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EX-31.1 - CERTIFICATION - MediXall Group, Inc.crcx_ex31z1.htm
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EX-31.2 - CERTIFICATION - MediXall Group, Inc.crcx_ex31z2.htm


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)


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


For the quarterly period ended March 31, 2016


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: 333-194337


Continental Rail Corp.

 (Exact name of registrant as specified in its charter)


Nevada

33-0864127

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)


2929 East Commercial Blvd., PH-D,

Ft. Lauderdale, Florida 33308

 (Address of principal executive offices)(Zip Code)


954-440-4678

(Registrant’s telephone number, including area code)


Not applicable

 (Former name, former address and former fiscal year, if changed since last report)


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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ  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

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

þ


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


As of May 9, 2016 the issuer had 38,921,911 shares of its common stock issued and outstanding.

 

 

 




 


CONTINENTAL RAIL CORP. AND SUBSIDIARIES


INDEX


 

 

Page No.

PART I

FINANCIAL INFORMATION

 

                        

 

                        

ITEM 1.

FINANCIAL STATEMENTS:

1

 

Condensed Consolidated Balance Sheets (unaudited)

 

 

Condensed Consolidated Statements of Operations (unaudited)

2

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited)

3

 

Condensed Consolidated Statements of Cash Flows (unaudited)

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

9

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

12

ITEM 4.

CONTROLS AND PROCEDURES

12

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

13

ITEM 1A.

RISK FACTORS

13

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

13

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

13

ITEM 4.

MINE SAFETY DISCLOSURES

13

ITEM 5.

OTHER INFORMATION

13

ITEM 6.

EXHIBITS

13


FORWARD LOOKING STATEMENTS


This report contains forward looking statements. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements contained in this report speak only as of the date of this report, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such forward-looking statements include statements regarding, among other things, matters associated with:


·

our ability to continue as a going concern,

·

our history of losses which we expect to continue,

·

the significant amount of liabilities due related parties,

·

our ability to raise sufficient capital to fund our company,

·

our ability to integrate acquisitions and the operations of acquired companies,

·

the limited experience of our management in the operations of a public company,

·

potential weaknesses in our internal control over financial reporting,

·

increased costs associated with reporting obligations as a public company,

·

a limited market for our common stock and limitations resulting from our common stock being designated as a penny stock,

·

the ability of our board of directors to issue preferred stock without the consent of our stockholders,

·

our management controls the voting of our outstanding securities,

·

the conversion of shares of Series A preferred stock will be very dilutive to our existing common stockholders, and

·

risks associated with our status as an emerging growth company.





 


You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2015 and our other filings with the Securities and Exchange Commission. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.


OTHER PERTINENT INFORMATION


Unless specifically set forth to the contrary, when used in this report the terms “Continental Rail”, the “Company,” “we”, “us”, “our” and similar terms refer to Continental Rail Corp., a Nevada corporation, and its subsidiaries, including Transportation Management Services, Inc. a Michigan corporation which we refer to as TMS, Continental Rail Holdings Corp. a Nevada corporation which we refer to as Continental Rail Holdings (CRHC), Continental Rail Leasing, Corp., a Florida corporation which we refer to as Continental Rail Leasing (CRLC) and Continental Rail Leasing Corp., an Alberta Canada extra-provincial corporation.






 




 


PART 1.  FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS


CONTINENTAL RAIL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

  

                       

  

  

                       

  

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$

230

 

 

$

 

Accounts receivable - related party

 

 

 

 

 

 

Total Current Assets

 

 

230

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Investments

 

 

25,000

 

 

 

25,000

 

Total Assets

 

$

25,230

 

 

$

25,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

458,906

 

 

$

400,612

 

Accounts payable

 

 

58,085

 

 

 

63,064

 

Accrued expenses - related party

 

 

341,654

 

 

 

334,454

 

Accrued expenses

 

 

229,162

 

 

 

229,162

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

1,087,807

 

 

 

1,027,292

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

 

