UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 30, 2013

 

or

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

 

For the transition period from _________ to _________

 

Commission File Number: 000-50356

 

EAST COAST DIVERSIFIED CORPORATION

(Exact Name of registrant as specified in its charter)

 

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

 

810 Franklin Court, Suite H

Marietta, Georgia 30067

(Address of principal executive offices)

 

(770) 953-4184

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

As of November 11, 2013, the issuer had 1,912,426,925 shares of its Common Stock, $0.001 par value, outstanding.

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II – OTHER INFORMATION		30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		33

   

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Balance Sheets

 

		September 30,				December 31,
		2013				2012
		(unaudited)
ASSETS
Current assets
Cash		$	368			$	–
Accounts receivable, net			222,007				200,040
Inventory			63,424				108,777
Prepaid license fees			200,000				200,000
Prepaid expenses			23,030				15,818
Assets attributable to disputed subsidiary			107,271				107,271
Total current assets			616,100				631,906
Property and equipment, net			4,235				7,401
Other assets
Prepaid license fees			50,000				87,500
Security deposits			20,000				20,000
Total other assets			70,000				107,500
Total assets		$	690,335			$	746,807

 

See accompanying notes to consolidated financial statements.

 

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Balance Sheets

 

		September 30,				December 31,
		2013				2012
		(unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft		$	37,705			$	6,028
Loans payable, current			667,003				404,761
Loans payable - related party, current			499,547				539,909
Due to related party			24,687				64,673
Accounts payable and accrued expenses			607,853				508,940
Accrued payroll and related liabilities			2,342,175				1,938,279
Liabilities attributable to disputed subsidiary			11,116				11,116
Total current liabilities			4,190,086				3,473,706
Other liabilities			–				–
Total liabilities			4,190,086				3,473,706
Commitments and contingencies:
Contingent acquisition liabilities			1,081,850				1,104,973
Amounts payable in common stock			121,225				294,955
Derivative liability			65,275				158,822
Stockholders' deficit
Preferred stock, $0.001 par value, 400,000,000 and 400,000,000 shares authorized:
Series A preferred stock, 209,362,091 and 103,361,855 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively			209,362				103,362
Series B preferred stock, 5 and 5 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively			–				–
Common stock, $0.001 par value, 5,900,000,000 and 5,900,000,000 shares authorized, 1,337,028,459 and 7,198,321 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively			1,337,028				7,198
Additional paid-in capital			15,682,954				15,930,512
Preferred stock issuable			49,000				–
Common stock issuable			14,000				–
Preferred stock subscriptions receivable			(1,113,498	)			(1,155,998	)
Accumulated deficit			(20,570,624	)			(18,812,108	)
Total East Coast Diversified stockholders' deficit			(4,391,778	)			(3,927,034	)
Noncontrolling interest			(376,323	)			(358,615	)
Total stockholders' deficit			(4,768,101	)			(4,285,649	)
Total liabilities and stockholders' deficit		$	690,335			$	746,807

 

See accompanying notes to consolidated financial statements.

 

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2013				2012				2013				2012
Revenues:
Product sales		$	101,563			$	52,721			$	155,385			$	514,397
Consulting and development			–				–				–				151,920
User fees			5,386				13,593				13,783				44,401
Total revenues			106,949				66,314				169,168				710,718
Operating Expenses
Cost of revenues:
Product sales			69,979				41,096				96,492				333,289
Consulting and development			–				–				–				–
User fees			6,757				10,006				20,076				48,184
Selling, general and administative expense			453,896				956,732				1,522,806				2,529,998
Total operating expenses			530,632				1,007,834				1,639,374				2,911,471
Loss from operations			(423,683	)			(941,520	)			(1,470,206	)			(2,200,753	)
Other income (expense)
Other income			–				57,003				–				58,387
Interest expense			(125,578	)			(134,083	)			(460,295	)			(635,280	)
Gain on settlement of debt			–				–				–				141,141
Loss on conversion of debt			–				–				–				(575,263	)
Change in derivative liability			160,000				8,518				154,277				(2,291	)
Total other income (expense)			34,422				(68,562	)			(306,018	)			(1,013,306	)
Net loss			(389,261	)			(1,010,082	)			(1,776,224	)			(3,214,059	)
Net loss attributable to noncontrolling interests			4,459				47,136				17,708				33,746
Net loss from non-disputed operations			(384,802	)			(962,946	)			(1,758,516	)			(3,180,313	)
Net income (loss) from disputed subsidiary			–				(12,047	)			–				(41,167	)
Net loss attributable to East Coast Diversified Corporation		$	(384,802	)		$	(974,993	)		$	(1,758,516	)		$	(3,221,480	)
Net loss per share - basic and diluted		$	(0.00	)		$	(0.43	)		$	(0.01	)		$	(2.23	)
Weighted average number of shares outsanding during the period - basic and diluted			601,870,578				2,285,512				215,198,540				1,441,437

 

See accompanying notes to consolidated financial statements.

 

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

		For the Nine Months Ended
		September 30,				September 30,
		2013				2012
Cash flows from operating activities:
Net loss		$	(1,758,516	)		$	(3,221,480	)
Adjustments to reconcile net loss to net cash used in operations:
Noncontrolling interests			(17,708	)			(73,299	)
Depreciation and amortization			3,166				24,046
Provision for doubtful accounts			–				311,671
Amortization of intangibles of disputed subsidiary			–				114,750
Issuance of loan payable for consulting services			78,922				60,000
Stock issued for services and compensation			12,900				425,205
Amortization of prepaid license fee			37,500				37,500
Amortization of payment redemption premium as interest			–				12,076
Gain on recovery of redemption premiums			–				(28,975	)
Gain on settlement of loans payable			–				(38,646	)
Gain on settlement of accounts payable			–				(102,495	)
Loss on conversion of debt			–				575,263
Change in derivative liability			(154,277	)			2,291
Accretion of beneficial conversion feature on convertible notes payable as interest			400,424				604,841
Accretion of stock discounts to convertible notes payable as interest			–				2,160
Interest accrued on loans payable			56,626				47,224
Assets attributable to disputed subsidiary			–				(107,271	)
Liabilities attributable to disputed subsidiary			–				11,116
Changes in operating assets and liabilities:
Accounts receivable, net			(21,967	)			(553,551	)
Inventory			45,353				(80,261	)
Prepaid expenses			(7,212	)			(9,000	)
Security deposits			–				(15,479	)
Escrow deposits			–				(448	)
Bank overdraft, net			31,677				(16,675	)
Due to related party			(39,986	)			(70,568	)
Accounts payable and accrued expenses			98,913				608,686
Accrued payroll and related liabilities			564,396				239,282
Net cash used in operating activities			(669,789	)			(1,242,037	)
Cash flows from investing activities:
Capital expenditures			–				(700	)
Net cash used in investing activities			–				(700	)
Cash flows from financing activities:
Proceeds from issuance of common stock			20,000				1,000
Proceeds from common stock subscriptions			14,000				–
Repurchase of common stock			(5,000	)			–
Proceeds from issuance of preferred stock			184,000				151,900
Proceeds from preferred stock subscriptions			91,500				325,002
Proceeds from loans payable			302,500				676,076
Proceeds from loans payable - related party			65,157				56,500
Repayments of loans payable			(2,000	)			(12,600	)
Repayments of loans payable - related party			–				(5,000	)
Net cash from financing activities			670,157				1,192,878
Net increase (decrease) in cash			368				(49,859	)
Cash at beginning of period			–				53,519
Cash at end of period		$	368			$	3,660

 

See accompanying notes to consolidated financial statements.

