UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


____________________________





FORM 10-Q


____________________________





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





For the quarterly period ended September 30, 2010





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 Employee Identification No.)120 Interstate North Parkway SE, #445

Atlanta, GA

30339(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 (Check one):





Large Accelerated Filer  o     Accelerated Filer  o      Non-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 November 10, 2010 the registrant had 58,826,493 shares of its Common Stock, $0.001 par value, outstanding.











EAST COAST DIVERSIFIED CORPORATION


FORM 10-Q


September 30, 2010


INDEX








PagePART I--FINANCIAL INFORMATION
3Item 1.
Financial Statements
3Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
3Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2010 and 2009, (unaudited)
5Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2010 and 2009, (unaudited)
6Notes to Consolidated Financial Statements (unaudited)
8Item 2.
Management’s Discussion and Analysis of Financial Condition & Results of Operations
19Item 3.
Quantitative and Qualitative Disclosures About Market Risk
23Item 4.
Controls and Procedures
23PART II--OTHER INFORMATION
25Item 1.
Legal Proceedings
25Item 1A.
Risk Factors
25Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25Item 3.
Defaults Upon Senior Securities
26Item 4.
Removed & Reserved
26Item 5.
Other Information
26Item 6.
Exhibits
26SIGNATURE

27











2





PART 1 - FINANCIAL INFORMATION





Item 1. Financial Statements


East Coast Diversified Corporation and SubsidiaryConsolidated Balance SheetsSeptember 30,

December 31,2010


2009(unaudited)ASSETSCurrent AssetsCash

$
161


$
766Accounts receivable (net of allowance for doubtful accounts of $0 and$260,577 respectively)


11,806



2,259Inventory


49,513



-Prepaid expenses


-



5,000Supplier advances


12,759



29,576Total Current Assets


74,239



37,601Property and Equipment, net


18,820



56,024Other assetsCapitalized research and development costs (net of accumulatedamortization of $511,022 and $367,210 respectively)


129,647



273,458Escrow deposits


25,000



100,000Security deposits


4,521



4,521Total Other Assets


159,168



377,979Total Assets

$
252,227


$
471,604See notes to unaudited consolidated financial statements.
 3








East Coast Diversified Corporation and SubsidiaryConsolidated Balance SheetsSeptember 30,

December 31,2010



2009(unaudited)LIABILITIES AND STOCKHOLDERS' DEFICITCurrent LiabilitiesBank overdraft

$
-


$
5,207Loans payable


1,080,487



671,930Loans payable - related party


597,491



607,206Accounts payable and accrued expenses


758,107



655,494Accrued payroll and related liabilities

1,405,174



1,123,410Total Liabilities


3,841,259



3,063,247Commitments and ContingenciesStockholders' DeficitCommon stock, $.01 par value, 200,000,000 shares authorized,136,064,233 issued and outstanding *


-



1,360,642Common stock, $.001 par value, 200,000,000 shares authorized,58,671,985 issued and outstanding


58,672



-Additional paid-in capital


6,749,145



4,946,622Accumulated deficit


(10,147,594
)


(8,898,907
)Total East Coast Diversified Stockholders' Deficit


(3,339,777
)


(2,591,643
)Noncontrolling interest


(249,255
)


-Total Stockholders' Deficit


(3,589,032
)


(2,591,643
)Total Liabilities and Stockholders' Deficit

$
252,227


$
471,604* Represents issued and outstanding shares of EarthSearch Communications at December 31, 2009 (pre-merger)See notes to unaudited consolidated financial statements.











4






East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Operations(unaudited)




For the Three Months Ended


For the Nine Months EndedSeptember 30,


September 30,


September 30,


September 30,2010


2009


2010


2009Revenue

$
32,366


$
26,448


$
54,940


$
127,380Cost of Revenue


21,338



21,986



43,563



70,316Gross Profit


11,028



4,462



11,377



57,064Selling, general and administrative expenses


690,829



202,850



1,796,801



735,910Loss from Operations


(679,801
)


(198,388
)


(1,785,424
)


(678,846
)Other Income (Expense)Other income


-



-



65



-Interest expense


(23,901
)


(13,071
)


(69,278
)


(40,070
)Loss on conversion of debt


(63,750
)


-



(63,750
)


-Loss on disposal of assets


-



-



(21,779
)


-Total Other Income (Expense)


(87,651
)


(13,071
)


(154,742
)


(40,070
)Net Loss


(767,452
)


(211,459
)


(1,940,166
)


(718,916
)Net loss attributable to noncontrolling interest


35,376



-



77,599



-Net Loss attributable to East CoastDiversified Corporation

$
(732,076
)

$
(211,459
)

$
(1,862,567
)

$
(718,916
)Net Loss Per Share - Basic and Diluted

$
(0.01
)

$
(0.00
)

$
(0.02
)

$
(0.01
)Weighted average number of sharesoustanding during the period -Basic and Diluted


52,364,680



103,502,929



81,041,013



89,160,860




See notes to unaudited consolidated financial statements.






