HyreCar Inc. HyreCar Inc. (Exact name of registrant as specified in its charter) Delaware | 7514 | 47-2480487 | (Exact name of registrant as specified in its charter) |
Delaware | | 7510 | | 47-248087 | (State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer
Identification Number)No.) |
355 South Grand Avenue,915 Wilshire Blvd, Suite 16501950 Los Angeles, California 90071(888) 90017
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) Chief Executive Officer and Chief Financial Officer355 South Grand Avenue,
915 Wilshire Blvd, Suite 16501950 Los Angeles, California 9007190017 ( Name, address,Address, including zip code, and telephone number, including area code, of agent for service) CopiesCopy to:Nimish Patel, Esq. | | Philip Magri, Esq. | Blake J. Baron, Esq. | | Magri Law, LLC | Mitchell Silberberg & Knupp LLP | | 2642 NE 9th Avenue | 11377 W. Olympic Boulevard | | Fort Lauderdale, Florida 33334 | Los Angeles, CA 90064 | | (646) 502-5900 | (310) 312-2000 | | |
Bryan N. Wasser Shashi N. Khiani Polsinelli PC 2049 Century Park East, Suite 2900 Los Angeles, California 90067 Telephone: (310) 556-1801 Approximate date of commencement of proposed sale to the public: As soon as practicable From time to time after the effective date of this registration statement.
statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:box. ☒ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”,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 companyGrowth Company ☒ | ☒ |
If an emerging growth company, check 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 7(a)(2)(B) of the Securities Act. ☐ CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | | Amount to be
Registered | | | Proposed
Maximum
Offering Price per
Share | | | Proposed
Maximum
Aggregate
Offering Price | | | Amount of
Registration Fee (9) | | | Common stock, par value $0.00001 per share(1)(2)(3) | | | 2,415,000 | | | | 6.00 | (1) | | $ | 14,490,000 | (2) | | $ | 1,804.01 | | | Underwriters’ warrants(4) | | | — | | | | — | | | | — | | | | — | | | Shares of common stock underlying underwriters’ warrants(2)(3)(5) | | | 72,450 | | | | 7.50 | | | $ | 543,375 | | | $ | 67.65 | | | Common stock underlying outstanding 13% senior secured convertible promissory notes held by selling stockholders(3)(6) | | | 1,299,199 | | | $ | 6.00 | (1) | | $ | 7,795,194 | | | $ | 970.50 | | | Common stock underlying common stock purchase warrants held by selling stockholders(3)(7) | | | 649,602 | | | $ | 6.00 | (1) | | $ | 3,897,612 | | | $ | 485.25 | | | Shares of restricted common stock held by a selling stockholder(8) | | | 200,000 | | | $ | 6.00 | (1) | | $ | 1,200,000 | | | $ | 149.40 | | | Total: | | | — | | | | — | | | $ | 27,926,181 | | | $ | 3,476.81 | |
(1) | There is no current market for the securities or price at which the shares are being offered. Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the “Securities Act”). | | | (2) | Includes the offering price of any additional shares of common stock that the underwriters have the option to purchase to cover over-allotments, if any. | | | (3) | Pursuant to Rule 416 under the Securities Act, there is also being registered hereby such indeterminate number of additional shares of common stock of the Registrant as may be issued or issuable because of stock splits, stock dividends, stock distributions, and similar transactions. | | | (4) | No fee required pursuant to Rule 457(g) of the Securities Act. | | | (5) | Represents underwriters’ warrants to purchase up to an aggregate of 3% of the shares of common stock sold in the primary offering, at an exercise price equal to 125% of the public offering price. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the underwriters’ warrants is $543,375 (which is equal to 125% of $434,700 (3% of $14,490,000)). | | | (6) | Represents shares of common stock issuable to selling stockholders upon the conversion of senior secured convertible promissory notes, including interest payable thereon through each note’s maturity date, issued by the Registrant in a private placement offering. | | | (7) | Represents shares of common stock issuable to selling stockholders upon the exercise of common stock purchase warrants issued by the Registrant in a private placement offering. | | | (8) | Represents shares of restricted common stock issued to a selling stockholder which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. | | | (9) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a)
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be used in connection with the initial public offering of 2,415,000 shares of our common stock (including 315,000 shares which may be sold upon exercise of the underwriters’ overallotment option to cover over-allotments, if any) through the underwriters named on the cover page of this prospectus (the “IPO Prospectus”) and one to be used in connection with the potential resale by certain selling stockholders of an aggregate amount up to 2,148,801 shares of our common stock (the “Selling Stockholder Prospectus”), consisting of up to (i) 1,299,199 shares of our common stock issuable upon conversion of 13% senior secured convertible promissory notes (the “Notes”) held by the selling stockholders, (ii) 649,602 shares of our common stock issuable upon exercise of outstanding warrants held by the selling stockholders, assuming the conversion of all the Notes held by the selling stockholders at each Note’s respective maturity date at a conversion price of $2.5480, and (iii) 200,000 shares of restricted common stock held by Insight Advisory, LLC pursuant to a consulting agreement, which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the initial public offering. The IPO Prospectus and the Selling Stockholder Prospectus will be identical in all respects except for the alternate pages for the Selling Stockholder Prospectus included herein which are labeled “Alternate Page for Selling Stockholder Prospectus.”
The Selling Stockholder Prospectus is substantively identical to the IPO Prospectus, except for the following principal points:
| ● | they contain different outside and inside front covers; | | | | | ● | they contain different Offering sections in the Prospectus Summary section; | | | | | ● | they contain different Use of Proceeds sections; | | | | | ● | the Capitalization section is deleted from the Selling Stockholder Prospectus; | | | | | ● | the Dilution section is deleted from the Selling Stockholder Prospectus;
| | | | | ● | a Selling Stockholder section is included in the Selling Stockholder Prospectus; | | | | | ● | the Underwriting section from the IPO Prospectus is deleted from the Selling Stockholder Prospectus and a Plan of Distribution is inserted in its place; and | | | | | ● | the Legal Matters section in the Selling Stockholder Prospectus deletes the reference to counsel for the underwriters. |
The registrant has included in this Registration Statement, after the financial statements, a set of alternate pages to reflect the foregoing differences of the Selling Stockholder Prospectus as compared to the Prospectus.
Sales of the shares of our common stock registered in the IPO Prospectus and the Selling Stockholder Prospectus will result in two offerings taking place concurrently which might affect price, demand, and liquidity. This risk and other risks are included in “Risk Factors” beginning on page 11 of the Prospectus.
The information in this prospectus is not complete and may be changed. These securitiesThe selling stockholder may not be soldsell these securities until the registration statement filed with the Securities and Exchange Commission isdeclares this registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted. Subject to Completion, dated June 26, 2018
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 2022 PRELIMINARY PROSPECTUS
2,100,000
HyreCar Inc. 10,539,633 Shares of Common Stock This is an initial public offeringprospectus relates to the resale or other disposition from time to time of up to 10,539,633 shares of common stock, par value $0.00001, of HyreCar Inc. We are offering 2,100,000(“Common Stock”) by Lincoln Park Capital Fund, LLC (“Lincoln Park” or the “selling stockholder”). The shares of our common stock.PriorCommon Stock being offered by the selling stockholder have been or may be issued pursuant to this primary offering, there has been no public marketthat certain Purchase Agreement, dated August 15, 2022 that we entered into with Lincoln Park (the “Purchase Agreement”). See “The Lincoln Park Transaction” for our common stock. We anticipatea description of that the public offering price ofagreement and “Selling Stockholder” for additional information regarding Lincoln Park. The prices at which Lincoln Park may sell the shares will be between $5.00determined by the prevailing market price for the shares or in negotiated transactions.
We are not selling any securities under this prospectus and $6.00. will not receive any of the proceeds from the sale of shares by the selling stockholder. The selling stockholder may sell or otherwise dispose of the shares of Common Stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the selling stockholder may sell or otherwise dispose of the shares of Common Stock being registered pursuant to this prospectus. The selling stockholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”). The selling stockholder will pay all brokerage fees and commissions and similar expenses. We will pay the expenses (except brokerage fees and commissions and similar expenses) incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution”. Our common stock has been approved for listingCommon Stock is quoted on the Nasdaq Capital Market (“Nasdaq”) under the symbol “HYRE.”We intend to use“HYRE”. On September 16, 2022, the proceeds from this primary offering to be used for working capital or general corporate purposes. See “Uselast reported sale of Proceeds.”
our Common Stock on the Nasdaq Capital Market was $1.27 per share. Investing in our common stocksecurities involves a high degree of risk. See “Risk Factors”“Risk Factors” beginning on page 11 5 of this prospectus forbefore making a discussion of information that should be considered in connection with an investment indecision to purchase our common stock.securities. Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, and we have elected to comply with certain reduced public company reporting requirements.
| | Per Share | | | Total | | Initial public offering price | | $ | | | | $ | | | Underwriting discounts and commissions (1) | | $ | | | | $ | | | Proceeds, before expenses, to us | | $ | | | | $ | | |
(1) | See “Underwriting” beginning on page 58 of this prospectus for additional information regarding underwriting compensation. |
We have granted the underwriters an option for a period of 45 days to purchase up to 315,000 additional shares on the same terms and conditions set forth above.
The underwriters expect to deliver the shares against payment in New York, New York on , 2018.
Prospectus dated , 2018
Dealer Prospectus Delivery Obligation
Through and including , 2018 (the 25th day after the date of this prospectus)prospectus is, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.
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ABOUT THIS PROSPECTUS This prospectus forms a part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”). Under this process, the selling stockholder may from time to time, in one or more offerings, sell the Common Stock described in this prospectus. You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. Neither we, nor the underwriters,prospectus. We have not authorized any other person to provide you with information that is different from, or adds to, that contained in this prospectus.information. If anyone provides you with different or inconsistent information, you should not rely on it. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The selling stockholders are offeringnot making an offer to sell and seeking offers to buy our common stock onlythese securities in jurisdictionsany jurisdiction where offers and sales arethe offer or sale is not permitted. You should assume that the information containedappearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. We are not making an offer of any securitiesmay also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, any jurisdiction in which such offer is unlawful.TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
Throughoutthis prospectus. You should read both this prospectus unless otherwise designatedand any applicable prospectus supplement or post-effective amendment to the context suggests otherwise,
| ● | all references to the “company,” the “registrant,” “HyreCar,” “we,” “our,” or “us” in this prospectus mean HyreCar Inc.; | | | | | ● | assumes an initial public offering price of our common stock of $5.50 per share, the midpoint of the estimated range of $5.00 to $6.00 per share; | | | | | ● | all references to the “primary offering” refer to the offering contemplated by the IPO Prospectus; | | | | | ● | “year” or “fiscal year” mean the year ending December 31st; | | | | | ● | all dollar or $ references when used in this prospectus refer to United States dollars; and | | | | | ● | all share and per share information relating to our common stock in this prospectus has been adjusted to reflect a 1 for 1.8404 reverse stock split implemented by the company on May 17, 2017. |
Concurrentregistration statement together with the primary offering,additional information to which we refer you in the company is registering shares of common stock in connection with the potential resale by certain selling stockholders of an aggregate amount up to 2,148,801 shares of our common stock (the “Selling Stockholder Prospectus”), consisting of (i) 1,299,199 shares of our common stock issuable upon conversion of the Notes held by certain selling stockholders, (ii) 649,602 shares of our common stock issuable upon exercise of outstanding warrants held by certain selling stockholders, both calculated using the midpoint of the price range listed on the cover pagesections of this prospectus and assuming the conversion of all the Notes at each Note’s respective maturity date held by the selling stockholders, and (iii) 200,000 shares of restricted common stock held by Insight Advisory, LLC pursuant to a consulting agreement, which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. Please read the risk factors, including the risk factor titled “Sales of our common stock“Where You Can Find More Information.”
Unless otherwise indicated, information contained in the primary offering will be taking place concurrently with common stock registered by selling stockholders which might affect the price, demand, and liquidity of our common stock”on page 16.MARKET DATA
Market data and certain industry data and forecasts used throughout this prospectus were obtainedconcerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from internal companyour own management estimates and research, as well as from industry and general publications and research, surveys market research, consultant surveys,and studies conducted by third parties. Management estimates are derived from publicly available information, reportsour knowledge of governmental agenciesour industry and industry publications, articlesassumptions based on such information and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believedknowledge, which we believe to be reliable, but the accuracyreasonable. Our management estimates have not been verified by any independent source, and completeness of such information is not guaranteed. Wewe have not independently verified any third-party information. In addition, assumptions and estimates of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecastsour and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecastsindustry’s future performance are particularly likely to be inaccurate, especially over long periods of time. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and arenecessarily subject to change based on variousa high degree of uncertainty and risk due to a variety of factors, including those discussed under the headingdescribed in “Risk Factors” in this prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking statements.Factors.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these termsThese and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy,other factors could cause our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual resultsperformance to differ materially from those in the forward-looking statements include, without limitation:
| ● | our services will be adversely affected by competitive products, technologies and/or pricing; | | | | | ● | we will be able to protect our intellectual property; | | | | | ● | we will be able to raise funds, as and when we need to, for our operations; and | | | | | ● | we will be successful at managing the risks involved in the foregoing. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
iii
estimates. See “Cautionary Note Regarding Forward-Looking Statements.”PROSPECTUS SUMMARY
This summary provides a brief overview of the key aspects of our business and our securities. The reader should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements under this section and “Risk Factors”, are forward-looking statements and may involve a number of risks and uncertainties. Our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus. Overview
HyreCar Inc. was formed as a corporation in the State of Delaware on November 24, 2014. Our founders identified the need for a car-sharing platform for individuals who wanted to drive for ride-sharing companies such as Uber Technologies, Inc. (“Uber”) and Lyft Inc. (“Lyft”), but whose automobiles could not meet the standards imposed by such ride-sharing companies. For example, Uber maintains strict guidelines regarding the types of cars a driver can use. Although guidelines relating to cars can differ by state, in general the use of two door coupes, motorcycles and cars that are 12 years or older are excluded. Our founders, before deciding to purchase qualifying sedans that met Uber’s strict guidelines, first inquired as to whether there were any rental options available from Uber that would allow them to drive for the ride-sharing platform. To their surprise, there were no rental options available, other than a shadow industry of individuals renting cars to one another.
HyreCar is a unique peer-to-peer car-sharing marketplace that allows car owners (collectively, “Owners”) to rent their idle cars to ride-sharing service drivers (collectively, “Drivers”). By conveniently sourcing vehicles from individual Owners, part-time Drivers may easily enter and exit the market. Accordingly, the company’s business model provides us with the opportunity to satisfy fluctuating transportation demand in cities around the United States by matching Owners and Drivers.
Our business is based on a proprietary car-sharing marketplace developed to (i) enroll Owners and Drivers, (ii) facilitate the matching of Owners and Drivers and (iii) log rental activity for Owners and Drivers. All transactions related to the rental (including, but not limited to, background checks, rentals, deposits and insurance costs) are run securely through the HyreCar platform. Drivers and Owners access their rental or car dashboards through a unique login. Drivers can easily initiate, terminate or extend a rental through the platform while Owners can manage their car or fleet of cars through the platform.
We believe we have a competitive advantage with our commercial automobile policy that covers both Owners and Drivers. The policy is specifically designed to cover the period of time in which a Driver is operating an Owner’s vehicle while not actively operating a vehicle on a ride-sharing platform, such as Uber or Lyft. During the periods when Drivers are actively operating on a ride-sharing platform, the insurance defaults to the state mandated insurance provided by the applicable ride-sharing company. To our knowledge, we are the only provider of this car-matching service which is made possible by this unique insurance product.
In 2015, our first full year of operations, we earned revenues of $29,292 with an operating loss of $108,371. In 2016, our second full year of operations, we earned revenues of $515,437 with an operating loss of $838,560. In 2017, our third full year of operations, we earned revenues of $3,223,874 with an operating loss of $4,066,950. In 2017, revenues grew 525% and our operating loss grew 385% as compared to operations in 2016.
To date, the majority of our sales growth has been through organic search traffic. During the three months ended March 31, 2018, we spent $407,538 on advertising. During the years ended December 31, 2017 and 2016, we spent $433,506 and $123,479, respectively, on marketing. Going forward however, we intend to significantly increase our spending on marketing because we believe that on-line channels and off-line brand awareness advertising will provide substantial opportunities for growth.
Industry and Market Opportunities
Our company was founded to capitalize on a combination of two growth markets: ride-sharing (an industry led by Uber and Lyft) and car-sharing (an industry led by companies such as Car2go N.A., LLC, ZipCar, Inc. and Turo, Inc. Our customers are the Drivers that use our car-sharing platform to rent a car and then use that car to make money driving for either Uber or Lyft. Finding enough cars and drivers to meet demand has been a problem for ride-sharing companies. In an online post dated November 24, 2013, TechCrunch.com stated:
“In some more established markets, Uber is struggling to keep enough cars on the road to meet the demand — and that’s a problem. It means cars either aren’t available, or if they are, there are longer wait times, and lower overall satisfaction with the service. Uber has tried to deal with this in the past by instituting surge pricing — which both curbs demand and ensures that drivers are more likely to continue driving at peak times.
But ultimately, the company knows that the only way to deal with that demand is to sign up more drivers. And one way to do that is by ensuring that they’ll have a car to drive if they’ve been approved for the Uber platform.”
We believe that we are the only peer-to-peer car-sharing platform focused on the ride-sharing industry in the United States. We have added over 5,490 new Drivers, matching them with Owner vehicles that have been used on the Uber and Lyft platforms over the past several years. During the years ended December 31, 2017 and 2016, we added approximately 4,430 and 1,060 new Drivers, respectively, into cars so that they could drive for Uber and Lyft. These numbers represent an equivalent 318% growth rate in new Drivers onto the HyreCar platform year over year.
Our Relationship with Lyft
On May 17, 2017, we announced an arrangement with Lyft that allows us to activate our Drivers through Lyft’s sign-up portal. This sign-up process allows drivers to begin providing services on Lyft’s platform within one business day. The majority of cars on our platform come pre-certified for ride-sharing under Lyft's vehicle requirements, enabling new and existing drivers to find a car and get on the road. The Lyft arrangement has not been formalized in a written agreement. We are also in talks with other ride-sharing companies to establish similar partnerships; however, no formal arrangements have been entered into to date.
Our Strengths
Using our platform, vehicle Owners can post their carscontains references to our marketplacetrademarks and Drivers can browse car inventory prior to rental. Once a Driver finds a car, he or she creates a profile, enters his or her personal information and credentials (including, address, city, state, copy of applicable state issued driver’s license, Uber or Lyft credentials and SSN) and submits a credit card or debit card for payment. We then perform a criminal background check, DMV driving record check, Homeland Security Watch-list and Sex Offender database check. HyreCar’s screening criteria is stricter than Uber and Lyft’s background check. We are focused on maintaining a safe user experience and ensuring that all transactions between Owners and Drivers are processed through a secure web platform.
Why Drivers Use Our Service
| ● | Attractive Market: Drivers’ ability to earn income by driving for a ride-sharing business. |
| ● | Pay-As-You-Go: Drivers are not locked into long-term lease agreements, long-term monthly payments or subscription fees. |
| ● | Convenience: Drivers can pick up the car from someone close by. Time from registration to getting behind the wheel currently averages under 48 hours. |
| ● | Transparency and Trust: There are no hidden fees and only Owners that have been properly screened are permitted to use the platform. |
| ● | Customer Experience: Application of game-design elements (i.e. gamification) of the platform keeps Drivers engaged. |
Why Owners Use Our Service
Data from a national survey of driving behavior indicates that private vehicles are in use 5% or less during any given day, or about one hour per day. Given the excess capacity of vehicle hours, higher vehicle utilization rates, and lower vehicle ownership rates, we expect a consumer shift towards acceptance of car-sharing. Based on the results of the survey, we believe our platform is advantageous for the following reasons:
| ● | Passive Income: We often match Owners with long term Drivers, which provides the Owners with a steady source of passive income resulting from our seamless re-booking process. |
| ● | Insurance: Liability policy fills the gaps left by personal and ride-sharing policies. |
| ● | Review of Drivers: Drivers must pass our extensive background checks and most Drivers have also passed the Uber and Lyft background checks. |
Insurance Coverage
A key component to our business is our commercial auto policy. The two sided nature of our platform means that we need to insure both the Driver and the Owner. Prior to any rental, the Driver and Owner are provided an insurance ID card that lists the driver’s name and the vehicle identification number. Insurance is typically generated twenty-four hours in advance of the commencement of the rental through to when the Owner confirms drop-off of the rented vehicle by the Driver. The vehicle pick-up and drop-off is all managed through our platform. An owner takes pictures of his or her vehicle prior to pressing the “Confirm Pick-up” button on the HyreCar mobile app. (If pictures are not taken and the button is not pressed, it provides grounds for a claim denial; subsequent liability and/or physical damage rests solely on the Driver and Owner.) After the rental is completed, the Owner presses the “Confirm Drop-off” button on the HyreCar mobile app and the rental ends.
American Business Insurance Services (“ABI”) is our managing general underwriter (“MGU”). ABI handles all of our back-end insurance generation and processing through a seamless application programming interface connection with the HyreCar databases.
For insurance purposes a vehicle rental is broken into four distinct driving periods. Period 0 is when the Driver has picked a vehicle up from the Owner and is driving with the Uber or Lyft app turned-off. Period 1 is when the Driver has the Uber or Lyft app turned-on, but has not yet accepted a fare. Period 2 is when the Driver has accepted a fare and is on the way to pick-up a passenger. Period 3 is when a passenger is in the vehicle. The HyreCar policy is specifically written to cover Period 0 (periods in which the Drivers are operating HyreCar vehicles OFF the Uber or Lyft platform). During the periods when Drivers are operating ON the Uber or Lyft platform (Periods 1, 2 and 3), the HyreCar insurance subordinates to state mandated insurance provided by Uber and Lyft. This enables us to keep insurance costs and liability low by leveraging state mandated insurance policies provided by the transportation network companies (“TNCs”).
Business Structure and Strategy
We operate out of our corporate office in Los Angeles, California. Our technology platform allows for a relatively small staff compared to the size and reach of our business. For example, we operate in 34 states plus the District of Columbia with no physical presence in those states, with the exception of California. Our expansion into new states is currently only limited by specific insurance considerations.
Sales and marketing are vital to our future profitability and growth because most potential customers are initially reluctant to pay upfront fees. Early interactions with our customers indicated that if customers were walked through the process once by a member of our sales and marketing team, the customers were more inclined to use and continue to use our services for a longer period of time. Accordingly, we implemented a one-man sales team in May 2016, and our revenue rose 193% that month from the prior month. Since then, building a strong sales team has become a priority.
We have expanded the sales team, which is now divided into a Driver team and an Owner team. The Driver team has a total of 15 sales contractors, which are split into three sub-teams. Driver team members make approximately 30 calls a day to new customer leads with a mandate to facilitate drivers into cars via the HyreCar platform. The Owner team has a total of six sales contractors split evenly into the following three regions: west coast states, central states and east coast states. The Owner sales team’s primary objective is to get Owners to list their cars on the HyreCar platform.
The sales team headcount has reached critical mass and we expect to maintain current headcount through 2018 to hit a forecast growth rate of 14% month over month. Capping headcount is a key assumption that we believe will drive profitability. The ability to grow topline revenue while capping sales expense is achieved through a combination of marketing and technology. Organic bookings, defined as a rental without sales agent contact, have jumped from 7.5% of revenue in 2016 to an estimated 14.5% in 2017. Attribution of organic bookings is directly related to the quality of marketing leads generated and user experience / user interphase enhancements (UI/UX) per technology development. The company’s expectation is that both aspects contribute to low operating expense growth in relation to revenue, which in-turn, the company believes, will lead to higher gross profit in 2018.
Technology contractors are the second largest planned use of proceeds from the primary offering. We currently operate with three overseas development teams (two in Vietnam and one in India) and two teams in the United States, including multiple full-time developers based out of our home office in Los Angeles. These teams are tasked with maintaining the current site, addressing bugs in the current code base and small improvements to the Owner and Driver user experience and user interphase. Maintenance of the current site includes transitioning back-end legacy code to graphOL, applications and proprietary software, with the goal of increasing organic bookings and automating processes for scale.
Support and operations underpin the company. Insurance claims management, Owner payment resolutions, Driver payment resolutions, collections, chat support, email support, phone support, late rentals, car recovery, Driver verifications, insurance generation and insurance verification all work together to create what we believe is a “best in class” customer service experience. Currently, we have 13 in-house support staff and three team members in India. Our plan is to build a domestic support team that is client-facing and use the team in India for special projects and administrative tasks. We believe that customer service is critical to our goal of bringing new Drivers/Owners onto the platform and retaining those customers who have already utilized our services.
Revenue Model
We generate revenue by taking a fee out of each rental processed on our platform. Each rental transaction represents a Driver renting a car from an Owner. Drivers pay a weekly rental rate,plusdirect insurance costs and a 10% HyreCar fee. Owners receive their weekly rental rateminus a 15% HyreCar fee. For example, as of December 31, 2017, the average weekly rental rate of a HyreCar vehicle is $200 (“Weekly Rental”), plus direct insurance costs, plus a 10% HyreCar fee ($20), totaling $290 in total gross billings. This gross billing amount is charged to the Driver’s account in one lump sum. $170 or 85% of the weekly rental is subsequently transferred to the Owner. HyreCar earns revenues from the transaction fee of $50 and gross fees from the insurance of $70. Accordingly, the GAAP reportable revenue recognized by HyreCar is $120 in this transaction (as detailed in the table below).
| Weekly Rental | | $ | 200.00 | | | | | | | Direct Insurance | | $ | 70.00 | | | | | | | HyreCar Driver Fee | | $ | 20.00 | | | | (10% of weekly rental) | | | HyreCar Gross Billings | | $ | 290.00 | | | | | | | Owner Payment | | $ | 170.00 | | | | (85% of weekly rental) | | | HyreCar Revenue | | $ | 120.00 | | | | | |
Gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners, refunds or rebates. Gross billings include transactions from both our revenues recorded on a net and a gross basis. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our financial statements as revenue. However, we use gross billings to asses our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Grossbillings may also be used to calculate net revenue margin, defined as the company’s GAAP reportable revenue over gross billings. Using the definition of net revenue margin and the example above, HyreCar’s net revenue margin is equal to approximately 41% ($120 HyreCar’s GAAP revenue over $290 Total Gross Billings). A breakout of revenue components is provided in MD&A and the financial footnotes.
The table below sets forth a reconciliation of our GAAP reported revenues to gross billings for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016:
| | | (Unaudited) Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year
ended December 31, 2017 | | | Year
ended December 31, 2016 | | | Revenues (GAAP reported revenue) | | $ | 1,714,183 | | | $ | 505,325 | | | $ | 3,223,874 | | | $ | 515,437 | | | Add: Refunds, rebates and deferred revenue | | | 384,187 | | | | 136,166 | | | | 766,487 | | | | 125,720 | | | Add: Owner payments (not recorded in financial statements) | | | 2,347,760 | | | | 749,900 | | | | 5,030,933 | | | | 831,731 | | | Gross billings (non-GAAP measure not recorded in financial statements) | | $ | 4,446,130 | | | $ | 1,391,391 | | | $ | 9,021,294 | | | $ | 1,472,888 | |
Marketing Plan
In November 2016, our marketing team reviewed keyword searches using Google Analytics. Thirty keywords and phrases were chosen and analyzed, allowing the team to determine in which cities the persons searching for the keywords and phrases were located. For example, approximately 400,000 people in Los Angeles googled key words like, “rent a car for Uber”, “Uber”, and “Uber Leasing.” Overlaying our customer demographics with the Google search results created a Driver/Owner affinity population of approximately 25 million potential customers, with the bulk of the 25 million concentrated in 16 core geographic locations. Core geographies represent the top 16 metropolitan statistical areas, or MSAs, in the country based off population count. The 34 states we operate in encompass all 16 MSAs with additional secondary and tertiary cities contributing as well.
Insurance Opportunity
A large percentage of our cost of revenues is direct insurance expense, which we pay to the insurance company. The premiums are broken into two categories, liability insurance and physical damage. The unique nature of our insurance enables us to keep insurance costs and liability low by leveraging state mandated insurance policies provided by the TNCs. Our insurance premiums have exceeded liability and physical damage claims throughout 2017, and we intend to examine self-insurance options in 2018.
Current estimates are that in excess of 35% of all commercial property and casualty premiums are in some form of alternative risk structure. The company has explored many forms of alternative risk structures including self-insurance through captive insurance programs and policies. Specifically, cell captives are entities consisting of a core and an indefinite number of cell entities which are kept legally separate from each other. A captive or protected cell is an ideal mechanism to deal with a large number of self-insured retention(s). The benefits of having a cell captive include:
| ● | generating a financial return through participating in the risk; | | | | | ● | increased control over potential insurance coverage and costs; | | | | | ● | illustrating to a carrier the willingness to share in the risk, and | | | | | ● | creating more stability in the insurance program. |
Pending a Q2 2018 feasibility study into the benefits of cell captives, the company believes it will be able to cut direct insurance costs by approximately 30% from 2017 premium levels. A potential 30% reduction in annualized premiums is a significant cost savings that increases the company’s gross profit margin, and we believe it will contribute to company profitability in 2018. The company estimates some form of insurance cost savings will be in-place by the end of Q2 2018. To the extent the company offers insurance directly, then the company will disclose any related revenues on the face of its income statements, in related notes and in the MD&A section of the company’s periodic reports.
In addition to self-insurance, the company is also working with our Managing General Agent (“MGA”) to develop new and innovative insurance products. The company has proposed a new type of owner “lay-up” insurance for vehicle owners on the HyreCar platform. Lay-up insurance replaces the need for an owner’s personal auto insurance policy and would represent significant cost savings when compared to other insurance options available in the market today. Offering this type of insurance product benefits the company in multiple verticals, including reduced insurance claim expense, greater customer retention and stickiness to the HyreCar platform. Our MGA has begun piloting lay-up insurance to vehicle owners.
Company and Other Information
HyreCar Inc. was incorporated in the State of Delaware on November 24, 2014. Our principal executive offices and mailing address are 355 South Grand Avenue, Suite 1650, Los Angeles, California 90071. Our main telephone number is (888) 688-6769. Our corporate website address is: www.hyrecar.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus and should not be relied upon with respect to this offering.
HyreCar, the HyreCar logo and any other current or future trademarks, service marks and trade names appearing in this prospectus are the property of HyreCar Inc. Otherto those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred tomay appear without the symbols ® and ™,or TM symbols, but such references shouldare not be construed asintended to indicate, in any indicatorway, that their respective ownerswe will not assert, to the fullest extent under applicable law, theirour rights thereto.
This Prospectus Summaryor the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Beforebefore investing in our common stock, youCommon Stock. You should carefully read thisthe entire prospectus carefully, including our financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things, the matters described under “Risk Factors” and “Management’s“Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case appearing elsewhere in this prospectus. Nasdaq ListingOperations,” and Symbol
Our common stock has been approved for listing on the Nasdaq Capital Market under the symbol “HYRE.”
Summary Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “Risk Factors” section immediately following this Prospectus Summary. These risks include, but are not limited to, the following:
| ● | Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment. |
| ● | If we do not effectively expand and train our sales team, we may be unable to add new customers or increase listings or rentals on our platform, and our business will be adversely affected. |
| ● | Fluctuating economic conditions make it difficult to predict revenue for a particular period, and a shortfall in revenue may harm our operating results. |
| ● | We do not have written contracts with either Uber or Lyft and our current relationships with either of these companies could change in the future, which could adversely affect our revenues. |
| ● | The ride-sharing model may not continue to grow, which would adversely affect our business. |
| ● | Our unique peer to peer structure could be duplicated and our inability to accurately predict user behavior could negatively impact our sales projections. |
| ● | The market forecasts included in this prospectus may prove to be inaccurate, and even if the markets in which we operate achieve growth, we cannot assure you our business will grow at similar rates, if at all. |
| ● | Our insurance coverage program is unique to our business, but it may not continue to be cost effective in the future. |
| ● | Our operations are dependent on our current management. The loss of any member of our management team could adversely affect our operations and financial results. |
| ● | Our results of operations are likely to vary significantly from period to period, which could cause the price of our common stock to decline. |
| ● | We have had operating losses each year since our inception, and may not achieve or maintain profitability in the future. |
| ● | Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus. |
| ● | We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition and results of operations. |
| ● | Changes in government regulations could have an adverse impact on our business. | | | |
| ● | Any material limitation in the fuel supply could adversely affect our business. | | | |
| ● | There can be no assurance of any return on your investment. |
| ● | Because the public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock following the primary offering, new investors will experience immediate and substantial dilution. |
| ● | We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors. |
| ● | We have not conducted an evaluation of the effectiveness of our internal control over financial reporting and will not be required to do so until 2018. If we are unable to implement and maintain effective internal control over financial reporting investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected. |
| ● | There is presently no trading market for our common stock and no assurance can be given that a trading market will exist in the future. Accordingly, you may be unable to liquidate your investment. |
| ● | Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation of our common stock, if any, will be your sole source of gain. |
| ● | We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all. |
| ● | Future sales and issuances of our common stock or rights to purchase common stock pursuant to our 2016 Equity Incentive Plan (the “2016 Equity Incentive Plan”) or 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) could result in additional dilution of the percentage ownership of our stockholders. |
| ● | We will incur increased costs as a result of being a public company. |
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
| ● | the requirement that we provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
| ● | reduced disclosure about our executive compensation arrangements; |
| ● | an exemption from the requirement that we hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of the primary offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold securities.
Reverse Stock Split
On May 17, 2017, we effected a 1-for-1.8404 reverse stock split of our issued and outstanding shares of common stock. All shares of our common stock referred to in this prospectus reflect the reverse split.
Going Concern
Our financial statements appearing elsewhere in this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the year ended December 31, 2017, we generated revenues of $3,223,874 and incurred a net loss of $4,271,732. During the year ended December 31, 2016, we earned revenues of $515,437 and incurred a net loss of $866,676.
We intend to rely on debt and equity financing for working capital until positive cash flows from operations can be achieved, which may never occur. We have incurred operating losses since inception. These matters raise substantial doubt about our ability to continue as a going concern. Throughout the next twelve months, we expect to fund our operations from additional debt and/or equity offerings, and increased revenue from our operations. If we cannot raise additional short-term capital, we may consume all of our cash reserved for operations. There are no assurances that we will be able to raise capital on terms acceptable to us. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The balance sheet does not include any adjustments that might result from these uncertainties. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2017 and 2016 with respect to this uncertainty.
THE OFFERING
Common stock offered by us | 2,100,000 shares. | | | Common stock outstanding prior to the primary offering (1) | 7,946,876 shares common stock | | | Common stock to be outstanding after the primary offering (2) | 10,046,876 shares (10,361,876 shares if the underwriters exercise their option to purchase additional shares in full). | | | Over-allotment option of common stock offered by us | The underwriters have a 45-day option to purchase up to 315,000 additional shares of common stock. | | | Use of proceeds | We currently intend to use the net proceeds to us from this primary offering for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. See the section of this prospectus titled “Use of Proceeds” beginning on page 19. | | | Nasdaq ticker symbol | “HYRE.” | | | Risk factors | Investing in our securities is highly speculative. See the section of this prospectus titled “Risk Factors” beginning on page 11. |
(1) | The number of shares of common stock outstanding prior to the primary offering, as set forth in the table above, includes 494,851 shares of issued but unvested restricted stock subject to forfeiture and assumes the conversion of all outstanding shares of our convertible preferred stock as of April 30, 2018 into 2,429,638 shares of our common stock. |
(2) | The number of shares of common stock outstanding after this primary offering, as set forth in the table above, is based on 7,946,876 shares of our common stock outstanding as of April 30, 2018, which includes (i) 494,851 shares of issued but unvested restricted stock subject to forfeiture and (ii) the conversion of all outstanding shares of our convertible preferred stock and excludes, as of that date, the following: |
| ● | warrants to purchase up to 200,000 shares of our common stock at a price of $2.10 per share; | | | | | ● | warrants to purchase up to 60,392 shares of our common stock at a price of $2.00 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | warrants to purchase 28,993 shares of our common stock at a price of $7.50 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | stock options to purchase 991,831 shares of our common stock at exercise prices between $0.71 and $1.75 per share; | | | | | ● | 3,000,000 shares of our common stock available for future issuance under our 2018 Equity Incentive Plan; | | | | | ● | up to 1,299,199 shares issuable upon the conversion of $3,046,281 in principal and $264,057 of accrued but unpaid interest of the Notes as of the maturity date of each Note, assuming we have not made any interest payments in cash and each Note is initially convertible on its maturity date, which number of shares was determined by dividing the total of the aggregate principal and the estimated accrued interest amounts by $2.5480; | | | | | ● | warrants to purchase up to 649,602 shares of our common stock at a price of $3.185 per share issuable to the holders of the Notes; | | | | | ● | warrants to purchase up to 15,455 shares of our common stock at a price of $2.80 per share issued to a certain designee of the placement agent for the Notes; | | | | | ● | the issuance of 10,000 shares of common stock to a consultant upon consummation of this primary offering; and
| | | | | ● | warrants to purchase up to 72,450 shares of our common stock issuable to the underwriters in connection with this primary offering. |
Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes:
| ● | the conversion of all outstanding shares of our convertible preferred stock as of April 30, 2018 into 2,429,638 shares of our common stock in connection with this primary offering; and |
| ● | the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with this primary offering.
|
RISK FACTORS
Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occur, our business and financial performance could be adversely affected, our actual results could differ materially from our expectations, and the price of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance. You should carefully consider the risks described below, together with all other information included in this prospectus including our financial statements and related notes, before making an investment decision. The statements contained in this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and investors in our securities may lose all or part of their investment.
Risks Related to Our Business and Our Industry
Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.
We were founded in 2014. Our limited operating history makes it difficult to evaluate our current business and prospects and plan for and model our future growth. We have encountered and will continue to encounter risks and uncertainties frequently encountered by rapidly growing companies in developing markets. If our assumptions regarding these risks and uncertainties are incorrect or change in response to changes in the ride-sharing or car-sharing market, our results of operations and financial results could differ materially from our plans and forecasts. Although we have experienced rapid growth since our inception, there is no assurance that such growth will continue. Any success we may experience in the future will depend in large part on our ability to, among other things:
| ● | maintain and expand our customer base and the ways in which customers use our platform; |
| ● | expand revenue from existing customers through increased or broader use of our platform; |
| ● | improve the performance and capabilities of our platform through research and development; |
| ● | effectively expand our business domestically and internationally, which will require that we rapidly expand our sales force and fill key management positions; and |
| ● | successfully compete with other companies that currently provide, or may in the future provide, solutions like ours. |
If we are unable to achieve our key objectives, including the objectives listed above, our business and results of operations will be adversely affected and the fair market value of our securities could decline.
If we do not respond appropriately, the evolution of the automotive industry towards autonomous vehicles and mobility on demand services could adversely affect our business.
The automotive industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. The high development cost of active safety and autonomous driving technologies may result in a higher risk of exposure to the success of new or disruptive technologies different than those being developed by us. There has also been an increase in consumer preferences for mobility on demand services, such as car- and ride-sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If we do not continue to innovate to develop or acquire new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, this could have an adverse impact on our results of operations.
If we do not effectively expand and train our direct sales force, we may be unable to add new customers or increase sales to our existing customers, and our business will be adversely affected.
We continue to be substantially dependent on our direct sales force to obtain new customers and increase sales with existing customers. There is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, because we continue to grow rapidly, a large percentage of our sales force is new to our company. If we are unable to hire and train a sufficient number of effective sales personnel, or the sales personnel we hire are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be adversely affected.
Fluctuating economic conditions make it difficult to predict revenue for a particular period, and a shortfall in revenue may harm our operating results.
Our revenue depends significantly on general economic conditions and the demand for products in the ride-sharing and car-sharing market. Economic weakness, customer financial difficulties, and constrained spending on ride-sharing may result in decreased revenue and earnings. Such factors could make it difficult to accurately forecast our sales and operating results.
We have no formal contracts with either Uber or Lyft and our current relationships with either of these companies could change in the future, which could adversely affect our revenues.
Although we have deployed drivers and cars to the systems of both Uber and Lyft since our operations began in 2015, there is currently no formal contractual relationship in place with either company. On May 17, 2017, we announced an arrangement with Lyft that allows us to activate our Drivers through Lyft’s sign-up portal; however, this is an oral arrangement that has not been memorialized in a written agreement. Consequently, each of these relationships could be discontinued at any time. In addition, virtually all of our revenue is generated by cars and drivers operating on both the Uber or Lyft platform and therefore this concentration represents a high degree of risk to us and to potential investors.
The ride-sharing model may not continue to grow, which would adversely affect our business.
Our business and future growth is significantly dependent on the continued success of each of Uber, Lyft, and other software-based systems that have come into the marketplace to compete with standard taxicab transportation organizations.
While the effect of those companies has been to decrease the cost and therefore increase the utilization of ride-sharing, there can be no assurance that consumer utilization of these systems will continue to grow, or that competition and the resulting price pressure will not undermine the viability of these types of systems, thereby adversely affecting our business.
Our unique peer to peer structure could be duplicated and our inability to accurately predict user behavior could negatively impact our sales business.
