UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 _______________________
 
 FORM 10-K
 _______________________
 
 ANNUAL REPORT UNDER SECTION 13 OR 15 (D)
 OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
 
 COMMISSION FILE NO.: 0-32143
 
 ECOSYSTEM CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Delaware

20-3148296(State or other jurisdiction

(IRS Employerof incorporation or organization)

Identification No.)5950 Shiloh Road East, Suite N, Alpharetta, Georgia
30005(Address of principal executive offices)
(Zip Code)(212) 994-5374(Registrant’s telephone number)
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.

Yes

No
XIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

No
XIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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
X
NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the prior 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes
X
NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer[  ] Smaller reporting company [X]Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No
XAs of June 30, 2010 (the last business day of the most recently completed second fiscal quarter) the aggregate market value of the common stock held by non-affiliates was approximately $220,551.As of April  14, 2011, there were 4,938,812,585 shares of common stock outstanding.
 
 
  
   ECOSYSTEM CORPORATION
 ANNUAL REPORT ON FORM 10K
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
 
 TABLE OF CONTENTS
 
 Part I

Page NoItem 1
Business
4Item 1A
Risk Factors
5Item 2
Description of Properties
7Item 3
Legal Proceedings
7Item 4
Reserved
7Part II8Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters, and IssuerPurchase of Equity SecuritiesItem 6
Selected Financial Data
8Item 7
Management’s Discussion and Analysis
8Item 8
Financial Statements and Supplementary Schedules
12Item 9
Changes and Disagreements with Accountants on Accounting and Financial Disclosure
32Item 9A
Controls and Procedures
32Item 9B
Other Information
32Part IIIItem 10
Directors, Executive Officers and Corporate Governance
33Item 11
Executive Compensation
34Item 12
Security Ownership of Certain Beneficial Owners, and Management and
33Related Stockholder MattersItem 13
Certain Relationships and Related Transactions and Director Independence
35Item 14
Principal Accountant Fees and Services
36Part IVItem 15
Exhibits and Financial Statement Schedules
37Signatures
38
 
  2
  PART I
 
 BASIS OF PRESENTATION
 
 In this Annual Report on Form 10-K, the terms “we,” “our,” “us,” “EcoSystem,” or the “Company” refer to EcoSystem Corporation.
 
 MARKET AND INDUSTRY DATA FORECASTS
 
 This document includes data and forecasts that the Company has prepared based, in part, upon information obtained from industry publications. Third-party industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. We have used data and other information in this document that was published by the U.S. Energy Information Association (“EIA”). Forecasts in particular are subject to a high risk of inaccuracy, especially forecasts projected over long periods of time.
 
 FORWARD LOOKING STATEMENTS
 
 The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report contains such “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We make certain forward-looking statements in this Annual Report on Form 10-K and in documents that are incorporated herein by reference. These forward-looking statements relate to our outlook or expectations for earnings, revenues, expenses, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition. Specifically, forward-looking statements may include statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. These statements reflect our management’s judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause our actual results to differ include:
 
 -
the volatility and uncertainty of commodity prices;-
operational disruptions at ethanol production facilities;-
the costs and business risks associated with developing new technologies;-
our ability to develop and commercialize our technologies;-
the impact of new, emerging and competing technologies on our business;-
the possibility of one or more of the markets in which we compete being impacted by political, legal and regulatory changes or other external factors over which they have no control;-
the effects of mergers and consolidations in the biofuels industry and unexpected announcements or developments from others in the renewable fuels industry;-
our reliance on key management personnel;-
changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices;-
limitations and restrictions contained in the instruments and agreements governing our indebtedness;-
our ability to raise additional capital and secure additional financing;   3
   -
our ability to implement additional financial and management controls, reporting systems and procedures and comply with Section 404 of the Sarbanes-Oxley Act, as amended; and-
other risks referenced from time to time in our filings with the SEC and those factors listed in this Annual Report on Form 10-K for the year ended December 31, 2010 under Item 1A, Risk Factors.
 
 You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Form 10-K, or in the case of a document incorporated by reference, as of the date of that document. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.
 
 ITEM 1
BUSINESS
 
 EcoSystem Corporation (“we,” “our,” “us,”  “EcoSystem,” or the “Company”) is a clean technology development company with a focus on developing innovations designed to resolve compelling ecological challenges while producing value added carbon neutral and negative products.
 
 Carbon dioxide is the most abundant waste produced by human activity. Continued accumulation in Earth’s atmosphere and oceans needs to be avoided in order to prevent severe climate change. Our waste carbon emissions come from the combustion of fossil fuels to produce electricity, to power transportation, to heat our homes and to manufacture products. The scientific consensus is that these activities are directly responsible for increasing atmospheric carbon dioxide concentrations to the highest that they have been for more than 650,000 years. However, and despite the increased focus on renewable sources of energy, fossil fuels will continue to play a vital and dominant role in providing the majority of our energy needs over at least the next 50 years. Most scientists agree that, unabated, the combustion of fossil fuels to meet these needs will pump enough carbon dioxide into the global ecosystem to bring about severe climate change. Our collective challenge is to stem the tide – to channel the flow of waste carbon emissions in ways that stimulate economic growth and preserve quality of life while preventing the continued accumulation of carbon dioxide in Earth’s atmosphere and oceans.
 
 EcoSystem’s ambition is to contribute to the resolution of this challenge by developing new clean technologies that reduce and reuse carbon emissions. Our plan to do so while building shareholder value is to develop, license and support technologies and projects that beneficially reuse waste carbon emissions in ways that reduce consumption of fossil fuels, increase use of sustainable raw materials, and decrease production of wastes and emissions.
  We have licensed a technology portfolio from GS CleanTech Corporation, a subsidiary of GreenShift Corporation, an entity whose majority owner is the same as our majority owner. The technology portfolio includes several feedstock and product conditioning technologies, lipid production and refining technologies, and carbon dioxide recycling and refining technologies. Our license does not include any rights to GS CleanTech’s extraction technologies. While our licensed technologies have wide application potential in several industries and processes, we are initially focused on developing applications of these technologies for use in the existing first generation U.S. corn ethanol industry. We believe that the composition and extent of the installed ethanol complex and the relatively uncomplicated nature of its inputs and outputs presents compelling opportunities to defray risk as we commercialize our technologies. Importantly, significant demand exists today for technologies that enhance the efficiency and sustainability of refining corn into liquid fuel. We believe that satisfying this demand can be expected to result in reduced reliance on petroleum products, more efficient use of natural resources, increased use of biomass-derived fuels and other products, and decreased greenhouse gas emissions on globally-meaningful scales.
  Our operating activities during the year ended December 31, 2010 exclusively involved research and development with our technologies and performing due diligence on a number of additional strategically compatible technologies that we have targeted for licensing.
 
 Our operating activities during the year ended December 31, 2009 included: acquiring the rights to our technology portfolio; research and development with our technologies including commencement of pilot and bench testing activities; performing due diligence on a number of distressed renewable fuel production assets; negotiating to acquire qualified renewable fuel production assets; negotiating to finance, build, own and operate qualified existing renewable fuel production assets; and, the execution of agreements for an equity financing intended for use in the acquisition and operation of qualified renewable fuel production assets.
 4
 Additional information regarding our operating activities is provided in Item 7, Management’s Discussion and Analysis, below.
 INDUSTRY OVERVIEW
 
 Worldwide energy consumption is projected to increase by 50% from 2005 to 2030, corresponding to an increase in crude oil consumption to over 112 million barrels of crude oil per day from the current 90 million barrels per day. The EIA projected that annual CO2 emissions will increase during this time from about 28 billion metric tons to over 42 billion metric tons in 2030.
 
 The largest and most concentrated source of carbon dioxide (“CO2”) emissions is the growing use of coal-powered electricity generation, especially in developing countries where coal is abundant and inexpensive. Liquid fuels, such as gasoline, are expected to remain the world's most dominant fuel because of their importance in the transportation and industrial sector since there are few alternatives. The transportation sector alone accounts for 74% of the total projected increase from 2005 to 2030, with the industrial sector accounting for the remainder. We believe that this increasing demand is likely to sustain high world oil prices for a long period of time.
 
 The continued use of fossil fuels creates important challenges. Fossil fuel derived CO2 emissions are believed to be the cause of global warming and climate change. Management believes that at some point in the future, there will not be enough supply and production capacity to meet worldwide fossil fuel demands. Based on historic growth trends, crude oil production is projected to peak in 2037 at a volume of 53 billion barrels per year.
 
 We believe that these challenges can be meaningfully addressed by developing technologies that beneficially reuse waste carbon emissions in ways that reduce consumption of fossil fuels, increase use of sustainable raw materials, and decrease production of wastes and emissions.
 EMPLOYEES
 
 EcoSystem Corporation currently has 2 employees.  In addition to its executive officers, EcoSystem subcontracts with and/or employs on a part-time or at-will basis technical staff on an as-needed basis.  There is no union representation for any of our employees.
 ITEM 1A
RISK FACTORS
 
 There are many important factors that have affected, and in the future could affect, EcoSystem Corporation’s business, including but not limited to the factors discussed below, which should be reviewed carefully together with other information contained in this report. Some of the factors are beyond our control and future trends are difficult to predict.
 
 There is substantial doubt concerning our ability to continue as a going concern.
 
 EcoSystem incurred a loss from continuing operations of $2,723,536 during the twelve months ended December 31, 2010, and we had $526 in cash at December 31, 2010. These matters raise substantial doubt about our ability to continue as a going concern. Management’s plans include raising additional proceeds from debt and equity transactions and completing strategic acquisitions.
 
 We are implementing new business plans which make the results of our business uncertain.
 
 Our limited operating history makes it difficult for potential investors to evaluate our business. Therefore, our proposed operations are subject to all of the risks inherent in the initial expenses, challenges, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the biodiesel, ethanol and culinary oils industry in general. Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products, services and technologies. Despite best efforts, we may never overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to enter into agreements with third parties for necessary financing, the provision of necessary feedstock sources, engineering, procurement and construction services and the sale and distribution of our biodiesel fuel on terms that will be commercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.
 
 The fiscal efficiencies of highly capitalized competitors in biotechnology could defeat our efforts to capture a viable market share.
 
 The business of developing new biotechnologies is a capital-intense business, requiring substantial capital resources. The costs that we may incur in obtaining capital are substantially greater per dollar than the cost incurred by large scale enterprises in the industry. This situation could cause us to be unable to compete effectively.
 
 5
 The exercise of our outstanding warrants and options and EcoSystem Corporation’s various anti-dilution and price-protection agreements could cause the market price of our common stock to fall, and may have dilutive and other effects on our existing stockholders.
 
 The exercise of our outstanding warrants and options could result in the issuance of up to 275 shares of common stock, assuming all outstanding warrants and options are currently exercisable. Such issuances would reduce the percentage of ownership of our existing common stockholders and could, among other things, depress the price of our common stock. This result could detrimentally affect our ability to raise additional equity capital. In addition, the sale of these additional shares of common stock may cause the market price of our stock to decrease.
 
 We lack capital to fund our operations.
 
 During the twelve months ended December 31, 2010 our operations provided $24,031 in cash. In addition, during those twelve months we were required to make payments on some of our outstanding debts. Loans from some of our shareholders funded both the cash shortfall from operations and our debt service. Those individuals may not be able to continue to fund our operations or our debt service.
 
