UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 1, 2018
EVO Transportation & Energy Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 000-54218 | 37-1615850 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
8285 West Lake Pleasant Parkway, Peoria, AZ 85382
(Address of principal executive offices)
877-973-9191
Registrant’s telephone number, including area code:
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registration under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
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. o
Explanatory Note
EVO Transportation & Energy Services, Inc. (the “Company”) previously filed a Current Report on Form 8-K on June 7, 2018 (the “Original Form 8-K”) reporting its acquisition of all of the issued and outstanding shares of Thunder Ridge Transport, Inc., a Missouri corporation (“Thunder Ridge”). This Amended Current Report on Form 8-K/A is being filed for the purpose of complying with the provisions of Rule 3-05 of Regulation S-X. As such, this Amended Current Report on Form 8-K/A provides the financial information related to the Company’s acquisition of Thunder Ridge as required by Item 9.01 of Form 8-K.
Item 9.01 | Financial Statements and Exhibits. |
(b) | Financial Statements of Business Acquired. |
1 |
THUNDER RIDGE TRANSPORT, INC.
Consolidated Financial Statements
and
Independent Auditors’ Report
December 31, 2017 and 2016
2 |
THUNDER RIDGE TRANSPORT, INC.
Table of Contents
Page | |
Independent Auditors’ Report | 4 |
Consolidated Financial Statements | |
Consolidated Balance Sheets | 6 |
Consolidated Statements of Operations | 7 |
Statement of Changes in Members’ Equity (Deficit) | 8 |
Consolidated Statements of Cash Flows | 9 |
Notes to Consolidated Financial Statements | 10 |
3 |
INDEPENDENT AUDITORS’ REPORT
To the Members
Thunder Ridge Transport, Inc.
Springfield, Missouri
We have audited the accompanying consolidated financial statements of Thunder Ridge Transport, Inc. (the “Company”), which are comprised of the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS’ RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
4
To the Members
Thunder Ridge Transport, Inc.
Page Two
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thunder Ridge Transport, Inc. as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
EMPHASIS OF OTHER MATTERS
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
EKS&H LLLP
Denver, Colorado
August 17, 2018
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THUNDER RIDGE TRANSPORT, INC.
Consolidated Balance Sheets
December 31, | ||||||||
2017 | 2016 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 655,155 | $ | 469,816 | ||||
Accounts receivable, net | 756,886 | 430,032 | ||||||
Prepaid expenses | 215,285 | 192,160 | ||||||
Total current assets | 1,627,326 | 1,092,008 | ||||||
Non-current assets | ||||||||
Property and equipment, net | 352,212 | 471,426 | ||||||
Deposits | 75,837 | 7,000 | ||||||
Total non-current assets | 428,049 | 478,426 | ||||||
Total assets | $ | 2,055,375 | $ | 1,570,434 | ||||
Liabilities and Members’ Deficit | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 2,217,772 | $ | 1,395,173 | ||||
Lines-of-credit | 521,864 | 524,750 | ||||||
Due to member | 19,000 | - | ||||||
Current portion of long-term debt | 90,775 | 118,277 | ||||||
Total current liabilities | 2,849,411 | 2,038,200 | ||||||
Non-current liabilities | ||||||||
Long-term debt, less current portion | 144,970 | 235,745 | ||||||
Fuel advance | 1,000,000 | - | ||||||
Total non-current liabilities | 1,144,970 | 235,745 | ||||||
Total liabilities | 3,994,381 | 2,273,945 | ||||||
Commitments and contingencies | ||||||||
Members’ deficit | ||||||||
Members’ activity | (228,195 | ) | (55,810 | ) | ||||
Accumulated deficit | (1,710,811 | ) | (647,701 | ) | ||||
Total members’ deficit | (1,939,006 | ) | (703,511 | ) | ||||
Total liabilities and members’ deficit | $ | 2,055,375 | $ | 1,570,434 |
See notes to consolidated financial statements.
6 |
THUNDER RIDGE TRANSPORT, INC.
Consolidated Statements of Operations
For the Years Ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
Revenues | $ | 17,348,940 | $ | 14,070,457 | ||||
Cost of goods sold | ||||||||
Cost of labor | 8,991,539 | 7,795,422 | ||||||
Truck and trailer operating | 4,389,785 | 3,091,164 | ||||||
Truck and trailer leasing | 3,285,713 | 2,435,887 | ||||||
Truck and trailer maintenance | 565,158 | 505,390 | ||||||
Total cost of goods sold | 17,232,195 | 13,827,863 | ||||||
Gross profit | 116,745 | 242,594 | ||||||
Operating expenses | ||||||||
Administrative personnel | 533,774 | 506,318 | ||||||
General and administrative | 213,481 | 170,161 | ||||||
Professional fees | 172,809 | 235,560 | ||||||
Facility | 104,381 | 138,021 | ||||||
Depreciation | 104,045 | 112,365 | ||||||
Bad debt expense | 36,000 | - | ||||||
Total operating expenses | 1,164,490 | 1,162,425 | ||||||
Other (expense) income | ||||||||
Interest expense | (106,858 | ) | (32,867 | ) | ||||
(Loss) gain on disposal of assets | (1,321 | ) | 1,670 | |||||
Other | 92,814 | - | ||||||
Total other expense | (15,365 | ) | (31,197 | ) | ||||
Net loss | $ | (1,063,110 | ) | $ | (951,028 | ) |
See notes to consolidated financial statements.
7 |
THUNDER RIDGE TRANSPORT, INC.
Statement of Changes in Members’ Equity (Deficit)
For the Years Ended December 31, 2017 and 2016
Members’ | Retained Earnings (Accumulated | Total Members’ Equity | ||||||||||
Activity | Deficit) | (Deficit) | ||||||||||
Balance - December 31, 2015 (unaudited) | $ | 115,866 | $ | 303,327 | $ | 419,193 | ||||||
Members’ distributions | (171,676 | ) | - | (171,676 | ) | |||||||
Net loss | - | (951,028 | ) | (951,028 | ) | |||||||
Balance - December 31, 2016 | (55,810 | ) | (647,701 | ) | (703,511 | ) | ||||||
Members’ distributions | (172,385 | ) | - | (172,385 | ) | |||||||
Net loss | - | (1,063,110 | ) | (1,063,110 | ) | |||||||
Balance - December 31, 2017 | $ | (228,195 | ) | $ | (1,710,811 | ) | $ | (1,939,006 | ) |
See notes to consolidated financial statements.
