See Accompanying Notes to Condensed Consolidated Financial Statements.
6
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Organization.
The accompanying unaudited condensed consolidated financial statements of City Capital Corporation, a Nevada corporation (“Company 48;), have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2008 Annual Report on Form 10-K as may be amended. Operating results for the period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. As used in these Notes to the Consolidated Financial Statements, the terms the "Company", "we", "us", "our" and similar terms refer to City Capital Corporation and, unless the context indicates otherwise its consolidated subsidiaries.
Subsidiaries:
Goshen Energy, Inc. (“Goshen”), a Nevada corporation organized on August 10, 2006, engages in the buying, selling, and drilling of oil and gas. The Company is also actively engaged in the exploration of bio fuel development and production opportunities domestically and globally through available business opportunities.
City Laundry Services, LLC (“City Laundry”), a Missouri limited liability company, organized on J anuary 22, 2009 engages in purchasing businesses in the cleaning arena. City Laundry purchased 100% of the assets in 39th Street Laundromat (“39th Street”), a Missouri company on February 6, 2009, and 100% of the assets in Blue Ridge Cleaners (“Blue Ridge”), a Missouri company on March 23, 2009. On April 24, 2009 the Company purchased 100% of the assets of an express laundry location (“Express Cleaners”) in Kansas. All subsidiaries of City Laundry are available for sale as the normal course of business of City Capital is the development, growth and sale of operating companies. In November 2009 the Company sold 39th Street and Blue Ridge.
City Juice Systems KS, LLC (“City Juice”), a Kansas limited liability company, organized on February 16, 2009 engages in purchasing businesses in the food and beverage arena. On February 20, 2009, City Juice purcha sed 100% of the assets in L.A. Juice Company, Inc. (“L.A. Juice”), a Kansas corporation, and 100% of the assets of Blends 101, LLC (“L.A. Juice 2”), a Kansas limited liability company. L.A. Juice 2 closed in August 2009, and L.A. Juice is available for sale as the normal course of business of City Capital is the development, growth and sale of operating companies.
City Beauty Systems, LLC (“City Beauty”), a Missouri limited liability company, organized on March 31, 2009 engages in purchasing businesses in the health and beauty arena. The Company is exploring new revenue opportunities and markets for this subsidiary.
City Capital Petroleum, LLC (“City Petroleum”), a New York limited liability company, was originally organized in Missouri on January 26, 2009, and dissolved and re-organized in New York on April 10, 2009. City Petroleum engages in pur chasing businesses in the oil and gas industry. On April 3, 2009, City Petroleum purchased 100% of the assets at a gas station and convenience store located in Brookhaven, New York (“O.K. Petroleum”).
Clean Sweep Holdings Group, LLC (“Clean Sweep”), a North Carolina limited liability company, organized on November 3, 2009 engages in opening and purchasing business that operate technology centers. This subsidiary currently has one location in Texas which opened in October 2009. On November 9, 2009, Clean Sweep purchased 100% of the assets of Main Street Sweepstakes (“Main Street”) located in Rolesville, North Carolina from an
7
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
individual. On December 28, 2009, Clean Sweep purchased 100% of the assets of Walnut Cove Sweepstakes (“Walnut Cove”) located in Walnut Cove, North Carolina from an individual, and Coffee & Calls, (Coffee & Calls”) located in Kernersville, North Carolina.
Nitty Gritty, LLC (“Nitty Gritty”), a Missouri limited liability company, organized on October 6, 2008 provides a subscription based online forum, social network, and training network where members learn "All Things Internet Marketing”. This subsidiary has been reclassified to available for sale in connection with the Company’s commitment to sell the subsidiary.
A 33% interest and managing member in The Millionaire Lifestyle Group, LLC ("Millionaire"), a Missouri limited liability company, organized August 21, 2008, a web based initiative that provides self-help mentoring and training seminars. This subsidiary was fully impaired as of September 30, 2009 due to the cessation of operations of Millionaire in December 2009.
A 2.18% interest and managing member in NYC Liquidation Group, LLC (“NYC Liquidation Group”), a New York limited liability company, organized January 5, 2009. On January 16, 2009, NYC Liquidation Group purchased 100% of the assets in Ichiban Ventures, Inc. (“Ichiban”), a New York corporation that owns two retail EBay drop off locations. The two locations were closed and the EBay stores discontinued in July 2009.
A 40% interest in The Male Room, LLC (“The Male Room”), a New Yor k limited liability company, organized on March 9, 2005, that provides salon services to males. The subsidiary was fully impaired as of September 30, 2009 due to the cessation of operations in December 2009
A 20% interest in St. Clair Superior Apartment, Inc. (“St. Clair Superior”), an Ohio corporation organized February 23, 2000, which operates an apartment complex.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Significant accounting policies have not changed from those disclosed in the Company’s Annual Report on Form 10-K, except those listed below.
Reclassifications.
The Company reclassified revenues and cost of revenues to discontinued operations related to St. Clair Superior, in connection with the sale of a majority of the Company’s ownership rights of the subsidiary on January 30, 2009.
Additionally, the revenues and expenses of Millionaire have been reclassified to discontinued operations in connection with the deconsolidation and impairment of the subsidiary on September 30, 2009, upon the Company’s determination that it no longer had control over the day to day operations and the cessation of operations in December 2009.
Cash and Equivalents.
For the Statement of Cash Flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 20 09 or December 31, 2008.
Concentrations.
The Company maintains cash balances at highly-rated financial institutions throughout the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of September 30, 2009 and December 31, 2008 the Company had zero and one bank account in excess of $250,000. The Company has not experienced any losses in such account.
8
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Receivable.
Accounts receivable relate to the Company’s subsidiary, O.K. Petroleum, and are evaluated each accounting period for collectability. Accounts receivables are due to timing differences of customer payments by credit cards and the processing of the transactions. The Company believes that its credit risk for accounts receivable is limited because of its large number of customers and the relatively small account balances for most of its customers.
Inventory - Homes For Sale.
Finished redevelopment house inventories are stated at the lower of accumulated cost or net realizable value. Inventories under development or held for development are stated at accumulated cost, unless certain facts indicate such cost would not be recovered from the cash flows generated by future disposition. In this instance, such inventories are measured at fair value.
Sold units are expensed on a specific identification basis. Under the specific identification basis, cost of sales includes the rehabilitation cost of the home, closing costs and commissions.
Inventory – Food and Beverage.
Inventory – food and beverage is stated at the lower of cost (on a first-in, first-out basis) or market and consist primarily of restaurant food, paper, equipment and supplies. Food and beverage inventory for L.A. Juice has been re-classified as assets held for sale in connection with the Company’s commitment to sell L.A. Juice. As of September 30, 2009, the Company’s subsidiary O.K. Petroleum had $11,158 of food and beverage inventory attribute d to the convenience store.
Inventory – Gas.
Inventory – Gas stated at the lower of cost (on a last-in, first-out basis) or market and consists primarily of gasoline.
Property and Buildings.
Property and buildings is stated at cost and is depreciated over the estimated useful lives of the related assets using the straight-line method. As of September 30, 2009 the Company had no property or buildings.
Goodwill and Intangibles.
Goodwill represents the excess of purchase price over tangible and other intangible assets acquired less liabilities assumed arising from business acquisitions. The remaining useful life of the intangible asset is evaluated at least annually for impairment. As of September 30, 2009 the goodwill for L.A. Juice and City Juice subsidiaries have been reclassified to assets held for sale in connections with the Company’s commitment to sell the entities. The Company has also expensed to discontinued operations the entire goodwill and intangible balance of Ichiban in connection with the discontinuation of the EBay store locations and L.A. Juice 2 in connection with the closure in August 2009.
As of September 30, 2009, the Company has reclassified the domain of Nitty Gritty to assets held for sale in connection with the Company’s commitment to sell the subsidiary.
Fair Value of Financial Instruments.
The carrying amounts for the Company’s cash, accounts payable and accrued liabilities approximate fair value due to the short-term maturity o f these instruments.
9
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Derivatives.
