UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20182019

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-38561

HYRECAR INC.HyreCar Inc.

(Exact name of registrant as specified in its charter)

(888) 688-6769

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No☐ No ☒ 

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of November 8, 2018,6, 2019, the registrant had 11,708,04116,387,171 shares of common stock, $0.00001 par value per share, issued and outstanding.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future 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 plans, 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 risks and uncertainties inherent in our statements regarding:

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q 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. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q 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.

References to HyreCar

Throughout this Quarterly Report on Form 10-Q, the “Company,” “HyreCar,” “we,” “us,” and “our” refers to HyreCar Inc. and “our boardits subsidiaries. Our “board of directors” refers to the board of directors of HyreCar Inc.

PART I -– FINANCIAL INFORMATION

Item 1. Financial Statements

HyreCar Inc.

BALANCE SHEETS

(Unaudited)

Condensed Balance Sheets

(Unaudited)

See accompanying notes to the unauditedcondensed financial statements

HYRECAR INC.

Condensed Statements of Operations

(Unaudited)

HyreCar Inc.

STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to the unauditedcondensed financial statements

HyreCar Inc.

STATEMENTS OF CASH FLOWSHYRECAR INC.

Condensed Statement of Stockholders’ Equity

(Unaudited)

See accompanying notes to condensed financial statements

HYRECAR INC.

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to the unauditedcondensed financial statements

HyreCar Inc.HYRECAR INC.

Notes toNOTES TO UNAUDITED Financial StatementsFINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS

HyreCar Inc. (which may be referred to as “HyreCar,(“HyreCar,” the “Company,” “we,” “us” or “our”) was incorporated on November 24, 2014 (“Inception”) in the State of Delaware. The Company’s headquarters is located in Los Angeles, California. The Company operatesis a web-based marketplace that allows car and fleet owners to rent their idle cars to Uber and Lyft drivers safely, securely and reliably. The financial statements of HyreCar Inc. are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Initial public offeringPublic Offering

On June 29, 2018, the Company closed its initial public offering (“IPO”), in which the Company issued and sold 2,520,000 shares of common stock at $5.00 per share for gross proceeds of $12,600,000, net of underwriters’ discounts and commissions totaling $1,260,000. Accordingly, net proceeds from the IPO totaled $11,340,000, before deducting offering costs of $569,665.

In connection with the closing of the Company’s IPO, all outstanding shares of the Company’s convertible preferred stock were converted into 2,429,638 shares of common stock.

Follow-On Public Offering

On July 23, 2019 and July 29, 2019, the Company closed its follow-on public offering, in which the Company issued and sold 4,025,000 shares of common stock at $3.00 per share for gross proceeds of $12,075,000, before deducting underwriters’ discounts and commissions totaling $603,750 and reimbursable expenses of $150,000. Accordingly, net proceeds from the offering totaled $11,321,250. In connection with the offering, we paid additional offering costs of $226,373. 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – Unaudited Interim Financial Information

The accompanying balance sheet as of September 30, 2018, the statements of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. The unaudited interim financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair statementpresentation of the Company’sresults for the interim periods presented and of the financial positioncondition as of September 30, 2018 and resultsthe date of operations and cash flows for the three and nine months ended September 30, 2018 and 2017.interim balance sheet. The financial data and the other information disclosed in these notes to the interim financial statements related to the three and nine monthnine-month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 20172018 and notes thereto that are included in the prospectus, dated June 26, 2018, that formed a part of the registration statementCompany’s Annual Report on Form S-1 (File No. 333-225157), which was declared effective by the SEC on June 26, 2018.10-K.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

Management’s Plans

We have incurred operating losses since Inception and historically relied on debt and equity financing for working capital. Throughout the next 12 months,Going forward the Company intends to fund its operations through increased revenue and cash flow from operations and the funds raised through the IPO. Based on our current capitalfrom its initial and ability to reduce cash burn if needed,follow-on public offerings, and as well as the increasing revenues through normal course of business,a result we believe that substantial doubt about the Company’s abilityCompany has sufficient resources to continue as a going concern has been alleviated.operate its business.

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.

The Company’s most significant estimates and judgments involve recognition of revenue, calculating the reserves for insurance, the measurement of the Company’s stock-based compensation, including the estimation of the underlying deemed fair value of common stock in periods prior to the date of the Company’s IPO, the estimation of the fair value of market-based awards, the valuation of warrants, allowance for doubtful accounts, and the fair value of financial instruments

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:

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 September 30, 20182019 and December 31, 2017.2018. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, and accrued liabilities, notes payable, convertible debt and settlement payable.liabilities. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

Cash and Cash Equivalents

For purpose of the statement of cash flows, the Company considers institutional money market funds and all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Insurance LiabilityReserve

The Company records a loss reserve for insurance deductible or damage that the Company pays to car owners based on the Company’s policy in relation to the insurance policy in effect at the time, as it may be amended. This reserve is based on changes to the Company’s insurance policy that occurred during the second quarter of 2018 in relation to the insurance policy in effect for car owners.time. This reserve represents an estimate for both reported accidentaccidents claims not yet paid, and claims incurred but not yet reported and are recorded on a non-discounted basis. The lag time in reported claims is minimal and as such represents a low risk of unreported claims being excluded from the loss reserve assessment.  The adequacy of the reserve is monitored quarterly and is subject to adjustment in the future based upon changes in claims experience, including the number of incidents for which the Company is ultimately responsible and changes in the cost per claim, or changes to the Company’s policy as to what amounts of the deductible or claim will be paid by the Company.  As ofSeptember 30, 2019, and December 31, 2018, $125,957$640,637 and $348,442 was included in accrued liabilitiesthe accompanying balance sheets related to the loss reserve, respectively, where the expense is reflected in the general and administrative within the statements of operations.  No such liability was recorded

Liability insurance claims may take several years to completely settle, and the Company has limited historical loss experience. Because of the limited operational history, the Company makes certain assumptions based on currently available information to estimate the reserves as well as third party claims adjuster data provided on existing claims. A number of December 31, 2017factors can affect the actual cost of a claim, including the length of time the claim remains open, economic and healthcare cost trends and the results of related litigation. Furthermore, claims may emerge in future periods for events that occurred in a prior period that differs from expectations. Accordingly, actual losses may vary significantly from the estimated amounts reported in the financial statements. Reserves are continually reviewed and adjusted as necessary as experience develops or new information becomes known. However, ultimate results may differ from the Company’s policy was such that it was not responsible for any claims atestimates, which could result in losses over the time.Company’s reserved amounts. Such adjustments are recorded in general and administrative expenses.

