May 31, 2021:
During the May quarter, our consolidated quarterly results continued to show
that Daniels' aim as an incubator for start-up and early stage nano-cap
companies continues to be fulfilled Its goals for advising and financing its
premier subsidiary in the Transportation Services segment of the Trucking
Industry continue to be met and exceeded. Daniels continued to umbrella the
Payless expansion through financing sources expensive in nature. Parent Company
Management believes the capital costs incurred were warranted and helped produce
another stellar quarter for its key growth engine. Bridge Money to a Reg A
Offering to be filed shortly with the SEC should eliminate the need for the
continuation of convertible dilutive financing. Investors with a longer term
investment horizon would be buying into Daniels ("DCAC) and replacing
institutional investors with a short term investment strategy.
The May 31, 2021 Quarter - The Payless Truckers Subsidiary had Total Revenues of
$1,143,223 for the quarter and Gross Profit of $350,010. Its net profit was
$30,000 and its EBITDA $162,000. Gross Margins for both
business's continued strong with product demand continuing. The Daniels
subsidiary has booked another good quarter and continues on track to close the
fiscal year with $4.5 Million in revenue and significant profit potential. For
the six months - December 1, 2020 to May 31, 2021 - Payless has Gross Profit of
$953,621 and EBITDA of $359,100 on Total Sales of $2,751,218. In comparison,
for entire fiscal year 2020, Payless booked a small loss and EBITDA of $149,600.
The flip business of our subsidiary - that could be categorized as "truck
trading" - selectively buys, adds electronic improvements for safety and
location, provides cosmetics, advertises and resells - booked Truck re-sales of
of $934,883 in the May quarter. Astute trading continued with trucks
acquired at a direct cost of $777,797. For the May quarter, truck prices
continued strong, allowing our re-sales to generate high margins.
The Program rental truck business - our rental fleet that now numbers
twenty-five trucks - had rental income of $202,686 . This business continues to
be a high margin and has the potential to be scale-able for significant growth
because of its predictable gross cash flow / earnings potential stream.
For the Six months - December 1, 2020 though May 31, 2021 - Total Revenue was
$2,751,218 and EBITDA $303,995. This was comprised of $2,275,010 from the Flip
business and $461,766 in rental fleet income. Gross Profit was $953,621
During the quarter ending May 31,2021, in-house financing potential of aged
management award shares - while available - was held in check in favor of the
Reg A fundraising process. Award recipients were in favor of holding their
shares long term for future receipt of spin-off registered shares in Payless and
other subsidiary deals. 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 of funding to help selectively manage the growth of Payless as well
as subsequent client/subsidiaries.
Negotiations with long term straight debt lenders and Preferred Stock financiers
continued through the May 31, 2021 quarter. More creative approaches were
necessary and are still in process. The main objective - which has taken more
time than expected - is to create alternatives that (a) contain cash costs,
paid out of cash flows and (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 faster than expected.
Once a larger operating facility is retained the build out can be accelerated
and a timing estimate given. Presently, financed closings would occur in
stages at the rate of six rental truck additions per month.
The combination of straight debt, Preferred Stock and the Reg A proceeds will
reduce dependence on expensive private loans secured against truck and
convertible debt. 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.
22
As used in this interim report, the terms "we", "us", "our", the "Company", the
"Registrant", "Daniels Corporate Advisory", "DCAC" and "Daniels" mean Daniels
Corporate Advisory Company, Inc. unless otherwise indicated.
Overview
Daniels Corporate Advisory creates and implements corporate strategy
alternatives for the mini-cap public or private company client. The addition of
new business opportunities and the location of professional talent for
implementation is anticipated through the full-time efforts of our senior
management. These efforts are to be expanded in the United States and in foreign
capitals by an expanding advisory board and through the networks of independent
consultants. Principals of the respective client company will open their
networks to augment professional access for specialties the Daniels corporate
strategy consultants believe are needed in a joint-venture, jointly-controlled
undertaking created for the client's optimum growth.
