EVmo, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _______

Commission File Number: 001-39132

EVMO, INC.

(exact name of registrant as specified in its charter)

(310) 926-2643

(Registrant’s telephone number, including area code)

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

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. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

69,702,649 shares of common stock, $0.000001 par value, as of November 14, 2022.

TABLE OF CONTENTS

Item 1. Financial Statements.

EVmo, Inc.

Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Contents

EVmo, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

EVmo, Inc.

Condensed Consolidated Statements of Operations

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

EVmo, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

EVmo, Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 1 - Organization and Basis of Presentation

Organization and Line of Business

EVmo, Inc. (“EVmo” or the “Company”) was incorporated on June 21, 2016 under the laws of the state of Delaware originally as a limited liability company and subsequently converted to a Delaware C corporation. The Company was originally incorporated under the name of YayYo, Inc. and changed its name to Rideshare Rental, Inc. on September 11, 2020. On March 1, 2021, the Company changed its name from Rideshare Rental, Inc. to EVmo.

EVmo is a holding company operating principally through two wholly-owned subsidiaries: (i) RideShare Car Rentals LLC, a Delaware limited liability company (“RideShare”), and (ii) Distinct Cars, LLC, a Delaware limited liability company (“Distinct Cars”). RideShare offers an online bookings platform (the “Rideshare Platform”) while Distinct Cars maintains a fleet of passenger vehicles and transit vans for use in the last-mile logistical space for rent to our customers who are drivers in the ridesharing and delivery gig industries, while also providing them with insurance coverage and issuing them insurance cards in their own names. This enables such drivers to meet the vehicle suitability and other requirements of rideshare and delivery gig companies, also known as transportation network companies (“TNCs”),such as Uber, Lyft, DoorDash and Grubhub. Through RideShare and Distinct Cars, we seek to become a leading provider of rental vehicles to drivers in the ridesharing and delivery gig spaces, and an industry leader in supplying transit vans for last-mile logistics. “Gig” generally refers to a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The Accounting Standards Codification (“ASC”), maintained by the Financial Accounting Standards Board (the “FASB”), is the current single official source of GAAP.

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 continued through fiscal 2021. This was consistent with the experience of the TNCs whose drivers we service. According to Bloomberg Second Measure, Uber and Lyft sales were up 104% and 84% year-over-year, respectively, in February 2022 from one year earlier, even in spite of the Delta and Omicron variants that resulted in spikes of infections through periods of 2021.

Given the current prevalence of FDA-approved eligible vaccines across nearly all age groups, the marked overall decrease in the number of COVID-19 infections, hospitalizations and deaths in the first nine months of 2022, and the lifting of most pandemic restrictions in our active markets, we are optimistic that COVID-19 will not have a material impact on our operations in the current fiscal year. However, certain factors- including, for example, a new, more aggressive and deadly variant that is resistant to the vaccines- could reverse the positive trends of recent months and alter our prediction.

Interim financial statements

The unaudited condensed 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 results and regulations. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2022.

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 and RideShare, and two other subsidiaries, EV Vehicles, LLC, a Delaware limited liability company, and Premier Mobility Insurance, Inc,, an Oklahoma limited liability company (“Premier Mobility”), that are not yet operational. All significant intercompany transactions and balances have been eliminated.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Use of Estimates

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

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:

Schedule of Estimated Lives of Equipment

Long-Lived Assets

The Company applies the provisions of 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, 2022 the Company determined that no impairment charge was necessary.

Revenue Recognition

The Company recognizes all of its material revenue from renting its fleet of cars to TNC drivers. Revenue is recognized generally on a weekly basis based on the rental agreements. The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts with Customers.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). 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.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

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.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). 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 and non-employees. There were 8,847,842 warrants and 455,750 options outstanding as of September 30, 2022 and 2,737,500 warrants and 758,125 options outstanding as of September 30, 2021.

