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Thursday, June 19, 2014 8:43:42 AM
On April 1, 2014, the Company issued 250,000,000 shares of its common stock in conversion of loans payable in the amount of $12,500.
On April 7, 2014, the Company issued 821,007,589 shares of its common stock in conversion of loans payable in the amount of $39,541.
On April 8, 2014, the Company issued a $4,200 unsecured convertible promissory note to Tangiers Investment Group, LLC. The note bears interest at 8% per annum, is due April 7, 2015, and is convertible at the lower of i) $0.0001, or ii) a 50% discount to the lowest trading price during the twenty day period prior to the conversion date.
On April 8, 2014, the Company issued a $12,500 unsecured convertible promissory note to Microcap Equity Group LLC. The note bears interest at 12% per annum, is due October 8, 2014, and is convertible at the lower of i) $0.0001, or ii) a 50% discount to the lowest bid price during the ninety day period prior to the conversion date.
On April 8, 2014, the Company issued 670,000,000 shares of the Company’s common stock to Ironridge for amounts payable in common stock of $43,550 in reliance on the private placement exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from certain creditors of the Company.
On April 10, 2014, the Company issued a $10,000 unsecured promissory note to Falmouth Street Holdings, LLC. The note bears interest at 10% per annum and is due October 10, 2014.
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East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 8 – Subsequent Events (Continued)
On April 16, 2014, the Company issued 309,760,000 shares of its common stock in conversion of loans payable in the amount of $15,488.
On April 21, 2014, the Company issued 12,500,000 shares of its series A preferred stock in to Sammie Hill for $25,000 cash.
On April 21, 2014, the Company issued 300,000,000 shares of its common stock in conversion of loans payable in the amount of $15,000.
On April 23, 2014, the Company issued 580,000,000 shares of its common stock in conversion of loans payable in the amount of $29,000.
On April 29, 2014, the Company received $11,000 in cash for Series B preferred stock subscriptions receivable from Ironridge.
On May 1, 2014, the Company issued 241,600,000 shares of its common stock in conversion of loans payable in the amount of $12,080.
On May 8, 2014, the Company issued a $37,000 unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 8, 2014, and is convertible at the closing market price on the day of conversion.
On May 14, 2014, the Company issued a $33,800 unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 14, 2014, and is convertible at the closing market price on the day of conversion.
On May 14, 2014, the Company issued 10,000,000 shares of its series A preferred stock in to Calvin Mosley, Jr. for $20,000 cash.
The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
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, 2013, filed with the SEC on April 15, 2014, 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
Since acquiring EarthSearch in April of 2010, ECDC has embarked on developing its technology operations and improving its product offerings to the market. The company is currently in the research and development phase and has developed three distinct technology divisions, (i) EarthSearch Communication Inc., (ii) StudentConnect Inc. and (iii) WetWinds Inc. To date, we have completed the development of two proprietary technologies, (i) wireless communications between GPS & RFID (comprising of several GPS, RFID and cargo locking devices) and (ii) “nVite” which is a proprietary environment sharing application for our social media division. Additionally, we developed an entire group of web assets, comprised of five proprietary “Softwares” for the operation and management of our businesses, the following list represents proprietary software owned by the company:
1. GATIS – Global Asset Tracking & Identification Systems
2. CARAS – Customs And Revenue Authority Systems
3. StudentConnect – Student Transportation System
4. SCAAP – StudentConnect Advertisement Aggregation Platform
5. Vir2o – Online Social Media Platform
Halo2
On February 15, 2014, we created a prototype for a modified and less expensive version of our Halo device called Halo2, which we believe will allow us to be more competitive in 2014. We plan to distribute this product globally for small business applications. Our goal is to reenergize the EarthSearch business with Halo2 and create a mass market solution for small businesses. We believe the product will allow us to be more competitive globally where cheaper Chinese products have created significant competition for our business.
We completed the integration of Halo2 into our GATIS platform in May of 2014 and have begun the marketing efforts to deploy services with this product. Currently, we are continuing our discussion with several local police authorities regarding the sales of Halo2. Halo 2 is now deployed for commercialization.
