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`

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 registrant as specified in its charter)

 

Nevada   04-3667624

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Parker Towers, 104-60, Queens Boulevard,

12th Floor

Forest Hills, New York 11375

(Address of principal executive offices)

 

(347) 242-3148

(Issuer’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Not applicable   Not applicable   Not applicable

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth 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 mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of October 13, 2021, the Registrant had 680,269,385 shares of Common Stock outstanding.

 

 

 

 

 

 

Daniels Corporate Advisory Company, Inc.

INDEX TO FORM 10-Q

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements:  
     
  Condensed Consolidated Balance Sheets at August 31, 2021 (Unaudited) and November 30, 2020 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss and for the Three and Nine Months Ended August 31, 2021 and 2020 (Unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Nine Months Ended August 31, 2021 and 2020 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2021 and 2020 (Unaudited) 7
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
     
Item 4. Controls and Procedures 30
     
PART II. OTHER INFORMATION 31
     
Item 1. Legal Proceedings 31
     
Item 1A. Risk Factors 31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 6. Exhibits 32
     
SIGNATURES 33

 

2

 

 

PART I. FINANCIAL INFORMATION

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

Condensed Consolidated Balance Sheets

August 31, 2021 and November 30, 2020

 

    August 31,     November 30,  
    2021     2020  
   

(Unaudited)

   

(Audited)

 
ASSETS                
Current assets:                
Cash and cash equivalents   $ 294,733     $ 200,858  
Accounts receivable, net     34,778       2,903  
Inventory, net     242,906       204,704  
Prepaid expenses and other current assets     -       82,997  
Right of use assets     6,248       24,993  
Total current assets     578,665       516,455  
Property and equipment, net     803,970       658,985  
Total assets   $ 1,382,635     $ 1,175,440  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable and accrued liabilities   $ 1,367,956     $ 1,304,417  
Notes payable, related party     685,000       685,000  
Notes payable, net of loan discounts    

907,807

      835,734  
Derivative liabilities     1,013,390       1,592,017  
Lease liabilities     6,248       24,993  
Related party payables     194,974       313,782  
Total current liabilities     4,175,375       4,755,943  

Note payables – non current

    336,184       268,500  
Total liabilities     4,511,559       5,024,443  
                 
Commitments and contingencies     -       -  
                 
Preferred Stock:                
Redeemable convertible preferred stock, Series B, $0.001 par value. 211,000 and 125,600 shares issued and outstanding as of August 31, 2021 and November 30, 2020, respectively     74,970       35,536  
                 
Stockholders’ Deficit:                
Preferred stock, $0.001 par value. 50,100,000 shares authorized     -       -  
Series A preferred stock, $0.001 par value. 100,000 shares issued and outstanding as of August 31, 2021 and November 30, 2020, respectively     100       100  
Common stock, $0.001 par value. 6,000,000,000 shares authorized; 602,493,656 and 241,774,989 shares issued and outstanding as of August 31, 2021 and November 30, 2020, respectively     602,494       241,775  
Additional paid-in capital     8,314,190       7,993,255  
Accumulated deficit     (12,056,329 )     (12,055,320 )
Accumulated other comprehensive loss     (64,349 )     (64,349 )
Total stockholders’ deficit     (3,203,894 )     (3,884,539 )
Total liabilities, preferred stock and stockholders’ deficit   $ 1,382,635     $ 1,175,440  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

For the Three and Nine Months Ended August 31, 2021 and 2020

 

    Three Months Ended
August 31,
    Three Months Ended
August 31,
    Nine Months Ended
August 31,
    Nine Months Ended
August 31,
 
    2021     2020     2021     2020  
                         
Sales   $ 1,189,371     $ 800,682     $ 3,544,792     $ 2,891,993  
Cost of goods sold     828,142       616,539       2,486,524       2,386,428  
Gross profit     361,229       184,143       1,058,268       505,565  
Selling, general and administrative expenses     287,521       267,455       951,728       750,774  
Income (loss) from operations     73,708       (83,312 )     106,540       (245,209 )
Other income (expense)                                
Gain (loss) on change in derivative liabilities     334,197       1,331,276       758,504       233,727  
Interest income (expense), net     (183,077 )     (97,811 )     (541,341 )     (264,515 )
Other income (expense), net     11,212       -       23,509       (4,436 )
Total other income (expense)     162,332       1,233,465       240,672       (35,224 )
Income (loss) before income taxes     236,040       1,150,153       347,212       (280,433 )
Provision for income taxes (benefit)     -       -       -       -  
Net income (loss)     236,040       1,150,153       347,212       (280,433 )
Deemed dividend on preferred stock     138,938       141,268       348,221       542,720  
Net income (loss) attributable to common stockholders     97,102       1,008,885     $ (1,009 )   $ (823,153 )
                                 
Basic earnings (loss) per common share   $ 0.00     $ 0.03     $ (0.00 )   $ (0.03 )
Diluted earnings (loss) per common share   $ 0.00    

$

0.00    

$

(0.00 )   $ (0.03 )
                                 
Weighted-average number of common shares outstanding:                                
Basic     510,664,460       29,933,017       377,679,186       28,101,870  
Diluted     1,088,374,678       251,172,633      

377,679,186

     

28,101,870

 
                                 
Comprehensive income (loss):                                
Net income (loss)   $ 236,040     $ 1,150,153     $ 347,212     $ (280,433 )
Unrealized gain (loss)     -       -       -       -  
Comprehensive income (loss)   $ 236,040     $ 1,150,153     $ 347,212     $ (280,433 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)

For the Three Months Ended August 31, 2021 and 2020

 

                                                                                 
    Series B Callable Preferred Stock     Series A Preferred Stock     Common Stock     Additional
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Total
Stockholders’
 
For the Three Months Ended August 31, 2020   Shares     Value     Shares     Value     Shares     Value     Capital     Earnings     Income     Deficit  
                                                             
Balance, May 31, 2020     176,000     $ 23,991       100,000     $ 100       28,658,452     $ 28,658     $ 7,193,495     $ (12,480,617 )   $ (64,349 )   $ (5,322,713 )
                                                                                 
Net income     -       -       -       -       -       -       -       1,150,153       -       1,150,153  
Issuance of preferred stock in connection with sales made under private or public offerings, net of costs and discounts     58,000       -       -       -       -       -       -       -       -       -  
Accrued dividends and accretion of conversion feature on Series B preferred stock     -       106,951       -       -       -       -       -       (106,951 )     -       (106,951 )
Deemed dividends related to conversion feature of Series B preferred stock     -       -       -       -       -       -       -       (34,317 )     -       (34,317 )
Conversion of convertible notes and accrued interest into common stock     -       -       -       -       1,430,000       1,430       (100 )     -       -       1,330  
                                                                                 