8 |
THUNDER RIDGE TRANSPORT, INC.
Consolidated Statements of Cash Flows
For the Years Ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (1,063,110 | ) | $ | (951,028 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Bad debt expense | 36,000 | - | ||||||
Depreciation | 104,045 | 112,365 | ||||||
Loss (gain) on disposal of assets | 1,321 | (1,670 | ) | |||||
Changes in assets and liabilities | ||||||||
Accounts receivable, net | (362,854 | ) | 497,371 | |||||
Prepaid expenses | (23,125 | ) | (58,830 | ) | ||||
Deposits | (68,837 | ) | (7,000 | ) | ||||
Accounts payable and accrued liabilities | 822,599 | 297,138 | ||||||
509,149 | 839,374 | |||||||
Net cash used in operating activities | (553,961 | ) | (111,654 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds from sale of property and equipment | 13,848 | 52,000 | ||||||
Purchases of property and equipment | - | (4,238 | ) | |||||
Net cash provided by investing activities | 13,848 | 47,762 | ||||||
Cash flows from financing activities | ||||||||
Lines-of-credit, net | (2,886 | ) | 524,750 | |||||
Proceeds from member | 19,000 | - | ||||||
Proceeds from long-term debt | 306,500 | - | ||||||
Payments of long-term debt | (424,777 | ) | (156,900 | ) | ||||
Fuel advance | 1,000,000 | - | ||||||
Members’ distributions | (172,385 | ) | (171,676 | ) | ||||
Net cash provided by financing activities | 725,452 | 196,174 | ||||||
Net increase in cash | 185,339 | 132,282 | ||||||
Cash - beginning of year | 469,816 | 337,534 | ||||||
Cash - end of year | $ | 655,155 | $ | 469,816 |
Supplemental disclosure of cash flow information:
Cash paid for interest for the years ended December 31, 2017 and 2016 was $106,136 and $32,867, respectively.
Supplemental disclosure of non-cash activity:
During the years ended December 31, 2017 and 2016, the Company purchased $0 and $175,095, respectively, of property and equipment through the issuance of debt.
See notes to consolidated financial statements.
9 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Thunder Ridge Transport, Inc. (the “Company”) and its subsidiaries provide transportation services throughout the Midwest including operations in Missouri, Kansas, Iowa, Tennessee, New York, Pennsylvania, and Texas. The Company was founded in 2000, and its primary business is interstate highway contract routes operated for the United States Postal Service (“USPS”).
The Company competitively bids on transportation contracts that detail the movement of mail between processing facilities and to destination post offices. Customer contracts are long term in nature with four-year terms and often are renewed to the incumbent if appropriate service has been performed. Contracts are bid and performed in accordance with all contract requirements including but not limited to Service Contract Act requirements, Department of Transportation regulations (federal and state), and all other applicable local and state regulations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Thunder Ridge Transport, Inc. and its subsidiary, Thunder Ridge Logistics, LLC. All intercompany accounts and transactions have been eliminated in consolidation, and there was no activity for Thunder Ridge Logistics, LLC for the years ending December 31, 2017 and 2016.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 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 allowance for uncollectible accounts receivable, depreciation, contingencies, and going concern. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.
Cash
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. As of the balance sheet date, and periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits.
10 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
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 trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance.
The Company has entered into an agreement with WEX Bank, Inc. (“WEX”) pursuant to which the Company factored a portion of its accounts receivable to WEX. This agreement allows the Company, from time to time, to pledge accounts receivable to WEX in an aggregate amount not to exceed $1,000,000. This agreement provides the Company an initial advance of 95% of the gross amount of each receivable pledged to WEX. Upon collection of the receivable, the Company receives an additional residual payment net of fixed and variable financing charges. The Company has $703,890 and $611,833, respectively, of its accounts receivable pledged to WEX that remained uncollected as of December 31, 2017 and 2016. These amounts are included on the consolidated balance sheets in the net accounts receivable balance.
Subsequent to year-end, the Company switched its factoring agreement to Transport Financial Solutions (“TFS”), which increased the Company’s factoring limit to $2,000,000. TFS provides the Company an initial advance of 95% percent of the gross amount of each receivable pledged to TFS.
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. The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support accounts receivable.
During the years ended December 31, 2017 and 2016, one customer accounted for 100% of total revenues. At December 31, 2017 and 2016, the same customer accounted for 99% and 100%, respectively, of total accounts receivable.
The Company generated revenues from four different contract locations, which represent approximately 24%, 21%, 20%, and 12%, respectively, of total revenues for the year ended December 31, 2017.
The Company generated revenues from three different contract locations, which represent approximately 32%, 30%, and 20%, respectively, of total revenues for the year ended December 31, 2016.
During the year ended December 31, 2017, one vendor accounted for 16% of total expense and a different vendor accounted for 15% of total accounts payable.
11 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk (continued)
During the year ended December 31, 2016, one vendor accounted for 17% of total expenses, and this same vendor accounted for 47% of total accounts payable. Further, two different additional vendors accounted for another 13% and 10%, respectively, of total accounts payable.
Subsequent to year-end, the contracted location that provided 20% of the Company’s revenue for the years endeng December 31, 2017 and 2016 had been canceled and given back to USPS due to negative margins being produced on the contract.
Prepaid Expenses and Deposits
Prepaid expenses and deposits consist primarily of insurance, maintenance, and other expenses paid in advance.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from seven to ten years.
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.
No triggering events occurred during the years ended December 31, 2017 and 2016 that required an impairment analysis for long-lived assets; accordingly, no impairment loss was recorded.
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THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Fuel Advance
The Company signed an agreement with Clean Energy on August 31, 2017, in which $1,000,000 was advanced and received by the Company in 2017. The advance bears interest at 8.5% and is collateralized by all Company assets. As the Company purchases fuel from a Clean Energy station, the Company reduces its fuel advance liability by $0.25 per gallon. Purchases made during 2017 were nominal.
