Notes to Unaudited Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Daniels Corporate
Advisory Company, Inc. (“Daniels” or the Company) was incorporated in the State of Nevada on May 2, 2002. The Company
creates and implements corporate strategy alternatives for mini-cap public and private companies.
The Company formed
Payless Truckers, Inc. (“Payless”), a wholly-owned subsidiary which was incorporated in the State of Nevada, on April
11, 2018. Payless is a start-up trucking company whose principal business is to acquire, refurbish, add location electronics, advertise
and sell commercial vehicles to drivers and transportation focused customers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
We have prepared
the accompanying consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange
Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America.
We believe these consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are
necessary for a fair presentation of our consolidated financial position and consolidated results of operations for the periods
presented. Such rules and regulations allow us to condense and omit certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. We
believe these condensed consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments)
that are necessary for a fair presentation of our consolidated financial position and consolidated results of operations for the
periods presented.
Principles of Consolidation:
The accompanying
unaudited consolidated financial statements include the accounts of the Company and all its subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
Election to be treated as an emerging growth company:
For the five-year
period starting in the first quarter of 2012, Daniels if continuing eligibility applies has elected to use the extended transition
period now available for complying with new or revised accounting standards under Section 102(b) (1). This election allows
Daniels to delay the adoption of new or revised accounting standards that have different effective dates for public and private
companies until those standards apply to private companies. As a result of the Company still being eligible, the Daniels
financial statements may not be comparable to companies that comply with public company effective dates.
FASB Codification:
In
June 2009, the FASB issued ASC 105,
Generally Accepted Accounting Principles,
("Codification") effective
for interim and annual reporting periods ending after September 15, 2009. This statement establishes the Codification as the
source of authoritative accounting principles used in the preparation of financial statements in conformity with generally accepted
accounting principles. The Codification does not replace or affect guidance issued by the SEC or its staff. As a result of the
Codification, the references to authoritative accounting pronouncements included herein in this Annual Report now refer to the
Codification topic section rather than a specific accounting rule as was past practice.
Use of Estimates:
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Risk and Uncertainties:
Our future results
of operations and financial condition will be impacted by the following factors, among others: our lack of capital resources, dependence
on third-party management to operate the companies in which we invest and dependence on the successful development and marketing
of any new products in new and existing markets. Generally, we are unable to predict the future status of these areas of risk and
uncertainty. However, negative trends or conditions in these areas could have an adverse effect on our business.
Cash and Cash Equivalents:
For financial statement
presentation purposes, short-term, highly liquid investments with original maturities of three months or less are considered to
be cash equivalents. The Company maintains its cash accounts at several financial institutions, which at times may exceed the insurable
FDIC limit, but management believes that there is little risk of loss.
Accounts receivable:
Accounts receivable
are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes an allowance
for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount
of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each
customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses
in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments,
a specific allowance will be required.
Recovery of bad
debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the
Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect
a receivable have failed, the receivable is written off against the allowance.
Inventory:
Inventory
consists of well maintained, commercial freight vehicles primarily acquired at auction. Inventory is valued at the lower of
cost (first in, first out) or replacement value. An allowance for potential non-saleable inventory due to movement, current
conditions or obsolescence is based upon a review of inventory quantities, past history and expected future usage.
The Company believes that no write-down for slow moving or obsolete inventory is necessary as of August 31, 2018.
Fair Value of Financial Instruments:
In September 2006,
the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure
about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets
and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards
Codification (ASC) 820 "
Fair Value Measurements and Disclosures
" (ASC 820) defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at 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—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
●
|
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
●
|
Level 3—Inputs that are both significant to the fair value measurement and unobservable.
|
The respective carrying
value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These
financial instruments include investments in available-for-sale securities and accounts payable and accrued expenses. The
Company has also applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis.
The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company's financial statements.
Comprehensive Income:
ASC Topic 220 (SFAS
No. 130) establishes standards for reporting comprehensive income and its components. Comprehensive income is defined as the
change in equity during a period from transactions and other events from non-owner sources. Per the consolidated financial
statements, the Company has purchased available-for-sale securities that are subject to this reporting.
Other-Than-Temporary Impairment:
All of our non-marketable
and other investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in
fair value is judged to be other-than-temporary.
When events or changes
in circumstances indicate that long-lived assets other than goodwill may be impaired, an evaluation is performed to determine if
a write-down to fair value is required. When an asset is classified as held for sale, the asset's book value is evaluated and adjusted
to the lower of its carrying amount or fair value less cost to sell. In addition, depreciation and amortization ceases while it
is classified as held for sale.
