U.S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q10-Q/A
First Amendment
[X](Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MayAugust 31, 20172018
[ ]
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ________________._______
Commission File Number 333-169128
DANIELS CORPORATE ADVISORY COMPANY, INC.
(Exact name of registrantRegistrant as specified in its charter)
| Nevada | 04-3667624 | |
(State or other jurisdiction of
| (I.R.S. Employer | |
| incorporation or organization) | Identification | |
| Parker Towers, 104-60, Queens Boulevard 12th Floor Forest Hills, New York 11375 | 11375 | |
| (Address of principal executive offices) | (Zip Code) |
Parker Towers, 104-60, Queens Boulevard, 12th Floor(347) 242-3148
Forest Hills, New York 11375
(Address of principal executive offices)
(347) 242-3148
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:NoneRegistrant's telephone number, including area code)
Indicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
| Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
| Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definitionsdefinition of “large"large accelerated filer,” “accelerated filer” “smaller "accelerated filer" and "smaller reporting company,” and “emerging growth company”company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |||||
| Non-accelerated filer | Smaller reporting company | |||||
| Emerging growth company ☐ | ||||||
If an emerging growth company, indicate by check markcheckmark if the registrant has elected not to use the extended transition period forof complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.Act [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
| Yes | ☐ | No | ☒ |
As of July 2, 2019,October 22, 2018, the Registrantregistrant had 4,647,151,5024,225,451,502 shares of Common Stock issued andcommon stock outstanding.
Explanatory Note
We are filing this amendment on Form 10 Q/A to amend our Quarterly Report ( "Amended Report" ) for the three months ending August 31, 2018, originally filed with the Securities & Exchange Commission on October 25, 2018, (the original report) to amend our consolidated financial statements.
This amended report has not been updated for events occurring after the filing of the original report nor does it change any other disclosures contained in the original report. Accordingly, the Amended Report should be read in conjunction with the Original Report.
In accordance with applicable SEC Rules, this Form 10 Q/A includes new certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as amended, for our newly appointed Chief Executive and Chief Financial Officers, dated October 24, 2019 10 Q as of the filing date of this Form 10 Q/A.
The Section 302 Certifications were inadvertently not filed in the original document.
DANIELS CORPORATE ADVISORY COMPANY, INC.Daniels Corporate Advisory Company, Inc.
INDEX TO FORM 10-Q
DANIELS CORPORATE ADVISORY COMPANY, INC.
Consolidated Balance Sheets
| May 31, 2017 | November 30, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,554 | $ | 33 | ||||
| Investments | 2,240 | 5,900 | ||||||
| Total current assets | 8,794 | 5,933 | ||||||
| Total assets | $ | 8,794 | $ | 5,933 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 186,123 | $ | 125,230 | ||||
| Notes payable, related party | 685,000 | 685,000 | ||||||
| Notes payable, net of loan discounts | 214,428 | 222,000 | ||||||
| Derivative liabilities | 273,734 | 284,034 | ||||||
| Total current liabilities | 1,359,285 | 1,316,264 | ||||||
| Related party payables | 10,200 | 10,200 | ||||||
| Total liabilities | 1,369,485 | 1,326,464 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $0.001 par value. 100,000 shares authorized; 100,000 shares issued and outstanding as of May 31, 2017 and November 30, 2016, respectively | 100 | 100 | ||||||
| Common stock, $0.001 par value. 6,000,000,000 shares authorized; 3,513,247,802 and 2,686,756,136 shares issued and outstanding as of May 31, 2017 and November 30, 2016, respectively | 3,513,248 | 2,686,756 | ||||||
| Additional paid-in capital | 3,172,491 | 3,939,053 | ||||||
| Accumulated deficit | (7,984,421 | ) | (7,887,991 | ) | ||||
| Accumulated other comprehensive loss | (62,109 | ) | (58,449 | ) | ||||
| Total stockholders’ deficit | (1,360,691 | ) | (1,320,531 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 8,794 | $ | 5,933 | ||||
| DANIELS CORPORATE ADVISORY COMPANY, INC. |
| Consolidated Balance Sheets |
The accompanying notes are an integral part of these financial statements.
DANIELS CORPORATE ADVISORY COMPANY, INC.