Subsequent to year-end, this agreement was extended from December 31, 2018 to June 2021.
Members’ Equity
Profits, losses, and distributions are allocated to the members in accordance with the operating agreements.
Income Taxes
The Company has elected to be treated as an S corporation for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s members, and no provision for federal income taxes has been recorded in the accompanying consolidated financial statements.
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed as of December 31, 2017 and 2016.
The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including limitations on the deductibility of interest expense and executive compensation; eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The Company does not expect the Tax Act to have a financial impact on it because, as an S corporation, it is not subject to federal income tax, and the tax effect of its activities accrues to the stockholders.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, receivables, prepaids, accounts payable, and accrued liabilities approximated fair value as of December 31, 2017 and 2016 because of the relatively short maturity of these instruments.
13 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: | Quoted prices in active markets for identical assets or liabilities; | |
Level 2: | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or | |
Level 3: | Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Revenue Recognition
The Company recognizes revenue in accordance with the transportation contracts, which is when the mail is delivered to the USPS processing facilities and destination post offices.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2017 and 2016 was $30,195 and $7,665, respectively.
Subsequent Events
The Company has evaluated all subsequent events through the auditors’ report date, which is the date these consolidated financial statements were available to be issued. With the exception of those matters discussed below and in Notes 1, 4, 5, and 8, there were no material subsequent events that required recognition or additional disclosure in these consolidated financial statements.
On June 1, 2018, the Company was acquired by EVO Transportation & Energy Services, Inc (“EVO”). The Company is now a wholly owned subsidiary of EVO.
14 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for private companies with fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The Company is evaluating the potential impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU No. 2014-09 is effective for annual reporting in fiscal years that begin after December 15, 2018. The Company is in the process of evaluating the impact that this new guidance will have on its consolidated financial statements.
Note 2 - Going Concern
The Company has incurred substantial losses in 2017 and 2016 of $1,063,110 and $951,028, respectively. For the years ended December 31, 2017 and 2016, the Company has continued to experience decreases in working capital of $1,222,085 and $946,192, respectively, and deficits in equity of $1,939,006 and $703,511, respectively.
The Company’s losses and deficits in working capital and equity, described above, raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result, should the Company be unable to continue as a going concern.
15 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 3 - Balance Sheet Disclosures
Property and equipment are summarized as follows:
December 31, | ||||||||
2017 | 2016 | |||||||
Tractors and trailers | $ | 581,042 | $ | 581,977 | ||||
Vehicles | 129,523 | 129,523 | ||||||
Furniture and equipment | 14,281 | 51,902 | ||||||
724,846 | 763,402 | |||||||
Less accumulated depreciation | (372,634 | ) | (291,976 | ) | ||||
$ | 352,212 | $ | 471,426 |
Depreciation expense for the years ended December 31, 2017 and 2016 was $104,045 and $112,365, respectively.
Accounts payable and accrued expenses consist of the following:
December 31, | ||||||||
2017 | 2016 | |||||||
Accounts payable | $ | 1,204,371 | $ | 765,248 | ||||
Accrued employee benefits | 404,089 | 175,092 | ||||||
Accrued compensation | 321,555 | 299,535 | ||||||
Accrued vacation | 120,287 | 87,300 | ||||||
Accrued expenses | 97,801 | 33,902 | ||||||
Accrued payroll taxes | 68,947 | 34,096 | ||||||
Accrued interest | 722 | - | ||||||
$ | 2,217,772 | $ | 1,395,173 |
Note 4 - Lines-of-Credit
For the years ended December 31, 2017 and 2016, the Company had three line-of-credit agreements with a bank that provided for a borrowing capacity of approximately $525,000. Amounts outstanding bear interest between 5.59% to 6.25% and are secured by equipment. One of the lines-of-credit had a maturity date in 2017, was not extended, and was subsequently paid off in February 2018. The remaining two lines-of-credits had the maturity dates extended from July 2018 to October 2018. As of December 31, 2017 and 2016, the Company had an outstanding balance of $521,864 and $524,750, respectively, on these lines-of-credit.
16 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 5 - Long-Term Debt
Long-term debt consists of:
December 31, | ||||||||
2017 | 2016 | |||||||
Note payable to a bank with interest at 4.85%. The note calls for monthly payments of $1,060 and matures January 2023. Collateralized by equipment. | $ | 58,017 | $ | 66,841 | ||||
Note payable to a bank with interest at 4.85%. The note calls for monthly payments of $716 and matures June 2020. Collateralized by equipment. | 20,155 | 26,951 | ||||||
Note payable to a bank with interest at 2.99%. The note calls for monthly payments of $955 and matures November 2020. Collateralized by equipment. | 31,035 | 41,397 | ||||||
Note payable to a bank with interest at 6.75%. The note calls for monthly payments of $4,345 and matures May 2020. Collateralized by equipment. This note was paid off in March 2018. | 18,480 | 66,982 | ||||||
Note payable to a bank with interest at 6.92%. The note calls for monthly payments of $1,678 and matures September 2020. Collateralized by equipment. | 50,305 | 66,357 | ||||||
Note payable to a bank with interest at 5.89%. The note calls for monthly payments of $1,432 and matures February 2018. Collateralized by equipment. This note was paid off in February 2018. | 2,519 | 17,671 | ||||||
Note payable to a bank with interest at 4.97%. The note calls for monthly payments of $1,406 and matures June 2021. Collateralized by equipment. | 55,234 | 67,823 | ||||||
235,745 | 354,022 | |||||||
Less current portion | (90,775 | ) | (118,277 | ) | ||||
$ | 144,970 | $ | 235,745 |
Maturities of long-term obligations are as follows:
Year Ending December 31, | ||||
2018 | $ | 90,775 | ||
2019 | 69,780 | |||
2020 | 50,712 | |||
2021 | 17,338 | |||
2022 | 7,140 | |||
$ | 235,745 |
17 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Consolidated Financial Statements
Note 6 - Commitments and Contingencies
Operating Leases
The Company leases equipment and vehicles under monthly and non-cancelable operating leases. Payments on these leases range from $50 and $3,000 and mature between 2018 and August 2024. Total rent expense for the years ended December 31, 2017 and 2016 was $3,405,925 and $2,461,756, respectively.
