UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q /A
 Amendment No. 1


---




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





For the quarterly period ended March 31, 2011





OR





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





For the transition period from ______ to ______.





Commission File Number: 000-50356





East Coast Diversified Corporation


(Exact name of registrant as specified in its charter)








Nevada


55-0840109(State or other jurisdiction of

incorporation or organization)


(IRS Employer Identification No.)120 Interstate North Parkway, Suite 445

Atlanta, GA


20853(Address of principal executive offices)


(Zip Code)





(770) 953-4184


(Registrant’s telephone number, including area code)








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





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





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





Large Accelerated Filer  o
Accelerated Filer  oNon-Accelerated Filer  o
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 o  No  x





As of as of April 29, 2011 the registrant had 160,246,234 shares of its Common Stock, $0.001 par value, outstanding.















EXPLANATORY NOTE
 This Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the “Form 10-Q”), as filed with the Securities and Exchange Commission on May 11, 2011, is being filed in response to comments from the Securities and Exchange  Commission, to eliminate the presentation of Gross Profit from our statements of operations and disclose on the face of our statements of operations a separate line item for each of our revenue sources, with corresponding separate cost of revenue line items within a statement of operations category for operating expenses. This Amendment has no effect on our operations, cash flows or liquidity, nor effects our financial position as stated in the Form 10-Q.
 
 This Form 10-Q/A should be read in conjunction with the original Form 10-Q, which continues to speak as of the date of the Form 10-Q. Except as specifically noted above, this Form 10-Q/A does not modify or update disclosures in the original Form 10-Q. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q or modify or update any related or other disclosures.








EAST COST DIVERSIFIED CORPORATION


FORM 10-Q


MARCH 31, 2011


INDEX





PART I – FINANCIAL INFORMATION
3Item 1.
Financial Statements
3Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
3Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)
4Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2011 (unaudited)
5Consolidated Statements of Stockholders’ Deficit for the Year Ended December 31, 2010 (unaudited)
6Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)
7Notes to Consolidated Financial Statements (unaudited)
9Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20Item 3
Quantitative and Qualitative Disclosures About Market Risk
25Item 4.
Controls and Procedures
25PART II – OTHER INFORMATION
26Item 1.
Legal Proceedings
26Item 1.A.
Risk Factors
26Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
26Item 3.
Defaults Upon Senior Securities
26Item 4.
(Removed & Reserved)
26Item 5.
Other Information
26Item 6.
Exhibits
27SIGNATURE

27








2







PART I – FINANCIAL INFORMATION





Item 1. Financial Statements





East Coast Diversified Corporation and SubsidiaryConsolidated Balance Sheets  March 31,


December 31,2011


2010(unaudited)ASSETSCurrent assetsCash

$
4,621


$
1,278Accounts receivable, net


98,330



49,522Inventory


37,296



51,618Total current assets


140,247



102,418Property and equipment, net


12,257



15,309Other assetsCapitalized research and development costs, net


55,579



92,613Escrow deposits


25,000



25,000Security deposits


4,521



4,521Total other assets


85,100



122,134Total assets

$
237,604


$
239,861LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesLoans payable

$
740,452


$
793,327Loans payable - related party


716,175



695,230Accounts payable and accrued expenses


843,560



813,411Accrued payroll and related liabilities


1,523,148



1,663,700Total liabilities


3,823,335



3,965,668Commitments and contingenciesStockholders' deficitCommon stock, $.001 par value, 200,000,000 shares authorized,158,743,709 and 110,953,778 shares issued and oustandingat March 31, 2011 and December 31, 2010, respectively


158,744



110,954Additional paid-in capital


7,516,816



7,176,106Accumulated deficit


(11,019,529
)


(10,781,919
)Total East Coast Diversified stockholders' deficit


(3,343,969
)


(3,494,859
)Noncontrolling interest


(241,762
)


(230,948
)Total stockholders' deficit


(3,585,731
)


(3,725,807
)Total liabilities and stockholders' deficit

$
237,604


$
239,861See accompanying notes to consolidated financial statements.





3




East Coast Diversified Corporation and Subsidiary


Consolidated Statements of Operations
 (unaudited)


For the Three Months EndedMarch 31,

2011


March 31,

2010Revenues:Product sales

$
92,897


$
966Consulting


51,500



-User fees


19,681



8,137Total revenues


164,078



9,103Operating expenses:Cost of revenues:Product sales


41,023



1,495Consulting


-



-User fees


8,719



7,459Selling, general and administrative expenses


340,315



480,503Loss on disposal of assets


-



23,039Total operating expenses


390,057



512,496Loss from operations


(225,979
)


(503,393
)Other income (expense)Other income


-



65Interest expense


(22,445
)


(20,798
)Total other income (expense)


(22,445
)


(20,733
)Net loss before noncontrolling interests


(248,424
)


(524,126
)Net loss attributable to noncontrolling interests


10,814



-Net loss

$
(237,610
)

$
(524,126
)Net loss per share - basic and diluted

$
(0.00
)

$
(0.00
)Weighted average number of sharesoustanding during the period -basic and diluted


151,361,187



142,372,640
  See accompanying notes to consolidated financial statements.


4


East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Stockholders' DeficitFor the Three Months Ended March 31, 2011(unaudited)  Common stock


Additional








Totalpaid-in


Accumulated


Noncontrolling


stockholders'Shares


Amount


capital


deficit


interest


deficitBalance, December 31, 2010


110,953,778


$
110,954


$
7,176,106


$
(10,781,919
)

$
(230,948
)

$
(3,725,807
)Common shares issued for cash


4,220,089



4,220



38,280



-



-



42,500Common shares issued for conversion of loans payable - related party


4,055,556



4,056



33,444



-



-



37,500Common shares issued for conversion of loans payable


5,800,000



5,800



64,200



-



-



70,000Common shares issued for conversion of accrued salaries to related party


32,857,143



32,857



197,143



-



-



230,000Common shares issued for conversion of accounts payable


357,143



357



2,143



-



-



2,500Common shares issued for services


500,000



500



5,500











6,000Net loss














(237,610
)


(10,814
)


(248,424
)Balance, March 31, 2011 (unaudited)


158,743,709


$
158,744


$
7,516,816


$
(11,019,529
)

$
(241,762
)

$
(3,585,731
)See accompanying notes to consolidated financial statements.




