UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from _____ to _______
Commission
File Number:
(exact name of registrant as specified in its charter)
RIDESHARE RENTAL, INC.
(former name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| None | N/A | N/A |
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 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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions 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 ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
shares of Common Stock, $0.000001 par value, as of August 13, 2021
TABLE OF CONTENTS
| ii |
PART I – FINANCIAL INFORMATION
Item 1.
EVmo, Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2021 and December 31, 2020
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Deferred offering costs | - | |||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Rental vehicles, net | ||||||||
| Right of use asset | - | |||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable (including $ | $ | $ | ||||||
| Accrued expenses | ||||||||
| Convertible note payable, (net of discount
of $ | - | |||||||
| Notes payables, current (net of discount
of $ | ||||||||
| Customer deposit - related party | - | |||||||
| Advance from related parties | - | |||||||
| Finance lease obligations, current | ||||||||
| Operating lease obligations, current | - | |||||||
| Total current liabilities | ||||||||
| Note payable, net of current portion | ||||||||
| Finance lease obligations, net of current portion | ||||||||
| Operating lease obligations, net of current portion | - | |||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding | - | - | ||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
EVmo, Inc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| Product development | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest and financing costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding : | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Loss per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
EVmo, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for cash | ||||||||||||||||||||
| Issuance of common stock for exercise of stock options | ||||||||||||||||||||
| Issuance of common stock for cashless exercise of stock options | ( | ) | ||||||||||||||||||
| Issuance of common stock for settlement of litigation | ||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | ||||||||||||||||||||
| Issuance of common stock for settlement agreement | ||||||||||||||||||||
| Issuance of common stock for financing cost | ||||||||||||||||||||
| Beneficial conversion feature associated with convertible debt | - | |||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2021 | ( | ) | ||||||||||||||||||
| Issuance of common stock for exercise of stock options | ||||||||||||||||||||
| Issuance of common stock for settlement of litigation | ||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | ||||||||||||||||||||
| Issuance of common stock for settlement agreement | ||||||||||||||||||||
| Issuance of common stock for financing cost | ||||||||||||||||||||
| Beneficial conversion feature associated with convertible debt | - | |||||||||||||||||||
| Value of warrants issued with convertible debt | - | |||||||||||||||||||
| Fair value of warrants issued for financing costs | - | |||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock option expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2020 | ( | ) | ||||||||||||||||||
| Issuance of common stock for cash | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
EVmo, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock option expense | ||||||||
| Amortization of debt discounts | ||||||||
| Common stock issued for financing costs | - | |||||||
| Common stock issued for settlement agreement | - | |||||||
| Gain on forgiveness of debt | ( | ) | - | |||||
| Fair value of warrants issued for financing costs | - | |||||||
| Operating lease expense | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Customer deposit - related party | ( | ) | - | |||||
| Operating lease liability | ( | ) | - | |||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from exercise of stock options | - | |||||||
| Proceeds from advance from related parties | ||||||||
| Repayment of advance from related parties | ( | ) | ( | ) | ||||
| Proceeds from convertible note payable | - | |||||||
| Proceeds from notes payable | - | |||||||
| Repayment of notes payable | ( | ) | - | |||||
| Repayment of finance lease obligations | ( | ) | ( | ) | ||||
| Payment of deferred offering costs | ( | ) | - | |||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| CASH PAID FOR: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Payment of accounts payable/accrued expenses with common stock | $ | $ | ||||||
| Finance lease obligations | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Note 1 - Organization and Basis of Presentation
Organization and Line of Business
EVmo,
Inc. (the “Company”) was organized on
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”).
Risk and Uncertainties
On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, it characterized the outbreak as a “pandemic.” In response, numerous states and cities ordered their residents to cease traveling to non-essential jobs and to curtail all unnecessary travel, and similar restrictions were recommended by the federal government. Beginning in the first quarter of 2020, which saw the initial rapid spread of COVID-19, rideshare companies were severely and negatively impacted, as demand plummeted. Consequently, the Company experienced a decline in revenue during the first half of 2020, which had a negative impact on our cash flows, but we then saw a positive upward movement in revenue during the second half of 2020, which has continued into the first half of 2021. As of the date of this quarterly report, several vaccinations for COVID-19 have received emergency-use authorization from the Food and Drug Administration and many of the lockdown restrictions imposed by state and local governments have abated. Still, the pandemic has not yet ended, and there have been multiple waves where infections, hospitalizations, and deaths have sharply increased. Most recently, variants of the original virus have been identified, and many Americans have resisted obtaining one of the vaccinations, both of which have resulted in increases in the aggregate number of infections. We therefore cannot predict the ultimate impact that COVID-19 may have on our business over the entirety of this year, and possibly beyond.
Interim financial statements
The unaudited condensed consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiaries, Distinct Cars, LLC and RideShare Car Rentals, LLC. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure 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. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.
| 5 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Cash Equivalents
For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.
