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.
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.
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;
|
|
|
●
|
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.
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.
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.
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:
SCHEDULE OF COMPONENTS OF VEHICLES AND EQUIPMENT
|
|
|
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.
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:
SCHEDULE OF OPERATING RIGHT-OF-USE ASSETS AND RELATED LEASE LIABILITIES
|
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:
SCHEDULE OF FUTURE MINIMUM LEASE OBLIGATION
|
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:
SCHEDULE OF INCOME TAX EXPENSE (BENEFIT)
|
|
|
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:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
|
|
|
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.
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.
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.
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:
SUMMARY OF FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS
|
|
|
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:
SUMMARY OF CHANGES IN FAIR VALUE OF LEVEL 3 FINANCIAL LIABILITIES
|
|
|
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.
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 shares of its Series B convertible preferred stock, with an annual accruing dividend of ,
to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $ 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 shares of its Series B convertible preferred stock, with an annual accruing dividend of %,
to Geneva, for $ 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 $, valued
using the Black-Scholes Model, associated with Series B preferred shares.
On
March 2, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of , to
Geneva, for $ 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 $, valued
using the Black-Scholes Model, associated with Series B preferred shares.
On
May 20, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of , to
Geneva, for $ 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 $, valued
using the Black-Scholes Model, associated with Series B preferred shares.
On
June 28, 2021, the Company redeemed shares of its Series B convertible preferred stock from Geneva for $. The Company recorded
a $ deemed dividend as a result of the redemption.
On
June 28, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of , to
Geneva, for $ 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 $, valued
using the Black-Scholes Model, associated with Series B preferred shares.
On
July 14, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of , to
Geneva, for $ 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 $ 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.
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.
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.