UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________________
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2014
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number: 000-54968
EXPERIENCE ART AND DESIGN, INC.
(Exact Name of Registrant as Specified in Charter)
| Nevada | 27-4673791 | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
27929 S.W. 95 th Ave. Suite 1101, Wilsonville, OR | 97070 | |
| (Address of principal executive offices) | (Zip Code) |
503-685-9878
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock: 25,285,600 shares outstanding as of November 12, 2013.
Item 1. Unaudited Financial Statements | 3 | |
| 13 | ||
| 14 | ||
Item 4. Controls and Procedures | 14 |
Item 1. Legal Proceedings | 15 | |
Item 1A. Risk Factors | 15 | |
| 15 | ||
Item 3. Defaults Upon Senior Securities | 15 | |
Item 4. Mine Safety Disclosures | 15 | |
Item 5. Other Information | 15 | |
Item 6. Exhibits | 15 | |
| Signatures |
The accompanying unaudited consolidated financial statements of Experience Art and Design, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission" or "SEC"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary in order to make the consolidated financial statements not misleading and for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.
| EXPERIENCE ART AND DESIGN, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
September 30, 2014 | December 31, 2013 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | - | $ | 58,434 | ||||
| Accounts Receivable, net of Allowance for Doubtful Accounts | 111,151 | 163,151 | ||||||
| Inventories | 1,281,762 | 1,281,762 | ||||||
| Other Current Assets | 78,256 | 78,256 | ||||||
| Total Current Assets | 1,371,169 | 1,581,603 | ||||||
| Long-Term Assets | ||||||||
| Property, Plant and Equipment, net of Accumulated Depreciation | 1,445,519 | 1,445,519 | ||||||
| Intangibles, net of Accumulated Amortization | 258,292 | 258,292 | ||||||
| Other Non-Current Assets | 8,835 | 8,835 | ||||||
| Total Long-Term Assets | 1,712,646 | 1,712,646 | ||||||
| Total Assets | $ | 3,083,815 | $ | 3,294,249 | ||||
| Total Liabilities and Shareholders' Equity | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Short-Term Borrowings - Related Party | $ | 264,456 | $ | 264,456 | ||||
| Accounts Payable and Accrued Liabilities | 467,733 | 578,167 | ||||||
| Due to Related Party | 38,430 | 38,430 | ||||||
| Stock Payable | 25,000 | 25,000 | ||||||
| Tax Payable | 135,385 | 135,385 | ||||||
| Long-Term Debt - Current Portion | 480,000 | 480,000 | ||||||
| Total Current Liabilities | 1,411,004 | 1,521,438 | ||||||
| Long-Term Liabilities | ||||||||
| Long-Term Debt - Net of Current Portion | 652,500 | 652,500 | ||||||
| Other Liabilities | 54,025 | 54,025 | ||||||
| Total Long-Term Liabilities | 706,525 | 706,525 | ||||||
| Total Liabilities | 2,117,531 | 2,227,963 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred Stock, par value $0.001, 15,000,000 shares | ||||||||
| authorized, none issued and outstanding | - | - | ||||||
| Common Stock, par value $0.001, 100,000,000 shares authorized, | ||||||||
| 25,225,600 and 9,700,000 shares issued and outstanding, respectively | 25,226 | 25,226 | ||||||
| Additional Paid-in Capital | 4,008,027 | 4,008,027 | ||||||
| Accumulated Deficit | (2,890,613 | ) | (2,987,613 | ) | ||||
| Accumulated Other Comprehensive Income (Loss) | 20,646 | 20,646 | ||||||
| Total Shareholders' Equity | 966,286 | 1,066,286 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 3,083,815 | $ | 3,294,249 | ||||
See Accompanying Notes to Consolidated Financial Statements.