Future minimum lease payments under these leases are approximately as follows:
Year Ending December 31, | ||||
2018 | $ | 1,759,142 | ||
2019 | 1,053,210 | |||
2020 | 573,065 | |||
2021 | 129,504 | |||
2022 | 67,680 | |||
Thereafter | 106,408 | |||
$ | 3,689,009 |
Litigation
In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.
Note 7 - Employee Benefit Plan
The Company maintains a Health, Welfare and Pension plan for eligible employees in accordance with the Department of Labor under the Service Contract Act. These payments are earned on all eligible hours up to the maximum of 40 hours per week and are determined on the hourly rates set by the Department of Labor depending on the employee’s work location and specific vehicle type. Employer contributions for the years ended December 31, 2017 and 2016 were $1,454,389 and $1,247,713, respectively. These amounts are included in cost of labor on the consolidated statements of operations.
In compliance with the U.S. Department of Labor Wage Determination, eligible employees are paid a minimum of 10 paid holidays per year.
Note 8 - Related Party Transactions
At December 31, 2017 and 2016, the Company had received advances from a member for $19,000 and $0, respectively. This advance was paid off in January 2018.
For the years ending December 31, 2017 and 2016, the Company made distributions of $172,385 and $171,676, respectively, to members in accordance with the operating agreements.
18 |
THUNDER RIDGE TRANSPORT, INC.
Condensed Consolidated Financial Statements
March 31, 2018
19 |
THUNDER RIDGE TRANSPORT, INC.
Table of Contents
Page | |
Condensed Consolidated Financial Statements | |
Condensed Consolidated Balance Sheets | 21 |
Condensed Consolidated Statements of Operations | 22 |
Condensed Consolidated Statements of Cash Flows | 23 |
Notes to Condensed Consolidated Financial Statements | 24 |
20 |
THUNDER RIDGE TRANSPORT, INC.
Condensed Consolidated Balance Sheets
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 171,689 | $ | 655,155 | ||||
Accounts receivable, net | 922,105 | 756,886 | ||||||
Prepaid expenses | 234,869 | 215,285 | ||||||
Total current assets | 1,328,663 | 1,627,326 | ||||||
Non-current assets | ||||||||
Property and equipment, net | 326,507 | 352,212 | ||||||
Deposits | 202,325 | 75,837 | ||||||
Total non-current assets | 528,832 | 428,049 | ||||||
Total assets | $ | 1,857,495 | $ | 2,055,375 | ||||
Liabilities and Members’ Deficit | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 2,551,635 | $ | 2,217,772 | ||||
Lines-of-credit | 421,739 | 521,864 | ||||||
Due to member | - | 19,000 | ||||||
Current portion of long-term debt | 90,775 | 90,775 | ||||||
Total current liabilities | 3,064,149 | 2,849,411 | ||||||
Non-current liabilities | ||||||||
Long-term debt, less current portion | 106,603 | 144,970 | ||||||
Fuel advance | 998,270 | 1,000,000 | ||||||
Total non-current liabilities | 1,104,873 | 1,144,970 | ||||||
Total liabilities | 4,169,022 | 3,994,381 | ||||||
Commitments and contingencies | ||||||||
Members’ deficit | ||||||||
Members’ activity | (276,437 | ) | (228,195 | ) | ||||
Accumulated deficit | (2,035,090 | ) | (1,710,811 | ) | ||||
Total members’ deficit | (2,311,527 | ) | (1,939,006 | ) | ||||
Total liabilities and members’ deficit | $ | 1,857,495 | $ | 2,055,375 |
See notes to unaudited condensed consolidated financial statements.
21 |
THUNDER RIDGE TRANSPORT, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 6,297,144 | $ | 3,845,485 | ||||
Cost of goods sold | ||||||||
Cost of labor | 2,235,836 | 2,081,160 | ||||||
Truck and trailer operating | 2,857,378 | 918,022 | ||||||
Truck and trailer leasing | 986,827 | 732,340 | ||||||
Truck and trailer maintenance | 101,381 | 106,745 | ||||||
Total cost of goods sold | 6,181,422 | 3,838,267 | ||||||
Gross profit | 115,722 | 7,218 | ||||||
Operating expenses | ||||||||
Administrative personnel | 189,169 | 101,561 | ||||||
General and administrative | 53,837 | 52,457 | ||||||
Professional fees | 45,793 | 57,221 | ||||||
Facility | 25,162 | 28,477 | ||||||
Depreciation | 24,036 | 26,068 | ||||||
Bad debt expense | 24,033 | - | ||||||
Total operating expenses | 362,030 | 265,784 | ||||||
Other (expense) income | ||||||||
Interest expense | (71,699 | ) | (37,267 | ) | ||||
Gain on disposal of assets | 3,330 | - | ||||||
Other | (9,602 | ) | - | |||||
Total other expense | (77,971 | ) | (37,267 | ) | ||||
Net loss | $ | (324,279 | ) | $ | (295,833 | ) |
See notes to unaudited condensed consolidated financial statements.
22 |
THUNDER RIDGE TRANSPORT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (324,279 | ) | $ | (295,833 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Bad debt expense | 24,033 | - | ||||||
Depreciation | 24,036 | 26,068 | ||||||
Gain on disposal of assets | (3,330 | ) | - | |||||
Changes in assets and liabilities | ||||||||
Accounts receivable, net | (189,252 | ) | 183,782 | |||||
Prepaid expenses | (19,584 | ) | (34,206 | ) | ||||
Deposits | (126,488 | ) | - | |||||
Accounts payable and accrued liabilities | 333,863 | (277,861 | ) | |||||
43,278 | (102,217 | ) | ||||||
Net cash used in operating activities | (281,001 | ) | (398,050 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds from sale of property and equipment | 4,999 | - | ||||||
Net cash provided by investing activities | 4,999 | - | ||||||
Cash flows from financing activities | ||||||||
Lines-of-credit, net | (100,125 | ) | (312 | ) | ||||
Payments to member | (19,000 | ) | - | |||||
Payments of long-term debt | (38,367 | ) | (30,243 | ) | ||||
Payment on fuel advance | (1,730 | ) | - | |||||
Members’ distributions | (48,242 | ) | (56,610 | ) | ||||
Net cash used in financing activities | (207,464 | ) | (87,165 | ) | ||||
Net decrease in cash | (483,466 | ) | (485,215 | ) | ||||
Cash - beginning of year | 655,155 | 469,816 | ||||||
Cash - end of year | $ | 171,689 | $ | (15,399 | ) |
Supplemental disclosure of cash flow information:
Cash paid for interest for the periods ended March 31, 2018 and 2017 was $28,318 and $37,267, respectively.