Offering Costs

The Company accounts for offering costs in accordance with Accounting Standards Codification (“ASC”) 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs on the balance sheet. The deferred offering costs are netted against the proceeds of the offering in stockholders’ deficitequity   or the related debt, as applicable.

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. As of September 30, 2018, the Company has capitalized $67,689 of internal software related costs, which is included in intangible assets in the accompanying balance sheets.

Convertible Debt and Warrant

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 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 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 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’ equity (deficit) section of the balance sheet.

Costs incurred directly for the issuance of the preferred stock were recorded as a reduction of gross proceeds received by the Company, resulting in a discount to the preferred stock.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

In connection with the closing of the Company’s IPO, all outstanding shares of convertible preferred stock were converted into 2,429,638 shares of common stock.

Revenue Recognition

The Company recognizesgenerates the majority of its revenue primarily from insuranceits ridesharing marketplace that connects vehicle owners and transaction fees when a car is rented on the Company’s platform when (a) persuasive evidence 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 accepteddrivers and the credit card or account on file is charged. The Company defers revenue where the earnings process is not yet complete.related insurance issued for each rental.

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.

The Company has adopted Accounting Standards Codification Topic 606 (“ASC 606”) – Revenue from Contracts with Customers, as of January 1, 2019 using the modified retrospective method.  The adoption of ASC 606 did not materially impact the way the Company recognizes revenue. 

In applying the guidance of ASC 606, the Company 1) identifies the contract with the customer 2) identifies the performance obligations in the contract 3) determines the transaction price, 4) determines if an allocation of that transaction price is required to the performance obligations in the contract, and 5) recognizes revenue when or as the companies satisfies a performance obligation.  

Refunds may occur when the driver returns the owner vehicle early based on the terms of the original contract or cancels the rental prior to completing the exchange. 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 ofThe Company defers revenue in all instances when the total rebate or refund obligationearnings process is based on management estimates using historical data.not yet complete.

The following is a breakout of revenue components by subcategory for the three and nine months ended September 30, 20182019 and 2017:2018:

Insurance and transaction 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 AgentPrincipal-Agent Considerations

In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, we evaluateThe Company evaluates 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. OurOne of our primary revenue sourcesources 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:

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

We have determined we act as the agent in the transaction for vehicle bookings, as we are not the primary obligor of the arrangement and receive a fixed percentage of the transaction.transaction fee. Therefore, revenue is recognized on a net basis.basis and included in the above table as transaction fees.

For other fees such as insurance, referrals, and motor vehicle records (application fees) we have determined 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. 

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.applications as well as hosting and platform-related technology cost.

Advertising

The Company expenses the cost of advertising and promotions as incurred. Advertising expense was $1,888,931 and $1,338,714 for the nine months ended September 30, 2019 and 2018, 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, stock-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, andaward. Stock-based compensation is recognized as expense over the employee’s requisite vesting period.period and over the nonemployee’s period of providing goods or services. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.

HYRECAR INC.

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.NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

Stock-based compensation is included in operating expenses in the statements of operations as follows: follows. See Note 5 for equity transactions:

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. 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 nine months ended September 30, 2018 and 2017, there were 2,792,356 and 1,066,733 options or warrants excluded, respectively. As of September 30, 2019 and 2018, and 2017, there were no debts convertible into common stock. As of September 30, 2018, there were 825,000the securities summarized below, which entitle the holders thereof to acquire shares of restricted common stock, (Note 5) that were excluded. excluded from the calculation of earnings per share, as their effect would be anti-dilutive.

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 twoone insurance agenciesagency to provide all insurance on vehicles in service. The loss of either of thesethis insurance carrierscarrier would have a negative effect on our operations.

New Accounting Standards

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation -– Stock Compensation (Topic 718):Compensation: Improvements to Nonemployee Share-Based Payment Accounting, (“ASU 2018-07”). ASU 2018-07 eliminateswhich expands the separate accounting model for nonemployee share-based payment awards and generally requires companiesscope of current stock compensation recognition standards to account forinclude share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted.acquiring goods or services from nonemployees. The Company is in process of assessing the impact of the adoption ofadopted ASU 2018-07 on January 1, 2019 and the financial statements, but it isadoption did not expected to have a significantmaterial impact on the Company.its consolidated financial statements.

In January 2017, the FASB issued ASU No. 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 reviewingreviewed the provisions of the new standard, but believes it is not expectedapplicable to have a significant impact on the Company.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

In February 2016, the FASB issued ASU No. 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, 2018,2019, with early adoption permitted. The Company is currently reviewinghas reviewed the provisions of the new standard, but it is not expected to have a significant impact on the Company.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and has issued subsequent amendments to this guidance. This new standard will replacereplaces 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 31,15, 2018 for all other entities. The standard may becould have been applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has electedadopted ASC 606 as of January 1, 2019 using the extended transition period for complying with any new or revised financial accounting standards afforded to emerging growth companies. As the Company continually considersmodified retrospective method and reviews the provisions of the new standard, Management doesbased on our analysis did not foreseehave a material impact to the financial statements as a whole.effect on revenue recognition.

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

On November 13, 2018, two founders againstof the Company (the “Claimant Founders”), initiated two lawsuits in the Superior Court of California, County of San Francisco, entitled Nathaniel Farber v. HyreCar Inc., Case No. CGC-18-571257 and Josiah Larkin v. HyreCar Inc., Case No. CGC-18-571258. The complaints for violationsthe lawsuits, which were largely duplicative, allege that the Company breached the Settlement Agreement by and between the Company and the Claimant Founders by not allowing the Claimant Founders to sell stock in the initial public offering (“IPO”) of the founders’ agreement. The claimants andCompany, failing to offer to buyback Claimant Founders’ stock at the Company entered into an arbitration agreement on April 25, 2016 to settle the claim. The settlement stated eachtime of the claimants would maintain 190,177 sharesIPO, allowing the issuance of their commoncertain stock (post reverse split as described in Note 5) restricted perwithout proportionately increasing the founders’ agreement with the remaining being remitted backstock ownership of Claimant Founders, and not providing certain required information to the Company. However, the shares while not separate in class, would not have voting rights until such shares were sold to a non-affiliated third party.Claimant Founders. The claimants would be diluted upon subsequent money raises, stock option offerings and vesting, however, any dilution would remain consistent and proportional to the remaining founders’ dilution ratios and would not be diluted more than the founders’ ratios in any current or subsequent money raise. The claimants also received a total of $110,000 paid out over eighteen (18) months starting November 1, 2016. As of September 30, 2018 and December 31, 2017, $0 and $24,444Company strongly disagrees with all of the balance remained outstanding, all of which are 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,allegations and purported loss of income dueintends 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.vigorously contest both lawsuits. The Company believes that, at all times, its actions have been consistent with the terms, conditions, and context of the Settlement Agreement, as well as applicable law. Pursuant to a motion brought by the Company, the two lawsuits have been joined for pretrial and trial purposes. The joined litigation is in the discovery phase. At this actiontime, the Company is without merit and is vigorously defending itself, while also exploring whetherunable to estimate potential damage exposure, if any, related to the dispute can be settled in an expeditious manner. The Company 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.litigation.