We are offering Halo2 to resellers and distributors at wholesale pricing of $64.99 and to end user customers at $129.99.
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StudentConnect
StudentConnect began commercial deployment in the first quarter of 2014. In February 2014, we deployed StudentConnect on school buses in school districts in Georgia, Arkansas, Kentucky, California, and South Carolina. In addition, Texas, Florida and North Carolina engaged us to implement systems on their school buses. Our objective is to secure as many schools as we can through the end of the current school year and the summer break to generate revenue for the 2015 school year. We plan to expend a significant amount of resources over the same period to train and distribute products for these schools and for our advertising team to continue to strengthen relationships with local chambers of commerce to enhance revenue in all of the districts we plan to offer our services. Additionally, we plan to launch our StudentConnect mobile application this quarter and implement a mobile advertising platform that we believe will also help enhance revenue for StudentConnect.
On January 15, 2014, we launched a licensing program for exclusive distributorship that would allow for rapid deployment of StudentConnect in key US markets. We have successfully deployed our StudentConnect product on the Verizon Network. We are currently conducting sales training and producing presentation material for the Verizon sales force to market StudentConnect. We plan to engage in joint sales and marketing activities during the summer school break.
Vir2o
Vir2o, our social media division, has launched its first marketing campaign in the US and North America. We executed a promotional agreement with CBS local Atlanta Radio Station WVEE as the first beta test for our marketing strategy for North America. On April 15, 2014, we launched Radio campaign on CBS Atlanta local Radio WVEE. If successful, we plan to introduce a similar strategy to key markets in North America to allow us to compete even more effectively in the social media space.
We plan to introduce commercial content and ecommerce into social media space. We have entered into agreement with Amazon, collegebooks.com and fanatics.com, an online retailer of sporting goods. We have begun integrating products from fanatics.com and collegebooks.com. We anticipate products from both of these companies to become available to users in the marketplace on June 1, 2014.
We believe the future of social media is to deliver movies, music, and shopping, in a live, engaging and interactive way, for users, their friends and family. Our goal is to join the next wave of innovation to transform social media. We plan to deliver content on mobile and cross platform that integrates mobile and desktop. We believe Vir2o brings everything from the web to social media including online games, video, movies, shopping, and music and live broadcast. It is imperative that we form strategic alliances with content providers for our strategy to be successful.
In May of 2014, we secured a music licensing agreement with Medianet that will give us access to 28 million songs and allow us to offer free music channels to users on Vir2o funded through advertising revenue.
We have reached terms with CES MMA sports and CES Boxing sports to published content and broadcast live event on Vir2o. We plan to have a finalized agreement by end of May 2014.
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.
The Company maintains a 51% interest in Rogue Paper and considers it to be a discontinued subsidiary. For accounting purposes, the Company has treated its relationship with Rouge as a discontinued operation and has written off all net assets and contingent acquisition liabilities associated with Rogue paper.
Results of Operations
For the Three Months Ended March 31, 2014 and 2013
Revenues
For the three months ended March 31, 2014, our revenue was $18,107 compared to $43,334 for the same period in 2013, representing a decrease of 58%. This decrease is attributed to our focus on completing development of the StudentConnect and WetWinds divisions. Management believes these changes will result in greater stability and long term growth for the Company.
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Revenues are generated from four separate but related offerings, RFID/GPS product sales, license fees, consulting services, and user fees for GATIS – our advanced web based asset management platform. We generated revenues from product sales of $8,769 and $38,913 for the three months ended March 31, 2014 and 2013, respectively. Revenues for license fees were $1,667 and $-0- for the three months ended March 31, 2014 and 2013. Revenues for consulting services were $-0- and $-0- for the three months ended March 31, 2014 and 2013. User fees were $7,671 and $4,421 for the three months ended March 31, 2014 and 2013, respectively.
