NOTE A: BASIS OF PRESENTATION

In accordance with generally accepted accounting principles (“GAAP”) and applicable rules of the Securities and Exchange Commission, the information reported in this Quarterly Report on Form 10-Q for P.A.M. Transportation Services, Inc. and its legally distinct subsidiaries, unless otherwise indicated, is presented on a consolidated basis. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “P.A.M.,” the “Company,” “we,” “our,” or “us” mean P.A.M. Transportation Services, Inc. and its consolidated subsidiaries.

The consolidated financial results for the three and nine months ended  September 30, 2023, include the results of our recently formed subsidiaries, Met Express, Inc. and Costar Equipment, Inc., from June 14, 2022, the date of the acquisition of substantially all of the assets and certain liabilities of Metropolitan Trucking, Inc. and its related entities, through  September 30, 2023. All material intercompany items and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.

On March 8, 2022, our Board of Directors declared a  i 2-for-1 forward stock split of the shares of our common stock, which was effected in the form of a 100% stock dividend. The stock split entitled each shareholder of record at the close of business on March 18, 2022, to receive one additional share of common stock for each share of common stock owned as of that date. The stock split was paid on March 29, 2022. Upon the completion of the March 2022 stock split, our outstanding shares increased from approximately  i 11.1 million shares to approximately  i 22.2 million shares. All share and per share amounts in this quarterly report on Form 10-Q give effect to this stock splits and have been adjusted retrospectively, where applicable, for all periods presented.

NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS

The Company considered the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that have not already been adopted which require significant consideration for disclosure as of September 30, 2023. Additionally, the Company did not adopt any new ASUs during the quarter ended September 30, 2023.

NOTE C: REVENUE RECOGNITION

The Company has a single performance obligation, which is to transport our customer’s freight from a specified origin to a specified destination. The Company has the discretion to choose to self-transport or to arrange for alternate transportation to fulfill the performance obligation. Where the Company decides to self-transport the freight, the Company classifies the service as truckload services, and where the Company arranges for alternate transportation of the freight, the Company classifies the service as brokerage and logistics services. In either case, the Company is paid a rate to transport freight from its origin location to a specified destination. Because the primary factors influencing revenue recognition, including performance obligation, customer base, and timing of revenue recognition, are the same for both of its service categories, the Company utilizes the same revenue recognition method throughout its operations.

Company revenue is generated from freight transportation services performed utilizing heavy truck trailer combinations. While various ownership arrangements may exist for the equipment utilized to perform these services, including Company owned or leased, owner-operator owned, and third-party carriers, revenue is generated from the same base of customers. Contracts with these customers establish rates for services performed, which are predominantly rates that will be paid to pick up, transport and drop off freight at various locations. In addition to transportation, revenue is also awarded for various accessorial services performed in conjunction with the base transportation service. The Company also has other revenue categories that are not discussed in this note or broken out in our condensed consolidated statements of operations due to their immaterial amounts.

In fulfilling the Company’s obligation to transport freight from a specified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into the driver’s trailer, the doors are sealed and the driver has signed a bill of lading, which is the basic transportation agreement that establishes the nature, quantity and condition of the freight loaded, the responsibility for invoice payment and the pickup and delivery locations. Our revenue is generated, and our customers receive benefit, as the freight progresses towards delivery locations. In the event our customer cancels the shipment at some point prior to the final delivery location and re-consigns the shipment to an alternate delivery location, we are entitled to receive payment for services performed for the partial shipment. Shipments are generally conducted over a relatively short time span, generally one to three days; however, freight is sometimes stored temporarily in our trailer at one of our drop yard locations or at a location designated by a customer. Our revenue is categorized as either Freight Revenue or Fuel Surcharge Revenue, and both are earned by performing the same freight transportation services, as discussed further below.

Freight Revenue – revenue generated by the performance of the freight transportation service, including any accessorial service, provided to customers.