Daniels may provide the client with multiple corporate strategies/opportunities
including joint-ventures, marketing opportunity agreements and/or potential
acquisitions structured in leveraged buyout format. One or a combination of
these strategies would allow the client to enter new market niches or expand
further into existing ones.
Recent Business Developments
The Company is operating through the corporate strategy segment of its business.
It is attempting to build its own critical mass by creation of start-up
subsidiaries it believes have promise/potential. The stated goal is for the
parent (DCAC) company to consolidate the critical mass of the
subsidiary/start-ups with that of the parent for eventually listing on a major
stock exchange. We have continued to focus our efforts on the build out of the
Daniels corporate strategy model. We adjusted our strategy as it relates to the
development of subsidiary start-ups and potential acquisitions for common stock.
We concentrate on identifying projects that have the potential to produce
significant earnings on the leveraged capital base of both the parent and the
subsidiary/start-up within an expedited time period.
As a result, we formed Payless Truckers, Inc. ("Payless"), a wholly-owned
subsidiary which was incorporated in the State of Nevada, on April 11, 2018.
Payless is a start-up, service company in the trucking industry. It has two
business segments with its launch and current results coming from the "flip"
segment, whose principal business is to acquire class 8 heavy duty trucks,
refurbish them, add location electronics, advertise and sell to independent
drivers and operators. The second segment is the "credit rebuilding segment"
where class 8 heavy duty trucks, owned by Daniels/Payless, are rented to
experienced independent drivers. These independent drivers rent for a period of
up to five years, and have the option to buy the vehicle at retail value every
six months. This segment commenced operations subsequent to the close of our
fiscal year. In an effort to grow quickly and profitably, Daniels entered into
an operating agreement with a senior operating management team in an effort to
drive the business and better realize its earnings and growth potential.
The Payless two-segment trucking model represents a streamlined Transportation
Services Company; one Daniels believes can be restructured/redirected to survive
any potential future slow-downs in the economy. The model was developed to allow
for the maximum utilization of each truck as it is put into immediate service in
numbers that are manageable without causing excess capacity. Top brand/model
Tractors with low mileage are handpicked by our operations team - a family with
three generations in automotive/trucking. Our drivers continue to be handpicked
for their driving skills and their established hauling networks. They
rent/switch trailers to meet the available work on Load Boards or haul for major
hauling companies using hauling company trailers. Due to the current
dislocations in every industry due to the Coronavirus, our independent
contractor drivers are constantly on the road.
We hope to further enhance our plan for growth beginning in our second year by
forming joint-ventures and/or partnerships with truck maintenance companies
across the United States in key traffic hubs. This will potentially afford
independent drivers and operators the opportunity to be serviced by trusted
maintenance facilities under our warranty program.
23
Business Strategy - Current Operational Strategy & Current Client Projects
Daniels creates and implements corporate strategy alternatives for the mini-cap
public or private company client. The addition of new business opportunities and
the location of professional talent for implementation is anticipated through
the full-time efforts of our senior management. These efforts are to be expanded
in the US and in Foreign capitals by an expanding advisory board and through the
networks of independent consultants. Principals of the respective client company
will open their networks to augment professional access for specialties the
Daniels corporate strategy consultants believe are needed in a joint venture,
(jointly-controlled) undertaking created for the client's optimum growth.
Daniels may provide the client with multiple corporate strategies /opportunities
including joint-ventures, marketing opportunity agreements and/or potential
acquisitions structured in a leveraged buyout format. One or a combination of
these strategies would allow the client to enter new market niches or expand
further into existing ones.
One of the Company's primary objectives is to be listed on a major exchange
listing. Senior management is estimating at least twenty-four months from
commencement of a corporate strategy assignment. Financial results, aided by all
participating players, should be forthcoming and recorded in SEC filings. At the
same time, a senior management team and Board expanded with highly-credible
interim (or permanent) professionals (directors) will be organized in order to
successfully navigate the listing process of a major stock exchange. While
Daniels believes this process should be successful in the above-noted time
period, there is some uncertainty in the process which is dependent upon any
past issues the listing committee of a specific exchange may deem necessary to
be addressed prior to uplifting. In addition, it may take added time to find the
appropriate outside directors that can not only satisfy the listing committee of
the exchange but who can also provide added networking/services to build the
parent's and subsidiary's potential for accelerated growth.
