10-Q: DriveItAway Q3 Loss Soars Amid Rising Costs

DriveItAway Holdings, Inc. reported a significant increase in net loss for the quarter ended June 30, 2025, driven by higher operating expenses and a substantial loss from derivative liabilities, despite strong revenue growth.

Summary

• Net loss for the three months ended June 30, 2025, was $3,991,314, a 669% increase from $518,847 in the prior year period.
• Net loss for the nine months ended June 30, 2025, was $3,982,809, a 133% increase from $1,710,105 in the prior year period.
• Revenues for the three months ended June 30, 2025, increased 93% to $206,212 from $106,871 in the prior year period.
• Revenues for the nine months ended June 30, 2025, increased 122% to $659,208 from $296,595 in the prior year period.
• Gross profit for the three months ended June 30, 2025, significantly decreased by 96% to $1,760 (1% gross profit percentage) from $43,828 (41% gross profit percentage) in the prior year period.
• Gross profit for the nine months ended June 30, 2025, increased 155% to $174,399 (26% gross profit percentage) from $68,370 (23% gross profit percentage) in the prior year period.
• Operating expenses for the three months increased 141% to $335,229, and for nine months increased 94% to $865,736.
• The company's working capital deficiency worsened by 98% to $(8,597,826) as of June 30, 2025, from $(4,335,188) as of September 30, 2024.
• Cash balance decreased by 45% to $18,392 as of June 30, 2025, from $33,588 as of September 30, 2024.
• The derivative liability increased significantly to $3,986,354 as of June 30, 2025, from $1,386,014 as of September 30, 2024, contributing to a large non-cash loss.
• Multiple promissory notes and convertible notes are in default, totaling $450,000 in defaulted convertible notes and $62,500 in defaulted promissory notes as of June 30, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a significant going concern warning, rapidly increasing net losses, a deteriorating working capital position, and multiple debt defaults. While revenue growth is positive, the sharp decline in gross profit margin in the most recent quarter and reliance on dilutive and complex financing instruments indicate an unsustainable operational model without substantial, immediate, and effective intervention.

Positives

• Revenue increased by 93% for the three months and 122% for the nine months ended June 30, 2025, indicating strong top-line growth.
• Gross profit percentage for the nine months ended June 30, 2025, improved to 26% from 23% in the prior year period.
• Net cash used in operating activities significantly decreased to $(260,973) for the nine months ended June 30, 2025, from $(830,047) in the prior year period, indicating improved operational cash efficiency.
• The company is planning to expand its consumer app subscription to ownership platform to enable entry-level consumers to drive and acquire new Electric Vehicles.

Negatives

• Net loss increased by 669% for the three months and 133% for the nine months ended June 30, 2025, primarily due to a substantial non-cash loss on derivative liabilities.
• Gross profit for the three months ended June 30, 2025, plummeted by 96% to $1,760, with the gross profit percentage falling to 1% from 41% in the prior year period.
• Operating expenses increased significantly by 141% for the three months and 94% for the nine months ended June 30, 2025.
• The company's working capital deficiency nearly doubled to $(8,597,826) as of June 30, 2025.
• Cash on hand decreased by 45% to $18,392, indicating severe liquidity constraints.
• Multiple promissory notes and convertible notes are in default, totaling $450,000 in defaulted convertible notes and $62,500 in defaulted promissory notes as of June 30, 2025.
• The derivative liability increased by over 187% to $3,986,354, leading to a significant non-cash loss of $3,416,822 for the three months and $2,504,840 for the nine months ended June 30, 2025.
• Net cash provided by financing activities decreased by 57.6% for the nine months ended June 30, 2025, compared to the prior year period.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring net losses and insufficient capital to fund operating losses.
• Inability to obtain adequate additional capital through sales of equity instruments, traditional financing, or contributions from management and significant stockholders on satisfactory terms.
• Profitability is not assured and depends on achieving sufficient revenue levels.
• Material weaknesses in internal control over financial reporting, including an inadequate control environment, lack of risk assessment procedures, no formal information/communication process, and no monitoring activities.
• Lack of policies that require formal written approval for related party transactions.
• Absence of controls to prevent individuals from manipulating financial data or entering inaccurate data into accounting software, and no controls over the financial reporting close process.
• Lack of segregation of duties and review procedures to ensure financial data accuracy.
• Risk of default on various promissory and convertible notes, some of which are already in default, potentially leading to accelerated repayment demands or further financial penalties.
• The complex nature of derivative financial instruments and their valuation, which includes subjective input assumptions that can materially affect fair value estimates and reported non-cash losses.
• Dependence on the automotive supply and demand returning to historically normal levels for vehicle availability on the platform.