Basic and Diluted Earnings Per Share

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“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 $0.000001 (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 9,303,592 and 3,495,625 potentially dilutive options and warrants outstanding at September 30, 2022 and 2021, respectively.

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising costs for the nine months ended September 30, 2022 and 2021 were $244,226 and $257,129, respectively.

Fair Value Measurements

The Company applies the provisions of ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). 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:

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.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

At September 30, 2022 and 2021, 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. 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. Through the first half of fiscal 2022, the Company has made no material changes to its financial reporting as a result of this ASU.

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”). 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 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 earnings-per-share (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.

Management does not believe that any recently issued, but not yet effective, accounting standards 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 September 30, 2022 and December 31, 2021 equipment consisted of the following:

Schedule of Property and Equipment

Depreciation expense for equipment for the nine months ended September 30, 2022 and 2021 was $2,610 and $2,488 respectively.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 4 – Rental Vehicles

At September 30, 2022 and December 31, 2021 all of the Company’s rental vehicles consisted of the following:

Schedule of Rental Vehicles

The Company’s rental vehicles are depreciated over their estimated useful life of five years. Depreciation expense for leased assets for the nine months ended September 30, 2022 and 2021 was $1,881,134 and $1,522,844, respectively. A majority of the rental vehicles are leased with terms are generally for 36 to 60 months and the Company has the right to purchase the vehicles at the end of the lease terms.

Note 5 – Notes Payable

Notes payable at September 30, 2022 and December 31, 2021 consisted of the following:

Schedule of Notes Payable  

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

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 12.5% OID convertible promissory notes due January 12, 2022 issued on April 12, 2021 (the “Prior Notes”). This Exchange Agreement resulted in the issuance of preferred stock that was later either converted to Common Stock or redeemed after completion of the equity capital raise in January 2022. On January 22, 2022, 110,325 shares of the Company’s Series B convertible preferred stock, par value $0.000001 per share (the “Series B Preferred Stock”) was converted to 3,152,143 shares of Common Stock at $0.35 per share. On March 22, 2022, 110,525 shares of Series B Preferred Stock were converted to 3,157,857 shares of Common Stock at $0.35 per share. The remaining outstanding Series B Preferred Stock, or 9,525 shares, was redeemed and a final warrant was issued to the Holder for 128,125 common shares at an exercise price of $0.50 per share.

A rollforward of the EIP note payable from December 31, 2021 to September 30, 2022 is below:

Schedule of Outstanding Notes Payable  

Future payments under EIP note payable obligations are as follows:

Schedule of Future Payments Under Note Payable Obligations 

Note 6 – Convertible Notes

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 12.5% original issue discount convertible promissory note and a Common Stock purchase warrant. The note has an original principal amount of $2,250,000, with an original issue discount of $250,000. It bears interest at a fixed rate of 10%, is convertible into shares of Common Stock at a price of $3.00 per share (subject to adjustment as set forth in the note), and matured on January 12, 2022. The warrant grants the right to purchase 187,500 shares of common stock at an exercise price of $3.00, subject to adjustment as set forth therein, and is exercisable at any time within five years of the date of issuance. The agreement provides that additional warrants, each for 93,750 shares of common stock with an exercise price of $3.00 per share, will be issued by the Company to the investor on the 12^th day of each month that the note remains outstanding. Both the note and the warrant include anti-dilution provisions in which the conversion price of the note and the exercise price of the warrant will be reduced to equal the conversion or exercise price, as applicable, of any subsequently-issued derivative security to acquire shares of common stock, or their equivalent, should that conversion or exercise price be lower than that of the note or the warrant. To account for the note and warrant, the Company first determined the value of the note and the fair value of the detachable warrants issued in connection with this convertible note. The estimated value of the warrants of $623,373 was determined using the Black-Scholes option pricing model and the following assumptions: term of five years, a risk free interest rate of .089%, a dividend yield of 0% and volatility of 190%. The face amount of the convertible note of $2,250,000 was proportionately allocated to the convertible note and the warrant in the amount of $1,761,866 and $488,134, respectively. Since the Company’s stock price exceeded the conversion price on the transaction date, there is an embedded beneficial conversion feature present in the convertible note of $810,633. The combined discount of $1,298,767 plus the original issue discount are recorded as a debt discount to the convertible note and are being amortized over the year life of the note. In July 2021, the Company and noteholder agreed to convert the convertible note into 230,375 shares of the Company’s Series B Preferred Stock.

