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Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 3 – COMMITMENTS AND CONTINGENCIES

 

Settlement and Legal

 

In September 2015, two former founders (the “Claimant Founders”) made an arbitration claim against the Company for alleged violations of an agreement among the founders of the Company (the “Founders’ Agreement”).  The Claimant Founders and the Company arbitrated the dispute but, prior to the arbitrator rendering a decision, the Company and the Claimant Founders settled the dispute without any party admitting liability or fault.  Under the terms of the April 25, 2016 settlement (the “Settlement Agreement”), each of the Claimant Founders would maintain 190,177 shares of their common stock restricted per the Founders’ Agreement and with certain additional restrictions. Additionally, the Claimant Founders agreed to remit the remaining balance of stock previously held by them back to the Company.  The Settlement Agreement provided that the Claimant Founders’ stock ownership would be diluted upon subsequent money raises, stock option offerings, and stock option vesting, however, any dilution would remain consistent and proportional to the remaining founders’ dilution ratios.  The claimants also received a total of $110,000 paid out over eighteen (18) months starting on November 1, 2016.  The remaining balance of $24,444 owed as of December 31, 2017 to the Claimant Founders under the Settlement Agreement was paid in 2018 and no additional monies are now due under the Settlement Agreement.

 

Thereafter, on November 13, 2018, the same two 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 the lawsuits, which were largely duplicative, allege that the Company breached the Settlement Agreement by not allowing the Claimant Founders to sell stock in the initial public offering (“IPO”) of the Company, 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 very strongly disagrees with all of the allegations and intends to 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.  At this time, the lawsuits are in their early stages and the Company is unable to estimate potential damage exposures, if there are any, related to the lawsuits. 

 

In July 2017, an owner of several vehicles that he was renting through the Company’s platform filed for arbitration seeking damages for losses associated with renting his vehicles, specifically losses associated with a claimed stolen vehicle, storage fees, damage/repair fees, an insurance deductible, and purported loss of income due to his inability to rent the stolen/damaged vehicles. In December 2017, the owner also filed a lawsuit in the Superior Court of California, County of Los Angeles, reasserting the same claims. The Company believes this action is without merit and is vigorously defending itself, while also exploring whether the dispute can be settled in an expeditious manner. The Company 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. As of January 29, 2019, the arbitrator issued a decision to award nothing to the owner. The arbitrator upheld the enforceability of the Company’s terms of service and made clear that they precluded damages sought by the owner and dismissed the owner’s tort claims as unmeritorious.

  

The Company is involved in claims and litigation from time to time in the normal course of business. At December 31, 2018, the Company believes there are no pending matters, except as noted above, that are expected to have a material adverse effect on the business of the Company, its financial condition, results of operations or cash flows.

 

Agreements 

 

In November 2017, the Company entered into a 180-day agreement with a third-party broker/dealer to assist in raising funds under a private placement. For their services, they 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 Notes 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: 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 years ended December 31, 2018 and 2017 was $321,681 and $161,293, respectively.