Notes
to the Consolidated 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.
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.
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.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be in excess
of the Federal Deposit Insurance Corporation-insured limit of $250,000. The Company has not experienced any losses in such accounts,
and management believes the Company is not exposed to any significant credit 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 August 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 August 31, 2017. The
Company bases the cost of the investment sold on the specific identification method using market rates.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “
Derivatives
and Hedging Activities
”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments 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.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value 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.
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:
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Level
1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities.
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●
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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.
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Level
3—Inputs that are both significant to the fair value measurement and unobservable.
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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, accounts payable and accrued expenses, notes
payable, notes payable to related parties, related parties payable and derivative liabilities. 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 (Loss)
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.
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:
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the
investee’s revenue and earnings trends relative to predefined milestones and overall business prospects;
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the
general market conditions in the investee’s industry or geographic area, including regulatory or economic changes;
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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
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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.
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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.
Net
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.
Recently
Issued Accounting Pronouncements
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 considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements
will have a material impact on its unaudited condensed consolidated financial statements.
NOTE
3 - RELATED PARTY TRANSACTIONS
The
Company currently rents space from our president, Arthur Viola. 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, Mr. Viola entered into a $685,000 convertible promissory note agreement with the Company and forgave all remaining
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 stock at a discount to market
of 50% at any time. See Note 8.
During 2016, our
president, Arthur Viola, incurred expenses on behalf of the Company of $10,200 in for working capital. These funds are
interest free with no maturity date. No repayments have been made against these funds as of August 31, 2017.
NOTE
4 - GOING CONCERN
The
accompanying financial statements have been prepared on 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 nine months ended August 31, 2017, the Company incurred net losses from operations of $241,693 and had negative cash flows
from operating activities of $47,027. The Company has relied, in large part, upon debt financing to fund its operations. As of
August 31, 2017, the Company had outstanding indebtedness, net of discounts, of $913,083 and had $57 in cash.
As
such, there is substantial doubt as to 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 sale 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 believes that it is well positioned to generate significant revenue and cash flows from its operations. However, even if 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 ability 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
Commitments
The
Company currently has no long-term commitments.
Contingencies
None.
NOTE
6 - LEGAL PROCEEDINGS
The Company is not
currently a party to any material legal proceedings. The Company’s counsel has no formal knowledge in the form of filings
of any pending or contemplated litigation, claims or assessments. With regard to matters recognized to involve 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 matter 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.
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 nine months ended August 31, 2017 and 2016:
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August 31, 2017
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August 31, 2016
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Tax provision (recovery) at effective tax rate (35%)
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$
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(84,593
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)
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$
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(320,190
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)
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Change in valuation reserve
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84,593
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320,190
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Tax provision (recovery), net
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$
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–
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$
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–
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As
of August 31, 2017, the Company had approximately $8,130,000 in net operating loss carry forwards for federal income tax purposes
which expire at various dates through 2036. Generally, these can be carried forward and applied against future taxable income
at the tax rate applicable at that time. We are currently using a 35% effective tax rate for our projected available net
operating loss carry-forward. However, as a result of potential stock offerings and stock issuance in connection with potential
acquisitions, as well as the possibility of the Company not realizing its business plan objectives and having future taxable income
to offset, the Company’s use of these NOLs may be limited under the provisions of Section 382 of the Internal Revenue Code
of 1986, as amended. The Company is in the process of evaluating the implications of Section 382 on its ability to utilize some
or all of its NOLs.
Components
of deferred tax assets and (liabilities) are as follows:
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August 31, 2017
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November 30, 2016
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Net operating loss carry forwards available at effective tax rate (35%)
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$
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2,845,000
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$
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2,761,000
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Valuation Allowances
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(2,845,000
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)
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(2,761,000
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)
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Deferred Tax Asset
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$
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–
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$
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–
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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 $2,845,000 at August 31, 2017. The Company did not utilize any NOL deductions for the three months ended
August 31, 2017.
NOTE
8 - NOTES PAYABLE
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, 2017, 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, 2017, the
note balance was $119,013 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, 2017, 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%. The Company amended its convertible
note agreement to allow for additional principal borrowings. As of August 31, 2017, the note balance was $61,000 and the associated
unamortized loan discounts were $13,654.
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 were issued at various times but with similar terms and are therefore being termed as
one instrument for this footnote, (the “Note”), is a hybrid instruments 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
has 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, 2017 and November 30, 2016, the estimated fair value of derivative liability was determined to be $367,400 and $284,034,
respectively. During the current year period, the Company recognized additional derivative liabilities of $101,849. The change
in the fair value of derivative liabilities for the nine months ended August 31, 2017 was $112,149 resulting in an aggregate gain
on derivative liabilities.
Summary
of Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed at November 30, 2016:
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Fair Value Measurement Using
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Carrying Value
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Level 1
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Level 2
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Level 3
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Total
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Derivative liabilities on conversion feature
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284,034
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–
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|
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–
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|
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|
284,034
|
|
|
|
284,034
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|
Total derivative liabilities
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$
|
284,034
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|
|
$
|
–
|
|
|
$
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–
|
|
|
$
|
284,034
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|
|
$
|
284,034
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|
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 August 31, 2017:
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Fair Value Measurement Using
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Carrying Value
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Level 1
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Level 2
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Level 3
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Total
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Derivative liabilities on conversion feature
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367,400
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–
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|
|
–
|
|
|
|
367,400
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|
|
|
367,400
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|
Total derivative liabilities
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|
$
|
367,400
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|
|
$
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–
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|
|
$
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–
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|
$
|
367,400
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|
|
$
|
367,400
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|
Summary
of the Changes in Fair Value of Level 3 Financial Liabilities
The
table below provides a summary of the changes in fair value 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, 2017:
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Derivative Liabilities
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Fair value, November 30, 2016
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$
|
284,034
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Additions
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|
101,849
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|
|
Change in fair value
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|
|
(18,483
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)
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Fair value, August 31, 2017
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$
|
367,400
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|
NOTE
10 – EQUITY ISSUANCES
During
the nine months ended August 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.
NOTE
11 - SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to August 31, 2017 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:
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.