Operating Expenses
For the three months ended March 31, 2014, operating expenses were $421,678 compared to $592,450 for the same period in 2013, a decrease of 29%.
Cost of revenues decreased $22,859 and is directly attributable to the decrease in related revenues for the three months ended March 31, 2014.
For the three months ended March 31, 2014, selling, general and administrative expenses were $414,659 compared to $562,572 for the same period in 2013, a decrease of 26%. This decrease was primarily caused by decreases in legal fees of $111,742 and salary expenses of $85,931; offset by increases in the distribution, installation and marketing of our StudentConnect products of $44,653.
Net Loss
We generated net losses from continuing operations of $512,369 for the three months ended March 31, 2014 compared to $753,373 for the same period in 2013, a decrease of 32%. Included in the net loss for the three months ended March 31, 2014 was interest expense of $108,798 (of which $97,519 represents accretion of embedded beneficial conversion features on notes payable). Included in the net loss for the three months ended March 31, 2013 was interest expense of $204,257 (of which $185,773 represents accretion of embedded beneficial conversion features on notes payable).
Net loss attributable to noncontrolling interests in EarthSearch were $4,492 and $6,021 for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31, 2014, the Company recognized a gain from discontinued operations of $984,115 on the disposition of the net assets and liabilities associated with Rogue Paper.
Liquidity and Capital Resources
Overview
For the three months ended March 31, 2014 and 2013, we funded our operations through financing activities consisting of private placements of equity securities and loans from related and unrelated parties. Our principal use of funds during the three months ended March 31, 2014 and 2013 has been for working capital and general corporate expenses.
Liquidity and Capital Resources during the three months ended March 31, 2014 compared to the three months ended March 31, 2013
As of March 31, 2014, we had cash of $4,207 and a working capital deficit of $3,842,639. The Company generated a negative cash flow from operations of $212,497 for the nine months ended March 31, 2014, as compared to cash used in operations of $254,999 for the three months ended March 31, 2013. The negative cash flow from operating activities for the three months ended March 31, 2014 is primarily attributable to the Company's net income of $476,238, offset by noncash depreciation of $696, stock issued for services of $2,905, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $97,519, accrued interest on loans payable of $11,279, changes in operating assets and liabilities of $175,783, and increased by a gain on disposal of discontinued operations of $984,115 and noncontrolling interests in the loss of EarthSearch of $4,492.
The negative cash flow from operating activities for the three months ended March 31, 2013 is primarily attributable to the Company's net loss of $747,352, offset by noncash depreciation and amortization of $1,296, issuance of loan payable for consulting services of $78,922, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $185,773, accrued interest on loans payable of $18,438, changes in operating assets and liabilities of $201,445, and increased by noncontrolling interests in the loss of EarthSearch of $6,021.
No cash was used in investing activities for the three months ended March 31, 2014 and 2013.
Cash generated from our financing activities was $216,463 for the three months ended March 31, 2014, compared to $255,191 during the comparable period in 2013. The decrease was primarily attributed to the repurchase of common stock of $0 in 2014 compared to $5,000 in 2013, the proceeds from the issuance of preferred stock of $50,000 in 2014 compared to $185,000 in 2013, proceeds from the issuance of preferred stock subscriptions of $43,000 in 2014 compared to $6,191 in 2013, proceeds from loans payable of $60,150 in 2014 compared to $47,500 in 2013, and proceeds from loans payable – related parties of $63,313 in 2013 compared to $21,500 in 2013.
We will require additional financing during the current fiscal year. During the period from April 1, 2014 to May 16, 2014, we received proceeds of $97,500 from the issuance of convertible promissory notes and loans, $11,000 from the receipt of preferred stock subscriptions receivable, and $52,500 from the sale of preferred stock.
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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, 2013 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 annual consolidated financial statements for the year ended December 31, 2013, included in our Annual Report on Form 10-K as filed on April 15, 2014, 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
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of March 31, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company's management concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
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 January 6, 2014, pursuant to a debt conversion notice, the Company issued 189,739,800 shares of the Company’s common stock to satisfy debt obligations of $9,487.
