UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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



For the quarterly period ended:June
30, 2012



or



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



For the transition period from                 to



Commission File Number: 000-50356



EAST COAST DIVERSIFIED CORPORATION

(Exact Name of registrant as specified in
its charter)



|Nevada                          | 55-0840109            
|------------------------------- | ----------------------
|(State or other Jurisdiction of | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)



810 Franklin Court, Suite H

Marietta, Georgia 30067

(Address of principal executive offices)



(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 registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.    YesTNo£



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).    YesTNo£



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



|£ | Large Accelerated Filer | £ | Accelerated Filer        
|- | ----------------------- | - | -------------------------
|  |                         |   |                          
|£ | Non-Accelerated Filer   | S | Smaller Reporting Company



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes£NoT



As of August 10, 2012, there were 984,772,657 shares outstanding
of the registrant’s common stock.
















TABLE OF CONTENTS



|PART I – FINANCIAL INFORMATION | Page                                                                                 
|------------------------------ | -------------------------------------------------------------------------------------
|                               |                                                                                      
|Item 1.                        | Financial Statements                                                                 
|                               |                                                                                      
|Item 2.                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|                               |                                                                                      
|Item 3                         | Quantitative and Qualitative Disclosures About Market Risk                           
|                               |                                                                                      
|Item 4.                        | Controls and Procedures                                                              
|                               |                                                                                      
|PART II – OTHER INFORMATION    |                                                                                      
|                               |                                                                                      
|Item 1.                        | Legal Proceedings                                                                    
|                               |                                                                                      
|Item 1.A.                      | Risk Factors                                                                         
|                               |                                                                                      
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                          
|                               |                                                                                      
|Item 3.                        | Defaults Upon Senior Securities                                                      
|                               |                                                                                      
|Item 4.                        | Mine Safety Disclosures                                                              
|                               |                                                                                      
|Item 5.                        | Other Information                                                                    
|                               |                                                                                      
|Item 6.                        | Exhibits                                                                             
|                               |                                                                                      
|SIGNATURES                     | 31                                                                                   





2







PART I – FINANCIAL INFORMATION



Item 1. Financial Statements



East Coast Diversified Corporation and
Subsidiaries

Consolidated Balance Sheets



|                                                |  | June 30, 2012 |           |  | December 31, 2011 |  
|----------------------------------------------- |  | ------------- | --------- |  | ----------------- | -
|                                                |  | (unaudited)   |           |  |                   |  
|ASSETS                                          | 
|                                                |  |               |           |  |                   |  
|Current assets                                  |  |               |           |  |                   |  
|Cash                                            |  | $             | 37,363    |  |                   | $
|Accounts receivable, net                        |  |               | 710,407   |  |                   |  
|Inventory                                       |  |               | 139,334   |  |                   |  
|Prepaid license fees                            |  |               | 50,000    |  |                   |  
|Prepaid expenses                                |  |               | 1,000     |  |                   |  
|Total current assets                            |  |               | 938,104   |  |                   |  
|                                                |  |               |           |  |                   |  
|Property and equipment, net                     |  |               | 19,155    |  |                   |  
|                                                |  |               |           |  |                   |  
|Other assets                                    |  |               |           |  |                   |  
|Capitalized research and development costs, net |  |               | –         |  |                   |  
|Intangible assets, net                          |  |               | 663,000   |  |                   |  
|Goodwill                                        |  |               | 742,107   |  |                   |  
|Prepaid license fees                            |  |               | 112,500   |  |                   |  
|Escrow deposits                                 |  |               | 3,855     |  |                   |  
|Security deposits                               |  |               | 20,000    |  |                   |  
|Total other assets                              |  |               | 1,541,462 |  |                   |  
|                                                |  |               |           |  |                   |  
|Total assets                                    |  | $             | 2,498,721 |  |                   | $



See accompanying notes to consolidated financial
statements.









3







East Coast Diversified Corporation and
Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                                                                      |  | June 30,
2012 |             |   | December 31,
2011 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                                                                      |  | (unaudited)   |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                 | 
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Current liabilities                                                                                                                                                                                                   |  |               |             |   |                   |  
|Bank overdraft                                                                                                                                                                                                        |  | $             | 4,794       |   |                   | $
|Loans payable, current                                                                                                                                                                                                |  |               | 274,410     |   |                   |  
|Loans payable - related party, current                                                                                                                                                                                |  |               | 607,187     |   |                   |  
|Accounts payable and accrued expenses                                                                                                                                                                                 |  |               | 520,257     |   |                   |  
|Accrued payroll and related liabilities                                                                                                                                                                               |  |               | 1,732,036   |   |                   |  
|Total current liabilities                                                                                                                                                                                             |  |               | 3,138,684   |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Other liabilities                                                                                                                                                                                                     |  |               |             |   |                   |  
|Loans payable, non-current                                                                                                                                                                                            |  |               | 17,545      |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Total liabilities                                                                                                                                                                                                     |  |               | 3,156,229   |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Commitments and contingencies:                                                                                                                                                                                        |  |               |             |   |                   |  
|Contingent acquisition liabilities                                                                                                                                                                                    |  |               | 1,104,973   |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Amounts payable in common stock                                                                                                                                                                                       |  |               | 709,122     |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Derivative liability                                                                                                                                                                                                  |  |               | 381,835     |   |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Stockholders' deficit                                                                                                                                                                                                 |  |               |             |   |                   |  
|Preferred stock, $0.001 par value, 50,000,000 and 20,000,000 shares authorized Series A preferred stock, 23,183,595 and 10,513,813 shares issued and outstanding at June 30, 3012 and December 31, 2011, respectively |  |               | 23,184      |   |                   |  
|Series B preferred stock, 1,500 and nil shares issued and outstanding at June 30, 3012 and December 31, 2011, respectively                                                                                            |  |               | 2           |   |                   |  
|Common stock, $0.001 par value, 2,000,000,000 and 480,000,000 shares authorized, 661,484,567 and 289,895,481 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively                       |  |               | 661,484     |   |                   |  
|Additional paid-in capital                                                                                                                                                                                            |  |               | 13,429,367  |   |                   |  
|Preferred stock subscriptions receivable                                                                                                                                                                              |  |               | (1,384,998  | ) |                   |  
|Accumulated deficit                                                                                                                                                                                                   |  |               | (15,273,499 | ) |                   |  
|Total East Coast Diversified stockholders' deficit                                                                                                                                                                    |  |               | (2,544,460  | ) |                   |  
|Noncontrolling interest                                                                                                                                                                                               |  |               | (308,978    | ) |                   |  
|Total stockholders' deficit                                                                                                                                                                                           |  |               | (2,853,438  | ) |                   |  
|                                                                                                                                                                                                                      |  |               |             |   |                   |  
|Total liabilities and stockholders' deficit                                                                                                                                                                           |  | $             | 2,498,721   |   |                   | $



