UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2015
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:000-50356
EAST COAST DIVERSIFIED CORPORATION
(Exact Name of registrant as specified in its charter)
| Nevada | 55-0840109 |
| (State or other Jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
810 Franklin Court, Suite H
Marietta, Georgia 30067
(Address of principal executive offices)
(770) 953-4184
(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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo
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). YesxNoo
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:
| o | Large accelerated filer | o | Accelerated filer |
| o | Non-accelerated filer (Do not check if a smaller reporting company) | x | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
As of May 14, 2015, the issuer had 12,409,117,071 shares of its Common Stock, $0.001 par value, outstanding.
EAST COAST DIVERSIFIED CORPORATION
FORM 10-Q
MARCH 31, 2015
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements (unaudited) | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 20 |
| Item 4. | Controls and Procedures | 20 |
| PART II – OTHER INFORMATION | 21 | |
| Item 1. | Legal Proceedings | 21 |
| Item 1.A. | Risk Factors | 21 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
| Item 3. | Defaults Upon Senior Securities | 21 |
| Item 4. | Mine Safety Disclosures | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 22 |
| SIGNATURES | 23 | |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
East Coast Diversified Corporation and Subsidiaries
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,180 | $ | 16,334 | ||||
| Accounts receivable, net | 298,618 | 185,342 | ||||||
| Inventory | 184,038 | 250,643 | ||||||
| Prepaid license fees | 25,000 | 37,500 | ||||||
| Prepaid expenses | 153,822 | 90,956 | ||||||
| Total current assets | 662,658 | 580,775 | ||||||
| Property and equipment, net | 27,286 | 25,827 | ||||||
| Other assets | ||||||||
| Intangible assets | 150,000 | 150,000 | ||||||
| Security deposits | 20,000 | 20,000 | ||||||
| Total other assets | 170,000 | 170,000 | ||||||
| Total assets | $ | 859,944 | $ | 776,602 | ||||
See accompanying notes to consolidated financial statements.
| 3 |
East Coast Diversified Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 3,443 | $ | 5,725 | ||||
| Loans payable, current | 1,135,813 | 861,296 | ||||||
| Loans payable - related parties, current | 730,320 | 721,075 | ||||||
| Accounts payable and accrued expenses | 719,030 | 1,034,734 | ||||||
| Accrued payroll and related liabilities | 3,627,833 | 2,919,505 | ||||||
| Deferred revenue | 78,329 | 83,330 | ||||||
| Total current liabilities | 6,294,768 | 5,625,665 | ||||||
| Other liabilities | – | – | ||||||
| Total liabilities | 6,294,768 | 5,625,665 | ||||||
| Commitments and contingencies: | – | – | ||||||
| Amounts payable in common stock | 2,925 | 2,925 | ||||||
| Derivative liability | 1,575 | 1,575 | ||||||
| Stockholders' deficit | ||||||||
| Preferred stock, $0.001 par value, 600,000,000 shares authorized: | ||||||||
| Series A preferred stock, 423,437,090 and 423,437,090 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | 423,437 | 423,437 | ||||||
| Series B preferred stock, 2,169 and 2,169 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | 2 | 2 | ||||||
| Common stock, $0.001 par value, 24,400,000,000 shares authorized, 12,409,117,071 and 12,409,117,071 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | 12,409,117 | 12,409,117 | ||||||
| Additional paid-in capital | 5,714,716 | 5,714,716 | ||||||
| Preferred stock issuable | 17,500 | 17,500 | ||||||
| Preferred stock subscriptions receivable | (1,087,498 | ) | (1,087,498 | ) | ||||
| Accumulated deficit | (22,483,357 | ) | (21,926,354 | ) | ||||
| Total East Coast Diversified stockholders' deficit | (5,006,083 | ) | (4,449,080 | ) | ||||
| Noncontrolling interest | (433,241 | ) | (404,483 | ) | ||||
| Total stockholders' deficit | (5,439,324 | ) | (4,853,563 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 859,944 | $ | 776,602 | ||||
See accompanying notes to consolidated financial statements.
| 4 |
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenues: | ||||||||
| Product sales | $ | 132,594 | $ | 8,769 | ||||
| License Fees | 5,001 | 1,667 | ||||||
| Consulting and development | 50,000 | – | ||||||
| Advertising revenue | 1,022 | – | ||||||
| User fees | 9,480 | 7,671 | ||||||
| Total revenues | 198,097 | 18,107 | ||||||
| Operating Expenses | ||||||||
| Cost of revenues: | ||||||||
| Product sales | 81,266 | 3,589 | ||||||
| User fees | 7,169 | 3,430 | ||||||
| Selling, general and administative expense | 640,468 | 414,659 | ||||||
| Total operating expenses | 728,903 | 421,678 | ||||||
| Loss from operations | (530,806 | ) | (403,571 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (54,955 | ) | (108,798 | ) | ||||
| Total other income (expense) | (54,955 | ) | (108,798 | ) | ||||
| Net loss from continuing operations | (585,761 | ) | (512,369 | ) | ||||
| Net loss attributable to noncontrolling interests | 28,758 | 4,492 | ||||||
| Net loss attributable to East CoastDiversified Corporation | (557,003 | ) | (507,877 | ) | ||||
| Net income from discontinued operations, net of tax | – | 984,115 | ||||||
| Total net loss after discontinued operations | $ | (557,003 | ) | $ | 476,238 | |||
| Net loss per share - basic and diluted | $ | (0.00 | ) | $ | 0.00 | |||
| Weighted average number of shares outstanding during the period - basic and diluted | 12,409,117,071 | 3,949,295,159 | ||||||
See accompanying notes to consolidated financial statements.