On January 8, 2014, pursuant to a debt conversion notice, the Company issued 200,000,000 shares of the Company’s common stock to satisfy debt obligations of $10,000.
On January 27 2014, pursuant to a debt conversion notice, the Company issued 220,844,765 shares of the Company’s common stock to satisfy debt obligations of $11,042.
On February 10, 2014, pursuant to a debt conversion notice, the Company issued 110,385,400 shares of the Company’s common stock to satisfy debt obligations of $4,967.
On February 11, 2014, pursuant to three debt conversion notices, the Company issued 462,812,001 shares of the Company’s common stock to satisfy debt obligations of $23,141.
On February 13, 2014, pursuant to a debt conversion notice, the Company issued 294,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,700.
On February 14, 2014, pursuant to two debt conversion notices, the Company issued 231,904,000 shares of the Company’s common stock to satisfy debt obligations of $11,595.
On February 21, 2014, pursuant to a debt conversion notice, the Company issued 155,000,000 shares of the Company’s common stock to satisfy debt obligations of $6,975.
On February 24, 2014, pursuant to a debt conversion notice, the Company issued 280,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,000.
On February 25, 2014, pursuant to a debt conversion notice, the Company issued 100,548,000 shares of the Company’s common stock to satisfy debt obligations of $5,027.
On February 28, 2014, pursuant to a debt conversion notice, the Company issued 293,519,800 shares of the Company’s common stock to satisfy debt obligations of $17,176.
On March 3, 2014, pursuant to a debt conversion notice, the Company issued 36,000,000 shares of the Company’s common stock to satisfy debt obligations of $1,800.
On March 5, 2014, pursuant to a debt conversion notice, the Company issued 169,000,000 shares of the Company’s common stock to satisfy debt obligations of $9,000.
On March 6, 2014, pursuant to a debt conversion notice, the Company issued 177,400,000 shares of the Company’s common stock to satisfy debt obligations of $7,096.
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On March 11, 2014, pursuant to a debt conversion notice, the Company issued 294,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,700.
On March 21, 2014, pursuant to a debt conversion notice, the Company issued 194,000,000 shares of the Company’s common stock to satisfy debt obligations of $9,700.
On March 24, 2014, pursuant to a debt conversion notice, the Company issued 100,000,000 shares of the Company’s common stock to satisfy debt obligations of $7,000.
On March 25, 2014, pursuant to three debt conversion notices, the Company issued 572,190,277 shares of the Company’s common stock to satisfy debt obligations of $33,796.
On March 26, 2014, pursuant to two debt conversion notices, the Company issued 314,285,714 shares of the Company’s common stock to satisfy debt obligations of $16,400.
On March 28, 2014, pursuant to a debt conversion notice, the Company issued 369,872,800 shares of the Company’s common stock to satisfy debt obligations of $18,494.
On March 31, 2014, pursuant to a debt conversion notice, the Company issued 200,000,000 shares of the Company’s common stock to satisfy debt obligations of $5,904.
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 March 31, 2014.
Panache Capital, LLC $ 7,189
Hanover Holdings I, LLC 88,344
Hanover Holdings I, LLC 19,797
Hanover Holdings I, LLC 7,934
Hanover Holdings I, LLC 18,113
Southridge Partners II LP 26,703
SC Advisors, Inc. 16,820
Azfar Hague 14,367
SC Advisors, Inc. 16,698
SC Advisors, Inc. 16,612
Asher Enterprises, Inc. 34,902
Andre Fluellen 8,500
WHC Capital, LLC 21,211
WHC Capital, LLC 21,434
Asher Enterprises, Inc. 34,681
Andre Fluellen 8,900
Sammie Hill 12,000
Andre Fluellen 3,500
Andre Fluellen 3,150
Bulldog Insurance 5,730
Robert Saidel 43,676
$ 430,261
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
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Item 6. Exhibits
Exhibit No. Description
31.1 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
31.2 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
On April 7, 2014, the Company issued 821,007,589 shares of its common stock in conversion of loans payable in the amount of $39,541.