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
| Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
| May 31, 2017 | May 31, 2016 | May 31, 2017 | May 31, 2016 | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating expenses | 29,760 | 151,490 | 88,529 | 236,012 | ||||||||||||
| Loss from operations | (29,760 | ) | (151,490 | ) | (88,529 | ) | (236,012 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Derivative expense | - | - | (101,849 | ) | (256,344 | ) | ||||||||||
| Gain (loss) on derivative liabilities | 505,004 | (41,705 | ) | 112,149 | (45,654 | ) | ||||||||||
| Gain (loss) on retirement of debt | - | - | 22,000 | (27,223 | ) | |||||||||||
| Gain (loss) on sale of investment | - | 3,130 | - | 3,130 | ||||||||||||
| Interest income (expense), net | (20,100 | ) | (56,480 | ) | (40,201 | ) | (97,373 | ) | ||||||||
| Total other income (expense) | 484,904 | (95,055 | ) | (7,901 | ) | (423,464 | ) | |||||||||
| Income (loss) before income taxes | 455,144 | (246,545 | ) | (96,430 | ) | (659,476 | ) | |||||||||
| Provision for income taxes (benefit) | - | - | - | - | ||||||||||||
| Net income (loss) | 455,144 | (246,545 | ) | (96,430 | ) | (659,476 | ) | |||||||||
| Basic and diluted earnings (loss) per common share | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | 3,511,508,672 | 1,871,734,354 | 3,382,312,619 | 1,126,173,855 | ||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net income (loss) | $ | 455,144 | $ | (246,545 | ) | $ | (96,430 | ) | $ | (659,476 | ) | |||||
| Unrealized gain (loss) | - | 1,923 | (3,660 | ) | 537 | |||||||||||
| Comprehensive income (loss) | $ | 455,144 | $ | (244,622 | ) | $ | (100,090 | ) | $ | (658,939 | ) | |||||
The accompanying notes are an integral part of these financial statements.
DANIELS CORPORATE ADVISORY COMPANY, INC.
Consolidated Statements of Cash Flows (Unaudited)
| Six Months Ended | Six Months Ended | |||||||
| May 31, 2017 | May 31, 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (96,430 | ) | $ | (659,476 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization of debt discount | 27,308 | 97,373 | ||||||
| Derivative expense | 101,849 | 256,344 | ||||||
| Loss (gain) on change in derivative liabilities | (112,149 | ) | 45,654 | |||||
| Loss (gain) on debt conversions | – | 69,219 | ||||||
| Loss (gain) on debt retirement | (22,000 | ) | – | |||||
| Stock issued for services rendered | – | 51,850 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | – | (27,500 | ) | |||||
| Accounts payable and accrued liabilities | 60,892 | (101,829 | ) | |||||
| Net cash used in operating activities | (40,530 | ) | (268,365 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of securities | – | 3,082 | ||||||
| Net cash provided by investing activities | – | 3,082 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of convertible debentures | 47,051 | 285,300 | ||||||
| Proceeds from related party loans | – | 10,200 | ||||||
| Repayment of convertible debentures | – | (49,200 | ) | |||||
| Net cash provided by financing activities | 47,051 | 246,300 | ||||||
| Net increase in cash and cash equivalents | 6,521 | (18,983 | ) | |||||
| Cash and cash equivalents at beginning of period | 33 | 22,941 | ||||||
| Cash and cash equivalents at end of period | $ | 6,554 | $ | 3,958 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Unrealized gain (loss) on securities | $ | (3,660 | ) | $ | 537 | |||
| Conversion of convertible debentures and accrued interest into common stock | $ | 19,264 | $ | 363,765 | ||||
| Discount for issuance costs and/or beneficial conversion features on convertible debentures | $ | 54,617 | $ | – | ||||
| August 31, | November 30, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 60,586 | $ | (3 | ) | |||
| Accounts receivable | 5,000 | — | ||||||
| Inventory | 238,430 | — | ||||||
| Total current assets | 304,016 | (3 | ) | |||||
| Total assets | $ | 304,016 | $ | (3 | ) | |||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 468,268 | $ | 249,014 | ||||
| Derivative liabilities | 234,595 | 362,091 | ||||||
| Notes payable, related party | 685,000 | 685,000 | ||||||
| Notes payable, net of loan discounts | 272,716 | 241,737 | ||||||
| Total current liabilities | 1,660,579 | 1,537,842 | ||||||
| Related party payables | 80,200 | 10,200 | ||||||
| Total liabilities | 1,740,779 | 1,548,042 | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock, $0.001 par value. 100,000 shares authorized; 100,000 shares issued and outstanding as of August 31, 2018 and November 30, 2017, respectively | 100 | 100 | ||||||
| Common stock, $0.001 par value. 6,000,000,000 shares authorized; 4,225,451,502 and 3,513,247,802 shares issued and outstanding as of August 31, 2018 and November 30, 2017, respectively | 4,225,452 | 3,513,248 | ||||||
| Additional paid-in capital | 2,478,093 | 3,172,491 | ||||||
| Accumulated deficit | (8,076,059 | ) | (8,169,535 | ) | ||||
| Accumulated other comprehensive loss | (64,349 | ) | (64,349 | ) | ||||
| Total stockholders' deficit | (1,436,763 | ) | (1,548,045 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 304,016 | $ | (3 | ) | |||
The accompanying notes are an integral part of these financial statements.
