PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents
The Registrant's financial statements for the three and six-month periods ended October 31, 2009 and 2008 are attached to this quarterly report.
Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION Back to Table of Contents
The following discussion contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
East Coast Diversified Corp. (the "Company" or "Registrant") was incorporated under the laws of the State of Florida on May 27, 1994 under the name Plantastic Corp. The Company was formed for the purpose of purchasing and operating a tree farm and nursery. The Company was unsuccessful in this venture and in March 1997, the Company amended its articles of incorporation, reorganized its capital structure and changed its name to Viva Golf, USA Corp. The Company then acquired the assets of Viva Golf, USA Corp., a Delaware corporation, which consisted of a golf equipment marketing plan and other related assets. The Company unsuccessfully engaged in the business of golf club manufacturing and marketing and ceased those operations in 1998. In June 2003, the Company changed its name to East Coast Diversified Corp. from Lifekeepers International, Inc. and changed its domicile to Nevada.
Acquisition and Divestiture of Miami Renaissance Group, Inc.
On April 26, 2006, the Registrant entered into a definitive Share Exchange Agreement (the "Agreement") to acquire 100% of the issued and outstanding shares of Miami Renaissance Group, Inc. ("MRG"), a privately-owned Florida corporation, in exchange for the issuance of 4,635,000 restricted shares of the Registrant's common stock and 167,650 preferred stock designated as Series A Convertible Preferred Stock ("Preferred Stock"). The Registrant's officers and directors, who did not own any shares of common stock of the Registrant prior to this Agreement, are also the majority shareholders of MRG. The Agreement was adopted by the unanimous consent of the Board of Directors of the Registrant and written consent of the majority shareholders of the Registrant; and by unanimous consent of the Board of Directors of MRG and by written consent of the majority shareholders of MRG.
Pursuant to the Agreement, the Registrant issued a total of 4,635,000 shares of common stock and 158,650 shares of Preferred stock to the shareholders of the MRG in exchange for the 20,500,000 issued and outstanding shares of MRG. Following the closing of the Agreement, the shareholders of MRG shall own 63.75% of the issued and outstanding shares of common stock of the Registrant.
The Company entered into a Stock Sale Agreement, dated as of February 20, 2008 (“Stock Sale Agreement”), pursuant to which ECDC will sell and MRG Acquisition Corp. (“MRGA is a Delaware corporation and was formed for the purpose of acquiring MRG") will acquire 100% of the capital stock of MRG (“MRG Shares”) , representing substantially all of the assets of ECDC, in consideration for the forgiveness of liabilities in the amount of $1,051,471 owed by ECDV to certain affiliated persons.
On September 30, 2009, the Company completed the sale of MRG and its new business objective is to seek an operating company.
New Business Objectives of the Registrant
As a result of the sale of MRG, the Registrant has no present operations and has determined to direct its efforts and limited resources to pursue potential new business opportunities. The Registrant does not intend to limit itself to a particular industry and has not established any particular criteria upon which it shall consider and proceed with a business opportunity.
Following the Registrant's fiscal year ended December 31, 2001, its common stock has been subject to quotation on the pink sheets. There is currently only a limited trading market in the Registrant's shares. There can be no assurance that there will be an active trading market for our common stock. In the event that an active trading market commences, there can be no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.
Registrant's executive officer/director intends to devote such time as he deems necessary to carry out the Registrant's affairs. The exact length of time required for the pursuit of any new potential business opportunities is uncertain. No assurance can be made that the Registrant will be successful in its efforts. We cannot project the amount of time that our executive officer/director will actually devote to the Registrant's plan of operation.
Plan of Operation
We have no present operations or revenues and our current activities are related to seeking new business opportunities, including seeking an acquisition or merger with an operating company. If our management seeks to acquire another business or pursue a new business opportunity, it would have substantial flexibility in identifying and selecting a prospective business. Registrant would not be obligated nor does management intend to seek pre-approval from our shareholders. Under the laws of the State of Delaware, the consent of holders of a majority of the issued and outstanding shares, acting without a shareholders meeting, can approve an acquisition.
The Registrant is entirely dependent on the judgment of its executive officer/director in connection with pursuing a new business opportunity or a selection process for a target operating company. In evaluating a prospective new business opportunity or an operating company, he would consider, among other factors, the following: (i) costs associated with effecting a transaction; (ii) equity interest in and opportunity to control the prospective candidate; (iii) growth potential of the target business; (iv) experience and skill of management and availability of additional personnel; (v) necessary capital requirements; (vi) the prospective candidate's competitive position; (vii) stage of development of the business opportunity; (viii) the market acceptance of the business, its products or services; (ix) the availability of audited financial statements of the potential business opportunity; and (x) the regulatory environment that may be applicable to any prospective business opportunity.