As described in Note 5- “Notes Payable,” in connection with the Company’s entry into the Term Loan Agreement, the Company also entered into the Exchange Agreement. This Exchange Agreement resulted in the issuance of preferred stock that was later either converted to Common Stock or redeemed after completion of the equity capital raise in January 2022. On January 22, 2022, 110,325 shares of Series B Preferred Stock was converted to 3,152,143 of common stock at $0.35 per share. On March 22, 2022, 110,525 shares of Series B Preferred Stock was converted to 3,157,857 of common stock at $0.35 per share. The remaining outstanding Series B Preferred Stock, 9,525 shares, was redeemed and a final warrant was issued to the Holder for 128,125 common shares at an exercise price of $0.50 per share.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Leased vehicle obligations at September 30, 2022 and December 31, 2021 consisted of the following:

Schedule of Leased Vehicle Obligations 

A rollforward of vehicle lease obligations from December 31, 2021 to September 30, 2022 is below:

Schedule of Vehicle Lease Obligations 

Future payments under lease obligations are as follows:

Schedule of Future Lease Obligations 

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 7 – Operating Lease Obligations

The Company determines whether a contract is or contains a lease at inception of the contract 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 sheets as of September 30, 2022:

Schedule of Operating Lease Obligations 

Lease obligations at September 30, 2022 consisted of the following:

Schedule of Lease Obligation Maturity 

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 8 – Stockholders’ Equity

The Company has authorized 100,000,000 shares of capital stock, which consists of 90,000,000 shares of Common Stock, $0.000001 par value per share, and 10,000,000 shares of preferred stock, $0.000001 par value per share.

Series B Preferred Stock

Pursuant to the Exchange Agreement (see Note 5- “Notes Payable”), the Holder agreed to exchange the Prior Notes for 230,375 shares of Series B Preferred Stock, and a warrant (the “Exchange Warrant”). The Exchange Warrant granted the Holder the right to purchase 93,750 shares of Common Stock at an exercise price of $3.00, subject to adjustment as set forth therein. The Exchange Warrant is exercisable in full at any time within five years of the date of issuance. Additional warrants on substantially identical terms as the Exchange Warrant were issued by the Company to the Holder monthly until all of the outstanding Series B Preferred Stock was either converted or redeemed in full, upon which a final warrant was issued.

Pursuant to its Certificate of Designation and the Exchange Agreement, as applicable, the Series B Preferred Stock had the following features:

On January 22, 2022, 110,325 of Series B Preferred Stock was converted to 3,152,143 of Common Stock at $0.35 per share. On March 22, 2022, 110,525 of Series B Preferred Stock was converted to 3,157,857 of Common Stock at $0.35 per share. The remaining outstanding Series B Preferred Stock, 9,525 shares, was redeemed and a final warrant was issued to the Holder for 128,125 common shares at an exercise price of $0.50 per share.

Common Stock

During the nine months ended June 30, 2022, the Company:

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Stock Options

The following is a summary of stock option activity:

Summary of Stock Option Activity 

The exercise price for options outstanding and exercisable at September 30, 2022:

Schedule of Options Outstanding by Exercise Price Range 

For options granted during the nine months ended September 30, 2022 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options was $0.43 and the weighted-average exercise price of outstanding options was $0.46. No options were granted during the nine months ended September 30, 2022 where the exercise price was less than the stock price at the date of grant or the exercise price was greater than the stock price at the date of grant.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

The fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $58,188, and $356,227 during the nine months ended September 30, 2022 and 2021, respectively. At September 30 2022, the unamortized stock option expense was $18,004.