Continued  

 

East Coast Diversified Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(unaudited)

 

		For the Nine Months Ended
		September 30,				September 30,
		2013				2012
Supplemental disclosure of cash flow information:
Cash paid for interest		$	3,245			$	–
Cash paid for taxes		$	–			$	–
Non-cash investing and financing activities:
Issuance of 1,210,999,766 and 1,702,745 shares of common stock in conversion of loans payable, respectively		$	219,159			$	768,036
Issuance of 1,000,000 shares of series A preferred stock in conversion of loans payable		$	–			$	57,000
Issuance of 15,833,333 and 2,592,898 shares of series A preferred stock in conversion of loans payable - related party, respectively		$	115,000			$	87,500
Payment redemption premiums on convertible notes payable		$	–			$	10,000
Loans and accounts payable converted to Amounts payable in common stock		$	–			$	1,068,345
Issuance of 101,300,000 and 1,240,400 shares of common stock in settlement of loans and accounts payable converted to Amounts payable in common stock, respectively		$	113,000			$	1,114,930
Issuance of 4,324,515 shares of Series A preferred stock to related parties in conversion of 172,981 shares of common stock		$	–			$	86,490
Issuance of 372,000 shares of Series A preferred stock to third parties in conversion of 14,880 shares of common stock		$	–			$	7,440
Issuance of 3,000 shares of series B preferred stock under stock subscription		$	–			$	1,500,000
Beneficial conversion feature of convertible notes payable		$	345,590			$	708,137
Discount for stock issued in connection with issuance of note payable		$	–			$	2,160
Issuance of 15,000 shares of common stock in conversion of accrued salaries		$	–			$	22,500
Issuance of 35,833,333 and 408,164 shares of series A preferred stock in conversion of accrued salaries, respectively		$	160,500			$	40,000
Prepaid license fee accrued as Due to related party		$	–			$	150,000
Reduction of acquisition liabilities due to conversion of 39,050 shares of Series A preferred stock to 6,219,000 shares of common stock		$	23,123			$	–

 

 

See accompanying notes to consolidated financial statements.

  

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

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

 

Organization

 

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

 

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

 

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

 

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

 

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

 

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

 

Pursuant to the RP Share Exchange Agreement, no sooner than twelve months from the Effective Date, the Series A Preferred shares shall be convertible, at the option of the holder of such shares, into an aggregate of fifty million shares of the Company’s common stock, par value $0.001 per share. Beginning sixth months from the Effective Date, both the Company and holders of the Series A Preferred shares shall have the option to redeem any portion of such holders’ Series A Preferred shares, for cash, at a price of sixty cents ($0.60) per share. Additionally, commencing twenty-four (24) months from the Effective Date, the holders of the remaining, unsold shares of Rogue Paper common stock may require the Company to redeem such shares, for cash, at a price of three cents ($0.03) per share. During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned January 25, 2013. No legal action has been taken by either Rogue Paper or the Company. As 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.

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

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

 

Nature of Operations

 

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

 

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

 

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

 

Rogue Paper, Inc. (“Rogue Paper”), the Company’s majority owned subsidiary, offers second screen technology to the media organizations and businesses. During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue management resigned on 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.

 

Basis of Presentation

 

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

 

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

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As reflected in the accompanying unaudited consolidated financial statements, the Company had an accumulated deficit of $20,570,624 at September 30, 2013, a net loss and net cash used in operations of $1,758,516 and $669,789, respectively, for the nine months ended September 30, 2013.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  

 

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

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

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

 

Going Concern (Continued)

 

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

 

Reclassifications

 

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

 

Concentration of Credit Risk

 

The Company grants unsecured credit to commercial and governmental customers in the United States and abroad. Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. As of September 30, 2013 and December 31, 2012, two customers account for 70% and 79% of the total accounts receivable, respectively.

 

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense was $nil and $311,671 for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013 and December 31, 2012, the allowance for doubtful accounts was $604,735.

 

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

 

Note 2 – Disputed Subsidiary

 

During the fourth quarter of 2012, the management of Rogue Paper effectively shut-down operations, denied the Company access to financial records, refused to participate in shareholder or management meetings and all members of Rogue Paper management resigned on 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 of and for the periods ended September 30, 2013 and December 31, 2012, respectively, as a discontinued operation.

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 2 – Disputed Subsidiary (Continued)

 

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

 

		Nine Months Ended September 30,
		2013				2012
Revenue		$	–			$	322,000
Operating expenses:
Cost of revenue			–				135,221
Selling, general and administrative expenses			–				267,543
Amortization of intangible assets			–				–
Total operating expenses			–				402,764
Income (loss) from disputed subsidiary			–				(80,764	)
Other expenses:
Other income			–				(44	)
Net loss attributable to noncontrolling interests			–				(39,553	)
Net income (loss) from loss from disputed subsidiary		$	–			$	(41,167	)

  

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

 

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

  

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable

 

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

 

		September 30,				December 31,
		2013				2012
Unsecured $30,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 17, 2012.   During the year ended December 31, 2012,  $28,000 of the note balance was converted to common stock.  During the nine months ended September 30, 2013, $2,000 of the note was converted to common stock.  Accrued interest is equal to $2.905 and $2,750 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.		$	2,905			$	4,750
On February 17, 2012, Panache Capital, LLC entered into an agreement to purchase $50,000 of the note payable to Azfar Haque.  The Company exchange the original note to Mr. Haque with a new note to Pananche which bears interest at 10% per annum and due February 17, 2013.  During the year ended December 31, 2012, $44,348 of the note was converted to common stock.   Accrued interest is equal to $1,254 and $786 at September 30, 2013 and December 31, 2012, respectively. This note is in default at September 30, 2013.			6,906				6,438
Unsecured $70,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 24 2013.  The note is discounted for its unamortized beneficial conversion feature of $2,228 and $27,575 at September 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $14,127 and $7,309 at September 30, 2013 and December 31, 2012, resepctively.			81,899				49,734
In February 2012, Magna Group, LLC entered into two agreements to purchase a total of $275,000 of the note payable to Azfar Haque.  The Company exchanged the original note to Mr. Haque with new notes to Magna which bear interest at 12% per annum and due February 24, 2013.  During the year ended December 31, 2012, the entire note balance, including accrued interest of $600, totaling $275,600 was converted to common stock.			–				–
Unsecured $16,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due May 3, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $4,492 at September 30, 2013 and December 31, 2012.  Accrued interest is equal to $2,833 and $1,297 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			18,833				12,805
Unsecured $10,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 3, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $535 at September 30, 2013 and December 31, 2012, respectively.  During the nine months ended September 30, 2013, the note balance of $10,952. including accrued interest, was converted to common stock.   Accrued interest is equal to $766 at December 31, 2012.			–				10,231
Unsecured $3,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 21, 2013.  During the nine months ended September 30, 2013, the note, including accrued interest of $1,770, was converted to common stock.			–				3,013
Unsecured $12,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due February 5, 2013.  During the nine months ended September 30, 2013, $6,210 of the note was converted to common stock.   The note is discounted for its unamortized beneficial conversion feature of $-0- and $1,433 at September 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $1,795 amd $839 at September 30, 2013 and December 31, 2012, respectively. This note is in default at September 30, 2013.			7,585				11,406