See accompanying notes to consolidated financial
statements



4







East Coast Diversified Corporation and
Subsidiaries

Consolidated Statements of Operations

(unaudited)



|                                                                                   |  | For the Three Months Ended |             |   | For the Six Months Ended |  
|---------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------ | -
|                                                                                   |  | June 30, 2012              |             |   | June 30, 2011            |  
|Revenues:                                                                          |  |                            |             |   |                          |  
|Product sales                                                                      |  | $                          | 313,744     |   |                          | $
|Consulting and development                                                         |  |                            | 119,110     |   |                          |  
|User fees                                                                          |  |                            | 18,346      |   |                          |  
|Total revenues                                                                     |  |                            | 451,200     |   |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Operating Expenses                                                                 |  |                            |             |   |                          |  
|Cost of revenues:                                                                  |  |                            |             |   |                          |  
|Product sales                                                                      |  |                            | 211,267     |   |                          |  
|Consulting and development                                                         |  |                            | 67,637      |   |                          |  
|User fees                                                                          |  |                            | 21,843      |   |                          |  
|Selling, general and administative expense                                         |  |                            | 1,018,985   |   |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Total operating expenses                                                           |  |                            | 1,319,732   |   |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Loss from operations                                                               |  |                            | (868,532    | ) |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Other income (expense)                                                             |  |                            |             |   |                          |  
|Other income                                                                       |  |                            | 25          |   |                          |  
|Interest expense                                                                   |  |                            | (193,064    | ) |                          |  
|Gain on settlement of debt                                                         |  |                            | 141,141     |   |                          |  
|Loss on conversion of debt                                                         |  |                            | (575,263    | ) |                          |  
|Change in derivative liability                                                     |  |                            | (10,809     | ) |                          |  
|Total other income (expense)                                                       |  |                            | (637,970    | ) |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Net loss                                                                           |  |                            | (1,506,502  | ) |                          |  
|Net loss attributable to noncontrolling interests                                  |  |                            | 35,583      |   |                          |  
|                                                                                   |  |                            |             |   |                          |  
|Net loss attributable to East Coast DiversifiedCorporation                         |  | $                          | (1,470,919  | ) |                          | $
|                                                                                   |  |                            |             |   |                          |  
|Net loss per share - basic and diluted                                             |  | $                          | (0.00       | ) |                          | $
|                                                                                   |  |                            |             |   |                          |  
|Weighted average number of shares outstanding during the period -basic and diluted |  |                            | 626,749,544 |   |                          |  



See accompanying notes to consolidated financial
statements.







5







East Coast Diversified Corporation and
Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)



|                                                                                    |  | For the Six Months Ended |           
|----------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                    |  | June 30, 2012            |           
|Cash flows from operating activities:                                               |  |                          |           
|Net loss                                                                            |  | $                        | (2,210,904
|Adjustments to reconcile net loss to net cash used in operations:                   |  |                          |           
|Noncontrolling interests                                                            |  |                          | (50,172   
|Depreciation and amortization                                                       |  |                          | 90,132    
|Provision for doubtful accounts                                                     |  |                          | 186,669   
|Issuance of loan payable for consulting services                                    |  |                          | 60,000    
|Stock issued for services                                                           |  |                          | 125,205   
|Amortization of prepaid license fee                                                 |  |                          | 25,000    
|Amortization of payment redemption premium as interest                              |  |                          | 12,076    
|Gain on recovery of redemption premiums                                             |  |                          | (17,625   
|Gain on settlement of loans payable                                                 |  |                          | (38,646   
|Gain on settlement of accounts payable                                              |  |                          | (102,495  
|Loss on conversion of debt                                                          |  |                          | 575,263   
|Change in derivative liability                                                      |  |                          | 10,809    
|Accretion of beneficial conversion feature on convertible notes payable as interest |  |                          | 466,611   
|Accretion of stock discounts to convertible notes payable as interest               |  |                          | 2,160     
|Interest accrued on loans payable                                                   |  |                          | 40,280    
|Changes in operating assets and liabilities:                                        |  |                          |           
|Accounts receivable, net                                                            |  |                          | (624,045  
|Inventory                                                                           |  |                          | (105,811  
|Security deposits                                                                   |  |                          | (15,479   
|Escrow deposits                                                                     |  |                          | (393      
|Bank overdraft                                                                      |  |                          | (11,881   
|Accounts payable and accrued expenses                                               |  |                          | 728,108   
|Accrued payroll and related liabilities                                             |  |                          | 76,954    
|Net cash used in operating activities                                               |  |                          | (778,184  
|                                                                                    |  |                          |           
|Cash flows from investing activities:                                               |  |                          |           
|Capital expenditures                                                                |  |                          | (700      
|Net cash from investing activities                                                  |  |                          | (700      
|                                                                                    |  |                          |           
|Cash flows from financing activities:                                               |  |                          |           
|Proceeds from issuance of common stock                                              |  |                          | 1,000     
|Proceeds from issuance of preferred stock                                           |  |                          | 113,400   
|Proceeds from preferred stock subscription                                          |  |                          | 115,002   
|Proceeds from loans payable                                                         |  |                          | 486,926   
|Proceeds from loans payable - related party                                         |  |                          | 56,500    
|Repayments of loans payable                                                         |  |                          | (10,100   
|Repayments of loans payable - related party                                         |  |                          | –         
|Net cash from financing activities                                                  |  |                          | 762,728   
|                                                                                    |  |                          |           
|Net increase (decrease) in cash                                                     |  |                          | (16,156   
|                                                                                    |  |                          |           
|Cash at beginning of period                                                         |  |                          | 53,519    
|                                                                                    |  |                          |           
|Cash at end of period                                                               |  | $                        | 37,363    



See accompanying notes to consolidated financial
statements.

