UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ________________ to ________________.
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of April 20, 2022, the Registrant had shares of Common Stock outstanding.
Daniels Corporate Advisory Company, Inc.
INDEX TO FORM 10-Q
| 2 |
PART I. FINANCIAL INFORMATION
DANIELS CORPORATE ADVISORY COMPANY, INC.
Condensed Consolidated Balance Sheets
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Other receivables | - | |||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities – related party | ||||||||
| Notes payable, related party | ||||||||
| Notes payable, net of loan discounts | ||||||||
| Derivative liabilities | ||||||||
| Related party payables | ||||||||
| Total current liabilities | ||||||||
| Notes payable – non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | - | - | ||||||
| Preferred Stock: | ||||||||
| Redeemable convertible preferred stock, Series B, $ par value. shares authorized; and shares issued and outstanding as of February 28, 2022 and November 30, 2021, respectively | ||||||||
| Stockholders’ Deficit: | ||||||||
| Series A preferred stock, $ par value. shares authorized; shares issued and outstanding as of February 28, 2022 and November 30, 2021, respectively | ||||||||
| Common stock, $ par value. shares authorized; and shares issued and outstanding as of February 28, 2022 and November 30, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, preferred stock and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
DANIELS CORPORATE ADVISORY COMPANY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the Three Months Ended February 28, 2022 and 2021
| Three Months Ended | Three Months Ended | |||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expense) | ||||||||
| Loss on change in derivative liabilities | ( | ) | ( | ) | ||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes (benefit) | - | - | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Deemed dividend on preferred stock | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted-average number of common shares outstanding: | ||||||||
| Basic and diluted | ||||||||
| Comprehensive loss: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Unrealized gain (loss) | - | - | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
DANIELS CORPORATE ADVISORY COMPANY, INC.
Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)
For the Three Months Ended February 28, 2022
| Series B Callable Preferred Stock | Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Deficit | Income | Deficit | |||||||||||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||
| Issuance of preferred stock in connection with sales made under private or public offerings | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Accrued dividends and accretion of conversion feature on Series B preferred stock | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | ( | ) | ( | ) | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||
| Relief of derivative liability from conversion of Series B preferred stock into common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Deemed dividends related to conversion feature of Series B preferred stock | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||
Conversion of convertible notes and accrued interest into common stock | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||
Relief of derivative liability from conversion of convertible notes and accrued interest into common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
DANIELS CORPORATE ADVISORY COMPANY, INC.
Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)
For the Three Months Ended February 28, 2021
| Series B Callable Preferred Stock | Series A Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | Accumulated
Other Comprehensive | Total
Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Deficit | Income | Deficit | |||||||||||||||||||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||
Issuance of preferred stock in connection with sales made under private or public offerings, net of costs and discounts | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
Accrued dividends and accretion of conversion feature on Series B preferred stock | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Relief of derivative liability from conversion of Series B preferred stock into common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
Deemed dividends related to conversion feature of Series B preferred stock | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
Conversion of convertible notes and accrued interest into common stock | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
DANIELS CORPORATE ADVISORY COMPANY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended February 28, 2022 and 2021
| Three Months Ended | Three Months Ended | |||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Cash flows from operating activities of continuing operations: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | - | |||||||
| Common stock issued in exchange for fees and services | ||||||||
| Loss on change in derivative liabilities | ||||||||
| Note conversion fees | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | - | |||||
| Accounts payable and accrued liabilities – related party | - | |||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | - | |||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Related party payables | ( | ) | ||||||
| Notes payable – non-current | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | - | ( | ) | |||||
| Net cash used in financing activities | - | ( | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of preferred stock, net of issuance costs | ||||||||
| Proceeds from commercial loans payable | ||||||||
| Repayments of commercial loans payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of convertible notes and accrued interest into common stock | $ | $ | ||||||
| Conversion of Series B preferred stock into common stock | $ | $ | ||||||
| Accrued dividends and accretion of conversion feature on Series B preferred stock | $ | $ | ||||||
| Deemed dividends related to conversion feature of Series B preferred stock | $ | $ | ||||||
| Relief of derivative liability from conversion of Series B preferred stock into common stock | $ | $ | ||||||
| Relief of derivative liability from conversion of convertible notes into common stock | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
DANIELS CORPORATE ADVISORY COMPANY, INC.