Balance, August 31, 2020     234,000     $ 130,942       100,000     $ 100       30,088,452     $ 30,088     $ 7,193,395     $ (11,471,732 )   $ (64,349 )   $ (4,312,498 )

 

 

    Series B Callable Preferred Stock     Series A Preferred Stock     Common Stock     Additional
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Total
Stockholders’
 
For the Three Months Ended August 31, 2021   Shares     Value     Shares     Value     Shares     Value     Capital     Earnings     Income     Deficit  
                                                             
Balance, May 31, 2021     195,500     $ 65,191       100,000     $ 100       430,628,781     $ 430,629     $ 8,278,785     $ (12,153,431 )   $ (64,349 )   $ (3,508,266 )
                                                                                 
Net income     -       -       -       -       -       -       -       236,040       -       236,040  
Issuance of preferred stock in connection with sales made under private or public offerings     112,500       9,760       -       -       -       -       -       -       -       -  
Accrued dividends and accretion of conversion feature on Series B preferred stock     -       102,839       -       -       -       -       -       (102,839 )     -       (102,839 )
Conversion of Series B preferred stock into common stock     (43,500 )     (46,110 )     -       -       24,268,421       24,269       21,841       -       -       46,110  
Relief of derivative liability from conversion of Series B preferred stock into common stock     -       -       -       -       -       -       12,780       -       -       12,780  
Deemed dividends related to conversion feature of Series B preferred stock     -       -       -       -       -       -       -       (13,575 )     -       (13,575 )
Redemption of Series B preferred stock     (53,500 )     (56,710 )     -       -       -       -       -       (22,524 )     -       (22,524 )
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       3,827,162       3,827       7,272       -       -       11,099  
Conversion of convertible notes and accrued interest into common stock     -       -       -       -       143,769,292       143,769       (6,488 )     -       -       137,281  
                                                                                 
Balance, August 31, 2021     211,000     $ 74,970       100,000     $ 100       602,493,656     $ 602,494     $ 8,314,190     $ (12,056,329 )   $ (64,349 )   $ (3,203,894 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)

For the Nine Months Ended August 31, 2021 and 2020

 

    Series B Callable Preferred Stock     Series A Preferred Stock     Common Stock     Additional
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Total
Stockholders’
 
For the Nine Months Ended August 31, 2020   Shares     Value     Shares     Value     Shares     Value     Capital     Earnings     Income     Deficit  
                                                             
Balance, November 30, 2019     -     $ -       100,000     $ 100       25,546,452     $ 25,546     $ 7,171,768     $ (10,648,579 )   $ (64,349 )   $ (3,515,514 )
                                                                                 
Net loss     -       -       -       -       -       -       -       (280,433 )     -       (280,433 )
Issuance of preferred stock in connection with sales made under private or public offerings, net of costs and discounts     234,000       -       -       -       -       -       -       -       -       -  
Accrued dividends and accretion of conversion feature on Series B preferred stock     -       130,942       -       -       -       -       -       (130,942 )     -       (130,942 )
Deemed dividends related to conversion feature of Series B preferred stock     -       -       -       -       -       -       -       (411,778 )     -       (411,778 )
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       1,750,000       1,750       21,250       -       -       23,000  
Conversion of convertible notes and accrued interest into common stock     -       -       -       -       2,792,000       2,792       377       -       -       3,169  
                                                                                 
Balance, August 31, 2020     234,000     $ 130,942       100,000     $ 100       30,088,452     $ 30,088     $ 7,193,395     $ (11,471,732 )   $ (64,349 )   $ (4,312,498 )

 

    Series B Callable Preferred Stock     Series A Preferred Stock     Common Stock     Additional
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Total
Stockholders’
 
For the Nine Months Ended August 31, 2021   Shares     Value     Shares     Value     Shares     Value     Capital     Earnings     Income     Deficit  
                                                             
Balance, November 30, 2020     125,600     $ 35,536       100,000     $ 100       241,774,989     $ 241,775     $ 7,993,255     $ (12,055,320 )   $ (64,349 )   $ (3,884,539 )
                                                                                 
Net income     -       -       -       -       -       -       -       347,212       -       347,212  
Issuance of preferred stock in connection with sales made under private or public offerings, net of costs and discounts     308,000       17,990       -       -       -       -       -       -       -       -  
Accrued dividends and accretion of conversion feature on Series B preferred stock     -       257,400       -       -       -       -       -       (257,400 )     -       (257,400 )
Conversion of Series B preferred stock into common stock     (169,100 )     (179,246 )     -       -       87,854,655       87,855       91,391       -       -       179,246  
Relief of derivative liability from conversion of Series B preferred stock into common stock     -       -       -       -       -       -       178,429       -       -       178,429  
Deemed dividends related to conversion feature of Series B preferred stock     -       -       -       -       -       -       -       (68,297 )     -       (68,297 )
Redemption of Series B preferred stock     (53,500 )     (56,710 )     -       -       -       -       -       (22,524 )     -       (22,524 )
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       14,590,743       14,591       45,757       -       -       60,348  
Conversion of convertible notes and accrued interest into common stock     -       -       -       -       258,273,269       258,273       5,358       -       -       263,631  
                                                                                 
Balance, August 31, 2021     211,000     $ 74,970       100,000     $ 100       602,493,656     $ 602,494     $ 8,314,190     $ (12,056,329 )   $ (64,349 )   $ (3,203,894 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended August 31, 2021 and 2020

 

    Nine Months Ended August 31,     Nine Months Ended August 31,  
    2021     2020  
Cash flows from operating activities:                
Net income (loss)   $ 347,212     $ (280,433 )
Adjustments to reconcile net income (loss) to cash used in operating activities:                
Depreciation and amortization     117,022       37,533  
Amortization of debt discount     -       32,708  
Common stock issued in exchange for fees and services     60,348       23,000  
Loss on change in derivative liabilities     (758,504 )     (233,727 )
Loss on disposal of property and equipment     (23,509 )     -  
Changes in operating assets and liabilities:                
Accounts receivable     (31,876 )     443  
Inventory     (38,202 )     301,680  
Prepaid expenses and other current assets     86,000       1,411  
Right of use assets and lease liabilities     -       1,182  
Accounts payable and accrued liabilities     196,052       11,622  
Related party payables     (112,138 )     136,435  
Other noncurrent liabilities     160,413       -  
Net cash provided by operating activities     2,818       31,854  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (238,498 )     (89,239 )
Net cash used in investing activities     (238,498 )     (89,239 )
                 
Cash flows from financing activities:                
Proceeds from issuance of preferred stock, net of issuance costs     251,290       234,000  
Proceeds from issuance of convertible notes     -       50,000  
Proceeds from commercial loans payable     316,649       -  
Proceeds from related party payables     -       (52,500 )
Redemption of preferred stock     (22,524 )     -  
Repayments of commercial loans payable     (215,860 )     -  
Net cash provided by financing activities     329,555       231,500  
                 
Net increase in cash and cash equivalents     93,875       174,115  
Cash and cash equivalents at beginning of period     200,858       75,914  
Cash and cash equivalents at end of period   $ 294,733     $ 250,029  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Conversion of convertible notes and accrued interest into common stock   $ 263,631     $ 3,169  
Conversion of Series B preferred stock into common stock   $ 179,246     $ -  
Discount for issuance costs and/or beneficial conversion features on convertible notes   $ -     $ 2,500  
Accrued dividends and accretion of conversion feature on Series B preferred stock   $ 257,400     $ 130,942  
Deemed dividends related to conversion feature of Series B preferred stock   $ 68,296     $ 411,778  
Relief of derivative liability from conversion of Series B preferred stock into common stock   $ 178,429     $ -  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

 

DANIELS CORPORATE ADVISORY COMPANY, INC.