UNCHANGED
�� | EXPERIENCE ART AND DESIGN, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Revenues | $ | - | $ | 328,687 | $ | 52,000 | $ | 450,325 | ||||||||
| Operating Costs: | ||||||||||||||||
| Cost of Goods Sold | - | 219,626 | - | 261,508 | ||||||||||||
| General and Administrative Expenses | - | 502,091 | - | 838,526 | ||||||||||||
| Total Operating Costs | - | 721,717 | - | 1,100,034 | ||||||||||||
| Net Operating Gain (Loss) | - | (393,030 | ) | 52,000 | (649,709 | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other Income | - | 458 | - | 458 | ||||||||||||
| Interest Expense | - | (30,875 | ) | - | (64,303 | ) | ||||||||||
| Loss on Settlement of Note Payable | - | (757,500 | ) | - | (757,500 | ) | ||||||||||
| Total Other Income (Expense) | - | (787,917 | ) | - | (821,345 | ) | ||||||||||
| Net Income (Loss) Before Income Taxes | - | (1,180,947 | ) | - | (1,471,054 | ) | ||||||||||
| Provision for Income Taxes | - | 27,418 | ) | - | 56,943 | |||||||||||
| Net Gain (Loss) | - | (1,208,365 | ) | 52,000 | (1,527,997 | ) | ||||||||||
| Other Comprehensive Loss | ||||||||||||||||
| Foreign Currency Translation Adjustment | - | 80,520 | - | 50,525 | ||||||||||||
| Total Comprehensive Gain (Loss) | $ | - | $ | (1,127,845 | ) | $ | 52,000 | $ | (1,477,472 | ) | ||||||
| Basic and Diluted Loss Per Common Share | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.00 | ) | $ | (0.09 | ) | ||||
| Basic and Diluted Weighted Average | ||||||||||||||||
| Number of Common Shares Outstanding | 25,409,600 | 24,360,817 | 25,409,600 | 17,410,788 | ||||||||||||
See Accompanying Notes to Consolidated Financial Statements.
| EXPERIENCE ART AND DESIGN, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Operating Activities | ||||||||
| Net Gain (Loss) | $ | 52,000 | $ | (1,527,997 | ) | |||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Depreciation and Amortization | - | 62,807 | ||||||
| Loss on Settlement of Note Payable | - | 757,500 | ||||||
| Changes In Operating Assets and Liabilities: | ||||||||
| Accounts Receivable | (52,000 | ) | (156,032 | ) | ||||
| Inventories | - | (320,857 | ) | |||||
| Prepaid Expenses and Other Assets | - | (64,250 | ) | |||||
| Accounts Payable and Accrued Liabilities | - | 37,469 | ||||||
| Advance from Customers | - | - | ||||||
| Tax Payable | - | 56,943 | ||||||
| Other Liabilities | - | 15,667 | ||||||
| Net Cash Used in Operating Activities | - | (1,138,750 | ) | |||||
| Investing Activities | ||||||||
| Capital Expenditures for Property, Plant, and Equipment | - | (6,127 | ) | |||||
| Net Cash Used in Investing Activities | - | (6,127 | ) | |||||
| Financing Activities | ||||||||
| Proceeds from Issuance of Common Shares | 1,369,500 | |||||||
| Proceeds from Short-Term Borrowings | - | 401,594 | ||||||
| Proceeds from Borrowings on Debt-Related Parties | - | 229,535 | ||||||
| Payments on Short-Term Borrowings-Related Parties | - | (475,790 | ) | |||||
| Principal Payments on Long-Term Debt | - | (135,000 | ) | |||||
| Net Cash Provided by Financing Activities | - | 1,389,839 | ||||||
| Net Effect of Exchange Rate Changes | - | (2,223 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (52,831 | ) | 242,739 | |||||
| Cash at the beginning of the period | 52,831 | 43,417 | ||||||
| Cash at the end of the period | $ | - | $ | 286,156 | ||||
| Supplemental cash flow data | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income Taxes | $ | - | $ | - | ||||
| Noncash investing and financing activities: | ||||||||
| Related party forgiveness of debt | $ | - | $ | 473,665 | ||||
| Common shares issued to settle related party debt | $ | - | $ | 2,030,000 | ||||
| Note issued to purchase assets from related party | $ | - | $ | 459,983 | ||||
See Accompanying Notes to Consolidated Financial Statements.