5




East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Cash Flows(unaudited)





For the Nine Months EndedSeptember 30,


September 30,2010


2009Cash Flows Used In Operating Activities:Net Loss

$
(1,940,166
)

$
(718,916
)Adjustments to reconcile net loss to net cash used in operations:Depreciation and amortization


156,260



165,665Loss on conversion of debt


63,750



-Loss on disposal of assets


21,866



-Stock issued in lieu of cash compensation


128,000



50,000In-kind contribution of services


347,846



-Interest accrued on loans payable


57,875



31,250Changes in operating assets and liabilities:Security deposits


-



4,521Accounts receivable, net


(9,547
)


(57,390
)Inventory


(39,864
)


10,384Prepaid expenses


5,000



(30,480
)Supplier advances


16,817



(8,561
)Bank overdraft


(5,207
)


(7,828
)Accounts payable and accrued expenses


49,613



69,873Accrued payroll and related liabilities


281,764



129,488Net Cash Used In Operating Activities


(865,993
)


(361,994
)Cash Flows From (Used In) Investing Activities:Capital expenditures


(6,760
)


(855
)Capitalized reasearch and development costs


-



(41,729
)Payments of escrow deposits


(145,000
)


-Proceeds received for reimbusement of escrow deposits


220,000



-Cash received in reverse merger


6



-Net Cash From (Used In) Investing Activities


68,246



(42,584
)Cash Flows From Financing Activities:Proceeds from issuance of common stock


369,925



168,477Proceeds from loans payable - related party


217,367



317,758Repayments of loans payable - related party


(167,082
)


(135,958
)Proceeds from loans payable


376,932



55,000Net Cash From Financing Activities


797,142



405,277Net (Decrease) Increase in Cash


(605
)


699Cash at Beginning of Period


766



28Cash at End of Period

$
161


$
727




See notes to unaudited consolidated financial statements.







6





East Coast Diversified Corporation and SubsidiaryConsolidated Statements of Cash Flows, continued(unaudited)






For the Nine Months EndedSeptember 30,

2010


September 30,

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

$
11,403


$
8,821Cash paid for taxes

$
-


$
-Non-cash investing and financing activities:Issuance of 500,000 shares of common stock in conversion ofloans payable

$
26,250


$
-Issuance of 6,000,000 and 13,000,000 shares of common stock in conversion ofloans payable - related party, resepctively

$
60,000


$
130,000Reduction of 95,848,349 shares of common stock in stock exchange

$
(1,387,429
)

$
-Recognition of noncontrolling interest at date of stock exchange

$
(171,656
)

$
-See notes to unaudited consolidated financial statements.


























7




East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)








NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Organization





East Coast Diversified Corporation, the “Company”, “we”, “us”, “our”, or “East Coast”, was organized on May 24, 1994, under the laws of the State of Florida under the name Plantastic Corp. and changed its name to Viva Golf, USA Corp. in April 1997. 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. During the year 2001, the Company discontinued its operations, and remained inoperative until April 26, 2006.





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 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.





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





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 for interim financial information.  The results of operations for the interim period ended September 30, 2010 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2010. In the opinion of the Company’s management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Form 8-K filed on April 12, 2010 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.


8


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





Nature of Operations





The Company is an early stage research and development company with specialization in GPS and RFID technology. 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.





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.





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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  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.





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 September 30, 2010 and December 31, 2009, respectively, the Company had no cash equivalents.





Loss Per Share





Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by ASC 260-10, “Earnings Per Share.” As of September 30, 2010 and 2009, respectively, there were no common share equivalents outstanding.





Fixed Assets





Fixed assets are stated at cost. Depreciation expense is computed principally by the straight-line method over the following estimated useful lives of the assets:





Description
Estimated useful lifeFurniture and fixtures
7 yearsEquipment
5 yearsLeasehold improvements
Life of lease




9


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





Equipment to be placed in service will be depreciated once the equipment is placed in service.  Depreciation expense was $4,367 and $4,151 for the three months ended September 30, 2010 and 2009, respectively, and $12,449 and $12,453 for the nine months ended September 30, 2010 and 2009, respectively.





Income Taxes





The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”).  Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.





Research and Development Costs





Costs incurred internally in researching and developing computer software products are 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 the products are released to manufacturing which occurred in January 2007. The amortization of these costs is included in cost of revenue over the estimated life of the products, which is estimated to be 3 years.