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.

 

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 trucking company whose principal business is to acquire, refurbish, add location electronics, advertise and sell or lease commercial vehicles to long haul drivers.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company has prepared the accompanying condensed 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 (“US GAAP”). The Company believes these condensed consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of its consolidated financial position and consolidated results of operations for the periods presented.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Risk and Uncertainties

 

The Company’s future results of operations and financial condition will be impacted by the following factors, among others: its lack of capital resources, dependence on third-party management to operate the companies in which it invests and dependence on the successful development and marketing of any new products in new and existing markets. Generally, the Company is 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 its business.

 

8

 

 

Interim Financial Statements

 

These unaudited consolidated financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended November 30, 2020 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2021. The results of operations for the three and nine months ended August 31, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending November 30, 2021.

 

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.

 

Accounts receivable

 

Accounts receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. The Company believes that no allowance for doubtful accounts is necessary as of August 31, 2021.

 

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. During the nine months ended August 31, 2021, the Company wrote off $36,030 in accounts receivable.

 

Inventory

 

Inventory consists of well-maintained, class 8 heavy duty trucks primarily acquired at auction. Inventory is valued at the lower of cost (specific identification method) or net realizable value. An allowance for potential non-saleable inventory due to movement, current conditions or obsolescence is based upon a review of inventory quantities, past history and expected future usage. The Company believes that no allowance or write-down for slow moving or obsolete inventory is necessary as of August 31, 2021.

 

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.

 

9

 

 

Fair Value of Financial Instruments

 

In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” (ASC 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

  Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
  Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
  Level 3—Inputs that are both significant to the fair value measurement and unobservable.

 

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include 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:

 

  the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects;
 

the general market conditions in the investee’s industry or geographic area, including regulatory or economic changes;

 

10

 

 

  factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and
  the investee’s receipt of additional funding at a lower valuation. If an investee obtains additional funding at a valuation lower than our carrying amount or a new round of equity funding is required for the investee to remain in business, and the new round of equity does not appear imminent, it is presumed that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise.

 

Revenue and Cost Recognition

 

We recognize revenue when we satisfy performance obligations by the transfer of control of products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We recognize revenue from class 8 heavy duty truck sales to customers when we satisfy our performance obligation, at a point in time, when title to the truck is transferred to the customer and collection of cash is certain. Delivery or shipping charges billed to customers, if applicable, are included in product sales and the related shipping costs are included in cost of goods sold. We also recognize revenue from the rental of class 8 heavy-duty trucks to customers. Revenue from these truck rental agreements is recognized based upon the passage of time over the term of the arrangement once control of the underlying asset has been transferred to the customer. The arrangements require weekly payments, and the customer may cancel the agreement at any time by notifying the Company in writing at least 30 days before such termination.

 

Revenue is recognized and related accounts receivable is recorded when the Company has transferred a good or service to a customer and our right to receive consideration is unconditional through the completion of our performance obligation. We had accounts receivable totaling $34,778 and $2,903 as of August 31, 2021 and November 30, 2020, respectively.

 

Right of Use Assets and Lease Liabilities

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (ASC 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning December 1, 2018. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

 

Under ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

 

Operating leases are included in operating lease right-of-use assets and operating lease liabilities on the Company’s condensed consolidated balance sheets. The adoption did not impact the Company’s beginning retained earnings, or prior year consolidated statements of income and statements of cash flows.

 

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Property and Equipment, net

 

Vehicles and equipment, net is reported at cost less accumulated depreciation, which is generally provided on the straight-line method over the estimated useful lives of the assets. Upon sale or retirement of an asset, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized.

 

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 December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. The Company adopted the new standard effective March 1, 2021 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis. That model replaces the probable, incurred loss model for those assets. Through the amendments in that Update, the Board added Topic 326, Financial Instruments— Credit Losses, and made several consequential amendments to the Codification. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company will adopt the new standard effective December 1, 2023 and does not expect the adoption of this guidance to have a material impact on its 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 consolidated financial statements.

 

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NOTE 3 - RELATED PARTY TRANSACTIONS

 

The Company currently rents space from its president, Mr. Arthur Viola. This is a month-to-month rental and there is no commitment beyond each month. The monthly rent expense is approximately $2,100.

 

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 matured 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. No repayment or conversion of the note occurred as of August 31, 2021, and no notice of default has been issued.

 

During 2016, Mr. Viola personally funded $10,200 in expenses on behalf of the Company. These advances were made interest free with no maturity date. No repayments have been made against these advances as of August 31, 2021.

 

Mr. Viola is entitled to receive a salary of $175,000 annually. Mr. Viola has deferred all cash payments of his base salary in an effort to help the Company fund its operations. At August 31, 2021 and November 30, 2020, the total amount of accrued compensation owed to Mr. Viola was $672,284 and $541,034, respectively.

 

The Company’s wholly-owned subsidiary Payless Truckers, Inc. have received net loan proceeds aggregating $148,526 from a related party to help fund the subsidiary’s operations. The loans currently bear interest at rates ranging between 35% - 40%, are secured by certain inventory assets and are payable on demand.

 

Two companies owned by Payless’ President and certain family members has loaned the Company floor plan financing for a monthly fee per truck financed. During the nine months ended August 31, 2021, financing fees and interest totaling approximately $11,134 were paid to the related party. At August 31, 2021, the outstanding loan balance was $2,173.

 

A company owned by Payless’s President serves as an authorized agent to sell trucks for the Company. During the nine months ended August 31, 2021, sales commissions of $36,500 were paid to the related party.

 

A different company owned by a brother of Payless’ president performs contract services, including sales and shop work, for the Company. During the nine months ended August 31, 2021, sales commissions and shop work of $21,549 were paid to the related party.

 

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, 2021, the Company incurred a net loss attributable to stockholders of $1,009. The Company has relied, in large part, upon proceeds received from the issuance of Series B convertible preferred stock, convertible debt and loans from related parties to fund its operations. As of August 31, 2021, the Company had outstanding indebtedness, net of discounts, of $1,928,991 and had $294,733 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.