5




East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Stockholders' DeficitFor the Three Months Ended December 31, 2010(unaudited)




Common stock


Additional








Totalpaid-in


Accumulated


Noncontrolling


stockholders'Shares


Amount


capital


deficit


interest


deficitBalance, December 31, 2009


136,064,233


$
1,360,642


$
4,946,622


$
(8,898,907
)

$
-


$
(2,591,643
)Common shares issued for cash prior to Stock Exchange


7,445,417



74,455



48,545



-



-



123,000Common shares issued for conversion of loans payable - related party prior to Stock Exchange


6,000,000



60,000



-



-



-



60,000Common shares issued for services prior to Stock Exchange


4,000,000



40,000



-



-



-



40,000Effect of Stock Exchange on April 2, 2010


(95,848,349
)


(1,387,429
)


1,402,429



-



-



15,000Noncontrolling interest at date of Stock Exchange


(10,000,662
)


(100,007
)


(342,217
)


613,880



(171,656
)


-Recapitalization










(67,994
)


-



-



(67,994
)Common shares issued for cash after Stock Exchange


39,069,732



39,070



494,055



-



-



533,125Common shares issued for conversion of loans payable - related party after Stock Exchange


2,500,000



2,500



22,500



-



-



25,000Common shares issued for conversion of loans payable after Stock Exchange


13,584,383



13,584



209,666



-



-



223,250Common shares issued for services after Stock Exchange


7,700,000



7,700



135,459



-



-



143,159Stock issuance costs


-



-



(23,000
)


-



-



(23,000
)In kind contribution of services


-



-



347,846



-



-



347,846Common shares issued for acquisition of 1,800,000 shares of EarthSearch Communications common stock from noncontrolling interest


439,024



439



2,195



-



53,215



55,849Net loss


-



-



-



(2,496,892
)


(112,507
)


(2,609,399
)Balance, December 31, 2010


110,953,778


$
110,954


$
7,176,106


$
(10,781,919
)

$
(230,948
)

$
(3,725,807
)




See accompanying notes to consolidated financial statements.





6




East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Cash Flows(unaudited)  For the Three Months EndedMarch 31,


March 31,2011


2010Cash flows from operating activities:Net loss

$
(237,610
)

$
(524,126
)Adjustments to reconcile net loss to net cash used in operations:Noncontrolling interests


(10,814
)


-Depreciation and amortization


40,086



57,024Loss on disposal of assets


-



23,039Stock issued in lieu of cash compensation


-



40,000Stock issued for services


6,000



-In-kind contribution of services


-



257,846Interest accrued on loans payable


21,062



18,750Changes in operating assets and liabilities:Accounts receivable, net


(48,808
)


(164
)Inventory


14,322



(1,908
)Supplier advances


-



785Bank overdraft


-



(5,207
)Accounts payable and accrued expenses


32,649



(17,233
)Accrued payroll and related liabilities


89,448



(129,870
)Net cash used in operating activities


(93,665
)


(281,064
)Cash flows from investing activities:Capital expenditures


-



(3,341
)Payments of escrow deposits


-



(145,000
)Net cash used in investing activities


-



(148,341
)Cash flows from financing activities:Proceeds from issuance of common stock


42,500



118,000Proceeds from loans payable


-



310,000Proceeds from loans payable - related party


77,120



86,571Repayments of loans payable - related party


(22,612
)


(83,247
)Net cash from financing activities


97,008



431,324Net increase in cash


3,343



1,919Cash at beginning of period


1,278



766Cash at end of period

$
4,621


$
2,685See accompanying notes to consolidated financial statements.








7






East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Cash Flows (Continued)  For the Year Ended December 31,2010


2009Supplemental disclosure of cash flow information:Cash paid for interest

$
1,383


$
3,229Cash paid for taxes

$
-


$
-Non-cash investing and financing activities:Issuance of 5,800,000 shares of common stock in conversion of loans payable

$
70,000


$
-Issuance of 4,055,556 and 6,000,000 shares of common stock in conversion ofloans payable - related party, resepctively

$
37,500


$
60,000Issuance of 357,143 shares of common stock in conversion of accounts payable

$
2,500


$
-Issuance of 32,857,143 shares of common stock in conversion of accrued salaries torelated party

$
230,000


$
-See accompanying notes to consolidated financial statements.


8


East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





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





Organization





East Coast Diversified Corporation, the “Company”, was incorporated under the laws of the State of Florida on May 27, 1994 under the name Plantastic Corp. to engage in the business of purchasing and operating a tree farm and nursery.  The Company was unsuccessful in this venture and in March 1997, the Company amended its articles of incorporation, reorganized its capital structure and changed its name to Viva Golf, USA Corp.  The Company then acquired the assets of Viva Golf, USA Corp., a Delaware corporation, which consisted of a golf equipment marketing plan and other related assets.  The Company unsuccessfully engaged in the business of golf club manufacturing and marketing and ceased those operations in 1998.





The Company acquired 100% of the issued and outstanding shares of common stock of Lifekeepers International, Inc. in exchange for 1,000,000 of its newly issued shares under an Agreement and Plan of Reorganization on October 22, 1998. In connection with this acquisition, the Company changed its name to Lifekeepers International, Inc.  On May 29, 2003, the Company changed its name to East Coast Diversified Corporation and changed its domicile to Nevada. During the year 2001, the Company discontinued its operations, and remained inoperative until April 26, 2006.





On April 26, 2006, the Company entered into a definitive Share Exchange Agreement (the "Agreement") to acquire 100% of the issued and outstanding shares of Miami Renaissance Group, Inc. ("MRG"), a privately-owned Florida corporation, in exchange for the issuance of 4,635,000 restricted shares of the Company's common stock and 167,650 preferred stock designated as Series A Convertible Preferred Stock ("Preferred Stock"). The Company's officers and directors, who did not own any shares of common stock of the Company prior to this Agreement, were also the majority shareholders of MRG. The Agreement was adopted by the unanimous consent of the Board of Directors of the Company and written consent of the majority shareholders of the Company; and by unanimous consent of the Board of Directors of MRG and by written consent of the majority shareholders of MRG.





Pursuant to the Agreement, the Company issued a total of 4,635,000 shares of common stock and 158,650 shares of Preferred stock to the shareholders of the MRG in exchange for the 20,500,000 issued and outstanding shares of MRG. Following the closing of the Agreement, the shareholders of MRG shall own 63.75% of the issued and outstanding shares of common stock of the Registrant.





The Company entered into a Stock Sale Agreement, dated as of February 20, 2008 (“Stock Sale Agreement”), pursuant to which ECDC agreed to sell and MRG Acquisition Corp. (“MRGA is a Delaware corporation and was formed for the purpose of acquiring MRG") agreed to acquire 100% of the capital stock of MRG (“MRG Shares”), representing substantially all of the assets of ECDC, in consideration for the forgiveness of liabilities in the amount of $1,051,471 owed by ECDC to certain affiliated persons.





On April 6, 2009 the Company’s Board of Directors unanimously adopted and the consenting stockholders approved a resolution to effect a one-for-hundred (1:100) reverse stock split (the "Reverse Split") of the Common Stock of the Company pursuant to clearance and final approval by FINRA. The resulting share ownership interest including resulting fractional shares for each individual shareholder shall be rounded up to the third whole integer in such a manner that every shareholder shall own at least 100 shares as a result of the Reverse Split.





On June 29, 2009 the Company was notified by NASDAQ that has it had received the necessary documentation to process the Reverse Split (1 for 100) and issue a new symbol (“ECDC”) and that this action would take effect at the open of business on June 30, 2009.





