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 start-up trucking company whose principal business is to acquire, refurbish, add location
electronics, advertise and sell commercial vehicles to drivers and transportation focused customers.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
We
have prepared the accompanying consolidated financial statements in accordance with the rules and regulations of the Securities
and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States
of America. We believe these consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments)
that are necessary for a fair presentation of our consolidated financial position and consolidated results of operations for the
periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interim Financial
Statements
These
unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation
S-X. Accordingly, the 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 consolidated financial
statements should be read in conjunction with the financial statements for the fiscal year ended November 30, 2018 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 May 24, 2019. The results of operations for the three months ended February 28, 2019, are not necessarily
indicative of the results to be expected for the full fiscal year ending November 30, 2019.
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.
Recovery
of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected.
If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Inventory
Inventory
consists of well-maintained, class 8 heavy duty trucks primarily acquired at auction. Inventory is valued at the lower of cost
(first in, first out) 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 write-down for slow moving or obsolete inventory is necessary as of February 28, 2019.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “
Derivatives
and Hedging Activities
”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion
options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.
Fair
Value of Financial Instruments
In
September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required
disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets
and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards
Codification (ASC) 820 “
Fair Value Measurements and Disclosures
” (ASC 820) defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels
of the fair value hierarchy are described below:
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Level
1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities.
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Level
2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly
or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the
asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market
data by correlation or other means.
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Level
3—Inputs that are both significant to the fair value measurement and unobservable.
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The
respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term
nature of these instruments. These financial instruments include accounts receivable, accounts payable and accrued expenses, notes
payable, notes payable to related parties, related parties payable and derivative liabilities. The Company has also applied ASC
820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption of ASC 820 for
non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.
Comprehensive Income (Loss)
ASC Topic 220 (SFAS No.
130) establishes standards for reporting comprehensive income (loss) and its components. Comprehensive income (loss)
is defined as the change in equity during a period from transactions and other events from non-owner sources.
Other-Than-Temporary
Impairment
All
of our non-marketable and other investments are subject to a periodic impairment review. Investments are considered to be impaired
when a decline in fair value is judged to be other-than-temporary.
When
events or changes in circumstances indicate that long-lived assets other than goodwill may be impaired, an evaluation is performed
to determine if a write-down to fair value is required. When an asset is classified as held for sale, the asset’s book value
is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. In addition, depreciation and amortization
ceases while it is classified as held for sale.
The
indicators that we use to identify those events and circumstances include:
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the
investee’s revenue and earnings trends relative to predefined milestones and overall business prospects;
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the
general market conditions in the investee’s industry or geographic area, including regulatory or economic changes;
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factors
related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the
rate at which the investee is using its cash; and
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the
investee’s receipt of additional funding at a lower valuation. If an investee obtains additional funding at a valuation
lower than our carrying amount or a new round of equity funding is required for the investee to remain in business, and the
new round of equity does not appear imminent, it is presumed that the investment is other than temporarily impaired, unless
specific facts and circumstances indicate otherwise.
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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 recognize revenue
from the leasing of class 8 heavy trucks to customers. Revenues from these truck leases are recorded on a straight-line
basis over the lease term and do not include the sales tax portion of any lease payments.
Accounts
receivable is recognized when we have transferred a good or service to a customer and our right to receive consideration is unconditional
through the completion of our performance obligation. We had accounts receivable totaling $0 and $77,638 as of February
28, 2019 and November 30, 2018, 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.
As
a result of the adoption of ASC 842 on December 1, 2018, the Company recorded both operating lease ROU assets of $21,292 and operating
lease liabilities of $21,292. As of February 28, 2019, both the operating lease ROU assets and operating lease liabilities totaled
$17,182. 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
Property
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
August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements
on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years, with partial early adoption permitted for eliminated disclosures. The method of adoption varies by
the disclosure. The Company is currently evaluating the impact that adopting this guidance will have on the unaudited condensed
consolidated financial statements.
The
Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements
will have a material impact on its unaudited condensed consolidated financial statements.
NOTE
3 - RELATED PARTY TRANSACTIONS
The
Company currently rents space from our president, Arthur Viola. This is a month to month rental and there is no commitment beyond
each month. The monthly rent expense is $2,100.