 

13

 

 

The Company is expanding its operations through its leasing program. It believes that it is well positioned to generate significant recurring revenue and cash flows required to sustain 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 - COVID-19

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency in response to a new strain of a coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the global situation and its effects on the Company’s industry, financial condition, liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021. However, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2021.

 

NOTE 6 - COMMITMENTS AND CONTINGENCIES

 

None.

 

NOTE 7 - PROPERTY AND EQUIPMENT

 

The following table sets forth the components of the Company’s Vehicles and equipment at August 31, 2021 and November 30, 2020:

 

    August 31, 2021     November 30, 2020  
    Cost     Accumulated Depreciation     Net
Book
Value
    Cost     Accumulated Depreciation     Net
Book
Value
 
Machinery and equipment     6,932       (3,345 )     3,587       6,432       (1,738 )     4,694  
Vehicles     950,111       (149,728 )     800,383       711,164       (56,873 )     654,291  
Total property and equipment   $ 957,043     $ (153,073 )   $ 803,970     $ 717,596     $ (58,611 )   $ 658,985  

 

For the nine months ended August 31, 2021 and 2020, the Company recorded depreciation expense of $117,022 and $37,533, respectively.

 

NOTE 8 - LEASES

 

The Company has entered into operating leases primarily for real estate. These leases have terms which range from one year to two years, and often include one or more options to renew. The Company recognizes on the balance sheet at the time of lease commencement or modification a right of use (“ROU”) operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

 

Operating lease ROU assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recorded ROU assets of $6,248 in assets and lease liabilities of $6,248 for operating leases as of August 31, 2021. For the three months ended August 31, 2021, the Company recognized approximately $43,895 in total lease costs.

 

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Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

 

Information related to the Company’s operating right-of-use assets and related lease liabilities were as follows:

 

Cash paid for operating lease liabilities   $ 20,625  
Weighted-average remaining lease term (in years)     0.2  
Weighted-average discount rate     10.0 %
Minimum future lease payments     6,875  

 

The following table presents the Company’s future minimum lease obligation under ASC 840 as of November 30, 2020:

 

2021 fiscal year   $ 27,500  

 

NOTE 9 - 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 10 - INCOME TAXES

 

The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the three months ended August 31, 2021 and 2020:

 

    August 31, 2021     August 31, 2020  
Tax provision (recovery) at effective tax rate (21%)   $ 72,915     $ (58,891 )
Change in valuation reserve     (72,915 )     58,891  
Tax provision (recovery), net   $     $  

 

As of August 31, 2021, the Company had approximately $12.1 million in net operating loss carry forwards for federal income tax purposes which expire at various dates through 2039. Generally, these can be carried forward and applied against future taxable income at the tax rate applicable at that time. We are currently using a 21% effective tax rate for our projected available net operating loss 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:

 

    August 31, 2021     November 30, 2020  
Net operating loss carry forwards available at effective tax rate (21%)   $ 2,532,000     $ 2,532,000  
Valuation Allowances     (2,532,000 )     (2,532,000 )
Deferred Tax Asset   $     $  

 

In accordance with FASB ASC 740 “Income Taxes”, valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all of the deferred tax assets may or will not be realized. The Company has evaluated its ability to realize some or all of the deferred tax assets on its balance sheet and has established a valuation allowance of approximately $2.5 million at August 31, 2021. The Company did not utilize any NOL deductions for the nine months ended August 31, 2021.

 

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NOTE 11 - 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, 2021, 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, 2021, the note balance was $98,459 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, 2021, the note balance was $4,000 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. During the nine months ended August 31, 2021, $78,700 of principal and $97,944 of accrued interest was converted into 177,538,569 shares of the Company’s common stock. See Note 11. As of August 31, 2021, the note balance was $0 and all associated loan discounts were fully amortized.

 

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. At any time following issuance, 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 2.67% to 2.70%; Dividend rate of 0%; and, historical volatility rates ranging from 390% to 423%. As of August 31, 2021, the note balance was $350,000 and all associated loan discounts were fully amortized.

 

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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. At any time following issuance, 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 2.53% to 2.540%; Dividend rate of 0%; and, historical volatility rates ranging from 309% to 339%. During the nine months ended August 31, 2021, $42,743 of principal and $44,243 of accrued interest was converted into 80,734,700 shares of the Company’s common stock. See Note 11. As of August 31, 2021, the note balance was $17,257 and all associated loan discounts were fully amortized.

 

On July 22, 2019, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the amount of $75,250, secured by all of the assets of the Company and its subsidiaries, with principal and interest (stated at 12%) amounts due and payable upon maturity on April 22, 2020. At any time following issuance, 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 1.76% to 1.95%; Dividend rate of 0%; and, historical volatility rates ranging from 1,313% to 1,467%. As of August 31, 2021, the note balance was $75,250 and all associated loan discounts were fully amortized.

 

On May 28, 2021, the Company executed two future receivables sale and purchase agreements with Sutton Funding. Under the agreements, the Company sold an aggregate of $210,000 in future receivables for a purchase amount of $150,000. The aggregate principal amount is payable in daily installments totaling $1,591 until such time that the obligation is fully satisfied. As of August 31, 2021, the total outstanding principal on these future receivable sale and purchase agreements was $91,997.

 

On June 21, 2021, the Company executed a merchant cash advance agreement with Consistent Funding. Under the agreement, the Company sold an aggregate of $142,000 in future receivables for a purchase amount of $100,000. The aggregate principal amount is payable in daily installments totaling $1,076 until such time that the obligation is fully satisfied. As of August 31, 2021, the total outstanding principal on these future receivable sale and purchase agreements was $72,507.

 

From time to time, the Company issues secured promissory notes to individual lenders to finance truck purchases for the Company’s rental program. Annual interest rates on such notes are generally 30% with terms of 48 months. As of August 31, 2021, the total amount outstanding under such notes was $479,297, of which $143,113 is considered current and classified under “Notes payable, net of loan discounts” in the Company’s condensed consolidated financial statements. The remaining noncurrent portion is classified under “Other noncurrent liabilities”. The aggregate monthly payments of principal and interest on these promissory notes is $18,183.

 

NOTE 12 - 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.