EXPERIENCE ART AND DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Description of Business
Experience Art and Design, Inc. (the "Company"), a Nevada corporation, whose principal purpose is to produce, market and sale works of art.
Reverse Acquisition
On May 7, 2013, the Company completed the acquisition of all of the assets of Chiurazzi Internazionale S.r.l. ("Chiurazzi Srl") pursuant to the terms of the purchase agreement with CI Holdings, Inc. The Company acquired Chiurazzi Srl, with Chiurazzi Srl continuing as the accounting acquirer and becoming a wholly-owned subsidiary of the Company. In connection with the acquisition, 9,700,000 common shares were issued to acquire 100% of the assets, liabilities, and equity of Chiurazzi Srl. The Company also assumed a secured note payable to Chiurazzi International, LLC for $2,540,000 in conjunction with the acquisition. At the closing of the purchase transaction, we cancelled 23,000,000 shares of restricted common stock held by Arthur John Carter, our President prior to the purchase transaction.
The acquisition was accounted for as a reverse acquisition and Chiurazzi Srl was deemed to be the accounting acquirer in the acquisition. The Company's assets and liabilities were recorded at their fair value. Chiurazzi's assets and liabilities were carried forward at their historic costs. The financial statements of Chiurazzi are presented as the continuing accounting entity since it is the acquirer for the purpose of applying purchase accounting. The equity section of the balance sheet and earnings per share of Chiurazzi are retroactively restated to reflect the effect of the exchange ratio established in the Company.
Note 2 - Basis 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.
The consolidated financial statements include the accounts of Chiurazzi Internazionale S.r.l. All intercompany balances and transactions have been eliminated.
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 financial instability in the region and the Company fund 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 accounts for 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 is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Plant and machinery 10 to 20 years
Furniture and fixtures 10 to 17 years
Specific equipment and collection of moulds 20 years
The assets' residual values and useful lives are reviewed, and adjusted as appropriate at least once a year. An asset's carrying amount is written down immediately to its recoverable amount if the asset's 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 a trademark which was acquired in the third quarter of 2013 from a related-party CI Holdings, Inc. Purchased intangible assets with indefinite useful lives are not amortized but are tested for impairment as 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, 2013, 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. No dilutive securities were outstanding as of September 30, 2014 and 2013.
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 has evaluated all transactions from September 30, 2014 through the financial statement issuance date for subsequent event disclosure consideration and there are no reportable events.
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.
Note 3 - Going 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. For the quarter ended September 30, 2014, the Company has a gain from operations of $0 and had an accumulated deficit of $2,890,613. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2014.
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 4 - Inventories
Inventories consisted of the following:
December 31, 2013 | December 31, 2012 | |||||||
| Raw materials and consumables | $ | 8,906 | $ | 3,827 | ||||
| Semi-finished goods | 65,569 | 70,576 | ||||||
| Finished products | 1,207,287 | 651,171 | ||||||
| Total | $ | 1,281,762 | $ | 725,574 | ||||
Note 5 - Property, Plant and Equipment
Property, plant and equipment consisted of the following:
December 31, 2013 | December 31, 2012 | |||||||
| Plant and machinery | $ | 85,543 | $ | 77,465 | ||||
| Furniture and fixtures | 5,980 | 5,845 | ||||||
| Specific equipment and collection of moulds | 1,595,360 | 1,559,370 | ||||||
| Property, plant and equipment, at cost | 1,686,883 | 1,642,680 | ||||||
| Accumulated depreciation | (241,364 | ) | (172,884 | ) | ||||
| Total, net | $ | 1,445,519 | $ | 1,469,796 | ||||
Note 6 - Intangibles
Intangibles consisted of the following:
December 31, 2013 | December 31, 2012 | |||||||
| Trade mark | $ | 250,000 | $ | - | ||||
| Others | 9,329 | 9,118 | ||||||
| Intangibles, at cost | 259,329 | 9,118 | ||||||
| Accumulated amortization | (1,037 | ) | (1,013 | ) | ||||
| Total, net | $ | 258,292 | $ | 8,105 | ||||
Note 7 - Short-Term Borrowings- Related Party
The Company has a credit arrangement with CI Holdings, Inc., a related-party, which has been used to fund their ongoing operations in the interim until permanent financing can be arranged. At September 30, 2014, the total amount borrowed from CI Holdings, Inc. was $264,456 in a non-interest bearing arrangements.
Note 8 - Long-Term Debt
The Company assumed responsibility for the purchase arrangement between CI Holdings, Inc. and Chiurazzi International, LLC to gain control of Chiurazzi Internazionale S.R.L. On May 7, 2013, in connection with the merger of Chiurazzi Internazionale S.r.l., the Company assumed the secured note payable to Chiurazzi International, LLC, with an outstanding principal balance of $2,540,000 and accrued interest of $126,437. On May 30, 2013, the note was amended to modify the payment terms and an additional $50,000 was added to the outstanding principal balance. Then on July 24, 2013, the note payable was modified for a third time which reduced the outstanding principal balance by $1,272,500 and modified the payment terms. The following schedule of payments is based on the modified terms:
2013 Payments $250,000
2014 Payments $480,000
2015 Payments $480,000
2016 Payments $40,000 + accumulated accrued interest
On December 31, 2013, the outstanding principal balance of the secured promissory note was $1,132,500 with $190,740 of accrued interest.
Note 9 - Income Taxes
The Company has a foreign consolidated affiliate that is taxed as a separate entity in its "functional currency" at their local applicable tax rates. The deferred tax obligations and credits reported within the consolidated financial statements are due to the affiliate's ongoing operation and were assumed in their acquisition this year.
During 2013 and 2014, 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.
Chiurazzi Srl is governed by Italian tax law and is generally subject to tax at a statutory rate of 27.5% on income reported in the statutory financial statements after appropriate tax adjustments. Under Italian tax law, companies that can be considered 'dormant' will have to pay 38% corporate income tax (IRES) tax rate applied to a notional income amount. The minimum tax for dormant company is calculated based on certain percentage of its assets. Companies are considered as "dormant" when their ordinary revenues and inventories increasing included in the statement of operations are lower than the ones deriving from certain percentages of its assets. An entity is also considered to be dormant in a fiscal year if it has had tax losses in the three previous years. Chiurazzi Srl has losses since its inception in 2010 and has accrued a minimum tax of $56,943 for the year ended December 31, 2013.
The components of the income tax provision (benefit) for each of the periods presented below are as follows:
| Year ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Current | $ | 56,943 | $ | – | ||||
| Deferred | – | – | ||||||
| Total | $ | 56,943 | $ | – | ||||
Note 10 – Employee Termination Indemnities
Upon dismissal for any reason, employees in Italy are entitled to the "Trattamento di Fine Rapporto" ("TFR"). TFR is deferred compensation that accrues year by year in favor of an employee and is paid upon termination, but is not connected or subject to the circumstances regarding termination. TFR must be contributed by employers to complementary funds (with the exception of employees who have opted out of such allocation) or to a governmental fund established specifically in order to manage TFR accruals. Annual TFR accruals are calculated on the basis of an employee's salary. Accrued TFR was $54,025 and $37,081 as of December 31, 2013 and December 31, 2013, respectively.