On January 15, 2010, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with EarthSearch Communications International, Inc. (“EarthSearch”), a Delaware corporation, and the shareholders of EarthSearch (“EarthSearch Shareholders”) whereby the Company acquired 93.49% of the issued and outstanding common stock of EarthSearch in exchange (the “Stock Exchange”) for 35,000,000 newly issued shares of its restricted common stock.  The final closing was concluded and is effective April 2, 2010. The board of directors of ECDC passed a resolution electing the board and management of the Company and effectively resigned from the board of ECDC.





The Stock Exchange is being accounted for as an acquisition and recapitalization. EarthSearch is the acquirer for accounting purposes and, consequently, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements herein are those of EarthSearch.





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


9




East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





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





The operations of its former wholly-owned subsidiary, EarthSearch Localizacao de Veiculos, Ltda in Brazil, were discontinued during 2007.





On December 31, 2010, the Company acquired 1,800,000 additional shares of EarthSearch from a noncontrolling shareholder in exchange for 439,024 of the Company’s common stock.  The Company owns 94.66% of the issued and outstanding stock of EarthSearch at December 31, 2010.





Nature of Operations





The Company has created the world’s first integration of Radio Frequency Identification technology (“RFID”) and GPS technology and is an international provider of supply chain management solutions offering real-time visibility in the supply chain with integrated RFID/GPS and other telemetry products.  These solutions help businesses worldwide to increase asset management, provide safety and security, increase productivity, and deliver real-time visibility of the supply chain through automation.





The Company’s development of GPS devices embedded with RFID modules represents its core technology and products. The Company has licensed various patents relating to the technology used in the Company’s products and has commenced sales and commercialization of the technology which the Company expects will result in revenue that will allow the Company to sustain its current operation and get to a profitable status.





The Company launched sales operations in 2008 but subsequently withdrew sales and commercial resources from the market mid-2008 and 2009 due to the negative economic and market conditions.  During that time, the Company refocused its efforts on the redesign and integration of RFID and GPS technologies into its products.   Commercial sales were re-established in 2010.





Basis of Presentation





The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.





These unaudited consolidated financial statements should be read in conjunction with our 2010 annual consolidated financial statements included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2011.





Going Concern





The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As reflected in the accompanying unaudited consolidated financial statements, the Company had an accumulated deficit of $11,019,529 at March 31, 2011, a net loss and net cash used in operations of $237,610 and $93,665, respectively, for the three months ended March 31, 2011.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.





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





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





10


East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 2 – Summary of Significant Accounting Policies





Use of Estimates





The preparation of consolidated financial statements in conformity with accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates in the accompanying consolidated financial statements include the amortization period for intangible assets, impairment valuation of intangible assets, depreciable lives of the website and property and equipment, valuation of share-based payments and the valuation allowance on deferred tax assets.  Actual results could differ from those estimates and would impact future results of operations and cash flows.





Principles of Consolidation





The consolidated financial statements include the accounts of East Coast Diversified Corporation and its majority-owned subsidiary, EarthSearch Communications International, Inc.  All significant inter-company balances and transactions have been eliminated in consolidation.





Reclassifications





Certain items on the 2010 consolidated statement of operations, and statement of cash flows have been reclassified to conform to the current period presentation.





Cash and Cash Equivalents





The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At March 31, 2011 and December 31, 2010, respectively, the Company had no cash equivalents.





Accounts Receivable





The Company grants unsecured credit to commercial and governmental customers in the United States and abroad.  Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.  The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense was $0 and $0 for the three months ended March 31, 2011 and 2010, respectively.  At March 31, 2011 and December 31, 2010, the allowance for doubtful accounts was $0 and $0, respectively.





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





Inventories





Inventories are stated at the lower of cost or market (“LCM”). The Company uses the first-in-first-out (“FIFO”) method of valuing inventory. Inventory consists primarily of finished goods and accessories for resale.





Property and Equipment





Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives ranging from 5 years to 7 years. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.





Depreciation expense was $3,052 and $3,635 for the three months ended March 31, 2011 and 2010, respectively.


11




East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 2 – Summary of Significant Accounting Policies (Continued)





Impairment or Disposal of Long-Lived Assets





The Company accounts for the impairment or disposal of long-lived assets according to ASC 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimate fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates.





Research and Development Costs





The Company accounts for research and development costs in accordance with ASC 730 “Research and Development”.  ASC 730 requires that research and development costs be charged to expense when incurred.  Research and development costs charged to expense were $0 and $59,388 for the three months ended March 31, 2011 and 2010, respectively.





Prior to the adoption of ASC 730, costs incurred internally in researching and developing computer software products were charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing Generally, this occurs shortly before products which will utilize the software are released to manufacturing which occurred in January 2007. The amortization of these costs is included in general and administrative expense over the estimated life of the software, which is estimated to be 3 years.





The Company capitalized no research and development costs in the three months ended March 31, 2011 and 2010, respectively.  The Company recorded amortization expense of $37,034 and $53,389 for the three months ended March 31, 2011 and 2010, respectively.  Accumulated amortization was $585,090 and $548,056 at March 31, 2011 and December 31, 2010, respectively.





Fair Value of Financial Instruments





FASB ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  FASB ASC 820 states that a fair value measurement should be determined based on the assumptions the market participants would use in pricing the asset or liability.  In addition, FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.





The three broad levels defined by FASB ASC 820 hierarchy are as follows:





Level 1 – quoted prices for identical assets or liabilities in active markets.


Level 2 – pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date.


Level 3 – valuations derived from methods in which one or more significant inputs or significant value drivers are unobservable in the markets.





These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments.  Changes in such judgments could have a material impact on fair value estimates.  In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes.  Changes in economic conditions may also dramatically affect the estimated fair values.


12







East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 2 – Summary of Significant Accounting Policies (Continued)





Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2011. The respective carrying value of certain financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, inventory, accounts payable and accrued expenses and accrued compensation. The fair value of the Company’s loans payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.





Revenue Recognition





The Company generates revenue through three processes: (1) Sale of its RFID/GPS products, (2) Fees for consulting services provided to its customers, and (3) Service Fees for the use of its advanced web based asset management platform.





·
Revenue for RFID/GPS products is recognized when shipments are made to customers. The Company recognizes a sale when the product has been shipped and risk of loss has passed to the customer.


·
Revenue for consulting services is recognized when the services have been performed.


·
Revenue for service fees is recognized ratably over the term of the use agreement.








Stock-Based Compensation





The Company accounts for Employee Stock-Based Compensation under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.





The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees” ("ASC 505-50"). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders' equity/(deficit) over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.





The Company has not granted any stock options as of March 31, 2011.





Income Taxes





Income taxes are accounted for under the liability method of accounting for income taxes.  Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled.  The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.  Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.





The Financial Accounting Standards Board (FASB) has issued ASC 740 “Income Taxes” (formerly, Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” – An Interpretation of FASB Statement No. 109 (FIN 48)).  ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes.  This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.