See notes to unaudited condensed consolidated financial statements.
23 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Thunder Ridge Transport, Inc. (the “Company”) and its subsidiaries provide transportation services throughout the Midwest including operations in Missouri, Kansas, Iowa, Tennessee, New York, Pennsylvania, and Texas. The Company was founded in 2000, and its primary business is interstate highway contract routes operated for the United States Postal Service (“USPS”).
The Company competitively bids on transportation contracts that detail the movement of mail between processing facilities and to destination post offices. Customer contracts are long term in nature with four-year terms and often are renewed to the incumbent if appropriate service has been performed. Contracts are bid and performed in accordance with all contract requirements including but not limited to Service Contract Act requirements, Department of Transportation regulations (federal and state), and all other applicable local and state regulations.
The condensed consolidated statements of operations, balance sheets, and statements of cash flows included in this report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at March 31, 2018 and results of operations and cash flows for all periods have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Form 8K/A for the years ended December 31, 2017 and 2016. The results of operations for the period ended March 31, 2018 are not necessarily indicative of the operating results for the full year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Thunder Ridge Transport, Inc. and its subsidiary, Thunder Ridge Logistics, LLC. All intercompany accounts and transactions have been eliminated in consolidation, and there was no activity for Thunder Ridge Logistics, LLC.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The condensed consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to the allowance for uncollectible accounts receivable, depreciation, contingencies, and going concern. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.
24 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Accounts Receivable
For the year ended December 31, 2017, the Company had entered into an agreement with WEX Bank, Inc. (“WEX”) pursuant to which the Company factored a portion of its accounts receivable to WEX. This agreement allows the Company, from time to time, to pledge accounts receivable to WEX in an aggregate amount not to exceed $1,000,000. This agreement provided the Company an initial advance of 95% of the gross amount of each receivable pledged to WEX. Upon collection of the receivable, the Company receives an additional residual payment net of fixed and variable financing charges. The Company had $703,890 of its accounts receivable pledged to WEX that remained uncollected as of December 31, 2017. This amount is included on the condensed consolidated balance sheets in the net accounts receivable balance.
During January 2018, the Company switched its factoring services to Transport Financial Solutions (“TFS”), which increased the Company’s factoring limit to $2,000,000. TFS provides the Company an initial advance of 95% percent of the gross amount of each receivable pledged to TFS. The Company had $1,313,013 of its accounts receivable pledged to TFS that remained uncollected as of March 31, 2018. This amount is included on the condensed consolidated balance sheets in the net accounts receivable balance.
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. The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support accounts receivable.
During the periods ended March 31, 2018 and 2017, one customer accounted for 100% of total revenues. For the periods ended March 31, 2018 and December 31, 2017, the same customer accounted for 98% and 100%, respectively, of total accounts receivable.
The Company generated revenues from four different locations, which represent approximately 34%, 17%, 14%, and 12%, respectively, of total revenues for the period ended March 31, 2018.
The Company generated revenues from four different locations, which represent approximately 27%, 23%, 21% and 13%, respectively, of total revenues for the period ended March 31, 2017.
During the period ended March 31, 2018, one vendor accounted for 12% of total expense and a different vendor accounted for 15% of total accounts payable.
During the period ended March 31, 2017, the same vendor accounted for 13% of total expenses.
For the period ended December 31, 2017, this same vendor accounted for 15% of total accounts payable.
Subsequent to period-end, the contracted location that provided 12% and 21% of the Company’s revenue for the periods ended March 31, 2018 and 2017, respectively, had been canceled and given back to USPS due to negative margins being produced on the contract.
25 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Fuel Advance
The Company signed an agreement with Clean Energy on August 31, 2017, in which $1,000,000 was advanced and received by the Company in 2017. The advance bears interest at 8.5% and is collateralized by all Company assets. As the Company purchases fuel from a Clean Energy station, the Company reduces its fuel advance liability by $0.25 per gallon. Purchases made during 2017 and the first quarter of 2018 were nominal.
Subsequent to period-end, this agreement was extended from December 31, 2018 to June 2021.
Members’ Equity
Profits, losses, and distributions are allocated to the members in accordance with the operating agreements.
Income Taxes
The Company has elected to be treated as an S corporation for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s members, and no provision for federal income taxes has been recorded in the accompanying condensed consolidated financial statements.
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed as of March 31, 2018 and 2017.
The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including limitations on the deductibility of interest expense and executive compensation; eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The Company does not expect the Tax Act to have a financial impact on it because, as an S corporation, it is not subject to federal income tax, and the tax effect of its activities accrues to the stockholders.
26 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue in accordance with the transportation contracts, which is when the mail is delivered to the USPS processing facilities and destination post offices.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the periods ended March 31, 2018 and 2017 was $8,779 and $1,223, respectively.
Subsequent Events
The Company has evaluated all subsequent events through the issuance of these condensed consolidated financial statements, which is the date these condensed consolidated financial statements available to be issued. With the exception of those matters discussed below and in Notes 1 and 4, there were no material subsequent events that required recognition or additional disclosure in these condensed consolidated financial statements.
On June 1, 2018, the Company was acquired by EVO Transportation & Energy Services, Inc (“EVO”). The Company is now a wholly owned subsidiary of EVO.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for private companies with fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements. The Company is evaluating the potential impact on its condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU No. 2014-09 is effective for annual reporting in fiscal years that begin after December 15, 2018. The Company is in the process of evaluating the impact that this new guidance will have on its condensed consolidated financial statements.
