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, 2011, 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, 2011, 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 Paper management resigned January
25, 2013. No legal action has been taken by either Rogue Paper or the Company. As financial records have not been available since
September 30, 2012, the Company has treated the balance sheets and results of operations of Rogue Paper 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.
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, offered second screen technology to 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 Paper 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.
The accompanying financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations
of the Securities and Exchange Commission (“SEC”).
The accompanying 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 consolidated financial statements, the Company had an
accumulated deficit of $21,096,462 at December 31, 2013, a net loss and net cash used in operations of $2,284,354 and $904,919,
respectively, for the year ended December 31, 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.
The 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.
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates in the accompanying consolidated
financial statements include the amortization period for intangible assets, impairment valuation of intangible assets, depreciable
lives of the website and property and equipment, valuation of share-based payments and the valuation allowance on deferred tax
assets. Actual results could differ from those estimates and would impact future results of operations and cash flows.
The consolidated financial statements
include the accounts of East Coast Diversified Corporation and its majority-owned subsidiary, EarthSearch Communications
International, Inc., and its wholly-owned subsidiaries StudentConnect Inc. and WetWinds Inc. Due to the dispute with the
management of Rogue Paper, the balances and results of operations of Rogue Paper, Inc. as of and for the nine months ended
September 30, 2012 are presented in the consolidated financial statements in the manner of a discontinued operation as of and
for the years ended December 31, 2013 and 2012. All significant inter-company balances and transactions have been
eliminated in consolidation.
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and 2011, respectively,
the Company had no cash equivalents.
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 December 31, 2012, two customers account for 79% of the total accounts receivable.
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 $3,296 and $604,735 for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012,
the allowance for doubtful accounts was $nil and $604,735, respectively.
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.
Inventories are stated at the lower of cost
or market (“LCM”). The Company uses the first-in-first-out (“FIFO”) method of valuing inventory. Inventory
consists primarily of finished goods and accessories for resale.
Property and equipment are recorded at cost.
Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated
residual values) over the assets estimated useful lives ranging from 5 years to 7 years. Upon sale or retirement of property and
equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the
consolidated statements of operations. Leasehold improvements are amortized on a straight-line basis over the term of the lease
or the estimated useful lives, whichever is shorter.
Depreciation expense was $3,861 and $6,704
for the years ended December 31, 2013 and 2012, respectively.
Goodwill represents the excess of acquisition
consideration paid over the fair value of identifiable net tangible and identifiable intangible assets acquired. Goodwill and other
indefinite-lived intangible assets are not amortized, but are reviewed for impairment at least annually, in the fourth quarter,
or earlier upon the occurrence of certain triggering events.
Goodwill is allocated among and evaluated for
impairment at the reporting unit level. Management evaluates goodwill for impairment using a two-step process provided by Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles —
Goodwill and Other. The first step is to compare the fair value of each of our reporting units to their respective book values,
including goodwill. If the fair value of a reporting unit exceeds its book value, reporting unit goodwill is not considered impaired
and the second step of the impairment test is not required. If the book value of a reporting unit exceeds its fair value, the second
step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test
compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value
of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. Intangible assets with determinable useful lives are amortized using the straight-line method
over the expected life of the assets.
Amortization of intangible assets was $nil
and $114,750 for the years ended December 31, 2013 and 2012, respectively. Due to the dispute with Rogue Paper, the Company has
deemed that the unamortized balance of the intangible assets as of September 30, 2012 of $624,750 and the goodwill of $742,107
have been fully impaired and charged to expense as of December 31, 2012.
The Company accounts for the impairment or
disposal of long-lived assets according to ASC 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting
for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments
and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the
asset may not be recoverable. When necessary, impaired assets are written down to estimate fair value based on the best information
available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
The Company accounts for research and development
costs in accordance with ASC 730 “Research and Development”. ASC 730 requires that research and development
costs be charged to expense when incurred. Research and development costs charged to expense were $580,119 and $378,383
for the years ended December 31, 2013 and 2012, respectively.
Prior to the adoption of ASC 730, costs incurred
internally in researching and developing computer software products were charged to expense until technological feasibility has
been established for the product. Once technological feasibility is established, all software costs are capitalized until the product
is available for general release to customers. Judgment is required in determining when technological feasibility of a product
is established. We have determined that technological feasibility for our software products is reached after all high-risk development
issues have been resolved through coding and testing Generally, this occurs shortly before products which will utilize the software
are released to manufacturing which occurred in January 2007. The amortization of these costs is included in general and administrative
expense over the estimated life of the software, which is estimated to be 3 years.
The Company capitalized no research and development
costs during the years ended December 31, 2013 and 2012, respectively. The Company recorded amortization expense of
$nil and $9,273 for the years ended December 31, 2013 and 2012, respectively.
FASB ASC 820, Fair Value Measurements and Disclosures,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC 820
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. FASB ASC 820 states that a fair value measurement should be determined
based on the assumptions the market participants would use in pricing the asset or liability. In addition, FASB ASC
820 specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are
observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the circumstances.
Level 1 – quoted prices for identical
assets or liabilities in active markets.
Level 2 – pricing inputs are other than
quoted prices in active markets, which are either directly or indirectly observable as of the reported date.
Level 3 – valuations derived from methods
in which one or more significant inputs or significant value drivers are unobservable in the markets.
These financial instruments are measured using
management’s best estimate of fair value, where the inputs into the determination of fair value require significant management
judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments. Changes
in such judgments could have a material impact on fair value estimates. In addition, since estimates are as of a specific
point in time, they are susceptible to material near-term changes. Changes in economic conditions may also dramatically
affect the estimated fair values.
Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of December 31, 2012. The respective carrying
value of certain financial instruments approximated their fair values due to the short-term nature of these instruments. These
financial instruments include accounts receivable, inventory, accounts payable and accrued expenses and accrued compensation. The
fair value of the Company’s loans payable is estimated based on current rates that would be available for debt of similar
terms which is not significantly different from its stated value.
The Company generates revenue through three processes: (1) Sale
of its RFID/GPS products, (2) Fees for consulting services provided to its customers, and (3) Service Fees for the use of its advanced
web based asset management platform.
The Company accounts for Employee Stock-Based
Compensation under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions
in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity
obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, “Accounting for
Stock-Based Compensation”, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees”, and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited
exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The
Company has not granted any stock options as of December 31, 2013.
The Company accounts for stock-based compensation
awards to non-employees in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”).
Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the
fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders' equity/(deficit)
over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options
at the end of each period.
Income taxes are accounted for under the liability
method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized
for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured
using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The
effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the
change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to
be realized.
The Financial Accounting Standards Board (FASB)
has issued ASC 740 “Income Taxes” (formerly, Financial Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” – An Interpretation of FASB Statement No. 109 (FIN 48)). ASC 740 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with prior literature FASB
Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely
than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not
threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
As a result of the implementation of this standard,
the Company performed a review of its material tax positions in accordance with recognition and measurement standards established
by FASB ASC 740 and concluded that the tax position of the Company has not met the more-likely-than-not threshold as of December
31, 2013.
The Company computes income (loss) per share
in accordance with ASC 260, “Earnings per Share”, which requires presentation of both basic and diluted earnings per
share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing income (loss)
available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS
gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and
convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted
EPS excludes all dilutive potential shares if their effect is anti-dilutive.
As of December 31, 2013 and 2012, there were
$532,958 and $364,459, respectively, of convertible notes payable which are convertible at various conversion rates and 285,487,091
shares of convertible preferred stock which are convertible into 5,709,741,820 common shares. However, these potentially
dilutive shares are considered to be anti-dilutive and are therefore not included in the calculation of net loss per share.
In accordance with the provisions of ASC 280-10,
“Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial
and descriptive information about its reportable operating segments. The Company operates in only one operating
segment as of December 31, 2013
In February 2013, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-04,”Liabilities (Topic
405)”
,
which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint
and several liability arrangements. The guidance requires an entity to measure those obligations as the sum of the amount the reporting
entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects
to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as
well as other information about those obligations. ASU 2013-04 is effective for fiscal years beginning after December 15, 2013.
We do not believe the adoption of ASU 2013-04 will have a material effect on the Company’s financial statements.
In February 2013, the FASB issued ASU 2013-02,
“Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires disclosure
of the amounts reclassified out of each component of accumulated other comprehensive income and into net earnings during the reporting
period and is effective for reporting periods beginning after December 15, 2012. We do not believe the adoption of ASU 2013−02
will have a material impact on the measurement of net earnings or other comprehensive income.
In December 2011, the FASB issued ASU 2011-11,
“Disclosures about Offsetting Assets and Liabilities”
and in January 2013, the FASB issued ASU 2013-01, “Clarifying
the Scope of Disclosures about Offsetting Assets and Liabilities”.
ASU 2011-11, as clarified, enhances disclosures
surrounding offsetting (netting) assets and liabilities. The clarified standard applies to derivatives, repurchase agreements and
securities lending transactions and requires companies to disclose gross and net information about financial instruments and derivatives
eligible for offset and to disclose financial instruments and derivatives subject to master netting arrangements in financial statements.
The clarified standard did not have a material effect on our financial position or results of operations.
In October 2012, the FASB issued ASU 2012-04,
“Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update
cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements
to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update
is effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not have a material impact on
our financial position or results of operations.
Management does not believe any recently issued
but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s present or future
financial statements.
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 nine months ended September 30, 2012 in the same manner
as a discontinued operation.
The following table shows the results of Rogue
Paper included in the income (loss) from disputed subsidiary:
The major classes of assets and liabilities
of disputed subsidiary on the balance sheet are as follows:
Note 5 – Loans Payable (Continued)
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Unsecured $12,000 note payable to Bulldog Insurance, which bears interest at 7% per
annum and was due December 1, 2013. Accrued interest is equal to $433. This note is in default at
December 31, 2013.
|
|
12,433
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $3,000 note payable to Andre Fluellen, which calls for flat interest of $500 at maturity and was due December 1, 2013. This note is in default at December 31, 2013.
|
|
3,500
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $3,000 note payable to Andre Fluellen, which calls for flat interest of $500 at maturity and is due February 22, 2014. Accrued interest is equal to $106.
|
|
3,106
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $14,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and is due May 5, 2014. The note is discounted for its unamortized beneficial conversion feature of $6,202 at December 31, 2013. Accrued interest is equal to $457.
|
|
8,755
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $8,500 non-interest bearing note payable to Azfar Hague due February 5, 2014.
|
|
8,500
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $10,000 non-interest bearing note payable to Azfar Hague due February 20, 2014.
|
|
10,000
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $8,500 note payable to Bulldog Insurance, which bears interest at 5% per annum and due February 28, 2014. Accrued interest is equal to $142.
|
|
8,642
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $6,500 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 10% per annum and is due July 25, 2014. The note is discounted for its unamortized beneficial conversion feature of $3,668 at December 31, 2013. Accrued interest is equal to $283.
|
|
3,115
|
|
|
–
|
|
|
|
|
|
|
|
|
On July 26, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $20,000 of notes payable to Azfar Hague. The note bears interest at 10% per annum and is due July 26, 2014. The note is discounted for its unamortized beneficial conversion feature of $11,342 at December 31, 2013. Accrued interest is equal to $866.
|
|
9,524
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $5,000 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 10% per annum and due August 2, 2014. The note is discounted for its unamortized beneficial conversion feature of $2,1931 at December 31, 2013. Accrued interest is equal to $207.
|
|
2,276
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured $5,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and is due August 12, 2014. The note is discounted for its unamortized beneficial conversion feature of $3,068 at December 31, 2013. Accrued interest is equal to $155.
|
|
2,087
|
|
|
–
|
|
|
|
|
|
|
|
|
On January 3, 2013, Black Arch Opportunity Fund LP entered into an agreement to purchase $18,737 of notes payable to Bulldog Insurance. The note bears interest at 12% per annum and is was due December 1, 2013. During the year ended December 31, 2013, $9,466 of the note, including accrued interest, was converted to common stock. Accrued interest is equal to $1,088. This note is in default at December 31, 2013.
|
|
11,265
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $20,000 convertible note payable to CJ Mosley, which calls for flat interest of $1,800 due at maturity and is due April 28, 2014. The note is discounted for its unamortized beneficial conversion feature of $5,650 at December 31, 2013. Accrued interest is equal to $600.
|
|
14,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Payable
|
$
|
680,795
|
|
$
|
404,761
|
|
Note 5 – Loans Payable (Continued)
The Company accrued interest expense of $64,580 and $126,284 for
the years ended December 31, 2013 and 2012, respectively, on the above loans. Accrued interest is included in the loan balances.
The Company borrowed $281,000 and $851,711
during the years ended December 31, 2013 and 2012, respectively. The Company made payments of $5,000 and $12,600 on the loans during
the years ended December 31, 2013 and 2012. During the year ended December 31, 2013, the Company converted $257,267 of loans payable
into 1,975,718,232 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 6 – Related Parties
Loans payable – related parties at December 31, 2013 and 2012
consist of the following:
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Unsecured non-interest bearing notes payable, due on demand, to Frank Russo, a shareholder and former Director of the Company. During the year ended December 31, 2013, $60,000 of the note balance was converted to Series A preferred stock.
|
$
|
301,429
|
|
$
|
354,979
|
|
|
|
|
|
|
|
|
Unsecured notes payable to Edward Eppel, a shareholder and Director of the Company, which bears interest at 10% per annum and is due on demand. During the year ended December 31, 2013, $80,000 of the note was converted to Series A preferred stock. Accrued interest is equal to $60,789 and $31,374, respectively.
|
|
189,950
|
|
|
184,930
|
|
|
|
|
|
|
|
|
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 $848. This note is in default at December 31, 2013.
|
|
20,848
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $7,500 note payable to Robert Saidel, which bears interest at 7% per annum and due January 8, 2014. Accrued interest is equal to $253.
|
|
7,753
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $10,000 note payable to Robert Saidel, which bears interest at 7% per annum and due February 16, 2014. Accrued interest is equal to $262.
|
|
10,262
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $4,000 note payable to Robert Saidel, which bears interest at 7% per annum and due March 9, 2014. Accrued interest is equal to $87.