| 5 |
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (557,003 | ) | $ | 476,238 | |||
| Adjustments to reconcile net income (loss) to net cash used in operations: | ||||||||
| Noncontrolling interests | (28,758 | ) | (4,492 | ) | ||||
| Depreciation and amortization | 3,087 | 696 | ||||||
| Stock issued for services and compensation | – | 2,095 | ||||||
| Amortization of prepaid license fee | 12,500 | 12,500 | ||||||
| Gain on disposal of discontinued operations | – | (984,115 | ) | |||||
| Accretion of beneficial conversion feature on convertible notes payable as interest | 23,078 | 97,519 | ||||||
| Interest accrued on loans payable | 19,373 | 11,279 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (113,276 | ) | (50,905 | ) | ||||
| Inventory | 66,605 | 376 | ||||||
| Prepaid expenses | (62,866 | ) | (1,910 | ) | ||||
| Security deposits | – | 4,592 | ||||||
| Bank overdraft, net | (2,282 | ) | 11,838 | |||||
| Due to related party | – | (10,120 | ) | |||||
| Accounts payable and accrued expenses | (315,704 | ) | 158 | |||||
| Accrued payroll and related liabilities | 708,328 | 123,421 | ||||||
| Deferred revenue | (5,001 | ) | 98,333 | |||||
| Net cash used in operating activities | (251,919 | ) | (212,497 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (4,546 | ) | – | |||||
| Net cash used in investing activities | (4,546 | ) | – | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of preferred stock | – | 50,000 | ||||||
| Proceeds from preferred stock subscriptions | – | 43,000 | ||||||
| Proceeds from loans payable | 240,500 | 60,150 | ||||||
| Proceeds from loans payable - related party | 811 | 63,313 | ||||||
| Net cash from financing activities | 241,311 | 216,463 | ||||||
| Net increase (decrease) in cash | (15,154 | ) | 3,966 | |||||
| Cash at beginning of period | 16,334 | 241 | ||||||
| Cash at end of period | $ | 1,180 | $ | 4,207 | ||||
See accompanying notes to consolidated financial statements.
Continued
| 6 |
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for taxes | $ | – | $ | – | ||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of 4,588,102,557 shares of common stock in conversion of loans payable, respectively | $ | – | $ | 239,001 | ||||
| Issuance of 375,304,000 shares of common stock in conversion of loans payable - related parties | $ | – | $ | 10,904 | ||||
| Beneficial conversion feature of convertible notes payable | $ | – | $ | 134,694 | ||||
See accompanying notes to consolidated financial statements.
| 7 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 1 – Organization, Presentation, and Going Concern
Organization
East Coast Diversified Corp. (the "Company") was incorporated in Florida on May 27, 1994 as Plantastic Corp. In June 2003, the Company changed its name to East Coast Diversified Corporation from Lifekeepers International, Inc. and changed its domicile to Nevada.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. All intercompany transactions and accounts have been eliminated in consolidation. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
These unaudited consolidated financial statements should be read in conjunction with our 2014 audited annual financial statements included in our annual report on Form 10-K, filed with the SEC on April 15, 2015.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, the Company had an accumulated deficit of $22,483,357 at March 31, 2015, a net loss and net cash used in operations of $557,003 and $251,919, respectively, for the three months ended March 31, 2015. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, generate revenues, and continue to raise additional investment capital. No assurance can be given that the Company will be successful in these efforts.
The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans will afford the Company the opportunity to continue as a going concern.