Notes to the Condensed 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
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, 2021 and notes thereto and other pertinent information contained in our Form 10-K/A the Company has filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022. The results of operations for the three months ended February 28, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending November 30, 2022.
| 8 |
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 $
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
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 three months ended February 28, 2022, the Company
wrote off $
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
Related Party Balances and Transactions
The Company follows FASB ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transaction. (Note 3)
Convertible Instruments
The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
| 9 |
Fair Value of Financial Instruments
In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” (ASC 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| ● | Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |
| ● | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| ● | Level 3—Inputs that are both significant to the fair value measurement and unobservable. |
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, accounts payable and accrued expenses, notes payable, notes payable to related parties, related parties payable and derivative liabilities. The Company has also applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.
Comprehensive Income (Loss)
ASC Topic 220 (SFAS No. 130) establishes standards for reporting comprehensive income (loss) and its components. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from non-owner sources.
Other-Than-Temporary Impairment
All of our non-marketable and other investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary.
When events or changes in circumstances indicate that long-lived assets other than goodwill may be impaired, an evaluation is performed to determine if a write-down to fair value is required. When an asset is classified as held for sale, the asset’s book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. In addition, depreciation and amortization ceases while it is classified as held for sale.
The indicators that we use to identify those events and circumstances include:
| ● | the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects; | |
| ● | the general market conditions in the investee’s industry or geographic area, including regulatory or economic changes; | |
| ● | 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. |
| 10 |
Revenue and Cost Recognition
The Company recognizes revenue in accordance with ASC 606, “Revenue Recognition” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
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 $
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.
| 11 |
As of February 28, 2022, the Company’s office is currently leased on month-to-month basis. The Company does not have ROU assets and operating lease liabilities as of February 28, 2022.
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.
The Company accounts for share-based compensation under the fair value method in accordance with ASC 718, “Compensation – Stock Compensation,” which requires all such compensation to employees and non-employees to be calculated based on its fair value of the equity instrument at the grant date and recognized in the earnings over the requisite service or vesting period.
During
the three months ended February 28, 2022, the Company issued shares of common stock valued at $
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.
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.
Comparative Figures
Certain figures have been reclassified to conform with current year presentation.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a CCF and (2) convertible instruments with a beneficial conversion feature (“BCF”). With the adoption of ASU 2020-06, entities will not separately present in equity an embedded conversion feature these debts. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company has chosen to early adopt this standard on December 1, 2021 financial statements and did not record BCF on the issuance of convertible notes with conversion rate below the Company’s market stock price on the date of note issuance.
| 12 |
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 $
Effective
December 15, 2016, Mr. Viola entered into a $
During
2016, Mr. Viola personally funded $
Mr.
Viola is entitled to receive a salary of $
The
Company’s wholly-owned subsidiary Payless Truckers, Inc. has received net loan proceeds aggregating $
Two
companies owned by Payless’ former President and certain family members have loaned the Company floor plan financing for a monthly
fee per truck financed. During the three months ended February 28, 2022 and 2021, financing fees and interest totaling approximately
$
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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 three months ended February 28, 2022, the Company realized net loss of $
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
In early 2020, the World Health Organization declared the rapidly spreading coronavirus disease (COVID-19) outbreak a pandemic. This pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. Due to the outbreak and spread of COVID-19, the Company’s management and advisors responsible for financial reporting have experienced administrative delays, include travel restrictions and reduced work hours. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at February 28, 2022. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained.