The Company is involved in claims and litigation from time to time in the normal course of business. At September 30, 2018,2019, the Company believes there are no pending matters, except as noted above, that arecould be expected to have a material adverse effect on the business of the Company, its financial condition, results of operations or cash flows.

HYRECAR INC.

AgreementsNOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

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 were to receive five percent (5%) of the gross proceeds under the placement as a success fee defined by the agreement, non-callable warrants equal to ten percent (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 were to 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 would be 110% of the lesser 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 called for $20,000 due upon execution of the agreement and non-accountable expense cash fees equal to three percent (3%) of the gross proceeds due and payable immediately upon the closing of the placement. The compensation terms of this agreement were modified on June 22, 2018 prior to the IPO such that 15,445 warrants were issued with a five year term and exercise price of $2.80. The Company valued the warrants similar to stock options in Note 5 which was recorded as a discount on the related debt, Accordingly, the Company recorded $46,600 of interest expense related to the accretion of the discount upon conversion of the 2018 Convertible Notes. See Note 4 for 2018 Convertible Debt related to this agreement. 

Other

In November 2017, the Company entered into 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. The Company also rents office furniture and incurs ancillary fees for building services and shared expenses. Rent expense for the nine months ended September 30, 2018 and 2017 was $251,894 and $120,859, respectively.

NOTE 4 – NOTES PAYABLEDEBT AND LIABILITIES

2016 Convertible Notes PayableAccrued Liabilities

From June 2016 toA summary of accrued liabilities for the periods ending September 2016, the Company issued convertible promissory notes (the “2016 Convertible Notes”) to related parties30, 2019 and third parties with the same terms and conditions totaling indebtedness of $500,000 (the “2016 Convertible Debt”), $150,000 of which was borrowed from related parties. The 2016 Convertible Notes bore interest at 12%, with a default rate of 15% and were due three years from the issuance date. The 2016 Convertible Notes were automatically convertible  in shares of Series Seed 1 Convertible Preferred Stock 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 eventDecember 31, 2018 is as defined by the 2016 Convertible Notes. The holders had the option to convert the entire unpaid and outstanding principal amount and any accrued interest thereon under the 2016 Convertible Notes on the maturity date. The conversion price was the lesser of 1) that price per share that was 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.follows:

In February 2017, the outstanding balance of the 2016 Convertible Notes was converted into Series Seed 1 Convertible Preferred Stock based on the conversion terms noted above due to the closing of a qualifying investment in equity securities. Accordingly, the 2016 Convertible Debt 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 three and nine months ended September 30, 2017.

Interest expense for the 2016 Convertible Debt, including the charge for the beneficial conversion feature, for the three and nine months ended September 30, 2017 $140,065. There were no such charges in the 2018 periods presented.

2017 Notes Payable

In April and May 2017, the Company issued promissory notes to related parties totaling $300,000 and a third party totaling $50,000 with the same terms and conditions (collectively, the “2017 Notes”) and issued five year warrants to purchase up to 200,000 shares of common stock with an exercise price of $2.10 per share. 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 and nine months ended September 30, 2018 and 2017, the Company accreted $0, $21,008, $25,025 and $35,216 of this discount to interest expense, respectively. The outstanding balance of the 2017 Notes has been repaid as of September 30, 2018.

2018 Convertible Notes and Warrants

During the first and second quarter of 2018, pursuant to a securities purchase agreement, the Company issued and sold senior secured convertible promissory notes (the “2018 Convertible Notes”) to accredited investors in the aggregate principal amount of $3,046,281. Gross principal amounts were net of $267,702 withheld, resulting in for net proceeds to the Company of $2,778,579. The Company incurred additional offering costs of $67,882 for a total debt discount of $335,584, which was fully amortized by the IPO date. The 2018 Convertible Notes bore interest at the rate of 13% per annum and were due eight months from the original issue date, which ranged from September to December 2018 (the “Maturity Dates”). The 2018 Convertible Notes provided that the principal and all accrued and unpaid interest on the 2018 Convertible Notes were convertible into shares of common stock at a conversion rate equal to the lesser of $2.5480 per share or seventy percent (70%) of the IPO price per share. Upon pricing the IPO, at the option of the holders, all outstanding principal plus accrued interest underlying the 2018 Convertible Notes was converted into 1,231,165 shares of common stock at a conversion rate of $2.5480. 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 $368,757 which was charged to interest expense in the accompanying statement of operations during the nine months ended September 30, 2018.

In connection with the issuance of the 2018 Convertible Notes, each holder also received contingent five-year warrants to purchase common stock in an amount equal to 50% of the shares of common stock that the holder was entitled to in connection with the conversion of the holder’s 2018 Convertible Note when such note first became convertible, which was at the time the IPO was priced. Prior to the 2018 Convertible Note being convertible, the holder did not have a right to exercise these warrants. At the IPO pricing date, 615,585 warrants to purchase common stock became exercisable upon the conversion of the outstanding balance of the 2018 Convertible Notes, including accrued interest. The warrants have an exercise price of 125% of the conversion price, or $3.185. The Company calculated the fair value of the warrants at $1,741,334 using a Black-Scholes pricing model. The Company valued the warrants at $2.8288 per warrant using a common stock fair value of $5.00, a term of five years, a volatility of 45% and a risk freerisk-free interest rate of 2.75%. The Company allocated the debt proceeds on a relative fair value basis between the note and warrant, in which the Company recognized a note discount for $1,107,982. This was immediately recognized in interest expense as of the note conversion date. As of September 30, 2018, all of the warrants were outstanding.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – STOCKHOLDERS’ DEFICIT

Reverse Stock Split

The Company effected 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.EQUITY

Preferred Stock

The Company is authorized to issue 15,000,000 shares of preferred stock, $0.00001 par value per share. Of these, the Company designated 4,471,489 shares as Series Seed 1 Convertible Preferred Stock (“Series Seed 1”). Each share all of whichSeries Seed 1 shall be entitled to cast the number of votes equal to the number of whole shares of preferredcommon stock into which the shares of Series Seed 1 held are undesignated. 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.