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due February 25, 2012. During the year ended December 31, 2012, $12,000 of the note was converted to common stock.  During the nine months ended September 30, 2013, the remaining $21,800 was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $3,092 at December 31, 2012. Accrued interest is equal to $1,600 at December 31, 2012.			–				19,008
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On May 10, 2012, the Company received $3,200, which is due December 31, 2012. During the year ended December 31, 2012, the reamining balance of the note including accrued interest totalling $3,262 was purchased by StarCity Capital, LLC.			–				–
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On June 7, 2012, the Company received $2,500, which is due December 31, 2012. During the year ended December 31, 2012, the reamining balance of the note including accrued interest totalling $2,540 was purchased by StarCity Capital, LLC.			–				–
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On June 12, 2012, the Company received $9,500, which is due December 31, 2012. During the year ended December 31, 2012, the reamining balance of the note including accrued interest totalling $9,643 was purchased by StarCity Capital, LLC.			–				–
Unsecured $5,500 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due March 6, 2013.  During the nine months ended September 30, 2013, the note balance of $6,050 was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $1,099 at December 31, 2012.  Accrued interest is equal to $328 at December 31, 2012.			–				4,729
Unsecured $42,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due April 19, 2013.  During the nine months ended September 30, 2013, the entire balance of the note in the amount of $44,200 was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $13,379 at December 31, 2012. Accrued interest is equal to $1,579 at December 31, 2012.			–				30,700
Unsecured $15,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due March 26, 2013.  The note is discounted for its unamortized beneficial conversion feature of $-0- and $3,484 at September 30, 2013 and December 31, 2012, respectively.  Accrued interest is equal to $2,209 and $794 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			17,209				12,310

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 3, 2012, the Company received $18,350, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $2,741 at December 31, 2012. During the year ended December 31, 2012, $516 of the note was purchased by StarCity Capital, LLC.   During the nine months ended September 30, 2013, the note balance of $19,168 was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $381 at December 31, 2012.			–				15,474
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 20, 2012, the Company received $10,000, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $1,514 at December 31, 2012.  During the nine months ended September 30, 2013, the note balance of $10,300 was purchased by SGI Group, LLC.   Accrued interest is equal to $183 at December 31, 2012.			–				8,669
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On August 27, 2012, the Company received $40,000, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $7,143 at December 31, 2012.  During the nine months ended September 30, 2013, the note balance of $40,000 was purchased by WHC Capital, LLC.  Accrued interest is equal to $699 at December 31, 2012.			–				33,556
Unsecured $10,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due March 31, 2013. During the nine months ended September 30, 2013, the note, including accrued interest of $399, was converted to common stock.			–				8,097
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On September 5, 2012, the Company received $4,100, which was due March 31, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $891 at December 31, 2012.  During the nine months ended September 30, 2013, the note balance of $4,264 was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $66 at December 31, 2012.			–				3,275
Unsecured $40,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due March 31, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $6,154 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $3,384 and $925 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			43,384				34,771
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $1,218 and $299 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			16,218				15,299

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
Unsecured $10,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. During the nine months ended September 30, 2013, the note, including accrued interest, was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $6,704 at December 31, 2012. Accrued interest is equal to $195 at December 31, 2012.			–				3,491
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On October 24, 2012, the Company received $5,000, which is due May 24, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $1,456 at December 31, 2012.  During the nine months ended September 30, 2013, the note balance of $5,169 was purchased by Tangiers Investment Group, LLC.  Accrued interest is equal to $75 at December 31, 2012.			–				3,619
Unsecured $39,647 note payable to Azfar Hague, which bears interest at 9% per annum and due April 25, 2013. $20,000 of this note was purchased by Tangiers Investment Group, LLC on July 26, 2013. Accrued interest is equal to $2,933 and $655 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			22,580				40,302
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $1,096 and $181 at September 30, 2013 and December 31, 2012, respectively.   This note is in default at September 30, 2013.			16,096				15,181
Unsecured $7,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due September 30, 2013.  During the nine months ended September 30, 2013, the note, including accrued interest, was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $5,415 at December 31, 2012. Accrued interest is equal to $81 at December 31, 2012.			–				1,666
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due August 13, 2013. During the nine months ended September 30, 2013, $3,300 of the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $-0- and $24,932 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $2,285 and $370 at September 30, 2013 and December 31, 2012, respectively.   This note is in default at September 30, 2013.			31,485				7,938
On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On November 15, 2012, the Company received $10,000, which was due May 15, 2013. The draw on the note is discounted for its unamortized beneficial conversion feature of $3,309 at December 31, 2012.  During the nine months ended September 30, 2013, the note was purchased by WHC Capital, LLC.  Accrued interest is equal to $109 at December 31, 2012.			–				7,150
Unsecured $18,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. During the nine months ended September 30, 2013, $14,471 of the note was converted to common stock. The note is discounted for its unamortized beneficial conversion feature of $-0- and $15,296 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $1,151 and $126 at September 30, 2013 and December 31, 2012, respectively.   This note is in default at September 30, 2013.			4,680				2,830

