	For the Years Ended December 31,
($ in thousands, except share and per share data)	2022			2021
Revenue
Trucking	$	309,476		$	268,913
Other		287			35,134
Total revenue		309,763			304,047
Operating expenses
Payroll, benefits and related		131,211			107,417
Purchased transportation		46,368			68,765
Fuel		48,198			28,155
General and administrative		17,983			16,342
Operating supplies and expenses		14,256			15,252
Depreciation and amortization		16,176			15,234
Equipment rent		14,578			13,401
Maintenance and supplies		15,755			10,850
Insurance and claims		8,815			8,938
Loss on sale of fixed assets		54			154
Other		146			253
Total operating expenses		313,540			284,761
Operating income (loss)		(3,777	)		19,286
Other income (expense)
Interest expense		(33,710	)		(12,745	)
Change in fair value of embedded derivative liability		(39	)		765
Change in fair value of warrant liabilities		25,207			(2,520	)
Gain (loss) on extinguishment of debt		(5,318	)		10,953
Other miscellaneous income		73			57
Total other expense		(13,787	)		(3,490	)
Income (loss) before income taxes		(17,564	)		15,796
Income tax expense		(662	)		(1,543	)
Net income (loss)		(18,226	)	$	14,253
Earnings (loss) per share:
Basic	$	(0.11	)	$	0.45
Diluted	$	(0.11	)	$	0.44
Weighted average shares outstanding:
Basic		171,700,395			30,507,308
Diluted		171,700,395			33,376,075

See notes to consolidated financial statements.

F-3

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Consolidated Statements of Changes in Stockholders’ Deficit

For the Years Ended December 31, 2022 and 2021


	Preferred Stock				Common Stock				Common Stock			Additional Paid-in			Accumulated			Total Stockholders’
($ in thousands, except share data)	Shares		Amount		Shares		Amount		Issuable			Capital			Deficit			Deficit
Balance - December 31, 2020		—	$	—		15,212,815	$	2	$	3,474		$	30,821		$	(101,619	)		(67,322	)
Obligation to issue common stock - related party		—		—		—		—		916			—			—			916
Issuance of warrants to extinguish debt		—		—		—		—		—			1,292			—			1,292
Common stock issued for services - related party		—		—		330		—		—			—			—			—
Stock-based compensation expense		—		—		—		—		—			577			—			577
Series A Redeemable Preferred stock dividend		—		—		—		—		—			(36	)		—			(36	)
Series B Redeemable Preferred stock dividend		—		—		—		—		—			(615	)		—			(615	)
Net income		—		—		—		—		—			—			14,253			14,253
Balance - December 31, 2021		—		—		15,213,145		2		4,390			32,039			(87,366	)		(50,935	)
Issuance of common stock - related party		—		—		1,174,800		—		(916	)		916			—			—
Conversion of convertible notes into warrants		—		—		—		—		—			9,708			—			9,708
Reclassification of warrants from liability classified to equity classified		—		—		—		—		—			1,258			—			1,258
Issuance of Series D Non-Redeemable Preferred stock		1		—		—		—		—			750			—			750
Exercise of warrants into common stock		—		—		417,216,922		41		—			20,691			—			20,732
Issuance of equity classified warrants		—		—		—		—		—			3,074			—			3,074
Restructuring gain from related parties		—		—		—		—		—			8,954			—			8,954
Reclassification of redeemable common stock		—		—		—		—		—			1,200			—			1,200
Stock-based compensation expense		—		—		—		—		—			130			—			130
Series A Redeemable Preferred stock dividend		—		—		—		—		—			(18	)		—			(18	)
Series B Redeemable Preferred stock dividend		—		—		—		—		—			(305	)		—			(305	)
Conversion of Series A Redeemable Preferred stock into common stock		—		—		150,597		—		—			452			—			452
Conversion of Series B Redeemable Preferred stock into common stock		—		—		2,515,041		—		—			7,545			—			7,545
Net loss		—		—		—		—		—			—			(18,226	)		(18,226	)
Balance - December 31, 2022		1	$	—		436,270,505	$	43	$	3,474		$	86,394		$	(105,592	)	$	(15,681	)

See notes to consolidated financial statements.