The Company occasionally issues financial instruments that contain an embedded instrument, such as a conversion feature. At inception, the Company assesses whether the economic characteristics of the embedded derivative instrument are clearly and closely related to the economic char acteristics of the financial instrument (host contract), whether the financial instrument that embodies both the embedded derivative instrument and the host contract is currently measured at fair value with changes in fair value reported in earnings, and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.
If the embedded derivative instrument is determined not to be clearly and closely related to the host contract, is not currently measured at fair value with changes in fair value reported in earnings, and would qualify as a derivative instrument, the embedded derivative instrument is recorded apart from the host contract and carried at fair value with changes recorded in current-period earnings. As of September 30, 2009 and December 31, 2008, the Company determined that the conversion feature of its convertible debentures qualified for this treatment. The cha nge in the fair value of debt derivative as reported in the Company’s condensed consolidated statements of operations was $1,025 and $56,829 as of September 30, 2009 and 2008, respectively.
Debt Modification.
If at any time the Company is not able to pay back outstanding debt at the maturity date, the Company actively works with the note holder to modify the terms of the agreement. All modifications to debt are evaluated for debt extinguishment as required by the Debt Topic of the FASB Codification.
As of September 30, 2009 and 2008 the Company recorded $0 and $879,632 as gain on extinguishment of debt.
Stock Based Compensation.
Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic or the Sock Compensation Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Revenue Recognition.
Revenue for the Company is generated from the commissions earned through the credit-investor relations’ program. The Company assists buyers in finding properties for purcha se from partnering lenders. Revenue from commissions is recognized and earned upon the closing of escrow, at which time the Company receives a percentage of the proceeds.
Home sale revenue is recognized at the time of the closing of the sale, when title to and possession of the property are transferred to the buyer. Buyers are required to obtain independent financing for purchase of the Company’s real estate properties.
Revenues from the self enrichment, food and beverage, laundry, gas and retail segments arise from the sale of merchandise and services. We recognize revenue when the customer takes possession of the merchandise, shipment of merchandise, or in the case of services, at the time the service is provided.
All revenues that are not generated through real estate renovation and sales, or sale of merchandise and services are cl assified as other revenue and recognized when the earning process is complete. The earning process is complete when there is existence of an arrangement, delivery has occurred or services rendered, the price is fixed or determinable and the collectability of the revenue is reasonable.
10
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Non-Controlling Interest
As required by the Consolidation Topic of the FASB Codification, the Company discloses such interests clearly as a portion of equity but separate from the parent’s equity. The noncontrolling interest’s portion of net income must also be clearly presented on the Consolidated Statement of Operations. Effective September 30, 2009, the Company deconsolidated Millionaire due to the lack of control over the entity. We have recorded $126,872 as a result of the Company’s non-controlling interest in NYC Liquidation Group.
Loss Per Share.
Net loss per share is calculated as required by the Earning Per Share Topic of the FASB Codification. The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted averaged number of shares and dilutive potential common shares outstanding. Potentially dilutive common shares consist of employee st ock options and stock issuable upon conversion of convertible debentures, and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss.
Investment in Unconsolidated Investee.
Entities in which the Company does not have a controlling financial interest (and therefore are not consolidated) but in which the Company exerts significant influence (generally defined as owning a voting interest of 20% to 50%, or a partnership interest greater than 3%) are accounted for as required by the Investments-Equity Method and Joint Venture Topic of the FASB Codification. As of September 30, 2009 the Company accounts for its investments in St. Clair Superior under the equity method of accounting and records its share of income as a component within the Consolidated Statement of Operations. The Company fully impaired Th e Male Room as of September 30, 2009 due to the closure of the businesses in December 2009. In addition, the Company fully impaired Millionaire Lifestyle as of September 30, 2009 due to its cessation of operations in December 2009.
Fair Value Accounting.
As required by the Fair Value Measurements and Disclosures Topic of the FASB Codification, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
(1)
In default. Management is currently attempting to renegotiate these pieces of debt.
21
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14: GAIN ON EXINGUISHMENT OF DEBT AND DISCONTINUED OPERATIONS
On March 31, 2008, the Company successfully entered into a modified agreement with a debt holder as noted in Note. 13. Three promissory notes plus interest of $89,949 and consulting fees of $100,000 totaling $189,949 were extinguished and renegotiated to a new note of $120,000. The modification, effective April 10, 2008, carries terms of one year at 8% interest with an initial payment of $2,000 and thereafter monthly payments of $2,000 through November 2008; payments of $10,000 through March 2009, and a balloon payment in April 2009. The modification
resulted in a gain on extinguishment of debt of $69,949. As of the filing of this form the Company has paid $26,000 and is in default of the debt.
In January 2009 the Company sold a majority of its ownership in St. Clair Superior on January 30, 2009. In accordance with the agreement, 80% of ownership was sold for $350,000. The Company recorded a loss on discontinued operations of $1,373 and $101,367 at January 30, 2009 and September 30, 2008 and recorded as a gain on the deconsolidation of subsidiary of $346,404 as of September 30, 2009. See Note 6.
In July 2009, the Company closed and discontinued the two EBay drop off locations in New York. As of September 30, 2009, all assets have been discontinued ($222,758), and the revenues and expenses reclassified to loss on discontinued operations. In January 2010 the Company was released from one rental space lease. The other is in negotiations to be released in the beginning of 2010.
In August 2009, the Company closed and discontinued L.A. Juice 2. As of September 30, 2009, assets of $24,707 and goodwill of $3,933 has been reclassified to discontinued operations. In January 2010, the Company was released from the rental space.
On September 30, 2009 the Company deconsolidated the subsidiary Millionaire due to the determination that the Company no longer had control over the day to day management. The Company recorded a loss on discontinued operations of $17,108 as of September 30, 2009 and $7,100 as of September 30, 2008 and recorded as a gain on deconsolidation of subsidiary of $43,165. Concurrent with the deconsolidation, the Company impaired the remaining receivable from Millionaire Lifestyle of $31,947 and investment in unconsolidated subsidiary of $13,949 due to the cessati on of operations in December 2009. As of September 30, 2008, we reclassified all of Millionaires expenses to discontinued operations resulting in a loss from discontinued operations of $7,100.
Additionally, the Company has committed to sell all of the subsidiaries of City Juice and City Laundry. Accordingly, all of the revenues and expenses have been reclassified to loss on discontinued operations as of September 30, 2009. In November 2009, the Company sold 39th Street and Blue Ridge to independent third parties.
| |
| September 30, 2009 |
Hodge School net loss as of January 30, 2009 | $ 1,373 |
Millionaire deconsolidation and impairment | 53,906 |
I Sold It impairment of assets | 222,758 |
L.A. Juice 2 impairment of assets | 28,640 |
City Juice subsidiaries net loss as of September 30, 2009 | 83,053 |
City Laundry subsidiaries net loss as of September 30, 2009 | 100,303 |
Ichiban net loss as of September 30, 2009 | 130,873 |
Total loss on discontinued operations | $ 620,906 |
NOTE 15: RELATED PARTY TRANSACTIONS
As of September 30, 2009 and December 31, 2008, the Company holds a note receivable from AmoroCorp with an outstanding balance of $1,700,309 and $ 1,924,731. The President of the Company is also the President and a shareholder of the debtor. See Note 4.
22
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 1, 2008, the President of the Company entered into an employment agreement with the Company. Under the terms of the agreement the President paid a base amount of $500,000 per annum paid in monthly installments of $41,667. Additional compensation consists of an annual bonus of the Company’s common stock
of $500,000 valued on the effective renewal date of the agreement, one percent of any net operating income generated by the Company, and one percent of any funds raised and received by the Company based on the fundraising and marketing efforts of the President. For the nine months ended September 30, 2009, the President received $906,000 in payments in accordance with his employment agreement.
In the second quarter of 2009, the Company launched a self help infomercial. The expenses for the infomercial were paid by a related party and then reimbursed by the Company. As of September 31, 2009, the Company has recorded $50,524 as an accrued expense-related party for these expenses.
As of September 30, 2009 the Company deconsolidated the subsidiary Millionaire Lifestyle in connection with the determination that the Company no longer had control over the day to day management. Concurrent with the deconsolidation, the Company impaired the remaining receivable from Millionaire Lifestyle of $31,947 and investment in unconsolidated subsidiary of $13,949 due to the cessation of operations in December 2009.