Note 2 – Loans Payable
Loans payable at March 31, 2015 and December 31, 2014 consist of the following:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| On February 17, 2012, Panache Capital, LLC entered into an agreement to purchase $50,000 of the note payable to Azfar Haque. The Company exchanged the original note to Mr. Haque with a new note to Pananche which bears interest at 10% per annum and was due February 17, 2013. During the year ended December 31, 2012, $44,348 of the note was converted to common stock. Accrued interest is equal to $2,101 and $1,962 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 7,753 | 7,614 | ||||||
| Unsecured $70,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due was October 24 2013. Accrued interest is equal to $26,743 and $24,672 at March 31, 2015 and December 31, 2014, resepctively. This note is in default at March 31, 2015. | 96,743 | 94,672 | ||||||
| 8 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 2 – Loans Payable (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured $16,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and was due May 3, 2013. Accrued interest is equal to $5,717 and $5,244 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 21,717 | 21,244 | ||||||
| Unsecured $12,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and was due February 5, 2013. During the year ended December 31, 2013, $6,210 of the note was converted to common stock. Accrued interest is equal to $2,838 and $2,667 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 8,628 | 8,457 | ||||||
| Unsecured $15,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and was due March 26, 2013. Accrued interest is equal to $4,914 and $4,470 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 19,914 | 19,470 | ||||||
| Unsecured $39,647 note payable to Azfar Hague, which bears interest at 9% per annum and was due April 25, 2013. $20,000 of this note was purchased by Tangiers Investment Group, LLC on July 26, 2013. During the year ended December 31, 2014, $9,000 of the note was converted to common stock. Accrued interest is equal to $4,679 and $4,443 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 15,326 | 15,090 | ||||||
| Unsecured $3,000 note payable to Andre Fluellen, which calls for flat interest of $500 at maturity and was due December 1, 2013. This note is in default at March 31, 2015. | 3,500 | 3,500 | ||||||
| Unsecured $3,000 note payable to Andre Fluellen, which calls for flat interest of $150 at maturity and was due February 22, 2014. This note is in default at March 31, 2015. | 3,150 | 3,150 | ||||||
| Unsecured $14,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and is due May 5, 2014. The note is discounted for its unamortized beneficial conversion feature of $6,202 at December 31, 2013. Accrued interest is equal to $1,906 and $1,620 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 16,406 | 16,120 | ||||||
| Unsecured $8,500 note payable to Bulldog Insurance, which bears interest at 5% per annum and due February 28, 2014. During the year ended December 31, 2014, $3,000 of the note was converted to common stock. Accrued interest is equal to $505 and $437 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 6,005 | 5,937 | ||||||
| Unsecured $5,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and was due August 12, 2014. The note is discounted for its unamortized beneficial conversion feature of $3,068 at December 31, 2013. Accrued interest is equal to $656 and $557 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 5,656 | 5,557 | ||||||
| 9 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 2 – Loans Payable (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured $7,700 convertible note payable to Andre Fluellen, which calls for flat interest of $770 due at maturity and was due June 21, 2014. Accrued interest is equal to $1,367 and $1,177 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 9,067 | 8,877 | ||||||
| Unsecured $3,450 non-interest bearing note payable to Azfar Hague due September 20, 2014. This note is in default at March 31, 2015. | 3,450 | 3,450 | ||||||
| Unsecured $2,000 non-interest bearing note payable to Bulldog Insurance due September 26, 2014. This note is in default at March 31, 2015. | 2,000 | 2,000 | ||||||
| Unsecured $29,000 convertible note payable to LG Capital Funding, LLC., which bears interest at 8% per annum and was due March 17, 2015. The note is discounted for its unamortized beneficial conversion feature of $6,039 at December 31, 2014. Accrued interest is equal to $2,094 and $1,837 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 31,409 | 24,798 | ||||||
| Unsecured $18,000 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 8% per annum and is due March 27, 2015. The note is discounted for its unamortized beneficial conversion feature of $4,241 at December 31, 2014. Accrued interest is equal to $1,456 and $1,101 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 19,456 | 14,860 | ||||||
| Unsecured $6,000 note payable to Andre Fluellen, which bears interest at 10% per annum and is due June 21, 2015. Accrued interest is equal to $465 and $317 at March 31, 2015 and December 31, 2014, respectively. | 6,465 | 6,317 | ||||||
| Unsecured $10,000 note payable to Falmouth Street Holdings, LLC, which bears interest at 10% per annum and is due on demand. Accrued interest is equal to $973 and $726 at March 31, 2015 and December 31, 2014, respectively. | 10,973 | 10,726 | ||||||
| On April 9, 2014, GEL Properties, LLC entered into an agreement to purchase $24,000 of notes payable to Frank Russo. The note bears interest at 8% per annum and is due April 9, 2015. During the year ended December 31, 2014, $16,500 of the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $2,015 at December 31, 2014. Accrued interest is equal to $881 and $733 at March 31, 2015 and December 31, 2014, respectively. | 8,266 | 6,218 | ||||||
| Unsecured $5,000 note payable to Israek Idonije, which is noninterest bearing and was due July 3, 2014. During the year ended December 31, 2014, $2,800 was repaid on the loan and $2,409 and $1,986 of penalty interest was accrued at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 4,294 | 4,186 | ||||||
| 10 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 2 – Loans Payable (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured $35,000 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $8,629 and $7,593 at March 31, 2105 and December 31, 2014, respectively. | 43,629 | 42,593 | ||||||
| Unsecured $43,922 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $10,826 and $9,526 at March 31, 2015 and December 31, 2014, respectively. | 54,748 | 53,448 | ||||||
| Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and was due January 31, 2014. During the year ended December 31, 2014, $7,988 of the note was converted to common stock. Accrued interest is equal to $4,443 and $3,959 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 28,955 | 28,471 | ||||||