 Our failure to attract qualified engineers and management personnel could hinder our success.
 
 Our ability to attract and retain qualified engineers and other professional personnel when we need them will be a major factor in determining our future success. There is a very competitive market for individuals with advanced engineering training, and we are not assured of being able to retain the personnel we will need.
 
 Key personnel are critical to our business and our future success depends on our ability to retain them.
 
 Our success depends on the contributions of our key management, and engineering personnel. The loss of these officers could result in lost sales opportunities, lost business, difficulties operating our assets, difficulties raising additional funds and could therefore significantly impair our financial condition. Our future success depends on our ability to retain and expand our staff of qualified personnel, including environmental technicians, sales personnel and engineers. Without qualified personnel, we may incur delays in rendering our services or be unable to render certain services.
 
 Viridis Capital can exert control over us and may not make decisions that further the best interests of all stockholders.
 
 Viridis Capital, LLC owns the majority of our outstanding capital stock. As a result, Viridis exerts a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of us and might affect the market price of our common stock, even when a change in control may be in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and accordingly, they could cause us to enter into transactions or agreements which we would not otherwise consider.
 
 EcoSystem Corporation is not likely to hold annual shareholder meetings in the next few years.
 
 Delaware corporation law provides that members of the board of directors retain authority to act until they are removed or replaced at a meeting of the shareholders. A shareholder may petition the Delaware Court of Chancery to direct that a shareholders meeting be held. But absent such a legal action, the board has no obligation to call a shareholders’ meeting. Unless a shareholders’ meeting is held, the existing directors elect directors to fill any vacancy that occurs on the board of directors. The shareholders, therefore, have no control over the constitution of the board of directors, unless a shareholders’ meeting is held. Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current board members were appointed to by the previous directors. If other directors are added to the Board in the future, it is likely that the current board will appoint them. As a result, the shareholders of EcoSystem Corporation will have no effective means of exercising control over the operations of EcoSystem Corporation.
 
 6
 Investing in our stock is highly speculative and you could lose some or all of your investment.
 
 The value of our common stock may decline and may be affected by numerous market conditions, which could result in the loss of some or the entire amount invested in our stock. The securities markets frequently experience extreme price and volume fluctuations that affect market prices for securities of companies generally and very small capitalization companies such as us in particular.
 
 The volatility of the market for EcoSystem Corporation common stock may prevent a shareholder from obtaining a fair price for his shares.
 
 The common stock of EcoSystem Corporation is quoted on the OTC Bulletin Board. It is impossible to say that the market price on any given day reflects the fair value of EcoSystem Corporation, since the price sometimes moves up or down by 50% or more in a week’s time. A shareholder in EcoSystem Corporation who wants to sell his shares, therefore, runs the risk that at the time he wants to sell, the market price may be much less than the price he would consider to be fair.
 
 Our common stock qualifies as a "penny stock" under SEC rules which may make it more difficult for our stockholders to resell their shares of our common stock.
 
 Our common stock trades on the OTC Bulletin Board. As a result, the holders of our common stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it were listed on a stock exchange or quoted on the NASDAQ Global Market or the NASDAQ Capital Market. Because our common stock does not trade on a stock exchange or on the NASDAQ Global Market or the NASDAQ Capital Market, and the market price of the common stock is less than $5.00 per share, the common stock qualifies as a "penny stock." SEC Rule 15g-9 under the Securities Exchange Act of 1934 imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an "established customer" or an "accredited investor." This includes the requirement that a broker-dealer must make a determination on the appropriateness of investments in penny stocks for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our common stock affects the market liquidity of the shares, which in turn may affect the ability of holders of our common stock to resell the stock.
 
 Only a small portion of the investment community will purchase “penny stocks” such as our common stock.
 
 EcoSystem Corporation common stock is defined by the SEC as a “penny stock” because it trades at a price less than $5.00 per share. EcoSystem Corporation common stock also meets most common definitions of a “penny stock,” since it trades for less than $1.00 per share. Many brokerage firms will discourage their customers from purchasing penny stocks, and even more brokerage firms will not recommend a penny stock to their customers. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not consider a purchase of a penny stock due, among other things, to the negative reputation that attends the penny stock market. As a result of this widespread disdain for penny stocks, there will be a limited market for EcoSystem Corporation common stock as long as it remains a “penny stock.” This situation may limit the liquidity of your shares.
 
 ITEM 2
DESCRIPTION OF PROPERTIES
 
 EcoSystem Corporation currently maintains office space at 5950 Shiloh Road East, Suite N, Alpharetta, GA 30005. The lease for this space expires in February of 2012. We paid no rent during 2010 for these offices. During 2011, EcoSystem does not expect to pay rent for these offices.
 
 ITEM 3
LEGAL PROCEEDINGS
 None.
 
 ITEM 4
RESERVED
 
  7
  
  PART II
 
 ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
 EcoSystem’s common stock trades on the OTCQB under the symbol “ESYR”. The following table sets forth, for the periods indicated, the range of high and low closing bid prices for EcoSystem’s common stock as reported by the National Association of Securities Dealers composite. The reported bid quotations reflect inter-dealer prices without retail markup, markdown or commissions, and may not necessarily represent actual transactions.
 
 Period
High
Low2009 First Quarter
0.0016
0.00132009 Second Quarter
0.0017
0.00152009 Third Quarter
0.0018
0/00162009 Fourth Quarter
0.0002
0.00012010 First Quarter
0.0225
0,01732010 Second Quarter
0.0060
0.00502010 Third Quarter
0.0006
0.00052010 Fourth Quarter
0.0002
0.0001Title of Class
Approximate Number of Holders of Record as of April 15, 2011Common Stock, $0.001 par

313
 
 The number of holders does not give effect to beneficial ownership of shares held in the street name by stock brokerage houses or clearing agents.
 
 REVERSE SPLIT
 
 Effective November 30, 2009, the Company completed a 1 for 1,000 reverse stock split. All stock prices, share amounts, per share information, stock options and stock warrants in this Report reflect the reverse stock split.
 
 DIVIDENDS
 
 We have no present intention of paying dividends in the foreseeable future. Our policy for the time being is to retain earnings and utilize the funds for operations and growth. The Board of Directors based on our earnings, financial condition, capital requirements and other existing conditions will determine future dividend policies.
 
 SALE OF UNREGISTERED SECURITIES
 
 The Company did not sell any unregistered securities during the 4th quarter of 2010.
 
 REPURCHASE OF EQUITY SECURITES
 
 The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter of 2010.
 
 ITEM 6
SELECTED FINANCIAL DATA
 
 Not applicable.
 
 ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
 
 EcoSystem Corporation (“we,” “our,” “us,”  “EcoSystem,” or the “Company”) is a clean technology development company with a focus on developing innovations designed to resolve compelling ecological challenges while producing value added carbon neutral and negative products.
  8
 
 Carbon dioxide is the most abundant waste produced by human activity. Continued accumulation in Earth’s atmosphere and oceans needs to be avoided in order to prevent severe climate change. Our waste carbon emissions come from the combustion of fossil fuels to produce electricity, to power transportation, to heat our homes and to manufacture products. The scientific consensus is that these activities are directly responsible for increasing atmospheric carbon dioxide concentrations to the highest that they have been for more than 650,000 years. However, and despite the increased focus on renewable sources of energy, fossil fuels will continue to play a vital and dominant role in providing the majority of our energy needs over at least the next 50 years. Most scientists agree that, unabated, the combustion of fossil fuels to meet these needs will pump enough carbon dioxide into the global ecosystem to bring about severe climate change. Our collective challenge is to stem the tide – to channel the flow of waste carbon emissions in ways that stimulate economic growth and preserve quality of life while preventing the continued accumulation of carbon dioxide in Earth’s atmosphere and oceans.
 
 EcoSystem’s ambition is to contribute to the resolution of this challenge by developing new clean technologies that reduce and reuse carbon emissions. Our plan to do so while building shareholder value is to develop, license and support technologies and projects that beneficially reuse waste carbon emissions in ways that reduce consumption of fossil fuels, increase use of sustainable raw materials, and decrease production of wastes and emissions.
  We have licensed a technology portfolio from GS CleanTech Corporation, a subsidiary of GreenShift Corporation, an entity whose majority owner is the same as our majority owner. The technology portfolio includes several feedstock and product conditioning technologies, lipid production and refining technologies, and carbon dioxide recycling and refining technologies. Our license does not include any rights to GS CleanTech’s extraction technologies. While our licensed technologies have wide application potential in several industries and processes, we are initially focused on developing applications of these technologies for use in the existing first generation U.S. corn ethanol industry. We believe that the composition and extent of the installed ethanol complex and the relatively uncomplicated nature of its inputs and outputs presents compelling opportunities to defray risk as we commercialize our technologies. Importantly, significant demand exists today for technologies that enhance the efficiency and sustainability of refining corn into liquid fuel. We believe that satisfying this demand can be expected to result in reduced reliance on petroleum products, more efficient use of natural resources, increased use of biomass-derived fuels and other products, and decreased greenhouse gas emissions on globally-meaningful scales.
 
 Our operating activities during the year ended December 31, 2010 exclusively involved research and development with our technologies and performing due diligence on a number of additional strategically compatible technologies that we have targeted for licensing.
 
 Our operating activities during the year ended December 31, 2009 included: acquiring the rights to our technology portfolio; research and development with our technologies including commencement of pilot and bench testing activities; performing due diligence on a number of distressed renewable fuel production assets; negotiating to acquire qualified renewable fuel production assets; negotiating to finance, build, own and operate qualified existing renewable fuel production assets; and, the execution of agreements for an equity financing intended for use in the acquisition and operation of qualified renewable fuel production assets.
 Technology Development Activities
 
 On May 15, 2009, EcoSystem and GS CleanTech Corporation entered into an Early Adopter License Agreement (the “EALA”) involving use of several of GS CleanTech’s technologies. GS CleanTech is a subsidiary of GreenShift Corporation, which company is majority owned by Viridis Capital, LLC, our majority shareholder.
 
 During 2010, EcoSystem conducted laboratory research involving patent-pending technologies designed to recycle waste carbon emissions into value-added products. These activities were completed at the direction of our management and in connection with license rights obtained from affiliates of Viridis Capital, LLC, our majority shareholder, pursuant to which we have agreed to provide all of the capital resources needed to complete research and development in exchange for use rights involving the technologies. To defray cost and risk, this research was completed at our cost at a university laboratory, by the university’s research staff.
 
 During 2009, EcoSystem conducted pilot testing with its patented and patent-pending feedstock conditioning technologies. These technologies are designed to increase the availability of fermentable sugars natively available in whole corn in order to increase ethanol yields on reduced raw material and energy consumption cost. This is achieved in two stages: flash desiccation and inertial cavitation.
 
 Flash desiccation uses super-heated steam to subject targeted feedstocks, corn in this case, to extreme temperature and/or pressure gradients in a series of enclosed cyclonic systems with no internal moving parts. These conditions almost instantly desiccate, shear and micronize cellulosic and other feedstocks. This process has been shown in prior experimentation with grain-based and cellulosic biomass to produce particle sizes in the low micron levels and, in some cases, to have catalyzed chemical reactions and altered molecular structures. The output of this process is a micronized powder that has been shown in prior experimentation with cellulosic feedstocks to have a substantially smaller particle size as compared to conventionally milled products. While super-heated steam is used as the prime mover of the desiccation in the preferred implementation of this technology, the process can also use compressed air, corrosive gases and other gases. The testing recently commenced was based on the use of compressed air, the least efficient and most energy intensive implementation of the technology. Initial data received from this testing at an ethanol facility during 2009 indicates that gross yield improvements in excess of 6% are achievable with flash desiccation technology before accounting for the energy input costs associated with using compressed air.
 