On April 8, 2014, the Company issued a $4,200 unsecured convertible promissory note to Tangiers Investment Group, LLC. The note bears interest at 8% per annum, is due April 7, 2015, and is convertible at the lower of i) $0.0001, or ii) a 50% discount to the lowest trading price during the twenty day period prior to the conversion date.
On April 8, 2014, the Company issued a $12,500 unsecured convertible promissory note to Microcap Equity Group LLC. The note bears interest at 12% per annum, is due October 8, 2014, and is convertible at the lower of i) $0.0001, or ii) a 50% discount to the lowest bid price during the ninety day period prior to the conversion date.
On April 8, 2014, the Company issued 670,000,000 shares of the Company’s common stock to Ironridge for amounts payable in common stock of $43,550 in reliance on the private placement exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from certain creditors of the Company.
On April 10, 2014, the Company issued a $10,000 unsecured promissory note to Falmouth Street Holdings, LLC. The note bears interest at 10% per annum and is due October 10, 2014.
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East Cost Diversified Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2014
(unaudited)
Note 8 – Subsequent Events (Continued)
On April 16, 2014, the Company issued 309,760,000 shares of its common stock in conversion of loans payable in the amount of $15,488.
On April 21, 2014, the Company issued 12,500,000 shares of its series A preferred stock in to Sammie Hill for $25,000 cash.
On April 21, 2014, the Company issued 300,000,000 shares of its common stock in conversion of loans payable in the amount of $15,000.
On April 23, 2014, the Company issued 580,000,000 shares of its common stock in conversion of loans payable in the amount of $29,000.
On April 29, 2014, the Company received $11,000 in cash for Series B preferred stock subscriptions receivable from Ironridge.
On May 1, 2014, the Company issued 241,600,000 shares of its common stock in conversion of loans payable in the amount of $12,080.
On May 8, 2014, the Company issued a $37,000 unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 8, 2014, and is convertible at the closing market price on the day of conversion.
On May 14, 2014, the Company issued a $33,800 unsecured convertible promissory note to Frank Russo. The note is non-interest bearing, is due November 14, 2014, and is convertible at the closing market price on the day of conversion.
On May 14, 2014, the Company issued 10,000,000 shares of its series A preferred stock in to Calvin Mosley, Jr. for $20,000 cash.
The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
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, 2013, filed with the SEC on April 15, 2014, 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
Since acquiring EarthSearch in April of 2010, ECDC has embarked on developing its technology operations and improving its product offerings to the market. The company is currently in the research and development phase and has developed three distinct technology divisions, (i) EarthSearch Communication Inc., (ii) StudentConnect Inc. and (iii) WetWinds Inc. To date, we have completed the development of two proprietary technologies, (i) wireless communications between GPS & RFID (comprising of several GPS, RFID and cargo locking devices) and (ii) “nVite” which is a proprietary environment sharing application for our social media division. Additionally, we developed an entire group of web assets, comprised of five proprietary “Softwares” for the operation and management of our businesses, the following list represents proprietary software owned by the company:
1. GATIS – Global Asset Tracking & Identification Systems
2. CARAS – Customs And Revenue Authority Systems
3. StudentConnect – Student Transportation System
4. SCAAP – StudentConnect Advertisement Aggregation Platform
5. Vir2o – Online Social Media Platform
Halo2
On February 15, 2014, we created a prototype for a modified and less expensive version of our Halo device called Halo2, which we believe will allow us to be more competitive in 2014. We plan to distribute this product globally for small business applications. Our goal is to reenergize the EarthSearch business with Halo2 and create a mass market solution for small businesses. We believe the product will allow us to be more competitive globally where cheaper Chinese products have created significant competition for our business.
We completed the integration of Halo2 into our GATIS platform in May of 2014 and have begun the marketing efforts to deploy services with this product. Currently, we are continuing our discussion with several local police authorities regarding the sales of Halo2. Halo 2 is now deployed for commercialization.
