Special Note Regarding Forward-Looking Information
The following discussion and analysis of the results of operations and financial
condition of DriveItAway Holdings, Inc., and its wholly owned subsidiary,
DriveItAway, Inc., should be read in conjunction with the financial statements
of the Company. and the notes to those financial statements that are included
elsewhere in this Form 10-Q. References in this Management's Discussion and
Analysis of Financial Condition and Results of Operations to "us", "we", "our"
and similar terms refer to the Company. This Quarterly Report contains
forward-looking statements as that term is defined in the federal securities
laws. The events described in forward-looking statements contained in this
Quarterly Report may not occur. Generally, these statements relate to business
plans or strategies, projected or anticipated benefits or other consequences of
our plans or strategies, projected or anticipated benefits from acquisitions to
be made by us, or projections involving anticipated revenues, earnings or other
aspects of our operating results. The words "may," "will," "expect," "believe,"
"anticipate," "project," "plan," "intend," "estimate," and "continue," and their
opposites and similar expressions, are intended to identify forward-looking
statements. We caution you that these statements are not guarantees of future
performance or events and are subject to a number of uncertainties, risks and
other influences, many of which are beyond our control, which may influence the
accuracy of the statements and the projections upon which the statements are
based.
Our actual results, performance and achievements could differ materially from
those expressed or implied in these forward-looking statements. Except as
required by federal securities laws, we undertake no obligation to publicly
update or revise any forward-looking statements, whether from new information,
future events or otherwise.
U.S. Dollars are denoted herein by "USD," "$" and "dollars".
COVID-19
On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency in response to a new strain of a coronavirus (the "COVID-19
outbreak"). In March 2020, the WHO classified the COVID-19 outbreak as a
pandemic based on the rapid increase in exposure globally. The COVID-19 pandemic
is a highly fluid situation, and it is not currently possible for us to
reasonably estimate the impact it may have on our financial and operating
results. We will continue to evaluate the impact of the COVID-19 pandemic on our
business as we learn more and the impact of COVID-19 on our industry becomes
clearer. We are complying health guidelines regarding safety procedures,
including, but are not limited to, social distancing, remote working, and
teleconferencing. The extent of the future impact of the COVID-19 pandemic on
our business is uncertain and difficult to predict. Adverse global economic and
market conditions as a result of COVID-19 could also adversely affect our
business. If the pandemic continues to cause significant negative impacts to
economic conditions, our results of operations, financial condition and
liquidity could be adversely impacted.
Overview
DIA is the first national dealer focused mobility platform that enables car
dealers to sell more vehicles in a seamless way through eCommerce, with its
exclusive "Pay as You Go" app-based subscription program. DIA provides a
comprehensive turnkey, solutions driven program with proprietary mobile
technology and driver app, insurance coverages and training to get dealerships
up and running quickly and profitably in emerging online sales opportunities.
The company is planning to soon to expand its easy and transparent consumer app
'subscription to ownership' platform to enable entry level consumers to drive
and acquire new Electric Vehicles. For further information, please
see www.driveitaway.com.
1
Recent Developments
Share Exchange Transaction
On December 7, 2021, the Company, DriveItAway, Inc., a Delaware corporation
("DIA"), and the existing shareholders of DIA executed an Agreement and Plan of
Share Exchange (the "Share Exchange Agreement"), under which the Company would
acquire all of the issued and outstanding common stock of DIA by issuing one
share of Series A Convertible Preferred Stock (the "Series A Preferred") of the
Company for each outstanding share of DIA common stock (the "Share Exchange").
Each share of Series A Preferred will be convertible into that number of shares
of common stock of the Company which would entitle the Series A Preferred
holders to 85% of the Company's common stock, determined on a fully diluted
basis, but prior to any shares issued or issuable as a result of the Financing
(as defined below). The exact conversion rate of the Series A Preferred will be
determined at closing of the Share Exchange. In addition, each share of Series A
Preferred will be entitled to dividends and voting rights on an "as converted"
basis with the common stockholders.
On February 24, 2022, the Company consummated the Share Exchange, which resulted
in the Company issuing 2,594,593 shares of Series A Preferred to acquire all of
the issued and outstanding common stock of DIA. Each share of Series A Preferred
is convertible into 33.94971 share of common stock. In addition, each share of
Series A Preferred is entitled to dividends and voting rights on an "as
converted" basis with the common stockholders. As a result, prior holders of DIA
common stock own Series A Preferred that has approximately 85% of the voting
rights on any matter submitted to shareholders for a vote.