Continued



6







East Coast Diversified Corporation and
Subsidiaries

Consolidated Statements of Cash Flows
(Continued)

(unaudited)





|                                                                                                                                        |  | For the Six Months Ended |          
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------
|                                                                                                                                        |  | June 30, 2012            |          
|Supplemental disclosure of cash flow information:                                                                                       |  |                          |          
|Cash paid for interest                                                                                                                  |  | $                        | 354      
|                                                                                                                                        |  |                          |          
|Cash paid for taxes                                                                                                                     |  | $                        | –        
|                                                                                                                                        |  |                          |          
|Non-cash investing and financing activities:                                                                                            |  |                          |          
|                                                                                                                                        |  |                          |          
|Issuance of 334,850,199 and 7,000,000 shares of common stock in conversion of loans payable                                             |  | $                        | 503,836  
|                                                                                                                                        |  |                          |          
|Issuance of 4,055,556 shares of common stock in conversion of loans payable - related party, resepctively                               |  | $                        | –        
|                                                                                                                                        |  |                          |          
|Issuance of 1,000,000 shares of series A preferred stock in conversion of loans payable                                                 |  | $                        | 57,000   
|                                                                                                                                        |  |                          |          
|Issuance of 2,592,898 shares of series A preferred stock in conversion of loans payable - related party                                 |  | $                        | 87,500   
|                                                                                                                                        |  |                          |          
|Payment redemption premiums on convertible notes payable                                                                                |  | $                        | 10,000   
|                                                                                                                                        |  |                          |          
|Loans and accounts payable converted to Amounts payable in common stock                                                                 |  | $                        | 1,068,345
|                                                                                                                                        |  |                          |          
|Issuance of 109,500,000 shares of common stock in settlement of loans and accounts payable converted to Amounts payable in common stock |  | $                        | 563,460  
|                                                                                                                                        |  |                          |          
|Issuance of 4,324,515 shares of Series A preferred stock to related parties in conversion of 86,490,344 shares of common stock          |  | $                        | 86,490   
|                                                                                                                                        |  |                          |          
|Issuance of 372,000 shares of Series A preferred stock to third parties in conversion of 7,440,000 shares of common stock               |  | $                        | 7,440    
|                                                                                                                                        |  |                          |          
|Issuance of 1,500,000 shares of series B preferred stock under stock subscription                                                       |  | $                        | 1,500,000
|                                                                                                                                        |  |                          |          
|Beneficial conversion feature of convertible notes payable                                                                              |  | $                        | 606,669  
|                                                                                                                                        |  |                          |          
|Discount for stock issued in connection with issuance of note payable                                                                   |  | $                        | 2,160    
|                                                                                                                                        |  |                          |          
|Issuance of 357,143 shares of common stock in conversion of accounts payable                                                            |  | $                        | –        
|                                                                                                                                        |  |                          |          
|Issuance of 7,500,000 and 32,857,143 shares of common stock in conversion of accrued salaries                                           |  | $                        | 22,500   
|                                                                                                                                        |  |                          |          
|Issuance of 408,164 shares of series A preferred stock in conversion of accrued salaries                                                |  | $                        | 40,000   







See accompanying notes to consolidated financial
statements.





7







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



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



Organization



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



On December 18, 2009, East Coast Diversified
Corporation's (“ECDC” or the “Company”) former principal stockholders, Frank Rovito, Aaron Goldstein and
Green Energy Partners, LLC (collectively the “Sellers”), entered into a Securities Purchase Agreement (the "Purchase
Agreement") with Kayode Aladesuyi (the “Buyer”), pursuant to which the Sellers beneficial owners of an aggregate
of 6,997,150 shares of the Company's common stock (the “Sellers' Shares”), agreed to sell and transfer the Sellers'
Shares to the Buyer for an aggregate of Three Hundred Thousand Dollars ($300,000.00). The Purchase Agreement also provided that
the Company would enter into a share exchange agreement with EarthSearch.



On January 15, 2010, the Company entered
into a share exchange agreement (the “Share Exchange Agreement”) with EarthSearch, pursuant to which the Company agreed
to issue 35,000,000 shares of the Company's restricted common stock to the shareholders of EarthSearch. On April 2, 2010, EarthSearch
consummated all obligations under the Share Exchange Agreement. In accordance with the terms and provisions of the Share Exchange
Agreement, the Company acquired 93.49% of the issued and outstanding common stock of EarthSearch. As a result of the Purchase Agreement
and Share Exchange Agreement, our principal business became the business of EarthSearch. The Board of Directors of the Company
(the “Board”) passed a resolution electing the new members of the Board and appointing new management of the Company
and effectively resigning as their last order of business.



The Share Exchange was accounted for us
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.



On December 31, 2011, the Company acquired
1,800,000 additional shares of EarthSearch from a non-controlling shareholder in exchange for 439,024 shares of the Company's common
stock. As of December 31, 2011, the Company owns 94.66% of the issued and outstanding stock of EarthSearch.



On October 23, 2011, the Company entered
into a Share Exchange Agreement (the “Share Exchange Agreement”) with Rogue Paper, Inc., a California corporation (“Rogue
Paper”), and shareholders of Rogue Paper (the “Rogue Paper Holders”). Rogue Paper is headquartered in San Francisco,
California and is a developer of mobile and branded applications for major media enterprises. The Company acquired fifty-one percent
(51%) of the issued and outstanding common stock of Rogue Paper in exchange for 2,500,000 shares of the Company’s Series
A convertible preferred stock (the “Series A Preferred”).



Pursuant to the Share Exchange Agreement,
no sooner than twelve months from the Effective Date, the Series A Preferred shares shall be convertible, at the option of the
holder of such shares, into an aggregate of fifty million shares of the Company’s common stock, par value $0.001 per share.
Beginning sixth months from the Effective Date, both the Company and holders of the Series A Preferred shares shall have the option
to redeem any portion of such holders’ Series A Preferred shares, for cash, at a price of sixty cents ($0.60) per share.
Additionally, commencing twenty-four (24) months from the Effective Date, the holders of the remaining, unsold shares of Rogue
Paper common stock may require the Company to redeem such shares, for cash, at a price of three cents ($0.03) per share.