| Unsecured $7,000 note payable to Andre Fluellen, which calls for flat interest of $1,500 at maturity and was due October 30, 2013. This note is in default at March 31, 2015. | 8,500 | 8,500 | ||||||
| Unsecured $20,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and was due March 9, 2014. Accrued interest is equal to $3,034 and $2,639 at March 31, 2015 and December 31, 2014. This note is in default at March 31, 2015. | 23,034 | 22,639 | ||||||
| Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and was due March 3, 2014. During the year ended December 31, 2014, $7,500 of the note was converted to common stock. Accrued interest is equal to $4,255 and $3,762 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 29,255 | 28,762 | ||||||
| Unsecured $7,500 note payable to Andre Fluellen, which calls for flat interest of $1,400 at maturity and was due December 1, 2013. This note is in default at March 31, 2015. | 8,900 | 8,900 | ||||||
| On May 7, 2014, LG Capital Funding, LLC entered into an agreement to purchase $40,000 of notes payable to Frank Russo. The note bears interest at 8% per annum and is due May 7, 2015. The note is discounted for its unamortized beneficial conversion feature of $4,054 and $13,917 at March 31, 2015 and December 31, 2014, respectively. Accrued interest is equal to $2,876 and $2,087 at March 31, 2015 and December 31, 2014, respectively. | 38,822 | 28,170 | ||||||
| Unsecured $12,5000 convertible note payable to Microcap Equity Group LLC, which bears interest at 12% per annum and was due October 8, 2014. Accrued interest is equal to $1,467 and $1,097 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 13,967 | 13,597 | ||||||
| 11 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 2 – Loans Payable (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured $4,200 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 8% per annum and is due April 8, 2015. The note is discounted for its unamortized beneficial conversion feature of $93 and $1,128 at March 31, 2015 and December 31, 2014, respectively. Accrued interest is equal to $329 and $246 at March 31, 2015 and December 31, 2014, respectively. | 4,436 | 3,318 | ||||||
| Unsecured loan advances payable to Health Information Systems Fund, LLC, which bear no interest and are due on demand. | 573,500 | 333,000 | ||||||
| Unsecured $5,000 note payable to Andre Fluellen, which bears interest at 10% per annum and is due September 9, 2015. Accrued interest is equal to $278 and $155 at March 31, 2015 and December 31, 2014, respectively. | 5,278 | 5,155 | ||||||
| Unsecured $2,500 note payable to Andre Fluellen, which bears interest at 10% per annum and is due October 20, 2015. Accrued interest is equal to $111 at March 31, 2015. | 2,611 | 2,500 | ||||||
| Total Loans Payable | $ | 1,135,813 | $ | 861,296 | ||||
The Company accrued interest expense of $10,939 and $4,978 for the three months ended March 31, 2015 and 2014, respectively, on the above loans. Accrued interest is included in the loan balances.
The Company borrowed $240,500 and $60,150 during the three months ended March 31, 2015 and 2014, respectively. During the three months ended March 31, 2014, the Company converted $239,001 of loans payable into 4,588,102,557 shares of the Company’s common stock.
Note 3 – Related Parties
Loans payable – related parties at March 31, 2015 and December 31, 2014 consist of the following:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured non-interest bearing notes payable, due on demand, to Frank Russo, a shareholder and former Director of the Company. During the year ended December 31, 2014, Mr. Russo loaned the Company an additional $28,800, $20,808 of the note was converted to common stock, and $144,000 was purchased by four unrelated parties. | $ | 165,421 | $ | 165,421 | ||||
| Unsecured notes payable to Edward Eppel, a shareholder and Director of the Company, which bears interest at 10% per annum and is due on demand. During the three months ended March 31, 2014, Mr Eppel loaned the Company an additional $811. Accrued interest is equal to $77,422 and $73,803, respectively. | 260,833 | 256,403 | ||||||
| Unsecured $20,000 note payable to Robert Saidel, a shareholder of the Company, which bears interest at 7% per annum and due December 1, 2013. Accrued interest is equal to $2,598 and $2,253 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 22,598 | 22,253 | ||||||
| 12 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 3 – Related Parties (Continued)
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Unsecured $7,500 note payable to Robert Saidel, which bears interest at 7% per annum and due January 8, 2014. Accrued interest is equal to $908 and $779 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 8,408 | 8,279 | ||||||
| Unsecured $10,000 note payable to Robert Saidel, which bears interest at 7% per annum and due February 16, 2014. Accrued interest is equal to $1,137 and $964 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 11,137 | 10,964 | ||||||
| Unsecured $4,000 note payable to Robert Saidel, which bears interest at 7% per annum and due March 9, 2014. Accrued interest is equal to $438 and $369 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 4,438 | 4,369 | ||||||
| Unsecured $137,833 note payable to Robert Saidel, which bears interest at 7% per annum and due April 25, 2014. Accrued interest is equal to $13,595 and $11,216 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 151,428 | 149,049 | ||||||
| Unsecured $10,000 note payable to Robert Saidel, which bears interest at 7% per annum and due February 28, 2015. Accrued interest is equal to $754 and $581 at March 31, 2015 and December 31, 2014, respectively. This note is in default at March 31, 2015. | 10,754 | 10,581 | ||||||
| Unsecured $20,000 note payable to Frank Russo, which bears interest at 7% per annum and due April 3, 2015. Accrued interest is equal to $1,736 and $1,304 at March 31, 2015 and December 31, 2014, respectively. | 26,736 | 26,304 | ||||||
| Unsecured $63,250 notes payable to Frank Russo, which bear interest at 7% per annum and due May 1, 2015 through June 25, 2015. Accrued interest is equal to $3,920 and $2,828 at March 31, 2015 and December 31, 2014, respectively. | 67,170 | 66,078 | ||||||
| Unsecured $1,350 note payable to Frank Russo, which bears interest at 7% per annum and due May 30, 2015. Accrued interest is equal to $47 and $24 at March 31, 2015 and December 31, 2014, respectively. | 1,397 | 1,374 | ||||||
| Total loans payable - related parties | $ | 730,320 | $ | 721,075 | ||||
The Company accrued interest expense of $8,434 and $6,301 for the three months ended March 31, 2015 and 2014, respectively, on the above loans. Accrued interest is included in the loan balances.
