Item 1.Business
Business Development
On December 15, 2015, the Company resolved to cancel its acquisition of Chiurazzi Srl. In return for cancelling the acquisition, the Company canceled its assumption of the secured note payable to Chiurazzi International LLC for $2,540,000. In exchange for this cancellation of the agreement, the Company resolved to allow CI Holdings Inc. to maintain its interest in the 9,700,000 common shares already issued to it.
Since December 16, 2015 the Company has been focused on two primary business models: the re-work of existing oil wells and dry cleaners, through two wholly owned subsidiary companies: TransAmerican Oil and Metropolitan Dry Cleaners respectively.
The Company is an “emerging growth company” (“EGC”), that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), that eases restrictions on the sale of securities; and increases the number of shareholders a company must have before becoming subject to the U.S. Securities and Exchange Commission’s (“SEC’s”) reporting and disclosure rules.
Business of Issuer
The Company focuses on two primary business models: the re-work of existing oil wells and dry cleaners, through two wholly owned subsidiary companies: TransAmerican Oil and Metropolitan Dry Cleaners respectively.
TransAmerican Oil
TransAmerican Oil is a U.S. Oil & Gas Company, pursuing either currently producing turnkey oil wells, or developing fresh oil wells on currently producing leases within the Continental United States. The properties in which TransAmerican Oil is pursuing interests, are in various stages of development, and the company seeks to acquire additional properties as geologic and economic potential permits. The company is currently engaged in an LOI to acquire and develop a 300-well lease located in the State of Kansas. TransAmerican is focused on the exploration, development and production (E&P) of properties geographically located in the Continental United States. The company's operational focus is the acquisition of in-production, or near-production, oil and natural gas field assets. The company seeks to have an inventory of existing wells to rework, and a number of new drilling sites to maintain growth, while increasing reserves and cash flow. TransAmerican intends to return a portion of cash flow to shareholders in the form of dividends paid on a semi-annual basis as authorized by its Board of Directors.
The company follows sound conservative fiscal principals, and is focused on building shareholder value in the Energy Production sector.
Metropolitan Dry Cleaners
Metropolitan Dry Cleaners is a roll-up of existing enterprises with a multi-year history of revenues and profits in a variety of primarily East Coast States. These enterprises have been listed for sale by their owners and often come with existing staff and inventory. The company will provide dry cleaning, laundry, and garment alterations, as offered by the existing target businesses along with regular home pick-up and delivery services. The company will have both production facilities and retail storefronts to complement its pick-up and delivery service. The company will need delivery vans, and customer service trained drivers, which should come with the acquisition of some businesses. Metropolitan plans to also offer customers the opportunity to download an app to schedule service. These customers will recommend Metropolitan Dry Cleaners to their friends and coworkers. As more and more customers use this service, Metropolitan Dry Cleaners' image is enhanced and will gain greater market share within the existing enterprise zone. An analysis conducted in 2011 concluded "how highly fragmented the industry is with 39,000 location generating $9.2 billion in Annual sales, while the top 4 companies only represent 2.5% of the overall sales."
The analysis showed that there is no national chain, and the closest companies to forming a national chain with 2.5% market share have almost no dominance within the market place. Metropolitan expects to be profitable immediately as it is purchasing existing cash flow. The Company has targeted a list of almost 100 dry cleaners with combined annual cash flow of $3.4M, and revenues of $10.5M. The Company hopes to acquire existing dry cleaners using a combination of money-down, equity, and payments over time. In areas where there is overlap of production facilities the company can expand by relocating those facilities, opening new storefronts, and advertising to prospective customers via direct mail and online mailers.
Number of Employees
As of December 31, 2015, we employed no full-time employees, excluding employees and consultants of any affiliated companies that are not at least 50%-owned subsidiaries of ours. None of our employees is subject to a collective bargaining agreement and we believe that relations with our employees are very good.
Reports to Security Holders
We will file the necessary reports with the SEC pursuant to the Exchange Act, including but not limited to, the report on Form 8-K, annual reports on Form 10-K, and quarterly reports on Form 10-Q.
The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other electronic information regarding Clear System and filed with the SEC at http://www.sec.gov.
Change of Control
On December 15, 2015 our sole officer and director Zhang Yue appointed Derrick Lefcoe a director and officer of the Company and resigned simultaneously.
Item 1A
Item 1A Risk Factors
Risks Related to Our Business and Our Industry
The Company’s limited operating history does not afford investors a sufficient history on which to base an investment decision.
The Company is a development stage entity with a history of operating losses, and we expect to continue to realize losses in the near future, so an investment is considered a high-risk investment whereby you could lose your entire investment. The Company currently has no operations that are producing revenue, and currently relies on investments by third parties to fund its business. Even when the Company begins to generate revenues from operations, the Company may not become profitable or be able to sustain profitability.
We have not yet commenced operations and, therefore, we are considered a "start-up" or "development stage" company. We will incur significant expenses in order to implement our business plan. As an investor, you should be aware of the difficulties, delays and expenses normally encountered by an enterprise in its development stage, many of which are beyond our control, including unanticipated developmental expenses, inventory costs, employment costs, and advertising and marketing expenses. We cannot assure you that our business will prove successful, or that we will ever be able to operate profitably. If we cannot operate profitably, you could lose your entire investment.
Our lack of any operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.
We do not have any material operating history, which makes it impossible to evaluate our business on the basis of historical operations. Furthermore, the Company has abandoned its original business plan and is still in the process of selecting a new direction for the Company’s business. Therefore, our business carries both known and unknown risks. As a consequence, our past results may not be indicative of future results. Although this is true for any business, it is particularly true for us because of our lacking any material operating history.