13




East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 2 – Summary of Significant Accounting Policies (Continued)





As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740 and concluded that the tax position of the Company has not met the more-likely-than-not threshold as of March 31, 2011.





Basic and Diluted Loss Per Share





The Company computes income (loss) per share in accordance with ASC 260, "Earnings per Share", which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations.  Basic EPS is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding during the period.  Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.  In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.  Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.  Dilutive loss per share has not been presented because as of March 31, 2011 and 2010, respectively, there were no common share equivalents outstanding.





Segment Information





In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments.  The Company operates in only one operating segment as of March 31, 2011.





Accounting Standards Codification





The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC” became effective on September 15, 2009.  At that date, the ASC became FASB’s officially recognized source of authoritative generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature.  All other accounting literature is considered non-authoritative.  The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies.  Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.





Effect of Recent Accounting Pronouncements





The Company reviews new accounting standards as issued. No new standards had any material effect on these consolidated financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to March 31, 2011 through the date these financial statements were issued.


14





East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 3 – Loans Payable





Loans payable at March 31, 2011 and December 31, 2010 consisted of the following:





March 31,


December 31,2011


2010Unsecured $450,000 note payable to Azfar Haque, which bears interest at 9% per annum and was originally due June 15, 2008. The note is currently in default. Accrued interest is equal to $122,930 and $112,805 respectively.

$
522,930


$
562,805Unsecured $80,000 note payable to Rainmaker Global, Inc. which bears interest at 30% per annum and was originally due December 31, 2009. The note is currently in default. Accrued interest is equal to $36,125 and $30,125 respectively.


116,125



110,125$55,000 convertible note payable to Charms Investments Inc., which bears interest at 10% per annum and was originally due April 15, 2010.  The due date of the note has been extended to December 31, 2011.  Accrued interest is equal to $891 and $4,359, respectively.


891



20,891$40,000 convertible note payable to Charms Investments Inc., which bears interest at 10% per annum and was originally due October 16, 2010.  The due date of the note has been extended to December 31, 2011.  Accrued interest is equal to $4,500 and $3,500, respectively.


44,500



43,500Unsecured non-interest bearing note payable, due on demand, to Leonard Marella.


20,000



20,000Unsecured non-interest bearing note payable, due on demand, to Steve Palmer.


8,000



8,000Unsecured non-interest bearing note payable, due on demand, to Syed Ahmed.


7,000



7,000Unsecured non-interest bearing note payable, due on demand, to Alina Farooq.


3,500



3,500Unsecured non-interest bearing note payable, due on demand, to William Johnson.


17,506



17,506Total

$
740,452


$
793,327





The Company accrued interest expense of $17,125 and $75,984 for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively, on the above loans.  Accrued interest is included in the loan balances.





The Company borrowed $0 and $376,931 during the three months ended March 31, 2011 and the year ended December 31, 2010, respectively.  The Company made no payments on the loans during the three months ended March 31, 2011 and the year ended December 31, 2010.  During the three months ended March 31, 2011, the Company converted $70,000 of loans payable into 5,800,000 shares of the Company’s common stock.  Or the year ended December 31, 2010, the Company converted $157,093 of loans payable into 13,584,383 shares of the Company’s common stock.





All of the convertible notes held by Charms Investments Inc. are automatically convertible upon the Company receiving gross proceeds of at least $5,000,000 in a Qualified Equity Financing, as defined in the note agreement, at 80% of the share price sold in such Qualified Equity Financing.


15




East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 4 – Related Parties





Loans payable – related parties at March 31, 2011 and December 31, 2010 consisted of the following:





March 31,


December 31,2011


2010Unsecured non-interest bearing note payable, due on demand, to Frank Russo, a Director of the Company.

$
419,394


$
422,006Unsecured note payable to Edward Eppel,  a Director of the Company, which bears interest at 10% per annum and is due on demand.


177,194



173,256Unsecured non-interest bearing note payable, due on demand, to Anis Sherali, a Director of the Company.


29,000



-Unsecured non-interest bearing convertible note payable to Kayode Aladesuyi, Chief Executive Officer and President, and was originally due July 30, 2010.  The due date of the note has been extended to December 31, 2011.


61,512



81,512Unsecured non-interest bearing note payable, due on demand, to Kayode Aladesuyi, Chief Executive Officer and President.


29,075



18,456Total

$
716,175


$
695,230




Frank Russo, a Director of the Company, is a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2009, $476,206 was due to Mr. Russo.  During the year ended December 31, 2010, Mr. Russo converted $60,000 of the note into 6,000,000 shares of the Company’s common stock (See Note 5 – Stockholders’ Deficit).  The Company borrowed $0 and $29,800 from and repaid $2,612 and $24,000 to Mr. Russo during the three months ended March 31, 2011 and the year ended December 31, 2010, respectively.





Edward Eppel, a Director of the Company, is a holder of a note of the Company which bears interest at 10% per annum and at December 31, 2009, $126,400 was due to Mr. Eppel.  The Company borrowed $0 and $31,085 from Mr. Eppel during the three months ended March 31, 2011 and the year ended December 31, 2010, respectively.  $3,938 and $15,771 of interest was accrued and included in the loan balance for the three month ended March 31, 2011 and the year ended December 31, 2010, respectively.





On April 2, 2010, prior to the Stock Exchange, Anis Sherali, a Director of the Company, purchased 200,000 shares of the Company’s common stock for $5,000.  From April 2, 2010 through December 31, 2010 Mr. Sherali purchased 27,769,232 shares of the Company’s stock for $265,900.  During the three months ended March 31, 2011, the Company borrowed $66,500 from Mr. Sherali and issued a non-interest bearing note.  Also during the three months ended March 31, 2011, the Company converted $37,500 of the note to common stock and issued 4,055,556 shares to Mr. Sherali (see Note 5 – Stockholders’ Deficit).





Kayode Aladesuyi, the Company’s Chairman, Chief Executive Officer, and President, is the holder of an unsecured non-interest bearing note of the Company.  At December 31, 2009, the outstanding balance on the note was $2,000.  During the year ended December 31, 2010, the Company borrowed $170,937 from and repaid $154,481 to Mr. Aladesuyi. During the three months ended March 31, 2011, the Company borrowed $10,619 from Mr. Aladesuyi.





On July 30, 2010, Charms Investments Inc. assigned its interest in their $174,425 convertible note to Mr. Aladesuyi. During the year ended December 31, 2010, the Company borrowed and additional $8,000 from and repaid $100,913 to Mr. Aladesuyi.  During the three months ended March 31, 2011, the Company repaid $20,000 to Mr. Aladesuyi.  The note is automatically convertible upon the Company receiving gross proceeds of at least $5,000,000 in a Qualified Equity Financing, as defined in the note agreement, at 80% of the share price sold in such Qualified Equity Financing.