As described in Note 1, on June 29, 2018, at the closing of the IPO, 2,429,638 shares of outstanding Series Seed 1 Convertible Preferred Stock automatically converted into 2,429,638 shares of common stock.

There are currently no shares of preferred stock issued and outstanding.

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock, $0.00001 par value per share.

Private PlacementStock Options

Starting in June 2017,In 2016, the Company undertook a private placementBoard of Directors adopted the HyreCar Inc. 2016 Incentive Plan (the “2016 Plan”). The 2016 Plan provides for the salegrant of commonequity awards to highly qualified personnel, including stock for $1.75 per share. During the year ended December 31, 2017, 1,236,588 shares of commonoptions, restricted stock, were sold for gross proceeds of $2,164,029. Relating to this offering, the Company was required to pay the placement agent for the private placement a cash commission equal to 13% of the gross proceedsstock appreciation rights, and issue the placement agent, or its designees, warrantrestricted stock units to purchase shares of common stock equalstock. Up to 10% the amount of monies raised divided by $1.75. Accordingly, as of December 31, 2017, $281,324 in cash commissions have been paid or were payable along with $38,806 in related legal and other fees, both of which were netted against the gross proceeds of the offering. Based on the amounts raised through December 31, 2017, the Company issued the placement agent warrants to purchase 123,659, exercisable at $2.00 per share. The value of these placement agent warrants, for which similar inputs were used compared to stock options below, were both an increase and reduction to additional paid-in capital for a net zero effect on the gross proceeds of the offering.

On June 22, 2018, the placement agent warrants that were to be earned per the description in Note 3, were amended to (i) decrease the amount of shares that can be purchased at an exercise price of $2.00 per share to 60,3922,227,777 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 (ii) reduceexpires ten years after adoption, unless terminated earlier by the remaining 63,267 shares to 28,993 shares at a modified exercise price of $7.50 per share, due to the fact that such placement agent warrants were earned 180 days immediately preceding the filing date of the IPO registration statement.

Shares for ServicesBoard.

In December 2017,2018, the Company issued 37,755Board of Directors adopted the HyreCar Inc. 2018 Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the grant of equity awards to purchase shares of common stock. Up to 3,000,000 shares of common stock for paymentmay be issued pursuant to awards granted under the 2018 Plan, subject to increases that occur starting in 2021. The 2018 Plan is administered by the Board of $66,070 in accounts payable related to legal services.

Collateralized Restricted Stock PurchasesDirectors, and expires ten years after adoption, unless terminated earlier by the Board.

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. On May 31, 2018, the board of directors determined that it was in the best interest of the Company, in order to comply with the requirements of Section 402 of the Sarbanes-Oxley Act of 2002 prior to filing the IPO registration statement with the SEC, to (i) issue a bonus to those related parties serving as an officer and/or director of the Company in the amount owed by each party. Each such related party bonus was used to repay and terminate the note agreements. An aggregate of $131,400 in principal was repaid and terminated along with accrued interest thereon. Remaining balance of $7,392 is outstanding to a related party that is not serving as an officer or director of the Company. As of September 30, 2018, 897,890 shares have vested.

Stock Options

A summary of our stock option activity forDuring the nine months ended September 30, 2019 and 2018, is as follows:the board of directors approved the grant of 1,125,000 and 557,500 stock options to various contractors and employees, respectively. The 2019 granted options had exercise prices ranging from $3.20 to $5.53, expire in ten years, and generally vest between two (2) and four (4) years. The total grant date fair value of stock options during the nine months ended September 30, 2019 and 2018 was approximately $2,077,801 and $972,681, respectively. The Company used the Black-Scholes option mode to value stock option awards with inputs noted below during each of the periods presented.

Stock-based compensation expense for stock options for the three months ended September 30, 2019 and 2018 was $272,074 and 2017 was $86,722, and $41,951, respectively, and $318,018$789,106 and $182,307$318,018 for the nine months ended September 30, 2019 and 2018, and 2017, respectively.

As of September 30, 2018,2019, the total estimated remaining stock-based compensation expense for unvested stock options is $1,395,906$2,043,704 which is expected to be recognized over a weighted average period of 2.412.5 years.

HYRECAR INC.

The Company estimates the fair value of stock options that contain service and/or performance conditions using the Black-Scholes option pricing model. The range of input assumptions used by the Company were as follows:NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

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 prior to the IPO date by looking at a market approach which takes into consideration past sales of our common and preferred stock, as well Company developments to date.

Subsequent to the period ended September 30, 2018, the Company granted 140,000 stock options exercisable at $2.29 per share.

Restricted Shares

A summary of activity with our restricted shares forDuring the nine months ended September 30, 2018, is as follows:2019, the Company issued 70,703 shares of common stock for stock options that were exercised for cash and 2,188 shares of common stock for stock options that were exercised in cashless transactions. Proceeds from these exercises totaled $81,459. There were no such exercises during the nine-months ended September 30, 2018.  

Shares Issued for Services, Restricted Shares and Restricted Stock Units

During the nine months ended September 30, 2019, the Company granted 105,000 common shares in exchange for legal and consulting services provided by two service providers. The Company valued the grants at $527,650 based on the closing price of the Company’s common stock on the grant date. As of September 30, 2019 there was $64,000 recognized as a prepaid as a retainer for legal services and the remainder portion was recognized as stock-based compensation.

During the nine months ended September 30, 2019, the Company issued 10,000 shares of common stock to one consultant for services based on agreement entered into in January 2019. The Company valued the shares based on the closing price of the Company’s common stock on the date of the agreement and recognized $27,500 in stock-based compensation. Included in the agreement were 400,000 forfeitable restricted stock shares that vest upon achieving specific performance and strategic milestones. Currently, it is not probable the performance and strategic targets will be achieved. During the nine months ended September 30, 2019, 300,000 of the performance restricted stock shares were forfeited.

