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. 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. Assumptions relating to the foregoing 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 in Part II, Item 1A, “Risk Factors” and 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
The
Company was formed on June 21, 2016 under the name “YayYo, LLC,” which was converted into a Delaware corporation pursuant
to the unanimous written consent of our former manager and members in a transaction intended to be tax-free under the Internal
Revenue Code (the “Conversion”). All of YayYo, LLC’s liabilities and assets, including its intellectual property,
were automatically transferred to the Company and the Company has assumed ownership of such assets and liabilities. The Company
now operates as a “C” corporation formed under the laws of the State of Delaware.
The
Company is a holding company operating through its wholly-owned subsidiaries, including Distinct Cars, LLC, a Delaware limited
liability company (“Distinct Cars”) and Rideshare Car Rentals LLC, a Delaware limited liability company (“Rideshare”).
On
August 12, 2017, we announced that we were shifting our primary corporate focus in the transportation/ridesharing industry away
from the development of the Metasearch App.
The
Company’s operating business divisions include (i) an online rideshare vehicle booking platform to service the ridesharing
economy through the Company’s wholly-owned subsidiary Rideshare (the “Rideshare Platform”), and (ii) the maintenance
of a fleet of standard passenger vehicles to be made commercially available for rent through the Company’s wholly-owned
subsidiary Distinct Cars (“Fleet Management”). Through the Company’s wholly-owned subsidiaries Rideshare and
Distinct Cars, the Company seeks to become the leading provider of a standard rental vehicles to drivers in the ridesharing economy.
On
March 16, 2018, we closed our Regulation A+ offering under Regulation A of the Securities Act, which was qualified by the SEC
on March 15, 2017. We sold a total of 365,306 shares of our common stock. We received cash proceeds of $1.8 million, net of commissions
and other costs associated with the gross offering proceeds or payable by us.
On
November 15, 2019, the Company closed its initial public offering of 2,625,000 common shares at $4.00 per share, for gross proceeds,
before underwriting discounts and commissions and expenses, of $10.5 million. and the shares became listed on the Nasdaq Capital
Market under the symbol “YAYO”.
On
February 10, 2020, the Company notified Nasdaq of its intent to voluntarily delist its Common Stock from Nasdaq. In connection
therewith, the Company notified Nasdaq of the Company’s intention to file a Form 25 with the SEC on or about February 20,
2020. The Company elected to effect the voluntary delisting of its common stock after discussions with Nasdaq’s staff, and
based on the determination of the Company’s board of directors that voluntarily delisting the Common Stock from Nasdaq was
in the best interests of the Company and its stockholders. Following delisting from Nasdaq, the Company’s Common Stock now
trades on the OTC Pink Market under the trading symbol, “YAYO.”
Impact
of COVID-19 on our business
In
December 2019, a novel strain of coronavirus surfaced in China, which has and is continuing to spread throughout the world, including
the United States. 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, the World Health Organization characterized
the outbreak as a “pandemic.” The governors of New York, California and several other states, as well as mayors on
many cities, have ordered their residents to cease traveling to non-essential jobs and to curtail all unnecessary travel, and
to stay in their homes as much as possible in the coming weeks, as the nation confronts the escalating coronavirus outbreak, and
similar restrictions have been recommended by the federal authorities and authorities in many other states and cities. Since the
beginning of 2020 and the spread of COVID-19, rideshare companies have increasingly been negatively impacted. According to its
recent investor update call, Uber’s gross bookings in Seattle are down by 60-70%, and Uber assumes similar declines in other
big cities hit by COVID-19. As Americans practice social distancing and self-isolation, Uber, Lyft, and other rideshare companies
have seen a steep decline in ridership and revenue, as a result. Given that rideshare drivers are both at risk themselves and
of risk to the public, and in addition to decreased demand overall, less people are even still driving. The Company has seen
a decline in revenue during the first half of 2020 which is having a negative impact on the cash flows of the business, but saw
a positive upward movement in revenue the latter part of the second quarter ended June 30, 2020. The Company has seen increased
demand from drivers wanting to rent cars for ridesharing purposes and new drivers renting cars for both rideshare and delivery
gig economy. With the recent increase in the number of positive COVID-19 cases, the Company is not able to predict the ultimate
impact that COVID -19 will have on its business. If another lockdown were to occur, the Company could be forced to significantly
scale back its business operations and its growth plans, and could ultimately have a significant negative impact on the Company.