The Company capitalized $0 and $55,639 of research and development costs in the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.  The Company recorded amortization expense of $37,034 and $51,070 for the three months ended September 30, 2010 and 2009, respectively, and $143,812 and $153,212 for the nine months ended September 30, 2010 and 2009, respectively.





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 does not have any operating segments as of September 30, 2010.





Revenue Recognition





The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition”   (“ASC Topic 605”).  Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.  Revenue is recognized when products are received and accepted by the customer.





Reclassification





Certain amounts from prior period have been reclassified to conform to the current period presentation.





Recent Accounting Pronouncements





In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105-10, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“SFAS No. 168”).  Under ASC 105-10, the “FASB Accounting Standards Codification” (“Codification”) becomes the source of authoritative U. S. GAAP to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.


10


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  On the effective date, the Codification supersedes all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  The adoption of ASC 105-10 did not have to an impact on the Company’s consolidated financial statements.





In June 2009, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance announced the release of ASC 805-10 (Staff Accounting Bulletin (SAB) No. 112).  This staff accounting bulletin amends or rescinds portions of the interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing guidance and Securities and Exchange Commission rules and regulations.  Specifically, the staff updated the Series in order to bring existing guidance into conformity with recent pronouncements by the Financial Accounting Standards Board, namely, ASC 805-10, Business Combinations, and ASC 810-10 Non-controlling Interests in Consolidated Financial Statements.  The statements in staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission’s official approval.  They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws.




















In December 2007, the FASB issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.




11


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)








ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Company’s consolidated financial position, results of operations or cash flows.










In April 2008, the FASB issued ASC 350, “Determination of the Useful Life of Intangible Assets”. This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350 will materially impact their consolidated financial position, results of operations or cash flows.










Multiple-Deliverable Revenue Arrangements






12





East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its consolidated financial statements upon its required adoption on January 1, 2011.






















13


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





Improving Disclosure about Fair Value Measurements





In April 2010, the FASB issued ASC Update No. 2010-17, Milestone Method of Revenue Recognition (ASU 2010-17).  ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.  ASU 2010-17 is effective for interim and annual reporting periods beginning after June 15, 2010, with early adoption permitted.  The adoption of this standard will not have a material impact on our consolidated financial position or results of operations.





NOTE 2 - LOANS PAYABLE





Loans payable consist of the following:


September 30,


December 31,2010


2009Unsecured $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 $102,680 and $72,305 respectively.

$
552,680


$
522,305Unsecured $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 $24,125 and $6,125 respectively.


104,125



86,125Unsecured non-interest bearing note payable due on demand by Company to Charms Investments Inc.


-



25,000$30,000 convertible note payable to Charms Investments Inc., which bears interest at 10% per annum and was originally due March 15, 2010.  The due date of the note has been extended to December 31, 2010.  Accrued interest is equal to $2,125 at September 30, 2010.


32,125



-$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, 2010.  Accrued interest is equal to $3,625 at September 30, 2010.


58,625



-$40,000 convertible note payable to Charms Investments Inc., which bears interest at 10% per annum and is due October 16, 2010.  Accrued interest is equal to $2,500 at September 30, 2010.


42,500



-$196,425 convertible note payable to Charms Investments Inc., which bears interest at 7% per annum and was originally due July 30, 2010.  The due date of the note has been extended to December 31, 2010.


174,425



-Unsecured non-interest bearing note payable due on demand by Company to Leonard Marella.


20,000



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


8,000



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


7,000



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


3,500



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


77,507



-Total

$
1,080,487


$
671,930




14





East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements
 September 30, 2010
 (unaudited)







The Company accrued interest expense of $ 19,250 and $11,000 for the three months ended September 30, 2010 and 2009, respectively, and $57,875 and $31,250 for the nine months ended September 30, 2010 and 2009, respectively, on the above loans.





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.





On July 30, 2010, Charms Investments, Inc. assigned its interest in the $196,425 convertible note to Mr. Kayode Aladesuyi, the Company’s Chief Executive Officer, President and a Director of the Company (see Note 3 – Related Parties).





Loans payable – related parties consist of the following:




September 30,


December 31,2010


2009Unsecured non-interest bearing note payable due on demand by Company to Frank Russo, a Director in the Company.

$
422,006


$
476,206Unsecured non-interest bearing note payable due on demand by Company to Edward Eppel.


150,485



126,400Unsecured non-interest bearing note payable due on demand by Company to Andrea Rocha, Company Comptroller and President’s wife


-



2,600Unsecured non-interest bearing note payable due on demand by Company to Kayode Aladesuyi, Company Chief Executive Officer and President and significant Company shareholder.