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
Unsecured $9,000 convertible note payable to Star City Capital LLC, which bears interest at 12% per annum and due December 3, 2013. The note is discounted for its unamortized beneficial conversion feature of $1,561 and $8,220 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $907 and $83 at September 30, 2013 and December 31, 2012, respectively.			8,346				863
Unsecured $15,000 note payable to SC Advisors, Inc., which bears interest at 8% per annum and due June 30, 2013. Accrued interest is equal to $1,010 and $99 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			16,010				15,099
Unsecured $25,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $22,625 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $1,621 and $104 at September 30, 2013 and December 31, 2012, respectively..  This note is in default at September 30, 2013.			26,621				2,479
On December 12, 2012, Star City Capital LLC entered into an agreement to purchase $19,700 of a note payable to Bulldog Insurance.  The note bears interest at 8% per annum and is due on demand.   During the nine months ended September 30, 2013, $10,626 of the note was converted to common stock.  Accrued interest is equal to $391 and $51 at September 30, 2013 and December 31, 2012, respectively.			9,698				19,751
Unsecured $7,500 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due June 30, 2013. The note is discounted for its unamortized beneficial conversion feature of $-0- and $7,378 at September 30, 2013 and December 31, 2012, respectively. Accrued interest is equal to $459 and $5 at September 30, 2013 and December 31, 2012, respectively.  This note is in default at September 30, 2013.			7,959				127
On January 3, 2013, SGI Group, LLC entered into an agreement to purchase $10,300 of notes payable to Bulldog Insurance.  The note bears interest at 12% per annum and due on demand.    During the nine months ended September 30, 2013, the note, including accrued interest, was converted to common stock.			–				–
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due November 1, 2013. The note is discounted for its unamortized beneficial conversion feature of $3,633 at September 30, 2013. Accrued interest is equal to $1,696.			30,563				–
Unsecured $35,000 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $2,319.			37,319				–
Unsecured $43,922 convertible note payable to Lucosky Brookman LLP, which bears interest at 12% per annum and due on demand. Accrued interest is equal to $2,910.			46,832				–

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
Unsecured $5,000 note payable to James Flowers, which include flat interest of $500 at maturity and due December 1, 2013. $2,000 of the note was repaid during the nine months ended September 30, 2013.  Accrued interest is equal to $434.			3,434				–
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due January 31, 2014. The note is discounted for its unamortized beneficial conversion feature of $13,892 at September 30, 2013. Accrued interest is equal to $1,097.			19,705				–
Unsecured $7,000 note payable to Andre Fluellen, which include flat interest of $1,500 at maturity and due October 30, 2013. Accrued interest is equal to $1,247.			8,247				–
Unsecured $18,000 note payable to Bulldog Insurance, which bears interest at 7% per annum and due December 1, 2013.  Accrued interest is equal to $504.			18,504				–
On May 6, 2013, WHC Capital, LLC entered into an agreement to purchase $50,000 of notes payable to Bulldog Insurance.  The note bears interest at 8% per annum and is due March 6, 2014.   During the nine months ended September 30, 2013, $19,472 of the note was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $21,128 at September 30, 2013.  Accrued interest is equal to $2,704 at September 30, 2013.			12,104				–
Unsecured $20,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and due March 9, 2014. The note is discounted for its unamortized beneficial conversion feature of $8,613 at September 30, 2013. Accrued interest is equal to $631.			12,018				–
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 $495.			20,495				–
Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due March 3, 2014. The note is discounted for its unamortized beneficial conversion feature of $15,687 at September 30, 2013. Accrued interest is equal to $876.			17,689				–
Unsecured $7,500 note payable to Andre Fluellen, which include flat interest of $1,400 at maturity and due December 1, 2013. Accrued interest is equal to $926.			8,426				–
Unsecured $10,000 note payable to Sammie Hill, III, which include flat interest of $2,000 at maturity and due December 15, 2013. Accrued interest is equal to $1,169.			11,169				–
Unsecured $5,000 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 10% per annum and due June 21, 2014. The note is discounted for its unamortized beneficial conversion feature of $3,616 at September 30, 2013. Accrued interest is equal to $138.			1,522				–
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $4,264 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and is due June 21, 2014.   During the nine months ended September 30, 2013, the note was converted to common stock.			–				–
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $5,169 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and due June 21, 2014.    During the nine months ended September 30, 2013, the note was converted to common stock.			–				–

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
On June 21, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $19,168 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and due June 21, 2014.   During the nine months ended September 30, 2013, the note was converted to common stock.			–				–
Unsecured $12,000 note payable to Bulldog Insurance, which bears interest at 7% per annum and due December 1, 2013.  Accrued interest is equal to $221.			12,221				–
Unsecured $3,000 note payable to Andre Fluellen, which include flat interest of $500 at maturity and due December 1, 2013. Accrued interest is equal to $292.			3,292				–
Unsecured $3,000 note payable to Andre Fluellen, which include flat interest of $500 at maturity and due February 22, 2014. Accrued interest is equal to $32.			3,032				–
Unsecured $14,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due May 5, 2014. The note is discounted for its unamortized beneficial conversion feature of $10,767 at September 30, 2013. Accrued interest is equal to $165.			3,898				–
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 $35.			8,535				–
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 $121.			7,621				–
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 $86.			10,086				–
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 $16.			4,016				–
Unsecured $6,500 convertible note payable to Tangiers Investment Group, LLC., which bears interest at 10% per annum and due July 25, 2014. The note is discounted for its unamortized beneficial conversion feature of $5,306 at September 30, 2013. Accrued interest is equal to $119.			1,313				–
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 $16,383 at September 30, 2013.  Accrued interest is equal to $362.			3,979				–
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 $4,191 at September 30, 2013. Accrued interest is equal to $81.			890				–

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 3 – Loans Payable (Continued)

 

		September 30,				December 31,
		2013				2012
On August 2, 2013, Tangiers Investment Group, LLC entered into an agreement to purchase $15,000 of notes payable to Bulldog Insurance.  The note bears interest at 10% per annum and is due August 2, 2014.    During the nine months ended September 30, 2013, $7,592 of the note was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $5,075 at September 30, 2013.  Accrued interest is equal to $120.			2,453				–
Unsecured $5,000 convertible note payable to WHC Capital, LLC., which bears interest at 8% per annum and due August 12 2014. The note is discounted for its unamortized beneficial conversion feature of $4,328 at September 30, 2013. Accrued interest is equal to $54.			726				–
Total Loans Payable		$	667,003			$	404,761

 

The Company accrued interest expense of $47,144 and $126,284 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, on the above loans.  Accrued interest is included in the loan balances.

 

The Company borrowed $302,500 and $851,711 during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The Company made payments of $2,000 and $12,600 on the loans during the nine months ended September 30, 2013 and the year ended December 31, 2012. During the nine months ended September 30, 2013, the Company converted $219,159 of loans payable into 1,210,999,766 shares of the Company’s common stock. During the year ended December 31, 2012, the Company converted $875,433 of loans payable into 3,693,754 shares of the Company’s common stock and $57,000 of loans payable into 1,000,000 shares of the Company’s Series A preferred stock.