Property and Equipment and Rental Vehicles
Property and equipment and rental vehicles are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of equipment and rental vehicles is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Computer equipment | ||
| Officer furniture | ||
| Leasehold improvements | ||
| Vehicles |
Long-Lived Assets
The
Company applies the provisions of the Financial Standards Accounting Board (“FASB”)’s Accounting Standards Codification
(“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the
assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair
value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values
are reduced for the cost of disposal. Based on its review at June 30, 2021, the Company determined that
Revenue Recognition
The Company recognizes all of its material revenue from renting its fleet of cars to TNC drivers. Revenue is recognized based on the rental agreements, which are generally entered into on a weekly basis. The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue From Contracts with Customers. Generally, this enables us to both recognize revenue when we have satisfied our obligations under our rental agreement, i.e. when we have provided the vehicle to our renter, and to recognize the entire amount we expect to receive pursuant to the agreement, including estimates.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under
ASC 740, a
| 6 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees, as well as non-employees, which is permitted under ASC 718. There were warrants and options outstanding as of June 30, 2021 and warrants and options outstanding as of June 30, 2020.
Earnings per share (“EPS”) is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase shares of the Company’s common stock, par value $(the “Common Stock”) at the average market price during the period. Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. There were and potentially dilutive options and warrants outstanding at June 30, 2021 and 2020, respectively, and shares potentially issuable upon the conversion of an outstanding convertible note at June 30, 2021.
Advertising Costs
The
Company expenses the cost of advertising as incurred. Advertising costs for the six months ended June 30, 2021 and 2020 were $
Fair Value Measurements
The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted, unadjusted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, as well as other than quoted prices for identical assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
At June 30, 2021 and December 31, 2020, the Company did not identify any liabilities that are required to be presented on the balance sheet at fair value.
Recent Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740 Income Taxes. This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.
| 7 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under ASC Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and EPS for convertible instruments and contract in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, which includes the Company, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements, and whether it intends to early adopt.
Management does not believe that any recently issued, but not yet effective, accounting updates could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 – Property and Equipment
At June 30, 2021 and December 31, 2020, property and equipment consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer equipment | $ | $ | ||||||
| Office furniture | ||||||||
| Leasehold improvement | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
Depreciation
expense for equipment for the six months ended June 30, 2021 and 2020 was $
Note 4 – Rental Vehicles
At June 30, 2021 and December 31, 2020, all of the Company’s rental vehicles consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Rental vehicles | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Rental vehicles, net | $ | $ | ||||||
The
Company’s leased assets, consisting of vehicles, are depreciated over their estimated useful life of years. Depreciation expense
for leased assets for the six months ended June 30, 2021 and 2020 was $
| 8 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Note 5 – Notes Payable
Notes payable at June 30, 2021 and December 31, 2020 consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Notes payable to individual investors; accrue interest at | $ | $ | ||||||
| Note payable to the Small Business Administration. The note bears interest at | ||||||||
| Note payable issued under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in the amount of $192,775. | ||||||||
| Notes payable to a finance company, default interest at | ||||||||
| Total notes payable | ||||||||
| Unamortized debt discount | ( | ) | ||||||
| Notes payable, net discount | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| (A) |
A roll-forward of notes payable from December 31, 2020 to June 30, 2021 is below:
| Notes payable, December 31, 2020 | $ | |||
| Forgiveness of note payable | ( | ) | ||
| Repayments | ( | ) | ||
| Amortization of debt discounts | ||||
| Notes payable, June 30, 2021 | $ |
| 9 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Note 6 – Convertible Notes
On
January 8, 2021, the Company, issued a stand-alone $
On
April 12, 2021, the Company entered into a securities purchase agreement with a certain investor in connection with the issuance, as
of that same date, of a
Please see Note 13- Subsequent Events for a description of how the note described immediately above has since been cancelled, and Series B convertible preferred stock has been issued to the investor.
A roll-forward of convertible notes from December 31, 2020 to June 30, 2021 is below:
| Convertible notes, December 31, 2020 | $ | |||
| Issued for cash | ||||
| Issued for original issue discount | ||||
| Debt discount related to convertible notes | ( | ) | ||
| Conversion to Common Stock | ( | ) | ||
| Amortization of debt discounts | ||||
| Convertible notes, June 30, 2021 | $ |
Note 7 – Financing Lease Obligations
Lease obligations at June 30, 2021 and December 31, 2020 consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Lease obligations | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| 10 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
A roll-forward of lease obligations from December 31, 2020 to June 30, 2021 is below:
| Lease obligations, December 31, 2020 | $ | |||
| New lease obligations | ||||
| Disposal of leased vehicles | ( | ) | ||
| Payments on lease obligations | ( | ) | ||
| Lease obligations, June 30, 2021 | $ |
Future payments under lease obligations are as follows:
| Twelve Months Ending June 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total payments | ||||
| Amount representing interest | ( | ) | ||
| Lease obligation, net | $ | |||
Note 8 – Operating Lease Obligations
The Company determines whether a contract is or contains a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company leases its corporate office space under an operating lease that expires in 2023. The Company accounts for this lease under the provisions of ASC Topic 842, Leases.