NOTE 6 - PROPERTY AND EQUIPMENT
The following table sets forth the components of the Company’s Vehicles and equipment at February 28, 2022 and November 30, 2021:
| 28-Feb-22 | 30-Nov-21 | |||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Machinery and equipment | ( | ) | ( | ) | ||||||||||||||||||||
| Vehicles | ( | ) | ( | ) | ||||||||||||||||||||
| Total property and equipment | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
For
the three months ended February 28, 2022 and 2021, the Company recorded depreciation expense of $
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NOTE 7 - NOTES PAYABLE
Convertible Notes
On
August 31, 2015, the Company entered in convertible note agreement with a private and accredited investor, LG Capital, in the amount
of $
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 $
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 $
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 $
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On
October 15, 2018, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the amount
of $
On
February 14, 2019, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the
amount of $
On
July 22, 2019, the Company entered in convertible note agreement with a private and accredited investor, Auctus Fund LLC, in the amount
of $
Commercial Loans
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 $
On
June 21, 2021, the Company executed a merchant cash advance agreement with Consistent Funding. Under the agreement, the Company sold
an aggregate of $
On
November 8, 2021, the Company executed a merchant cash advance agreement with Consistent Funding. Under the agreement, the Company sold
an aggregate of $
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On
December 10, 2021, the Company executed a merchant cash advance agreement with Consistent Funding. Under the agreement, the Company sold
an aggregate of $
On
January 26, 2022, the Company executed a merchant cash advance agreement with Gem Funding. Under the agreement, the Company sold an aggregate
of $
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
NOTE 8 - 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 February 28, 2022 and November 30, 2021, the estimated fair value of derivative liability was determined to be $
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, 2021:
| Carrying | Fair Value Measurement Using | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Derivative liabilities on conversion feature | $ | $ | $ | $ | $ | |||||||||||||||
| Total derivative liabilities | $ | $ | $ | $ | $ | |||||||||||||||
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Summary of Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed at February 28, 2022:
| Carrying | Fair Value Measurement Using | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Derivative liabilities on conversion feature | $ | $ | $ | $ | $ | |||||||||||||||
| Total derivative liabilities | $ | $ | $ | $ | $ | |||||||||||||||
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 three months ended February 28, 2022:
| Derivative | ||||
| Liabilities | ||||
| Balance - November 30, 2021 | $ | |||
| Addition of new derivative liabilities from issuance of series B preferred stock | ||||
| Relief of derivative liabilities from conversion of convertible notes | ( | ) | ||
| Relief of derivative liabilities from conversion of series B preferred stock | ( | ) | ||
| Loss on change in fair value of the derivative | ||||
| Balance - February 28, 2022 | $ | |||
NOTE 9 – 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 , par value $ per share. At February 28, 2022 and November 30, 2021, the Company had shares of Series A preferred stock issued and outstanding, and and , shares of Series B preferred stock issued and outstanding, respectively.
Series A Preferred Stock
Mr.
Arthur D. Viola, the Company’s president,
Series B Preferred Stock
On
February 24, 2020, the Company filed a certificate of designations with the State of Nevada, designating of its available preferred
shares as Series B preferred mandatorily redeemable convertible stock, stated value of $ per share, and with a par value of $
per share. The shares will carry an annual ten percent (
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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
On
January 13, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
March 2, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
May 20, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
June 28, 2021, the Company redeemed shares of its Series B convertible preferred stock from Geneva for $
On
June 28, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
July 14, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
September 2, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
On
September 3, 2021, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
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On
February 1, 2022, the Company sold shares of its Series B convertible preferred stock, with an annual accruing dividend of
As
of February 28, 2022, the estimated fair value of these derivative liabilities was determined to be $
During
the three months ended February 28, 2022, the Company recorded $
Common Stock
The number of shares of common stock authorized is , par value $ per share.
Three months ended February 28, 2022
During
the three months ended February 28, 2022, the Company issued shares of common stock for the conversion of
convertible note principal amount of $
During the three months ended February 28, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock and accrued dividend.
During
the three months ended February 28, 2022, the Company issued shares of common stock
valued at $
Three months ended February 28, 2021
During the three months ended February 28, 2021, the Company issued shares of common stock for the conversion of convertible note principal and accrued interest.
During the three months ended February 28, 2021, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
During
the three months ended February 28, 2021, the Company issued shares of
common stock valued at $
At February 28, 2022 and November 30, 2021, the Company had and shares of common stock, respectively, issued and outstanding.
NOTE 10 – SEGMENT INFORMATION
The
Company views its operations and manages its business as
NOTE 11 – 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.
| 20 |
| Three Months Ended | ||||||||
| February 28, | ||||||||
| Revenue | 2022 | 2021 | ||||||
| Resale of refurbished trucks | $ | $ | ||||||
| Truck rental | ||||||||
| Repair income | ||||||||
| Miscellaneous income | - | |||||||
| Total Revenue | $ | $ | ||||||
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 months ended February 28, 2022, the Company recognized sales revenue from the resale of refurbished trucks of $
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.