The foregoing criteria are not intended to be exhaustive and there may be other criteria that management may deem relevant. In connection with an evaluation of a prospective or potential business opportunity, management may be expected to conduct a due diligence review.
Liquidity and Capital Resources
We will use our limited personnel and financial resources in connection with seeking new business opportunities, including seeking an acquisition or merger with an operating company. It may be expected that entering into a new business opportunity or business combination will involve the issuance of a substantial number of restricted shares of common stock. If such additional restricted shares of common stock are issued, our shareholders will experience a dilution in their ownership interest in the Registrant. If a substantial number of restricted shares are issued in connection with a business combination, a change in control may be expected to occur.
In connection with our plan to seek new business opportunities and/or effecting a business combination, we may determine to seek to raise funds from the sale of restricted stock or debt securities.We have no agreements to issue any debt or equity securities and cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all.
Ao October 31, 2009, we had $6 in current assets and had $106,862 in current liabilities. On October 31, 2009, our negative working capital was $106,856.
There are no limitations in our articles of incorporation on our ability to borrow funds or raise funds through the issuance of restricted common stock to effect a business combination. Our limited resources and lack of operating history may make it difficult to do borrow funds or raise capital. Our inability to borrow funds or raise funds through the issuance of restricted common stock required to effect or facilitate a business combination may have a material adverse effect on our financial condition and future prospects, including the ability to complete a business combination. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest, including debt of an acquired business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Back to Table of Contents
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents
Evaluation of disclosure controls and procedures. As of October 31, 2009, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents
The Registrant's officers and directors are not aware of any threatened or pending litigation to which the Registrant is a party or which any of its property is the subject and which would have any material, adverse effect on the Registrant.
ITEM 1A. RISK FACTORS Back to Table of Contents
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1. Description of Business, subheading Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Back to Table of Contents
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Back to Table of Contents
None.
ITEM 5. OTHER INFORMATION Back to Table of Contents
None.
ITEM 6. EXHIBITS Back to Table of Contents
(a) The following documents are filed as exhibits to this report on Form 10-QSB or incorporated by reference herein.
Exhibit No. | Description |
|---|
| 31 | Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32 | Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
EAST COAST DIVERSIFIED CORPORATION AND CONSOLIDATED AFFILIATE
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Financial Statements Back to Table of Contents
Note 1 - Nature of Business / Organization
Business Description
East Coast Diversified Corporation (the “Company,” also referred to as “East Coast”) was organized on May 24, 1994, under the laws of the State of Florida under the name Plantastic Corp. and changed its name to Viva Golf, USA Corp. in April 1997. The Company acquired 100% of the issued and outstanding shares of common stock of Lifekeepers International, Inc. in exchange for 1,000,000 of its newly issued shares under an Agreement and Plan of Reorganization on October 22, 1998. In connection with this acquisition, the Company changed its name to Lifekeepers International, Inc.
The Company previously held an exclusive licensing agreement to market and distribute golf clubs and related accessories in the continental United States. After the reorganization, the Company changed its business plan to providing mobile non-intrusive medical testing such as ultra-sound screening and blood analysis diagnostic testing.
On May 29, 2003, the Company changed its name to East Coast Diversified Corporation. During the year 2001, the Company discontinued its operations, and remained inoperative until April 26, 2006.
On April 6, 2009 the Company’s Board of Directors unanimously adopted and the consenting stockholders approved a resolution to effect a one-for-hundred (1:100) reverse stock split (the "Reverse Split") of the Common Stock of the Company pursuant to clearance and final approval by FINRA. The resulting share ownership interest including resulting fractional shares for each individual shareholder shall be rounded up to the third whole integer in such a manner that every shareholder shall own at least 100 shares as a result of the Reverse Split.
On June 29, 2009 the Company was notified by NASDAQ that has it had received the necessary documentation to process the Reverse Split (1 for 100) and issue a new symbol (“ECDC”) and that this action would take effect at the open of business on June 30, 2009.
Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105-10), (formerly SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and non-authoritative. The Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the second quarter of fiscal year 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s condensed consolidated financial statements.
Acquisition of Miami Renaissance Group, Inc. subsidiary and its partnership subsidiary, Miami Renaissance Group, Limited
Miami Renaissance Group, Inc. (“MRG”) was incorporated in February 2004 as a Florida corporation. Upon incorporation, 50,000,000 shares of $.001 par value common stock were authorized. On June 4, 2004, MRG issued 18,860,000 shares of stock to its founders in exchange for a stock subscriptions receivable. On March 1, 2005, MRG issued 1,640,000 shares of stock to its founders in exchange for a stock subscriptions receivable. The stock subscriptions receivable are discussed in detail in Note 10.