If we do not obtain additional financing, our business will fail.
Our current operating funds are less than necessary to complete all intended objectives and therefore we will need to obtain additional financing in order to continue our business. We currently do not have any operations and we have no income.
We do not currently have any arrangements for financing and we can provide no assurance to investors that we will be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor acceptance of our business model and general market conditions. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
The most likely source of future funds presently available to us is through the sale of equity capital in one or more negotiated private sale transactions. Any sale of share capital will result in dilution to existing shareholders.
Our future growth may require recruitment of qualified employees.
In the event of our future growth, we may have to increase the depth and experience of our management team by adding new members. Our future success will depend to a large degree upon the active participation of our sole officer. There is no assurance that we will be able to employ qualified persons on acceptable terms. Lack of qualified employees may adversely affect our business development.
The possibility of a global financial crisis may significantly impact our business and financial condition for the foreseeable future.
The credit crisis and related turmoil in the global financial system may adversely impact our business and our financial condition, and we may face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have a material negative impact on our flexibility to react to changing economic and business conditions. The economic situation could have a material negative impact on our lenders or customers, causing them to fail to meet their obligations to us. We will need additional capital and financing to fund our fiscal operating forecast. There is no assurance that additional capital or financing will be available to us on terms that are acceptable to us or at all.
Risks Related to the Industry in Which We Compete
TransAmerican Oil
Current volatile market conditions and significant fluctuations in energy prices may continue indefinitely, negatively affecting our business prospects and viability.
The oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our planned operations and financial condition. The amount of any royalty payment we receive, if any, from the production of oil and gas from our oil and gas interests will depend on numerous factors beyond our control. These factors include, but are not limited to, the following:
changes in global supply and demand for oil and natural gas by both refineries and end users;
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
the price and volume of imports of foreign oil and natural gas;
political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;
the level of global oil and gas exploration and production activity;
the level of global oil and gas inventories;
weather conditions;
technological advances affecting energy consumption;
domestic and foreign governmental regulations and taxes;
proximity and capacity of oil and gas pipelines and other transportation facilities;
the price and availability of competitors’ supplies of oil and gas in captive market areas;
the introduction, price and availability of alternative forms of fuel to replace or compete with oil and natural gas;
import and export regulations for LNG and/or refined products derived from oil and gas production from the US;
speculation in the price of commodities in the commodity futures market;
the availability of drilling rigs and completion equipment; and
the overall economic environment.
Further, oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. The price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. This near term volatility may affect future prices in 2017 and beyond. The volatility of the energy markets makes it difficult to predict future oil and natural gas price movements with any certainty.
Exploration for oil and natural gas is risky and may not be commercially successful, impairing our ability to generate revenues.
Oil and natural gas exploration involves a high degree of risk. These risks are more acute in the early stages of exploration. We may not discover oil or natural gas in commercially viable quantities, if at all. It is difficult to project the costs of implementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones and tools lost in the hole, and changes in drilling plans, locations as a result of prior exploratory wells or additional seismic data and interpretations thereof, and final commercial terms negotiated with partners. Developing exploratory oil and gas properties requires significant capital expenditures and involves a high degree of financial risk. The budgeted costs of drilling, completing, and operating exploratory wells are often exceeded and can increase significantly when drilling costs rise. Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages, and mechanical difficulties. There is no assurance that we will successfully complete any wells or if successful, that the wells would be economically successful. Moreover, the successful drilling or completion of any oil or gas well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. We cannot assure you that our exploration, exploitation and development activities will result in profitable operations, the result of which will materially adversely affect our business.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on the Company.
Oil and gas operations are subject to national and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may have material adverse effects on our potential royalties. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on any potential revenue to us.
We will be dependent upon the third party operator of our oil and gas interests.
If and when our prospects proceed to drilling, third parties will act as the operators of our oil and gas wells, and control the drilling and operating activities to be conducted on our properties. Therefore, we may have limited control over certain decisions related to activities on our properties relating to the
timing, costs, procedure, and location of drilling or production activities, which could affect the Company’s results.
We may not be able to develop oil and gas reserves on an economically viable basis.
To the extent that we succeed in discovering oil and/or natural gas reserves on our prospects, we cannot assure that these reserves will be capable of production levels we project or in sufficient quantities to be commercially viable. Our future reserves, if any, will depend not only on our ability to develop then-existing properties, but also on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and natural gas we develop and to effectively distribute our production into markets.
Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of wells resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be assured of doing so optimally, and we will not be able to eliminate them completely in any case. Therefore, these conditions could adversely impact our operations.
Metropolitan Dry Cleaners
There can be no assurance that we will be able to generate or secure sufficient funding to support our growth strategy.
We intend to finance future acquisitions and new store openings with cash from operations, the issuance of capital stock, borrowings, and the net proceeds from the sale of debt and/or equity securities, including the sale of securities hereby. If we do not have sufficient cash from operations, funds available under credit facilities and/or the ability to raise cash through the sale of debt and/or equity securities, or cannot issue our capital stock on suitable terms, we will be unable to pursue our growth strategy, which could have a material adverse effect on our ability to increase revenue and net income (or reduce net loss, as applicable), and on our financial condition and ability to sustain our operations.
Our industry is highly competitive.