During the nine months ended September 30, 2019, the company granted 360,000 restricted stock units to employees and two members of our board of directors that generally vest between one and four years.

During the nine months ended September 30, 2018, the Company granted 264,285 shares of restricted common stock to three consultants for services. All shares of restricted common stockservices which fully vested upon the IPO. Accordingly, stock-based compensation of $1,321,425 was recognized during the nine months ended September 30, 2018.

During the nine months ended September 30, 2018 the Company also granted 10,000 shares of restricted common stock to a consultant for services which fully vested upon the IPO. The Company recognized stock-based compensation expense of $50,000 during the nine months ended September 30, 2018 for the vesting of the 10,000 shares of restricted common stock. In addition, the Company also agreed to issue the consultant an aggregate of 825,000 shares of restricted common stock with the issuance of 275,000 shares of restricted common stock upon each of three milestones. Each of the three milestones has a specific target in which the Company must meet or exceed which include i) gross bookings of rentals, ii) average daily active rentals, or iii) market capitalization. As of September 30, 2018,2019, it is not probable that the performance metrics will be met and therefore no compensation expense has been recognized andas no shares of restricted common stock have been issued. 

Stock-based compensation related to restricted shares and restricted stock units noted above was $102,734 and $0 during the three months ended September, 2019 and 2018, respectively. Stock-based compensation related to restricted shares and restricted stock units was $204,925 and $1,371,425 during the nine months ended September 30, 2019 and 2018, respectively.

Unrecognized compensation expense related to the unvested restricted stock units described above is $2,103,750approximately $1,090,142 as of September 30, 2018 based on2019 and is expected to be recognized over approximately 2.2 years. During the market value of the Company’s common stock atnine months ended September 30, 2018. Actual future expense is dependent on the measurement date and when vesting becomes probable.2019, 8,100 restricted stock units were forfeited.

Warrants

Relating toDuring March 2019 several warrant holders exercised 274,224 warrants received with the 20172018 Convertible Notes as described in Note 4,(Note 4). Total proceeds from the Company issuedexercise of warrants to purchase up to 200,000 shares of common stock with a fixed exercise price of $2.10 per share.was $873,403.

Relating toDuring 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. The Company received $2,164,029 in gross funds from the private placement which has earned the placement agent warrants to purchase up to 123,659 shares of common stock with an exercise price of $2.00 per share. 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 such placement agent warrants were earned 180 days immediately preceding the filing date of the IPO registration statement.

In June 2018, the Company entered into agreements with two service provider firms pursuant to which the Company agreed to pay cash compensation and issue warrants to purchase up tonine months ended September 30, 2019 several warrant holders exercised an aggregate amount of 250,000470,062 warrants in cashless exercises, which resulted in the issuance of 174,502 shares of common stock. The warrants are fully vested and non-forfeitable. The warrants range from three (3) or five (5) years and are exercisable for $5.00. Accordingly, stock-based compensation of $463,000 was recognized in general and administrative expenses in the accompanying statements of operations.

The Company used the Black-Scholes pricing model to value the above 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 to match the related term of the warrant.

As of September 30, 2018 and December 31, 2017, all warrants were vested.

HYRECAR INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – RELATED PARTY TRANSACTIONS

Related Party Advances

From time to time during the years ended December 31,prior to 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 September 30, 20182019 and December 31, 20172018, a balance of $9,629 remained outstanding.

During the nine months ended September 30, 2017, advances of $7,500 to former officers were forgiven.

Insurance

The president of the Company’s primary insurance broker, providing gap coverage for vehicles on the platform, when existing policy coverage is not applicable, is also a minority stockholder and a holder of 2017 Notes with related warrants. As of September 30, 20182019 and December 31, 2017,2018, the Company had outstanding balancesliabilities to the insurer totaling $83,115$109,606 and $337,882,$275,290, included in accounts payable,accrued expenses, respectively. During the nine months ended September 30, 20182019 and 2017,September 30,2018, the Company paid the insurer $3,357,305$3,643,196, and $1,516,565,$3,357,305 respectively.  

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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 20172018 included in our final prospectus for our initial public offering of our common stock (the “IPO”) filed with the U.S. Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) of the Securities Actmost recent Annual Report on June 28, 2018, which we refer to as the Prospectus.Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in the Prospectus.10-Q.

Our Company

We operate in the car sharing marketplace for ride sharing through our proprietary platform. The Company has established a leading presence in Mobility as a Service (MaaS) through vehicle owners and institutions, such as franchise car dealerships, independent car dealerships and rental car companies, who have been disrupted by automotive asset sharing. We are based in Los Angeles, California and car owners and drivers can currently use the platform in all 50 states plus the District of Columbia. We believe ourWashington, D.C. Our unique revenue opportunity for both owners (“Owners”) and drivers (“Drivers”) is providing a safe, secure, and reliable marketplace.

We categorize our operations into one reportable business segment: Rental, consisting primarily of our vehicle rental operations in the United States.

Business and Trends

We primarily generate revenue by taking a feefees from each rental processed on our platform and through insurance related fees.platform. Each rental transaction represents a Driver renting a car from an Owner. Drivers pay a daily weekly or monthly rental rate,plusdirect insurance costs and a 10% HyreCar fee. Ownersfee and direct insurance costs. During the three months ended September 30, 2019 we provided three service levels (“Standard” and “Premium” tiers in addition to the original “Basic” tier, with higher revenue shares for the Company associated with higher liability coverage for entities) in response to car owner requests. As a result, car owners receive their rental rateminus a 15%15-25% HyreCar fee.fee depending on the service tier selected by the car owner. For example, if the average weekly rental rate during 2017 of a HyreCar vehicle during 2019 was $200 (“Weekly$30.00 per day or $210.00 per week (a “Weekly Rental”), plus direct insurance costs, plus a 10% HyreCar fee ($20),21.00) and direct insurance costs, the total gross billings would have been $290.be $322.00. This gross billing amount is charged to thea Driver’s account in one lump sum. $170Assuming the Standard service tier (80/20 split) $168.00 or 85%80% of the weekly rental rate is subsequently transferred to the Owner. HyreCar earns revenues from the balance of the $322.00 marketplace transaction, fee of $50or $154.00, and gross fees from the insurance of $70. Accordingly,accordingly this is the U.S. GAAP reportable revenue recognized by HyreCar is $120us in this transaction (as detailed in the table below).