Upon closing of the Share Exchange, all of the existing members of the board of
directors (the "Board") of the Company resigned and John Possumato, Adam Potash
and Paul Patrizio were appointed to the Company's Board. Upon closing of the
Share Exchange, Christopher Rego and Rod Whiton resigned as officers, and John
Possumato was appointed chief executive officer and Adam Potash was appointed
chief operating officer. Mike Elkin agreed to remain as chief financial officer
of the Company.
Names Change and Capital Structure
On April 18, 2022, the Company filed an amendment to its certificate of
incorporation with the Delaware Secretary of State to change its name from
Creative Learning Corporation to DriveItAway Holdings, Inc. and to increase the
number of authorized shares of common stock from 50,000,000 to 1,000,000,000.
RESULTS OF OPERATIONS
Three months ended June 30, 2022, compared to three months ended June 30, 2021:
Our operating results for the three months ended June 30,2022, and 2021 are
summarized as follows
Three Months Ended
June 30,
2022 2021 Change %
Revenues $ 7,084 $ 31,835 $ (24,751 ) (78 %)
Cost of revenue 10,694 9,859 835 8 %
Gross Profit (Loss) (3,610 ) 21,976 (25,586 ) (116 %)
Gross Profit Percentage (51 %) 69 %
Operating expense 330,544 252,208 78,336 31 %
Other income (expense) (308,205 ) (5,173 ) (303,032 ) n/a
Net loss $ (642,359 ) $ (235,405 ) $ (406,954 ) 173 %
Revenues for the three months ended June 30, 2022 was $7,084, as compared to
$31,835 for the three months ended June 30, 2021, a decrease of $24,751,
primarily due to the nation-wide used car shortage resulting from supply chain
disruptions due in part to the COVID-19 pandemic. In addition, semiconductor
chips, one of the main components that run vehicle electronics, came in short
supply, which affected both new and used car markets, causing significantly
higher prices and low inventory.
2
Operating expenses for the three months ended June 30, 2022 were $330,544, as
compared to $252,208 for the three months ended June 30, 2021. The increase of
$78,336 was largely attributable to an increase in salaries and payroll taxes of
$58,025 and selling expenses of $8,834.
Operating loss was $334,154 for the three months ended June 30, 2022, as
compared to $230,232 for the three months ended June 30, 2021. The increase of
$103,922 was largely attributable to an increase in salaries, payroll taxes,
selling expenses and a decrease in revenues.
Other expenses for three months ended June 30, 2022 were $308,205, as compared
to $5,173 for the three months ended June 30, 2021. The increase of $303,032 was
attributable to loss on contingency liability, associated with our convertible
debt, of $60,000, amortization debt discount of $228,182 and an increase in
interest expenses of $16,278.
Nine months ended June 30, 2022, compared to nine months ended June 30, 2021
3
Our operating results for the nine months ended June 30, 2022 and 2021 are
summarized as follows:
Nine Months Ended
June 30,
2022 2021 Change %
Revenues $ 28,730 $ 93,200 $ (64,470 ) (69 %)
Cost of revenue 21,789 30,214 (8,425 ) (28 %)
Gross Profit 6,941 62,986 (56,045 ) (89 %)
Gross Profit Percentage 24 % 68 %
Operating expense 951,136 493,027 458,109 93 %
Other income (expense) (790,971 ) (9,281 ) (781,690 ) n/a
Net loss $ (1,735,166 ) $ (439,322 ) $ (1,295,844 ) 295 %
Revenues for the nine months ended June 30, 2022 was $28,730, as compared to
$93,200 for the nine months ended June 30, 2021, a decrease of $64,470,
primarily due to the nation-wide used car shortage resulting from supply chain
disruptions due in part to the COVID-19 pandemic. In addition, semiconductor
chips, one of the main components that run vehicle electronics, came in short
supply, which affected both new and used car markets, causing significantly
higher prices and low inventory.
Operating expenses for the nine months ended June 30, 2022 were $951,136, as
compared to $493,027 for the nine months ended June 30, 2021. The increase of
$458,109 was attributable to an increase in professional fees of $310,303,
salaries and payroll taxes of $147,049 and selling expenses of $11,343, reduced
by a decrease in general and administrative expenses of $10,127 and software
development expenses of $20,713.
Operating loss was $944,195 for the nine months ended June 30, 2022, as compared
to $430,041 for the nine months ended June 30, 2021. The increase of $514,154
was largely attributable to an increase in professional fees, salaries, payroll
taxes, selling expenses and a decrease in revenues.
Other expenses for nine months ended June 30, 2022 were $790,971, as compared to
$9,281 for the nine months ended June 30, 2021. The increase of $781,690 was
attributable to loss on contingency liability, associated with our convertible
debt, of $460,000, amortization debt discount of $315,865 and an increase in
interest expenses of $29,985, offset by a gain on PPP loan forgiveness of
$24,148.
Liquidity and Capital Resources:
The following table provides selected financial data about our Company as of
June 30,2022.