 

Note 4 – Related Parties

 

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

 

		September 30,				December 31,
		2013				2012
Unsecured non-interest bearing notes payable, due on demand, to Frank Russo, a Director of the Company.  During the nine months ended September 30, 2013, $60,000 of the note balance was converted to Series A preferred stock.		$	300,229			$	354,979
Unsecured notes payable to Edward Eppel,  a Director of the Company, which bears interest at 10% per annum and is due on demand.  During the nine months ended September 30, 2013, $55,000 of the note was converted to Series A preferred stock.  Accrued interest is equal to $40,855 and $31,374, respectively.			199,318				184,930
Total		$	499,547			$	539,909

  

Frank Russo, a Director of the Company, is a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2012, $354,979 was due to Mr. Russo.  The Company borrowed $5,250 from Mr. Eppel during the nine months ended September 30, 2013. During the nine months ended September 30, 2013, the Company converted $60,000 of the note into 9,166,667 shares of Series A preferred stock.

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 4 – Related Parties (Continued)

 

Edward Eppel, a Director of the Company, is a holder of a note of the Company which bears interest at 10% per annum. At December 31, 2012, $184,930 was due to Mr. Eppel.  The Company borrowed $59,908 from Mr. Eppel during the nine months ended September 30, 2013.  $9,480 of interest was accrued and included in the loan balance for the nine months ended September 30, 2013. During the nine months ended September 30, 2013, the Company converted $55,000 of the note into 6,666,667 shares of Series A preferred stock.

 

During the nine months ended September 30, 2013, Mr. Anis Sherali, a Director of the Company, purchased 10,000,000 shares of the Company’s common stock for $20,000 and 14,862,035 shares of the Company’s Series A preferred stock for $55,500. Additionally, during the nine months ended September 30, 2013 Mr. Sherali agreed to purchase 19,750,000 shares of common stock for $14,000 and 17,000,000 shares of Series A preferred stock for $49,000. These amounts are shown as common stock issuable and preferred stock issuable, respectively, at September 30, 2013.

 

The Company converted $130,000 of accrued salaries due to Mr. Kayode Aladesuyi, the Chief Executive Officer and Director of the Company, into 23,333,333 shares of the Company’s Series A preferred stock.

 

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

 

Note 5 – Amounts Payable in Common Stock and Derivative Liability

 

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

 

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

 

As common stock is issued in installments on the settlement, the Amounts Payable in Common Stock and the Derivative Liability will be reduced accordingly. During the nine months ended September 30, 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 6 – Stockholders’ Deficit

 

Authorized Capital

 

On September 17, 2010, the Board authorized the creation of a common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants. The Company registered twenty five million (25,000,000) shares of its common stock pursuant to the 2010 Stock Incentive Plan on Form S-8 filed with the Commission on September 27, 2010. As of September 30, 2013, 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.

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 6 – Stockholders’ Deficit (Continued)

 

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.

 

Preferred Stock Issuable for Subscriptions

 

During the nine months ended September 30, 2013, the Company entered into subscription agreements for 114,662,035 shares of its Series A preferred stock to be issued for a total of $361,500. $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 September 30, 2013, there were 17,000,000 shares of Series A preferred stock, representing $49,000, 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 nine months ended September 30, 2013, $20,000 of the subscription receivable was received in cash.

 

Preferred Stock Issued in Conversion of Debt

 

During the nine months ended September 30, 2013, the Company issued 8,333,333 shares of Series A preferred stock in the conversion of $100,000 of notes payable to related parties (see Note 4 – Related Parties).

 

During the nine months ended September 30, 2013, the Company issued 8,333,333 shares of Series A preferred stock in the conversion of $100,000 of accrued salaries.

 

Preferred Stock Issued in Conversion of Common Stock

 

During the nine months ended September 30, 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.

 

Common Stock Issuable for Subscriptions

 

During the nine months ended September 30, 2013, the Company entered into subscription agreements for 19,750,000 shares of its common stock to be issued for a total of $14,000.

 

Common Stock Purchased for Cash

 

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

 

Common Stock Issued for Cash

 

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

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 6 – Stockholders’ Deficit (Continued)

 

Common Stock Issued in Conversion of Debt

 

During the nine months ended September 30, 2013, the Company issued 1,210,999,766 shares of common stock in the conversion of $219,158 of notes payable to unrelated parties (see Note 3 – Loans Payable).

 

During the nine months ended September 30, 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 (see Note 5 – Amounts Payable in Common Stock and Derivative Liability).

 

Common Stock Issued for Services

 

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

 

Common Stock Issued in Conversion of Preferred Stock

 

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

 

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 September 30, 2013, future minimum lease payments under the lease are as follows:

 

	2013				6,684
	2014				27,550
	2015				28,366
	2016				29,219
	2017				15,054
				$	106,873

 

Rent expense was $22,946 and $26,920 for the nine months ended September 30, 2013 and 2012, respectively.

 

Acquisition Liabilities

 

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

 

License Agreements

 

On October 5, 2011, the Company entered into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of BBGN&K. The license agreement calls for royalty payments beginning in 2012 of 8% of the revenue generated from the use of the license, to be paid quarterly. Royalty expense was $4,013 and $43,575 for the nine months ended September 30, 2013 and 2012, respectively.

 

 

East Cost Diversified Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2013

(unaudited)

 

Note 7 – Commitments and Contingencies (Continued)

 

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 September 30, 2013.

 

Note 8 – Subsequent Events

 

On October 9, 2013, the Company issued 2,500,000 shares of its series A preferred stock in to Anis Sherali, a director of the Company, for $5,000 cash.

 

On October 21, 2013, the Company issued 148,154,000 shares of its common stock in conversion of loans payable in the amount of $7,408.

 

On October 22, 2013, the Company issued 147,048,592 shares of its common stock in conversion of loans payable in the amount of $7,352.

 

On October 23, 2013, the Company issued 173,185,200 shares of its common stock in conversion of loans payable in the amount of $8,533.

 

On October 25, 2013, the Company issued a $3,500 unsecured convertible promissory note to Robert Saidel. The note bears interest at 7% per annum and is due April 25, 2014.

 

On October 31, 2013, the Company issued a $20,000 unsecured convertible promissory note to CJ Mosley. The note includes flat interest of $1,800, is due April 28, 2014, and is convertible at a 30% discount to the current market trading price as of the conversion date.

 

On October 31, 2013, the Company issued 3,750,000 shares of its series A preferred stock in to Anis Sherali, a director of the Company, for $7,500 cash.

 

On November 1, 2013, the Company issued 107,010,674 shares of its common stock in conversion of loans payable in the amount of $5,351.

 

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.

 

 

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

 

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

 

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

 

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

 

Plan of Operation

 

2013 operations represented a significant shift in focus and business restructuring for the Company. We completed the development of 2 new divisions, “StudentConnect” and “WetWinds,” and began to commercialize both divisions. The Company is continuing to focus its resources on completing the development of its two newest divisions StudentConnect and WetWinds (Vir2o).