The revenue model changed with the re-negotiation of our insurance product and implementation of a fixed daily fee. For example, as of April 5, 2018, if the average weekly rental rate of a HyreCar vehicle is $200 (“Weekly Rental”), direct insurance costs are $61, 10% HyreCar variable fee is $20, plus an administration fee of $30, then the total gross billings is $311. 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 insurance and administration fees of $91. Accordingly, the U.S. GAAP reportable revenue recognized by HyreCar is $141 in this transaction example (as detailed in the table below).

Non-U.S. GAAP Financial Measure – Gross Billings and Adjusted Earnings

Gross billings are 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-U.S. 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.

Quarterly Rental Days

($ in millions)

Gross billings may also be used to calculate net revenue margin, defined as the Company’s U.S. GAAP reportable revenue over gross billings. Using the definition of net revenue margin and the example above, HyreCar’s net revenue margin has increased tois approximately 45%45-48% (Taking the example above: $141$154.00 HyreCar’s U.S. GAAP revenue over $311$322.00 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 U.S. GAAP reported revenues to gross billings for the three and nine months ended September 30, 20182019 and 2017:2018:

Adjusted Earnings (or Loss) is another important measure by which we evaluate and manage our business. We define Adjusted Earnings as the Earnings without any adjustments for non-cash consideration paid for stock-based compensation to employees or vendors. 

Our operating results are subject to variability due to seasonality, macroeconomic conditions and other factors. Car rental volumes tend to be associated with driving holidays, where there is an influx of Uber/Uber and Lyft demand. Thus far in 2018,2019, we have continued to operate in an uncertain and uneven economic environment marked by heightened geopolitical risks. Nonetheless, we continue to anticipate that demand for vehicle rental and car sharing services will increase in 2018,2019, most likely against a backdrop of modest and uneven global economic growth.

Our objective is to focus on strategically accelerating our growth, strengthening our position as a leading provider of vehicle rental services to Uber and Lyft drivers, continuing to enhance our customers’ rental experience, and controlling costs and driving efficiency throughout the organization. We operate in a high growth industry and we expect to continue to face challenges and risks. We seek to mitigate our exposure to risks in numerous ways, including delivering upon our core strategic initiatives, continued growth of fleet levels to match changes in demand for vehicle rentals, and appropriate investments in technology.

During 2018:the period ended September 30, 2019:

Management’s Plan

We have incurred operating losses since Inceptioninception and historically relied on debt and equity financing for working capital. Throughout the next 12 months,Going forward, the Company intends to fund its operations through increased revenue and cash flow from operations and the funds raised through the Company’s IPO. Based on our current capitalfrom its initial and increasing revenues through the normal course of business,follow-on public offerings, and as well as our ability to reduce cash burn if needed,a result we believe that substantial doubt about the Company’s abilityCompany has sufficient resources to continue as a going concern has been alleviated.operate its business for the foreseeable future.

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 withon Drivers. A Driver will typically rent a car through one transaction via our on-line marketplace. We recognize U.S. 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. 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.

Cost of revenues primarily includeincludes direct fees paid for driver insurance, merchant processing fees, and motor vehicle record fees incurred for paid driver applications.applications as well as hosting and platform-related technology cost.

Sales and marketing costs include advertising (both on-line and off-line channels), brand awareness activities, conference attendance, conference sponsorship, business development, and wages to sales and marketing staff.

General and administrative costs include all corporate and administrative functions that support our business. These costs also include stock-based compensation expense,expenses, 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, App development 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 income and expense.

Results of Operations

Three Months Ended September 30, 20182019 compared to Three Months Ended September 30, 20172018

Revenues and Gross Profit.Profit Gross profit of $1,450,250, or approximately 54%, was realized on. Net revenues totaling $3,710,272 for the three months ended September 30, 2019 were generated compared to revenues totaling $2,685,952 for the three months ended September 30, 2018, as compared toand gross profit of $116,561,$2,337,934, or approximately 14%63.0%, was realized on revenues totaling $828,285 for the three months ended September 30, 2017.2019 compared to $1,450,250, or approximately 54.0% for the three months ended September 30, 2018. The increase in revenues of $1,857,667,$1,024,320, or approximately 224%38.2%, was due to the growth of our business which resultedresulting from the expansion of our sales team, increased marketing and brand awareness. The implementation of late fees, which effected 2018 but not the comparable 2017 period, a fixed administrative fee component commencing in the second quarter of 2018 and increased fees from partner referrals also contributed to revenue and gross profit expansion.significantly higher rental days.

Operating Expenses.Expenses. Operating expenses, consisting of sales and marketing, general and administrative, and research and development expenses, increased by approximately $1,836,196,$2,801,409, or approximately 133%87.0%, to $6,021,174 for the three months ended September 30, 2019, as compared to operating expenses of $3,219,765 for the three months ended September 30, 2018, as compared2018. General and administrative expenses increased by $1,978,604, or 163.5%, to operating expenses of $1,383,569 for the three months September 30, 2017. The increase in operating expenses related$3,189,040 due primarily to the expansion of our sales team which, in turn, resulted in higher revenue levels. Our salesnon-cash stock-based compensation costs. Sales and marketing expenses increased by $743,022 which is attributable$850,529 or 59.8% to $2,271,892 due to an increase in onlinedigital advertising increasedand sales contractors and compensation. Our general and administrative expenses increased by $730,951 representing an increase in office space, salaries, contractors, operations and support functions.employee compensation, which both helped drive higher revenue levels. The remaining difference is attributable to technology research and development which decreased by $27,724, or 4.7%, to $560,242 associated with the development and specifically increased contractors and outside services expense related to maintenance of theour technology platform. Stock-based compensation included in the three months ended September 30, 2019 and 2018 was $574,633 and 2017 was $86,722, and $41,951, respectively, an increase of $44,771.$487,911, or 563%.

Loss from Operations.Our loss from operations for the three months ended September 30, 20182019 was $1,769,515($3,683,240) as compared to a loss from operations of $1,267,008($1,769,515) for the three months ended September 30, 2017. The increased loss during 2018 is a direct result of the increased operating costs noted above.2018.