|
|
4,087
|
|
|
–
|
|
|
|
|
|
|
|
|
Unsecured $137,833 note payable to Robert Saidel, which bears interest at 7% per annum and due April 25, 2014. Accrued interest is equal to $1,535.
|
|
139,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
673,697
|
|
|
539,909
|
|
|
|
|
|
|
|
|
Less current portion
|
|
(601,348
|
)
|
|
–
|
|
|
|
|
|
|
|
|
Loan payable - related parties, non-current
|
$
|
72,349
|
|
$
|
539,909
|
|
Frank Russo, a shareholder and former Director
of the Company, is a holder of an unsecured non-interest bearing note of the Company. At December 31, 2011, $409,979
was due to Mr. Russo. The Company repaid $5,000 to Mr. Russo during the year ended December 31, 2012. During the year
ended December 31, 2013, the Company borrowed $6,450 from Mr. Russo. During the year ended December 31, 2012, the Company converted
$50,000 of the note to 13,750,000 shares of Series A preferred stock and $10,000 of accrued board compensation due to Mr. Russo
into 102,041 shares of Series A preferred stock. During the year ended December 31, 2013, the Company converted $60,000 of the
note into 9,166,667 shares of Series A preferred stock. Additionally, during the year ended December 31, 2012, Mr. Russo converted
6,922,685 shares of common stock owned by him into 346,134 shares of Series A preferred stock.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 6 – Related Parties (Continued)
Edward Eppel, a shareholder and Director of
the Company, is a holder of a note of the Company which bears interest at 10% per annum. At December 31, 2011, $189,319 was due
to Mr. Eppel. The Company borrowed $71,377 from Mr. Eppel during the year ended December 31, 2013. $13,643
and $15,611 of interest was accrued and included in the loan balance for the years ended December 31, 2013 and 2012, respectively.
During the year ended December 31, 2012, the Company converted $20,000 of the note to 2,500,000 shares of Series A preferred stock
and $10,000 of accrued board compensation due to Mr. Eppel into 102,041 shares of series A preferred stock. During the year ended
December 31, 2013, the Company converted $80,000 of the note to 19,166,166 shares of Series A preferred stock.
Robert Saidel, a shareholder of the Company,
is a holder of notes of the Company which bear interest at 10% per annum. The Company borrowed $179,333 from Mr. Saidel during
the year ended December 31, 2013. $2,985 of interest was accrued and included in the loan balance for the year ended
December 31, 2013. During the year ended December 31, 2013, Mr. Saidel purchased 7,000,000 shares of the Company’s Series
A preferred stock for $45,000.
At December 31, 2011, $31,000 was owed to Mr.
Anis Sherali, a shareholder and Director of the Company. During the year ended December 31, 2012, the Company borrowed an additional
$56,500 from Mr. Sherali and converted the $87,500 balance of the note and issued 2,592,898 shares of Series A preferred stock
to Mr. Sherali. During the year ended December 31, 2012, Mr. Sherali purchased 19,905,075 shares of the Company’s Series
A preferred stock for $150,500 and the Company converted $10,000 of accrued board compensation due to Mr. Sherali into 102,041
shares of Series A Preferred stock. Additionally, during the year ended December 31, 2012, Mr. Sherali purchased 533,333 shares
of common stock for $40,000 and converted 64,842 shares of common stock owned by him into 1,621,047 shares of Series A preferred
stock. During the year ended December 31, 2013, Mr. Sherali 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. Additionally, during the year ended
December 30, 2013 Mr. Sherali agreed to purchase 15,000,000 shares of common stock for $4,500 and 51,250,000 shares of Series A
preferred stock for $117,500. These amounts are included in common stock issuable and preferred stock issuable, respectively, at
December 31, 2013.
During the year ended December 31, 2012, the
Company converted $10,000 of accrued board compensation due to Mr. Kayode Aladesuyi, the Company’s Chief executive Officer
and a Director, into 102,041 shares of Series A preferred stock, issued 14,583,333 shares of Series A preferred stock as a bonus
award to Mr. Aladesuyi and issued 32,500,000 shares of Series A preferred stock in conversion of $110,000 of accrued compensation.
During the year ended December 31, 2013, the Company converted $260,000 of accrued salaries due to Mr. Kayode Aladesuyi, the Chief
Executive Officer and Director of the Company, into 98,333,333 shares of the Company’s Series A preferred stock.
On October 5, 2011, the Company entered into
a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of which BBGN&K
owns the patents. Mr. Aladesuyi is the managing member of BBGN&K. The license agreement calls for royalty payments beginning
in 2012 of 8% of EarthSearch’s revenues to be paid quarterly. Also on October 5, 2011, the Company's Board of Directors
approved the issuance of 1,428,572 shares of Series A preferred stock to Mr. Aladesuyi as payment of $200,000
initial license fee. Royalty fees were $4,013 and $44,441 for the years ended December 31, 2013 and 2012, respectively.
On August 5, 2012, the Company entered into
a license agreement with Web Asset, LLC (“Web Asset”) for the rights to use certain social media concept and idea created
by Mr. Kayode Aladesuyi. Mr. Aladesuyi is the managing member of Web Asset. 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. In addition, the Company was required to pay to Web Asset a one-time fee of $150,000. $85,327 of
the one-time fee has been paid during the year ended December 31, 2012 and the remaining $64,673 was paid during the year ended
December 31, 2013.
Andrea Sousa, Comptroller of the Company, is
the wife of Kayode Aladesuyi. On January 12, 2012 the Company issued 7,500,000 shares of the Company’s common stock
in exchange of salaries payable to Ms. Rocha of $22,500.
During the year ended December 31, 2012, Mr.
Aladesuyi, his five children, and BBGN&K converted a combined 46,027,281 shares of common stock owned by them into 2,301,363
shares of Series A preferred stock.
During the year ended December 31, 2012, Ms.
Sousa converted 1,119,436 shares of common stock owned by her into 55,971 shares of Series A preferred stock.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 7 – 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 years ended December 31, 2013 and 2012, the change in derivative liability of $154,277 and $(12,099), respectively,
has been recognized (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 year ended
December 31, 2013, 101,300,000 shares of common stock, with a market value of $113,000, were issued to Ironridge in settlement
of $173,730 of the liability, resulting in the reduction of the derivative liability of $105,270. 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 8 – 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.
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.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 8 – Stockholders’ Deficit
(Continued)
Preferred Stock Issued for Cash
During the year ended December 31, 2013, the
Company issued 54,208,334 shares of Series A preferred stock in private placements for a total of $184,000 ($0.0034 per share average).
During the year ended December 31, 2012, the Company issued 21,256,384 shares of Series A preferred stock in private placements
for a total of $197,900 ($0.0093 per share average).
Preferred Stock Issuable for Subscriptions
During the year ended December 31, 2013,
the Company entered into subscription agreements for 161,137,035 shares of its Series A preferred stock to be issued for a total
of $442,500. $248,000 cash was received for 74,812,035 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 December 31, 2013, there were 51,325,000 shares of Series
A preferred stock, representing $119,000, 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 years ended December 31, 2013 and 2012, $42,500 and $344,002 of the subscription receivable was received in cash, respectively.
Preferred Stock Issued in Conversion of Debt
During the year ended December 31, 2013, the
Company issued 28,333,333 shares of Series A preferred stock in the conversion of $140,000 of notes payable to related parties.
During the year ended December 31, 2012, the Company issued 18,842,898 shares of Series A preferred stock in the conversion of
$157,500 of notes payable to related parties (see Note 6 – Related Parties) and 1,000,000 shares of Series A Preferred in
the conversion of $57,000 of notes payable to unrelated parties (see Note 5 – Loans Payable).
During the year ended December 31, 2013, the
Company issued 100,833,333 shares of Series A preferred stock in the conversion of $290,500 of accrued salaries.
Preferred Stock Issued for Services
During the year ended December 31, 2012, the
Company converted $40,000 of accrued compensation to its board of directors to 408,164 shares of Series A preferred stock and issued
14,583,333 and 32,500,000 shares of Series A preferred stock to its Chief Executive Officer as a bonus award and in conversion
of accrued compensation, respectively, (see Note 6 – Related Parties), issued 607,487 shares of Series A preferred stock
to an unrelated party for services at the fair value of the services rendered of $45,000, and issued 613 shares of Series B preferred
stock to an unrelated party for services at the fair value of the services rendered of $125,000.
Preferred Stock Issued in Conversion of Common Stock
During the year ended December 31, 2013, the
Company issued 164,286 shares of Series A preferred stock to an unrelated party for the conversion and return of 6,572 shares of
common stock.
During the year ended December 31, 2012, the Company issued 4,324,515
shares of Series A preferred stock to related parties for the conversion and return of 172,981 shares of common stock and issued
372,000 shares of Series A preferred stock to unrelated parties for the conversion and return of 14,880 shares of common stock.
Preferred Stock Purchased for Cash
During the year ended December 31, 2013, the Company purchased 1,375,000
shares of its Series A preferred stock from two shareholders for $5,000 cash.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 8 – Stockholders’ Deficit
(Continued)
Common Stock Issued for Cash
During the year ended December 31, 2013, the
Company issued 130,000,000 shares of common stock in private placements for a total of $32,000 ($0.0002 per share). During the
year ended December 31, 2012, the Company issued 833,833 shares of common stock in private placements for a total of $56,000 ($0.07
per share).
Common Stock Issuable for Subscriptions
During the year ended December 31, 2013, the
Company entered into subscription agreements for 15,000,000 shares of its common stock to be issued for a total of $4,500.