A similar effort will be provided to tailor an optimum growth program for the
private company client, whether it chooses to remain private or to become a
public company through alternative merger opportunities.
Growth Strategy - Short-Term Objectives
Daniels' believes that the validity of its corporate strategy model is proven
through the success of its initial subsidiary incubation, Payless Truckers, Inc.
The growing momentum of this cash flow engine is generating the interest of
long-term financing sources. They recognize the obvious - the cash flows from
the fleet truck program can cover significant debt service on longer term
financing which can accelerate the levered growth of the Company. Daniels has
used its publicly-traded common stock in a variety of securities packages,
including convertible preferred stock, to launch its premier subsidiary
start-up, (Payless Truckers) and will do so for other start-up opportunities
being reviewed. Initial subsidiaries (start-up clients) are those that can
generate significant return on invested capital so that growth acceleration
comes from generic sales/profit growth. Alternative growth options -
joint-ventures, marketing agreements, acquisitions/LBO's - will be applied
secondarily as external growth opportunities are entered into to bring the
start-up (now considered an early-stage company) to critical mass for stability.
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.
24
Competition
Existing and new competitors will continue to improve their services and
introduce new services with competitive price and performance characteristics.
In periods of reduced demand for our services, we can either choose to maintain
market share by reducing our prices to meet competition or maintain prices and
choose only those assignments with new clients that have pressing goals to be
met that offer Daniels optimum potential for profits and growth.
The "collective" corporate financial services, direct and referral, including
merchant banking/private equity, are very competitive and fragmented in the
Company's market niche. There are limited barriers to entry and new competitors
frequently enter the market. A significant number of our competitors possess
substantially greater resources. We will continue to offer equity compensation
to our team in order to keep a stable, cohesive team of professionals, which is
necessary and key to the creation of operating and capital solutions in a timely
fashion.
The above competitive considerations are no longer considered by senior
advisory/oversight management to be as important as they once were. More
importantly, we are now known for the success of our visionary growth strategies
and their execution in the development and launch of our premier subsidiary -
Payless Truckers Inc. The return on investment on early stages of our developing
100 truck fleet should generate the positive cash flow that will eventually
create excess profits and help launch other promising new candidates (start-up
clients) as subsidiary deals.
General
Our discussion and analysis of our financial condition and results of operations
is based on our financial statements, Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our most significant judgments and estimates
used in preparation of our financial statements. which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Critical Accounting Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all
companies include a discussion of critical accounting policies used in the
preparation of their financial statements. While all these significant
accounting policies impact our financial condition and results of operations and
we view certain of these policies as critical. Policies determined to be
critical are those policies that have the most significant impact on our
consolidated financial statements and require management to use a greater degree
of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that
applying any other reasonable judgments or estimate methodologies would cause a
material effect on our consolidated results of operations, financial position or
liquidity for the periods presented in this report.
The accounting policies identified as critical are as follows:
Revenue and Cost Recognition
We recognize revenue when we satisfy performance obligations by the transfer of
control of products or services to our customers, in an amount that reflects the
consideration we expect to be entitled to in exchange for those products or
services. We recognize revenue from class 8 heavy duty truck sales to customers
when we satisfy our performance obligation, at a point in time, when title to
the truck is transferred to the customer. Delivery or shipping charges billed to
customers, if applicable, are included in product sales and the related shipping
costs are included in cost of goods sold.
Fair Value of Assets
The Company has adopted the standard FASB Accounting Standards Codification (ASC
820) "Fair Value Measurements and Disclosures" which defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date ASC
820 also establishes a fair value hierarchy that distinguishes between (1)
market participant assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity's own assumptions
about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1)
and the lowest priority to unobservable inputs (Level 3). The three levels of
the fair value hierarchy are described below:
? Level 1-Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
? Level 2-Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability; either directly or indirectly,
including quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that
are not active; inputs other than quoted prices that are observable for the
asset or liability (e.g. interest rates); and inputs that are derived
principally from or corroborated by observable market data by correlation or
other means.