On January, 12, 2012, StudentConnect Inc.,
a Georgia corporation, was formed as a subsidiary of the Company.



On July, 4, 2012, WetWinds Inc., a Georgia
corporation, was formed as a subsidiary of the Company.



8







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



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



Nature of Operations



The Company has created an 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
(“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim
financial information.  Accordingly, they do not include all of the information and footnotes required in annual financial
statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. All intercompany
transactions and accounts have been eliminated in consolidation. The results of operations presented are not necessarily indicative
of the results to be expected for any other interim period or for the entire year.



These unaudited consolidated financial
statements should be read in conjunction with our 2011 annual consolidated financial statements included in our annual report on
Form 10-K/A, filed with the SEC on May 4, 2012.



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 $15,273,499 at June 30, 2012, a net loss and net cash used in operations of $2,210,904
and $778,184, respectively, for the six months ended June 31, 2012.  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 will afford the Company the opportunity
to continue as a going concern.



9







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



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



Concentration of Credit Risk



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. As of June 30, 2012, five customers account for 70% of the total accounts receivable
compared to three customers accounting for 77% at December 31, 2011.



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 $186,669 and $nil for the six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December
31, 2011, the allowance for doubtful accounts was $186,669 and $nil, 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.



Note 2 – Loans Payable



Loans payable at June 30, 2012 and December 31, 2011 consist
of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | June 30, 2012 |   |  | December 31, 2011 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | - |  | ----------------- | -
|Loans Payable, Current:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |               |   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               |   |  |                   |  
|Unsecured $450,000 note payable to Azfar Haque, which bears interest at 9% per annum and was originally due June 15, 2008. At December 31, 2011 the note was in default.  On September 19, 2011, $25,000 of this note was transferred to an investor and was converted to common stock.  During the year ended December 31, 2011, $227,250 of this note was converted to common stock.  During the six months ended June 30, 2012, the remaining $372,655 plus $3,595 of additional accrued interest was purchased by multiple investors.  Accrued interest is equal to $ nil and $174,905 respectively. |  | $             | – |  |                   | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               |   |  |                   |  
|Unsecured $80,000 note payable to Rainmaker Global, Inc. which bears interest at 30% per annum and was originally due December 31, 2009. At December 31, 2011 the note was in default.  During the six months ended June 30, 2012, $102,000 of this note was purchased by Ironridge Global IV, Ltd.  Pursuant to the purchase agreement, Rainmaker Global agreed to settle the entire amount due for the purchase price of $102,000, creating a gain on the settlement of $38,125. Accrued interest is equal to $nil and $54,125 respectively.                                                           |  |               | – |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               |   |  |                   |  
|$20,000 convertible note payable to Leonard Marella, which bears interest at 10% per annum and was originally due October 1, 2009.  At December 31, 2011 the note was in default.  During the six months ended June 30, 2012, $24,862 of this note was purchased by Ironridge Global IV, Ltd.  Pursuant to the purchase agreement, Mr. Marella agreed to settle the entire amount due for the purchase price of $24,862, creating a gain on the settlement of $521. Accrued interest is equal to $nil and $4,883, respectively.                                                                          |  |               | – |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               |   |  |                   |  



10







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | June 30, 2012 |        |  | December 31, 2011 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------ |  | ----------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to Syed Ahmed.  During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd.                                                                                                                                                                                                                                                           |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to Alina Farooq.  During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd.                                                                                                                                                                                                                                                         |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to William Johnson.  The note holder loaned the Company an additional $5,100 and the entire note of $12,000 was converted to preferred stock during the six months ended June 30, 2012.                                                                                                                                                                                  |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to Robert Saidel.  The note holder loaned the Company  an additional $1,976 during the six months ended June 30, 2012.  During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd.                                                                                                                                                   |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to Michael Johnstone.  The note was repaid during the six months ended June 30, 2012.                                                                                                                                                                                                                                                                                    |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured non-interest bearing note payable, due on demand, to Michael Carbone, Sr.   The note was converted to preferred stock during the six months ended June 30, 2012.                                                                                                                                                                                                                                                           |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured $25,000 convertible note payable to Mindshare Holdings, Inc., which bears interest at 8% per annum and due January 5, 2012.  The note includes a redemption premium of $7,500 and is discounted for its unamortized beneficial conversion feature of $289 at December 31, 2011.  During the six months ended June 30, 2012, the note balance of $25,000, plus $1,000 of accrued interest, was converted to common stock.   |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured $25,000 convertible note payable to Southridge Partners II LP, which bears interest at 8% per annum and due January 5, 2012.  The note includes a redemption premium of $7,500 and is discounted for its unamortized beneficial conversion feature of $367 at December 31, 2011.  During the six months ended June 30, 2012, the note balance of $25,000, plus $1,249 of accrued interest, was converted to common stock.  |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured $17,500 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due February 1, 2012.  The note includes a redemption premium of $2,625 and is discounted for its unamortized beneficial conversion feature of $1,885 at December 31, 2011.  During the six months ended June 30, 2012, the note balance of $17,500, plus $439 of accrued interest, was converted to common stock. |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured $9,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due June 30, 2012.  This note is currently in default.  The note includes a redemption premium of $1,350 and is discounted for its unamortized beneficial conversion feature of $nil and $7,337 as of June 30, 2012 and December 31, 2011, respectively.  Accrued interest is equal to $265 and $nil, respectively. |  |               | 10,615 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               |        |  |                   | 
|Unsecured $16,290 convertible note payable to First Trust Management, which bears interest at 7% per annum and due September 25, 2012.  During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd. The note is discounted for its unamortized beneficial conversion feature of $nil and $6,247 as of June 30, 2012 and December 31, 2011, respectively.                                          |  |               | –      |  |                   | 