 

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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, 2021 and November 30, 2020, the estimated fair value of derivative liability was determined to be $1,013,390 and $1,592,017, respectively. The change in the fair value of derivative liabilities for the nine months ended August 31, 2021 was $758,504 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, 2020:

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
Derivative liabilities on conversion feature   $ 1,592,017     $     $     $ 1,592,017     $ 1,592,017  
Total derivative liabilities   $ 1,592,017     $     $     $ 1,592,017     $ 1,592,017  

 

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, 2021:

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
Derivative liabilities on conversion feature   $ 1,013,390     $     $     $ 1,013,390     $ 1,013,390  
Total derivative liabilities   $ 1,013,390     $     $     $ 1,013,390     $ 1,013,390  

 

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 derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended August 31, 2021:

 

   

Derivative

Liabilities

 
Fair value, November 30, 2020   $ 1,592,017  
Additions     358,306  
Relief from conversion of preferred stock     (178,429 )
Change in fair value     (758,504 )
Fair value, August 31, 2021   $ 1,013,390  

 

NOTE 13 – EQUITY

 

The Company is authorized to issue two classes of shares being designated preferred stock and common stock.

 

Preferred Stock

 

The number of shares of preferred stock authorized is 50,100,000, par value $0.001 per share. At August 31, 2021 and November 30, 2020, the Company had 100,000 shares of Series A preferred stock issued and outstanding, and 211,000 and 125,600 shares of Series B preferred stock issued and outstanding, respectively.

 

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Series A Preferred Stock

 

Mr. Arthur D. Viola, the Company’s president, owns 100,000 shares of super voting preferred stock entitling him to vote sixty-six and two-thirds percent (66.67%) of the common stock shares in any common stock vote.

 

Series B Preferred Stock

 

On February 24, 2020, the Company filed a certificate of designations with the State of Nevada, designating 1,000,000 of its available preferred shares as Series B preferred mandatorily redeemable convertible stock, stated value of $1.00 per share, and with a par value of $0.001 per share. The shares will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely upon redemption, liquidation or conversion. The certificate of designations provides the Company with the opportunity to redeem the Series B shares at various increased prices at time intervals up to the 6-month anniversary of the closing and mandates full redemption on the 12-month anniversary. The holder may convert the Series B shares into shares of the Company’s common stock, commencing on the 6-month anniversary of the closing at a 35% discount to the lowest closing price during the 20-day trading period immediately preceding the notice of conversion.

 

All shares of mandatorily redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 480, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series B mandatory redeemable convertible preferred stock to its estimate of fair value (i.e., redemption value) at period end.

 

On December 31, 2020, the Company sold 53,500 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $50,000 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $88,694, valued using the Black-Scholes Model, associated with Series B preferred shares.

 

On January 13, 2021, the Company sold 43,500 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva, for $40,000 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $50,753, valued using the Black-Scholes Model, associated with Series B preferred shares.

 

On March 2, 2021, the Company sold 43,500 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva, for $40,000 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $55,774, valued using the Black-Scholes Model, associated with Series B preferred shares.

 

On May 20, 2021, the Company sold 55,000 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva, for $51,250 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $46,771, valued using the Black-Scholes Model, associated with Series B preferred shares.

 

On June 28, 2021, the Company redeemed 53,500 shares of its Series B convertible preferred stock from Geneva for $79,234. The Company recorded a $22,524 deemed dividend as a result of the redemption.

 

On June 28, 2021, the Company sold 53,750 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva, for $50,000 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $43,990, valued using the Black-Scholes Model, associated with Series B preferred shares.

 

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On July 14, 2021, the Company sold 58,750 shares of its Series B convertible preferred stock, with an annual accruing dividend of 10%, to Geneva, for $55,000 pursuant to a Series B preferred stock purchase agreement. The Series B preferred stock is classified as temporary equity since the shares are convertible at the option of the shareholder. The Company recorded a derivative liability of $72,325 valued using the Black-Scholes Model, associated with Series B preferred shares.

 

Common Stock

 

The number of shares of common stock authorized is 6,000,000,000, par value $0.001 per share. At August 31, 2021 and November 30, 2020, the Company had 602,493,656 and 241,774,989 shares of common stock, respectively, issued and outstanding.

 

On December 1, 2020, the Company issued 7,420,000 shares of its common stock in exchange for the conversion of $13,356 of Series B convertible preferred stock and accrued dividends.

 

On December 9, 2020, the Company issued 12,434,783 shares of its common stock in exchange for the conversion of $8,580 of convertible debt principal.

 

On January 8, 2021, the Company issued 5,763,581 shares of common stock to two contractors for consulting services provided to the Company.

 

On January 8, 2021, the Company issued 7,227,273 shares of its common stock in exchange for the conversion of $15,900 of Series B convertible preferred stock and accrued dividends.

 

On January 11, 2021, the Company issued 11,081,818 shares of its common stock in exchange for the conversion of $24,380 of Series B convertible preferred stock and accrued dividends.

 

On January 13, 2021, the Company issued 10,095,238 shares of its common stock in exchange for the conversion of $21,200 of Series B convertible preferred stock and accrued dividends.

 

On February 23, 2021, the Company issued 5,000,000 shares of common stock to two contractors for consulting services provided to the Company.

 

On March 16, 2021, the Company issued 15,009,797 shares of its common stock in exchange for the conversion of $18,462 of convertible debt principal.

 

On April 8, 2021, the Company issued 15,758,699 shares of its common stock in exchange for the conversion of $19,383 of convertible debt principal.

 

On April 19, 2021, the Company issued 16,545,100 shares of its common stock in exchange for the conversion of $19,854 of convertible debt principal.

 

On May 4, 2021, the Company issued 17,370,578 shares of its common stock in exchange for the conversion of $22,324 of convertible debt principal and accrued interest.

 

On May 12, 2021, the Company issued 18,237,500 shares of its common stock in exchange for the conversion of $20,791 of accrued interest.

 

On May 24, 2021, the Company issued 7,571,429 shares of its common stock in exchange for the conversion of $15,900 of Series B convertible preferred stock and accrued dividends.

 

On May 25, 2021, the Company issued 19,147,500 shares of its common stock in exchange for the conversion of $18,956 of convertible debt principal.

 

On May 26, 2021, the Company issued 10,095,238 shares of its common stock in exchange for the conversion of $21,200 of Series B convertible preferred stock and accrued dividends.

 

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On May 27, 2021, the Company issued 10,095,238 shares of its common stock in exchange for the conversion of $21,200 of Series B convertible preferred stock and accrued dividends.

 

On June 8, 2021, the Company issued 21,488,300 shares of its common stock in exchange for the conversion of $16,761 of accrued interest on convertible debt.

 

On June 15, 2021, the Company issued 3,827,162 shares of common stock to a contractor for consulting services provided to the Company.

 

On June 24, 2021, the Company issued 22,751,590 shares of its common stock in exchange for the conversion of $17,746 of accrued interest on convertible debt.

 

On July 8, 2021, the Company issued 18,794,702 shares of its common stock in exchange for the conversion of $15,788 of accrued interest on convertible debt.

 

On July 19, 2021, the Company issued 16,736,842 shares of its common stock in exchange for the conversion of $31,800 of Series B convertible preferred stock and accrued dividends.

 

On July 20, 2021, the Company issued 7,531,579 shares of its common stock in exchange for the conversion of $14,310 of Series B convertible preferred stock and accrued dividends.