The table below presents the lease-related assets and liabilities recorded on the Company’s consolidated balance sheet as of June 30, 2021:
| June 30, | ||||||
| Classification on Balance Sheet | 2021 | |||||
| Assets | ||||||
| Operating lease assets | Operating lease right of use assets | $ | 210,763 | |||
| Total lease assets | $ | |||||
| Liabilities | ||||||
| Current liabilities | ||||||
| Operating lease liability | Current operating lease liability | $ | ||||
| Noncurrent liabilities | ||||||
| Operating lease liability | Long-term operating lease liability | |||||
| Total lease liability | $ | |||||
Lease obligations at June 30, 2021 consisted of the following:
| Twelve Months Ending June 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| Total payments | ||||
| Less: imputed interest | ( | ) | ||
| Total obligation | ||||
| Less: current portion | ( | ) | ||
| Non-current capital leases obligations | $ | |||
| 11 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
The
lease expense for the six months ended June 30, 2021 was $
Note 9 – Stockholders’ Equity
The
Company authorized
Common Stock
During the six months ended June 30, 2021, the Company:
| ● | issued
shares of Common Stock to a member of the Company’s Board of Directors, in a negotiated transaction for $ per
share, or aggregate cash consideration of $ | |
| ● | issued
shares of Common Stock for the exercise of stock options for cash consideration of $ | |
| ● | issued
shares of Common Stock for the cashless exercise of | |
| ● | issued shares of Common Stock to an investor in connection with a prior note payable agreement; | |
| ● | issued
shares of Common Stock in connection with the conversion of a convertible note payable for $ | |
| ● | issued
an aggregate of shares of Common Stock in connection with legal settlements. The shares were valued at $ | |
| ● | issued
shares to Acuitas Group Holdings, LLC, (“Acuitas”)
which is now the Company’s largest shareholder, in connection with a settlement agreement between Acuitas and X, LLC, a limited
liability company controlled by the Company’s former chief executive officer. The value of the shares was $which was based on the market
price of the Common Stock at the date of the settlement agreement. The $ |
Stock Options and Warrants
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Options | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Life | Value | |||||||||||||
| Outstanding, December 31, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding, June 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, June 30, 2021 | $ | $ | ||||||||||||||
| 12 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
| Outstanding | Exercisable | |||||||||||||
| Number of | Exercise | Number of | Exercise | |||||||||||
| Options | Price | Options | Price | |||||||||||
| $ | $ | |||||||||||||
The following is a summary of warrant activity:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Life | Value | |||||||||||||
| Outstanding, December 31, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding, June 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, June 30, 2021 | $ | $ | ||||||||||||||
The exercise price for warrants outstanding at June 30, 2021:
| Outstanding and Exercisable | ||||||
| Number of | Exercise | |||||
| Warrants | Price | |||||
| $ | ||||||
In
connection with a convertible note discussed in Note 6, the Company has issued an aggregate of warrants since the convertible
note remained outstanding as of June 30, 2021. The fair value of the warrants was determined to be $
| Risk-free interest rate | – % | |||
| Expected life of the options | years | |||
| Expected volatility | % | |||
| Expected dividend yield | % |
| 13 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Note 10 – Related Party Transactions
During
the six months ended June 30, 2021 and 2020, the Company expensed $
The
Company’s Executive Chairman, Terren S. Peizer, and its former chief executive officer (“CEO”), Ramy
El-Batrawi, each made financial advances to the Company that were outstanding during the first six months of fiscal
2021. At December 31, 2020, the Company owed its former CEO $
Note 11 – Contingencies
Legal Proceedings
From time to time, the Company may become involved in lawsuits and other legal proceedings that arise in the course of business. Litigation is subject to inherent uncertainties, and it is not possible to predict the outcome of litigation with total confidence. The Company is currently not aware of any legal proceedings or potential claims against it whose outcome would be likely, individually or in the aggregate, to have a material adverse effect on the Company’s business, financial condition, operating results, or cash flows, other than those described below.
Anthony Davis v. YayYo, Inc., and Ramy El-Batrawi
A complaint was filed on March 5, 2020, in the Los Angeles Superior Court by plaintiff Anthony Davis, who was hired by the Company as its CEO and as a director on or about December 2016. Mr. Davis’s employment with the Company ended after several months. As part of his compensation, Mr. Davis alleges that he expected to receive stock options in the Company. In his pleadings, Mr. Davis admits that he resigned from his executive officer and director positions, but asserts that he did not receive certain compensation in the form of stock options (he has also included a claim for wage and hour violations). The Company denies liability and has asserted that it has paid Mr. Davis all amounts due to him under his employment agreement, while also asserting that Mr. Davis failed to exercise his stock options before they expired on December 31, 2018. The Company has filed a demurrer to the first amended complaint, which is expected to be heard on September 8, 2021 in Superior Court. The Company’s position is that the lawsuit entirely lacks merit, and intends to defend it vigorously.