NOTE 12 - SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to February 28, 2022, to the date these unaudited consolidated condensed 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
March 4, 2022, the Company executed a merchant cash advance agreement with E Advance Services, LLC. Under the agreement, the Company
sold an aggregate of $
On March 29, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
On March 31, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
On April 4, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
On April 8, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
On April 12, 2022, the Company issued shares of common stock for the conversion of shares of series B preferred stock.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The results of our quarter ended February 28, 2022 reflect the continuation of the business process being experienced in the incubation of our premier start-up subsidiary in the Transportation Services segment of the Trucking Industry. Daniels continued to umbrella its subsidiary, Payless Truckers, Inc.’s expansion through financing sources expensive in nature. Parent Company Management believes the capital costs incurred were warranted and helped produce results in a very challenging quarter for its key growth engine. After months of negotiations, a number of financing options are in final review with some having very favorable terms including long-term financing.
For the three months - December 1, 2021, through February 28, 2021 - Total Revenue was $582,769 compared to $1,212,942 for the corresponding quarter of the previous fiscal year. This was comprised of $377,042 from the Flip business and $205,727 in fleet rental and repairs income. While both businesses continue to produce high margins, our activities were severely limited by (1) the substantial increase in prices of used trucks which we acquire to build our business, (2) the lack of completed financing transactions to continue our growth. Our program rental fleet has the potential to be scale-able and provide significant growth because of its predictable gross cash flow / potential earnings stream. We are confident that the industry will soon start coping with the changes in the above factors. We are receiving increasing interest in our products and are confident that the financing alternatives being discussed will allow us to meet the increasing demand in the near future. For example, we have recently been able to find trucks for our flip business at reasonable prices that allow us to maintain our margins. Further, demand for our rental trucks remain strong as drivers pass their increased costs on to their contract customers. The demand is growing, and our new financing arrangements will allow us to meet that demand.
In response to the inflationary affect on truck prices, we have begun selling some of our rent truck inventory in order to capitalize on their increased values. This not only provides us with substantial profits on the sales (our depreciated costs are relatively low), but it also allows us to rebuild our fleet from trucks that are aging to newer and more reliable units as we invest these profits back into the fleet.
During the February quarter, in-house financing potential of aged management award shares - while available and already counted in the outstanding shares total - continued to be held in check in favor of continuing negotiations with financing options which continue to multiply because of proved operating results. The grants were created for a specific purpose – for Senior oversight financial management. operations managers and retained consultants – to participate individually and voluntarily in the in-house control and timing of funding as needed. The eventual use of the award shares could provide selective management of the growth of Payless.
Negotiations with long term straight debt lenders and Preferred Stock financiers continued through the February quarter. More creative approaches were developed, and options continue to be studied. The main objective - which continued to take more time than expected - is to create alternatives that (a) that are repaid out of cash flows and/or (b) with equity participation that is accretive. Daniels’ senior management believes levered financing - supported by the equity and layered finance options mentioned - will allow Payless to achieve the first plateau of 100 rental fleet trucks in a measured amount of time. We realize that we will need to acquire a larger operating facility so we can accelerate the build out of Payless. Current capital negotiations now include a real estate component so we can accelerate our fleet expansion. Our current operating facility has limited capacity and can only add five to six truck additions to our rental fleet each month.
The funding options being discussed will eliminate the need for the continuation of expensive private investor funding. Blended Public market-rates for financing, will allow Daniels / Payless to service a larger debt load and accelerate growth prospects. Our cost of capital should drop significantly from current levels.
As used in this interim report, the terms “we”, “us”, “our”, the “Company”, the “Registrant”, “Daniels Corporate Advisory”, “DCAC” and “Daniels” mean Daniels Corporate Advisory Company, Inc. unless otherwise indicated.
Overview
Daniels Corporate Advisory creates and implements corporate strategy alternatives for the mini-cap public or private company client. The addition of new business opportunities and the location of professional talent for implementation is anticipated through the full-time efforts of our senior management. These efforts are to be expanded in the United States and in foreign capitals by an expanding advisory board and through the networks of independent consultants. Principals of the respective client company will open their networks to augment professional access for specialties the Daniels corporate strategy consultants believe are needed in a joint-venture, jointly-controlled undertaking created for the client’s optimum growth.
Daniels may provide the client with multiple corporate strategies/opportunities including joint-ventures, marketing opportunity agreements and/or potential acquisitions structured in leveraged buyout format. One or a combination of these strategies would allow the client to enter new market niches or expand further into existing ones.