-



2,000Unsecured non-interest bearing note payable due on demand by Company to Valerie Aladesuyi, former wife of Company Chief Executive Officer and President


25,000



-Total

$
597,491


$
607,206




No interest expense has been accrued on the above loans in 2010 or 2009.





NOTE 3 – RELATED PARTIES





Frank Russo, a Director of the Company, is a note holder of the Company (see Note 2 – Loans Payable).   During the year ended December 31, 2009, Mr. Russo converted $100,000 of the note into 10,000,000 shares of the Company’s common stock. During the nine months ended September 30, 2010, Mr. Russo converted $60,000 of the note into 6,000,000 shares of the Company’s common stock.  The Company borrowed $29,800 and $144,300 from and repaid $24,000 and $11,500 to Mr. Russo during the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.  The Company issued 400,000 shares of its common stock to Mr. Russo for services during the year ended December 31, 2009 (see Note 4 – Stockholders’ Deficit).





Edward Eppel, a Director of the Company, is a note holder of the Company (see Note 2 – Loans Payable).  The Company borrowed $24,085 and $126,400 from Mr. Eppel during the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.  The Company issued 5,100,000 shares of its common stock to Mr. Eppel for services during the year ended December 31, 2009 (see Note 4 – Stockholders’ Deficit).





15


East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





Andrea Rocha, Comptroller of the Company, is the wife of Kayode Aladesuyi, the Company’s Chief Executive Officer, President and a Director of the Company.  Ms. Rocha was a note holder of the Company (see Note 2 – Loans Payable).  The Company borrowed $32,000 from Ms. Rocha during the year ended December 31, 2009.  During the year ended December 31, 2009, Ms. Rocha converted $32,000 of the note into 3,200,000 shares of the Company’s common stock.  During the nine months ended September 30, 2010, the Company repaid $2,600 to Ms. Rocha. On October 5, 2009, Ms. Rocha purchased 4,800,000 shares of the Company’s common stock for $48,000.





Kayode Aladesuyi was a note holder of the Company (see Note 2 – Loans Payable).  During the year ended December 31, 2009, the Company borrowed $132,497 from and repaid $130,497 to Mr. Aladesuyi.  During the nine months ended September 30, 2010, the Company borrowed $138,482 from and repaid $140,482 to Mr. Aladesuyi.  On July 30, 2010, Charms Investments, Inc. assigned its interest in their $196,425 convertible note to Mr. Aladesuyi (see Note 2 – Loans Payable).  The convertible note is automatically convertible upon the Company receiving at least gross proceeds of $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 and 400,000 shares of its common stock to Mr. Aladesuyi for services during the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively (see Note 4 – Stockholders’ Deficit).  During the year ended December 31, 2009, Mr. Aladesuyi purchased 15,000,000 shares of the Company’s common stock for $150,000.





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 September 30, 2010 Mr. Sherali purchased 5,153,846 shares of the Company’s stock for $56,500.  The Company issued 100,000 shares of its common stock to Mr. Sherali for services during the year ended December 31, 2009 (see Note 4 – Stockholders’ Deficit).





During the nine months ended September 30, 2010, officers and shareholders of the Company contributed services having a fair market value of $347,846 (see Note 4 – Stockholders’ Deficit).





NOTE 4 - 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, 2009, the Company issued 40,240,000 shares of common stock for a total of $524,977 ($0.013 per share).





During the nine months ended September 30, 2010, the Company issued 15,756,763 shares of common stock for a total of $369,925 ($0.023 per share).





Common Stock Issued in Conversion of Debt





During the year ended December 31, 2009, the Company issued 13,200,000 shares of common stock in the conversion of $132,000 of notes payable to related parties (see Note 3 – Related Parties).








16





East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





During the nine months ended September 30, 2010, the Company issued 6,000,000 shares of common stock in the conversion of $60,000 of a note payable to a related party (see Note 3 – Related Parties) and 500,000 shares of common stock in the conversion of a $26,250 note payable to an unrelated party.





Stock Issued for Services





The Company issued 4,000,000 and 400,000 shares of common stock for services, at par value of $.01 per share based on the fair value of the services rendered, to Kayode Aladesuyi, the Company’s Chief Executive Officer, President and a Director of the Company, during the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively (see Note 3 – Related Parties).





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.





The Company issued 400,000 shares of its common stock to Frank Russo for services, at par value of $.01 per share based on the fair value of the services rendered, during the year ended December 31, 2009 (see Note 3 – Related Parties).





The Company issued 5,100,000 shares of its common stock to Edward Eppel for services, at par value of $.01 per share based on the fair value of the services rendered, during the year ended December 31, 2009 (see Note 3 – Related Parties).





The Company issued 100,000 shares of its common stock to Anis Sherali for services, at par value of $.01 per share based on the fair value of the services rendered, during the year ended December 31, 2009 (see Note 3 – Related Parties).





