Driveitaway Holdings, Inc. 10-K

Item 1. Business General As used in this Annual Report, references to the “Company,” “DriveItAway,” “we,” “our,” and “us” refer to DriveItAway Holdings, Inc. and its consolidated subsidiary, unless otherwise indicated. In addition, references to our “financial statements” are to our consolidated financial statements included elsewhere in this Annual Report except as the context otherwise requires. We prepare our consolidated financial statements in United States dollars and in accordance with generally accepted accounting principles as applied in the United States, (“U.S. GAAP”). In this Annual Report, references to “$” and “dollars” are to United States dollars. Overview DriveItAway Holdings, Inc. was formed in Delaware on March 8, 2006 as B2 Health, Inc. On July 2, 2010, the Company acquired BFK Franchise Company, LLC (“BFK”), a Nevada limited liability company, and concurrently changed its name to Creative Learning Corporation. On February 24, 2022, the Company acquired DriveItAway, Inc., and on March 18, 2022, disposed of BFK and its other subsidiaries involved in the learning business. On April 18, 2022, the name was changed to DriveItAway Holdings, Inc. On April 12, 2024, the Company formed DIA Leasing, LLC, a Florida limited liability company, which is a wholly owned subsidiary. The Company is a 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. We provide 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 has expanded its easy and transparent consumer app ‘subscription to ownership’ platform to enable entry level consumers to drive and acquire new Electric Vehicles. Agreement and Plan of Share Exchange On December 7, 2021, the Company (f/k/a Creative Learning Corporation), DriveItAway, Inc., a Delaware corporation (“ DIA ”), and the existing shareholders of DIA executed an Agreement and Plan of Share Exchange, 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 Exchan g e ”). As a result of the Share Exchange, DIA will become a wholly-owned subsidiary of the Company. 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. 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. Closing on Share Exchange On February 24, 2022, closing of the Share Exchange occurred. Each share of Series A Preferred is convertible into 33.94971 shares of common stock of the Company, which entitles the holders thereof to 85% of the Company’s common stock upon a conversion of all shares of Series A Preferred, determined on a fully-diluted basis. In addition, each share of Series A Preferred is entitled to dividends and voting rights on an “as converted” basis with the common stockholders. 2 Upon closing of the Share Exchange, all of the existing members of the board of directors (the “ Board ”) of the Company resigned, except that Rod Whiton’s resignation will not be effective until ten days after an information statement pursuant to Rule 14f-1 is mailed to shareholders. John Possumato, and Adam Potash were appointed to the Company’s Board, provided that the appointments of Messrs. Potash and Patrizio will not be effective until ten days after an information statement pursuant to Rule 14f-1 is mailed to shareholders. 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. Sale Agreement with StroomX, LLC On December 7, 2021, the Company entered into a Sale Agreement with StroomX, LLC (the “ Purchaser ”), under which the Company agreed to sell all of the Company’s subsidiaries (the “ Learnin g Subsidiaries ”) involved in its learning business (the “ Learnin g Business ”), as well as any assets of the Learning Business that are not owned by the Learning Subsidiaries, to the Purchaser. In connection with the sale, the Purchaser agreed to assume all liabilities of the Learning Business, and to indemnify and hold the Company harmless from any such liabilities. The Purchaser is controlled by Christopher Rego, the Company’s current chief executive officer. Closing of the sale will occur after the closing of the Share Exchange. The sale of the Learning Business closed on March 18, 2022. As consideration for the purchase of the Learning Business, the parties agreed to offset $50,000 in severance due to Christopher Rego as part payment of the purchase price. The remainder of the purchase price was paid by a joint note executed by the Purchaser and Mr. Rego in the principal amount of $100,000, which is payable in full on April 20, 2022 without interest. Alternatively, the parties agreed that the promissory note may be satisfied in full by the delivery to the Company by the maturity date of the note of all shares of common stock owned by Mr. Rego and his spouse in the Company, provided that the number of shares is not less than 500,000. In the event the note is not paid in full by its maturity date, either in cash or shares, the note shall bear interest at 15% per annum until it is paid in full. 500,000 shares were returned to the transfer agent and cancelled as of May 12, 2022. Series A Preferred Stock February 24, 2022, the Company’s Board approved an amendment to its certificate of incorporation to designate a new series of preferred stock, which is known as the Series A Convertible Preferred Stock. Each share of Series A Preferred is convertible into 33.94971 shares of common stock of the Company, which entitles the holders thereof to 85% of the Company’s common stock upon a conversion of all shares of Series A Preferred, determined on a fully-diluted basis, but prior to any shares issued or issuable as a result of the Financing (as defined below). In addition, each share of Series A Preferred is entitled to dividends and voting rights on an “as converted” basis with the common stockholders. On April 20, 2022, holders of 2,464,784 shares of Series A Preferred agreed to convert their Series A Preferred into common stock, which resulted in the issuance of 83,678,702 shares of common stock. On the same date, the board of directors approved a resolution to exercise the Company’s right to mandatorily convert the remaining 129,809 shares of Series A Preferred into common stock, which resulted in the issuance of an additional 4,406,979 shares of common stock. 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. Our Business We have developed a consumer-facing app and Web-based platform that allows any automotive retailer the ability to provide a subscription to ownership “flexible-lease” model for any consumer, regardless of down payment or credit history, or for those who just do not want to make an immediate long term financial commitment, in an easy, transparent, and risk-free way for both the consumer and the retailer. 3 Under our “Drive Now, Decide Later” mantra, any consumer, regardless of credit, can go on our app, select a vehicle, sign for and pick it up, once approved, and have the subscription deal consummated in a matter of minutes. Unlike a vehicle sale or lease, a candidate that passes our detailed screening can be driving without making any long-term financial commitment, for as long as he/she wants, in the vehicle of choice. While there is really no such thing as “digital retailing” for the sale or lease of a vehicle in the U.S. today, as all states require actual “wet ink” signatures for documents either sent to the buyer or signed at a dealership, documents for a rental or subscription can all be legally signed digitally, so this process is quick, easy and can all be consummated in our app – with the vehicle delivered to the candidate. We are true digital retailing for the automotive industry. Unlike rental car companies, or even subscription companies available to US and Canadian consumers today, a DriveItAway vehicle subscription program is differentiated with one vital element, all of our drivers are given the option to buy the vehicle they are subscribing to, with the portion of the money they are paying in as rental fees “writing down” the purchase price, should they choose to buy. All drivers have the right, but not the obligation, to buy at any time, and get the benefit of his or her specific vehicle’s reduced purchase price created by the payments they have made for vehicle usage. 4 Just as Divvy Homes has revolutionized the rent-to-own market for houses during these cash-strained times, DriveItAway seeks to revolutionize how both new and used vehicles are sold, where a purchase transaction starts in a commitment-free rental or subscription. While we think this easy, transparent, and turnkey type of “Drive Now, Decide Later” subscription appeals to all potential vehicle buyers and will grow dramatically as the entire car market makes the transition to EV vehicles and we gain more visibility as an alternative in the marketplace, right now the “low hanging fruit” is indeed the subprime and deep subprime consumer, whose alternatives are limited to the bad choices outlined above. We use a technology partner to extensively screen our applicants through a digital process for background and identity, driving history and insurance risk, income verification, etc., but we do not require any threshold credit score. As long as an applicant has a clean driving record and adequate income, etc., he/she can qualify for one of our vehicles. In the current environment, the average new vehicle is selling for approximately $47,000 dollars while the average used vehicle is selling for approximately $28,000 with an average six-year payment of over $716. Our average vehicle usage/rental fees are priced a little higher (between $150-225 a week, not counting insurance) on a subscription, but our driver is writing down the ultimate purchase price with his/her usage payments while driving, and most all are working towards a buyout – when the amount written down is low enough that he/she can successfully finance the purchase. As our mission is defined, we get our credit-challenged customers off of the “gerbil wheel” of never-ending payments, and out of vehicles that break down before the payments are finished. In general, as banks and finance organizations are tightening up credit policies and increasing down payment requirements, particularly for subprime and deep subprime buyers as auto loan delinquencies increase, while vehicles have become higher in price relative to income, we see vehicle subscriptions at the same trajectory of growth today as consumer vehicle leasing was 25-30 years ago: a small percentage of “sales” now, but high growth in the years to come. We see our unique flexible lease to ownership model as the best subscription program for all consumers, as it offers the best of both the “walk away” ability of a turnkey monthly rental, but with the advantage of benefiting from the monthly usage payment reduction, should the driver choose to buy. DriveItAway works with franchise and larger independent dealers (not with Buy Here/Pay Here stores), and is primarily a turnkey subscription dealer platform, although we do act as principal in many cases owning our own vehicles, always serviced and delivered by our car dealership partners. This both creates revenue for DriveItAway, and demonstrates, in an “open book” environment, how dealers can best use our technology as software as a service, to run their own program, as DriveItAway was created to offer. During 2024, we secured a 2 million dollar line of credit to expand operating our own company owned vehicles. We also acquired inventory in the past year from a large under a fleet lease agreement with a large national fleet owner. This allows the company to scale rapidly in many locations, without the burden of fixed overhead or personnel expenses. How We Work Without the technology available in recent years, it would not be possible for DriveItAway to exist. Many years ago, when the Buy Here/Pay Here market first developed it was necessary for those dealers to maintain 30/40% net profit margins, as typically a third of their vehicles ended up being repossessed, and, by the time the dealer actually received the vehicle back, it was in such bad repair it was worth next to nothing. Today, with embedded app based technology, we can greatly reduce most of the risks, identify those problems that do occur quickly, and mitigate losses, so that we can maintain a high per-unit profit margin and still price very competitively as compared to other choices our retail customers might have, allowing for a good profit margin for ourselves and dealers that use us as a subscription/micro-lease platform. Note: most franchise dealers would like the extra profit and business deep subprime candidates represent (they have been, typically the most loyal and highest profit margin sector of vehicle buyers), particularly now when many “near prime” buyers are rapidly being reclassified as subprime, but do not want to deal with the typical problems a “Buy Here/Pay Here” operation represents, nor do they want to operate that type of “victimizing” enterprise. 5 First, our all in-app subscription process is not only quicker and much more transparent to our end user drivers, but it is also much easier to administer and maintain from an operational perspective. DriveItAway uses a third-party screening service to review an applicant’s identity and background, his/her driving history and insurance risk, income verification and employment, and credit tier. While we do not require any particular credit score, we do require a ratio of income to payment coverage for all renters, a clean driving history, and other criteria to mitigate risk. This automated screening process runs in the app with an API and is completed within minutes. Once a candidate qualifies for the vehicle selected, we collect a security deposit commensurate with the payment and value of the vehicle, and all drivers pay in advance by credit card or ACH inside the app. Before such technologies existed, in the old days of “Buy Here/Pay Here” the payment process was (and still is in many of these small stores), literally done in person on a weekly basis – obviously, there is a lot of collection friction in a manual process. One major key to what we do is the placement of advanced telematics on every vehicle we offer for subscription. All drivers in our subscription contract are informed and agree to have a live-time telematics device in each vehicle along with an ignition starter cut-off switch, which is tied back into our payment platform. With this, DriveItAway can monitor vehicle location, and driving pattern (speed versus speed limit, hard braking, etc.) and can set up a “red flag” monitor to identify unsafe driving. Unsafe driving is not tolerated and will result in a warning and possible vehicle return. In addition, the ignition starter cut-off switch automatically kills the start-up of the vehicle, if an advance payment is overdue (note: it does not in any way stop the vehicle while driving, but once the vehicle is shut off, it simply cannot be restarted, unless we “turn it back on”). This is not seen so much as a penalty, but a very explicit reminder that our driver must pay for the vehicle. Through our AI chat and automated system, a person can simply say when and what amount of payment they are prepared to make, and the vehicle will turn on, even if the payment commitment is in the future (we do not want to strand anyone or cause undue hardship). However, repeated late payments can result in a vehicle requiring a return. One note, our entire program is focused on keeping our subscribers who want to buy “on the rails” and that is made clear at inception. We work with our subscribers to help each achieve their goal of vehicle ownership. We counsel all of our subscribers that, indeed, one of the benefits of being in a weekly/monthly subscription is the fact that no long-term commitment is made, so if his/her financial situation changes and the vehicle is no longer affordable, simply turn it in (each is paying in advance), and preserve the ability to come back for a new vehicle in the future. Very clearly, without technology and integrations available in the last few years, a flexible lease to ownership platform such as DriveItAway could not exist. The fact that it does now, and we are introducing it into the market, enables us to achieve our mission to rationalize the one area of the automotive industry that has yet to become efficient and is filled with high-margin friction, the subprime and deep subprime Buy Here/Pay Here marketplace. The EV Landscape The DriveItAway program is uniquely designed to help alleviate the two biggest impediments to a mainstream or subprime EV sale, the higher cost (spread out over as long a period of time as required for our subscriber), and the “suitability” or anxiety of plunging into an EV sale. While the future of federal EV new and used incentives is uncertain, what is clear is that the transition from internal combustion to electric vehicles will continue, but at a slower pace, and stimulated by new ways of ownership, one of which, we believe, will be the DriveItAway flexible lease program. Also, during the past year used EV values continue to drop at a record pace, setting the stage for the DriveItAway platform to provide a turnkey profitable “safety valve” for a dealer’s used EV inventory creating income and sales. It is expected that in the coming quarters DriveItAway will also be able to leverage this dramatic drop in EV resale value by acting as principal in financing its own fleet of used EV vehicles and offering them at very affordable rates to its end user customers. Getting EVs in mainstream consumer hands in a beneficial, profitable way for all constituencies, “EVs for Everyone,” is another problem that we solve. 6 Key Industry Tailwinds and Foundation for Future Growth The year 2024 marked a dramatic shift in the automotive retail market, back to more “normal” conditions. Car dealers once again found themselves with an oversupply of vehicles, just as interest rates moved up to the highest level in decades, driving “floor plan” carrying costs much higher. At the same time, the average new and used vehicle sales prices did not come down significantly from historic highs of prior years, and finance institutions tightened credit and required higher down payment amounts, as delinquencies rose substantially. This has squeezed more and more “subprime” and “deep subprime” credit buyers out of the traditional market, leaving, again, few good personal vehicle purchase alternatives. During this time, your Company has continued to lay the foundation for rapid future growth. As for the last one hundred and twenty or so years vehicles have been for sale, there has almost always been more “supply” than “demand,” we worked past the current market anomaly and we prepared for the future by continuing to develop the processes, technology, and relationships that we feel will make DriveItAway the high growth leader in its emerging market. Highlights of the accomplishments of DriveItAway 2024 – · March 2024 – After a successful pilot test, DriveItAway announced its partnership with Partners Personnel, the 12th largest national staffing organization in the nation, to offer its micro-lease program to employees to help people get to work, as one of the largest employment problems for entry level employees is getting to and from the job, according to Kristy Gebhart, Regional Vice President and Chair for the Associate Resource Committee of Partners Personnel · April 2024 – DriveItAway announced that automotive retailers can use the DriveItAway technology, with fleet credit line options provided by Westlake Fleet, part of Westlake Financial, providing a comprehensive package for a turnkey dealership-based flexible lease program · May 2024 – DriveItAway secured a credit line of 2 million dollars, from a respected rental industry veteran, to fund its own fleet of vehicles for the DriveItAway platform, expanding its direct services and also serving as an introduction and demonstration to partner dealers on how the program works, to entice dealers to run their own fleet using DriveItAway technology · July 2024 – DriveItAway announced a partnership with Corporate Claims Management, one of the oldest and largest independent comprehensive fleet service and accident management companies in the US, for national vehicle maintenance, mechanical service and accident management for driver-focused quality fleet care · July 2024 – DriveItAway announced a partnership with Chapman Automotive Group, an eight location, multi-franchise dealership group in Pennsylvania and New Jersey, to supply new vehicles and to provide DriveItAway’s micro-lease to ownership program to Chapman store customers · September 2024 – DriveItAway announced a partnership with AllShifts, one of the highest rated national healthcare staffing firms in the US, to help on-demand nurses get to the job Long-Term Growth Strategy As macro developments of oversupply and affordability continue to create the automotive retail environment problems that the DriveItAway technology and platform was created to solve, and after creating the foundational relationships and technologies to scale, we look forward to further rapid growth and achievements in 2025. Your Company has a number of goals to further growth and be ready to leverage what we see will be a massive waive towards alternative ways to drive and then buy new and used vehicles, particularly by younger buyers in the 18-34 age range, who need transportation but lack the cash, credit, or even desire to immediately make a long term financial commitment to own one. 7 First, we want to substantially increase our credit line to operate our own fleet of vehicles, to both increase revenues, continue to improve our technology, and act as an “open book” example to car dealers that are interested in using our platform as software-as-a-service to operate a fleet and expand sales and market share. We see this as a unique competitive advantage of DriveItAway, in partnering with dealers to supply our own fleet, to show completely how our program works – we don’t just offer SaaS, we put our “money where our mouth is” in demonstrating the returns and advantages. At root, we are designed for and remain an SaaS tool for dealers, but as any new innovation, the best sales process is live demonstration. Second, we want to continue to make strong and deep industry alliances, not just with partner companies but with the best individuals in our sector of the market. In 2025, our goal is to have some of the best on a newly created Board of Advisors for your Company, and on our Board of Directors. Now that we have laid a firm foundation, we are looking for the best people to guide longer term strategy and growth, to fully leverage the massive opportunity we see before us. Third, we want to open up the vast new market of small commercial (non-gig) customers. Up until now your company has focused demand for individuals, particularly those who need a vehicle to get to and from work, in 2025 our goal is to expand this market to those who use their SUV, truck or van to work, not in a gig or rideshare capacity, but as a small fleet vehicle. There are over 3,275,000 vehicles used in small businesses in the US (Automotive News, March 2024), representing a market size of over $300B with anticipated growth CAGR of 5.59 during the next year (Precedence Research, Oct 2024). DriveItAway is now creating a strategic plan to address this large and fast-growing market with one of the leading experts in the fleet business, on how to address small commercial account needs with a flexible, pay as you go lease, with DriveItAway. As with subprime individuals, the credit criteria for conventional financing is very limited for these businesses, so DriveItAway sees a scalable, large opportunity to satisfy this need, in the same way it does for individuals, by de-risking the process for both the vehicle owner and the customer, that ultimately leads to more opportunity and sales. Employees As of September 30, 2024, we have 0 employees and 7 independent contractors. Some of our executive officers and directors are engaged in outside business activities that we do not believe conflict with our business. Over time, we may be required to hire additional employees or engage independent contractors to execute various projects that are necessary to grow and develop our business. These decisions will be made by our officers and directors, if and when appropriate. Corporate Information Our principal executive office is located at 3201 Market Street, Suite 200/201, Philadelphia, PA 19104. Our telephone number is (856) 577-2763. Our website is www.driveitaway.com. Our website’s information is not, and will not be deemed, a part of this Annual Report or incorporated into any other filings we make with the SEC. Available Information Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents that we will file with or furnish to the SEC will be available free of charge by sending a written request to our corporate headquarters. Additionally, the documents we file with the SEC are or will be available free of charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Other information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC’s website is www.sec.gov. We maintain a corporate website at www.driveitaway.com. You will be able to access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, proxy statements and other information to be filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material will be electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this Annual Report. 8 Item 1A. Risk Factors We are not required to provide this information as we are a smaller reporting company. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties On April 1, 2022, the Company leased virtual office space at 3201 Market Street, Suite 200/201, Philadelphia, PA 19104 for its corporate office. The lease had a term of one year and was renewed on a month-to-month basis until August 2024, when the office was closed. The Company is not obligated to pay rent.