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Recent Business Developments
The Company is operating through the corporate strategy segment of its business. It is attempting to build its own critical mass by creation of start-up subsidiaries it believes have promise/potential. The stated goal is for the parent (DCAC) company to consolidate the critical mass of the subsidiary/start-ups with that of the parent for eventually listing on a major stock exchange. We have continued to focus our efforts on the build out of the Daniels corporate strategy model. We adjusted our strategy as it relates to the development of subsidiary start-ups and potential acquisitions for common stock in light of the Coronavirus outbreak with its changes in how people and businesses operate as well as the inflationary trend in the US economy. However, in light of these new circumstances, we concentrate on identifying projects that have the potential to produce significant earnings on the leveraged capital base of both the parent and the subsidiary/start-up within an expedited time period.
We formed Payless Truckers, Inc. (“Payless”), a wholly-owned subsidiary which was incorporated in the State of Nevada, on April 11, 2018. Payless is a start-up, service company in the trucking industry. It has two business segments with its launch and current results coming from the “flip” segment, whose principal business is to acquire class 8 heavy duty trucks, refurbish them, add location electronics, advertise and sell to independent drivers and operators. The second segment is the “credit rebuilding segment” where class 8 heavy duty trucks, owned by Daniels/Payless, are rented to experienced independent drivers. These independent drivers rent for a period of up to five years and have the option to buy the vehicle at retail value every six months. In an effort to grow quickly and profitably, Daniels entered into an operating agreement with a senior operating management team in an effort to drive the business and better realize its earnings and growth potential.
The Payless two-segment trucking model represents a streamlined Transportation Services Company; one Daniels believes can be restructured/redirected to survive any potential future slow-downs in the economy. The model was developed to allow for the maximum utilization of each truck as it is put into immediate service in numbers that are manageable without causing excess capacity. Top brand/model Tractors with low mileage are handpicked by our operations team - a family with three generations in automotive/trucking. Our drivers continue to be handpicked for their driving skills and their established hauling networks. They rent/switch trailers to meet the available work on Load Boards or haul for major hauling companies using hauling company trailers. Due to the current dislocations in every industry due to the Coronavirus, our independent contractor drivers are constantly on the road.
We hope to further enhance our plan for growth beginning in future years by forming joint-ventures and/or partnerships with truck maintenance companies across the United States in key traffic hubs. This will potentially afford independent drivers and operators the opportunity to be serviced by trusted maintenance facilities under our warranty program. This growth plan is a natural result of our ability to build our truck rental fleet.
Business Strategy - Current Operational Strategy & Current Client Projects
Daniels creates and implements corporate strategy alternatives for the mini-cap public or private company client. The addition of new business opportunities and the location of professional talent for implementation is anticipated through the full-time efforts of our senior management. These efforts are to be expanded in the US and in Foreign capitals by an expanding advisory board and through the networks of independent consultants. Principals of the respective client company will open their networks to augment professional access for specialties the Daniels corporate strategy consultants believe are needed in a joint venture, (jointly-controlled) undertaking created for the client’s optimum growth.
Daniels may provide the client with multiple corporate strategies /opportunities including joint-ventures, marketing opportunity agreements and/or potential acquisitions structured in a leveraged buyout format. One or a combination of these strategies would allow the client to enter new market niches or expand further into existing ones.
One of the Company’s primary objectives is to be listed on a major exchange listing. Senior management is estimating at least twenty-four months from commencement of a corporate strategy assignment. Financial results, aided by all participating players, should be forthcoming and recorded in SEC filings. At the same time, a senior management team and Board expanded with highly-credible interim (or permanent) professionals (directors) will be organized in order to successfully navigate the listing process of a major stock exchange. While Daniels believes this process should be successful in the above-noted time period, there is some uncertainty in the process which is dependent upon any past issues the listing committee of a specific exchange may deem necessary to be addressed prior to uplifting. In addition, it may take added time to find the appropriate outside directors that can not only satisfy the listing committee of the exchange but who can also provide added networking/services to build the parent’s and subsidiary’s potential for accelerated growth.
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A similar effort will be provided to tailor an optimum growth program for the private company client, whether it chooses to remain private or to become a public company through alternative merger opportunities.