| DANIELS CORPORATE ADVISORY COMPANY, INC. |
| Consolidated Statements of Operations and Comprehensive Loss |
(Unaudited)
| Three Months Ended August 31, | Three Months Ended August 31, | Nine Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Sales | $ | 983,321 | $ | — | $ | 983,321 | $ | — | ||||||||
| Cost of goods sold | 853,263 | — | 853,263 | — | ||||||||||||
| Gross margin | 130,058 | — | 130,058 | — | ||||||||||||
| Operating expenses | 92,037 | 31,496 | 142,037 | 120,025 | ||||||||||||
| Income (loss) from operations | 38,021 | (31,496 | ) | (11,979 | ) | (120,025 | ) | |||||||||
| Other income (expense) | ||||||||||||||||
| Derivative expense | — | — | (63,960 | ) | (101,849 | ) | ||||||||||
| Gain (loss) on derivative liabilities | 228,896 | (93,666 | ) | 191,457 | 18,483 | |||||||||||
| Gain (loss) on retirement of debt | — | — | — | 22,000 | ||||||||||||
| Interest income (expense), net | (9,278 | ) | (20,101 | ) | (22,042 | ) | (60,302 | ) | ||||||||
| Total other income (expense) | 219,618 | (113,767 | ) | 105,455 | (121,668 | ) | ||||||||||
| Income (loss) before income taxes | 257,639 | (145,263 | ) | 93,476 | (241,693 | ) | ||||||||||
| Provision for income taxes (benefit) | — | — | — | — | ||||||||||||
| Net income (loss) before discontinued operations | 257,639 | (145,263 | ) | 93,476 | (241,693 | ) | ||||||||||
| Net income (loss) from discontinued operations | — | — | — | — | ||||||||||||
| Net income (loss) | 257,639 | (145,263 | ) | 93,476 | (241,693 | ) | ||||||||||
| Basic and diluted earnings (loss) per common share | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | 4,225,451,502 | 3,513,247,802 | 4,046,395,863 | 3,338,826,847 | ||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net income (loss) | $ | 257,639 | $ | (145,263 | ) | $ | 93,476 | $ | (241,693 | ) | ||||||
| Unrealized gain (loss) | — | — | — | (3,660 | ) | |||||||||||
| Comprehensive income (loss) | $ | 257,639 | $ | (145,263 | ) | $ | 93,476 | $ | (245,353 | ) | ||||||
The accompanying notes are an integral part of these financial statements.
| DANIELS CORPORATE ADVISORY COMPANY, INC. |
| Consolidated Statements of Cash Flows |
(Unaudited)
| Nine Months Ended August 31, | Nine Months Ended August 31, | |||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities of continuing operations: | ||||||||
| Net income (loss) | $ | 93,476 | $ | (241,693 | ) | |||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization of debt discount | — | 40,962 | ||||||
| Derivative expense | 63,960 | 101,849 | ||||||
| (Gain) loss on derivative liabilities | (191,457 | ) | (18,483 | ) | ||||
| (Gain) loss on retirement of debt | — | (22,000 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (5,000 | ) | — | |||||
| Inventory | (238,430 | ) | — | |||||
| Accounts payable and accrued liabilities | 232,040 | 92,338 | ||||||
| Net cash provided by (used in) operating activities | (45,411 | ) | (47,027 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net cash provided by (used in) financing activities | — | — | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related parties | 70,000 | — | ||||||
| Proceeds from issuance of convertible debentures | 36,000 | 47,051 | ||||||
| Net cash provided by (used in) financing activities | 106,000 | 47,051 | ||||||
| Net increase (decrease) in cash and cash equivalents | 60,589 | 24 | ||||||
| Cash and cash equivalents at beginning of period | (3 | ) | 33 | |||||
| Cash and cash equivalents at end of period | $ | 60,586 | $ | 57 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Beneficial conversion features and original issuance discounts on convertible debentures | $ | — | $ | 54,617 | ||||
| Common stock issued to reduce convertible and promissory notes payable | $ | 17,806 | $ | 19,264 | ||||
| Unrealized gain (loss) on securities | $ | — | $ | (3,440 | ) | |||
The accompanying notes are an integral part of these financial statements.
DANIELS CORPORATE ADVISORY COMPANY, INC.
Notes to the ConsolidatedUnaudited 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 PresentationPresentation:
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 EstimatesEstimates:
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 EquivalentsEquivalents:
The Company considers allFor financial statement presentation purposes, short-term, highly liquid investments with a maturityoriginal maturities of three months or less at the date of purchaseare considered to be cash equivalents. The Company maintains its cash balances with a high-credit-qualityaccounts at several financial institution. Atinstitutions, which at times such cash may be in excess ofexceed the Federal Deposit Insurance Corporation-insuredinsurable FDIC limit, of $250,000. The Company has not experienced any losses in such accounts, andbut management believes the Companythat there is not exposed to any significant creditlittle risk on its cash and cash equivalents.
Investments
Investments consist of the common stock of publicly quoted companies and are valued based on the closing stock price. The Company accounts for its investments in accordance with ASC Topic 320, Investments. Daniels has designated its investments at May 31, 2017 as available-for-sale and reported these investments at fair value, with unrealized gains and losses recorded in other comprehensive income (loss). The Company determined the fair value of these investments based on the closing quoted stock price on May 31, 2017. The Company bases the cost of the investment sold on the specific identification method using market rates.loss.
Convertible InstrumentsAccounts receivable:
Accounts receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company evaluatesestablishes 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 account for conversion options embeddedmonitors current economic trends that might impact the level of credit losses in convertible instrumentsthe future. If the financial condition of the customers were to deteriorate, resulting in accordance with ASC 815 “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.
Derivatives and Hedging ActivitiesInventory:”.