Note 11 – Commitments and Contingencies
The Company leases the foundry and office space under non-cancelable lease agreements. The leases generally provide that we pay the taxes, insurance and maintenance expenses related to the leased assets. Future minimum lease payments for non-cancelable operating leases as of December 31, 2013, were as follows:
| 2013 | $ | 13,993 | ||
| 2014 | 55,973 | |||
| 2015 | 57,595 | |||
| 2016 | 59,218 | |||
| Future minimum lease payments | $ | 186,779 |
Note 12 - Equity
During the year ended December 31, 2013, the Company issued 1,075,600 common shares for $1,344,500 cash. The Company also received cash of $25,000 for the subscription of 20,000 common shares, which have not yet been issued.
In connection with the acquisition transaction with the Company, CI Holdings forgave a total of $473,665 of short-term borrowings.
On August 30, 2013, the Company issued 700,000 common shares to Chiurazzi International, LLC to settle $1,272,500 of 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.
On October 1, 2013, the Company received cash of $205,000 for the subscription of 164,000 shares of common shares in a private offering of securities. The Company has issued 60,000 of the 164,000 shares. Such shares have not been registered under federal or state securities laws, are restricted and may be sold only pursuant to registration or exemptions thereunder.
Note 13 - Related Party Transactions
During the year ended December 31, 2013, the Company purchased trademark and finished goods from CI Holdings, Inc. for $459,983. The purchase was made through a credit arrangement with CI Holdings, Inc. discussed in Note 7.
As of September 30, 2014, the Company has a payable of $20,280 to an officer of Chiurazzi Srl for amounts advanced to the Company. As of September 30, 2014, the Company also has a $18,150 advance from CI Holdings, Inc.
You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report.
This Management Discussion and Analysis (MD&A) contains "forward-looking statements", which represent our projections, estimates, expectations or beliefs concerning among other things, financial items that relate to management's future plans or objectives or to our future economic and financial performance. In some cases, you can identify these statements by terminology such as "may", "should", "plans", "believe", "will", "anticipate", "estimate", "expect" "project", or "intend", including their opposites or similar phrases or expressions. You should be aware that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these forward-looking statements, which speak only as of the date of this MD&A. Except as may be required under applicable securities laws, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this MD&A or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe under "Risk Factors" in our Form 8-K, filed on May 8, 2013 with the Securities and Exchange Commission. Actual results may differ materially from any forward looking statements.
Results of Operations
We incurred operating expenses of $0 for the three months ended September 30, 2014.
Our net gain through September 30, 2014 was $0.
The following table provides selected financial data about our company for the three months ended September 30, 2014, and the year ended December 31, 2013, respectively
| Balance Sheet Data: | 09/30/14 | 12/31/13 | ||||||
| Cash | $ | - | $ | 58,434 | ||||
| Total assets | $ | 3,083,815 | $ | 3,294,249 | ||||
| Total liabilities | $ | 2,117,531 | $ | 2,227,963 | ||||
| Stockholders' deficit | $ | 966,286 | $ | 1,066,286 | ||||
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
We have minimal assets and have not achieved operating revenues since our inception. We have depended on sales of equity securities to conduct operations.
Our cash balance at September 30, 2014, was $-.
Cash provided by financing activities for the period through September 30, 2014, was $0. Since inception (January 24, 2011) to September 30, 2014, the Company has issued 25,000,000 common shares for $10,000 in cash, and 11,750,000 common shares for $47,000 in cash, for total cash proceeds of $57,000, being $36,750 for par value shares and $20,250 for capital in excess of par value. There were 25,409,600 common shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively.
We do not have sufficient funds to implement our business plan and will seek alternative sources of funds and business opportunities.
Plan of Operation
Our plan was to develop a hospital-based business offering waste divergence programs and strategies to help hospitals better recycle. The Company intended to play an educational role bringing hospital administrators, staff, and recycling professionals together to formulate workable conservation solutions. Professional fees and retainers were to be charged for our services, and incentives attached to performance. A specific referral program was planned, whereby whenever a partner hospital successfully referred our services to another, financial as well as value-added incentives were to be returned to the partner hospital. Because of a lack of sufficient funds, we could not proceed with our business plan.