The dry cleaning industry is highly competitive. We believe there could be as many as 40,000 dry cleaning stores in the United States, and we face intense competition for customers and access to suitable store locations. We will compete with other dry cleaner operators in each of our projected markets. Some of our competitors could have greater financial and marketing resources, market share, and/or name recognition than us. In addition, our proposed business could be affected by fashion trends, the economy, and a reduction in our markets’ population growth and/or financial conditions and habits. There can be no assurance that we will be able to compete successfully with such entities in the future.
Pricing pressures from existing competitors and/or an influx of new competitors may have an adverse effect on our operating results.
The competition in our market from the incumbent providers of dry cleaning services, especially discount or single price per piece operators, may place downward pressure on prices for our services, which can adversely affect our operating results. In addition, we could face competition from other companies we have not yet identified or which may later enter into our existing operating regions. If we are not able to compete effectively with these industry participants, or if our potential customer base is diluted by an influx of new stores, our operating results would be adversely affected.
Many of our competitors and potential competitors could have superior resources, which could place us at a cost and price disadvantage. Thus, we may never realize revenues sufficient to sustain our operations, and we may fail in our business and cease operations.
Many of our competitors, including those with franchised operations, and potential competitors may have significant competitive advantages, including greater market presence; name recognition; superior financial, technological and personnel resources; superior services and marketing capabilities; and significantly larger customer bases. As a result, some of our competitors and potential competitors could raise capital at a lower cost than we can, and they may be able to adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the development, marketing, and sale of services than we can. Also, our competitors’ and potential competitors’ greater brand-name recognition may require us to price our services at lower levels in order to win business. Our competitors’ and potential competitors’ financial advantages may give them the ability to reduce their prices for an extended period of time if they so choose.
Our ability to implement our growth strategy may be limited by our ability to consummate acquisitions, and there can be no assurance that future acquisitions will have a beneficial effect on our operating results.
Our growth strategy includes acquisitions. We will have limited knowledge about the specific operating history, trends, and customer patterns of the dry cleaning stores to be acquired in connection with future acquisitions. Management will also be relying upon certain representations, warranties, and indemnities made by the sellers with respect to the acquisitions, as well as our own due diligence investigation. There can be no assurance that such representations and warranties will be true and correct or that our due diligence will uncover all material adverse facts relating to the operations and financial condition of the store acquired. Any material misrepresentation could have a material adverse effect on our financial condition and results of operations. Consequently, there can be no assurance that we will make future acquisitions at favorable prices, that acquired stores will perform as well as they had performed historically, or that we will have sufficient information to accurately analyze the markets in which we elect to make acquisitions. Further, while the acquired operations are being integrated into our existing operations, and even thereafter, the acquired operations may not achieve levels of revenue or profitability comparable to our existing operations, or otherwise perform as expected, particularly in the fiscal quarters immediately following the consummation of such transactions.
Competition for acquisitions could adversely affect our ability to continue our growth.
If other companies seek to acquire the same dry cleaning operations that we seek to acquire, acquisition prices would likely increase, resulting in fewer acquisition opportunities, which could have a material adverse effect on our growth.
Our long-term success is also dependent on our ability to open new stores and is subject to many unpredictable factors.
One of the key means of achieving our organic growth strategy will be through opening new stores and operating those stores on a profitable basis. We intend to develop new stores in our existing markets, especially in geographic regions that can be serviced by our existing hubs or mini-hubs, expand our footprint into adjacent markets and selectively enter into new markets. However, there are numerous factors involved in identifying and securing appropriate sites, including, but not limited to, the identification and availability of suitable locations with the appropriate population demographics, traffic patterns, local retail and business attractions and infrastructure that will drive high levels of customer traffic and store level sales. Further, competition for identified sites is intense, and other dry cleaning operators and retail concepts that compete for those sites may have unit economic models that permit them to bid more aggressively for those sites than we can. Our ability to open stores also depends on other factors, including, negotiating leases with acceptable terms, identifying, hiring and training qualified employees in each local market, and securing required governmental permits in a timely manner.
There is no guarantee that a sufficient number of suitable sites will be available in desirable areas or on terms that are acceptable to us in order to achieve our organic growth plan. We may not be able to successfully develop critical market presence in new geographical markets, as we may be unable to find and secure attractive locations and attract new customers. If we are unable to fully implement our organic growth plans, our business, financial condition and results of operations could be materially adversely affected.
The success of our expansion strategy depends on the continued loyalty of the customers of the acquired stores.
The success of the dry cleaning stores to be acquired in any acquisition depends in large part on our ability to retain customers from the operations we acquire. To the extent that customers have developed loyalty to former owners/operators, such transitions could result in a loss of customers. A significant loss of customers would have a material adverse effect on our financial condition and results of operations.
No independent market studies have been made to confirm the continued demand for our dry cleaning services.
No independent market studies have been made that confirm the demand for our dry cleaning services. If there is not a sufficient market for our dry cleaning services, we may suffer or fail in our business and cease operations.
Changes in the cost of supplies, utilities and other operating costs beyond our control could adversely affect our results of operations.
We will purchase our supplies, including dry cleaning solvents, wire hangers and packaging materials from several large suppliers and the price for such supplies is subject to change. Utility costs fluctuate during certain peak seasons, primarily during prolonged periods of cold and heat. Because our model is based on providing competitively priced dry cleaning and laundry services, our ability to pass along commodity price increases to our customers is limited. Significant increases in gasoline prices could also result in a decrease of customer traffic at our stores and increases in expenses attributed to our delivery routes, each of which could adversely affect our profit margins.
If we face labor shortages or increased labor costs, our growth and operating results could be adversely affected.