Fuel Surcharge Revenue – revenue designed to adjust freight revenue rates to an agreed-upon base cost for diesel fuel. Diesel fuel prices can fluctuate widely during the term of a contract with a customer. At the point that freight revenue rates are negotiated with customers, a sliding scale is agreed upon that approximately adjusts diesel fuel costs to an agreed-upon base amount. In general, as fuel prices increase, revenue from fuel surcharge increases, so that diesel fuel cost is adjusted to the approximate base amount agreed upon.

Revenue is recognized over time as the freight progresses towards its destination and the transportation service obligation is fulfilled. For loads picked up during the reporting period but delivered in a subsequent reporting period, revenue is allocated to each period based on the transit time in each period as a percentage of total transit time. There are no assets or liabilities recorded in conjunction with revenue recognized, other than accounts receivable and estimated credit losses.

NOTE D: MARKETABLE EQUITY SECURITIES

The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income.

Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note J.

The following table sets forth market value, cost, and unrealized gains on equity securities as of September 30, 2023 and December 31, 2022.

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of September 30, 2023 and December 31, 2022.

The following table shows the Company’s net realized gains during the three and nine months ending on September 30, 2023 and 2022, respectively, on certain marketable equity securities.

For the quarter ended September 30, 2023, the Company recognized dividend income of approximately $ i 419,000 in non-operating income in its condensed consolidated statements of operations. For the nine months ended September 30, 2023, the Company recognized dividend income of approximately $ i 1,158,000 in non-operating income in its condensed consolidated statements of operations.

The Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2023, and December 31, 2022, the Company had outstanding borrowings of approximately $ i 0 and $ i 914,000, respectively, under its margin account. Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in accrued expenses and other liabilities on our condensed consolidated balance sheets.

Our marketable equity securities portfolio had a net unrealized pre-tax gain in market value of approximately $ i 119,000 during the third quarter of 2023, and a net unrealized pre-tax loss in market value of approximately $ i 2,387,000 during the third quarter of 2022, which were reported as non-operating income in its condensed consolidated statements of operations for the respective periods.

NOTE E: STOCK-BASED COMPENSATION

The Company maintains a stock incentive plan (the “Plan”) under which incentive and nonqualified stock options and other stock awards may be granted. Under the Plan,  i 3,000,000 shares are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock value under the Plan shall not be less than  i 85% of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.

During May 2023, the Company granted  i 2,295 shares of common stock to non-employee directors. This stock award had a grant date fair value of $ i 23.95 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

The total grant date fair value of stock vested during the first nine months of 2023 was approximately $ i 576,000. The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2023, was approximately $ i 387,000 and includes approximately $ i 55,000 recognized as a result of the grant of shares to certain non-employee directors. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ i 0.01 during the first nine months of 2023. As of September 30, 2023, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ i 2,687,000, which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $ i 552,000 in additional compensation expense related to unvested stock awards during the remainder of 2023 and to recognize approximately $ i 728,000, $ i 777,000, $ i 493,000, and $ i 136,000 in additional compensation expense related to unvested stock awards during the years 2024, 2025, 2026, and 2027, respectively.

The total grant date fair value of stock vested during the first nine months of 2022 was approximately $ i 269,000. The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2022, was approximately $ i 528,000. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ i 0.01 during the first nine months of 2022. As of  September 30, 2022, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ i 2,601,000, which was being amortized on a straight-line basis over the remaining vesting period.

A summary of the status of the Company’s non-vested restricted stock as of September 30, 2023, and changes during the nine months ended September 30, 2023, is as follows:

NOTE F: SEGMENT INFORMATION

The Company follows the guidance provided by ASC Topic 280, Segment Reporting, in its identification of operating segments. The Company has determined that it has a total of  i two operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services; however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the  i two operating segments have similar economic characteristics and can be aggregated into a single reportable segment, Motor Carrier Operations. Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, were as follows: