UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2013

 

or

 

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to

 

Commission File Number: 000-50356

 

EAST COAST DIVERSIFIED CORPORATION

(Exact Name of registrant as specified in its charter)

 

Nevada 55-0840109
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

 

810 Franklin Court, Suite H

Marietta, Georgia 30067

(Address of principal executive offices)

 

(770) 953-4184

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý    No  £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý    No  £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

£ Large accelerated filer £ Accelerated filer
       
£ Non-accelerated filer (Do not check if a smaller reporting company) ý Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  £    No  ý

 

As of August 14, 2013, the issuer had 393,360,585 shares of its Common Stock, $0.001 par value, outstanding. 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION Page
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4. Controls and Procedures 27
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 28
     
Item 1.A. Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 3. Defaults Upon Senior Securities 30
     
Item 4. Mine Safety Disclosures 30
     
Item 5. Other Information 30
     
Item 6. Exhibits 31
     
SIGNATURES   31

   

 

i
 

PART I – FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Balance Sheets

 

    June 30,     December 31,  
    2013     2012  
    (unaudited)        
ASSETS  
                 
Current assets                
Cash   $ 1,744     $ –  
Accounts receivable, net     182,859       200,040  
Inventory     103,839       108,777  
Prepaid license fees     200,000       200,000  
Prepaid expenses     20,244       15,818  
Assets attributable to disputed subsidiary     107,271       107,271  
Total current assets     615,957       631,906  
                 
Property and equipment, net     4,930       7,401  
                 
Other assets                
Prepaid license fees     62,500       87,500  
Security deposits     20,000       20,000  
Total other assets     82,500       107,500  
                 
Total assets   $ 703,387     $ 746,807  

 

See accompanying notes to consolidated financial statements.

 

 

1
 

East Coast Diversified Corporation and Subsidiaries

Consolidated Balance Sheets

 

    June 30,     December 31,  
    2013     2012  
      (unaudited)          
LIABILITIES AND STOCKHOLDERS' DEFICIT  
                 
Current liabilities                
Bank overdraft   $ 53,404     $ 6,028  
Loans payable, current     646,040       404,761  
Loans payable - related party, current     553,378       539,909  
Due to related party     7,216       64,673  
Accounts payable and accrued expenses     586,255       508,940  
Accrued payroll and related liabilities     2,255,073       1,938,279  
Liabilities attributable to disputed subsidiary     11,116       11,116  
Total current liabilities     4,112,482       3,473,706  
                 
Other liabilities                
Loans payable, non-current     –       –  
                 
Total liabilities     4,112,482       3,473,706  
                 
Commitments and contingencies:                
Contingent acquisition liabilities     1,081,850       1,104,973  
                 
Amounts payable in common stock     264,225       294,955  
                 
Derivative liability     142,275       158,822  
                 
Stockholders' deficit                
Preferred stock, $0.001 par value, 400,000,000 and 400,000,000 shares authorized:Series A preferred stock, 187,531,139 and 103,361,855 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     187,531       103,362  
Series B preferred stock, 5 and 5 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     –       –  
Common stock, $0.001 par value, 5,900,000,000 and 5,900,000,000 shares authorized, 77,620,637 and 7,198,321 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     77,621       7,198  
Additional paid-in capital     16,483,587       15,930,512  
Preferred stock issuable     35,000       –  
Preferred stock subscriptions receivable     (1,123,498 )     (1,155,998 )
Accumulated deficit     (20,185,822 )     (18,812,108 )
Total East Coast Diversified stockholders' deficit     (4,525,581 )     (3,927,034 )
Noncontrolling interest     (371,864 )     (358,615 )
Total stockholders' deficit     (4,897,445 )     (4,285,649 )
                 
Total liabilities and stockholders' deficit   $ 703,387     $ 746,807  

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

2
 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2013     2012     2013     2012  
                         
Revenues:                                
Product sales   $ 14,909     $ 313,744     $ 53,822     $ 461,676  
Consulting and development     –       –       –       151,920  
User fees     3,976       18,346       8,397       30,808  
Total revenues     18,885       332,090       62,219       644,404  
                                 
                                 
Operating Expenses                                
Cost of revenues:                                
Product sales     3,453       211,267       26,513       292,193  
Consulting and development     –       –       –       –  
User fees     6,501       21,843       13,319       38,178  
Selling, general and administrative expense     506,338       931,060       1,068,910       1,573,266  
                                 
Total operating expenses     516,292       1,164,170       1,108,742       1,903,637  
                                 
Loss from operations     (497,407 )     (832,080 )     (1,046,523 )     (1,259,233 )
                                 
Other income (expense)                                
Other income     –       1       –       1,384  
Interest expense     (130,460 )     (193,064 )     (334,717 )     (501,197 )
Gain on settlement of debt     –       141,141       –       141,141  
Loss on conversion of debt     –       (575,263 )     –       (575,263 )
Change in derivative liability     (5,723 )     (10,809 )     (5,723 )     (10,809 )
Total other income (expense)     (136,183 )     (637,994 )     (340,440 )     (944,744 )
                                 
Net loss     (633,590 )     (1,470,074 )     (1,386,963 )     (2,203,977 )
Net loss attributable to noncontrolling interests     7,228       17,733       13,249       22,193  
                                 
Net loss from non-disputed operations     (626,362 )     (1,452,341 )     (1,373,714 )     (2,181,784 )
Net income (loss) from disputed subsidiary     –       (18,578 )     –       (29,120 )
                               
Net loss attributable to East Coast Diversified Corporation   $ (626,362 )   $ (1,470,919 )   $ (1,373,714 )   $ (2,210,904 )
                                 
Net loss per share - basic and diluted   $ (0.02 )   $ (1.17 )   $ (0.07 )   $ (2.18 )
                                 
Weighted average number of shares outstanding during the period - basic and diluted     28,716,914       1,253,493       18,658,057       1,014,761  

 

See accompanying notes to consolidated financial statements.

 

3
 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

    For the Six Months Ended  
    June 30,     June 30,  
    2013     2012  
Cash flows from operating activities:                
Net loss   $ (1,373,714 )   $ (2,210,904 )
Adjustments to reconcile net loss to net cash used in operations:                
Noncontrolling interests     (13,249 )     (50,172 )
Depreciation and amortization     2,471       13,632  
Provision for doubtful accounts     –       186,669  
Amortization of intangibles of disputed subsidiary     –       76,500  
Issuance of loan payable for consulting services     78,922       60,000  
Stock issued for services and compensation     12,900       125,205  
Amortization of prepaid license fee     25,000       25,000  
Amortization of payment redemption premium as interest     –       12,076  
Gain on recovery of redemption premiums     –       (17,625 )
Gain on settlement of loans payable     –       (38,646 )
Gain on settlement of accounts payable     –       (102,495 )
Loss on conversion of debt     –       575,263  
Change in derivative liability     5,723       10,809  
Accretion of beneficial conversion feature on convertible notes payable as interest     292,948       466,611  
Accretion of stock discounts to convertible notes payable as interest     –       2,160  
Interest accrued on loans payable     38,522       40,280  
Changes in operating assets and liabilities:                
Accounts receivable, net     17,181       (624,045 )
Inventory     4,938       (105,811 )
Prepaid expenses     (4,426 )     –  
Security deposits     –       (15,872 )
Due to related party     (57,457 )     –  
Accounts payable and accrued expenses     77,315       728,108  
Accrued payroll and related liabilities     377,294       76,954  
Net cash used in operating activities     (515,632 )     (766,303 )
                 
Cash flows from investing activities:                
Capital expenditures     –       (700 )
Net cash used in investing activities     –       (700 )
                 
Cash flows from financing activities:                
Proceeds from issuance of common stock     20,000       1,000  
Repurchase of common stock     (5,000 )     –  
Proceeds from issuance of preferred stock     149,000       113,400  
Proceeds from preferred stock subscriptions     67,500       115,002  
Bank overdraft, net     47,376       (11,881 )
Proceeds from loans payable     217,000       486,926  
Proceeds from loans payable - related party     21,500       56,500  
Repayments of loans payable     –       (10,100 )
Net cash from financing activities     517,376       750,847  
                 
Net increase (decrease) in cash     1,744       (16,156 )
                 
Cash at beginning of period     –       53,519  
                 
Cash at end of period   $ 1,744     $ 37,363  

 

See accompanying notes to consolidated financial statements.

 

4
 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(unaudited)

 

    For the Six Months Ended  
    June 30,     June 30,  
    2013     2012  
Supplemental disclosure of cash flow information:                
                 
Cash paid for interest   $ 3,247     $ 354  
                 
Cash paid for taxes   $ –     $ –  
                 
Non-cash investing and financing activities:                
                 
Issuance of 51,585,277 and 669,701 shares of common stock in conversion of loans payable, respectively   $ 98,743     $ 503,836  
                 
Issuance of 1,000,000 shares of series A preferred stock in conversion of loans payable   $ –     $ 57,000  
                 
Issuance of 7,500,000 and 2,592,898 shares of series A preferred stock in conversion of loans payable - related party, respectively   $ 15,000     $ 87,500  
                 
Payment redemption premiums on convertible notes payable   $ –     $ 10,000  
                 
Loans and accounts payable converted to Amounts payable in common stock   $ –     $ 1,068,345  
                 
Issuance of 1,300,000 and 219,000 shares of common stock in settlement of loans and accounts payable converted to Amounts payable in common stock, respectively   $ 53,000     $ 563,460  
                 
Issuance of 4,324,515 shares of Series A preferred stock to related parties in conversion of 172,981 shares of common stock   $ –     $ 86,490  
                 
Issuance of 372,000 shares of Series A preferred stock to third parties in conversion of 14,880 shares of common stock   $ –     $ 7,440  
                 
Issuance of 3,000 shares of series B preferred stock under stock subscription   $ –     $ 1,500,000  
                 
Beneficial conversion feature of convertible notes payable   $ 280,401     $ 606,669  
                 
Discount for stock issued in connection with issuance of note payable   $ –     $ 2,160  
                 
Issuance of 15,000 shares of common stock in conversion of accrued salaries   $ –     $ 22,500  
                 
Issuance of 27,500,000 and 408,164 shares of series A preferred stock in conversion of accrued salaries, respectively   $ 60,500     $ 40,000  
                 
Reduction of acquisition liabilities due to conversion of 39,050 shares of Series A preferred stock to 6,219,000 shares of common stock   $ 23,123     $ –  

 

 

See accompanying notes to consolidated financial statements

 

5
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 1 – Nature of Business, Presentation, and Going Concern

 

Organization

 

EarthSearch Communications International, Inc. (“EarthSearch”) was founded in November 2003 as a Georgia corporation. The company subsequently re-incorporated in Delaware on July 8, 2005.

 

On December 18, 2009, East Coast Diversified Corporation's (“ECDC” or the “Company”) former principal stockholders, Frank Rovito, Aaron Goldstein and Green Energy Partners, LLC (collectively the “Sellers”), entered into a Securities Purchase Agreement (the "Purchase Agreement") with Kayode Aladesuyi (the “Buyer”), pursuant to which the Sellers beneficial owners of an aggregate of 6,997,150 shares of the Company's common stock (the “Sellers' Shares”), agreed to sell and transfer the Sellers' Shares to the Buyer for an aggregate of Three Hundred Thousand Dollars ($300,000.00). The Purchase Agreement also provided that the Company would enter into a share exchange agreement with EarthSearch.

 

On January 15, 2010, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with EarthSearch, pursuant to which the Company agreed to issue 35,000,000 shares of the Company's restricted common stock to the shareholders of EarthSearch. On April 2, 2010, EarthSearch consummated all obligations under the Share Exchange Agreement. In accordance with the terms and provisions of the Share Exchange Agreement, the Company acquired 93.49% of the issued and outstanding common stock of EarthSearch. As a result of the Purchase Agreement and Share Exchange Agreement, our principal business became the business of EarthSearch. The Board of Directors of the Company (the “Board”) passed a resolution electing the new members of the Board and appointing new management of the Company and effectively resigning as their last order of business.

 

The Share Exchange was accounted for us as an acquisition and recapitalization. EarthSearch is the acquirer for accounting purposes and, consequently, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements herein are those of EarthSearch. The accumulated deficit of EarthSearch was also carried forward after the acquisition.

 

On December 31, 2012, the Company acquired 1,800,000 additional shares of EarthSearch from a non-controlling shareholder in exchange for 439,024 shares of the Company's common stock. As of December 31, 2012, the Company owns 94.66% of the issued and outstanding stock of EarthSearch.

 

On October 23, 2011, the Company entered into a Share Exchange Agreement (the “RP Share Exchange Agreement”) with Rogue Paper, Inc., a California corporation (“Rogue Paper”), and shareholders of Rogue Paper (the “Rogue Paper Holders”). Rogue Paper is headquartered in San Francisco, California and is a developer of mobile and branded applications for major media enterprises. The Company acquired fifty-one percent (51%) of the issued and outstanding common stock of Rogue Paper in exchange for 2,500,000 shares of the Company’s Series A convertible preferred stock (the “Series A Preferred”).

 

Pursuant to the RP Share Exchange Agreement, no sooner than twelve months from the Effective Date, the Series A Preferred shares shall be convertible, at the option of the holder of such shares, into an aggregate of fifty million shares of the Company’s common stock, par value $0.001 per share. Beginning sixth months from the Effective Date, both the Company and holders of the Series A Preferred shares shall have the option to redeem any portion of such holders’ Series A Preferred shares, for cash, at a price of sixty cents ($0.60) per share. Additionally, commencing twenty-four (24) months from the Effective Date, the holders of the remaining, unsold shares of Rogue Paper common stock may require the Company to redeem such shares, for cash, at a price of three cents ($0.03) per share. During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned January 25, 2013. No legal action has been taken by either Rogue Paper or the Company. As current financial records are not available since September 30, 2012, the Company has treated the balance sheets and results of operations of Rogue Paper in the same manner as a discontinued operation.

 

On January, 12, 2012, StudentConnect Inc., a Georgia corporation, was formed as a subsidiary of the Company.

 

On July, 4, 2012, WetWinds Inc., a Georgia corporation, was formed as a subsidiary of the Company.

 

6
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 1 – Nature of Business, Presentation, and Going Concern (Continued)

 

Nature of Operations

 

The Company is a holding company for several subsidiaries offering products and services in several areas of technology. EarthSearch Communications is a Logistics and Asset Management Company. The Company has created an integration of Radio Frequency Identification Technology (“RFID”) and GPS technology and is an international provider of supply chain management solutions offering real-time visibility in the supply chain with integrated RFID/GPS and other telemetry products.  These solutions help businesses worldwide to increase asset management, provide safety and security, increase productivity, and deliver real-time visibility of the supply chain through automation.

 

StudentConnect provides school transportation technology that would allow parents to receive real time notification about the status of their children. The company utilizes wireless communication between GPS and RFID to provide these services. The product is provided to schools and parents at zero cost. The Company’s business model allows it to charge business advertisers who sponsor alerts and messages to parents receiving the messages.

 

Wetwinds launched Vir2o, its social media platform, on April 5, 2012, and has commenced marketing of the platform to users globally. The Company offers users a Community Newsfeed, messaging module, Profile Wall and private rooms to share content with friends and families. Each user will have their own private photo, music, movie, game ecommerce rooms. Users can privately or publicly share content in these rooms with their friends and family. We also provide the interactive “JoinMe” technology that allows users and friends to engage in meaningful social activities online. All of our revenue from Vir2o will be advertisement driven.

 

Rogue Paper, Inc. (“Rogue Paper”), the Company’s majority owned subsidiary, offers second screen technology to the media organizations and businesses. During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned January 25, 2013. No legal action has been taken by either Rogue Paper or the Company. As current financial records are not available since September 30, 2012, the Company has treated the balance sheets and results of operations of Rogue Paper in the same manner as a discontinued operation.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. All intercompany transactions and accounts have been eliminated in consolidation. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

These unaudited consolidated financial statements should be read in conjunction with our 2012 annual consolidated financial statements included in our annual report on Form 10-K, filed with the SEC on April 16, 2013.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As reflected in the accompanying unaudited consolidated financial statements, the Company had an accumulated deficit of $20,185,822 at June 30, 2013, a net loss and net cash used in operations of $1,373,714 and $515,632, respectively, for the six months ended June 30, 2013.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, generate revenues, and continue to raise additional investment capital.  No assurance can be given that the Company will be successful in these efforts.

 

7
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 1 – Nature of Business, Presentation, and Going Concern (Continued)

 

Going Concern (Continued)

 

The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  Management believes that actions presently being taken to obtain additional funding and implement its strategic plans will afford the Company the opportunity to continue as a going concern.

 

Reclassifications

 

Certain items on the statements of operations for the three and six months ended June 30, 2012 and statement of cash flows for the six months ended June 30, 2012 have been reclassified to conform to current period presentation.

 

Concentration of Credit Risk

 

The Company grants unsecured credit to commercial and governmental customers in the United States and abroad. Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. As of June 30, 2013 and December 31, 2012, two customers account for 85% and 79% of the total accounts receivable, respectively.

 

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense was $nil and $nil for the six months ended June 30, 2013 and 2012, respectively. At June 30, 2013 and December 31, 2012, the allowance for doubtful accounts was $604,735.

 

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure to its customers.

 

Note 2 – Disputed Subsidiary

 

During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned January 25, 2013. No legal action has been taken by either Rogue Paper or the Company. As current financial records are not available since September 30, 2012, the Company has treated the balance sheets and results of operations of Rogue Paper as of and for the periods ended June 30, 2013 and December 31, 2012 in the same manner as a discontinued operation.

 

 

 

 

 

 

 

 

 

8
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 2 – Disputed Subsidiary (Continued)

 

The following table shows the results of Rogue Paper included in the income (loss) from disputed subsidiary:

 

    Six Months Ended June 30,  
    2013     2012  
             
Revenue   $ –     $ 257,290  
                 
Operating expenses:                
Cost of revenue     –       114,737  
Selling, general and administrative expenses     –       199,680  
Amortization of intangible assets     –       –  
Total operating expenses     –       314,417  
                 
Income (loss) from disputed subsidiary     –       (57,127 )
                 
Other expenses:                
Other income     –       (28 )
Net loss attributable to noncontrolling interests     –       (27,979 )
                 
Net income (loss) from loss from disputed subsidiary   $ –     $ (29,120 )

 

The major classes of assets and liabilities of disputed subsidiary on the balance sheet are as follows:

 

    June 30,     December 31,  
    2013     2012  
ASSETS                
Current assets:                
Cash   $ 70,951     $ 70,951  
Accounts receivable     27,480       27,480  
Prepaid expenses     1,000       1,000  
Total current assets     99,431       99,431  
                 
Property and equipment, net     7,840       7,840  
                 
Total assets of discontinued operations   $ 107,271     $ 107,271  
                 
LIABILITIES                
Current liabilities:                
Accounts payable   $ 11,116     $ 11,116  
                 
Total liabilities of discontinued operations   $ 11,116     $ 11,116  

 

 

9
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable

 

Loans payable at June 30, 2013 and December 31, 2012 consist of the following:

 

    June 30,     December 31,  
    2013     2012  
Unsecured $30,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 17, 2012. During the year ended December 31, 2012,  $28,000 of the note balance was converted to common stock.  During the six months ended June 30, 2013, $2,000 of the note was converted to common stock.  Accrued interest is equal to $2.905 and $2,750 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.   $ 2,905     $ 4,750  
                 
On February 17, 2012, Panache Capital, LLC entered into an agreement to purchase $50,000 of the note payable to Azfar Haque.  The Company exchange the original note to Mr. Haque with a new note to Pananche which bears interest at 10% per annum and due February 17, 2013.  During the year ended December 31, 2012, $44,348 of the note was converted to common stock.   Accrued interest is equal to $1,112 and $786 at June 30, 2013 and December 31, 2012, respectively. This note is in default at June 30, 2013.     6,764       6,438  
                 
Unsecured $70,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 24 2013.  The note is discounted for its unamortized beneficial conversion feature of $10,770 and $27,575 at June 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $12,010 and $7,309 at March 31, 2013 and December 31, 2012, resepctively.     71,240       49,734  
                 
Unsecured $16,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due May 3, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $4,492 at June 30, 2013 and December 31, 2012.  Accrued interest is equal to $2,349 and $1,297 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     18,349       12,805  

 

 

10
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

 

    June 30,     December 31,  
    2013     2012  
Unsecured $10,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 3, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $535 at June 30, 2013 and December 31, 2012, respectively.  During the six months ended June 30, 2013, $2,800 of the note was converted to common stock. Accrued interest is equal to $1,379 and $766 at June 30, 2013 and December 31, 2012, respectively. This note is in default at June 30, 2013.     8,579       10,231  
                 
Unsecured $3,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 21, 2013.  During the three months ended March 31, 2013, the note, including accrued interest of $1,770, was converted to common stock.     –       3,013  
                 
Unsecured $12,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due February 5, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $1,433 at June 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $1,620 and $839 at June 30, 2013 and December 31, 2012, respectively. This note is in default at June 30, 2013.     13,620       11,406  
                 
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due February 25, 2012. During the year ended December 31, 2012, $12,000 of the note was converted to common stock.  During the six months ended June 30, 2013, the remaining $21,800 was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $3,092 at December 31, 2012. Accrued interest is equal to $1,600 at December 31, 2012.     –       19,008  
                 
Unsecured $5,500 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due March 6, 2013.  During the six months ended June 30, 2013, the note balance of $6,050 was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $1,099 at December 31, 2012.  Accrued interest is equal to $328 at December 31, 2012.     –       4,729  
                 
Unsecured $42,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due April 19, 2013.  During the six months ended June 30, 2013, $10,200 of the note was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $13,379 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $3,256 and $1,579 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     35,556       30,700  
                 
Unsecured $15,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due March 26, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $3,484 at June 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $1,755 and $794 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     16,755       12,310  
                 
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 3, 2012, the Company received $18,350, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $2,741 at December 31, 2012. During the year ended December 31, 2012, $516 of the note was purchased by StarCity Capital, LLC.   During the six months ended June 30, 2013, $19,168 of the note was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $381 at December 31, 2012.     –       15,474  

 

 

11
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

    June 30,     December 31,  
    2013     2012  
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 20, 2012, the Company received $10,000, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $1,514 at December 31, 2012.  During the six months ended June 30, 2013, $10,300 of the note was purchased by SGI Group, LLC.   Accrued interest is equal to $183 at December 31, 2012.     –       8,669  
                 
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 27, 2012, the Company received $40,000, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $7,143 at December 31, 2012.  During the six months ended June 30, 2013, $40,000 of the note was purchased by WHC Capital, LLC.  Accrued interest is equal to $699 at December 31, 2012.     –       33,556  
                 
Unsecured $10,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due March 31, 2013. During the six months ended June 30, 2013, the note, including accrued interest of $399, was converted to common stock.     –       8,097  
                 
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On September 5, 2012, the Company received $4,100, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $891 at December 31, 2012.  During the six months ended June 30, 2013, $4,264 of the note was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $66 at December 31, 2012.     –       3,275  
                 
Unsecured $40,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due March 31, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $6,154 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $2,577 and $925 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     42,577       34,771  
                 
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $916 and $299 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     15,916       15,299  
                 
Unsecured $10,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. During the six months ended June 30, 2013, $8,421 of the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $-0- and $6,704 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $522 and $195 at June 30, 2013 and December 31, 2012, respectively. This note is in default at June 30, 2013.     2,101       3,491  
                 
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On October 24, 2012, the Company received $5,000, which is due May 24, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $1,456 at December 31, 2012.  During the six months ended June 30, 2013, $5,169 of the note was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $75 at December 31, 2012.     –       3,619  
                 
Unsecured $39,647 note payable to Azfar Hague, which bears interest at 9% per annum and due April 25, 2013. Accrued interest is equal to $2,487 and $655 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     42,134       40,302  
                 
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $794 and $181 at June 30, 2013 and December 31, 2012, respectively.   This note is in default at June 30, 2013.     15,794       15,181  

 

 

12
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

    June 30,     December 31,  
    2013     2012  
Unsecured $7,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013.  During the six months ended June 30, 2013, $7,320 of the note was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $5,415 at December 31, 2012. Accrued interest is equal to $81 at December 31, 2012, respectively.     –       1,666  
                 
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due August 13, 2013. The note is discounted for its unamortized beneficial conversion feature of $4,874 and $24,932 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $1,696 and $370 at June 30, 2013 and December 31, 2012, respectively.     29,322       7,938  
                 
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On November 15, 2012, the Company received $10,000, which was due May 15, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $3,309 at December 31, 2012.  During the six months ended June 30, 2013, $10,000 of the note was purchased by WHC Capital, LLC.  Accrued interest is equal to $109 at December 31, 2012.     –       7,150  
                 
Unsecured $18,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $15,296 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $858 and $126 at June 30, 2013 and December 31, 2012, respectively.   This note is in default at June 30, 2013.     18,858       2,830  
                 
Unsecured $9,000 convertible note payable to Star City Capital LLC, which bears interest at 12% per annum and due December 3, 2013. The note is discounted for its unamortized beneficial conversion feature of $3,805 and $8,220 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $635 and $83 at June 30, 2013 and December 31, 2012, respectively.     5,830       863  
                 
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $708 and $99 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     15,708       15,099  
                 
Unsecured $25,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $22,625 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $1,117 and $104 at June 30, 2013 and December 31, 2012, respectively..  This note is in default at June 30, 2013.     26,117       2,479  
                 
On December 12, 2012, Star City Capital LLC entered into an agreement to purchase $19,700 of a note payable to Bulldog Insurance.  The note bears interest at 8% per annum and is due on demand.   During the six months ended June 30, 2013, $6,393 of the note was converted to common stock.  Accrued interest is equal to $507 and $51 at June 30, 2013 and December 31, 2012, respectively.     13,814       19,751  
                 
Unsecured $7,500 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $7,378 at June 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $308 and $5 at June 30, 2013 and December 31, 2012, respectively.  This note is in default at June 30, 2013.     7,808       127  
                 
On January 3, 2013, SGI Group, LLC entered into an agreement to purchase $10,300 of notes payable to Bulldog Insurance.  The note bears interest at 12% per annum and is due on demand.    During the six months ended June 30, 2013, $6,447 of the note was converted to common stock.  Accrued interest is equal to $603.     4,456       –  

 

 

 

13
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

    June 30,     December 31,  
    2013     2012  
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum. On January 4, 2013, the Company received $15,000, which is due July 4, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $142 at June 30, 2013. Accrued interest is equal to $366.     15,224       –  
                 
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due November 1, 2013. The note is discounted for its unamortized beneficial conversion feature of $14,079 at June 30, 2013. Accrued interest is equal to $1,041.     19,462       –  
                 
Unsecured $35,000 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $1,260.     36,260       –  
                 
Unsecured $43,922 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $1,582.     45,504       –  
                 
Unsecured $5,000 note payable to James Flowers, which include flat interest of $500 at maturity and due December 1, 2013. Accrued interest is equal to $183.     5,183       –  
                 
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due January 31, 2014. The note is discounted for its unamortized beneficial conversion feature of $24,283 at June 30, 2013. Accrued interest is equal to $442.     8,659       –  
                 
Unsecured $7,000 note payable to Andre Fluellen, which include flat interest of $1,500 at maturity and due October 30, 2013. Accrued interest is equal to $497.     7,497       –  
                 
Unsecured $18,000 note payable to Bulldog Insurance, which bears interest at 7% per annum and due December 1, 2013. Accrued interest is equal to $186.     18,186       –  
                 
On May 6, 2013, WHC Capital, LLC entered into an agreement to purchase $50,000 of notes payable to Bulldog Insurance. The note bears interest at 8% per annum and is due March 6, 2014. During the six months ended June 30, 2013, $9,393 of the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $33,508 at June 30, 2013. Accrued interest is equal to $2,088 at June 30, 2013.     9,187       –  
                 
Unsecured $20,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and due March 9, 2014. The note is discounted for its unamortized beneficial conversion feature of $13,565 at June 30, 2013. Accrued interest is equal to $228.     6,663       –  
                 
Unsecured $20,000 note payable to Robert Saidel, which bears interest at 7% per annum and due December 1, 2013. Accrued interest is equal to $142.     20,142       –  
                 
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due March 3, 2014. The note is discounted for its unamortized beneficial conversion feature of $25,058 at June 30, 2013. Accrued interest is equal to $221.     7,663       –  
                 
Unsecured $7,500 note payable to Andre Fluellen, which include flat interest of $1,400 at maturity and due December 1, 2013. Accrued interest is equal to $222.     7,722       –  
                 
Unsecured $10,000 note payable to Sammie Hill, III, which include flat interest of $2,000 at maturity and due December 15, 2013. Accrued interest is equal to $164.     10,164       –  
                 
Unsecured $5,000 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 10% per annum and due June 21, 2014. The note is discounted for its unamortized beneficial conversion feature of $4,876 at June 30, 2013. Accrued interest is equal to $12.     136       –  
                 
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $4,264 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and is due June 21, 2014. During the six months ended June 30, 2013, $2,750 of the note was converted to common stock.     1,514       –  

 

14
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

    June 30,     December 31,  
    2013     2012  
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $5,169 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and is due June 21, 2014.   The note is discounted for its unamortized beneficial conversion feature of $5,041 at June 30, 2013.  Accrued interest is equal to $13.     141       –  
                 
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $19,168 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and is due June 21, 2014.   The note is discounted for its unamortized beneficial conversion feature of $18,694 at June 30, 2013.  Accrued interest is equal to $47.     521       –  
                 
Unsecured $12,000 note payable to Bulldog Insurance, which bears interest at 7% per annum and due December 1, 2013.  Accrued interest is equal to $9.     12,009       –  
                 
Total Loans Payable   $ 646,040     $ 404,761  

 

The Company accrued interest expense of $31,553 and $126,284 for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, on the above loans.  Accrued interest is included in the loan balances.

 

The Company borrowed $217,000 and $851,711 during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. The Company made payments of $-0- and $12,600 on the loans during the six months ended June 30, 2013 and the year ended December 31, 2012. During the six months ended June 30, 2013, the Company converted $98,743 of loans payable into 51,585,277 shares of the Company’s common stock. During the year ended December 31, 2012, the Company converted $875,433 of loans payable into 3,693,754 shares of the Company’s common stock and $57,000 of loans payable into 1,000,000 shares of the Company’s Series A preferred stock.

 

Note 4 – Related Parties

 

Loans payable – related parties at June 30, 2013 and December 31, 2012 consist of the following:

 

    June 30,     December 31,  
    2013     2012  
Unsecured non-interest bearing note payable, due on demand, to Frank Russo, a Director of the Company.  During the six months ended June 30, 2013, $10,000 of the note balance was converted to Series A preferred stock.   $ 344,979     $ 354,979  
                 
Unsecured note payable to Edward Eppel,  a Director of the Company, which bears interest at 10% per annum and is due on demand.  During the six months ended June 30, 2013, $5,000 of the note was converted to Series A preferred stock.  Accrued interest is equal to $38,344 and $31,374, respectively.     208,399       184,930  
                 
Total   $ 553,378     $ 539,909  

 

Frank Russo, a Director of the Company, is a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2012, $354,979 was due to Mr. Russo.  During the six months ended June 30, 2013, the Company converted $10,000 of the note into 5,000,000 shares of Series A preferred stock.

 

 

 

15
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 4 – Related Parties (Continued)

 

Edward Eppel, a Director of the Company, is a holder of a note of the Company which bears interest at 10% per annum. At December 31, 2012, $184,930 was due to Mr. Eppel.  The Company borrowed $21,500 from Mr. Eppel during the six months ended June 30, 2013.  $6,969 of interest was accrued and included in the loan balance for the six months ended June 30, 2013. During the six months ended June 30, 2013, the Company converted $5,000 of the note into 2,500,000 shares of series A preferred stock.

 

During the six months ended June 30, 2013, Mr. Anis Sherali, a Director of the Company, purchased 10,000,000 shares of the Company’s common stock for $20,000 and 14,862,035 shares of the Company’s Series A preferred stock for $55,500.

 

The Company converted $30,000 of accrued salaries due to Mr. Kayode Aladesuyi, the Chief Executive Officer and Director of the Company, into 15,000,000 shares of the Company’s series A preferred stock.

 

Andrea Sousa, Comptroller of the Company, is the wife of Kayode Aladesuyi. During the six months ended June 30, 2013 the Company converted $20,000 of accrued salaries due to Ms. Rocha into 10,000,000 shares of the Company’s series A preferred stock.

 

Note 5 – Amounts Payable in Common Stock and Derivative Liability

 

During the year ended December 31, 2012, Ironridge Global IV, Ltd. (“Ironridge”) purchased $826,367 of accounts payable and $241,978 of loans payable, for a total of $1,068,345, from certain creditors of the Company. On April 20, 2012, the Superior Court of the State of California for the County of Los Angeles, Central District approved a Stipulation for Settlement of Claims (the “Settlement of Claims”) in the favor of Ironridge. The Settlement of Claims calls for the amount to be paid by issuance of the Company’s common stock. The number of shares of the common stock is to be calculated based on the volume weighted average price (“VWAP”) of the common stock over the calculation period, not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the calculation period, less a discount of 35%. The calculation period is defined as the period from the approval of the Settlement of Claims until the settlement is completed.

 

As the terms of the settlement include issuing common stock at a 35% discount to the conversion price, a derivative liability for the discount was established at the time of the Settlement of Claims of $575,263, which was charged to operations during the year ended December 31, 2012 as a loss on conversion of debt. The derivative liability is revalued at the end of each reporting period with any change in the liability being charged to operations. For the six months ended June 30, 2013 and the year ended December 31, 2012, the change in derivative liability of $5,723 and $12,099, respectively, has been expensed.

 

As common stock is issued in installments on the settlement, the Amounts Payable in Common Stock and the Derivative Liability will be reduced accordingly. During the six months ended June 30, 2013, 1,300,000 shares of common stock, with a market value of $53,000, were issued to Ironridge in settlement of $30,730 of the liability, resulting in the reduction of the derivative liability of $22,270. During the year ended December 31, 2012, 1,610,400 shares of common stock, with a market value of $1,201,930, were issued to Ironridge in settlement of $773,390 of the liability, resulting in the reduction of the derivative liability of $416,441.

 

Note 6 – Stockholders’ Deficit

 

Authorized Capital

 

On September 17, 2010, the Board authorized the creation of a common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants. The Company registered twenty five million (25,000,000) shares of its common stock pursuant to the 2010 Stock Incentive Plan on Form S-8 filed with the Commission on September 27, 2010. As of September 30, 2012, no options have been granted under the plan.

 

On October 19, 2012, the Company filed a certificate of amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to increase the Company’s authorized capital stock to 6,000,000,000 shares, par value $0.001 per share, including (i) 5,900,000,000 shares of common stock, par value $0.001 per share and (ii) 100,000,000 shares of preferred stock, par value $0.001 per share.

 

On December 1, 2012, the Company’s Board of Directors elected to increase the Company’s authorized shares of Series A preferred stock to 400,000,000 shares, par value $0.001 per share and on May 9, 2013, filed a certificate of amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to increase the Company’s authorized shares of preferred stock to 400,000,000 shares, par value $0.001 per share.

 

16
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 6 – Stockholders’ Deficit (Continued)

 

Stock Splits

 

On December 20, 2012, the Company's Board of Directors declared a one for five hundred reverse stock split of all outstanding shares of common stock and series B preferred stock. All common share and per common share data in these consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of the reverse stock splits for all periods presented prior to December 31, 2012. The total number of authorized common and preferred shares and the par value thereof was not changed by the split.

 

Preferred Stock Issuable for Subscriptions

 

During the six months ended June 30, 2013, the Company entered into subscription agreements for 97,662,035 shares of its Series A preferred stock to be issued for a total of $312,500. $199,000 cash was received for 57,812,035 shares, $15,000 of loans from related parties was converted into 7,500,000 shares, $60,500 of accrued salaries was converted into 27,500,000. As of June 30, 2013, there were 5,000,000 shares of Series A Preferred Stock, representing $35,000, remaining to be issued.

 

During the year ended December 31, 2012, the Company issued 1,500 shares of series B preferred stock in a private placement for a total of $1,500,000 ($1,000 per share). During the six months ended June 30, 2013, $20,000 of the subscription receivable was received in cash.

 

Common Stock Purchased for Cash

 

During the six months ended June 30, 2013, the Company purchased 1,500 shares of its common stock from a shareholder for $5,000 ($3.33 per share).

 

Common Stock Issued for Cash

 

During the six months ended June 30, 2013, the Company issued 10,000,000 shares of its common stock to a director for $20,000 ($0.002 per share) (see Note 4 – Related Parties).

 

Common Stock Issued in Conversion of Debt

 

During the six months ended June 30, 2013, the Company issued 51,585,277 shares of common stock in the conversion of $98,743 of notes payable to unrelated parties (see Note 3 – Loans Payable).

 

During the six months ended June 30, 2013, the Company issued 1,300,000 shares of common stock, with a market value of $53,000, to Ironridge in settlement of $30,730 of amounts payable in common stock (see Note 5 – Amounts Payable in Common Stock and Derivative Liability).

 

Common Stock Issued for Services

 

During the six months ended June 30, 2013, the Company issued 1,319,444 shares of common stock to two unrelated parties for services of $12,900, or an average price of $0.01 per share based on the fair value of the shares at the time of issuance.

 

Common Stock Issued in Conversion of Preferred Stock

 

During the six months ended June 30, 2013, the Company issued 6,219,000 shares of common stock to unrelated parties for the conversion and return of 39,050 shares of Series A preferred stock resulting in a reduction in the acquisition liability related to the RP Share Exchange Agreement with the shareholders of Rogue Paper of $23,123.

 

17
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 7 – Commitments and Contingencies

 

Operating Leases

 

The Company leases its office facilities in Marietta, Georgia. The term of the lease is 66 months with escalating lease payments beginning at $2,163 per month. At June 30, 2013, future minimum lease payments under the lease are as follows:

 

2013     13,367  
2014     27,550  
2015     28,366  
2016     29,219  
2017     15,054  
         
    $ 113,556  

 

Rent expense was $15,078 and $15,143 for the six months ended June 30, 2013 and 2012, respectively.

 

Acquisition Liabilities

 

Pursuant to the RP Share Exchange Agreement with Rogue Paper, Inc., commencing six months from October 23, 2011 (the “Execution Date”), both the Company and the holders of the Preferred Shares shall have the option to redeem any portion of such holders Preferred Shares for cash, at a price of sixty cents ($0.60) per share, or $1,075,000.  Commencing twenty four (24) months from the Execution date, holders of the remaining forty-nine percent (49%) of Rogue Paper Common Shares, have the option to have such shares redeemed by the Company for cash, at a price of $0.03 per share, or $29,973.  During the six months ended June 30, 2013, the Company issued 6,219,000 shares of common stock to unrelated parties for the conversion and return of 39,050 shares of Series A preferred stock resulting in a reduction in the acquisition liability of $23,123.

 

License Agreements

 

On October 5, 2011, the Company entered into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of BBGN&K. The license agreement calls for royalty payments beginning in 2012 of 8% of the revenue generated from the use of the license, to be paid quarterly.

 

On August 5, 2012, the Company entered into a license agreement with Web Asset, LLC (“Web Asset”) for the rights to use certain social media concept and idea created by Mr. Kayode Aladesuyi. The license agreement calls for royalty payments of 49% of the revenues earned by the Company in its use of the social media concept after the Company has earned its first $2,000,000 of revenue, payable quarterly.

 

Note 8 – Subsequent Events

 

On July 1, 2013, the Company issued 1,388,889 shares of its common stock in conversion of loans payable in the amount of $750.

 

On July 2, 2013, the Company issued 6,173,450 shares of its common stock in conversion of loans payable in the amount of $2,469.

 

On July 5, 2013, the Company issued a $3,000 unsecured promissory note to Andre Fluellen. The note includes flat interest of $500 due at maturity and is due December 1, 2013.

 

On July 8, 2013, the Company issued 1,395,833 shares of its common stock in conversion of loans payable in the amount of $670.

 

On July 8, 2013, the Company issued a $7,500 unsecured promissory note to Robert Saidel. The note bears interest at 7% per annum and is due December 1, 2013.

 

On July 9, 2013, the Company issued 2,500,000 shares of its common stock in conversion of loans payable in the amount of $938.

 

On July 11, 2013, the Company issued 6,829,268 shares of its common stock in conversion of loans payable in the amount of $2,800.

 

18
 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 8 – Subsequent Events (Continued)

 

On July 12, 2013, the Company issued 8,148,148 shares of its common stock in conversion of loans payable in the amount of $2,200.

 

On July 16, 2013, the Company issued 8,333,334 shares of its series A preferred stock in conversion of loans payable-related parties in the amount of $100,000.

 

On July 16, 2013, the Company issued 8,333,333 shares of its series A preferred stock in conversion of accrued salaries to Kayode Aladesuyi, the Company’s Chief executive Officer, in the amount of $100,000.

 

On July 17, 2013, the Company issued 6,857,143 shares of its common stock in conversion of loans payable in the amount of $2,400.

 

On July 18, 2013, the Company issued 8,816,750 shares of its common stock in conversion of loans payable in the amount of $1,763.

 

On July 19, 2013, the Company issued 100,000,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from certain creditors of the Company.

 

On July 19, 2013, the Company issued 5,666,667 shares of its common stock in conversion of loans payable in the amount of $1,700.

 

On July 21, 2013, the Company issued 5,000,000 shares of its series A preferred stock in to two individuals for preferred stock issuable in the amount of $35,000.

 

On July 22, 2013, the Company issued 6,969,697 shares of its common stock in conversion of loans payable in the amount of $2,300.

 

On July 23, 2013, the Company issued 24,143,800 shares of its common stock in conversion of loans payable in the amount of $5,329.

 

On July 25, 2013, the Company issued 9,819,697 shares of its common stock in conversion of loans payable in the amount of $3,238.