NOTE 16: STOCKHOLDER’S EQUITY
The authorized common stock of the Company consists of 235,000,000 shares of common stock with par value of $0.001. The authorized preferred stock of the Company consists of 15,000,000 shares of preferred stock, designated as Series A, with a par value of $0.001. As of September 30, 2009, the Company had no outstanding shares of preferred stock.
For the nine months ended September 30, 2009, the Company issued common stock as follows:
(a) 71,428,571 restricted shares of c ommon stock for officer compensation valued at $500,000 (contract value) at $0.007 per share in accordance with the President’s employment agreement dated January 1, 2008.
(b) 2,000,000 shares of restricted common stock for services of $20,000 at $0.01 per share.
(c) 300,000 shares of restricted common stock for services to a related party of $60,000 at $0.20 per share (contract price).
(d) On April 6, 2009, the Company issued 12,500,000 restricted shares of common stock in error. The shares were effectively cancelled by the Company as of September 30, 2009.
(e) 300,000 restricted shares of common stock for services valued at $15,000 at $0.05 per share.
(f) On May 12, 2009, the Company issued 4,000,00 0 restricted shares of common stock in error. These shares were returned in August 2009.
(g) 200,000 shares of common stock for services of $12,000 at $0.06 per share.
(h) 12,000,000 restricted shares of common stock for director compensation valued at $1,080,000 at the fair market value of $0.09
The Company’s subsidiary NYC Liquidation Group converted two notes payables into member’s equity totaling $125,000. This has been recorded as minority interest as of September 30, 2009.
.
23
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 17: SEGMENT INFORMATION
The Company’s operating segments are strategic business units that offer different products and services. For the nine months ended September 30, 2009, operating segments of the Company are real estate, self enrichment, oil and gas, laundry services, food and beverage, health and beauty, retail, and technology centers. The real estat e segment consists of the Company’s credit-investor program, and renovated home inventory; the self enrichment segment consists of the self help infomercial; the oil and gas segment consists of Goshen Energy, Inc. and City Petroleum and its subsidiaries; the laundry services segment consists of City Laundry and its subsidiaries; the food and beverage segment consists of City Juice and its subsidiaries; the health and beauty segment consists of City Beauty; the retail segment consists of NYC Liquidation; and the technology center segment consists of Clean Sweep, LLC and its subsidiaries. In accordance with FASB authoritative guidance, the gas and oil, laundry services, food and beverage, and self enrichment segments qualify as reportable segments and those subsidiaries that have been fully consolidated in the Company’s financial statements. The real estate, beauty, retail, and technology centers segment have been classified as “all other” in this footnote and all equity investm ents have been excluded as of September 30, 2009.
During the nine months ended September 30, 2008, operating segments of the Company were real estate, oil and gas, and self enrichment. The real estate segment consist of the Company’s credit-investor program, renovated home inventory, and St. Clair Superior which was deconsolidated as of January 2009 in connection with the sale of majority of the Company’s ownership; the oil and gas segment consists of Goshen Energy, Inc. subsidiary; and the self enrichment segment consists of The Millionaire Lifestyle, LLC. The accordance with FASB authoritative guidance, only the real estate segment qualifies as a reportable segment. The oil and gas, and self enrichment segment have been classified as “all other” in this footnote as of September 30, 2008.
Real Estate.
The Company began aggressively marketing its credit-investment program in May 2008 with a long-term contract with satellite radio provider, XM Radio. The program assists buyers in finding properties for purchase from partnering lenders.
The Company’s subsidiary, St. Clair Superior, an Ohio corporation owns and operates an apartment complex. In January 2009, the Company deconsolidated the subsidiary in connection with the sale of majority of its ownership to a third party.
Self Enrichment.
In the second quarter of 2009, the Company launched a self enrichment infomercial called Creating Success from Inside Out. This infomercial provides self help materials and support to individual for a fee.
On October 6, 2008, the Company organized Nitty Gritty, LLC a Missouri limited liability company that provides a subscription based online forum, social network, and training network where members learn "All Things Internet Marketing”. As of September 30, 2009, the Company has reclassified all assets of Nitty Gritty to assets held for sale in connection with the Company’s commitment to sell the subsidiary.
The Company’s subsidiary, Millionaire Lifestyle, a Missouri limited liability company operates a web based initiative that provides self-help mentoring and training seminars. On September 30, 2009, the Company deconsolidated the subsidiary due to the Company’s determination that it no longer had control over the entity. Concurrently with the deconsolidation, the Company fully impaired the investment due to the cessation of operations in December 2009.
Gas and Oil.
The Company’s subsidiary, Goshen Energy, Inc. and City Petroleum, do business in the oil and gas industry. During the second quarter of 2009, City Petroleum purchased a gas station located in New York.
24
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Laundry.
The Company’s subsidiary, City Laundry, engages in purchasing businesses in the laundry arena. During the first quarter of 2009, City Laundry purchased two laundromats, 39th Street and Blue R idge located in Missouri. In the third quarter of 2009 the Company purchased Express Laundry located in Kansas. As of September 30, 2009 39th Street, Blue Ridge and Express are available for sale. In November 2009, 39th Street and Blue Ridge were sold.
Food and Beverage.
The Company’s subsidiary City Juice engages in purchasing businesses in the food and beverage industry. During the first quarter of 2009, City Juice purchased one juice bar, L.A. Juice, located in Kansas. L.A. Juice 2 closed in August 2009, and L.A. Juice is available for sale.
Other.
The Company’s subsidiary, City Beauty, engages in purchasing businesses in the health and beauty arena.
In January 20 09, the Company deconsolidated St. Clair Superior in connection with the sale of majority of its ownership to a third party.
During the first quarter of 2009, the Company’s subsidiary NYC Liquidation Group purchased Ichiban that owns two retail drop off locations in which customers drop off items to be sold on EBay located in New York. All of the revenues and expenses for Ichiban have been reclassified to loss on discontinued operations in connection with the closure and discontinuation of the EBay drop off locations.
In July 2009, the Company deconsolidated and impaired Millionaire Lifestyle in connection with the determination that it no longer had control over the entity and the cessation of operations in December 2009.
As of September 30, 2009, the Company reclassified all the assets of its subsidiary Nitty Gritty to assets held for sale in connection with the Company’s commitment to sell the subsidiary.
The Company’s subsidiary, Clean Sweep engages in opening and purchasing business that operates technology centers.
These operating segments did not meet the criteria for a reportable segment as of September 30, 2009. Activity for these segments has been presented as “all other” in this footnote as of September 30, 2009.As of September 30, 2008, the oil and gas, and self enrichment segments have been presented as “all other” in this footnote.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies above. The Company evaluates performance based on profit or loss from operations before income taxes, not including nonrecurring gains and losses.