During the year ended December 31, 2009, the Company issued 850,000 shares to an unrelated party for services, at par value of $.01 per share based on the fair value of the services rendered.





During the nine months ended September 30, 2010, the Company issued 2,200,000 shares to unrelated parties for services, at an average price of $.04 per share based on the fair value of services rendered.  1,500,000 of these shares were issued under the 2010 Stock Incentive Plan dated September 17, 2010.





In-Kind Contribution of Services





During the nine months ended September 30, 2010, officers and directors of the Company contributed services having a fair market value of $347,846 (see Note 3 – Related Parties).








NOTE 5 – ESCROW DEPOSITS





On December 18, 2009, the principal shareholders (the “Sellers”) of East Coast Diversified Corporation (“ECDC”) entered into a Securities Purchase Agreement (the “Agreement”) with Kayode Aladesuyi (the “Buyer”), the President of the Company, pursuant to which Sellers, owners of record and beneficially an aggregate of 7,029,950 shares of Common Stock, par value $0.001 per share (“Common Stock”) of ECDC, agreed to sell and transfer Sellers' 7,029,950 shares of Common Stock (the "Sellers’ Shares”) to the Buyer for total consideration of Three Hundred Thousand ($300,000) Dollars. The Agreement also provided that the Company would enter into a share exchange agreement with the Company.




17




East Coast Diversified Corporation and Subsidiary


Notes to Consolidated Financial Statements


September 30, 2010


(unaudited)





In connection with this transaction the Company deposited $220,000 as of March 31, 2010 and $100,000 as of December 31, 2009 in escrow towards the final purchase price of the transaction.  The escrow deposits have been reimbursed to the Company during the quarter ended June 30, 2010 by the ultimate investors that acquired the Sellers’ shares.





On January 26, 2010, the Company began negotiations with G-TECHONOLOGIES SDN BHD (“G-TECH”), a Malaysian entity, to acquire a 10% interest of G-TECH and issued a $25,000 refundable deposit with G-TECH.  The Company is currently performing its due diligence of G-TECH and is continuing its negotiations.





NOTE 6 - GOING CONCERN





The accompanying 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.  The Company has incurred a net loss of $1,862,567 and $718,916 for the nine months ended September 30, 2010 and 2009 and has incurred cumulative losses since inception of $10,147,594.  The Company has a stockholders’ deficit of $3,589,032 at September 30, 2010.  These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.  The Company’s continuation as a going concern is dependent upon its ability to generate revenues, its ability to continue to raise investment capital, and implement its business plan.  No assurance can be given that the Company will be successful in these efforts.





The 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.





NOTE 7 - LEGAL





On July 13, 2010, the Company was named in a lawsuit captioned ArrivalStar S.A. and Melvino Technologies Limited v. EarthSearch Communications International, Inc.. U.S. District Court, Northern District of Illinois, 1:10-CV-04349.  The lawsuit alleges that EarthSearch had infringed on various patents.  On September 1, 2010, both parties agreed to a Settlement, Release and License Agreement which provides numerous domestic and international patents usable by EarthSearch for minimal fees.








NOTE 8 - SUBSEQUENT EVENTS





From October 1, 2010 through October 26, 2010, the Company has received a total of $78,400 from Anis Sherali, a Director of the Company.  The Company has entered into an agreement to issue 7,461,538 shares of its restricted common stock for the funds received.





On October 8, 2010, the Company issued 154,508 shares of its restricted common stock for services, at $.02 per share based on the fair value of services rendered.








18


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





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 Current Report on Form 8-K filed on April 12, 2010 and in our subsequent filings with the Securities and Exchange Commission.





Overview





East Coast Diversified Corp. (the "Company", "Registrant", “ECDC”, “we”, or :”us”) 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, which venture was unsuccessful. In. March 1997, the Company amended its articles of incorporation, reorganized its capital structure and changed its name to Viva Golf, USA Corp., acquiring The Company the assets of Viva Golf, USA Corp., a golf equipment marketing plan and other related assets which was also unsuccessful and ceased those operations in 1998. In June 2003, the Company changed its name to East Coast Diversified Corp. from Lifekeepers International, Inc. and changed its domicile to Nevada.





Acquisition and Divestiture of Miami Renaissance Group, Inc.





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 September 30, 2009, the Company completed the sale of MRG following which its new business objective was to seek an operating company.