Although to date neither Uber nor Lyft have endeavored to develop a peer-to-peer system to match drivers and car owners as we are doing, there can be no assurance that either one of these companies or other competitors subsequently entering the marketplace will not endeavor to do so, and there can be no assurance that such competition will not have a negative impact on our business.
Furthermore, although several attempts to match up fleets of cars owned by operators with Uber and Lyft drivers have failed, there can be no assurance that other entities will not enter the marketplace on this basis with economic and logistical models that solve the problems that caused this failure.
The market forecasts included in this prospectus may prove to be inaccurate, and even if the markets in which we operate achieve growth, we cannot assure you our business will grow at similar rates, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to the expected growth in the ride-sharing market, including the forecasts or projections referenced in this prospectus, may prove to be inaccurate. Even if the ride-sharing market experiences the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
Our insurance coverage program is unique to our business, but it may not continue to be cost effective in the future.
We are currently the only company in the ride-sharing sector that has succeeded in structuring a cost-effective insurance program to provide for our liability when a driver and a car are carrying passengers. However, we have a short history in assessing the correlation between personal injury and property damage risks and the cost of insurance premiums, and there can be no assurance that our current projections will continue to be cost effective in the future.
Our operations are dependent on our current management. The loss of any member of our management team could adversely affect our operations and financial results.
We are highly dependent upon the retention of the services of our current management, specifically Joseph Furnari, Michael Furnari, Anshu “Andy” Bansal and Abhi Arora. The loss of any one of these individuals could adversely affect our operations and financial results. Our business also depends on our ability to attract and retain additional highly qualified management, technical, operating, and sales and marketing personnel. We do not currently maintain key person life insurance policies on any of our employees. We do not have fixed term employment agreements with any of our management employees, all of whom could terminate their relationship with us at any time.
Our results of operations are likely to vary significantly from period to period, which could cause the price of our common stock to decline.
Our results of operations have varied significantly from period to period. For example, the months of January, February and March are traditionally very slow for transportation demand. We expect that our results of operations will continue to vary as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
| ● | our ability to attract and retain new customers; | | | | | ● | the budgeting cycles and purchasing practices of customers; | | | | | ● | the timing and success of new service introductions by us or our competitors or any other change in the competitive landscape of the ride-sharing or car-sharing market, including consolidation among our competitors; | | | | | ● | our ability to successfully expand our business domestically and internationally; | | | | | ● | changes in our pricing policies or those of our competitors; | | | | | ● | any disruption in, or termination of, our relationship with our insurance carriers or ride sharing companies with which we do business; | | | | | ● | the cost and potential outcomes of future litigation, if any; | | | | | ● | seasonality in our business; | | | | | ● | general economic conditions, both domestic and foreign, assuming we expand into foreign markets; | | | | | ● | future accounting pronouncements or changes in our accounting policies or practices; and | | | | | ● | the amount and timing of operating costs and capital expenditures related to the expansion of our business. |
Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our financial and other operating results from period to period. As a result of this variability, our historical results of operations should not be relied upon as an indication of future performance. Moreover, this variability and unpredictability could result in our failure to meet our operating plan or the expectations of investors or analysts for any period. If we fail to meet such expectations for these or other reasons, the price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
We have had operating losses each year and quarterly period since our inception, and may not achieve or maintain profitability in the future.
We have incurred operating losses each year and every quarterly period since inception. For the three months ended March 31, 2018 and 2017, our operating loss was $1,574,057 and $680,156, respectively. For the years ended December 31, 2017 and 2016, our operating loss was $4,066,950 and $838,560. We expect our operating expenses to increase in the future as we expand our sales and marketing efforts and continue to invest in research and development of our technologies. These efforts may be costlier than we expect, and we may not be able to increase our revenue to offset our increased operating expenses. Our revenue growth may slow or our revenue may decline for a number of other reasons, including reduced demand for our services, increased competition, a decrease in the growth or size of the ride-sharing or car-sharing market or any failure to capitalize on growth opportunities. Any failure to increase our revenue as we grow our business could prevent us from achieving or maintaining profitability. If we are unable to meet these risks and challenges as we encounter them, our business, financial condition and results of operations may suffer.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.
Our audited financial statements at December 31, 2017 and 2016 and for the years then ended were prepared assuming that we will continue as a going concern.
Primarily as a result of our losses, limited working capital, and significant operating costs expected to be incurred in the next twelve months, the report of our independent registered public accounting firm included elsewhere in this prospectus contains an explanatory paragraph on our financial statements stating there is substantial doubt about our ability to continue as a going concern due to recurring losses from operations and deficiencies in working capital and net capital. Such an opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may also make it more difficult to operate our business due to concerns about our ability to meet our contractual obligations. Our ability to continue as a going concern is contingent upon, among other factors, the sale of the shares of our common stock in this primary offering or obtaining alternate financing. We cannot provide any assurance that we will be able to raise additional capital.
If we are unable to secure additional capital, we may be required to curtail our business initiatives and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause a significant reduction in the scope of our planned development, which could harm our business, financial condition and operating results. The accompanying financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. It is not possible for us to predict at this time the potential success of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we cannot continue as a viable entity, you may lose some or all of your investment.
Our obligations to the holders of the Notes, are secured by a security interest in substantially all of our assets, so if we default on those obligations, the holders of the Notes could foreclose on, liquidate and/or take possession of our assets. If that were to happen, we could be forced to curtail, or even to cease, our operations.
All amounts due under the Notes are secured by our assets. As a result, if we default on our obligations under the Notes, the holders could foreclose on their security interest and liquidate or take possession of some or all of these assets, which would harm our business, financial condition and results of operations and could require us to curtail, or even to cease our operations.
We are subject to certain covenants set forth in the Notes. Upon an event of default, including a breach of a covenant, we may not be able to make such accelerated payments under the Notes.
Under the Notes, so long as the Notes remains outstanding, we are subject to the following covenants, which we refer to as the covenants: we cannot pay cash dividends or distributions upon any of our equity securities, enter into a transaction with an affiliate of our company, or enter into an agreement with respect to any of the foregoing. These covenants could limit the operation of our business.
In addition, under the Notes, an event of default occurs upon any of the following: (i) any default in the payment of the principal amount of any Note or of interest or other amounts owed to such holder when due and not cured within five business days, (ii) our failure to perform a material covenant or agreement, which failure is not cured in five business days, (iii) a material representation or warranty made in the Notes or related transaction document is untrue in any material respect when made, (iv) we become subject to a bankruptcy event, (v) our default on other indebtedness in excess of $50,000, which default is not cured within ten business days, (vi) we are a party to a change of control transaction not approved by the holders of the Notes or (vii) we incur additional indebtedness or create any liens without the consent of the holders of the Notes.
Upon an event of default under the Notes, the outstanding principal amount of the Notes plus any other amounts owed to such holder will become immediately due and payable. Under the Notes, upon an event of default, (i) we will be required to use 25% of our future revenue and capital raised to pay down the Notes, (ii) Warrant coverage of the Notes will automatically increase from 50% to 100% of the shares of common stock issued upon the initial conversion of the Notes, and (iii) we will grant the holders the right to appoint one director to our board of directors until the event of default is cured. We expect that all of the Notes will convert upon the completion of the primary offering; however, we cannot make any assurance that such Notes will convert. As a result, we may be required to pay the Notes in cash per their terms.
We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition and results of operations.
The market for ride-sharing and car-sharing services is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards and frequent new service introductions and improvements. We anticipate continued challenges from current competitors, as well as by new entrants into the industry. If we are unable to anticipate or effectively react to these competitive challenges, our competitive position could weaken, and we could experience a decline in our growth rate or revenue that could adversely affect our business and results of operations.
Changes in government regulations could have an adverse impact on our business.
Currently, there are few laws regulating our business, however, as our business matures, this may change. Changes in government regulation of our business have the potential to materially alter our business practices, or our operational results. Depending on the jurisdiction, those changes may come about through the issuance of new laws and regulations or changes in the interpretation of existing laws and regulations by a court, regulatory body or governmental official. Sometimes those changes may have not just prospective but also retroactive effect; this is particularly true when a change is made through reinterpretation of laws or regulations that have been in effect for some time. Moreover, changes in regulation that may seem neutral on their face may have either more or less impact on us than on ride-sharing businesses, depending on the circumstances. Potential changes in law or regulation that may affect us relate to insurance intermediaries, customer privacy, data security and rate regulation.
Any material limitation in the fuel supply could adversely affect our business.
Our operations could be adversely affected by any limitation in the fuel supply or by any imposition of mandatory allocation or rationing regulations. We are not aware of any current proposal to impose such a regime in the U.S. or internationally. Such a regime could, however, be quickly imposed if there was a serious disruption in the fuel supply for any reason, including an act of war, terrorist incident or other problem, such as the devastation caused by hurricane Harvey, affecting the petroleum supply, refining, distribution or pricing.
If our security is compromised or if our platform is subjected to attacks that frustrate or thwart our users’ ability to access our products and services, our users, and partners may cut back on or stop using our products and services altogether, which could seriously harm our business.
Our efforts to protect the information that our users have shared with us may be unsuccessful due to the actions of third parties, software bugs, or other technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees or users to disclose information to gain access to our data or our users’ data. If any of these events occur, our or our users’ information could be accessed or disclosed improperly. Our privacy policy governs how we may use and share the information that our users have provided us. Some partners may store information that we share with them. If these third parties fail to implement adequate data-security practices or fail to comply with our terms and policies, our users’ data may be improperly accessed or disclosed. And even if these third parties take all these steps, their networks may still suffer a breach, which could compromise our users’ data. Any incidents where our users’ information is accessed without authorization, or is improperly used, or incidents that violate our terms of service or policies, could damage our reputation and our brand and diminish our competitive position. In addition, affected users or government authorities could initiate legal or regulatory action against us over those incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices. Maintaining the trust of our users is important to sustain our growth, retention, and user engagement. Concerns over our privacy practices, whether actual or unfounded, could damage our reputation and brand and deter users, advertisers, and partners from using our products and services. Any of these occurrences could seriously harm our business.
Risks Related to Ownership of Our Common Stock and the Primary Offering
There is presently no trading market for our common stock and no assurance can be given that a trading market will exist in the future. Accordingly, you may be unable to liquidate your investment.
There is currently no public market for our common stock. Our common stock has been approved for listing on the Nasdaq Capital Market, but if an active and liquid trading market does not develop or continue, you may have difficulty selling any of our common stock that you purchase. The initial public offering price for the shares was determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this primary offering. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in the primary offering, or at all.
An investment in our common stock is extremely speculative and there can be no assurance of any return on your investment.
An investment in our common stock is extremely speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in the company, including the risk of losing their entire investment.
Because the public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock following the primary offering, new investors will experience immediate and substantial dilution.
The public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately following the primary offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase our common stock, based on the assumed initial public offering price of $5.50 per share, the mid-point of the price range, you will experience immediate dilution of $4.79 per share, the difference between the price per share you pay for our common stock and the pro forma net tangible book value per share as of March 31, 2018, after giving effect to the issuance of our common stock in the primary offering.
Sales of our common stock in the primary offering will be taking place concurrently with common stock registered by selling stockholders which might affect the price, demand, and liquidity of our common stock.
We are registering shares of common stock to certain security holders concurrently with the primary offering. Between January 2018 and April 2018, we issued the Notes and warrants to the Selling Stockholders. The Notes are convertible into our common stock at the lower of $2.5480 per share or a discount of 30% to the price of the stock issued in our initial public offering. The warrants have an exercise price equal to 125% of the price of the conversion price of the Notes as of the date of exercise. The amount of common stock issued to the Selling Stockholders shall be 50% of the shares of our common stock that the Selling Stockholders are entitled to receive in connection with the conversion of the Selling Stockholders’ Notes when such Notes first become convertible. In addition, the company has agreed to register 200,000 shares of restricted common stock held by Insight Advisory, LLC pursuant to a consulting agreement, which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. Sales by these selling stockholders may reduce the price of our common stock, demand for the shares sold in the offering and, as a result, the liquidity of your investment.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the date of this prospectus.
We have not conducted an evaluation of the effectiveness of our internal control over financial reporting and will not be required to do so until 2018. If we are unable to implement and maintain effective internal control over financial reporting investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public company, we will be required to maintain internal control over financial reporting for the year ending December 31, 2018 and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the fiscal year ending December 31, 2018, provide a management report on the internal control over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we decide not to avail ourselves of the exemption provided to an emerging growth company, as defined by the JOBS Act. As we have not conducted an evaluation of the effectiveness of our internal control over financial reporting, we may have undiscovered material weaknesses. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process may be time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation of our common stock, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future financing agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be an investor’s sole source of gain for the foreseeable future.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We need sufficient capital to fund our ongoing operations and continue our development. We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, such as keeping pace with technological developments in order to remain competitive in our evolving industry, improve our operating infrastructure or acquire complementary businesses and technologies. As a result, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when and if we require it, our ability to continue to support our business growth, and to respond to business challenges could be significantly impaired.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.
Pursuant to our 2018 Equity Incentive Plan, the plan administrator is authorized to grant equity-based incentive awards to our directors, executive officers and other employees and service providers. Future issuances of common stock under awards outstanding under our 2016 Equity Incentive Plan and future equity incentive grants and issuances of common stock under our 2018 Equity Incentive Plan may result in dilution to our stockholders.
We will incur increased costs as a result of being a public company.
Assuming we complete this initial public offering, we will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, including the requirements of Section 404, as well as new rules and regulations subsequently implemented by the SEC and the Public Company Accounting Oversight Board (the “PCAOB”), impose additional reporting and other obligations on public companies. We expect that compliance with these public company requirements will increase our costs and make some activities more time-consuming. A number of those requirements will require us to carry out activities we have not done previously. For example, we will adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expense associated with our SEC reporting requirements. Furthermore, if we identify an issue in complying with those requirements (for example, if we or our accountants identify a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. We also expect that it will be difficult and expensive to obtain director officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and train qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in corporate governance and reporting requirements. We expect that the additional reporting and other obligations imposed on us by these rules and regulations will increase our legal and financial compliance costs and administrative fees significantly. These increased costs will require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives.
Our common stock has been approved for listing on the Nasdaq Capital Market. We can provide no assurance that our common stock will continue to meet Nasdaq listing requirements. If we fail to comply with the continuing listing standards of Nasdaq, our common stock could be delisted.
Our common stock has been approved for listing on the Nasdaq Capital Market; however, we can provide no assurance that an active trading market for our common stock will develop and continue. As a result, you may find it more difficult to purchase and dispose of our common stock and to obtain accurate quotations as to the value of our common stock. For our common stock to remain listed on Nasdaq, we must meet the current Nasdaq continued listing requirements. If we were unable to meet these requirements, our common stock could be delisted from Nasdaq. Any such delisting of our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets.
Anti-takeover provisions in our charter documents and under the General Corporation Law of the State of Delaware could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our management.
Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders, and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined organization voting stock from merging or combining with the combined organization. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then-current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Anti-takeover provisions in our charter documents could discourage, delay or prevent a change in control of us and may affect the trading price of our common stock.
Our corporate documents and the DGCL contain provisions that may enable our board of directors to resist a change in control of us even if a change in control were to be considered favorable by our stockholders. These provisions:
| · | stagger the terms of our board of directors and require 66 and 2/3% stockholder voting to remove directors, who may only be removed for cause; |
| · | authorize our board of directors to issue “blank check” preferred stock and to determine the rights and preferences of those shares, which may be senior to our common stock, without prior stockholder approval; |
| · | establish advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholders’ meetings; |
| · | prohibit our stockholders from calling a special meeting and prohibit stockholders from acting by written consent; |
| · | require 66 and 2/3% stockholder voting to effect certain amendments to our certificate of incorporation and bylaws; and |
| · | prohibit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates. |
These provisions could discourage, delay or prevent a transaction involving a change in control of us. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions our stockholders desire.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated certificate of incorporation that will be in effect at the closing of the primary offering provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction. Any person purchasing or otherwise acquiring any interest in any shares of our common stock shall be deemed to have notice of and to have consented to this provision of our amended and restated certificate of incorporation. This choice of forum provision may limit our stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $9,950,500 (or approximately $11,403,000 if the underwriters’ option to purchase additional shares is exercised in full) from the sale of the common stock offered by us in this primary offering, based on an assumed public offering price of $5.50 per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase or decrease in the assumed public offering price of $5.50 per share (the midpoint of the range set forth on the cover page of this prospectus), would increase or decrease the net proceeds to us from this primary offering by $1,900,000, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 100,000 shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase or decrease net proceeds to us from this primary offering by $495,000, assuming no change in the assumed public offering price of $ 5.50 per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this primary offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this primary offering. However, we currently intend to use the net proceeds to us from this primary offering for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters, as more fully described in the table below. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.
We will retain broad discretion in the allocation of the net proceeds from this primary offering and could utilize the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock.
The table below sets forth the manner in which we expect to use the net proceeds we receive from this primary offering. All amounts included in the table below are estimates.
| Description | | Amount | | | General and Administrative | | $ | 3,830,750 | | | Sales and Marketing | | $ | 5,182,269 | | | Research and Development | | $ | 937,481 | | | Total | | $ | 9,950,500 | |
The foregoing information is an estimate based on our current business plan. We may find it necessary or advisable to re-allocate portions of the net proceeds reserved for one category to another, and we will have broad discretion in doing so. Pending these uses, we intend to invest the net proceeds of this primary offering in a money market or other interest-bearing account.
Dividend Policy
We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our board of directors.
CAPITALIZATION
The following table sets forth our cash and capitalization, as of March 31, 2018 on:
| ● | an actual basis; | | | | | ● | on a pro forma basis to give effect to (i) the automatic conversion of all of our outstanding shares convertible preferred stock into common stock and (ii) the amendment and restatement of our certificate of incorporation in connection with our primary offering; and | | | | | ● | a pro forma as-adjusted basis, giving effect to the issuance and sale of 2,100,000 shares of our common stock in this primary offering, at the assumed public offering price of $5.50 per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read the following table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this prospectus.
| | | As of March 31, 2018 | | | | | Actual | | | Pro Forma (1) | | | Pro Forma As Adjusted (2) | | | | | | | | | | | | | | Current note payable, net of discount | | $ | 48,972 | | | $ | 48,972 | | | $ | 48,972 | | | Current notes payable – related party, net of discount | | | 297,011 | | | | 297,011 | | | | 297,011 | | | Convertible debt, net of discount | | | 2,333,142 | | | | 2,333,142 | | | | 2,333,142 | | | Total notes payable, net of discounts | | | 2,679,125 | | | | 2,679,125 | | | | 2,679,125 | | | | | | | | | | | | | | | | | Stockholders’ (deficit) equity: | | | | | | | | | | | | | | Preferred stock, 15,000,000 shares authorized, par value $0.00001, 2,429,638 issued and outstanding as of March 31, 2018 | | | 1,591,886 | | | | - | | | | - | | | Common stock, 50,000,000 shares authorized, par value $0.00001, 5,252,953 shares issued and outstanding, actual; 7,682,591 shares issued and outstanding, pro forma; 9,782,591 shares issued and outstanding, pro forma as adjusted | | | 52 | | | | 76 | | | | 96 | | | Subscription receivable - related party | | | (140,434 | ) | | | (140,434 | ) | | | (140,434 | ) | | Additional paid-in capital | | | 2,764,394 | | | | 4,356,256 | | | | 14,306,756 | | | Accumulated deficit | | | (7,019,885 | ) | | | (7,019,885 | ) | | | (7,019,885 | ) | | | | | | | | | | | | | | | | Total stockholders’ (deficit) equity | | | (2,803,987 | ) | | | (2,803,987 | ) | | | 7,146,533 | | | | | | | | | | | | | | | | | Total capitalization | | $ | (124,862 | ) | | $ | (124,862 | ) | | $ | 9,825,658 | |
(1) | Assumes that all of the company’s outstanding shares of preferred stock will convert into 2,429,638 shares of common stock in connection with the primary offering. Each share of the company’s outstanding preferred stock is convertible into such number of shares of common stock as is determined by dividing $0.71, the original issue price, divided by $0.71, the initial conversion price, subject to adjustment in accordance with anti-dilution provisions contained in the certificate of designation for the preferred stock. | | | (2) | A $1.00 increase (decrease) in the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders’ (deficit) equity and total capitalization on a pro forma as adjusted basis by approximately $1,900,000, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders’ (deficit) equity and total capitalization on a pro forma as adjusted basis by approximately $495,000, assuming the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The actual, pro forma and pro forma as adjusted information set forth in the table excludes:
| ● | warrants to purchase up to 200,000 shares of our common stock at a price of $2.10 per share; | | | | | ● | warrants to purchase up to 60,392 shares of our common stock at a price of $2.00 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | warrants to purchase 28,993 shares of our common stock at a price of $7.50 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | stock options to purchase 991,831 shares of our common stock at exercise prices between $0.71 and $1.75 per share; | | | | | ● | 3,000,000 shares of our common stock available for future issuance under our 2018 Equity Incentive Plan; | | | | | ● | up to 1,299,199 shares issuable upon the conversion of $3,046,281 in principal and $264,057 of accrued but unpaid interest of the Notes as of the maturity date of each Note, assuming we have not made any interest payments in cash and each Note is initially convertible on its maturity date, which number of shares was determined by dividing the total of the aggregate principal and the estimated accrued interest amounts by $2.5480; and | | | | | ● | warrants to purchase up to 649,602 shares of our common stock at a price of $3.185 per share issuable to the holders of the Notes; | | | | | ● | warrants to purchase up to 15,455 shares of our common stock at a price of $2.80 per share issued to a certain designee of the placement agent for the Notes; | | | | | ● | the issuance of 10,000 shares of common stock to a consultant upon the completion of this primary offering; and
| | | | | ● | warrants to purchase up to 72,450 shares of our common stock issuable to the underwriters in connection with this primary offering. |
DILUTION
If you invest in our common stock in this primary offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this primary offering.
Our historical net tangible book value (deficit) as of March 31, 2018 was $(2,803,987), or $(0.53) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value (deficit) divided by the number of shares of our common stock issued as of March 31, 2018. This data is solely based on the historical amounts as shown in our balance sheet as of March 31, 2018, without giving effect to the automatic conversion of our convertible preferred stock or the vesting of 264,285 shares of restricted stock granted to consultants, which were not accounted for as issued and outstanding per ASC 505-50-s99-1 as they are unvested and forfeitable based on a future contingent event.
Our pro forma net tangible book value (deficit) as of March 31, 2018 was $(2,803,987), or $(0.35) per share of our common stock. Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 2,429,638 shares of common stock upon the completion of this primary offering and the vesting of 264,285 shares of restricted stock held by consultants which is triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of this primary offering.
After giving further effect to our sale of shares of common stock in this primary offering at an assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been approximately $7,146,533, or approximately $0.71 per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $1.06 to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value per share of approximately $4.79 to new investors purchasing common stock in this primary offering. Dilution per share to new investors purchasing common stock in this primary offering is determined by subtracting pro forma as adjusted net tangible book value per share after this primary offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:
| Assumed initial public offering price per share | | | | | | $ | 5.50 | | | Historical net tangible book value (deficit) per share as of March 31, 2018 | | $ | (0.53 | ) | | | | | | Increase in price per share attributable to the conversion of all outstanding shares of convertible preferred stock and restricted stock grants | | | 0.18 | | | | | | | Pro forma net tangible book value (deficit) per share as of March 31, 2018 | | $ | (0.35 | ) | | | | | | Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares in this primary offering | | | 1.06 | | | | | | | Pro forma as adjusted net tangible book value per share after this primary offering | | | 0.71 | | | | | | | Dilution per share to new investors purchasing shares in this primary offering | | | | | | $ | 4.79 | |
A $1.00 increase (decrease) in the assumed initial public offering price of $5.50 per share would increase (decrease) our pro forma as-adjusted net tangible book value by $1,900,000, the pro forma as-adjusted net tangible book value per share after this primary offering by $0.90 and the dilution per share to new investors by $4.60, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 100,000 shares in the number of shares offered by us would increase (decrease) our pro forma as-adjusted net tangible book value by $495,000, the pro forma as-adjusted net tangible book value per share after this primary offering by $0.75 and the dilution per share to new investors by $4.75, assuming the assumed public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
If the underwriters exercise their option to purchase additional shares of common stock in this primary offering in full at the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover of this prospectus and assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma as adjusted net tangible book value per share after this primary offering would be $0.83 per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this primary offering would be $4.67 per share.
The following table summarizes, on a pro forma as adjusted basis, as of March 31, 2018, the number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in the primary offering at an assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
| | | Shares Purchased | | | Total Consideration | | | Average Price | | | | | Number | | | Percent | | | Amount | | | Percent | | | Per Share | | | | | (in thousands) | | | Existing stockholders | | | 7,946,876 | | | | 79.1 | % | | $ | 6,210,310 | | | | 35.0 | % | | $ | 0.78 | | | New investors | | | 2,100,000 | | | | 20.9 | % | | $ | 11,550,000 | | | | 65.0 | % | | $ | 5.50 | | | Total | | | 10,046,876 | | | | 100.0 | % | | $ | 17,760,310 | | | | 100.0 | % | | | | |
The table above assumes no exercise of the underwriters’ option to purchase additional shares in this primary offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to 79.1% of the total number of shares of our common stock outstanding after this primary offering, and the number of shares of common stock held by new investors participating in the primary offering would be increased to 20.9% of the total number of shares outstanding after this primary offering.
A $1.00 increase (decrease) in the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $2,100,000 and, in the case of an increase, would increase the percentage of total consideration paid by new investors by 3.7 percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by 4.7 percentage points.
The tables above do not include:
| ● | warrants to purchase up to 200,000 shares of our common stock at a price of $2.10 per share; | | | | | ● | warrants to purchase up to 60,392 shares of our common stock at a price of $2.00 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | warrants to purchase 28,993 shares of our common stock at a price of $7.50 per share held by Network 1 Financial Securities, Inc. and its designees; | | | | | ● | stock options to purchase 991,831 shares of our common stock at exercise prices between $0.71 and $1.75 per share; | | | | | ● | 3,000,000 shares of our common stock available for future issuance under our 2018 Equity Incentive Plan; | | | | | ● | up to 1,299,199 shares issuable upon the conversion of $3,046,281 in principal and $264,057 of accrued but unpaid interest of the Notes as of the maturity date of each Note, assuming we have not made any interest payments in cash and each Note is initially convertible on its maturity date, which number of shares was determined by dividing the total of the aggregate principal and the estimated accrued interest amounts by $2.5480; | | | | | ● | warrants to purchase up to 649,602 shares of our common stock at a price of $3.185 per share issuable to the holders of the Notes; | | | | | ● | warrants to purchase up to 15,455 shares of our common stock at a price of $2.80 per share issued to a certain designee of the placement agent for the Notes; | | | | | ● | the issuance of 10,000 shares of common stock to a consultant upon the completion of this primary offering; and | | | | | ● | warrants to purchase up to 72,450 shares of our common stock issuable to the underwriters in connection with this primary offering. |
To the extent that outstanding options and warrants are exercised or shares are issued under our 2016 Equity Incentive Plan or our 2018 Equity Incentive Plan, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our audited and unaudited financial statements and the related notes, in each case included in this prospectus before making an investment decision.
In this prospectus, unless we indicate otherwise or the context requires, references to the “Company,”“HyreCar,”“we,”“our,”“ours,”and other“us” refer to HyreCar Inc. The following summary is qualified in its entirety by the more detailed information and financial informationstatements and notes thereto included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.Overview
We were formed in November 2014 to match the owners of idle cars to drivers who provide services to ride-sharing businesses such as Uber and Lyft. We are based in Los Angeles, California. As described below, we have funded our business through the sale of preferred stock and convertible promissory notes, through short-term advances provided to us by related parties and from the limited revenues we have earned:
Series Seed 1 Convertible Preferred Stock.In August 2016, our board of directors authorized 15,000,000 shares of preferred stock with a par value $0.00001. Of these, our board designated 4,471,489 shares as Series Seed 1 Convertible Preferred Stock (“Series Seed 1”). During 2016, we issued 985,369 shares of Series Seed 1 at a price of $0.71 per share for aggregate proceeds of $700,000. During 2017, we issued 422,302 shares of Series Seed 1 in exchange for $300,000.
Convertible Promissory Notes.During 2016, we issued convertible promissory notes. The convertible notes accrued interest at the rate of 12%, with a default rate of 15% and were due three years from the date of issuance. We raised $500,000 from the sale of our convertible promissory notes. In 2017, the principal amount of the convertible promissory notes and all accrued interest, in the aggregate amount of $536,434 were converted into 943,908 shares of Series Seed 1.
Short Term Advances.During 2016 we received $3,000 in short term advances from related parties.
2017 Debt. In April and May 2017, we issued debt (“2017 Debt”) to related parties totaling $300,000 and third parties totaling $50,000 with the same terms and conditions. The 2017 Debt is due in one year and while it does not bear interest, 200,000 warrants were issued with the 2017 Debt. The warrants are exercisable at $2.10 and expire in five years.
Private Placement. Starting in June 2017, we undertook a private placement for the sale of common stock for $1.75 per share. During the year ended December 31, 2017, 1,236,588 shares of common stock were sold for gross proceeds of $2,164,029. The father and brother of the company’s Chief Executive Officer and the Chief Business Development Officer purchased an aggregate of 14,800 shares for $25,900 in this offering. In connection with this offering, we were required to pay our placement agent a cash fee equal to 13% of the gross proceeds and a warrant to purchase shares of common stock in an amount equal to 10% the aggregate amount of shares old. Accordingly, as of December 31, 2017, $281,324 in commissions have been paid or are payable along with $38,806 in related legal and related fees, both of which were netted against gross proceeds of the offering. Based on the amounts raised through the year ended December 31, 2017, we agreed to issue the placement agent warrants to purchase up to 123,659 shares of common stock, exercisable at $2.00. All numbers are final as of December 31, 2017 and there will be no more common stock issued under this private placement. On June 22, 2018, such placement agent warrants were amended to (i) decrease the amount of shares that can be purchased at an exercise price of $2.00 per share to 60,392 shares of common stock and (ii) reduce the remaining 63,267 shares to 28,993 shares at a modified exercise price of $7.50 per share, due to the fact that they were earned 180 days immediately preceding the required filing date of the registration statement of which this prospectus is a part. In addition, this private placement is separate from the agreement entered in November 2017 as disclosed in Note 3 on page F-14.
Revenue.We earn revenue primarily from transaction fees and insurance fees when a car is rented on our website. We also earn revenue from other sources such as referral fees and motor vehicle record fees (application fees). During the years ended December 31, 2017 and 2016, we earned $3,223,874 and $515,437 in revenue, respectively.
Our costs include employee salaries and benefits, compensation paid to consultants, sales and marketing costs including advertising, general and administrative expenses including facility costs, supplies, legal, accounting and professional service expenses, costs associated with development activities and other costs associated with an early stage company. We anticipate increasing the number of employees required to support our activities in the areas of research and development, sales and marketing, and general and administrative functions. Until we are able to phase out off-shore development and hire developers in-house we expect to incur consulting expenses related to technology upkeep, maintenance and UI/UX improvements commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property.
The amount that we spend for any specific purpose may vary significantly, and could depend on a number of factors including, but not limited to, the pace of progress of our commercialization and development efforts, actual needs with respect to development and research, market conditions, and changes in or revisions to our marketing strategies or to the car-sharing industry.
During the years ended December 31, 2017 and 2016, we spent $687,039 and $117,059, respectively, on research and development. Research, development, and commercial acceptance of new business models are, by their nature, unpredictable. Although we will undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from the primary offering will be sufficient to enable us to develop our sales team and our technology to the extent needed to sustain operations. If the net proceeds from the primary offering are insufficient for these purposes, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity or debt offerings.
We cannot assure that our business model will be widely accepted; that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development plans by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations.
Going Concern
We intend to rely on debt and equity financing for working capital until positive cash flows from operations can be achieved, which may never occur. We have incurred operating losses since inception. These matters raise substantial doubt about our ability to continue as a going concern. Throughout the next twelve months, we expect to fund our operations from additional debt and/or equity offerings, and increased revenue from our operations. If we cannot raise additional short-term capital, we may consume all of our cash reserved for operations. There are no assurances that we will be able to raise capital on terms acceptable to us. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The balance sheet does not include any adjustments that might result from these uncertainties. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2017 and 2016 with respect to this uncertainty.
Components of Our Results of Operations
The following describes the various components that make up our results of operations, discussed below.
Revenue is earned from fees associated with matching Drivers to Owners of idle cars that meet the strict requirements imposed by ride-sharing services such as Uber and Lyft with Drivers. A Driver will typically rent a car through one transaction via our on-line marketplace. We recognize GAAP reportable revenue primarily from a transaction fee and an insurance fee when a car is rented on our platform when (a) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved; (b) the services have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card or account on file is charged. The company defers revenue where the earnings process is not yet complete.
Cost of revenues primarily include direct fees paid for driver insurance, merchant processing fees, and motor vehicle record fees incurred for paid driver applications.
General and administrative costs include all corporate and administrative functions that support our business. These costs also include stock-based compensation expense, consulting costs, and other costs that are not included in cost of revenues.
Research and development costs are related to activities such as user experience and user interphase development, database development and maintenance and any technology related expense that improves and maintains the functionality of our existing platform.
Other income/expense includes non-operating income and expenses including interest expense.
Results of Operations
Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017
Revenues and Gross Profit. Gross profit of $423,311, or approximately 25%, was realized on revenues totaling $1,714,183 for the three months ended March 31, 2018, as compared to gross profit of $36,873, or approximately 7%, realized on revenues totaling $505,325 for the three months ended March 31, 2017. The increase in revenues of $1,208,858, or approximately 239%, was due to the growth of our business, which resulted from the expansion of our sales team, increased marketing spend and brand awareness.
Operating Expenses.Operating expenses, consisting of research and development, sales and marketing and general and administrative expenses, increased by approximately $1,280,339, or approximately 179%, to $1,997,368 for the three months ended March 31, 2018, as compared to operating expenses of $717,029 for the three months March 31, 2017. The increase in operating expenses related to the expansion of our sales team which, in turn, resulted in an increase in sales and in our operating expenses. Our general and administrative expenses increased by $573,370 representing an increase in office space, salaries, contractors, operations and support functions. Our sales and marketing expenses increased by $563,350 which is attributable to an increase in online advertising, increased sales contractors and compensation. Remaining difference is attributable to research and development and specifically increased contractors and outside services expense related to maintenance of the technology platform.
Loss from Operations.Our loss from operations for the three months ended March 31, 2018 was $1,574,057 as compared to a loss from operations of $680,156 for the three months ended March 31, 2017. The increase loss during 2017 is a direct result of the increased operating costs noted above.
Other (Income) Expense. For the three months ended March 31, 2018, interest expense totaled $161,773 as compared to interest expense of $140,065 for the three months ended March 31, 2017. The increase was a result of the 2018 period including debt discount accretion of the senior secured Notes and stated interest rates on such notes thereon as well as the debt discount accretion from Notes payable, as compared to the 2017 period which had interest related to charges for beneficial conversion features on convertible debt and stated interest for only a portion of the period for which the convertible debt was outstanding. Other income and expense during the three months ended March 31, 2018 and 2017 were minor.
Net Loss. Primarily as a result of the increased operating expenses noted above, together with the interest expense incurred during the three months ended March 31, 2018, our net loss for the three months ended March 1, 2018 was $1,767,031, as compared to a net loss for the three months ended March 31, 2017 of $823,230.
Non-GAAP Financial Measure – Gross Billings
Gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners or refunds. Gross billings include transactions from both our revenues recorded on a net and a gross basis. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our financial statements as revenue. However, we use gross billings to asses our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Gross billings may also be used to calculate net revenue margin, defined as the company’s GAAP reportable revenue over gross billings.
The table below sets forth a reconciliation of our GAAP reported revenues to gross billings for the three months ended March 31, 2018 and 2017:
| | | (Unaudited) Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Revenues (GAAP reported revenue) | | $ | 1,714,183 | | | $ | 505,325 | | | Add: Refunds, rebates and deferred revenue | | | 384,187 | | | | 136,166 | | | Add: Owner payments (not recorded in financial statements) | | | 2,347,760 | | | | 749,900 | | | Gross billings (non-GAAP measure not recorded in financial statements) | | $ | 4,446,130 | | | $ | 1,391,391 | |
December 31, 2017 compared to December 31, 2016
Revenues and Gross Profit. Gross profit of $311,326, or approximately 10%, was realized on revenues totaling $3,223,874 for the year ended December 31, 2017 as compared to gross profit of $87,501, or approximately 17%, realized on revenues totaling $515,437 for the year ended December 31, 2016. The increase in revenues of $2,708,437, or approximately 525%, was due to the growth of our business, which resulted from the expansion of our sales team, increased marketing spend and brand awareness.
Operating Expenses.Operating expenses, consisting of research and development, sales and marketing and general and administrative expenses, increased by approximately $3,452,215, or approximately 373%, to $4,378,276 for the year ended December 31, 2017, as compared to operating expenses of $926,061 for the year ended December 31, 2016. The increase in operating expenses related to the expansion of our sales team which, in turn, resulted in an increase in sales and in our operating expenses. Our general and administrative expenses increased by $1,381,533 representing an increase in office space, salaries, contractors, operations and support functions. Our sales and marketing expenses increased by $1,500,702 which is attributable to an increase in on-line advertising, increased sales contractors and compensation. Remaining difference is attributable to research and development and specifically increased contractors and outside services expense related to maintenance of the technology platform.
Loss from Operations.Our loss from operations for the year ended December 31, 2017 was $4,066,950 as compared to a loss from operations of $838,560 for the year ended December 31, 2016. The increase loss during 2017 is a direct result of the increased operating costs noted above.
Other (Income) Expense. For the year ended December 31, 2017, interest expense totaled $202,454 as compared to interest expense of $31,153 for the year ended December 31, 2016. The increase was a result of interest charges for beneficial conversion features on convertible debt and the amortization of debt discounts in 2017. In 2016, only the stated rate of interest was incurred on convertible debt outstanding along with other minor interest charges. Other income and expense during the years ended December 31, 2017 and 2016 were minor.
Net Loss. Primarily as a result of the increased operating expenses noted above, together with the interest expense incurred during 2017, our net loss for the year ended December 31, 2017 was $4,271,732 as compared to a net loss for the year ended December 31, 2016 of $866,676.
Non-GAAP Financial Measure – Gross Billings
Gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners or refunds. Gross billings include transactions from both our revenues recorded on a net and a gross basis. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our financial statements as revenue. However, we use gross billings to asses our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Gross billings may also be used to calculate net revenue margin, defined as the company’s GAAP reportable revenue over gross billings.
The table below sets forth a reconciliation of our GAAP reported revenues to gross billings for the years ended December 31, 2017 and 2016:
| | | 2017 | | | 2016 | | | Revenues (GAAP reported revenue) | | $ | 3,223,874 | | | $ | 515,437 | | | Add: Refunds, rebates and deferred revenue | | | 766,487 | | | | 125,720 | | | Add: Owner payments (not recorded in financial statements) | | | 5,030,933 | | | | 831,731 | | | Gross billings (non-GAAP measure not recorded in financial statements) | | $ | 9,021,294 | | | $ | 1,472,888 | |
Liquidity and Capital Resources
At March 31, 2018, our cash balance totaled $810,119 compared to $213,944 at December 31, 2017. At March 31, 2018, our current assets totaled $1,166,295 and our current liabilities totaled $4,063,859 resulting in negative working capital of $2,897,564 compared to a negative working capital of $1,337,331 at December 31, 2017. This deficit resulted primarily from a lack of operating capital.
We do not have any contractual obligations for ongoing capital expenditures at this time.
Operating activities for the three months ended March 31, 2018 resulted in cash outflows of $1,664,023 which were due primarily to the loss for the period of $1,767,031, and changes in operating assets and liabilities of $210,963, net of non-cash expenses totaling $313,971. Operating activities for the three months ended March 31, 2017 resulted in cash used in operating activities of $564,443, which was due primarily to the loss for the period offset by $134,108 in non-cash expenses and $124,679 in changes to operating assets and liabilities.
Investing activities for the three months ended March 31, 2018 resulted in cash outflows of $13,260 consisting of net outflow related to deposits and other assets, and purchase of property and equipment.
Investing activities for the three months ended March 31, 2017 resulted in cash outflows of $15,135 consisting of additional deposits for the Company’s prior office.
Net cash provided by financing activities for the three months ended March 31, 2018 totaled $2,273,458 and included $2,318,579 in net proceeds from convertible debt, net of $45,121 in paid offering costs.
Net cash provided by financing activities for the three months ended March 31, 2017 totaled $300,000 related to the sale of preferred stock.
Critical Accounting Policies, Judgments and Estimates
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.
Stock Based Compensation
The company accounts for stock options issued to employees under ASC 718, Compensation – Stock Compensation. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.
The company measures compensation expense for its non-employee stock-based compensation under ASC 505, Equity. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the company’s common stock or equity award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
Revenue Recognition
The company recognizes revenue primarily from a transaction fee and an insurance fee when a car is rented on the company’s platform when (a) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved; (b) the services have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card on file is charged. The company defers revenue where the earnings process is not yet complete.
The company also recognizes revenue from other sources such as referrals, motor vehicle record fees (application fees), late rental fees, and other fees charged to Drivers in specific situations.