| | | | | | | | | | | | |
September 30, 2009 | | Self Enrichment | | Gas & Oil | | Laundry | | Food & Beverage | | Other | | Total |
Gross profit from external customers | $ | (532,018) | $ | 147,532 | $ | -- | $ | -- | $ | 91,845 | $ | (292,641) |
Compensation expense | | (199,839) | | (199,839) | | (199,839) | | (199,839) | | (219,823) | | (1,019,179) |
Consulting expense | | (62,900) | | (62,900) | | (62,900) | | (62,900) | | (149,190) | | (400,790) |
Market and investor relation expense | | (55,959) | | (55,759) | | (55,759) | | (55,759) | | (63,477) | | (286,513) |
Depreciation and amortization expense | | -- | | (2,960) | | -- | | -- | | -- | | (2,960) |
Other selling, general, and administrative expenses | | (50,441) | | (263,795) | | (88,015) | | (88,359) | | (108,890) | | (599,500) |
Non-operating expense | | | | (109,801) | | (54,387) | | (21,490) | | (19,712) | | (205,390) |
Segment operating loss before taxes and discontinued operations |
$ | (900,957) | $ | (547,522) | $ | (460,900) | $ | (428,347) | $ | (469,427) | $ | (2,806,973) |
25
CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | |
September 30, 2008 | | Real Estate | | Other | | Total |
Gross profit from external customers | $ | 112,737 | $ | -- | $ | 112,737 |
Compensation expense | | (89,464) | | (17,893) | | (107,357) |
Consulting expense | | (130,509) | | (9,642) | | (140,151) |
Market and investor relation expense | | (90,965) | | (6,630) | | (97,595) |
Other selling, general, and administrative expenses | | (123,172) | | (10,262) | | (133,434) |
Segment operating loss before taxes and discontinued operations/ | $ | (321,373) | $ | (44,427) | $ | (365,800) |
| | | | |
| | September 30, |
| | 2009 | | 2008 |
Revenues | | | | |
Total revenues from reportable segments | $ | 1,754,932 | $ | 112,737 |
Total other revenues | | 143,483 | | -- |
Total corporate revenues | | 210,889 | | 27,374 |
Elimination of intercompany corporate revenues | | (200,000) | | -- |
Total consolidated revenues | $ | 1,909,304 | $ | 140,111 |
| | | | |
Profit or Loss | | | | |
Total profit or loss from reportable segments | $ | (2,337,725) | $ | (321,373) |
Other profit or loss | | (469,246) | | (44,426) |
Elimination of intercompany expense | | 200,000 | | -- |
Elimination of intercompany corporate revenues | | (200,000) | | -- |
Corporate expenses | | (1,610,018) | | (1,347,453) |
Loss from discontinued operations | | (620,906) | | -- |
Minority interest | | 345,922 | | -- |
Net income (loss) before taxes | $ | (4,691,973) | $ | (1,713,252) |
| | | | |
Assets | | | | |
Total assets for real es tate segment | $ | -- | $ | 480,366 |
Total assets for gas & oil segment | | 499,732 | | -- |
Total assets for laundry segment | | 7,552 | | -- |
Total assets for food & beverage segment | | 2,294 | | -- |
Total assets for other segments | | 56,618 | | 6,202 |
Corporate assets | | 2,444,876 | | 2,213,934 |
Consolidated total | $ | 3,011,072 | $ | 2,700,502 |
| | | | |
Liabilities | | | | |
Accounts payable real estate segment | $ | -- | $ | 57,935 |
Accounts payable other segment | | 42,386 | | -- |
Deferred revenue self enrichment segments | | 42,445 | | -- |
Notes payable & accrued interest real estate segment | | -- | | 315,101 |
Notes paya ble & accrued interest gas & oil segment | | 705,107 | | -- |
Notes payable & accrued interest laundry segment | | 587,489 | | -- |
Notes payable & accrued interest food & beverage segment | | 236,490 | | -- |
Notes payable & accrued interest other segments | | 284,712 | | 315,179 |
Unsecured liability oil & gas segment | | 300,000 | | -- |
Corporate liabilities | | 6,251,958 | | 3,665,590 |
Consolidated total | $ | 8,450,587 | $ | 4,353,805 |
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CITY CAPITAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 18: &nbs p;SUBSEQUENT EVENTS
The Company organized Clean Sweep Holdings Group, LLC, a North Carolina limited liability company, organized on November 3, 2009 engages in opening and purchasing business that operate technology centers. This subsidiary currently has one location in Texas which opened in October 2009. On November 9, 2009, Clean Sweep purchased 100% of the assets of Main Street Sweepstakes located in Rolesville, North Carolina from an individual. On December 28, 2009, Clean Sweep purchased 100% of the assets of Walnut Cove Sweepstakes located in Walnut Cove, North Carolina from an individual and 100% of the assets of Coffee & Calls located in Kernsville, North Carolina.
In November 2009, the Company sold 39th Street Laundry to a third party for $20,000.
In November 2009, the Company gave back Blue Ridge to it s previous owner in exchange for forgiveness of a $23,000 note payable, of which $13,843 including interest was outstanding as of September 30, 2009.
On November 19, 2009, the Company entered into an employment agreement with Wendy J. Connor (see Exhibit 10.19) for the position of Chief Operating Officer. Under the terms of this three-year contract, Ms. Connor is to be paid $200,000 per year and a $50,000 one time sign on bonus. In addition, Ms. Connor is eligible to receive a share of all bonus programs, and stock options of the Company.
Effective December 1, 2009 the Creating Success from the Inside Out infomercial was terminated due to the Company’s determination that it was not a profitable source of revenue. The Company will continue to seek profitable self enrichment and education services as the Company is committed to creating positive change and self-sufficiency thr ough “Socially-Conscious Investing That Empowers Communities.”
In December 2009, the Company’s subsidiary, The Male Room closed its location in New York, and ceased operations.
In December 2009, the Company’s subsidiary, Millionaire Lifestyle ceased operations.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following m anagement’s discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, the Company’s unaudited condensed consolidated financial statements and notes included elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Forward Looking Statements.
Information in this Form 10-Q contains “forward looking statements” within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Exchange Act of 1934, as amended. When used in this Form 10-Q, the words “expects,” “anticipates,” “believes,” “plans,” “will” and similar expressions are intended to identify forward looking statements. These are statements that relate to fu ture periods and include, but are not limited to, statements regarding the adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, the need for future financing, dependence on personnel, and operating expenses.
Forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above as well as the risks set forth below under “Factors That May Affect Operating Results.” These forward looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on whi ch any such statement is based.
Overview.
City Capital Corporation (the “Company”, “we”, “us”, or “our”) is a socially conscious professional management and diversified holding company engaged in leveraging investments, holdings and other assets to build value for investors and shareholders. The Company is committed to creating positive change and self-sufficiency through “Socially-Conscious Investing That Empowers Communities.” These initiatives range from development and production of biofuels, to affordable homes for working-class families, to funding and acquisition of local businesses that support community jobs. The Company acquires and revitalizes distressed investment opportunities in multiple industry segments, creating potentially long-term returns for the Company.
The Company makes strategic investments and acquisitions that are intended to yield a positive return on investment. The Company’s intent is to acquire assets at a significant discount to market, and then rebuild them for sale or cash flow. These investments will also serve the communities the Company operates in by creating economic opportunities for underserved populations. The Company maintains stakes in industries such as technology, biofuels, commercial laundry, and retail services. New additions to the Company represent the Company’s strong devotion to educating and investing in future entrepreneurs.
Recent Developments.
The Company began aggressively marketing community development programs nationwide via touring by the current CEO, Ephren Taylor. The Company has developed a presentation featured at www.WealthTourLive.com that has toured the nation domestically as well as internationally. Over 30,000 people have experienced this economic empowerment presentation. The presentation allows for positive Company exposure, as well as acquiring new partner clients. It also expanded the Internet marketing partnerships and Adword purchases, increasing lead flow. Interested leads may enroll directly on various partner sites like www.IRACashFlow.com, or through the corporate website www.CityCapCorp.com. These activities are expected to significantly increase the existing credit-investor client base, which directly affects the potential volume of properties the Company can develop.
In the area of biofuel, the Company’s subsidiary Goshen has partnered with universities to create and develop curriculum around bio-diesel production. In 2008 the Company partnered with Mississippi Vall ey State University to develop a commercial biofuel production facility. The venture is still in the development and testing stage. The Company intends to have a commercial facility in production in 2010.
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The Company intends to build on the model of partnering with higher learning educational institutions are something the Company will build on in 2010. The Company is actively seeking partnerships with an additional five institutions by 2010. The Company sees this model as having the potential to bring a new line of green jobs to rural and urban communities, as well as to educate future generations of industries to come.
The Company will use this acquisition to allow it to leverage its capital to mentor and foster an environment not only for aspiring entrepreneurs, but also to serve as an incubator for developing companies and future additions to the Company’s diversified portfolio in 2010.
During the first quarter of 2009 the Company increased its leveraged investments and holdings by creating four limited liability companies; City Juice Systems KS, LLC (“City Juice”), a Kansas limited liability company that engages in purchasing companies in the food and beverage arena; City Capital Petroleum, LLC (“City Petroleum”), a New York limited liability company that engages in purchasing companies in the oil industry; City Laundry Services, LLC, a Missouri limited liability company that engages in purchasing companies in the laundry arena; an d City Beauty Systems, LLC, a Missouri limited liability company that engages in the health and beauty arena. Each subsidiary is responsible for acquiring like companies with plans of operations that are similar to that of the acquiring subsidiary at a significant discount to market. The Company intends to have the subsidiaries assists their acquired companies in turning a profit. Subsequent to such turnaround, the Company will either sell or retain the acquisitions for cash flow as it sees fit.