11







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | June 30, 2012 |        |  | December 31, 2011 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------ |  | ----------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On November 2, 2011, the Company received $32,500, which is due May 28, 2012.  The note is currently in default.  The draw on the note is discounted for its unamortized beneficial conversion feature of $nil and $12,147 as of June 30, 2012 and December 31, 2011, respectively.  Accrued interest is equal to $1,716 and $nil, respectively.                                                                                                         |  |               | 34,216 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On November 18, 2011, the Company received $11,950, which is due May 28, 2012. The note is currently is default. The draw on the note is discounted for its unamortized beneficial conversion feature of $nil and $4,738 as of June 30, 2012 and December 31, 2011, respectively.  Accrued interest is equal to $589 and $nil, respectively.                                                                                                             |  |               | 12,539 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On December 5, 2011, the Company received $7,960, which is due June 5, 2012. The note is currently in default. The draw on the note is discounted for its unamortized beneficial conversion feature of $nil and $3,816 as of June 30, 2012 and December 31, 2011, respectively.  Accrued interest is equal to $363 and $nil, respectively.                                                                                                               |  |               | 8,323  |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On December 15, 2011, the Company received $9,950, which is due June 15, 2012. The note is currently in default. The draw on the note is discounted for its unamortized beneficial conversion feature of $nil and $4,544 as of June 30, 2012 and December 31, 2011, respectively.  Accrued interest is equal to $431 and $nil, respectively.                                                                                                             |  |               | 10,381 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On January 2, 2012, the Company received $164,150, which is due September 30, 2012.  $2,000 was paid on the note during the six months ended June 30, 2012.  During the six months ended June 30, 2012, $40,000 of the note was converted to series A preferred stock and $62,450 was converted to common stock. The draw on the note is discounted for its unamortized beneficial conversion feature of $22,556 .  Accrued interest is equal to $4,016. |  |               | 41,160 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|Unsecured $40,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due June 30, 2012.  The note is currently in default. The note includes a redemption premium of $8,000 and is discounted for its unamortized beneficial conversion feature of $nil at June 30, 2012.  Accrued interest is equal to $981.                                                                                                                                                                                                                                                                                 |  |               | 48,981 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due October 5, 2012.  The note is discounted for its unamortized beneficial conversion feature of $7,615 at June 30, 2012.  Accrued interest is equal to $1,275.                                                                                                                                                                                                                                                                                                                                                           |  |               | 26,160 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               |        |  |                   | 
|Unsecured $60,000 note payable to Street Capital, Inc., which bears no interest and due July 5, 2012.  During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd.  The Company issued 600,000 shares of common stock to Street capital as an incentive to provide the loan.  The note is discounted for its unamortized fair value of the common stock of $nil at June 30, 2012.                                                                                                                                                                                                                       |  |               | –      |  |                   | 

















12









East Cost Diversified Corporation
and Subsidiaries

Notes to Consolidated Financial
Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | June 30, 2012 |        |  | December 31, 2011 | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ |  | ----------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $10,000 convertible note payable to Southridge Partners II LP, which bears interest at 5% per annum and due June 30, 2012. The note is currently in default. The note includes a redemption premium of $2,000 and is discounted for its unamortized beneficial conversion feature of $nil at June 30, 2012.  Accrued interest is equal to $226.                                                                                                                                                               |  |               | 12,226 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $37,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due November 16 2012.  The note is discounted for its unamortized beneficial conversion feature of $16,997 at June 30, 2012.  Accrued interest is equal to $1,126.                                                                                                                                                                                                                                      |  |               | 21,629 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $30,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 17 2012.  The note is discounted for its unamortized beneficial conversion feature of $13,457 at June 30, 2012.  Accrued interest is equal to $1,322.                                                                                                                                                                                                                                      |  |               | 17,865 |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|On February 17, 2012, Panache Capital, LLC entered into an agreement to purchase $50,000 of the note payable to Azfar Haque.  The Company exchange the original note to Mr. Haque with a new note to Pananche which bears interest at 10% per annum and due February 17, 2013.  During the six months ended June 30, 2012, $44,348 of the note was converted to common stock.  The note is discounted for its unamortized beneficial conversion feature of $4,519 at June 30, 2012.  Accrued interest is equal to $474. |  |               | 1,607  |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|In February 2012, Magna Group, LLC entered into two agreements to purchase a total of $275,000 of the note payable to Azfar Haque.  The Company exchanged the original note to Mr. Haque with new notes to Magna which bear interest at 12% per annum and due February 24, 2013.  During the six months ended June 30, 2012, the entire note balance, including accrued interest of $600, totaling $275,600 was converted to common stock.                                                                              |  |               | –      |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $16,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due May 3, 2013.  The note is discounted for its unamortized beneficial conversion feature of $13,457 at June 30, 2012.  Accrued interest is equal to $305.                                                                                                                                                                                                                                            |  |               | 2,848  |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $10,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 3, 2013.  The note is discounted for its unamortized beneficial conversion feature of $8,162 at June 30, 2012.  Accrued interest is equal to $148.                                                                                                                                                                                                                                         |  |               | 1,986  |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $3,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due January 21, 2013.  The note is discounted for its unamortized beneficial conversion feature of $2,509 at June 30, 2012.  Accrued interest is equal to $39.                                                                                                                                                                                                                                          |  |               | 530    |  |                   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               |        |  |                   | 
|Unsecured $12,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due February 5, 2013.  The note is discounted for its unamortized beneficial conversion feature of $10,775 at June 30, 2012.  Accrued interest is equal to $99.                                                                                                                                                                                                                                        |  |               | 1,324  |  |                   | 