Common Stock Issued in Conversion of Debt
During the year ended December 31, 2013, the
Company issued 1,975,718,232 shares of common stock in the conversion of $257,267 of notes payable to unrelated parties. During
the year ended December 31, 2012, the Company issued 3,693,754 shares of common stock in the conversion of $875,433 of notes payable
to unrelated parties (see Note 5 – Loans Payable).
During the year ended December 31, 2013, the
Company issued 101,300,000 shares of common stock, with a market value of $113,000, to Ironridge in settlement of $173,730 of amounts
payable in common stock. During the year ended December 31, 2012, the Company issued 1,610,400 shares of common stock, with a fair
value of $1,201,930, to Ironridge in settlement of $773,390 of amounts payable in common stock (see Note 7 – Amounts Payable
in Common Stock and Derivative Liability).
Common Stock Issued for Services
During the year ended December 31, 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. During the year ended December 31, 2012, the Company issued
29,638 shares of common stock to unrelated parties for services of $82,205, or an average price of $2.77 per share based on the
fair value of the shares at the time of issuance. 25,638 of these shares were issued under the 2010 Stock Incentive
Plan (“2010 Plan”) dated September 17, 2010. As of December 31, 2012, 460 shares remain unissued under the 2010 Plan.
During the year ended December 31, 2012, the
Company converted $22,500 of accrued salaries due to Ms. Rocha to 15,000 shares of common stock, at a price of $0.042 per share
based on the fair value of the shares at the time of issuance (see Note 6 – Related Parties). During the year ended December
31, 2011, the Company converted $230,000 of accrued salaries due to Mr. Aladesuyi to 65,714 shares of common stock, at a price
of $3.50 per share based on the fair value of the shares at the time of issuance (see Note 6 – Related Parties).
The Company’s Board of Directors unanimously
agreed to grant 4,000 shares to Mr. Kayode Aladesuyi, the Company’s Chief Executive Officer and Chairman, under the 2010
Plan, in lieu of unpaid salary of $87,500 out of an accrued aggregate of $175,000. Mr. Aladesuyi declined the acceptance of the
shares and, accordingly, the issuance was cancelled.
During the year ended December 31, 2012, the
Company issued 1,200 shares of common stock to an unrelated party for an incentive to enter into a loan agreement, at an average
price of $1.80 per share based on the fair value of the shares at the time of issuance (see Note 5 – Loans Payable).
Common Stock Issued in Conversion of Preferred Stock
During the year ended December 31, 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.
During the year ended December 31, 2012, the
Company issued 622,566 shares of common stock and 56 shares of Series B preferred stock to an unrelated parties for the conversion
and return of 1,046,739 shares of Series A preferred stock.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 8 – Stockholders’ Deficit
(Continued)
Common Stock Purchased for Cash
During the year ended December 31, 2013, the
Company purchased 1,500 shares of its common stock from a shareholder for $5,000 ($3.33 per share).
Note 9 – Income Taxes
The income tax expense (benefit) differs from
the amount computed by applying the United States Statutory corporate income tax rate as follows:
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Expected income tax (benefit) at 34% statutory rate
|
|
|
-34.0%
|
|
|
|
-34.0%
|
|
Permanent tax differences
|
|
|
7.2%
|
|
|
|
4.6%
|
|
Timing differences
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Change in valuation allowance
|
|
|
26.8%
|
|
|
|
29.4%
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Deferred income taxes reflect the tax effect
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for tax purposes. The components of the net deferred income tax assets are approximately as follows:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
7,043,090
|
|
|
$
|
6,423,760
|
|
Valuation allowance
|
|
|
(7,043,090
|
)
|
|
|
(6,423,760
|
)
|
Net deferred income tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
The amount taken into income as deferred income
tax assets must reflect that portion of the income tax loss carry forwards that is more likely than not to be realized from future
operations. The Company has established a full valuation allowance on its net deferred tax assets because of a lack of sufficient
positive evidence to support its realization. The valuation allowance increased by $619,330 and $1,430,990 for the years ended
December 31, 2013 and 2012, respectively.
No provision for income taxes has been provided
in these financial statements due to the net loss for the years ended December 31, 2013 and 2012. At December 31, 2013, the Company
has net operating loss carry forwards of approximately $20,715,000, which expire commencing 2024. The potential tax benefit of
these losses may be limited due to certain change in ownership provisions under Section 382 of the Internal Revenue Code (“IRS”)
and similar state provisions.