27 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 2 - Going Concern
The Company’s continued losses and deficits in working capital and equity raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Note 3 - Balance Sheet Disclosures
Property and equipment are summarized as follows:
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | ||||||||
Tractors and trailers | $ | 567,042 | $ | 581,042 | ||||
Vehicles | 129,523 | 129,523 | ||||||
Furniture and equipment | 14,281 | 14,281 | ||||||
710,846 | 724,846 | |||||||
Less accumulated depreciation | (384,339 | ) | (372,634 | ) | ||||
$ | 326,507 | $ | 352,212 |
Depreciation expense for the periods ended March 31, 2018 and 2017 was $24,036 and $26,068, respectively.
Accounts payable and accrued expenses consist of the following:
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | ||||||||
Accounts payable | $ | 902,140 | $ | 1,204,371 | ||||
Accrued employee benefits | 427,698 | 404,089 | ||||||
Accrued compensation | 126,107 | 321,555 | ||||||
Accrued vacation | 117,879 | 120,287 | ||||||
Accrued expenses | 889,063 | 97,801 | ||||||
Accrued payroll taxes | 44,645 | 68,947 | ||||||
Accrued interest | 44,103 | 722 | ||||||
$ | 2,551,635 | $ | 2,217,772 |
28 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 4 - Lines-of-Credit
For the periods ended March 31, 2018 and December 31, 2017, the Company had two lines-of-credit agreements with a bank that provided for a borrowing capacity of approximately $425,000. Amounts outstanding bear interest between 5.59% to 6.25% and are secured by equipment. The two lines-of-credit had the maturity dates extended from July 2018 to October 2018. As of March 31, 2018 and December 31, 2017, the Company had an outstanding balance of $421,739 and $521,864, respectively, on these lines-of-credit.
Note 5 - Long-Term Debt
Long-term debt consists of:
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | ||||||||
Note payable to a bank with interest at 4.85%. The note calls for monthly payments of $1,060 and matures January 2023. Collateralized by equipment. | $ | 54,726 | $ | 58,017 | ||||
Note payable to a bank with interest at 4.85%. The note calls for monthly payments of $716 and matures June 2020. Collateralized by equipment. | 17,613 | 20,155 | ||||||
Note payable to a bank with interest at 2.99%. The note calls for monthly payments of $955 and matures November 2020. Collateralized by equipment. | 28,396 | 31,035 | ||||||
Note payable to a bank with interest at 6.75%. The note calls for monthly payments of $4,345 and matures May 2020. Collateralized by equipment. This note was paid off in March 2018. | - | 18,480 | ||||||
Note payable to a bank with interest at 6.92%. The note calls for monthly payments of $1,678 and matures September 2020. Collateralized by equipment. | 46,116 | 50,305 | ||||||
Note payable to a bank with interest at 5.89%. The note calls for monthly payments of $1,432 and matures February 2018. Collateralized by equipment. This note was paid off in February 2018. | - | 2,519 | ||||||
Note payable to a bank with interest at 4.97%. The note calls for monthly payments of $1,406 and matures June 2021. Collateralized by equipment. | 50,527 | 55,234 | ||||||
197,378 | 235,745 | |||||||
Less current portion | (90,775 | ) | (90,775 | ) | ||||
$ | 106,603 | $ | 144,970 |
29 |
THUNDER RIDGE TRANSPORT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 5 - Long-Term Debt (continued)
Maturities of long-term obligations are as follows:
Period Ending March 31, | ||||
2019 | $ | 52,408 | ||
2020 | 69,780 | |||
2021 | 50,712 | |||
2022 | 17,338 | |||
2023 | 7,140 | |||
$ | 197,378 |
Note 6 - Commitments and Contingencies
Operating Leases
The Company leases equipment and vehicles under monthly and non-cancelable operating leases. Payments on these leases range from $50 and $3,000 and mature between 2018 and August 2024. Total rent expense for the periods ended March 31, 2018 and 2017 was $1,022,706 and $758,629, respectively.
Future minimum lease payments under these leases are approximately as follows:
Periods Ending March 31, | ||||
2019 | $ | 1,319,357 | ||
2020 | 1,053,210 | |||
2021 | 573,065 | |||
2022 | 129,504 | |||
2023 | 67,680 | |||
Thereafter | 106,408 | |||
$ | 3,249,224 |
Litigation
In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.
30 |
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements have been prepared in accordance with guidelines specified by Article 11 of Regulation S-X. Specifically, the Unaudited Combined Statements of Operations for the twelve months ended December 31, 2017, have been prepared as if the Company had acquired Thunder Ridge as of January 1, 2017.
The transactions are more fully described in Note 1 hereto. The pro forma adjustments are based upon various estimates and assumptions that our management believes are reasonable and appropriate given the currently available information. Use of different estimates and judgments could yield different results.
The unaudited pro forma financial statements do not reflect any future operating efficiencies, associated cost savings or possible integration costs that may occur related to the combination of the Company and Thunder Ridge. The unaudited pro forma financial statements do not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company or as a group of companies during the periods presented. The unaudited pro forma financial statements should not be relied upon as being indicative of our financial condition or results of operations had the transactions occurred on the date assumed nor as a projection of our results of operations or financial position for any future period or date.
The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and related notes of the Company appearing in the Company’s public filings available on www.sec.gov.and appearing elsewhere in this Current Report on Form 8-K and in our Current Report on Form 10-K filed April 17, 2018.
31 |
EVO Transportation and Energy Services, Inc.