Growth Strategy - Short-Term Objectives
Daniels believes that the validity of its corporate strategy model is proven through the success of its initial subsidiary incubation, Payless Truckers, Inc. The fast growth experience of this startup is generating the interest of long-term financing sources. They recognize the obvious - the cash flows from the fleet truck program can cover significant debt service on longer term financing which can accelerate the levered growth of the Company. Daniels has used and will continue to use its publicly-traded common stock in a variety of securities packages, including convertible preferred stock, to launch its premier subsidiary start-up, (Payless Truckers) and will do so for other start-up opportunities being reviewed. Initial subsidiaries (start-up clients) are those that can generate significant return on invested capital so that growth acceleration comes from generic sales/profit growth. Alternative growth options - joint-ventures, marketing agreements, acquisitions/LBO’s - will be applied secondarily as external growth opportunities are entered into to bring the start-up (now considered an early-stage company) to critical mass for stability.
Senior management believes our corporate strategy business model - as an incubator of subsidiary / spin-off companies - to be scalable. Based upon the potential success of the initial corporate strategy consulting assignments creating Daniels’ uplifting to a major stock exchange, Daniels (the publicly traded Exchange listed parent incubator with sophisticated senior advisory and capital raised at very advantageous rates) - may entertain the creation of a franchising program for key US cities and foreign finance centers.
Sales and Marketing
Daniels’ senior management will concentrate its efforts to expand its corporate strategy and financial advisory services and related specialties in the mini-cap segment of the private and public markets, where Daniels believes it will be effective. Marketing efforts will increase through social and print media efforts and will be in addition to those methods already mentioned herein.
Daniels’ objective is to create and help manage implementation of accelerated expansion strategies and in so doing, aid in the creation of financing alternatives to accomplish client goals.
Competition
Existing and new competitors will continue to improve their services and introduce new services with competitive price and performance characteristics.
In periods of reduced demand for our services, we can either choose to maintain market share by reducing our prices to meet competition or maintain prices and choose only those assignments with new clients that have pressing goals to be met that offer Daniels optimum potential for profits and growth.
The “collective” corporate financial services, direct and referral, including merchant banking/private equity, are very competitive and fragmented in the Company’s market niche. There are limited barriers to entry and new competitors frequently enter the market. A significant number of our competitors possess substantially greater resources. We will continue to offer equity compensation to our team in order to keep a stable, cohesive team of professionals, which is necessary and key to the creation of operating and capital solutions in a timely fashion.
The above competitive considerations are no longer considered by senior advisory/oversight management to be as important as they once were. More importantly, we are now known for the success of our visionary growth strategies and their execution in the development and launch of our premier subsidiary - Payless Truckers Inc. The return on investment on early stages of our developing 100 truck fleet should generate the positive cash flow that will eventually create excess profits and help launch other promising new candidates (start-up clients) as subsidiary deals. The challenges of the past year have caused management to rededicate its mission to find creative ways to serve our customers in ways that allow us to regain our growth momentum from satisfied customers.
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General
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our financial statements. which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Critical Accounting Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations and we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
The accounting policies identified as critical are as follows:
Revenue and Cost Recognition
We recognize revenue when we satisfy performance obligations by the transfer of control of products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We recognize revenue from class 8 heavy duty truck sales to customers when we satisfy our performance obligation, at a point in time, when title to the truck is transferred to the customer. Delivery or shipping charges billed to customers, if applicable, are included in product sales and the related shipping costs are included in cost of goods sold.
Fair Value of Assets
The Company has adopted the standard FASB Accounting Standards Codification (ASC 820) “Fair Value Measurements and Disclosures” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| ● | Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |
| ● | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| ● | Level 3—Inputs that are both significant to the fair value measurement and unobservable. |
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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.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
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 2022. 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 2022.
Liquidity and Capital Resources
| February 28, | November 30, | Changes | ||||||||||||||
| Working Capital Data: | 2022 | 2021 | Amount | % | ||||||||||||
| Current Assets | $ | 341,365 | $ | 403,584 | $ | (62,219 | ) | (15 | )% | |||||||
| Current Liabilities | $ | (4,184,421 | ) | $ | (3,967,120 | ) | (217,301 | ) | 5 | % | ||||||
| Working Capital Deficiency | $ | (3,843,056 | ) | $ | (3,563,536 | ) | (279,520 | ) | 8 | % | ||||||
As of February 28, 2022, we had $104,493 in cash and cash equivalents and a working capital deficit of $3,834,056.