13







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                      |  | June 30, 2012 |         |  | December 31, 2011 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- |  | ----------------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|Unsecured $32,500 convertible note payable to Asher Enterprises, Inc., which bears interest at 8% per annum and due February 25, 2012.  The note is discounted for its unamortized beneficial conversion feature of $20,674 at June 30, 2012.  Accrued interest is equal to $271.                                                                                                                                     |  |               | 12,097  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On May 10, 2012, the Company received $3,200, which is due September 30, 2012. The draw on the note is discounted for its unamortized beneficial conversion feature of $910 at June 30, 2012.  Accrued interest is equal to $22.    |  |               | 2,312   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On June 7, 2012, the Company received $2,500, which is due September 30, 2012. The draw on the note is discounted for its unamortized beneficial conversion feature of $889 at June 30, 2012.  Accrued interest is equal to $8.     |  |               | 1,619   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|On November 2, 2011, the Company entered into a Unsecured Convertible Promissory Note Agreement with Bulldog Insurance for up to $250,000, which bears interest at 8% per annum.  On June 12, 2012, the Company received $9,500, which is due September 30, 2012. The draw on the note is discounted for its unamortized beneficial conversion feature of $3,531 at June 30, 2012.  Accrued interest is equal to $23. |  |               | 5,992   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|Subtotal, Loans Payable, Current                                                                                                                                                                                                                                                                                                                                                                                      |  |               | 274,410 |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|Loans Payable, Non-current:                                                                                                                                                                                                                                                                                                                                                                                           |  |               |         |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|Unsecured $70,000 convertible note payable to Hanover Holdings I, LLC, which bears interest at 12% per annum and due October 24 2013.  The note is discounted for its unamortized beneficial conversion feature of $55,377 at June 30, 2012.  Accrued interest is equal to $2,922.                                                                                                                                    |  |               | 17,545  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  |               |         |  |                   |  
|Total Loans Payable                                                                                                                                                                                                                                                                                                                                                                                                   |  | $             | 291,955 |  |                   | $



The Company accrued interest expense of
$32,391 and $95,583 for the six months ended June 30, 2012 and the year ended December 31, 2011, respectively, on the above loans.  Accrued
interest is included in the loan balances.



The Company borrowed $486,926 and $244,755
during the six months ended June 30, 2012 and the year ended December 31, 2011, respectively. The Company made payments of $10,100
and $2,500 on the loans during the six months ended June 30, 2012 and the year ended December 31, 2011. During the six months
ended June 30, 2012, the Company converted $503,836 of loans payable into 334,850,199 shares of the Company’s common stock
and $57,000 of loans payable into 1,000,000 shares of the Company’s Series A Preferred. During the year ended December 31,
2011, the Company converted $394,619 of loans payable into 14,748,313 shares of the Company’s common stock.



14







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued under the agreement bear interest
at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price of the average
closing prices of the previous 3 closing days prior to the conversion date. $164,150 was drawn against the note on January 2, 2012
and $2,000 was repaid during the six months ended June 30, 2012. The draw is due September 30, 2012 and is discounted by the value
of its beneficial conversion feature of $66,686, of which, $44,130 has been accreted as interest expense for the six months ended
June 30, 2012. Interest of $4,016 has been accrued for the six months ended June 30, 2012. During the six months ended June 30,
2012, $62,450 of the note has been converted into 36,248,424 shares of the Company’s common stock and $40,000 of the note
has been converted into 800,000 shares of Series A Preferred. The outstanding balance of the loan, net of discounts, at June 30,
2012 is $119,279.



On January 3, 2012, the Company issued
a $40,000 unsecured convertible promissory note to Southridge Partners II LP. The note bears interest at 5% per annum, is due June
30, 2012, and is convertible at a 50% discount to the average of the two low closing bid prices during the five day period prior
to the conversion date. The note includes a redemption premium of $8,000 which is being amortized as interest expense over the
term of the loan. The note is discounted by the value of its beneficial conversion feature of $38,261, which has been fully accreted
as interest expense during the six months ended June 30, 2012. Interest of $981 has been accrued for the six months ended June
30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $48,981.



On January 3, 2012, the Company issued
a $32,500 unsecured convertible promissory note to Asher Enterprises, Inc. The note bears interest at 8% per annum, is due October
5, 2012, and is convertible at a 40% discount to the average of the three low trading prices during the ten day period prior to
the conversion date. The note is discounted by the value of its beneficial conversion feature of $21,667, of which, $14,052 has
been accreted as interest expense for the six months ended June 30, 2012. Interest of $1,275 has been accrued for the six months
ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $26,160.



On January 5, 2012, the Company issued
a $60,000 unsecured convertible promissory note to Street Capital, Inc. for services to be rendered. The note bears no interest
and is due July 5, 2012. The Company issued 600,000 shares of common stock to Street capital as an incentive to provide the loan.
The note is discounted for the fair value of the common stock of $2,160, which has been fully accreted as interest expense during
the six months ended June 30, 2012. During the six months ended June 30, 2012, the note was purchased by Ironridge Global IV, Ltd.
(see Note 4).



On January 17, 2012, the Company issued
a $10,000 unsecured convertible promissory note to Southridge Partners II LP. The note bears interest at 5% per annum, is due June
30, 2012, and is convertible at a 50% discount to the average of the two low closing bid prices during the five day period prior
to the conversion date. The note includes a redemption premium of $2,000 which is being amortized as interest expense over the
term of the loan. The note is discounted by the value of its beneficial conversion feature of $9,167, which has been fully accreted
as interest expense during the six months ended June 30, 2012. Interest of $226 has been accrued for the six months ended June
30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $12,226.



On February 13, 2012, Azfar Haque transferred
$10,000 of the $450,000 note payable to him to SGI Group, LLC per a Securities Transfer Agreement between the two parties. The
Company exchanged the original note to Mr. Haque with a new note to SGI Capital, LLC which bears interest at 10% per annum and
due February 13, 2013. The note is discounted by the value of its beneficial conversion feature of $5,455, all of which has been
accreted as interest expense for the six months ended June 30, 2012. On February 16, 2012, the entire note of $10,000 was converted
to 9,103,332 shares of common stock.



On February 14, 2012, the Company issued
a $37,500 unsecured convertible promissory note to Asher Enterprises, Inc. The note bears interest at 8% per annum, is due November
16, 2012, and is convertible at a 50% discount to the average of the three low trading prices during the ten day period prior to
the conversion date. The note is discounted by the value of its beneficial conversion feature of $33,750, of which, $16,753 has
been accreted as interest expense for the six months ended June 30, 2012. Interest of $1,126 has been accrued for the six months
ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $21,629.