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 February 28, 2019, and no notice of default has been
issued. See Note 8.
During
2016, our president, Arthur Viola, incurred expenses on behalf of the Company of $10,200 in for working capital. These funds were
interest free with no maturity date.
No repayments have been
made against these advances as of February 28, 2019.
Since
its formation in 2018, the Company’s wholly-owned subsidiary PayLess Truckers, Inc. has received loan proceeds aggregating
$208,000 from a related party to help fund the subsidiary’s operations. The loan currently bears no interest and is payable
on demand. The Company has imputed interest on this obligation at a rate of 10% per annum, which the Company believes is appropriate
and represents a market lending rate based upon other debt financings. As of February 28, 2019, imputed interest of $12,408 has
been recorded in the Company’s financial statements.
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, 2019, the Company incurred net losses from operations of $274,233 and had cash flows from
operating activities of $253,597. The Company has relied, in large part, upon debt financing to fund its operations. As
of February 28, 2019, the Company had outstanding indebtedness, net of discounts, of $1,134,134 and had $165,364
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 formed a new subsidiary, PayLess Truckers, Inc., in April 2018. Primarily driven by PayLess, the Company produced $506,883
in revenue and $253,597 in positive cash flow from operations during the three months ended February 28, 2019. The Company
now believes that it is well positioned to generate significant revenue and cash flows from its operations. However, even if the
Company is successful in executing its plan, the Company may not generate enough revenue to satisfy all of its current obligations
as they become due in addition to its outstanding indebtedness. Until the Company consistently generates positive cash flow from
its operations, or successfully satisfies, refinances or replaces its current indebtedness, there is substantial doubt as to the
Company’s ability to continue as a going concern.
The
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result if the Company is unable to operate as a going concern.
NOTE
5 - COMMITMENTS AND CONTINGENCIES
Commitments
The
Company currently has no long-term commitments.
Contingencies
None.
NOTE
6 - LEASES
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 our right to use an underlying asset for
the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
The
Company’s lease population consists of real estate leases for office space. The Company elected to combine the lease and
related non-lease components for its operating leases.
The
Company’s operating leases include options to extend or terminate the lease, which are not included in the determination
of the RoU asset or lease liability unless reasonably certain to be exercised. The Company’s operating lease has a remaining
lease term of one year. The Company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
As
the Company’s leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available
at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations
was 10%.
Balance
Sheet Classification of Operating Lease Assets and Liabilities
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Balance
Sheet Line
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February
28, 2019
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Asset
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Operating
lease asset
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Current Assets
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$
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17,182
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Liabilities
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Operating lease
liability
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Current Liabilities
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$
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17,182
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Lease
Costs
The
table below summarizes the components of lease costs for the three months ended February 28, 2019:
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Three
Months Ended
February 28, 2019
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Operating lease costs
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$
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5,727
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Maturities
of Lease Liabilities
Maturities
of lease liabilities as of February 28, 2019 are as follows:
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2019
fiscal year
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$
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18,900
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Total lease payments
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18,900
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Less: Interest
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(1,718
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)
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Present value of lease liabilities
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$
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17,182
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The
following table presents the Company’s future minimum lease obligation under ASC 840 as of November 30, 2018:
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2019 fiscal year
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$
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25,200
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NOTE
7 - 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
8 - 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 February 28, 2019 and 2018:
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February
28, 2019
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February
28, 2018
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Tax
provision (recovery) at effective tax rate (21%)
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$
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(57,589
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)
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$
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(19,710
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)
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Change
in valuation reserve
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57,589
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19,710
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Tax
provision (recovery), net
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$
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–
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$
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–
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As
of February 28, 2019, the Company had approximately $9,315,383 in net operating loss carry forwards for federal income tax
purposes which expire at various dates through 2036. Generally, these can be carried forward and applied against future taxable
income at the tax rate applicable at that time. We are currently using a 21% effective tax rate for our projected available net
operating loss carry-forward. However, as a result of potential stock offerings and stock issuance in connection with potential
acquisitions, as well as the possibility of the Company not realizing its business plan objectives and having future taxable income
to offset, the Company’s use of these NOLs may be limited under the provisions of Section 382 of the Internal Revenue Code
of 1986, as amended. The Company is in the process of evaluating the implications of Section 382 on its ability to utilize some
or all of its NOLs.