The Company borrowed $811 and $63,313 from related parties during the three months ended March 31, 2015 and 2014, respectively. During the three months ended March 31, 2014, the Company converted $10,904 of loans payable to related parties into 375,304,000 shares of the Company’s common stock.
On October 5, 2011, the Company entered into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of which BBGN&K owns the patents. Mr. Aladesuyi is the managing member of BBGN&K. The license agreement calls for royalty payments beginning in 2012 of 8% of EarthSearch’s revenues to be paid quarterly. Royalty fees were $6,877 and $-0- for the three months ended March 31, 2015 and 2014, respectively. Additionally, the Company has prepaid $90,956 of royalty fees it expects to incur for 2015 as of December 31, 2014. During the three months ended March 31, 2014, the Company prepaid an additional $63,556 for an aggregate of $153,612 as of March 31, 2014. These amounts are included in prepaid expenses in the consolidated balance sheets as of March 31, 2015 and December 31, 2014.
| 13 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 4 – Accounts Payable and Accrued Expenses; Accrued Payroll and Related Liabilities
Accounts payable and accrued expenses consisted of the following at March 31, 2015 and December 31, 2014:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Trade accounts payable | $ | 500,117 | $ | 554,475 | ||||
| Interest payable | 19,904 | 291,400 | ||||||
| Accrued expenses | 199,009 | 188,859 | ||||||
| $ | 719,030 | $ | 1,034,734 | |||||
$12,504 and $-0- of interest was accrued on payroll tax liabilities during the three months ended March 31, 2015 and 2014, respectively.
Accrued payroll and related liabilities consisted of the following at March 31, 2015 and December 31, 2014:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Accrued payroll | $ | 768,629 | $ | 658,629 | ||||
| Accrued directors' compensation | 500,000 | 470,000 | ||||||
| Accrued payroll taxes | 2,359,204 | 1,790,876 | ||||||
| $ | 3,627,833 | $ | 2,919,505 | |||||
Note 5 – Amounts Payable in Common Stock and Derivative Liability
During the year ended December 31, 2012, Ironridge Global IV, Ltd. (“Ironridge”) purchased $826,367 of accounts payable and $241,978 of loans payable, for a total of $1,068,345, from certain creditors of the Company. On April 20, 2012, the Superior Court of the State of California for the County of Los Angeles, Central District approved a Stipulation for Settlement of Claims (the “Settlement of Claims”) in the favor of Ironridge. The Settlement of Claims calls for the amount to be paid by issuance of the Company’s common stock. The number of shares of the common stock is to be calculated based on the volume weighted average price (“VWAP”) of the common stock over the calculation period, not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the calculation period, less a discount of 35%. The calculation period is defined as the period from the approval of the Settlement of Claims until the settlement is completed.
As the terms of the settlement include issuing common stock at a 35% discount to the conversion price, a derivative liability for the discount was established at the time of the Settlement of Claims of $575,263. The derivative liability is revalued at the end of each reporting period with any change in the liability being charged to operations.
As common stock is issued in installments on the settlement, the Amounts Payable in Common Stock and the Derivative Liability will be reduced accordingly. No common stock was issued on the settlement during the three months ended March 31, 2015 and 2014.
Note 6 – Stockholders’ Deficit
Authorized Capital
The Company has 24,400,000,000 authorized shares of Common Stock at $0.001 par value and 600,000,000 authorized shares of Preferred Stock at par value of $0.001 per share.