Ivan Rung v. YayYo, Inc., Ramy El-Batrawi, et al., 20STCV27876 and Michael Vanbecelaere v. YayYo, Inc., Ramy El-Batrawi, et al., 20STCV28066 (Vanbecelaere)(hereafter the “State Cases”)
On July 22 and July 23, 2020, respectively, two actions were filed in the Los Angeles Superior Court. The complaints underlying the State Cases differ only by a few words and some random punctuation marks, and are therefore virtually identical. Plaintiffs Ivan Rung and Michael Vanbecelaere each claimed to have purchased the Common Stock as part of the Company’s initial public offering (the “IPO”); they purport to bring a securities class action on behalf of all purchasers of the Common Stock pursuant to the registration statement and prospectus filed with the SEC and distributed in connection with the Company’s IPO, which was launched on November 14, 2019. The State Case complaints allege misrepresentations and material omissions in the SEC filings in violation of Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”). The Company has and continues to vigorously deny any and all liability and asserts that the State Cases are baseless. It is the Company’s firm position that it accurately and completely disclosed all material facts and circumstances in its SEC filings relating to the IPO, and subsequently in its periodic SEC reports, including those that were potentially adverse to the Company’s operations and business prospects. The State Cases litigation is presently stayed pending the outcome of the federal securities case discussed below (Hamlin v. YayYo, Inc.)
| 14 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Jason Hamlin v. YayYo, Inc., Ramy El-Batrawi, et al., 20-cv-8235 (SVW) and William Koch v. YayYo, Inc., Ramy El-Batrawi, et al., 20-cv-8591 (SVW)(now consolidated as “In re YayYo Securities Litigation”)
These two actions were filed on September 9, 2020 and September 18, 2020, respectively, in the United States District Court for the Central District of California. Plaintiffs Jason Hamlin and William Koch each claim to have purchased the Common Stock as part of the IPO and, like the plaintiffs in the State Cases, purport to bring a securities class action pursuant to Sections 11 and 15 of the Securities Act, as well as and Section 17(a) and 10(b)(5) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on behalf of all purchasers of the Common Stock in the IPO. The first amended complaint, like the State Cases, alleges false statements and material omissions of material fact in connection with the SEC filings distributed in connection with the IPO. The defendants include directors of the Company and the underwriters of the IPO, WestPark Capital, Inc. (“WestPark”) and Aegis Capital Corp. The federal court has consolidated the two matters for all practical purposes. As with the State Cases, the Company denies liability and asserts that it accurately and completely disclosed all material facts and circumstances in its SEC filings, and that the complaint’s alleged violations of securities laws are baseless. The Company’s motion for judgment on the pleadings was recently denied, and the plaintiff’s motion for class action certification is presently pending. The Company intends to vigorously defend the lawsuit in federal court. The Court has set a trial date of October 5, 2021.
Konop v. El-Batrawi, et al., 1:20-cv-1379- MN (Filed in Del. District Court)
On October 12, 2020 a complaint was filed in Delaware District Court, which has since been transferred to the U.S. District Court for the Central District of California, and assigned as a related case to the judge in the pending federal securities action described immediately above. This case is a purported shareholder derivative action, which alleges that the Company’s executive officers and directors at the time of its IPO made false and misleading statements relating the Company’s business, operations, and future prospects and that the directors breached their fiduciary duties in doing so. The Company believes that the allegations of the complaint are spurious and will vigorously defend the case at trial.
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EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
Note 12 – Settlements
FirstFire Settlement
On February 11, 2021, the Company, entered into a settlement agreement and mutual release (the “Settlement Agreement”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (“FirstFire”), relating to a pending action in the U.S. District Court in the Southern District of New York, FirstFire Global Opportunities Fund, LLC v. WestPark Capital, Inc. et. al., No. 1:20-cv-03327-LLS. The other parties to the Settlement Agreement were the Company’s co-defendants in the litigation, WestPark, Mr. Richard A. Rappaport and Mr. Ramy El-Batrawi, former chief executive officer of the Company.
This litigation was commenced by FirstFire in April 2020 and subsequently amended in December 2020. FirstFire was a subscriber to the Company’s IPO. It alleged in the litigation that the Company and the other named defendants had, in connection with the IPO and the registration statement on Form S-1 filed thereto, committed violations of Sections 11, 12(a) and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated under the Exchange Act. Each of the Company, WestPark, Mr. Rappaport and Mr. El-Batrawi vigorously denied and disputed these allegations.
In
consideration of the releases, covenants, terms and conditions set forth in the Settlement Agreement, FirstFire agreed to dismiss
the litigation with prejudice, to not file any further litigation relating to the IPO, and to waive and relinquish any and all
claims on shares of Common Stock other than as specified in the Settlement Agreement. The Company agreed to sell to FirstFire one
hundred fifty thousand ()
shares of Common Stock (the “Settlement Shares”), with such shares issued pursuant to the exemption from registration
under Rule 506(b) of the Act. The purchase price of the Settlement Shares was $
per share, or an aggregate of $
Social Reality Settlement
On February 19, 2021, the Company entered into a confidential settlement agreement and mutual release with SRAX, Inc., a Delaware corporation formerly known as Social Reality, Inc. (“SRAX”), relating to an action brought by SRAX against the Company in Los Angeles Superior Court on or around February 11, 2020. A description of this litigation has been included by the Company in its prior filings.
| 16 |
EVmo, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
The Company and SRAX mutually agreed to keep the material terms of this settlement confidential, subject to disclosure as required by applicable law or regulation.