The Company issued 4,000,000 shares of its common stock to Mr. Aladesuyi for services during the years ended December 31, 2010 (see Note 5 – Stockholders’ Deficit).  During the three months ended March 31, 2011, the Company converted $230,000 of accrued salaries due to Mr. Aladesuyi to common stock and issued 32,857,143shares to Mr. Aladesuyi.


16


East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 4 – Related Parties (Continued)





Andrea Rocha, Comptroller of the Company, is the wife of Kayode Aladesuyi.  Ms. Rocha was a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2009, the outstanding balance on the note was $2,600,  During the year ended December 31, 2010, the Company repaid $2,600 to Ms. Rocha.  On December 31, 2010 the Company issued 1,900,000 shares of the Company’s common stock in exchange of salaries payable to Ms. Rocha of $19,159 (see Note 5 – Stockholders’ Deficit).





During the year ended December 31, 2010, the Company borrowed $25,000 from Valerie Aladesuyi, the former wife of Kayode Aladesuyi.  Also during the year ended December 31, 2010, Ms. Aladesuyi converted the $25,000 note into 2,500,000 shares of the Company’s common stock (see Note 5 – Stockholders’ Deficit).





During the three months ended March 31, 2011 and the year ended December 31, 2010, officers and shareholders of the Company contributed services having a fair market value of $0 and $347,846, respectively (see Note 5 – Stockholders’ Deficit).





Note 5 – Stockholders’ Deficit





Authorized Capital





On September 9, 2010, the Company’s Board of Directors authorized to increase the Company’s authorized Common Stock to 200 million (200,000,000) shares.





On September 17, 2010, the Company’s Board of Directors authorized a twenty-five million share common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants which were registered under a registration statement on Form S-8 on September 27, 2010.





Common Stock Issued for Cash





During the year ended December 31, 2010, the Company issued 46,515,149 shares of common stock in private placements for a total of $656,125 ($0.014 per share).





During the three months ended March 31, 2011, the Company issued 4,220,089 shares of common stock in private placements for a total of $42,500 ($0.010 per share).





Common Stock Issued in Conversion of Debt





During the year ended December 31, 2010, the Company issued 8,500,000 shares of common stock in the conversion of $85,000 of notes payable to related parties (see Note 4 – Related Parties) and 13,584,383 shares of common stock in the conversion of $157,093 of notes payable to unrelated parties (see Note 3 – Loans Payable).





During the three months ended March 31, 2011, the Company issued 4,055,556 shares of common stock in the conversion of $37,500 of notes payable to related parties (see Note 4 – Related Parties) and 5,800,000 shares of common stock in the conversion of $70,000 of notes payable to unrelated parties (see Note 3 – Loans Payable).





Stock Issued for Services





Prior to the Stock Exchange on April 2, 2010, the Company issued 4,000,000 shares of common stock for services, at par value of $0.01 per share, to Kayode Aladesuyi, the Company’s Chief Executive Officer, President and a Director of the Company, during the year ended December 31, 2010 (see Note 6 – Related Parties).  These values were based on the fair value of services rendered as the Company was not a publicly traded company and there was no established market for its shares.





The Company’s Board of Directors unanimously agreed to grant two million shares to Mr. Kayode Aladesuyi, the Company’s Chief Executive Officer and Chairman, under the 2010 Stock Incentive Plan dated September 17, 2010, in lieu of unpaid salary of $87,500 out of an accrued aggregate of $175,000.  Such shares of common stock were to be issued from the shares registered under a registration statement on Form S-8 filed September 27, 2010 representing the 2010 Stock Incentive Plan.  Mr. Aladesuyi declined the acceptance of the shares and, accordingly, the issuance was cancelled.


17







East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 5 – Stockholders’ Deficit (Continued)





During the year ended December 31, 2010, the Company issued 7,700,000 shares to unrelated parties for services, at an average price of $0.02 per share based on the market value of the shares at the time of issuance.  1,500,000 of these shares were issued under the 2010 Stock Incentive Plan dated September 17, 2010.





During the three months ended March 31, 2011, the Company converted $230,000 of accrued salaries due to Mr. Aladesuyi to common stock and issued 32,857,143 shares to Mr. Aladesuyi, at a price of $0.007 per share based on the market value of the shares at the time of issuance.





During the three months ended March 31, 2011, the Company issued 357,143 shares to an unrelated party for conversion of an outstanding accounts payable of $2,500, at a price of $0.007 per share based on the market value of the shares at the time of issuance.





During the three months ended March 31, 2011, the Company issued 500,000 shares to unrelated parties for services, at an average price of $0.012 per share based on the market value of the shares at the time of issuance.





In-Kind Contribution of Services





During the three months ended March 31, 2011 and the year ended December 31, 2010, officers and directors of the Company contributed services having a fair market value of $0 and $347,846, respectively (see Note 4 – Related Parties).





Acquisition of Noncontrolling Interest in EarthSearch Communications





On December 31, 2010, the Company issued 439,024 shares of its common stock to a noncontrolling shareholder of its subsidiary, EarthSearch Communications International, Inc., for 1,800,000 shares of EarthSearch’s common stock.  The shares were valued at the market price of $0.006 at December 31, 2010 and resulted in a loss on the acquisition of $55,849 as follows:





Value of shares issued in exchange (439,024 shares at $0.006 per share)

$
2,634Fair value of non-controlling interest acquired


(53,215
)Loss on acquisition of non-controlling interest

$
55,849


The Company owns 94.66% of EarthSearch as of March 31, 2011.





Note 6 – Income Taxes





No provisions were made for income taxes for the three months ended March 31, 2011 and 2010 as the Company had cumulative operating losses.  For the three months ended March 31, 2011 and 2010, the Company incurred net losses for tax purposes of $248,424 and $524,126, respectively.  The income tax expense (benefit) differs from the amount computed by applying the United States Statutory corporate income tax rate as follows:





For the Three Months EndedMarch 31,2011


2010United States statutory corporate income tax rate


34.0%



34.0%Change in valuation allowance on deferred tax assets


-34.0%



-34.0%Provision for income tax


0.0%



0.0%


18


East Cost Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


March 31, 2011


(unaudited)





Note 6 – Income Taxes (Continued)





Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The components of the net deferred income tax assets are approximately as follows:





March 31,


December 31,2011


2010Deferred income tax assets:Net operating loss carry forwards

$
3,997,290


$
3,920,540Valuation allowance


(3,997,290
)


(3,920,540
)Net deferred income tax assets

$
-


$
-





The Company has established a full valuation allowance on its deferred tax asset because of a lack of sufficient positive evidence to support its realization.  The valuation allowance increased by $76,750 and $894,910 for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively.





The Company has a net operating loss carryover of $11,756,730 to offset future income tax.  The net operating losses expire as follows:





December 31,2024

$
1,152,4182025


1,917,8002026


1,663,9442027


1,475,0372028


1,216,4832029


1,473,2252030


2,609,3992031


248,424$
11,756,730





Note 7 – Commitments and Contingencies





Operating Leases





The Company leases its office facilities in Atlanta, Georgia for $4,796 per month.  The term of the lease is 38 months and expires on May 31, 2011.  At March 31, 2011, future minimum lease payments under the lease are $9,592 for 2011.