Components
of deferred tax assets and (liabilities) are as follows:
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February
28, 2019
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November
30, 2018
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Net
operating loss carry forwards available at effective tax rate (21%)
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$
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1,956,000
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$
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1,899,000
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Valuation
Allowances
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(1,956,000
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)
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(1,899,000
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)
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Deferred
Tax Asset
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$
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–
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$
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–
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In
accordance with FASB ASC 740 “Income Taxes”, valuation allowances are provided against deferred tax assets, if based
on the weight of available evidence, some or all of the deferred tax assets may or will not be realized. The Company has evaluated
its ability to realize some or all of the deferred tax assets on its balance sheet and has established a valuation allowance of
approximately $1,956,000 at February 28, 2019. The Company did not utilize any NOL deductions for the three months ended
February 28, 2019.
NOTE
9 - 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 February 28, 2019, 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%. On January 9, 2019, $6,325
of principal was converted into 210,850,000 shares of the Company’s common stock. On January 15, 2019, $6,325 of principal
was converted into 210,850,000 shares of the Company’s common stock. See Note 11. As of February 28, 2019, the note balance
was $101,341 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 February 28, 2019, the note balance was $6,500 and all associated
loan discounts were fully amortized.
On
November 23, 2016, the Company entered in convertible note agreement with a private and accredited investor, Auctus Private Equity
Fund LLC, in the amount of $61,000, unsecured, with principal and interest (stated at 12%) amounts due and payable upon maturity
on August 23, 2017. After six months, the note holder has the option to convert any portion of the unpaid principal balance into
the Company’s common shares at any time. The Company has determined that the conversion feature in this note is not indexed
to the Company’s stock and is considered to be a derivative that requires bifurcation. The Company calculated the fair value
of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from
.03% to .16%; Dividend rate of 0%; and, historical volatility rates ranging from 208% to 269%. The Company amended its convertible
note agreement to allow for additional principal borrowings. As of February 28, 2019, the note balance was $97,000 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 February 28, 2019, the
note balance was $350,000 and the remaining balance on the associated loan discounts were $175,000.
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%. As of February 28, 2019,
the note balance was $57,750 and the remaining balance on the associated loan discounts were $43,681.
NOTE
10 - 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, 2019 and November 30, 2018, the estimated fair value of derivative liability was determined to be $923,989 and
$931,509, respectively. The change in the fair value of derivative liabilities for the three months ended February 28, 2019 was
$7,520 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, 2018:
|
|
|
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
Carrying
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Derivative
liabilities on conversion feature
|
|
|
931,509
|
|
|
|
–
|
|
|
|
–
|
|
|
|
931,509
|
|
|
|
931,509
|
|
|
Total
derivative liabilities
|
|
$
|
931,509
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
931,509
|
|
|
$
|
931,509
|
|
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, 2019:
|
|
|
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
Carrying
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Derivative
liabilities on conversion feature
|
|
|
923,989
|
|
|
|
–
|
|
|
|
–
|
|
|
|
923,989
|
|
|
|
923,989
|
|
|
Total
derivative liabilities
|
|
$
|
923,989
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
923,989
|
|
|
$
|
923,989
|
|
Summary
of the Changes in Fair Value of Level 3 Financial Liabilities
The
table below provides a summary of the changes in fair value of all financial assets and liabilities measured at fair value on
a recurring basis using significant unobservable inputs (Level 3) during the three months ended February 28, 2019:
|
|
|
Derivative
Liabilities
|
|
|
Fair
value, November 30, 2018
|
|
|
931,509
|
|
|
Change
in fair value
|
|
|
(7,520
|
)
|
|
Fair
value, February 28, 2019
|
|
$
|
923,989
|
|
NOTE
11 – EQUITY ISSUANCES
During
the three months ended February 28, 2018, the Company issued 511,375,100 shares of common stock in exchange for the conversion
of $12,785 of interest payable on convertible debt principal.
On
January 9, 2019, issued 210,850,000 shares of the Company’s common stock in exchange for the conversion of $6,325 of convertible
debt principal. See Note 9.
On
January 15, 2019, issued 210,850,000 shares of the Company’s common stock in exchange for the conversion of $6,325 of convertible
debt principal. See Note 9.