In limited circumstances, the company provides contingent consideration in the form of a rebate or refund that is redeemable only if the customer completes a specific level of transaction over a specific time period. In such cases, the rebate or refund obligation is recognized as a reduction of revenues. Measurement of the total rebate or refund obligation is based on management estimates using historical data.
The following is a breakout of revenue components by subcategory for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016.
| | | (Unaudited)
Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year ended December 31, 2017 | | | Year ended December 31, 2016 | | | Insurance fees | | $ | 957,167 | | | $ | 250,062 | | | $ | 1,650,512 | | | $ | 215,028 | | | Transaction fees | | | 694,938 | | | | 222,021 | | | | 1,465,426 | | | | 232,279 | | | Other fees | | | 150,341 | | | | 33,242 | | | | 212,077 | | | | 68,130 | | | Incentives and rebates | | | (88,263 | ) | | | - | | | | (104,141 | ) | | | - | | | Net revenue | | $ | 1,714,183 | | | $ | 505,325 | | | $ | 3,223,874 | | | $ | 515,437 | |
Transaction fees and insurance fees are charged to a Driver in a single transaction. Drivers currently do not have an option to decline insurance at any point during the transaction.
Principal Agent Considerations
In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, we evaluate our service offerings to determine if we are acting as the principal or as an agent, which we consider in determining if revenue should be reported gross or net. Our primary revenue source is a transaction fee made from a confirmed booking of a vehicle on our platform. Key indicators that we evaluate to reach this determination include:
| ● | the terms and conditions of our contracts; | | | | | ● | whether we are paid a fixed percentage of the arrangement's consideration or a fixed fee for each transaction; | | | | | ● | the party which sets the pricing with the end-user, has the credit risk and provides customer support; and | | | | | ● | the party responsible for delivery/fulfillment of the product or service to the end consumer |
We have determined that we act as the agent in the transaction for vehicle bookings, as we are not the primarily obligor of the arrangement and receive a fixed percentage of the transaction. Therefore, revenue is recognized on a net basis.
For other fees such as insurance fees and motor vehicle records (application fees) we have determined that revenue should be recorded on a gross basis. In such arrangements, the company sets pricing, has risk of economic loss, has certain credit risk, provides support services related to these transactions, and has decision making ability about service providers used.
Income Taxes
The company applies ASC 740 “Income Taxes” (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2017 and 2016, the company has established a full allowance against all deferred tax assets.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Internal Use Software
We incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services. In accordance with ASC 350-40,Internal-Use Software, we capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. No costs have been capitalized to date.
OUR BUSINESS
About HyreCar Inc. was formed as a corporation in the State of Delaware on November 24, 2014. Our founders identified the need for a car-sharing platform for individuals who wanted to drive for ride-sharing companies such as Uber Technologies Inc. (“Uber”) and Lyft, Inc. (“Lyft”), but whose automobiles could not meet the standards imposed by the ride-sharing companies. For example, Uber maintains strict guidelines regarding the types of cars a driver can use. Although guidelines relating to cars can differ by state, in general the use of two door coupes, motorcycles and cars that are 12 years or older are excluded. Our founders, before deciding to purchase qualifying sedans that met Uber’s strict guidelines, first inquired as to whether there were any rental options available from Uber that would allow them to drive for the ride-sharing platform. To their surprise, there were no rental options available, other than a shadow industry of individuals renting cars to one another. HyreCar is a unique peer-to-peer car-sharing marketplace that allows car owners (collectively, “Owners”) to rent their idle cars to ride-sharing service drivers (collectively, “Drivers”). By conveniently sourcing vehicles from individual Owners, part-time Drivers may more easily enter and exit the market. Accordingly, the company’smarket and our business model providesallows us with the opportunity to satisfy fluctuating transportation demand in cities around the United States by matching Owners and Drivers. Our vehicle supply also includes commercial owners of vehicles including car dealerships and fleet owners to help increase activity levels. Our business is based on a proprietary car-sharing marketplace developed toto: (i) enrollonboard Owners and Drivers, (ii) facilitate the matching of Owners and Drivers, and (iii) log rental activity for Owners and Drivers. All transactions related to the rental (including, but not limited to, background checks, rentals, deposits and insurance costs) are run securely through the HyreCar platform. Drivers and Owners access their rental or car dashboards through a unique login. Drivers can easily initiate, terminate or extend a rental through the platform while Owners can manage their car or fleet of cars through the platform. We believe we have a competitive advantage with our commercial automobile insurance policy that covers both Owners and Drivers. The policy is specifically designed to cover the period of time in which a Driver is operating an Owner’s vehicle while not actively operating a vehicle on a ride-sharing platform, such as Uber or Lyft. During the periods when Drivers are actively operating on a ride-sharing platform, the insurance subordinates to the state mandated insurance provided by the third-party ride-sharing business. To our knowledge, we are the only provider of this car-matching service which is made possible byutilizing this unique insurance product. In 2015, our first full year of operations, we earned revenues of $29,292 with an operating loss of $108,371. In 2016, our second full year of operations, we earned revenues of $515,437 with an operating loss of $838,560. In 2017, our third full year of operations, we earned revenues of $3,223,874 with an operating loss of $4,066,950. In 2017, revenues grew 525% and our operating loss grew 385% as compared to operations in 2016.
To date, the majority of our sales growth has been through organic search traffic. During the three months ended March 31, 2018, we spent $407,538 on advertising. During the years ended December 31, 2017 and 2016, we spent $433,506 and $123,479, respectively, on marketing. Going forward however, we intend to significantly increase our spending on marketing because we believe that on-line channels and off-line brand awareness advertising will provide substantial opportunities for growth.
Industry and Market Opportunities Our company was founded to capitalize on a combination of two growth markets: ride-sharingridesharing (an industry led by Uber and Lyft) and car-sharing (an industry led by companies such as Car2go N.A., LLC,Turo, Inc. and ZipCar, Inc. and Turo, Inc.). Our customers are the Drivers that use our car-sharing platform to rent a car and then use that car to make moneyearn income driving for either Uber or Lyft.ride share companies (or otherwise utilize the vehicle for commercial purposes, such as food delivery). Finding enough cars and drivers to meet demand has historically been a problem for ride-sharing companies. Our target market also includes drivers who provide delivery services with companies like Instacart and Doordash. The transportation industry represents a massive market. In the United States alone, consumer expenditures on transportation were approximately $1.2 trillion and $1.4 trillion in 2020 and 2019, respectively with 2021 estimates seeing an online post dated November 24, 2013, TechCrunch.com stated:In some more established markets, Uber is struggling to keep enough cars onincrease from 2020 pandemic low levels. Transportation was the road to meet the demand —second largest household expenditure after housing and that’s a problem. It means cars either aren’t available, or if theywas almost twice as large as healthcare and three times as large as entertainment. We believe we are there are longer wait times, and lower overall satisfaction with the service. Uber has tried to deal with thisstill in the past by instituting surge pricing — which both curbs demand and ensures that drivers are more likely to continue driving at peak times.
But ultimately,relatively early phases of potentially capturing part of the company knows thatopportunity in the only way to deal with that demand is to sign up more drivers. And one way to do that is by ensuring that they’ll have a car to drive if they’ve been approvedindustry. In 2019, ridesharing accounted for the Uber platform.
We believe that we are the only peer-to-peer car-sharing platform focused on the ride-sharing industryjust seven percent of total vehicle miles travelled in the United States. States and in a 2016 survey, 57% of U.S. respondents who used sharing services said that well-priced and convenient offerings could cause them to give up ownership altogether.
We have added over 5,490 new70,000 Drivers over the past several years, matching them with Owner vehicles that have been used on the Uberrideshare and Lyft platforms over the past several years.delivery platforms. During the years ended December 31, 20172021 and 2016,2020, we added approximately 4,43022,000 and 1,06014,000 new Drivers, respectively, into cars so that they could drive for Uberride-share and Lyft.delivery companies. These numbers represent an equivalent 318%approximate 57% growth rate in new drivers onto the HyreCar platform year over year. Ride-sharing Industry (Uber
Recent Developments On September 7, 2022, we sold 5,789,716 shares of our Common Stock pursuant to that certain Common Stock Purchase Agreement, dated August 11, 2022 (the “PIPE Agreement”), by and Lyft)
among the Company and certain accredited investors named therein (the “Purchasers”). The growth in ride-sharing overshares sold pursuant to the past few years has kicked offPIPE Agreement were sold at a transportation revolution. Smart phones are now usedpurchase price of $0.8636, which was the average closing price of our Common Stock as ride hailing apps, transactions are processed seamlessly through online platforms and transportationreported on the Nasdaq Capital Market (“Nasdaq”) for the five trading days immediately prior to the signing of the PIPE Agreement, for total proceeds to us of approximately $5 million. As described elsewhere herein, on August 15, 2022, we issued 539,633 shares of our Common Stock to Lincoln Park, upon our execution of the Purchase Agreement as a servicefee for Lincoln Park’s commitment to purchase shares of our Common Stock under the Purchase Agreement (the “Commitment Shares”). Also on August 15, 2022, we entered into a registration rights agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which we are obligated to file with the SEC a registration statement to register for resale under the Securities Act, the shares of Common Stock that have been or may be issued to Lincoln Park under the Purchase Agreement. The registration statement of which this prospectus forms a part is becoming moreintended to satisfy this obligation. On August 15, 2022, in relation to the Company’s “at-the-market” (“ATM”) offering program, the Company amended that certain Equity Distribution Agreement with Northland Securities, Inc. and more personalized. The industryfiled Supplement No. 1 to the Prospectus Supplement dated November 9, 2021, reducing the aggregate shares to be sold under the ATM program from $50,000,000 to $7,900,000. As of September 13, 2022, the Company has experienced tremendous traction. Accordingsold 1,028,811 shares pursuant to a July 2016 post on TechCrunch, it took Uber six years,the ATM program for total net proceeds of $1,326,996.49. On August 15, 2022, the Company issued promissory notes to December 2015, to complete a billion rides and just six months later, Uber announced that it had completed its two-billionth ride.TNCs like Uber and Lyft have reported high demand from Drivers but manycertain executive officers of these would be Drivers do not own a car that qualifies for their platforms. In 2016, a spokesperson for Uber estimated that approximately 10% to 15% of their potential drivers/partners do not own a qualifying car. Further, Lyft estimates that there are approximately 60,000 peoplethe Company, in the cityaggregate principal amount of Chicago alone that want to drive for their platform, but do not currently own$500,000 (the “Promissory Notes”). The Promissory Notes will accrue interest at a qualifying car, and General Motors also estimates that there are approximately 160,000 potential drivers in the DC Metro area, Baltimore, Chicago and Boston who do not own a qualifying car.
Accordingly, TNCs are actively taking steps to satisfy their driver demand by setting up programs designed to get eligible drivers into qualified cars, including such programs as the Enterprise/Uber partnership, the Lyft/Hertz partnership, and the General Motor’s Maven program. These programs serve as a validation that there is a healthy market to pair eligible drivers with qualified cars.
Car-sharing Industry
In January 2016, The Economist reported that the trend to utilize cars during such idle periods is growing and even traditional car clubs are exploring the car-sharing market, where membersrate of such clubs are allowed to book car usage by mobile app for periods as short as 15 minutes. Furthermore, such car-sharing usage is currently experiencing growth of over 30% a7% per year with a projected revenue collection of more than $16.5 billion by 2024. A study on the scope ofoutstanding principal amounts. Any unpaid principal amounts and accrued interest under the sharing economy published by UBS Global Research – Q Series titled “What is the Scope of the Sharing Economy” on July 20, 2016 estimates that the Shared Transportation segment, which they define as digitally enabled non-private transport, will recognize approximately $350 billion market opportunity by 2020, representing a 5-year compound annual growth rate of approximately 54%. We believePromissory Notes will be ablepayable in full one year from the date such amounts are loaned, which has yet to capitalize on this opportunity as existing demand from traditional taxi and public transportation options is transferred to shared transportation. Further, growth is expected from this opportunity as the accelerating trend of the mass ease-of-use and availability of shared transportation permanently shifts driving habits away from personal vehicle ownership. Evidence of this decline, while not yetoccur.
On September 2, 2022, we issued a national trend, can be seen in large cities as vehicle ownership is beginning to decline. Longer term, we envision a potential impact on the auto industry as a whole from a subset of people permanently changing their driving habits and selling their cars entirelyPerformance Guaranty in favor of using shared transportation (UBS estimatesthe trustee under a Base Indenture between HyreDrive SPV (defined below) and Wilmington Trust, National Association, as trustee and securities intermediary (the “Base Indenture”), for the benefit of certain holders of asset-backed notes issued under the Base Indenture as supplemented by a Series 2022-1 Supplement to the Base Indenture (the “Indenture Supplement”), the administrative agent for such noteholders and certain of their affiliates (the “Performance Guaranty”). The Performance Guaranty was entered into by the Company in connection with the formation of HyreDrive, LLC (“HyreDrive”), which is a joint venture between the Company and AmeriDrive Holdings, Inc. (“AmeriDrive”) and established for the primary purpose of expanding the parties’ strategic relationship intended to create a larger national network of vehicle supply for the Company’s technology platform. HyreDrive has established a bankruptcy remote, wholly owned subsidiary of HyreDrive (the “HyreDrive SPV”) and a titling trust to facilitate the acquisition and financing of vehicles. The Company, solely in its capacity as a performance guarantor, is a party to the Indenture Supplement for the limited purpose of confirming certain representations, warranties and covenants set forth in the Indenture Supplement related to the issuance of asset-backed notes and the collateral securing the obligations under such notes. Pursuant to the Performance Guaranty, the Company will guaranty the performance by AmeriDrive and HyreDrive in certain of their capacities, however, the Performance Guaranty is not a guaranty by the Company of the asset-backed notes of the HyreDrive SPV or of any payment obligations of HyreDrive. On September 2, 2022, in connection with the Indenture Supplement, we issued warrants to certain accredited investors, which may be exercised to purchase up to an aggregate of 3,221,630 shares of our Common Stock, at a per share exercise price equal to $1.02 (the “Warrants”). Each of the Warrants was immediately exercisable for 50% of the underlying shares of our Common Stock, and the remaining shares will vest according to certain vesting criteria. As further detailed under the section titled “Description of Securities,” we also filed the Certificate of Designations on such date to create the Series A Convertible Non-Voting Preferred Stock, which is to be issued solely in the event and to the extent that approximately 40Warrant 1 exceeds the Share Cap (as such terms are defined under “Description of Securities”). Corporate Information We were incorporated in the State of Delaware on November 24, 2014. Our principal executive offices and mailing address are 915 Wilshire Boulevard, Suite 1950, Los Angeles, California 90017. Our main telephone number is (888) 688-6769. Our corporate website address is: www.hyrecar.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus supplement or the accompanying prospectus and should not be relied upon with respect to this offering. Emerging Growth Company We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) ending December 31, 2023, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million carsas of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act. Smaller Reporting Company Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will be replacedremain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our Common Stock held by 2020).non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our Common Stock held by non-affiliates exceeds $700 million as of the prior June 30. 3
Another recent analysis by Morgan Stanley indicates that the estimated amount of global car miles traveled through shared vehicle usage by 2030 will hit 19.6 billion, or approximately 26% of all miles traveled (up from only 10.2 billion miles travelled in 2015). Given the excess capacity of vehicle hours, higher vehicle utilization rates, and lower vehicle ownership rates, we expect a consumer shift towards the acceptance of car-sharing as a part of everyday urban life.
Competition
The key differentiator between HyreCar and our competitors is that we crowd-source vehicles -- we do not own or manage vehicles. This allows our prices to be competitive with other vehicle solutions because we do not have the monthly vehicle overhead or infrastructure costs that our competitors may have. Other advantages include the following:
THE OFFERING | Common Stock offered by the selling stockholder | 1. | Pay-As-You-Go: Drivers using our platform are not locked into lengthy lease agreements, monthly contracts or subscription fees. Our payment model is upfront and transparent. While our competitors engage in auto-debiting payment for the rented vehicle from the Drivers’ accounts, regardless of their current account balance, under our platform Driverspay for the term of rental up-front, extend if they are financially able, and return the rented vehicle whenever they needwith no “strings” attached. We are the only company providing this type of fluid and frictionless car transaction for Uber and Lyft drivers. |
| 2. | Convenience:In some cases, drivers are renting a car from their neighbors. They walk down the street, take the keys and go. With Hertz or Avis, only one or two retail outlets participate in the Uber and Lyft programs. |
Among vehicle solutions for ride-sharing rentals, there are Hertz, Maven (General Motors’ project) and HyreCar. These car rental companies are similar in one way: they operate in the U.S. and provide cars drivers to rent and drive on the Uber or Lyft platform. However, their terms of service, specifications, prices and business models vary. A comparative analysis of fees, areas of operation, rental periods and age requirements follows:
Initial Fees
Every rental company charges an initial non-refundable fee for the first week’s rental before drivers get into vehicles. Typically, these fees are in the form of a background or credit check.
| Company | | Initial Fee | | | | | | | | HyreCar | | $ | 30 | | | Hertz | | $ | 0 | | | Maven | | $ | 20 | |
| 3310,539,633 shares consisting of: | |
Refundable Deposit Fees
A driver pays a deposit when he or she makes a reservation. The deposit is refundable.
| Company | | Refundable Deposit Fee | | | | | | | | HyreCar | | $ | 200 | | | Hertz | | $ | 250 | | | Maven | | $ | 250 | |
Weekly Vehicle Rental Fee
Every driver who rents a car for five days or longer will pay a weekly vehicle rental fee. Prices shown in the table below are contingent on the car model.
Company | | Weekly Rental Fee | | | | | | HyreCar | | As low● | 539,633 shares of our Common Stock issued to Lincoln Park as $140
(Fee dependent on ownerconsideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement; and market) | Hertz | | $180plus additional taxes and fees
(Fee dependent on car model)
| Maven | | $189 - $229
(Fee dependent on car model) |
Eligibility Comparison
With HyreCar a driver can drive for any on-demand service, such as Caviar, Postmates, DoorDash, etc. HyreCar Drivers are not limited to driving for Uber and Lyft.
Company | | Platform Eligibility | | | | | | HyreCar | | Uber, Lyft, Caviar, Postmates, DoorDash, etc.● | HertzUp to 10,000,000 shares of our Common Stock that we may sell to Lincoln Park under the Purchase Agreement from time to time after the date of this prospectus. All sales are at our sole discretion. | | Lyft, Uber | Maven | | Uber, Lyft, Caviar, Postmates, DoorDash, etc. |
Areas of Operation
A key differentiator between HyreCar and other car-sharing programs is that HyreCar can operate in every city of a state. The other programs are limited by location, city and available supply.
Company | | Location Eligibility | | | | | HyreCar | | AL, AZ, CA, CO, CT, DC, FL, GA, IL, IN, KS, KY, LA, MA, MD, MI, MS, MO, NY, NV, NJ, NC, OH, OR, PA, SC, TN, TX, UT, VA, WA, WI | HertzCommon Stock outstanding before the offering | 29,666,068 shares, as of September 12, 2022 (which includes the 539,633 Commitment Shares previously issued to Lincoln Park upon the execution of the Purchase Agreement). | | Austin, Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, Fort Worth, Houston, Las Vegas, Los Angeles, Miami, Nashville, New Orleans, Orange County, Philadelphia, Phoenix, Portland, Sacramento, San Diego, San Francisco, San Jose, Tampa Bay and Washington D.C. | Maven | | Lyft:Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Nashville, Orange County, Phoenix, Portland, Sacramento, San Diego, San Francisco, San Jose, and Washington.
Uber:Present only in San Francisco.
|
Minimum Rental Periods
Company | | Minimum Time Period | | | | | HyreCar | | 2 days | HertzCommon Stock outstanding after the offering | 39,666,068 shares. The actual number of shares issued will vary depending on the prices at which we sell shares, if any, to Lincoln Park. | | 1 week | Maven | | 1 week |
Driver Minimum Age Requirement
Company | | Minimum Age of Driver | | | | | HyreCar | | 21 yrs. | HertzUse of proceeds | We will receive no proceeds from the sale of shares of Common Stock by Lincoln Park in this offering. We may receive up to $15,000,000 in aggregate gross proceeds under the Purchase Agreement (as defined below) from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. Any proceeds that we receive from sales to Lincoln Park under the Purchase Agreement will be used for working capital and general corporate purposes. See “Use of Proceeds.” | | 25 yrs. | Maven | | 21 yrs. |
Our Relationship with Lyft
On May 17, 2017, we announced an arrangement with Lyft that allows us to activate our Drivers through Lyft’s sign-up portal. This sign-up process allows drivers to begin providing services on Lyft’s platform within one business day. The majority of cars on our platform come pre-certified for ride-sharing under Lyft's vehicle requirements, enabling new and existing drivers to find a car and get on the road. The Lyft arrangement has not been formalized in a written agreement. We are also in talks with other ride-sharing companies to establish similar partnerships; however, no formal arrangements have been entered into to date.
Our Strengths
Using our platform, vehicle Owners can post their cars to our marketplace and Drivers can browse car inventory prior to rental. Once a Driver finds a car, he or she creates a profile, enters his or her personal information and credentials (including, address, city, state, a copy of applicable state issued driver’s license, Uber or Lyft credentials, and SSN) and submits a credit card for payment. We then perform a criminal background check, DMV driving record check, Homeland Security Watch-list and Sex Offender database check. HyreCar’s screening criteria is stricter than Uber and Lyft’s background check. We are focused on maintaining a safe user experience and ensuring that all transactions between Owners and Drivers are processed through a secure web platform.
Why Drivers Use Our Service
| ● | Attractive Market: Drivers’ ability to earn income by driving for a ride-sharing business. |
| ● | Pay-As-You-Go: Drivers are not locked into long-term lease agreements, long-term monthly payments or subscription fees. |
| ● | Convenience: Drivers can pick up the car from someone close by. Time from registration to getting behind the wheel currently averages under 48 hours. |
| ● | Transparency and Trust: There are no hidden fees and only Owners that have been properly screened are permitted to use the platform. |
| ● | Customer Experience: Application of game-design elements (i.e. gamification) of the platform keeps Drivers engaged. |
Why Owners Use Our Service
Data from a national survey of driving behavior indicates that private vehicles are in use 5% or less during any given day, or about one hour per day. Given the excess capacity of vehicle hours, higher vehicle utilization rates, and lower vehicle ownership rates, we expect a consumer shift towards acceptance of car-sharing. Based on the results of the survey, we believe our platform is advantageous for the following reasons:
| ● | Passive Income: We often match Owners with long term Drivers, which provides the Owners with a steady source of passive income resulting from our seamless re-booking process. |
| ● | Insurance: Liability policy fills the gaps left by personal and ride-sharing policies. |
| ● | Review of Drivers: Drivers must pass our extensive background checks and most Drivers have also passed the Uber and Lyft background checks. |
Insurance Coverage
A key component to our business is our commercial auto. The two sided nature of our platform means that we need to insure both the Driver and the Owner. Prior to any rental the Driver and Owner are provided an insurance ID card that lists the driver’s name and the vehicle identification number. Insurance is typically generated twenty four hours in advance of the commencement of the rental through to when the Owner confirms drop-off of the rented vehicle by the Driver. The vehicle pick-up and drop-off is all managed through our platform. An Owner takes pictures of his or her vehicle prior to pressing the “Confirm Pick-up” button on the HyreCar mobile app. (If pictures are not taken and the button is not pressed, it provides grounds for a claim denial; subsequent liability and/or physical damage rests solely on the Driver and Owner.) After the rental is completed, the Owner presses the “Confirm Drop-off” button on the HyreCar mobile app and the rental ends.
American Business Insurance Services (“ABI”) is our managing general underwriter (“MGU”). ABI handles all of our back-end insurance generation and processing through a seamless ABI connection with the HyreCar databases. ABI is the number one MGU in the United States for Taxi and Livery business. David Haley is the president of ABI and sits on our strategic advisory board.
For insurance purposes a vehicle rental is broken into four distinct driving periods. Period 0 is when the Driver has picked a vehicle up from the Owner and is driving with the Uber or Lyft app turned-off. Period 1 is when the Driver has the Uber or Lyft app turned-on, but has not yet accepted a fare. Period 2 is when the Driver has accepted a fare and is on the way to pick-up a passenger. Period 3 is when a passenger is in the vehicle. The HyreCar policy is specifically written to cover periods in which the Drivers are operating HyreCar vehicles OFF the Uber or Lyft platform (period 0). During the periods when Drivers are operating ON the Uber or Lyft platform (periods 1, 2 and 3), the HyreCar insurance subordinates to state mandated insurance provided by Uber and Lyft. This enables us to keep insurance costs and liability low by leveraging state mandated insurance policies provided by the TNCs.
Business Structure and Strategy
We operate out of our corporate office in Los Angeles, California. Our technology platform allows for a relatively small staff compared to the size and reach of our business. For example, we operate in 34 states plus the District of Columbia with no physical presence in those states, with the exception of California. Our expansion into new states is currently only limited by specific insurance considerations. Our business structure is divided into three distinct departments: sales and marketing, technology development and support and operations.
Sales and marketing are vital to our future profitability and growth. Most of our customers need to be sold into a car because they are initially reluctant to pay upfront fees. Early interactions with our customers indicated that if customers were walked through the process once by a member of our sales and marketing team, the customers were more inclined to use and continue to use our services for a longer period of time. Accordingly, we implemented a one-man sales team in May 2016 and our revenue rose 93% that month from the prior month. Since then, building a strong sales team has become a priority.
We have expanded the sales team, which is now divided into a Driver team and an Owner team. The Driver team has a total of 15 sales contractors, which are split into three sub-teams. Driver team members make approximately 30 calls a day to new customer leads with a mandate to facilitate drivers into cars via the HyreCar platform. The Owner team has a total of six (6) sales contractors split evenly into the following three regions: west coast states, central states and east coast states. The Owner sales team’s primary objective is to get Owners to list their cars on the HyreCar platform.
The sales team headcount has reached critical mass and we expect to maintain current headcount through 2018 to hit a forecast growth rate of 14% month over month. Capping headcount is a key assumption that we believe drives profitability. The ability to grow topline revenue while capping sales expense is achieved through a combination of marketing and technology. Organic bookings, defined as a rental without sales agent contact, have jumped from 7.5% of revenue in 2016 to an estimated 14.5% in 2017. Attribution of organic bookings is directly related to the quality of marketing leads generated and user experience / user interphase enhancements (UI/UX) per technology development. The company’s expectation is that both aspects contribute to low operating expense growth in relation to revenue, which in-turn, the company believes, will lead to higher gross profit in 2018.
Technology contractors are the second largest planned use of proceeds from the primary offering. We currently operate with three overseas development teams (two in Vietnam and one in India) and two teams in the United States, including multiple full-time developers based out of our home office in Los Angeles. These teams are tasked with maintaining the current site, addressing bugs in the current code base and small improvements to the Owner and Driver UI/UX.
Support and operations underpin the company. Insurance claims management, Owner payment resolutions, Driver payment resolutions, collections, chat support, email support, phone support, late rentals, car recovery, Driver verifications, insurance generation and insurance verification all work together to create what we believe is a “best in class” customer service experience. Currently, we have 13 in-house support staff and three team members in India. Our plan is to build a domestic support team that is client-facing and use the team in India for special projects and administrative tasks. We believe that customer service is critical to our goal of bringing new Drivers/Owners onto the platform and retaining those customers who have already utilized our services.
Revenue Model
We generate revenue by taking a fee out of each rental processed on our platform. Each rental transaction represents a Driver renting a car from an Owner. Drivers pay a weekly rental rate,plusdirect insurance costs and a 10% HyreCar fee. Owners receive their weekly rental rateminus a 15% HyreCar fee. For example, as of December 31, 2017, the average weekly rental rate of a HyreCar vehicle is $200 (“Weekly Rental”), plus direct insurance costs, plus a 10% HyreCar fee ($20), totaling $290 in total gross billings. $170 or 85% of the weekly rental is subsequently transferred to the Owner. HyreCar earns revenues from the transaction fee of $50 and gross fees from the insurance of $70. Accordingly, the GAAP reportable revenue recognized by HyreCar is $120 in this transaction. (as detailed in the table below).
| Weekly Rental | | $ | 200.00 | | | | | Direct Insurance | | $ | 70.00 | | | | | HyreCar Driver Fee | | $ | 20.00 | | | (10% of weekly rental) | | HyreCar Gross Billings | | $ | 290.00 | | | | | Owner Payment | | $ | 170.00 | | | (85% of weekly rental) | | HyreCar Revenue | | $ | 120.00 | | | |
Gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners or refunds. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our financial statements as revenue. However, we use gross billings to asses our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Gross billings may also be used to calculate net revenue margin, defined as the company’s GAAP reportable revenue over gross billings. Using the definition of net revenue margin and the example above, HyreCar’s net revenue margin is equal to approximately 41% ($120 HyreCar’s GAAP revenue over $290 Total Gross Billings). A breakout of revenue components is provided in MD&A and financial footnotes.
Marketing Plan
In November 2016, our marketing team reviewed keyword searches using Google Analytics. Thirty keywords and phrases were chosen and analyzed, allowing the team to determine in which cities the persons searching for the keywords and phrases were located. For example, approximately 400,000 people in Los Angeles googled key words like, “rent a car for Uber”, “Uber”, and “Uber Leasing.” Overlaying our customer demographics with the Google search results created a Driver/Owner affinity population of approximately 25 million potential customers, with the bulk of the 25 million concentrated in 16 core geographic locations. Core geographies represent the top 16 metropolitan statistical areas, or MSAs, in the country based off population count. The 34 states we operate in encompass all 16 MSAs with additional secondary and tertiary cities contributing as well.
Insurance Opportunity
A large percentage of our cost of revenues is direct insurance expense, which we pay to the insurance company. The premiums are broken into two categories, liability insurance and physical damage. The unique nature of our insurance enables us to keep insurance costs and liability low by leveraging state mandated insurance policies provided by the TNCs. Our insurance premiums have exceeded liability and physical damage claims throughout 2017, and we intend to examine self-insurance options in 2018.
Current estimates are that in excess of 35% of all commercial property and casualty premiums are in some form of alternative risk structure. The company has explored many forms of alternative risk structures including self-insurance through captive insurance programs and policies. Specifically, cell captives are entities consisting of a core and an indefinite number of cell entities which are kept legally separate from each other. A captive or protected cell is an ideal mechanism to deal with a large number of self-insured retention(s). The benefits of having a cell captive include:
| ● | generating a financial return through participating in the risk; | | | | | |
| Nasdaq Capital Market Trading Symbol | ●“HYRE” | increased control over potential insurance coverage and costs; | | | | | |
| Risk factors | You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 5 of this prospectus before deciding whether or not to invest in our Common Stock. | |
The number of shares of Common Stock to be outstanding upon completion of this offering is based on 29,666,068 shares of Common Stock outstanding as of September 12, 2022 (which includes the 539,633 Commitment Shares), and excludes: | ● | illustratingoutstanding options exercisable to acquire an aggregate of 503,768 shares of our Common Stock, exercisable at a carrier the willingnessweighted average exercise price of $0.83 per share; |
| ● | 1,456,307 outstanding restricted stock units that may be settled in our Common Stock; and |
| ● | outstanding warrants to sharepurchase an aggregate of 3,398,117 shares of our Common Stock, all of which are exercisable at a weighted average exercise price of $1.08 per share. |
| ● | 82 shares of our Common Stock reserved for issuance under our 2018 Equity Incentive Plan (the “2018 Plan”), plus any future increases, including annual automatic evergreen increases, in the risk,number of shares of Common Stock reserved for issuance; and |
| ● | creating more stability3,008,482 shares of our Common Stock reserved for issuance under our 2021 Equity Incentive Plan (the “2021 Plan”), plus any future increases, including annual automatic evergreen increases, in the insurance program.number of shares of Common Stock reserved for issuance. |
Unless otherwise indicated, this prospectus assumes no exercise of outstanding stock options or warrants and no settlement of outstanding restricted stock units. Purchase Agreement with Lincoln Park On August 15, 2022, we entered into a purchase agreement with Lincoln Park, which we refer to in this prospectus as the Purchase Agreement, pursuant to which Lincoln Park has agreed to purchase from us up to an aggregate of $15,000,000 of our Common Stock (subject to certain limitations) from time to time over the term of the Purchase Agreement. Also on August 15, 2022, we entered into the Registration Rights Agreement, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act, the shares of Common Stock that have been or may be issued to Lincoln Park under the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 539,633 Commitment Shares to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement. For further discussion of the Purchase Agreement, refer to the section titled “Lincoln Park Transaction” below. RISK FACTORS Investing in our securities involves a Q2 2018 feasibility studyhigh degree of risk. Any of the risks and uncertainties set forth herein or therein could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price or value of our securities. As a result, you could lose all or part of your investment. The risks described in these documents are not the only ones we face. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. Please also read carefully the section below entitled “Special Note Regarding Forward-Looking Statements.” Risks Related to This Offering The sale or issuance of our Common Stock to Lincoln Park may cause dilution and the sale of the shares of Common Stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our Common Stock to fall. We have filed, or intend to file, additional registration statements covering the resale of our shares by the holders thereof and any such sales could have a negative impact on the trading price our stock. On August 15, 2022, we entered into the benefitsPurchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $15,000,000 of cell captives,our Common Stock. Upon the company believesexecution of the Purchase Agreement, we issued a one-time commitment fee of 539,633 shares to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement. The remaining 10,000,000 shares of our Common Stock being registered for resale hereunder that may be issued under the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 24-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our Common Stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our Common Stock to fall. We generally have the right to control the timing and amount of any future sales of our shares to Lincoln Park. Sales of our Common Stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our Common Stock. Additionally, the sale of a substantial number of shares of our Common Stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. We intend to file a separate registration statement registering the resale by certain securityholders of the Warrants and the Common Stock that will be ableissued upon the exercise of such Warrants. In addition, we intend to cut direct insurance costsfile a separate registration statement registering the resale by approximately 30% from 2017 premium levels. A potential 30% reduction in annualized premiums isthe Purchasers of Common Stock issued to such Purchasers pursuant to the PIPE Agreement. Once such separate registration statements are effective, the securityholders selling pursuant to such separate registration statements will determine the timing, pricing and rate at which they sell such shares into the public market and such sales could have a significant cost savings that increases the company’s gross profit margin and we believe it will contribute to company profitability in 2018. The company estimates some form of insurance cost savings will be in-place by the end of Q2 2018. To the extent the company offers insurance directly, then the company will disclosure any related revenuesnegative impact on the facetrading price of its income statements, in related notes andour Common Stock. We may not have access to the full amount available under the Purchase Agreement with Lincoln Park. Under our Purchase Agreement with Lincoln Park, we may, at our discretion from time to time over a 24-month period commencing after the satisfaction of certain conditions set forth in the MD&A sectionPurchase Agreement, on any single business day, direct Lincoln Park to purchase shares of the company’s periodic reports.In additionour Common Stock in amounts up to self-insurance, the company is also working with our Managing General Agent (“MGA”)100,000 shares, which amounts may be increased to develop new and innovative insurance products. The company has proposed a new type of owner “lay-up” insurance for vehicle ownersup to 200,000 shares depending on the HyreCar platform. Lay-up insurance replacesmarket price of our Common Stock at the needtime of sale and subject to a maximum commitment by Lincoln Park of $1,000,000 per single regular purchase. Although the Purchase Agreement provides that we may sell up to $15,000,000 of our Common Stock to Lincoln Park, only 10,539,633 shares of our Common Stock are being offered under this prospectus, which represents: (i) 539,633 Commitment Shares that we already issued to Lincoln Park as consideration for making the commitment under the Purchase Agreement, and (ii) an owner’s personal auto insurance policy and would represent significant cost savings when comparedadditional 10,000,000 shares which may be issued to other insurance options availableLincoln Park in the market today. Offering this type of insurance product benefitsfuture under the company in multiple verticals, including reduced insurance claim expense, greater customer retentionPurchase Agreement, if and stickinesswhen we sell shares to Lincoln Park under the HyreCar platform. Our MGA has begun piloting lay-up insurance to vehicle owners.
Regulation
The California Public Utilities Commission (“CPUC”) was the first state regulatory body to impose rules and guidelines for ride-sharing in the United States. The CPUC designated Uber and Lyft transportation network companies or TNCs. The CPUC guidelines became the standard for all states across the U.S. Most states have adopted some form of the guidelines. California is one of the strictest states when it comes to regulating the TNCs. Our insurance works within the California guidelines which makes it easily adoptable by future state mandates outside of California.
Changes in government regulation of our business have the potential to materially alter our business practices or our operational results. Purchase Agreement.
Depending on the jurisdiction, those changesmarket prices of our Common Stock at the time we elect to issue and sell shares to Lincoln Park under the Purchase Agreement, we may come about throughneed to register for resale under the issuanceSecurities Act additional shares of new lawsour Common Stock in order to receive aggregate gross proceeds equal to the $15,000,000 total commitment available to us under the Purchase Agreement. Assuming a purchase price of $1.27 per share (the closing sale price of the Common Stock on September 16, 2022) and regulationsthe purchase by Lincoln Park of the 10,000,000 shares that are being registered for resale under this prospectus that we may sell to Lincoln Park under the Purchase Agreement from time to time after the date of this prospectus, total gross proceeds to us would only be $12,700,000. The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our Common Stock and the extent to which we are able to secure working capital from other sources including our ATM program and the closing of our PIPE Agreement. If obtaining sufficient funding from Lincoln Park were to prove unavailable or changesprohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. If we elect to issue and sell more than the interpretation of existing laws10,000,000 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. Even if we sell all $15,000,000 under the Purchase Agreement to Lincoln Park, we may still need additional capital to fully implement our business, operating and regulations by a court, regulatory bodydevelopment plans. Should the financing we require to sustain our working capital needs be unavailable or governmental official. Sometimes those changes may have not just prospective but also retroactive effect; this is particularly trueprohibitively expensive when a change is made through reinterpretation of laws or regulations that have been in effect for some time. Moreover, changes in regulation that may seem neutral on their face may have either more or less impact on us than on ride-sharing businesses, depending onwe require it, the circumstances. Potential changes in law or regulation that may affect us relate to insurance intermediaries, customer privacy, data security and rate regulation.In addition, our operations alsoconsequences could be affecteda material adverse effect on our business, operating results, financial condition and prospects.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by any limitation insuch forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the fuel supplynegative of these terms or by any impositionother comparable terminology. Our forward-looking statements are based on a series of mandatory allocation or rationing regulations. Weexpectations, assumptions, estimates and projections about our company, are not awareguarantees of any current proposal to impose such a regimefuture results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the U.S. or internationally. Such a regime could, however, be quickly imposed if there was a serious disruptionplans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the fuel supply for any reason, including an actrisks and uncertainties inherent in our statements regarding: | ● | the impacts of COVID-19, or other future pandemics on our business, results of operations, financial position and cash flows; |
| ● | our ability to effectively manage our growth and maintain and improve our corporate culture; |
| ● | the potential benefits of and our ability to maintain, our relationships with ridesharing companies, and to establish or maintain future collaborations or strategic relationships, and from time to time to obtain additional funding; |
| ● | our marketing capabilities and strategy; |
| ● | our ability to maintain a cost-effective insurance program; |
| ● | our industry being in the early stages of growth; |
| ● | our history of operating losses, and the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
| ● | our investments in new and enhanced products and offerings, and the effect of these investments on our results of operations; |
| ● | our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; |
| ● | our competitive position, and developments and projections relating to our competitors and our industry; |
| ● | our ability to manage risks related to technology systems and security breaches; |
| ● | the outcome of pending, threatened or future litigation; |
| ● | our ability to comply with existing, modified, or new laws and regulations applying to our business; and |
| ● | those factors discussed in “Part I, Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated herein by reference. |
All of war, terrorist incident or other problem, suchour forward-looking statements are as the devastation caused by hurricane Harvey, affecting the petroleum supply, refining, distribution or pricing.Employees
As of the date of this prospectus only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K, and elsewhere in this prospectus. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in our Annual Report on Form 10-K for the year ended December 31, 2021 or this prospectus or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the SEC could materially and adversely affect our business, prospects, financial condition and results of operations. Moreover, we employ 26 full-time personneloperate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this prospectus, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this prospectus that modify or impact any of the forward-looking statements contained in this prospectus will be deemed to modify or supersede such statements in this prospectus.
This prospectus may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources. USE OF PROCEEDS This prospectus relates to shares of our Common Stock that may be offered and sold from time to time by Lincoln Park. We will receive no proceeds from the sale of shares of Common Stock by Lincoln Park in this offering. We may receive up to $15,000,000 in aggregate gross proceeds under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. We estimate that the proceeds to us from the sale of our Common Stock to Lincoln Park pursuant to the Purchase Agreement will be up to approximately $15,000,000 over an approximately 24-month period, assuming that we sell the full amount of our Common Stock that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase Agreement, which does not take into account any fees and expenses that may be incurred by us. See “Plan of Distribution” elsewhere in this prospectus for more information. We currently intend to use the estimated net proceeds we receive under the Purchase Agreement for general corporate purposes, which may include operating expenses, working capital, and for potential strategic acquisitions and relationships. The expected use of the net proceeds we receive under the Purchase Agreement represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors and, as a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. Until we use the net proceeds we receive under the Purchase Agreement for the purposes described above, we may invest them in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities. LINCOLN PARK TRANSACTION General On August 15, 2022, we entered into the Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $15,000,000 of our Common Stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued a one-time commitment fee of 539,633 Commitment Shares to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement. We do not have the right to commence any sales to Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, have been satisfied, including the registration statement that includes this prospectus being declared effective by the SEC (such date, the “Commencement”). Thereafter, we may, from time to time and at our executive offices.Descriptionsole discretion, direct Lincoln Park to purchase shares of Property
Our corporate offices are locatedour Common Stock in amounts up to 100,000 shares on any single business day from and after the Commencement, which amounts may be increased to up to 200,000 shares of our Common Stock depending on the market price of our Common Stock at 355 South Grand Avenue, Suite 1650, Los Angeles, California 90071. Our lease for this office space expiresthe time of sale, subject to a maximum of $1,000,000 per purchase. In addition, upon notice to Lincoln Park, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase additional shares of our Common Stock in 2021.