 

On July 25, 2013, the Company issued a $6,500 unsecured convertible promissory note to Tangiers Investment Croup, LLC. The note bears interest at 10% per annum, is due July 25, 2014, and is convertible at a 50% discount to the lowest trading price any day during the fifteen day period prior to the conversion date.

 

On July 26, 2013, the Company issued a $20,000 unsecured convertible promissory note to Tangiers Investment Croup, LLC. The note bears interest at 10% per annum, is due July 26, 2014, and is convertible at a 50% discount to the lowest trading price any day during the fifteen day period prior to the conversion date.

 

On July 29, 2013, the Company issued 39,861,336 shares of its common stock in conversion of loans payable in the amount of $12,449.

 

On August 1, 2013, the Company issued 34,228,094 shares of its common stock in conversion of loans payable in the amount of $10,711.

 

On August 2, 2013, the Company issued a $5,000 unsecured convertible promissory note to Tangiers Investment Croup, LLC. The note bears interest at 10% per annum, is due August 2, 2014, and is convertible at a 50% discount to the lowest trading price any day during the fifteen day period prior to the conversion date.

 

On August 2, 2013, the Company issued a $14,500 unsecured convertible promissory note to Asher Enterprises, Inc. The note bears interest at 8% per annum, is due May 4, 2014, and is convertible at a 49% discount to the average of the lowest three trading price during the ten day period prior to the conversion date.

 

On August 2, 2013, the Company issued a $15,000 unsecured convertible promissory note to Tangiers Investment Croup, LLC. The note bears interest at 10% per annum, is due August 2, 2014, and is convertible at a 50% discount to the lowest trading price any day during the fifteen day period prior to the conversion date.

 

On August 6, 2013, the Company issued 30,000,000 shares of its common stock in conversion of loans payable in the amount of $4,500.

 

19
 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 8 – Subsequent Events (Continued)

 

On August 7, 2013, the Company issued 22,941,176 shares of its common stock in conversion of loans payable in the amount of $3,900.

 

On August 12, 2013, the Company issued a $5,000 unsecured convertible promissory note to WHC Capital, LLC. The note bears interest at 8% per annum, is due August 12, 2014, and is convertible at a 55% discount to the average of the lowest three closing bid prices during the ten day period prior to the conversion date.

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.

 

 

 

 

 

20
 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by East Coast Diversified Corporation (the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on April 16, 2013, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Plan of Operation

 

First and second quarter operations represented a significant shift in focus and business restructuring for the Company. We completed the development of 2 new divisions, “StudentConnect and WetWinds,” and began expansion of commercial operation to include both divisions. The company is continuing to focus its resources on completing the development of its two newest divisions StudentConnect and WetWinds Vir2o.

 

To accomplish our commercial objectives we hired key executives to manage development activities for all divisions of the company.

 

Marketing and Business Development

 

We completed the development of Vir2o and launched the site as planned in Brazil, India, US, Nigeria, Canada and UK representing markets where we will offer commercial content.

 

We hired SocialRadius to engage in public and media relations campaign for Vir2o

 

We began the development of the mobile application for Vir2o and will launch the mobile application on September 1 st 2013.

 

We opened the Amazon aStore to all users on Vir2o on July 22 nd 2013

 

21
 

 

EarthSearch Communications

 

 

In March 2013 we reconstituted our sales team for EarthSearch. We brought on a new Director of Sales and a team of outside sales executives. Due to the rebound in the US economy we have refocused our resources on the expansion of commercial activities in the US and North America.

We are currently engaged in numerous pilot projects with several major organizations, including but not limited to the following partners and customers: G3 enterprises (Gallo Wines), Tanzania Revenue Authority through Utrack, Servpro in Arizona, Belfor in Canada, Our business with each of the aforementioned organizations consists of the following:

 

G3 enterprises (“Gallo Wines”) :

 

We have executed a GPS service agreement with G3 Enterprises. We have successfully completed phase one of the pilot which involved the tracing, tracking and locating of 1,200 tractor trailers carrying grapes. Phase 2 of the pilot is to complete testing of our system on wine tankers and to implement a custom application that will identify the weight of wine loaded at the winery. We have received compensation for the initial pilot and have developed software that will be deployed upon completion. We receive monthly subscription fees for the products currently deployed in the pilot.

 

Tanzania Revenue Authority through Utrack :

 

The RFP or “Request For Proposal” issued by the Tanzania revenue authority is still under evaluation. However, we have successfully delivered more than $75,000 worth of products and services to Utrack for sales to private oil distribution companies throughout Eastern Africa. We also receive ongoing subscription fees for the devices deployed under a distributor agreement between EarthSearch and Utrack. We have completed the pilot (our pilot program consists of physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment) and have begun to receive compensation for subscription services for all devices activated as well as additional purchase orders from Utrack under the distributor licensing agreement.

 

 

Conctena in Switzerland :

 

We are still in the pilot phases for Contecna, with our pilot program consisting of, physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment. We need to complete local certification in both markets before we will fully deploy in the markets. The European Union require domestic certification similar to that of the Federal Communication Commission.

 

In addition we are implementing several pilot projects for our Regional Master Licensee for West Africa (Halogen Securities),

Oil, Lagos State Government Waste Management, pilot of first International StudentConnect deployment and an oil pipeline monitoring project for the Nigerian National Petroleum Commission.

 

On July 20th we sold 400 oil tanker monitoring order from Oanda oil through our regional licensee Halogen Security

 

 

StudentConnect

 

The Company has commercially launched StudentConnect, our school transportation and safety division. We executed a pilot agreement with Gordon County School district in Georgia and began pilot testing in May 2013. We have also executed agreements with several other school districts. We are currently in pilot discussion with school districts in Georgia, Chicago, South Carolina and Indiana.

 

Our plans to expand the commercial opportunity for StudentConnect include participation in School Districts trade and industry events throughout the summer break in an effort to expand the scope of opportunity available to for the deployment StudentConnect and introduce the technology to more transportation directors.

 

We plan to expand the use of StudentConnect in other countries, specifically Nigeria, Guatemala and Dubai and will look to develop support operations for international deployment over the next 6 months.

 

We have begun piloting of StudentConnect for several school districts including in California and Georgia. The StudentConnect technology was approved by a the School Transportation Board in the Southeast and can be implemented on all 5000 plus buses owned by the state and supplied o several school districts. We will implement on district by district basis.

 

22
 

 

WetWinds dba “Vir2o”

 

 

WetWinds is a technology company that provides interactive social media experiences for users across the globe through its online platform Vir2o. We launched the beta version of Vir2o on April 5th 2013. We filed provisional patent application with the US Trade Mark office in April of 2013 and expect to complete a full non provisional application by November 2013.

 

We launched the full version of Vir2o on July 1, 2013. We completed the development of an online movie service, an ecommerce platform “MarketPlace” , Gaming platform, Live event broadcast, a World Headline news feature and our proprietary “nVite” technology. The social media product was designed to improve social engagement on the internet.

 

We launched Vir2o and offer commercial content and advertisement platform in 4 additional markets outside the US. We will implement advertisement spot from Ad Media to generate revenue beginning September 2013

 

In April 2013 we executed a MOU with HotSauce in Nigeria.

 

On August we executed agreement with Ad Media to provide advertisement content to Vir2o.

 

We plan to launch a South American office for Vir2o in Sao Paulo Brazil during fall quarter 2013. We are in final negotiation with ITS Global as our local representative in Brazil.

 

Our user recruitment strategy include the engagement of a public relations firm to target and introduce our proprietary nVite to technology media, recruit college students across the US for a paid user recruitment campaign as well as brand ambassadors, online bloggers and celebrities we can retain to endorse the platform.

 

We filed Trademark application with the USPTO for our brand and logo Vir2o and the “V” brand as a social plug in and widget.

 

Rogue Paper

 

We do not have a management role in Rogue Paper or its operation. During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned January 25, 2013. No legal action has been taken by either Rogue Paper or the Company.

 

Results of Operations

 

For the Three months Ended June 30, 2013 and 2012

 

Revenues

 

For the three months ended June 30, 2013, our revenue was $18,885 compared to $332,090 for the same period in 2012, representing a decrease of 94%. This decrease is attributed to our focus on completing development of the StudentConnect and WetWinds divisions.

 

Revenues are generated from three separate but related offerings, RFID/GPS product sales, consulting services, and user fees for GATIS – our advanced web based asset management platform.  We generated revenues from product sales of $14,909 and $313,744 for the three months ended June 30, 2013 and 2012, respectively.  Revenues for consulting services were $-0- and $-0- for the three months ended June 30, 2013 and 2012.  User fees were $3,976 and $18,346 for the three months ended June 30, 2013 and 2012, respectively.