Working Capital
June 30, September 30,
2022 2021 Change
Cash $ 389,664 $ 9,774 $ 379,890
Current assets $ 395,760 $ 31,229 $ 364,531
Current liabilities 750,018 229,228 520,790
Working capital (deficiency) $ (354,258 ) $ (197,999 ) $ (156,259 )
As of June 30, 2022, and September 30, 2021, our total current assets were
$395,760 and $31,229 which were comprised of $389,664 and $9,774 in cash and
$6,096 and $21,455 in accounts receivable, respectively.
4
As of June 30, 2022, our current liabilities were $750,018 which were comprised
of $109,187 in accounts payable, $16,710 in accrued liabilities, $11,183 in SBA
loan and $612,212 in convertible notes payable and $726 in due to related party.
As of September 30, 2021, our current liabilities were $229,228 which were
comprised of $132,696 in accounts payable, $29,386 in accrued liabilities,
$29,878 in SBA and PPP loans, $7,268 in due to related party and $30,000 in
convertible note-related parties.
As of June 30, 2022, and September 30, 2021, our working capital deficiency was
$354,258 and $197,999, respectively.
Cash Flow Data:
Nine Months Ended
June 30,
2022 2021 Change
Cash used in operating activities $ 616,515 $ 170,737 $ 445,778
Cash used in investing activities $ 56,045 $ - $ 56,045
Cash provided by financing activities $ 1,052,450 $ 220,566 $ 831,884
Net Change in Cash for period
$ 379,890 $ 49,829 $ 330,061
Cash Flows from Operating Activities
During the nine months ended June 30, 2022, we did not generate positive cash
flows from operating activities. For the nine months ended June 30, 2022, net
cash flows used in operating activities was $616,515, consisting of a net loss
of $1,735,166, reduced by stock-based compensation expenses of $372,836, loss on
contingency liability of $460,000, amortization debt discount of $315,865,
depreciation of $4,645, and increased by gain on PPP loan forgiveness of $24,148
and a change in working capital of $10,547.
During the nine months ended June 30, 2021, we did not generate positive cash
flows from operating activities. For the nine months end June 30, 2021, net cash
flows used in operating activities was $170,737, consisting of a net loss of
$439,322, reduced by an increase in stock -based compensation expenses of
$230,770 and a change in working capital of $37,815.
Cash Flows from Investing Activities
During the nine months ended June 30, 2022, the Company generated cash of
$70,361 from the acquisition of a subsidiary and purchased three vehicles for
$126,406.
The Company did not use any funds for investing activities during the nine
months ended June 30, 2021.
Cash Flows from Financing Activities
During the nine months ended June 30, 2022, the Company generated $1,016,250
from issuance convertible notes and $36,200 from an SBA loan.
During the nine months ended June 30, 2021, the Company generated $150,000 from
issuance of convertible notes, $65,000 from related party loan and $5,566
contribution from related party as additional paid-in-capital.
Going Concern
As of June 30, 2022, the Company had a net loss of $1,735,166, accumulated
deficit of $2,640,560 and did not have sufficient cash on hand to cover expenses
for the next twelve (12) months. The Company intends to convert its convertible
debt into common stock and to fund operations through equity financing
arrangements, which may be insufficient to fund its capital expenditures,
working capital and other cash requirements for the year ending September 30,
2022.
5
The ability of our Company to emerge from the development stage is dependent
upon, among other things, obtaining additional financing to continue operations,
and development of our business plan. In response to these requirements,
management intends to raise additional funds through public or private placement
offerings. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"), which require
management to make estimates, judgments and assumptions that affect the amounts
reported in our consolidated financial statements and accompanying notes. We
believe our most critical accounting policies and estimates relate to the
following:
? Recapitalization
? Revenue Recognition
? Stock-Based Compensation
? Income Taxes
While our estimates and assumptions are based on our knowledge of current events
and actions we may undertake in the future, actual results may ultimately differ
from these estimates and assumptions. For a discussion of the Company's
significant accounting policies, refer to Note 1 of Notes to the Condensed
Consolidated Financial Statements.
Recapitalization
On February 24, 2022, the Company, DriveItAway, Inc., and the existing
shareholders of DriveItAway, Inc. ("DIA") executed an Agreement and Plan of
Share Exchange, under which the Company acquired all of the issued and
outstanding common stock of DIA by issuing one share of Series A Convertible
Preferred Stock of the Company for each outstanding share of DIA common stock.