Warrants

The following is a summary of warrant activity:

Summary of Warrant Activity 

The exercise price for warrants outstanding at September 30, 2022:

Schedule of Warrants Outstanding by Excise Price Range 

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 9 – Related Party Transactions

During the nine months ended September 30, 2022 and 2021, the Company expensed $1,671,630 and $2,386,623, respectively, related to insuring the Company fleet of vehicles via an insurance brokerage firm, whose owner is also a stockholder of the Company, and in professional fees related to an administrative bookkeeping group partially owned by an officer.

As described in Note 5, herein, on September 30, 2022, Terren S. Peizer, executive chairman of the board of directors of the Company, agreed to provide financing to the Company in the amount of $600,000, to be allocated as collateral for the Company’s Premier Mobility subsidiary. The Company issued a subordinated, non-interest bearing, promissory note due September 30, 2023 for that same amount to Mr. Peizer. Upon maturity, the Company shall repay the principal to Mr. Peizer and shall also issue to him a five-year common stock purchase warrant for 3,640,000 shares Common Stock at an exercise price of $0.33.

Note 10 – 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 litigation or asserted potential litigation 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 filed a demurrer to the first amended complaint, which the Superior Court granted in part and denied in part on September 8, 2021. The plaintiff has since filed a second amended complaint, to which the Company has filed an answer. The Company’s position is that the lawsuit entirely lacks merit, and the Company intends to defend it vigorously. This lawsuit is currently in the discovery phase.

Bellridge Capital, LP, v. EVmo, Inc., 1:21-cv-07091-PGG (Filed in Southern District of New York)

In the first half of 2021, a warrant holder, Bellridge Capital, LP, sought to exercise a warrant for 1,500,000 shares, with a stated exercise price of $4.00 per share, for a nominal amount, claiming that an anti-dilution adjustment had been triggered in 2020, which had reduced the exercise price to such amount. The Company rejected the exercise, on the basis that the warrant had previously been amended to remove that anti-dilution adjustment. In September 2021, the warrant holder brought suit for damages in the Southern District of New York. It is the Company’s position that the lawsuit is without merit, and the Company is vigorously defending the lawsuit. This lawsuit is currently in the discovery phase.

EVmo, Inc.

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2022 and 2021 (unaudited)

Note 11 – Settlements

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 from the consolidated federal securities cases discussed below (In re YayYo Securities Litigation) only by a few words and some random punctuation marks, and are therefore virtually identical. The State Cases litigation was stayed pending the outcome of the federal securities cases, as to which, as noted below, the parties announced a settlement in principle last year. Please see the disclosure concerning In re YayYo Securities Litigation immediately below for further information regarding the final disposition of the State Cases litigation.

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. and Aegis Capital Corp. The federal court consolidated the two matters for all practical purposes. As with the State Cases, the Company denied liability and asserted 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 parties to the federal court litigation announced on October 21, 2021 that they had reached a settlement, which received preliminary approval by the district court on January 13, 2022, allowing the notice of the proposed settlement to be distributed to all class members, who unless they object or drop out, will be bound by the multi-million dollar settlement. The Company’s portion of the settlement was $1 million paid out in equal installments every three months over the course of 2022. These payments have been and will continue to be timely made. Executive Chairman Terren Peizer provided his personal guarantee for the whole amount due to the plaintiffs.

On July 12, 2022, the district court presiding over In re YayYo Securities Litigation signed an order and final judgment with respect to the settlement described herein. The plaintiffs in the State Cases were bound by this settlement and therefore the State Cases were subject to dismissal by operation of law. On October 19, 2022, the court presiding over the State Cases signed the order of dismissal. 