The Company cannot at this time estimate the long term effect of this unprecedented situation on the rideshare market or delivery
gig economy in general or the Company in particular.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries Distinct Cars, LLC, a Delaware
limited liability company (“Distinct Cars”), Savy LLC, a Delaware limited liability company (“Savy”),
Rideyayyo LLC, a Delaware limited liability company (“Rideyayyo”) and Rideshare Car Rentals LLC, a Delaware
limited liability company (“Rideshare”). Savy and Rideyayyo have not had operations to date.
Consolidated
Results of Operations—Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019.
Total
Revenues.
Revenue
for the three months ended June 30, 2020 was $1,580,555, a decrease of $116,362 or 6.9% compared to revenue for the three months
ended June 30, 2019 of $1,696,917. The decrease is due to us not being able to maintain our average weekly rental income levels
due to the COVID-19 outbreak. During the three months ended June 30, 2020, the average weekly rental income per vehicle placed
in service was $292 compared to $331 for the same period in 2019. Our revenues declined in March and April due to COVID -19 and
began to recover in May and June 2020. Our revenue for the month of June was back to pre-COVID-19 levels, but there is no assurance
that this trend will continue.
Cost
of Revenues.
The
principal components of costs of revenue are depreciation of the vehicles, vehicle insurance and maintenance.
Cost
of revenues for the three months ended June 30, 2020 were $1,295,059, an increase of $332,988 or 34.6% compared to cost of revenues
for the three months ended June 30, 2019 of $962,071. The increase is due to higher depreciation expense due to an increase in
fleet size and higher repairs and maintenance due to the age of the fleet. For the three months ended June 30, 2020 and 2019 our
cost of revenue was 81.9% and 56.7% of our revenue, respectively. The increase in the cost of revenue as a percentage of revenue
is due to the decrease in average weekly rental income due to the COVID – 19 outbreak.
Selling
and Marketing Expenses.
Selling
and marketing expenses for the three months ended June 30, 2020 were $79,153, representing an increase of $58,265 or 279.2% over
the three months ended June 30, 2019 of $20,868. The increase is due to an increase in advertising our rentals to Uber and Lyft
drivers.
General
and Administrative Expenses.
General
and administrative expenses for the three months ended June 30, 2020 were $861,410, representing an increase of $185,782 or 27.5%
over the three months ended June 30, 2019 of $675,628. The increase is principally due to higher payroll costs as we hired additional
personnel for our expanding operations and higher management salaries; and higher occupancy costs.
Loss
on the settlement of debt
Loss
on the settlement of debt for the three months ended June 30, 2020 was $0 as compared to $12,900 for the same period in 2019.
During the months ended June 30, 2019, we settled outstanding debt of $21,500 with 4,300 shares of common stock valued at $34,400.
.
Total
Operating Expenses
Total
operating expenses for the three months ended June 30, 2020 were $940,543, representing an increase of $231,147 or 32.6% compared
to the three months ended June 30, 2019 of $709,396. The increase is due to the reasons described above.
Interest
expense, net
Interest
and financing expenses for the three months ended June 30, 2020 were $67,795 compared to $442,902 for the three months ended June
30, 2019. The decrease in interest and financing cost for the three months ended June 30, 2020 due to a decrease in high interest
rate debt outstanding.
Net
Loss
The
net loss for the three months ended June 30, 2020 was $722,842, representing an increase of $305,390 or 73.2% compared to the
three months ended June 30, 2019 of $417,452. The increase is due to the reasons described above.
Consolidated
Results of Operations—Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019.
Total
Revenues.