We are offering Halo2 to resellers and distributors at wholesale pricing of $64.99 and to end user customers at $129.99.
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StudentConnect
StudentConnect began commercial deployment in the first quarter of 2014. In February 2014, we deployed StudentConnect on school buses in school districts in Georgia, Arkansas, Kentucky, California, and South Carolina. In addition, Texas, Florida and North Carolina engaged us to implement systems on their school buses. Our objective is to secure as many schools as we can through the end of the current school year and the summer break to generate revenue for the 2015 school year. We plan to expend a significant amount of resources over the same period to train and distribute products for these schools and for our advertising team to continue to strengthen relationships with local chambers of commerce to enhance revenue in all of the districts we plan to offer our services. Additionally, we plan to launch our StudentConnect mobile application this quarter and implement a mobile advertising platform that we believe will also help enhance revenue for StudentConnect.
On January 15, 2014, we launched a licensing program for exclusive distributorship that would allow for rapid deployment of StudentConnect in key US markets. We have successfully deployed our StudentConnect product on the Verizon Network. We are currently conducting sales training and producing presentation material for the Verizon sales force to market StudentConnect. We plan to engage in joint sales and marketing activities during the summer school break.
Vir2o
Vir2o, our social media division, has launched its first marketing campaign in the US and North America. We executed a promotional agreement with CBS local Atlanta Radio Station WVEE as the first beta test for our marketing strategy for North America. On April 15, 2014, we launched Radio campaign on CBS Atlanta local Radio WVEE. If successful, we plan to introduce a similar strategy to key markets in North America to allow us to compete even more effectively in the social media space.
We plan to introduce commercial content and ecommerce into social media space. We have entered into agreement with Amazon, collegebooks.com and fanatics.com, an online retailer of sporting goods. We have begun integrating products from fanatics.com and collegebooks.com. We anticipate products from both of these companies to become available to users in the marketplace on June 1, 2014.
We believe the future of social media is to deliver movies, music, and shopping, in a live, engaging and interactive way, for users, their friends and family. Our goal is to join the next wave of innovation to transform social media. We plan to deliver content on mobile and cross platform that integrates mobile and desktop. We believe Vir2o brings everything from the web to social media including online games, video, movies, shopping, and music and live broadcast. It is imperative that we form strategic alliances with content providers for our strategy to be successful.
In May of 2014, we secured a music licensing agreement with Medianet that will give us access to 28 million songs and allow us to offer free music channels to users on Vir2o funded through advertising revenue.
We have reached terms with CES MMA sports and CES Boxing sports to published content and broadcast live event on Vir2o. We plan to have a finalized agreement by end of May 2014.
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.
The Company maintains a 51% interest in Rogue Paper and considers it to be a discontinued subsidiary. For accounting purposes, the Company has treated its relationship with Rouge as a discontinued operation and has written off all net assets and contingent acquisition liabilities associated with Rogue paper.
Results of Operations
For the Three Months Ended March 31, 2014 and 2013
Revenues
For the three months ended March 31, 2014, our revenue was $18,107 compared to $43,334 for the same period in 2013, representing a decrease of 58%. This decrease is attributed to our focus on completing development of the StudentConnect and WetWinds divisions. Management believes these changes will result in greater stability and long term growth for the Company.
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Revenues are generated from four separate but related offerings, RFID/GPS product sales, license fees, consulting services, and user fees for GATIS – our advanced web based asset management platform. We generated revenues from product sales of $8,769 and $38,913 for the three months ended March 31, 2014 and 2013, respectively. Revenues for license fees were $1,667 and $-0- for the three months ended March 31, 2014 and 2013. Revenues for consulting services were $-0- and $-0- for the three months ended March 31, 2014 and 2013. User fees were $7,671 and $4,421 for the three months ended March 31, 2014 and 2013, respectively.
Operating Expenses
For the three months ended March 31, 2014, operating expenses were $421,678 compared to $592,450 for the same period in 2013, a decrease of 29%.