 

Operating Expenses

 

For the three months ended June 30, 2013, operating expenses were $516,292 compared to $1,164,170 for the same period in 2012, a decrease of 56%.

 

Cost of revenues decreased $223,156 and is directly attributable to the decrease in revenues for the three months ended June 30, 2013.

 

For the three months ended June 30, 2013, selling, general and administrative expenses were $506,338 compared to $931,060 for the same period in 2012, a decrease of 46%. This decrease was primarily caused by professional fees related to public company compliance and investor relations decreased by $369,262; bad debt expenses decreased by $184,515; royalties owed on a license agreement decreased by $23,554; offset by an increase in salary expenses of $139,325.

 

 

 

 

 

 

23
 

Net Loss

 

We generated net losses of $626,362 for the three months ended June 30, 2013 compared to $1,470,919 for the same period in 2012, a decrease of 57%. Included in the net loss for the three months ended June 30, 2013 was interest expense of $130,460 (of which $107,175 represents accretion of embedded beneficial conversion features on notes payable) and change in derivative liability of $5,723; offset by non-controlling interests’ share of the net loss of EarthSearch of $7,228.  Included in the net loss for the three months ended June 30, 2012 was interest expense of $193,064 (of which $174,082 represents accretion of embedded beneficial conversion features on notes payable) and loss on conversion of debt of $575,263; offset by other income of $1, gain on settlement of debt of $141,141, change in derivative liability of $10,809, net loss from disputed subsidiary of $18,575 and non-controlling interests’ share of the net loss of EarthSearch of $17,733.

 

For the Six months Ended June 30, 2013 and 2012

 

Revenues

 

For the six months ended June 30, 2013, our revenue was $62,219 compared to $644,404 for the same period in 2012, representing a decrease of 88%. This decrease is attributed to our focus on completing development of the StudentConnect and WetWinds divisions.

 

Revenues are generated from three separate but related offerings, RFID/GPS product sales, consulting services, and user fees for GATIS – our advanced web based asset management platform.  We generated revenues from product sales of $53,822 and $461,676 for the six months ended June 30, 2013 and 2012, respectively.  Revenues for consulting services were $-0- for the six months ended June 30, 2013, compared to $151,920 for the six months ended June 30, 2012.  User fees were $8,397 and $30,808 for the six months ended June 30, 2013 and 2012, respectively.

 

Operating Expenses

 

For the six months ended June 30, 2013, operating expenses were $1,108,742 compared to $1,903,637 for the same period in 2012, a decrease of 42%.

 

Cost of revenues decreased $290,539 and is directly attributable to the decrease in revenues for the six months ended June 30, 2013.

 

For the six months ended June 30, 2013, selling, general and administrative expenses were $1,068,910 compared to $1,573,266 for the same period in 2012, a decrease of 42%. This decrease was primarily caused by professional fees related to public company compliance and investor relations decreased by $398,038; bad debt expenses decreased by $184,515, royalties owed on a license agreement decreased by $38,539; travel expense decreased by $5,566; and amortization of intangible assets and prepaid license fees decreased by $9,273; offset by an increase in salary expenses of $206,203 and consulting expenses of $40,550.

 

Net Loss

 

We generated net losses of $1,373,714 for the six months ended June 30, 2013 compared to $2,210,904 for the same period in 2012, a decrease of 38%. Included in the net loss for the six months ended June 30, 2013 was interest expense of $334,717 (of which $292,948 represents accretion of embedded beneficial conversion features on notes payable) and change in derivative liability of $5,723; offset by non-controlling interests’ share of the net loss of EarthSearch of $13,249.  Included in the net loss for the six months ended June 30, 2012 was interest expense of $501,197 (of which $466,611 represents accretion of embedded beneficial conversion features on notes payable) and loss on conversion of debt of $575,263; offset by other income of $1,384, gain on settlement of debt of $141,141, change in derivative liability of $10,809, net loss from disputed subsidiary of $29,120 and non-controlling interests’ share of the net loss of EarthSearch of $22,193.

 

Liquidity and Capital Resources

 

Overview

 

For the six months ended June 30, 2013 and 2012, we funded our operations through financing activities consisting of private placements of equity securities with outside investors and loans from related and unrelated parties. Our principal use of funds during the six months ended June 30, 2013 and 2012 has been for working capital and general corporate expenses.

 

24
 

 

Liquidity and Capital Resources during the six months ended June 30, 2013 compared to the six months ended March 30, 2012

 

As of June 30, 2013, we had cash of $1,744 and a working capital deficit of $3,496,525.  The Company generated a negative cash flow from operations of $515,632 for the six months ended June 30, 2013, as compared to cash used in operations of $766,303 for the six months ended June 30, 2012. The negative cash flow from operating activities for the six months ended June 30, 2013 is primarily attributable to the Company's net loss from operations of $1,373,714, offset by noncash depreciation and amortization of $2,471, issuance of loan payable for consulting services of $78,922, stock issued for services of $12,900, amortization of prepaid license fees of $25,000, change in derivative liability of $5,723, accretion of beneficial conversion features on convertible notes payable of $292,948, accrued interest on loans payable of $38,522, changes in operating assets and liabilities of $414,845, and increased by noncontrolling interests in the loss of EarthSearch of $13,249.

  

The negative cash flow from operating activities for the six months ended June 30, 2012 is primarily attributable to the Company's net loss from operations of $2,210,904, offset by noncash depreciation and amortization of $13,632, provision for doubtful accounts of $186,669, amortization of intangible assets of disputed subsidiary of $76,500, issuance of loan payable for consulting services of $60,000, stock issued for services and compensation of $125,205, amortization of prepaid license fees of $25,000, amortization of payment redemption premiums of $12,076, loss on conversion of debt of $575,263, change in derivative liability of $10,809, accretion of beneficial conversion features on convertible notes payable of $466,611, accretion of stock discounts on convertible notes payable of $2,160, accrued interest on loans payable of $40,280, and increased by changes in operating assets and liabilities of $59,334, gain on recovery of redemption premiums of $17,625, gain on settlement of loans payable of $38,646, gain on settlement of accounts payable of $102,495, and noncontrolling interests in the losses of EarthSearch of $50,172.  

 

No cash was used in investing activities for the six months ended June 30, 2013 while $700 was used for capital expenditures for the six months ended June 30, 2012.

 

Cash generated from our financing activities was $517,376 for the six months ended June 30, 2013, compared to $750,847 during the comparable period in 2012. This decrease was primarily attributed to the proceeds from the issuance of preferred stock subscriptions of $67,500 in 2013 compared to $115,002 in 2012, proceeds from loans payable of $217,000 in 2013 compared to $486,926 in 2012, proceeds from loans payable – related parties of $21,500 in 2013 compared to $56,500 in 2012, proceeds related to bank overdraft of $47,376 in 2013 compared to payment on bank overdraft of $11,881 in 2012, repurchase of common stock of $5,000 in 2013, proceeds from the issuance of common stock of $20,000 in 2013 compared to $1,000 in 2012, proceeds from the issuance of preferred stock of $149,000 in 2013 compared to $113,400 in 2012, and the repayment of loans payable of $10,100 in 2012.

 

We will require additional financing during the current fiscal year. During the period from July 1, 2013 to August 2, 2012, we received proceeds of $57,000 from the issuance of convertible promissory notes.

 

On April 20, 2012, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Ironridge Technology Co., a division of Ironridge Global IV, Ltd. (“Ironridge”), providing for the issuance and sale by the Company to the Ironridge of an aggregate of 1,500 shares of the Company’s Series B Preferred Stock (the “Preferred Shares”) in fifteen (15) equal tranches of 100 Preferred Shares each, at a price of $1,000 per Preferred Share. Pursuant to the Certificate of Designation to create the Series B Preferred Shares, each Preferred Share may be converted at any time at the option of Ironridge into shares of the Company’s common stock, par value $0.001 at a conversion price of $.01 per share, subject to certain adjustments. During the year ended December 31, 2012, the Company received $100,000 for the first tranche of 100 shares and $229,000 of the subscription receivable. During the six months ended June 30, 2013, the Company received $20,000 of the subscription receivable.

 

In connection with the Closing, on April 20, 2012 the Company entered into a Registration Rights Agreement with Ironridge, pursuant to which the Company will file a registration statement related to the Stock Purchase Agreement with the Securities and Exchange Commission covering the resale of the Common Stock that will be issued to Ironridge upon conversion of the Preferred Shares.