15







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



On February 16, 2012, Azfar Haque transferred
$41,250 of the $450,000 note payable to him to Southridge Partners II LP per a Securities Transfer Agreement between the two parties.
The Company exchanged the original note to Mr. Haque with a new note to Southridge Partners II LP which bears interest at 10% per
annum and due February 16, 2013. The note is discounted by the value of its beneficial conversion feature of $19,286, which has
been fully accreted as interest expense for the six months ended June 30, 2012. During the six months ended June 30, 2012, the
entire note of $41,250 was converted to 25,662,101 shares of common stock.



On February 17, 2012, the Company issued
a $30,000 unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due October
17, 2012, and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior
to the conversion date. The note is discounted by the value of its beneficial conversion feature of $29,999, of which, $16,542
has been accreted as interest expense for the six months ended June 30, 2012. Interest of $1.322 has been accrued for the six months
ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $17,865.



On February 17, 2012, Azfar Haque transferred
$50,000 of the $450,000 note payable to him to Panache Capital, LLC per a Securities Transfer Agreement between the two parties.
The Company exchanged the original note to Mr. Haque with a new note to Panache Capital, LLC which bears interest at 10% per annum
and due February 17, 2013. The note is discounted by the value of its beneficial conversion feature of $26,667, of which, $22,148
has been accreted as interest expense for the six months ended June 30, 2012. During the six months ended June 30, 2012, $44,348
of the note was converted to 39,342,949 shares of the Company’s common stock. Interest of $474 has been accrued for the six
months ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $1,607.



On February 17, 2012, Azfar Haque transferred
$75,000 of the $450,000 note payable to him to Magna Group, LLC per a Securities Transfer Agreement between the two parties. The
Company exchanged the original note to Mr. Haque with a new note to Magna Group, LLC which bears interest at 12% per annum and
due February 17, 2013. The note is discounted by the value of its beneficial conversion feature of $61,184, which has been fully
accreted as interest expense for the six months ended June 30, 2012. During the six months ended June 30, 2012, the entire note
of $75,000 was converted to 23,241,401 shares of common stock.



On February 24, 2012, Azfar Haque transferred
$50,000 of the $450,000 note payable to him to Magna Group, LLC per a Securities Transfer Agreement between the two parties. The
Company exchanged the original note to Mr. Haque with a new note Magna Group, LLC which bears interest at 12% per annum and due
February 24, 2013. The note is discounted by the value of its beneficial conversion feature of $150,000, which has been fully accreted
as interest expense during the six months ended June 30, 2012. During the six months ended June 30, 2012, the entire note balance
of $60,600, including accrued interest of $600, was converted to 147,537,153 shares of the Company’s common stock.



On February 24, 2012, the Company issued
a $70,000 unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due October
24, 2013, and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior
to the conversion date. The note is discounted by the value of its beneficial conversion feature of $69,999, of which, $14,622
has been accreted as interest expense for the six months ended June 30, 2012. Interest of $2,922 has been accrued for the six months
ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $17,545.



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $2,500 was drawn against the note on
April 2, 2012 and was fully repaid during the six months ended June 30, 2012. The draw is due September 30, 2012 and is discounted
by the value of its beneficial conversion feature of $972, which has been fully accreted as interest expense for the six months
ended June 30, 2012.



On May 3 2012, the Company issued a $16,000
unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due May 3, 2013,
and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior to the conversion
date. The note is discounted by the value of its beneficial conversion feature of $15,999, of which, $2,542 has been accreted as
interest expense for the six months ended June 30, 2012. Interest of $305 has been accrued for the six months ended June 30, 2012.
The outstanding balance of the loan, net of discounts, at June 30, 2012 is $2,848.



16







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $3,200 was drawn against the note on
May 10, 2012. The draw is due September 30, 2012 and is discounted by the value of its beneficial conversion feature of $1,414,
of which, $504 has been accreted as interest expense for the six months ended June 30, 2012. Interest of $22 has been accrued for
the six months ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $2,312.



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $3,000 was drawn against the note on
May 11, 2012 and was fully repaid during the six months ended June 30, 2012. The draw is due September 30, 2012 and is discounted
by the value of its beneficial conversion feature of $1,275, which has been fully accreted as interest expense for the six months
ended June 30, 2012.



On May 16, 2012, the Company issued a $10,000
unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due January 16,
2013, and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior to
the conversion date. The note is discounted by the value of its beneficial conversion feature of $9,999, of which, $1,837 has been
accreted as interest expense for the six months ended June 30, 2012. Interest of $148 has been accrued for the six months ended
June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $1,986.



On May 21, 2012, the Company issued a $3,000
unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due January 21,
2013, and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior to
the conversion date. The note is discounted by the value of its beneficial conversion feature of $2,999, of which, $490 has been
accreted as interest expense for the six months ended June 30, 2012. Interest of $39 has been accrued for the six months ended
June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $530.



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $1,500 was drawn against the note on
May 22, 2012 and was fully repaid during the six months ended June 30, 2012. The draw is due September 30, 2012 and is discounted
by the value of its beneficial conversion feature of $611, which has been fully accreted as interest expense for the six months
ended June 30, 2012.



On May 23 2012, the Company issued a $32,500
unsecured convertible promissory note to Asher Enterprises, Inc. The note bears interest at 8% per annum, is due February 25, 2013,
and is convertible at a 42% discount to the average of the three low trading prices during the ten day period prior to the conversion
date. The note is discounted by the value of its beneficial conversion feature of $23,947, of which, $3,273 has been accreted as
interest expense for the six months ended June 30, 2012. Interest of $271 has been accrued for the six months ended June 30, 2012.
The outstanding balance of the loan, net of discounts, at June 30, 2012 is $12,097.



On June 5, 2012, the Company issued a $12,000
unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per annum, is due February 5,
2013, and is convertible at a 55% discount to the average of the three low trading prices during the three day period prior to
the conversion date. The note is discounted by the value of its beneficial conversion feature of $11,999, of which, $1,224 has
been accreted as interest expense for the six months ended June 30, 2012. Interest of $99 has been accrued for the six months ended
June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $1,324.



17







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 2 – Loans Payable (Continued)



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $2,500 was drawn against the note on
June 7, 2012. The draw is due September 30, 2012 and is discounted by the value of its beneficial conversion feature of $1,111,
of which, $222 has been accreted as interest expense for the six months ended June 30, 2012. Interest of $8 has been accrued for
the six months ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $1,619.



