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
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 pursuant to “Regulation A+” of the Securities Act of 1933, as amended (the “Securities Act”), was qualified
by the Securities and Exchange Commission (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, the Company
announced its intent to voluntarily delist its 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, Inc., 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 and Distinct Cars, LLC.
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 in the first half 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, LLC and RideShare Car Rentals, LLC. All significant intercompany transactions and balances have been eliminated.
Consolidated
Results of Operations—Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021
Total
Revenues.
Revenue
for the three months ended June 30, 2022 was $2,876,626 an increase of $225,543 or 8.5% compared to revenue for the three months ended
June 30, 2021 of $2,652,083. 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 June 30, 2022 were $2,085,312, an increase of $170,018, or 8.9%, compared to the cost of revenues
for the three months ended June 30, 2021 of $1,915,294. 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 June 30, 2022 and 2021 our cost of revenue was 72.5% and 72.2% of
our revenue, respectively, including vehicle depreciation. Excluding vehicle depreciation, cost of revenue for the three months ended
June 30, 2022 was 52.2%. The increase in the cost of revenue as a percentage of revenue is due to onboarding of new vehicles.
Selling
and Marketing Expenses.
Selling
and marketing expenses for the three months ended June 30, 2022 were $74,685, representing an increase of $9,869, or 15.2%, over the
expenses incurred in the three months ended June 30, 2021 of $64,816. 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 June 30, 2022, were $2,358,416, representing an increase of $864,922, or 57.9%,
over the expenses incurred in the three months ended June 30, 2021 of $1,493,494. The increase is due to added payroll related to additional
vehicles on the platform, increased professional fees related to legal proceedings and compliance.
Total
Operating Expenses
Total
operating expenses for the three months ended June 30, 2022 were $2,488,601, representing a decrease of $879,525, or 54.6%, compared
to the expenses incurred in the three months ended June 30, 2021 of $1,609,076. The increase is due to added payroll related to additional
vehicles on the platform, increased professional fees related to legal proceedings and compliance
Interest
expense and financing cost
Interest
and financing expenses for the three months ended June 30, 2022 were $500,096 compared to $964,387 for the three months ended June
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 June 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 Company’s 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 June 30, 2022 was $1,197,191, representing an increase of $639,483 or 34.8% compared to net loss
from the three months ended June 30, 2021 of $1,836,674 The increase is due to the reasons described above.
Consolidated
Results of Operations—Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
Total
Revenues.
Revenue
for the six months ended June 30, 2022 was $5,336,335 an increase of $389,720 or 7.9% compared to revenue for the six months ended June
30, 2021 of $4,946,615. 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 six months ended June 30, 2022 were $4,056,505, an increase of $360,308, or 9.7%, compared to the cost of revenues
for the six months ended June 30, 2021 of $3,696,197. The increase is due to higher depreciation expense, insurance expense and vehicle
repairs due to an increase in fleet size. For the six months ended June 30, 2022 and 2021 our cost of revenue was 76.0% and 74.7% of
our revenue, respectively, including vehicle depreciation. Excluding vehicle depreciation, cost of revenue for the six months ended June
30, 2022 was 56.1 %. The increase in the cost of revenue as a percentage of revenue is due to onboarding of new vehicles.
Selling
and Marketing Expenses.
Selling
and marketing expenses for the six months ended June 30, 2022 were $139,021, representing a decrease of $91,543, or 39.7%, over the expenses
incurred in the six months ended June 30, 2021 of $230,564. 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 six months ended June 30, 2022, were $2,785,119, representing a decrease of $147,476, or 5.0%, over
the expenses incurred in the six months ended June 30, 2021 of $2,932,595. The decrease is due to added focus on efficiency in operations.
Total
Operating Expenses
Total
operating expenses for the six months ended June 30, 2022 were $2,998,640, representing a decrease of $224,785, or 7.0%, compared to
the expenses incurred in the six months ended June 30, 2021 of $3,223,425. The decrease is due to added focus on efficiency in operations.
Interest
expense and financing cost
Interest
and financing expenses for the six months ended June 30, 2022 were $988,433 compared to $4,289,330 for the six months ended June 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 June 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 Company’s 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 six months ended June 30, 2022 was $2,707,243, representing an increase of $3,547,094 or 56.7% compared to net loss
from the six months ended June 30, 2021 of $6,254,337. The increase is due to the reasons described above.
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, Liabilities and Working Capital.
At
June 30, 2022, the Company’s current assets totaled $6,938,284, current liabilities totaled $5,710,525, and working capital was
$1,227,759. 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 $1,642,563 and $4,940,580
as of June 30, 2022 and December 31, 2021, respectively, a decrease of $3,298,017 or 66.8%, due primarily to the reduction of accounts
payable.
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 June 30, 2022, the Company had $6,143,247 in cash. The Company used $(13,215,550) in cash
from operating activities for the six months ended June 30, 2022.
Capital
Expenditures
During
the six months ended June 30, 2022, the Company had capital expenditures of $6,927,700 in leased vehicles. At June 30, 2022, approximately
60% of the Company’s vehicles were financed with leases. At June 30, 2022 the Company had $19,275,855 of rental vehicles, net of
accumulated depreciation in the amount of $5,161,116, totaling $14,114,739 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 used in operating activities for the six months ended June 30, 2022 totaled $(13,215,550), which was an decrease of $12,971,066
from the net cash provided by operating activities of $(244,484) 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 six months ended June 30, 2022 totaled $17,504,869, which was an increase of $17,123,497
from $381,372 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:
| |
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 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.