Applicable GAAP requires companiesInventory 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 bifurcate conversion options from their host instrumentsmovement, current conditions or obsolescence is based upon a review of inventory quantities, past history and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
expected future usage. The Company accountsbelieves that no write-down for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) by recording, whenslow moving or obsolete inventory is necessary discounts to convertible notes for the intrinsic valueas of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.August 31, 2018.
Fair Value of Financial InstrumentsInstruments:
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.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’sentity'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 accounts receivable,investments in available-for-sale securities and accounts payable and accrued expenses, notes payable, notes payable to related parties, related parties payable and derivative liabilities.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’sCompany's financial statements.
Comprehensive Income (Loss)Income:
ASC Topic 220 (SFAS No. 130) establishes standards for reporting comprehensive income (loss) and its components. Comprehensive income (loss) 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 ImpairmentImpairment:
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’sasset'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 | |
| ● | the general market conditions in the | |
| ● | factors related to the | |
| ● | the |
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.
Income TaxesFinancing Fees:
The Company, a C-corporation, accounts for income taxes under ASC Topic 740 (SFAS No. 109). Under thisFinancing fees were being amortized over the life of the related liability on the straight-line method deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measuredwhich is not materially different than 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 Companyeffective interest method. All amortization 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 benefitexpensed since the date of adoption. The Company has not recognized interest expense or penalties as a result ofongoing staffing operations have discontinued from which the implementation of ASC 740-10. If therefinance fees were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.originally accrued.
Net LossIncome (Loss) Per ShareShare:
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 PronouncementsPronouncements:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also, in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard.
ASC 842 will be effective for us beginning on December 1, 2018. As of December 1, 2018, we will record right-of-use assets and lease liabilities of approximately $23,000.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with partial early adoption permitted for eliminated disclosures. The method of adoption varies by the disclosure. The Company is currently evaluating the impact that adopting this guidance will have on the unaudited condensed consolidated financial statements.
The Company has consideredimplemented all other recently issuednew accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe the adoption of suchthat there are any other new accounting pronouncements willthat have been issued that might have a material impact on its unaudited condensed consolidated financial statements.position or results of operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company currently rents space from our president, Arthur Viola.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, 2016,2015, 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 stockshares at a discount to market of 50% at any time. See Note 8.
During 2016, our president,President Arthur Viola incurred expenses on behalf of the Company ofinfused $10,200 in advances for working capital. These funds were advanced interest free with no maturity date.payback terms of twelve months and one day. No repayments have been made against these fundsadvances as of MayAugust 31, 2017.2018.
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 onassuming that the Company will continue as a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business as they become due.
For the six months ended May 31, 2017,concern. Historically, the Company incurred net losses from operations of $96,430 and had negative cash flows fromhas sustained recurring operating activities of $40,530. The Company has relied, in large part, upon debt financing to fund its operations.losses. As of MayAugust 31, 2017,2018, the Company had outstanding indebtedness, neta working capital deficit of discounts,($1,356,563) and an accumulated deficit of $899,428 and had $6,554 in cash.($8,076,059).
AsManagement 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 there isfinancing will be available to the Company when needed.
The conditions described above raise substantial doubt as toabout the Company’s ability to continue as a going concern. The Company’s ability to continue as such is dependent upon management’s ability to successfully execute its business plan, including increasing revenues through the salefinancial statements of existing and future product offerings and reducing expenses in order to meet the Company’s current and future obligations. In addition, the Company’s ability to continue as a going concern is dependent upon management’s ability to successfully satisfy, refinance or replace its current indebtedness. Failure to satisfy existing or obtain new financing may have a material adverse impact on the Company’s operations and liquidity.
On April 11, 2018, the Company formed a new subsidiary, PayLess Truckers, Inc. See Note 11 – Subsequent Events. The Company now believesdo not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that it is well positioned to generate significant revenue and cash flows from its operations. However, even ifmight be necessary should the Company is successful in executing its plan, the Company may not generate enough revenue to satisfy all of its current obligations as they become due in addition to its outstanding indebtedness. Until the Company consistently generates positive cash flow from its operations, or successfully satisfies, refinances or replaces its current indebtedness, there is substantial doubt as to the Company’s abilitybe unable to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company is unable to operate as a going concern.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
CommitmentsCommitments:
The Company currently has no long-term commitments.
ContingenciesContingencies:
None.None
NOTE 6 - LEGAL PROCEEDINGS
The CompanyWe are not engaged in any other litigation and management is not currently a party to any material legal proceedings. The Company’s counsel has no formal knowledge in the form of filingsunaware of any pending or contemplated litigation, claims or assessments. With regardcomplaints that could result in future litigation. Management will seek to matters recognized to involveminimize disputes with its customers but recognizes the inevitability of legal action in today's business environment as an unasserted possible claim or assessment that may call for financial statement disclosure and to which counsel has formed a professional conclusion that the Company should disclosure or consider disclosure concerning such possible claims or assessment, as a matterunfortunate price of professional responsibility to the Company, counsel will so advise and will consult with the company concerning the question of such disclosure and the applicable requirements of FASB ASC 450, “Contingencies”. To date, counsel has no formal knowledge of any unasserted possible claims.