On April 26, 2006 the Company acquired 100% of the issued and outstanding shares of common stock of Miami Renaissance Group, Inc. (“MRG,”) a development stage company. As a result, effective April 26, 2006, MRG became a wholly-owned subsidiary of the Company. The majority shareholders of MRG exchanged all of their shares in MRG for 4,635,000 newly issued shares of the Company’s $.001 par value common stock, and 167,650 new issued shares of the Company’s $.001 par value Series A Convertible Preferred Stock. Each share of Series A Preferred Stock is convertible into 100 shares of the Company’s common stock. As a result, MRG became a wholly-owned subsidiary of the Company.
The majority shareholders of MRG, namely the key officers in MRG and its partnership subsidiary (and who will be discussed two paragraphs below), have also become key officers in East Coast since their appointment and replacement of the previous management team in April 25, 2005. In addition, prior to this acquisition, the Company’s publicly traded securities have often been thinly traded in the stock market and can therefore be characterized as a stock subject to penny stock rules. Consequently, the shares exchanged between the Company and MRG were valued based on the par value of the respective shares exchanged, with the difference in aggregate value of $15,697 reflected in additional paid-in capital in a recapitalization in which MRG is identified as the "accounting acquirer.”
MRG was incorporated in Florida in February 2004. MRG has been renting a facility in Miami, Florida to be renovated for the purpose of operating a combined restaurant, nightclub, and parking lot on the premises. MRG began the process of making renovations in 2004, soon after entering into a lease on the premises as described in Note 11. As of April 30, 2009, the renovations on the property were still in progress and the facility had not yet opened to the public. Management expects the completed facility to be open to the public in early 2010.
Pursuant to the terms of a private placement offering described in Note 3, on April 1, 2005, MRG formed a Florida limited partnership, Miami Renaissance Partners, Ltd, ("the Partnership" or "MRP"), in which MRG was the general partner and manager, to raise working capital for the entertainment facility renovation and creation project. MRG was to enter into a sublease agreement with MRP for the completed Florida facility. MRG was to retain a 75% interest in the partnership, with the remainder interest divided amongst limited partners. These financial statements will include the accounts of East Coast, MRG, and MRP, and include the 25% minority interest representing the remainder third party limited partner interests. Since the acquisition took place on April 26, 2006, operations during the development stage were negligible during the year ended April 30, 2006.
Effective April 26, 2006, the Company is considered to be a development stage company. Effective September 30, 2009, the Company completed the divestiture of MRG and as of such date the Company became a non-operating company
Note 2 - Summary of Significant Accounting Policies
Interim Financial Statements
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of October 31, 2009 and the results of its operations, changes in stockholders' (deficit) equity , and cash flows for the three and six months periods ended October 31, 2009 and 2008 , respectively and for the period from the commencement of the development stage (April 26, 2006) to October 31, 2009, and for the period from the commencement of the development stage (April 26, 2006) to April 30, 2009. Although management believes that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission.
The results of operations for the three and six months ended October 31, 2009 are not necessarily indicative of the results that may be expected for the full year ending April 30, 2010. The accompanying consolidated financial statements should be read in conjunction with the more detailed consolidated financial statements, and the related footnotes thereto, filed with the Company’s Annual Report on Form 10K for the year ended April 30, 2009 filed on August 13, 2009.
Principles of consolidation:
These financial statements included the accounts of East Coast Diversified Corporation, MRG, and MRP and include a 25% minority interest representing the remainder limited partner interest through the period ended September 30, 2009. For the period from October 1, 2009 through October 31, 2009, the financial statements included the accounts of East Coast Diversified Corporation only. All significant inter-company balances and transactions have been eliminated in consolidation.
Development Stage Company:
The accompanying financial statements have been prepared in accordance with the FASB Accounting Standards Codification No 915, Development Stage Entities. A development stage enterprise is one in which planned and principal operations have not commenced or, if its operations have commenced, there has been no significant revenue there from. Development-stage companies report cumulative costs from the enterprise’s inception.
Income taxes:
The Company follows FASB Accounting Standards Codification No 740, Income Taxes. Deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse.
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Straight-line lease:
For financial statement purposes, rent expense is recorded on a straight-line basis over the lease term. The difference between the rent expense incurred and the amount paid is recorded as deferred rent and is being amortized over the lease term.
Segment information:
The Company will operate in one segment.
Fair value of financial instruments:
Carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, restricted cash, short-term investments, accounts receivable, notes receivable, accrued payroll, and other
accrued liabilities, approximate fair value due to their short maturities. The fair values of investments are determined using quoted market prices for those securities or similar financial instruments.
Leasehold improvements:
Leasehold improvements are stated at cost and include architect and design fees to renovate and create the entertainment facility. Leasehold improvements will be amortized using the straight-line method (half-year convention) over the shorter of the estimated useful life or lease term. Amortization will commence once the business operations begins.