The indicators that
we use to identify those events and circumstances include:
|
●
|
the investee's revenue and earnings trends relative to predefined milestones and overall business prospects;
|
|
|
|
|
●
|
the general market conditions in the investee's industry or geographic area, including regulatory or economic changes;
|
|
|
|
|
●
|
factors related to the investee's ability to remain in business, such as the investee's liquidity, debt ratios, and the rate at which the investee is using its cash; and
|
|
|
|
|
●
|
the investee's receipt of additional funding at a lower valuation. If an investee obtains additional funding at a valuation lower than our carrying amount or a new round of equity funding is required for the investee to remain in business, and the new round of equity does not appear imminent, it is presumed that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise.
|
Revenue and Cost Recognition:
We recognize revenue
when we satisfy performance obligations by the transfer of control of products or services to our customers, in an amount that
reflects the consideration we expect to be entitled to in exchange for those products or services. We recognize revenue from product
sales to customers when we satisfy our performance obligation, at a point in time, upon product shipment or delivery to our customer
as determined by agreed upon shipping terms. Shipping charges billed to customers are included in product sales and the related
shipping costs are included in operating expenses.
We recognize corporate
financial consulting service revenue over a period of time as the performance obligation is satisfied over a period of time rather
than a point in time. Contracts have specifications unique to each customer and do not create an asset with an alternate use, and
we have an enforceable right to payment for performance completed to date.
Accounts receivable
is recognized when we have transferred a good or service to a customer and our right to receive consideration is unconditional
through the completion of our performance obligation. A contract asset is recognized when we have a right to consideration from
the transfer of goods or services to a customer but have not completed our performance obligation. A contract liability is recognized
when we have been paid by a customer but have not yet satisfied the performance obligation by transferring goods or services. We
had no material contract assets or contract liabilities as of August 31, 2018.
Our performance
obligations related to product sales are satisfied in one year or less. Unsatisfied performance obligations represent contracts
with an original expected duration of one year or less. As permitted under Accounting Standards Codification (“ASC”)
Topic 606, Revenue from Contracts with Customers, we are using the practical expedient not to disclose the value of these unsatisfied
performance obligations. We also use the practical expedient in which we do not assess whether a contract has a significant financing
component if the expectation at contract inception is such that the period between payment by the customer and the transfer of
the promised goods or services to the customer will be one year or less.
Financing Fees:
Financing fees were
being amortized over the life of the related liability on the straight-line method which is not materially different than using
the effective interest method. All amortization has been expensed since the ongoing staffing operations have discontinued from
which the finance fees were originally accrued.
Net Income (Loss) Per Share:
The Company reports
basic and diluted earnings per share (EPS) according to the provisions of ASC Topic 260, which requires the presentation of basic
EPS and, for companies with complex capital structures, diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted
EPS is computed by dividing net income (loss) available to common stockholders, adjusted by other changes in income or loss that
would result from the assumed conversion of those potential common shares, by the weighted number of common shares and common share
equivalents (unless their effect is antidilutive) outstanding. Common stock equivalents are not included in the computation of
diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive. Thus, these equivalents are
not included in the calculation of diluted loss per share, resulting in basic and diluted loss per share being equal.
Income Taxes:
The Company, a C-corporation,
accounts for income taxes under ASC Topic 740 (SFAS No. 109). Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The Company adopted
the provisions of FASB ASC 740-10 "
Uncertainty in Income Taxes
" (ASC 740-10), on January 1, 2007. The Company
has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount
of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company
has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized
tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties
in operating expenses.
Currently, the Company
has projected $8,076,069 as of August 31, 2018 in Net Operating Loss carryforwards available. The benefits of the potential tax
savings will be recognized in the recorded to date.
Recently Issued Accounting Pronouncements:
The Company has
implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company currently
rents space from Arthur Viola, CEO and shareholder. This is a month to month rental and there is no commitment beyond each month.
The monthly rent expense is $2,025.
Effective December
15, 2015, Mr. Viola entered into a $685,000 convertible promissory note agreement with the Company in lieu of cash for prior years,
unpaid compensation and forgave all other remaining unpaid amounts outstanding at that time. The note matures on December 15, 2018
and bears interest at a rate of 10% per annum. Mr. Viola has the option to convert any portion of the unpaid principal balance
into the Company’s common shares at a discount to market of 50% at any time.
During 2016, our
President Arthur Viola infused $10,200 in advances for working capital. These funds were advanced interest free with no payback
terms of twelve months and one day. No repayments have been made against these advances as of August 31, 2018.
