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 turn-key, 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 to change its name from Creative Learning Corp.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 March 31, 2022 compared to three months ended March 31, 2021
Revenues. Total revenue for the three months ended March 31, 2022 was $11,029,
as compared to $36,974 for the three months ended March 31, 2021, a decrease of
$25,945, primarily due to the nation-wide used car shortage resulting from
supply chain disruptions (e.g. chip shortage).
Operating Expenses. Operating expenses for the three months ended March 31, 2022
were $346,688, as compared to $129,180 for the three months ended March 31,
2021. The increase of $238,100 was largely attributable to an increase in
professional fees, salaries, payroll taxes and stock-based compensation.
Operating Loss. Operating loss was $341,068 for the three months ended March 31,
2022, as compared to $102,968 for the three months ended March 31, 2021. This
increase of $212,508 was largely attributable to an increase in professional
fees, salaries, payroll taxes and stock-based compensation.
Six months ended March 31, 2022 compared to six months ended March 31, 2021
Revenues. Total revenue for the six months ended March 31, 2022 was $21,646, as
compared to $61,365 for the six months ended March 31, 2021, a decrease of
$39,719, primarily due to due to the nation-wide used car shortage resulting
from supply chain disruptions (e.g. chip shortage).
Operating Expenses. Operating expenses for the six months ended March 31, 2022
was $620,592, as compared to $240,819 for the six months ended March 31, 2021.
The increase of $379,773 was largely attributable to an increase in professional
fees, salaries, payroll taxes and stock-based compensation.
2
Operating Loss. Operating loss was $610,041 for the six months ended March 31,
2022, as compared to $199,809 for the six months ended March 31, 2021. This
increase of $410,232 was largely attributable to an increase in professional
fees, salaries, payroll taxes and stock-based compensation.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. For the six months ended March 31, 2022, the net cash used
of $289,526 was an increase over the same period of the prior year of $78,206.
Financing Activities. For the six months ended March 31, 2022, the net cash
provided by financing activities was $802,450, an increase over the same period
the prior year of $65,000. The increase was primarily due to proceeds from a
convertible debt of $766,250.
Investing Activities. For the six months ended March 31, 2022, the cash flows
from investing activities was $70,361, as compared with $0 for the same period
the prior year. This increase was due to an acquisition of a subsidiary.
Going Concern Qualification
During the period ended March 31, 2022, the Company had a net loss of
$1,092,807 and did not have sufficient cash on hand to cover expenses for the
next twelve (12) months. The Company reported net cash used in operating
activities of $289,526 in the six months ended March 31, 2022, which was offset
by an increase in cash of $802,450 during the period ended March 31, 2022, from
financings and $70,361 from the sale of its learning subsidiaries. These
factors, among others, raise substantial doubt about the entities ability to
continue as a going concern.
Management plans include converting its convertible debt into the Company's
common stock in addition to raising equity capital.
The financial statements of the Company do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of income and expense during the
reporting periods presented.
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.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. The significant estimates and assumptions
made by management include allowance for doubtful accounts, allowance for
deferred tax assets, fair value of equity instruments. Actual results could
differ from those estimates as the current economic environment has increased
the degree of uncertainty inherent in these estimates and assumptions.
Accounts Receivable
The Company reviews accounts receivable periodically for collectability and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. The Company records an allowance for doubtful accounts that is
based on historical trends, customer knowledge, any known disputes, and
considers the aging of the accounts receivable balances combined with
management's estimate of future potential recoverability. Accounts and
receivables are written off against the allowance after all attempts to collect
a receivable have failed. The Company believes its allowances for doubtful
accounts as of March 31, 2022 and September 30, 2021 are adequate, but actual
write-offs could exceed the recorded allowance. During the year ended March 31,
2022, and September 30, 2021 the balances in the allowance for doubtful accounts
was $0.
3
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 March 31, 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.
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.
4
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. 