East Coast Diversified Corp. (the "Company")
was incorporated in Florida on May 27, 1994 as Plantastic Corp. In June 2003, the Company changed its name to East Coast Diversified
Corporation. from Lifekeepers International, Inc. and changed its domicile to Nevada.
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 2013 audited annual financial statements included in our annual report on Form
10-K, filed with the SEC on April 15, 2014.
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 $20,620,224 at March 31, 2014, a net loss and net cash used in operations of $507,877
and $212,497, respectively, for the three months ended March 31, 2014. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to further implement its business plan, generate revenues, and
continue to raise additional investment capital. No assurance can be given that the Company will be successful in these
efforts.
The unaudited consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern. Management believes
that actions presently being taken to obtain additional funding and implement its strategic plans will afford the Company the opportunity
to continue as a going concern.
During the fourth quarter of 2012, the
management of the Company’s subsidiary, Rogue Paper, Inc. (“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 on January 25, 2013. No legal action has been taken by either Rogue Paper or the Company. As current
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 of and for the period ended December 31, 2013 as a discontinued operation.
In connection with the acquisition of Rogue
Paper, the Company agreed to redeem the Preferred Shares held by the former Rogue Paper shareholders’ for cash of $0.60 per
share and had an option to purchase the remaining forty-nine percent (49%) of Rogue Paper Common Shares for cash, at a price of
$0.03 per share. 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, resulting in a remaining liability of $1,081,850 at December 31, 2013.
Effective March 31, 2014, the Company’s
management believes that the net assets of Rogue Paper are not recoverable and, as such, the Company has accounted for the disputed
assets and liabilities as if they have been disposed. Additionally, the Company believes the contingent acquisition liabilities
no longer exist. The net effect of these transactions results in a gain from discontinued operations of $984,115.
Note 3 – Loans Payable (Continued)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
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. During the three months ended March 31, 2014, the remainder of the note, including accrued interest, was
converted to common stock. Accrued interest is equal to $1,088 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 $1,341 and $5,650 at March 31, 2014 and December 31, 2013, respectively. Accrued interest is equal to $1,500 and $600 at March 31, 2014 and December 31, 2013, respectively.
|
|
|
20,159
|
|
|
|
14,950
|
|
|
|
|
|
|
|
|
|
|
Unsecured $7,700 convertible note payable to Andre Fluellen, which calls for flat interest of $770 due at maturity and is due June 21, 2014. The note is discounted for its unamortized beneficial conversion feature of $4,181 at March 31, 2014. Accrued interest is equal to $352.
|
|
|
3,871
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unsecured $3,450 non-interest bearing note payable to Azfar Hague due September 20, 2014.
|
|
|
3,450
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unsecured $2,000 non-interest bearing note payable to Bulldog Insurance due September 26, 2014.
|
|
|
2,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unsecured $29,000 convertible note payable to LG Capital Funding, LLC., which bears interest at 8% per annum and is due March 17, 2015. The note is discounted for its unamortized beneficial conversion feature of $27,887 at March 31, 2014. Accrued interest is equal to $89 at March 31, 2014.
|
|
|
1,202
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
On March 17, 2014, LG Capital Funding, LLC entered into an agreement to purchase $40,000 of notes payable to Frank Russo. The note bears interest at 8% per annum and is due March 17, 2015. During the three months ended March 31, 2014, $14,000 of the the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $25,002 at March 31, 2014. Accrued interest is equal to $80 at March 31, 2014.
|
|
|
1,078
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
On March 27, 2014, Microcap Equity Group LLC entered into an agreement to purchase $25,000 of notes payable to Frank Russo. The note bears interest at 10% per annum and is due on demand. Accrued interest is equal to $27 at March 31, 2014.
|
|
|
25,027
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unsecured $18,000 convertible note payable to Tangiers Investment Group, LLC., which bears
interest at 8% per annum and is due March 27, 2015. The note is discounted for its unamortized beneficial conversion feature
of $17,802 at March 31, 2014. Accrued interest is equal to $158 at March 31, 2014.
|
|
|
356
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
On March 27, 2014, Tangiers Investment Group, LLC. entered into an agreement to purchase $15,000 of notes payable to Frank Russo. The note bears interest at 10% per annum and is due March 27, 2015. The note is discounted for its unamortized beneficial conversion feature of $14,835 at March 31, 2014. Accrued interest is equal to $16 at March 31, 2014.
|
|
|
181
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total Loans Payable
|
|
$
|
549,747
|
|
|
$
|
680,795
|
|
East Cost Diversified Corporation and
Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 3 – Loans Payable (Continued)
The Company accrued interest expense of
$4,978 and $14,788 for the three months ended March 31, 2014 and 2013, respectively, on the above loans. Accrued interest
is included in the loan balances.