Cost of revenues decreased $22,859 and is directly attributable to the decrease in related revenues for the three months ended March 31, 2014.
For the three months ended March 31, 2014, selling, general and administrative expenses were $414,659 compared to $562,572 for the same period in 2013, a decrease of 26%. This decrease was primarily caused by decreases in legal fees of $111,742 and salary expenses of $85,931; offset by increases in the distribution, installation and marketing of our StudentConnect products of $44,653.
Net Loss
We generated net losses from continuing operations of $512,369 for the three months ended March 31, 2014 compared to $753,373 for the same period in 2013, a decrease of 32%. Included in the net loss for the three months ended March 31, 2014 was interest expense of $108,798 (of which $97,519 represents accretion of embedded beneficial conversion features on notes payable). Included in the net loss for the three months ended March 31, 2013 was interest expense of $204,257 (of which $185,773 represents accretion of embedded beneficial conversion features on notes payable).
Net loss attributable to noncontrolling interests in EarthSearch were $4,492 and $6,021 for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31, 2014, the Company recognized a gain from discontinued operations of $984,115 on the disposition of the net assets and liabilities associated with Rogue Paper.
Liquidity and Capital Resources
Overview
For the three months ended March 31, 2014 and 2013, we funded our operations through financing activities consisting of private placements of equity securities and loans from related and unrelated parties. Our principal use of funds during the three months ended March 31, 2014 and 2013 has been for working capital and general corporate expenses.
Liquidity and Capital Resources during the three months ended March 31, 2014 compared to the three months ended March 31, 2013
As of March 31, 2014, we had cash of $4,207 and a working capital deficit of $3,842,639. The Company generated a negative cash flow from operations of $212,497 for the nine months ended March 31, 2014, as compared to cash used in operations of $254,999 for the three months ended March 31, 2013. The negative cash flow from operating activities for the three months ended March 31, 2014 is primarily attributable to the Company's net income of $476,238, offset by noncash depreciation of $696, stock issued for services of $2,905, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $97,519, accrued interest on loans payable of $11,279, changes in operating assets and liabilities of $175,783, and increased by a gain on disposal of discontinued operations of $984,115 and noncontrolling interests in the loss of EarthSearch of $4,492.
The negative cash flow from operating activities for the three months ended March 31, 2013 is primarily attributable to the Company's net loss of $747,352, offset by noncash depreciation and amortization of $1,296, issuance of loan payable for consulting services of $78,922, amortization of prepaid license fees of $12,500, accretion of beneficial conversion features on convertible notes payable of $185,773, accrued interest on loans payable of $18,438, changes in operating assets and liabilities of $201,445, and increased by noncontrolling interests in the loss of EarthSearch of $6,021.
No cash was used in investing activities for the three months ended March 31, 2014 and 2013.
Cash generated from our financing activities was $216,463 for the three months ended March 31, 2014, compared to $255,191 during the comparable period in 2013. The decrease was primarily attributed to the repurchase of common stock of $0 in 2014 compared to $5,000 in 2013, the proceeds from the issuance of preferred stock of $50,000 in 2014 compared to $185,000 in 2013, proceeds from the issuance of preferred stock subscriptions of $43,000 in 2014 compared to $6,191 in 2013, proceeds from loans payable of $60,150 in 2014 compared to $47,500 in 2013, and proceeds from loans payable – related parties of $63,313 in 2013 compared to $21,500 in 2013.
We will require additional financing during the current fiscal year. During the period from April 1, 2014 to May 16, 2014, we received proceeds of $97,500 from the issuance of convertible promissory notes and loans, $11,000 from the receipt of preferred stock subscriptions receivable, and $52,500 from the sale of preferred stock.
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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, 2013 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 annual consolidated financial statements for the year ended December 31, 2013, included in our Annual Report on Form 10-K as filed on April 15, 2014, 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
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of March 31, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company's management concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
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 January 6, 2014, pursuant to a debt conversion notice, the Company issued 189,739,800 shares of the Company’s common stock to satisfy debt obligations of $9,487.