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 complaint was subsequently transferred to the U.S. District Court for the Central District of California, and assigned as a related case to the judge in In re YayYo Securities Litigation. This case was a purported shareholder derivative action, in which the Company was a nominal defendant, alleging that the Company’s executive officers and directors at the time of its IPO made false and misleading statements relating to the Company’s business, operations, and future prospects and that the directors breached their fiduciary duties in doing so. Upon the settlement and dismissal of In re YayYo Securities Litigation, this case was also subject to dismissal, which the district court granted upon motion of the plaintiffs on September 19, 2022.

Note 12 – Subsequent Events

There are no material subsequent events as of November 14, 2022.

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

Cautionary Note Regarding Forward-Looking Statements

Certain statements made herein, as well as in other filings we make with the SEC and other written and oral information we release, regarding our future performance constitute “forward-looking statements” as defined in the 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. The 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 business, which assumptions involve 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 the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, and, therefore, there can be no assurance the forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described elsewhere in this report and as also may be described from time to time in future reports we file with the SEC. You should read such information in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. 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

EVmo, Inc. (“EVmo”, the “Company”, “we”, “our”, or “us”) was initially formed on June 21, 2016 as a Delaware limited liability company under the name “YayYo, LLC.” The Company was subsequently converted into a Delaware corporation pursuant to Section 265 of the Delaware General Corporation Law. The Company now operates as a “C” corporation formed under the laws of the State of Delaware.

We became a reporting company when, on March 17, 2017, an offering circular on Form 1-A relating to a best-efforts offering of our common stock, par value. $0.000001 per share (the “Common Stock”), pursuant to “Regulation A+” of the Securities Act of 1933, as amended (the “Securities Act”), was qualified by the “SEC”. Then, on November 15, 2019, we completed an initial public offering of 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 listed on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “YAYO.”

On February 10, 2020, after being advised by Nasdaq that it believed we no longer met the conditions for continued listing, we announced our intent to voluntarily delist our Common Stock. Since delisting from Nasdaq, our Common Stock has been quoted and traded on the Pink Open Market, which is operated by OTC Markets Group, under the same ticker symbol. The delisting was effective on March 1, 2020.

In September 2020, we changed our name from YayYo, Inc. to Rideshare Rental, Inc., in order for our corporate brand to better reflect our principal business, the rental of ridesharing and delivery gig vehicles. In February 2021, we again changed our name to EVmo, to underscore our commitment to making a full transition to electric vehicles by the end of 2024. In January 2022, we completed a follow-on public offering of 27,400,000 shares of Common Stock, at $0.50 per share, which will, among other uses, provide capital required to facilitate our electric vehicles transition strategy.

We are a holding company operating principally through two wholly-owned subsidiaries: RideShare Car Rentals, LLC (“RideShare”) and Distinct Cars, LLC (“Distinct Cars”). Our proprietary Rideshare Platform provides TNC drivers with an online booking platform, while Distinct Cars maintains a fleet of passenger vehicles and transit vans for use in the last-mile logistical space for rent to our TNC driver customers, enabling such drivers to meet the vehicle suitability and other requirements of rideshare and delivery gig companies such as Uber, Lyft, DoorDash and Grubhub. Through RideShare and Distinct Cars, we seek to become a leading provider of rental vehicles to drivers in the ridesharing and delivery gig spaces, and an industry leader in supplying transit vans for last-mile logistics.

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 continued through fiscal 2021. This was consistent with the experience of the TNCs whose drivers we service. According to Bloomberg Second Measure, Uber and Lyft sales were up 104% and 84% year-over-year, respectively, in February 2022 from one year earlier, even in spite of the Delta and Omicron variants that resulted in spikes of infections through periods of 2021.

Given the current prevalence of FDA-approved eligible vaccines across nearly all age groups, the marked overall decrease in the number of COVID-19 infections, hospitalizations and deaths through the first nine months of 2022, and the resulting lifting of most pandemic restrictions in our active markets, we are optimistic that COVID-19 will not have a material impact on our operations in the current fiscal year. However, certain factors- including, for example, a new, more aggressive and deadly variant that is resistant to the vaccines- could reverse the positive trends of recent months and alter our prediction.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiaries, Distinct Cars and RideShare. All significant intercompany transactions and balances have been eliminated.

