NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Description of Business
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.
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 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 from existing wells at a rate of $9.00 to $15.00 per barrel. TransAmerican Oil is working on closing a deal that gives 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 online. 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.
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 with overall market dominance, 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 and companies with an established operating history. 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 and operating assets, opening new storefronts, and advertising to prospective customers via direct mail and online mailers.
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.
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.
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
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.
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 September 30, 2016, 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 were $142,250 dilutive securities were outstanding as of September 30, 2016.
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.
Subsequent Events
None.
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 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, 2016, the Company has a loss from operations of $204,003 and had an accumulated deficit of $1,500,314. 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, 2016.
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
Intangibles
The $55,000 in Intangible (“Other 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.
Note 5
Short-Term Borrowings
The Company has received funding from our sole officer and director and a non-related 3
rd
party, which has been used to fund the ongoing operations in the interim until permanent financing can be arranged. As of September 30, 2016, the total amount borrowed was $11,550.00
Note 6
Long-Term Debt
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.
Note 7
Income Taxes
During the first quarter of 2016, 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 8 Equity
On January 13, 2016 the Company issued our sole officer and director 45,000,000 shares of our restricted Common stock in exchange for his services until the next Annual meeting.
On January 13, 2016 the Company issued our sole officer and director 55,000,000 shares in exchange for certain assets acquired by the Company, which make up the new business direction of the Company.
During the first quarter ending March 31, 2016 the Company exchanged $21,500 for 43,500,000 shares of its Common stock.
On May 30, 2016 the Company issued one of our Directors 50,000,000 shares of our restricted Common stock in exchange for his services until the next Annual meeting.
During the quarter ending September 30, 2016 the Company exchanged $55,000 for 55,000,000 shares of its Common stock.
Note 9 Related Party Transactions
The Company purchased 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.
Note 9 Related Party Transactions (continued)
During the first Nine months of 2016 the Company’s two Directors exchanged 81,000,000 shares of the Corporation restricted Common Stock for 4,050,000 shares of Series A Preferred stock.