Other (Income) Expense. For the three months ended September 30, 2018, interest expense2019, net other income totaled $3,261$60,575 as compared to interestnet other expense of $21,251$9,939 for the three months ended September 30, 2017. Other income and expense during2018. The improvement was the three months ended September 30, 2018 and 2017 were minor.result of higher cash deposits at financial institutions.

Net Loss. Primarily as a result of the increased operating expenses noted above, our net loss for the three months ended September 30, 2018 was $1,779,454, as compared to a net loss for the three months ended September 30, 2017 of $1,289,059.

Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017

Revenues and Gross Profit. Gross profit of $2,950,513, or approximately 44%, was realized on revenues totaling $6,673,634 for the nine months ended September 30, 2018 as compared to gross profit of $225,652, or approximately 11%, realized on revenues totaling $1,964,854 for the nine months ended September 30, 2017. The increase in revenues of $4,708,780, or approximately 240%, was due to the growth of our business, which resulted from the expansion of our sales team, increased marketing expenditures and brand awareness. The implementation of late fees, which effected 2018 but not the comparable 2017 period, a fixed administrative fee component commencing in the second quarter of 2018 and increased fees from partner referrals also attributed to revenue growth and gross profit.

Operating Expenses.Operating expenses, consisting of sales and marketing, general and administrative, and research and development expenses, increased by approximately $6,534,092, or approximately 223%, to $9,463,776 for the nine months ended September 30, 2018, as compared to operating expenses of $2,929,674 for the nine months ended September 30, 2017. The increase in operating expenses related to the expansion of our sales team which, in turn, resulted in higher revenue levels. Our sales and marketing expenses increased by $1,748,309 which is attributable to an increase in on-line advertising, increased sales contractors and compensation. Our general and administrative expenses increased by $4,098,582 representing an increase in office space, salaries, contractors, and operations and support functions. Remaining difference is attributable to research and development and specifically increased contractors and outside services expense related to maintenance of the technology platform. Stock-based compensation included in the nine months ended September 30, 2018 and 2017 was $2,152,443 and $237,759, respectively, an increase of $1,914,684.

Loss from Operations.Our loss from operations for the nine months ended September 30, 2018 was $6,513,253 as compared to a loss from operations of $2,704,022 for the nine months ended September 30, 2017. The increased loss during 2018 is a direct result of the increased operating costs noted above.

Other (Income) Expense. For the nine months ended September 30, 2018, interest expense totaled $2,039,719 as compared to interest expense of $175,615 for the nine months ended September 30, 2017. The increase was a result of interest charges for beneficial conversion features on convertible debt and the amortization of debt discounts in 2018. In 2017, interest related to the recognition of a beneficial conversion feature totaling $134,108, stated rate of interest on convertible debt outstanding, along with other minor interest charges. Other income and expense during the nine months ended September 30, 2018 and 2017 were minor.

Net Loss. Primarily as a result of the increased operating expenses noted above, together with the interest income earned during 2019, our net loss for the three months ended September 30, 2019 was $3,622,665 as compared to a net loss for the three months ended September 30, 2018 of $1,787,685.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenues and Gross Profit. Net Revenue totaling $11,022,089 was generated for the nine months ended September 30, 2019 compared to $6,673,634 for the same period the prior year. The increase in revenues of $4,348,455, or approximately 65.2%, was due to the growth of our business, which resulted from increased brand awareness resulting from increased marketing expenditures and the expansion of our sales team. Gross profit of $6,596,489, or approximately 59.8%, was generated for the nine months ended September 30, 2019 as compared to gross profit of $2,950,513, or approximately 44.2%, for the nine months ended September 30, 2018. The increase in gross profit of $3,645,976, or approximately 123.6%, was due to the growth of our business resulted from increased brand awareness as well as a higher contribution margin from the new revenue tiers added during 2019.

Operating Expenses. Operating expenses, consisting of general and administrative, sales and marketing, and research and development technology expenses, increased by 48.9% or $4,623,392 to $14,087,158 for the nine months ended September 30, 2019 from $9,463,766 for the nine months ended September 30, 2018. The increase in operating expenses related to the expansion of our sales and marketing spends which, in turn, resulted in our increase in sales. Our sales and marketing expenses increased by $1,611,933 or 52.0% to $4,709,519 in the period which is primarily attributable to an increase in digital marketing and sales compensation. Our general and administrative expenses increased by $2,512,575 or 47.8% to $7,768,744 in the period representing an increase in infrastructure, employee benefit and insurance costs. The increase in cost for research and development is associated with an expanded in-house team to expand on our core technology platform, with costs increasing by $498,884 or 44.9% to $1,608,895 in the period. Stock-based compensation included in the nine months ended September 30, 2019 and 2018 was $1,485,181 and $2,152,443, respectively, a decrease of $667,262.

Loss from Operations. Our loss from operations for the nine months ended September 30, 2019 was $7,490,669 as compared to $6,513,253 for the nine months ended September 30, 2018. The increased loss during 2019 is a result of increased marketing expenses associated with expanding car supply.

Other (Income) Expense. For the nine months ended September 30, 2019, net other income totaled $121,717 as compared to net other expense incurred duringof $2,083,748 for the nine months ended September 30, 2018. The decrease was a result of the elimination of debt and the interest charges on convertible debt and the amortization of debt discounts for the 2018 IPO.

Net Loss. Primarily as a result of the increased operating expenses noted above our net loss for the nine months ended September 30, 20182019 was $8,597,001$7,368,952 as compared to a net loss for the nine months ended September 30, 20172018 of $2,881,165.$8,597,001, a year over year improvement of $1,228,049, or 14.3%.

Liquidity and Capital Resources

At September 30, 2018,2019, our cash balance totaled $8,671,099$13,143,893 compared to $213,944$6,764,870 at December 31, 2017.2018. This increase was aprimarily the result of our IPOcompletion of the follow-on offering in which the Company issued and sold 2,520,000 shares of common stock at $5.00 per share for gross proceeds of $12,600,000, net of underwriters’ discounts and commissions totaling $1,260,000. Accordingly, net proceeds from the IPO totaled $11,340,000, before deducting offering costs of $569,665.July 2019.

At September 30, 2018,2019, our current assets totaled $8,953,338$13,551,938 and our current liabilities totaled $1,243,109$2,246,241 resulting in working capital of $7,710,229$11,305,697 compared to $5,030,694 at December 31, 2018.