Florida Liquor License:
On August 24, 2006, the Company acquired a Florida liquor license for a purchase price of $89,000. At April 30, 2009, the cost of the acquired Liquor License, and related legal fees of $4,464 incurred to acquire it, have been capitalized in the Company’s Balance Sheet as an indefinite life intangible asset. Effective September 30, 2009, the Company assigned the liquor license to MRG in connection with the divestiture of MRG.
Impairment of long-lived assets:
The Company reviews the carrying value of both its long-lived and other intangible assets annually, and whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. At April 30, 2009, the Company’s evaluation determined that no provision for impairment of either its other intangible assets (the "Liquor License") or its Leasehold Improvements was required at that date.
Consideration of Other Comprehensive Income Items:
FASB Accounting Standard Codification No 220, Comprehensive Income, requires companies to present comprehensive income (consisting primarily of net income plus other direct equity changes and credits) and its components as part of the basic financial statements. For the period from inception (April 26, 2006) to October 31, 2009, the Company’s consolidated financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income.
Use of estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Accounting basis:
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, expenses are realized when the obligation is incurred. The Company is in the development stage and has not generated any revenues to date.
Loss per Share:
The Company complies with the requirements of the FASB Accounting Standard Codification No 260, Earnings Per Share. FASB No. 260 specifies the compilation, presentation and disclosure requirements for earning per share for entities with publicly held common stock or potentially common stock. Net loss per common share, basic and diluted, is determined by dividing the net loss by the weighted average number of common shares outstanding. As of October 31, 2007, the effect of issuing convertible preferred stock in connection with the Company’s acquisition of MRG on April 26, 2006 has had a negligible dilutive impact on the calculations of earnings per share.
Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105-10), (formerly SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and non-authoritative. The Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s condensed consolidated financial statements.
In June 2009, the FASB issued FASB Accounting Standards Codification No 810, Consolidation. FASB Accounting Standards Codification No 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No 810 will have on its financial statements.
In June 2009, the FASB issued FASB Accounting Standards Codification No 860, Transfers and Servicing. FASB Accounting Standards Codification No 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB Accounting Standards Codification No 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No 860 will have on its financial statements.
Effective for the interim reporting period ending October 31, 2009, the Company adopted two new accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities as codified in ASC 820 “Interim Disclosures about Fair Value of Financial Instruments”. ASC 820 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 820 requires related disclosures in summarized financial information at interim reporting periods. ASC 820 was effective for the interim reporting period ending October 31, 2009. The adoption of ASC 820 did not have a material impact on the Company’s condensed consolidated financial statements.
Effective June 15, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have any impact on our condensed consolidated financial statements. In accordance with ASC 855, the Company evaluated all events or transactions that occurred after October 31, 2009 up through December 30, 2009, the date the Company issued these condensed consolidated financial statements .During this period, the Company had material subsequent events as set forth in Note 11 to these condensed consolidated financial statements. In June 2008, FASB ratified Accounting Standards Codification No 815, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock”). ASC 815 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity's own stock. Warrants that a company issues that contain a strike price adjustment feature, upon the adoption of ASC 815, results in the instruments no longer being considered indexed to the company's own stock. On January 1, 2009, the Company adopted ASC 815 and re-evaluated its issued and outstanding warrants that contain a strike price adjustment feature. The Company reclassified certain warrants from equity to a derivative liability and used the Black-Scholes valuation model to determine the fair market value of the warrants. Based upon the Company’s re-evaluation, ASC 815 has had no material impact on the Company’s condensed consolidated financial statements.
In June 2008, the FASB issued FASB Accounting Standards Codification No 260 “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and did not expect to have a significant impact on the Company’s results of operations, financial condition or cash flows.
In May 2008, the FASB issued FASB Accounting Standards Codification No 944-605, Financial Guarantee Insurance Contracts. Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprise in FASB Accounting Standards Codification No 944-605. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. The adoption of FASB Accounting Standards Codification No 944-605 is not expected to have a material impact on the Company’s financial position.
In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.
In December 2007, the FASB issued FASB Accounting Standards Codification No 810-10-65, “Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB No. 51”. FASB Accounting Standards Codification No 810-10-65 requires that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, in the amount of consolidated net income attributable to the parent and to the non-controlling interest on the face of the consolidated statement of income, and that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. FASB Accounting Standards Codification No 810-10-65 is effective for fiscal years, beginning on or after December 15, 2008 and cannot be applied earlier.
In December 2007, the Company adopted ASC 805, Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted and the ASC is being applied prospectively only. Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
The Company does not anticipate that the adoption of FASB Accounting Standards Codification No 805 and FASB Accounting Standards Codification No 810-10-65 will have an impact on the Company's overall results of operations or financial position, unless the Company makes a business acquisition in which there is a non-controlling interest.