Since its formation
during 2018, an operating principal of the Company’s wholly-owned subsidiary Payless Truckers, Inc. has loaned $70,000 to
fund the subsidiary’s operations. The loan currently bears no interest and is payable on demand. The Company has imputed
interest on this obligation at a rate of 10% per annum, which the Company believes is appropriate and represents a market lending
rate based upon other debt financings. As of August 31, 2018, imputed interest of $2,333 has been recorded in the Company’s
financial statements.
NOTE 4 - GOING CONCERN
The accompanying
financial statements have been prepared assuming that the Company will continue as a going concern. Historically, the Company has
sustained recurring operating losses. As of August 31, 2018, the Company had a working capital deficit of ($1,356,563) and an accumulated
deficit of ($8,076,059).
Management believes
that the Company's capital requirements will depend on many factors including the success of the Company's business development
efforts and its ability to raise capital to fund acquisitions and operations. There are no assurances that such financing will
be available to the Company when needed.
The conditions described
above raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the
Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Commitments:
The Company currently has no long-term
commitments.
Contingencies:
None
NOTE 6 - LEGAL PROCEEDINGS
We are not engaged
in any other litigation and management is unaware of any claims or complaints that could result in future litigation. Management
will seek to minimize disputes with its customers but recognizes the inevitability of legal action in today's business environment
as an unfortunate price of conducting business.
NOTE 7 - INCOME TAXES
The
following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax
expense (benefit) for the three and nine months ended August 31, 2018 and 2017:
|
|
Three Months Ended August 31,
|
|
Three Months Ended August 31,
|
|
Nine Months Ended August 31,
|
|
Nine Months Ended August 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Tax provision (recovery) at effective tax rate (21%)
|
|
$
|
54,104
|
|
|
$
|
(30,505
|
)
|
|
$
|
19,630
|
|
|
$
|
(50,756
|
)
|
Change in valuation reserve
|
|
|
(54,104
|
)
|
|
|
30,505
|
|
|
|
(19,630
|
)
|
|
|
50,756
|
|
Tax provision (recovery), net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of August 31, 2018, the Company had
approximately $8,076,059 in net operating loss carry forwards for federal income tax purposes which expire between 2018 and 2034. Generally,
these can be carried forward and applied against future taxable income at the tax rate applicable at that time. We are currently
using a 21% effective tax rate for our projected available net operating loss carryforward. However, as a result of potential
stock offerings and stock issuance in connection with potential acquisitions, as well as the possibility of the Company not realizing
its business plan objectives and having future taxable income to offset, the Company's use of these NOLs may be limited under
the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. The Company is in the process of evaluating
the implications of Section 382 on its ability to utilize some or all of its NOLs.
Components of deferred tax assets and
(liabilities) are as follows:
|
|
August 31, 2018
|
|
|
November 30, 2017
|
|
Net operating loss carry forwards available at effective tax rate (21%)
|
|
$
|
1,696,000
|
|
|
$
|
1,175,602
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation Allowances
|
|
|
(1,696,000
|
)
|
|
|
(1,175,602
|
)
|
Deferred Tax Asset
|
|
$
|
–
|
|
|
$
|
–
|
|
In
accordance with FASB ASC 740 "Income Taxes", valuation allowances are provided against deferred tax assets, if based
on the weight of available evidence, some or all of the deferred tax assets may or will not be realized. The Company has evaluated
its ability to realize some or all of the deferred tax assets on its balance sheet and has established a valuation allowance of
approximately $1,696,000 at August 31, 2018. The Company did not utilize any NOL deductions for the full fiscal year ended November
30, 2017.
NOTE 8 - NOTES PAYABLE
Other than as described
below, there were no issuances of securities without registration under the Securities Act of 1933 during the reporting period
which were not previously included in our previous form 10K.
On August 31, 2015,
the Company entered in convertible note agreement with a private and accredited investor, LG Capital, in the amount of $75,000,
unsecured, with principal and interest (stated at 8%) amounts due and payable upon maturity on February 28, 2016. After six months,
the note holder has the option to convert any portion of the unpaid principal balance into the Company’s common shares at
any time. The Company has determined that the conversion feature in this note is not indexed to the Company’s stock and is
considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using
the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from .03% to .08%; Dividend rate of 0%;
and, historical volatility rates ranging from 195% to 236%. As of August 31, 2018, the note balance was $55,224 and all associated
loan discounts were fully amortized.