 

On July 26, 2021, the Company issued 24,824,700 shares of its common stock in exchange for the conversion of $27,804 of convertible debt principal and accrued interest.

 

On August 9, 2021, the Company issued 27,274,500 shares of its common stock in exchange for the conversion of $30,547 of convertible debt principal and accrued interest.

 

On August 25, 2021, the Company issued 28,635,500 shares of its common stock in exchange for the conversion of $28,636 of convertible debt principal and accrued interest.

 

NOTE 14 – SEGMENT INFORMATION

 

The Company views its operations and manages its business as one segment. The Company business is to acquire, refurbish, add location electronics, advertise and either sell or lease its commercial vehicles to independent drivers and operators. The Company’s customers represent a single market or segment. As such, the Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance from the sale or lease of commercial vehicles individually.

 

NOTE 15 – REVENUE RECOGNITION

 

The Company recognizes revenue when it satisfies performance obligations by the transfer of control of products or services to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those products or services.

 

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The Company recognizes revenue from class 8 heavy duty truck sales to customers when it satisfies its performance obligation, at a point in time, when title to the truck is transferred to the customer and collection of cash is certain. Delivery or shipping charges billed to customers, if applicable, are included in product sales and the related shipping costs are included in cost of goods sold. For the three and nine months ended August 31, 2021, the Company recognized sales revenue from the resale of refurbished trucks of $952,231 and $2,885,121, respectively, as compared to sales revenue from the resale of refurbished trucks of $688,932 and $2,570,250, respectively, during the three and nine months ended August 31, 2020.

 

The Company also recognize revenue from the rental of class 8 heavy-duty trucks to customers. Revenue from these truck rental agreements is recognized based upon the passage of time over the term of the arrangement once control of the underlying asset has been transferred to the customer. The arrangements require weekly payments, and the customer may cancel the agreement at any time by notifying the Company in writing at least 30 days before such termination. For the three and nine months ended August 31, 2021, the Company recognized sales revenue from the rental of its trucks of $215,227 and $625,873, respectively, as wells as repair income of $21,913 and $33,798, respectively, as compared to sales revenue from the rental of its trucks of $102,930 and $298,255, respectively, as well as repair income of $8,820 and $23,488, during the three and nine months ended August 31, 2020.

 

NOTE 16 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to August 31, 2021 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 September 2, 2021, the Company issued 15,588,235 shares of its common stock in exchange for the conversion of $26,500 of Series B convertible preferred stock and accrued dividends.

 

On September 3, 2021, the Company issued 11,535,294 shares of its common stock in exchange for the conversion of $19,610 of Series B convertible preferred stock and accrued dividends.

 

On September 9, 2021, the Company issued 18,320,200 shares of its common stock in exchange for the conversion of $18,320 of convertible debt principal and accrued interest.

 

 

 

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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 

August 31, 2021:

 

The results of our August quarter reflect the continuation of the success being experienced in the incubation of our premier start-up subsidiary in the Transportation Services segment of the Trucking Industry. Daniels continued to umbrella its Subsidiary, Payless Truckers’, Inc. expansion through financing sources expensive in nature. Parent Company Management believes the capital costs incurred were warranted and helped produce another stellar quarter for its key growth engine. After months of negotiations, a number of financing options are in final review with some having very favorable terms including long term financing.

 

For the nine months - December 1, 2020 through August 31, 2021 - Total Revenue was $3,544,792 compared to $2,570,250 for the previous fiscal year. This was comprised of $2,885,121 from the Flip business and $659,671 in fleet rental and repairs income. While both businesses continue to produce high margins, our program rental fleet has the potential to be scale-able and provide significant growth because of its predictable gross cash flow / potential earnings stream. The financing alternatives being discussed are primarily for that purpose.

 

During the August quarter, in-house financing potential of aged management award shares - while available and already counted in the outstanding shares total - continued to be held in check in favor of continuing negotiations with financing options which continue to multiply because of proved operating results. The grants were created for a specific purpose – for Senior oversight financial management. operations managers and retained consultants – to participate individually and voluntarily in the in-house control and timing of funding as needed. The eventual use of the award shares could provide selective management of the growth of Payless.

 

Negotiations with long term straight debt lenders and Preferred Stock financiers continued through the August quarter. More creative approaches were developed and options continue to be studied. The main objective - which continued to take more time than expected - is to create alternatives that (a) that are repaid out of cash flows and/or (b) with equity participation that is accretive. Daniels’ senior management believes levered financing - supported by the equity and layered finance options mentioned - will allow Payless to achieve the first plateau of 100 rental fleet trucks in a measured amount of time. We are seriously considering the acquisition of a larger operating facility so we can accelerate the build out of Payless. Current capital negotiations now include a real estate component so we can accelerate our fleet expansion. Our current operating facility has limited monthly capacity and can only add five to six truck additions to our rental fleet.

 

The funding options being discussed will eliminate the need for the continuation of expensive private investor funding. Blended Public market-rates for financing, will allow Daniels / Payless to service a larger debt load and accelerate growth prospects. Our cost of capital should drop significantly from current levels.

 

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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-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. We adjusted our strategy as it relates to the development of subsidiary start-ups and potential acquisitions for common stock. We concentrate on identifying projects that have the potential to produce significant earnings on the leveraged capital base of both the parent and the subsidiary/start-up within an expedited time period.

 

As a result, we 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, service 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 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, Daniels 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.

 

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The Payless two-segment trucking model represents a streamlined Transportation Services Company; one Daniels believes can be restructured/redirected to survive any potential future slow-downs in the economy. The model was developed to allow for the maximum utilization of each truck as it is put into immediate service in numbers that are manageable without causing excess capacity. Top brand/model Tractors with low mileage are handpicked by our operations team - a family with three generations in automotive/trucking. Our drivers continue to be handpicked for their driving skills and their established hauling networks. They rent/switch trailers to meet the available work on Load Boards or haul for major hauling companies using hauling company trailers. Due to the current dislocations in every industry due to the Coronavirus, our independent contractor drivers are constantly on the road.

 

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.

 

Business Strategy - Current Operational Strategy & Current Client Projects

 

Daniels 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 US 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-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 a 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.

 

One of the Company’s primary objectives is to be listed on a major exchange listing. Senior management is estimating at least twenty-four months from commencement of a corporate strategy assignment. Financial results, aided by all participating players, should be forthcoming and recorded in SEC filings. At the same time, a senior management team and Board expanded with highly-credible interim (or permanent) professionals (directors) will be organized in order to successfully navigate the listing process of a major stock exchange. While Daniels believes this process should be successful in the above-noted time period, there is some uncertainty in the process which is dependent upon any past issues the listing committee of a specific exchange may deem necessary to be addressed prior to uplifting. In addition, it may take added time to find the appropriate outside directors that can not only satisfy the listing committee of the exchange but who can also provide added networking/services to build the parent’s and subsidiary’s potential for accelerated growth.