 This testing was completed primarily by the Company’s staff.  The Company’s chairman, Kevin Kreisler, and former chief executive officer, Dr. Paul Miller, collectively have several advanced engineering and technical degrees and many years of experience in technology development and commercialization. Mr. Kreisler holds a B.S. in civil and environmental engineering and has over thirteen years of experience developing technologies which facilitate the more efficient use of natural resources. Dr. Miller holds a B.S in chemistry as well as a Ph.D. in chemistry and has previously developed projects based on extraction and refining of biomass derived products. Dr. Miller managed the Company’s technology development and commercialization activities between August 19, 2010 and March 2011.  To conserve costs and to help defray risk, Management retains technical staff on a subcontract basis depending upon the subject matter or technical discipline implicated by the Company’s research. For example, testing involving the Company’s flash desiccation technology has been carried out in collaboration with GS CleanTech, including three experienced engineers. GS CleanTech was not paid for its efforts in this regard.  Instead, as its sole compensation for its assistance, GS CleanTech retains technology use rights involving the technologies licensed to the Company under the EALA outside of
 
 9
 
 the Company’s field of use. In another example involving testing with the same technology, the Company’s staff additionally collaborated with technical staff of Global Ethanol. As with GS CleanTech, the sole compensation for Global’s assistance during such testing was to be comprised of technology use rights involving such technology if successfully demonstrated. In the case of GS CleanTech, such technology use rights consisted of the non-exclusive royalty-free right to use of any developments made by the Company to the GS CleanTech technologies licensed to the Company.  In the case of Global Ethanol, such rights consisted of the non-exclusive right to use technologies successfully developed by the Company in concert with Global Ethanol at Global Ethanol’s Riga, Michigan ethanol production facility.  No additional agreement or arrangement has been entered into in this respect and the technology which was tested has not been successfully demonstrated to date. The Company is not subject to any other material agreements or arrangements in this regard.
 
 The Company plans to conduct additional testing during 2011 and 2012, which testing may or may not involve the subcontract technical consultants and project collaborators used for prior testing. All testing is performed under the license granted by the EALA, and no payment is required under the EALA until the technology has been successfully commercialized. The EALA provides for royalty payments equal to 10% of the Company’s pre-tax net income deriving from commercial use of licensed technology. Successful commercialization will require sequential progression from bench, to pilot and finally commercial-scale pilot testing. Management’s risk mitigation policies call for a subjective analysis of the results produced by testing at each of the above stages. The goals of this analysis include an assessment of overall feasibility, the establishment of design parameters for cost-efficient scaling to the next sequential stage, and confirmation of previously established design assumptions and stage-specific objectives that Management believes to be required for continuation of research and development activities for a specific technology. None of these determinations are defined in the EALA or are known prior to testing at each stage and, in fact, cannot, by definition, be known in advance of testing at each stage. The purpose of each stage of testing for each technology is to provide Management with sufficient information to determine whether or not additional investment into that technology is warranted. No payments have been made to date or are currently due under the EALA. Management does not anticipate completion of bench and pilot testing and commencing commercial operations with technologies licensed under the EALA during 2011 or 2012, but completion of testing and development of a reasonable assessment of the economic feasibility of large scale implementation  may be achieved within 36 months, depending upon the results of additional testing and the availability of capital for additional research and development activities.
 
 We plan to finance the ongoing development of our technologies, as well as acquisitions of additional strategically compatible technologies, through issuance of new debt and equity.
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 The financial statements included herein have been prepared by the Company, in accordance with Generally Accepted Accounting Principles. This requires the Company’s management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. These estimates and assumptions will also affect the reported amounts of certain revenues and expenses during the reporting period. In the opinion of management, all adjustments which, except as described elsewhere herein, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Actual results could differ materially based on any changes in the estimates and assumptions that the Company uses in the preparation of its financial statements and any changes in the Company’s future operational plans.
 
 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
 
 While preparing its financial statements for the twelve months ended December 31, 2010, the Company reviewed its accounting for certain non-cash transactions and determined that a portion of certain debt conversions that occurred during the current year should be reclassed between additional paid in capital and interest expense in order to properly account for penalty shares that are owed for conversions that were convertible at conversion rates below par.  It also determined that the accounting for these same types of non-cash transactions for the twelve months ended December 31, 2009 should include additional interest expense in order to account for penalty shares that are owed for conversions that were convertible at conversion rates below par during that period.
 
 The Company evaluated the effect of these changes on its financial statements and determined that the changes were material. Consequently, the Company decided to restate its financial statements previously reported on Forms 10-Q for the periods ended June 30 and September 30, 2009, and September 2010 and on Form 10-K for the period ended December 2009. The restatements primarily reflect adjustments to correct for the understatement of interest expense and liabilities reported on Forms 10-Q for the periods ended June 30, and September 30, 2009 and on Form 10-K for the period ended December 31, 2009 as well as to correct for the reclassification between additional paid in capital and interest expense for the period ended September 30, 2010.
 
 None of the accounting changes discussed above had any impact on the Company’s cash position, its cash flows or its future cash requirements.
 
 10
 RESULTS OF OPERATIONS
 
 Year ended December 31, 2010 Compared to Year ended December 31, 2009
 
 There were no revenues for the year ended December 31, 2010, or for year ended December 31, 2009. There was no cost of revenues from continuing operations for the year ended December 31, 2010 or for the year ended December 31, 2009.
 
 Operating expenses were $1,270,848 for the year ended December 31, 2010 and $995,274 for the year ended December 31, 2009. Included in the year ended December 31, 2010 was $29,880 in stock based compensation, $233,076 in research and development costs, $121,561 in bad debt expense, $379,355 from the loss on write-down of assets and $506,976 in general and administrative expenses as compared to $146,500 in stock based compensation, $585,982 in research and development (including $88,000 in research and development costs associated with stock issuances to various consultants), and $262,792 in general and administrative expenses for the year ended December 31, 2009.
 
 Total other expense for the years ended December 31, 2010 and 2009 were $1,452,688 and $1,227,725, respectively. Included in the year ended December 31, 2010 was $1,112,097 of interest expense (including $104,476 in interest expense due to a related party), $934,000 from effect of the penalty shares as well as $297,633 in non-cash expenses associated with the changes in the conversion features embedded in the convertible debentures issued by the Company during the year ended December 31, 2010.  Included in the year ended December 31, 2009 was $423,274 of interest expense (including $157,645 in interest expense due to a related party), $114,000 from effect of the penalty shares  as well as $915,064 in non-cash expenses associated with the changes in the conversion features embedded in the convertible debentures issued by the Company during the year ended December 31, 2009. Amortization of note discount was $35,036 and $89,974, respectively for years ended December 31, 2010 and 2009. Our net loss was $2,723,536 for the year ended December 31, 2010 and $2,224,153 for the year ended December 31, 2009. Our operating and net losses can be expected to recur in the future until we are able to successfully develop and generate revenue with one or more technologies.
 
 The Company accounts for convertible debt in accordance with FASB Accounting Standards Codification, Topic 815, as the conversion feature embedded in the convertible debenture could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares. We calculate the fair value of the conversion feature at the time of issuance and record a conversion liability for the calculated value, which is added to the carrying value of the debenture.  We also recognize changes in value for accretion of the conversion liability from present value to fair value over the term of the note. The additional costs for the conversion features of $297,633 for the year ended December 31, 2010 has been recognized within other income (expense) as changes in conversion liabilities in the accompanying financial statements, and includes $33,562 in costs for related party debt.
  Additional Disclosures Involving the EALA
 
 On May 15, 2009, EcoSystem and GS CleanTech Corporation entered into an Early Adopter License Agreement (the “EALA”) involving use of several of GS CleanTech’s technologies. The EALA calls for the payment of royalties to GS CleanTech equal to 10% of EcoSystem’s pre-tax net income deriving from the use of GS CleanTech’s technologies (excluding corn oil extraction). Since generation of pre-tax net income can only derive from commercialized implementations of the Company’s technologies, no payments are due under the EALA until the Company has successfully commercialized a technology licensed under the EALA.
 
 The EALA grants EcoSystem “most favored licensee” status as an early adopter of the technologies licensed under the EALA, thus allowing EcoSystem to use the licensed technologies on terms that are more favorable than any terms which GS CleanTech may grant to third parties in the future (no such third party grants have occurred).  In the event that EcoSystem fails to achieve a targeted commercialization milestone, GS CleanTech has the right under the EALA to cancel EcoSystem’s “most favored licensee” status. The commercialization milestone contained in the EALA provides for the commencement of commercial sales on or before the fourth anniversary of the EALA, or May 15, 2013. While EcoSystem may lose its “most favored licensee” status if it fails to meet this milestone, EcoSystem will retain the licensee rights granted under the EALA.
 
 EcoSystem shall provide all of the capital resources needed to build bench, pilot and commercial scale facilities based on the technologies licensed under the EALA. GS CleanTech is a wholly-owned subsidiary of GreenShift Corporation, which company is majority owned by our majority shareholder, Viridis Capital, LLC. The Company received a favorable response for grant funding sought for the Company’s feedstock conditioning technologies for during 2009, however, the Company elected not to proceed given the requirements of the relevant grant program. This particular technology was demonstrated during the year ended December 31, 2009 to result in more than 6% more biofuel yield by pre-conditioning corn prior to fermentation to increase the concentration of sugar available for fermentation into alcohol as well as oil available for extraction.
 
 Work on the Company’s biological technologies was terminated during 2009 given Management’s contemporaneous assessment that the financial and technology risks associated with scaling these technologies to a meaningful scale were prohibitive. The Company’s research and development efforts then shifted to early stage testing involving the Company’s patented and patent-pending feedstock conditioning technologies licensed under the EALA and, more specifically, the flash desiccation technology licensed to the Company under the EALA. The research and development costs incurred during 2009 predominantly related to a series of trials involving this technology. Additional development with this technology moving forward will require the completion of additional financing of about $1 million to support construction of a commercial pilot facility involving this technology. The Company is presently seeking this financing. During 2010, the Company conducted laboratory research involving patent-pending technologies designed to recycle waste carbon emissions into value-added products. These activities were completed at the direction of our management and in connection with license rights obtained from affiliates of Viridis Capital, LLC, our majority shareholder, pursuant to which we have agreed to provide all of the capital resources needed to complete research and development in exchange for use rights involving the technologies. To defray cost and risk, this research was completed at our cost at a university laboratory, by the university’s research staff.
 
 The Company’s Management collectively has several advanced engineering and technical degrees and many years of experience in technology development and commercialization. To conserve costs and to help defray risk, Management retains technical staff on a subcontract basis depending upon the subject matter or technical discipline implicated by the Company’s research. In the case of the above mentioned tests with the Company’s flash desiccation technology, these trials were completed by the Company’s staff and subcontracted technical consultants in collaboration with the operational and engineering staff of GreenShift Corporation and Global Ethanol, LLC, the owner of an ethanol facility at which a number of trials were conducted.
 