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 sixthree and nine months ended MayAugust 31, 20172018 and 2016:2017:
| May 31, 2017 | May 31, 2016 | Three Months Ended August 31, | Three Months Ended August 31, | Nine Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||||||||
| Tax provision (recovery) at effective tax rate (35%) | $ | (33,751 | ) | $ | (230,816 | ) | ||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||
| Tax provision (recovery) at effective tax rate (21%) | $ | 54,104 | $ | (30,505 | ) | $ | 19,630 | $ | (50,756 | ) | ||||||||||||||
| Change in valuation reserve | 33,751 | 230,816 | (54,104 | ) | 30,505 | (19,630 | ) | 50,756 | ||||||||||||||||
| Tax provision (recovery), net | $ | – | $ | – | $ | — | $ | — | $ | — | $ | — | ||||||||||||
As of MayAugust 31, 2017,2018, the Company had approximately $7,984,000$8,076,059 in net operating loss carry forwards for federal income tax purposes which expire at various dates through 2036.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 35%21% effective tax rate for our projected available net operating loss carry-forward.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’sCompany'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:
| May 31, 2017 | November 30, 2016 | |||||||
| Net operating loss carry forwards available at effective tax rate (35%) | $ | 2,795,000 | $ | 2,761,000 | ||||
| Valuation Allowances | (2,795,000 | ) | (2,761,000 | ) | ||||
| Deferred Tax Asset | $ | – | $ | – | ||||
| 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”"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 $2,795,000$1,696,000 at MayAugust 31, 2017.2018. The Company did not utilize any NOL deductions for the three monthsfull fiscal year ended May 31,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 MayAugust 31, 2017,2018, 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 MayAugust 31, 2017,2018, the note balance was $119,013$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 MayAugust 31, 2017,2018, 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%. TheDuring the three months ended May 31, 2018, the Company amended its convertible notethis agreement to allow forand received an additional principal borrowings.$10,000 in funding under this note. As of MayAugust 31, 2017,2018, the note balance was $61,000$97,000 and theall associated unamortized loan discounts were $27,308.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’sCompany's derivative liability is an embedded derivative associated with one of the Company’sCompany's convertible promissory notes. The convertible promissory notes were issued, at various times but with similar terms and are therefore being termed as one instrument for this footnote, (the “Note”"Note"), isare a hybrid instrumentsinstrument 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 hashave 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’sCompany's statements of operations as “change"change in the fair value of derivative instrument”instrument".
As of MayAugust 31, 20172018 and November 30, 2016,2017, the estimated fair value of derivative liability was determined to be $273,734$234,595 and $284,034,$362,091, respectively. During the current year period, the Company recognized additionalnine months ended August 31, 2018, new derivative liabilities of $101,849.$63,960 were recognized by the Company. The change in the fair value of derivative liabilities for the sixnine months ended MayAugust 31, 20172018 was $112,149$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 at November 30, 2016:on the balance sheets:
| Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||
| Derivative liabilities on conversion feature | 284,034 | – | – | 284,034 | 284,034 | 234,595 | – | – | 234,595 | 234,595 | ||||||||||||||||||||||||||||||
| Total derivative liabilities | $ | 284,034 | $ | – | $ | – | $ | 284,034 | $ | 284,034 | $ | 234,595 | $ | – | $ | – | $ | 234,595 | $ | 234,595 | ||||||||||||||||||||
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 at May 31, 2017:
| Fair Value Measurement Using | ||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Derivative liabilities on conversion feature | 273,734 | – | – | 273,734 | 273,734 | |||||||||||||||
| Total derivative liabilities | $ | 273,734 | $ | – | $ | – | $ | 273,734 | $ | 273,734 | ||||||||||
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 sixNine months ended MayAugust 31, 2017:2018:
| Derivative Liabilities | ||||
| Fair value, November 30, 2016 | $ | 284,034 | ||
| Additions | 101,849 | |||
| Change in fair value | (112,149 | ) | ||
| Fair value, May 31, 2017 | $ | 273,734 | ||
NOTE 10 - EQUITY ISSUANCES
During the six months ended May 31, 2017, the Company issued 826,491,666 shares of common stock in exchange for the conversion of $19,265 of principal and interest payable on convertible notes.
| 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 11 -10 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to MayAugust 31, 20172018 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, except as follows:statements.
On April 11, 2018, the Company formed PayLess Truckers, Inc., a wholly-owned subsidiary which was incorporated in the State of Nevada. 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. In addition, PayLess offers independent drivers the option to lease refurbished vehicles for a period of up to five years with the option to purchase the vehicle at retail value every six months.
On October 15, 2018, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the amount of $350,000, unsecured, with principal and interest (stated at 12%) amounts due and payable upon maturity on July 15, 2019. The note holder has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time.
On February 14, 2019, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the amount of $57,750, unsecured, with principal and interest (stated at 12%) amounts due and payable upon maturity on November 14, 2019. The note holder has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time.