 

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

  

Marketing and Business Development

 

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

 

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

 

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

 

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

 

EarthSearch Communications

 

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

 

 

We are currently engaged in numerous pilot projects with several major organizations, including but not limited to the following partners and customers: Proseguer Uraguay, and Oando Oil in Nigeria. Our business with each of the aforementioned organizations consists of the following:

 

Proseguer Uruguay:

 

We executed a 2 year licensing agreement with Prosequer in Uruguay and delivered an initial pilot order of 50 TrailerSeals. Proseguer is currently working on a project with the Uruguay Customs Authority for the tracking of Cargo transported between Uruguay and neighboring countries. Our TrailerSeals will be installed on all containers traveling between Uruguay and neighboring countries. We have developed and localized a version of our GATIS software in Uruguay for the intended deployment of a full operation in 2014.

 

Oando Oil in Nigeria

 

We completed our pilot project for Oando Oil in Nigeria and delivered 400 units of oil tanker monitoring devices for the project and are implementing several pilot projects for our Regional Master Licensee for West Africa (Halogen Security), these pilot projects include Lagos State Government Waste Management and an oil pipeline monitoring project for the Nigerian National Petroleum commission through our partner Halogen Security.

 

StudentConnect

 

The Company has commercially launched StudentConnect, our school transportation and safety division. We executed 5-year contracts with school Districts in South Carolina, Kentucky, Louisiana, and Arkansas. We intend to have all 4 school districts fully installed and implemented for the school year beginning January 2014. In addition, we are continuing pilot testing and discussions with school districts in GA, SC, KY, AR, AL, NC and LA. We anticipate additional agreements executed by year end for further deployment in 2014.

 

We executed 2 agreements with Verizon Wireless, The Verizon Partner Program and the Verizon Master Services Agreements (MSA). The MSA agreement gives us access to the Verizon network and grants Verizon wireless exclusive right to provide network services to all schools utilizing StudentConnect. Under the Verizon Partner Program, Verizon and StudentConnect shall engage in joint sales and marketing of the StudentConnect product to school districts across the country. Verizon’s sales force shall market StudentConnect to school districts nationwide.

 

We anticipate having access to the Verizon sales force which will allow us to reach greater audience for the continued and accelerated growth of the StudentConnect division of our business. To meet the potential demand we have expanded our technical and customer service operation and plan to increase our warehousing capabilities.

 

WetWinds dba “Vir2o”

 

 

WetWinds is a technology company that provides interactive social media experiences for users across the globe through its online platform Vir2o. We launched the beta version of Vir2o on April 5, 2013. We filed provisional patent application with the US Trade Mark office in April of 2013 and expect to complete a full non provisional application by January 2014.

 

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

 

On August 1, 2013, we executed an agreement with Ad Media to provide advertisement content to Vir2o.

 

We offer commercial content and advertisement platform in 4 additional markets outside the US. We implemented advertisement capability on the platform and currently display advertisement on the platform in 40 countries.

 

In September 2013 we hired several independent consultants in Nigeria and Brazil to help facilitate the growth of the platform in both markets with the recruitment of users and content providers,

 

Our user recruitment strategy includes the engagement of a public relations firm to target and introduce our proprietary nVite technology to the public. We are consistently promoting the platform on social media, engaging potential users with games and contest in all markets where we are actively promoting the site, and hope to engage online bloggers and celebrities to endorse the platform.

 

 

On October 18, 2013, we launched the mobile app for Vir2o on iOS, Android and Blackberry platforms making it available to all users with smart phones. In addition we launched the app in html for users that do not have smartphones.

 

On October 20, 2013, we entered into an agreement with AdMob, the mobile ad division of Google, to provide advertisement on the mobile apps. We anticipate that these advertisements will be deployed by the end of 2013.

 

We intend to accelerate and increase our promotion and marketing efforts to grow the site as we move into 2014. Our goal is to have the site actively growing with users, content and revenue.

 

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

 

Rogue Paper

 

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

 

Results of Operations

 

For the Three Months Ended September 30, 2013 and 2012

 

Revenues

 

For the three months ended September 30, 2013, our revenue was $106,949 compared to $66,314 for the same period in 2012, representing an increase of 61%. This decrease is attributed to increase in orders of our EarthSearch products, while we continue our focus on completing development of the StudentConnect and WetWinds divisions.

 

Revenues are generated from three separate but related offerings, RFID/GPS product sales, consulting services, and user fees for GATIS – our advanced web based asset management platform.  We generated revenues from product sales of $101,563 and $52,721 for the three months ended September 30, 2013 and 2012, respectively.  Revenues for consulting services were $-0- and $-0- for the three months ended September 30, 2013 and 2012.  User fees were $5,386 and $13,593 for the three months ended September 30, 2013 and 2012, respectively.

 

Operating Expenses

 

For the three months ended September 30, 2013, operating expenses were $530,632 compared to $1,007,834 for the same period in 2012, a decrease of 47%.

 

Cost of revenues increased $25,634 and is directly attributable to the increase in revenues for the three months ended September 30, 2013.

 

For the three months ended September 30, 2013, selling, general and administrative expenses were $453,896 compared to $956,732 for the same period in 2012, a decrease of 53%. This decrease was primarily caused by professional fees related to public company compliance and investor relations decreased by $131,500; bad debt expenses decreased by $125,002; royalties owed on a license agreement decreased by $1,024; and salary expenses of $243,203.

 

Net Loss

 

We generated net losses of $384,802 for the three months ended September 30, 2013 compared to $974,993 for the same period in 2012, a decrease of 61%. Included in the net loss for the three months ended September 30, 2013 was interest expense of $125,578 (of which $101,476 represents accretion of embedded beneficial conversion features on notes payable); offset by the change in derivative liability of $160,000 and non-controlling interests’ share of the net loss of EarthSearch of $4,459.  Included in the net loss for the three months ended September 30, 2012 was interest expense of $134,083 (of which $138,230 represents accretion of embedded beneficial conversion features on notes payable); offset by other income of $57,003, change in derivative liability of $8,518, net loss from disputed subsidiary of $12,047 and non-controlling interests’ share of the net loss of EarthSearch of $47,136.

 

 

For the Nine Months ended September 30, 2013 and 2012

 

Revenues

 

For the nine months ended September 30, 2013, our revenue was $169,168 compared to $710,718 for the same period in 2012, representing a decrease of 76%. This decrease is attributed to our focus on completing development of the StudentConnect and WetWinds divisions.

 

Revenues are generated from three separate but related offerings, RFID/GPS product sales, consulting services, and user fees for GATIS – our advanced web based asset management platform.  We generated revenues from product sales of $155,385 and $514,397 for the nine months ended September 30, 2013 and 2012, respectively.  Revenues for consulting services were $-0- for the nine months ended September 30, 2013, compared to $151,920 for the nine months ended September 30, 2012.  User fees were $13,783 and $44,401 for the nine months ended September 30, 2013 and 2012, respectively.

 

Operating Expenses

 

For the nine months ended September 30, 2013, operating expenses were $1,639,374 compared to $2,911,471 for the same period in 2012, a decrease of 44%.