Consolidated Results of Operations—Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

Total Revenues

Revenue for the three months ended September 30, 2022 was $3,551,699 an increase of $827,519 or 23.3% compared to revenue for the three months ended September 30, 2021 of $2,724,180. The increase is principally due to an increase in the size of our rental vehicle fleet and an increase in our daily rental rate.

Cost of Revenues

The principal components of costs of revenue are depreciation of the vehicles, vehicle insurance and maintenance.

Cost of revenues for the three months ended September 30, 2022 was $2,579,086, an increase of $293,208, or 11.4%, compared to the cost of revenues for the three months ended September 30, 2021 of $2,285,878. The increase is due to higher depreciation expense, insurance expense and vehicle repairs due to an increase in fleet size. For the three months ended September 30, 2022 and 2021 our cost of revenue was 72.62% and 83.91% of our revenue, respectively, including vehicle depreciation. Excluding vehicle depreciation, cost of revenue for the three months ended September 30, 2022 was 49.6%, the lowest cost of revenues by percentage of revenue in company history. The decrease in the cost of revenue as a percentage of revenue is due to improved daily rental rates, effective fleet management and improved driver turnover rates

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended September 30, 2022 were $99,843, representing an increase of $73,278, or 275.8%, over the expenses incurred in the three months ended September 30, 2021 of $26,565. The increase is due to a focused advertising campaign targeted at renting new vehicles added to the platform.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2022, were $1,580,058, representing an decrease of $1,638,854, or 103.7%, under the expenses incurred in the three months ended September 30, 2021 of $3,218,912. The decrease is due to maintained payroll, no additional stock issued, reduced legal fees, and controlled administrative expenses.

Total Operating Expenses

Total operating expenses for the three months ended September 30, 2022 were $1,765,568, representing a decrease of $1,526,409, or 86.5%, compared to the expenses incurred in the three months ended September 30, 2021 of $3,291,977. The decrease is due to maintained payroll, no additional stock issued, reduced legal fees, and controlled administrative expenses.

Interest expense and financing cost

Interest and financing expenses for the three months ended September 30, 2022 were $712,952 compared to $2,007,194 for the three months ended September 30, 2021. The interest expense was debt service on the EIP Note payable and vehicle lease financing interest expense. The decrease from September 30, 2021 was due to the non-recurring issuance of 825,000 shares of common stock to Acuitas, in connection with a settlement agreement between Acuitas and XLLC, a company owned by the Company’s former chief executive officer. The value of the shares was $3,240,600 which is based on the market price of the Common Stock at the grant date. The $3,240,600 was expensed as financing costs as the dispute underlying the settlement agreement related to an anti-dilution of a prior investment in the Company by Acuitas.

Net Loss

The net loss for the three months ended September 30, 2022 was $(1,505,907), representing a decrease of $3,271,421 or 217.2% compared to net loss from the three months ended September 30, 2021 of $(4,777,328). The increase is due to the reasons described above. The company achieved positive EBITDA for the first time in the three months ended September 30, 2022 of $117,029.

Consolidated Results of Operations—Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

Total Revenues

Revenue for the nine months ended September 30, 2022 was $8,888,034 an increase of $1,217,239 or 13.7% compared to revenue for the nine months ended September 30, 2021 of $7,670,795. The increase is principally due to an increase in the size of our rental vehicle fleet and an increase in our daily rental rate.

Cost of Revenues

The principal components of costs of revenue are depreciation of the vehicles, vehicle insurance and maintenance.

Cost of revenues for the nine months ended September 30, 2022 was $6,636,641, an increase of $654,566, or 9.86%, compared to the cost of revenues for the nine months ended September 30, 2021 of $5,982,075 The increase is due to higher depreciation expense, insurance expense and vehicle repairs due to an increase in fleet size. For the nine months ended September 30, 2022 and 2021 our cost of revenue was 74.67% and 77.99% of our revenue, respectively, including vehicle depreciation. Excluding vehicle depreciation, cost of revenue for the nine months ended September 30, 2022 was 53.5%. The decrease in the cost of revenue as a percentage of revenue is due to improved daily rental rates, effective fleet management and improved driver turnover rates.