 LIQUIDITY AND CAPITAL RESOURCES
 
 The Company’s capital requirements consist of general working capital needs as well as planned research and development expenditures involving our ongoing commercialization efforts with our technologies. The Company's capital resources consist primarily of cash generated from the issuance of debt and stock. The Company relied on the issuance of convertible debt during the year ended December 31, 2010 to cover its capital needs. Our plan moving forward involves continued investment in the research and development of our technologies as well as evaluation of additional early stage clean technologies for license or acquisition.
 
 For the year ended December 31, 2010, net cash used in financing activities was $26,061. The Company had a working capital deficit of $2,533,199 at December 31, 2010, which includes $353,009 in liabilities associated with the conversion features embedded in the convertible debentures issued by the Company, as well as $583,365 in convertible debt due to third parties and $601,446 in convertible debt due to related parties.  The working capital deficit net of these amounts would be $995,379.
  Off Balance Sheet Arrangements
    11
  
  ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
 
 Page No.FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
13Balance Sheets
14Statements of Operations
15Statements of Stockholders’ Equity
16Statements of Cash Flows
18Notes to Financial Statements
19
 
  12
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To the Board of Directors and
 Stockholders of Ecosystem Corporation
 
 
 We have audited the accompanying balance sheets of Ecosystem Corporation as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period December 31, 2010. Ecosystem Corporation’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecosystem Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and its total liabilities exceed its total assets.  This raises doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 As discussed in Note 12 to the financial statements, the 2009 financial statements have been restated to correct a misstatement.
 
 /s/ Rosenberg Rich Baker Berman & Company
 
 Somerset, New Jersey
 April 15, 2011
 13
  
  ECOSYSTEM CORPORATION
 BALANCE SHEETS
 AS OF DECEMBER 31, 2010
 
 12/31/2010


Restated

12/31/2009ASSETSCurrent Assets:Cash

$
526


$
2,551Due from affiliates


20,219



--Total current assets


20,745



2,551Other Assets:Project development costs


--



379,355Note receivable


549,242



484,264Total other assets


549,242



863,619TOTAL ASSETS


569, 987



866,170LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current Liabilities:Accounts payable and accrued expenses


651,328



219,072Accrued interest


107,882



37,654Accrued interest  – related party


77,907



50,259Convertible debentures, net of discounts - other


887,401



674,296Convertible debentures – related party


650,419



183,005Liabilities to be settled in stock


179,007



144,103Due to related party


--



397,835Total current liabilities


2,553,944



1,706,224Total Liabilities


2,553,944



1,706,224Stockholders’ Equity (Deficit):Convertible preferred stock, $0.001 par value, 500,000,000 shares authorized:Series D: 1,000,000 authorized, 840,281 and 912,137 issued and  outstanding, respectively


840



912Common stock: $0.001 par value, 5,000,000,000 authorized;

4,399,652,153 and 23,013,457 issued and outstanding, respectively


4,399,650



23,013Preferred units subscribed


--



81,011,667Stock subscription receivable


--



(81,011,667
)Additional paid in capital


5,793,490



8,590,422Accumulated deficit


(12,177,937
)


(9,454,401
)Total stockholders’ equity (deficit)


(1,983,957
)


(840,054
)TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$
569,987


$
866,170
 The notes to the Consolidated Financial Statements are an integral part of these statements.
 
  14
  
  ECOSYSTEM CORPORATION
 STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 
 Twelve Months Ended
 12/31/2010


Restated

12/31/2009Revenue

$
--


$
--Cost of revenues


--



--Gross profit


--



--Operating expenses:Stock based compensation


29,880



146,500Selling expenses


--



3,138Research and development


233,076



--Loss on writedown of asset


379,355



--Bad debt expense


121,561



585,982General and administrative expenses


506,976



259.654Total operating expenses


1,270,848



995,274Income (loss) from operations


(1,270,848
)


(995,274
)Other Income (Expense):Interest income


64,978



34,264Interest income – related party


--



98,422Gain on extinguishment of debt


--



67,901Cancellation fees


(72,900
)


--Amortization of debt discount


(35,036
)


(89,974
)Change in conversion liabilities


(264,071
)


(518,110
)Change in convertible liabilities – related party


(33,562
)


(396,954
)Interest expense


(1,007,621
)


(265,629
)Interest expense – related party


(104,476
)


(157,645
)Total other income (expense)


(1,452,688
)


(1,227,725
)Loss before provision for income taxes


(2,723,536
)


(2,222,998
)(Provision for)/benefit from income taxes


--



(1,155
)Net income (loss)


(2,723,536
)


(2,224,153
)Weighted average common shares outstanding, basic and diluted


784,435,830



2,565,279Earnings (Loss) per Share:Net income (loss) per share – basic and diluted

$
0.00


$
(0.87
)
 
 The notes to the Consolidated Financial Statements are an integral part of these statements.
 
  15
  
  ECOSYSTEM CORPORATION
 STATEMENTS OF STOCKHOLDERS’ EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009
 
 Series D Preferred


Common Stock


Preferred Units


Stock SubscriptionShares


Amount


Shares


Amount


Subscribed


ReceivableBalance at 12/31/08


--


$
--



500,000


$
500



--


$
--Shares issued for services


--



--



341,500



341



--



--Cancellation of Series D Conversions


936,978



937



(3,440,000
)


(3,440
)


--



--Shares issued for accounts payable


--



--



9,000



9



--



--Effect of conversions on feature of convertible debenture


--



--







--



--



--Conversion of debt


61,250



61



534,559



535



--



--Extinguishment of debt/beneficial conversion feature


--



--



--



--



--



--Series D Preferred stock conversions


(86,091
)


(86
)


24,690,006



24,690



--



--Issuance to Junior investors


--



--



373,500



374



(8,785,333
)


8,785,333Issuance of fractional shares from reverse split


--



--



4,892



5



--



--Forgiveness of debt


--



--



--



--



--



--Preferred units subscribed


--



--



--



--



89,797,000



(89,797,000
)Net loss


--



--



--



--



--



--Balance at 12/31/09, Restated


912,137


$
912



23,013,457


$
23,013



81,011,667


$
(81,011,667
)Shares issued for services


--



--



24,900,000



24,900



--



--Cancellation of preferred units subscription


--



--



--



--



(76,619,000
)


76,619,000Effect of conversions on feature of convertible debt


--



--



--



--



--



--Conversion of debt


--



--



1,124,110,464



1,124,110



--



--Series D Preferred stock conversion


(71,856
)


(72
)


3,226,132,732



3,226,131



--



--Issuance to Junior investors


--



--



1,495,500



1,496



(4,392,667
)


4,392,667Forgiveness of debt


--



--



--



--



--



--Net loss


--



--



--



--



--



--Balance at 12/31/10


840,281


$
840



4,399,652,153


$
4,399,650



--


$
--
 
 The notes to the Consolidated Financial Statements are an integral part of these statements.
 
  16
  
  ECOSYSTEM CORPORATION
 STATEMENT OF STOCKHOLDERS’ EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009
 
 Additional Paid-in Capital


Accumulated Deficit


Total Stockholders’ Equity (Deficit)Balance at 12/31/08

$
7,073,619


$
(7,230,248
)

$
(156,129
)Shares issued for services


621,559



--



621,900Cancellation of Series D Preferred conversions


2,503



--



--Shares issued for accounts payable


28,291



--



28,300Effect of conversions on feature of convertible debt


698,448



--



698,448Conversion of debt


574,154



--



574,750Extinguishment of debt/beneficial conversion feature


(432,932
)


--



(432,932
)Conversion of Series D Preferred


(24,604
)


--



--Series D Preferred stock conversions


(373
)


--



--Issuance to Junior investors


(5
)


--



--Issuance of fractional shares from reverse split


49,762



--



47,762Net loss


--



(2,224,153
)


(2,224,153
)Balance at 12/31/09, Restated

$
8,590,422


$
(9,454,401
)

$
(840,054
)Shares issued for services


4,980



--



29,880Cancellation of Preferred Units Subscription


--



--



--Effect of conversions on feature of convertible debt


161,239



--



161,239Conversion of debt


80,803



--



1,204,915Series D Preferred stock conversions


(3,266,060
)


--



--Issuance to Junior investors


(1,496
)


--



--Forgiveness of debt


183,599



--



183,599Net loss


--



(2,723,536
)


(2,723,536
)Balance at 12/31/10

$
5,793,490


$
(12,177,937
)

$
(1,983,957
)
 
 The notes to the Consolidated Financial Statements are an integral part of these statements.
 
  17
  
  ECOSYSTEM CORPORATION
 STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009
 
 Twelve Months Ended12/31/2010


Restated

12/31/2009CASH FLOW FROM OPERATING ACTIVITIESNet cash provided by (used in) operating activities

$
(2,723,536
)


(2,224,153
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Stock based compensation


29,880



621,900Change in conversion liabilities


297,632



915,064Interest accretion on notes receivable


(64,978
)


(34,264
)Gain on extinguishment of debt


--



(67,901
)Amortization of beneficial conversion feature of debt


35,036



132,724Expenses incurred by issuance of affiliate convertible debentures


685,185



136,366Loss on write-down of asset


379,355



--Changes in assets and liabilities:Accounts payable and accrued interest


412,039



150,517Accrued interest


178,088



169,227Liabilities to be settled in stock


832,335



144,103Net cash provided (used in) operating activities


24,036



(56,417
)CASH FLOW FROM INVESTING ACTIVITIESNote receivable repayment

$
--


$
50,000Net cash provided by investing activities


--



50,000CASH FLOWS FROM FINANCING ACTIVITIESRepayment of related party debt


(26,061
)


--Loan proceeds from related party


--



8,968Net cash provided by (used in)financing activities


(26,061
)


8,968Net increase (decrease) in cash


(2,025
)


2,551Cash at beginning of period


2,551



--Cash at end of period

$
526


$
2,551Supplemental Schedule of Non-Cash Investing and Financing Activities:Stock issued for conversion of deb, A/P and liabilities to be settled in stock

$
1,124,110


$
4,758,954Conversion of preferred stock into common

$
3,227,627


$
500,000Conversion of convertible liabilities

$
161,239


$
698,448Transfer of accrued interest to debentures

$
117,844


$
--Assignment of related party debt to debenture

$
445,114


$
--Debt forgiveness – related parties

$
183,599


$
49,762Transfer of accounts payable from affiliate

$
20,219


$
547,537Project development from affiliate

$
--


$
379,355Miscellaneous issuances/cancellation of preferred stock

$
--


$
2,021,000Recognition of conversion feature on new convertible notes

$
--


$
137,725Recognition of common stock reverse split

$
--


$
3,430,127Notes receivable exchanged for convertible debentures

$
--


$
500,000Cancellation of common stock conversions of preferred stock

$
--


$
2,434,977Conversion of debt into preferred stock

$
--


$
50,701
 
 The notes to the Consolidated Financial Statements are an integral part of these statements.
 
  18
  
  ECOSYSTEM CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 1
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 
 EcoSystem Corporation (“we,” “our,” “us,” “EcoSystem,” or the “Company”) is a technology development company with a focus on cleantech innovations designed to resolve compelling ecological challenges while producing value added carbon neutral and negative products.
 
 Carbon dioxide is the most abundant waste produced by human activity. Continued accumulation in Earth’s atmosphere and oceans needs to be avoided in order to prevent severe climate change. The majority of our waste carbon emissions come from the combustion of fossil fuels to produce electricity, to power transportation, to heat our homes and to manufacture products. The scientific consensus is that these activities are directly responsible for increasing atmospheric carbon dioxide concentrations to the highest that they have been for more than 650,000 years. However, and despite the increased focus on renewable sources of energy, fossil fuels will continue to play a vital and dominant role in providing the majority of our energy needs over at least the next 50 years. Most scientists agree that, unabated, the combustion of fossil fuels to meet these needs will pump enough carbon dioxide into the global ecosystem to bring about severe climate change. Our collective challenge is to stem the tide of carbon emissions as rapidly and as cost-effectively as possible with little to no restriction on economic growth.
 
 EcoSystem’s ambition is to contribute to the resolution of this challenge by developing new clean technologies that reduce and reuse carbon emissions. Our plan to do so while building shareholder value is to develop, license and support technologies and projects that reduce the carbon intensity of liquid fuels by reducing consumption of fossil fuels, increase use of sustainable raw materials and biofuels, and decrease production of wastes and emissions.
 
 Our current technology portfolio includes several feedstock and product conditioning technologies, lipid and alcohol production and refining technologies, and carbon dioxide recycling and refining technologies. While these technologies have wide application potential in several industries and processes, we are initially focused on developing applications of these technologies for use in the existing first generation U.S. corn ethanol industry. We believe that the composition and extent of the installed ethanol complex, and the relatively uncomplicated nature of its inputs and outputs presents compelling opportunities to defray risk as we commercialize our technologies. Importantly, significant demand exists today for technologies that enhance the efficiency and sustainability of refining corn into liquid fuel. We believe that satisfying this demand can be expected to result in reduced reliance on petroleum products, more efficient use of natural resources, increased use of biomass-derived fuels and other products, and decreased greenhouse gas emissions on globally-meaningful scales.
 
 FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
 In April 2010, the FASB issued ASU 2010-17, Revenue Recognition — Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should (i) be commensurate with either the level of effort required to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) be related solely to past performance; and (iii) be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both substantive and non-substantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Management evaluated the potential impact of ASU 2010-17 and does not expect its adoption to have a material effect on the Company’s results of operations or financial condition.
 
 In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820 to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the
 
 19
 reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirements for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance is effective for interim and annual financial periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a significant effect on the Company’s financial statements.
 
 Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
 
 NOTE 2
GOING CONCERN
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a loss in continuing operations of $2,723,536 during the year ended December 31, 2010, and had an accumulated deficit and negative cash flow from continuing operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include raising additional proceeds from debt and equity transactions and completing strategic acquisitions.
 
 NOTE 3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 REVENUE RECOGNITION
 
 The Company follows the percentage-of-completion method of accounting for contracts for which the outcomes can be reliably estimated. Costs include all direct material and labor costs, and indirect costs, such as supplies, tools, repairs and depreciation. Revenue on such contracts is determined by reference to stage of completion. Revenue on long-term contracts is for which the outcomes cannot be estimated reliably at the outset is recognized to the extent that costs incurred are deemed recoverable.
 
 ACCOUNTS RECEIVABLE
 
 Accounts receivable are customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. No interest is charged on any past due accounts. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of the amount that will not be collected. Management reviews balances that are 90 days from the invoice date and based on assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.
 
 PROPERTY, PLANT AND EQUIPMENT
 
 Property, plant and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from three to five years for equipment, and 40 years for real estate, using the straight-line method.
 
 INCOME TAXES
 
 Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized.
 
 USE OF ESTIMATES
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
 
 20
 CONCENTRATIONS OF CREDIT RISK
 
 Financial instruments, which potentially subject the Company to a concentration of credit risk, consist of cash and cash equivalents. The Company places its cash and cash equivalents with various high quality financial institutions; these deposits may exceed federally insured limits at various times throughout the year. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.
 
 FAIR VALUE OF FINANCIAL INSTRUMENTS
 
 The carrying amounts reported in the balance sheets as of December 31, 2010 and 2009 for cash equivalents and accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of notes payable, notes receivable, and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions.
 
 FAIR VALUE MEASUREMENTS
 
 Effective July 1 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements.
 
 The Company accounted for the convertible debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.
 
 Under ASC 820, a framework was established for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Company measured the fair value of the preferred equity interest outstanding at March 31, 2009 since the number of common shares issuable under the Company’s Series E convertible preferred stock was indeterminable during the three months then ended. The value at September 30, 2009 was determined to be $9,000,000, measured using significant unobservable inputs (Level 3) using the present value of the shares based on the average fair market value of the Company’s stock for the three days before and after the acquisition date.
 
 Effective July 1 2009, the Company adopted ASC 820-10-55-23A, Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying application for non-financial assets and non-financial liabilities as permitted. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 rollforward disclosure. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.   ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
 
 Level 1
quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivativesLevel 2
inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges  21
  Level 3
unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models
 
 Embedded conversion liabilities as of December 31, 2010:Level 1

$
--Level 2


--Level 3


353,009Total

$
353,009
 
 The following table reconciles, for the years ended December 31, 2010 and 2009, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:
 
 Balance of embedded conversion liability at January 31, 2009

$
--Present value of beneficial conversion feature of new debentures


512,639Reduction in fair value due to principal conversions


(316,905
)Accretion adjustment to fair value conversion feature


20,882Balance of embedded conversion liability at December 31, 2009


216,616Present value of beneficial conversion feature of new debentures


266,689Reduction in fair value due to principal conversions


(161,239
)Accretion adjustment to fair value conversion feature


30,943Balance at December 31, 2010

$
353,009
 
 The fair value of the conversion features are calculated at the time of issuance and the Company records a conversion liability for the calculated value. The Company recognizes interest expense for the conversion liability which is added to the principal of the debenture. The Company also recognizes interest expense for accretion of the conversion liability to fair value over the term of the note.
 
 The Company has adopted ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the note principal being converted to a variable number of the Company’s common shares.
 
 LIMITATIONS
 
 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
 
 CASH AND CASH EQUIVALENTS
 
 For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
 
 EARNINGS (LOSS) PER SHARE
 
 Earnings (loss) per common share represent the amount of earnings (loss) for the period available to each share of common stock outstanding during the reporting period. Diluted earnings (loss) per share reflects the amount of earnings (loss) for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock. The computation of diluted earnings (loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings (loss) per share. Potential future dilutive securities include common shares issuable under the Company’s outstanding options, convertible debentures and preferred stock as of December 31, 2010 as described more fully in these Notes to the Company’s Condensed Financial Statements.
 
 22
 STOCK BASED COMPENSATION
 
 The Company accounts for stock based compensation in accordance with Financial Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation.” Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period.
 
 The Company accounts for stock issued for services to non-employees by reference to the fair market value of the Company's stock on the date of issuance as it is the more readily determinable value.
 
 DEFERRED FINANCING CHARGES AND DEBT DISCOUNTS
 
 Deferred finance costs represent costs which may include direct costs incurred to third parties in order to obtain long-term financing and have been reflected as other assets. Costs incurred with parties who are providing the actual long-term financing, which generally include the value of warrants, or the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount. These costs and discounts are generally amortized over the life of the related debt. During the years ended December 31, 2010 and 2009, the Company recorded amortization of the note discount in the amount of $35,036 and $89,974, respectively.
 
 NOTE 4
STOCKHOLDERS’ EQUITY
 
 SERIES D PREFERRED STOCK
 
 Shares of the Series D Preferred Stock (the "Series D Shares") may be converted by the holder into Company common stock at a rate representing  80%  of  the  fully  diluted  outstanding  common  shares outstanding after the conversion  (which includes all common shares  outstanding plus  all  common  shares  potentially  issuable  upon  the  conversion  of  all derivative securities not held by the holder). The holder of Series D Shares may cast the number of votes at a  shareholders  meeting or by written  consent that equals  the  number  of  common  shares  into  which  the  Series D  Shares  are convertible  on the record  date for the  shareholder  action.  In the event the Board of Directors declares a dividend payable to Company common shareholders, the holders of Series D Shares will receive the dividend that would be payable if the Series D Shares were converted into Company common shares prior to the dividend.  In the event of a liquidation of the Company, the holders of Series D Shares will receive a preferential distribution of $0.001 per share, and will share in the distribution as if the Series D Shares had been converted into common shares.
 
 A total of 14,072 shares of Series D preferred stock held by MIF were converted 393,561,731 common shares. An additional 57,785 shares of Series D preferred stock beneficially owned by Viridis Capital, LLC (“Viridis”) were converted during the twelve months ended December 31, 2010 into 2,832,571,000 common shares.
 
 SERIES E PREFERRED STOCK
 
 The Company’s Series E Preferred Stock was authorized during 2009 in connection with the Preferred Equity Financing.  The Company entered into an agreement to cancel all Series E shares previously issued in April 2010, which agreement called for the issuance of a total of 5,000,000 Company common shares and the retention of another 1,869,000 common shares previously issued to the relevant investors in anticipation of converting Series E shares. All Series E shares are consequently pending cancelation.  The 5,000,000 common shares to be issued to the relevant investors (and 100,000 shares due to the escrow agent) have been recorded as liabilities due to be settled in stock and were valued as of the April 15, 2010 commitment date.
 
 On April 15, 2010, the Company entered into cancellation agreements with the Senior Investors and the Junior Investors with respect to the cancellation of the 2009 Preferred Equity Financing. Under the terms of the cancellation agreements, the Company agreed to issue the Senior Investors and the Junior Investors an aggregate of 5,000,000 restricted common shares in consideration for the surrender
 
 23
 
 and cancellation of all shares of Series E preferred stock and warrants issued to the investors in connection with the closing of the 2009 Preferred Equity Financing. The cancellation of the 2009 Preferred Equity Financing is effective as of March 31, 2010.
 
 COMMON STOCK
 
 The Company completed a 1-for-1,000 reverse stock split on November 30, 2009. All share amounts reported herein are reported on a post-split basis except where stated to be on a pre-split basis.
 
 In addition to the common shares issued as noted above, the Company issued 1,124,110,464 shares of common stock upon the conversion of an aggregate of $407,483 in debt during the year ended December 31, 2010 consisting of: 448,487,593 common shares issued to Mammoth Corporation  upon the conversion of $107,952 in accrued interest; 27,700,000 common shares issued to JMJ Financial Corporation upon the conversion of $24,750 in debt; 778,816 common shares issued to Sunny Isles Ventures, LLC upon the conversion of $5,000 in debt; 70,997,279 common shares issued to Mazuma Funding upon the conversion of $63,374 in debt and accrued interest; 382,500,000 common shares issued to E-LionHeart Associates upon the conversion of $73,250 in debt; 176,823,020 common shares issued to Asher Enterprises, Inc. upon the conversion of $126,157 in debt and accrued interest  and 16,823,756 common shares issued to Long Side Ventures upon the conversion of $7,000 in debt.
 
 In addition to the common shares issued as noted above, the Company issued 512,059 shares of common stock upon the conversion of an aggregate of $523,514 in debt during the year ended December 31, 2009 consisting of: 53,622 common shares issued to RAKJ Holdings, Inc., upon the conversion of $50,532 in debt; 179,982 common shares issued to JMJ Financial Corporation upon the conversion of $179,982 in debt; 50,000 common shares issued to MIF upon the conversion of $51,115 in debt; and 250,995 common shares issued to Mammoth Corporation upon the conversion of $242,421 in debt. The Company also issued 9,000 shares for a total of $28,300 to payoff various accounts payable during year ended December 31, 2009.
 
 During the year ended December 31, 2010, the Company issued 24,900,000 common shares to a consultant for a total of $29,880 in connection with the Company’s ongoing technology development efforts.
 
 During the year ended December 31, 2009, the Company issued 341,500 common shares to various consultants in connection with the Company’s ongoing technology development efforts. These shares were issued for a total of $425,900 in research and development expenses. The Company also issued 100,000 shares for a total of $196,000 in stock-based compensation during the year.
 
 On January 14, 2010, Trevor Bourne resigned from his position as President and Chief Executive Officer of the Company. The Company has temporarily appointed Kevin Kreisler as President and Chief Executive Officer. Mr. Kreisler shall also retain the position of Chairman. Effective March 31, 2010, Mr. Bourne also resigned from the Company’s board of directors.
 
 NOTE 5
RELATED PARTY TRANSACTIONS
 The Company has licensed technologies from affiliates of Viridis Capital, LLC, our majority shareholder, which company is solely owned by the Chairman.  On May 15, 2009, EcoSystem and GS CleanTech Corporation entered into an Early Adopter License Agreement (the EALA) involving use of several of GS CleanTech’s technologies. The EALA calls for the payment of royalties to GS CleanTech equal to 10% of EcoSystem’s pre-tax net income deriving from the use of GS CleanTech’s technologies (excluding corn oil extraction). EcoSystem shall provide all of the capital resources needed to build bench, pilot and commercial scale facilities based on these technologies under the EALA. GS CleanTech is a wholly-owned subsidiary of GreenShift Corporation, which company is majority owned by our majority shareholder, Viridis Capital, LLC. The Company received a favorable response for grant funding sought for the Company’s feedstock conditioning technologies during 2009, however, the Company elected not to proceed given the requirements of the relevant grant program. This particular technology was demonstrated during the year ended December 31, 2009 to result in more than 6% more biofuel yield by pre-conditioning corn prior to fermentation to increase the concentration of sugar available for fermentation into alcohol as well as oil available for extraction. During the year ended December 31, 2010, the Company invoiced Carbonics Capital Corporation for $121,561 related to research and development costs involving another technology licensed by an affiliate of Viridis Capital, LLC.  A reserve for doubtful accounts in the amount of $121,561 has been set up in regards to this receivable.  Carbonics Capital Corporation was previously owned by our majority shareholder, Viridis Capital, LLC.




24





Minority Interest Fund (II), LLC (“MIF”) is party to certain convertible debentures issued by the Company (see Note 7, Convertible Debentures, below). The managing member of MIF is a relative of the Company’s chairman.





NOTE 6
FINANCING ARRANGEMENTS





The following is a summary of the Company’s financing arrangements as of December 31, 2010 and 2009:





2010



2009Current portion of convertible debentures:Note discounts
$
(42,891
)

$
(77,927
)Convertible debentures to Minority Interest Fund (II), LLC

601,446



167,594Convertible debentures to JMJ Financial Corp

526,268



551,018Convertible debentures to Sunny Isles Ventures

45,000



--Convertible debentures to Mammoth Corporation

27,738



--Convertible debentures to Long Side Ventures

25,500



--Convertible debentures to E-Lionheart Associates

1,750



--Conversion liabilities

353,009



216,616Total current portion of convertible debentures
$
1,537,820


$
857,301





A total of $1,227,702 in principal from the convertible debt noted above is convertible into the common stock of the Company (see Note 7,Convertible Debentures). The following chart is presented to assist the reader in analyzing the Company’s ability to fulfill its fixed debt service requirements (net of note discounts) as of December 31, 2010 and the Company’s ability to meet such obligations:





Year

Amount2011
$
1,227,7022012

--2013

--2014

--2015

--Thereafter

--Total minimum payments due under current and long term obligations
$
1,227,702





NOTE 7
CONVERTIBLE DEBENTURES





As of December 31, 2009, the Company had a convertible debenture payable to Minority Interest Fund (II), LLC (“MIF”) in the amount of $167,594 (the “MIF Debenture”).  The convertible debt issued to MIF bears interest at a rate of 20% and matures on December 31, 2011. The MIF Debentures are convertible into Company common stock at a rate equal to 90% of the lowest volume weighted average price for the Company’s common stock for the twenty trading days preceding conversion.  The Company accounted for the MIF Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the MIF Debenture could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the MIF Debenture at December 31, 2009 to be $183,005 which represented the face value of the debenture of $167,594 plus the present value of the conversion feature.  During the year ended December 31, 2010, the Company assigned $445,114 in related party debt owed to GreenShift Corporation to the MIF Debenture thereby increasing the debenture by this amount.  The MIF Debenture was also increased by $196,074 in additional advances during the year ended December 31, 2010 and $68,927 in accrued interest was reclassed and added to the principal. During the year ended December 31, 2010, MIF sold a portion of the MIF Debenture in the amounts of $21,075 (including accrued interest of $2,968) to Mazuma Funding, $50,000 to Sunny Isles Ventures, $40,000 to Mazuma, $32,500 to Long Side Ventures, $35,000 to E-LionHeart Associates, $57,688 to Mammoth Corporation and $40,000 to Asher.  During the year ended December 31, 2010, the Company recognized additional conversion liabilities at present value of $28,940 for additional funding received and recorded an expense of $4,621 for the accretion to fair value of the conversion liability for the year.  The carrying value of the MIF Debenture was $650,419 at December 31, 2010, and included principal of $601,446 and the value of the conversion liability. The liability for the conversion feature shall increase





25


from its present value of $48,973 at December 31, 2010 to its estimated settlement value of $53,685 at December 31, 2011. Interest expense of $104,476 for these obligations was accrued for the year ended December 31, 2010.





On June 9, 2009, JMJ Financial Corporation (“JMJ”) issued the Company a 14.4% secured promissory note in the amount of $500,000 (“the JMJ Note”) in return for $600,000 in 12% convertible debt (“the JMJ Debenture”) issued by the Company. The Company recognized a $100,000 debt discount in relation to the difference between the $600,000 JMJ Debenture and the $500,000 JMJ Note. This discount is being amortized over the term of the debenture. The Company recognized amortization of debt discount of $35,036 for the year ended December 31, 2010.  The principal balance receivable under the JMJ Note was $450,000 as of December 31, 2010 and accrued interest receivable under the JMJ Note was $99,242. The principal and accrued interest for the JMJ Note and JMJ Debenture has been presented as of December 31, 2010, at their face value, without offset. The JMJ Debenture is convertible into Company common stock at a rate equal to 70% of the lowest closing market price for the Company’s common stock for the twenty trading days preceding conversion. The Company accounted for the JMJ Debenture dated June 9, 2009 in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the JMJ Debenture could result in the note principal being converted to a variable number of the Company’s common shares.





The Company determined the value of the JMJ Debenture at December 31, 2009 to be $789,877 which represented the face value of the debenture and accrued interest plus the present value of the conversion feature. During the year ended December 31, 2010, JMJ converted $24,750 on this debenture into 27,700,000 common shares.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $8,503 for the conversions. For the year ended December 31, 2010, an expense of $43,682 has been recorded to recognize the present value of the conversion features for additional accrued interest and for the accretion to fair value of the conversion liability.  The carrying value of the $600,000 JMJ Debenture was $820,462 at December 31, 2010 which represented the face value of the debenture and accrued interest plus the present value of the conversion feature minus the unamortized debt discount of $42,891.  The liability for the conversion feature shall increase from its present value of $236,383 at December 31, 2010 to its estimated settlement amount of $268,702 at June 22, 2012.  For the year ended December 31, 2010, interest expense of $63,048 for these obligations was incurred.





On May 25, 2010, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) in the amount of $30,000 (the “Asher Note”).  The convertible debt issued to Asher bears interest at a rate of 8% and matures on February 26, 2011. The Asher Note is convertible into Company common stock at a rate equal to 55% multiplied by the market price, defined as the average of the lowest three trading prices for the Company’s common stock for the ten trading days preceding the one trading day prior to conversion.  Asher will not be permitted, however, to convert into a number of shares that would cause it to own more than 4.99% of the Company’s outstanding common shares. The Company accounted for the Asher Note in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Asher Note could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the Asher Note at May 25, 2010 to be $52,852 which represented the face value of the debenture of $30,000 plus the present value of the conversion feature.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $23,589 for conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $737 for the accretion to fair value of the conversion liability for the period.  The Asher Debenture was paid in full during the year ended December 31, 2010. Interest expense of $1,088 for these obligations was accrued for the year ended December 31, 2010.





MIF sold a portion of its MIF Debenture to Mazuma Funding, Corp. (“Mazuma”) in the amount of $21,075 (including $2,968 accrued interest) on May 21, 2010 (the “Mazuma Debenture”) and $40,000 on July 6, 2010.  The convertible debt sold to Mazuma bears interest at a rate of 20% and matures on December 31, 2010. The Mazuma Debentures are convertible into Company common stock at a rate equal to 60% of the lowest volume weighted average price for the Company’s common stock for the five trading days preceding conversion.  The Company accounted for the Mazuma Debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Mazuma Debentures could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the Mazuma Debentures on the commitment dates noted to be $99,738 which represented the face value of the debentures of $61,075 plus the present value of the conversion featured.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $38,871 for





26





conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $208 for the accretion to fair value of the conversion liability for the year.  The Mazuma Debentures were paid in full during the year ended December 31, 2010.  Interest expense of $2,296 for these obligations was accrued for the year ended December 31, 2010.





MIF sold a portion of its MIF Debenture to Sunny Isle Ventures (“SIV”) in the amount of $50,000 on April 15, 2010 (the “SIV Debenture”).  The convertible debt sold to SIV bears interest at a rate of 5% and matures on December 31, 2011. The SIV Debentures are convertible into Company common stock at a rate equal to 50% of the average closing market price for the Company’s common stock for the five trading days preceding conversion.  SIV will not be permitted, however, to convert into a number of shares that would cause it to own more than 4.99% of the outstanding the Company’s common shares. The Company accounted for the SIV Debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the SIV Debentures could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the SIV Debentures at April 15, 2010 to be $54,721 which represented the face value of the debenture of $50,000 plus the present value of the conversion feature.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $472 for conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $318 for the accretion to fair value of the conversion liability for the year.  The carrying value of the SIV Debentures was $49,567 at December 31, 2010, and included principal of $45,000 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $4,567 at December 31, 2010to its estimated settlement value of $5,000 at December 31, 2011. Interest expense of $1,422 for these obligations was accrued for the year ended December 31, 2010.





MIF sold a portion of its MIF Debenture to Long Side Ventures (“LSV”), the successor to Sunny Isle Ventures, in the amount of $32,500 on July 14, 2010 (the “LSV Debenture”).  The convertible debt sold to LSV bears interest at a rate of 20% and matured on December 31, 2010. The LSV Debentures are convertible into Company common stock at a rate equal to 50% of the average closing market price for the Company’s common stock for the five trading days preceding conversion.  LSV will not be permitted, however, to convert into a number of shares that would cause it to own more than 4.99% of the Company’s outstanding common shares. The Company accounted for the LSV Debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the LSV Debentures could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the LSV Debentures at July 14, 2010 to be $63,611 which represented the face value of the debenture of $32,500 plus the present value of the conversion feature.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $6,701 for conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $1,090 for the accretion to fair value of the conversion liability for the period.  The carrying value of the LSV Debentures was $51,000 at December 31, 2010, and included principal of $25,500 and the value of the conversion liability. The liability for the conversion feature of $25,500 at December 31, 2010 is equal to its estimated settlement value. Interest expense of $2,584 for these obligations was accrued for the year ended December 31, 2010.