 

 

Convertible Preferred Series A stock, $0.001 par value, 1,000.000 authorized; 0 and 600,000 issued and outstanding at December 31 2015 and 2014, respectively

 

 

 

 

 

 

Common Stock, $0.001 Par Value 750,000,000 shares authorized; 38,921,911 and 38,428,911 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

38,922

 

 

 

38,429

 

Additional paid-in capital

 

 

3,996,600

 

 

 

3,997,093

 

Accumulated deficit

 

 

(5,098,099

)

 

 

(5,037,814

)

 

 

 

 

 

 

 

 

 

Total Stockholders' Deficit

 

 

(1,062,577

)

 

 

(1,002,292

)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$

25,230

 

 

$

25,000

 


(The accompanying notes are an integral part of these condensed consolidated financial statements)




1



 


CONTINENTAL RAIL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

  

                       

  

  

                       

  

Revenue

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

    Professional fees

 

 

16,902

 

 

 

19,563

 

    Professional fees - related party

 

 

43,327

 

 

 

38,094

 

    Personnel related expenses

 

 

 

 

 

32,572

 

    Other selling, general and administrative

 

 

56

 

 

 

 

        Total Operating Expenses

 

 

60,285

 

 

 

90,229

 

Earnings before taxes

 

 

(60,285

)

 

 

(90,229

)

Provision for income taxes

 

 

 

 

 

 

Net Loss

 

$

(60,285

)

 

$

(90,229

)

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.00

)

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the periods - basic and diluted

 

 

38,921,911

 

 

 

37,862,068

*


* Denotes a loss per share of less than $0.01 per share.


(The accompanying notes are an integral part of these condensed consolidated financial statements)





2



 


CONTINENTAL RAIL CORP.

 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)

For the Three Month Period Ended March 31, 2016 (Unaudited) and Year Ended December 31, 2015

  

 

 

Series A Voting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

Total

 

 

 

$0.001 Par Value

 

 

$0.001 Par Value

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

 

600,000

 

 

 

600

 

 

 

37,872,068

 

 

 

37,872

 

 

 

3,606,557

 

 

 

(4,689,193

)

 

 

(1,044,164

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of Series A convertible shares

 

 

(600,000

)

 

 

(600

)

 

 

 

 

 

 

 

 

346,093

 

 

 

 

 

 

345,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services ($0.20 per share)

 

 

 

 

 

 

 

 

225,000

 

 

 

225

 

 

 

44,775

 

 

 

 

 

 

45,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of restricted shares of common stock related to prior years' PPM adjustment

 

 

 

 

 

 

 

 

331,843

 

 

 

332

 

 

 

(332

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(348,621

)

 

 

(348,621

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

 

 

 

 

 

 

38,428,911

 

 

 

38,429

 

 

 

3,997,093

 

 

 

(5,037,814

)

 

 

(1,002,292

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of restricted shares of common stock related to prior years' PPM adjustment

 

 

 

 

 

 

 

 

 

493,000

 

 

 

493

 

 

 

(493

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,285

)

 

 

(60,285

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016, (Unaudited)

 

 

 

 

 

 

 

 

38,921,911

 

 

$

38,922

 

 

$

3,996,600

 

 

$

(5,098,099

)

 

$

(1,062,577

)


(The accompanying notes are an integral part of these condensed consolidated financial statements)





3



 


CONTINENTAL RAIL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

  

                       

  

  

                       

  

Net Loss

 

$

(60,285

)

 

$

(90,229

)

Adjustments to reconcile loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable - related parties

 

 

58,294

 

 

 

38,194

 

Accounts payable

 

 

(4,979

)

 

 

(14,656

)

Accrued expenses - related party

 

 

7,200

 

 

 

73,331

 

Net cash provided (used) in operating activities

 

 

230

 

 

 

6,640

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Net cash flows used in investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net cash flows provided by financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

230

 

 

 

6,640

 

Cash and cash equivalents at beginning of year

 

 