Our working capital deficit at February 28, 2022 was $3,843,056 as compared to working capital deficit of $3,563,536 as of November 30, 2021. The increase in working capital deficit was mainly attributed to an increase in derivative liabilities, a decrease in cash and cash equivalents and an increase in accounts payable to the related party.
The following table sets forth certain information about our cash flow during the three months ended February 28, 2022 and February 28, 2021:
| Three Months Ended | ||||||||||||||||
| February 28, | Changes | |||||||||||||||
| Cash Flows Data: | 2022 | 2021 | Amount | % | ||||||||||||
| Cash Flows provided by (used in) Operating Activities | $ | (126,091 | ) | $ | 190,422 | $ | (316,513 | ) | (166 | )% | ||||||
| Cash Flows used in Investing Activities | - | (265,257 | ) | 265,257 | 0 | % | ||||||||||
| Cash Flows provided by Financing Activities | 49,496 | 114,468 | (64,972 | ) | (57 | )% | ||||||||||
| Net increase (decrease) in cash during period | $ | (76,595 | ) | $ | 39,633 | $ | (116,228 | ) | (293 | )% | ||||||
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Net cash used in operating activities was $126,091 for the three months ended February 28, 2022, compared to net provided by operating activities of $190,422 during the three months ended February 28, 2021. The decrease in net cash provided by operating activities is attributable to the change in our working capital assets and reduced revenues compared to the three months ended February 28, 2021.
Net cash used in investing activities was $0 for the three months ended February 28, 2022, compared to $265,257 during the three months ended February 28, 2021. The decrease in net cash used is directly attributable to not purchasing trucks for use in our credit rebuilding business line during the period.
Net cash provided by financing activities was $49,496 for the three months ended February 28, 2022, compared to net cash provided of $114,468 during the three months ended February 28, 2022. The decrease in net cash provided by financing activities is directly related to the increased repayments of loans payable used to finance vehicle purchases. During the three months ended February 28, 2022, we received $150,000 in proceeds from loans payable and repaid $140,504 of principal on the loans.
Our primary source of liquidity has been proceeds received from the issuance of Series B convertible preferred stock, convertible debt and commercial loans. In addition, cash flow generated by our subsidiary Payless Truckers has helped to sustain the consolidated group.
Financing Activities
We will have to raise capital by means of borrowings or through a private placement or a subsequent registered offering. At present, we do not have any commitments with respect to future financings. If we are unable to raise adequate capital, in the near term, to finance all phases of a client corporate consulting assignment, our proposed business will experience slow growth because it will be very hard to compete for business without a sound capital base to support advisory and implementation efforts on our suggested corporate growth strategies.
At present, we do not have sufficient capital on hand to fund operations for the immediate future. Management estimates that it will need up to $2.0 million to fund its PayLess Truckers subsidiary. It is possible that we can still achieve our objectives by use of asset-based lending whereby we can leverage our truck purchases. However, because of the start-up nature of the subsidiary this financing may be harder to achieve than normal. Even if limited funds are raised, PayLess will still be able to register profits from its “flip” program while cost-effective funding for the “credit enhancement” program can be arranged. The Company does have funding available under a commitment letter but these funds are very expensive; management is trying to avoid their use.
It is the Company’s intention to concentrate its efforts on the build-out of its PayLess Truckers, Inc. subsidiary. Once solidly on its growth path, meeting projections and generating positive operating cash flows, additional subsidiary/start-up businesses will be entertained be the parent company.
Senior Management believes it will have sufficient cash flows to continue in business for the foreseeable future. While legal and accounting expenses are significant for a reporting company, we will cover them out of operating cash flows.