For financial accounting purposes, this transaction was treated as a reverse
acquisition by DIA and resulted in a recapitalization with DIA being the
accounting acquirer and DIA, Inc. as the acquired company. The consummation of
this reverse acquisition resulted in a change of control. Accordingly, the
historical financial statements prior to the acquisition are those of the
accounting acquirer, DIA and have been prepared to give retroactive effect to
the reverse acquisition completed on February 24, 2022, and represent the
operations of DIA. The consolidated financial statements after the acquisition
date, February 24, 2022, include the balance sheets of both companies at fair
value, the historical results of DIA and the results of the Company from the
acquisition date. All share and per share information in the accompanying
consolidated financial statements and footnotes has been retroactively restated
to reflect the recapitalization.
Revenue Recognition
The Company's revenue is recognized in accordance with Accounting Standards
Codification("ASC") 606, Revenue from Contracts with Customers, for all periods
presented. The Company, through its DriveItAway online/app-based platform,
operates in the retail automotive industry. The Company assists subprime and
deep subprime candidates, with little or no down payment, in purchasing the used
vehicle of his/her choice by first starting in an app based, turnkey rental,
through participating franchise and independent car dealers. During the period
ended June 30, 2022 and 2021, the Company derived its rental revenue from
contract revenue share for rentals between participating franchise and
independent car dealers and individual car rental customers ("customers"). In
conjunction with the rental revenue, the Company generates revenue by providing
driver and vehicle insurance through a third party, included in the rental
contract with each customer.
The Company's performance obligation for rental revenue is to provide an
application to track car rental arrangements and to collect cash from car rental
customers and remit those payments to participating franchise and independent
car dealers, net of the Company's revenue share. The car rental arrangements are
over a fixed contracted period; therefore, the Company recognizes revenue
ratably during the contract term. The Company's performance obligation for
insurance revenue is to collect insurance fees from the customer and provide the
third-party provider payment for the insurance provided to the customer. The
insurance is offered over a fixed contracted period; therefore, the Company
recognizes revenue ratably during the contract term.
6
Rental and insurance transactions are prepaid at the beginning of the rental
cycle (typically a one-week rental that has an automatic renewal) with an
automatic charge to the customer's credit card on file through the DIA system.
The DIA system then distributes the vehicle owner share (typically 85% of rental
revenue) to the vehicle owner's bank account from the Stripe Account. This
amount is shown as a deduction to Revenues ("Vehicle Owner Share") on the
Company's Statements of Operations. The net amount is then transferred from the
Company's Stripe Account to the DIA operating bank account. DIA also distributes
insurance amounts due to the third-party insurance provider on a monthly basis.
This amount is shown as a deduction to revenues ("Driver & Dealer Insurance
Cost") on the Company's Statements of Operations.
DIA also generate miscellaneous revenue in a number of ways. At the end of the
rental term, the DIA software system checks for any excess usage and charges,
based on the terms of the rental contract, and will automatically charge a
customer's credit card. These charges are recognized when the credit card charge
goes through and recorded as miscellaneous revenue on the Company's Statements
of Operations. Additional miscellaneous revenue represents amounts earned on
telematics equipment and telematics software services related to each rental
vehicle used to track excess usage and charges. DIA performance obligation is to
provide the equipment to the vehicle owner for self-installation and allow
access to the software throughout the rental term. The Company recognizes
revenue when the equipment is delivered to the vehicle owner. Miscellaneous
revenue associated with use of the telematics software is recognized on a
monthly basis as it is a monthly service.
The Company's Cost of Goods sold consists of credit card fees incurred from the
cash collections and cash remittance process, as a significant portion of its
performance obligation is to collect and remit payments through its credit card
processors.
Stock-Based Compensation
The Company recognizes compensation expense for all restricted stock awards and
stock options. The fair value of restricted stock awards is measured using the
grant date fair value of our stock, as determined by the Board of Directors. The
fair value of stock options is estimated at the grant date using the
Black-Scholes option-pricing model, and the portion that is ultimately expected
to vest is recognized as compensation cost over the requisite service period. We
have elected to recognize compensation expense for all options with graded
vesting on a straight-line basis over the vesting period of the entire option.
The determination of fair value using the Black-Scholes pricing model is
affected by our stock value as well as assumptions regarding a number of complex
and subjective variables, including expected stock price volatility and the
risk-free interest rate.
Income Taxes
The provision for income taxes and deferred income taxes are determined using
the asset and liability method. Deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts
and the tax basis of assets and liabilities using enacted tax rates in effect in
the years in which the temporary differences are expected to reverse. On a
periodic basis, the Company assesses the probability that its net deferred tax
assets, if any, will be recovered. If after evaluating all of the positive and
negative evidence, a conclusion is made that it is more likely than not that
some portion or all of the net deferred tax assets will not be recovered, a
valuation allowance is provided by a charge to tax expense to reserve the
portion of the deferred tax assets which are not expected to be realized.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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DRIVEITAWAY HOLDINGS, INC. 