 

 

 

378

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

230

 

 

$

7,018

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Interest paid in cash

 

$

 

 

$

 

Income taxes paid in cash

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

 

 

 

 

 

 

 

 

Issuance of 493,000 restricted shares of common stock related to a prior years' PPM adjustment

 

$

 

 

$

 


(The accompanying notes are an integral part of these condensed consolidated financial statements)





4



 


CONTINENTAL RAIL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2016 AND 2015


Note 1 - Organization and Nature of Operations


Continental Rail Corp (the "Company") was incorporated on December 21, 1998 under the laws of the State of Nevada under the name of IP Gate, Inc. In 2002, IP Gate, Inc. changed its name to Action Stocks, Inc. and on June 23, 2003, Action Stocks, Inc. changed its name to Specialized Home Medical Services, Inc. Through December 2006 the Company was in the durable medical equipment business through its subsidiary Classic Health, and from January 3, 2006 to June 30, 2009 was in the business of cataloguing and valuing stamps through its South East Stamp Sales subsidiary. On October 29, 2007, Specialized Home Medical Services, Inc. changed its name to IGSM Group, Inc. During 2011 and 2012 the Company focused on researching and identifying potential merger and acquisition opportunities for investment and operating. Late December 2012, the Company contracted the services of TBG Holdings Corporation who assisted with restructuring the Company ("TBG") into a short line and regional freight railroad holding company that will selectively invest in short line and regional freight railroad properties and railroad rolling stock. On July 10, 2013 the Company changed its name to Continental Rail Corp.


The Company has two wholly-owned subsidiaries, Continental Rail Leasing Corp (a Florida corporation) and Transportation Management, Inc. (a Michigan corporation). These subsidiaries are currently inactive.


On June 19, 2015, the Company entered into an agreement (“Agreement”) with Continental Rail, LLC (“LLC”), a Florida limited liability company, and the Series A Preferred Shareholders of the Company. The Company was actively seeking to secure financing for the purchase of the Delta Southern Railroad (“Delta”), a Class III short-line railroad headquartered in Tallulah, Louisiana. Delta was subsequently purchased by Golden Gate Capital (“Golden Gate”), a private equity firm in San Francisco, California. Golden Gate decided that it was in its best interest to utilize the railroad operations management skills of certain Preferred Shareholders of the Company to manage the daily operations of Delta (“the Manager”). By the terms of the Agreement, however the Delta Manager cannot be owned (more than 10%) or controlled by a public company. Consequently, the LLC was organized by the Preferred Shareholders as the vehicle to manage Delta and satisfy the conditions set forth in the agreement. In conjunction with this transaction the Company received a 10% interest in the LLC and the preferred shareholders returned their preferred shares to the Company for cancelation.


Note 2 – Going Concern


As reflected in the accompanying financial statements, the Company has a net loss of $60,285 and net cash from operations of $230 for the three-month period ended March 31, 2016, and a working capital deficit of $1,087,577 and stockholders' deficit of $1,062,577 at March 31, 2016. These factors raise substantial doubt about the Company's ability to continue as a going concern.


Our financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $5.1 million at March 31, 2016. At December 31, 2015 we had no cash on hand. We did not generate any revenues in 2015 or 2014 and we continue to experience operating losses. Currently, our burn rate is approximately $10,000 per month. We have been and expect to continue funding our business until, if ever, we generate sufficient cash flow to internally fund our business, with and through sales of our securities and working capital advances from TBG. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that our operating expenses will approximate $300,000 per year until we are successful in generating revenues sufficient to pay our operating expenses. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations and provides sufficient funds to pay our obligations. There are also no assurances we will be able to raise additional working capital or that TBG will continue to advance funds to us for working capital. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.





5



CONTINENTAL RAIL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2016 AND 2015



Note 3 - Summary of Significant Accounting Policies


Basis of presentation


The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.


Use of Estimates


The preparation of financial statements in conformity with GAAP requires management to make 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 and the reported amounts of revenues and expenses during the reporting period.


Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly from estimates.


Risks and Uncertainties


The Company's operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.


Cash and Cash Equivalents


The Company maintains cash balances at two financial institutions. The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. The Company had no cash equivalents at March 31, 2016.


Income Taxes


The Company accounts for income taxes using the liability method prescribed by ASC 740, "Income Taxes". Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.


Pursuant to accounting standards related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more- likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than -not recognition threshold should be recognized in the first subsequent period in which the threshold d is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de- recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.


Revenue Recognition


The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104 for revenue recognition.




6



CONTINENTAL RAIL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2016 AND 2015



The Company records revenue when all of the following have occurred; (1) persuasive evidence of an arrangement exists, (2) service delivery has occurred, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.


Revenue is recognized at point of sale, with no further obligations.


Share Based Payment Arrangements


The Company applies the fair value method of ASC 718 "Share Based Payment", in accounting for its stock based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company values the stock based compensation at the market price for the Company's stock as of the date of issuance.


Net Loss Per Share


Basic earnings per share ("EPS") is computed by dividing the net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period including stock warrants using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of warrants) and convertible debt or convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.


Fair Market Value of Financial Instruments


The Company measures assets and liabilities at fair value based on an expected exit price which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.


The following are the hierarchical levels of inputs to measure fair value:


·

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.


·

Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.


·

Level 3: Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.


The Company's financial instruments consisted primarily of accounts payable, accrued liabilities, amounts due to related parties, and debt. The Company's debt approximates fair value based upon current borrowing rates available to the Company for debt with similar maturities. The carrying amounts of the Company's financial instruments generally approximated their fair values as of March 31, 2016 due to the short- term nature of these instruments


Recent Accounting Pronouncements


The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.




7



CONTINENTAL RAIL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2016 AND 2015



Note 4 – Stockholders Equity (Deficit)


On March 4, 2016, the Company issued 493,000 shares of its Common Stock as a result of an error in issuances from prior financings.


Note 5 – Related Party Transactions


Due to Related Parties


The Company also utilizes the services of a related party that provides accounting, tax and bookkeeping services to the Company. At March 31, 2016 the Company owes R3Accounting, LLC $98,964 in fees and services provided to the Company. In addition, at March 31, 2016, the Company owes TBG Holdings Corp. $370,142 in consulting and management fees.


Note 6 – Pending Legal Matters


In January 2014 the Company was named as a co-defendant in a civil law proceeding in Broward County Florida. The complaint alleges a contract dispute between the Company's major shareholders' and various parties that are unrelated to the Company. The plaintiffs alleged the Company engaged in a breach of fiduciary duty, tortious interference with business relations and a fraudulent transfer of assets. The management plans a vigorous defense and it believes there is no basis for these allegations. Management is also exploring possible counterclaims against the plaintiffs. The Company's legal counsel has opined that an unfavorable outcome of this case is deemed remote and any possible loss is deemed immaterial. No adjustment has been reflected on the financial statements regarding this matter.


As of March 31, 2016 there has been no new development in this matter.


Note 7 – Subsequent Events


The Company has reviewed their books and records from the end of the quarter through the date of issuance of these Financial Statements and have determined there are no additional Subsequent Events.






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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


GENERAL


The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Continental Rail Corp. and its subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.


Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


OVERVIEW


We are seeking to become a rail transportation holding company. Our operations will be conducted through two divisions:


·

rail freight division, and

·

rail rolling stock leasing division.


Our rail freight division intends to acquire strategic short line and regional freight railroads, initially with revenues in the range of $2 million to $10 million annually. Our rail rolling stock leasing division will seek to acquire existing rail car and locomotive leasing companies and/or directly purchase rolling stock for lease to railroads. This division will also seek to acquire rail-related service companies to partner with our freight railroad operations. We also expect to provide management and advisory services to rail entities in matters involving transportation and logistics, marketing, engineering, finance and regulatory matters.