Legal Proceedings
In September 2015, a claim was made“accelerated purchases” and/or “additional accelerated purchases” as set forth in the Purchase Agreement. The purchase price per share is based on the market price of our Common Stock at the time of sale as computed under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
The Purchase Agreement prohibits us from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by certain former founders (the “Claimants”) against the company for violationsLincoln Park, would result in Lincoln Park and its affiliates having beneficial ownership of more than 9.99% of the founders’ agreement. The Claimantsthen issued and outstanding shares of our Common Stock (the “Beneficial Ownership Cap”). Purchase of Shares Under the company entered intoPurchase Agreement Regular Purchases Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our Common Stock, which we refer to as the Regular Purchase Share Limit, on such business day (the “Regular Purchase Date”) in a confidential settlement agreement and general mutual release on April 25, 2016. The arbitration settlementregular purchase (a “Regular Purchase”), provided, however, that (i) the Regular Purchase Share Limit may be increased to up to 150,000 shares, provided that the Claimants would continueclosing sale price is not below $1.00 on the applicable purchase date and (ii) the Regular Purchase Share Limit may be increased to own 190,177up to 200,000 shares, provided that the closing sale price is not below $2.00 on the applicable purchase date. In each case, the maximum amount of commonany single Regular Purchase may not exceed $1,000,000 per purchase. The Regular Purchase Share Limit is subject to proportionate adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock and return the remaining sharessplit, reverse stock split or other similar transaction. The purchase price per share for each such Regular Purchase will be equal to the company. Furthermore,lower of: | 1. | the lowest sale price for our Common Stock on the applicable Regular Purchase Date of such shares; and |
| 2. | the arithmetic average of the three lowest closing sale prices for our Common Stock during the 10 consecutive business days ending on the business day immediately preceding such Regular Purchase Date. |
Accelerated Purchases We may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice, to purchase an additional amount of our Common Stock, which we refer to as an Accelerated Purchase, on the Claimants agreed that the shares, while not in a separate class, would not have voting rights until they are sold to a non-affiliated third party. The Claimants will be diluted upon capital raising, stock option offerings and vesting, however any dilution will remain consistent and proportionalfollowing business day (the “Accelerated Purchase Date”), of up to the remaining founders’ dilution ratios and the Claimants will not be diluted more than the founders’ ratios in any capital raising transaction. The Claimants’ also are to receive a total of $110,000 paid out over eighteen (18) months starting November 1, 2016. As of December 31, 2017, $24,444 of the balance remained outstanding.In July 2017, an owner of several vehicles that he was renting through the company’s platform filed arbitration seeking damages for losses associated with renting his vehicles, specifically losses associated with a claimed stolen vehicle, storage fees, damage/repair fees, an insurance deductible, and purported loss of income due to his inability to rent the stolen/damaged vehicles. In December 2017, the owner also filed a lawsuit in Los Angeles Superior Court reasserting the same claims. The company believes that this action is without merit and is vigorously defending itself, while also exploring whether the dispute can be settled in an expeditious manner. The company has moved to compel the owner to arbitrate his claims and to stay his Superior Court case. That motion was heard on June 19, 2018 and the court granted the motion to compel arbitration.
lesser of: | 1. | 3925% of the trading volume of shares of our Common Stock on the Accelerated Purchase Date (during a time period specified in the Purchase Agreement); and | |
| 2. | three times the applicable Regular Purchase Share Limit for the corresponding Regular Purchase. |
The purchase price per share for each such Accelerated Purchase will be equal to the lower of 95% of: | 1. | the volume weighted average price of our Common Stock on the applicable Accelerated Purchase Date (during a time period specified in the Purchase Agreement); and |
| 2. | the closing sale price of our Common Stock on the applicable Accelerated Purchase Date. |
In the case of the Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price. Additional Accelerated Purchases We may also direct Lincoln Park, on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance with the Purchase Agreement, provided that the sale price of our Common Stock has not fallen below any minimum price threshold set forth in the applicable purchase notice provided by us to Lincoln Park and certain other conditions of the Purchase Agreement are met, to purchase an additional amount of our Common Stock (an “Additional Accelerated Purchase”), of up to the lesser of: | 1. | 25% of the aggregate shares of our Common Stock traded during a certain portion of the normal trading hours on such Accelerated Purchase Date as determined in accordance with the Purchase Agreement (such period of time, the “Additional Accelerated Purchase Period”); and |
| 2. | three times the applicable Regular Purchase Share Limit corresponding to the Accelerated Purchase that was completed on such Accelerated Purchase Date on which an additional accelerated purchase notice was properly received. |
We may, in our sole discretion, submit multiple Additional Accelerated Purchase notices to Lincoln Park, on a single Accelerated Purchase date, provided that all prior Accelerated Purchases and Additional Accelerated Purchases (including those that have occurred earlier on the same day) have been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance with the Purchase Agreement. The purchase price per share for each such Additional Accelerated Purchase will be equal to the lower of 95% of: | 1. | the volume weighted average price of our Common Stock during the applicable Additional Accelerated Purchase Period on the applicable Additional Accelerated Purchase Date; and |
| 2. | the closing sale price of our Common Stock on the applicable Additional Accelerated Purchase Date. |
In the case of the Additional Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of our Common Stock and determinations by us as to available and appropriate sources of funding for our operations. The Purchase Agreement prohibits us from issuing or selling to Lincoln Park under the Purchase Agreement any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Lincoln Park, would exceed the Beneficial Ownership Cap. Events of Default Events of default under the Purchase Agreement include the following: | ● | the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order or similar order), or any required prospectus supplement and accompanying prospectus are unavailable for the sale by us or the resale by Lincoln Park of our Common Stock offered hereby, and any such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period, subject to certain exclusions; |
| ● | suspension by our principal market of our Common Stock from trading for a period of one business day; |
| ● | the de-listing of our Common Stock from The Nasdaq Capital Market, our principal market, provided our Common Stock is not immediately thereafter trading on The Nasdaq Global Market, The Nasdaq Global Select Market, the New York Stock Exchange, the NYSE Arca, the NYSE American, the OTC Bulletin Board, the OTCQB or the OTCQX operated by the OTC Markets Group, Inc. (or any nationally recognized successor to any of the foregoing); |
| ● | the failure of our transfer agent to issue to Lincoln Park shares of our Common Stock by the second business day after the applicable date on which Lincoln Park is entitled to receive such shares; |
| ● | any breach by us of the representations or warranties or covenants contained in the Purchase Agreement or Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant which is reasonably curable, only if such breach is not cured within five business days; |
| ● | any person commences a proceeding against us pursuant to or within the meaning of any bankruptcy law; |
| ● | if we, pursuant to or within the meaning of any bankruptcy law, (i) commence a voluntary case, (ii) consent to the entry of an order for relief against us in an involuntary case, (iii) consent to the appointment of a receiver, trustee, assignee, liquidator or similar official under any bankruptcy law (a “Custodian”) of us or for all or substantially all of our property or (iv) make a general assignment for the benefit of our creditors or are generally unable to pay our debts as the same become due; |
| ● | a court of competent jurisdiction enters an order or decree under any bankruptcy law that (i) is for relief against us in an involuntary case, (ii) appoints a Custodian for us or for all or substantially all of our property, or (iii) orders the liquidation of us; or |
| ● | if at any time we are not eligible to transfer our Common Stock electronically as DWAC Shares. |
Lincoln Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any shares of our Common Stock under the Purchase Agreement. Our Termination Rights We have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement upon one business day’s notice. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of any party. No Short-Selling or Hedging by Lincoln Park Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our Common Stock during any time prior to the termination of the Purchase Agreement. Prohibitions on Variable Rate Transactions There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement. Effect of Performance of the Purchase Agreement on Our Stockholders All 10,539,633 shares registered in this offering which have been or may be issued or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 24 months commencing on the date that the registration statement including this prospectus becomes effective. The sale by Lincoln Park of a significant amount of shares registered in this offering at any given time could cause the market price of our Common Stock to decline and to be highly volatile. Sales of our Common Stock to Lincoln Park, if any, will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our Common Stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our Common Stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any additional sales of our shares to Lincoln Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us. Pursuant to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $15,000,000 of our Common Stock, exclusive of the 539,633 Commitment Shares issued to Lincoln Park on the date of the Purchase Agreement. Depending on the price per share at which we sell our Common Stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our Common Stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $15,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares of our Common Stock, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the Purchase Agreement. The Purchase Agreement prohibits us from issuing or selling to Lincoln Park under the Purchase Agreement any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Lincoln Park, would exceed the Beneficial Ownership Cap. The following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying purchase prices: Assumed Average Purchase Price Per Share | | Number of Registered Shares to be Issued if Full Purchase (1) | Percentage of Outstanding Shares After Giving Effect to the Issuance to Lincoln Park (2) | Proceeds from the Sale of Shares to Lincoln Park Under the $15M Purchase Agreement | | $ | 0.50 | | 4,392,532(3) | | 12.90 | % | $ | 2,196,266 | | $ | 1.00 | | 10,000,000 | | 25.21 | % | $ | 10,000,000 | | $ | 1.27 | (4) | 10,000,000 | | 25.21 | % | $ | 12,700,000 | | $ | 1.50 | | 10,000,000 | | 25.21 | % | $ | 15,000,000 | | $ | 2.00 | | 7,500,000 | | 20.18 | % | $ | 15,000,000 | | $ | 2.50 | | 6,000,000 | | 16.82 | % | $ | 15,000,000 |
| (1) | Although the Purchase Agreement provides that we may sell up to $15,000,000 of our Common Stock to Lincoln Park, we are only registering 10,539,633 shares under this prospectus which represents: (i) 539,633 Commitment Shares that we already issued to Lincoln Park as consideration for making the commitment under the Purchase Agreement, and (ii) an additional 10,000,000 shares which may be issued to Lincoln Park in the future under the Purchase Agreement, if and when we sell shares to Lincoln Park under the Purchase Agreement, and which may or may not cover all the shares we ultimately sell to Lincoln Park under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only those shares that we are registering in this offering. |
| (2) | The denominator is based on 29,666,068 shares outstanding as of September 12, 2022 (which includes the 539,633 Commitment Shares previously issued to Lincoln Park upon the execution of the Purchase Agreement), as adjusted to include the issuance of the number of shares set forth in the adjacent column which we would have sold to Lincoln Park, assuming the purchase price in the adjacent column. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed purchase price set forth in the adjacent column. |
| (3) | Pursuant to the Purchase Agreement, if the average price paid for the shares is less than $0.9536 per shares, then the number of shares to be issued will not exceed 4,392,532 shares, which equals 19.99% of the Company’s outstanding shares of Common Stock as of the date of the Purchase Agreement. |
| (4) | The closing sale price of our Common Stock on September 16, 2022. |
DILUTION The sale of our Common Stock to Lincoln Park pursuant to the Purchase Agreement will have a dilutive impact on our stockholders. In addition, the lower our stock price is at the time we exercise our right to sell shares to Lincoln Park, the more shares of our Common Stock we will issue to raise our desired amount of proceeds from the sale, and the greater the dilution to our existing stockholders . The historical net tangible book value of our company as of June 30, 2022 was $(2,538,437) or approximately $(0.12) per share of Common Stock. Historical net tangible book value per share is determined by dividing the net tangible book value of our company (total tangible assets less total liabilities) by the number of outstanding shares of our Common Stock as of June 30, 2022 . After giving effect to (i) the issuance of 5,789,716 shares of Common Stock for total proceeds of $4,999,998.74 pursuant to the PIPE Agreement, (ii) the issuance of 1,028,811 shares of Common Stock for total proceeds of $1,326,996.49 pursuant to the ATM, and (iii) the issuance of 539,633 shares of Common Stock to Lincoln Park as a commitment fee, for which no separate cash consideration was received, our pro forma net tangible book value as of June 30, 2022 was $3,788,558.23, or $0.13 per share of common stock. Pro forma net tangible book value per share is determined by dividing the net tangible book value of our company (total tangible assets less total liabilities) by the number of outstanding shares of our Common Stock. After giving further effect to the sale of 10,000,000 shares of Common Stock to Lincoln Park pursuant to the Purchase Agreement and assuming gross proceeds of approximately $12,700,000 from the sale of shares to Lincoln Park pursuant to the Purchase Agreement (based on the closing price of our Common Stock on September 16, 2022), our adjusted net tangible book value as of June 30, 2022 would have been $16,488,558.20 or approximately $0.42 per share. This represents an immediate increase in net tangible book value of approximately $0.29 per share to existing stockholders. The following table illustrates this dilution on a per share basis: | Assumed offering price per share | $1.27 | | Historical net tangible book value per share as of June 30, 2022 | $(0.12) | | Pro forma net tangible book value per share as of June 30, 2022 | $0.13 | | Increase in pro forma net tangible book value per share attributable to this offering | $0.29 | | Pro forma as adjusted net tangible book value per share after this offering | $0.42 | | Dilution per share to new investors | $0.85 |
The hypothetical dilution calculation shown above is based on 21,843,648 shares issued and outstanding as of June 30, 2022 and excludes: | ● | outstanding options exercisable to acquire an aggregate of 503,768 shares of our Common Stock, exercisable at a weighted average exercise price of $0.83 per share; |
| ● | 1,456,307 outstanding restricted stock units that may be settled in our Common Stock; |
| ● | outstanding warrants to purchase an aggregate of 3,398,117 shares of our Common Stock, all of which are exercisable at a weighted average exercise price of $1.08 per share; |
| ● | 82 shares of our Common Stock reserved for issuance under our 2018 Plan, plus any future increases, including annual automatic evergreen increases, in the number of shares of Common Stock reserved for issuance; and |
| ● | 3,008,482 shares of our Common Stock reserved for issuance under our 2021 Plan, plus any future increases, including annual automatic evergreen increases, in the number of shares of Common Stock reserved for issuance. |
The discussion of dilution assumes no exercise or settlement of any outstanding equity awards, exercise of warrants, or other potentially dilutive securities. The exercise of potentially dilutive securities having an exercise price less than the offering price would increase the dilutive effect to new investors. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information Our Common Stock is currently listed on the Nasdaq Capital Market under the symbol “HYRE.” As of September 16, 2022, the closing price of our Common Stock as reported on the Nasdaq Capital Market was $1.27. Holders As of September 16, 2022, there were 13 holders of record of our Common Stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. Dividend Policy We have never declared or paid any cash dividends. We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business, and therefore do not anticipate paying any cash dividends in the foreseeable future. Executive Officers and Board of Directors The following table sets forth the names, ages and positions of our current executive officers and directors: Name | | Age | | Position | Anshu “Andy” BansalJoseph Furnari | | 3941 | | Chief Executive Officer and Director | | Brian Allan | | 60 | | President | | Serge De Bock | | 41 | | Chief Financial Officer, until September 30, 2022 | | Eduardo Iniguez | | 36 | | Interim Chief Financial Officer, effective September 30, 2022 | | Michael Furnari | | 37 | | Chief Business Development Officer | | Greg Tatem | | 58 | | Chief Technology Officer | | Grace Mellis | | 50 | | Chairman of the Board of Directors | Joseph FurnariBrooke Skinner Ricketts | | 37 | | Chief Executive Officer, Chief Financial Officer, and Director | Abhishek Arora | | 35 | | Chief Technology Officer, Secretary and Director | Michael Furnari | | 33 | | Chief Business Development Officer | Kit Tran | | 42 | | Chief Marketing Officer | Elizabeth Reynolds | | 36 | | InterimChief Operating Officer | Grace Mellis | | 4741 | | Director | | Michael Root | | 61 | | Director | | Jayaprakash Vijayan | | 49 | | Director |
Anshu “Andy” Bansal – Chairman of the Board of Directors Class I Director Michael Root Anshu “Andy” Bansal is our co-founder and— Director
Since September 2019, Mr. Root has served as a memberPartner and Chief Technology Officer of our boardPlaya Vista Equity LLC, a commercial real estate development and asset management firm that specializes in structuring and managing institutional-quality, high-return, risk-adjusted equity investments. Since 2019, Mr. Root has also served as Partner and Chief Technology Officer of directors since July 2014EB-5 Equity Development Partners, a commercial real estate development and as chairman sinceasset management firm that specializes in high-return, risk-adjusted equity investments. From October 2017. From July 2014 until October2016 to June 2017, Mr. Bansal served as ourRoot was the Chief Technology Officer. PriorOfficer of Dog Vacay, a dog boarding service that was later acquired by A Place for Rover, Inc (“Rover”). From November 2008 to co-founding HyreCarMarch 2015, Mr. Root was the Technology Director for Riot Games Inc., a video game company. Mr. Root received a B.S. in July 2014,nuclear engineering from April 2013, Mr. Bansal was a manager for Amazon Corporation. Prior to joining Amazon, Mr. Bansal held various positionsthe University of Wisconsin — Madison in software companies such as Microsoft Corporation, Expedia, Inc. and H&R Block, Inc. Mr. Bansal co-founded e-commerce website www.jaadudeals.com in India and has created “Talking Toons” iPhone app. In September 2009, Mr. Bansal founded Computer Engineering Corporation, an IT strategy consultancy.1994. We believe Mr. Bansal shouldRoot is qualified to serve as a member ofon our board of directorsBoard due to the perspectivehis business and experience he brings as our co-founder and Chairman.technology experience. Class II Directors Joseph Furnari –— Director, Chief Executive Officer and Chief Financial Officer Joseph Furnari has served as our Chief Executive Officer since January 2017. From AugustMay 2016 until his appointment as Chief Executive Officer, Mr. Furnari served as our Chief Financial Officer. FromPrior to joining HyreCar, from May 2014 to April 2016, Mr. Furnari served as Vice President of Portfolio Management at The Palisades Group, LLC, , where he managed a $5.2 billion portfolio of single family residential whole loan pools. From October 2009 to April 2014, he served as Assistant Vice President of Securitized Products Valuation at Morgan Stanley, where he coordinated monthly independent valuations of securitized products.Stanley. From April 2006 to October 2009, Mr. Furnari served as a Senior Analytics Analyst at JP Morgan Chase & Co. Mr. Furnari holds a BBA in Finance from the Lubin School of Business at Pace University. We believe Mr. Furnari shouldis qualified to serve as a member of our board of directorsBoard due to his extensive experience in the financial services industry. Abhishek Arora – Director and Chief Technology OfficerJayaprakash “Jay” Vijayan Abhishek Arora is our co-founder and — Director
Jayaprakash “Jay” Vijayan has served as our Chief Technology Officer since October 2017 and as our Secretary since June 2018. From July 2014 until October 2017, Mr. Arora served as our Chief Operating Officer. From October 2012 to September 2015, Mr. Arora was self-employed as a software consultant and founded Fillskills, an online marketplace to improve skills. At Fillskills he developed proprietary self-learning algorithms to search, parse and analyze national job data. In addition, he has taught a wide variety of programming classes on iOS, C# and databases. We believe Mr. Arora should serve as a member of our Board since April 2019. Mr. Vijayan is currently the Founder and Chief Executive Officer of Tekion Corp. (2016 to present), an innovative startup technology company serving the automotive retail industry. He served at Tesla, Inc. as its Chief Information Officer (NASDAQ: TSLA), from 2012 to 2016 and was responsible for the company’s information systems, including applications, infrastructure, network, operations, and corporate and product security. Prior to Tesla, from 2007 to 2012, Mr. Vijayan led the IT Business Applications organization for VMware, Inc. (NYSE: VMW) and led product development teams for Oracle (NYSE: ORCL). Since June 2018, Mr. Vijayan has served on the Board of NIC Inc., a digital government software and service provider for federal, state, and local governments in the United States (NASDAQ: EGOV). Mr. Vijayan holds a BS and MS in Geology from the University of Madras in Chennai, Tamil Nadu, India. We believe Mr. Vijayan is qualified to serve on our Board because of his extensive industry and public company board member experience. Class III Directors Grace Mellis — Chairman of directorsthe Board of Directors Grace Mellis has an extensive financial services and management background and has served as a member of our Board since January 2018. Grace is the founder and director of IGA Capital since August 2016, which provides finance and management advisory services. From November 2013 to July 2016, Ms. Mellis served in various roles at Greendot Corporation including SVP Corporate Finance and Business Intelligence and Chief Financial Officer. Prior to that, Ms. Mellis was a Managing Director at JP Morgan where from November 2004 to November 2013 she served in a number of roles, including Chief Financial Officer in their Corporate and Investment Bank covering Investor Services and Treasury and Securities Services Businesses and Head of International Strategy and Business Development. Ms. Mellis holds both a Bachelor’s degree and Masters of Business Administration from Harvard University. We believe Ms. Mellis is qualified to serve on our Board due to her extensive background in finance and business management. Brooke Skinner Ricketts — Director Brooke Skinner Ricketts has served as a member of our Board since July 2018. Ms. Skinner Ricketts brings nearly two decades of relevant marketing and automotive industry expertise to HyreCar, and currently serves as Chief Experience Officer, leading marketing, product, and design for Cars.com, where she has been an executive leader since 2016. Prior to Cars.com, Ms. Skinner Ricketts served as vice president of brand and design of Avant, an online fintech platform that provides credit alternatives consumers from 2016 to 2017. Before Avant, Ms. Skinner Ricketts was head of brand strategy at Twitter, responsible for revenue-driving creative ideas for Fortune 200 clients. Prior to that, Ms. Skinner Ricketts worked at leading advertising agency Foote Cone & Belding before becoming the head of Brand Strategy at Digitas in Chicago and San Francisco. Ms. Skinner Ricketts has a BA from Bard College. We believe Ms. Skinner Ricketts is qualified to serve on our Board because of her extensive industry and business experience. Executive Officers Brian Allan — President Brian Allan, age 59, was appointed as our President effective March 1, 2021, and prior to that served as the Company’s Senior Vice-President of Strategic Partnerships since 2018. In that role Mr. Allan’s duties included leading the Company’s dealer and strategic partnership initiatives. Prior to joining the Company in 2018, Mr. Allan served as the Group General Manager at Galpin Motors, a privately held automotive dealer. Mr. Allan began working at Galpin Motors in 1985 in various roles and was promoted to Group General Manager in 1995. Mr. Allan has also served on several original equipment manufacturer dealer councils and advisory boards for automotive and technology firms. Serge De Bock — Chief Financial Officer (until September 30, 2022) Serge De Bock was appointed as our Chief Financial Officer effective July 5, 2021 and has resigned from such position effective September 30, 2022. Prior to joining the Company Mr. De Bock served as the Senior Vice President of Finance at Spin, a Ford mobility company, acting as its Divisional Chief Financial Officer, a position he held since April 2020. In his extensiverole as Divisional Chief Financial Officer at Spin Mr. De Bock led the finance, accounting and procurement functions of the organization. Prior to his tenure at Spin, from March 2018 through until April 2020, Mr. De Bock served as the Head of Finance of Twitch, an interactive gaming, social video, and content platform, part of Amazon. Prior to joining Twitch, starting in May 2012 Mr. De Bock held various positions at Liberty Mutual Insurance, including serving as an Assistant Vice President and Senior Director, Strategy, Finance and Analytics where he led teams providing analytical support, strategic planning and financial reporting in the organization. Mr. De Bock also previously held roles at PricewaterhouseCoopers, Deloitte and Staples in respectively public accounting, M&A and finance capacities. Mr. De Bock is a 2002 graduate of the Université Catholique de Louvain and received an MBA from The University of Chicago Booth School of Business in 2009. Eduardo Iniguez — Interim Chief Financial Officer (effective September 30, 2022) In connection with the departure of Serge De Bock as our Chief Financial Officer, Eduardo Iniguez has been appointed to serve as our interim Chief Financial Officer, effective September 30, 2022. Mr. Iniguez currently serves as the Head of Finance of the Company. Before joining the Company, Mr. Iniguez was the Vice President of Corporate Finance at AllClear Aerospace & Defense from September 2018 to May 2022, which was the largest privately-held aerospace distribution company in the world. In that role, Mr. Iniguez served as the Chief Financial Officer for one of the company’s joint ventures while overseeing the company’s finance and accounting functions. He brings over 14 years of experience in operational finance, treasury, budgeting, net working capital management, and public accounting. Through years of managing complex M&A deals and direct responsibility for 11 P&Ls, he brings a disciplined approach to financial analysis and management, including a solid track record of managing cash burn and improving EBITDA performance. Mr. Iniguez earned his Master of Business Administration in Finance degree and Bachelor of Science degrees in Business Administration and Accounting from the technology industry.University of Southern California. Michael Furnari – —Chief Business Development Officer
Michael Furnari has served as our Director of Sales since May 2016 and as our Chief Business Development Officer since October 2017. From August 2016 until June 2018, Mr. Furnari served as our Secretary. From August 2016 until January 2017 and again from April 2017 until January 10, 2018, Mr. Furnari served as member of our board of directors. FromBoard. Prior to joining HyreCar, from June 2013 to May 2016, Mr. Furnari served as Sales Manager at Hyatt Residence Group (HRG) Carmel Highlands, the highest volume property in the group’s portfolio. From December 2010 to June 2013, Mr. Furnari served as Facilities Manager at Target Corporation. Mr. Furnari holds a BA in Economics from the University of California, Santa Cruz and an MBA from California State University, Monterey Bay. Kit Tran –Greg Tatem — Chief MarketingTechnology OfficerKit Tran has served
Greg Tatem, age 58, was appointed as our Chief MarketingTechnology Officer since November 2016.effective May 23, 2022. From December 2013 until joining the Company, Mr. Tatem served as the Chief Technology Officer of wine.com, an online retailer of wines. Prior to his tenure at wine.com, from October 2013 through December 2013, Mr. Tatem served as the Director of e-commerce engineering at Williams-Sonoma, Inc. (NYSE: WSM), a consumer retail company that focuses on kitchenware and home furnishings. Prior to joining HyreCarWilliams Sonoma, Inc., Mr. Tatem served in 2016, from October 2013 to November 2016, Mr. Tran was Vice President of Marketing and Monetization for Clicksco Group, an ad tech company based out of Dubai. Before Clicksco Group, Mr. Tran worked for a privately held media organization Market E's, from January 2009 to December 2012. Between January 2005 and October 2008 Mr. Tran worked as a Digital Marketer on the agency side, for ad agencies, including RPA, The AOR for Honda, Acura, La-Z-Boy Inc., Bosley Inc., SoyJoy, Pentax and Mandalay Bay.Elizabeth Reynolds – Interim Chief Operating Officer
Elizabeth Reynolds has served as our Interim Chief Operating Officer since October 2017. From May 2015 to February 2017, she was the Director of Operations at Cross Campus where she led the launch of new co-working locations and operational scaling. From January 2010 to April 2015, she consulted on general management and operations for multiple restauranteurs, including Chefs Mario Batali and Tony Esnault. Ms. Reynolds studied biology at Reed College and began her career path in research before returning to school to study education. After leaving academia, she accepted a position as Assistant Director for Body Worlds and traveled across the country and eventually into Los Angeles with the exhibit. She currently serves as an advisor for BIL Conference and LA Makerspace.
Grace Mellis – Director
Grace Mellis has served as a member of our board of directors since January 2018. Grace is the founder and director of IGA Capital since August 2016, which isroles focused on financeengineering and/or product development at various organizations including Linden Lab, a technology company focused developing platforms to create virtual experiences, Fuego Nation, a social networking solutions company, and management advisory services. From November 2013 to July 2016, Grace served in various roles at Greendot Corporation including SVP Corporate FinancePicaboo, a company focused on providing custom photos. Mr. Tatem is a 1990 graduate of the University of California, Los Angeles.
Family Relationships Joseph Furnari, our Chief Executive Officer, and Michael Furnari, our Chief Business Intelligence and Chief Financial Officer. Prior to that, Ms. Mellis was at JP Morgan from November 2004 to November 2013 in a number of roles, including Managing Director and Chief FinancialDevelopment Officer, in their Corporate and Investment Bank covering Investor Services and Treasury and Securities Services Businesses and Head of International Strategy and Business Development. Ms. Mellis holds both a Bachelor’s degree and Masters of Business Administration from Harvard University. We believe Ms. Mellis should serve as a member of our board of directors due to her extensive background in finance and business management. are brothers. Involvement in Certain Legal Proceedings To the best of our knowledge, none of our directors or executive officers have, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K. Staggered Board
In accordance with the terms
Arrangement between Officers and Directors To our knowledge, there is no arrangement or understanding between any of our amendedofficers and restated certificate of incorporation that will become effective in connection withany other person, including our directors, pursuant to which the closing of the primary offering and amended and restated bylaws that will become effective upon the effectiveness of the registration statement of which this prospectus is a part, our board of directors will be divided into three classes. officer was selected to serve as an officer. Director Independence The members of each class will serve for a staggered, three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. The classes will be composed as follows: | ● | | Mr. Arora will be a Class I director, whose terms will expire at the fiscal 2018 annual meeting of stockholders; |
| ● | | Messrs. Furnari and Bansal will be Class II directors, whose term will expire at the fiscal 2019 annual meeting of stockholders; and |
| ● | | Ms. Mellis will be a Class III director, whose term will expire at the fiscal 2020 annual meeting of stockholders. |
Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will continue to be apportioned as nearly equal in number as possible. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.
Board of Directors and Corporate Governance When considering whether directors have the experience, qualifications, attributes and skills to enable the board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focuses primarily on the information discussed in each of the directors’ individual biographies as set forth above.
The board of directors periodically reviews relationships that directors have with our company to determine whether the directors are independent. Directors are considered “independent” as long as they do not accept any consulting, advisory or other compensatory fee (other than director fees) from us, are not an affiliated person of our company or our subsidiaries (e.g., an officer or a greater than 10% stockholder) and are independent within the meaning of applicable United States laws, regulations and the Nasdaq Capital Market listing rules. In this latter regard, the board of directorsBoard uses the Nasdaq Marketplace Rules (specifically, Section 5605(a)(2) of such rules) as a benchmark for determining which, if any, of our directors are independent, solely in order to comply with applicable SEC disclosure rules.
Based on the above, the Board considers Grace Mellis, our Chairman, Brooke Skinner Ricketts, Michael Root, and Jayaprakash Vijayan to be “independent” members of our Board. The following table identifies our independent and non-independent Board and Committee members in accordance with NASDAQ Listing Rule 5605(a)(2):
Audit Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will operate pursuant to a charter to be adopted by our board of directors. The composition of each committee and its respective charter will be effective upon the effectiveness of the registration statement of which this prospectus is a part, and copies of each charter will be posted on the corporate governance section of our website at www.hyrecar.com. Each committee has the composition and responsibilities described below. Our board of directors may establish other committees from time to time.
Nasdaq permits a phase-in period of up to one year for an issuer registering securities in an initial public offering to meet the audit committee, compensation committee and nominating and corporate governance committee independence requirements. Under the initial public offering phase-in period, only one member of each committee is required to satisfy the heightened independence requirements at the time our registration statement becomes effective, a majority of the members of each committee must satisfy the heightened independence requirements within 90 days following the effectiveness of our registration statement, and all members of each committee must satisfy the heightened independence requirements within one year from the effectiveness of our registration statement.
Audit Committee
Grace Mellis, Andy Bansal and Abhi Arora will serve on the audit committee, which will be chaired by Grace Mellis. Our board of directors has determined that Ms. Mellis, is “independent” for audit committee purposes as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and each member has sufficient knowledge in financial and auditing matters to serve on the audit committee. Our board of directors has designated Ms. Mellis as an “audit committee financial expert,” as defined under the applicable rules of the SEC. We intend to comply with the applicable independent requirements for all members of the audit committee within the time periods specified under such rules.
The audit committee’s responsibilities include:
| ● | appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;Compensation | | Corporate
Governance/
Nominating | | Joseph Furnari | | | | | | | | | | Grace Mellis | ● | pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;X | | X* | | X* | | X* | | Michael Root | | X | | | | X | | | | Brooke Skinner Ricketts | | X | | X | | X | | X | | Jayaprakash Vijayan | | X | | X | | | | |
| * | Chairman of the committee |
Classified Board of Directors In accordance with the terms of our amended and restated certificate of incorporation and our amended and restated, our Board is divided into three classes. The members of each class serve for a staggered, three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. The classes are composed as follows: | ● | reviewingMichael Root is a Class I director, whose term will expire at the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements;2025 Annual Meeting; | | | | | ● | reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us; | | | | | ● | coordinating the oversight and reviewing the adequacy of our internal control over financial reporting; | | | | | ● | establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns; | | | | | ● | recommending based upon the audit committee’s review and discussions with management and our independent registered public accounting firm whether our audited financial statements shall be included in our Annual Report on Form 10-K; | | | | | ● | monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters; | | | | | ● | preparing the audit committee report required by SEC rules to be included in our annual proxy statement; | | | | | ● | reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; and | | | | | ● | reviewing quarterly earnings releases. |
Compensation Committee
Grace Mellis and Andy Bansal will serve on the compensation committee, which will be chaired by Ms. Mellis. Our board of directors has determined that Ms. Mellis is “independent” as defined in the applicable Nasdaq rules. We intend to comply with the applicable independent requirements for all members of the compensation committee within the time periods specified under such rules.
The compensation committee’s responsibilities include:
| ● | annually reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer; | | | | | ● | evaluating the performance of our chief executive officer in light of such corporate goals and objectives and determining the compensation of our chief executive officer; | | | | | ● | reviewing and approving the compensation of our other executive officers; | | | | | ● | reviewing and establishing our overall management compensation, philosophy and policy; | | | | | ● | overseeing and administering our compensation and similar plans; | | | | | ● | evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in the applicable Nasdaq rules; | | | | | ● | retaining and approving the compensation of any compensation advisors; | | | | | ● | reviewing and making recommendations to our board of directors about our policies and procedures for the grant of equity-based awards; | | | | | ● | evaluating and making recommendations to the board of directors about director compensation; | | | | | ● | preparing the compensation committee report required by SEC rules, if and when required, to be included in our annual proxy statement; and | | | | | ● | reviewing and approving the retention or termination of any consulting firm or outside advisor to assist in the evaluation of compensation matters. |
Nominating and Corporate Governance Committee
Grace Mellis, Andy Bansal and Joseph Furnari will serve on the nominating and corporate governance committee, which will be chaired by Ms. Mellis. Our board of directors has determined that Ms. Mellis is “independent” as defined in the applicable Nasdaq rules. We intend to comply with the applicable independent requirements for all members of the nominating and corporate governance committee within the time periods specified under such rules.
The nominating and corporate governance committee’s responsibilities include:
| ● | developing and recommending to the board of directors criteria for board and committee membership; | | | | | ● | establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders; | | | | | ● | reviewing the size and composition of the board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us; | | | | | ● | identifying individuals qualified to become members of the board of directors; | | | | | ● | recommending to the board of directors the persons to be nominated for election as directors and to each of the board's committees; | | | | | ● | developing and recommending to the board of directors a code of business conduct and ethics and a set of corporate governance guidelines; and | | | | | ● | overseeing the evaluation of our board of directors and management. |
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics, effective upon the effectiveness of the registration statement of which this prospectus is a part, that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following effectiveness, we will post a copy of our code of ethics, and intend to post amendments to this code, or any waivers of its requirements, on our company website.
Corporate Governance Guidelines
We have adopted corporate governance guidelines, effective upon the effectiveness of the registration statement of which this prospectus is a part, that serve as a flexible framework within which our board of directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board, board membership criteria and director qualifications, director responsibilities, board agenda, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, and management succession planning. A copy of our corporate governance guidelines will be available on our website at www.hyrecar.com upon completion of the primary offering.
Conflicts of Interest
We comply with applicable state law with respect to transactions (including business opportunities) involving potential conflicts. Applicable state corporate law requires that all transactions involving our company and any director or executive officer (or other entities with which they are affiliated) are subject to full disclosure and approval of the majority of the disinterested independent members of our board of directors, approval of the majority of our stockholders or the determination that the contract or transaction is intrinsically fair to us. More particularly, our policy is to have any related party transactions (i.e., transactions involving a director, an officer or an affiliate of our company) be approved solely by a majority of the disinterested independent directors serving on the board of directors.
Family Relationships
Messrs. Joseph Furnari and Michael Furnari are brothers.