The Company borrowed $60,150 and $47,500
during the three months ended March 31, 2014 and 2013, respectively. During the three months ended March 31, 2014, the Company
converted $239,001 of loans payable into 4,588,102,557 shares of the Company’s common stock. During the three months ended
March 31, 2013, the Company converted $17,169 of loans payable into 548,728 shares of the Company’s common stock.
Note 4 – Related Parties
Loans payable – related parties at March 31, 2014 and
December 31, 2013 consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
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. During the three month ended March 31, 2014, Mr. Russo loaned the Company an additional $28,800, $50,904 of the note was converted to common stock, and $40,000 was purchased by two unrelated parties.
|
|
$
|
239,325
|
|
|
$
|
301,429
|
|
|
|
|
|
|
|
|
|
|
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. During the three months ended March 31, 2014, Mr Eppel loaned the Company an additional $24,513. Accrued interest is equal to $63,898 and $60,789, respectively.
|
|
|
217,572
|
|
|
|
189,950
|
|
|
|
|
|
|
|
|
|
|
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 $1,198 and $848 at March 31, 2014 and December 31, 2013, respectively. This note is in default at March 31, 2014.
|
|
|
21,198
|
|
|
|
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 $384 and $253 at March 31, 2014 and December 31, 2013, respectively. This note is in default at March 31, 2014.
|
|
|
7,884
|
|
|
|
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 $437 and $262 at March 31, 2014 and December 31, 2013, respectively. This note is in default at March 31, 2014.
|
|
|
10,437
|
|
|
|
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 $157 and $87 at March 31, 2014 and December 31, 2013, respectively. This note is in default at March 31, 2014.
|
|
|
4,157
|
|
|
|
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 $3,947 and $1,535 at March 31, 2014 and December 31, 2013, respectively.
|
|
|
141,780
|
|
|
|
139,368
|
|
|
|
|
|
|
|
|
|
|
Unsecured $10,000 note payable to Robert Saidel, which bears interest at 7% per annum and due February 28, 2015. Accrued interest is equal to $54 at March 31, 2014.
|
|
|
10,054
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
652,407
|
|
|
|
673,697
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(578,835
|
)
|
|
|
(601,348
|
)
|
|
|
|
|
|
|
|
|
|
Loan payable - related parties, non-current
|
|
$
|
73,572
|
|
|
$
|
72,349
|
|
East Cost Diversified Corporation and
Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 4 – Related Parties (Continued)
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, 2013, $301,429
was due to Mr. Russo. The Company borrowed $28,800 from Mr. Russo during the three months ended March 31, 2014. During the
three months ended March 31, 2014, the Company converted $10,904 of the note into 375,304,000 shares of common stock and Mr. Russo
sold $80,000 of the note to unrelated parties.
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, 2013, $189,950 was due to Mr. Eppel. The
Company borrowed $24,513 from Mr. Eppel during the three months ended March 31, 2014. $3,109 of interest was accrued
and included in the loan balance for the three months ended March 31, 2014.
Robert Saidel, a shareholder of the Company,
is a holder of notes of the Company which bear interest at 10% per annum. At December 31, 2013, $182,318 was due to Mr. Saidel.
The Company borrowed $10,000 from Mr. Saidel during the three months ended March 31, 2014. $3,192 of interest was accrued and included
in the loan balance for the three months ended March 31, 2014.
During the three months ended March 31,
2014, Mr. Anis Sherali, a Director of the Company, purchased 12,125,000 shares of the Company’s Series A preferred stock
for $28,000. These amounts are included in preferred stock issuable at March 31, 2014.
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.
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 three
months ended March 31, 2013, 700,000 shares of common stock, with a market value of $35,000, were issued to Ironridge in settlement
of $22,750 of the liability, resulting in the reduction of the derivative liability of $12,250.
Note 6 – Stockholders’ Deficit
Authorized Capital
The Company has 13,000,000,000 authorized
shares of Common Stock at $0.001 par value and 500,000,000 authorized shares of Preferred Stock at par value of $0.001 per share.
On September 17, 2010, the Board authorized
the creation of a common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants.
The Company registered twenty five million (25,000,000) shares of its common stock pursuant to the 2010 Stock Incentive Plan on
Form S-8 filed with the Commission on September 27, 2010. As of March 31, 2014, no options have been granted under the plan.
East Cost Diversified Corporation and
Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 6 – Stockholders’ Deficit
(Continued)
Preferred Stock Issued for Cash
During the three months ended March 31,
2014, the Company issued 22,500,000 Series A preferred shares for cash of $50,000.
Preferred Stock Issuable for Subscriptions
During the three months ended March 31,
2014, the Company received cash of $38,000 for 17,125,000 Series A preferred shares. As of March 31, 2014, there were a total of
68,450,000 shares of Series A preferred stock, representing $157,000, remaining to be issued.