In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect that the adoption of FASB Accounting Standards Codification No 825 will have a material effect on the Company's consolidated financial statements.
In September 2006, the FASB issued ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. ASC 820 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, ASC 820 does not require any new fair value measurements. However, for some entities, the application of ASC 820 will change current practice. The changes to current practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. The provisions of ASC 820 are effective as of January 1, 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. However, delayed application of this statement is permitted for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted ASC 820 effective January 1, 2008 for financial assets and the adoption did not have a significant effect on its financial statements. The Company has adopted the remaining provisions of ASC 820 beginning in 2009. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated results of operations or financial condition.
Note 3 – MRG Pre-Merger Private Placement Offering and Related Restricted Cash
On May 13, 2005, MRG made a private placement offering for up to 120 investment units in the Partnership, Miami Renaissance Partners, Ltd, at a subscription price of $25,000 each. Each unit in this non-public offering was to initially represent a 0.002% to 0.007% partnership interest depending on the number of units sold. The offering was made to accredited investors as defined in Rule 501 (a) under the Securities Act of 1933, as amended. The offering was made for a minimum of 30 units, for total proceeds of $750,000, and a maximum of 120 units, for total proceeds of $3,000,000, with the offering to terminate at December 31, 2005 if the minimum units had not been sold. In accordance with the Partnership formation documents, limited partner capital contributions do not bear interest.
Miami Renaissance Partners, Ltd, ("MRP") had received cash contributions from the sale of partnership units to limited partners of $125,000 prior to the MRG merger with East Coast. Accordingly, at April 30, 2006, the Company had recorded $126,914, including interest income earned previously from restricted cash on its balance sheets. Under the terms of the private placement agreement, MRP had not reached the minimum threshold of 30 units sold to access the capital.
During June and July of 2006, MRP returned the $125,000 of cash contributions received from the limited partners.
Note 4 – Income Taxes
The significant components of the Company's deferred tax assets are as follows:
| | October 31, 2009 | | April 30, 2009 |
Net operating loss carryforward | $ | 1,644,067 | $ | 1,499,504 |
Less valuation allowance | | (1,644,067) | | (1,499,504) |
Net deferred tax assets | $ | 0 | $ | 0 |
The Company has provided for a valuation allowance against the full amount of the deferred tax asset due to management's uncertainty about its realization. The difference between the federal statutory tax rate of 34% and the effective rate of 0% reflected in the accompanying financial statements is attributable to no tax benefit being recorded for the future utilization of the net operating loss carryforwards.
The Company incurred no federal or state income tax expense for the six months ended October 31, 2009 and 2008, and for period from inception (April 26, 2006) to October 31, 2009, and utilized no tax carryforward losses.
As of October 31, 2009 the Company has available net operating loss carryforwards of $4,835,491 that expire through 2030. The Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about its realization.
Note 5 – Convertible Notes Payable, Related Party
On August 30, 2005, MRG issued a convertible note payable to Brickell North Investments, Inc. (“Brickell”), in settlement of outstanding sums owed for 2004 and 2005 rent and 2004 real estate taxes in the aggregate amount of approximately $327,774. The note will be adjusted upward for any additional 2005 real estates taxes once that amount has been determined. $110,500 of rent due for the period during the development stage of MRG, (February 25, 2004) to December 31, 2005 was forgiven by Brickell (see Note 7).
The note is convertible to shares of the Company’s common stock at a rate of $.327.
In the event that the Landlord-Holder Brickell did not convert the principal or adjusted principal of the debt to common stock of the Company the note was to be payable in 24 equal monthly installments commencing on June 15, 2006, together with any rent and real estate taxes due on the leased property. In the event of a failure to pay the note or an inability on the part of Brickell to exercise its conversion rights, the principal of the note was to become immediately due and payable together with interest thereon at the rate 6% per annum from the original date of the note. The parties to the convertible note had mutually agreed to extend the time of payment and adjust the date when Brickell may elect to exercise its conversion rights from June 15, 2006 to January 31, 2010. Effective September , 2009, the debt was forgiven in connection with the divestiture of MRG.
Brickell is a related party, as described in Note 7.
On October 31, 2006, in consideration for cash proceeds of a loan from James Goldstein, the Company issued a $80,823 convertible note payable to him that accrues interest at 12% per annum and was due October 31, 2007. The loan holder has agreed to extend the maturity date of the obligation to January 31, 2010. The note was convertible into shares of common stock of the Company at a conversion price of $.002. Effective September 30, 2009, the note was forgiven by Mr. Goldstein pursuant to a letter dated October 1, 2009. In connection with the forgiveness the principal amount of the note, Mr. Goldstein also forgave the accrued interest on the note.
James Goldstein is a related party, as described in Note 7.