Future Outlook

The company anticipates that in 2025, automotive supply and demand will continue to return to more historically normal levels, which should lead to greater vehicle availability on its platform and a further increase in revenues. It also plans to expand its consumer app subscription to ownership platform to enable entry-level consumers to drive and acquire new Electric Vehicles.

Management Comments

• "We anticipate that, in 2025 automotive supply and demand will see a continuing return to more historically normal levels which should translate into greater vehicle availability for vehicles on our platform, leading to a further increase in revenues."
• "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."
• "Management believes that despite our material weaknesses, our condensed consolidated financial statements for the quarter ended June 30, 2025 are fairly stated, in all material respects, in accordance with GAAP."

Industry Context

DriveItAway operates in the automotive rental and mobility platform industry, focusing on enabling car dealers to sell vehicles via e-commerce through a 'Pay as You Go' app-based subscription program. The company's strategy to expand into electric vehicle acquisition for entry-level consumers aligns with broader industry trends towards EV adoption and flexible vehicle ownership models. However, the company's significant losses and liquidity issues suggest it is struggling to scale profitably within this competitive and capital-intensive sector, potentially lagging behind more established or better-funded mobility solutions.

Corporate Governance

Legal Proceedings

• Not currently involved in any litigation believed to have a material adverse effect on financial condition or results of operations.
• No action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or threatened against the company, its common stock, subsidiaries, officers, or directors that could have a material adverse effect.

Related Party Transactions

• Owed related parties for an unsecured, non-interest-bearing advance of $26,380 as of June 30, 2025 ($25,080 as of September 30, 2024).
• Entered into three promissory note agreements with three related parties on March 1, 2023, for a total of $50,000 with 15% interest and 100,000 warrants.
• Reclassified one promissory note with a value of $7,500 from 'Promissory notes payable – related party' to 'Promissory notes payable' during the nine months ended June 30, 2025, as the note holder is no longer considered a related party.
• The amount due to related parties for Promissory notes payable was $42,500 as of June 30, 2025.
• Recorded related party interest expense of $2,120 for the nine months ended June 30, 2025 ($6,358 for the nine months ended June 30, 2024).

Stakeholder Impact

• Shareholders face significant dilution risk due to ongoing issuance of common stock and warrants for financing, coupled with substantial accumulated deficit and recurring losses eroding shareholder equity. The explicit 'going concern' warning indicates a high risk of value impairment or even cessation of operations.
• Creditors are exposed to high credit risk as multiple promissory and convertible notes are in default, indicating the company's inability to repay debts as they mature, which could lead to further financial penalties or legal actions.
• Employees may face job insecurity or operational instability due to the company's precarious financial position and the 'going concern' warning.
• Customers could experience potential service disruption or reduced quality if the company's financial health deteriorates further, although the filing emphasizes continued operations.
• Suppliers face a risk of delayed or non-payment for goods and services due to the company's severe liquidity constraints.

Next Steps

• Obtain additional capital resources through sales of equity instruments, traditional financing, and contributions from management and significant stockholders to fund operations and meet capital requirements.
• Continue efforts to increase vehicle availability on the platform to drive further revenue growth.
• Expand the consumer app subscription to ownership platform to include new Electric Vehicles.
• Address identified material weaknesses in internal control over financial reporting, including improving the control environment, implementing risk assessment procedures, formalizing information/communication processes, and enhancing monitoring activities.

Key Dates

Recommendation

The company is in severe financial distress, explicitly stating 'substantial doubt about its ability to continue as a going concern.' It has a rapidly expanding net loss, a plummeting gross profit margin in the most recent quarter, and a worsening working capital deficiency. Multiple debt instruments are in default, and the company relies heavily on highly dilutive and complex financing arrangements that generate significant non-cash losses from derivative liabilities. The identified material weaknesses in internal controls over financial reporting further compound the risk, indicating a lack of fundamental financial governance. While revenue growth is present, it is overshadowed by unsustainable costs and a critical liquidity crisis, making the stock a high-risk investment with significant downside potential.

Keywords

Automotive Mobility, Car Rental, Vehicle Subscription, Pay-As-You-Go, SEC Filing, 10-Q, Financial Results, Going Concern, Derivative Liability, Liquidity, Debt Default, Electric Vehicles, Dealership Platform