On September 17, 2010, the Board authorized the creation of a common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants. The Company registered twenty five million (25,000,000) shares of its common stock pursuant to the 2010 Stock Incentive Plan on Form S-8 filed with the Commission on September 27, 2010. As of March 31, 2015, no options have been granted under the plan.
| 14 |
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015
(unaudited)
Note 7 – Commitments and Contingencies
Operating Leases
The Company leases its office facilities in Marietta, Georgia. The term of the lease is 66 months with escalating lease payments beginning at $2,163 per month. At March 31, 2015, future minimum lease payments under the lease are as follows:
| 2015 | 21,275 | |||||
| 2016 | 29,219 | |||||
| 2017 | 15,054 | |||||
| $ | 65,548 |
Rent expense was $9,068 and $7,352 for the three months ended March 31, 2015 and 2014, respectively.
License Agreements
On October 5, 2011, the Company entered into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of BBGN&K. The license agreement calls for royalty payments beginning in 2012 of 8% of the revenue generated from the use of the license, to be paid quarterly. Royalty expense was $6,877 and $-0- for the three months ended March 31, 2015 and 2014, respectively.
On August 5, 2012, the Company entered into a license agreement with Web Asset, LLC (“Web Asset”) for the rights to use certain social media concept and idea created by Mr. Kayode Aladesuyi. The license agreement calls for royalty payments of 49% of the revenues earned by the Company in its use of the social media concept after the Company has earned its first $2,000,000 of revenue, payable quarterly. No royalty payments have been made as of March 31, 2015.
License Agreements (Continued)
On March 27, 2014, Student Connect entered into an indefinite term master licensing agreement with Location Solutions Telematics LLC (“LST”), a Dubai based corporation. Under the terms of the agreement, LST is appointed a Master Distributor of the Company’s products and granted an exclusive license to sell the products to the private school market in the country of the United Arab Emirates. All advertisement revenue generated will be shared, net of communication costs, 60% to Student Connect and 40% to LST.
Note 8 – Subsequent Events
From April 1, 2015 through May 14, 2015, the Company received $64,000 of advances from Health Information Systems Fund, LLC, which bear no interest and are due on demand.
The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.
| 15 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by East Coast Diversified Corporation (the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on April 15, 2015, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
Plan of Operation
Since acquiring EarthSearch in April of 2010, ECDC has embarked on developing its technology operations and improving its product offerings to the market. Two of the business divisions, “StudentConnect and EarthSearch” are now in commercial phase of the operations. Vir2o our social media division was launched in June 2014 and the recently concluded redesign is slated for a 2015 launch. To date, we have completed the development of two proprietary technologies, (i) wireless communications between GPS & RFID (comprising of several GPS, RFID and cargo locking devices) and (ii) “nVite” which is a proprietary environment sharing application for our social media division. Additionally, we developed several web assets, comprised of five proprietary “Software” for the operation and management of our businesses, the following list represents proprietary software owned by the company:
| 1. | GATIS – Global Asset Tracking & Identification Systems |
| 2. | CARAS – Customs And Revenue Authority Systems |
| 3. | StudentConnect – Student Transportation System |
| 4. | SCAAP – StudentConnect Advertisement Aggregation Platform |
| 5. | Vir2o – Online Social Media Platform |
EarthSearch
On February 15, 2014, we created a prototype for a modified and less expensive version of our Halo device called Halo2, which we believe will allow us to be more competitive in 2014. Our goal is to reenergize the EarthSearch basic GPS business with Halo2 and create a mass market solution for small businesses. We believe the product will allow us to be more competitive globally where cheaper Chinese products have created significant competition for our business.
In October 2014, we delivered our first order of 100 units of the Halo 2 to Halogen Security in Nigeria.
| 16 |
We entered into agreement with PassBox Global, in Jonesboro GA, to install our TrailerSeal on all of the containers it manufactured and sell globally beginning January 2015. An initial order of 40 container Seals, Humidity and Temperature Sensors were delivered under the agreement.
We began piloting our Oil Tanker solution for Dangote Group in Nigeria, and delivered the initial 20 units of oil tanker application under the pilot agreement
Began piloting our solution in Guatemala through local service provider, Localiza and are participating in the bid for electronic seal providers for the Guatemala Custom Agency.
We delivered the first order of 100 units of the Halo 2 to Halogen Security in Nigeria
StudentConnect
StudentConnect began commercial deployment in the first quarter of 2014. In February 2014, we deployed StudentConnect on school buses in school districts in Georgia, Arkansas, Kentucky, California, and South Carolina. In addition, Texas, Florida and North Carolina engaged us to implement systems on their school buses. Our objective is to secure as many schools as we can through the end of the current school year and the summer break to generate revenue for the 2015 school year. We launch our StudentConnect mobile application in 2nd quarter and implement a mobile advertising platform that we believe will also help enhance revenue for StudentConnect. The StudentConnect mobile app can now be downloaded in the iOS and Google Play stores.