Rent expense was $16,244 and $15,131 for the three months ended March 31, 2011 and 2010, respectively.





Note 8 – Subsequent Events





For the period from April 1 through May 3, 2011, the Company issued 1,502,525 shares of its restricted common stock in private placements for a total of $30,000 ($0.02 per share).





The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.


19







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





SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS





We believe that it is important to communicate our future expectations to our security holders and to the public.  This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” ”will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions.  Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement.  Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.





Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and in our subsequent filings with the Securities and Exchange Commission.  The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.





Company Overview





East Coast Diversified Corporation (the "Company", “East Coast”, “ECDC”, “we”, “us” or “our”), through its majority owned Subsidiary, EarthSearch Communications International, Inc. (“EarthSearch”), offers a portfolio of GPS devices, RFID interrogators, integrated GPS/RFID technologies and Tag designs. These solutions help businesses worldwide to increase asset management, provide safety and security, increase productivity, and deliver real-time visibility of the supply chain through automation.  EarthSearch is an international provider of Global Positioning Systems (GPS) and telemetric devices, applications and solutions for both consumer and commercial markets.  EarthSearch developed and created devices which feature the world’s first wireless communication between RFID and GPS technologies. These devices provide real-time visibility of assets and goods in transit as well providing specialized security applications for sea ports, shipyards, and power and energy plants.





EarthSearch GPS devices offer trucking fleet owners a suite of security, safety and convenience features for both consumer and commercial fleets. EarthSearch offerings such as AutoSearchGPSTM, AutoSearchRFID and HALO are vehicle and supply chain management solutions.  The products are designed to be easily installed into any type of vehicle, including automobiles, construction equipment, trucks, buses and other mobile machinery. Customers can use these proprietary devices to address their specific needs, such as substantially reducing the risk of assets being lost, stolen or misrouted; managing a commercial vehicle or a fleet; and precisely track the location of their goods, inventory, and/or vehicles in real-time.





Additionally, EarthSearch has developed SchoolConnect - the first school transportation solution and class attendance monitoring system utilizing integrated GPS/RFID technology. This unique solution is designed to provide real-time visibility and security of students traveling on scheduled school bus routes as well as provide parents with real time notification when students miss classes.  This unprecedented technology monitors the real-time status of students as they enter and exit school buses and class rooms.  SchoolConnect can provide real-time alerts to parents and schools when a student gets on the bus or off the bus.  Alerts are sent should a student exit at the wrong bus stop, or should a student fail to get on or off the bus at a scheduled location. The SchoolConnect system provides real-time notification to parents with hand-held devices, such as smart phones as well as communication between parents and teachers.





Company History





East Coast Diversified Corporation, the “Company”, was incorporated under the laws of the State of Florida on May 27, 1994 under the name Plantastic Corp. to engage in the business of purchasing and operating a tree farm and nursery.  The Company was unsuccessful in this venture and in March 1997, the Company amended its articles of incorporation, reorganized its capital structure and changed its name to Viva Golf, USA Corp.  The Company then acquired the assets of Viva Golf, USA Corp., a Delaware corporation, which consisted of a golf equipment marketing plan and other related assets.  The Company unsuccessfully engaged in the business of golf club manufacturing and marketing and ceased those operations in 1998.





The Company acquired 100% of the issued and outstanding shares of common stock of Lifekeepers International, Inc. in exchange for 1,000,000 of its newly issued shares under an Agreement and Plan of Reorganization on October 22, 1998. In connection with this acquisition, the Company changed its name to Lifekeepers International, Inc.  On May 29, 2003, the Company changed its name to East Coast Diversified Corporation and changed its domicile to Nevada. During the year 2001, the Company discontinued its operations, and remained inoperative until April 26, 2006.


20





On April 26, 2006, the Registrant entered into a definitive Share Exchange Agreement (the "Agreement") to acquire 100% of the issued and outstanding shares of Miami Renaissance Group, Inc. ("MRG"), a privately-owned Florida corporation, in exchange for the issuance of 4,635,000 restricted shares of the Registrant's common stock and 167,650 preferred stock designated as Series A Convertible Preferred Stock ("Preferred Stock"). The Registrant's officers and directors, who did not own any shares of common stock of the Registrant prior to this Agreement, were also the majority shareholders of MRG. The Agreement was adopted by the unanimous consent of the Board of Directors of the Registrant and written consent of the majority shareholders of the Registrant; and by unanimous consent of the Board of Directors of MRG and by written consent of the majority shareholders of MRG.





Pursuant to the Agreement, the Registrant issued a total of 4,635,000 shares of common stock and 158,650 shares of Preferred stock to the shareholders of the MRG in exchange for the 20,500,000 issued and outstanding shares of MRG. Following the closing of the Agreement, the shareholders of MRG shall own 63.75% of the issued and outstanding shares of common stock of the Registrant.





The Company entered into a Stock Sale Agreement, dated as of February 20, 2008 (“Stock Sale Agreement”), pursuant to which ECDC agreed to sell and MRG Acquisition Corp. (“MRGA is a Delaware corporation and was formed for the purpose of acquiring MRG") agreed to acquire 100% of the capital stock of MRG (“MRG Shares”) , representing substantially all of the assets of ECDC, in consideration for the forgiveness of liabilities in the amount of $1,051,471 owed by ECDC to certain affiliated persons.





On April 6, 2009 the Company’s Board of Directors unanimously adopted and the consenting stockholders approved a resolution to effect a one-for-hundred (1:100) reverse stock split (the "Reverse Split") of the Common Stock of the Company pursuant to clearance and final approval by FINRA. The resulting share ownership interest including resulting fractional shares for each individual shareholder shall be rounded up to the third whole integer in such a manner that every shareholder shall own at least 100 shares as a result of the Reverse Split.





On June 29, 2009 the Company was notified by NASDAQ that has it had received the necessary documentation to process the Reverse Split (1 for 100) and issue a new symbol (“ECDC”) and that this action would take effect at the open of business on June 30, 2009.





EarthSearch Transactions





On December 18, 2009, the Company's principal stockholders, Frank Rovito, Aaron Goldstein and Green Energy Partners, LLC ( the "Sellers") entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Kayode Aladesuyi (the “Buyer”) pursuant to which the Sellers, owners of record and beneficially of an aggregate of 6,997,150 shares of common stock, par value $0.001 per share  of ECDC (the “Sellers’ Shares”), agreed to sell and transfer the Sellers’ Shares to the Buyer for total consideration of Three Hundred Thousand ($300,000) Dollars. The Purchase Agreement also provided that the Company would enter into a share exchange agreement with EarthSearch Communications International, Inc. ("EarthSearch").