Note 13 – Subsequent Events
The Company has evaluated subsequent events through August 13, 2021. The Company has determined there were no subsequent events that require recognition or disclosure in the financial statements, except as discussed below.
During
the two months subsequent to June 30, 2021, the Company has
issued an aggregate of
On
July 9, 2021 (the “Closing Date”), the Company entered into a Term Loan, Guarantee and Security Agreement (the “Term
Loan Agreement”) with EICF Agent LLC (“EICF”), as agent for the lenders, and Energy Impact Credit Fund I, LP, as lender
(the “Lender”), providing for a secured term loan facility in an aggregate principal amount of up to $
In
connection with the Company’s entry into the Term Loan Agreement, the Company entered into an exchange agreement, dated as of July
8, 2021 (the “Exchange Agreement”), with the holder (the “Holder”) of the Company’s
Pursuant
to the Exchange Agreement, the Holder agreed to exchange the Prior Notes for shares of Series B convertible preferred stock,
par value $ per share (the “Preferred Stock”), and a warrant (the “Exchange Warrant”). The Exchange Warrant
grants the Holder the right to purchase shares of Common Stock at an exercise price of $
The Preferred Stock is convertible at any time at the option of the holder thereof into if not previously converted into shares of Common Stock at an initial conversion price of $ per share, subject to adjustment as set forth in the Certificate of Designation (as defined below).
The
Preferred Stock is subject to mandatory redemption in full at a redemption price initially equal to $ per share, within 15 business
days after the date on which the Company has completed an equity financing resulting in total proceeds of at least $
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q may contain “forward-looking statements,” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” and similar references to future periods. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business, which involves judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe our assumptions underlying any forward-looking statements are reasonable, they could prove to be inaccurate and therefore, there can be no assurance that forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such information should not be regarded as a representation by us that our objectives and plans will be achieved. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of various factors. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.
Forward-looking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the SEC.
Our Corporate History and Background
The Company was organized in Delaware on June 21, 2016 as a limited liability company under the name “YayYo, LLC.” It subsequently converted into a Delaware corporation and all of YayYo, LLC’s liabilities and assets were assumed by the Company. On September 11, 2020, the Company changed its name to Rideshare Rental, Inc. and on March 1, 2021, the Company again changed its name, this time to EVmo, Inc.
The Company is a holding company operating through its principal wholly-owned subsidiaries, Distinct Cars, LLC (“Distinct Cars”) and Rideshare Car Rentals, LLC (“Rideshare Car Rentals”).
Rideshare Car Rentals is an online rideshare vehicle booking platform designed to service the ridesharing economy, i.e. the Rideshare Platform, particularly ridesharing companies such as Uber and Lyft and delivery-gig companies like DoorDash and GrubHub. Distinct Cars maintains a fleet of standard and, increasingly, electric passenger vehicles available for rent to drivers in both the ridesharing and delivery-gig industries. The Company seeks to turn over its entire vehicle fleet to electric vehicles over the next several years in order to become the leading provider of electric rental vehicles to drivers in the ridesharing and delivery-gig economies.
On March 16, 2018, we completed an offering under Regulation A+ of the Securities Act, which was qualified by the SEC on March 15, 2017, and sold a total of 365,306 shares of Common Stock. We received cash proceeds of $1.8 million, net of commissions and other costs associated with the gross offering proceeds or payable by us.
On November 15, 2019, the Company effected its IPO, selling 2,625,000 shares of Common Stock at $4.00 per share, for gross proceeds, before underwriting discounts and commissions and expenses, of $10.5 million, and our Common Stock was then listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “YAYO.”
On February 10, 2020, the Company notified Nasdaq of its intent to voluntarily delist its Common Stock from Nasdaq. In connection therewith, the Company filed a Form 25 with the SEC on February 20, 2020. The Company elected to effect the voluntary delisting of its Common Stock after discussions with Nasdaq’s staff, and based on the determination of the Company’s board of directors that voluntarily delisting the Common Stock from Nasdaq was in the best interests at that time of the Company and its stockholders. Following delisting from Nasdaq, the Common Stock has traded on the Pink Open Market, still under the trading symbol, “YAYO.”
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Impact of COVID-19 on our business
On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, it characterized the outbreak as a “pandemic.” In response, numerous states and cities ordered their residents to cease traveling to non-essential jobs and to curtail all unnecessary travel, and similar restrictions were recommended by the federal government. Beginning in the first quarter of 2020, which saw the initial rapid spread of COVID-19, rideshare companies were severely and negatively impacted, as demand plummeted. Consequently, the Company experienced a decline in revenue during the first half of 2020, which had a negative impact on our cash flows, but we then saw a positive upward movement in revenue during the second half of 2020, which has continued into the first half of 2021. As of the date of this quarterly report, several vaccinations for COVID-19 have received emergency-use authorization from the Food and Drug Administration and many of the lockdown restrictions imposed by state and local governments have abated. Still, the pandemic has not yet ended, and there have been multiple waves where infections, hospitalizations, and deaths have sharply increased. Most recently, variants of the original virus have been identified, and many Americans have resisted obtaining one of the vaccinations, both of which have resulted in increases in the aggregate number of infections. We therefore cannot predict the ultimate impact that COVID-19 may have on our business over the entirety of this year, and possibly beyond.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its principal wholly-owned subsidiaries, Distinct Cars and RideShare Car Rentals. All significant intercompany transactions and balances have been eliminated.