19


Recent Events





On December 18, 2009, the Company's principal shareholders, Frank Rovito, Aaron Goldstein and Green Energy Partners, LLC ( the "Sellers") and entered into a Securities Purchase Agreement (the “Agreement”) with Kayode Aladesuyi (the “Buyer”) pursuant to which Sellers, owners of record and beneficially an aggregate of 7,029,950 shares of Common Stock, par value $0.001 per share of ECDC, agreed to sell and transfer Sellers' 7,029,950 shares of  Common Stock (the "Sellers’ Shares”) to the Buyer for total consideration of Three Hundred Thousand ($300,000) Dollars. The Agreement also provides that the Company will enter into a share exchange agreement with EarthSearch Communications International, Inc. ("EarthSearch").





On January 15, 2010, ECDC and EarthSearch entered into a Share Exchange Agreement pursuant to which the Company agreed to issue 35,000,000 million restricted shares of its Common Stock to the shareholders of EarthSearch in exchange for 93.49% of the issued and outstanding common stock of EarthSearch.  Mr. Aladesuyi is the CEO, Chairman and control shareholder of EarthSearch.  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.





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





Plan of Operation





On April 2, 2010, we completed the Stock Exchange with EarthSearch. In connection with this Stock Exchange, we discontinued our former business and succeeded to the business of EarthSearch as our sole line of business. The merger is being accounted for as a recapitalization, with EarthSearch deemed to be the accounting acquirer and ECDC the acquired company. Accordingly, EarthSearch’s historical financial statements for periods prior to the merger have become those of the registrant (ECDC), retroactively restated for, and giving effect to, the number of shares received in the merger. The accumulated earnings of EarthSearch were also carried forward after the acquisition. Operations reported for periods prior to the merger are those of EarthSearch.





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.





RESULTS OF OPERATIONS





Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009





Revenue





For the three months ended September 30, 2010, our revenue was $32,366, compared to $26,448 for the same period in 2009, representing an increase of 22.4%. This increase in revenue of $5,918 was minimal as the Company is primarily engaged in numerous pilot projects across the globe to introduce its integrated GPS/RFID solution which it expects will begin to impact revenue in the first quarter of 2011.





Gross Profit





For the three months ended September 30, 2010, our gross profit was $11,028 compared to a gross profit of $4,462 for the same period in 2009, representing an increase of 147.2%. This increase in our gross profit resulted primarily from the increase in revenue and the reduction in cost of revenue as a percent of revenue (65.9% and 83.1%, for the three months ended September 30, 2010 and 2009, respectively).  The decrease in cost of revenues as a percent of revenue is primarily due to changes in product mix for the limited revenues for the three months ended September 30, 2010 and 2009.





20





Selling, General and Administrative Expenses





For the three months ended September 30, 2010, selling, general and administrative expenses were $690,829 compared to $202,850 for the same period in 2009, an increase of 240.6%.  This increase was primarily caused by accounting fees increased from $0 to $17,283, compensation for board members increased from $0 to $50,000, professional fees related to public company compliance and investor relations increased from $0 to $124,035, and salary expenses increased from $138,644 to $362,948. These increases were offset by a decrease in salary expense for technology employees of $26,500.





Net Loss





We generated net losses of $732,076 for the three months ended September 30, 2010 compared to $211,459 for the same period in 2009, an increase of 246.2%.





Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009





Revenue





For the nine months ended September 30, 2010, our revenue was $54,940, compared to $127,380 for the same period in 2009, representing a decrease of 56.9%. This decrease in revenue was primarily attributable to the effects of the economy, the deficiency in working capital to provide for marketing the Company’s products, and the Company’s decision to change its business focus and product portfolio 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, while resulting in significant short term increases in invested resources and costs of operation, will result in greater stability and long term growth for the Company.





Gross Profit





For the nine months ended September 30, 2010, our gross profit was $11,377, compared to a gross profit of $57,064 for the same period in 2009, representing a decrease of 80.1%. This decrease in our gross profit resulted primarily from the reduction in revenue and the increase in cost of revenue as a percent of revenue (79.3% and 55.2%, for the nine months ended September 30, 2010 and 2009, respectively).  The increase in cost of revenues as a percent of revenue is primarily due to the limited revenue for the nine months ended September 30, 2010.





Selling, General and Administrative Expenses





For the nine months ended September 30, 2010, selling, general and administrative expenses were $1,796,801 compared to $735,910 for the same period in 2009, an increase of 144.2%.  This increase was primarily caused by accounting fees increased from $0 to $71,013, compensation for board members increased from $0 to $130,000, professional fees related to public company compliance and investor relations increased from $0 to $120,035, and salary expenses increased from $372,816 to $972,539.





Net Loss





We generated net losses of $1,862,567 for the nine months ended September 30, 2010 compared to $718,916 for the same period in 2009, an increase of 159.1%.