Revenue
for the six months ended June 30, 2020 was $3,328,197, a decrease of $147,321 or 4.2% compared to revenue for the six months ended
June 30, 2019 of $3,475,518. The decrease is due to us not being able to maintain our average weekly rental income levels due
to the COVID-19 outbreak. During the six months ended June 30, 2020, the average weekly rental income per vehicle placed in service
was $309 compared to $341 for the same period in 2019. Our revenues declined in March and April due to COVID -19 and began to
recover in May and June 2020. Our revenue for the month of June was back to pre-COVID-19 levels, but there is no assurance that
this trend will continue.
Cost
of Revenues.
Cost
of revenues for the six months ended June 30, 2020 were $2,696,350, an increase of $652,109 or 31.9% compared to cost of revenues
for the six months ended June 30, 2019 of $2,044,241. The increase is due to higher depreciation expense due to an increase in
fleet size and higher repairs and maintenance due to the age of the fleet. For the six months ended June 30, 2020 and 2019 our
cost of revenue was 81.0% and 58.8% of our revenue, respectively. The increase in the cost of revenue as a percentage of revenue
is due to the decrease in average weekly rental income due to the COVID – 19 outbreak.
Selling
and Marketing Expenses.
Selling
and marketing expenses for the six months ended June 30, 2020 were $210,642, representing an increase of $108,036 or 105.3% over
the six months ended June 30, 2019 of $102,606. The increase is due to an increase in advertising our rentals to Uber and Lyft
drivers.
General
and Administrative Expenses.
General
and administrative expenses for the six months ended June 30, 2020 were $2,757,616, representing an increase of $1,296,805 or
88.8% over the six months ended June 30, 2019 of $1,460,811. The increase is principally due to higher payroll costs (including
stock option expense) as we hired additional personnel for our expanding operations and higher management salaries; and higher
occupancy costs.
Loss
on the settlement of debt
Loss
on the settlement of debt for the six months ended June 30, 2020 was $0 as compared to $252,900 for the same period in 2019. During
the months ended June 30, 2019, we settled outstanding debt of $421,500 with 84,300 shares of common stock valued at $674,400.
.
Total
Operating Expenses
Total
operating expenses for the six months ended June 30, 2020 were $2,968,258, representing an increase of $1,151,941 or 63.4% compared
to the six months ended June 30, 2019 of $1,816,317. The increase is due to the reasons described above.
Interest
expense, net
Interest
and financing expenses for the six months ended June 30, 2020 were $147,651 compared to $611,875 for the six months ended June
30, 2019. The decrease in interest and financing cost for the six months ended June 30, 2020 due to a decrease in outstanding
debt.
Net
Loss
The
net loss for the six months ended June 30, 2020 was $2,484,062, representing an increase of $1,487,147 or 149.2% compared to the
six months ended June 30, 2019 of $996,915. The increase is due to the reasons described above.
Liquidity,
Capital Resources and Plan of Operations
Current
Assets, Liabilities and Working Capital
Initial
Public Offering. 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.
Current
Assets, Liabilities and Working Capital. At June 30, 2020, the Company’s current assets totaled $696,206, current
liabilities totaled $3,991,172, and working capital was a deficit of $3,294,966. At December 31, 2019, the Company’s current
assets totaled $2,098,660, current liabilities totaled $2,655,055, and working capital was a deficit of $556,395.
Regarding
current liabilities, the amounts categorized as accounts payable and accrued expenses totaled $1,700,314 and $951,231 as of June
30, 2020 and December 31, 2019, respectively, an increase of $749,083 or 78.7%.
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 not expect that our current cash
on hand will fund our existing operations and future business growth. We will need to raise additional capital in order execute
our business plan and growth goals for at least the next twelve-month period thereafter. If the Company is unable to raise sufficient
additional funds, it will have to execute a slower than planned growth path, reduce overhead and scale back its business plan
until sufficient additional capital is raised to support further operational expansion and growth. As of June 30, 2020, the Company
had $103,240 in cash. The Company used $339,199 of cash for operating activities for the six months ended June 30, 2020. The Company
is seeking to raise additional capital. If the Company is not successful in raising additional capital it will be forced to significantly
scale back its business operations and it growth plans. In addition, the COVID-19 virus and the related impact it is having on
the U.S. economy is currently having a negative impact on the cash flows of our business. However, we were able to obtain two
loans totaling $342,675 related to new legislation passed as a result of COVID-19.