Selling and Marketing Expenses

Selling and marketing expenses for the nine months ended September 30, 2022 were $244,226, representing a decrease of $12,903, or 5.28%, over the expenses incurred in the nine months ended September 30, 2021 of $257,129. The decrease is due to a change in the advertising plan now targeted at renting new vehicles added to the platform.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2022, were $4,616,652, representing a decrease of $1,534,855, or 33.25%, over the expenses incurred in the nine months ended September 30, 2021 of $6,151,507. The decrease is due to maintained payroll, no additional stock issued, reduced legal fees, and controlled administrative expenses.

Total Operating Expenses

Total operating expenses for the nine months ended September 30, 2022 were $5,021,045, representing a decrease of $1,494,357, or 29.76%, compared to the expenses incurred in the nine months ended September 30, 2021 of $6,515,402. The decrease is due to maintained payroll, no additional stock issued, reduced legal fees, and controlled administrative expenses.

Interest expense and financing cost

Interest and financing expenses for the nine months ended September 30, 2022 were $1,449,120 compared to $6,296,524 for the nine months ended September 30, 2021. The interest expense was for redemption and conversion of Series B Preferred Stock, note interest expense and vehicle lease financing interest expense. The decrease from September 30, 2021 was due to the non-recurring issuance of 825,000 shares of Common Stock to Acuitas Group Holdings, LLC, (“Acuitas”) which is the Company’s largest shareholder, in connection with a settlement agreement between Acuitas and X, LLC, a company owned by the Company’s former chief executive officer. The value of the shares was $3,240,600 which is based on the market price of the Common Stock at the grant date. The $3,240,600 was expensed as financing costs as the dispute underlying the settlement agreement related to an anti-dilution of a prior investment in the Company by Acuitas.

Net Loss

The net loss for the nine months ended September 30, 2022 was $(4,218,772), representing an decrease of $6,812,893 or 161.49% compared to net loss from the nine months ended September 30, 2021 of $(11,031,665). The increase is due to the reasons described above. The company is approaching positive EBITDA through the first nine months ended September 30, 2022, with negative EBITDA of $(644,096).

Liquidity, Capital Resources and Plan of Operations

On November 15, 2019, we closed our initial public offering of Common Stock registered on an S-1 Registration Statement under the Securities Act, which was declared effective on November 13, 2019. We sold a total of 2,625,000 common shares at a price of $4.00 per share. Total gross proceeds from the offering were $10,500,000, before deducting underwriting discounts and commissions and other offering expenses.

On January 6, 2022, we closed a follow-on offering of 27,400,000 shares of Common Stock for $0.50 per share, for gross proceeds of $13,700,000.

Subsequently, we issued 6,310,000 shares of common stock for the conversion of 220,850 shares of Series B Preferred Stock. The remaining 9,525 outstanding shares of Series B Preferred Stock were redeemed by the Company

In addition, after the recent public offering and conversion of most of the Series B Preferred Stock, the two warrants issued to Energy Impact Credit Fund I, LP in 2021 for 450,000 shares and 900,000 shares of Common Stock, respectively, were subject to adjustment according to their terms. The warrant for 450,000 common shares has been adjusted to one for 711,656 common shares at an exercise price of $1.33 and the warrant for 900,000 common shares has been adjusted to one for 1,174,311 common shares at an exercise price of $0.71 per share.

Current Assets, Current Liabilities and Working Capital

At September 30, 2022, the Company’s current assets totaled $5,117,946, current liabilities totaled $7,189,940, and a working capital deficit of $(2,071,994). At December 31, 2021, the Company’s current assets totaled $4,077,934, current liabilities totaled $7,051,073, and working capital was a deficit of $(2,973,139).