Executive Compensation
Our named executive officers for fiscal 2017 set forth in this prospectus (the “Named Executive Officers”) are:
| | ● | Joseph Furnari;Furnari and Jayaprakash Vijayan are Class II directors, whose term will expire at the annual meeting of stockholders to be held in 2023; and |
| | ● | Michael Furnari;Grace Mellis and Brooke Skinner Ricketts are Class III directors, whose term will expire at the annual meeting of stockholders to be held in 2024. | | | |
EXECUTIVE COMPENSATION The following is a discussion of compensation arrangements of our named executive officers (the “Named Executive Officers”). As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies. Our Named Executive Officers for the year ended December 31, 2021 include our principal executive officer and the two next most highly compensated executive officers during the year ended December 31, 2021: | | ● | Abhishek Arora.Joseph Furnari; |
Summary Compensation Table The following table summarizes the compensation of our Named Executive Officers during the years ended December 31, 20172021 and 2016.| Name and Principal Position | | Year | | | Salary ($)(1) | | | Bonus ($) | | | Stock Awards ($)(2) | | | Option Awards ($)(2) | | | All Other Compensation ($) | | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | Joseph Furnari, | | 2017 | | | | 100,000 | | | | — | | | | — | | | | 44,200 | | | | — | | | | 144,200 | | | CEO and CFO | | 2016 | | | | 24,000 | | | | — | | | | 65,700 | (3) | | | — | | | | 16,000 | (4) | | | 105,700 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Furnari, | | 2017 | | | | 100,000 | | | | — | | | | — | | | | 44,200 | | | | — | | | | 144,200 | | | Chief Business Development Officer | | 2016 | | | | 24,000 | | | | — | | | | 65,700 | (3) | | | — | | | | 16,000 | (4) | | | 105,700 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Abhishek Arora, | | 2017 | | | | 96,000 | | | | — | | | | — | | | | 28,298 | | | | — | | | | 124,298 | | | Chief Technology Officer | | 2016 | | | | 24,000 | | | | — | | | | — | | | | — | | | | 20,000 | (4) | | | 44,000 | |
Name and Principal Position | Year | | Salary
($) | | | Bonus
($)(1) | | | Stock
Awards
($)(2) | | | Option
Awards
($) | | | All Other
Compensation
($) | | | Total
($) | | Joseph Furnari, | 2021 | | | 277,500 | | | | 16,800 | | | | 586,000 | | | | — | | | | — | | | | 880,300 | | | Chief Executive Officer | 2020 | | | 215,000 | | | | 40,000 | | | | 181,000 | | | | — | | | | — | | | | 436,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Brian Allan, | 2021 | | | 200,000 | | | | 8,700 | | | | 1,085,400 | | | | — | | | | — | | | | 1,294,100 | | | President | 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ken Grimes(3), | 2021 | | | 197,500 | | | | — | | | | 586,000 | | | | — | | | | — | | | | 783,500 | | | Former Chief Technology Officer | 2020 | | | 185,000 | | | | 30,000 | | | | 200,200 | | | | — | | | | — | | | | 415,200 | |
| (1) | Reflects actual earningsBonuses are reported for 2017 and 2016,the fiscal years in which may differ from approved 2017 and 2016 base salaries due to start dates and effective dates of salary increases.they are earned, although such bonuses are paid during the following fiscal year. Bonuses earned for the 2021 fiscal year were paid in September 2022. Bonuses earned for the 2020 fiscal year were paid in February 2021. |
| (2) | ReflectsThe stock award value for fiscal year 2021 represents the aggregate grant date fair value computed in accordance with ASC Topic 718. The assumptions used in the valuation of these awards are set forth in the notes to our financial statements, which are included in this prospectus. These amounts do not necessarily correspond toour Annual Report on Form 10-K, filed with the actual value that may be recognized by the Named Executive Officers. |
(3) | Reflects the aggregate grant date fair value computed in accordance with ASC Topic 718. The assumptions used in the valuation of these awards are set forth in the notes to our financial statements, which are included in this prospectus.SEC on March 15, 2022. These amounts do not necessarily correspond to the actual value that may be recognized by the Named Executive Officers. The consideration paidvalue reported for fiscal year 2020 is the fair value of the common shares issued to the individuals indicated in the option swap transaction that occurred during 2020 and is not representative of the stock-based compensation recorded under ASC 718. These amounts do not necessarily correspond to the actual value that may be recognized by the Named Executive Officers. |
| (3) | Ken Grimes stepped down as our Chief Technology Officer for such restricted stock awards was a full recourse secured promissory note in the principal amount of $65,700. Oneffective May 23, 2018, we issued2022, and remained in a bonus to the Named Executive Officer in the amount of $66,812.40, which was equal to the aggregate principal and any accrued but unpaid interest due under the promissory note, in lieu of the repayment of the outstanding obligations. | | | (4) | During the year ended December 31, 2016, the Named Executive Officer performed services for the company as an independent contractor prior to his employmenttransitional role with the company.Company until July 15, 2022. |
Joseph Furnari — Chief Executive Officer, Director On September 12, 2016, the companyCompany entered into an employment agreementEmployment Agreement with Mr. Joseph Furnari, to act as the company’s Chief Financial Officer, which may be terminated by the companyCompany at any time, for any reason, with or without cause. Compensation under the agreement includes an annual salary of $48,000. Subject to the discretion of the board,Board, Mr. Furnari will beis considered for an annual incentive bonus. In addition, the agreement also provided for the grant of 489,025 restricted shares of the company’s common stock Company’s Common Stock under the company’sCompany’s 2016 Equity Incentive Plan. On January 9, 2020, the Compensation Committee of the Board approved new base compensation for Mr. Furnari, effective January 1, 2020, in the amount of $215,000 annually. On February 22, 2021, the Compensation Committee of the Board approved new base compensation for Mr. Furnari, effective March 1, 2021, in the amount of $290,000 annually, and approved a stock bonus of 50,000 shares. Also, on February 22, 2021, the Compensation Committee approved a year-end bonus for Mr. Furnari in the amount of $40,000 for fiscal year 2020 performance. In October 2016,September 2022, the Compensation Committee approved a year-end bonus for Mr. Furnari’s annualFurnari in the amount of $16,800 for fiscal year 2021 performance. Brian Allan – President Mr. Allan’s employment is at will. At the time of his appointment as President Mr. Allan’s base salary was increasedset at the annual rate of $240,000 and agreed to $100,000. On April 6, 2017, we granted from the 2016 Equity Incentive Plan options for the purchase of 148,570 shares of our common stockgrant to Mr. Furnari. The exercise price per share is $0.71.Michael Furnari
On September 12, 2016,Allan a certain number of restricted stock units. At the companytime of appointment Mr. Allan agreed to enter into an agreement that imposes various restrictive covenants on Mr. Allan, with the terms of that agreement to be similar to those entered into an employment agreement with Mr. Michael Furnari to act as the company’s Secretary and Director of Sales, which may be terminated by the company at any time, for any reason, with or without cause. Compensation under the agreement includes an annual salary of $48,000. Subject to the discretion of the board, Mr. Furnari will be considered for an annual incentive bonus. In addition, the agreement also provided for the grant of 489,025 restricted shares of the company’s common stock under the company’s 2016 Equity Incentive Plan. In October 2016, Mr. Furnari’s annual salary was increased to $100,000. On April 6, 2017, we granted from the 2016 Equity Incentive Plan options for the purchase of 148,570 shares of our common stock to Mr. Furnari. The exercise price per share is $0.71.
other Company executives. Abhishek AroraKen Grimes – Former Chief Technology Officer The company has
As of December 31, 2021, Mr. Grimes’s was an oral agreement with Mr. Abhishek Arora pursuant to which he receives an annual salaryemployee at will. At the time of $96,000 for his servicesappointment as Chief Technology Officer. DuringOfficer, Mr. Grimes’s base salary was set at the year ended December 31, 2017,rate of $200,000. At the time of appointment Mr. Arora deferred $12,000Grimes agreed to enter into an agreement that imposes various restrictive covenants on Mr. Grimes, with the terms of his salary. As a result, Mr. Arora received cash compensation equalthat agreement to $84,000 during the year ended December 31, 2017. Subjectbe similar to the discretion of the board, Mr. Arora will be considered for an annual incentive bonus.Other Executive Officers
Kit Tran
On June 21, 2018, the companythose entered into an employmentby other Company executives. Effective as of May 23, 2022, Mr. Grimes stepped down as our Chief Technology Officer and entered into a transition services agreement with Mr. Kit Tran, which has an initial term of one year; however, such agreement may be terminated at any time by Mr. Tran or the company, other than for Cause (as defined in the agreement). In the event of a for Cause termination, the company must provide written notice of such potential termination, which shall become effective if such Cause remains uncured ten days after such notice. Compensation under the agreement includes an annual salary of $96,000, which will increase to an annual rate of $144,000 upon completion of the primary offering or by August 31, 2018, whichever occurs first. In addition, the agreement also provides for the grant of an option to purchase up to 140,000 shares of the company’s common stock, subject to the approval of the board of directors. Subject to the discretion of the board, Mr. Tran will also be considered for an annual incentive bonus. Prior to June 21, 2018, the company had a consulting arrangement with Mr. Kit Tran, through an entity,(the “Transition Agreement”) pursuant to which Mr. Tran providedGrimes continued to provide advisory and transitional services to the company as its Chief Marketing Officer and earned consulting fees of $4,000 per month.
Elizabeth Reynolds
On June 16, 2017, the company entered into an employment agreement with Ms. Elizabeth Reynolds, which may be terminated at any time, for any reason, with or without cause. Compensation under the agreement includes an annual salary of $75,000. SubjectCompany until July 15, 2022 (the “Separation Date”).
Pursuant to the discretionTransition Agreement, and subject to continued compliance with the terms thereof, Mr. Grimes was entitled to the following during the transitional period from May 23, 2022 until July 15, 2022: | ● | continued base salary at the annualized rate of $200,000 and benefits at the same, or substantially similar, levels as provided in his role as Chief Technology Officer; and |
| ● | 100,000 shares of the Company’s Common Stock, which were issued on August 5, 2022, provided that Mr. Grimes (i) was not earlier terminated for Cause (as defined in the Transition Agreement), (ii) did not breach the terms of the Transition Agreement and (iii) executed a customary Confidential Separation and General Release Agreement on the Separation Date which required him to release all claims he may have had against the Company and reaffirm certain obligations as set forth in the Transition Agreement. |
The Transition Agreement contains customary restrictions on any disparagement of the board, Ms. ReynoldsCompany by Mr. Grimes and restrictions on Mr. Grimes’ use of the Company’s confidential information. Pursuant to the Transition Agreement, Mr. Grimes will be considered for an annual incentive bonus. In addition, the agreement also granted Ms. Reynolds an option to purchase up to 75,000 shares of the company’s common stock, subject to vesting. In January 2018, Ms. Reynold’s salary was increased to an annual salarycustomary non-solicitation provisions until the second anniversary of $96,000.Separation Date. Outstanding Equity Awards at 20172021 Fiscal Year-End The following table presents information concerning unexercised options and unvested restricted stock awards for each Named Executive Officer outstanding as of December 31, 2017.| | | Option Awards | | Stock Awards | | | Name | | Grant Date(1) | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(2) | | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) | | | Option
Exercise
Price ($) | | | Option
Expiration
Date | | | Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3) | | | Market
Value of
Shares or
Units of Stock
That Have
Not Vested
($)(1)(4) | | | Joseph Furnari | | 4/6/2017 | | | 55,714 | | | | 92,856 | | | | — | | | | 0.71 | | | | 4/6/2027 | | | | — | | | | — | | | | | 9/12/2016 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 145,621 | | | | 800,916 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Furnari | | 4/6/2017 | | | 55,714 | | | | 92,856 | | | | — | | | | 0.71 | | | | 4/6/2027 | | | | — | | | | — | | | | | 9/12/2016 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 145,621 | | | | 800,916 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Abhishek Arora | | 10/30/2017 | | | 26,979 | | | | 8,021 | | | | — | | | | 1.75 | | | | 10/30/2027 | | | | — | | | | — | |
| | | Option Awards | | Stock Awards | Name | | Number of Securities
Underlying
Unexercised Options (#)
(Exercisable) | | Number of Securities
Underlying Unexercised
Options (#)
(Unexercisable) | Equity Incentive
Plan Awards:
Number of Securities
Underlying Unexercised
Unearned Options (#) | | Option Exercise
Price
($) | | Option Expiration
Date | | Number of Shares or Units of Stock
That Have Not
Vested
(#) | | | Market Value of
Shares or Units
of Stock That
Have Not Vested
($) | | Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights that Have Not Vested
(#) | Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights
that Have Not
Vested
($) | Joseph Furnari | | | | | | | | | | | | | | | | | | | | | | | Chief Executive Officer | | | 148,570 | | | | | | 0.71 | | 04/06/2027 | | | | | | | | | | | Brian Allan, | | | | | | | | | | | | | | 34,375(2) | | | | 558,000 | | | | | President | | | | | | | | | | | | | | | | | | | | | | Ken Grimes(1), | | | | | | | | | | | | | | 9,375(3) | | | | 38,040 | | | | | Former Chief Technology Officer | | | | | | | | | | | | | | | | | | | | | |
| (1) | All ofKen Grimes stepped down as our Chief Technology Officer effective May 23, 2022, and remained in a transitional role with the outstanding equity awards described in the footnotes below were granted under our 2016 Equity Incentive Plan.Company until July 15, 2022. |
| (2) | The optionsThese restricted stock units vest in equal installments every three months beginning May 18, 2022 until November 18, 2024. |
| (3) | As of December 31, 2021, these restricted stock units were scheduled to vest as follows: (i) 25% of the1,250 shares vestedon January 1, 2022; (ii) 938 shares on February 8, 2022; (iii) 1,250 shares on April 30, 2017 for Messrs. Furnari and Furnari and November 14, 2015 for Mr. Arora and (ii) the remaining 75% of the1, 2022; (iv) 937 shares subject to the options vest and become exercisable in 12 successive equal quarterly installments. |
(3) | The restricted shares vest as follows: (i) 33% of the shares vest on the consummation of a sale of securities for aggregate gross proceeds of at least $250,000 in one or more transactions, which was satisfied as of June 14, 2016, and (ii) the remaining 67% of the shares vest in 36 successive equal monthly installments commencing as of May 1, 2016 and vesting in full2022; (v) 938 shares on August 1, 2022; (vi) 1,250 shares on July 1, 2022; (vii) 1,250 shares on October 1, 2022; (viii) 1,250 shares on January 23, 2022; (ix) 312 shares on April 30, 2019.1, 2023. Due to his departure from the Company, shares that remained unvested after July 2022 were forfeited. | | | (4) | The market price for our common stock is based upon the assumed initial public offering price of $5.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. |
Director Compensation No
The following table sets forth summary information concerning the total compensation was paiddelivered to our non-employee directors during 2017. However, Anshu “Andy” Bansal,in 2021 for services to our Chairman, receivedCompany (including equity awards delivered in 2021 intended as compensation of $65,000 and $24,000 duringfor services provided to the years ended December 31, 2017 and 2016 for his services as Chief Technology OfficerCompany, and for business advisory services after his resignation from such position in October 2017. In addition, on October 30, 2017, prior to herits benefit since commencing their service as a board member, Ms. Mellis was granted an option to purchase 45,000 shares of common stock at an exercise price of $1.75 per share, which vests as to 50% of the shares on October 1, 2018 and the remaining 50% vests in 4 successive equal quarterly installments.Our 2016 Equity Incentive Plan
Our board of directors and stockholders adopted our 2016 Equity Incentive Plan on August 27, 2016.
Share Reserve. As of December 31, 2017, we had 1,021,171 shares of common stock issuable upon exercise of outstanding stock options and no shares of common stock available for future awards. In connection with the adoption of our 2018 Equity Incentive Plan, no additional awards will be granted under our 2016 Equity Incentive Plan.
Term. Our 2016 Equity Incentive Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. In connection with the adoption of our 2018 Equity Incentive Plan, no additional awards will be granted under our 2016 Equity Incentive Plan.
Eligibility. Our 2016 Equity Incentive Plan authorizes the award of stock options, stock appreciation rights, restricted stock awards, or restricted stock units.
Administration. Our 2016 Equity Incentive Plan is administered by our board of directors; however, in connection with the primary offering, we our compensation committee, to be effective upon effectiveness of the registration statement in which this prospectus forms a part, will administer the plan.Company).
Name | | Fees Earned or Paid in Cash
($) | | | Option Awards
($) | | | Stock Awards
($)(1) | | | Total
($) | | | Grace Mellis | | | 60,000 | | | | — | | | | 871,955 | | | | 931,955 | | | Brooke Skinner Ricketts | | | — | | | | — | | | | 596,673 | | | | 596,673 | | | Michael Root | | | — | | | | — | | | | 539,319 | | | | 539,319 | | | Jayaprakash Vijayan | | | — | | | | — | | | | 516,387 | | | | 516,387 | |
(1) The administrator has the authority to construe and interpret our 2016 Equity Incentive Plan and make all other determinations necessary or advisable for the administration of the plan. Awards under the 2016 Equity Incentive Plan may be made subject to “performance factors” and other terms in order to qualify as performance based compensation for the purposes of 162(m) of the Code.Stock Options. Our 2016 Equity Incentive Plan provided for the grant of incentive stock options that qualify under Section 422 of the Code only to our employees. All awards other than incentive stock options were available for grant to our employees, directors, consultants or other service providers. The exercise price of each stock option was at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders was at least equal to 110% of that value.
Options may be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. In general, options vest over a four-year period. The maximum term of options granted under our 2016 Equity Incentive Plan is ten years.
Stock Appreciation Rights. Stock appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.
Restricted Stock. A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions. The price (if any) of a restricted stock award is determined by the administrator. Unless otherwise determined by the administrator at the time of award, vesting will cease on the date the participant no longer provides services to us and unvested shares will be forfeited to or repurchased by us.
Restricted Stock Units. An RSU is an award that covers a number of shares of our common stock that may be settled upon vesting in cash, by the issuance of the underlying shares or a combination of both. These awards are subject to forfeiture prior to settlement because of termination of employment or failure to achieve certain performance conditions.
Additional Provisions. Awards granted under our 2016 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or as determined by the administrator. Unless otherwise restricted by the administrator, awards that are nonstatutory stock options may be exercised during the lifetime of the optionee only by the optionee, the optionee’s guardian or legal representative, or a family member of the optionee who has acquired the option by a permitted transfer. Awards that are incentive stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Options granted under our 2016 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee’s service to us, except in the case of death or permanent disability, in which case the options may be exercised for up to 12 months or six months, respectively, following termination of the optionee’s service to us.
If we experience a change in control transaction, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. Outstanding awards that are not assumed or substituted will be exercisable for a period of time and will expire upon the closing of a change in control transaction. In the discretion of our compensation committee, the vesting of these awards may be accelerated upon the occurrence of these types of transactions.
Our 2018 Equity Incentive Plan
Our board of directors and stockholders adopted our 2018 Equity Incentive Plan on May 23, 2018 and June 21, 2018, respectively. Our 2018 Equity Incentive Plan is intended to align the interests of our stockholders and the recipients of awards under the 2018 Equity Incentive Plan, and to advance our interests by attracting and retaining directors, officers, employees and other service providers and motivating them to act in our long-term best interests. The material terms of the 2018 Equity Incentive Plan are as follows:
Plan term. The 2018 Equity Incentive Plan terminates on the tenth anniversary of May 23, 2018, unless terminated earlier by our board of directors.
Eligible participants. All officers, directors, employees, consultants, agents and independent contractors, and persons expected to become officers, directors, employees, consultants, agents and independent contractors of our Company or any of our subsidiaries are eligible to receive awards under the 2018 Equity Incentive Plan. The compensation committee of our board will determine the participants under the 2018 Equity Incentive Plan.
Shares authorized. 3,000,000 shares of common stock will be available for awards granted under the 2018 Equity Incentive Plan, subject to adjustment for stock splits and other similar changes in capitalization. The number of available shares will be reduced by the aggregate number of shares that become subject to outstanding awards granted under the 2018 Equity Incentive Plan. As of the first day of each calendar year beginning on or after January 1, 2020, the number of shares available for all awards under the 2018 Equity Incentive Plan will automatically increase by a number equal to the least of (i) 300,000 shares, (ii) five percent (5%) of the number of shares that are issued and outstanding as of that date, or (ii) a lesser number of shares as determined by the compensation committee. To the extent that shares subject to an outstanding award granted under the 2018 Equity Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of an award in cash, then those shares will again be available under the 2018 Equity Incentive Plan. In addition, any shares covered by an award that have been surrendered in connection with the payment of the award exercise or purchase price or in satisfaction of tax withholding obligations incident to the grant, exercise, vesting or settlement of an award will be deemed not to have been issued for purposes of determining the maximum number of shares which may be issued pursuant to all awards under the 2018 Equity Incentive Plan.
Award types. Awards include non-qualified and incentive stock options, stock appreciation rights, bonus shares, restricted stock, restricted stock units, performance units and cash-based awards.
Administration. The compensation committee will interpret and administer the 2018 Equity Incentive Plan. The compensation committee’s interpretation, construction and administration of the 2018 Equity Incentive Plan and all of its determinations thereunder will be conclusive and binding on all persons.
The compensation committee shall have the authority to determine the participants in the 2018 Equity Incentive Plan, the form, amount and timing of any awards, the performance goals, if any, and all other terms and conditions pertaining to any award. The compensation committee may take any action such that (i) any outstanding options and stock appreciation rights become exercisable in part or in full, (ii) all or any portion of a restriction period on any restricted stock or restricted stock units will lapse, (iii) all or a portion of any performance period applicable to any performance-based award will lapse and (iv) any performance measures applicable to any outstanding award will be deemed satisfied at the target level or any other level. Subject to the terms of the 2018 Equity Incentive Plan relating to grants to our executive officers and directors, the compensation committee may delegate some or all of its powers and authority to the Chief Executive Officer and President or other executive officer as the compensation committee deems appropriate.
Stock options and stock appreciation rights. The 2018 Equity Incentive Plan provides for the grant of stock options and stock appreciation rights. Stock options may be either tax-qualified incentive stock options or non-qualified stock options. The compensation committee will determine the terms and conditions to the exercisability of each option and stock appreciation right.
The period for the exercise of a non-qualified stock option or stock appreciation right will be determined by the compensation committee provided that no option may be exercised later than ten years after its date of grant. The exercise price of a non-qualified stock option and the base price of a stock appreciation right will not be less than 100% of the fair market value of a share of our common stock on the date of grant, provided that the base price of a stock appreciation right granted in tandem with an option will be the exercise price of the related option. A stock appreciation right entitles the holder to receive upon exercise, subject to tax withholding in respect of an employee, shares of our common stock, which may be restricted stock, with a value equal to the difference between the fair market value of our common stock on the exercise date and the base price of the stock appreciation right.
Each incentive stock option will be exercisable for not more than 10 years after its date of grant, unlessawards represents the optionee owns greater than 10% of the voting power of all shares of our capital stock, or a “ten percent holder”, in which case the option will be exercisable for not more than five years after its date of grant. The exercise price of an incentive stock option will not be less than the fair market value of a share of our common stock on its date of grant, unless the optionee is a ten percent holder, in which case the option exercise price will be the price required by the Internal Revenue Code of 1986, as amended, or the “Code”, currently 110% of fair market value.
Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock, share withholding or through a cashless exercise arrangement, as permitted by the applicable award agreement. All of the terms relating to the exercise, cancellation or other disposition of an option or stock appreciation right upon a termination of employment, whether by reason of disability, retirement, death or any other reason, will be determined by the compensation committee.
The compensation committee, without stockholder approval, may (i) reduce the exercise price of any previously granted option or the base appreciation amount of any previously granted stock appreciation right, or (ii) cancel any previously granted option or stock appreciation right at a time when its exercise price or base appreciation amount (as applicable) exceeds the fair market value of the underlying shares, in exchange for another option, stock appreciation right or other award or for cash.
Stock awards. The 2018 Equity Incentive Plan provides for the grant of stock awards. The compensation committee may grant a stock award as a bonus stock award, a restricted stock award or a restricted stock unit award and, in the case of a restricted stock award or restricted stock unit award, the compensation committee may determine that such award will be subject to the attainment of performance measures over an established performance period. All of the terms relating to the satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a stock award upon a termination of employment, whether by reason of disability, retirement, death or any other reason, will be determined by the compensation committee.
The agreement awarding restricted stock units will specify whether such award may be settled in shares of our common stock, cash or a combination thereof and whether the holder will be entitled to receive dividend equivalents, on a current or deferred basis, with respect to such award. Prior to settlement of a restricted stock unit in shares of our common stock, the holder of a restricted stock unit will have no rights as our stockholder.
Unless otherwise set forth in a restricted stock award agreement, the holder of shares of restricted stock will have rights as our stockholder, including the right to vote and receive dividends with respect to the shares of restricted stock, except that distributions other than regular cash dividends and regular cash dividends with respect to shares of restricted stock subject to performance-based vesting conditions will be held by us and will be subject to the same restrictions as the restricted stock.
Performance unit awards. The 2018 Equity Incentive Plan provides for the grant of performance unit awards. Each performance unit is a right, contingent upon the attainment of performance measures within a specified performance period, to receive a specified cash amount, shares of our common stock or a combination thereof which may be restricted stock, having a fair market value equal to such cash amount. Prior to the settlement of a performance unit award in shares of our common stock, the holder of such award will have no rights as our stockholder with respect to such shares. Performance units will be non-transferable and subject to forfeiture if the specified performance measures are not attained during the specified performance period. All of the terms relating to the satisfaction of performance measures and the termination of a performance period, or the forfeiture and cancellation of a performance unit award upon a termination of employment, whether by reason of disability, retirement, death or any other reason, will be determined by the compensation committee.
Cash-based awards. The 2018 Equity Incentive Plan also provides for the grant of cash-based awards. Each cash-based award is an award denominated in cash that may be settled in cash and/or shares, which may be subject to restrictions, as established by the compensation committee.
Performance goals. Under the 2018 Equity Incentive Plan, the vesting or payment of performance-based awards will be subject to the satisfaction of certain performance goals. The performance goals applicable to a particular award will be determined by the compensation committee at the time of grant. The performance goals may be one or more of the following corporate-wide or subsidiary, division, operating unit or individual measures, stated in either absolute terms or relative terms.
Individual Limits. With respect to non-employee directors, the maximumaggregate grant date fair value of shares that may be granted to an individual non-employee director during any fiscal yearstock based awards computed in accordance with ASC Topic 718. The assumptions used in the valuation of the Company is $150,000. In connection with a non-employee director’s commencement of service with the Company, the per person limitthese awards are set forth in the previous sentence will be $150,000.
Amendment or termination ofnotes to our financial statements, which are included in our Annual Report on Form 10-K, filed with the 2018 Equity IncentivePlan. The board may amend or terminateSEC on March 15, 2022.
Retirement Plans We maintain a 401(k) plan for the 2018 Equity Incentive Plan as it deems advisable, subject to any requirement of stockholder approval required by law, rule or regulation.
Change of control. In the event of a change of control, our board of directors may, in its discretion, (1) provide that (A) some or all outstanding options and stock appreciation rights will immediately become exercisable in full or in part, (B) the restriction period applicable to some or all outstanding stock awards will lapse in full or in part, (C) the performance period applicable to some or all outstanding awards will lapse in full or in part, and (D) the performance measures applicable to some or all outstanding awards will be deemed to be satisfied at the target or any other level, (2) provide that some or all outstanding awards will terminate without consideration as of the date of the change of control, (3) require that shares of stock of the corporation resulting from such change of control, or a parent corporation thereof, be substituted for some or allbenefit of our shares subject to an outstanding award, and/or (4) require outstanding awards, in whole or in part, to be surrendered by the holder, and to be immediately canceled, and to provide for the holder to receive (A) a cash payment in an amount equal to (i) in the caseemployees, including our named executive officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of shares of our common stock then subject to the portion of such award surrendered, whether vested or unvested, multiplied by the fair market value of a share of our common stockCommon Stock as of the date of the change of control, and (iii) in the case of a performance unit award, the value of the performance units then subjectSeptember 12, 2022 by (i) each person known to the portion of such award surrendered; (B) shares of capital stock of the corporation resulting from such change of control, or a parent corporation thereof, having a fair market value not less than the amount determined under clause (A) above; or (C) a combination of the payment of cash pursuant to clause (A) above and the issuance of shares pursuant to clause (B) above.Under the 2018 Equity Incentive Plan, a change of control will occur upon: (i) a person’s or entity’s acquisition, other than from us, of beneficial ownership of 50% or more of either our then outstanding shares or the combined voting power of our then outstanding voting securities, but excluding certain acquisitions by the company, its subsidiaries or employee benefit plans, or by a corporation in which our stockholders hold a majority interest; (ii) a reorganization, merger or consolidation of the company if our stockholders do not thereafter beneficially own more than 50%5% of our outstanding common stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all directors and executive officers as a group. Shares are beneficially owned when an individual has voting and/or investment power over the outstanding shares or combinedcould obtain voting and/or investment power over the shares within 60 days of September 12, 2022. Except as otherwise indicated, the resulting company, (iii) certain changes to the incumbent directors of our Company, or (iv) a complete liquidation or dissolution of the company or of the sale or other disposition of all or substantially all of our assets; but excluding, in any case, the initial public offering or any bona fide primary or secondary public offering following the occurrence of the initial public offering.
New plan benefits. The benefits that might be received by officers, employees and non-employee directors cannot be determined at this time. All officers, employees and non-employee directors are eligible for consideration to participatepersons named in the 2018 Equity Incentive Plan.
table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where applicable. Unless otherwise indicated, the address of each beneficial owner listed below is c/o HyreCar Inc., 915 Wilshire Blvd., Suite 1950, Los Angeles, CA 90017. Name of Beneficial Owner | | Shares of Common Stock Beneficially Owned | | | Percentage of Shares Beneficially Owned(1) | | Executive officers and directors: | | | | | | | | | Grace Mellis(2) | | | 324,873 | | | | 1.10 | % | Michael Root(3) | | | 142,134 | | | | * | % | Joseph Furnari(4) | | | 542,177 | | | | 1.83 | % | Brooke Skinner Ricketts(5) | | | 231,186 | | | | * | % | Jayaprakash Vijayan(6) | | | 94,001 | | | | * | % | Brian Allan(7) | | | 80,750 | | | | * | % | Ken Grimes(8) | | | 262,938 | | | | * | % | All Officers and Directors as a group (9 persons) | | | 2,139,216 | | | | 7.21 | % | | | | | | | | | | | 5% or greater holders: | | | | | | | | | Arctis Global, LLC (9) | | | 3,430,981 | | | | 11.57 | % | State Street Corporation (SSgA) (10) | | | 1,620,236 | | | | 5.46 | % | The Goldman Sachs Group, Inc.(11) | | | 1,751,211 | | | | 5.90 | % |
| (1) | 50As of September 12, 2022, there were 29,666,068 shares of our Common Stock were outstanding. Shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 are deemed to be outstanding in computing the percentage of beneficial ownership of the person holding such securities, but are not deemed to be outstanding in computing the percentage of beneficial ownership of any other person |
| (2) | Includes (i) 315,975 shares of Common Stock beneficially held by Ms. Mellis; and (ii) 8,898 shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 pursuant to restricted stock units held by Ms. Mellis. |
| (3) | Includes (i) 136,630 shares of Common Stock beneficially held by Mr. Root; and (ii) 5,504 shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 pursuant to restricted stock units held by Mr. Root. |
| (4) | Includes (i) 393,607 shares of Common Stock beneficially held by Mr. J. Furnari; and (ii) 148,570 shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 pursuant to options held by Mr. J. Furnari. |
| (5) | Includes (i) 225,097 shares of Common Stock beneficially held by Ms. Skinner Ricketts; and (ii) 6,089 shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 pursuant to restricted stock units held by Ms. Skinner Ricketts. |
| (6) | Includes (i) 88,731 shares of Common Stock beneficially held by Mr. Vijayan; and (ii) 5,270 shares of Common Stock currently issuable or issuable within 60 days of September 12, 2022 pursuant to restricted stock units held by Mr. Vijayan. |
| (7) | Includes 80,750 shares of Common Stock beneficially held by Mr. Allan. |
| (8) | Ken Grimes stepped down as our Chief Technology Officer effective May 23, 2022, and remained in a transitional role with the Company until July 15, 2022. After his departure, the unvested restricted stock units held by Mr. Grimes were forfeited. |
| (9) | Based on the amendment to Schedule 13G filed by Arctis Global, LLC with the SEC on December 6, 2021, plus shares issued to an affiliate of Arctis Global, LLC pursuant to the PIPE Agreement. The address for Arctis Global, LLC is AM Towers, 7th Floor, 207 Calle de Parque, San Juan, PR 00912-3242. |
| (10) | Solely based on the Schedule 13G filed by State Street Corporation and SSGA Funds Management, Inc. with the SEC on February 11, 2022. The address for State Street Corporation and SSGA Funds Management is State Street Financial Center, 1 Lincoln Street, Boston, MA 02111. |
| (11) | Solely based on the Schedule 13G filed by The Goldman Sachs Group, Inc. with respect to various of its operating units with the SEC on January 31, 2022. The address for Goldman Sachs Group, Inc. is 200 West Street, New York, NY 10282. |
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONSOur common stock has been approved for listing on Nasdaq, therefore, our determination
The following includes a summary of the independence of directors is made using the definition of “independent” containedtransactions since January 1, 2019 and any currently proposed transactions, to which we were or are to be a participant, in the listing standards of Nasdaq. On the basis of information solicited from each director, the board has unanimously determined that only Grace Mellis is independent within the meaning of such rules.SEC regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship in which (i) the amount involved exceeds the lesser ofexceeded or will exceed $120,000 or one percent1% of the average of the company’sour total assets at year-end for the last two completed fiscal years ($2,771) in which we wereyears; and (ii) any of our directors, executive officers or, are to be a participant and in which a related personour knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. A related person is: (i)interest, other than equity and other compensation, termination, change in control and other arrangements, which are described above in the section titled “Executive Compensation.”
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions. PIPE Transaction On September 7, 2022, we sold an executive officer, director or director nomineeaggregate of 5,789,716 shares of our Common Stock pursuant to the company, (ii)PIPE Agreement to an entity affiliated with Arctis Global, LLC, a beneficial owner of more than 5% of our commoncapital stock, (iii)and certain other Purchasers. The shares sold pursuant to the PIPE Agreement were sold at a purchase price of $0.8636, which was the average closing price of our Common Stock as reported on Nasdaq for the five trading days immediately prior to the signing of the PIPE Agreement. We received total proceeds of approximately $5 million, of which approximately $1 million was paid by an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5%entity affiliated with Arctis Global, LLC to purchase 1,157,943 shares of our common stock, or (iv) anystock. At the time of issuance, the PIPE Shares were not registered under the Securities Act. Pursuant to the PIPE Agreement, the Company also agreed to provide the entity that is owned or controlled by anyaffiliated with Arctis Global, LLC and the other Purchasers with certain registration rights which requires the Company to prepare and file a registration statement covering the resale of the foregoing persons or in which anyPIPE Shares by the Purchasers (the “Resale Registration Statement”), with the SEC within 15 business days of the foregoing persons has a substantial ownership interest or control. In addition to the executive officer and director compensation arrangements discussed in “Executive Compensation,” the following is a description of all related person transactions that occurred during the period from January 1, 2014 through the present (the “Reporting Period”).
Claim based on Founders Agreement
In September 2015, a claim was made by certain former founders (the “Claimants”) against the company for violationsclosing of the founders’ agreement. The Claimants and the company entered into a confidential settlement agreement and general mutual release on April 25, 2016. The arbitration settlement provided that the Claimants would continue to own 190,177 shares of common stock and return the remaining shares to the company. Furthermore, the Claimants agreed that the shares, while not in a separate class, would not have voting rights until they are sold to a non-affiliated third party. The Claimants will be diluted upon capital raising, stock option offerings and vesting, however any dilution will remain consistent and proportional to the remaining founders’ dilution ratios and the Claimants will not be diluted more than the founders’ ratios in any capital raising transaction. The Claimants’ also are to receive a total of $110,000 paid out over eighteen (18) months starting November 1, 2016. As of December 31, 2017, $24,444issuance of the balance remained outstanding.
PIPE Shares. Sale of Promissory Notes and WarrantsFrom May 23, 2016 through September 6, 2016, we
On August 15, 2022, the Company issued $500,000 in convertible promissory notes to investors pursuant to a Convertible Note Purchase Agreement. Each of Joseph Furnari, a director and officer, and Michael Furnari, an officer, purchased convertible promissory notes in the amount of $50,000. The convertible promissory notes bore interest at the rate of 12%, with a default rate of 15%, and were due three years from the date of issuance. During the Reporting Period, $50,000 was the highest principal amount and $4,093 in interest was owedPromissory Notes to each of Joseph Furnari, the Company’s Chief Executive Officer, and Michael Furnari. On May 1, 2017 we entered into certain NoteFurnari, the Company’s Chief Business Development Officer. Pursuant to the respective Promissory Notes, Joseph Furnari and Warrant Purchase Agreements whereby we issued and sold to investors, one of whom was Michael Furnari an officer, promissory notes for an aggregateagreed to loan the Company $200,000 and $300,000, respectively, on the date that certain closing conditions are satisfied. The Promissory Notes will accrue interest at a rate of 7% per year on the outstanding principal amount of $350,000 together with five-year warrants to purchase up to 200,000 shares of common stock at an exercise price of $2.10 per share. The notes bear noamounts. Any unpaid principal amounts and accrued interest and have a maturityunder the Promissory Notes will be payable in full one year from the date of May 1, 2018. The company issued a promissory note in the principal amount of $100,000 to Mr. Furnari.such amounts are loaned, which has not yet occurred. As of the date of this prospectus, no interest or principal has yet been paid.
At the promissory notes remain outstanding. Salediscretion of Series Seed Preferred
Between August 22, 2016the Company’s Board of Directors, the aggregate unpaid principal amounts, and February 14, 2017, we sold a total of 1,407,671any unpaid accrued interest, may be convertible into shares of our Series Seed Preferred to Abdullah Al Dhowayan, a former director, in exchange for $1,000,000.
Participation in 2017 Private Placement Offering of Common Stock,
Starting in June 2017, we undertookat a private placement for the sale of common stock for $1.75 per share. During the year ended December 31, 2017, 1,236,588 shares of common stock were sold for gross proceeds of $2,164,029. The father and brother of the company’s Chief Executive Officer and the Chief Business Development Officer purchased an aggregate of 14,800 shares for $25,900 in this offering.
Related Party Advances
From time to time we receive advances from related parties for short-term working capital. Such advances are considered short-term and noninterest bearing. As of March 31, 2018, we have received a total of $9,629 in advances.
Note and Stock Pledge Termination
On May 23, 2018, we issued a bonus to Joseph Furnari and Mike Furnari, each in the amount of $66,812.40, in lieu of the repayment of outstanding indebtednessconversion price that is equal to such amount. This indebtedness was represented by full recourse secured promissory notes used to pay the purchaselast reported closing price for restricted stock awards to these individuals. Our board of directors made this decision to comply withour Common Stock on the requirements of Section 402 of the Sarbanes-Oxley Act, which prohibits public companies from extending loans to its executive officers. In connection with such note termination, any collateral securing the performance of the obligations under the notes, including the shares of common stock pledged to us, were released.
Nasdaq Capital Market. Review, Approval or Ratification of Transactions with Related Parties Our board of directorsBoard reviews and approves transactions with directors, officers and holders of five percent or more of our voting securities and their affiliates, each a related party. Prior to this offering, theThe material facts as to the related party'sparty’s relationship or interest in the transaction are disclosed to our board of directorsBoard prior to their consideration of such transaction, and the transaction is not considered approved by our board of directorsBoard unless a majority of the directors who are not interested in the transaction approve the transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party'sparty’s relationship or interest in the transaction are disclosed to the stockholders, who must approve the transaction in good faith. In connection with the primary offering,
Additionally, we adopted a written related party transactions policy that such transactions must be approved by our audit committee or another independent body of our board of directors.
DESCRIPTION OF SECURITIES The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 30, 2018 for: | ● | each person, or group of affiliated persons, known to us to beneficially own more than 5% of our common stock; |
| ● | each of our named executive officers; and |
| ● | all of our directors and executive officers as a group. |
Beneficial ownership of our common stock is determined under the rulessummary of the SECmaterial terms of the Company’s securities is not intended to be a complete summary of the rights and generally includes any shares over whichpreferences of such securities. You are encouraged to read the applicable provisions of the DGCL, the Amended and Restated Charter and Bylaws in their entirety for a person exercises sole or shared voting or investment power, orcomplete description of which a person has a right to acquire ownership at any time within 60 daysthe rights and preferences of the Company’s securities.
As of the date of this prospectus. Except as indicated by footnote, and subject to applicable community property laws, we believe the persons identified in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.In the following table, percentage ownership prior to this offering is based on 7,946,876 shares of our common stock outstanding as of April 30, 2018, assuming conversion of all outstanding shares of preferred stock in to an aggregate of 2,429,638 shares of our common stock and all vested and unvested restricted stock but excluding 10,000 shares issuable to a consultant upon completion of the primary offering. Percentage ownership after this offering is based on shares of common stock issued and outstanding immediately after the closing of the primary offering and assumes that none of the beneficial owners named below purchases shares in this offering. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options or other convertible securities held by that person or entity that are currently exercisable or releasable or that will become exercisable or releasable within 60 days of April 30, 2018. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each of the following persons is 355 South Grand Avenue, Suite 1650, Los Angeles, California 90071, and each such person has sole voting and investment power with respect to the shares set forth opposite his, her or its name.
| Name of Beneficial Owner | | Shares Beneficially Owned Prior to Offering | | | Percentage Beneficially Owned Prior to Offering | | | Percentage Beneficially Owned After Offering | | | | | | | | | | | | | | Named Executive Officers and Directors: | | | | | | | | | | | Anshu “Andy” Bansal(1) | | | 1,080,643 | | | | 13.6 | % | | | | % | | Joseph Furnari(2) | | | 667,778 | | | | 8.54 | % | | | | % | | Abhishek Arora(3) | | | 930,743 | | | | 11.7 | % | | | | % | | Michael Furnari(4) | | | 724,921 | | | | 9.2 | % | | | | % | | Grace Mellis(5) | | | 86,000 | | | | 1.1 | % | | | | % | | | | | | | | | | | | | | | | All directors and executive officers as a group (7 persons)(6) | | | 3,490,085 | | | | 42.5 | % | | | | % | | | | | | | | | | | | | | | | Other 5% Stockholders: | | | | | | | | | | | | | | Alyaseen Agricultural Company(7) | | | 594,286 | | | | 7.5 | % | | | | % | | Mohammed Abdullah A Al Baadi(8) | | | 500,000 | | | | 6.3 | % | | | | % | | Catalytic Holdings I LLC(9) | | | 426,941 | | | | 5.0 | % | | | | % |
(1) | Consists of 1,080,643 shares of common stock. | (2) | Consists of (i) 489,025 shares of common stock of which 18,203 are unvested restricted stock that will vest within 60 days of April 30, 2018 and 91,013 shares are unvested restricted stock that will not vest within 60 days of April 30, 2018, (ii) 95,182 shares of common stock issuable upon conversion of preferred stock in connection with the primary offering and (iii) 74,285 shares of common stock issuable upon exercise of options exercisable within 60 days of April 30, 2018. | (3) | Consists of (i) 898,254 shares of common stock and (ii) 32,489 shares issuable upon exercise of options exercisable within 60 days of April 30, 2018. | (4) | Consists of (i) 489,025 shares of common stock of which 18,203 are unvested restricted stock that will vest within 60 days of April 30, 2018 and 91,013 shares are unvested restricted stock that will not vest within 60 days of April 30, 2018, (ii) 95,182 shares of common stock issuable upon conversion of preferred stock in connection with the primary offering, (iii) 74,285 shares of common stock issuable upon exercise of options exercisable within 60 days of April 30, 2018 and (iv) 57,143 shares of common stock issuable upon exercise of warrants exercisable within 60 days of April 30, 2018. | (5) | Consists of 86,000 shares of common stock. |
(6) | Consists of (i) 3,042,947 shares of common stock of which 36,406 are unvested restricted stock that will vest within 60 days of April 30, 2018 and 182,026 shares are unvested restricted stock that will not vest within 60 days of April 30, 2018, (ii) 190,364 shares of common stock issuable upon conversion of preferred stock in connection with the primary offering, (iii) 199,630 shares of common stock issuable upon exercise of options exercisable within 60 days of April 30, 2018 and (iv) 57,143 shares of common stock issuable upon exercise of warrants exercisable within 60 days of April 30, 2018. | (7) | Consists of 594,286 shares of common stock issuable upon conversion of preferred stock in connection with the primary offering. Mr. Sadek Al-Ramadan is the Chief Executive Officer of Alyaseen Agricultural Company and has voting and dispositive power of the shares. The stockholder’s address is P.O. Box 158, Shahabia Street, Hofuf 31982, Saudi Arabia. | (8) | Consists of 500,000 shares of common stock issuable upon conversion of preferred stock in connection with the primary offering. The stockholder’s address is P.O. Box 7401, Dhahran – Qusoor District 34245, Saudi Arabia. | (9) | Consists of (i) 284,627 shares of common stock issuable upon conversion of the Notes and (ii) 142,314 shares of common stock issuable upon exercise of the Warrants. Dmitriy Shapiro has voting and investment power over these securities. Catalytic Holdings I LLC is located at 135 Oceana Drive East, Apartment 4E, Brooklyn, New York 11235, Care of Dmitriy Shapiro. |
Description of Securities
The following descriptions are summaries of the material terms of our amended and restated certificate of incorporation, which will be effective upon the closing of this offering and amended and restated bylaws, which will be effective upon the effectiveness of the registration statement of which this prospectus, is a part. The descriptions of the common stock and convertible preferred stock give effect to changes to our capital structure that will occur immediately prior to the completion of this offering. We refer in this section to our amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our amended and restated bylaws as our bylaws.