In the nine months ended September 30, 2009, the Company purchased two juice bar locations under City Juice, located in the Kansas area. Both subsidiaries of City Juice are available for sale as the normal course of business of City Capital is the development, growth and sale of operating companies.
The Company is the managing partner o f City Laundry, which is intended to be jointly owned by several of the other partner entities. The Company’s laundromats will operate under the name City Laundry, while the dry cleaners will operate as Express Cleaners. In February 2009 the Company completed the first acquisition for this commercial laundry subsidiary, the acquisition of a 2,000 sq. ft./30-machine laundromat with annual revenues of approximately $108,000. Additionally, the Company purchased their second commercial laundry subsidiary located in the Kansas City area in March 2009. In April 2009, the Company purchased a third drop off location in Kansas. Two subsidiaries of City Laundry have been sold in the fourth quarter of 2009 and the third is available for sale as the normal course of business of City Capital is the development, growth and sale of operating companies.
City Laundry is one more example of how in this economic environment the Company fi nds opportunities through its socially conscious model. Reviving and refurbishing failing and successful neighborhood businesses and providing employment for local residents fulfils the Company's socially conscious mission. Even though this first acquisition is a small operation, the cleaners industry is extremely suitable for the Company’s model. It is a fragmented industry, yet it has a proven history of weathering, even thriving in economic downturns.
According to the Coin Laundry Association, there are over 35,000 coin laundries alone in the U.S. “During periods of recession, when home ownership decreases, the self-service laundry market expands as more people are unable to afford to repair, replace or purchase new washers and dryers, or as they move to apartment housing with inadequate or nonexistent laundry facilities. The market size grows proportionately to the increase in population… peo ple always need to wash clothes.” (source: http://coinlaundry.org)
According to the U.S. Bureau of Labor, total gross revenues for the industry are nearly $20 billion annually (source: 2007 U.S. Bureau of Labor). That translates into reliable cash flow for the Company and a strong, stable job source within the communities the Company operates. These economic and data factors are what prompted Company management to make such an addition to the Company.
In April 2009, the Company’s subsidiary, City Petroleum purchased a gas station location in New York.
In the first quarter of 2009, the Company acquired a 2.18% equity stake, and management role in NYC Liquidation Group, LLC. This firm recently acquired a chain of eBay drop off retail stores in the New York Cit y area. In July 2009, the Company closed and discontinued the two EBay drop off locations due to increased expenses and drop in revenues. The Company has been released from one rental space, and the other is in negotiations to be released.
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In November 2009, the Company created Clean Sweep Holdings which owns and operates technology centers in Texas and North Carolina. Clean Sweeps was formed to leverage the power of electronic gaming in order to help community organizations raise critical operation funding. Our concept of partnering entertainment gaming, with sweepstakes functionality is allowing the creati on of strategic partnerships between retail merchants and charitable organizations.
Results of Operations for the Three Months Ended September 30, 2009 Compared to the Three Months Ended September, 2008.
(a)
Revenue and Cost of Revenue.
| | | | |
| September 30, 2009 | September 30, 2008 | $ Change | % Change |
Revenue | $ 1,033,971 | $ 41,608 | $ 992,363 | 2385% |
Cost of Revenue | 1,095,452 | -- | 1,095,452 | 100% |
Gross Profit | (61,481) | 41,608 | (103,089) | (248%) |
Operating, General and Administrative Costs | 1,746,311 | 631,472 | 1,114,839 | 177% |
Net Operating Loss | $ (1,807,792) | $ (589,864) | $ (1,217,928) | 206% |
The Company had $1,033,971 of revenue for the three months ended September 30, 2009 compared to $41,608 for the three months ended September 30, 2008, an increase of $992,363 or 2,385%. For the three months ended September 30 2009, revenues consisted of $94,010 from com mission revenues, $123,250 from self enrichments infomercial and seminar sales, $816,641 from the new gas station purchased in April 2009, and $70 from other revenues. Revenue for the three months ended September 30, 2008 consisted $41,608 of commission revenues.
Additionally, revenues from food and beverage, laundry, retail, and Millionaire Lifestyle have been reclassified to discontinued operations in connection with the Company’s commitment to sell all the subsidiaries of City Juice and City Laundry, the discontinuation of the EBay drop off locations, and deconsolidation and impairment of Millionaire Lifestyle.
Costs of revenue were $1,095,452 for the three months ended September 30, 2009 compared to $0 for the three months ended September 30, 2008. Cost of revenue consisted of the self enrichment segment ($333,558) for expenses for the infomercial and merchandise, and the oil and gas segment ($761,894) for inventory of the gas station. Additionally, costs of revenues for the laundry, juice and retail segments and Millionaire Lifestyle were reclassified to discontinued operations in connection with the Company’s commitment to sell all of the subsidiaries of City Juice and City Laundry, and the deconsolidation and impairment of Millionaire Lifestyle.
As previously discussed, during 2009, the Company increased its leveraging investments and holdings by creating five limited liability companies, whose focus is on the oil and gas, laundry, food and beverage, health and beauty, and retail industries. Due to the current economic environment, the Company experienced losses in the laundry and food and beverage segments. In November 2009, the Company sold 39th Street and Blue Ridge. The Company continues to hold Express Laundry and L.A. J uice as an asset held for sale due to its commitment to sell the subsidiaries. Company expects revenues for the oil and gas to increase during 2010.
For the three months ended September 30, 2009, the Company closed 9 properties and generated $94,010 of revenues from the credit investor program. The Company is actively seeking new buyers and plans on increasing its closed properties each quarter; however, because this is a newly structured endeavor and given the current economic environment the Company is unable to reasonably predict what it may have on its financial statements in the next 12 months.
(b)
Operating, General and Administrative Expenses.
Operating, general and administrative expenses for the three months ended September 30, 2009 were $1,746,311 compared to $631,472 for the three months ended September 30, 2008, an increase of $1,114,839 or 177%. The increase for the three months ended September 30, 2009 compared to 2008 was attributable to an increase in compensation ($887,571) due to an increased amount of employees in connection with our additional subsidiaries, and issuances of stock to our board of directors that were valued with the fair value based on the grant date, consulting expenses ($341,415) due to the additional subsidiaries, offset by decreased in marketing and investor relations ($43,483), and other selling, general and administrative expenses ($70,666). Additionally, fees
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relating to Millionaire Lifestyle have been reclassified to discontinued operations due to the deconsolidation and impairment of the subsidiary on September 30, 2009. Expenses for City Juice, City Laundry’s subsidiaries and Ichiban have also been reclassified to discontinued operations in connection with the sale of 39th Street and Blue Ridge in November 2009, and the commitment to sell Express Laundry and L.A. Juice, and the close and discontinuation of the EBay drop off locations, Millionaire and L.A. Juice 2.
As previously discussed, during the first and second quarter of 2009, the Company increased its leveraging investments and holdings by creating five limited liability companies, whose focus is on the laundry, food and beverage, health and beauty, and retail industries. Additionally, the Company subsidiaries, City Petroleum, City Laundry and City Juice each purchased an additional business during the second quarter of 2009. Additionally, in November 2009 the Company created Clean Sweep which engages in opening and purchasing business that operate technology centers and has one start up locations as of September 30, 2009. Due to the increase in employees and operating costs, expenses are expected to increase during 2010.
(c)
Non-Operating Expense (Income).
Non-operating expense increased by $432,797 or 228% for the three months ended September 30, 2009 compared to September 30, 2008. The increase was attributed to increased interest expense ($84,671) due to a greater amount of note payables, loss on investment in subsidiary ($948) due to the deconsolidation and impairment of Millionaire Lif estyle and change in fair value of debt derivative ($373,409), offset by a gain on deconsolidation of subsidiary ($26,056) due to the deconsolidation of Millionaire Lifestyle for the three months ended September 30, 2009 compared to the same period in 2008. In the three month period ended September 30, 2008, the Company recorded a significant gain on extinguishment of debt in connection with a modification of existing debt at the time.