On December 30,
2015, the Company entered in convertible note agreement with a private and accredited investor, Auctus Private Equity Fund LLC,
in the amount of $130,000, unsecured, with principal and interest (stated at 10%) amounts due and payable upon maturity on September
30, 2016. After six months, the note holder has the option to convert any portion of the unpaid principal balance into the Company’s
common shares at any time. The Company has determined that the conversion feature in this note is not indexed to the Company’s
stock and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion
feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from .03% to .16%; Dividend
rate of 0%; and, historical volatility rates ranging from 208% to 269%. As of August 31, 2018, the note balance was $113,992 and
all associated loan discounts were fully amortized.
On January 21, 2016,
the Company entered in convertible note agreement with a private and accredited investor, John De La Cross Capital Partners Inc.,
in the amount of $8,000, unsecured, with principal and interest (stated at 5%) amounts due and payable upon demand. The note holder
has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time. The Company
has determined that the conversion feature in this note is not indexed to the Company’s stock and is considered to be a derivative
that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the
following assumptions: Risk-free interest rates ranging from .03% to .16%; Dividend rate of 0%; and, historical volatility rates
ranging from 208% to 269%. As of August 31, 2018, the note balance was $6,500 and all associated loan discounts were fully amortized.
On November 23,
2016, the Company entered in convertible note agreement with a private and accredited investor, Auctus Private Equity Fund LLC,
in the amount of $61,000, unsecured, with principal and interest (stated at 12%) amounts due and payable upon maturity on August
23, 2017. After six months, the note holder has the option to convert any portion of the unpaid principal balance into the Company’s
common shares at any time. The Company has determined that the conversion feature in this note is not indexed to the Company’s
stock and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion
feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from .03% to .16%; Dividend
rate of 0%; and, historical volatility rates ranging from 208% to 269%. During the three months ended May 31, 2018, the Company
amended this agreement and received an additional $10,000 in funding under this note. As of August 31, 2018, the note balance was
$97,000 and all associated loan discounts were fully amortized.
NOTE 9 - DERIVATIVE LIABILITIES
The Company accounts
for derivative financial instruments in accordance with ASC 815, which requires that all derivative financial instruments be recorded
in the balance sheets either as assets or liabilities at fair value.
The Company's derivative
liability is an embedded derivative associated with one of the Company's convertible promissory notes. The convertible promissory
notes issued, (the "Note"), are a hybrid instrument which contain an embedded derivative feature which would individually
warrant separate accounting as a derivative instrument under Paragraph 815-10-05-4. The embedded derivative feature includes
the conversion feature to the Note. Pursuant to Paragraph 815-10-05-4, the value of the embedded derivative liability have been
bifurcated from the debt host contract and recorded as a derivative liability resulting in a reduction of the initial carrying
amount (as unamortized discount) of the notes, which are amortized as debt discount to be presented in other (income) expenses
in the statements of operations using the effective interest method over the life of the notes.
The embedded derivative
within the note have been valued using the Black Scholes approach, recorded at fair value at the date of issuance; and marked-to-market
at each reporting period end date with changes in fair value recorded in the Company's statements of operations as "change
in the fair value of derivative instrument".
As of August 31,
2018 and November 30, 2017, the estimated fair value of derivative liability was determined to be $234,595 and $362,091, respectively.
During the nine months ended August 31, 2018, new derivative liabilities of $63,960 were recognized by the Company. The change
in the fair value of derivative liabilities for the nine months ended August 31, 2018 was $228,896 resulting in an aggregate gain
on derivative liabilities.
Summary of Fair Value of Financial
Assets and Liabilities Measured on a Recurring Basis
Financial assets
and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets:
|
|
|
Fair Value Measurement Using
|
|
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liabilities on conversion feature
|
|
|
234,595
|
|
|
|
–
|
|
|
|
–
|
|
|
|
234,595
|
|
|
|
234,595
|
|
Total derivative liabilities
|
|
$
|
234,595
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
234,595
|
|
|
$
|
234,595
|
|
Summary of the Changes in Fair
Value of Level 3 Financial Liabilities
The table below
provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the Nine months ended August
31, 2018:
|
|
Derivative Liability
|
|
Fair value, November 30, 2017
|
|
$
|
362,091
|
|
Additions
|
|
|
63,960
|
|
Change in fair value
|
|
|
(191,457
|
)
|
Transfers in and/or out of Level 3
|
|
|
–
|
|
Fair value, August 31, 2018
|
|
$
|
234,595
|
|
NOTE 10 – SUBSEQUENT EVENTS
In accordance with
FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to August 31, 2018 to the date these consolidated
financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these
consolidated financial statements.
PART I