General
Upon completion of this offering, our authorized capital stock will consistconsisted of 50,000,000 shares of common stock,Common Stock, $0.00001 par value $0.00001 per share, and 15,000,000 shares of preferred stock, $0.00001 par value per share. Our Board may establish the rights and preferences of the preferred stock from time to time. As of September 12, 2022, there were 29,666,068 shares of our Common Stock issued and outstanding and no shares of our preferred stock issued and outstanding.
Common Stock We are authorized to issue up to a total of 50,000,000 shares of Common Stock, par value $0.00001 per share, all of which shares of preferred stock will be undesignated.As of April 30, 2018, 7,946,876 sharesshare. Holders of our common stock were outstanding and held by 95 stockholders of record, which includes 494,851 shares of issued but unvested restricted stock subject to forfeiture. Of such unvested shares, we agreed to register 200,000 shares held by Insight Advisory, LLC pursuant to a consulting agreement. The amount outstanding assumes the conversion of all outstanding shares of our convertible preferred stock into common stock, which will occur immediately prior to the closing of this offering.
Common Stock The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our Common Stock have no cumulative voting rights. All shares of Common Stock offered hereby will, when issued, be fully paid and nonassessable, including shares of Common Stock issued upon the stockholders. Theexercise of Common Stock warrants or subscription rights, if any.
Further, holders of our common stock do notCommon Stock have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by the board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Our common stock has no preemptive rights,or conversion rights or other subscription rights or redemption or sinking fund provisions.In the event ofrights. Upon our liquidation, dissolution or windingwinding- up, holders of our common stock will beCommon Stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities and anythe liquidation preferencepreferences of any outstanding preferred stock.
Preferred Stock
Immediately prior to the completion of this offering, allour outstanding shares of our convertiblepreferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred stock, willholders of our Common Stock are entitled to receive dividends, if any, as may be converted intodeclared from time to time by our Board of Directors out of our assets which are legally available. Such dividends, if any, are payable in cash, in property or in shares of capital stock.
The holders of a majority of the shares of our common stock. Uponcapital stock, represented in person or by proxy, are necessary to constitute a quorum for the consummationtransaction of this offering, ourbusiness at any meeting. If a quorum is present, an action by stockholders entitled to vote on a matter is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, with the exception of the election of directors, which requires a plurality of the votes cast. Preferred Stock Our board of directors will havehas the authority, without further action by ourthe stockholders, to issue up to 15,000,000 shares of preferred stock in one or more series and to fix the rights,designations, powers, preferences, privileges, and relative participating, optional, or special rights as well as the qualifications, limitations, or restrictions thereof. These rights, preferences and privileges could includeof the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of our common stock. The issuancethe Common Stock. Our board of ourdirectors, without stockholder approval, can issue convertible preferred stock with voting, conversion, or other rights that could adversely affect the voting power and other rights of the holders of commonCommon Stock. Preferred stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition,could be issued quickly with terms calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred stock couldmay have the effect of delaying, deferring or preventing a change in controldecreasing the market price of our company orCommon Stock, and may adversely affect the voting and other corporate action. We currentlyrights of the holders of Common Stock. Series A Convertible Non-Voting Preferred Stock On September 2, 2022, the Company filed the Certificate of Designations, which designated 1,500,000 shares of the Company’s preferred stock, par value $0.00001 per share, as Series A Convertible Non-Voting Preferred Stock, which is to be issued solely in the event and to the extent that Warrant 1 exceeds the Share Cap. As described in the Certificate of Designations, the shares of Series A Convertible Non-Voting Preferred Stock have no plansvoting rights. As to issue additionaldividend rights and distributions declared by the Company’s Board of Directors, the shares of Series A Convertible Non-Voting Preferred Stock rank (i) senior to any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms junior to the Series A Convertible Non-Voting Preferred Stock (“Junior Securities”), (ii) on par with any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms on par with the Series A Convertible Non-Voting Preferred Stock (“Parity Securities”), (iii) junior to any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms senior to the Series A Convertible Non-Voting Preferred Stock (“Senior Securities”), and (iv) senior to the Common Stock. As to distributions of assets upon liquidation, dissolution or winding up of the Company, the shares of Series A Convertible Non-Voting Preferred Stock rank (i) senior to any class or series of Junior Securities, (ii) on par with any class or series of Parity Securities, (iii) junior to any class or series of Senior Securities, and (iv) on par with the Common Stock. Each share of Series A Convertible Non-Voting Preferred Stock is convertible at any time at the holder’s option into such number of fully paid and non-assessable shares of Common Stock as determined by multiplying one share of Series A Convertible Non-Voting Preferred Stock by the Series A Conversion Rate in effect at the time of conversion. The “Series A Conversion Rate” is initially 1.0, but is subject to adjustment for On September 2, 2022 (the “Filing Date”), the Company filed the Certificate of Designations of Preferences, Rights and Limitations of the Series A Convertible Non-Voting Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware. The Certificate of Designations provides for the designation of 1,500,000 shares of the Company’s preferred stock.stock, par value $0.00001 per share, as Series A Convertible Non-Voting Preferred Stock (“Series A Convertible Non-Voting Preferred Stock”), which is to be issued solely in the event and to the extent that Warrant 1 exceeds the Share Cap (as such terms are defined below). As described in the Certificate of Designations, the shares of Series A Convertible Non-Voting Preferred Stock have no voting rights. As to dividend rights and distributions declared by the Company’s Board of Directors, the shares of Series A Convertible Non-Voting Preferred Stock rank (i) senior to any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms junior to the Series A Convertible Non-Voting Preferred Stock (“Junior Securities”), (ii) on par with any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms on par with the Series A Convertible Non-Voting Preferred Stock (“Parity Securities”), (iii) junior to any class or series of capital stock of the Company created after the Filing Date specifically ranking by its terms senior to the Series A Convertible Non-Voting Preferred Stock (“Senior SecuredSecurities”), and (iv) senior to the Common Stock. As to distributions of assets upon liquidation, dissolution or winding up of the Company, the shares of Series A Convertible NotesNon-Voting Preferred Stock rank (i) senior to any class or series of Junior Securities, (ii) on par with any class or series of Parity Securities, (iii) junior to any class or series of Senior Securities, and Related WarrantsBetween January 2018(iv) on par with the Common Stock.
Each share of Series A Convertible Non-Voting Preferred Stock is convertible at any time at the holder’s option into such number of fully paid and April 2018, pursuantnon-assessable shares of Common Stock as determined by multiplying one share of Series A Convertible Non-Voting Preferred Stock by the Series A Conversion Rate in effect at the time of conversion. The “Series A Conversion Rate” is initially 1.0, but is subject to adjustment for stock splits and combinations, as specified in the Certificate of Designations. The Certificate of Designations further provides that the Company will not effect any conversion of the shares of Series A Convertible Non-Voting Preferred Stock in certain circumstances as detailed in the Certificate of Designations. Additionally, the Series A Convertible Non-Voting Preferred Stock will automatically convert, without further action by a holder, in the event such holder, directly or indirectly, transfers such shares to a securities purchase agreement,person other than the companyholder or an affiliate of such holder. Warrants On September 2, 2022, in connection with the Indenture Supplement, we issued and sold senior secured convertible promissory notes (the “Notes”a warrant (“Warrant 1”) to a certain accredited investorsinvestor, which may be exercised to purchase up to an aggregate of 2,680,179 shares of our Common Stock, at a per share exercise price equal to $1.02. Warrant 1 was immediately exercisable for 1,340,090 shares of our Common Stock, and the remaining shares will vest according to certain vesting criteria. If Warrant 1 would cause its holder or its affiliates to own five percent (5%) or more of the outstanding shares of the voting stock of the Company (the “Share Cap”), Warrant 1 shall be exercisable for the number of shares of Common Stock not to exceed the Share Cap with the remainder exercisable for our Series A Convertible Non-Voting Preferred Stock. Pursuant to Warrant 1, the determination of whether this Share Cap shall apply to reduce the number of voting shares for which Warrant 1 may be exercised is in the sole discretion of the holder of such Warrant 1. On September 2, 2022, also in connection with the Indenture Supplement, and as described elsewhere in this prospectus, the Company issued another warrant (“Warrant 2”) to another accredited investor, which may be exercised to purchase up to an aggregate of 541,451 shares of our Common Stock, at a per share exercise price equal to $1.02. Warrant 2 was immediately exercisable for 270,726 shares of our Common Stock, and the remaining shares will vest according to certain vesting criteria. Warrant 1 and Warrant 2 are collectively referred to as the “Warrants” herein. Notes As described above, on August 15, 2022, the Company issued the Promissory Notes to certain executive officers of the Company, in the aggregate principal amount of $3,046,281.$500,000. The Promissory Notes bearwill accrue interest at thea rate of 13%7% per annumyear on the outstanding principal amounts. Any unpaid principal amounts and are due eight monthsaccrued interest under the Promissory Notes will be payable in full one year from the issuance date (the “Maturity Date”). The Notes provide thatsuch amounts are loaned. At the discretion of the Company’s Board of Directors, the aggregate unpaid principal amounts, and allany unpaid accrued and unpaid interest, on the Notes aremay be convertible tointo shares of common stock at a conversion rate of $2.5480 per share or seventy percent (70%) of the initial public offering (“IPO”) price per share or, if the IPO has not occurred by the Maturity Date, 70% of the company’s next bona fide sale of its preferred stock or common stock in excess of $1,000,000 in gross proceeds, in one transaction or a series of related transactions, which offering definitively sets a price per share of the company’s common stock or preferred stock. The obligations under the Notes are secured by the company’s assets. The note holders will also receive warrants to purchase up to 50% of the shares receivable upon conversion of the Notes at a price of one-hundred and twenty-five percent (125%) of the conversion price of the of the Notes. Prior to the Notes being convertible, these holders do not have a right to exercise any number of warrants.
Pursuant to the terms of the securities purchase agreement, until all of the liabilities under the Notes are paid in full, the company cannot incur any future indebtedness unless such indebtedness is subordinate to the Notes and trade indebtedness in the ordinary course of business. In addition, so long as the Notes and the warrants are outstanding, the company cannot effect any Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of common stock either (A)Common Stock, at a conversion price exercise price or exchange rate or other price that is basedequal to the last reported closing price of our Common Stock on Nasdaq.
Dividend Policy We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our Common Stock for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our Common Stock will be at the discretion of our board of directors and will depend upon, and/or varies withamong other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant. Registration Rights Pursuant to the trading prices of or quotations forPIPE Agreement, the Purchasers named therein have been granted certain registration rights related to the shares of common stock at any time afterour Common Stock acquired by them under the initialPIPE Agreement (collectively, the “Registrable Securities”). Under the PIPE Agreement, we are obligated to prepare and file a registration statement covering the resale of the Registrable Securities by the Purchasers with the SEC within 15 business days of the closing of the issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subjectthe Registrable Securities. Such closing occurred on September 7, 2022. Pursuant to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectlyRegistration Rights Agreement, Lincoln Park was granted certain registration rights related to the businessshares of Common Stock that have been or may be issued to Lincoln Park under the Purchase Agreement (collectively, the “LP Registrable Securities”). Under the Registration Rights Agreement, we are obligated to prepare and file a registration statement covering the resale of the company orLP Registrable Securities by Lincoln Park with the market forSEC within 30 business days of entering into the common stock, (ii) enters into, or effectsRegistration Rights Agreement. The registration statement of which this prospectus forms a transaction under, any agreement, including, but not limitedpart is intended to an equity line of credit, whereby the company may issue securities at a future determined price, (iii) cooperates with any person to effect any exchange of securities and/or indebtedness of the company in connection with a proposed sale of such securities from an existing holder of such securities to a third party, or (iv) reduces and/or otherwise changes the exercise price, conversion price and/or exchange price of any common stock equivalent of the company and/or amends any non-convertible indebtedness of the company to make it convertible into securities of the company.Upon any default of the notes for non-payment, any bankruptcy event or breach of the Notes or other transaction documents, the company may be liable to pay a default redemption amount equal to 130% of the amount due under the Notes and deliver an additional warrant to purchase 50% of the common stock issuable upon conversion of the Notes.
satisfy this obligation. Pursuant to the terms ofWarrants, the securities purchase agreement,holders named therein were granted certain registration rights related to the company also agreed to registerWarrants and the shares underlying the Notes and Warrants.Other Notes
On May 1, 2017, we entered into certain note and warrant purchase agreements whereby we issued and sold to investors promissory notes for an aggregate principal amount of $350,000 together with five-year warrants to purchase up to 200,000 shares of common stock at an exercise price of $2.10 per share. The notes bear no interest and have a maturity date of May 1, 2018.
Other Warrants
As of the date of this prospectus, we had outstanding warrants to purchase up to (i) 200,000 shares of common stock at an exercise price of $2.10 per share; (ii) 60,392 shares of common stock at an exercise price of $2.00 per share; (iii) 28,993 shares of common stock at an exercise price of $7.50 per share, (iv) 649,602 shares of common stock at an exercise price of $3.185 per share, assuming the senior Notes are initially convertible into 1,299,199 shares of common stock; and (v) 15,455 shares of common stock at an exercise price of $2.80 per share issuable to a certain designee of the placement agent for the Notes.
2016 Equity Incentive Plan
An aggregate of 2,227,777 shares of common stock were initially reserved for issuance under our 2016 Equity Incentive Plan. As of December 31, 2017, we had 1,021,171 shares of common stock issuableCommon Stock upon exercise of outstanding stock optionssuch Warrants (collectively, the “Warrant Registrable Securities”). Under the Warrants, we were obligated to prepare and no sharesfile a registration statement covering the resale of common stock available for future awards. In connection with the adoptionRegistrable Securities by the holder within 10 days of our 2018 Equity Incentive Plan, no additional awards will be granted under our 2016 Equity Incentive Plan.
2018 Equity Incentive Plan
An aggregatethe issuance of 3,000,000 shares of common stock are reserved for issuance under our 2018 Equity Incentive Plan. As of June 1, 2018, there are 3,000,000 shares of common stock available for future awards under the 2018 Equity Incentive Plan.
Warrants. Such registration statement is being filed contemporaneously herewith
Anti-Takeover Effects of Provisions of Our Charter Documents Our certificate of incorporation provides for our board of directors to be divided into three classes serving staggered terms. Approximately one-third of the board of directors will be elected each year. The provision for a classified board could prevent a party who acquires control of a majority of our outstanding voting stock from obtaining control of our board of directors until the second annual stockholders meeting following the date the acquirer obtains the controlling stock interest. The classified board provision could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us and could increase the likelihood that incumbent directors will retain their positions. Our certificate of incorporation provides that directors may be removed with cause by the affirmative vote of the holders of a majority of the voting power of all of our outstanding stock or without cause by the affirmative vote of the holders of at least 66 and 2/3% of the voting power of all of our outstanding stock. Our certificate of incorporation provides that certain amendments of our certificate of incorporation and amendments by our stockholders of our bylaws require the approval of at least 66 and 2/3% of the voting power of all of our outstanding stock. These provisions could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company and could delay changes in management. Our certificate of incorporation also provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or DGCL, our certificate of incorporation or our bylaws or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. This forum selection provision may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors. At an annual meeting, stockholders may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors. Stockholders may also consider a proposal or nomination by a person who was a stockholder at the time of giving notice and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the notice requirements of our bylaws in all respects. The bylaws do not give our board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting of our stockholders. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company. Our bylaws provide that a special meeting of our stockholders may be called only by our Secretary and at the direction of our board of directors by resolution adopted by a majority of our board of directors. Because our stockholders do not have the right to call a special meeting, a stockholder could not force stockholder consideration of a proposal over the opposition of our board of directors by calling a special meeting of stockholders prior to such time as a majority of our board of directors, the chairperson of our board of directors, the president or the chief executive officer believed the matter should be considered or until the next annual meeting provided that the requestor met the notice requirements. The restriction on the ability of stockholders to call a special meeting means that a proposal to replace our board of directors also could be delayed until the next annual meeting. Our bylaws do not allow our stockholders to act by written consent without a meeting. Without the availability of stockholder action by written consent, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a stockholders’ meeting. Anti-Takeover Effects of Delaware Law We are subject to the provisions of Section 203 of the DGCL, or Section 203. Under Section 203, we would generally be prohibited from engaging in any business combination with any interested stockholder for a period of three years following the time that this stockholder became an interested stockholder unless: | ● | prior to this time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| ● | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder;stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers, and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| ● | upon consummationat or subsequent to such time, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 and 2/3% of the transactionoutstanding voting stock that resulted in the stockholder becoming an interested stockholder,is not owned by the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers, and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; orstockholder. |
| ● | at or subsequent to such time, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 and 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
Under Section 203, a “business combination” includes: | | ● | any merger or consolidation involving the corporation and the interested stockholder; |
| | ● | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; |
| ● | any sale,transaction that results in the issuance or transfer pledge or other dispositionby the corporation of 10% or more of the assetsany stock of the corporation involvingto the interested stockholder;stockholder, subject to limited exceptions; |
| ● | any transaction that results in the issuance or transfer byinvolving the corporation that has the effect of increasing the proportionate share of the stock of any stockclass or series of the corporation tobeneficially owned by the interested stockholder; or |
| ● | the receipt by the interested stockholder subject to limited exceptions; |
| ● | any transaction involving the corporation that has the effect of increasing the proportionate share of the stockbenefit of any classloans, advances, guarantees, pledges or series ofother financial benefits provided by or through the corporation beneficially owned by the interested stockholder; orcorporation. |
| ● | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Limitations on Liability,Indemnification of Officers and Directors and Insurance We are governed by the DGCL. Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was or is an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the corporation’s best interest and, for criminal proceedings, had no reasonable cause to believe that such person’s conduct was unlawful. A Delaware corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or contemplated action or suit by or in the right of such corporation, under the same conditions, except that such indemnification is limited to expenses (including attorneys’ fees) actually and reasonably incurred by such person, and except that no indemnification is permitted without judicial approval if such person is adjudged to be liable to such corporation. Where an officer or director of a corporation is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to above, or any claim, issue or matter therein, the corporation must indemnify that person against the expenses (including attorneys’ fees) which such officer or director actually and reasonably incurred in connection therewith. Our amended and restated bylaws authorize the indemnification of our officers and directors, consistent with Section 145 of the DGCL. Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director’s fiduciary duty, except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit. We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We also maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers. Listing Our Common Stock is listed on The Nasdaq Capital Market under the trading symbol “HYRE.” Transfer Agent and Registrar Our transfer agentTransfer Agent and registrarRegistrar is VStock Transfer, LLC whose address is 18 Lafayette Place, Woodmere, NY 11598. Listing
Our common stock has been approved for listing on the Nasdaq Capital Market under the symbol “HYRE.”
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Shares Eligible for Future Sale
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock, or securities or instruments convertible into shares of our common stock, in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock prevailing from time to time. Furthermore, because there will be limits on the number of shares available for resale shortly after the primary offering concludes, due
SELLING STOCKHOLDER This prospectus relates to the contractual and legal restrictions described below, there may be resales of substantial amounts of our common stock in the public market after those restrictions lapse. This could adversely affect the market price of our common stock prevailing at that time.Upon the completion of the primary offering, a total of 10,046,876 shares of our common stock (10,361,876 shares if the underwriters exercise their option to purchase additional shares in full) will be outstanding. This number excludes any issuance of an aggregate of additional shares of common stock that could occur in connection with the conversion of our outstanding convertible promissory notes, options and warrants.
All shares of common stock sold in this offering by us will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act. Shares of our common stock not sold in this offering are “restricted securities” within the meaning of Rule 144, and would be tradable only if they are sold pursuant to an effective registration statement filed under the Securities Act, or if they qualify for an exemption from registration, including under Rule 144.
Rule 144
In general, a person who has beneficially owned restricted shares of our common stock for at least six months, in the event we have been a reporting company under the Exchange Act for at least 90 days, would be entitled to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the three months preceding the sale. A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of shares that does not exceed the greater of the following:
| ● | 1% of the number of shares of our Common Stock then outstanding; or | | | | | ● | the average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing by such person with the SEC of a notice on Form 144 with respect to the sale; and | | | | | ● | provided that, in each case, we have been subject to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Persons relying on Rule 144 to transact in our Common Stock must also comply with the manner of sale, notice and other provisions of Rule 144, to the extent applicable. |
Rule 701
In general, Rule 701 allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Persons relying on Rule 701 to transact in our Common Stock, however, are required to wait until 90 days after the date of this prospectus before selling shares pursuant to Rule 701.
Lock-Up Agreements
We, all of our directors and officers and certain stockholders have entered into lock-up agreements with respect to the disposition of their shares. See “Underwriting” for additional information.
UNDERWRITING
Prior to this offering, there has been no public market for our common stock. Our common stock has been approved for listing on Nasdaq under the symbol “HYRE.” Trading of our common stock on Nasdaq is expected to begin following this prospectus being declared effectivepossible resale by the SEC.
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Network 1 Financial Securities, Inc. is acting as the representative, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:
Name | | | Number of
Shares
| | Network 1 Financial Securities, Inc. | | | | | The Benchmark Company, LLC
| | | | | Total: | | | 2,100,000 | |
The underwriters and the representative are collectively referred to as the “underwriters” and the “representative,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representative.
Over-Allotment Option
We have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 315,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total numberstockholder, Lincoln Park, of shares of common stock listed next to the names of all underwriters in the preceding table.
Pricing of the Offering
Prior to this offering, there hasCommon Stock that have been no public market for our common stock.In determining the initial public offering price, we and the underwriters have considered a number of factors including:
| ● | the information set forth in this prospectus and otherwise available to the underwriters; |
| ● | our prospects and the history and prospects for the industry in which we compete; |
| ● | an assessment of our management; |
| ● | our prospects for future earnings; |
| ● | the general condition of the securities markets at the time of this offering; |
| ● | the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| ● | other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price.
The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore,issued to Lincoln Park pursuant to the underwriting agreement, the underwriters’ obligationsPurchase Agreement. We are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
Discount, Commissions and Expenses
The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
| | | | | Total | | | | Per Share | | | No Exercise | | | Full Exercise | | Public offering price | | $ | | | | $ | | | | $ | | | Underwriting discounts and commissions to be paid by us (1) | | $ | | | | $ | | | | $ | | | Proceeds, before expenses, to us | | $ | | | | $ | | | | $ | | |
(1) | Consists of an underwriting commission of 8.0%. Does not include an advisory fee of 2.0% equal to the gross proceeds raised in the primary offering. |
We will pay all fees, disbursements and expenses in connection with this proposed offering, including, without limitation: the Company’s legal and accounting fees and disbursements; the costs of preparing, printing, mailing and delivering the registration statement, the preliminary and final prospectus contained therein and amendments thereto, post-effective amendments and supplements thereto, the underwriting agreement and related documents (all in such quantities as the representative may reasonably require); the fees and expenses of the transfer agent and registrar, clearing fees and DTC fees, preparing and printing stock certificates; the costs of any “due diligence” meetings; all reasonable and documented fees and expenses for conducting a net road show presentation; all filing fees (including SEC filing fees) and communication expenses relating to the registration of the shares to be sold in this offering, FINRA filing fees; transfer taxes, if any, payable upon the transfer of securities from the Company to the representative; and the fees and expenses of the transfer agent, clearing firm and registrar for the shares of common stock. In addition, we will be obligated to reimburse the representative for its out-of-pocket expenses up to a maximum of $10,000, which has been previously paid by us to the representative for out-of-pocket accountable expenses. The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paid to the underwriters will be returned to the extent that offering expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $500,000.
Underwriters Warrants
We have agreed to issue to the underwriters warrants to purchase up to a total of 63,000 shares of common stock (3% of the shares of common stock sold in this offering without including shares issuable upon exercise the over-allotment option). The warrants are exercisable at $ per share (125% of the public offering price) commencing on a date which is 180 days from the effective date of the offering under this prospectus and expiring on a date which is no more than five (5) years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G). The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from effectiveness. In addition, the warrants provide for registration rights upon request, in certain cases. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, we, our executive officers and directors, and certain stockholders have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the representative, for a period of 180 days from the date of effectiveness of the offering.
All directors and officers and certain holders of our outstanding common stock and securities convertible into or exercisable or exchangeable for common stock are subject to lock- up agreements with the underwriters agreeing that, without the prior written consent of the representative, they will not, during the period ending 180 days after the date of this prospectus (the “restricted period”):
| ● | offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any shares of common stock or securities convertible into or exercisable or exchangeable for common stock whether now owned or hereafter acquired; |
| ● | enter into any swap, hedge or similar agreement or arrangement that transfers in whole or in part, the economic risk of ownership of shares of common stock beneficially owned or securities convertible into or exercisable or exchangeable for common stock, whether now owned or hereafter acquired; or | | | | | ● | engage in any short selling of common stock, |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, each such person agrees that, without the prior written consent of the representative on behalf of the underwriters, such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions in the immediately preceding paragraph do not apply to our directors or officers in certain circumstances, including the (i) transfers of our common stock acquired in open market transactions after the completion of this offering; (ii) transfers of our common stock as bona fide gifts, by will, to an immediate family member or to certain trusts provided that no filing under Section 16(a) of the Exchange Act would be required or voluntarily made; (iii) distributions of our common stock to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate, or to an entity controlled or managed by an affiliate provided that no filing under Section 16(a) of the Exchange Act would be required or voluntarily made; (iv) distributions of our common stock to the stockholders, partners or members of such holders provided that no filing under Section 16(a) of the Exchange Act would be required or voluntarily made; (v) the exercise of options, settlement of restricted stock units or other equity awards granted under a stock incentive plan or other equity award plan described in this prospectus, or the exercise of warrants outstanding described in this prospectus; (vi) transfers of our common stock to us for the net exercise of options, settlement of restricted stock units or warrants granted pursuant to our equity incentive plans or to cover tax withholding for grants pursuant to our equity incentive plans; (vii) the establishment by such holders of trading plans under Rule 10b5-1 under the Exchange Act provided that such plan does not provide for the transfer of common stock during the restricted period; (viii) transfers of our common stock pursuant to a domestic order, divorce settlement or other court order; (ix) transfers of our common stock to us pursuant to any right to repurchase or any right of first refusal we may have over such shares; (x) conversion of our outstanding securities into common stock in connection with the closing of this offering; and (xi) transfers of our common stock pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by our board of directors.
Certain of these exceptions are subject to a requirement that the transferee enter into a lock-up agreement with the underwriters containing similar restrictions.
We also agreed pursuant to that lock-up agreement that, without the prior written consent of the representative, we will not, during the restricted period (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock (other than the shares sold in the primary offering and common stock issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans existing prior to the primary offering or pursuant to currently outstanding options, warrants or rights) provided that either (a) such shares shall not vest during the restricted period or (b) the grantee of such shares will execute a lock-up agreement; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock other than a registration statement on Form S-4 or S-8; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of our capital stock or such other securities, in cash or otherwise.
The restrictions contained in the preceding paragraph do not apply to (i) the securities to be sold in connection with the primary offering, (ii) the issuance by of shares of common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding prior to the primary offering, (iii) the issuance by of any security under any equity compensation plan, (iv) the issuance of shares of common stock in the connection with mergers, acquisitions or joint ventures, (v) the issuance of shares of common stock to consultants in our ordinary course of business and not for capital raising transactions and (vi) the issuance of shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock at a price per share greater than $7.50 per share.
The representative may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offering and the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriter that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part haspursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on August 15, 2022 concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the shares of our Common Stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to Lincoln Park under the Purchase Agreement. The selling stockholder may sell some, all or none of its shares. We do not been approvedknow how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or endorsed by us orunderstandings with the underwriter in its capacity as underwriters, and should not be relied upon by investors.Private Placement.
Starting in June 2017, we undertook a private placement forselling stockholder regarding the sale of common stock for $1.75 per share. During the year ended December 31, 2017, 1,236,588 shares of common stock were sold for gross proceeds of $2,164,029. The father and brotherany of the company’s Chief Executive Officershares.
The following table presents information regarding the selling stockholder and the Chief Business Development Officer purchased an aggregateshares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder, and reflects its holdings as of 14,800 shares for $25,900September 12, 2022. Neither Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in this offering. In connectionaccordance with this offering, we engaged the Representative as the placement agent and were required to pay the Representative a cash fee equal to 13%Section 13(d) of the gross proceedsSecurities Exchange Act of 1934, as amended (the “Exchange Act”) and a warrant to purchase shares of common stock in an amount equal to 10% the aggregate amount of shares old. Accordingly, as of December 31, 2017, $281,324 in commissions have been paid or are payable along with $38,806 in related legal and related fees, both of which were netted against gross proceeds of the offering. Based on the amounts raised through the year ended December 31, 2017, on December 31, 2017, we issued to the representative and its designees warrants to purchase up to an aggregate of 123,659 shares of common stock, exercisable at $2.00 per share. On June 22, 2018, such warrants were amended to (i) decrease the amount of shares that can be purchased at an exercise price of $2.00 per share to 60,392 shares of common stock and (ii) reduce the remaining 63,267 shares to 28,993 shares at a modified exercise price of $7.50 per share, due to the fact that they were earned 180 days immediately preceding the required filing date of the registration statement of which this prospectus is a part. All numbers are final as of December 31, 2017 and there will be no more common stock issued under this private placement.Senior Secured Convertible Notes and Related Warrants
In November 2017, the company entered into a 180-day agreement with a third-party broker/dealer to assist it in raising funds under its private placement between January 2018 and April 2018 of the Notes and warrants to purchase an amount of common stock equal to 50% of the shares issuable upon the conversion of the Notes. In consideration of services rendered, the company agreed to pay the broker/dealer five percent (5.0%) of the gross proceeds under the placement as a success fee defined by the agreement and non-callable warrants equal to ten (10%) of the aggregate number of shares of common stock, or in the case of non-convertible securities, the aggregate number of shares of common stock issuable as if the non-convertible securities were convertible into common stock at the public stock price on the date of closing if the Company is public or valuation per share on the date of closing if the Company is private (excluding warrants) sold to potential investors in the placement. The warrants to the third-party broker/dealer entitle the holder to purchase securities of the Company at the same terms as the warrants issued under the private placement, except that the exercise price of the warrants shall be 110% of the less of (a) the price at which securities (excluding the value of any warrants) are issued or (b) the exercise price of any warrants issued to entities funding the placement. The agreement also calls for $20,000 due upon execution of the agreement and non-accountable expense cash fees equal to three percent (3.0%) of the gross proceeds due and payable immediately upon the closing of the placement. In consideration for services rendered, the third-party broker/dealer, earned warrants to acquire 119,556 shares of Common Stock for $2.80 per share exercisable from the date of issuance to the to the fifth anniversary of the date of issuance. Certain brokers who are dually-registered with third-party broker/dealer and the representative have forfeited their warrants to purchase an aggregate of 104,101 shares of common stock.
Rule 13d-3 thereunder. Selling Stockholder | | Shares Beneficially Owned Before this Offering | | | Percentage of Outstanding Shares Beneficially Owned Before this Offering | | Shares to be Sold in this Offering | | Percentage of Outstanding Shares Beneficially Owned After this Offering | Lincoln Park Capital Fund, LLC (1) | | | 539,633 | (2) | | | 1.82% | (3) | 10,539,633(4) | | 0%(5) |
| (1) | 61Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of Common Stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer. |
| (2) | Represents 539,633 Commitment Shares of our Common Stock issued to Lincoln Park upon our execution of the Purchase Agreement as a fee for its commitment to purchase shares of our Common Stock under the Purchase Agreement, all of which shares are covered by the registration statement that includes this prospectus. We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the additional shares of Common Stock that Lincoln Park may be required to purchase pursuant to the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our Common Stock to Lincoln Park are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See the description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement. |
| (3) | Based on 29,666,068 outstanding shares of our Common Stock as of September 12, 2022, which includes the 539,633 Commitment Shares we issued to Lincoln Park on August 15, 2022. |
| (4) | Although the Purchase Agreement provides that we may sell up to $15,000,000 of our Common Stock to Lincoln Park, only 10,539,633 shares of our Common Stock are being offered under this prospectus, which represents: (i) 539,633 Commitment Shares issued to Lincoln Park upon our execution of the Purchase Agreement as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement; and (ii) an aggregate of 10,000,000 shares of our Common Stock that may be sold by us to Lincoln Park at our discretion from time to time over a 24-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus. Depending on the price per share at which we sell our Common Stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our Common Stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $15,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement. |
| (5) | Assumes the sale of all shares of Common Stock registered pursuant to this prospectus, although the selling stockholder is under no obligation to sell any shares of Common Stock at this time. |
PLAN OF DISTRIBUTION The underwriters and their respective affiliates may, in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees. However, except as disclosed in this prospectus, we have no present arrangements with the underwriters for any further services.Legal Matters
Certain legal matters with respect to the validity of the securities beingCommon Stock offered by this prospectus will be passed upon by Mitchell Silberberg & Knupp LLP, Los Angeles, California. Magri Law, LLC, Fort Lauderdale, Florida is representing the underwriter in the primary offering. As of the date of this prospectus, an entity affiliated with Mitchell Silberberg & Knupp LLP owns 37,755 shares of common stock and shares of preferred stock convertible into 74,109 shares of common stock in connection with the primary offering.
Experts
The company’s financial statements appearing elsewhere in this prospectus have been included herein in reliance upon the report, which includes an explanatory paragraph as to our ability to continue as a going concern, of dbbmckennon, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of dbbmckennon as experts in accounting and auditing.
Where You Can Find More Information
We have filed with the SEC a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act, with respect to our shares of common stockbeing offered by this prospectus.the selling stockholder, Lincoln Park. The registration statement contains additional information about us and our shares of common stock that we are offering in this prospectus. We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports and other information with the SEC. You can read our filings over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C., 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility. In addition, you can find more information about us on our website at http://www.hyrecar.com.
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of HyreCar, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of HyreCar, Inc. (the "Company") as of December 31, 2017 and 2016, the related statements of operations, stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 of the financial statements, the Company will require additional financing and has incurred losses since Inception, and has significant operating costs expected to be incurred in the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with respect to these matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ dbbmckennon
We have served as the Company's auditor since 2016.
Newport Beach, California
March 23, 2018
HYRECAR, INC.
BALANCE SHEETS
| | | (Unaudited) March 31, 2018 | | | December 31, 2017 | | | December 31, 2016 | | | Assets | | | | | | | | | | | Current assets: | | | | | | | | | | | Cash | | $ | 810,119 | | | $ | 213,944 | | | $ | 516,163 | | | Accounts receivable | | | 32,200 | | | | 41,000 | | | | - | | | Related party receivable | | | - | | | | - | | | | 7,000 | | | Deferred offering costs | | | 194,369 | | | | 135,608 | | | | - | | | Deferred expenses | | | 47,047 | | | | 35,153 | | | | 14,614 | | | Other current assets | | | 82,560 | | | | 118,020 | | | | 216 | | | Total current assets | | | 1,166,295 | | | | 543,725 | | | | 537,993 | | | | | | | | | | | | | | | | | Property and equipment, net | | | 3,577 | | | | - | | | | - | | | Other assets | | | 90,000 | | | | 90,000 | | | | 20,325 | | | Total assets | | $ | 1,259,872 | | | $ | 633,725 | | | $ | 558,318 | | | | | | | | | | | | | | | | | Liabilities and Stockholders' Deficit | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | Accounts payable | | $ | 1,046,982 | | | $ | 1,355,064 | | | $ | 45,986 | | | Accrued liabilities | | | 254,288 | | | | 119,226 | | | | 161,311 | | | Deferred revenue | | | 67,724 | | | | 47,718 | | | | 20,436 | | | Related party advances | | | 9,629 | | | | 9,629 | | | | 9,629 | | | Note payable, net of discount | | | 48,972 | | | | 46,368 | | | | - | | | Notes payable - related party, net of discount | | | 297,011 | | | | 278,607 | | | | - | | | Convertible debt, net of discount | | | 2,333,142 | | | | - | | | | - | | | Settlement payable | | | 6,111 | | | | 24,444 | | | | 73,333 | | | Total current liabilities | | | 4,063,859 | | | | 1,881,056 | | | | 310,695 | | | | | | | | | | | | | | | | | Convertible debt | | | - | | | | - | | | | 350,000 | | | Convertible debt - related parties | | | - | | | | - | | | | 150,000 | | | Settlement payable, net of current portion | | | - | | | | - | | | | 24,445 | | | Total liabilities | | | 4,063,859 | | | | 1,881,056 | | | | 835,140 | | | | | | | | | | | | | | | | | Commitments and contingencies (Note 3) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | Stockholders' deficit: | | | | | | | | | | | | | | Preferred stock, 15,000,000 shares authorized, par value $0.00001, 2,429,638, 2,429,638, and 985,369 issued and outstanding as of March 31 2018 and December 31, 2017 and 2016, respectively | | | 1,591,886 | | | | 1,591,886 | | | | 700,000 | | | Common stock, 50,000,000 shares authorized, par value $0.00001, 5,252,953, 5,252,953, and 3,978,610 issued and outstanding as of March 31 2018 and December 31, 2017 and 2016, respectively | | | 52 | | | | 52 | | | | 39 | | | Additional paid-in capital | | | 2,764,394 | | | | 2,553,672 | | | | 142,961 | | | Subscription receivable - related party | | | (140,434 | ) | | | (140,087 | ) | | | (138,700 | ) | | Accumulated deficit | | | (7,019,885 | ) | | | (5,252,854 | ) | | | (981,122 | ) | | Total stockholders' deficit | | | (2,803,987 | ) | | | (1,247,331 | ) | | | (276,822 | ) | | Total liabilities and stockholders' deficit | | $ | 1,259,872 | | | $ | 633,725 | | | $ | 558,318 | |
See accompanying notes to financial statements
HYRECAR, INC.
STATEMENTS OF OPERATIONS
| | | (Unaudited)
Three Months ended
March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year ended
December 31, 2017 | | | Year ended
December 31, 2016 | | | | | | | | | | | | | | | | | Revenues | | $ | 1,714,183 | | | $ | 505,325 | | | $ | 3,223,874 | | | $ | 515,437 | | | | | | | | | | | | | | | | | | | | | Cost of revenues | | | 1,290,872 | | | | 468,452 | | | | 2,912,548 | | | | 427,936 | | | | | | | | | | | | | | | | | | | | | Gross profit | | | 423,311 | | | | 36,873 | | | | 311,326 | | | | 87,501 | | | | | | | | | | | | | | | | | | | | | Operating Expenses: | | | | | | | | | | | | | | | | | | General and administrative | | | 889,254 | | | | 315,884 | | | | 1,819,588 | | | | 438,055 | | | Sales and marketing | | | 883,027 | | | | 319,677 | | | | 1,871,649 | | | | 370,947 | | | Research and development | | | 225,087 | | | | 81,468 | | | | 687,039 | | | | 117,059 | | | Total operating expenses | | | 1,997,368 | | | | 717,029 | | | | 4,378,276 | | | | 926,061 | | | | | | | | | | | | | | | | | | | | | Operating loss | | | (1,574,057 | ) | | | (680,156 | ) | | | (4,066,950 | ) | | | (838,560 | ) | | | | | | | | | | | | | | | | | | | | Other (income) expense : | | | | | | | | | | | | | | | | | | Interest expense | | | 161,773 | | | | 140,065 | | | | 202,454 | | | | 31,153 | | | Other expense | | | 31,201 | | | | 3,009 | | | | 1,528 | | | | 509 | | | Other income | | | - | | | | - | | | | - | | | | (4,346 | ) | | Total other (income) expense | | | 192,974 | | | | 143,074 | | | | 203,982 | | | | 27,316 | | | | | | | | | | | | | | | | | | | | | Loss before provision for income taxes | | | (1,767,031 | ) | | | (823,230 | ) | | | (4,270,932 | ) | | | (865,876 | ) | | | | | | | | | | | | | | | | | | | | Provision for income taxes | | | - | | | | - | | | | 800 | | | | 800 | | | | | | | | | | | | | | | | | | | | | Net loss | | $ | (1,767,031 | ) | | $ | (823,230 | ) | | $ | (4,271,732 | ) | | | (866,676 | ) | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding - basic and diluted | | | 5,252,953 | | | | 3,978,610 | | | | 4,590,478 | | | | 3,645,988 | | | Weighted average net loss per share - basic and diluted | | $ | (0.34 | ) | | $ | (0.21 | ) | | $ | (0.93 | ) | | $ | (0.24 | ) |
See accompanying notes to financial statements
HYRECAR, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
| | | Preferred Stock | | | Common Stock | | | Additional Paid-in | | | Subscription Receivable - Related | | | Accumulated | | | Total Stockholders | | | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Parties | | | Deficit | | | Deficit | | | December 31, 2015 | | | - | | | $ | - | | | | 3,341,665 | | | $ | 33 | | | $ | 47 | | | $ | - | | | $ | (114,446 | ) | | $ | (114,366 | ) | | Series Seed Preferred Stock issued for cash | | | 985,369 | | | | 700,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 700,000 | | | Restricted stock issued for services | | | - | | | | - | | | | 434,689 | | | | 4 | | | | 4,216 | | | | - | | | | - | | | | 4,220 | | | Return shares - forfeited restricted stock | | | - | | | | - | | | | (830,131 | ) | | | (8 | ) | | | 8 | | | | - | | | | - | | | | - | | | Common stock issued for subscription receivable - related party | | | - | | | | - | | | | 1,032,387 | | | | 10 | | | | 138,690 | | | | (138,700 | ) | | | - | | | | - | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (866,676 | ) | | | (866,676 | ) | | December 31, 2016 | | | 985,369 | | | $ | 700,000 | | | | 3,978,610 | | | $ | 39 | | | $ | 142,961 | | | $ | (138,700 | ) | | $ | (981,122 | ) | | $ | (276,822 | ) | | Preferred stock issued for services | | | 78,059 | | | | 55,452 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 55,452 | | | Stock option compensation | | | - | | | | - | | | | - | | | | - | | | | 281,229 | | | | - | | | | - | | | | 281,229 | | | Shares issued for payables | | | - | | | | - | | | | 37,755 | | | | 1 | | | | 66,069 | | | | - | | | | - | | | | 66,070 | | | Discount on warrants issued with convertible debt | | | - | | | | - | | | | - | | | | - | | | | 84,031 | | | | - | | | | - | | | | 84,031 | | | Conversion of convertible debt | | | 943,908 | | | | 536,434 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 536,434 | | | Series Seed Preferred Stock issued for cash | | | 422,302 | | | | 300,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 300,000 | | | Common stock issued for cash | | | - | | | | - | | | | 1,236,588 | | | | 12 | | | | 2,164,017 | | | | - | | | | - | | | | 2,164,029 | | | Offering costs | | | - | | | | - | | | | - | | | | - | | | | (320,130 | ) | | | - | | | | - | | | | (320,130 | ) | | Contingent beneficial conversion feature triggered upon conversion | | | - | | | | - | | | | - | | | | - | | | | 134,108 | | | | - | | | | - | | | | 134,108 | | | Interest on subscription receivable | | | - | | | | - | | | | - | | | | - | | | | 1,387 | | | | (1,387 | ) | | | - | | | | - | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,271,732 | ) | | | (4,271,732 | ) | | December 31, 2017 | | | 2,429,638 | | | $ | 1,591,886 | | | | 5,252,953 | | | $ | 52 | | | $ | 2,553,672 | | | $ | (140,087 | ) | | $ | (5,252,854 | ) | | $ | (1,247,331 | ) | | Stock option compensation | | | - | | | | - | | | | - | | | | - | | | | 48,917 | | | | - | | | | - | | | | 48,917 | | | Stock compensation on forfeitable restricted common stock | | | - | | | | - | | | | - | | | | - | | | | 161,458 | | | | - | | | | - | | | | 161,458 | | | Interest on subscription receivable | | | - | | | | - | | | | - | | | | - | | | | 347 | | | | (347 | ) | | | - | | | | - | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,767,031 | ) | | | (1,767,031 | ) | | March 31, 2018 (unaudited) | | | 2,429,638 | | | $ | 1,591,886 | | | | 5,252,953 | | | $ | 52 | | | $ | 2,764,394 | | | $ | (140,434 | ) | | $ | (7,019,885 | ) | | $ | (2,803,987 | ) |
See accompanying notes to financial statements
HYRECAR, INC.