IRS Section 382 places limitations (the “Section
382 Limitation”) on the amount of taxable income which can be offset by net operating loss carry forwards after a change
in control (generally greater than 50% change in ownership) of a loss corporation. Generally, after a change in control, a loss
corporation cannot deduct operating loss carry forwards in excess of the Section 382 Limitation. Due to these “change in
ownership” provisions, utilization of the net operating loss and tax credit carry forwards may be subject to an annual limitation
regarding their utilization against taxable income in future periods. The Company has not concluded its analysis of Section 382
through December 31, 2013, but believes the provisions will not limit the availability of losses to offset future income.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 9 – Income Taxes (Continued)
The Company is subject to income taxes in the
U.S. federal jurisdiction and the state of Georgia. The tax regulations within each jurisdiction are subject to interpretation
of related tax laws and regulations and require significant judgment to apply. As of December 31, 2013, tax years 2009 through
2012 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
Note 10 – 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 December
31, 2013, future minimum lease payments under the lease are as follows:
2014
|
|
|
27,550
|
|
2015
|
|
|
28,366
|
|
2016
|
|
|
29,219
|
|
2017
|
|
|
15,054
|
|
|
|
|
|
|
|
|
$
|
100,189
|
|
Rent expense was $30,727 and $23,186 for the years ended December
31, 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 year ended December 31, 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 which BBGN&K
owns the patents. The license agreement calls for royalty payments beginning in 2012 of 8% of EarthSearch’s revenues to be
paid quarterly. Royalty expense was $4,013 and $44,441 for the years ended December 31, 2013 and 2012, respectively (see Note 3
– Related Parties).
On August 5, 2012, the Company entered into
a license agreement with Web Asset, LLC (“Web Asset”) for the rights to use certain social media concept and idea created
by Mr. Kayode Aladesuyi. The license agreement calls for royalty payments of 49% of the revenues earned by the Company in
its use of the social media concept after the Company has earned its first $2,000,000 of revenue, payable quarterly. No royalty
payments have been made as of December 31, 2013 (see Note 3 – Related Parties).
Note 11 – Subsequent Events
On January 3, 2014, the Company issued 3,750,000
shares of its Series A preferred stock to a related party for $7,500 in cash.
On January 4, 2014,
the Company issued a $20,050 unsecured promissory note to Edward Eppel. The note bears interest at 7% per annum and is due December
31, 2015.
On January 6, 2014,
the Company issued 189,739,800 shares of its common stock in conversion of loans payable in the amount of $9,487.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 11 – Subsequent Events (Continued)
On January 8, 2014,
the Company issued 200,000,000 shares of its common stock in conversion of loans payable in the amount of $10,000.
On January 9, 2014, the Company issued 5,000,000
shares of its Series A preferred stock to a related party for $10,000 in cash.
On January 21, 2014,
the Company issued a $7,700 unsecured promissory note to Andre Fluellen. The note bears interest at 10% per annum and is due June
21, 2014.
On January 21, 2014, the Company issued 1,000,000
shares of its Series A preferred stock to a related party for $2,000 in cash.
On January 22, 2014, the Company issued 20,000,000
shares of its Series A preferred stock to an unrelated party for $40,000 in cash.
On January 27, 2014,
the Company issued 220,844,765 shares of its common stock in conversion of loans payable in the amount of $11,042.
On February 10, 2014,
the Company issued 110,385,400 shares of its common stock in conversion of loans payable in the amount of $4,967.
On February 11, 2014,
the Company issued 462,812,001 shares of its common stock in conversion of loans payable in the amount of $23,141.
On February 13, 2014,
the Company issued 294,000,000 shares of its common stock in conversion of loans payable in the amount of $14,700.
On February 14, 2014,
the Company issued 231,904,000 shares of its common stock in conversion of loans payable in the amount of $11,595.
On February 22, 2014, the Company issued 2,500,000
shares of its Series A preferred stock to an unrelated party for $10,000 in cash.
On February 21, 2014,
the Company issued 155,000,000 shares of its common stock in conversion of loans payable in the amount of $6,975.
On February 24, 2014,
the Company issued 280,000,000 shares of its common stock in conversion of loans payable in the amount of $14,000.
On February 25, 2014,
the Company issued 100,548,000 shares of its common stock in conversion of loans payable in the amount of $5,027.
On February 28, 2014,
the Company issued 293,519,800 shares of its common stock in conversion of loans payable in the amount of $14,676.
On February 28, 2014, the Company’s subsidiary,
Student Connect, Inc. (“Student Connect”), entered into a 5 year licensing agreement with Nueva Tech, LLC (“Nueva
Tech”). Under the terms of the agreement, Student Connect will receive a one-time licensing fee of $100,000, of which $50,000
has been received and the remaining $50,000 is due within 90 days of the date of the agreement. Nueva Tech is appointed a Master
Distributor of the Company’s products and granted an exclusive license to sell the products in the state of California, as
well as a non-exclusive license to sell the Company’s products in Arizona, Washington, Oregon, Nevada, New Mexico, and Hawaii.
All advertisement revenue generated will be shared, net of communication costs, 40% to Student Connect and 60% to Nueva Tech.