LIQUIDITY AND CAPITAL RESOURCES





Our financial condition at September 30, 2010 and December 31, 2009 and the changes between those periods for the respective items are summarized as follows:







21





Working Capital




September 30,


December 31,2010


2009Current Assets

$
74,239


$
37,601Current Liabilities


3,841,259



3,063,247Working Capital Deficiency

$
(3,767,020
)

$
(3,025,646
)




As of September 30, 2010, we had a working capital deficiency of $3,767,020 and total current assets of $74,239.  At September 30, 2010, we had cash and cash equivalents of $161. We have historically met our cash needs through a combination of cash flows from operating activities and proceeds from private placements of our securities. Our cash requirements are generally for selling, general and administrative activities.





We do not believe that our cash balance as of September 30, 2010 and expected cash flows from operations will be sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next six months.  Accordingly, we will need to rely on additional loans and private placements of our securities.





There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon the continued financial support from our shareholders, our ability to obtain necessary equity financing to continue operations, and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.





Cash Flows





September 30,


September 30,2010


2009Net cash used in operations

$
(865,993
)

$
(361,994
)Net cash from (used in) investing activities


68,246



(42,584
)Net cash from financing activities


797,142



405,277Net increase (decrease) in cash


(605
)


699Cash at beginning of period


766



28Cash at end of period

$
161


$
727




Our operating activities generated a deficit cash flow of approximately $865,993 for the nine months ended September 30, 2010, compared to $361,994 during 2009. The principal elements of cash flow from operations for the nine months ended September 30, 2010 included a net loss of $1,920,166, offset by depreciation and amortization expense of $156,260, stock issued in lieu of cash compensation of $128,000, in-kind contribution of services of $347,846, and decreased investment in operating working capital elements of $278,576.





Cash provided by our investing activities was $68,246 for the nine months ended September 30, 2010, compared to $42,584 used in investing activities for the same period in 2009.  This increase of $110,830 was primarily due the receipt of funds for reimbursement of escrow deposits of $220,000 and the payment of escrow deposits if $145,000.





Cash generated from our financing activities was $797,142 for the nine months ended September 30, 2010, compared to $405,277 during the comparable period in 2009. This increase was primarily attributed to the proceeds from the issuance of common stock, an increase from $168,477 to $369,925, proceeds from loans payable to related parties, a decrease from $317,758 to $217,367, proceeds from loans payable to unrelated parties, an increase from $55,000 to $376,932, offset by the repayments of loans payable to related parties, an increase from $135,958 to $167,082





22


Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited consolidated financial statements for the year ended December 31, 2009, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional footnote disclosures describing the circumstances that led to this disclosure by our independent auditors.





Critical Accounting Policies





The Company’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition.





We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience 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 or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.





Our significant accounting policies are summarized in Note 1 of our financial statements. While all of these significant accounting policies impact the Company’s 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.  Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our financial position or liquidity, results of operations or cash flows for the periods presented.





Off Balance Sheet Transactions





We have no off-balance sheet arrangements.





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 Company is not exposed to market risk related to interest rates or foreign currencies.








Item 4.  Controls and Procedures





Disclosure Controls and Procedures





Management is committed to maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.








23


As required by Rule 13a-15(b) of the Exchange Act, we must carry out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of each fiscal quarter, under the supervision and with the participation of its management, including its CEO and CFO, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with US generally accepted accounting principles.





With the participation of the CEO, who is also our acting CFO, our management evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2010, based upon the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the assessment performed using the criteria established by COSO, management has concluded that we had the following material weaknesses in our internal control over financial reporting:





1.
Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;2.
Lack of segregation of duties over financial transaction processing and reporting;3.
Ineffective controls and insufficient written policies and procedures over period end financial disclosure and reporting processes.





Changes in Internal Control Over Financial Reporting





In an effort to remediate the identified material weaknesses discussed above and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures:





For the material weakness concerning our Audit Committee, management believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.  We plan to appoint one or more outside directors to our Board who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal  controls and procedures such as reviewing and approving estimates and assumptions made by management.





For the material weakness concerning deficiencies in segregation of duties, we are currently reviewing our internal controls under new management to assure that we have adequately trained personnel to more timely complete the company’s Quarterly and other filings with the SEC.  We shall create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us.





For the material weakness concerning deficiencies in the financial reporting process, we are working to develop and implement sufficient written policies and procedures to better insure timely decisions can be made regarding required disclosures.





Notwithstanding our assessment that our internal controls over financial reporting were not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in this report on Form 10-Q for the fiscal quarter ended September 30, 2010 accurately present our financial condition, results of operations and cash flows in all material respects.





Other than the items identified above, no change in ECDC’s control over financial reporting has occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, ECDC’s internal control over financial reporting.