F-4

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Consolidated Statements of Cash Flows


	For the Years Ended December 31,
($ in thousands)	2022			2021
Cash flows from operating activities
Net income (loss)	$	(18,226	)	$	14,253
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		16,176			15,234
Non-cash lease expense		3,766			3,964
Loss on sale of assets		54			154
Amortization of debt discount and debt issuance costs		10,246			1,103
Deferred income taxes		111			80
Stock-based compensation expense		130			577
Non-cash interest expense		15,422			5,996
Bad debt expense		638			79
Change in fair value of embedded derivative liability		39			(765	)
Change in fair value of warrant liabilities		(25,207	)		2,520
Restructuring gain (loss) on Recapitalization Transaction		(212	)		—
(Gain) loss on extinguishment of debt		5,318			(10,953	)
Changes in assets and liabilities
Accounts receivable - trade		10,354			(9,741	)
Alternative fuels tax credit receivable		24			766
Due from related party		(5	)		30
Other assets		(2,321	)		(2,664	)
Accounts payable		(2,009	)		4,545
Accrued expenses and other current liabilities		(1,052	)		1,705
Accrued interest - related party		1,494			494
Operating lease liabilities		(4,187	)		(3,829	)
Net cash provided by operating activities		10,553			23,548
Cash flows from investing activities
Purchases of equipment		(136	)		(7,430	)
Proceeds from sale of assets		43			315
Net cash used in investing activities		(93	)		(7,115	)
Cash flows from financing activities
Proceeds from sale of common stock, preferred stock and warrants		13,756			—
Proceeds from issuance of debt		—			6,469
Payments of principal on debt		(5,161	)		(5,496	)
Proceeds from issuance of debt - related party		9,625			—
Payments of principal on debt - related party		(272	)		(18,594	)
Debt extinguishment costs		(225	)		(777	)
Advances from factoring arrangements		247,542			214,343
Payments on factoring arrangements		(258,820	)		(225,798	)
Debt issuance costs		—			—
Payments on finance lease liabilities		(8,801	)		(5,895	)
Net cash used in financing activities		(2,356	)		(35,748	)
Net increase (decrease) in cash and restricted cash		8,104			(19,315	)
Cash and restricted cash - beginning of year		7,329			26,644
Cash and restricted cash - end of year	$	15,433			7,329

Supplemental disclosures of cash flow information:
Income tax paid	$	2,066		$	1,122
Interest paid	$	3,909		$	689

Supplemental schedule of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for finance lease liabilities	$	12,463		$	—
Right-of-use assets obtained in exchange for operating lease liabilities	$	3,556		$	—
Restructuring gain from Recapitalization Transactions in additional paid-in capital	$	8,954		$	—
Fair value of warrants and common stock issued in connection with financing arrangements	$	12,782		$	2,208

See notes to consolidated financial statements.

F-5

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

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

Description of Business

EVO Transportation & Energy Services, Inc. (“EVO” and, together with its direct and indirect subsidiaries, the “Company”) is a truckload carrier serving the USPS and other customers. We believe EVO is one of the largest surface transportation companies serving the USPS, with a diversified fleet of tractors, straight trucks and other vehicles that currently operate on either diesel fuel, gasoline or CNG. EVO also operates a brokerage unit that supports the truckload business and services other corporate customers. In select cases, EVO may subcontract the transportation of certain loads to third-party carriers. We operate from our headquarters in Phoenix, Arizona and from numerous terminals throughout the United States.

Historically, we have grown primarily through acquisitions and have also grown organically by obtaining new contracts from the USPS and other customers.

Securities Purchase Agreement

On September 8, 2022, EVO, EVO Holding Company, LLC (“EVO Holding”), a subsidiary of EVO, and Antara Capital Master Fund LP (“Antara Capital”) entered into a Securities Purchase Agreement (the “SPA”) and consummated certain transactions involving the recapitalization of the Company (collectively the “Recapitalization Transactions”). This included the following:

•

EVO adopted an amendment to the certificate of incorporation to effect the increase in the number of authorized shares of its common stock, par value $0.0001, from 100 million to 600 million (the “Charter Amendment”). See Note 6, Temporary Equity, Stockholders' Deficit and Warrants, for more information.