Labor is a primary component in the cost of operating our stores. If we face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, increases in the federal, state or local minimum wage or other employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase and our growth could be adversely affected. In addition, our growth depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified management personnel, as well as a sufficient number of other qualified employees, including customer service and equipment maintenance personnel. Difficulty in recruiting employees or high employee turnover in existing stores could have a material adverse effect on our business, financial condition and results of operations.
In addition, some of our future employees will paid at rates related to the United States federal minimum wage, and increases in the minimum wage would increase our labor costs. Further, costs associated with workers’ compensation are rising, and these costs may continue to rise in the future. We may be unable to increase our prices in order to pass these increased labor costs on to consumers, in which case our margins would be negatively affected, which could materially adversely affect our business, financial condition and results of operations.
Reliance on licensed third-party point-of-sale software and systems to manage customer orders and operate our back office management systems. The failure of this software and systems could harm our business.
Our business model relies on point-of-sale software and systems licensed from third-parties to operate our point-of-sale transactions including issuing pick-up and delivery receipts and tracking dry cleaning and laundry inventory while being processed. A substantial failure of software and other systems could restrict and limit our ability to track orders and fulfill orders in a timely manner. This could reduce the attractiveness of our services and cause our patrons to visit other dry cleaners. In addition, reliance on this software to transmit data is required to coordinate payroll, track sales, generate operating reports to analyze store and regional performance and monitor loss prevention. Disruption in, changes to, or a failure of the software and systems could result in the loss of important data, and increase our expenses.
Our business could suffer if we lose key management or are unable to attract and retain the talent required for our business.
Our performance is significantly impacted by the efforts and abilities of our senior management team. We are highly dependent upon the members of our management team. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business or achieve our business objectives. If we are unable to recruit and retain qualified management personnel in a timely manner our results of operations and financial condition could suffer.
If we are unable to attract and retain qualified personnel with dry cleaning service-related experience, our business could suffer.
Our current and future success depends in part on our ability to identify, attract, hire, assimilate, train, retain, and motivate professional, highly-skilled technical, managerial, sales, marketing, and customer service personnel with dry cleaning service-related experience. If we fail to attract and retain the necessary managerial, sales and marketing, technical, and customer service personnel, we may not develop a sufficient customer base to adequately develop our proposed operations and our business could suffer or fail.
Our business is seasonal and is also affected by severe weather.
Our business is seasonal. Demand for our services, and therefore our sales, is lower during the summer months when customers tend to take more time off work and therefore require less occupation-related dry cleaning and laundry. Our business is also affected by weather, especially severe weather conditions such as hurricanes and tropical storms.
Changes in economic conditions and other unforeseen conditions could materially affect our ability to maintain or increase sales.
The dry cleaning industry depends, in large part, on consumer discretionary spending. The United States in general and the specific markets in which we operate, may suffer from depressed economic activity, recessionary economic cycles, higher fuel or energy costs, low consumer confidence, high levels of unemployment, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies, reduced access to credit or other economic factors that may affect consumer discretionary spending. Sales in our stores could decline if consumers are unemployed reducing the demand for dry cleaning services, including uniforms, or choose to reduce the amount they spend on dry cleaning. Negative economic conditions and trends may cause consumers to make long-term changes to their discretionary spending behavior, including the continued adoption of “business-casual” and other workplace changes. In addition, given our geographic concentrations in specific regions of the United States, economic conditions in those particular areas of the country could have a disproportionate impact on our overall results of operations, and regional
occurrences such as local strikes, terrorist attacks, increases in energy prices, and natural or man-made disasters could materially adversely affect our business, financial condition and results of operations. If sales decrease, our profitability could decline as we spread fixed costs across a lower level of sales. Reductions in staff levels, asset impairment charges and potential store closures could result from prolonged negative sales, which could materially adversely affect our business, financial condition and results of operations.
Compliance with environmental laws may negatively affect our business.
We are subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous or toxic substances. Third parties may also make claims against owners or tenants of properties or businesses for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our stores. Environmental conditions relating to releases of hazardous substances at prior, existing or future store sites could materially adversely affect our business, financial condition and results of operations. Further, environmental laws, and the administration, interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial condition and results of operations.
We may pursue businesses in which we have limited or no experience, including tuxedo and eveningwear rental, and such businesses could fail to generate anticipated returns.
Several of our competitors incorporate additional businesses into their dry cleaning and laundry operations. We may pursue similar businesses, and, in particular, are contemplating introducing tuxedo and eveningwear rentals into certain of our retail stores, even though we do not have experience operating such additional businesses. If we are not able to successfully integrate these additional business opportunities or if the costs associated with such businesses opportunities are greater than we project, our operating results could be adversely affected.
Risks Relating to Our Common Stock
An active trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the initial purchase price.
An active trading market for our common stock may never develop or be sustained. If an active trading market does not develop, you may have difficulty selling your common stock at an attractive price, or at all. Consequently, you may not be able to sell your common stock at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our securities, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies by using our securities as consideration.
The market prices of our common stock fluctuates substantially.
The market prices of our common stock is subject to significant fluctuations. You should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market prices of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:
variations in our operating results;
sale of our common stock by our stockholders, executives, and directors;
volatility and limitations in trading volumes of our shares of common stock and debt securities;
our ability to obtain financings;
our cash position;
changes in general economic, political and market conditions in any of the regions in which we conduct our business;
changes in industry conditions or perceptions;
changes in valuations of similar companies or groups of companies;
departures and additions of key personnel;
disputes and litigation related to contractual obligations;
changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and
other events or factors, many of which may be out of our control.