(d)
Net Loss Attributable to City Capital Corp.
The Company had a consolidated net operating loss of $2,164,765 for the three months ende d September 30, 2009 compared to $446,782 for the three months ended September 30, 2008, an increase of $1,717,983 or 385% from operations. The increase in consolidated net operating loss is the result of the factors mentioned above. The Company anticipates a decrease in its consolidated net loss during 2010 due to the increased revenues generated from the new subsidiaries.
Results of Operations for the Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September, 2008.
(a)
Revenue and Cost of Revenue.
| | | | |
| September 30, 2009 | September 30, 2008 | $ Change | % Change |
Revenue | $ 1,901,804 | $ 140,111 | $ 1,761,693 | 1,257% |
Cost of Revenue | 2,191,055 | -- | 2,191,055 | 100% |
Gross Profit | (289,251) | 140,111 | (429,362) | (306%) |
Operating, General and Administrative Costs | 3,838,100 | 2,426,168 | 1,411,932 | 58% |
Net Operating Loss | $ (4,127,351) | $ (2,286,057) | $ (1,841,294) | 81% |
The Company had $1,901,804 of revenue for the nine months ended September 30, 2009 compared to $140,111 for the nine months ended September 30, 2008, an increase of $1,761,693 or 1,257%. For the nine months ended September 30, 2009, revenues consisted of $94,010 from commission sales, $212,168 from self enrichments infomercial and seminar sales, $1,542,764 from the new gas station purchased in April 2009, $49,473 from the sale of a redevelopment home, and $3,389 from other revenues. Other revenues for the nine months ended September 30, 2009 consisted of $3,319 from book sales. Revenue for the nine months ended September 30, 2008 consisted $112,737 of commission revenues from the credit-investor program and $27,374 of other revenues from the CEO’s speaking engagements and book sales.
Cost of revenue was $2,1 91,055 for the nine months ended September 30, 2009 compared to $0 for the nine months ended September 30, 2008. Cost of revenues includes the initial purchase price of the home, renovation expenses, and closing costs paid by the Company in connection with the sale of the home. Cost of revenue consisted of the self enrichment segment ($744,186) for expenses for the infomercial and merchandise, and the oil and gas segment ($1,395,232) for inventory of the gas station, and the sale of one home inventory ($51,637).
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Additionally, rental revenues and cost of revenues for the nine months ended September 30, 2008 has been rec lassified to discontinued operations in the Company’s financial statements due to the sale of a majority of the Company’s ownership rights in its subsidiary, St. Clair Superior Apartment Inc. Revenues for City Juice, City Laundry’s subsidiaries and Ichiban have also been reclassified to discontinued operations in connection with the sale of 39th Street and Blue Ridge in November 2009, and the commitment to sell Express Laundry and L.A. Juice, and the close and discontinuation of the EBay drop off locations, Millionaire and L.A. Juice 2.
As previously discussed, during the first and second quarter of 2009, the Company increased its leveraging investments and holdings by creating five limited liability companies, whose focus is on the laundry, food and beverage, health and beauty, and retail industries. Additionally, the Company subsidiaries, City Petroleum, City Laundry and City Juice each purchased an ad ditional business during the second quarter of 2009. Additionally, in November 2009 the Company created Clean Sweep which engages in opening and purchasing business that operate technology centers and has one start up locations as of September 30, 2009. Due to the increase in employees and operating costs, expenses are expected to increase during 2010.
For the nine months ended September 30, 2009, the Company 9 properties and generated $94,010 in revenues from the credit investor program. The Company is actively seeking new buyers and plans on increasing its closed properties each quarter; however, because this is a newly structured endeavor and given the current economic environment the Company is unable to reasonably predict what it may have on its financial statements in the next 12 months.
(b)
Operating, General and Administrative Expenses.
Operating, general and administrative expenses for the nine months ended September 30, 2009 were $3,838,100 compared to $2,426,168 for the nine months ended September 30 2008, an increase of $1,411,932 or 58%. The increase for the nine months ended September 30, 2009 compared to 2008 was attributable to an increase in compensation ($1,103,750) due a bonuses related to the employment agreement between the Company and our President, increased employees at the Company’s subsidiaries and the issuance of stock to our board of directors fair valued on the grant date, consulting ($137,109), and marketing and investor relations ($177,537), offset by a decrease in other selling, general and administrative expenses ($6,466) all due to the additional subsidiaries created and acquired during the first and second quarter of 2009. Additionally, fees relating to St. Clair Superior have been re-classified to loss on discontinued operations in connection with the sale of majority of the Company’s ownership as of January 30, 2009. Fees relating to Millionaire Lifestyle have also been reclassified to discontinued operations due to the deconsolidation and impairment of the subsidiary on September 30, 2009. Expenses for City Juice, City Laundry’s subsidiaries and Ichiban have also been reclassified to discontinued operations in connection with the Company’s commitment to sell all the subsidiaries of City Juice and City Laundry, and the close and discontinuation of the EBay drop off locations.
As previously discussed, during the first and second quarter of 2009, the Company increased its leveraging investments and holdings by creating five limited liability companies, whose focus is on the laundry, food and beverage, health and beauty, and retail industries. Additionally , the Company subsidiaries, City Petroleum, City Laundry and City Juice each purchased an additional business during the second quarter of 2009. Additionally, in November 2009 the Company created Clean Sweep which engages in opening and purchasing business that operate technology centers and has one start up locations as of September 30, 2009. Due to the increase in employees and operating costs, expenses are expected to increase during 2010.
(c)
Non-Operating Expense (Income).
Non-operating expense (income) increased by $869,545 or 150% for the nine months ended September 30, 2009 compared to September 30, 2008. This was attributed significantly to the sale of 80% of St. Clair Superior, and deconsolidation of Millionaire Lifestyle which resulted in a gain on deco nsolidated of subsidiary ($372,460), offset by $119,201 as a loss on investments in unconsolidated subsidiaries due to the impairment of The Male Room, and $185,493 of interest expense for the nine months ended September 30, 2009 due to increased amounts of note payables. Additionally, for the nine months ended September 30, 2009, the Company had a decrease of gain on extinguishment of debt ($879,632).
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(d) Net Loss Attributable to City Capital Corp.
The Company had a consolidated net operating loss of $5,037,895 for the nine months ended September 30, 2009 compared to $1,814,617 for the nine months ended September 30, 2008, an increase of $3,223,278 or approximately 178% from operations. The increase in consolidated net operating loss is the result of the factors mentioned above. The Company anticipates a decrease in its consolidated net operating loss during 2010 due to the increased revenues generated from the new subsidiaries.
Factors That May Affect Operating Results.
The Company’s operating results can vary significantly depending upon a number of factors, many of which are outside i ts control. General factors that may affect its operating results include:
·
market acceptance of and changes in demand for services;
·
a small number of customers account for, and may in future periods account for, substantial portions of our revenue, and revenue could decline because of delays of customer orders or the failure to retain customers;
·
gain or loss of clients or strategic relationships;
·
announcement or introduction of new services by us or by its competitors;
·
price competition;
·
the ability to upgrade and develop systems and infrastructure to accommodate growth;
·
the ability to introduce and market services in accordance with market demand;
·
changes in governmental regulation; and
·
reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability.
The Company believes that its planned growth and profitability will depend in large part on the ability to promote its services, gain clients and expand its relationship with current clients. Accordingly, the Company intends to invest in marketing, strategic partnerships, and development of its customer base. If we are not successful in promoting our services and expanding our customer base, this may have a material adverse effect on our financial condition and our ability to continue to operate our business.
Operating Activities.
The net cash used in operating activiti es was $2,207,698 for the nine months ended September 30, 2009 compared to $1,796,217 for the nine months ended September 30, 2008, an increase of $411,481 or 23%. This increase is attributed to many changes from period to period, including an increase in accounts payable and accrued expenses, and deferred revenues in connection with the infomercial, offset by a decrease in the Company’s note receivable-related party, and home inventory.
Investing Activities.