Our company was originally formed in 1998 and has been engaged in a number of different businesses. Most recently, between 2011 and June 2013 we were a shell company focused on researching and identifying potential merger and acquisition opportunities. In December 2012 we entered into an agreement with TBG, a company whose shareholders include Mr. Marino, Jr. and Mr. Hart, executive officers and directors of our company, under which we engaged TBG to provide various consulting and advisory services, including assisting us in the identification of potential merger or acquisition targets.


In pursuit of our business plan, in July 2013 we acquired TMS, a company which provides railroad consulting services. In addition, in December 2013 we updated the business plan for the acquisition of short-line and regional freight railroads and establish a rail rolling stock leasing division. During 2014 and into the first quarter of 2015 our Chief Executive Officer has devoted substantial time and effort in the pursuit of our business plan. During the fourth quarter of 2014 we were in late stage discussions with an entity which was negotiating the purchase of a fleet of rail cars for which we would provide management services. We were unsuccessful, however, in securing this agreement. While we have been, and continue to be, engaged in early and late stage discussions with a number of potential acquisition targets and funding sources, and Mr. Marino continues to devote substantially all of his time and attention to our company, we are not a party to a binding agreement with any target or funding sources and there are no assurances we will ever reach that stage.


Historically, we have funded our operating expenses from proceeds received from the sale of equity securities, as well as advances from TBG, a related party. In addition to the capital necessary to implement our business plan set forth above, we need to raise between $250,000 and $300,000 of working capital to provide sufficient funds to continue our operations for the next 12 months. While we have been able to raise working capital through the sale of our securities in private transactions in the past, we do not presently have any commitments for this working capital and there are no assurances that we will be successful in raising any of this necessary amount. We expect that TBG will continue to make working capital advances to us to pay our operating expenses until such time as we are able to raise this additional capital. If for any reason, however, it should cease making these advances and we are unable to raise the additional capital, we would be unable to continue our business.



9



 


In addition to short-term capital to fund our operating expenses until we are able to begin generating revenues, we will need to raise significant additional capital to fund the acquisitions of short line or regional freight railroads or rolling stock or locomotives for lease to railroads. We estimate the acquisition cost for each railroad will be between $5 million and $15 million, and we will need to raise an additional $100 million to fund the purchase of a fleet of 5,000 rail cars and 150 locomotives for our rolling stock division. We do not presently have any firm commitments for this capital and there are no assurances we will be successful in obtaining all or any portion the necessary capital.  Even if we are able to raise this necessary capital, we estimate that it could take between six and 12 months from the receipt of the capital to locate and negotiate the first acquisition.


Once we have closed one or more acquisitions, we expect to generate revenues from the operation of existing rail car leases through our rail rolling stock division. Additional revenues will result from consulting and advisory services to operators. These consulting services may also result in contracts for the operation and shippers. Our primary operating costs are expected to be the cost of due diligence to investigate and acquire profitable companies that meet our criteria. Additional costs will include legal, audit and professional services necessary to include these operations and file the required regulatory SEC and other filings.


Plan of Operation


We do not own any short line or regional freight railroads or any rolling stock for lease to railroads or shippers. During the next 12 months, our planned activities include:


·

closing the first shortline railroad. We will also continue to focus our efforts on securing management contracts which will permit us to generate revenues without the need to raise capital to acquire railroads or rolling stock.


·

our operational efforts to date have also included identifying acquisition targets, early stage discussion with these targets, establishing a relationship with a financing source and debt and/or equity capital raising activities. During the second and third quarters of 2016, subject to the availability of sufficient capital, we will seek to close an acquisition of a short line railroad. Our efforts in connection with this transaction will include both negotiating the terms of an acquisition agreement and securing the commitment from third-party lenders to provide the funds necessary to consummate the acquisition. As described elsewhere herein, our internal analysis estimates the purchase price of a typical short line railroad which we may target will be between $500,000 and $2 million. However, as of the date of this prospectus, we are not a party to any agreements or understanding regarding a potential acquisition nor do we have any firm commitments to provide the necessary financing; and


·

lastly, during the next 12 months we will expand our infrastructure to hire additional management and administrative personnel to both support our expected growth and our public company reporting obligations.