Consolidated Results of Operations—Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
Total Revenues.
Revenue for the three months ended June 30, 2021 was $2,652,083, an increase of $1,071,528 or 67.8% compared to revenue for the three months ended June 30, 2020 of $1,580,555. The increase is principally due to an increase in rentals of our vehicle fleet. During the three months ended June 30, 2021, the average weekly rental income per vehicle placed in service was $413 compared to $292 for the same period in 2020. Our revenues declined in March-April of 2020 due to the impact of COVID-19 and began to recover in May-June 2020. Our revenue since June 2020 has now exceeded pre-COVID-19 levels, but there is no assurance that this trend will continue.
Cost of Revenues.
The principal components of costs of revenue are depreciation of our fleet vehicles, vehicle insurance, and vehicle maintenance.
Cost of revenues for the three months ended June 30, 2021 was $1,915,294, an increase of $620,235 or 49.9% compared to cost of revenues for the three months ended June 30, 2020 of $1,295,059. The increase is due to higher depreciation expense and insurance expense due to an increase in fleet size. For the three months ended June 30, 2021 and 2020 our cost of revenue was 72.2% and 81.9% of our revenue, respectively. The decrease in the cost of revenue as a percentage of revenue is due to higher weekly rental rates.
Selling and Marketing Expenses.
Selling and marketing expenses for the three months ended June 30, 2021 were $64,816, representing a decrease of $14,317 or 18.1% over the three months ended June 30, 2020 of $79,133. The decrease is due to a decrease in advertising to gig-economy drivers as we have maintained a high utilization rate for our vehicles.
General and Administrative Expenses.
General and administrative expenses for the three months ended June 30, 2021 were $1,493,494, representing an increase of $632,084 or 73.4% over the three months ended June 30, 2020 of $861,410. The increase is principally due to higher professional fees, salaries and stock option expense during the three months ended June 30, 2021.
Total Operating Expenses
Total operating expenses for the three months ended June 30, 2021 were $1,609,076, representing an increase of $668,533 or 71.1% compared to the three months ended June 30, 2020 of $940,543. The increase is due to the reasons described immediately above.
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Interest expense and financing cost
Interest and financing expenses for the three months ended June 30, 2021 were $964,387 compared to $67,795 for the three months ended June 30, 2020. The increase in interest and financing cost for the three months ended June 30, 2021 was due to amortization of debt discounts and issuance of additional warrants associated with the $2.250 million convertible note.
Net Loss
The net loss for the three months ended June 30, 2021 was $1,836,674, representing an increase of $1,113,832 or 154.1% compared to the three months ended June 30, 2020 of $722,842. The increase is due to the higher total operating expenses described above.
Consolidated Results of Operations—Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020
Total Revenues.
Revenue for the six months ended June 30, 2021 was $4,946,615, an increase of $1,618,418 or 48.6% compared to revenue for the six months ended June 30, 2020 of $3,328,197. The increase is principally due to an increase in rentals of our vehicle fleet. During the six months ended June 30, 2021, the average weekly rental income per vehicle placed in service was $409 compared to $309 for the same period in 2020.
Our revenues declined in March- April of 2020 due to the impact of COVID-19 and began to recover in May-June 2020. Our revenue since June 2020 has now exceeded pre-COVID-19 levels, but there is no assurance that this trend will continue.
Cost of Revenues.
The principal components of costs of revenue are depreciation of the vehicles, vehicle insurance, and vehicle maintenance.
Cost of revenues for the six months ended June 30, 2021 was $3,696,197, an increase of $999,847 or 37.1% compared to cost of revenues for the six months ended June 30, 2020 of $2,696,350. The increase is due to higher depreciation expense and insurance expense due to an increase in fleet size. For the six months ended June 30, 2021 and 2020 our cost of revenues was 74.7% and 81.0% of our revenue, respectively. The decrease in the cost of revenue as a percentage of revenue is due to higher weekly rental rates.
Selling and Marketing Expenses.
Selling and marketing expenses for the six months ended June 30, 2021 were $230,564, representing an increase of $19,922 or 9.5% over the six months ended June 30, 2020 of $210,642. The increase is due to an increase in advertising our rentals to gig-economy drivers.
General and Administrative Expenses.
General and administrative expenses for the six months ended June 30, 2021 were $2,932,595, representing an increase of $174,979 or 6.3% over the six months ended June 30, 2020 of $2,757,616. The increase is principally due to higher professional fees and salaries offset by a decrease in stock option expense during the six months ended June 30, 2021.