Net cash used in investing activities was $813,919 for the nine months ended September 30, 2009 compared to $5,000 for the nine months ended September 30, 2008, an increase of $808,919 or 16,178%. The increase is due to the purchase of six new businesses by the Company’s subsidiaries and associated assets, a nd increase in investments in unconsolidated subsidiaries, offset by the proceeds from discontinued operations due to the sale of a majority of the ownership in St. Clair Superior.
Financing Activities.
Net cash provided by financing activities increased to $2,863,144 compared to $1,871,716 for the nine months ended September 30, 2009 and 2008, an increase of $991,428 or 53%. This increase was due to the increased amount of debt the Company acquired to support its operations.
Liquidity and Capital Resources.
As of September 30, 2009, the Company had total current assets of $2,537,655 and total current liabilities of $8,190,3 54, resulting in a working capital deficit of $5,652,699. The Company’s cash balance as of September 30, 2009 totaled $55,515. Overall, cash and cash equivalents for the nine months ended September 30, 2009 decreased by $158,473 from December 31, 2008 due to the increased purchase of subsidiaries. As a result of
33
substantially more subsidiaries purchased in the first and second quarters of 2009, expense for additional employees and operating costs have dramatically decreased the cash balance during 2009. The Company’s debt load will also put considerable strain on its cash resources for the remainder of 2009 and into 2010.
In December 2009, the Company was notified that its fund source for debt instruments was at capacity and unable to further participate in City Capital Corp programs. This has caused the Company to receive fewer funds subsequent to December 2009 than anticipated. Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to it and/or that demand for equity/debt instruments will be sufficient to meet its capital needs, or that financing will be available on terms favorable to the Company.
The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of planned product development and marketing efforts, any of which could have a negative impact on business and operating results. In addition, insufficient funding may have a material adverse effect on the Company’s financial condition, which could require it to:
·
curtail operations significantly;
·
sell significant assets;
·
seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to products, technologies or markets; or
·
explore other strategic alternatives including a merger or sale of the Company.
To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of suc h debt could impose restrictions on the Company’s operations. Regardless of whether cash assets prove to be inadequate to meet the Company’s operational needs, the Company may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing stockholders.
Inflation.
The impact of inflation on costs and the ability to pass on cost increases to the Company’s customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.
Off-Balance Sheet Arrangements.
The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.
Critical Accounting Policies.
The SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company's most c ritical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) revenue recognition; (c) stock based compensation; (d) inventory - homes for sale; (e) impairment of long-lived assets; and (f) investment in unconsolidated investee. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results it reports in the financial statements.
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(a)
Revenue Recognition.
Revenue fo r the Company is generated from the commissions earned through the credit-investor relations’ program. The Company assists buyers in finding properties for purchase from partnering lenders. Revenue from commissions is recognized and earned upon the closing of escrow, at which time the Company receives a percentage of the proceeds.
Home sale revenue is recognized at the time of the closing of the sale, when title to and possession of the property are transferred to the buyer. Buyers are required to obtain independent financing for purchase of the Company’s real estate properties.
Revenues from the self enrichment, food and beverage, laundry, oil and gas and retail segments arise from the sale of merchandise and services. We recognize revenue when the customer takes possession of the merchandise, shipment of merchandise, or in the case of services, at the time the service is pro vided.
All revenues that are not generated through real estate renovation and sales, or sale of merchandise and services are classified as other revenue and recognized when the earning process is complete. The earning process is complete when there is existence of an arrangement, delivery has occurred or services rendered, the price is fixed or determinable and the collectability of the revenue is reasonable.
(b)
Stock Based Compensation.
Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic or Stock Compensation Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for go ods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
(c)
Investment in Unconsolidated Investee.
Entities in which the Company does not have a controlling financial interest (and therefore are not consolidated) but in which the Company exerts significant influence (generally defined as owning a voting interest of 20% to 50%, or a partnership interest greater than 3%) are accounted for as required by the Investments-Equity Method and Joint Venture Topic of the FASB Codification. As of September 30, 2009 the Company accounts for its investments in St. Clair Superior under the equity method of accounting and records its share of income as a component within Consolidated Statement of Operations. The Company fully impaired The Male Room as of September 30, 2009 due to the closure of the businesses in December 2009. In addition, the Company fully impaired Millionaire Lifestyle as of September 30, 2009 due to the cessation of operations in December 2009.
(d)
Debt Modification
If at any time the Company is not able to pay back outstanding debt upon the maturity date, the Company actively works with the note h older to modify the terms of the agreement. All modifications to debt are evaluated for debt extinguishment as required by the Debt Topic of the FASB Codification.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Not applicable.
ITEM 4(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer/principal financial officer, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company’s management carried out an evaluation, under the supervision and with the participation of the principal executive officer/principal financial officer, of discl osure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at a reasonable assurance level to ensure that information required to be disclosed by it in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms since the Company is currently late in filing this Form 10-Q. The principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal exec utive officer/principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(a)
In January 2004, the Company was advised that th e parties with whom the Company negotiated a settlement and disposition of its former turf installation business are dissatisfied with the results of the settlement transaction and have not returned to the Company, for cancellation, the 4,000 restricted shares of the Company's common stock, adjusted for the stock split, as required by the settlement agreement, notwithstanding the performance by the Company of the obligations imposed on the Company by the settlement agreement.
Accordingly, the Company does not believe, based on its assessment, that it is necessary to make any provisions in its financial statements for any possible adverse result. As of December 31, 2008 the shares have not been returned to the Company.
(b)
On July 28, 2007, the Company was named as a defendant is a lawsuit filed in the United States District Court for the Eastern District of Pennsylvania, Philadelphia Division: The Granite Companies v. City Capital Corporation. The Granite Companies and the Company entered into an agreement to purchase the membership interests of The Granite Companies and continue to operate the entity, together with an agreement to honor certain outstanding liabilities. After the agreement was signed, the Company commenced its due diligence and became aware that the statements and representations made by representatives of The Granite Companies were materially false. As a result, immediately thereafter, the Company, through counsel, sent a letter terminating the agreement
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and requesting the return of certain funds: The Company had previously provided The Granite Companies a $150,000 deposit and paid approximately $30,000 for the continued operations of The Granite Companies
The complaint alleges that the Company breached its contractual obligation and also should be found liable for fraud relating to the transaction. $1,238,719, together with punitive damages and any other relief deemed appropriate by the Court are being sought. The Company has filed a motion to dismiss the complaint and several other pre-discovery motions have been filed.
There was a mediation scheduled before a United States District Court Judge on March 19, 2009. The case did not settle.
Management believes the Company has meritorious claims and defenses to the claims of The Granite Companies and ultimately will prevail on the m erits. However, this matter remains in the early stages of litigation and there can be no assurance as to the outcome of the lawsuit. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. Were unfavorable rulings to occur, there exists the possibility of a material adverse impact of money damages on the Company's financial condition, results of operations, or liquidity of the period in which the ruling occurs, or future periods.
(c) In the fall of 2009, the Company was advised that a complaint had been prepared in State Court in Minnesota seeking approximately $160,000. This lawsuit allegedly stems from monies owed to the former insiders of the Company. The monies allegedly owed were then assigned to a company named Deal Flow, which is owned by one of the former insiders of the Company. The underlying Complaint also sought to unwind a transfer from the Company to AmoroCorp for approximately $1,900,000. The CEO of the Company was also named as a Defendant in the case in his individual capacity. The Company, the CEO and AmoroCorp filed a motion to dismiss the complaint on a number of bases. The CEO and AmoroCorp sought to dismiss the complaint, contending the Court lacked personal jurisdiction over them. The Company sought to dismiss the Complaint, contending that it failed to state a claim upon which relief could be granted. In late January, 2010, a hearing was conducted. At the conclusion of the hearing the Court granted the Motion. The Court found that it does not have personal jurisdiction over either the CEO or AmoroCorp. Rather than dismissing the case as against them, the case has been stayed, in case Deal Flow is able to present facts at some later time showing that the Court has personal jurisdiction. With respect to the Company, the Court has directed Deal Flow to file an amended complaint.
The Company denies any liability and is vigorously disputing the claims. The Company will take all appropriate action with respect to this claim, including investigating whether it has any claims against the former insiders for monies owed to the Company.