Our common stock is considered “penny stock” and may be difficult to sell.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is below $5.00 per share and therefore is designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of our stockholders to sell their shares. In addition, since our common stock is quoted on the OTC Bulletin Board, our stockholders may find it difficult to obtain accurate quotations of our common stock and may find few buyers to purchase the stock or a lack of market makers to support the stock price.
We do not anticipate paying dividends in the foreseeable future; you should not buy our stock if you expect dividends.
We currently intend to retain our future earnings to support operations and to finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Provisions in Nevada law could discourage a takeover that stockholders may consider favorable.
Nevada law could make it more difficult for a third party to acquire us. Specifically, Section 78.378 et.seq. of the Nevada Revised Statutes which apply to the acquisition of a controlling interest in a corporation may have an anti-takeover effect.
Our stock price could decline as a result of our failure to meet reporting and other regulatory requirements.
Our new management team will now be responsible for our operations and reporting. This will require outside assistance from legal, accounting, investor relations or other professionals that could be more costly than planned. Our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our stock price and adversely affect our results of operations, cash flow and financial condition.
Operating as a small public company also requires us to make forward-looking statements about future operating results and to provide some guidance to the public markets. The new management has limited experience as a management team in a public company and as a result projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC or any stock market in which our stock is traded.
If we do not implement necessary internal control over financial reporting in an efficient and timely manner, or if we discover deficiencies and weaknesses in existing systems and controls, we could be subject to regulatory enforcement and investors may lose confidence in our ability to operate in compliance with existing internal control rules and regulations, either of which could result in a decline in our stock price.
It may be difficult to design and implement effective internal control over financial reporting for the operations as we integrate the business we acquired as a result of the purchase, and businesses acquired in the future, if any. In addition, differences in existing controls of acquired businesses may result in weaknesses that require remediation when internal controls over financial reporting are combined.
If we fail to maintain an effective system of internal control, we may be unable to produce reliable financial reports or prevent fraud. If we are unable to assert that our internal control over financial reporting is effective at any time in the future, or if our independent registered public accounting firm is unable to attest to the effectiveness of internal controls, is unable to deliver a report at all or can deliver only a qualified report, we could be subject to regulatory enforcement and investors may lose confidence in our ability to operate in compliance with existing internal control rules and regulations, either of which could result in a decline in our stock price.
Our status as an operating public company may make it more difficult to attract and retain officers and directors.
Sarbanes-Oxley and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As an operating public company, we expect these new rules and regulations to increase our compliance costs in 2012 and beyond and to make certain activities more time-consuming and costly than if we were not an operating public company. As an operating public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retained qualified persons to serve on our Board or as executive officers.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2.Properties
The Company currently maintains a mailbox in Las Vegas NV, a more permanent location for its headquarters will be established in one of the facilities used by its subsidiaries.
Item 3.
Item 3.Legal Proceedings
In the ordinary course of our business, we may from time to time become subject to routine litigation or administrative proceedings, which are incidental to our business. We are not a party to nor are we aware of any existing, pending or threatened lawsuits or other legal actions involving us.
Item 4.
Item 4.Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted on the OTC Bulletin Board under the symbol “EXAD”. Our common stock commenced trading during September 2012 prior to this we had no market in our common stock.
Any quotations on the OTC Bulletin Board would reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
As of December 31, 2015, we had 90 shareholders of record of our common stock and 25,409,600 shares outstanding.
Dividend Policy
We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined periodically by our board of directors.
Equity Compensation Plan Information
None
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our last quarter of our year ended December 31, 2015.
Use of Proceeds
Not applicable.
Item 6.
Item 6.Selected Financial Data
As a “smaller reporting company,” we are not required to provide the information required by this Item.
Item 7.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Results of Operations
Overview
Our activity for the year ended December 31, 2015 with the Chiurazzi transaction being cancelled by the former director at the same time as he resigned and elected our current sole officer and director to his positions. The Company began at that moment engaging in the oil and dry cleaning industries, two sectors that are affected very differently by adverse local or global economic conditions.
The re-work of oil wells is a very cost effective way to enter the oil industry without heavy upfront drilling costs, by reworking oil wells a company can look to extract oil out of the ground at a rate of $9.00 to $15.00 per barrel. TransAmerican is working on closing a deal that give it access to 300 wells each well has the ability to pump 10 barrels per day after $50,000 or less is spent per well bringing it back on line. The pending transaction had factored oil in at $30 per barrel allowing the company significant operating margins.
The dry cleaning market is over $9 billion in annual revenue and there is not one dominant player in the market, the top 10 companies combined earn about $100 million annually in a market with over 35,000 locations spread across the country.
Revenue
Total revenue increased from $748,031 for the year ended December 31, 2013, to $52,000 for the year ended December 31, 2014 to $0 for the year ended December 31, 2015.
These variances were primarily due to the discontinued operations and the obstacles they had to overcome. The Company is moving into two primary areas that are marginally impacted by negative economic conditions. The acquisition of dry cleaners will bring instant revenue with each closing. By operating two different subsidiaries each can function on its own independent of the others financial condition and both can contribute to the generating revenue.
Operating Costs
Costs of Goods Sold
Cost of goods sold decreased from $261,508 for the year ended December 31, 2013 to $0 for the year ended December 31, 2014 to $0 for the year ended December 31, 2015. The decrease of cost of goods sold is a result of discontinued operations of the foundry.