Total Operating Expenses
Total operating expenses for the six months ended June 30, 2021 were $3,223,425, representing an increase of $255,167 or 8.6% compared to the six months ended June 30, 2020 of $2,968,258. The increase is due to the reasons described immediately above.
Interest expense and financing cost
Interest and financing expenses for the six months ended June 30, 2021 were $4,289,330 compared to $147,651 for the six months ended June 30, 2020. The increase in interest and financing cost for the six months ended June 30, 2021 was due to the issuance of 825,000 shares of Common Stock to Acuitas, now the Company’s largest shareholder, in connection with a settlement agreement between it and X, LLC, a limited liability company controlled by the Company’s former CEO. The value of the shares was $3,240,600, which was based on the market price of the Common Stock at the date of the settlement agreement. The $3,240,600 was expensed as financing costs, as the dispute underlying the settlement agreement related to the anti-dilution of a prior investment in the Company by Acuitas. Also, the increase is due to amortization of debt discounts and issuance of additional warrants associated with the $2.250 million convertible note.
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Gain on Forgiveness of Debt
Gain on forgiveness of debt for the six months June 30, 2021 was $8,000 as compared to $0 for the same period in 2020, as, during the six months ended June 30, 2021, the remaining amount we received under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act was forgiven.
Net Loss
The net loss for the six months ended June 30, 2021 was $6,254,337, representing an increase of $3,770,275 or 151.8% compared to the six months ended June 30, 2020 of $2,484,062. The increase is due to the higher total operating expenses described above.
Liquidity, Capital Resources and Plan of Operations
On November 15, 2019, our IPO of 2,625,000 shares of Common Stock was effected. Our public offering price was $4.00 per share. Total gross proceeds from the offering were $10,500,000, before deducting underwriting discounts and commissions and other offering expenses.
During the year ended December 31, 2020, we sold an aggregate of 2,553,571 shares of Common Stock to three investors for cash proceeds of $275,000, of which 125,000 shares was sold to a member of our Board of Directors for cash consideration of $25,000.
On January 8, 2021, we received $500,000 from a convertible note from one of our stockholders. The note was convertible into shares of Common Stock at $0.50 per share and was converted into 1,000,000 shares of Common Stock in February 2021.
On April 12, 2021, we entered into a securities purchase agreement with a certain investor in connection with the issuance of a 12.5% original issue discount convertible promissory note and a common stock purchase warrant. The note had an original principal amount of $2,250,000, with an original issue discount of $250,000. It bore interest at a fixed rate of 10%, was convertible into shares of common stock at a price of $3.00 per share (subject to adjustment as set forth in the note), and was to mature on January 12, 2022.
On July 9, 2021, we entered into a Term Loan Agreement with EICF Agent LLC, as agent for the lenders, and Energy Impact Credit Fund I, LP, as lender, providing for a secured term loan facility in an aggregate principal amount of up to $15.0 million, consisting of a $7.5 million closing date term loan facility and up to $7.5 million of borrowings under a delayed draw term loan facility. The initial term loan has been fully drawn, while the remainder is available upon the satisfaction of certain conditions precedent specified in the agreement. The Term Loan Agreement matures on July 9, 2026. Borrowings under the Term Loan Agreement bear interest at the LIBOR, plus a margin of 10.0%.
During the six months ended June 30, 2021, we sold 100,000 shares of Common Stock to a member of our Board of Directors for cash consideration of $50,000.
Current Assets, Liabilities and Working Capital.
At June 30, 2021, the Company’s current assets totaled $1,014,673, current liabilities totaled $5,801,006, and working capital was a deficit of $4,786,333. At December 31, 2020, the Company’s current assets totaled $215,990, current liabilities totaled $4,461,560, and working capital was a deficit of $4,245,570. As of June 30, 2021, the Company had $162,727 in cash. The Company used $244,484 of cash for operating activities for the six months ended June 30, 2021.
Regarding current liabilities, the amounts categorized as accounts payable and accrued expenses totaled $2,377,096 and $2,119,003 as of June 30, 2021 and December 31, 2020, respectively, a decrease of $258,093 or 12.2%, due to Common Stock issued for legal settlements that were previously included in accrued expenses.
Since inception, our principal sources of operating funds have been proceeds from debt and equity financings, including the sale of our Common Stock to investors known to management and principal shareholders of the Company, our IPO in November 2019, and the Term Loan Agreement entered into in July 2021 described above. As of the date of this quarterly report, we expect that our current cash on hand will be sufficient to fund our existing operations and future business growth for at least the next twelve months. In addition to the July 2021 term loan, the Company is currently seeking to raise additional capital. If the Company is not successful in raising additional capital it may be forced to scale back, perhaps significantly, its business operations and growth plans.