? Level 3-Inputs that are both significant to the fair value measurement and
unobservable.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values due to the short-term nature of these
instruments. These financial instruments include investments in
available-for-sale securities and accounts payable and accrued expenses. The
Company has also applied ASC 820 for all non-financial assets and liabilities
measured at fair value on a non-recurring basis. The adoption of ASC 820 for
non-financial assets and liabilities did not have a significant impact on the
Company's financial statements.
25
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
2021. However, if the pandemic continues, it may have a material adverse effect
on the Company's results of future operations, financial position, and liquidity
in fiscal year 2021.
Liquidity and Capital Resources
As of May 31, 2021, we had $159,572 in cash and cash equivalents and a working
capital deficit of $3,849,589.
Net cash provided by operating activities was $44,325 for the six months ended
May 31, 2021, compared to net provided by operating activities of $4,152 during
the six months ended May 31, 2020. The increase in net cash provided by
operating activities is primarily attributable to the change in our working
capital assets and decrease in net loss.
Net cash used in investing activities was $215,145 for the six months ended May
31, 2021, compared to $75,683 during the six months ended May 31, 2020. The
increase in net cash used is directly attributable to the number of trucks
purchased for use in our credit rebuilding business line.
Net cash provided by financing activities was $129,534 for the six months ended
May 31, 2021, compared to net cash provided of $196,000 during the six months
ended May 31, 2020. The decrease in net cash provided by financing activities is
directly related to the repayment of loans payable. During the six months ended
May 31, 2021, we repaid $148,155 in principal on loans used to finance the
purchase of vehicles.
Our primary source of liquidity has been proceeds received from the issuance of
Series B convertible preferred stock, convertible debt and loans from related
parties. In addition, cash flow generated by our subsidiary Payless Truckers has
helped to sustain the consolidated group.
Financing Activities
We will have to raise capital by means of borrowings or through a private
placement or a subsequent registered offering. At present, we do not have any
commitments with respect to future financings. If we are unable to raise
adequate capital, in the near term, to finance all phases of a client corporate
consulting assignment, our proposed business will experience slow growth because
it will be very hard to compete for business without a sound capital base to
support advisory and implementation efforts on our suggested corporate growth
strategies.
At present, we do have sufficient capital on hand to fund operations for the
immediate future. Management estimates that it will need up to $2.0 million to
fund its PayLess Truckers subsidiary. It is possible that we can still achieve
our objectives by use of asset-based lending whereby we can leverage our truck
purchases. However, because of the start-up nature of the subsidiary this
financing may be harder to achieve than normal. Even if limited funds are
raised, PayLess will still be able to register profits from its "flip" program
while cost-effective funding for the "credit enhancement" program can be
arranged. The Company does have funding available under a commitment letter but
these funds are very expensive; management is trying to avoid their use.
26
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 May 31, 2021 to the Three Months Ended May
31, 2020 Results of Operations
Sales
Sales totaled $1,142,479 which were comprised of (i) $934,883 from the resale of
refurbished trucks and (ii) $201,006 from vehicle rental agreements, and (iii)
$6,590 from other miscellaneous sources for the three months ended May 31, 2021,
compared to sales $797,925 which were comprised of (i) $707,225 from the resale
of refurbished trucks, (ii) $71,539 from vehicle rental agreements, and (iii)
$19,161 from other miscellaneous sources during the three months ended May 31,
2020.
Gross Profit
Gross profit is calculated by subtracting cost of goods sold from sales. Gross
profit percentage is calculated by dividing gross margins by revenue. Current
gross profit percentages may not be indicative of future gross profit
performance. Gross profit totaled $307,371 for the three months ended May 31,
2021, compared to $126,376 during the three months ended May 31, 2020,
respectively. Gross profit percentage was 26.9% and 15.8% for the three months
ended May 31, 2021 and 2020, respectively. The increase in gross profit and
gross profit percentage for the current year period is attributable to an
increase in revenues from truck rental agreements, which typically yield higher
profit margins, and improved profit margins from the resale of our trucks.