STATEMENTS OF CASH FLOWS
| | | (Unaudited) Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year ended December 31, 2017 | | | Year ended December 31, 2016 | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | Net loss | | $ | (1,767,031 | ) | | $ | (823,230 | ) | | $ | (4,271,732 | ) | | $ | (866,676 | ) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | | | | | | Depreciation | | | 143 | | | | - | | | | - | | | | - | | | Forgiveness of related party advance | | | - | | | | - | | | | 7,500 | | | | 7,500 | | | Amortization of debt discount | | | 103,453 | | | | - | | | | 59,006 | | | | - | | | Interest expense on beneficial conversion feature | | | - | | | | 134,108 | | | | 134,108 | | | | - | | | Stock-based compensation | | | 210,375 | | | | - | | | | 336,681 | | | | 4,220 | | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | Accounts receivable | | | 8,800 | | | | - | | | | (41,000 | ) | | | - | | | Deferred expense | | | (11,894 | ) | | | - | | | | (20,539 | ) | | | (14,614 | ) | | Accounts payable | | | (344,604 | ) | | | 183,140 | | | | 1,330,148 | | | | 41,383 | | | Accrued liabilities | | | 135,062 | | | | (40,127 | ) | | | (5,651 | ) | | | 157,711 | | | Deferred revenues | | | 20,006 | | | | - | | | | 27,282 | | | | 20,436 | | | Settlement paid | | | (18,333 | ) | | | (18,334 | ) | | | (73,334 | ) | | | (12,222 | ) | | Net cash used in operating activities | | | (1,664,023 | ) | | | (564,443 | ) | | | (2,517,531 | ) | | | (662,262 | ) | | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | Purchase of property and equipment | | | (3,720 | ) | | | - | | | | - | | | | - | | | Related party advances | | | - | | | | - | | | | (500 | ) | | | (14,500 | ) | | Deposits and other | | | (9,540 | ) | | | (15,135 | ) | | | (142,479 | ) | | | (20,325 | ) | | Net cash used in investing activities | | | (13,260 | ) | | | (15,135 | ) | | | (142,979 | ) | | | (34,825 | ) | | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | Proceeds from related party advances | | | - | | | | - | | | | - | | | | 3,000 | | | Proceeds from note payable | | | - | | | | - | | | | 50,000 | | | | - | | | Proceeds from notes payable - related parties | | | - | | | | - | | | | 300,000 | | | | - | | | Proceeds from convertible debt | | | 2,318,579 | | | | - | | | | - | | | | 350,000 | | | Proceeds from convertible debt - related parties | | | - | | | | - | | | | - | | | | 150,000 | | | Offering costs | | | (45,121 | ) | | | - | | | | (455,738 | ) | | | - | | | Proceeds from sale of preferred stock | | | - | | | | 300,000 | | | | 300,000 | | | | 700,000 | | | Proceeds from sale of common stock | | | - | | | | - | | | | 2,164,029 | | | | - | | | Net cash provided by financing activities | | | 2,273,458 | | | | 300,000 | | | | 2,358,291 | | | | 1,203,000 | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 596,175 | | | | (279,578 | ) | | | (302,219 | ) | | | 505,913 | | | Cash and cash equivalents, beginning of period | | | 213,944 | | | | 516,163 | | | | 516,163 | | | | 10,250 | | | Cash and cash equivalents, end of period | | $ | 810,119 | | | $ | 236,585 | | | $ | 213,944 | | | $ | 516,163 | | | | | | | | | | | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | | | | | Cash paid for interest | | $ | 3,125 | | | $ | - | | | $ | 3,383 | | | $ | - | | | Cash paid for income taxes | | $ | 800 | | | $ | - | | | $ | 800 | | | $ | - | | | | | | | | | | | | | | | | | | | | | Non cash investing and financing activities: | | | | | | | | | | | | | | | | | | Shares issued for subscription receivable and interest | | $ | 347 | | | $ | 347 | | | $ | 694 | | | $ | 138,700 | | | Discount on debt with warrants | | $ | - | | | $ | 84,031 | | | $ | 84,031 | | | $ | - | | | Debt and accrued interest converted to preferred stock | | $ | - | | | $ | 536,434 | | | $ | 536,434 | | | $ | - | |
See accompanying notes to financial statements
HyreCar, Inc.
Notes to Financial Statements
NOTE 1 – NATURE OF OPERATIONS
HyreCar, Inc. was incorporated on November 24, 2014 (“Inception”) in the State of Delaware. The Company headquarters are located at Los Angeles, California. The Company is a web-based marketplace that allows car owners to rent their idle cars to Uber and Lyft drivers safely, securely and reliably. The financial statements of HyreCar, Inc. (whichCommon Stock may be referred to as “HyreCar”, the “Company,” “we,” “us,"sold or "our") are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – Unaudited Interim Financial Information
The accompanying balance sheet as of March 31, 2018, the statements of operations and cash flows for the three months ended March 31, 2018 and 2017, and the statement of stockholders’ deficit for the three months ended March 31, 2018 are unaudited. The unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the U.S. GAAP for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company's financial position as of March 31, 2018 and results of operations and cash flows for the three months ended March 31, 2018 and 2017. The financial data and the other information disclosed in these notes to the interim financial statements related to these three month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2017 and notes thereto.
Going Concern and Management’s Plans
We will rely on debt and equity financing for working capital until positive cash flows from operations can be achieved and have incurred operating losses since Inception. These above matters raise substantial doubt about the Company's ability to continue as a going concern. Throughout the next 12 months, the Company intends to fund its operations with funding from additional debt and/or equity, and increased revenue from our operations. If we cannot raise additional short-term capital, we may consume all our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The balance sheet does not include any adjustments that might result from these uncertainties.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
| Level 1 | - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 | - Include other inputs that are directly or indirectly observable in the marketplace. |
| Level 3 | - Unobservable inputs which are supported by little or no market activity. |
Hyrecar, Inc.
Notes to Financial Statements
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2018, December 31, 2017 and 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, accrued liabilities, notes payable, convertible debts and settlement payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand.
Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are reported net of allowance for expected losses. It represents the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expects to collect are charged to operations in the year in which those differences are determined, with an offsetting entry to a valuation allowance. As of March 31, 2018 and December 31, 2017 and 2016, the Company has no reserve allowance. As of March 31, 2018 and December 31, 2017 one customer made up of 100% of the balance in accounts receivable. The Company does not believe the loss of this customer would have a material impact on the Company's financial position, results of operations, or cash flows.
Property and Equipment
Property and equipment are stated at cost. The Company’s fixed assets are depreciated using the straight-line method over the estimated useful life. Leasehold improvements are depreciated over the shorter of the useful life or lease life. Maintenance and repairs are charged to operations as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.
Internal Use Software
We incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services. In accordance with Accounting Standards Codification ("ASC") 350-40, Internal-Use Software, we capitalize development costs related to these software applications once a preliminary project stage is complete, funding has been committed, and it is probable that the project will be completed and the software will be used to perform the function intended. No costs have been capitalized to date.
Impairment of Long-Lived assets
The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. There were no impairment losses during the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.
Deferred Rent
The Company recognizes rental expense on a straight-line basis from the time of the lease commencement date through the end of the lease. As of March 31, 2018, the Company recognized deferred rent resulting from future escalating lease payments and abated rent totaling $80,821, which is included in accrued liabilities in the accompanying balance sheets.
Hyrecar, Inc.
Notes to Financial Statements
Offering Costs
The Company accounts for offering costs in accordance with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be netted against the proceeds of the offering in stockholders’ deficit or the related debt, as applicable, or charged to expense if the offering is unsuccessful.
Convertible Debt
Convertible debt is accounted for under the guidelines established by ASC 470-20, Debt with Conversion and Other Options. ASC 470-20 governs the calculation of an embedded beneficial conversion and/or debt issued with warrants, which is treated as a discount to the instruments where derivative accounting does not apply. The discounts are accreted over the term of the debt.
The Company calculates the fair value of warrants and conversion features issued with convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing employee options for purposes of ASC 718, Compensation – Stock Compensation, except that the contractual life of the warrant or conversion feature is used. Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of the convertible debt to interest expense.
Preferred Stock
ASC 480, Distinguishing Liabilities from Equity, includes standards for how an issuer of equity (including equity shares issued by consolidated entities) classifies and measures on its balance sheet certain financial instruments with characteristics of both liabilities and equity.
Management is required to determine the presentation for the preferred stock because of the redemption and conversion provisions, among other provisions. Specifically, management is required to determine whether the embedded conversion feature in the preferred stock is clearly and closely related to the host instrument, and whether the bifurcation of the conversion feature is required and whether the conversion feature should be accounted for as a derivative instrument. If the host instrument and conversion feature are determined to be clearly and closely related (both more akin to equity), derivative liability accounting under ASC 815, Derivatives and Hedging, is not required. Management determined that the host contract of the preferred stock is more akin to equity, and accordingly, derivative liability accounting is not required by the Company. The Company has presented preferred stock within stockholders' deficit.
Costs incurred directly for the issuance of the preferred stock are recorded as a reduction of gross proceeds received by the Company, resulting in a discount to the preferred stock.
Dividends which are required to be paid upon redemption are accrued and recorded within preferred stock and accumulated deficit.
Revenue Recognition
The Company recognizes revenue primarily from a transaction fee and an insurance fee when a car is rented on the Company’s platform when (a) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved; (b) the services have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card or account on file is charged. The Company defers revenue where the earnings process is not yet complete.
The Company also recognizes revenue from other sources such as referrals, motor vehicle record fees (application fees), late rental fees, and other fees charged to drivers in specific situations.
Hyrecar, Inc.
Notes to Financial Statements
In limited circumstances, the Company provides contingent consideration in the form of a rebate or refund that is redeemable only if the customer completes a specific level of transaction over a specific time period. In such cases, the rebate or refund obligation is recognized as a reduction of revenues. Measurement of the total rebate or refund obligation is based on management estimates using historical data.
The following is a breakout of revenue components by subcategory for the three months ended March 31, 2018 and 2017, and the years ended December 31, 2017 and 2016.
| | | (Unaudited)
Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year ended December 31, 2017 | | | Year ended December 31, 2016 | | | Insurance fees | | $ | 957,167 | | | $ | 250,062 | | | $ | 1,650,512 | | | $ | 215,028 | | | Transaction fees | | | 694,938 | | | | 222,021 | | | | 1,465,426 | | | | 232,279 | | | Other fees | | | 150,341 | | | | 33,242 | | | | 212,077 | | | | 68,130 | | | Incentives and rebates | | | (88,263 | ) | | | - | | | | (104,141 | ) | | | - | | | Net revenue | | $ | 1,714,183 | | | $ | 505,325 | | | $ | 3,223,874 | | | $ | 515,437 | |
Transaction fees and insurance fees are charged to a Driver in a single transaction. Drivers currently do not have an option to decline insurance at any point during the transaction.
Principal Agent Considerations
In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, we evaluate our service offerings to determine if we are acting as the principal or as an agent, which we consider in determining if revenue should be reported gross or net. Our primary revenue source is a transaction fee made from a confirmed booking of a vehicle on our platform. Key indicators that we evaluate to reach this determination include:
| ● | the terms and conditions of our contracts; |
| ● | whether we are paid a fixed percentage of the arrangement's consideration or a fixed fee for each transaction; |
| ● | the party which sets the pricing with the end-user, has the credit risk and provides customer support; and |
| ● | the party responsible for delivery/fulfillment of the product or service to the end consumer. |
We have determined that we act as the agent in the transaction for vehicle bookings, as we are not the primarily obligor of the arrangement and receive a fixed percentage of the transaction. Therefore, revenue is recognized on a net basis.
For other fees such as insurance fees, referrals, and motor vehicle records (application fees) we have determined that revenue should be recorded on a gross basis. In such arrangements, the Company sets pricing, has risk of economic loss, has certain credit risk, provides support services related to these transactions, and has decision making ability about service providers used.
Gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners or refunds. Gross billings include transactions from both our revenues recorded on a net and a gross basis. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our financial statements as revenue. However, we use gross billings to asses our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Gross billings may also be used to calculate net revenue margin, defined as the Company’s GAAP reportable revenue over gross billings.
The table below sets forth a reconciliation of our GAAP reported revenues to gross billings as follows:
| | | (Unaudited) Three Months ended March 31, 2018 | | | (Unaudited) Three Months ended March 31, 2017 | | | Year ended December 31, 2017 | | | Year ended December 31, 2016 | | | Revenues (GAAP reported revenues) | | $ | 1,714,183 | | | $ | 505,325 | | | $ | 3,223,874 | | | $ | 515,437 | | | Add: Refunds, rebates and deferred revenue | | | 384,187 | | | | 136,166 | | | | 766,487 | | | | 125,720 | | | Add: Owner payments (not recorded in financial statements) | | | 2,347,760 | | | | 749,900 | | | | 5,030,933 | | | | 831,731 | | | Gross billings (non-GAAP measure not recorded in financial statements) | | $ | 4,446,130 | | | $ | 1,391,391 | | | $ | 9,021,294 | | | $ | 1,472,888 | |
Hyrecar, Inc.
Notes to Financial Statements
Cost of Revenues
Cost of revenues primarily include direct fees paid for driver insurance, merchant processing fees, and motor vehicle record fees incurred for paid driver applications.
Advertising
The Company expenses the cost of advertising and promotions as incurred. Advertising expense was $407,538, $99,508, $433,506, and $123,479 for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016, respectively.
Research and Development
We incur research and development costs during the process of researching and developing our technologies and future offerings. Our research and development costs consist primarily of non-capitalized development and maintenance costs. We expense these costs as incurred unless such costs qualify for capitalization under applicable guidance.
Stock Based Compensation
The Company accounts for stock options issued to employees under ASC 718, Compensation – Stock Compensation. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505, Equity. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or equity award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
Stock-based compensation is included in the statements of operations as follows:
| | | (Unaudited)
Three Months ended March 31, 2018 | | | (Unaudited)
Three Months ended March 31,
2017 | | | Year ended December 31, 2017 | | | Year ended December 31, 2016 | | | General and administrative | | $ | 182,071 | | | $ | - | | | $ | 155,723 | | | $ | - | | | Sales and marketing | | | 21,711 | | | | - | | | | 138,406 | | | | - | | | Research and development | | $ | 6,593 | | | $ | - | | | $ | 42,552 | | | $ | - | |
Income Taxes
The Company applies ASC 740, Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2017 and 2016, the Company has established a full allowance against all deferred tax assets.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Hyrecar, Inc.
Notes to Financial Statements
Loss per Common Share
The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the statements of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and convertible debt. For periods in which we incur a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the three months ended March 31, 2018 and 2017, there were 1,315,490 and 0 options or warrants excluded, respectively. For the years ended December 31, 2017 and 2016, there were 1,344,830 and 0 options or warrants excluded, respectively. As of March 31, 2018 and 2017, there were no debts convertible into common stock. For the years ended December 31, 2017 and 2016 the Company had convertible debt, convertible into 0 and 665,997 shares of common stock. As of March 31, 2018 and 2017, and December 31, 2017 and 2016, there was 2,429,638, 2,429,638, 2,429,638, and 985,369 shares of preferred stock convertible into common stock outstanding. Additionally, as noted in Note 5 below, the Company granted 264,285 unvested forfeitable restricted common stock to consultants during the three months ended March 31, 2018. These shares were not considered outstanding and were excluded from the calculation of loss per share as the effect would be antidilutive.
Concentration of Credit Risk
The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company maintains balances in excess of the federally insured limits.
Other Concentrations
The Company relies on two insurance agencies to provide all insurance on vehicles in service. The loss of either of these insurance carriers would have a negative effect on our operations.
New Accounting Standards
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently reviewing the provisions of the new standard, but it is not expected to have a significant impact on the Company.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending cash balances on the statement of cash flows. This guidance is effective for fiscal years-and interim periods within those fiscal years-beginning after December 15, 2017, with early adoption permitted. The adoption of the provisions of this standard did not have a material impact on the Company.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight specific issues are: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Businesses Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; (6) Distributions Received from Equity Method Invitees; (7) Beneficial Interests in Securitization Transactions; and (8) Separately Identifiable Cash and Application of the Predominance Principle. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods, with early adoption permitted. The adoption of the provisions of this standard did not have a material impact on the Company.
Hyrecar, Inc.
Notes to Financial Statements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes several practical expedients. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently reviewing the provisions of the new standard.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and has issued subsequent amendments to this guidance. This new standard will replace all current guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for interim and annual periods beginning after December 15, 2017 for public business entities and December 31, 2018 for all other entities. The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently reviewing the provisions of the new standard.
The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.
NOTE 3 – COMMITMENTS AND CONTINGENCIES
Settlement and Legal
In September 2015, a claim was made by certain former founders against the Company for violations of the founders’ agreement. The claimants and the Company entered into an arbitration agreement on April 25, 2016 to settle the claim. The settlement stated that each of the claimants would maintain 190,177 shares of their common stock (post reverse split as described in Note 5) that was restricted per the founders’ agreement with the remaining being remitted back to the Company. However, the shares while not separate in class, would not have voting rights until such shares are sold to a non-affiliated third party. The claimants will be diluted upon subsequent money raises, stock option offerings and vesting, however, any dilution will remain consistent and proportional to the remaining Founders’ dilution ratios and will not be diluted more than the Founders’ ratios in any current or subsequent money raise. The claimants also are to receive a total of $110,000 paid out over eighteen (18) months starting November 1, 2016. As of March 31, 2018 and December 31, 2017 and 2016, $6,111, $24,444 and $97,778 of the balance remained outstanding, of which $6,111, $24,444, and $73,333 is considered short term, respectively.
In July 2017, an owner of several vehicles that he was renting through the company’s platform filed arbitration seeking damages for losses associated with renting his vehicles, specifically losses associated with a claimed stolen vehicle, storage fees, damage/repair fees, an insurance deductible, and purported loss of income due to his inability to rent the stolen/damaged vehicles. In December 2017, the owner also filed a lawsuit in Los Angeles Superior Court reasserting the same claims. The company believes that this action is without merit and is vigorously defending itself, while also exploring whether the dispute can be settled in an expeditious manner. The company has moved to compel the owner to arbitrate his claims and to stay his Superior Court case. That motion will be heard on June 19, 2018.
The Company is involved in claims and litigationdistributed from time to time in the normal course of business. At March 31, 2018, the Management of the Company believes there are no pending matters, except as noted above, that are expected to have a material adverse effect on the business of the Company, their financial condition, results of operations or cash flows.
Agreements
In November 2017, the Company entered into a 180-day agreement with a third-party broker/dealer to assist in raising funds under a private placement. For their services, they are to receive five (5) percent of the gross proceeds under the placement as a success fee defined by the agreement, non-callable warrants equalselling stockholder directly to ten (10%) of the aggregate number of shares of common stock, or in the case of non-convertible securities, the aggregate number of shares of common stock issuable as if the non-convertible securities were convertible into common stock at the public stock price on the date of closing if the Company is public or valuation per share on the date of closing if the Company is private (excluding warrants) sold to potential investors in the placement. The warrants entitle the holder to purchase securities of the Company at the same terms as issued under the placement, except that the exercise price of the warrants shall be 110% of the less of (a) the price at which securities (excluding the value of any warrants) are issued or (b) the exercise price of any warrants issued to entities funding the placement. The agreement also calls for $20,000 due upon execution of the agreement and non-accountable expense cash fees equal to three (3) percent of the gross proceeds due and payable immediately upon the closing of the placement. See Note 4 for 2018 Convertible Debt related to this agreement.
Hyrecar, Inc.
Notes to Financial Statements
Other
During 2017 and 2016, the Company leased office space in Los Angeles, CA on a month-to-month basis. Rent expense for the years ended December 31, 2017 and 2016 was $161,293 and $35,576, respectively.
In November of 2017, the Company entered a lease in Los Angeles, California commencing April 1, 2018, with the ability to occupy the facility in January 2018. The lease term is 39 months from the commencement date. Annual base rent is as follows: 2018 - $249,381, 2019 - $342,480, 2020 - $356,145, 2021 - $183,489, respectively. The lease required a deposit of $90,000. Per the lease agreement, the monthly rate will range from $27,708 to $31,167 a month.
Furniture Lease
Upon occupying the new leased space as disclosed above in January 2018, the Company entered into a 42-month furniture lease. The required down payment was paid using a portion of the tenant improvements allowance granted by the lessor noted above and as outlined within the agreement. The Company is to make 42-monthly installments of $1,000 each. At the end of the lease, the Company has the option to buy the furniture for $50,026 plus applicable taxes and fees.
NOTE 4 – DEBT
2016 Convertible Debt
From June to September 2016, the Company issued convertible debt to related parties and third parties with the same terms and conditions (“2016 Convertible Debt”) totaling $500,000, $150,000 of which was borrowed from related parties. The convertible debt bore interest at 12%, with a default rate of 15% and was due in three years from the date of issuance. The debt was automatically convertible upon 1) the consummation of an investment in the Company’s equity securities of over $250,000 through a single or series of transactions involving the same party or parties and 2) the occurrence of a liquidity event as defined by the agreements. The holder had the option to convert the entire unpaid and outstanding principal amount and any accrued interest thereon under this note on the maturity date. The conversion price was the lesser of 1) that price per share that is eighty percent (80%) of the purchase price per share of the same class and series of equity securities sold by the Company in a qualifying transaction or liquidity event or 2) an amount equal to $4,000,000 divided by the total number of outstanding shares of the Company’s common stock immediately prior to the transaction or liquidity event on a fully-diluted, as-converted basis.
In February 2017, the convertible debt was converted into Series Seed 1 Preferred Stock based on the conversion terms noted above due to the closing of a qualifying investment in equity securities. Accordingly, the convertible debtof $500,000 and accrued interest thereon totaling $36,434 was converted into 943,908 shares of Series Seed 1 Convertible Preferred Stock. Upon conversion, the contingent beneficial conversion feature was no longer contingent, and resulted in a discount and immediate accretion of such discount in the amount of $134,108, which was charged to interest expense in the accompanying statement of operations during the year ended December 31, 2017.
Interest expense for the 2016 Convertible Debt, including the charge for the beneficial conversion feature, for the years ended December 31, 2017 and 2016 totaled $140,065 and $30,477, respectively.
2017 Debt
In April and May 2017, the Company issued debt (“2017 Debt”) to related parties totaling $300,000 and a third party totaling $50,000 with the same terms and conditions. The 2017 Debt is due in one year and while it does not bear interest, 200,000 warrants were issued with the 2017 Debt. The warrants are exercisable at $2.10 and expire in five years. The Company calculated the relative fair value of the warrants using a Black-Scholes option pricing model with similar inputs as disclosed for stock options in Note 5, resulting in a discount of $84,031. During the three months ended March 31, 2018 and the year ended December 31, 2017, the Company accreted $21,008 and $59,006 of this discount to interest expense, respectively. The remaining discount of $4,017 as of March 31, 2018 will be amortized over the term of the debt on a straight-line basis due to the short-term nature of the debt.
Interest expense for the 2017 Debt, for the three months ended March 31, 2018 and the year ended December 31, 2017 totaled $21,008 and $59,006, respectively. No other periods presented contained interest expense related to the 2017 Debt.
Hyrecar, Inc.
Notes to Financial Statements
2018 Convertible Debt
During the three months ended March 31, 2018, pursuant to a securities purchase agreement, the Company issued and sold senior secured convertible promissory notes (the “Bridge Notes”) to accredited investors in the aggregate principal amount of $2,546,281, of which the Company received $2,318,579 after broker dealer and other fees withheld. The Company also incurred additional offering costs of $67,882 for a total debt discount of $295,584, which is to be accreted over the term of the Bridge Notes. The Company recorded amortization of this discount of $82,445 for the three months ended March 31, 2018, and the remaining amount to be amortized is $213,139 as of March 31, 2018. The Bridge Notes bear interest at the rate of 13% per annum and are due eight months from the original issue date, which ranges from September to November 2018 (the “Maturity Dates”). The Bridge Notes are not immediately convertible by the holder, but provide that the principal and all accrued and unpaid interest on the Bridge Notes are convertible to shares of common stock at a conversion rate of the lesser of $2.5480 per share or seventy percent (70%) of the initial public offering (“IPO”) price per share, or if the IPO has not occurred by the Maturity Dates, 70% of the Company’s next bona fide sale of its preferred stock or common stock in excess of $1,000,000 in gross proceeds, in one transaction or a series of related transactions, which offering definitively sets a price per share of the Company’s common stock or preferred stock. The obligations under the Bridge Notes are secured by the Company’s assets. The Bridge Notes also include contingent five-year warrants for 50% of the shares of common stock that the holder is entitled to in connection with the conversion of the Holder’s Bridge Note when the Bridge Note first becomes convertible. Prior to the Bridge Notes being convertible, the holder does not have a right to exercise these warrants. Upon the Bridge Notes being convertible and warrants exercisable, the exercise price shall be 125% of the then conversion price as noted above. See Note 3 for broker-dealer compensation related to these Notes.
The Bridge Notes contain various provisions that can cause a default, which primarily include non-performance of obligations or other events, as defined by the Bridge Notes. In an event of default, which is not cured within applicable cure periods, all amounts being owed to the holder become immediately due and payable at the default redemption amount, which equals 130% of the outstanding principal amount of the note and accrued and unpaid interest thereon, in addition to payment of all other amounts, costs, expenses, late fees, and liquidation damages due in respect to the note. The notes will also accrue interest at the lesser of 18% or the maximum rate permitted under applicable law. If the Bridge Notes are not repaid after a default event, the Company shall use 25% of all the Company’s future revenue and capital raised to pay down the note and provide an additional 50% warrant coverage of the shares of common stock the holder is entitled to in connection with the conversion of the note when it first becomes convertible at the same terms as noted above. In addition, immediately upon an event of default, the Company shall grant the collective holders of the Bridge Notes to appoint one (1) director to the board of directors until the event default is cured.
In addition to standard anti-dilution provisions, as defined by the agreements, if at any time while this Bridge Note is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues common stock or common stock equivalents entitling a person to acquire shares of common stock at an effective price per share lower than the conversion price noted above, then the conversion price shall be reduced to equal such lesser amount. Such adjustment shall be made whenever such common stock or common stock equivalents are issued.
NOTE 5 – STOCKHOLDERS' DEFICIT
Reverse Stock Split
The Company executed a 1 for 1.8404 reverse stock split for each share of common stock outstanding on May 17, 2017. Unless otherwise stated, all share information herein has been retrospectively adjusted to reflect the reverse stock split.
Preferred Stock
In August 2016, the Company authorized 15,000,000 shares of preferred stock, par value $0.00001. Of these, the Company designated 4,471,489 shares as Series Seed 1 Convertible Preferred Stock (“Series Seed 1”).
Each share of Series Seed 1 shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series Seed 1 held are convertible as of the record date. Series Seed 1 and common stock vote together as a single class, except as provided by law or by other provisions of the certificate of incorporation.
Upon the occurrence of any voluntary or involuntary liquidation, dissolution or winding up of the corporation or deemed liquidation event (as defined by the HyreCar, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series Seed 1 Convertible Preferred Stock), the holders of shares of Series Seed 1 then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the Series Seed 1 Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series Seed 1 been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. If upon any such liquidation, dissolution or winding up of the corporation or deemed liquidation event, the assets of the corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series Seed 1 the full amount to which they shall be entitled, the holders of shares of Series Seed 1 shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
Hyrecar, Inc.
Notes to Financial Statements
Each share of Series Seed 1 shall be convertible, at the option of the holder and at any time, into such number of shares of common stock as determined by dividing the Series Seed 1 original issue price by $0.71, subject to customary adjustments for stock dividends, stock splits, or other recapitalization with respect to the Series Seed 1.
During 2016, the Company issued 985,369 shares Series Seed 1 for aggregate proceeds of $700,000 or $0.71 per share. During the year ended December 31, 2017, the Company issued 422,302 shares of Series Seed 1 for aggregate proceeds of $300,000 to bring the total investment of Series Seed 1 to $1,000,000.
During the year ended December 31, 2017, convertible debt was converted into Series Seed 1 stock as disclosed in Note 4 above.
Common Stock
In August 2016, the Company increased the authorized shares from 10,000,000 to 50,000,000 shares of our common stock, each share having a par value of $0.00001.
Private Placement
Starting in June 2017, the Company undertook a private placement for the sale of common stock for $1.75 per share. During the year ended December 31, 2017, 1,236,588 common shares were sold for gross proceeds of $2,164,029. This private placement was closed as of December 31, 2017.
Relating to this offering, we are required to pay our investment banker 13% of proceeds and provide 10% warrant coverage. Accordingly, as of December 31, 2017, $281,324 in commissions have been paid or are payable along with $38,806 in related legal and other fees, both of which were netted against gross proceeds of the offering. Based on the amounts raised through December 31, 2017, the Company has issued the investment banker 123,659 warrants, exercisable at $2.00. The value of these warrants, for which similar inputs were used compared to stock options below, are both an increase and reduction to additional paid-in capital for a net zero effect on the gross proceeds of the offering.
Founders' Stock
On or near the Inception date, the Company issued 4,346,882 shares of common stock to its four founders subject to vesting over a period of four years. On the date of issuance, the grant-date fair value was nil as the Company had no assets nor operations. In 2017 and 2016, a total of 0 and 624,865 shares were forfeited by founders due the settlement described in Note 3, as agreed upon. On August 27, 2016, the Company eliminated any additional vesting terms and all shares held at such time by founders were deemed vested.
Shares for Services
During the three months ended March 31, 2018, the Company granted 264,285 non-vested forfeitable shares of restricted common stock to three consultants for services. This restricted stock shall vest upon a qualified financing event, defined in each agreement as a financing of $10,000,000, on or before December 31, 2018. If a qualified financing event does not occur on or before December 31, 2018, all stock is forfeited. The Company did not account for these restricted shares as issued and outstanding per ASC 505-50-s99-1 as they are unvested and forfeitable based on a future contingent event. The Company will recognize the estimated fair value of the stock over the anticipated period over which they will become nonforfeitable. Accordingly, stock-based compensation of $161,458 was recognized during the three months ended March 31, 2018.
In December 2017, the Company issued 37,755 shares of common stock for payment of $66,070 in accounts payable related to legal services.
During 2016, the Company issued 434,689 shares of restricted common stock to our former Chief Executive Officer, subject to vesting over three years. Formal termination of the former Chief Executive Officer’s employment took place in January 2017; however, this related to circumstances that existed in 2016, and thus, the forfeited shares were deemed to be returned in 2016. The former Chief Executive Officer retained 229,419 shares of common stock for services provided. Related to this issuance, the Company recognized $4,220 of stock-based compensation within general and administrative expense in the accompanying statement of operations during the year ended December 31, 2016. As part of his severance, he was provided three months of pay totaling $24,000, and the Company forgave advances due the Company totaling $7,500.
Hyrecar, Inc.
Notes to Financial Statements
Collateralized Restricted Stock Purchases
In 2016, the Company issued 1,032,387 shares of restricted common stock to related parties that vest as follows: 33% upon a sale of securities for gross proceeds of at least $250,000 in one or more transactions and the remaining 67% vest monthly over three years, becoming fully vested in April 2019. For consideration of these shares, the related parties entered into note agreements totaling $138,700 that call for the principal and interest to be paid back in ten years from the date of the loan. The notes bear interest at 1%. The loans are secured by the related shares of common stock. If any portion of the shares are forfeited, the pro-rata portion of the note will be relieved. The Company accounted for these shares within equitypurchasers or through brokers, dealers, or underwriters who may act solely as a subscription receivable - related parties. As of March 31, 2018, 741,416 shares have vested.
Stock Options
In 2016, the Board of Directors adopted the HyreCar, Inc. 2016 Incentive Plan (the “2016 Plan”). The 2016 Plan provides for the grant of equity awards to highly qualified personnel, including stock options, restricted stock, stock appreciation rights, and restricted stock units to purchase shares of common stock. Up to 2,227,777 shares of common stock may be issued pursuant to awards granted under the 2016 Plan. The 2016 Plan is administered by the Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board. There were no options granted during 2016.
During the year ended December 31, 2017, the board of directors approved the grant of 1,105,394 stock options under the 2016 Plan to various contractors and employees. There were no such grants in any other period presented. The granted options had an exercise prices ranging from $0.71 - $1.75, expire in five to ten years, and ranged from immediate vesting to vesting over a four-year period, many of which had vesting commencement dates retroactively applied based on the individual's service period. The total grant date fair value of options granted to employees was approximately $286,966. Options granted to contractors are revalued each reporting period. Certain contractors were hired as employees in 2018 and, accordingly, such grants will be treated as employee grants prospectively. The stock options granted in 2017 and revalued during the three months ended March 31, 2018 were valued using the Black-Scholes pricing model with the following range of inputs:
| | | March 31, 2018 | | | December 31, 2017 | | | Expected Life (years) | | | 5.25 - 6.00 | | | | 5.50 - 6.25 | | | Risk-free interest rate | | | 2.56 | % | | | 1.87 - 2.56 | % | | Expected volatility | | | 45 | % | | | 40 - 45 | % | | Annual dividend yield | | | 0 | % | | | 0 | % |
The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company's stock options.
The expected term of stock options is calculated using the simplified method which takes into consideration the contractual life and vesting terms of the options.
The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public company's common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock option grants, until such time that the Company’s common stock has enough market history to use historical volatility.
Hyrecar, Inc.
Notes to Financial Statements
The dividend yield assumption for options granted is based on the Company's history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
Management estimated the fair value of common stock by looking at a market approach which takes into consideration past sales of our common and preferred stock, as well Company developments to date.
A summary of the Company’s stock options activity and related information is as follows:
| | | Number of Shares | | | Weighted Average Exercise Price | | | Weighted average Remaining Contractual Term | | | Outstanding at December 31, 2016 | | | - | | | $ | - | | | | - | | | Granted | | | 1,105,394 | | | | 1.01 | | | | 9.8 | | | Exercised | | | - | | | | - | | | | - | | | Expired/Cancelled | | | (84,223 | ) | | | 0.71 | | | | 9.3 | | | Outstanding at December 31, 2017 | | | 1,021,171 | | | $ | 1.04 | | | | 9.3 | | | | | | | | | | | | | | | | | Exercisable at December 31, 2017 | | | 245,165 | | | $ | 0.82 | | | | 9.1 | |
During the three months ended March 31, 2018, 29,340 stock options were forfeited.
Stock option expense for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016 was $48,917, $0, $281,229, and $0 respectively. As of December 31, 2017, 245,165 stock options were considered vested. The remaining unvested employee options, including contractors who were hired as employees in 2018, will be expensed ratably through 2021 as follows: 2018 - $142,000, 2019 - $124,000, 2020 - $70,000, 2021 - $24,000.
Warrants
Relating to the 2017 Debt as described in Note 4, the Company issued 200,000 warrants to purchase common stock with a fixed exercise price of $2.10.
Relating to the private placement described above, the Company agreed to issue warrants to the placement agent, equal to 10% the amount of monies raised divided by $1.75. As of March 31, 2018, the Company had received $2,164,029 in gross funds from the private placement which has earned the placement agent 123,659 warrants to acquire common stock with an exercise price of $2.00. The value of the warrants nets against the funds raised but also is added back to equity for a net zero effect on equity.
The Company used the Black-Scholes pricing model to value the warrants, which had similar inputs to stock options included in the stock option section above except for the expected life of the warrants, which was set at five years.
As of December 31, 2017, all warrants were vested.
Hyrecar, Inc.
Notes to Financial Statements
NOTE 6 – RELATED PARTY TRANSACTIONS
Related Party Advances
From time to time during the years ended December 31, 2017 and 2016, the Company received advances from related parties for short-term working capital. Such advances are considered short-term and non-interest bearing and due on demand. As of March 31, 2018, December 31, 2017 and 2016, $9,629, $9,629 and $9,629, remained outstanding, respectively.
During the year ended December 31, 2017, advances of $7,500 to former officers were forgiven, as disclosed in Note 5.
Settlement
Certain shareholders and founders were involved in a settlement agreement as described in Note 3.
Common Stock
Certain officers and founders received shares of common stock and forfeited shares of common stock. Disclosures of issuances and forfeitures are disclosed in Note 5.
Convertible Debt
See Note 4 for disclosure of convertible debt to related parties.
Insurance
The president of the Company’s primary auto insurer, providing gap coverage for vehicles on the platform, when existing policy coverage is not applicable, is also a minority shareholder and holder of 2017 Debt with related warrants. As of March 31, 2018, and December 31, 2017 and 2016, the Company has outstanding balances to the insurer totaling $0, $337,882, and $0 included in accounts payable, respectively. During the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016, the Company paid the insurer approximately $1,411,000, $232,000, $2,340,000 and $264,000, respectively.
NOTE 7 – INCOME TAXES
The Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act, or TCJA, reduced the U.S. federal corporate income tax rate from 35% to 21%. As a result, carryforwards have been recalculated to recognize the effect of future rates on deferred tax assets and liabilities. This resulted in a reduction in the deferred tax asset of approximately $62,000 with a corresponding decrease in the valuation allowance in the same amount, for zero net impact on the financial statements.
Hyrecar, Inc.