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Capital Expenditures
During the six months ended June 30, 2021, the Company had capital expenditures of $3,049,261 in leased vehicles. At June 30, 2021, most of the Company’s vehicles were financed with leases. At June 30, 2021 the Company had $11,874,137 of rental vehicles, net of accumulated depreciation in the amount of $3,864,087, totaling $8,010,050 in net rental vehicles. At December 31, 2020 the Company had $9,067,885 of rental vehicles, net of accumulated depreciation in the amount of $2,871,452, totaling $6,196,433 in net rental vehicles. The Company’s rental vehicles are depreciated over their estimated useful life of five years. The term for those rental vehicles that we lease is generally three years and the Company has the right to purchase the vehicles for $1 each at the end of the lease term.
Statement of Cash Flows
Cash Flows from Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 totaled $244,484, which was a decrease of $94,715 or 27.9% from the net cash used in operating activities of $339,199 for the same period in 2020. The decrease is principally due to the change in operating assets and liabilities, and non-cash expense items.
Cash Flows from Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 totaled $47,051, which was an increase of $47,051 from $0 for the same period in 2020. The change is principally due to the purchase of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021 totaled $381,372, which was a change of $1,195,362 from the net cash used in financing activities of $813,990 for the same period in 2020. The change is principally due to cash received from the sale of Common Stock, the exercise of both stock options and a convertible note in 2021, offset by an increase in payments on financing lease obligations.
Current Plan of Operations
Our plan of operations is currently focused on the growth and ongoing development of our operating businesses: (i) the Rideshare Platform, offered through Rideshare Rentals, and (ii) our vehicle fleet, which is commercially available through Distinct Cars. We expect to incur substantial expenditures in the foreseeable future for the enhanced operations of our businesses and related, ongoing, internal research and development. Moreover, we have embarked on “EV strategy” in which we intend to replace our entire fleet of vehicles with all electric vehicles over the next several years. At this time, we cannot reliably estimate the timing or aggregate amount of all of the costs associated with these efforts.
The continuation of our expansion plan may require us to raise significant additional capital within a short period of time. The cash flow from our Rideshare Platform and particularly our Distinct Cars businesses and our existing capital resources are sufficient for us to continue our operations, but fully executing our future business plans may require significant additional capital, which we are currently seeking to raise.
We continually reevaluate our plan of operations to determine the manner in which we can most effectively utilize our resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the ready availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that our current capital resources will be sufficient to continue to fund our ongoing operations, nor can there be any assurance that, if we require additional capital, we will successfully obtain it on favorable terms, or at all. The inadequacy of our existing capital or the inability to secure additional capital could have a material adverse effect on us, including the possibility that we would have to sell or forego a portion or all of our assets or cease operations. If we discontinue our operations, we may not have sufficient funds to pay any amounts to our stockholders.
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If our operating businesses fail to achieve anticipated financial results, our existing capital will likely be depleted more quickly than we anticipate and our ability to raise additional capital in the future to fund our operations would likely be seriously impaired. If in the future we are not able to demonstrate favorable financial results or projections from our operating businesses, we may not be able to raise the capital we need to continue operations.
Similarly, because our working capital requirements depend upon numerous factors there can be no assurance that our current cash resources will be sufficient to fund our operations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we could have reasonably used different accounting estimates and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. This applies in particular to useful lives of non-current assets and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.
Property and Equipment and Rental Vehicles
Property and equipment and rental vehicles are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of equipment and rental vehicles is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Computer equipment | 5 years |
| Officer furniture | 7 years |
| Leasehold improvements | 15 years or term of lease whichever is less |
| Vehicles | 5 years |
The Company has not changed its estimate for the useful lives of its equipment and rental vehicles, but would expect that a decrease in the estimated useful lives of equipment and rental vehicles of one year would result in an annual increase to depreciation expense of approximately $600,000, and an increase in the estimated useful lives of equipment and rental vehicles of one year would result in an annual decrease to depreciation expense of approximately $400,000.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not changed it methodology for estimating the valuation allowance. A change in valuation allowance affect earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.
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Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.
Revenue Recognition
The Company recognizes revenue primarily from renting its fleet of cars to drivers for TNC companies. The Company recognizes revenue in accordance with FASB ASC 606, Revenue From Contracts with Customers. Generally, this enables us to both recognize revenue when we have satisfied our obligations under our rental agreement, i.e. when we have provided the vehicle to our renter, and to recognize the entire amount we expect to receive pursuant to the agreement, including estimates.
We consider a signed contract or other similar documentation reflecting the terms and conditions under which products will be provided to be persuasive evidence of an arrangement. Collectability is assessed based on a number of factors, including payment history and the creditworthiness of a customer. If it is determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash.
Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC.
In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including our CEO and Chief Financial Officer (“CFO”), to assess the effectiveness of our disclosure controls and procedures as of June 30, 2021. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure due to a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address this material weakness, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of the pending legal proceedings that could be material to the Company, please see Note 11- Contingencies.
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Item 1A. Risk Factors.
Not required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
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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 thereunto duly authorized.
EVMO, INC. (Registrant) | ||
| By: | /s/ Stephen Sanchez | |
| Stephen Sanchez, Chief Executive Officer | ||
| /s/ Ryan Saathoff | ||
| Ryan Saathoff, Chief Financial Officer | ||
| Date: | August 16, 2021 |
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