General and Administrative Expenses
General and administrative expenses decreased from $1,281,504 for the year ended December 31, 2013 to $52,000 for the year ended December 31, 2014 to $16,044 for the year ended December 31, 2015.
The decrease was attributable to the specific factors discussed below and included a significant amount of one-time charges related to our purchase transaction in becoming a public company, additional staffing and related compensation expense. Approximately $75,000 of one-time costs associated with the purchase transaction are included in the costs incurred during the year ended December 31, 2013.
We believe that the costs for some or all of these items are likely to continue to increase in future periods and, therefore, could negatively impact our results of operations.
Operating Income (Loss)
Our operating loss represents an increase from an operating loss of $794,531 for the year ended December 31, 2013 compared to operating loss of $52,000 for the year ended December 31, 2014 to an operating loss of $16,044 for the year ended December 31, 2015.
The decrease in our operating loss is primarily attributable to the decrease in general and administrative expenses due to the discontinued operations of the foundry.
Other Income (Expense)
Other expense of $6,686 for the year ended December 31, 2012 and $821,345 for the year ended December 31, 2013 consists of interest expense relating to the Chiurazzi loan as discussed further in liquidity and capital resources and loss on settlement of note payable. On August 30, 2013, the Company issued 700,000 common shares to Chiurazzi International, LLC to settle $1,272,500 note payable. These shares were valued at $2,030,000 based on the market price on the settlement date. The Company recorded a loss on settlement of $757,500 related to this settlement.
Net Income (Loss)
Net loss increased from a net loss of $1,558,933 for the year ended December 31, 2013 to net gain of $52,000 for the year ended December 31, 2014 to a net loss of $16,044 for the year ended December 31, 2015.
This loss in both periods was primarily due to discontinued operations.
Limited Operating History; Need for Additional Capital
There is no historical financial information about us upon which to base an evaluation of our performance. We are a development stage corporation and have not generated any revenues from operations.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential short-term (within one year) and long-term cash requirements, which includes our ability to repay debt, fund and maintain our product offerings, and other general business needs.
At December 31, 2015, we carried $0 in cash and cash equivalents on the balance sheet. Cash provided from operations is generated primarily from net income and the timing of accounts receivable collections and disbursements of accounts payable and accrued expenses.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Item 8.
Item 8.Financial Statements and Supplementary Data
EXPERIENCE ART AND DESIGN, INC.
For the Year ended December 31, 2015
Page
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statement
sF5
EXPERIENCE ART AND DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business
On December 15, 2015, the Company resolved to cancel its acquisition of Chiurazzi Srl. In return for cancelling the acquisition, the Company canceled its assumption of the secured note payable to Chiurazzi International LLC for $2,540,000. In exchange for this cancellation of the agreement, the Company resolved to allow CI Holdings Inc. to maintain its interest in the 9,700,000 common shares already issued to it.
Since December 16, 2015 the Company has been focused on two primary business models: the re-work of existing oil wells and dry cleaners, through two wholly owned subsidiary companies: TransAmerican Oil and Metropolitan Dry Cleaners respectively.
TransAmerican Oil
TransAmerican Oil is a U.S. Oil & Gas Company, pursuing either currently producing turnkey oil wells, or developing fresh oil wells on currently producing leases within the Continental United States. The properties in which TransAmerican Oil is pursuing interests, are in various stages of development, and the company seeks to acquire additional properties as geologic and economic potential permits. The company is currently engaged in an LOI to acquire and develop a 300-well lease located in the State of Kansas. TransAmerican is focused on the exploration, development and production (E&P) of properties geographically located in the Continental United States. The company's operational focus is the acquisition of in-production, or near-production, oil and natural gas field assets. The company seeks to have an inventory of existing wells to rework, and a number of new drilling sites to maintain growth, while increasing reserves and cash flow. TransAmerican intends to return a portion of cash flow to shareholders in the form of dividends paid on a semi-annual basis as authorized by its Board of Directors.
The company follows sound conservative fiscal principals, and is focused on building shareholder value in the Energy Production sector.
Metropolitan Dry Cleaners
Metropolitan Dry Cleaners is a roll-up of existing enterprises with a multi-year history of revenues and profits in a variety of primarily East Coast States. These enterprises have been listed for sale by their owners and often come with existing staff and inventory. The company will provide dry cleaning, laundry, and garment alterations, as offered by the existing target businesses along with regular home pick-up and delivery services. The company will have both production facilities and retail storefronts to complement its pick-up and delivery service. The company will need delivery vans, and customer service trained drivers, which should come with the acquisition of some businesses. Metropolitan plans to also offer customers the opportunity to download an app to schedule service. These customers will recommend Metropolitan Dry Cleaners to their friends and coworkers. As more and more customers use this service, Metropolitan Dry Cleaners' image is enhanced and will gain greater market share within the existing enterprise zone. An analysis conducted in 2011 concluded "how highly fragmented the industry is with 39,000 location generating $9.2 billion in Annual sales, while the top 4 companies only represent 2.5% of the overall sales."
The analysis showed that there is no national chain, and the closest companies to forming a national chain with 2.5% market share have almost no dominance within the market place. Metropolitan expects to be profitable immediately as it is purchasing existing cash flow. The Company has targeted a list of almost 100 dry cleaners with combined annual cash flow of $3.4M, and revenues of $10.5M. The Company hopes to acquire existing dry cleaners using a combination of money-down, equity, and payments over time. In areas where there is overlap of production facilities the company can expand by relocating those facilities, opening new storefronts, and advertising to prospective customers via direct mail and online mailers.