PART I
ITEM 2. MANAGEMNT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Forward Looking Statements
The statements contained in this report other than statements of historical fact are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Registrant’s present expectations or beliefs concerning future events. The Registrant cautions that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to the Registrant’s future profitability; the uncertainty as to the demand for Registrant’s services; increasing competition in the markets that Registrant conducts business; the Registrant’s ability to hire, train and retain sufficient qualified personnel; the Registrant’s ability to obtain financing on acceptable terms to finance its growth strategy; and the Registrant’s ability to develop and implement operational and financial systems to manage its growth. These forward-looking statements speak only as of the date of this report. We assume no obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any changes in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in the reports we file with the SEC.
As used in this interim report, the terms “we”, “us”, “our”, the “Company”, the “Registrant”, “Daniels Corporate Advisory”, “DCAC” and “Daniels” mean Daniels Corporate Advisory Company, Inc. unless otherwise indicated.
Overview
Daniels Corporate Advisory creates and implements corporate strategy alternatives for the mini-cap public or private company client. The addition of new business opportunities and the location of professional talent for implementation is anticipated through the full-time efforts of our senior management. These efforts are to be expanded in the United States and in foreign capitals by an expanding advisory board and through the networks of independent consultants. Principals of the respective client company will open their networks to augment professional access for specialties the Daniels corporate strategy consultants believe are needed in a joint-venture,jointly-venture, jointly-controlled undertaking created for the client’s optimum growth.
Daniels may provide the client with multiple corporate strategies/opportunities including joint-ventures, marketing opportunity agreements and/or potential acquisitions structured in leveraged buyout format. One or a combination of these strategies would allow the client to enter new market niches or expand further into existing ones.
Recent Business Developments
The Company is operating through the corporate strategy segment of its business. It is attempting to build its own critical mass by creation of start-up subsidiaries it believes have promise/potential. The stated goal is for the parent (DCAC) company to consolidate the critical mass of the subsidiary/start-ups with that of the parent for eventually listing on a major stock exchange. We have continued to focus our efforts on the build out of the Daniels corporate strategy model.Corporate Strategy Model. We adjusted our strategy as it relates to the development of subsidiary start-ups and potential acquisitions for common stock. We concentrateconcentrated on identifying projects that havehad the potential to produce significant earnings on the leveragedwhile utilizing limited capital base of both the parent and the subsidiary/start-up within an expedited time period. We are prioritizing businesses that require heavy capital expenditures and intend to leverage our financing structure in order to produce the potential for accelerated earnings.
On April 11, 2018,As a result, we formed PayLessPayless Truckers, Inc. (“PayLess”Payless”), a wholly-owned subsidiary which was incorporated in the State of Nevada. PayLessNevada, on April 11, 2018. Payless is a start-up servicetrucking company in the trucking industry. It has two business segments with its launch and current results coming from the “flip” segment, whose principal business is to acquire, class 8 heavy duty trucks, refurbish, them, add location electronics, advertise and sell commercial vehicles to independent drivers and operators. The second segment is the “credit rebuilding segment” where class 8 heavy duty trucks, owned by Daniels/PayLess, are rented to experienced independent drivers. These independent drivers rent for a period of up to five years, and have the option to buy the vehicle at retail value every six months. This segment commenced operations subsequent to the close of our fiscal year. In an effort to grow quickly and profitably, DanielsWe entered into an operating agreement with a senior operating management team in an effort to drive the business and better realize its earnings and growth potential. Payless is responsible for a substantial amount of our financial results, which was an intentional management objective.
The PayLessWe envision Payless as a two-segment trucking modelbusiness that will be built from its current operating base in Louisiana over the first twelve months of operation. It represents a streamlined trucking service company;company model; one Daniels believeswe believe should survive any potential future slow-downs in the economy. The modelIt was developed to allow for the maximum utilization of each truck. The first phase of operations has already been implemented, and has covered allis described above. The second phase of the start-up costs plus itsbusiness looks to expand upon our current model to allow drivers to rent, or lease, to own operating expenses.our vehicles.
We hope to further enhance our plan for growth beginning in our second year by forming joint-ventures and/or partnerships with truck maintenance companies across the United States in key traffic hubs. This will potentially afford independent drivers and operators the opportunity to be serviced by trusted maintenance facilities under our warranty program.
Liquidity and Capital Resources
As of MayAugust 31, 2017,2018, we had $6,554$60,586 in cash and cash equivalents and a working capital deficit of $1,350,491.$1,356,563.
Net
During the nine months ended August 31, 2018, net cash used in operating activities was $40,530 for the six months ended May 31, 2017,($45,511) compared to net cash used of $268,365($47,027) during the same period in the corresponding period of 2016. No2017. The nominal decrease in net cash was provided by or used in financingoperating activities six months ended May 31, 2017, comparedis primarily attributable to netthe results of operations of our newly formed Payless Truckers, Inc. subsidiary. Payless acquires, refurbishes and resells commercial freight vehicles. It recorded sales of $983,321 and realized a gross margin of $130,058 during the period. Payless currently does not offer credit terms on its sales, and as such requires cash providedproceeds from its customers at the time of $3,082sale. Its gross margins were offset, in part, by the corresponding periodchange in its working capital assets which created a cash use of 2016. approximately $83,000. The change in working capital assets was primarily caused by an increase in inventory of approximately $238,000, offset by an increase in trade payables and accrued liabilities of approximately $161,000.