Common Stock Issued in Conversion of Debt
During the three months ended March 31,
2014, the Company issued 4,588,102,557 shares of common stock in the conversion of $239,001 of notes payable to unrelated parties
(see Note 3 – Loans Payable).
During the three months ended March 31,
2014, the Company issued 375,304,000 shares of common stock in the conversion of $10,904 of notes payable to related parties (see
Note 4 – Related Parties).
Common Stock Issued for Services
During the three months ended March 31,
2014, the Company issued 2,096,000 shares of common stock to an unrelated party for services of $2,096, or an average price of
$0.001 per share based on the fair value of the shares at the time of issuance.
Note 7 – Commitments and
Contingencies
Operating Leases
The Company leases its office facilities
in Marietta, Georgia. The term of the lease is 66 months with escalating lease payments beginning at $2,163 per month. At March
31, 2014, future minimum lease payments under the lease are as follows:
|
2014
|
|
|
|
20,663
|
|
|
2015
|
|
|
|
28,366
|
|
|
2016
|
|
|
|
29,219
|
|
|
2017
|
|
|
|
15,054
|
|
|
|
|
|
$
|
93,302
|
|
Rent expense was $7,352 and $7,852 for the three months ended
March 31, 2014 and 2013, 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 nine months ended March 31, 2014, 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 resulting in a remaining liability of $1,081,850 at December 31, 2013.
Effective March 31, 2014, the Company’s
management believes that the net assets of Rogue Paper are not recoverable and, as such, the Company has accounted for the disputed
assets and liabilities as if they have been disposed. Additionally, the Company believes the contingent acquisition liabilities
no longer exist. The net effect of these transactions results in a gain from discontinued operations of $984,115.
East Cost Diversified Corporation and
Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 7 – Commitments and
Contingencies (Continued)
License Agreements
On October 5, 2011, the Company entered
into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of BBGN&K.
The license agreement calls for royalty payments beginning in 2012 of 8% of the revenue generated from the use of the license,
to be paid quarterly. Royalty expense was $-0- and $-0- for the three months ended March 31, 2014 and 2013, respectively.
On August 5, 2012, the Company entered
into a license agreement with Web Asset, LLC (“Web Asset”) for the rights to use certain social media concept and idea
created by Mr. Kayode Aladesuyi. The license agreement calls for royalty payments of 49% of the revenues earned by the Company
in its use of the social media concept after the Company has earned its first $2,000,000 of revenue, payable quarterly. No royalty
payments have been made as of March 31, 2014.
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 nonexclusive 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. Revenue from the license fee is recognized ratably over the 5 year term.
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.
Note 8 – Subsequent Events
On April 1, 2014, the Company issued 15,000,000
shares of its common stock in to Anis Sherali, a director of the Company, for $4,500 cash.
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 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 8, 2014, the Company issued a
$4,200 unsecured convertible promissory note to Tangiers Investment Group, LLC. The note bears interest at 8% per annum, is due
April 7, 2015, and is convertible at the lower of i) $0.0001, or ii) a 50% discount to the lowest trading price during the twenty
day period prior to the conversion date.
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 the lower of i) $0.0001, or ii) a 50% discount to the lowest bid price during the ninety day period
prior to the conversion date.
On April 8, 2014, the Company issued 670,000,000 shares of the
Company’s common stock to Ironridge for amounts payable in common stock of $43,550 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 April 10, 2014, the Company issued a
$10,000 unsecured promissory note to Falmouth Street Holdings, LLC. The note bears interest at 10% per annum and is due October
10, 2014.
East Cost Diversified Corporation and
Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 8 – Subsequent Events
(Continued)
On April 16, 2014, the Company issued 309,760,000
shares of its common stock in conversion of loans payable in the amount of $15,488.
On April 21, 2014, the Company issued 12,500,000
shares of its series A preferred stock in to Sammie Hill for $25,000 cash.
On April 21, 2014, the Company issued 300,000,000
shares of its common stock in conversion of loans payable in the amount of $15,000.
On April 23, 2014, the Company issued 580,000,000
shares of its common stock in conversion of loans payable in the amount of $29,000.
On April 29, 2014, the Company received
$11,000 in cash for Series B preferred stock subscriptions receivable from Ironridge.
On May 1, 2014, the Company issued 241,600,000
shares of its common stock in conversion of loans payable in the amount of $12,080.
On May 8, 2014, the Company issued a $37,000
unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 8, 2014, and is convertible
at the closing market price on the day of conversion.
On May 14, 2014, the Company issued a $33,800
unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 14, 2014, and is convertible
at the closing market price on the day of conversion.
On May 14, 2014, the Company issued 10,000,000
shares of its series A preferred stock in to Calvin Mosley, Jr. for $20,000 cash.
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.