MIF sold a portion of its MIF Debenture to E-Lionheart Associates (“E-Lion”) in the amount of $35,000 on September 22, 2010 (the “E-Lion Debenture”).  The convertible debt sold to E-Lion bears interest at a rate of 20% and matures on December 31, 2011. The E-Lion Debenture is convertible into Company common stock at a rate equal to 50% of the average of the three lowest reported closing market price for the Company’s common stock for the twenty trading days preceding conversion.  MIF sold a portion of its MIF Debenture to E-Lionheart in the amount of $40,000 on December 9, 2010 (the “E-Lionheart Debenture”).  The convertible debt sold to E-Lionheart bears interest at a rate of 20% and matures on December 31, 2011. The E-Lionheart Debentures are convertible into Company common stock at a rate equal to 50% of the lowest volume weighted average price for the Company’s common stock for the twenty trading days preceding conversion. The Company accounted for the E-Lion Debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the E-Lion Debentures could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the E-Lion Debentures at on the commitment dates noted to be $142,022 which represented the face value of the debenture of $75,000 plus the present value of the conversion features.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $56,517 for conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $1,162 for the accretion to fair value of the conversion liability for the





27


period.  The carrying value of the E-Lion Debentures was $13,417 at December 31, 2010, and included principal of $1,750 and the value of the conversion liability.  The liability for the conversion feature shall increase from its present value of $11,667 at December 31, 2010 to its estimated settlement value of $11,750 at December 31, 2011. Interest expense of $663 for these obligations was accrued for the year ended December 31, 2010.





MIF sold a portion of its MIF Debenture to Mammoth Corporation (“Mammoth”) in the amount of $57,688 on September 30, 2010 (the “Mammoth Debenture”).  The convertible debt sold to Mammoth bears interest at a rate of 20% and matures on December 31, 2011. The Mammoth Debenture is convertible into Company common stock at a rate equal to 50% of the lowest reported closing market price for the Company’s common stock for the five trading days preceding conversion.  The Company accounted for the Mammoth Debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Mammoth Debentures could result in the note principal being converted to a variable number of the Company’s common shares.  The Company determined the value of the Mammoth Debentures at September 22, 2010 to be $108,897 which represented the face value of the debenture of 57,688 plus the present value of the conversion feature.  During the year ended December 31, 2010, the Company recognized a reduction in conversion liability at present value of $26,586 for conversions during the period.  During the year ended December 31, 2010, the Company recorded an expense of $1,296 for the accretion to fair value of the conversion liability for the period.  The carrying value of the Mammoth Debentures was $53,657 at December 31, 2010, and included principal of $27,738 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $25,919 at December 31, 2010 to its estimated settlement value of $27,738 at December 31, 2011. Interest expense of $2,511 for these obligations was accrued for the year ended December 31, 2010.





NOTE 8
STOCK BASED COMPENSATION





During the year ended December 31, 2010, the Company’s recorded the grant of a total of 5,100,000 common shares related to the cancellation of the Preferred Equity Financing for a total of $71,400 relating to cancellation fees.  A consultant for the Company was issued 24,900,000 shares valued at $29,880 for consulting services performed.





During the year ended December 31, 2009, the Company issued a total of 341,500 shares for a total of $196,000 in stock based compensation, including 241,500 shares for consulting services rendered pertaining to the Company's development stage activities. During the year ended December 31, 2009, the Company issued 91,211 shares of common stock for a total of $707,028 stock based compensation, including 75,211 shares for the consulting services rendered pertaining to the Company's development stage activities





NOTE 9
INCOME TAXES





EcoSystem Corporation has incurred losses, which have generated net operating loss carry forwards for EcoSystem Corporation as of December 31, 2010. These loss carry forwards are subject to limitation in future years should certain ownership changes occur. For the years ended December 31, 2010 and 2009, EcoSystem Corporation’s effective tax rate differs from the federal statutory rate principally due to net operating losses and other temporary differences for which no benefit was recorded.





The provision for income taxes for the years ended December 31, 2010 and 2009 consisted of state income tax provisions. Deferred tax assets are as follows:





12/31/2010


12/31/2009Deferred Tax Asset:Total deferred tax assets


2,845,436



1,475,892Less: valuation allowance


(2,845,436
)


(1,475,892
)Net deferred tax asset

$
--


$
--





EcoSystem Corporation has federal net operating loss carry-forwards of approximately $4,500,000 which expire through December 31, 2025.





28


NOTE 10
OPTIONS AND WARRANTS





The following is a table of stock options and warrants outstanding as of December 31, 2010 and December 31, 2009. The number of shares and price has been adjusted to reflect the 1-for-1,000 reverse stock split which occurred on November 30, 2009.





Number of Shares


Weighted Average Exercise PriceOutstanding at December 31, 2009


275


$
0.46Issued


--



--Exercised


--



--Cancelled


--



--Outstanding at December 31, 2010


275


$
0.46





Summarized information about EcoSystem Corporation’s stock options outstanding at December 31, 2010 is as follows:





ExercisableExercise Price
Number of  Options Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
Number of Options
Weighted Average Exercise Price$0.25
75
7
0.25
75
0.25$0.75
200
7
0.75
200
0.75275


275





Options exercisable at December 31, 2010 were 275,000, with a weighted average exercise price of $0.46 per share.  The fair value of each option granted during 2006 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:





2008Dividend yield


--Expected volatility


69
%Risk-free interest rate


2
%Expected life

10 yrs.






NOTE 11
PROJECT DEVELOPMENT COSTS   During the year ended December 31, 2009, GreenShift transferred $379,355 in costs related to the bioreactor project to the Company.The Company acquired the rights to Ohio University’s photobioreactor as a then promising technology to harness sunlight and carbon dioxide to produce valuable algae biomass for energy and other uses. Research was conducted, and a pilot plant was built, to test the scale-up potential of the laboratory-based bioreactor. The pilot unit, built at a truck trailer size, with two sun-tracking solar collectors on the roof, was about half completed when funding was stopped. Reasons for the discontinuation of the project included the fact that potential algae yields were calculated to be greatly below the original projections, sunlight collection and transmittal into the bioreactor were below expectations, utilizing a major fraction of delivered carbon dioxide was not technically feasible, the energy balance of the bioreactor was not favorable, capital costs of bioreactor construction would not scale and water use was anticipated to be too high.  As a result, the Company discontinued the project and recorded $379,355 in write-downs due to the impairment of assets related to the project.


NOTE 12
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS





While preparing its financial statements for the twelve months ended December 31, 2010, the Company reviewed its accounting for certain non-cash transactions and determined that a portion of certain debt conversions that occurred during the current year should be reclassed between additional paid in capital and interest expense in order to account for penalty shares that are owed for conversions that were converted at conversion rates below par.  It also determined that the accounting for these same types of non-cash transactions for the twelve months ended December 31, 2009 should include additional interest expense in order to account for penalty shares that are owed for conversions that were converted at conversion rates below par.





The Company evaluated the effect of these changes on its financial statements and determined that the changes were material. Consequently, the Company decided to restate its financial statements previously reported on Forms 10-Q for the periods ended June 30 and September 30, 2009, and September 2010 and on Form 10-K for the period ended December 2009. The restatements primarily reflect adjustments to correct for the understatement of interest expense reported on Forms 10-Q for the periods ended June 30, and September 30, 2009 and on Form 10-K for the period ended December 31, 2009 as well as to correct for the reclassification between additional paid in capital and interest expense for the period ended September 30, 2010.





The tables below summarize the impact of the restatement described above on financial information previously reported on the Company’s Forms 10-Q for the periods ended June 30, September 30, 2009 and September 30, 2010. The restatement did not impact cash flow from operating, investing, or financing activities.







29


2009 Balance Sheets (unaudited)




June 30
September 30Restated
Adjustments(1)
Reported
Restated
Adjustments(1)
ReportedCurrent Assets:Liabilities and Stockholders’ DeficitCurrent liabilities:Liabilities to be settled in stock
49,018
49,018
--
126,425
126,425
--Total current liabilities
2,483,177
49,018
2,434,159
1,619,660
126,425
1,493,235Total liabilities
2,483,177
49,018
2,434,159
1,619,660
126,425
1,493,235Stockholders’ deficit:Retained deficit
(8,521,861)
(49,018)
(8,472,843)
(9,045,207)
(126,425)
(8,918,782)Total Stockholders’ equity (deficit)
(1,484,445)
(49,018)
(1,435,427)
(1,112,069)
(126,425)
(985,644)


(1)
Adjustment to liabilities to be settled in stock for the effect of penalty shares.





2009 Balance Sheet




December 31Restated


Adjustments(1)


ReportedCurrent Assets:Liabilities and Stockholders’ DeficitCurrent liabilities:Liabilities to be settled in stock


144,103



144,103



--Total current liabilities


1,706,224



144,103



1,562,121Total liabilities


1,706,224



144,103



1,562,121Stockholders’ deficit:Retained deficit


(9,454,401
)


(144,103
)


(9,310,298
)Total Stockholders’ equity (deficit)


(840,054
)


(144,103
)


(695,951
)


(1)
Adjustment to liabilities to be settled in stock for the effect of penalty shares.





2010 Balance Sheet (unaudited)




September 30Restated


Adjustments(1)


ReportedLiabilities and Stockholders’ DeficitCurrent liabilities:Liability to be settled in stock


138,950



67,550



71,400Total current liabilities


2,680,232



67,550



2,612,682Total liabilities


2,680,232



67,550



2,612,682Stockholders’ deficit:Additional paid in capital


8,115,519



76,816



8,038,703Retained deficit


(10,727,220
)


(144,366
)


(10,582,854
)Total Stockholders’ equity (deficit)


(1,767,443
)


(67,550
)


(1,699,893
)





(1)
Adjustment to liabilities to be settled in stock for the effect of penalty shares less share settlements





2009 Statements of Operations – Quarterly (unaudited)





Three Months
Three MonthsEnded
EndedJune 30
September 30Restated
Adjustments(1)
Reported
Restated
Adjustments(1)
ReportedOther income (expense):Interest expense
(77,627)
(49,018)
(28,609)
(98,232)
(77,407)
(20,825)Total other income (expense), net
(944,981)
(49,018)
(895,963)
(9,248)
(77,407)
68,159Loss before provision for income taxes
(1,021,125)
(49,018)
(972,107)
(523,345)
(77,407)
(445,938)Net loss from continuing operations
(1,022,280)
(49,018)
(973,262)
(523,345)
(77,407)
(445,938)Net loss per share, basic and diluted
0.00
0.00
0.00
0.00
0.00
0.00





(1)
Adjustment to interest expense for the effect of penalty shares.