On January 8, 2014, pursuant to a debt conversion notice, the Company issued 200,000,000 shares of the Company’s common stock to satisfy debt obligations of $10,000.
On January 27 2014, pursuant to a debt conversion notice, the Company issued 220,844,765 shares of the Company’s common stock to satisfy debt obligations of $11,042.
On February 10, 2014, pursuant to a debt conversion notice, the Company issued 110,385,400 shares of the Company’s common stock to satisfy debt obligations of $4,967.
On February 11, 2014, pursuant to three debt conversion notices, the Company issued 462,812,001 shares of the Company’s common stock to satisfy debt obligations of $23,141.
On February 13, 2014, pursuant to a debt conversion notice, the Company issued 294,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,700.
On February 14, 2014, pursuant to two debt conversion notices, the Company issued 231,904,000 shares of the Company’s common stock to satisfy debt obligations of $11,595.
On February 21, 2014, pursuant to a debt conversion notice, the Company issued 155,000,000 shares of the Company’s common stock to satisfy debt obligations of $6,975.
On February 24, 2014, pursuant to a debt conversion notice, the Company issued 280,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,000.
On February 25, 2014, pursuant to a debt conversion notice, the Company issued 100,548,000 shares of the Company’s common stock to satisfy debt obligations of $5,027.
On February 28, 2014, pursuant to a debt conversion notice, the Company issued 293,519,800 shares of the Company’s common stock to satisfy debt obligations of $17,176.
On March 3, 2014, pursuant to a debt conversion notice, the Company issued 36,000,000 shares of the Company’s common stock to satisfy debt obligations of $1,800.
On March 5, 2014, pursuant to a debt conversion notice, the Company issued 169,000,000 shares of the Company’s common stock to satisfy debt obligations of $9,000.
On March 6, 2014, pursuant to a debt conversion notice, the Company issued 177,400,000 shares of the Company’s common stock to satisfy debt obligations of $7,096.
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On March 11, 2014, pursuant to a debt conversion notice, the Company issued 294,000,000 shares of the Company’s common stock to satisfy debt obligations of $14,700.
On March 21, 2014, pursuant to a debt conversion notice, the Company issued 194,000,000 shares of the Company’s common stock to satisfy debt obligations of $9,700.
On March 24, 2014, pursuant to a debt conversion notice, the Company issued 100,000,000 shares of the Company’s common stock to satisfy debt obligations of $7,000.
On March 25, 2014, pursuant to three debt conversion notices, the Company issued 572,190,277 shares of the Company’s common stock to satisfy debt obligations of $33,796.
On March 26, 2014, pursuant to two debt conversion notices, the Company issued 314,285,714 shares of the Company’s common stock to satisfy debt obligations of $16,400.
On March 28, 2014, pursuant to a debt conversion notice, the Company issued 369,872,800 shares of the Company’s common stock to satisfy debt obligations of $18,494.
On March 31, 2014, pursuant to a debt conversion notice, the Company issued 200,000,000 shares of the Company’s common stock to satisfy debt obligations of $5,904.
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 March 31, 2014.
Panache Capital, LLC $ 7,189
Hanover Holdings I, LLC 88,344
Hanover Holdings I, LLC 19,797
Hanover Holdings I, LLC 7,934
Hanover Holdings I, LLC 18,113
Southridge Partners II LP 26,703
SC Advisors, Inc. 16,820
Azfar Hague 14,367
SC Advisors, Inc. 16,698
SC Advisors, Inc. 16,612
Asher Enterprises, Inc. 34,902
Andre Fluellen 8,500
WHC Capital, LLC 21,211
WHC Capital, LLC 21,434
Asher Enterprises, Inc. 34,681
Andre Fluellen 8,900
Sammie Hill 12,000
Andre Fluellen 3,500
Andre Fluellen 3,150
Bulldog Insurance 5,730
Robert Saidel 43,676
$ 430,261
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
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Item 6. Exhibits
Exhibit No. Description
31.1 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
31.2 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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