On January 15, 2010, ECDC and EarthSearch executed a Share Exchange Agreement (the “Share Exchange Agreement”)  pursuant to which the Company agreed to issue 35,000,000 restricted shares to the shareholders of EarthSearch.  On April 2, 2010 EarthSearch consummated all obligations under the Purchase Agreement and the Share Exchange Agreement. In accordance with the terms and provisions of the Purchase Agreement, the Company acquired 93.49% of the issued and outstanding common stock of EarthSearch.  As a result of the execution and closing of the Purchase Agreement and Share Exchange Agreement, our principal business became the business of EarthSearch.  The board of directors of ECDC passed a resolution electing the board and management of the Company and effectively resigned from the board of ECDC.





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





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





The operations of its former wholly-owned subsidiary, EarthSearch Localizacao de Veiculos, Ltda in Brazil, were discontinued during 2007.





On December 31, 2010, the Company acquired 1,800,000 additional shares of EarthSearch from a non-controlling shareholder in exchange for 439,024 of the Company’s common stock.  The Company owns 94.66% of the issued and outstanding stock of EarthSearch at December 31, 2010.


21


Our Strategy





EarthSearch, based in Atlanta, Georgia, has created the world’s first integration of RFID and GPS technology. EarthSearch is an international provider of supply chain management solutions offering real-time visibility in the supply chain with integrated RFID/GPS and other telemetry products.  These solutions help businesses worldwide to increase asset management, provide safety and security, increase productivity, and deliver real-time visibility of the supply chain through automation.





We experienced a sudden reversal of our revenue growth in the 4th quarter of 2008 as the real estate market and global economy came to a halt. A significant number of our customers declared bankruptcy or defaulted on their account. New business opportunities ceased and our sales plummeted. These events forced us to take dramatic steps and business decisions that resulted in substantial reductions of revenue for the years 2009 and 2010.





Based on our internal research, the board and management made the decision to change the business focus and product portfolio. We concluded that simply offering GPS devices, which we believed would become a commodity, exposed the company and its shareholders to potential failure. We accelerated R&D operations and began the development of wireless communication between GPS and RFID devices. We shut down most of our commercial operations due to the economic conditions and expanded R&D.





Our internal research showed GPS solutions will become inadequate for business needs and the market would demand or require more sophisticated solutions for asset management, workforce optimization and security. RFID technology was growing at significant rate and a combination of both technologies was inevitable. Management seized the opportunity of the slow economy to develop the world’s first solution for continuous visibility of assets and become a global leader in offering such an integrated solution. We are also continuing to utilize the technology to provide other applications such as oil pipeline monitoring





We completed our product development in the first quarter of 2010, and began commercial beta tests in the summer of 2010. We officially launched our new business and product portfolio in 4th quarter of 2010. We immediately saw revenue growth as 60% of our 2010 revenue came in the 4th quarter of 2010. We outperformed our entire 2010 revenue levels in the 1st quarter of 2011 and we expect to continue to see significant increases in revenue throughout 2011. We are currently engaged in numerous pilot projects with several major organizations. We have also expanded our product offering into military logistics





As part of our growth strategy, we launched an aggressive sales network development program in the summer of 2010.  As of the end of the 1st quarter 2011 we have more than 15 distribution partners in 5 geographic regions (Southeast, Asia, Africa, South and North America). We launched a new web site reflecting our new business, products and solutions. We will launch our first commercial ecommerce site in the 2nd quarter of 2011.





Part of our strategy is to implement a merger and acquisition plan as a part of the 2011 growth strategy. We will focus on targeting those GPS firms with a concentration of clients with advanced supply chain solution needs. We will also seek joint venture opportunities where our technology will have significant impact on the success of the opportunities.





We project a return to significantly increased revenue and margins for our shareholders in 2011.





Products and Services





LogiBoxx  is the world’s first vehicle tracking device with an embedded RF Module.   LogiBoxx provides the ability to perform the dual functions of an RFID solution by communicating directly with RF Tags while also creating a wireless gateway between mobile RFID solution and a backend server to function as a fleet management solution.





GATIS (Global Asset Tracking and Identification System) is one of the most advanced web based asset management platform in the world. It incorporates several applications and vertical market that integrates GPS and RFID data into their operation and business GATIS is the only web-based application that allows for the management of integrated GPS/RFID at hardware level.  It is a necessary application for the management of assets in transit.





EarthSearch’s LogiBoxx solution, when used with our GATIS application, utilizes integrated RFID and GPS data, delivered in real time, under the most complex data analysis and business logic process, to achieve decisions needed by governments and businesses to accomplish critical organization objective.





Bridging the communication between GPS/RFID and integrating with sensor technology creates solutions that challenge the imagination. We are the creator of the world’s first wireless communication between GPS and RFID interrogators and we solve complex business security, logistics and operational issues.


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We engage our customers from strategic planning to implementation to make the customer’s desired solution a reality. EarthSearch provides professional services in key areas to ensure successful delivery of the desired solution to the customer. We begin with a clearly defined project objective, creating easy to understand scope of work and project design that clearly explains how we will accomplish our customer’s desired solution.





Our solutions include RFID implementation for various industries and vertical markets utilizing global standards such as EPC Gen 2 standards, 2.4ghz active RFID platforms with proprietary protocols. We utilize passive and semi-passive, as well as active, tags to create integrated solutions for our clients that will meet the desired objectives. Our expertise in the integration of GPS with RFID allows us to create hybrid solutions that can result in solutions once considered impossible, such as implementation of Active/Passive RFID applications in the same solution





Whatever the industry, EarthSearch uses its proprietary wireless communication between GPS and RFID, integrated with sensor technology, to deliver the most advanced Auto ID solutions in the market. Our proprietary GATIS software uses integrated RFID/GPS data with intelligent business logic to deliver solution and information for business decisions.





Additionally, EarthSearch has developed SchoolConnect - the first school bus security solution with integrated GPS/RFID technology . This unique solution is designed to provide real-time visibility and security of students traveling on scheduled school bus routes.  This unprecedented technology monitors the real-time status of students as they enter and exit school buses.





SchoolConnect can provide real-time alerts to parents and schools when a student gets on the bus or off the bus.  Alerts are sent should a student exit at the wrong bus stop, or should a student fail to get on or off the bus at a scheduled location. The SchoolConnect system provides real-time notification to parents with hand-held devices, such as smart phones.








Results of Operations





For the Three Months Ended March 31, 2011 and 2010





Revenues





For the three months ended March 31, 2011, our revenue was $164,078, compared to $9,103 for the same period in 2010, representing an increase of 170.2%. This increase in revenue was directly attributable to the Company’s decision to change its business focus and product portfolio in 2010 from simply marketing GPS devices to developing full-fledged supply chain solutions which include RFID technologies, other supply chain and warehouse solutions, as well as the expansion of marketing activities to develop a global distribution network for its new product portfolios.  Management believes these changes will result in greater stability and long term growth for the Company.