We executed an exclusive network access agreement and a marketing agreement with Verizon Wireless. Our StudentConnect devices will be implemented exclusively on Verizon network and Verizon government sales executives will market our StudentConnect product to school districts. We have engaged in successful joint marketing efforts to schools districts in Georgia.
We entered an advertising agreement with AdMedia which began serving advertisement on Student status messages on November 12, 2014. We will earn between $0.50 and $5.00 per ad click and $4.00 and $10.00 per thousand impression under the agreement. We will however continue to promote our proprietary Advertising platform SCAAP directly to businesses and Ad agencies in the districts we launch our services.
We have deployed the StudentConnect hardware and software at the following school districts under a 5 year service agreements:
| · | St Joseph School Antoura, Beirut, Lebanon |
| · | Chattooga County School, GA |
| · | Sanger Unified School district, CA |
| · | Napa Valley Unified School District, CA |
| · | Bassett County Unified School District, CA |
| · | Logan County School District, KY |
| · | Bamberg County School District, SC |
There are currently three school districts undergoing pilot testing and 5 schools districts currently in contract negotiations.
On January 15, 2014, we launched a licensing program for exclusive distributorship that would allow for rapid deployment of StudentConnect in key US and Global markets. We have successfully deployed our StudentConnect product on the Verizon Network. We completed sales training with Verizon government sales team.
We executed licensing agreements with the following:
Neuva Tech California
Smart1st –Licensee Lebanon
InGlobs, Lebanon - Regional Marketing and Service Support Rep for Middle East Region
We are in license negotiation with potential partners in Dubai, Saudi Arabia, Jordan, and Bahrain.
Vir2o
Vir2o, our social media division, has launched its first marketing campaign in the US and North America. We executed a promotional agreement with CBS local Atlanta Radio Station WVEE as the first beta test for our marketing strategy for North America. On April 15, 2014, we launched a Radio campaign on CBS Atlanta local Radio WVEE. If successful, we plan to introduce a similar strategy to key markets in North America to allow us to compete even more effectively in the social media space.
| 17 |
We plan to introduce commercial content and ecommerce into social media space. We have entered into agreement with Amazon, collegebooks.com and fanatics.com, an online retailer of sporting goods. We have begun integrating products from fanatics.com and collegebooks.com. Products from both of these companies became available to users in the marketplace on June 1, 2014.
We believe the future of social media is to deliver movies, music, and shopping, in a live, engaging and interactive way, for users, their friends and family. We believe Vir2o brings everything from the web to social media including online games, video, movies, shopping, and music and live broadcast. It is imperative that we form strategic alliances with content providers for our strategy to be successful.
In May of 2014, we secured a music licensing agreement with Medianet that will give us access to 28 million songs and allow us to offer free music channels to users on Vir2o funded through advertising revenue.
We have completed the redesign of Vir2o, however we have temporarily ceased all marketing activities related to Vir2o and will launch our new design in 2015. The current Vir2o design will remain available to users currently registered on the platform.
Results of Operations
For the Three Months Ended March 31, 2015 and 2014
Revenues
For the three months ended March 31, 2015, our revenue was $198,097 compared to $18,107 for the same period in 2014, representing an increase of 988%. This increase is attributed to our commencing installations of our StudentConnect products, development fees earned in connection with licensing the StudentConnect products overseas and increased volume in our RFID/GPS product line.
Revenues are generated from five separate but related offerings, RFID/GPS product sales, license fees, consulting services, advertising revenues, and user fees for GATIS – our advanced web based asset management platform. We generated revenues from product sales of $132,594 and $8,769 for the three months ended March 31, 2015 and 2014, respectively. Revenues for license fees were $5,001 and $1,667 for the three months ended March 31, 2015 and 2014. Revenues for consulting and development services were $50,000 and $-0- for the three months ended March 31, 2015 and 2014. Advertising revenues were $1,022 and $-0- for the three months ended March 31, 2015 and 2014. User fees were $9,480 and $7,671 for the three months ended March 31, 2015 and 2014, respectively.
Operating Expenses
For the three months ended March 31, 2015, operating expenses were $728,903 compared to $421,678 for the same period in 2014, an increase of 73%.
Cost of revenues increased $81,416 and is directly attributable to the increase in product sales for the three months ended March 31, 2015.
For the three months ended March 31, 2015, selling, general and administrative expenses were $640,468 compared to $414,659 for the same period in 2013, an increase of 54%. This increase was primarily caused by an increase in fines on unpaid payroll taxes of $293.871 and offset by decreases in consulting fees of $36,273 and salary expenses of $13,300.
Net Loss
We generated net losses from continuing operations of $585,761 for the three months ended March 31, 2015 compared to $512,369 for the same period in 2014, an increase of 15%. Included in the net loss for the three months ended March 31, 2015 was interest expense of $54,955 (of which $23,078 represents accretion of embedded beneficial conversion features on notes payable). Included in the net loss for the three months ended March 31, 2014 was interest expense of $108,798 (of which $97,519 represents accretion of embedded beneficial conversion features on notes payable).