Capital
Expenditures
During
the six months ended June 30, 2020, the Company had capital expenditures of $2,246,285 in leased vehicles. At June 30, 2020, most
of the Company’s vehicles were finance with leases. At June 30, 2020 the Company had $8,468,168 of rental vehicles, net
of accumulated depreciation in the amount of $2,105,179, totaling $6,362,989 in net rental vehicles. At December 31, 2019 the
Company had $6,284,211 of rental vehicles, net of accumulated depreciation in the amount of $1,547,164, totaling $4,737,047 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 for $1 each 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, 2020 totaled $339,199, which was an increase of $278,829 or
461.9% from the net cash used in operating activities of $60,370 for the same period in 2019. The increase is principally due
to the increase in net loss.
Cash
Flows from Financing Activities
Net
cash used in financing activities for the six months ended June 30, 2020 totaled $813,990, which was a change of $631,297 from
the net cash provided by financing activities of $182,693 for the same period in 2019. The change is principally due to the increase
in payments on financing lease obligations in 2020 and proceeds of $1.051.300 from notes payable in 2019 compared to $342,675
in 2020. In addition, we sold $275,000 of common stock in 2020 compared to $0 in 2019.
Current
Plan of Operations
Our
plan of operations is currently focused on the development of our operating business segments: (i) our Rideshare Platform offered
through the Company’s wholly-owned subsidiary Rideshare, and (ii) our Fleet Management business, made commercially available
through the Company’s wholly-owned subsidiary Distinct Cars. We expect to incur substantial expenditures in the foreseeable
future for the potential operations of our business segments and ongoing internal research and development. At this time, we cannot
reliably estimate the nature, timing or aggregate amount of such costs. Our Rideshare Platform will require extensive technical
evaluation, potential regulatory review and approval, significant marketing efforts and substantial investment before it or any
successors could provide us with any revenue. Further, we intend to continue to build our corporate and operational infrastructure
and to build interest in our product and service offerings.
As
noted above, the continuation of our current plan of operations requires us to raise significant additional capital immediately.
If we are successful in raising capital, we believe that the Company will have sufficient cash resources to fund its plan of operations.
The cash flow from our current vehicle leasing business and capital resources are sufficient for us to continue our current operations,
but for us to fully execute our business plan we will require significant additional capital.
We
continually evaluate our plan of operations discussed above to determine the manner in which we can most effectively utilize our
limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability
of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully
obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
The inability to secure additional capital would 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 will not have
sufficient funds to pay any amounts to our stockholders.
Even
if we raise additional capital in the near future, if our operating business segments fail to achieve anticipated financial results,
our ability to raise additional capital in the future to fund our operating business segments would likely be seriously impaired.
If in the future we are not able to demonstrate favorable financial results or projections from our operating business segments,
we will not be able to raise the capital we need to continue our then current business operations and business activities, and
we will likely not have sufficient liquidity or cash resources to continue operating.
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.
Contractual
Obligations, Commitments and Contingencies
During
fiscal years 2017, 2018 and 2019, the Company entered into a series of monthly vehicle leasing agreements with ACME Auto Leasing,
LMP Financial Services and United Mile Fleet, each with an approximate lease term of 12 to 36 months. As of June 30, 2020 and
December 31, 2019, the Company had total lease obligations in the amount of $3,099,385 and $2,400,565, respectively. The Company
owes monthly payments under each Lease Agreement ranging from approximately $342 per month to $621 per month. At the end of the
term of the Lease Agreement, lessee has the right to purchase ownership and title of the subject vehicle for a nominal payment.
In addition, the Lease Agreements are subject to and secured by a grant of a purchase money security interest on each leased vehicle.
We
leased and maintained primary offices at 433 North Camden Drive, Suite 600, Beverly Hills, California 90210 and 6600 Sunset Blvd.,
Los Angeles, CA 90028, the latter being the location where the majority of our operations and staff conduct activities on a daily
basis. We do not currently own any real property.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.