As of October 31, 2009 and April 30, 2009, the Company had recorded $0 and $26,306 of accrued interest on the convertible notes payable to related party, respectively. Interest expense on this note was $4,848 and $4,848 for the six months ended October 31, 2009 and 2008, respectively, and $ 31,154 for the period from inception (April 26, 2006) to October 31, 2009.
Note 6 – Convertible Notes Payable to Officers
Convertible notes payable to officers are as follows:
Holder | Terms | | October 31, 2009 Balance | | April 30, 2009 Balance |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $54,104 note which accrues interest at 6% per annum and was due December 31, 2007. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | $ | 0 | $ | 54,104 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $4,140 note which accrues interest at 6% per annum and was due April 25, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 4,140 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $1,463 note which accrues interest at 6% per annum and is due April 30, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $0.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009. * | | 0 | | 1,463 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $6,500 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 6,500 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $570 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.* | | 0 | | 570 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $2,170 note which accrues interest at 6% per annum and is due January 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 2,170 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $5,910 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 5,910 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $280 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 280 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $4,205 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.* | | 0 | | 4,205 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $1,725 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.** | | 0 | | 1,725 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $1,850 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock.* | | 0 | | 1,850 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $4,110 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 4,110 |
| Ivo Heiden | $5,515 note which accrues interest at 10% per annum and was due April 30, 2004. The note was convertible into shares of common stock of the Company at the conversion price of $.002. The shareholder has agreed to extend the maturity date of the obligation to January 31, 2010. | | 5,515 | | 5,515 |
| Ivo Heiden | $4,750 note which accrues interest at 10% per annum and was due April 30, 2004. The note was convertible into shares of common stock of the Company at the conversion price equal to the closing bid price of the shares on the date of conversion, but not less than the par value of $.001. The shareholder has agreed to extend the maturity date of the obligation to January 31, 2010. | | 4,750 | | 4,750 |
| Ivo Heiden | $4,185 note which accrues interest at 10% per annum and was due February 3, 2006. The note is convertible into shares of common stock of the Company at the conversion price of $.002. The shareholder has agreed to extend the maturity date of the obligation to January 31, 2010. | | 4,185 | | 4,185 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $125 note which accrues interest at 6% per annum and was due July 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 125 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $2,005 note which accrues interest at 6% per annum and was due December 31, 2006. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 2,005 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $176 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | $ | 0 | $ | 176 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $360 note which accrues interest at 6% per annum and is due January 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 360 |
| Richard Margulies, Former President/CEO and Chairman of the Board of Directors and shareholder | $3,590 note which accrues interest at 6% per annum and was due July 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 3,590 |
| Frank Rovito, CEO, CFO and shareholder | $29,980 note which accrues interest at 6% per annum and was due December 31, 2007. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 29,980 |
| Frank Rovito, CEO, CFO and shareholder | $1,600 note which accrues interest at 6% per annum and was due April 25, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 1,600 |
| Frank Rovito, CEO, CFO and shareholder | $2,100 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.** | | 0 | | 2,100 |
| Frank Rovito, CEO, CFO and shareholder | $2,112 note which accrues interest at 6% per annum and was due July 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 2,112 |
| Frank Rovito, CEO, CFO and shareholder | $3,900 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.* | | 0 | | 3,900 |
| Frank Rovito, CEO, CFO and shareholder | $1,600 note which accrues interest at 6% per annum and is due January 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 1,600 |
| Frank Rovito, CEO, CFO and shareholder | $660 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 660 |
| Frank Rovito, CEO, CFO and shareholder | $1,000 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.* | | 0 | | 1,000 |
| Frank Rovito, CEO, CFO and shareholder | $970 note which accrues interest at 6% per annum and is due January 31, 2010. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock* | | 0 | | 970 |
| Frank Rovito, CEO, CFO and shareholder | $100 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock* | | 0 | | 100 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $134,737 note which accrues interest at 6% per annum and was due April 25, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 134,737 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $10,000 note which accrues interest at 6% per annum and was due December 31, 2006. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 10,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $75,000 note which accrues interest at 6% per annum and was due December 31, 2007. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 75,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $2,000 note which accrues interest at 6% per annum and was due July 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 2,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $13,000 note which accrues interest at 6% per annum and was due January 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 13,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $179,523 note which accrues interest at 6% per annum and was due December 31, 2007. The note is convertible into shares of common stock of the Company at a conversion price of $.50. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 179,523 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $5,097 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 5,097 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $15,000 note which accrues interest at 6% per annum and was due April 30, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 15,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $2,800 note which accrues interest at 6% per annum and was due July 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 2,800 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $33,000 note which accrues interest at 6% per annum and is due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 33,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $794 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 794 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $5,200 note which accrues interest at 6% per annum and was due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock* | | 0 | | 5,200 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $2,500 note which accrues interest at 6% per annum and was due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. * | | 0 | | 2,500 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $10,500 note which accrues interest at 6% per annum and was due January 31, 2010. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock* | | 0 | | - |
| Aaron Goldstein, a Director (Secretary) and shareholder | $6,700 note which accrues interest at 6% per annum and was due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20.* | | 0 | | 6,700 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $6,100 note which accrues interest at 6% per annum and was due October 31, 2009. The note is convertible into shares of common stock of the Company at a conversion price of $.20. On August 7, 2009 the note was converted into common stock* | | 0 | | - |
| Aaron Goldstein, a Director (Secretary) and shareholder | $66,000 note which accrues interest at 6% per annum and was due October 31, 2007. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 60,000 |
| Aaron Goldstein, a Director (Secretary) and shareholder | $15,233 note which accrues interest at 6% per annum and was due October 31, 2008. The note is convertible into shares of common stock of the Company at a conversion price of $.20. The shareholder has agreed to extend the maturity date of the obligation to October 31, 2009.* | | 0 | | 15,233 |
| | | 14,450 | | 711,269 |
| Less: current portion | | 0 | | 711,269 |
| | $ | 14,450 | $ | - |
* Notes payable to the above officers and former officers in the aggregate amount of $689,769 were converted into shares of common stock on August 7, 2009.