We intend, therefore, to pursue other business opportunities and alternative sources of funding. On September 20, 2012, we entered into a Memorandum of Understanding to acquire all of the issued and outstanding shares of CI Holdings, Incorporated ("CI"), an Oregon corporation, the holding company for Chiurazzi Internazionale S.r.l., an Italian corporation. The Memorandum of Understanding is subject to appropriate legal and accounting due diligence, as well as board and shareholder approval, in order to complete a definitive agreement between the parties. Chiurazzi Internazionale S.r.l. owns and operates the Chiurazzi Foundry based in Casoria, Italy, which houses the world renowned Chiurazzi Mould Collection. The collection, comprised of more than 1,650 artistic bronze sculpture mould taken from original marble masterpieces housed in many of the most famous museums in the world, is essentially the national archive of Italian sculpture and artifacts.
On January 16, 2013 we entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby Experience Art + Design, Inc., f/k/a CI Holdings, Inc., an Oregon corporation, will be merged with and into a wholly-owned subsidiary of the Company and will, upon closing, operate as a wholly-owned subsidiary of the Company. Experience is the holding company for Chiurazzi Internazionale S.r.l. an Italian Corporation. The Merger Agreement is being executed pursuant to an MOU entered into by the Company and Experience announced on September 24, 2012 .
Following the closing of the purchase transaction with Seller, the business of Chiurazzi Srl became the sole line of business of the Company. Accordingly, we believe the past trading history of the common stock of Clear System Recycling, Inc. should not be viewed as relevant due to the change in our business. The prior market price was not based on the earnings or profits of Chiurazzi Srl that will be operated by the Company going forward. Thus, the market price of our common stock may decline as a result of the purchase transaction as well as any number of other factors set forth herein and as are more fully described in the "Risk Factors" section of this report.
As a result of the purchase transaction, Chiurazzi Srl is our wholly-owned subsidiary and our sole operating business. Chiurazzi Srl owns more than 1,650 historic bronze sculpture moulds representing ancient historic masterpieces (the "Chiurazzi Mould Collection"). Our focus is to create reproductions (the "Chiurazzi Collection") of such masterpieces from the Chiurazzi Mould Collection at our Italian foundry. The foundry, located in Casoria, Italy (the "Chiurazzi Foundry"), is the facility where the reproduction sculptures are created from the Chiurazzi Mould Collection. Throughout this report, we refer to "Chiurazzi" as our business, which is comprised of the Chiurazzi Mould Collection, the Chiurazzi Collection and the Chiurazzi Foundry.
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.
Not applicable.
Evaluation of Our Disclosure Controls
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 quarterly report (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 not effective such that the information relating to us, 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.
None
Not applicable
Purchase Transaction. As a result of the purchase transaction, we acquired 100% of the issued and outstanding share capital of Chiurazzi Srl in exchange for the issuance of 9,700,000 shares of our common stock to CI Holdings, Inc. ("Seller"). The common stock issued to the Seller was not registered under the Securities Act but was issued in reliance upon the exemptions from the registration requirements of the Securities Act as set forth in Section 4(2) thereof. The Seller acquired the securities for investment purposes without a view to distribution. Furthermore, it had access to information concerning the Company and our business prospects, there was no general solicitation or advertising for the sale of the securities, and the securities are restricted pursuant to Rule 144.
None.
Not Applicable.