 

Cost of revenues decreased $264,905 and is directly attributable to the decrease in revenues for the nine months ended September 30, 2013.

 

For the nine months ended September 30, 2013, selling, general and administrative expenses were $1,522,806 compared to $2,529,998 for the same period in 2012, a decrease of 40%. This decrease was primarily caused by professional fees related to public company compliance and investor relations decreased by $529,538; bad debt expenses decreased by $309,517, royalties owed on a license agreement decreased by $39,563; travel expense decreased by $8,413; and amortization of intangible assets and prepaid license fees decreased by $9,273; offset by an increase in salary expenses of $37,000 and consulting expenses of $51,470.

 

Net Loss

 

We generated net losses of $1,758,516 for the nine months ended September 30, 2013 compared to $3,221,480 for the same period in 2012, a decrease of 45%. Included in the net loss for the nine months ended September 30, 2013 was interest expense of $460,295 (of which $400,424 represents accretion of embedded beneficial conversion features on notes payable); offset by change in derivative liability of $154,277and non-controlling interests’ share of the net loss of EarthSearch of $17,708.  Included in the net loss for the nine months ended September 30, 2012 was interest expense of $635,280 (of which $604,841 represents accretion of embedded beneficial conversion features on notes payable), a loss on conversion of debt of $575,263, change in derivative liability of $2,291; offset by other income of $58,387, gain on settlement of debt of $141,141, net loss from disputed subsidiary of $41,167 and non-controlling interests’ share of the net loss of EarthSearch of $33,746.

 

Liquidity and Capital Resources

 

Overview

 

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

 

Liquidity and Capital Resources during the nine months ended September 30, 2013 compared to the nine months ended March 30, 2012

 

As of September 30, 2013, we had cash of $368 and a working capital deficit of $3,573,986.  The Company generated a negative cash flow from operations of $669,789 for the nine months ended September 30, 2013, as compared to cash used in operations of $1,242,037 for the nine months ended September 30, 2012. The negative cash flow from operating activities for the nine months ended September 30, 2013 is primarily attributable to the Company's net loss from operations of $1,758,516, offset by noncash depreciation and amortization of $3,166, issuance of loan payable for consulting services of $78,922, stock issued for services of $12,900, amortization of prepaid license fees of $37,500, accretion of beneficial conversion features on convertible notes payable of $400,424, accrued interest on loans payable of $56,626, changes in operating assets and liabilities of $671,174, and increased by change in derivative liability of $154,277 and noncontrolling interests in the loss of EarthSearch of $17,708.

 

  

The negative cash flow from operating activities for the nine months ended September 30, 2012 is primarily attributable to the Company's net loss from operations of $3,221,480, offset by noncash depreciation and amortization of $24,046, provision for doubtful accounts of $311,671, amortization of intangible assets of disputed subsidiary of $114,750, issuance of loan payable for consulting services of $60,000, stock issued for services and compensation of $425,205, amortization of prepaid license fees of $37,500, amortization of payment redemption premiums of $12,076, loss on conversion of debt of $575,263, change in derivative liability of $2,291, accretion of beneficial conversion features on convertible notes payable of $604,841, accretion of stock discounts on convertible notes payable of $2,160, accrued interest on loans payable of $47,224, liabilities of disputed subsidiary of $11,116, changes in operating assets and liabilities of $101,986 and increased by gain on recovery of redemption premiums of $28,975, gain on settlement of loans payable of $38,646, gain on settlement of accounts payable of $102,495, assets of disputed subsidiary of $ 107,271 and noncontrolling interests in the losses of EarthSearch of $73,299.  

 

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

 

Cash generated from our financing activities was $670,157 for the nine months ended September 30, 2013, compared to $1,192,878 during the comparable period in 2012. This decrease was primarily attributed to the proceeds from the issuance of preferred stock subscriptions of $91,500 in 2013 compared to $325,002 in 2012, proceeds from the issuance of common stock subscriptions of $14,000 in 2013, proceeds from loans payable of $302,500 in 2013 compared to $676,076 in 2012, proceeds from loans payable – related parties of $65,157 in 2013 compared to $56,500 in 2012, repurchase of common stock of $5,000 in 2013, proceeds from the issuance of common stock of $20,000 in 2013 compared to $1,000 in 2012, proceeds from the issuance of preferred stock of $184,000 in 2013 compared to $151,900 in 2012, the repayment of loans payable of $2,000 in 2013 compared to $12,600 in 2012, and the repayment of loans payable – related party of $5,000 in 2012.

 

We will require additional financing during the current fiscal year. During the period from October 1, 2013 to October 31, 2013, we received proceeds of $23,500 from the issuance of convertible promissory notes and loans and $12,500 from the sale of preferred stock.

 

On April 20, 2012, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Ironridge Technology Co., a division of Ironridge Global IV, Ltd. (“Ironridge”), providing for the issuance and sale by the Company to the Ironridge of an aggregate of 1,500 shares of the Company’s Series B Preferred Stock (the “Preferred Shares”) in fifteen (15) equal tranches of 100 Preferred Shares each, at a price of $1,000 per Preferred Share. Pursuant to the Certificate of Designation to create the Series B Preferred Shares, each Preferred Share may be converted at any time at the option of Ironridge into shares of the Company’s common stock, par value $0.001 at a conversion price of $.01 per share, subject to certain adjustments. During the year ended December 31, 2012, the Company received $100,000 for the first tranche of 100 shares and $229,000 of the subscription receivable. During the nine months ended September 30, 2013, the Company received $42,500 of the subscription receivable.

 

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

 

On April 20, 2012, the Company issued 99,400 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from certain creditors of the Company in the aggregate amount equal to $1,079,991 (the “Claim Amount”), plus attorney’s fees and costs. Pursuant to the Stipulation, the Company was required to issue and deliver 99,400 shares of Common Stock (the “Initial Issuance”). Ironridge will ultimately be entitled to retain a number of shares of Common Stock (the “Final Amount”) that is equal to: (a) the sum of $1,068,344.86 plus a transaction fee of $40,000 and reasonable attorney’s fees, (b) divided by sixty-five percent (65%) of the volume weighted average price (“VWAP”) of the Common Stock as reported by Bloomberg Professional service of Bloomberg LP over a period of time beginning on the date on which Ironridge receives the Initial Issuance and ending on the date on which the aggregate trading volume of the Company’s Common Stock exceeds $5,000,000 (such period being the “Calculation Period”), not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period. For every 20 million shares that trade during the Calculation Period, or if any time during the Calculation Period a daily VWAP is below 80% of the closing price of the Company’s Common Stock on the day before the date of the Initial Issuance, Ironridge has the right to cause the Company to immediately issue to Ironridge additional shares of Common Stock (each, an “Additional Issuance”) (provided, however, that at no time may Ironridge and its affiliates collectively own more than 9.99% of the total number of shares of Common Stock outstanding). At the end of the Calculation Period, (a) if the sum of the Initial Issuance and any Additional Issuance is less than the Final Amount, the Company shall immediately issue additional shares to Ironridge so that the total issuance is equal to the Final Amount and (b) if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount, Ironridge will return any remaining shares to the Company for cancellation. Subsequent to April 24, 2012 and through September 30, 2013, the Company has issued an additional 102,910,400 shares of the Company’s common stock pursuant to the Stipulation.