ITEM 1A. RISK FACTORS.
There have been no material changes in the risk factors as previously disclosed in response to Item 1A.of Part I of the Company’s latest Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of September 30, 2009, the Company has no defaults upon senior securities except that noted in the Notes To The Financial Statements- Note 13.
ITEM 4. [RESERVED]
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits included or incorporated by reference herein are set forth in the Exhibit Index.
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SIGNATURE
Pursuant to the requirements 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.
City Capital Corporation
Dated: March 23, 2010
By: /s/ Ephren W. Taylor II
Ephren W. Taylor II,
Chief Executive Officer (principal financial officer)
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EXHIBIT INDEX
Number
Description
3.1
Articles of Incorporation, dated September 30, 1984 (incorporated by reference to Exhibit 3.1 of the Form 10-KSB filed on April 13, 2001).
3.2
Articles of Amendment to the Articles of Incorporation, dated February 20, 1987 (incorporated by reference to Exhibit 3.2 of the Form 10-KSB filed on April 13, 2001).
3.3
Certificate of Amendment of Articles of Incorporation, dated March 28, 1994 (incorporated by reference to Exhibit 3.3 of the Form 10-KSB filed on April 13, 2001).
3.4
Certificate of Amendment of Articles of Incorporation, dated October 31, 1996 (incorporated by reference to Exhibit 3.4 of the Form 10-KSB filed on April 13, 2001).
3.5
Certificate of Amendment to Articles of Incorporation, dated August 17, 1999 (incorporated by reference to Exhibit 3.5 of the Form 10-KSB filed on April 13, 2001).
3.6
Certificate of Amendment to Articles of Incorporation, dated April 12, 2002 (incorporated by reference to Exhibit 3.6 of the Form 10-KSB filed on April 15, 2003).
3.7
Certificate of Amendment to Articles of Incorporation, dated November 6, 2002 (incorporated by reference to Exhibit 3.7 of the Form 10-KSB filed on April 15, 2003).
3.8
Certificate of Amendment to Articles of Incorporation, dated August 4, 2004 (incorporated by reference to Exhibit 3.8 of the Form 10-KSB filed on April 25, 2005).
3.9
Certificate of Amendment to Articles of Incorporation, dated December 10, 2004 (incorporated by reference to Exhibit 3.9 of the Form 10-KSB filed on April 25, 2005).
3.10
Certificate of Amendment to Articles of Incorporation, dated December 10, 2004 (incorporated by reference to Exhibit 3.10 of the Form 10-KSB filed on April 25, 2005).
3.11
Bylaws, dated December 10, 2004 (incorporated by reference to Exhibit 3.11 of the Form 10-KSB filed on May 1, 2008).
4
Amended And Restated Employees And Consultants Retainer Stock Plan (Amendment No . 4), dated February 28, 2007 (incorporated by reference to Exhibit 4 of the Form S-8 filed on March 29, 2007).
10.1
Exchange Agreement between the Company and Ephren Capital Corporation, dated April 19, 2006 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 25, 2006).
10.2
Investment Agreement between the Company and The Lucian Group Inc., dated October 30, 2006 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on November 13, 2006).
10.3
Stock Purchase Agreement between the Company and Montreal Beneficial, Inc., dated April 9, 2007 (incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed on May 21, 2007).
10.4
Limited Liability Company Interest Purchase Agreement between the Company and Granite Companies LLC, dated May 1, 2007 (incorporated by reference to Exhibit 10.2 of the Form 10-QSB filed on May 21, 2007).
10.5
Management Agreement between the Company and Cimino Development, LLC, dated May 1, 2007 (incorporated by reference to Exhibit 10.7 of the Form 10-KSB filed on May 1, 2008).
10.6
Employment Agreement between the Comp any and Ephren Taylor, Jr., dated January 1, 2008 (incorporated by reference to Exhibit 10.8 of the Form 10-Q filed on May 20, 2008).
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10.7
Asset Acquisition Agreement between the Company and InfoMind, Inc. dba Nitty Gritty Marketing, dated October 7, 2008 (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 22, 2008).
10.8
Stock Purchase Agreement between City Capital Corp and Purchaser, dated January 30, 2009 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 1, 2009).
10.9
Consulting Services Agreement between the Company and Web3Direct, Inc., dated June 5, 2008 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on September 3, 2009).
10.10
Agreement Between the Company and REIAssure, Inc., dated June 5, 2008 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on September 3, 2009).
10.11
Purchase Agreement between the Company and 39th Street, dated January 2 9, 2009 (incorporated by reference to Exhibit 10.11 of the Form 10-Q filed on September 17, 2009).
10.12
Purchase Agreement between the Company and Blue Ridge, dated March 12, 2009 (incorporated by reference to Exhibit 10.12 of the Form 10-Q filed on September 17, 2009).
10.13
Escrow Agreement between the Company and Ichiban Ventures, Inc., dated January 16, 2009 (incorporated by reference to Exhibit 10.13 of the Form 10-Q filed on September 17, 2009).
10.14
General Release, Termination and Indemnification Agreement between Giuseppe Arlia. and the C ompany dated January 16, 2009 (incorporated by reference to Exhibit 10.14 of the Form 10-Q filed on September 17, 2009).
10.15
Asset Purchase Agreement between the Company and LA Juice, dated February 20, 2009 (incorporated by reference to Exhibit 10.15 of the Form 10-Q filed on September 17, 2009).
10.16
Asset Purchase Agreement between the Company and Blends 101, LLC, dated April 2, 2009 (incorporated by reference to Exhibit 10.16 of the Form 10-Q filed on January 15, 2010).
10.17
Asset Purchase Agreement between the Company and Hebron Consulting, dated April 24, 2009 (incorporated by reference to Exhibit 10.17 of the Form 10-Q filed on January 15, 2010).
10.18
Lease Transfer and Asset Purchase Agreement between the Company and Brookhaven Gasoline
Co., Inc., dated April 3, 2009 (incorporated by reference to Exhibit 10.18 of the Form 10-Q filed January 15, 2010).
10.19
Employment Agreement between the Company and Wendy J. Connor, dated November 19, 2009 (filed herewith).
14
Code of Business Cond uct and Ethics, adopted by the Company’s board of directors (incorporated by reference to Exhibit 14 of the Form 10-KSB filed on April 25, 2005).
16.1
Letter on Change in Accountant, dated February 7, 2007 (incorporated by reference to Exhibit 16.1 of the Form 8-K filed on February 8, 2007).
16.2
Letter on Change in Accountant, dated May 14, 2007 (incorporated by reference to Exhibit 16.2 of the Form 8-K filed on May 29, 2007).
16.3
Letter on Change in Accountant, dated October 5, 2007 (incorporated by reference to Exhibit 16.3 of the Form 8-K filed on October 9, 2007).
17.1
Letter on Director Resignation of Gary Borglund, dated May 1, 2007 (incorporated by reference to Exhibit 17.1 of the Form 8-K filed on May 8, 2007).
17.2
Letter on Director Resignation of Richard Overdorff, dated May 1, 2007 (incorporated by reference to Exhibit 17.2 of the Form 8-K filed on May 8, 2007).
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17.3
Letter on Director Resignation of Melissa Grimes, dated September 4, 2007 (incorporated by reference to Exhibit 17.3 of the Form 8-K filed on September 7, 2007).
17.4
Letter on Director Resignation of Phillip St. James, dated September 12, 2007 (incorporated by reference to Exhibit 17.4 of the Form 8-K filed on September 17, 2007).
21
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Form 10K filed on May 20, 2009).
31
Rul e 13a-14(a)/15d-14(a) Certification of Ephren W. Taylor II (filed herewith).
32
Section 1350 Certification of Ephren W. Taylor II (filed herewith).
99.1
Audit Committee Charter, dated April 19, 2005 (incorporated by reference to Exhibit 99 of the Form 10-KSB filed on April 25, 2005).
99.2
Press release issued by the Company, dated October 31, 2006 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on November 13, 2006).
99.3
Press release issued by the Company, dated April 23, 2007 (incorporated by reference to Exhibit 99.2 of the Form 8-K filed on April 23, 2007).
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