•

Antara Capital agreed to pay EVO $13.5 million to purchase 22,353,696 immediately exercisable warrants to purchase 22,353,696 shares of common stock of EVO at an exercise price of $0.0001 per share, 319,213,143 warrants to purchase 319,213,143 shares of common stock of EVO at an exercise price of $0.0001 per share that was exercisable following the adoption of the Charter Amendment, and 1 convertible preferred membership interest in EVO Holding. The Company recorded a $7.7 million loss to interest expense for the three and nine months ended September 30, 2022 in connection with the issuance of the warrants. Upon exercise of the warrants, which occurred in November 2022, Antara Capital owned approximately 69% of the Company on a fully diluted basis. The preferred interest is convertible into 99% of the common membership interests of EVO Holding, if the Company fails to meet certain financial conditions, at Antara Capital’s election during the Conversion Period, defined below under the heading “Amended and Restated Limited Liability Company Operating Agreement.” EVO Holding maintains the Company’s ownership interests in John W. Ritter Trucking, Inc. and its related companies (the "Ritter Companies"), which provide a material portion of our Trucking revenue. During the years ended December 31, 2022 and 2021, Ritter provided approximately 18% and 20% of our Trucking revenue, respectively. See Note 6, Stockholders’ Deficit and Warrants, for more information regarding the issued warrants.

•

In connection with the SPA, EVO entered into exchange agreements (the “Exchange Agreements”) with certain creditors, defined in Note 3, Related Party Transactions. Pursuant to the Exchange Agreements, the creditors agreed to exchange promissory notes in the aggregate amount of principal and accrued interest of approximately $18.3 million for 71,324,670 warrants to purchase common stock and new promissory notes in the aggregate principal amount of approximately $3.7 million (the “Takeback Notes”). See Note 3, Related Party Transactions, Note 5, Debt, and Note 6, Stockholders’ Deficit and Warrants, for more information.

•

EVO issued warrants to purchase 4,754,978, 9,509,956 and 3,000,000 shares of EVO's common stock at exercise prices of $0.0001, $0.53 and $1.50 per share, respectively, to two former board members. See Note 6, Stockholders’ Deficit and Warrants, for more information regarding the issued warrants.

•

EVO issued warrants to purchase 23,224,117 shares of EVO's common stock at an exercise price of $0.63 per share to key equity holders and members of management. Each warrant issued 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. See Note 6, Stockholders’ Deficit and Warrants, for more information regarding the issued warrants.

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EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

Amended and Restated Limited Liability Company Operating Agreement

In connection with the SPA, EVO, Antara Capital, and EVO Holding entered into an Amended and Restated Limited Liability Company Operating Agreement (the “A&R LLC Agreement”) for EVO Holding. Pursuant to the A&R LLC Agreement and the SPA, EVO Holding issued one convertible preferred membership interest in EVO Holding (the “Preferred Interest”) to Antara Capital. The Preferred Interest is convertible at Antara Capital’s election during the Conversion Period into 99% of the common membership interests of EVO Holding. The Conversion Period is defined as each date of determination on which (i) Consolidated EBITDA for EVO and its subsidiaries for the most recently completed fiscal quarter that is the first, second or third fiscal quarter is less than $6.0 million, with such determination initially being made with respect to the second fiscal quarter of 2023, (ii) Consolidated EBITDA for EVO and its subsidiaries for the most recent fourth fiscal quarter that is one of the two most recently completed fiscal quarters is less than $9.0 million, (iii) EVO or any of its subsidiaries fails to pay any principal or interest due in respect of any debt with an outstanding aggregate principal amount in excess of $1.0 million when due, subject to certain cure rights, (iv) any debt of EVO or any of its subsidiaries with an outstanding aggregate principal amount in excess of $1.0 million becomes due prior to its stated maturity, (v) EVO has failed to deliver unaudited quarterly financial statements with certain prescribed time periods, or (vi) EVO has failed to deliver audited annual financial statements within certain prescribed time periods.

Going Concern

As of December 31, 2022, the Company had a cash balance of $14.4 million, a working capital deficit of $67.2 million, stockholders’ deficit of $15.7 million, and material debt and lease obligations of $105.6 million, which included term loan borrowings under a financing agreement with Antara Capital. During the year ended December 31, 2022, the Company reported cash provided by operating activities of $10.6 million and net loss of $18.2 million that included a $5.3 million loss on extinguishment of debt.