Net cash provided by financing activities was $47,051$106,000 for the quarternine months ended MayAugust 31, 2017,2018, as compared to net cash provided of $246,300$47,051 during the same period in the corresponding period2017. The increase in net cash provided by financing activities is directly related to loans made to fund operations by an operating principal of 2016.our Payless subsidiary.
Our primary sourceconsolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates realization of liquidity has been fromassets and the issuancesatisfaction of convertible debt. Sinceliabilities in the creationnormal course of our subsidiary, PayLess Truckers, Inc., cash flow frombusiness for the “flip” businesstwelve-month period following the date of the truck service company has sustained the consolidated group.these financial statements.
Financing Activities
We will have to raise capital by means of borrowings or through a private placement or a subsequent registered offering. At present, we do not have any commitments with respect to future financings. If we are unable to raise adequate capital, in the near term, to finance all phases of a client corporate consulting assignment, our proposed business will experience slow growth because it will be very hard to compete for business without a sound capital base to support advisory and implementation efforts on our suggested corporate growth strategies.
At present, we do have sufficient capital on hand to fund very limited operations for the immediate future. Our consultinglogistics income on current and expected assignments (and continued support from Arthur D. Viola, our president and director), is believedcontinues to be sufficient to support currentprovide enough working capital demands. Management estimates that we will need at least $5 million to fund our PayLess Truckers subsidiary unlessoperations. We are continually seeking to raise funds for our projects through both debt and equity measures.
Effective December 15, 2015, our chief executive officer, Mr. Arthur Viola, entered into a lesser$685,000 convertible promissory note agreement with the Company in lieu of cash amount can still achieve our objectives by usefor 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 asset-based lending where we can leverage truck purchases. Because10% per annum. Mr. Viola has the option to convert any portion of the start-up nature of the subsidiary, this financing may be harder to achieve than normal. However, even if limited funds are raised, PayLess will still be able to register profits from its “flip” business segment while cost-effective funding for the “credit rebuilding” business segment can be arranged. The Company does have funding available under a commitment letter but these funds are very expensive; management is trying to avoid their use.
It isunpaid principal balance into the Company’s intentioncommon shares at a discount to concentrate its efforts onmarket of 50% at any time. In the build-outevent of its PayLess Truckers, Inc. subsidiary. Once solidly on itsconversion, Mr. Viola intends to reinvest any proceeds generated by his investment back into the business to fund operations or the growth path, meeting projections and generating positive operating cash flows, additional subsidiary/start-up businesses will be entertained be the parent company.of our subsidiaries.
Senior Management believes it will have sufficient cash flows to continue in business for the foreseeable future. While legal and accounting expenses are significant for a reporting company, we will cover them out of operating cash flows.
ComparisonResults of Operations – For the Three Months Ended Mayended August 31, 2017 to the Three Months Ended May 31, 2016 Results of Operations2018
Sales
The Company did not record anyrecorded sales forof $983,321 during the three months ending Mayended August 31, 2017 or 2016.2018, as compared to zero sales recorded during the same period ended August 31, 2017. Sales increased as a direct result of the operations of the Company’s newly formed subsidiary, Payless Truckers, Inc.
Gross margin
Gross margin is calculated by subtracting cost of goods sold from sales. Gross margin percentage is calculated by dividing gross margins by revenue. Current gross margins percentages may not be indicative of future gross margin performance.
The Company did not record any grossGross margin for the three months ending Mayended August 31, 2018 and 2017 or 2016.were 13.2% and 0.0%, respectively. The increase in gross margin for the current year period is directly attributable to the operations of Payless.
Operating Expenses
During the quarterthree months ended MayAugust 31, 2017,2018, we incurred $29,760$92,037 in operating expenses, as compared to $151,490 in$31,496 during the same period ended MayAugust 31, 2016; a decrease of $121,730.2017. The decreaseincrease in our operating expenses is primarily duedirectly attributable to the Company’s decreased business activity in the current year period.results of operations of our newly formed Payless subsidiary.
Other Income and Expenses
During the quarterthree months ended MayAugust 31, 2017,2018, we realized net other income of $484,904, compared to $95,055 in net other expense in the same period ended May 31, 2016; an increase of $579,959. We incurred interest expense charges of $20,101 on convertible loans, as compared to interest charges of $56,480 in the prior year period. Additionally, we recorded a gain of $505,004 resulting from the change in fair market valuederivative liabilities of derivative instruments,$228,896, as compared to a loss of $41,705 resulting from the change in fair market valuederivative liabilities of derivative instruments($93,666) during the same period ended August 31, 2017. The Company also incurred a net interest expense of $9,278 during the current year period, as compared to $20,101 in expense recorded during the prior year period.
Net Income
The Company hadrecorded net income for the three months ended MayAugust 31, 20172018 of $445,144$257,639, as compared to a net loss of $246,545 for($145,263) during the quartersame period ended MayAugust 31, 2016.2017.
ComparisonResults of Operations – For the SixNine Months Ended MayAugust 31, 2017 to the Six Months Ended May 31, 2016 Results of Operations2018
Sales
The Company did not record anyrecorded sales forof $983,321 during the sixnine months ending Mayended August 31, 2017 or 2016.2018, as compared to zero sales recorded during the same period ended August 31, 2017. Sales increased as a direct result of the operations of the Company’s newly formed subsidiary, Payless Truckers, Inc.