Notes to Financial Statements
The following table presents the current and deferred tax provision for federal and state income taxes for the years ended December 31, 2017, and 2016:
| | | 2017 | | | 2016 | | | Current tax provision | | | | | | | | Federal | | $ | - | | | $ | - | | | State | | | 800 | | | | 800 | | | Total | | $ | 800 | | | $ | 800 | | | | | | | | | | | | | Deferred tax provision (benefit) | | | | | | | | | | Federal | | $ | (739,000 | ) | | $ | (247,000 | ) | | State | | | (365,000 | ) | | | (15,000 | ) | | Valuation allowance | | | 1,104,000 | | | | 262,000 | | | Total | | | - | | | | - | | | Total provision for income taxes | | $ | 800 | | | $ | 800 | |
The components of our deferred tax assets (liabilities) for federal and state income taxes consisted of the following as of December 31, 2017 and 2016:
| | | 2017 | | | 2016 | | | Deferred tax asset attributable to: | | | | | | | | Net operating loss carryover | | $ | 1,366,000 | | | $ | 262,000 | | | Valuation allowance | | | (1,366,000 | ) | | | (262,000 | ) | | Net deferred tax asset | | $ | - | | | $ | - | |
No federal tax provision has been provided for the years ended December 31, 2017 and 2016 due to the losses incurred during such periods. The Company’s effective tax rate is different from the federal statutory rate of 34% due primarily to operating losses that receive no tax benefit because of a valuation allowance recorded for such losses and temporary differences related to a settlement.
| | | 2017 | | | 2016 | | | Statutory US Federal tax rate | | | 34.0 | % | | | 34.0 | % | | Permanent differences: | | | | | | | | | | State income taxes, net of Federal benefit | | | 5.8 | % | | | 5.8 | % | | Stock compensation | | | -3.1 | % | | | -0.2 | % | | Other | | | -0.9 | % | | | -0.2 | % | | Temporary differences | | | 0.7 | % | | | -4.4 | % | | Change in effective tax rate | | | -10.7 | % | | | - | | | Valuation allowance | | | -25.8 | % | | | -35.0 | % | | Total | | | 0.0 | % | | | 0.0 | % |
Based on federal tax returns to be filed through December 31, 2017, we had available approximately $4,576,000 in recalculated U.S. and state tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization of a Company’s net operating loss carryforwards resulting from retaining continuity of its business operations and changes within its ownership structure. Net operating loss carryforwards start to expire in 2035 or 20 years for federal income and state tax reporting purposes.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for all period starting in 2015. The Company currently is not under examination by any tax authority.
NOTE 8 – SUBSEQUENT EVENTS
Subsequent to March 31, 2018, the Company issued additional senior secured convertible promissory notes totaling $500,000. Net receipts after offering costs related to these Notes were $460,000. The terms of such notes are the same as described in 2018 Convertible Debt in Note 4.
2,100,000 Shares
Common Stock
PROSPECTUS
, 2018
ALTERNATE PAGES FOR SELLING STOCKHOLDER PROSPECTUS
The information in this prospectus is not complete and may be changed. The selling stockholders named in this prospectus may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated June 26, 2018
PROSPECTUS
Up to 2,148,801 Shares of Common Stock [1]
An aggregate of up to 2,148,801 shares of our common stock, consisting of (i) 1,299,199 shares of our common stock issuable upon conversion of 13% senior secured convertible promissory notes held by selling stockholders (the “Notes”), (ii) 649,602 shares of our common stock issuable upon the exercise of outstanding warrants (the “Warrants”), and (iii) 200,000 shares of restricted common stock issued to Insight Advisory, LLC (“Insight”) pursuant to a consulting agreement, which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering, are currently being offered under this prospectus by certain stockholders. Pursuant to the Notes and the security agreements entered into in connection with the 2018 bridge loan financing, we received $3,046,281 of new investor funding, which may be converted into shares of our common stock at a conversion price equal to the lower of $2.5480 or 70% of the price of shares of the initial public offering (“IPO”) price.
The selling stockholders must sell their shares at a fixed price per share of $ , which is the per share price of the shares being offered in the IPO. Thereafter, the shares offered by this prospectus may be sold by the selling stockholders from time to time in the open market, through privately negotiated transactions or a combination of these methods,agents at market prices prevailing at the time of sale, or at negotiated prices. By separate prospectus (the “IPO Prospectus”), we have registered an aggregate of shares of our common stock which we are offering for saleprices related to the public through our underwriters, excluding any shares issuable upon the underwriters’ over-allotment option.
Our common stock has been approved for listing on the Nasdaq Capital Market under the symbol “HYRE.”
The distribution of the shares by the selling stockholders is not subject to any underwriting agreement. We will not receive any proceeds from the sale of the shares by the selling stockholders. We will bear all expenses of registration incurred in connection with this offering, but all selling and other expenses incurred by the selling stockholders will be borne by them.
We are an “emerging growth company” under the federal securities laws and have elected to be subject to reduced public company reporting requirements. An investment in our common stock may be considered speculative and involves a high degree of risk, including the risk of a substantial loss of your investment. See “Risk Factors” beginning on page 11 to read about the risks you should consider before buying shares of our common stock. An investment in our common stock is not suitable for all investors. See “Risk Factors-Risks Relating to Ownership of Our Securities.”
Sales of the shares of our common stock registered in this prospectus and the IPO Prospectus will result in two offerings taking place concurrently which might affect price, demand, and liquidity.
You should rely only on the information contained in this prospectus and any prospectus supplement or amendment. We have not authorized anyone to provide you with different information. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is only accurate on the date of this prospectus, regardless of the time of any sale of securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ________, 2018
1 | Calculated as to the Notes and Warrants using the initial public offering price set forth on the cover page of the IPO Prospectus and assuming the conversion of all the principal and interest of the Notes at maturity and full exercise of the Warrants held by the selling stockholders. |
EXPLANATORY NOTE
Concurrent with this offering, the company is registering shares of common stock in connection with a public offering of 2,100,000 shares of our common stock through the underwriters (excluding 315,000 shares which may be sold upon exercise of the underwriters’ over-allotment option). Sales by stockholders that purchased shares in our common stock from the underwritten offering may reduce the price of our common stock, demand for our shares and, as a result, the liquidity of your investment.
SELLING STOCKHOLDERS
The shares of common stock being registered hereby are those issuable to the selling stockholders upon conversion of the Notes and the exercise of the Warrants and the shares issued to Insight. For additional information regarding the shares of common stock being registered and certain rights of the selling stockholders with respect thereto, see “Recent Sales of Unregistered Securities” and “Description of Securities” below. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except as set forth in this Selling Stockholder Prospectus and except for certain ownership of our securities, the selling stockholders have not had any material relationship with us within the past three years.
The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by the selling stockholders. The second column lists the number of shares of common stock beneficially owned by the selling stockholders prior to this offering as of April 30, 2018, assuming the Notes first became convertible on such date. The third column lists the shares of common stock being offered by this Selling Stockholder Prospectus by the selling stockholders, which covers the resale of, as of any given date, the maximum number of shares of common stock issuable upon conversion of the Notes, including conversion of interest on the Notes through the eighth month anniversary of the date of issuance, assuming the Notes first become convertible in each Note’s maturity date and the principal of the Notes (including interest on the Notes through the maturity date) is converted in full, except with respect to Insight. With respect to the Notes and the Warrants, the amounts in the second and third columns were calculated using the midpoint of the price range listed on the cover page of the Prospectus and assume the conversion of all Notes, and exercise of all Warrants, held by the applicable selling stockholders as of each Note’s maturity date. The conversion price of the Notes is the lesser of (i) $2.5480 per share, or (ii) 70% of the price per share in our initial public offering, or the Conversion Price. The exercise price per share of the Warrants issued with the Notes is 125% of the Conversion price. The fourth and fifth columns list the number and percentage, respectively, of shares of common stock beneficially owned by the selling stockholders after the closing of the offering, based on their ownership as of the date of this Selling Stockholder Prospectus, based on 7,946,876 shares of our common stock outstanding prior to the offering, which include (i) 494,851 shares of issued but unvested restricted stock subject to forfeiture (including the 200,000 shares held by Insight) and (ii) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 2,429,638 shares of our common stock, and assuming the sale of all of the shares offered by the selling stockholders pursuant to this Selling Stockholder Prospectus. Because the Notes may be converted prior to each Note’s maturity date, the number of shares that will actually be issued may be less than the number of shares being offered by this prospectus.
Unless otherwise set forth below, based upon the information furnished to us, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates, and (c) no selling stockholder is a broker-dealer or an affiliate of a broker-dealer.
The number of shares of our common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.
| Selling Stockholder | | | Shares of Common Stock Beneficially Owned Prior to the Offering | | | | Maximum Number of Shares of Common Stock to be Sold in this Offering and Registered Hereby | | | | Shares of Common Stock Beneficially Owned Upon Completion of the Offering | | | | Percentage of Common Stock Beneficially Owned Upon Completion of the Offering | | | NMK Investment Fund, LLC | | | 152,942 | (1) | | | 159,912 | (2) | | | - | | | | - | | | Stourbridge Investments LLC | | | 15,332 | (3) | | | 15,992 | (4) | | | - | | | | - | | | James Karalis | | | 122,354 | (5) | | | 127,931 | (6) | | | - | | | | - | | | Catalytic Holdings I LLC | | | 426,941 | (7) | | | 453,599 | (8) | | | - | | | | - | | | Sergey Gogin | | | 404,233 | (9) | | | 423,563 | (10) | | | - | | | | - | | | Brian FitzPatrick | | | 214,192 | (11) | | | 223,878 | (12) | | | - | | | | - | | | Robert Giblin | | | 60,255 | (13) | | | 63,945 | (14) | | | - | | | | - | | | Gregory Michael Calvino | | | 238,753 | (15) | | | 256,008 | (16) | | | - | | | | - | | | Robert Masucci | | | 59,520 | (17) | | | 64,008 | (18) | | | - | | | | - | | | John Kovitch | | | 147,804 | (19) | | | 159,965 | (20) | | | - | | | | - | | | Insight Advisory, LLC | | | 200,000 | (21) | | | 200,000 | (21) | | | - | | | | - | | | TOTAL | | | 2,042,326 | (22) | | | 2,148,801 | (23) | | | - | | | | - | |
(1) | Amount includes up to (i) 101,961 shares of common stock issuable upon conversion of the Notes and (ii) 50,981 shares of common stock issuable upon exercise of the Warrants. Nicolas Karalis has voting and investment power over these securities. | (2) | Amount includes up to (i) 106,608 shares of common stock issuable upon conversion of the Notes and (ii) 53,304 shares of common stock issuable upon exercise of the Warrants. Nicolas Karalis has voting and investment power over these securities. | (3) | Amount includes up to (i) 10,221 shares of common stock issuable upon conversion of the Notes and (ii) 5,111 shares of common stock issuable upon exercise of the Warrants. Steve Schnipper, Managing Member of Stourbridge Investments LLC, has sole voting and dispositive power over the securities held for the account of this stockholder. | (4) | Amount includes up to (i) 10,661 shares of common stock issuable upon conversion of the Notes and (ii) 5,331 shares of common stock issuable upon exercise of the Warrants. Steve Schnipper, Managing Member of Stourbridge Investments LLC, has sole voting and dispositive power over the securities held for the account of this stockholder. | (5) | Amount includes up to (i) 81,569 shares of common stock issuable upon conversion of the Notes and (ii) 40,785 shares of common stock issuable upon exercise of the Warrants. | (6) | Amount includes up to (i) 85,287 shares of common stock issuable upon conversion of the Notes and (ii) 42,644 shares of common stock issuable upon exercise of the Warrants. | (7) | Amount includes up to (i) 284,627 shares of common stock issuable upon conversion of the Notes and (ii) 142,314 shares of common stock issuable upon exercise of the Warrants. Dmitriy Shapiro has voting and investment power over these securities. | (8) | Amount includes up to (i) 302,399 shares of common stock issuable upon conversion of the Notes and (ii) 151,200 shares of common stock issuable upon exercise of the Warrants. Dmitriy Shapiro has voting and investment power over these securities. | (9) | Amount includes up to (i) 269,488 shares of common stock issuable upon conversion of the Notes and (ii) 134,745 shares of common stock issuable upon exercise of the Warrants. | (10) | Amount includes up to (i) 282,375 shares of common stock issuable upon conversion of the Notes and (ii) 141,188 shares of common stock issuable upon exercise of the Warrants. | (11) | Amount includes up to (i) 142,794 shares of common stock issuable upon conversion of the Notes and (ii) 71,398 shares of common stock issuable upon exercise of the Warrants. | (12) | Amount includes up to (i) 149,252 shares of common stock issuable upon conversion of the Notes and (ii) 74,626 shares of common stock issuable upon exercise of the Warrants. | (13) | Amount includes up to (i) 40,170 shares of common stock issuable upon conversion of the Notes and (ii) 20,085 shares of common stock issuable upon exercise of the Warrants. | (14) | Amount includes up to (i) 42,630 shares of common stock issuable upon conversion of the Notes and (ii) 21,315 shares of common stock issuable upon exercise of the Warrants. | (15) | Amount includes up to (i) 159,168 shares of common stock issuable upon conversion of the Notes and (ii) 79,585 shares of common stock issuable upon exercise of the Warrants. | (16) | Amount includes up to (i) 170,672 shares of common stock issuable upon conversion of the Notes and (ii) 85,336 shares of common stock issuable upon exercise of the Warrants. | (17) | Amount includes up to (i) 39,680 shares of common stock issuable upon conversion of the Notes and (ii) 19,840 shares of common stock issuable upon exercise of the Warrants. | (18) | Amount includes up to (i) 42,672 shares of common stock issuable upon conversion of the Notes and (ii) 21,336 shares of common stock issuable upon exercise of the Warrants. | (19) | Amount includes up to (i) 98,536 shares of common stock issuable upon conversion of the Notes and (ii) 49,268 shares of common stock issuable upon exercise of the Warrants. | (20) | Amount includes up to (i) 106,643 shares of common stock issuable upon conversion of the Notes and (ii) 53,322 shares of common stock issuable upon exercise of the Warrants. | (21) | Amount includes 200,000 shares of restricted common stock which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. Dmitriy Shapiro has voting and investment power over these securities. Mr. Shapiro also have voting and investment power of the securities held by Catalytic Holdings I LLC, which entity is only an investor in the company. | (22) | Amount includes up to (i) 1,228,214 shares of common stock issuable upon conversion of the Notes, (ii) 614,112 shares of common stock issuable upon exercise of the Warrants and (iii) 200,000 shares of restricted common stock which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. | (23) | Amount includes up to (i) 1,299,199 shares of common stock issuable upon conversion of the Notes, (ii) 649,602 shares of common stock issuable upon exercise of the Warrants and (iii) 200,000 shares of restricted common stock which vest upon a qualified financing triggered upon a financing of $10,000,000, on or before December 31, 2018, which will be satisfied upon completion of the primary offering. |
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. If the shares of our common stock are sold through underwriters, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at a price of $5.50 per share (the midpoint of the range set forth on the cover page of the IPO Prospectus) until our shares are listed on the Nasdaq Capital Market and thereafter at prevailing market prices or privately negotiated prices, at prevailing market prices, at the timenegotiated prices, or at fixed prices, which may be changed. The sale of the sale, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may use anyCommon Stock offered by this prospectus could be effected in one or more of the following methods when selling shares:
: | ● | ordinary brokers’ transactions; |
| ● | transactions involving cross or block trades; |
| ● | through brokers, dealers, or underwriters who may act solely as agents; |
| ● | “at the market” into an existing market for the Common Stock; |
| ● | in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents; |
| ● | in privately negotiated transactions; or |
| | ● | any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; | | | | | ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | | | | | ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portioncombination of the block as principal to facilitate the transaction;foregoing. | | | | | ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | | | | | ● | transactions other than on these exchanges or systems or in the over-the-counter market; | | | | | ● | through the writing of options, whether such options are listed on an options exchange or otherwise; | | | | | ● | an exchange distribution in accordance with the rules of the applicable exchange; | | | | | ● | privately negotiated transactions; | | | | | ● | short sales; | | | | | ● | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; | | | | | ● | a combination of any such methods of sale; and | | | | | ● | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
In general, a person who has beneficially owned restricted shares of our common stock for at least six months, in the event we have been a reporting company under the Exchange Act for at least 90 days, would be entitledorder to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the three months preceding the sale.The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of our common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
In connectioncomply with the salesecurities laws of the shares of our common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of our common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of our common stock short and deliver shares of our common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.
The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of our common stock owned by them and,certain states, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of our common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable, provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of our common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgees, transferees or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of our common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be an “Underwriter” within the meaning of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, such broker-dealers or agents and any profit realized on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of our common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of our common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers. Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in somecertain states, the shares of our common stock may not be sold unless such sharesthey have been registered or qualified for sale in suchthe state or an exemption from the state’s registration or qualification requirement is available and is complied with. There can
Lincoln Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the Common Stock that it may purchase from us pursuant to the Purchase Agreement. Such sales will be no assurancemade at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that any selling stockholdereach such broker-dealer will sell anyreceive commissions from Lincoln Park that will not exceed customary brokerage commissions. Brokers, dealers, underwriters or allagents participating in the distribution of the shares offered by this prospectus may receive compensation in the form of our common stock registered pursuantcommissions, discounts, or concessions from the purchasers, for whom the broker-dealers may act as agent, of the Common Stock sold by Lincoln Park through this prospectus. The compensation paid to any such particular broker-dealer by any such purchasers of Common Stock sold by Lincoln Park may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent will receive from any purchasers of Common Stock sold by Lincoln Park. We know of no existing arrangements between Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. We may from time to time file with the SEC one or more supplements to this prospectus or amendments to the registration statement of which this prospectus forms a part.Eachpart to amend, supplement or update information contained in this prospectus, including, if and when required under the Securities Act, to disclose certain information relating to a particular sale of shares offered by this prospectus by the selling stockholder, has informed us that it does not haveincluding the names of any agreementbrokers, dealers, underwriters or understanding, directly or indirectly, with any person to distribute our common stock. Noneagents participating in the distribution of such shares by the selling stockholders who are affiliates of broker-dealers,stockholder, any compensation paid by Lincoln Park to any such brokers, dealers, underwriters or agents, and any other thanrequired information.
We will pay the initial purchasers in private transactions, purchased the shares of common stock outside of the ordinary course of business or, at the time of the purchase of the common stock, had any agreements, plans or understandings, directly or indirectly, with any person to distribute the securities.We are required to pay all fees and expenses incident to the registration under the Securities Act of the offer and sale of the shares of common stock. Except as provided for indemnification of the selling stockholders, we are not obligated to pay any of the expenses of any attorney or other advisor engagedcovered by a selling stockholder.this prospectus by Lincoln Park. We have agreed to indemnify the selling stockholdersLincoln Park and certain other persons against certain losses, claims, damages and liabilities in connection with the offering of shares of Common Stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act.
If we are notifiedAct that may arise from certain written information furnished to us by any selling stockholderLincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has represented to us that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, we will file a post-effective amendmentat no time prior to the registration statement. If the selling stockholders use this prospectus forPurchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the sharesExchange Act) of our common stock, they will be subjectCommon Stock or any hedging transaction, which establishes a net short position with respect to our Common Stock. Lincoln Park agreed that, during the prospectus delivery requirementsterm of the Securities Act.The anti-manipulation rulesPurchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that it is required to comply with Regulation M promulgated under the Exchange Act may apply to sales of our common stock and activities ofAct. With certain exceptions, Regulation M precludes the selling stockholders, which may limit the timing of purchases and sales ofstockholder, any of the shares of common stock by the selling stockholdersaffiliated purchasers, and any broker-dealer or other participating person. Regulation M may also restrict the ability of any person engagedwho participates in the distribution, from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the sharesdistribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of common stock to engagea security in passive market-making activitiesconnection with respect to the sharesdistribution of common stock. Passive market making involves transactions in which a market maker acts as both our underwriter and as a purchaser of our common stock in the secondary market.that security. All of the foregoing may affect the marketability of the securities offered by this prospectus. This offering will terminate on the date that all shares of common stock andoffered by this prospectus have been sold by Lincoln Park. Our Common Stock is quoted on the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.Once soldNasdaq Capital Market under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
26
USE OF PROCEEDS
We will not receive proceeds from sales of our common stock made under this prospectus.
DETERMINATION OF OFFERING PRICE
There currently is no public market for our common stock. The selling stockholders will determine at what price they may sell our common stock, and such sales may be made at prevailing market prices or at privately negotiated prices. See “Plan of Distribution” above for more information.
The legal matters with respect to the validity of the securities being offered by this prospectus will be passed upon for us by Mitchell Silberberg & Knupp LLP,Polsinelli PC, Los Angeles, California. As EXPERTS The audited financial statements for the fiscal years ended December 31, 2021, and December 31, 2020, and for the years then ended, appearing in this prospectus and the registration statement, have been audited by dbbmckennon, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The SEC allows us to incorporate by reference much of the information we file with the SEC, which means that we can disclose important information to you by referring you to those publicly available documents. The information that we incorporate by reference in this prospectus is considered to be part of this prospectus. Because we are incorporating by reference future filings with the SEC, this prospectus is continually updated and those future filings may modify or supersede some of the information included or incorporated in this prospectus. This means that you must look at all of the SEC filings that we incorporate by reference to determine if any of the statements in this prospectus or in any document previously incorporated by reference herein have been modified or superseded. We hereby incorporate by reference into this prospectus the following documents that have been previously filed with the SEC : | 4. | our Current Reports on Form 8-K, filed with the SEC on February 2, 2022, May 25, 2022, June 21, 2022, June 24, 2022, August 2, 2022, August 17, 2022, September 7, 2022 and September 19, 2022, to the extent the information in such reports is filed and not furnished; |
| 6. | the description of our Common Stock set forth in our registration statement on Form 8-A filed with the SEC on June 28, 2018, including any amendments thereto or reports filed for the purposes of updating such description. |
We also incorporate by reference all documents (other than Current Reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on such form that are related to such items) that are subsequently filed by us with the SEC pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act prior to the termination of the offering of the Securities made by this prospectus (including documents filed after the date of the initial Registration Statement of which this prospectus is a part and prior to the effectiveness of the Registration Statement). These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as proxy statements. We will furnish without charge to you, upon written or oral request, a copy of any or all of the documents incorporated by reference into this prospectus supplement and the accompanying prospectus, including exhibits that are specifically incorporated by reference into such documents. You may request any such documents by writing or telephoning us at: HyreCar Inc. 915 Wilshire Boulevard, Suite 1950 Los Angeles, California 90017 (888) 688-6769 You may also view the documents that we file with the SEC and incorporate by reference in this prospectus on our corporate website at www.hyrecar.com. The information on our website is not incorporated by reference and is not a part of this prospectus. WHERE YOU CAN FIND MORE INFORMATION This prospectus is part of a registration statement on Form S-1 we filed with the SEC and does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. For further information with respect to us and the securities we are offering under this prospectus, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. You should rely only on information contained in this prospectus or incorporated by reference herein. We have not authorized any person to provide you with different information. We are not making an entity affiliatedoffer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front page of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities offered by this prospectus. We file annual, quarterly and current reports, proxy statements and other information with Mitchell Silberberg & Knupp LLP owns 37,755 sharesthe SEC. Our SEC filings are available to the public at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website at www.hyrecar.com. The information contained on, or that can be accessed through, our website is not a part of common stock sharesthis prospectus or incorporated by reference into this prospectus, and preferred stock convertible into 74,109 sharesyou should not consider information on our website to be part of common stockthis prospectus. We have included our website address as an inactive textual reference only. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated costs and expenses in connection with the offering contemplated bysale and distribution of the IPO Prospectus.2,148,801 Shares of
Common Stock
SELLING STOCKHOLDER PROSPECTUS
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discounts and commissions,securities being registered, all of which will be paid by us. All amounts are estimated except
| SEC Registration Fee | | $ | 1,250.59 | | | Accounting Fees and Expenses | | $ | * | | | Legal Fees and Expenses | | $ | * | | | Miscellaneous Fees and Expenses | | $ | * | | Total | | $ | * | |
*Estimates not presently known ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS Our Certificate of Incorporation provides that, to the Securities and Exchange Commission registration fee,fullest extent permitted by the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the Nasdaq Capital Market listing fee. | | | Amount | | | SEC registration fee | | $ | 3,476.81 | | | FINRA filing fee | | | 4,688.93 | | | The Nasdaq Capital Market initial listing fee | | | 50,000 | | | Printing and engraving fees | | | 10,000 | | | Legal fees | | | 350,000 | | | Accounting fees and expenses | | | 65,000 | | | Transfer Agent Fees and Expenses | | | 5,000 | | | Miscellaneous Fees and Expenses | | | 4,500 | | | Total | | $ | 492,665.74 | |
Item 14. Indemnification of Directors and Officers.
Section 145 of theDelaware General Corporation Law, of the State of Delaware,our directors shall not be personally liable to us or the DGCL, authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents.
The company’s amended and restated certificate of incorporation and amended and restated bylaws, each to be in effect at the closing of the offering, limit the liability of the company’s directorsour stockholders for monetary damages for breach of fiduciary duty as a director. Our Bylaws provide that, to the fullest extent permitted by Delaware law. Consequently, the company’s directors are not personally liable to the company or the company’s stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
| ● | any breach of their duty of loyalty to the Registrant or the company’ stockholders; | | | | | ● | any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; | | | | | ● | unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and | | | | | ● | any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of the company’s directors will be further limited to the greatest extent permitted by the DGCL.
The company’s amended and restated certificate of incorporation that will be in effect at the closing provides that the company will, under certain circumstances, indemnify any director, officer, employee or agent of the company, subject to any provisions contained in the company’s amended and restated bylaws that will be in effect at the closing. The company’s amended and restated bylaws that will be in effect at the closing provide that the companylaw, we will indemnify, and advance expenses to, the fullest extent permitted by law, each person who wasa director or is made a party or is threatened to be made a party to, or is otherwise involvedofficer in anyan action suit or proceeding, whether civil, criminal, administrative or investigative,brought by reason of the fact that hethe director or she, or a person for whom he or she is the legal representative,officer is or was aour director or officer, of the company, or is or was serving at theour request of the company, as a director or officer employee or agent of another corporation, partnership, joint venture, trust orany other enterprise,entity, against all expense,expenses, liability and loss (including, among other things, attorney’s fees and amounts paid in settlement) reasonably incurred or suffered by such director, officer, employee or agentperson in connection therewith, subjecttherewith. We may maintain insurance to certain conditions. The company’s amended and restated bylaws that will be in effect at the closing also provide the company with the power to, to the extent authorized by the company’s board of directors, grant rights to indemnification and to advancement of expenses to any employee or agent of the company to the fullest extent indemnification may be granted to the company’s directors and officers. In addition, the company’s amended and restated bylaws that will be in effect at the closing provide that the company must advance expenses incurred by or on behalf ofprotect a director or officer in advance of the final disposition of any action or proceeding, subject to certain exceptions.
The company plans to enter into indemnification agreements with each of its directors and executive officers prior to the initial closing that may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements require the company, among other things, to indemnify its directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require the company to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding, subject to certain exceptions. The company believes that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are included in the company’s amended and restated certificate of incorporation, amended and restated bylaws and indemnification agreements with its directors and executive officers may discourage stockholders from bringing a lawsuit against the company’s directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against the company’s directors and executive officers even though an action, if successful, might benefit the company and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that the company pays the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, the company is not aware of any pending litigation or proceeding involving any person who is or was one of its directors, officers, employees or other agents or is or was serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and the company is not aware of any threatened litigation that may result in claims for indemnification.
The company’s amended and restated bylaws that will be in effect at the closing provide that the company may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the company or is or was serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the companywe would have the power to indemnify such person against such expense, liability or loss under Delaware law.
The limitation of liability and indemnification provisions in our Certificate of Incorporation and Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the DGCL.effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s duty of care. The company maintains insuranceprovisions will not alter the liability of directors under which, subjectthe federal securities laws. In addition, your investment may be adversely affected to the limitationsextent that, in a class action or direct suit, we pay the costs of the insurance policies, coverage is provided to the company’ssettlement and damage awards against directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to the company with respect to payments that may be made by the company to these directors and executive officers pursuant to these indemnification provisions. There is currently no pending litigation or proceeding against any of our directors, officers or employees for which indemnification is sought. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following sets forth information regarding all securities sold within the company’s indemnification obligations or otherwise as a matterlast three years that were not registered under the Securities Act. On September 7, 2022, we sold 5,789,716 shares of law.Item 15. Recent Sales of Unregistered Securities.
Since November 24, 2014, the company has made the following sales of unregistered securities:
1. Sales of Convertible Promissory Notes and Warrants
| ● | From June 2016 to September 2016, the company issued and sold convertible promissory notes to a total of 13 investors for an aggregate principal amount of $500,000. | | | | | ● | In April 2017 and May 2017, the company issued and sold promissory notes to three investors for an aggregate principal amount of $350,000 and issued warrants to purchase up to 200,000 shares of common stock at an exercise price of $2.10 per share. | | | | | ● | Between January 2018 and April 2018, the company issued and sold senior secured convertible promissory notes to 10 accredited investors for an aggregate principal amount of $3,046,281 and issued warrants to purchase up to 50% of the shares receivable upon conversion of such notes at an exercise price equal to one-hundred and twenty-five percent (125%) of the conversion price of such notes. The notes provide that the principal and all accrued and unpaid interest on the notes are convertible to shares of common stock at a conversion rate of $2.5480 per share or seventy percent (70%) of the company’s initial public offering (“IPO”) price per share or, if the IPO has not occurred by the maturity date, 70% of the company’s next bona fide sale of its preferred stock or common stock in excess of $1,000,000 in gross proceeds, in one transaction or a series of related transactions, which offering definitively sets a price per share of the company’s common stock or preferred stock. The company also agreed to issue the placement agent for this offering, non-callable five year warrants to purchase up to 119,556 shares of common stock, which is equal to ten percent (10%) of the aggregate number of shares of common stock issuable upon conversion of the principal amount of the senior secured convertible promissory notes, at an exercise price of $2.80 per share. Certain brokers who are dually-registered with third-party broker/dealer and the representative have forfeited their warrants to purchase an aggregate of 104,101 shares of common stock. |
2. Preferred Stock Issuances
| ● | From August 2016 to February 2017, the company issued and sold 1,407,671 shares of Series Seed 1 Convertible Preferred Stock to one accredited investor at a purchase price of $0.71 per share. | | | |
| ● | In February 2017, the convertible promissory notes issued between June 2016 and September 2016 were converted into 943,908 shares of Series Seed 1 Convertible Preferred Stock and an additional 78,059 shares were issued as advisor shares. |
3. 2016 Equity Incentive Plan-Related Issuances
| ● | From April 2016 to October 2017, the company granted its directors, officers, employees, consultants and other service providers option to purchase 1,021,171 shares of common stock with per share exercise prices ranging from $0.71 to $1.75 under the 2016 Equity Incentive Plan. |
4. Otherour Common Stock Issuances
| ● | On or near November 24, 2014, the company issued 4,346,882 shares of common stock to its four founders subject to vesting over a period of four years. In 2016 and 2015, a total of 624,865 and 1,005,217 shares were forfeited by founders due a settlement, termination, or as agreed upon. On August 27, 2016, the company eliminated any additional vesting terms and all shares held at such time by founders were deemed vested. | | | |
| ● | Since September 2016, the company issued 1,032,387 shares of restricted common stock to a director, officers and an employee that vest as follows: 33% upon a sale of securities for gross proceeds of at least $250,000 in one or more transactions and the remaining 67% vest monthly over three years, becoming fully vested in April 2019. For consideration of these shares, the related parties entered into note agreements totaling $138,700 that call for the principal and interest to be paid back in ten years from the date of the loan. The notes bear interest at 1%. The loans are secured by the related shares of common stock. If any portion of the shares are forfeited, the pro-rata portion of the note will be relieved. |
| ● | From June 2017 to November 2017, the company issued and sold 1,236,588 shares of common stock to 68 accredited investors at a purchase price of $1.75 per share. In connection with this financing, the company issued to the placement agent a warrant to purchase up to 123,659 shares of common stock at an exercise price equal to $2.00 per share. On June 22, 2018, such warrants were amended to (i) decrease the amount of shares that can be purchased at an exercise price of $2.00 per share to 60,392 shares of common stock and (ii) reduce the remaining 63,267 shares to 28,993 shares at a modified exercise price of $7.50 per share due to the fact that they were earned180 days immediately preceding the required filing date of the registration statement. |
| ● | In February 2018, the company issued 264,285 restricted shares of common stock to three consultants for services pursuant to a consulting agreement with each consultant. This restricted stock shall vest upon a qualified financing event, defined in each agreement as a financing of $10,000,000, on or before December 31, 2018. If a qualified financing event does not occur on or before December 31, 2018, all stock is forfeited. |
| ● | In June 2018, the company agreed to issue 10,000 shares of common stock to a consultant for services pursuant to a consulting agreement upon consummation of the company’s initial public offering. In addition, subject to the achievement of certain company milestones based on gross billings, average daily active rentals or the company’s market capitalization, the consultant may be issued up to an additional 825,000 shares of common stock; provided; however, that if the company sells all or substantially all of its assets or equity representing 50% or more of the voting power of the company, then any shares not previously issued will be issued upon the closing of such transaction. |
Unless otherwise stated,in a private placement to four accredited investors (as defined in Rule 501 under the salesSecurities Act) pursuant to the PIPE Agreement described above. The shares sold pursuant to the PIPE Agreement were sold at a purchase price of $0.8636, which was the average closing price of our Common Stock as reported on Nasdaq for the five trading days immediately prior to the signing of the above securitiesPIPE Agreement, for total proceeds to us of approximately $5 million. The PIPE Share were deemed to be exempt from registrationnot registered under the Securities Act when issued, but will be registered for resale pursuant to certain registration rights granted to the Purchasers.
On August 15, 2022, we issued 539,633 shares of our Common Stock to a single accredited investor, Lincoln Park, upon our execution of the Purchase Agreement as a fee for Lincoln Park’s commitment to purchase shares of our Common Stock under the Purchase Agreement, as described above. These Commitment Shares were not registered under the Securities Act when issued, but are being registered for resale on this Registration Statement on Form S-1. On August 15, 2022, the Company issued the Promissory Notes to certain executive officers of the Company in the aggregate principal amount of $500,000, as described above. The Promissory Notes accrue interest at a rate of 7% per year on the outstanding principal amounts and will become payable in full one year from the date such amounts are loaned, which has yet to occur. At the discretion of the Company’s Board of Directors, the aggregate unpaid principal amounts, and any unpaid accrued interest, may be convertible into shares of our Common Stock, at a conversion price that is equal to the last reported closing price of our Common Stock on the Nasdaq Capital Market. On September 2, 2022, we issued the Warrants to two accredited investors, which may be exercised to purchase up to an aggregate of 3,221,630 shares of our Common Stock, at a per share exercise price equal to $1.02. Each Warrant was immediately exercisable for 50% of the underlying shares of our Common Stock, and the remaining shares will vest according to certain vesting criteria. These Securities were not registered under the Securities Act when issued, but will be registered for resale pursuant to certain registration rights granted to such accredited investors. The sales and issuances described above were made in reliance uponon the exemptions from registration provided by Section 4(a)(2) of the Securities Act (oras transactions not involving a public offering and/or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuantsales to benefit plans and contracts relating to compensation as provided under Rule 701.accredited investors. The recipients of the securitiespurchasers in each of these transactions represented their intentions to acquireus that they were accredited investors and were acquiring the securitiesshares for investment onlypurposes and not with a view to, or for sale in connection with, any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
EXHIBIT INDEX 1.1** | Form of Underwriting Agreement | | | | 3.1**Exhibit No. | | Exhibit Description | | 3.1 | | | | 3.2 | | 3.2** | | | 3.3 | | 3.3** | Second Amendment to Certificate of Incorporation, effective as of May 17, 2017 | | | 3.4** | Third Amendment to Certificate of Incorporation, effective as of May 23, 2018 | | | 3.5** | Form of Certificate of Incorporation of the Company, to be effect upon the closing of the Company’s initial public offering | | | 3.6** | Bylaws of the Company currently in effect | | | 3.7** | Form of Bylaws of the Company, to be in effect upon the closing of the Company’s initial public offering | | | 3.8** | Certificate of Designations of Preferences, Rights and Limitations of Series Seed 1A Convertible Non-Voting Preferred Stock, effective asfiled with the Delaware Secretary of April 13, 2017 | | | 4.1** | State on September 2, 2022 (incorporated by reference to the Registrant’s Current Report on Form of the Company’s common stock certificate8-K filed on September 7, 2022) | | 4.1 | | 4.2** | | | 4.2 | | 4.3** | Form of April/May 2017 Bridge Promissory Notes | | | 4.4** | Form of Warrant for April/May 2017 Bridge Financingto Purchase Shares of Common Stock, dated September 2, 2022 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 7, 2022) | | 5.1 | | 4.5** | Form of Convertible Promissory Note for 2018 Bridge Financing | | | 4.6** | Form of Warrant for 2018 Bridge Financing | | | 4.7** | Form of Amended and Restated Placement Agent Warrant for 2017 Private Placement Offering | | | 4.8** | Form of Placement Agent Warrant for 2018 Bridge Financing | | | 5.1** | | | | 10.1+** | | | | 10.2+ | | 10.2+** | | | 10.3+ | | 10.3+** | | | | 10.4+** | Oral Consulting Arrangement between the Company and Kit Tran | | | 10.5+** | Employment Agreement between the Company and Elizabeth ReynoldsSerge De Bock | | 10.4+ | | | 10.6+**10.5+ | | | | 10.6+ | | 10.7+** | | | 10.7 | | | 10.8** | | | | 10.9 | | | | | 10.9** | Form of Intellectual Property Security Agreement for 2018 Bridge Financing
| | | 10.10** | Form of SecuritiesCommon Stock Purchase Agreement, for 2018 Bridge Financing | | | 10.11** | Employment Agreementdated August 11, 2022 between the Company and Kit Trancertain Purchasers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 17, 2022) | | 10.10 | | | | 10.11 | | | | 10.12 | | Performance Guaranty, dated September 2, 2022, by HyreCar Inc., in favor of Wilmington Trust, National Association, for the benefit of the Noteholders as defined therein (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 7, 2022) | | 23.1 | | 23.1* | | | 23.2 | | 23.2** | | | 24.1 | | 24.1** | |
* | Filed herewith.
| **107 | Previously filed.
|
+ | Indicates a management contract or compensatory plan or arrangement |
(b) No financial statement schedules are provided because the information called for is not required or is shown in the financial statements or the notes thereto.
+Indicates management contract or compensatory plan. ITEM 17. Undertakings.Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
UNDERTAKINGS | (a) | (1)The undersigned registrant hereby undertakes: |
| To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by sectionSection 10(a)(3) of the Securities Act of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement or any material change to such information in the registration statement; |
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act, that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is a part of the registration statement. | (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein,herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (5) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| (i) | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| (ii) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: | | | |
| (i) | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| (ii) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that iswas part of the registration statement will, as to a purchaser with a time of contract of saleor made in any such document immediately prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. |
| (5)(6) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities:securities, the undersigned registrant hereby undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relatingpursuant to this registration statement, regardless of the underwriting method used to sell the securities to the offering requiredpurchaser, if the securities are offered or sold to be filed pursuant to Rule 424; | | | | | (ii) | Any free writing prospectus relating tosuch purchaser by means of any of the offering prepared by or on behalf offollowing communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or used or referredsell such securities to by the undersigned registrant;such purchaser: |
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. | | | | (iii)(b) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | | | | | (iv) | Any other communicationhereby undertakes that, is an offer in the offering made by the undersigned registrant to the purchaser. |
| (6) | Provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. |
| (7) | Forfor purposes of determining any liability under the Securities Act of 1933, each filing of the information omitted fromregistrant's annual report pursuant to section 13(a) or section 15(d) of the formSecurities Exchange Act of prospectus filed as part1934 (and, where applicable, each filing of thisan employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of thisa new registration statement asrelating to the securities offered therein, and the offering of thesuch securities at that time it was declared effective. |
| (8) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relatingthe initial bona fide offering thereof. |
| (h) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities offered therein,being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the offeringfinal adjudication of such securities at that time shall be deemed to be the initial bona fide offering thereof.issue. |
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 3 to the Registration Statement on Form S-1registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, State of California on June 26, 2018.September 20, 2022.| | HYRECAR INC.HyreCar Inc. | | | | | | | | By: | /s/Joseph Furnari | | | Joseph Furnari | | | Chief Executive Officer,
Chief Financial Officer and Director | | | | | | By: Joseph Furnari | /s/ Abhishek Arora | | | | Abhishek Arora | | Title: Chief Executive Officer | | Chief Technology Officer |
POWER OF ATTORNEY We, the undersigned directors and officers of HyreCar Inc., a Delaware corporation, do hereby constitute and appoint Joseph Furnari, our true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to do any and all acts and things in our names and on our behalf in our capacities as trustees and officers and to execute any and all instruments for us and in our name in the capacities indicated below, which said attorney and agent may deem necessary or advisable to enable said company to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including specifically, but without limitation, any and all amendments (including post-effective amendments) hereto; and we hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement on Form S-1 has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.dates indicated.Signature | | Title | | Date | | | | | /s/ Anshu “Andy” Bansal | | | Anshu “Andy” Bansal | | Chairman | | June 26, 2018 | | | | | | /s/ Joseph Furnari | | | | | | Joseph Furnari | | Chief Executive Officer Chief Financial(Principal Executive Officer and Director) | | June 26, 2018September 20, 2022 | | | | (principal executive officer and principal financial and accounting officer) | | | | | | | /s/ Abhishek AroraSerge De Bock | | | | | Abhishek AroraSerge De Bock | | DirectorChief Financial Officer (Principal Financial Officer) | | June 26, 2018September 20, 2022 | | | | | | | | /s/ Grace Mellis | | | | | | Grace Mellis | | Chairman of the Board of Directors | | September 20, 2022 | | | | | | | /s/ Brooke Skinner Ricketts | | | | | | Brooke Skinner Ricketts | | Director | | June 26, 2018September 20, 2022 | | | | | | | /s/ Michael Root | | | | | | Michael Root | | Director | | September 20, 2022 | | | | | | | /s/ Jayaprakash Vijayan | | | | | | Jayaprakash Vijayan | | Director | | September 20, 2022 |
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