The following significant transactions and events affecting the Company’s liquidity occurred during the year ended December 31, 2022:

•

On March 11, 2022, and pursuant to the Bridge Loan Agreement, EVO filed a Series C Certificate of Designations of Series C Non-Participating Preferred Stock with the Secretary of State of the State of Delaware, which authorized EVO to issue up to one share of Series C Preferred Stock, and issued to Antara Capital one share of Series C Preferred Stock. Refer to Note 6, Temporary Equity, Stockholders' Deficit and Warrants for further discussion.

•

F-7

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

of Delaware a Certificate of Designations to evidence the issuance of a new series of Series D Participating Preferred Stock, $0.0001 par value (the “Series D Preferred”) that will, upon issuance, entitle Antara Capital (in its capacity as sole holder of the Series D Preferred) to vote such number of votes per share that will allow Antara Capital to exercise 51% of the voting capital stock of EVO.

•

On July 13, 2022, and pursuant to the Third Extension Agreement dated July 8, 2022, EVO filed a Certificate of Designations of Series D Non-Participating Preferred Stock with the Secretary of State of the State of Delaware, which authorized EVO to issue up to one share of Series D Non-Participating Preferred Stock. Refer to Note 6, Stockholders' Deficit and Warrants for further discussion.

•

On September 8, 2022, EVO, Antara Capital and the Executive Lenders, in contemplation of the SPA discussed above, entered into a Sixth Extension Agreement that extended the Bridge Loan maturity date from September 15, 2022 to December 29, 2023 and the Executive Loans maturity date from September 22, 2022 to January 5, 2024.

•

On September 8, 2022, EVO and Antara Capital entered into the SPA and consummated the Recapitalization Transactions. For more information regarding the SPA and the Recapitalization Transactions, refer to the heading “Securities Purchase Agreement” above.

•

On December 23, 2022, Antara Capital, the Executive Lenders, CEOF and Hudson Park amended and restated the Bridge Loan to reflect the assigned portions of the Bridge Loan to CEOF and Hudson Park. No changes were made to the Bridge Loan in connection with the assignment to CEOF and Hudson Park and no payments were made to the holders of the debt. This event is a transaction among debt holders.

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;

•

As of December 31, 2022, the Company is not in compliance with certain covenants in its debt agreements (Refer to Note 5, Debt, for further discussion); and

•

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

•

Cost reduction efforts;

•

Improvements to operations to improve driver productivity;

•

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

•

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

•

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

•

Potential future public or private debt or equity offerings;

F-8

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

•

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

•

Profitably expanding trucking revenue.

Refer to Notes 4, 5, and 9 to the consolidated financial statements for further information regarding our factoring, debt, and lease obligations, including the future maturities of such obligations. Refer to Note 13, Subsequent Events, for further information regarding changes in the Company’s debt obligations and liquidity subsequent to December 31, 2022.

Consolidation

The accompanying consolidated financial statements include the accounts of EVO and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Pushdown Accounting

As described in Note 5, Debt, on July 13, 2022, Antara Capital was issued one share of Series D Non-Participating Preferred Stock of EVO. With the issuance of Series D Non-Participating Preferred Stock, Antara Capital obtained voting control on shareholder matters resulting in a change of control of the Company. Antara Capital elected to not apply pushdown accounting.

Reclassifications

Certain reclassifications have been made to prior period's financial information to conform to the current period presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the 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.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts where accounts may exceed federally insured limits at times. There were no cash equivalents as of December 31, 2022 and 2021.

Restricted Cash

We had restricted cash of $1.0 million as of December 31, 2022 and 2021 which represents cash required to be set aside by a standby letters of credit related to workers’ compensation and general liabilities accrued in our condensed consolidated financials. Restricted cash is included in deposits and other long-term assets on our condensed consolidated balance sheet. See Note 10, Commitments and Contingencies, for further details around the letters of credit.

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of the accounts receivable. It is reasonably

F-9

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance. Receivable balances are written off against the allowance for doubtful accounts when, in the judgment of management, they are considered uncollectible.

Concentrations of Credit Risk

The Company grants credit in the normal course of business to customers in the United States. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.