 

 

Going Concern

 

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

 

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

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

   

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

 

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

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

  

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

 

Item 4.  Controls and Procedures.

  

(a)

Evaluation of Disclosure Controls and Procedures

   

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

 

 

(b)

Changes in Internal Control over Financial Reporting

 

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

 

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

   

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

 

Item 1A.  Risk Factors

  

The disclosure required under this item is not required to be reported by smaller reporting companies.

 

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

 

On July 1, 2013, pursuant to a debt conversion notice, the Company issued 1,388,889 shares of the Company’s common stock to satisfy debt obligations of $750.  

 

On July 2, 2013, pursuant to two debt conversion notices, the Company issued 6,173,450 shares of the Company’s common stock to satisfy debt obligations of $2,469.  

 

On July 8, 2013, pursuant to a debt conversion notice, the Company issued 1,395,833 shares of the Company’s common stock to satisfy debt obligations of $670.  

 

On July 9, 2013, pursuant to a debt conversion notice, the Company issued 2,500,000 shares of the Company’s common stock to satisfy debt obligations of $938.  

 

On July 11, 2013, pursuant to a debt conversion notice, the Company issued 6,829,268 shares of the Company’s common stock to satisfy debt obligations of $2,800.  

 

On July 12, 2013, pursuant to a debt conversion notice, the Company issued 8,148,148 shares of the Company’s common stock to satisfy debt obligations of $2,200.  

 

On July 17, 2013, pursuant to a debt conversion notice, the Company issued 6,857,143 shares of the Company’s common stock to satisfy debt obligations of $2,400.  

 

On July 18, 2013, pursuant to a debt conversion notice, the Company issued 8,816,750 shares of the Company’s common stock to satisfy debt obligations of $1,763.  

 

On July 19, 2013, pursuant to two debt conversion notices, the Company issued 105,666,667 shares of the Company’s common stock to satisfy debt obligations of $144,700.  

 

On July 22, 2013, pursuant to a debt conversion notice, the Company issued 6,969,697 shares of the Company’s common stock to satisfy debt obligations of $2,300.  

 

On July 23, 2013, pursuant to two debt conversion notices, the Company issued 24,143,800 shares of the Company’s common stock to satisfy debt obligations of $5,329.  

 

On July 25, 2013, pursuant to two debt conversion notices, the Company issued 9,819,697 shares of the Company’s common stock to satisfy debt obligations of $3,027.  

 

 

On July 29, 2013, pursuant to three debt conversion notices, the Company issued 39,861,336 shares of the Company’s common stock to satisfy debt obligations of $12,449.  

 

On August 1, 2013, pursuant to three debt conversion notices, the Company issued 34,228,094 shares of the Company’s common stock to satisfy debt obligations of $10,711.  

On August 6, 2013, pursuant to a debt conversion notice, the Company issued 30,000,000 shares of the Company’s common stock to satisfy debt obligations of $4,500.  

 

On August 7, 2013, pursuant to two debt conversion notices, the Company issued 28,532,242 shares of the Company’s common stock to satisfy debt obligations of $4,739.  

 

On August 12, 2013, pursuant to a debt conversion notice, the Company issued 13,000,000 shares of the Company’s common stock to satisfy debt obligations of $1,755.  

 

On August 19, 2013, pursuant to two debt conversion notices, the Company issued 58,907,200 shares of the Company’s common stock to satisfy debt obligations of $5,994.  

 

On August 20, 2013, pursuant to four debt conversion notices, the Company issued 71,517,107 shares of the Company’s common stock to satisfy debt obligations of $7,915.  

 

On August 21, 2013, pursuant to a debt conversion notice, the Company issued 13,305,000 shares of the Company’s common stock to satisfy debt obligations of $1,197.

 

On August 22, 2013, pursuant to two debt conversion notices, the Company issued 38,833,333 shares of the Company’s common stock to satisfy debt obligations of $4,000.

 

On August 23, 2013, pursuant to three debt conversion notices, the Company issued 125,677,500 shares of the Company’s common stock to satisfy debt obligations of $12,178.

 

On August 27, 2013, pursuant to a debt conversion notice, the Company issued 21,700,000 shares of the Company’s common stock to satisfy debt obligations of $1,628.

 

On August 28, 2013, pursuant to two debt conversion notices, the Company issued 78,186,600 shares of the Company’s common stock to satisfy debt obligations of $3,909.

 

On September 3, 2013, pursuant to two debt conversion notices, the Company issued 102,455,921 shares of the Company’s common stock to satisfy debt obligations of $5,123.

 

On September 4, 2013, pursuant to a debt conversion notice, the Company issued 60,000,000 shares of the Company’s common stock to satisfy debt obligations of $2,700.

 

On September 10, 2013, pursuant to a debt conversion notice, the Company issued 88,325,400 shares of the Company’s common stock to satisfy debt obligations of $4,416.

 

On September 11, 2013, pursuant to two debt conversion notices, the Company issued 131,764,481 shares of the Company’s common stock to satisfy debt obligations of $4,371.

 

On September 12, 2013, pursuant to a debt conversion notice, the Company issued 22,880,000 shares of the Company’s common stock to satisfy debt obligations of $1,030.

 

On September 25, 2013, pursuant to a debt conversion notice, the Company issued 24,080,000 shares of the Company’s common stock to satisfy debt obligations of $1,084.

 

On September 30, 2013, pursuant to a debt conversion notice, the Company issued 87,450,838 shares of the Company’s common stock to satisfy debt obligations of $4,373.

 

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

 

 

Item 3.  Defaults Upon Senior Securities.

  

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

 

Hanover Holdings I, LLC		$	2,905
Panache Capital, LLC			6,906
Hanover Holdings I, LLC			18,833
Hanover Holdings I, LLC			7,585
Hanover Holdings I, LLC			17,209
Southridge Partners II LP			43,384
SC Advisors, Inc.			16,218
Azfar Hague			22,580
SC Advisors, Inc.			16,096
Asher Enterprises, Inc.			31,485
Southridge Partners II LP			4,680
SC Advisors, Inc.			16,010
Southridge Partners II LP			26,621
Southridge Partners II LP			7,959
		$	238,471

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

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

 

Item 6.  Exhibits

  

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

 

* Filed herewith

 

 

 

SIGNATURES

 

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

 

 

Date:  November 19, 2013		By:  /s/ Kayode Aladesuyi
		Kayode Aladesuyi
		Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)