Based on current regulations, Section 404(a) of the Sarbanes-Oxley Act required our management to provide an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2009. We have performed the necessary system and process documentation in preparation for the evaluation and testing required for management to make this assessment. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the Act is a provision that permanently exempts smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002. For our fiscal year ending December 31, 2010, we currently expect to be exempt from such requirement.








24





PART II - OTHER INFORMATION





Item 1.      Legal Proceedings.





On July 13, 2010, the Company was named in a lawsuit captioned ArrivalStar S.A. and Melvino Technologies Limited v. EarthSearch Communications International, Inc.. U.S. District Court, Northern District of Illinois, 1:10-CV-04349.  The lawsuit alleges that EarthSearch had infringed on various patents.  On September 1, 2010, both parties agreed to a Settlement, Release and License Agreement which provides numerous domestic and international patents usable by EarthSearch for minimal fees.





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





Item 1A.   Risk Factors.





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





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





During the quarter ended September 30, 2010, the Company issued the following securities for cash.  Proceeds received are generally used for selling, general and administrative activities.





On July 16, 2010, the Company issued 500,000 shares of common stock for $19,975 ($0.04 per share).





On July 26, 2010, the Company issued 1,645,000 shares of common stock to eight shareholders aggregate of $129,250 ($0.079 per share).





On August 5, 2010, the Company issued 1,000,000 shares of common stock for $40,000 ($0.04 per share).





On August 17, 2010, the Company issued 650,000 shares of common stock for $6,500 ($0.01 per share).





On August 30, 2010, the Company issued 1,000,000 shares of common stock for $10,000 ($0.01 per share).





On August 31, 2010, the Company issued 1,000,000 shares of common stock for $10,000 ($0.01 per share).





On September 7, 2010, the Company issued 350,000 shares of common stock for $5,000 ($0.014 per share).





On September 8, 2010, the Company issued 384,615 shares of common stock for $5,000 ($0.013 per share).





On September 9, 2010, the Company issued 769,231 shares of common stock for $10,000 ($0.013 per share).





On September 21, 2010, the Company issued 1,000,000 shares of common stock for $10,000 ($0.01 per share).





During the quarter ended September 30, 2010, the Company issued the following securities for conversions of notes payable and for services:





On July 9, 2010, the Company issued 500,000 shares of its common stock in conversion of $25,000 of notes payable.





25


On August 3, 2010, the Company issued 200,000 shares of its common stock for services.





On August 5, 2010, the Company issued 500,000 shares of its common stock for services.





On September 27, 2010, the Company issued 1,500,000 shares of its common stock for services.





Item 3.      Defaults Upon Senior Securities.





None.





Item 4.       (Removed & Reserved)








Item 5.      Other Information.





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.





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
Share Exchange Agreement between East Coast Diversified Corporation and EarthSearch Communications International, Inc. dated January 12, 2010. (1)Exhibit 2.4
Certificate of Amendment to the Certificate of Incorporation. (1)Exhibit 2.5
Private Stock Purchase Agreement dated April 6, 2010 between Energy Partners, LLC and Messrs. Aaron Goldstein and Frank Rovito. (1)Exhibit 2.6
Resolutions of Board of Directors of East Coast Diversified Corporation dated April 12, 2010. (1)Exhibit 2.7
Resignation of Aaron Goldstein dated April 2, 2010. (1)Exhibit 2.8
Consent of Registered Independent Auditors dated April 8, 2010. (1)Exhibit 10.1
Settlement, Release and License Agreement between EarthSearch Communications International, Inc., Melvino Technologies Limited, and ArrivalStar S.A. dated September 1, 2010. (2)Exhibit 10.2
License Agreement between East Coast Diversified Corporation and BBGN&A LLC dated September 17, 2010. (2)Exhibit 10.3
East Coast Diversified Corporation 2010 Incentive Stock Plan. (3)Exhibit 99.1
Audited Financial Statements of EarthSearch Communications International, Inc. for the Years Ended December 31, 2009 and 2008. (1)Exhibit 99.2
Unaudited Financial Statements of EarthSearch Communications International, Inc. for the Three Months Ended March 31, 2010 and 2009. (2)Exhibit 99.3
East Coast Diversified Corporation proforma combined financial statements for the three months ended March 31, 2010. (2)Exhibit 31.1
Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002. (4)Exhibit 32.1
Certifications pursuant to Section 906 of 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 8-K/A filed with the Securities and Exchange Commission on September 21, 2010.(3)
Incorporated by reference from Company’s Form S-8 filed with the Securities and Exchange Commission on September 27, 2010.(4)
Filed herewith.




26





SIGNATURES





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





EAST COAST DIVERSIFIED CORPORATIONNovember 22, 2010
By:
/s/ Kayode AladesuyiKayode AladesuyiChairman, CEO