As of December 31, 2022 and 2021, the USPS accounted for 51% and 47% of the consolidated trade accounts receivable balance, respectively. During the years ended December 31, 2022 and 2021, the USPS generated revenue represented 90% and 89%, respectively, of total trucking revenue and 90% and 89%, respectively, of the Company’s consolidated total revenue. The USPS is operated by the United States Federal government; therefore, the Company does not believe there is significant credit or collections risk related to the accounts receivable balance due from the USPS. If the Company were to lose its relationship, or is unable to renew existing contracts, with the USPS, it would have a material adverse effect on the Company’s financial condition and results of operations.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense as incurred. Gains and losses on disposals of equipment are included in operations as they are a normal, recurring component of our operations. Depreciation is provided utilizing the straight-line method over the following estimated useful lives.


		Years
Tractors		4 - 10
Trailers		4 - 14
Equipment		5 - 10
Leasehold improvements		5 - 10

Goodwill

Goodwill represents the excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed. We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. All of the Company’s goodwill is recorded in the Trucking reporting unit, which has a negative carrying value as of December 31, 2022 and 2021.

The Company performed its annual goodwill impairment tests for 2022 and 2021 by completing quantitative impairment analyses of the Trucking reporting unit goodwill, and management concluded the goodwill was not impaired.

Intangible Assets

The Company's intangible assets consist of customer relationships, trade names and non-competition agreements. The Company carries these intangible assets at cost, less accumulated amortization. Amortization is recorded on a straight-line basis over the estimated useful lives of the respective assets. Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. There were no indefinite-lived intangible assets at December 31, 2022 and 2021.

Long-Lived Assets

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by

F-10

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. There was no impairment of long-lived assets during the years ended December 31, 2022 and 2021.

Debt Issuance Costs

Certain fees and costs incurred to obtain long-term financing are capitalized and included as a reduction in the carrying value of the related debt in the consolidated balance sheets, net of accumulated amortization. These costs are amortized to interest expense using the effective interest method over the term of the related debt.

Fair Valuation of Common Stock, Preferred Stock, Warrants and Stock Options

Our executive officers, directors and principal stockholders beneficially own a substantial majority of EVO’s outstanding common stock. EVO’s common stock does not have an observable quoted market price on the OTC Expert Market because the stock is thinly traded and is not eligible for proprietary broker-dealer quotations. As a result, we must utilize an alternative method to estimate the fair value of our common stock, including when EVO issues other equity instruments for which the common stock is the underlying security. We first use primarily the income, or discounted cash flows, approach to determine the estimated fair value of our total equity. The assumptions about future cash flows and growth rates are based on the Company's long-term forecast and are subject to review and approval by senior management. The discount rate utilized is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. We then use the option-pricing equity allocation method to allocate the estimated total equity value to our common stock and preferred stock. The inputs and assumptions used in the option-pricing model include: (1) the discount rate; (2) the estimated time to liquidity; (3) EVO's expected stock price volatility; (4) the estimated discount for the lack of marketability; and (5) the risk-free interest rate. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The estimated fair value of EVO’s common stock is a key assumption in the fair valuation of the preferred stock, warrants and stock options EVO issues.

Stock-Based Compensation

The Company accounts for stock-based compensation awards based on the fair value of the award as of the grant date, which is calculated using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense on a straight-line basis over the awards’ vesting period and accounts for forfeitures as they occur.

Some of EVO’s currently outstanding awards provide for the acceleration of vesting of all shares underlying the award upon the occurrence of the Company completing an aggregate of at least $30 million of any combination of debt and/or equity financing transactions after the date of grant. Since such financing transactions are outside the Company’s control, the Company does not deem the performance condition to be probable of achievement until the cumulative financing transactions have been completed. Once the cumulative financing transactions have been completed and the vesting of the awards is accelerated, the Company accelerates its recognition of stock-based compensation expense and records any previously unrecognized compensation cost associated with the affected awards on such date.

F-11

EVO TRANSPORTATION & ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

Earnings (Loss) per Share of Common Stock

Basic earnings (loss) per share of common stock attributable to common stockholders is calculated by dividing net 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):


	For the Years Ended December 31,
	2022	2021
Numerator:

EVO Transportation & Energy Services, Inc. 10-K