Operating activities for the nine months ended September 30, 2019 resulted in cash outflows of $5,664,508 which were due primarily to the loss for the period of $7,368,952, partially offset by $1,485,181 in stock-based compensation, compared to cash used in operating activities of $4,770,149, which was due primarily to the loss for the period of $8,597,001 partially offset by $2,152,443 in stock-based compensation and $1,515,191 in amortization of a debt discount for the same period the prior year.

Investing activities for the nine months ended September 30, 2019 resulted in a net cash outflow of $6,208 compared to a working capital deficitcash outflow of $1,337,331 at December 31, 2017. This deficit resulted primarily from a lack of operating capital. Throughout the next 12 months, the Company intends to fund its operations through increased revenue from operations and the funds raised through the IPO. Based on our current capital and ability to reduce cash burn if needed, as well as the increasing revenues through normal course of business, the Company believes it has sufficient capital to operate$36,423 for the next twelve (12) months.

same period the prior year. We do not have any contractual obligations for ongoing capital expenditures at this time.

Operating activities for the nine months ended September 30, 2018 resulted in cash outflows of $4,770,149 which were due primarily to the loss for the period of $8,597,001, partially offset by $4,037,014 non-cash charges.

Operating activities for the nine months ended September 30, 2017 resulted in cash outflows of $2,020,063, which was due primarily to the loss for the period, partially offset by $414,483 in non-cash charges.

Investing activities for the nine months ended September 30, 2018 resulted in cash outflows of $36,423 consisting of purchases of property and equipment and investment in internally developed software, reduced by the return of our prior lease deposit. 

Investing activities for the nine months ended September 30, 2017 resulted in cash outflows of $99,679 consisting of net outflows related to our insurance deposit and a deposit under our prior month-to-month lease.

Net cash provided by financing activities for the nine months ended September 30, 20182019 totaled $13,263,727 and primarily consisted of net proceeds of $11,340,000 related to the IPO, $2,778,579 in net proceeds from convertible debt, less offering costs of $569,665 and repayments on a note payable of $350,000.

Net cash provided by financing activities for the nine months ended September 30, 2017 totaled $1,871,479$12,049,739 and primarily included $300,000the $12,075,000 secondary public equity offering in July 2019, compared to net cash provided of $13,263,727 primarily from the sale of preferred stock, $1,441,628 from$12,600,000 initial public offering in June 2018 and the sale of common stock, $350,000 from notes payable, net of$2,778,579 convertible debt offering costs of $220,149.in in the same period the prior year.

Critical Accounting Policies, Judgments and Estimates

Use of Estimates

The preparationA description of critical accounting policies and estimates is disclosed in Note 2 to our financial statements appearing 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.this Quarterly Report on Form 10-Q.

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.

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 and nine months ended September 30, 2018 and 2017. 

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:

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.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our financial statements appearing in this Quarterly Report on Form 10-Q.

Emerging Growth Company Status

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards..

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

Item 4. Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’sCompany’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact there are resource constraints and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)Act of 1934). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded our disclosure controls and procedures were effective but that any controls and procedures, no matter how well designed and operated, can provide onlyat the reasonable assurance level as of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.September 30, 2019.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has occurred during the three and nine months ended September 30, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Set forth below are material updates to pending litigation matters which are more fully disclosed

On November 13, 2018, two founders of the Company (the “Claimant Founders”), initiated two lawsuits in the Company’s Quarterly Report on Form 10-QSuperior Court of California, County of San Francisco, entitled Nathaniel Farber v. HyreCar Inc., Case No. CGC-18-571257 and Josiah Larkin v. HyreCar Inc., Case No. CGC-18-571258. The complaints for the quarter ended June 30, 2018.

In July 2017, an ownerlawsuits, which were largely duplicative, allege that the Company breached the Settlement Agreement by and between the Company and the Claimant Founders by not allowing the Claimant Founders to sell stock in the initial public offering (“IPO”) of several vehicles that he was renting through the Company’s platform filed for arbitration seeking damages for losses associatedCompany, failing to offer to buyback Claimant Founders’ stock at the time of the IPO, allowing the issuance of certain stock without proportionately increasing the stock ownership of Claimant Founders, and not providing certain required information to the Claimant Founders. The Company strongly disagrees with renting his vehicles, specifically losses associated with a claimed stolen vehicle, storage fees, damage/repair fees, an insurance deductible,all of the allegations and purported loss of income dueintends 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.vigorously contest both lawsuits. The Company believes that, at all times, its actions have been consistent with the terms, conditions, and context of the Settlement Agreement, as well as applicable law. Pursuant to a motion brought by the Company, the two lawsuits have been joined for pretrial and trial purposes. The joined litigation is in the discovery phase. At this actiontime, the Company is without merit and is vigorously defending itself, while also exploring whetherunable to estimate potential damage exposure, if any, related to the dispute can be settled in an expeditious manner. The Company 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.litigation..

Item 1A. Risk Factors

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

On June 1, 2018, the Company agreed to issue a warrant to purchase up to 100,000July 15, 2019, we issued 10,000 shares of common stock to aone consultant for services to be rendered. The warrant is exercisable for a period of five years at an exercise price per share equal to the offering price in the IPO, which was $5.00 per share.

On June 15, 2018, the Company agreed to issue a warrant to purchase up to 150,000 shares of common stock to a consultant for services to be rendered. The warrant is exercisable for a period of three years at an exercise price per share equal to the offering price in the IPO, which was $5.00 per share.

The securities described aboveforegoing offers, sales and issuances were issued pursuant to the exemptionexempt from registration afforded byunder Section 4(a)(2) of the Securities Act.

Use of Proceeds from Initial Public Offering of Common Stock

On June 29, 2018, we closed our initial public offering of 2,520,000 shares of our common stock at a public offering price of $5.00 per share for an aggregate offering of $12.6 million. The offer and sale of all of the shares in the offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-225157), which was declared effective by the SEC on June 26, 2018. Network 1 Financial Securities, Inc. acted as the managing underwriter for the offering. We received aggregate net proceeds from the offering of $10,770,335, after deducting underwriting discounts and commissions and other offering expenses payable by us. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

Information related to use of proceeds from registered securities is incorporated herein by reference to the “Use of Proceeds” section of the Prospectus, which was filed with the SEC on June 28, 2018. There has been no material change in the planned use of proceeds from our offering as described in the Prospectus.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits