The accompanying notes are an integral part of these
consolidated financial statements.
Notes to Consolidated
Financial Statements
September 30, 2022 and 2021
Note 1 – Organization, Description of
Business and Going Concern
Nature of Organization
DriveItAway Holdings, Inc.
(“DIA Holdings”, “the Company”, “we” or “us”) 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.
DIA
Holdings 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. 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 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.
Share Exchange and Reorganization
On February 24, 2022 (the “Effective Date”),
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 (the “Series A Preferred”) of the Company for each outstanding share of DIA common stock (the
“Share Exchange”). At the closing, the Company agreed to issue one share of Series A Preferred for each share of DIA common
stock that was subsequently issued in conversion of certain outstanding convertible notes of DIA, provided that the holders converted
their notes prior to December 31, 2022. All of the holders of the convertible notes of DIA agreed to convert their notes in March 2022
and were issued one share of Series A Preferred in exchange for the DIA common stock they acquired as a result of the conversion. A total
of 2,594,593 shares of Series A Preferred were issued in exchange for all of the outstanding shares of DIA, including DIA shares
issued at closing or shortly thereafter as a result of the exercise or conversion of all outstanding options or convertible notes issued
by DIA.
Recapitalization
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.
Going Concern
The Company’s financial statements are
prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States, applicable to a
going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During
the year ended September 30, 2022, the Company had a net loss of $1,475,365
1,446,015 and cash used in operating activities of $827,611.
As of September 30, 2022, the Company had an accumulated deficit of $2,380,759.
The Company has not established sufficient revenue to cover its operating costs and will require additional capital to continue its
operating plan. The ability of the Company to continue as a going concern depends on the Company obtaining adequate capital to fund
operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease
operations. These factors raise substantial doubt about its ability to continue as a going concern.
In order to continue as a going concern, the Company
will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company includes:
sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders
sufficient to meet its minimum operating expenses. However, management cannot provide any assurance that the Company will be successful
in accomplishing this plan.
There is no assurance that the Company will be able
to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company.
In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance
that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying audited consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented
have been reflected herein.
Basis of Consolidation
The consolidated
financial statements include the accounts of DriveItAway Holdings Inc. and its wholly owned subsidiary DriveItAway, Inc., collectively
referred to as the “Company”. All inter-company balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated 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 consolidated 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.
Cash and Cash Equivalents
The Company considers all highly liquid securities
with original maturities of three months or less when acquired, to be cash equivalents. As of September 30, 2022, and 2021, the Company
had cash of $127,109 and $9,774, respectively and did not have cash equivalents.
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 September 30, 2022, and 2021, are adequate, but actual write-offs could exceed the recorded allowance. As of September
30, 2022, and 2021, the balances in the allowance for doubtful accounts was $0.
Property and Equipment
Property and
equipment, consisting of vehicle are stated at cost. Depreciation expense is recognized
over the assets’ estimated useful lives of seven years using the straight-line method. Major additions and improvements
are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or
extend the life of the respective assets, are expensed as incurred. Estimated useful lives are periodically reviewed and, when appropriate,
changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment
assessment may be performed on the recoverability of the carrying amounts.
Financial
Instruments
The Company
follows ASC 820, “Fair Value Measurements and Disclosures”, which defines fair value 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 on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes
between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2)
an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy are described below:
Level
1
Level 1 applies
to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level 2 applies
to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted
prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level
3
Level 3 applies
to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
The carrying
amounts shown of the Company’s financial instruments including cash, accounts receivable, prepaid expense, accounts payable,
and accrued liabilities approximate fair value due to their short-term nature.
Derivative Financial Instruments
The fair value of an embedded conversion option that
is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round
protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”,
since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants
and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined
under ASC 815.
The accounting treatment of derivative financial instruments
requires that the Company record embedded conversion options and warrants at their fair values as of the inception date of the agreement
and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or
expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments
at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of
the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used
to estimate the fair value of the embedded conversion options and warrants. The model includes subjective input assumptions that can materially
affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of our common
stock, equal to the weighted average life of the options.
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 years ended September 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.
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 generates 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.
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.
General Advertising Costs
General advertising costs
are expensed as incurred. The Company incurred general advertising costs for the years ended September 30, 2022 and 2021 of
$33,883 and $9,256, respectively.
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.
Net Loss per Share
of Common Stock
The Company
calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic loss per share is computed by
dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common
stock are computed by dividing net earnings by the weighted average number of shares and potential shares outstanding during the period.
Potential shares of common stock consist of shares issuable upon the conversion of outstanding convertible debt, preferred stock, warrants
and stock option. For the years ended September 30, 2022, and 2021, the common stock equivalents were excluded from the computation of
diluted net loss per share as the result of the computation was anti-dilutive.
For the years ended September 30, 2022, and 2021,
respectively, the following common stock equivalents were excluded from the computation of diluted net loss per share as the result was
anti-dilutive.
Schedule of anti dilutive securities excluded from computation of earnings per share | |
| | | |
| | |
| |
September 30, | |
September 30, |
| |
2022 | |
2021 |
| |
Shares | |
Shares |
Series A Convertible Preferred Stock | |
| — | | |
| 78,084,333 | |
Convertible notes | |
| 59,389,535 | | |
| — | |
Warrants | |
| 1,125,000 | | |
| — | |
Total | |
| 60,514,535 | | |
| 78,084,333 | |
Reclassification
Certain accounts from prior periods have been reclassified to conform to
the current period presentation.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments Credit Losses —Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset
(or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, which includes
the Company’s accounts receivable. This ASU is effective for the Company for reporting periods beginning after December 15, 2022.
The Company is currently assessing the potential impact that the adoption of this ASU will have on its consolidated financial statements.
In August 2020, the FASB
issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40
“Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible
debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those
with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative,
and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial
premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. On October 1, 2021, the Company adopted
this standard on its consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, “Government
Assistance (Topic 832)” which enhances disclosure of transactions with governments that are accounted for by applying a grant
or contribution model. The new pronouncement requires entities to provide information about the nature of the transaction, terms and conditions
associated with the transaction and financial statement line items affected by the transaction. The standard must be adopted for
year ends beginning after December 15, 2021, with early adoption permitted. The Company plans to adopt the standard on October 1, 2022
and does not expect the adoption of this standard to have any material impact on its financial statements.
The Company has considered all other recently issued
accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial
statements.
Note 3 – Related Party Transactions
Related Party Convertible Notes Payable
On September 13, 2019, the Company issued a Convertible
Promissory Note to Driveitaway, LLC, a company controlled by John Possumato, the Company’s CEO, for $30,000, with a maturity date
of September 13, 2022. On October 13 and October 14, 2020, the Company issued Convertible Promissory Notes to Driveitaway, LLC and
Adam Potash, the Company’s COO, for $25,000 each, which mature on October 13 and 14, 2022, respectively. On December 24, 2020,
the Company issued a Convertible Promissory Note to Adam Potash, for $15,000, which matures on December 24, 2022. Each of the notes
bear interest at a rate of 6% per annum. The notes automatically convert into preferred stock of DIA in the event DIA raises
at least $1,000,000 by the issuance of preferred stock prior to the maturity dates of the notes (a “Qualified Financing”).
In the event DIA enters into a financing that is not a Qualified Financing prior to the maturity dates of the notes, the holders have
the right to convert their notes into the class and series of equity securities offered in the non-Qualified Financing at the offer price
thereof. In the event DIA effects a change of control, the holders have the option of converting their notes into common stock in order
to participate in the change of control or accelerating the maturity date and receiving cash at the time of the change of control.
At the closing of the Share Exchange on February 24,
2022, the holders of the related party Convertible Promissory Notes agreed to convert all of the principal of $95,000 and interest of
$9,565 due under the notes into 52,284 shares of DIA common stock, which was automatically converted into 52,284 shares
of Series A Preferred (see Note 6).
During the years
ended September 30, 2022 and 2021, the Company recorded interest expense for related parties of $2,296 and $5,379, respectively.
As of September 30, 2022 and 2021, the Company had accrued interest owed to related parties of $0 and $7,268, respectively.
Advances and Repayments
In the normal course of business, the Company’s management team or their affiliates will make payments
on behalf of the Company or will provide short-term advances to the Company to cover operating expenses. During the year ended September 30,
2022, related parties made payments on the Company’s behalf or provided short-term advances to the Company
totaling $3,435 and the Company made repayments to related parties of $3,355.
As of September 30, 2022 and 2021, the Company owed related parties $80 and $0, respectively, for this activity.
Note 4 - Note Receivable
A note receivable of $150,000 was issued to DriveItAway
Holdings in consideration for the sale of certain subsidiaries as a part of its recapitalization (see Note 6). The note receivable was
unsecured, due on April 20, 2022, and was to incur interest at 15% per annum, provided that the payor has the right to
satisfy the note in full by the return of 500,000 shares of the Company’s common stock for cancellation. In May 2022,
the payor under the note receivable satisfied $100,000 due under the note in full by returning 500,000 shares of the Company’s
common stock for cancellation (see Note 6). During the year ended September 30, 2022 the Company offset the remaining $50,000 due under
the note against accrued wages, therefore as of September 30, 2022 the Note Receivable balance was $0.
Note 5 – Vehicles
During the year ended September 30, 2022, the Company
purchased four (4) passenger vehicles for $157,864 and recorded depreciation of $8,436.
Note 6 – Equity
Authorized
On April 18, 2022, the Company filed Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of Delaware to authorize one billion (1,000,000,000) shares of common
stock having a par value of $0.0001 per share, and ten million (10,000,000) shares of preferred stock having a par value of $0.0001 per
share. All or any part of the capital stock may be issued by the Corporation from time to time and for such consideration and on such
terms as may be determined and fixed by the Board of Directors, without action of the stockholders, as provided by law, unless the Board
of Directors deems it advisable to obtain the advice of the stockholders.
Series A Preferred Stock
The Company has authorized one series of preferred
stock, which is known as the Series A Convertible Preferred Stock (the “Series A Preferred”). The Board has
authorized the issuance of 5,000,000 shares of Series A Preferred. The Series A Preferred Stock has the following rights and
preferences:
Dividends: The Series A Preferred Stock is
entitled to receive non-cumulative dividends equal to the amount of dividends that the holder of such share would have received if such
share of Series A Preferred Stock were converted into shares of Common Stock immediately prior to the record date of the dividend declared
on the Common Stock.
Liquidation Preference: The Series A Preferred
Stock is entitled to receive, prior to any distribution to any junior class of securities, an amount equal to $0.01 per share as a liquidation
preference before any distribution may be made to the holders of any junior security, including the Common Stock.
Voting Rights: Each holder of Series A
Preferred Stock shall vote with holders of the Common Stock upon any matter submitted to a vote of shareholders, in which event it shall
have the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock would be convertible
on the record date for the vote or consent of shareholders. Each holder of Series A Preferred Stock shall also be entitled to one vote
per share on each submitted to a class vote of the holders of Series A Preferred Stock.
Voluntary Conversion Rights: Each share
of Series A Preferred Stock is convertible into 33.94971 shares of Common Stock at the option of the holder thereof.
Mandatory Conversion Right: The Company
has the right to convert each share of Series A Preferred Stock into 33.94971 shares of Common Stock at any time that there are less than
200,000 shares of Series A Preferred Stock outstanding.
During the year ended September 30, 2021, the Company
issued 300,000 shares of DIA common stock which was automatically converted into 300,000 shares of Series A Preferred
at the closing of the Share Exchange on February 24, 2022. The shares were issued to a consulting firm pursuant to one year consulting
agreement and valued at $692,308. Stock-based compensation expense related to this issuance for the years ended September 30, 2022 and
2021 was $288,461 and $403,847, respectively, and was included in general and administrative expense.
During the year ended September 30, 2022, the Company
issued 294,593 shares of DIA common stock which was automatically converted into 294,593 shares of Series A Preferred
at the closing of the Share Exchange on February 24, 2022. The preferred stock is reflected retroactively for all periods presented.
|
● |
52,284 shares issued for conversion of debt – related party and accrued interest of $104,565 |
|
|
|
|
● |
129,809 shares issued for conversion of debt and accrued interest of $288,458 |
|
|
|
|
● |
112,500 shares issued for exercise of stock option - related party as stock-based compensation to related parties of $84,375 |
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.
As of September 30, 2022, and 2021, the Company had 0 and 2,300,000 shares
of Series A Preferred stock outstanding, respectively.
Common Stock
Reorganization
On February 24, 2022, the Company recognized the equity
of DIA Holdings as part of the reorganization which resulted in the Company recognizing the issuance of 13,716,041 shares of
common stock and 15,100 shares of treasury stock, at a value of $130,381.
The following table summarizes the assets acquired,
and liabilities assumed at the acquisition date of February 24, 2022:
Schedule of assets acquired and liabilities assumed | |
| | |
Cash | |
$ | 70,360 | |
Note receivable (Note 4) | |
| 150,000 | |
Accounts payable and accrued liabilities | |
| (89,979 | ) |
Net assets acquired and liabilities assumed | |
$ | 130,381 | |
On February 24, 2022, the Company issued 4,000,000 shares
of common stock valued at $65,274 for commitment fees in conjunction with the issuance of promissory note of $750,000 (see Note
8).
On April 20, 2022, the Company issued 88,085,681 shares
of common stock as a result of the conversion of 2,594,593 shares of Series A Preferred Stock, as discussed in more detail above.
In May 2022, 500,000 shares were returned
for cancellation to satisfy a note receivable in the amount of $100,000 (see Note 4).
As of September 30, 2022, and 2021, the
Company had 105,301,722
and 0 common
shares issued, respectively.
Treasury stock
The Company
records treasury stock at cost. Treasury stock is comprised of shares of common stock purchased by the Company in the secondary market.
As of September 30, 2022, and 2021, the Company had 15,100 and 0 shares of treasury stock valued at $18,126 and $0,
respectively.
Stock Options
On June 12, 2020, DIA’s Board of Directors and
its shareholders approved its 2020 Equity Compensation Plan (“Equity Plan”). The Equity Plan permits DIA to issue awards or
options to the employees, directors, consultants and advisors who provide services to the Company or a subsidiary. Pursuant to the Equity
Plan, 400,000 shares of DIA’s common stock were reserved for issuance. The Equity Plan allows DIA’s board or a committee
of the board to issue grants of incentive stock options, nonqualified stock options, stock awards, stock units, stock appreciation rights
and other equity-based awards.
As of September 30, 2021, DIA had 300,000 stock
options outstanding under the Equity Plan to Messrs. Possumato, CEO, and Potash, COO in equal amounts, of which 93,750 had vested.
At the closing of the Share Exchange on February 24, 2022, 112,500 of the stock options had vested and Messrs. Possumato and Potash each
agreed to each exercise their 56,250 vested stock options issued to them. The options were converted into 112,500 shares
of DIA common stock, which was automatically converted into 112,500 shares of Series A Preferred. The balance of the stock options
issued to Messrs. Possumato and Potash were cancelled. The stock options had an exercise price of $0.75 per share. In lieu of paying
the exercise price in cash, the exercise price was offset against accrued wages of $42,188 owed to each of Messrs. Possumato and
Potash.
Also, at the closing of the Share Exchange, DIA’s
board cancelled the Equity Plan and all outstanding options were cancelled.
As of September 30, 2021, DIAH had 2,177,571 options
outstanding, of which 1,882,793 expired during the year ended September 30, 2022 and 294,778 were exercised in a cashless exchange for
155,103 common shares.
Accordingly, as of September 30, 2022 the Company
had no options outstanding.
Warrants
On February 24, 2022, in conjunction with the issuance
of a promissory note of $750,000, the Company issued 1,000,000 warrants for $0.30 per share. The transaction led to no
explicit limit to the number of shares to be delivered upon future settlement of the conversion options (see Note 8), therefore the warrants
qualified for derivative accounting and were assigned a value of $107,283 which was recorded as a derivative liability and debt discount.
The warrants expire on February 24, 2027.
In June 2022, in conjunction with a private offering
and the issuance of secured promissory notes of $250,000 (see Note 8), the Company issued 125,000 warrants for $0.30 per
share, which also qualified for derivative accounting and were assigned a value of $8,136 which was recorded as a derivative liability
and debt discount. The warrants expire in June 2027.
All warrants issued were valued using the Black-Scholes
pricing model. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free
interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these
inputs could produce a significantly higher or lower fair value measurement (see Note 9).
A summary of warrant activity during the year ended
September 30, 2022 is as follows:
Summary of common stock warrants activity | | |
| | | |
| | | |
| | |
| |
Warrants | |
Weighted-Average | |
Weighted-Average |
| |
Outstanding | |
Exercise Price | |
Life (years) |
Balance as of September 30, 2021 | | |
| — | | |
$ | — | | |
| — | |
Issuance | | |
| 1,125,000 | | |
$ | 0.30 | | |
| | |
Exercised | | |
| — | | |
$ | — | | |
| | |
Expired | | |
| — | | |
$ | — | | |
| | |
Balance as of September 30, 2022 | | |
| | |
$ | 0.30 | | |
| 4.44 | |
The intrinsic
value of the warrants as of September 30, 2022, is $0. All of the outstanding warrants are exercisable as of September 30, 2022.
Note 7 – Notes Payable
PPP Loan
On April 28, 2020, the Company was granted a loan
(the “Loan”) from First Bank of the Lake in aggregate amount of $23,750, pursuant to the Paycheck Protection Program (the
“PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a
Note dated May 9, 2020 was to mature on May 8, 2022 and bear interest at a rate of 1% per annum, payable monthly commencing
seven months from the date of the note, unless forgiven in whole or part in accordance with the CARES Act. The Note may have been prepaid
by the Borrower at any time prior to maturity with no prepayment penalties. In order to qualify for forgiveness under the CARES Act, funds
from the Loan could only be used for payroll costs, cost used to continue group health care benefits, mortgage payments, rent, utilities
and interest on other debt obligations incurred before February 15, 2020 (“qualifying expenses”). The Company used the entire
Loan amount for qualifying expenses, therefore, in December 2021, the PPP Loan of $23,750 and accrued interest of $398 were
forgiven and recognized as other income. During the year ended September 30, 2022 and 2021, the Company recorded interest expense of $59
and $237, respectively.
SBA Loan
On June 3, 2020, the Company entered into a SBA Loan
for $78,500 at a rate of 3.75%. On August 12, 2021 the loan increased to $114,700 and the Company obtained $36,200 on
October 8, 2021. The SBA Loan requires payments starting 30 months from the initial funding date and matures on June 7, 2050. During
the years ended September 30, 2022 and 2021, the Company recorded interest expense of $4,272 and $2,944, respectively, on the SBA
Loan and as of September 30, 2022 and 2021, the accrued interest on the SBA Loan was $8,175 and $3,903, respectively.
Note 8 – Convertible Notes Payable
Knightsgate Ventures II, LP Note
On April 1, 2021, DIA borrowed $150,000 in Convertible
Notes from Knightsgate Ventures II, LP, a third-party lender at a rate of 8%. The loan matures on December 31, 2022.
The Convertible Note automatically converts into preferred
stock of DIA in the event DIA raised at least $2,000,000 by the issuance of preferred stock prior to the maturity date of the Convertible
Note (a “Qualified Financing”), in which case the conversion price is equal to the lesser of (i) 90% of the price paid by
investors in the Qualified Financing or (ii) the price obtained by dividing $6,000,000 by the Company’s fully diluted shares outstanding
immediately prior to conversion (the “Cap Price”). In the event DIA had not entered into a Qualified Financing prior to the
maturity date, the Convertible Note is convertible at the option of the holder into DIA common stock on the Maturity Date at a price per
share equal to the Cap Price. In the event DIA effects a change of control, the holder has the option of converting the Convertible Note
into DIA’s common stock at a price per share equal to the Cap Price or accelerating the maturity date and receiving cash at the
time of the change of control.
Effective February 24, 2022, principal of $250,000
and accrued interest of $10,816 was converted into 72,368 shares of DIA’s common stock, which was automatically converted into 72,368
shares of the Company’s Series A Preferred stock in accordance with the Share Exchange Agreement (see Note 6), resulting in $0 owed
to the lender as of September 30, 2022.
During the years ended September 30, 2022 and 2021,
the Company recorded interest expense for the note of $4,833 and $5,983, respectively.
Individual Investor Notes
During the year ended September 30, 2022, DIA issued
an aggregate of five convertible notes to five investors, each for $25,000. The notes bear interest at a rate of 8% per annum, mature
on December 31, 2022, and are convertible into DIA’s common stock on the same basis that is described for the Convertible Note
issued to Knightsgate Ventures II, LP on April 1, 2021, as described above. During the year ended September 30, 2022 the Company recorded
interest expense of $2,641 on the notes.
In March 2022, the holders of all of the convertible
notes issued to unrelated investors agreed to convert their notes of $125,000 and accrued interest of $2,641 into 57,441 shares
of DIA’s common stock, each of which was automatically converted into one share of Series A Preferred stock in accordance with the
Share Exchange Agreement (see Note 6), resulting in $0 owed to the investors as of September 30, 2022.
AJB Capital Investments, LLC Note
Effective February 24, 2022,
the Company entered into a Securities Purchase Agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”),
and issued a Promissory Note in the principal amount of $750,000 (the “AJB Note”) to AJB in a private transaction for
a purchase price of $675,000 (after giving effect to a 10% original issue discount). In connection with the sale of the AJB Note,
the Company also paid $33,750 in certain fees and due diligence costs of AJB and brokerage fees to J.H. Darbie & Co., a registered
broker-dealer. After payment of the fees and costs, the net proceeds to the Company were $641,250, which will be used for working capital
and other general corporate purposes.
The maturity date of the
AJB Note was extended to February 24, 2023. The AJB Note bears interest at 10% per annum for the original note’s period
and 12% per annum for extension period which was started from August 24, 2022, and it is payable on the first of each month beginning
April 1, 2022. The Company may prepay the AJB Note at any time without penalty.
The note is convertible into Common Stock of the Company
at any time that the note is in default, provided that at no time may the note be convertible into an amount of common stock that would
result in the holder having beneficial ownership of more than 4.99% of the outstanding shares of common stock, as determined in accordance
with Section 13(d) under the Securities Exchange Act of 1934 (the “Exchange Act”). The conversion price equals the lowest
trading price during either the 20 days trading days prior to the date of conversion or the 20 trading days prior to the date of issuance
of the note (which was $0.14 per share). The conversion is subject to reduction in the following situations: (i) a 10% discount will apply
anytime a conversion occurs when the company is not eligible to deliver the shares by DWAC; (ii) a 15% discount will apply whenever the
shares are “chilled” for deposit into the DTC system; (iii) a 15% discount will apply if the Company’s common stock
ceases to be registered under Section 12 of the Exchange Act; (iv) a 15% discount will apply if the note cannot be converted into free
trading shares 181 days after its issue date; (v) in the event any other party has the right to convert debt into Common Stock at a greater
discount to market than under the note, then the holder has the right to utilize such discount in determining the conversion price; or
(vi) if the Company issues any shares of Common Stock for less than the conversion price in effect on the date of issuance, including
any options, warrants or securities convertible into Common Stock at price less than the conversion price, then the conversion price shall
be automatically reduced to the amount of consideration received by the company for such shares, except for any issuance that is an exempt
issuance.
Also pursuant to the SPA,
the Company was to pay AJB a commitment fee of $800,000, payable in the form of 4,000,000 unregistered shares of the Company’s
common stock (the “Commitment Fee Shares”) which were issued at note inception. If, after the sixth month anniversary of closing
and before the thirty-sixth month anniversary of closing, AJB has been unable to sell the Commitment Fee Shares for $800,000, then the
Company may be required to issue additional shares or pay cash in the amount of the shortfall. However, if the Company pays the AJB Note
off on or before its maturity date, then the Company may redeem 2,000,000 of the Commitment Fee Shares for one dollar and the
amount of the commitment fee will be reduced to $400,000. On issuance of the note, the Company determined that the guarantee on the commitment
fee was a make-whole provision and an embedded derivative within the host instrument. The guarantee was bifurcated from the host instrument
and recorded as a derivative liability valued at $384,287 using a Black-Scholes option pricing model (see Note 9).
Pursuant to the SPA, the
Company also issued to AJB common stock purchase warrants (the “warrants”) to purchase 1,000,000 shares of the Company’s
common stock for $0.30 per share, which was assigned a value of $107,283 that was recorded as derivative liability. The warrants
expire on February 24, 2027. The warrants also include various covenants of the Company for the benefit of the warrant holder and
includes a beneficial ownership limitation on the holder that, in certain circumstances, may serve to restrict the holder’s right
to exercise the warrants.
After
recording the derivative liabilities associated with the SPA, the Company allocated the net proceeds to the 4,000,000
common shares issued and the note itself based on their relative fair market values, resulting in the common shares being
assigned a value of $65,274
(see Note 6). The allocation of the financing costs of $108,750,
the derivative for the guarantee of $384,287,
the derivative for the warrant of $107,283,
and issuance of the 4,000,000
Commitment Fee shares of $65,274,
to the debt component resulted in a $665,594 debt
discount that is being amortized to interest expense over the term of the AJB Note.
During the year ended September 30, 2022, the Company
recorded interest expense of $46,958, amortization of debt discount of $665,594, a gain on change in fair value of derivative liability
of $393,641 for the guarantee and warrants and repaid $45,203 of interest. As of September 30, 2022, the derivative liability was
$97,927 and the debt discount recorded on the note was $0, resulting in a note payable balance of $750,000. As of September 30, 2022,
the Company owes unpaid interest of $1,755.
Secured Convertible Notes
In June 2022,
the Company’s board of directors approved an offering of up to 10 Units at $50,000 per Unit in a private offering.
Each Unit consists of a Secured Convertible Note with an original principal balance of $50,000 and one warrant to purchase Common
Stock for every $2 invested in the offering. The warrants have an exercise price of $0.30 per share and expire five (5) years
from the date of issuance (see Note 7). Each Secured Convertible Note bears interest at 15% per annum, matures two years after
the date of issuance, and is convertible at the option of the holder into common stock at $0.20 per share. Pursuant to a security
agreement between the Company and investors in the Unit offering, and the subscription agreements executed by the Company and the investors,
the Secured Convertible Notes are secured by lien on two existing electric vehicles that were owned by the Company at the time of the
commencement of the offering, and eight additional electric vehicles that will be purchased with the proceeds of the offering, assuming
all 10 Units are sold in the offering. The Company also granted subscribers in the Unit offering piggyback registration rights with respect
to any shares of common stock issuable upon conversion of the Secured Convertible Notes or upon exercise of the warrants issued in the
Unit offering.
During June
2022, the Company sold a total of $250,000 worth of Units to two accredited investors, which resulted in the issuance of two secured
promissory notes with an aggregate principal amount of $250,000 for cash proceeds of $230,000, and the issuance of 125,000 warrants.
The conversion option embedded in the notes was bifurcated and accounted for as a derivative liability resulting in the Company
recording a debt discount and derivative liability of $50,491. The allocation of
the warrant to the debt component resulted in the Company recording a debt discount and derivative liability of $8,136. The total debt
discount of $58,627 is being amortized to interest expense over the term of the Note.
During the year ended September 30, 2022, the Company
recorded interest expense of $11,583, and amortization of debt discount of $11,967. As of September 30, 2022, the debt discount recorded
on the note was $66,660, resulting in a note payable balance of $183,340. As of September 30, 2022, the Company owed accrued interest of $11,583.
Note 9 – Derivative Liabilities
As discussed in Note 8, certain features and instruments
issued as part of the Company’s debt financing arrangements qualified for derivative accounting under ASC 815, Derivatives
and Hedging, as the number of common shares that are to be issued under the arrangements are indeterminate, therefore the Company’s
equity environment is tainted.
ASC 815 requires we record the fair market value of
the derivative liabilities at inception and at the end of each reporting period and recognize any change in the fair market value as other
income or expense item.
The Company determined our derivative liabilities
to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair values at inception and as of September
30, 2022. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest
rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs
could produce a significantly higher or lower fair value measurement. The following assumptions were used in the Black-Scholes model during
the year ended September 30, 2022:
Expected term | |
| 1.68 - 5.00 years | |
Expected average volatility | |
| 109% - 117% | |
Expected dividend yield | |
| — | |
Risk-free interest rate | |
| 1.73% - 4.25% | |
At September 30, 2022, the estimated fair values of the liabilities measured
on a recurring basis are as follows (level 3):
Commitment
fee guarantee issued February 24, 2022 |
|
$ |
71,162 |
|
Warrants
issued February 24, 2022 |
|
|
26,767 |
|
Embedded
conversion feature in Note issued June 3, 2022 |
|
|
5,122 |
|
Warrants
issued June 3, 2022 |
|
|
1,393 |
|
Embedded
conversion feature in Note issued June 16, 2022 |
|
|
8,464 |
|
Warrants
issued June 16, 2022 |
|
|
2,101 |
|
Derivative
liability balance - September 30, 2022 |
|
$ |
115,009 |
|
The following table summarizes the changes in the
derivative liabilities during the year ended September 30, 2022:
Schedule of derivative liabilities | |
| | |
Derivative liability balance - September 30, 2021 | |
$ | — | |
Addition of new derivatives recognized as debt discounts | |
| 550,197 | |
Gain on change in fair value of the derivative | |
| (435,188 | ) |
Derivative liability balance - September 30, 2022 | |
$ | 115,009 | |
Note 10
– Income Taxes
The Company provides for income taxes under ASC 740,
“Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on
the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences
are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company
will not realize tax assets through future operations.
The components of the Company’s deferred tax
asset and reconciliation of income taxes computed at the statutory rate of 31% to the income tax amount recorded as of September
30, 2022 and 2021 are as follows:
Schedule of Components of Deferred Taxes | |
| |
|
| |
Years Ended |
| |
September 30, |
| |
2022 | |
2021 |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carryover | |
$ | 570,300 | | |
$ | 895,972 | |
Accrued payroll | |
| 1,200 | | |
| | |
Allowance for bad debt | |
| | | |
| (165,028 | ) |
Charitable contributions | |
| | | |
| 127 | |
Stock-based compensation | |
| | | |
| 87,675 | |
Foreign tax credit | |
| | | |
| 171,314 | |
Deferred tax liabilities: | |
| | | |
| | |
Depreciation | |
| (7,200 | ) | |
| (44,081 | ) |
ASC 606 adjustment | |
| | | |
| (797,356 | ) |
Valuation allowance | |
| (564,300 | ) | |
| (148,623 | ) |
Net deferred tax asset | |
$ | | | |
$ | | |
The income tax provision differs from the amount
of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended
September 30, 2022 and 2021, due to the following:
Schedule of Reconciliation of Income Tax Provision | |
| |
|
| |
Years Ended |
| |
September 30, |
| |
2022 | |
2021 |
Income tax provision at statutory rates | |
$ | (457,400 | ) | |
$ | (432,500 | ) |
Depreciation | |
| (7,200 | ) | |
| | |
Meals and entertainment | |
| 400 | | |
| 700 | |
Related party accruals | |
| (2,200 | ) | |
| | |
Accrued payroll | |
| (4,400 | ) | |
| | |
Stock-based compensation | |
| 89,400 | | |
| | |
Interest expense | |
| 22,500 | | |
| | |
(Gain) loss on extinguishment of debt | |
| (7,500 | ) | |
| | |
Amortization of debt discount | |
| 210,100 | | |
| | |
Change in fair value of derivative liability | |
| (134,900 | ) | |
| | |
Valuation allowance | |
| 291,200 | | |
| 431,800 | |
Total income tax provision | |
$ | | | |
$ | | |
The net operating losses (“NOLs”) carry
forwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382.
The Company experienced a change in control for tax purposes in February 24, 2022. Due to change of control, the Company estimates not
being able to carryover approximately $1,700,000 of NOL generated before February 24, 2022 to offset future income.
At September 30, 2022, the Company had approximately
$1,840,000
of net operating loss carryforwards that may be offset against future taxable
income. No tax benefit has been reported in the September 30, 2022 consolidated financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount. Tax returns for the years ended 2019 and forward are subject to review by the tax
authorities.
Note 11 – Subsequent Events
Management has evaluated subsequent events through
the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require
disclosure.
On October 17, 2022, the Company entered
into an advisory agreement. The term of contract is three months and the Company was to pay an initial fee of $5,000
and issue 250,000
restricted shares of common stock.
On October 31, 2022, the Company and AJB Capital Investments,
LLC entered into a first amendment to SPA (see Note 8). Pursuant to terms in first amendment, the Company agreed to issue to AJB an additional
1,000,000 Commitment Fee Shares. According to first amendment, if the Company pays the AJB Note off on or before its maturity date, then
the Company may redeem 2,500,000 of the Commitment Fee Shares for one dollar and the amount of the commitment fee will be reduced
from the original $800,000 to $400,000.
On November 15, 2022, the Company issued 15% secured convertible note of
$100,000 with 50,000 warrants each to two investors.