Gross margin
Gross margin is calculated by subtracting cost of goods sold from sales. Gross margin percentage is calculated by dividing gross margins by revenue. Current gross margins percentages may not be indicative of future gross margin performance.
Gross margin for the nine months ended August 31, 2018 and 2017 were 13.2% and 0.0%, respectively. The Company did not record anyincrease in gross margin for the six months ending May 31, 2017 or 2016.current year period is directly attributable to the operations of Payless.
Operating Expenses
During the sixnine months ended MayAugust 31, 2017,2018, we incurred $88,529$142,037 in operating expenses, as compared to $236,012 in$120,025 during the same period ended MayAugust 31, 2016; a decrease of $147,483.2017. The decreaseincrease in our operating expenses is primarily duedirectly attributable to the Company’s decreased business activity in the current year period.results of operations of our newly formed Payless subsidiary.
Other Income and Expenses
During the sixnine months ended MayAugust 31, 2017,2018, we realized net otherincurred a derivative expense charge of $7,901,$63,960, as compared to $423,464 in net other expense in$101,849 during the same period ended MayAugust 31, 2016; an increase of $415,563.2017. We incurred interest expense charges of $40,201 and we recordedrealized a derivative expense of $101,849 on convertible loans, as compared to interest charges of $97,373 and we recorded a derivative expense of $256,344 in the prior year period. Additionally, we recorded a gain of $112,149 resulting from the change in fair market valuederivative liabilities of derivative instruments,$191,457, as compared to a loss of $45,654 resultinggain from the change in fair market valuederivative liabilities of derivative instruments$18,483 during the same period ended August 31, 2017. The Company also incurred a net interest expense of $22,042 during the current year period, as compared to $60,302 in expense recorded during the prior year period.
Net Income
The Company had arecorded net lossincome for the sixnine months ended MayAugust 31, 20172018 of $96,430$93,476, as compared to a net loss of $659,476 for($245,353) during the same period ended MayAugust 31, 2016.2017.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Our management, with the participation of our Chief Executive Officer (“CEO”("CEO") and our Chief Financial Officer (“CFO”("CFO"), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of May 31,November 30, 2017. In designing and evaluating disclosure controls and procedures, we and our management recognize that any disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective. As of May 31,November 30, 2017, based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the CEO and CFO concluded that our disclosure controls and procedures were not effective.
In light of the conclusion that our internal controls over financial reporting were ineffective as of May 31,November 30, 2017, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting in regards to this quarterly report on Form 10-Q. Accordingly, management believes, based on its knowledge, that: (i) this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the periods covered by this report; and (ii) the financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as at, and for, the periods presented in this quarterly report.
Management’sManagement's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Under the supervision of our CEO and CFO,PFO, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31,November 30, 2017 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of May 31,November 30, 2017, we determined that control deficiencies existed that constituted material weaknesses, as described below:
| 1) | lack of documented policies and procedures; | |
| 2) | inadequate resources dedicated to the financial reporting function; and | |
| 3) | ineffective separation of duties due to limited staff. |
Subject to the Company’sCompany's ability to obtain financing and hire additional employees, the Company expects to be able to design and implement effective internal controls in the future that address these material weaknesses.
Accordingly, we concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’sCompany's internal controls.
As a result of the material weaknesses described above, our CEO and CFO have concluded that the Company did not maintain effective internal control over financial reporting as of MayAugust 31, 20172018 based on criteria established in Internal Control—Integrated Framework issued by COSO.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting during the quarter ended MayAugust 31, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are not currently a party toengaged in any material legal proceedings. Our counsel has no formal knowledge in the form of filingsother litigation and management is unaware of any pending or contemplated litigation, claims or assessments. With regardcomplaints that could result in future litigation. Management will seek to matters recognized to involveminimize disputes with its customers but recognizes the inevitability of legal action in today's business environment as an unasserted possible claim or assessment that may call for financial statement disclosure and to which counsel has formed a professional conclusion that the Company should disclosure or consider disclosure concerning such possible claims or assessment, as a matterunfortunate price of professional responsibility to the Company, counsel will so advise and will consult with the company concerning the question of such disclosure and the applicable requirements of Statement of Financial Accounting Standard No. 5. To date, counsel has no formal knowledge of any unasserted possible claims.conducting business.
ITEMItem 1A. RISK FACTORS.Risk Factors.
There have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K for the year ended November 30, 2017 filed with the SEC on July 17, 2018.Not applicable
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
None.During the three months ended August 31, 2018, the Company did not issue any shares of unregistered common stock.
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits and are incorporated herein by this reference.
EXHIBIT
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report has beento be signed belowon its behalf by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
undersigned, thereunto duly authorized.
| (Registrant) | |||||
| By: | /s/ Nicholas Viola | ||||
| Nicholas Viola | |||||
| Chief Executive Officer | |||||
| By: | / | ||||
| Keith Voigts | |||||
| Chief Financial Officer | |||||