Revenues are generated from three separate but related offerings, RFID/GPS product sales, consulting services, and user fees for GATIS – our advanced web based asset management platform.  We generated revenues from product sales of $92,897 and $966 for the three months ended March 31, 2011 and 2010, respectively.  Revenues for consulting services were $51,500 for the three months ended March 31, 2011 compared to $0 for the three months ended March 31, 2010.  User fees were $19,681 and $8,137 for the three months ended March 31, 2011 and 2010, respectively.





Operating Expenses





For the three months ended March 31, 2011, operating expenses were $390,057 compared to $512,496 for the same period in 2010, a decrease of 23.9%.





For the three months ended March 31, 2011, selling, general and administrative expenses were $340,315 compared to $479,439 for the same period in 2010, a decrease of 29.0%. This decrease was primarily caused by accounting fees decreased from $25,075 to $139, payroll expenses decrease from $286,133 to $182,865, and amortization of research and development costs decreased from $53,389 to $37,034.  Loss on the disposal of assets of $0 and $23,039 for the three months ended March 31, 2011 and 2010, respectively.





The increase of cost of revenue is attributable to the increase in revenues for the three months ended March 31, 2011.




Net Loss





We generated a net loss of $237,610 for the three months ended March 31, 2011 compared to $524,126 for the same period in 2010, a decrease of 54.7%.  The loss for the three months ended March 31, 2011 was reduced by non-controlling interests’ share of the net loss of EarthSearch of $10,814.


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Liquidity and Capital Resources





Overview





For the three months ended March 31, 2011 and 2010, we funded our operations through financing activities consisting of private placements of equity securities with outside investors and loans from related parties, while for the three months ended March 31, 2010 our funding also included loans from unrelated parties. Our principal use of funds during the three months ended March 31, 2011 and 2010 has been for working capital and general corporate expenses.





Liquidity and Capital Resources during the three months ended March 31, 2011 compared to the three months ended March 31, 2010





As of March 31, 2011, we had cash of $4,621 and a working capital deficit of $3,683,088.  The Company generated a negative cash flow from operations of $93,665 for the three months ended March 31, 2011 compared to cash used in operations of $281,064 for the three months ended March 31, 2010. The negative cash flow from operating activities for the three months ended March 31, 2011 is primarily attributable to the Company's net loss from operations of $248,424, offset by non depreciation and amortization of $40,086, stock issued for services of $6,000, Accrued interest on loans payable of $21,062 and net cash from changes in operating assets and liabilities of $87,611.





The decrease in investing activities is attributable the purchase of equipment of $3,341 during the three months ended March 31, 2010 while no purchases were made in 2011 and the payment of escrow deposits in the three months ended March 31, 2010.





Cash generated from our financing activities was $97,008 for the three months ended March 31, 2011, compared to $431,324 during the comparable period in 2010. This decrease was primarily attributed to the proceeds from the issuance of common stock, a decrease from $118,000 to $42,500, proceeds from loans payable to related parties, a decrease from $86,571 to $77,120, proceeds from loans payable to unrelated parties, a decrease from $310,000 to $0, offset by the repayments of loans payable to related parties, a decrease from $83,247 to $22,612.





We will require additional financing during the current fiscal year according to our planned growth activities. In April 2011 we received proceeds from the sale of 1,502,525 shares of our common stock of $30,000. There is no assurance that we will be able to continue to raise the necessary financing.





Going Concern





Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the consolidated financial statements for the year ended December 31, 2010 regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.





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





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





Off-Balance Sheet Arrangements





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





Critical Accounting Policies





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





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Our significant accounting policies are summarized in Note 2 of our financial statements. While all of these significant accounting policies impact the Company’s consolidated financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company and require management to use a greater degree of judgment and estimates. We believe that the estimates and assumptions that are most important to the portrayal of our consolidated financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting for the valuation accounts receivable, inventory, impairment of long-lived assets, and stock-based compensation. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future consolidated financial conditions or results of operations. We suggest that our significant accounting policies be read in conjunction with this Management's Discussion and Analysis of Financial Condition.





Additional Information





We file reports and other materials with the Securities and Exchange Commission. These documents may be inspected and copied at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also get copies of documents that the Company files with the Commission through the Commission's Internet site at www.sec.gov.





Item 3.    Quantitative and Qualitative Disclosures About Market Risk.





The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.





Item 4.    Controls and Procedures.





Evaluation of Disclosure Controls and Procedures





The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 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 information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.





As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Interim Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date.  The Chief Executive Officer and Interim Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:





1.
Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;2.
Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;3.
Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions;4.
Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting;5. .
Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.





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To remediate our internal control weaknesses, management intends to implement the following measures:





▪
The Company will add sufficient number of independent directors to the board and appoint an audit committee.





▪
The Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements.





▪
The Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting.





▪
Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures.





The additional hiring is contingent upon The Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.





Changes in Internal Control over Financial Reporting





There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II – OTHER INFORMATION





Item 1.    Legal Proceedings





There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not the subject of any pending legal proceedings.





Item 1A.  Risk Factors





The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.  Please refer to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2011.





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





For the period from April 1 through April 22, 2011, the Company issued 1,502,525 shares of its restricted common stock in private placements for a total of $30,000 ($0.02 per share).





Item 3.    Defaults Upon Senior Securities.





None.





Item 4.    (Removed and Reserved).








Item 5.    Other Information.





None.





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Item 6.    Exhibits





Exhibit 2.1
Resolution of the Shareholders of East Coast Diversified Corporation dated April 2, 2010 (1)Exhibit 2.2
Resolution of the Shareholders of East Coast Diversified Corporation dated April 2, 2010 (1)Exhibit 2.3
Resolutions of Board of Directors of East Coast Diversified Corporation dated April 12, 2010 (1)Exhibit 3.1
Articles of Incorporation (2)Exhibit 3.2
Bylaws (2)Exhibit 3.3
Certificate of Amendment to Certificate of Incorporation (1)Exhibit 10.1
Share Exchange Agreement between East Coast Diversified Corporation and EarthSearch Communications International, Inc. dated January 12, 2010 (1)Exhibit 10.2
Private Stock Purchase Agreement dated April 6, 2010 between Energy Partners, LLC and Messrs. Aaron Goldstein and Frank Rovito (1)Exhibit 10.3
East Coast Diversified Corporation 2010 Incentive Stock Plan (3)Exhibit 31.1
Rule 13a-14(a) Certification by the Principal Executive Officer and Interim Principal Financial Officer (4)Exhibit 32.1
Certification by the Principal Executive Officer and Interim Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4)





(1)
Incorporated by reference from Company’s Form 8-K filed with the Securities and Exchange Commission on April 12, 2010.(2)
Incorporated by reference from Company’s Form 10-SB/12g filed with the Securities and Exchange Commission on August 6, 2003.(3)
Incorporated by reference from Company’s Form S-8 filed with the Securities and Exchange Commission on September 27, 2010.(4)
Filed herewith.

















SIGNATURES





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











Date:  February 13, 2012

By:  /s/ Kayode AladesuyiKayode AladesuyiChief Executive Officer and Interim Chief Financial Officer

(Principal Executive and Financial Officer)