 

A similar effort will be provided to tailor an optimum growth program for the private company client, whether it chooses to remain private or to become a public company through alternative merger opportunities.

 

Growth Strategy - Short-Term Objectives

 

Daniels’ believes that the validity of its corporate strategy model is proven through the success of its initial subsidiary incubation, Payless Truckers, Inc. The growing momentum of this cash flow engine is generating the interest of long-term financing sources. They recognize the obvious - the cash flows from the fleet truck program can cover significant debt service on longer term financing which can accelerate the levered growth of the Company. Daniels has used its publicly-traded common stock in a variety of securities packages, including convertible preferred stock, to launch its premier subsidiary start-up, (Payless Truckers) and will do so for other start-up opportunities being reviewed. Initial subsidiaries (start-up clients) are those that can generate significant return on invested capital so that growth acceleration comes from generic sales/profit growth. Alternative growth options - joint-ventures, marketing agreements, acquisitions/LBO’s - will be applied secondarily as external growth opportunities are entered into to bring the start-up (now considered an early-stage company) to critical mass for stability.

 

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Senior management believes our corporate strategy business model - as an incubator of subsidiary / spin-off companies - to be scalable. Based upon the potential success of the initial corporate strategy consulting assignments creating Daniels’ uplifting to a major stock exchange, Daniels (the publicly traded Exchange listed parent incubator with sophisticated senior advisory and capital raised at very advantageous rates) - may entertain the creation of a franchising program for key US cities and foreign finance centers.

 

Sales and Marketing

 

Daniels’ senior management will concentrate its efforts to expand its corporate strategy and financial advisory services and related specialties in the mini-cap segment of the private and public markets, where Daniels believes it will be effective. Marketing efforts will increase through social and print media efforts and will be in addition to those methods already mentioned herein.

 

Daniels’ objective is to create and help manage implementation of accelerated expansion strategies and in so doing, aid in the creation of financing alternatives to accomplish client goals.

 

Competition

 

Existing and new competitors will continue to improve their services and introduce new services with competitive price and performance characteristics.

 

In periods of reduced demand for our services, we can either choose to maintain market share by reducing our prices to meet competition or maintain prices and choose only those assignments with new clients that have pressing goals to be met that offer Daniels optimum potential for profits and growth.

 

The “collective” corporate financial services, direct and referral, including merchant banking/private equity, are very competitive and fragmented in the Company’s market niche. There are limited barriers to entry and new competitors frequently enter the market. A significant number of our competitors possess substantially greater resources. We will continue to offer equity compensation to our team in order to keep a stable, cohesive team of professionals, which is necessary and key to the creation of operating and capital solutions in a timely fashion.

 

The above competitive considerations are no longer considered by senior advisory/oversight management to be as important as they once were. More importantly, we are now known for the success of our visionary growth strategies and their execution in the development and launch of our premier subsidiary - Payless Truckers Inc. The return on investment on early stages of our developing 100 truck fleet should generate the positive cash flow that will eventually create excess profits and help launch other promising new candidates (start-up clients) as subsidiary deals.

 

General

 

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our financial statements. which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 

 

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Critical Accounting Policies

 

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations and we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

 

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

The accounting policies identified as critical are as follows:

 

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 class 8 heavy duty truck sales to customers when we satisfy our performance obligation, at a point in time, when title to the truck is transferred to the customer. Delivery or shipping charges billed to customers, if applicable, are included in product sales and the related shipping costs are included in cost of goods sold.

 

Fair Value of Assets

 

The Company has adopted the standard FASB Accounting Standards Codification (ASC 820) “Fair Value Measurements and Disclosures” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

  Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
  Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
  Level 3—Inputs that are both significant to the fair value measurement and unobservable.

 

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include investments in available-for-sale securities and accounts payable and accrued expenses. The Company has also applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

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COVID-19

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency in response to a new strain of a coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the global situation and its effects on the Company’s industry, financial condition, liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021. However, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2021.

 

Liquidity and Capital Resources

 

As of August 31, 2021, we had $294,733 in cash and cash equivalents and a working capital deficit of $3,596,710.

 

Net cash provided by operating activities was $2,818 for the nine months ended August 31, 2021, compared to net provided by operating activities of $31,854 during the nine months ended August 31, 2020. The decrease in net cash provided by operating activities is primarily attributable to the change in our working capital assets offset in part by the increase in our net income.

 

Net cash used in investing activities was $238,498 for the nine months ended August 31, 2021, compared to $89,239 during the nine months ended August 31, 2020. The increase in net cash used is directly attributable to the number of trucks purchased for use in our credit rebuilding business line.

 

Net cash provided by financing activities was $329,555 for the nine months ended August 31, 2021, compared to net cash provided of $231,500 during the nine months ended August 31, 2020. The increase in net cash provided by financing activities is directly related to the net proceeds received from merchant loans payable used to finance vehicle purchases. During the nine months ended August 31, 2021, we received $316,649 in proceeds from loans payable and repaid $215,860 of principal on the loans.

 

Our primary source of liquidity has been proceeds received from the issuance of Series B convertible preferred stock, convertible debt and loans from related parties. In addition, cash flow generated by our subsidiary Payless Truckers has helped to sustain the consolidated group.

 

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 operations for the immediate future. Management estimates that it will need up to $2.0 million to fund its PayLess Truckers subsidiary. It is possible that we can still achieve our objectives by use of asset-based lending whereby we can leverage our truck purchases. However, because of the start-up nature of the subsidiary this financing may be harder to achieve than normal. Even if limited funds are raised, PayLess will still be able to register profits from its “flip” program while cost-effective funding for the “credit enhancement” program 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 is the Company’s intention to concentrate its efforts on the build-out of its PayLess Truckers, Inc. subsidiary. Once solidly on its growth path, meeting projections and generating positive operating cash flows, additional subsidiary/start-up businesses will be entertained be the parent company.

 

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.

 

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Comparison of the Three Months Ended August 31, 2021 to the Three Months Ended August 31, 2020 Results of Operations

 

Sales

 

Sales totaled $1,189,371 which were comprised of (i) $952,231 from the resale of refurbished trucks and (ii) $215,227 from vehicle rental agreements, and (iii) $21,913 from other miscellaneous sources for the three months ended August 31, 2021, compared to sales $800,682 which were comprised of (i) $688,932 from the resale of refurbished trucks, (ii) $102,930 from vehicle rental agreements, and (iii) $8,820 from other miscellaneous sources during the three months ended August 31, 2020.