** These notes payable were forgiven in connection with the divestiture of MRG.
As of October 31, 2009 future maturities of debt for the next two years are as follows:
| Years ending October 31: | | |
| 2010 | | 39,170 |
As of October 31, 2009 and April 30, 2009, the Company had recorded $156,018 and $144,390 of accrued interest on the convertible notes payable to officers, respectively. Interest expense on these notes was $11,628 and $4,849 for the six months ended October 31, 2009 and 2008, respectively, and $128,432 for the period from inception (April 26, 2006) to October 31, 2009. On August 7, 2009, the notes in the aggregate amount of $728,939 were converted into Common shares of the Company, and the Company agreed to waive $139,355 of the accrued interest payable on such notes, leaving accrued interest payable of $16,662 as of October 31, 2009.
Note 7 – Related Party Transactions
James Goldstein, the father of Aaron Goldstein, who is an officer and director of the Company, is one of the principal owners of Brickell North Investments, Inc. ("Brickell"), the landlord for the Florida entertainment facility lease, and is the holder of the related convertible note payable for $327,774 discussed in Note 5. The note was issued to pay accrued rent for 2005 and 2004 of $207,570 and $8,500, respectively, and real estate taxes of $111,704 during the development stage of MRG (February 25, 2004) to December 31, 2004). $110,500 of rent due for the period from February 25, 2004 to December 31, 2004 was forgiven by Brickell in 2005.
For the period during the development stage of MRG (February 25, 2004) through October 31, 2009, MRG incurred $1,910,466 of rent and real estate taxes under the lease, of which basic rent incurred to Brickell totaled $1,273,259. The Company’s Consolidated Statements of Operations each of the six months ended October 31, 2009 and 2008 includes $116,934 of basic rent, and $55,852 of real estate taxes incurred by MRG under the lease.
The sub-landlord for the office lease, Comp Tech Technologies, is a company principally owned by Frank Rovito, an officer and director of the Company. For the period from February 25, 2004 to April 30, 2009, MRG incurred $63,600 of rent expense under the sublease. The Company’s Consolidated Statements of Operations for the years ended April 30, 2009 and 2008, and for the period from inception (April 26, 2006) to April 30, 2009, respectively includes $7,200 and $14,400 and $50,400 of rent expense incurred by MRG under the sublease. On October 31, 2008 the Company terminated the sub-lease agreement with Comp Tech Technologies, Inc.
On March 1, 2005, MRG issued 1,025,000 shares of its common stock to Robert Margulies, the brother of the former officer and director Richard Margulies.
As of October 31, 2009 future maturities of related party debts are as follows:
Years ending October 31:
2010 $0
Note 8 – Equity Transactions
During the six months ended October 31, 2006, the Company issued 895,000 shares of common stock pursuant to a private offering to accredited investors that was to expire June 30, 2006 at $.20 per share (with gross proceeds of $179,000), in accordance with Regulation D of the Securities Act of 1933, as amended, and Rule 501 promulgated there under. The Company's officers and directors directed the sale and received no commissions or other remuneration. In addition, the Company received $20,000 for 100,000 shares of common stock to be issued in the future under this offering. The 100,000 shares were issued on November 27, 2006.
On May 24, 2006, the Company issued 200,000 shares of common stock to Les Beilinson, subject to Rule 144 restrictions, in consideration of architectural services. The Company has capitalized $40,000 in the cost of leasehold improvements related to this stock issuance, based on the $.20 share price received by the Company in the Private Placement described in the preceding paragraph.