On March 3, 2014,
the Company issued 36,000,000 shares of its common stock in conversion of loans payable in the amount of $1,800.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 11 – Subsequent Events (Continued)
On March 5, 2014,
the Company issued 169,000,000 shares of its common stock in conversion of loans payable in the amount of $9,000.
On March 6, 2014,
the Company issued 177,400,000 shares of its common stock in conversion of loans payable in the amount of $5,000.
On March 11, 2014,
the Company issued 294,000,000 shares of its common stock in conversion of loans payable in the amount of $14,700.
On March 17, 2014,
the Company issued a $29,000 unsecured convertible promissory note to LG Capital Funding, LLC. The note bears interest at 8% per
annum, is due March 17, 2015, and is convertible at a 50% discount to the lowest closing bid price during the fifteen day period
prior to the conversion date.
On March 20, 2014, the Company’s subsidiary,
Student Connect, Inc. (“Student Connect”), entered into a service agreement with a school district in Texas to provide
its proprietary school transportation monitoring system. The agreement is cancellable by the school district upon 30 days’
notice. Student Connect provides the equipment and monitoring service at a no cost to the school district. The system provides
instant notification to schools and parents about students riding on the school buses. Messages are delivered to schools and parents
at no cost and are funded through advertisers who sponsor each message sent to the parent about their child.
On March 21, 2014,
the Company issued 194,000,000 shares of its common stock in conversion of loans payable in the amount of $9,700.
On March 24, 2014,
the Company issued 100,000,000 shares of its common stock in conversion of loans payable in the amount of $7,000.
On March 25,
2014, the Company issued 572,190,277 shares of its common stock in conversion of loans payable in the amount of $33,796.
On March 26, 2014,
the Company issued 314,285,714 shares of its common stock in conversion of loans payable in the amount of $16,400.
On March 27, 2014, the Company’s subsidiary,
Student Connect, Inc. (“Student Connect”), entered into a 5 year licensing agreement with Smart1st, a Beirut, Lebanon
corporation. Under the terms of the agreement, Smart1st is appointed a Master Distributor of the Company’s products and granted
an exclusive license to sell the products in the country of Lebanon. All advertisement revenue generated will be shared, net of
communication costs, 40% to Student Connect and 60% to Smart1st.
On March 27, 2014,
the Company issued a $23,000 unsecured promissory note to Frank Russo. The note is non-interest bearing and is due October 1, 2014.
On March 27, 2014,
the Company issued a $18,000 unsecured convertible promissory note to Tangiers Investment Group, LLC. The note bears interest at
8% per annum, is due March 17, 2015, and is convertible at the lower of i) $0.0001 or ii) a 50% discount to the trading price during
the twenty day period prior to the conversion date.
On March 28, 2014,
the Company issued 369,872,800 shares of its common stock in conversion of loans payable in the amount of $18,494.
On March 28, 2014, 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 13,500,000,000 shares, par value $0.001 per share, including (i) 13,000,000,000 shares of common stock,
par value $0.001 per share and (ii) 500,000,000 shares of preferred stock, par value $0.001 per share.
On March 31, 2014,
the Company issued 200,000,000 shares of its common stock in conversion of loans payable in the amount of $5,904.
On April 1, 2014, the Company’s
subsidiary, Student Connect, Inc. (“Student Connect”), entered into a service agreement with a school district in
California to provide its proprietary school transportation monitoring system. The agreement is cancellable by the school district
upon 30 days’ notice. Student Connect provides the equipment and monitoring service at a no cost to the school district.
The system provides instant notification to schools and parents about students riding on the school buses. Messages are delivered
to schools and parents at no cost and are funded through advertisers who sponsor each message sent to the parent about their child.
East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013
Note 11 – Subsequent Events (Continued)
On April 1, 2014,
the Company issued 250,000,000 shares of its common stock in conversion of loans payable in the amount of $12,500.
On April 1, 2014, the Company issued 15,000,000
shares of its common stock to a related party for $4,500 in cash received in 2013. The amount was recorded as common stock issuable
at December 31, 2013.
On April 1, 2014, the Company issued 75,000
shares of its Series A preferred stock to a third party for $1,500 in cash received in 2013. The amount was recorded in preferred
stock issuable at December 31, 2013.
On April 7, 2014,
the Company issued 821,007,589 shares of its common stock in conversion of loans payable in the amount of $39,541.
On April 10, 2014, the Company issued 46,500,000
shares of its Series A preferred stock to a third party for $108,000 in cash received in 2013. The amount was recorded in preferred
stock issuable at December 31, 2013.
On April 8, 2014,
the Company issued a $12,500 unsecured convertible promissory note to Microcap Equity Group LLC. The note bears interest at 12%
per annum, is due October 8, 2014, and is convertible at a 50% discount to the lowest bid price during the ninety 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.