 

Gross Profit

 

Gross profit is calculated by subtracting cost of goods sold from sales. Gross profit percentage is calculated by dividing gross margins by revenue. Current gross profit percentages may not be indicative of future gross profit performance. Gross profit totaled $361,229 for the three months ended August 31, 2021, compared to $184,143 during the three months ended August 31, 2020, respectively. Gross profit percentage was 30.4% and 23.0% for the three months ended August 31, 2021 and 2020, respectively. The increase in gross profit and gross profit percentage for the current year period is attributable to an increase in revenues from truck rental agreements, which typically yield higher profit margins, and improved profit margins from the resale of our trucks.

 

Operating Expenses

 

Operating expenses are primarily comprised of compensation, facilities costs and outsourced services. Operating expenses totaled $287,521 for the three months ended August 31, 2021, compared to operating expenses of $267,455 during the three months ended August 31, 2020 representing an increase of $20,066 or 7.5%. The increase in operating expenses is generally related to the increase in our use of consulting and professional services for corporate matters and financing efforts.

 

Other Income and Expenses

 

Other income totaled $162,332 for the three months ended August 31, 2021, compared to other income of $1,233,465 during the three months ended August 31, 2020 representing a decrease in other income of $1,071,133 or 86.8%. Interest expense increased to $183,077 for the three months ended August 31, 2021 from $97,811 during the three months ended August 31, 2020. The increase in interest expense is due to an increase in debt utilized to purchase trucks for our leasing program. We recorded a gain from the change in fair value of derivative liabilities of $334,197 during the three months ended August 31, 2021, compared to a gain from the change in fair value of derivative liabilities of $1,331,276 during the three months ended August 31, 2020.

 

Net Income Attributable to Common Stockholders

 

The Company realized net income attributable to common stockholders of $97,102 for the three months ended August 31, 2021, compared to net income of $1,008,885 realized during the three months ended August 31, 2020. The decrease in our net income attributable to common stockholders is largely attributable to the decrease in our gain associated with the change in fair value of derivative liabilities.

 

Comparison of the Nine Months Ended August 31, 2021 to the Nine Months Ended August 31, 2020 Results of Operations

 

Sales

 

Sales totaled $3,544,792 which were comprised of (i) $2,885,121 from the resale of refurbished trucks and (ii) $625,873 from vehicle rental agreements, and (iii) $33,798 from other miscellaneous sources for the nine months ended August 31, 2021, compared to sales $2,891,993 which were comprised of (i) $2,570,250 from the resale of refurbished trucks, (ii) $298,255 from vehicle rental agreements, and (iii) $23,488 from other miscellaneous sources during the nine months ended August 31, 2020.

 

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Gross Profit

 

Gross profit is calculated by subtracting cost of goods sold from sales. Gross profit percentage is calculated by dividing gross margins by revenue. Current gross profit percentages may not be indicative of future gross profit performance. Gross profit totaled $1,058,268 for the nine months ended August 31, 2021, compared to $505,565 during the nine months ended August 31, 2020, respectively. Gross profit percentage was 29.9% and 17.5% for the nine months ended August 31, 2021 and 2020, respectively. The increase in gross profit and gross profit percentage for the current year period is attributable to an increase in revenues from truck rental agreements, which typically yield higher profit margins, and improved profit margins from the resale of our trucks.

 

Operating Expenses

 

Operating expenses are primarily comprised of compensation, facilities costs and outsourced services. Operating expenses totaled $951,728 for the nine months ended August 31, 2021, compared to operating expenses of $750,774 during the nine months ended August 31, 2020 representing an increase of $200,954 or 26.8%. The increase in operating expenses is generally related to the increase in our use of consulting and professional services for corporate matters and financing efforts.

 

Other Income and Expenses

 

Other income totaled $240,672 for the nine months ended August 31, 2021, compared to other expenses of $35,224 during the nine months ended August 31, 2020 representing an increase in other income of $275,896 or 783.3%. Interest expense increased to $541,341 for the nine months ended August 31, 2021 from $264,515 during the nine months ended August 31, 2020. The increase in interest expense is due to an increase in debt utilized to purchase trucks for our leasing program. We recorded a gain from the change in fair value of derivative liabilities of $758,504 during the nine months ended August 31, 2021, compared to a gain from the change in fair value of derivative liabilities of $233,727 during the nine months ended August 31, 2020.

 

Net Loss Attributable to Common Stockholders

 

The Company incurred a net loss attributable to common stockholders of $1,009 for the nine months ended August 31, 2021, compared to a net loss of $823,153 incurred during the nine months ended August 31, 2020. The decrease in our net loss attributable to common stockholders is largely attributable to the increase in our gross profits and the gain associated with the change in fair value of derivative liabilities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

ITEM 4 CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of August 31, 2021, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of August 31, 2021 to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that our disclosure controls are effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting during the quarter ended August 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

30

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently a party to any material legal proceedings. Our 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.

 

ITEM 1A. 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, 2020 filed with the SEC on March 24, 2021.

 

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

 

Except as set forth below, there were no sales of equity securities during the period covered by this Quarterly Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company.

 

On June 8, 2021, the Company issued 21,488,300 shares of its common stock in exchange for the conversion of $16,761 of accrued interest on convertible debt.

 

On June 15, 2021, the Company issued 3,827,162 shares of common stock to a contractor for consulting services provided to the Company.

 

On June 24, 2021, the Company issued 22,751,590 shares of its common stock in exchange for the conversion of $17,746 of accrued interest on convertible debt.

 

31

 

 

On July 8, 2021, the Company issued 18,794,702 shares of its common stock in exchange for the conversion of $15,788 of accrued interest on convertible debt.

 

On July 19, 2021, the Company issued 16,736,842 shares of its common stock in exchange for the conversion of $31,800 of Series B convertible preferred stock and accrued dividends.

 

On July 20, 2021, the Company issued 7,531,579 shares of its common stock in exchange for the conversion of $14,310 of Series B convertible preferred stock and accrued dividends.

 

On July 26, 2021, the Company issued 24,824,700 shares of its common stock in exchange for the conversion of $27,804 of convertible debt principal and accrued interest.

 

On August 9, 2021, the Company issued 27,274,500 shares of its common stock in exchange for the conversion of $30,547 of convertible debt principal and accrued interest.

 

On August 25, 2021, the Company issued 28,635,500 shares of its common stock in exchange for the conversion of $28,636 of convertible debt principal and accrued interest.

 

The Company relied upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated under the Securities Act of 1934, as amended, in connection with the foregoing issuances.

 

ITEM 6. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENT SCHEDULES

 

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

No.

  Description
     
31.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS   Inline XBRL Instance Document
     
101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

32

 

 

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

 

Signature   Title   Date
         
/S/ NICHOLAS VIOLA   Chief Executive Officer   October 15, 2021
Nicholas Viola   (Principal Executive Officer)    
         
/S/ KEITH L. VOIGTS   Chief Financial Officer   October 15, 2021
Keith L. Voigts   (Principal Financial and Accounting Officer)    

 

33
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