Operating Expenses
Operating expenses are primarily comprised of compensation, facilities costs and
outsourced services. Operating expenses totaled $288,625 for the three months
ended May 31, 2021, compared to operating expenses of $209,449 during the three
months ended May 31, 2020 representing an increase of $79,176 or 37.8%. The
increase in operating expenses is generally related to the increase in our use
of consulting and professional services for corporate matters and financing
efforts.
Other Income and Expenses
Other income totaled $1,076,825 for the three months ended May 31, 2021,
compared to other expenses of $240,711 during the three months ended May 31,
2020 representing an increase in other income of $1,420,168 or 871.3%. Interest
expense increased to $192,640 for the three months ended May 31, 2021 from
$77,711 during the three months ended May 31, 2020. The increase in interest
expense is due to an increase in debt utilized to purchase trucks for our
leasing program. We recorded a gain from the change in fair value of derivative
liabilities of $1,257,168 during the three months ended May 31, 2021, compared
to a loss from the change in fair value of derivative liabilities of $163,000
during the three months ended May 31, 2020.
Net Income Attributable to Common Stockholders
The Company incurred a net gain attributable to common stockholders of
$1,000,952 for the three months ended May 31, 2021, compared to a net loss of
$725,236 incurred during the three months ended May 31, 2020. The increase in
our net income attributable to common stockholders is largely attributable to
the increase in our gross profits and the gain associated with the change in
fair value of derivative liabilities.
27
Comparison of the Six Months Ended May 31, 2021 to the Six Months Ended May 31,
2020 Results of Operations
Sales
Sales totaled $2,355,421 which were comprised of (i) $1,932,890 from the resale
of refurbished trucks and (ii) $410,646 from vehicle rental agreements, and
(iii) $11,885 from other miscellaneous sources for the six months ended May 31,
2021, compared to sales $2,091,311 which were comprised of (i) $1,881,318 from
the resale of refurbished trucks, (ii) $195,325 from vehicle rental agreements,
and (iii) $14,668 from other miscellaneous sources during the six months ended
May 31, 2020.
Gross Profit
Gross profit is calculated by subtracting cost of goods sold from sales. Gross
profit percentage is calculated by dividing gross margins by revenue. Current
gross profit percentages may not be indicative of future gross profit
performance. Gross profit totaled $697,039 for the six months ended May 31,
2021, compared to $321,422 during the six months ended May 31, 2020,
respectively. Gross profit percentage was 29.6% and 15.4% for the six months
ended May 31, 2021 and 2020, respectively. The increase in gross profit and
gross profit percentage for the current year period is attributable to an
increase in revenues from truck rental agreements, which typically yield higher
profit margins, and improved profit margins from the resale of our trucks.
Operating Expenses
Operating expenses are primarily comprised of compensation, facilities costs and
outsourced services. Operating expenses totaled $664,207 for the six months
ended May 31, 2021, compared to operating expenses of $483,319 during the six
months ended May 31, 2020 representing an increase of $180,888 or 37.4%. The
increase in operating expenses is generally related to the increase in our use
of consulting and professional services for corporate matters and financing
efforts.
Other Income and Expenses
Other income totaled $78,340 for the six months ended May 31, 2021, compared to
other expenses of $1,268,689 during the six months ended May 31, 2020
representing an increase in other income of $1,347,029 or 106.2%. Interest
expense increased to $358,264 for the six months ended May 31, 2021 from
$166,704 during the six months ended May 31, 2020. The increase in interest
expense is due to an increase in debt utilized to purchase trucks for our
leasing program. We recorded a gain from the change in fair value of derivative
liabilities of $424,307 during the six months ended May 31, 2021, compared to a
loss from the change in fair value of derivative liabilities of $1,097,549
during the six months ended May 31, 2020.
Net Loss Attributable to Common Stockholders
The Company incurred a net loss attributable to common stockholders of $98,111
for the six months ended May 31, 2021, compared to a net loss of $1,832,038
incurred during the six months ended May 31, 2020. The decrease in our net loss
attributable to common stockholders is largely attributable to the increase in
our gross profits and the gain associated with the change in fair value of
derivative liabilities.
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