On December 18, 2006, the Company issued 350,000 shares of common stock to S. G. Martin Securities, LLC subject to Rule 144 restrictions, in consideration of professional services. The Company has expensed $52,500 in the statement of operations related to this stock issuance, based on the $.15 share price of the Company’s common stock on that date.
On April 15, 2009 the Board of Directors unanimously adopted Resolutions calling for the acceptance of the conversion of certain Promissory Notes payable to Richard Margulies, Frank Rovito and Aaron Goldstein, in the aggregate amount(s) of $91,433 $42,953 and $555,384 respectively into shares of the Corporation’s common stock, based upon a post-reverse conversion price of $0.10 per share again pursuant to pursuant to clearance and final approval by FINRA .
On August 7, 2009 the Company, pursuant to the conversion of the Promissory Notes was then able to and issued shares of common stock, with restrictive legend, as follows: Richard Margulies – 914,330 shares of common stock; Frank Rovito - - 429,530 shares of common stock; and Aaron Goldstein – 5,553,840 shares of common stock. The Market price on the date of the noted conversion was $.15 and the shares were converted for $.10, as part of the conversion the noted holders waived all the accrued interest payable on those notes. For the difference the Company recorded a loss on debt conversion for $205,530.
Preferred shares converted to common
On September 12, 2008, the Board of Directors of the Company adopted resolutions calling for the Corporation’s acceptance and for the conversion of all the 167,650 issued and outstanding preferred stock of the Company into common stock at the ratio of 100 shares of common stock for each share of preferred stock as set forth in the schedule below.
Based upon the conversion by holder’s of the Company’s preferred stock as set forth on the schedule below, a total of 16,045,000 restricted shares of common stock of the Company to the Company’s affiliates and 720,000 shares to Robert Margulies, a non-affiliated party as follows:
Name | Number of Preferred Shares Being Converted | Number of Shares of Common Stock to be Issued |
| Richard Margulies | 78,700 | 7,870,000 |
| Aaron M. Goldstein | 78,700 | 7,870,000 |
| Frank Rovito | 3,050 | 305,000 |
| Robert Margulies (Non-Affiliate) | 7,200 | 720,000 |
| Total | 167,650 | 16,765,000 |
Common stock issued on settlement of accrued expenses
On September 12, 2008 the Board of Directors of the Company agreed and resolved to convert and as a result to issue 4,500,000 shares of the Company’s common stock in consideration of certain amounts of accrued and deferred compensation due and payable to 3 shareholders for an amount of $115,000. This resulted in the recognition of a gain reflected in the Statement of Operations for the period ended September 30, 2008 in the amount of $79,339.
Note 9 – Going Concern
These consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
As shown in the accompanying consolidated financial statements, the Company had incurred cumulative losses of $4,835,491 from inception. The Company's existence in the current period has been dependent upon advances from related parties and other individuals, and the sale of convertible notes payable.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 10 - Stock Subscription Receivable
MRG issued 18,860,000 and 1,640,000 shares of common stock respectively in 2005 and 2004 to various individuals, and directors of MRG in exchange for stock subscription agreements. The amounts due on the stock subscription agreements were $20,500 at July 31, 2007. The amounts are non-interest bearing and due on demand. The stock subscription receivable amounts have been offset against stockholders' deficit.
Note 11- Commitments and Other Matters
[1] The Company has no current pending litigation.
[2] On June 15, 2004, MRG entered into a lease with Brickell North Investments, Inc., a related party, for the parcels of land and buildings for use in the entertainment facility. The lease term is ten years, with annual increases based on the consumer price index, approximately 3% per year.
[3] In February 2004, MRG entered into a sublease with a related party for office space in Edison, NJ for $1,200 per month. Since the lease expiration in October 2004, the Company has continued to lease the space under a month-to-month arrangement. Management does not consider use of this office space essential to business operations. On October 31, 2008 the Company terminated the sub-lease agreement with Comp Tech Technologies, Inc.
[4] 5 Year Table of obligations under leases:
The minimum future obligations for rent under agreements outlined in [2] are as follows:
Years Ending October 31, | | Amounts |
2010 | | 239,451 |
2011 | | 246,633 |
2012 | | 254,031 |
| 2013 | | 261,650 |
Thereafter | | 155,267 |
| $ | 1,157,032 |
SALE OF MRG SUBSIDIARY TO CERTAIN AFFILIATED PARTIES
On February 8, 2008, the Company's board of directors approved the sale of MRG to certain affiliated parties. The decision to sell MRG was based mainly due to lack of funding availability and restrictions in building permits issuance in Miami, which have been in place for some time. The board decided to solicit shareholder approval to divest MRG. Effective September 30, 2009, the Company completed the divestiture of MRG.