30





2009 Statements of Operations – Quarterly (unaudited)





Six Months


Nine MonthsEnded


EndedJune 30


September 30Restated


Adjustments(1)


Reported


Restated


Adjustments(1)


ReportedOther income (expense):Interest expense


(77,627
)


(49,018
)


(28,609
)


(175,859
)


(126,425
)


(49,434
)Total other income (expense), net


(1,021,637
)


(49,018
)


(972,619
)


(1,030,885
)


(126,425
)


(904,460
)Loss before provision for income taxes


(1,308,793
)


(49,018
)


(1,259,775
)


(1,832,138
)


(126,425
)


(1,705,713
)Net loss from continuing operations


(1,309,947
)


(49,018
)


(1,260,929
)


(1,833,293
)


(126,425
)


(1,706,868
)Net loss per share, basic and diluted


0.00



0.00



0.00



0.00



0.00



0.00





(1)
Adjustment to interest expense for the effect of penalty shares.


2009 Statement of Operations




Year EndedDecember 31Restated
Adjustments(1)
ReportedOther income (expense):Interest expense
(265,628)
(144,103)
(121,525)Total other income (expense), net
(1,227,724)
(144,103)
(1,083,621)Loss before provision for income taxes
(2,222,998)
(144,103)
(2,078,895)Net loss from continuing operations
(2,224,153)
(144,103)
(2,080,050)Net loss per share, basic and diluted
(0.88)
(0.06)
(0.82)





(1)
Adjustment to interest expense for the effect of penalty shares.





2010 Statements of Operations – Quarterly (unaudited)





Three Months
Nine MonthsEnded
EndedSeptember 30
September 30Restated
Adjustments(1)
Reported
Restated
Adjustments(1)
ReportedOther income (expense):Interest expense
(158,605)
(108,244)
(50,361)
(274,639)
(144,366)
(130,273)Total other income (expense), net
(322,660)
(108,244)
(214,416)
(664,961)
(144,366)
(520,595)Loss before provision for income taxes
(626,510)
(108,244)
(518,266)
(1,416,922)
(144,366)
(1,272,556)Net loss from continuing operations
(626,510)
(108,244)
(518,266)
(1,416,922)
(144,366)
(1,272,556)Net loss per share, basic and diluted
0.00
0.00
0.00
(0.01)
0.00
(0.01)





(1)
Adjustment to interest expense for the effect of penalty shares.




NOTE 13
SUBSEQUENT EVENTS





Between January 1, 2011 and April 14, 2011, the Company issued a total of 440,000,000 common shares upon conversion of debt, as well as 354,960,432 shares of common stock upon conversion of 15,986 of Series D Preferred Stock held by Viridis Capital, LLC, the Company’s majority shareholder.





31







ITEM 9
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM 9A
CONTROLS AND PROCEDURES





EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES





Our principal executive officer and principal financial officer participated in and supervised the evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer, to allow timely decisions regarding required disclosure. In the course of making our assessment of the effectiveness of our disclosure controls and procedures, we identified a material weakness.  This material weakness consisted of inadequate staffing and supervision within the bookkeeping and accounting operations of our company.  The lack of employees prevents us from segregating disclosure duties.  The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.  Based on the results of this assessment, our Chief Executive Officer and our Chief Financial Officer concluded that because of the above condition, our disclosure controls and procedures were not effective as of the end of the period covered by this report.





Other than described above, there have been no changes in the company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, the company’s internal control over financial reporting.





Management’s Report on Internal Control Over Financial Reporting





Management has conducted, with the participation of the Chief Executive Officer and the Chief Financial Officer, an assessment, including testing of the effectiveness of our internal control over financial reporting. The assessment was conducted using the criteria in Internal Control—Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (“COSO”).





A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of the company’s internal control over financial reporting, management identified the following material weakness in the company’s internal control over financial reporting as of December 31, 2010. Management determined that at December 31, 2010, the company had a material weakness related to its control environment because it did not have a sufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience commensurate with its financial reporting requirements.





Because of the material weakness described above, management has concluded that the company did not maintain effective internal control over financial reporting as of December 31, 2010, based on the Internal Control—Integrated Framework issued by COSO.





ITEM 9B
OTHER INFORMATION





None.








32





PART III





ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Name
Age
PositionKevin Kreisler
38
Chairman, Chief Executive OfficerJacqueline L. Flynn
45
Chief Financial Officer





Mr. Kreisler is the chairman and the majority shareholder of EcoSystem through his holding company, Viridis Capital, LLC. Mr. Kreisler is also the chairman and chief executive officer of GreenShift Corporation. Mr. Kreisler served as GreenShift’s vice president from 1998 to 2000, president from 2000 to 2002, chief executive officer from 2002 to 2005 and has served as GreenShift’s chairman from 2005 to the present. Mr. Kreisler is a graduate of Rutgers University College of Engineering (B.S., Civil and Environmental Engineering, 1994), Rutgers University Graduate School of Management (M.B.A., 1995), and Rutgers University School of Law (J.D., 1997). Mr. Kreisler was admitted to practice law in New Jersey and the United States District Court for the District of New Jersey.





Jacqueline Flynn has over twenty years experience in financial accounting for both public and private companies. Ms. Flynn has been employed since 2006 as Controller of GreenShift Corporation, an affiliate of Ecosystems. From 2002 to 2005, Ms. Flynn was employed as Chief Financial Officer by Accent Mortgage Company of Alpharetta, Georgia. During the three years prior to 2002 Ms. Flynn was employed by Lahaina Acquisitions, Inc., a public company that owned Accent Mortgage Company during that period. She was employed by Lahaina Acquisitions first as Controller and then as Chief Financial Officer. Ms. Flynn was awarded an M.B.A. in 1994 by Brenau University.





NOMINATING, COMPENSATION AND AUDIT COMMITTEE





The Board of Directors does not have an audit committee, a compensation committee or a nominating committee due to the small size of the Board.  The Board of Directors also does not have an audit committee financial expert, for the same reason.





CODE OF ETHICS





The Company does not have a written code of ethics applicable to its executive officers. The Board of Directors has not adopted a written code of ethics because there is only one member of management





SHAREHOLDER COMMUNICATIONS





The Board of Directors will not adopt a procedure for shareholders to send communications to the Board of Directors until it has reviewed the merits of several alternative procedures.





SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2010, except that none of the two members of management has filed a Form 3.





33







ITEM 11
EXECUTIVE COMPENSATION





The following table sets forth compensation information for EcoSystem Corporation’s executive officers during the years indicated as relevant. As of December 31, 2010, no executive officer held shares of exercisable options for EcoSystem Corporation’s Common Stock.




Annual Compensation


Long Term CompensationName and Principal Position
Year

Salary


Bonus


Other


Shares

Granted


All Other

CompensationKevin Kreisler
2010

$
63,692



--



--



--



--Chief Executive Officer
2009


--



--



--



--



--2008


--



--



--



--



--Jacqueline Flynn
2010

$
53,668



--



--



--



--Chief Financial Officer
2009

$
10,000



--



--



--



--2008

$
10,000



--



--



1,000



--Paul Miller
2010

$
96,154



--



--



--



--Former Chief Executive Officer
2009


--



--



--



--



--2008


--



--



--



--



--Trevor Bourne
2010

$
--



--



--



--



--Former Chief Executive Officer
2009


--



--



--



--



--2008


--



--



--



--



--Glen Courtright
2010

$
--



--



--



--



--Former Chief Executive Officer
2009


8,333



--



--



--



--2008


8,333



--



--



--



--




EMPLOYMENT AGREEMENTS





The Company’s relationships with its officers are on an at-will basis.





COMPENSATION OF DIRECTORS





Our directors are reimbursed for out-of-pocket expenses incurred on our behalf, but receive no additional compensation for service as directors.





ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The following table sets forth information regarding the voting stock beneficially owned by any person who, to our knowledge, owned beneficially more than 5% of any class of voting stock as well as by the members of our Board of Directors and by all officers and directors as a group.





Name and Address

Of Beneficial Owner(1)

Common


% of Class


Series D Preferred


% of Class


Percentage of Voting PowerKevin Kreisler(2)


2,250,000,000



61.5
%


817,856



96.46
%


80.00
%Officers and Directors

as a group (2 persons)


2,250,000,000



61.5
%


817,856



100.00
%


80.00
%





(1)
The address of each shareholder is c/o EcoSystem Corporation, 5950 Shiloh Road East, Suite N, Alpharetta, Georgia, 30005.(2)
All shares listed for Mr. Kreisler are owned of record by Viridis Capital, LLC, of which Mr. Kreisler is the sole member.








34










ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE








The Company has licensed technologies from affiliates of Viridis Capital, LLC, our majority shareholder, which company is solely owned by our chairman, including GS CleanTech Corporation, a subsidiary of GreenShift Corporation. On May 15, 2009, EcoSystem and GS CleanTech Corporation entered into an Early Adopter License Agreement (the “EALA”) involving use of several of GS CleanTech’s technologies. The EALA calls for the payment of royalties to GS CleanTech equal to 10% of EcoSystem’s pre-tax net income deriving from the use of GS CleanTech’s technologies (excluding corn oil extraction). EcoSystem shall provide all of the capital resources needed to build bench, pilot and commercial scale facilities based on these technologies under the EALA. GS CleanTech is a wholly-owned subsidiary of GreenShift Corporation, which company is majority owned by our majority shareholder, Viridis Capital, LLC.





DIRECTOR INDEPENDENCE





None of the members of the Board of Directors is independent as “independent” is defined in the rules of the NASDAQ Stock Market.








35










PART IV





ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES





INDEPENDENT AUDITOR FEES





Audit Fees





Rosenberg Rich Baker Berman & Company, P.A. billed $14,250 to the Company in 2010 and $14,250 in 2009 for professional services rendered for the audit of our 2008 financial statements and review of the financial statements included in fiscal 2009 10-Q filings.





Audit-Related Fees





Rosenberg Rich Baker Berman & Company, P.A. billed $0 to the Company in 2010 and $0 in 2009 for assurance and related services that are reasonably related to the performance of the 2005 audit or review of the quarterly financial statements





Tax Fees





Rosenberg Rich Baker Berman & Company, P.A. billed $0 to the Company in 2010 and $0 in 2009 for professional services rendered for tax compliance, tax advice and tax planning.





All Other Fees.





Rosenberg Rich Baker Berman & Company, P.A. billed $0 to the Company in 2010 and $0 in 2009 for services not described above.





It is the policy of the Company’s Board of Directors that all services other than audit, review or attest services, must be pre-approved by the Board of Directors. All of the services above were approved by the Board of Directors.








36










ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





The following are exhibits filed as part of EcoSystem’s Form 10K for the year ended December 31, 2010:





INDEX TO EXHIBITS





Exhibit Number
Description3.1
Certificate of Incorporation, as amended – filed as an Exhibit to the Current Report on Form 10-K filed on July 15, 2005 and incorporated herein by reference10.1
Early Adopter License Agreement dated May 15, 2009 between G.S. Cleantech Corporation and EcoSystem Technologies, LLC - filed as an exhibit to the Form 10-K (Amendment No. 3) for the year ended December 31, 2009, filed on April 12, 2011, and incorporated herein by reference.31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as incorporated herein by reference31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as incorporated herein by reference32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002 as incorporated herein by reference








37










SIGNATURES





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





ECOSYSTEM CORPORATION





By:
/s/
KEVIN KREISLERKEVIN KREISLER, ChairmanChief Executive OfficerDate:

April 15, 2011





In accordance with the Exchange Act, this Report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.





By:
/s/
KEVIN KREISLERKEVIN KREISLER, ChairmanChief Executive OfficerDate:

April 15, 2011By:
/s/
JACQUELINE FLYNNJACQUELINE FLYNNChief Financial OfficerChief Accounting OfficerDate:

April 15, 2011