Following the end of the quarter, effective July 24, 2013, the Company entered into Amendment No. 3 to the Secured Promissory Note with CI Holdings, Inc. (the "Holder") which (1) reduces the principal amount of the Note to $1,272,500; (2) waives interest under the Note if all payments are paid within 10 days of their due date; (3) provides, in exchange for the reduction of the principal amount of the Note, an agreement for the issuance to Holder of 700,000 shares (the "Stock") of the Company's unregistered common stock (representing approximately 2.9% of the outstanding common stock of the Company) in a transaction exempt under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended; (4) modifies the payment schedule as follows: $40,000 due upon the earlier of execution of Amendment No. 3 or July 30, 2013; $50,000 due on August 26, 2013 and $40,000 due on the 26th day of each consecutive month thereafter until January 25, 2016; (5) provides for late payment penalties of $1,000 per day up to a maximum of $10,000; and (6) in the event of payments more than 30 days past due, provides for a return of the Stock to the Company (or reduction of unpaid principal to the extent of net proceeds from sale of the Stock), reversion of principal amount of the Note as calculated pursuant to Amendment No. 2 and reinstates the accrual of interest as provided by Amendment No. 2. Amendment No. 3 was filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on August 1, 2013.
| Incorporated by Reference Herein | ||||||||||
Exhibit No. | Exhibit Description | Filed Here-with | Exhibit No. | Form/File No. | Filing Date | |||||
| 2.1 | Agreement and Plan of Merger and Reorganization dated January 16, 2013 between Clear System Recycling, Inc., a Nevada corporation, Clear System Merger Sub, Inc., a Nevada corporation, and Experience Art and Design, Inc., an Oregon corporation, and for certain limited purposes its shareholders | 10.1 | Form 10-K File No. 333-174155 | March 18, 2013 | ||||||
| 2.2 | Termination of Agreement and Plan of Merger and Reorganization dated May 7, 2013 among Clear System Recycling, Inc., Clear System Merger Sub, Inc. and Experience Art and Design, Inc. | 2.2 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 2.3 | Stock Purchase Agreement dated May 7, 2013 between Clear System Recycling, Inc. and CI Holdings, Inc. | 2.3 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 3.2 | Articles of Amendment to Articles of Incorporation filed May 2, 2013 and Certificate of Correction filed May 6, 2013 | 3.2 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.1 | Secured Promissory Note dated September 18, 2012 in the amount of $2,800,000 given by CI Holdings, Incorporated to Chiurazzi International, LLC | 10.1 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.2 | Security Agreement dated September 18, 2012 among CI Holdings, Inc., Chiurazzi Internazionale, S.r.l. and Chiurazzi International, LLC | 10.2 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.3 | Pledge Agreement dated September 18, 2012 between CI Holdings, Inc., Chiurazzi International, LLC and Chiurazzi Internazionale, S.r.l. | 10.3 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.4 | Amendment No. 1 to Secured Promissory Note dated March 18, 2013 between CI Holdings, Inc. and Chiurazzi International, LLC | 10.4 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.5 | Assignment and Assumption of Secured Promissory Note dated May 7, 2013 between Experience Art and Design, Inc. and Clear System Recycling, Inc. consented to by Chiurazzi International, LLC and Paul Deloughery | 10.5 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.6 | Commercial Sublease Agreement dated May 7, 2013 between the Company and Masterpiece Investments Corp. | 10.6 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.9 | Executive Employment Agreement dated May 7, 2013 between the Company and Gordon Root | 10.9 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.10 | Executive Employment Agreement dated May 7, 2013 between the Company and Kenneth R. Kepp | 10.10 | Form 8-K File No. 333-174155 | May 8, 2013 | ||||||
| 10.11 | Amendment No. 2 to Secured Promissory Note dated May 30, 2013 between the Company and Chiurazzi International, LLC | 10.1 | Form 8-K File No. 000-54968 | June 7, 2013 | ||||||
| 10.12 | Amendment No. 3 to Secured Promissory Note dated July 30, 2013 between the Company and Chiurazzi International, LLC | 10.1 | Form 8-K File No. 000-54968 | August 1, 2013 | ||||||
| 31.1 | X | |||||||||
| 32.1 | X | |||||||||
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| EXPERIENCE ART AND DESIGN, INC. | |
| (Registrant) | |
| Date: August 24, 2015 | /s/ Zhang Yue |
| Zhang Yue | |
| President and Chief Executive Officer |
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