Regarding current liabilities, the amounts categorized as accounts payable, credit cards and accrued expenses totaled $1,874,868 and $4,940,580 as of September 30, 2022 and December 31, 2021, respectively, a decrease of $3,065,712 or 163.52%, due primarily to the reduction of accounts payable and the reduction of the legal settlement balance.

Since inception, our principal sources of operating funds have been proceeds from equity financing, including the sale of our Common Stock to initial investors known to management and principal shareholders of the Company. We do expect that our current cash on hand to fund operations for the balance of 2022. As of September 30, 2022, the Company had $4,332,459 in cash. The Company used $(7,691,035) in cash from operating activities for the nine months ended September 30, 2022.

Capital Expenditures

During the nine months ended September 30, 2022, the Company had capital expenditures of $16,919,929 in leased vehicles. At September 30, 2022, approximately 80% of the Company’s vehicles were financed with leases. At September 30, 2022 the Company had $28,229,346 of rental vehicles, net of accumulated depreciation in the amount of $5,978,761, totaling $22,2050,585 in net rental vehicles. At December 31, 2021 the Company had $13,514,619 of rental vehicles, net of accumulated depreciation in the amount of $4,627,299, totaling $8,887,320 in net rental vehicles. The Company’s rental vehicles are depreciated over their estimated useful life of five years. The lease terms for those rental vehicles that are leased are generally for three years and the Company has the right to purchase the leased assets at the end of the lease terms.

Statement of Cash Flows

Cash Flows from Operating Activities

Net cash provided from operating activities for the nine months ended September 30, 2022 totaled $(7,691,035), which was a decrease of $6,236,841 from the net cash provided by operating activities of $(1,454,194) for the same period in 2021. The decrease is principally due to the reduction in accounts payable following the equity capital raise in January 2022, decrease in accrued expense, and purchase of new vehicles.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2022 totaled $10,196,566, which was an increase of $5,227,999 from $4,968,567 for the same period in 2021. The change is principally due to the equity capital raise completed on January 6, 2022 and financing of new vehicles.

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, and (ii) our vehicle fleet, which is commercially available through Distinct Cars. We expect to incur substantial expenditures in the foreseeable future for the continuing operations of our businesses. Moreover, we have embarked on our EV strategy, in which we intend to replace our entire fleet of vehicles with all electric vehicles by 2024. At this time, we cannot reliably estimate the timing or aggregate amount of all of the costs associated with these efforts.

Although, as we state above, we believe we have sufficient working capital to finance our operations in fiscal 2022 and to execute the 2022 phase of our EV strategy, it is possible that our expansion plan may require us to raise significant additional capital within a short period of time.

We continually reevaluate our plan of operations to determine how we can most effectively utilize our resources. The 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, several of which are beyond our control. There can be no assurance that our current capital resources will be adequate to continue to fund our ongoing operations, nor can there be any assurance that, should we require additional capital, we will successfully obtain it on favorable terms, or at all. The potential 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.

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.

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. At present, we have no committed external sources of capital, and do not expect any significant product revenues for the foreseeable future. Thus, we will require immediate additional financing to fund future operations. There can be no assurance, however, that we will be able to obtain funds on acceptable terms, if at all.

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 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:

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 740. 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.

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, such as Uber and Lyft, based on their rental agreements which are generally administered on a weekly basis. The Company recognizes revenue in accordance with ASC 606.

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 ASC 718. 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 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 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(d) 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 Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to assess the effectiveness of our disclosure controls and procedures as of September 30, 2022. 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.

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(d) 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 10- “Contingencies.”

Item 1A. Risk Factors.

Not required 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.

Effective as of August 9, 2022, Gregory Miller resigned as Chief Operating Officer of the Company, citing family obligations as his reason for doing so. No successor to Mr. Miller has been appointed as of the date of this quarterly report.

Item 6. Exhibits.

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.