 

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On April 20, 2012, the Company issued 99,400 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from certain creditors of the Company in the aggregate amount equal to $1,079,991 (the “Claim Amount”), plus attorney’s fees and costs. Pursuant to the Stipulation, the Company was required to issue and deliver 99,400 shares of Common Stock (the “Initial Issuance”). Ironridge will ultimately be entitled to retain a number of shares of Common Stock (the “Final Amount”) that is equal to: (a) the sum of $1,068,344.86 plus a transaction fee of $40,000 and reasonable attorney’s fees, (b) divided by sixty-five percent (65%) of the volume weighted average price (“VWAP”) of the Common Stock as reported by Bloomberg Professional service of Bloomberg LP over a period of time beginning on the date on which Ironridge receives the Initial Issuance and ending on the date on which the aggregate trading volume of the Company’s Common Stock exceeds $5,000,000 (such period being the “Calculation Period”), not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period. For every 20 million shares that trade during the Calculation Period, or if any time during the Calculation Period a daily VWAP is below 80% of the closing price of the Company’s Common Stock on the day before the date of the Initial Issuance, Ironridge has the right to cause the Company to immediately issue to Ironridge additional shares of Common Stock (each, an “Additional Issuance”) (provided, however, that at no time may Ironridge and its affiliates collectively own more than 9.99% of the total number of shares of Common Stock outstanding). At the end of the Calculation Period, (a) if the sum of the Initial Issuance and any Additional Issuance is less than the Final Amount, the Company shall immediately issue additional shares to Ironridge so that the total issuance is equal to the Final Amount and (b) if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount, Ironridge will return any remaining shares to the Company for cancellation. Subsequent to April 24, 2012 and through May 14, 2013, the Company has issued an additional 2,910,400 shares of the Company’s common stock pursuant to the Stipulation.

 

Going Concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the consolidated financial statements for the year ended December 31, 2012 regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this conclusion by our independent auditors.

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

 

There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

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Critical Accounting Policies

   

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K as filed on April 16, 2013, for a discussion of our critical accounting policies and estimates.

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

  

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4.    Controls and Procedures.

  

(a) Evaluation of Disclosure Controls and Procedures

   

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1.    Legal Proceedings

   

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A.  Risk Factors

  

We believe that there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 16, 2013.

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

 

On April 12, 2013, pursuant to a debt conversion notice, the Company issued 600,000 shares of the Company’s common stock to satisfy debt obligations of $7,980.  

 

On April 16, 2013, pursuant to a debt conversion notice, the Company issued 847,458 shares of the Company’s common stock to satisfy debt obligations of $10,000.  

 

On April 17, 2013, pursuant to a consulting agreement, the Company issued 200,000 shares of the Company’s common stock for services rendered in the amount of $4,000.  

 

On April 18, 2013, pursuant to a debt conversion notice, the Company issued 589,137 shares of the Company’s common stock to satisfy debt obligations of $1,856.  

 

On April 19, 2013, pursuant to two debt conversion notices, the Company issued 2,089,740 shares of the Company’s common stock to satisfy debt obligations of $6,583.  

 

On April 26, 2013, pursuant to a debt conversion notice, the Company issued 848,485 shares of the Company’s common stock to satisfy debt obligations of $2,800.  

 

On April 30, 2013, pursuant to three debt conversion notices, the Company issued 2,301,623 shares of the Company’s common stock to satisfy debt obligations of $5,498.  

 

On April 30, 2013, pursuant to a consulting agreement, the Company issued 444,444 shares of the Company’s common stock for services rendered in the amount of $4,000.  

 

On May 2, 2013, pursuant to a debt conversion notice, the Company issued 862,069 shares of the Company’s common stock to satisfy debt obligations of $2,500.  

 

On May 6, 2013, pursuant to a debt conversion notice, the Company issued 1,052,229 shares of the Company’s common stock to satisfy debt obligations of $2,210.  

 

On May 6, 2013, pursuant to a consulting agreement, the Company issued 425,000 shares of the Company’s common stock for services rendered in the amount of $4,250.  

 

On May 7, 2013, pursuant to a debt conversion notice, the Company issued 1,700,000 shares of the Company’s common stock to satisfy debt obligations of $3,774.  

 

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On May 8, 2013, pursuant to a debt conversion notice, the Company issued 862,069 shares of the Company’s common stock to satisfy debt obligations of $2,500.  

 

On May 13, 2013, pursuant to a debt conversion notice, the Company issued 1,641,010 shares of the Company’s common stock to satisfy debt obligations of $3,118.  

 

On May 16, 2013, pursuant to a debt conversion notice, the Company issued 1,633,137 shares of the Company’s common stock to satisfy debt obligations of $3,103.  

 

On May 20, 2013, pursuant to a debt conversion notice, the Company issued 652,174 shares of the Company’s common stock to satisfy debt obligations of $1,500.  

 

On May 23, 2013, pursuant to two debt conversion notices, the Company issued 3,005,143 shares of the Company’s common stock to satisfy debt obligations of $5,955.  

 

On May 24, 2013, pursuant to a debt conversion notice, the Company issued 960,000 shares of the Company’s common stock to satisfy debt obligations of $1,570.  

 

On June 5, 2013, pursuant to two debt conversion notices, the Company issued 3,026,825 shares of the Company’s common stock to satisfy debt obligations of $3,606.  

 

On June 6, 2013, pursuant to a debt conversion notice, the Company issued 2,000,000 shares of the Company’s common stock to satisfy debt obligations of $2,040.  

 

On June 7, 2013, pursuant to a debt conversion notice, the Company issued 3,004,229 shares of the Company’s common stock to satisfy debt obligations of $3,154.  

 

On June 11, 2013, pursuant to a debt conversion notice, the Company issued 1,384,615 shares of the Company’s common stock to satisfy debt obligations of $1,800.  

 

On June 12, 2013, pursuant to a debt conversion notice, the Company issued 4,539,683 shares of the Company’s common stock to satisfy debt obligations of $4,290.  

 

On June 15, 2013, pursuant to a promissory note payable, the Company issued 250,000 shares of the Company’s common stock to the lender as an inducement to make the loan.

 

On June 18, 2013, pursuant to a stock purchase agreement, the Company issued 10,000,000 shares of the Company’s common stock to an investor for $20,000.

 

On June 18, 2013, pursuant to two debt conversion notices, the Company issued 3,892,161 shares of the Company’s common stock to satisfy debt obligations of $4,159.  

 

On June 21, 2013, pursuant to two debt conversion notices, the Company issued 6,933,333 shares of the Company’s common stock to satisfy debt obligations of $4,759.  

 

On June 24, 2013, pursuant to a debt conversion notice, the Company issued 1,340,206 shares of the Company’s common stock to satisfy debt obligations of $1,300.  

 

On June 25, 2013, pursuant to two debt conversion notices, the Company issued 5,871,184 shares of the Company’s common stock to satisfy debt obligations of $3,500.  

 

On June 28, 2013, pursuant to a share exchange agreement, the Company issued 5,630,000 shares of the Company’s common stock in exchange for 4,692 shares of the Company’s Series A preferred stock.  

 

These securities were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act.

 

 

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Item 3.    Defaults Upon Senior Securities.

  

The Company is in default with several of its noteholders as reflected below and disclosed within this report in Note 3 of the Notes to the Consolidated Financial Statements dated June 30, 2013.

 

Loans Payable:      
       
Hanover Holdings I, LLC   $ 2,905  
Panache Capital, LLC     6,764  
Hanover Holdings I, LLC     18,349  
Hanover Holdings I, LLC     8,579  
Hanover Holdings I, LLC     13,620  
Asher Enterprises, Inc.     35,556  
Hanover Holdings I, LLC     16,755  
Southridge Partners II LP     42,577  
SC Advisors, Inc.     15,916  
Southridge Partners II LP     2,101  
Azfar Hague     42,134  
SC Advisors, Inc.     15,794  
Southridge Partners II LP     18,858  
SC Advisors, Inc.     15,708  
Southridge Partners II LP     26,117  
Southridge Partners II LP     7,808  

  

 

  $ 289,541  

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.    Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

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Item 6.    Exhibits

  

Exhibit No. Description
   
31.1 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
   
31.2 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
   
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
   
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
   
101.INS ** XBRL Instance Document
   
101.SCH ** XBRL Taxonomy Extension Schema Document
   
101.CAL ** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF ** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB ** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

 

Date:  August 19, 2013   By:   /s/ Kayode Aladesuyi
    Kayode Aladesuyi
   

Chief Executive Officer

(Principal Executive Officer)

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

 

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