Net loss attributable to noncontrolling interests in EarthSearch were $28,758 and $4,492 for the three months ended March 31, 2015 and 2014, respectively.
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Liquidity and Capital Resources
Overview
For the three months ended March 31, 2015 and 2014, we funded our operations through financing activities consisting of private placements of equity securities and loans from related and unrelated parties. Our principal use of funds during the three months ended March 31, 2015 and 2014 has been for working capital and general corporate expenses.
Liquidity and Capital Resources during the Three Months ended March 31, 2015 compared to the Three Months ended March 31, 2014
As of March 31, 2015, we had cash of $1,180 and a working capital deficit of $5,632,110. The Company generated a negative cash flow from operations of $251,919 for the three months ended March 31, 2015, as compared to cash used in operations of $212,497 for the three months ended March 31, 2014. The negative cash flow from operating activities for the three months ended March 31, 2015 is primarily attributable to the Company's net loss of $557,003, offset by noncash depreciation of $3,087, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $23,078, accrued interest on loans payable of $19,373, changes in operating assets and liabilities of $275,804, and increased by noncontrolling interests in the loss of EarthSearch of $28,758.
The negative cash flow from operating activities for the three months ended March 31, 2014 is primarily attributable to the Company's net income of $476,238, offset by noncash depreciation of $696, stock issued for services of $2,905, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $97,519, accrued interest on loans payable of $11,279, changes in operating assets and liabilities of $175,783, and increased by a gain on disposal of discontinued operations of 984,115 and noncontrolling interests in the loss of EarthSearch of $4,492.
Cash used in investing activities for the three months ended March 31, 2015 was $4,546 for capital expenditures compared to $-0- for the same period in 2014.
Cash generated from our financing activities was $241,311 for the three months ended March 31, 2015, compared to $216,463 during the comparable period in 2013. The decrease was primarily attributed to proceeds from the issuance of preferred stock of $-0- in 2015 compared to $50,000 in 2014, proceeds from the issuance of preferred stock subscriptions of $-0- in 2015 compared to $43,000 in 2014, proceeds from loans payable of $240,500 in 2015 compared to $60,150 in 2014, and proceeds from loans payable – related parties of $811 in 2015 compared to $63,313 in 2014.
We will require additional financing during the current fiscal year. Our commercial activities has been significantly hampered and restricted due to ongoing chill placed on our stock trading by DTCC and difficulties with funding the last stages of development of our businesses.
We expect the continued successful commercialization of StudentConnect and EarthSearch business divisions to enhance our financial position and continued growth of the business operation. Management is reviewing all options that will enhance shareholders and investor value as well as the value of our business portfolio, in our efforts to mitigate the impact of the chill placed on our stock by DTCC.
Going Concern
Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the consolidated financial statements for the year ended December 31, 2014 regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this conclusion by our independent auditors.
Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.
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Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited annual consolidated financial statements for the year ended December 31, 2014, included in our Annual Report on Form 10-K as filed on April 15, 2015, for a discussion of our critical accounting policies and estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures.
| (a) | Evaluation of Disclosure Controls and Procedures |
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of March 31, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company's management concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
| (b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
The disclosure required under this item is not required to be reported by smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
The Company is in default with several of its noteholders as reflected below and disclosed within this report in Notes 2 and 3 of the Notes to the Consolidated Financial Statements dated March 31, 2015.
| Panache Capital, LLC | $ | 7,753 | ||
| Hanover Holdings I, LLC | 96,743 | |||
| Hanover Holdings I, LLC | 21,717 | |||
| Hanover Holdings I, LLC | 8,628 | |||
| Hanover Holdings I, LLC | 19,914 | |||
| Azfar Hague | 15,326 | |||
| Andre Fluellen | 3,500 | |||
| Andre Fluellen | 3,150 | |||
| Asher Enterprises, Inc. | 16,406 | |||
| Bulldog Insurance | 6,005 | |||
| WHC Capital, LLC | 5,656 | |||
| Andre Fluellen | 9,067 | |||
| Azfar Hague | 3,450 | |||
| LG Capital Funding, LLC | 31,409 | |||
| Bulldog Insurance | 2,000 | |||
| Tangiers Investment Group, LLC | 19,456 | |||
| Israek Idonije | 4,294 | |||
| Asher Enterprises, Inc. | 28,955 | |||
| Andre Fluellen | 8,500 | |||
| WHC Capital, LLC | 23,034 | |||
| Asher Enterprises, Inc. | 29,255 | |||
| Andre Fluellen | 8,900 | |||
| Microcap Equity Group LLC | 13,967 | |||
| Robert Saidel | 208,763 | |||
| $ | 595,848 |
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
| 21 |
Item 6. Exhibits
| Exhibit No. | Description |
| 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
| 31.2 | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
| 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 22 |
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, thereunto duly authorized.
| Date: May 15, 2015 | By: /s/ Kayode Aladesuyi | |
| Kayode Aladesuyi | ||
Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) |
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