Comparison of the Three Months Ended February 28, 2022 to the Three Months Ended February 28, 2021 Results of Operations
Our operating results for the three months ended February 28, 2022 and February 28, 2021, and the changes between those periods for the respective items are summarized as follows:
| Three Months Ended | ||||||||||||||||
| February 28, | Changes | |||||||||||||||
| Statement of Operations Data: | 2022 | 2021 | Amount | % | ||||||||||||
| Revenue | $ | 582,769 | $ | 1,212,942 | $ | (630,173 | ) | (52 | )% | |||||||
| Cost of services | (336,615 | ) | (823,274 | ) | 486,659 | (59 | )% | |||||||||
| Gross profit | 246,154 | 389,668 | (143,514 | ) | (37 | )% | ||||||||||
| Total operating expenses | (352,983 | ) | (375,582 | ) | 22,599 | (6 | )% | |||||||||
| Other expense | (766,069 | ) | (998,485 | ) | 232,416 | (23 | )% | |||||||||
| Net loss | $ | (872,898 | ) | $ | (984,399 | ) | $ | 111,501 | (11 | )% | ||||||
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Sales
Sales totaled $582,769 which were comprised of (i) $377,042 from the resale of refurbished trucks and (ii) $187,473 from vehicle rental agreements, (iii) $12,396 from repair income and (iv) $5,858 from other miscellaneous sources for the three months ended February 28, 2022, compared to sales of $1,212,942 which were comprised of (i) $998,007from the resale of refurbished trucks, (ii) $209,640 from vehicle rental agreements, and (iii) $5,295 from other miscellaneous sources during the three months ended February 28, 2021.
Gross Profit
Gross profit is calculated by subtracting cost of goods sold from sales. Gross profit percentage is calculated by dividing gross margins by revenue. Current gross profit percentages may not be indicative of future gross profit performance. Gross profit totaled $246,154 for the three months ended February 28, 2022, compared to $389,668 during the three months ended February 28, 2021, respectively. Gross profit percentage was 42.2% and 32.1% for the three months ended February 28, 2022 and 2021, respectively. The decrease in gross profit is due to reduced trucks available for sale from increased purchase prices, but included an increase in gross profit percentage attributable to a higher percentage mix of revenues from truck rental agreements, which typically yield higher profit margins, and relatively consistent profit margins from the resale of our trucks compared to the quarter ended February 28, 2021.
Operating Expenses
Operating expenses are primarily comprised of compensation, facilities costs and outsourced services. Operating expenses totaled $352,983 for the three months ended February 28, 2022, compared to operating expenses of $375,582 during the three months ended February 28, 2021 representing a decrease of $22,599 or 6%. The decrease in operating expenses is generally related to the increase in our use of outsourced services, and reductions in consulting and professional services for corporate matters and financing efforts, and wages.
Other Expenses
Other expense totaled $766,069 for the three months ended February 28, 2022, compared to other expense of $998,485 during the three months ended February 28, 2021 representing a decrease in other expense of $232,416 or 23.3%. Interest expense increased to $235,948 for the three months ended February 28, 2022 from $165,624 during the three months ended February 28, 2021. The increase in interest expense is due to debt utilized to purchase trucks for our leasing program and financing costs. We recorded a loss from the change in fair value of derivative liabilities of $530,121 during the three months ended February 28, 2022, compared to a loss from the change in fair value of derivative liabilities of $832,861 during the three months ended February 28, 2021.
Net Income Attributable to Common Stockholders
The Company realized net loss attributable to common stockholders of $877,125 for the three months ended February 28, 2022, compared to net loss of $1,099,063 realized during the three months ended February 28, 2021. The decrease in our net loss attributable to common stockholders is largely attributable to the decrease in our loss associated with the change in fair value of derivative liabilities.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of February 28, 2022, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of February 28, 2022 to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that our disclosure controls are effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting during the quarter ended February 28, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings. Our counsel has no formal knowledge in the form of filings of any pending or contemplated litigation, claims or assessments. With regard to matters recognized to involve an unasserted possible claim or assessment that may call for financial statement disclosure and to which counsel has formed a professional conclusion that the Company should disclosure or consider disclosure concerning such possible claims or assessment, as a matter of professional responsibility to the Company, counsel will so advise and will consult with the company concerning the question of such disclosure and the applicable requirements of FASB ASC 450, “Contingencies”. To date, counsel has no formal knowledge of any unasserted possible claims.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K for the year ended November 30, 2021 filed with the SEC on March 28, 2022.
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The Company relied upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated under the Securities Act of 1934, as amended, in connection with the foregoing issuances.
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENT SCHEDULES
Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits and are incorporated herein by this reference.
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
| Signature | Title | Date | ||
| /S/ NICHOLAS VIOLA | Chief Executive Officer | April 22, 2022 | ||
| Nicholas Viola | (Principal Executive Officer) | |||
| /S/ KEITH L. VOIGTS | Chief Financial Officer | April 22, 2022 | ||
| Keith L. Voigts | (Principal Financial and Accounting Officer) |
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