Going Concern


We have incurred net losses of $60,285 million since inception through March 31, 2016. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2015 contains an explanatory paragraph regarding our ability to continue as a going concern based upon the fact that we are dependent upon its ability to increase revenues along with raising addition external capital as needed. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to generate revenues or report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.




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Results of Operations


Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015


Revenue


We did not generate any revenues during the three month ended March 31, 2016 and 2015, respectively.


Operating Expenses


Our total operating expenses decreased $29,944 or 33% for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015.


Liquidity and capital resources


Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At March 31, 2016 we had $230 in cash and a working capital deficit of $1,087,577. Total current liabilities increased 6% at March 31, 2016 from December 31, 2015 as a result of increases in accounts payable – related party, accrued expenses – related party and accounts payable.


For the three months ended March 31, 2016 and 2015, we did not raise any additional funds.


Net cash provided by operating activities for three months ended March 31, 2016 was $230 as compared to $6,640 for three months ended March 31, 2015. This change primarily results of our decreased net loss coupled with decreases in accounts payable, and increases in accounts payable – related parties and accrued expenses – related parties.


Net cash provided by financing activities for the first three months of 2016 was $0 as compared to $0 in 2015.


At March 31, 2016 we had a working capital deficit of $1,087,577 and cash on hand of $230. Our primary source of capital to develop and implement our business plan has been from advances from related parties.


We do not have sufficient capital to fund our current operating expenses for the next 12 months.  As described earlier in this section, we will require additional financing to pay fund our operations, make the acquisitions necessary to expand the company and generate sales and cash flow. Our independent auditors report for the year ended December 31, 2015 includes an explanatory paragraph strategy that our lack of revenues and working capital raise substantial doubt about our ability to continue as a going concern. While we are seeking to raise additional financing, either loans or additional securities or offerings, there can be no assurance that additional financing will be available to us when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing stockholders. The absence of additional financing, when needed, could cause our company to delay implementation of its business plan in whole or in part, curtail its business activities and seriously harm our prospects.


Possible impact of the JOBS Act on our financial statements


Section 107 of the JOBS Act provides that an “emerging growth company” such as our company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result of this election, our financial statements may not be comparable to other companies that comply with the effective dates of certain accounting standards for public companies.


Recent accounting pronouncements


The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.




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Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.


Critical Accounting Estimates


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to the allowance for doubtful accounts and the valuation of warrants that are deemed to be not indexed to our common stock. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 3 to our condensed consolidated financial statements appearing elsewhere in this report.


OFF-BALANCE SHEET ARRANGEMENTS


As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.


ITEM 4.

CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures. Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.


An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2016. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.


Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.








12



 


PART II - OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


Except for litigation described in the pending legal matters footnote there is no other litigation. Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party averse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.


ITEM 1A.

RISK FACTORS.


As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURES.


Not applicable to our Company.


ITEM 5.

OTHER INFORMATION.


None.


ITEM 6.

EXHIBITS.


Exhibit No.

 

Description

31.1

  

Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *

31.2

  

Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer *

32.1

  

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer*

101.INS

  

XBRL Instance Document *

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase *

101.LAB

  

XBRL Taxonomy Extension Label Linkbase *

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase *

101.SCH

  

XBRL Taxonomy Extension Schema *

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase *

———————

*

Filed herewith.



 



13



 



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

Continental Rail Corp.

 

 

 

Dated: May 13, 2016

By:

/s/ Timothy S. Hart

 

 

Timothy S. Hart

 

 

Chief Financial Officer, principal financial and accounting officer

 

 

 

 

 

 

Dated: May 13, 2016

By:

/s/ John H. Marino Jr.

 

 

John H. Marino Jr.

 

 

Chief Executive Officer, principal executive officer













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