Unaudited Pro forma Combined Balance Sheets
As of December 31, 2017
EVO Transportation and Energy | Thunder Ridge Transportation, | Pro Forma | ||||||||||||||||
Services | Inc. | Adjustments | Pro Forma | |||||||||||||||
Assets | ||||||||||||||||||
Current assets | ||||||||||||||||||
Cash and cash equivalents | $ | 83,867 | $ | 655,155 | $ | - | $ | 739,022 | ||||||||||
Accounts receivable, net | 150,419 | 756,886 | - | 907,305 | ||||||||||||||
Alternative fuels tax credit receivable | 648,029 | - | - | 648,029 | ||||||||||||||
Other assets | 1,675 | 215,285 | - | 216,960 | ||||||||||||||
Total current assets | 883,990 | 1,627,326 | - | 2,511,316 | ||||||||||||||
Non-current assets | ||||||||||||||||||
Property, equipment and land, net | 7,740,423 | 352,212 | (34,299 | ) | [a] | 8,058,336 | ||||||||||||
Assets available for sale | 240,000 | - | - | 240,000 | ||||||||||||||
Intangibles | 345,284 | - | 6,173,305 | [b] | 6,518,589 | |||||||||||||
Deposits and other long-term assets | 132,940 | 75,837 | 208,777 | |||||||||||||||
Total non-current assets | 8,458,647 | 428,049 | 6,139,006 | 15,025,702 | ||||||||||||||
Total assets | $ | 9,342,637 | $ | 2,055,375 | $ | 6,139,006 | $ | 17,537,018 | ||||||||||
Liabilities and Stockholders' Defect | ||||||||||||||||||
Current liabilities | ||||||||||||||||||
Line-of-credit | $ | - | $ | 521,864 | $ | - | $ | 521,864 | ||||||||||
Accounts payable | 1,784,049 | 1,204,371 | - | 2,988,420 | ||||||||||||||
Accounts payable - related party | 409,838 | - | - | 409,838 | ||||||||||||||
Advances from stockholder | 370,359 | - | - | 370,359 | ||||||||||||||
Accrued in interest - related party | 927,421 | - | - | 927,421 | ||||||||||||||
Advances from member | - | 19,000 | 19,000 | |||||||||||||||
Accrued expenses | 1,168,721 | 1,013,401 | - | 2,182,122 | ||||||||||||||
Derivative liability | 32,186 | - | - | 32,186 | ||||||||||||||
Promissory notes - stockholder | - | - | 2,950,000 | [c] | 2,950,000 | |||||||||||||
Subordinated convertible senior notes payable to stockholders | 1,421,556 | - | - | 1,421,556 | ||||||||||||||
Working capital notes - related party | 250,000 | - | - | 250,000 | ||||||||||||||
Current portion of long-term debt | 1,093,691 | 90,775 | - | 1,184,466 | ||||||||||||||
Total current liabilities | 7,457,821 | 2,849,411 | 2,950,000 | 13,257,232 | ||||||||||||||
Non-current liabilities | ||||||||||||||||||
Long term subordinated convertible notes payable to stockholders | 1,166,373 | - | - | 1,166,373 | ||||||||||||||
Convertible promissory notes - related parties, less unamortized discount of $4,257,358 | 5,680,147 | - | - | 5,680,147 | ||||||||||||||
Senior promissory note - related party | 3,800,000 | - | - | 3,800,000 | ||||||||||||||
Promissory note - related party | 4,000,000 | - | - | 4,000,000 | ||||||||||||||
Long term debt, less current portion | - | 144,970 | - | 144,970 | ||||||||||||||
Fuel advance | - | 1,000,000 | - | 1,000,000 | ||||||||||||||
Deferred rent | 2,206 | - | - | 2,206 | ||||||||||||||
Derivative liability, less current portion | 11,420 | - | - | 11,420 | ||||||||||||||
Total non-current liabilities | 14,660,146 | 1,144,970 | - | 15,805,116 | ||||||||||||||
Total liabilities | 22,117,967 | 3,994,381 | 2,950,000 | 29,062,348 | ||||||||||||||
Commitment and contingencies | ||||||||||||||||||
Stockholders' deficit and members' deficit | ||||||||||||||||||
Preferred stock, $.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding | - | - | - | - | ||||||||||||||
Common stock, $.0001 par value; 100,000,000 shares authorized; 429,308 (2017) shares issued and outstanding | 43 | - | 500 | [d] | 543 | |||||||||||||
Members' activity | - | (228,195 | ) | 228,195 | [g] | - | ||||||||||||
Additional paid-in capital | 1,299,980 | 1,249,500 | [e] | 2,559,705 | ||||||||||||||
- | - | 10,225 | [f] | - | ||||||||||||||
Accumulated deficit | (14,075,353 | ) | (1,710,811 | ) | 1,710,811 | [g] | (14,085,578 | ) | ||||||||||
(10,225 | ) | [h] | ||||||||||||||||
Total stockholders' deficit | (12,775,330 | ) | (1,939,006 | ) | 3,189,006 | (11,525,330 | ) | |||||||||||
Total liabilities and stock holders' deficit | $ | 9,342,637 | $ | 2,055,375 | $ | 6,139,006 | $ | 17,537,018 |
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EVO Transportation and Energy Services, Inc.
Unaudited Pro forma Combined Statements of Operation
For the Twelve Months Ended December 31, 2017
EVO Transportation and Energy | Thunder Ridge Transportation, | Pro Forma | ||||||||||||||||
Services | Inc. | Adjustments | Pro Forma | |||||||||||||||
Revenue | ||||||||||||||||||
CNG Sales | $ | 1,968,563 | $ | 1,968,563 | ||||||||||||||
Federal alternative fuels tax credit | 128,340 | 128,340 | ||||||||||||||||
Trucking | - | 17,348,940 | 17,348,940 | |||||||||||||||
Total revenue | 2,096,903 | 17,348,940 | - | 19,445,843 | ||||||||||||||
Cost of sales | ||||||||||||||||||
CNG cost of sales | 1,499,876 | 1,499,876 | ||||||||||||||||
Trucking cost of sales | - | 17,232,195 | 17,232,195 | |||||||||||||||
Total cost of goods sold | 1,499,876 | 17,232,195 | - | 18,732,071 | ||||||||||||||
Gross profit | 597,027 | 116,745 | - | 713,772 | ||||||||||||||
Operating expenses | ||||||||||||||||||
General and administrative | 2,431,916 | 1,060,445 | 3,492,361 | |||||||||||||||
Impairment | 4,906,217 | 4,906,217 | ||||||||||||||||
Depreciation and amortization | 711,076 | 104,045 | (6,491 | ) | [a] | 808,630 | ||||||||||||
Total operating expense | 8,049,209 | 1,164,490 | (6,491 | ) | 9,207,208 | |||||||||||||
Other expense | ||||||||||||||||||
Interest expense | (1,642,259 | ) | [b] | (1,642,259 | ) | |||||||||||||
Realized and unrealized gain on derivative liability, net | (60,246 | ) | (60,246 | ) | ||||||||||||||
Warrant expense | (77,500 | ) | (10,225 | ) | (87,725 | ) | ||||||||||||
Total other expense | (1,780,005 | ) | - | (10,225 | ) | (1,790,230 | ) | |||||||||||
Income tax expense | ||||||||||||||||||
Deferred tax benefit | 71,294 | 71,294 | ||||||||||||||||
Net loss | $ | (9,160,893 | ) | $ | (1,047,745 | ) | $ | (16,716 | ) | $ | (10,212,372 | ) | ||||||
Basic weighted average common shares outstanding | 396,717 | - | 500,000 | [c] | 896,717 | |||||||||||||
Basic loss per common share | $ | (23.09 | ) | $ | (11.39 | ) | ||||||||||||
Diluted weighted average common shares outstanding | 396,171 | 500,000 | 896,171 | |||||||||||||||
Diluted loss per share | $ | (23.12 | ) | $ | (11.40 | ) |
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Note 1 – Basis of Pro Forma Presentation
For purposes of pro forma presentation, the acquisition date of Thunder Ridge Transport, Inc. (“Thunder Ridge”) from Billy (Trey) Peck Jr. (“Peck”), the following is assumed for each of the respective financial statements.