Note 2Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statement have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-K should be read in conjunction with recent company filings with the SEC.
Management's Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
Cash and Equivalents
The Company’s cash and cash equivalents consist of cash, as well as interest and non-interest bearing balances due from banks both foreign and domestic with an original maturity of three months or less. Amounts in depository accounts fluctuate on a daily basis due to activity and liquidity needs. It is the Company’s policy not to deposit large sums of cash within foreign operational deposit accounts due to potential financial instability in the region and the Company funds operations on an as needed basis. The Company maintains cash in bank deposit accounts domestically, which at times may exceed the federally insured limits throughout the course of operations.
Accounts Receivable
Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.
The Company attempts to limit its exposure to losses on accounts receivable by monitoring the size and economic strength of its receivables, and whenever appropriate reflect a reserve for accounts that have been deemed potentially uncollectable. Monitoring occurs on a regular basis and exposure is limited by the vetting process for customers.
Allowance for Doubtful Accounts
The Company extends credit to customers and other parties in the normal course of business. The Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, the Company makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. When the Company determines that a customer may not be able to make required payments, the Company increases the allowance through a charge to income in the period in which that determination is made.
Inventories
Inventories are valued at the cost of acquisition, cost of production, and (or) deemed market value and are subsequently subject to lower of cost or market accounting on a nonrecurring basis. The cost of acquisition includes any costs directly attributable to the acquired inventory. Costs of physical production includes an allocation of raw materials, labor, and overhead allocated based on the estimated hours required to produce finished goods available for sale. Periodically management reviews the existing finished inventory and determines if any impairment (write down) is required. The fair value of finished inventory held-for-sale is generally based on estimated market prices from an independently prepared appraisal, an independent art broker opinion, or management’s judgment as to the selling price of similar works of art. For these finished works of art, the Company obtains fair value measurements from both internal experts regularly available and well versed in such works of art and independent experts as the need arises.
Property, Plant and Equipment
The Company accounted for past property, plant and equipment at historical cost less accumulated depreciation. Historical cost includes all expenditures that are directly attributable to the acquisition of fixed assets. Subsequent costs are included in the asset's carrying amount and are recognized as a separate asset, as appropriate, only when there is the probability of future economic benefits. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation was calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Plant and machinery10 to 20 years
Furniture and fixtures10 to 17 years
The assets' residual values and useful lives are reviewed, and adjusted as appropriate at least once a year. An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount.
Intangibles
Intangible assets consist primarily of tradenames, logos, LOI, and Business Development activities, which were acquired in the fourth quarter of 2015 from a related-party, Derrick Lefcoe. Purchased intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually.
Revenue Recognition
Revenue is recognized when the earning process is completed, the risks and rewards of ownership have transferred to the customer, which is generally the same day as delivery or shipment of the product, the price to the buyer is fixed or determinable, and collection is reasonably assured. Taxes assessed by a governmental authority that are incurred as a result of a revenue transaction are not included in revenues. The Company has no significant sales returns or allowances.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.
A tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2015, the Company had not recorded any tax benefits from uncertain tax positions.
Net Income (Loss) Per Common Share
The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. There where $250,000 and $0 dilutive securities were outstanding as of December 31, 2015 and 2014.
Stock-Based Compensation
The Company sometimes grants shares of stock for goods and services and in conjunction with certain agreements. These grants are accounted for based on the grant date fair values.
Foreign Currency Translation
The functional currency of the Company’s subsidiary outside of the United States is its respective local currency. The translation from the applicable foreign currency to US dollars is performed for the balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate for the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss).
Subsequent Events
The Company through its subsidiary Metropolitan Dry Cleaners has engaged in an LOI to acquire three dry cleaning locations in Florida. The three locations have revenue of over $400,000 currently. A Purchase Agreement was executed, but the company is renegotiating that transaction. The Company hopes to close the transaction by this summer.
The Company through its subsidiary TransAmerican Oil has engaged in an LOI to acquire and develop a 300-well lease located in the State of Kansas.
In March of 2016, the Company elected two more Board members Lawrence Gorman and Manuel Losada. Manuel Losada also assumed the role of President and Derrick Lefcoe remained as CEO and CFO.
On April 28, 2016 Baron Capital Enterprise, Inc., filed a 13D representing ownership of 36.1% of our Common stock.
New Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may
result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Risk and Uncertainties
The Company is subject to risks common to companies in the technology industries, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Note 3Going Concern and Liquidity Considerations
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 4Income Taxes
During 2015, The Company has been operating at a net operational loss the federal tax rates on income range 15% to 35% stagger at different income brackets. Since the Company had a net operation loss, no tax provision for U.S. tax purposes was deemed necessary at this time.
Note 5Equity
None
Note 6Related party Transactions
The Company purchased with 55 million shares of its restricted Common stock from Derrick Lefcoe our sole officer and director
In return for various intangible assets that consist primarily of tradenames, logos, LOI, and Business Development activities for both Metropolitan Dry Cleaners and TransAmerican Oil.
Item 9.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A
Item 9A Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. With the participation of our Chief Executive and Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based upon such evaluation, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2015 based on the COSO framework criteria.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to a permanent exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Officers’ Certifications
Appearing as exhibits to this Annual Report are “Certifications” of our Chief Executive Officer and Chief Financial Officer. The Certifications are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Annual Report contains information concerning the Controls Evaluation referred to in the Section 302 Certification. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2015, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Item 9B.Other Information
Not applicable.
PART III
Item 10.
