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