● | Unaudited Combined Statement of Operations for the twelve months ended December 31, 2017 – Acquisition Date January 1, 2017 |
● | Unaudited Combined Balance sheet as of December 31, 2017 - Acquisition date December 31, 2017 |
In conjunction with the acquisition of Thunder Ridge, the following equity and debt instruments were issued:
● |
$2,500,000 stock holder promissory note, with interest at 6% and maturity the earlier of the earlier of: (a) the date the Company raises $40,000,000 in public or private offerings of debt or equity; (b) December 31, 2018; or (c) termination of Peck’s employment with the Company by the Company without cause or by Peck for good reason. |
● | The Company promised to pay $450,000 within ten business days following such time as the Company raises at least $40,000,000 in a public or private debt or equity offering. In addition, approximately $2.8 million of Thunder Ridge negative working capital remained outstanding following completion of the transactions contemplated by the Purchase Agreement. |
If the Company fails to repay the amounts outstanding on the stock holder promissory note or the $450,000 on or before December 31, 2018, Thunder Ridge has the right to require the Company to return the Thunder Ridge Shares and effectively rescind the sale of the Thunder Ridge Shares to the Company. |
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● | Unregistered Sales of Equity Securities. |
As additional consideration for the Thunder Ridge shares and pursuant to a subscription agreement with Peck, on June 1, 2018, the Company issued to Peck (a) 500,000 shares of common stock, par value $0.0001 per share (“Common Stock”) and (b) the following warrants: (i) a warrant to purchase 333,333 shares of Common Stock at an exercise price of $3.00 per share (the “$3.00 Warrant”), (ii) a warrant to purchase 333,333 shares of Common Stock at an exercise price of $5.00 per share (the “$5.00 Warrant”), and (iii) a warrant to purchase 333,333 shares of Common Stock at an exercise price of $7.00 per share (the “$7.00 Warrant,” and together with the $3.00 Warrant and $5.00 Warrant, the “Warrants”). The Warrants are exercisable as follows: (a) for the $3.00 Warrant, for five years from the first anniversary of the date of issuance, (b) for the $5.00 Warrant, for five years from the second anniversary of the date of issuance, and (c) for the $7.00 Warrant, for five years from the third anniversary of the date of issuance. | |
For purposes of these unaudited pro forma condensed combined financial statements, it has been assumed that the stock holder promissory note and equity securities have been received as of the Acquisition Date. |
The unaudited pro forma condensed combined financial statements have been prepared assuming that the acquisition is accounted for using the acquisition method of accounting. Accordingly, the assets acquired and liabilities of the seller have been adjusted to their fair values as of December 31, 2017.
Fair Values as of December 31, 2017
Thunder Ridge Transport, Inc. tangible assets | $ | 2,021,076 | ||
Thunder Ridge Transport, Inc. tangible liabilities | $ | 3,994,381 | ||
Net tangible assets | $ | (1,973,305 | ) | |
Goodwill and intangibles | $ | 6,173,305 | ||
Stock holders’ promissory notes | $ | 2,950,000 | ||
Common stock and warrants | $ | 1,250,000 |
The difference between the fair market value of the net tangible assets and the consideration given have not been allocated between Identifiable intangible assets (non-compete agreement, trademarks and customer relationships) which are expected to be amortized over three (3) to ten (10) years and goodwill which in accordance with the ASC No. 805 Business Combinations will not be amortized but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. The identifiable intangible assets of the non-compete agreement, trademarks and customer relationships have not been separately identified as the information is incomplete at the time of this report. The identifiable intangible assets will be included in the Company’s Form 10-Q for the period ending September 30, 2018.
Acquisition related costs are estimated to be $90,000 for the year ended December 31, 2017.
Note 2 – Pro Forma Presentation Adjustments and Assumptions
The adjustments included in the column under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed combined financial statements are as follows:
Pro Forma Adjustments to the Combined Balance Sheet
[a] To eliminate seller’s fixed assets and related accumulated depreciation which was excluded from the Equity Purchase Agreement.
[b] To record identifiable intangible assets and goodwill associated with the acquisition of Thunder Ridge.
[c] To record the issuance of promissory notes to the seller.
[d] To record the issuance of 500,000 shares of common stock to the seller.
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[e] To record the additional paid in capital related to the issuance of 500,000 shares issued to the seller.
[f] To record 999,999 warrants valued using the Black Scholes Pricing Model issued to the seller.
[g] To eliminate seller’s portion of members’ deficit.
[h] To record 999,999 warrants valued using the Black Scholes Pricing Model issued to the seller.
Pro Forma Adjustments to the Combined Statements of Operations
[a] To reverse accumulated depreciation from fixed assets excluded from the Equity Purchase Agreement.
[b] The record 999,999 warrants valued using the Black Scholes Pricing Model issued to the seller.
[c] To record the issuance of 500,000 shares of common stock to the seller.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 17, 2018 | By: | /s/ John P. Yeros |
Its: | Chief Executive Officer |
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