Item 10.Directors, Executive Officers and Corporate Governance
All directors of the Company hold office until the next annual meeting of the security holders or until their successors have been elected and qualified. The officers of the Company are appointed by the board of directors and hold office until their death, resignation or removal from office. The directors and executive officers, their ages, positions held, and duration as such, are as follows:
Business Experience
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of the Company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Derrick Lefcoe Biography. During the past ten years, Mr. Lefcoe has been involved in marketing communications. Since 2004 to current date, Mr. Lefcoe has been employed at IAI North America as a Marketing Communications Specialist pursuant to which his duties include, but are not limited to, the following: (i) working with various upper executive management in development and identification of business opportunities; (ii) preparing business intelligence material; (iii) maintaining corporate registration with the United States Government (SAM record); (iv) coordinating visits by foreign nationals to governmental installations and other secure commercial facilities; (v) coordinating trade shows and other similar events; and (vi) preparing public relations and other outreach material.
From approximately 2000 to 2004, Mr. Lefcoe was employed with Watergate Dental Associates. Mr. Lefcoe’s duties included, but were not limited to, the following: (i) development and marketing of corporate website; (ii) development of corporate marketing material; (iii) working with upper management to identifying expansion opportunities; (iv) inventory management; (v) interface with patients for billing and other issues; and (vi) managing front desk operations.
Mr. Lefcoe earned a Masters of Arts in International Relations at the University of Kent at Canterbury in 1997. Mr. Lefcoe also earned a Bachelor of Science in Computer Science from the London Guildhall University in 1995.
Employment Agreements
Other than as set out below, we have no formal employment agreements with any of our employees, directors or officers.
Family Relationships
There are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:
1. A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2. Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
3. Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
4. Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
5. Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;6. Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
7. Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8. Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Exchange Act
The Company’s common stock is not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics is attached as exhibit 14, to our December 31, 2011 10K as filed with the SEC on March 19, 2012. The Company will also provide to any person, without charge and upon request, a copy of the code of ethics. Any such request must be made in writing to the Company.
Board and Committee Meetings
Our board of directors currently consists of one member Derrick Lefcoe. The Board held no formal meetings during the year ended December 31, 2015. As the Company develops a more comprehensive Board of Directors all proceedings will be conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Nevada General Corporate Law and our Bylaws, as valid and effective as if they had been passed at a meeting of the directors duly called and held.
Nomination Process
As of December 31, 2015, we did not affect any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board of directors has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors. If shareholders wish to recommend candidates directly to our board, they may do so by sending communications to the president of our company at the address on the cover of this annual report.
Audit Committee
Currently the Company is developing a comprehensive Board of Directors and does not have an Audit Committee. The Company intends to appoint audit, compensation and other applicable committee members as it appoints individuals with pertinent expertise.
Audit Committee Financial Expert
Our board of directors does not have a member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K.
Item 11.
Item 11.Executive Compensation
The particulars of the compensation paid to the following persons:
(a)
our principal executive officer;
who we will collectively refer to as the named executive officers of the Company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than the principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year.
Mr. Yue was appointed Chief Financial Officer, Secretary, Treasurer and a Director of the Company on June 18, 2015.
Mr. Lefcoe was appointed Chief Financial Officer, Secretary, Treasurer and a Director of the Company on December 15, 2015.
Other than set out below there are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that share options may be granted at the discretion of our board of directors.
Grants of Plan-Based Awards
There were no grants of plan based awards during the year ended December 31, 2015.
Outstanding Equity Awards at Fiscal Year End
There was no outstanding equity awards at the year ended December 31, 2015.
Option Exercises and Stock Vested
During our year ended December 31, 2015 there were no options exercised by our named officer.
Compensation of Directors
We do not have any agreements for compensating our directors for their services in their capacity as directors.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
Item 12.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of December 31, 2015, certain information with respect to the beneficial ownership of our common shares by each shareholder known by us to be the beneficial owner of more than 5% of our common shares, as well as by each of our current directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
(1)Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on December 31, 2015. As of December 31, 2015 there were 25,409,600 shares of our company’s common stock issued and outstanding
Changes in Control
On December 15, 2015 our sole officer and director Zhang Yue appointed Derrick Lefcoe a director and officer of the Company and resigned simultaneously.
Item 13.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Our director is not an independent director as he also serves as our executive officer.
Item 14.
Item 14.Principal Accounting Fees and Services
The aggregate fees billed for the most recently completed year ended December 31, 2015, and for the period from inception (January 24, 2011) to December 31, 2015 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
(1)Audit fees consist of fees incurred for professional services rendered for the audit of our financial statements, for reviews of our interim financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.
(2)Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements, but are not reported under “Audit fees.”
(3)Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)All other fees consist of fees billed for all other services.
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
Exhibits
In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
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should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
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have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
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may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
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were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
The following exhibits are included as part of this report:
(2)
Filed with the Securities and Exchange Commission on February 3, 2012 as an exhibit, numbered as indicated above, to the Registrant’s Form 8-K (file no. 333-174155), which exhibit is incorporated herein by reference.
(3)
Filed with the Securities and Exchange Commission on March 19, 2012 as an exhibit, numbered as indicated above, to the Registrant’s Form 10-K (file no. 333-174155), which exhibit is incorporated herein by reference.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
EXPERIENCE ART AND DESIGN, INC.
(Registrant)
Dated: May 19, 2016
/s/Derrick Lefcoe
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: May 19, 2016
/s/Derrick Lefcoe
President, Secretary, Chief Executive Officer, and Director
(Principal Executive Officer, Principal Financial Officer)