On November 2, 2011, the Company entered
into an unsecured convertible promissory note agreement with Bulldog Insurance. The notes issued pursuant to the agreement bear
interest at 8% per annum, are generally due 6 months after issuance, and are convertible at a 35% discount to the market price
of the average closing prices of the previous 3 closing days prior to the conversion date. $9,500 was drawn against the note on
June 12, 2012. The draw is due September 30, 2012 and is discounted by the value of its beneficial conversion feature of $4,222,
of which, $691 has been accreted as interest expense for the six months ended June 30, 2012. Interest of $23 has been accrued for
the six months ended June 30, 2012. The outstanding balance of the loan, net of discounts, at June 30, 2012 is $5,992.



Note 3 – Related Parties



Loans payable – related parties at June 30, 2012 and December
31, 2011 consist of the following:



|                                                                                                                                                                                                                                                                              |  | June 30,
2012 |         |  | December 31,
2011 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- |  | ----------------- | -
|                                                                                                                                                                                                                                                                              |  |               |         |  |                   |  
|Unsecured non-interest bearing note payable, due on demand, to Frank Russo, a Director of the Company.                                                                                                                                                                        |  | $             | 409,979 |  |                   | $
|                                                                                                                                                                                                                                                                              |  |               |         |  |                   |  
|Unsecured note payable to Edward Eppel,  a Director of the Company, which bears interest at 10% per annum and is due on demand.  Accrued interest is equal to $23,652 and $15,763, respectively.                                                                              |  |               | 197,208 |  |                   |  
|                                                                                                                                                                                                                                                                              |  |               |         |  |                   |  
|Unsecured non-interest bearing note payable, due on demand, to Anis Sherali, a Director of the Company.  During the six months ended June 30, 2012, Mr. Sherali loaned an additional $56,500 to the Company and converted the entire note balance of $87,500 preferred stock. |  |               | –       |  |                   |  
|                                                                                                                                                                                                                                                                              |  |               |         |  |                   |  
|Total                                                                                                                                                                                                                                                                         |  | $             | 607,187 |  |                   | $



Frank Russo, a Director of the Company,
is a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2010, $422,006 was due to Mr.
Russo.  The Company repaid $0 and $12,027 to Mr. Russo during the six months ended June 30, 2012 and the year ended December
31, 2011, respectively. During the six months ended June 30, 2012, the Company converted $10,000 of accrued board compensation
due to Mr. Russo into 102,041 shares of Series A Preferred. Additionally, during the six months ended June 30, 2012, Mr. Russo
converted 6,922,685 shares of common stock owned by him into 346,134 shares of Series A Preferred.



Edward Eppel, a Director of the Company,
is a holder of a note of the Company which bears interest at 10% per annum. At December 31, 2010, $173,256 was due to Mr. Eppel.  The
Company borrowed $0 and $299 from Mr. Eppel during the six months ended June 30, 2012 and the year ended December 31, 2011, respectively.  $7,889
and $15,763 of interest was accrued and included in the loan balance for the six months ended June 30, 2012 and the year ended
December 31, 2011, respectively. During the six months ended June 30, 2012, the Company converted $10,000 of accrued board compensation
due to Mr. Eppel into 102,041 shares of series A preferred stock.



18







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 3 – Related Parties (Continued)



During the year ended December 31, 2011,
the Company borrowed $195,000 from Mr. Sherali and issued a non-interest bearing note. Also during the year ended December 31,
2011, the Company converted $127,000 of the note and issued 13,005,556 common shares and converted $37,000 of the note and issued
462,500 preferred shares to Mr. Sherali. During the six months ended June 30, 2012, the Company borrowed an additional $56,500
from Mr. Sherali and converted the $87,500 balance of the note and issued 2,592,898 Series A Preferred shares to Mr. Sherali. During
the six months ended June 30, 2012, Mr. Sherali purchased 2,113,409 shares of the Company’s series A preferred stock for
$66,000 and the Company converted $10,000 of accrued board compensation due to Mr. Sherali into 102,041 shares of Series A Preferred
stock. Additionally, during the six months ended June 30, 2012, Mr. Sherali converted 32,420,942 shares of common stock owned by
him into 1,621,047 shares of Series A Preferred.



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,
2010, the outstanding balance on the note was $18,456. During the year ended December 31, 2011, the Company borrowed $10,619 from
and repaid $29,075 to Mr. Aladesuyi. The balance of the note at December 31, 2011 is $0.



The Company issued 4,000,000 shares of
its common stock to Mr. Aladesuyi for services during the years ended December 31, 2011 and converted $230,000 of accrued salaries
due to Mr. Aladesuyi to 32,857,143 shares of common stock. During the six months ended June 30, 2012, the Company converted $10,000
of accrued board compensation due to Mr. Aladesuyi into 102,041 shares of Series A Preferred.



On October 5, 2011, the Company entered
into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of which BBGN&K
owns the patents. Mr. Aladesuyi is the managing member of BBGN&K. The license agreement calls for royalty payments beginning
in 2012 of 8% of EarthSearch’s revenues to be paid quarterly. Also on October 5, 2011, the Company's Board of Directors
approved the issuance of 1,428,572 shares of Series A Preferred  to Mr. Aladesuyi as payment of $200,000
initial license fee.



On November 2, 2011, the Company issued
4,285,714 shares of its preferred stock to Mr. Aladesuyi in conversion of $600,000 of accrued compensation due him.



On November 2, 2011, the Company issued
1,375,000 shares of its preferred stock to Mr. Russo in conversion of $125,000 of accrued compensation due him.



Andrea Sousa, Comptroller of the Company,
is the wife of Kayode Aladesuyi. On January 12, 2012 the Company issued 7,500,000 shares of the Company’s common stock
in exchange of salaries payable to Ms. Rocha of $22,500.



During the six months ended June 30, 2012,
Mr. Aladesuyi, his five children, and BBGN&K converted a combined 46,027,281 shares of common stock owned by them into 2,301,363
shares of Series A Preferred stock.



During the six months ended June 30, 2012,
Ms. Sousa converted 1,119,436 shares of common stock owned by her into 55,971 shares of Series A Preferred.



Note 4 – Amounts Payable in Common
Stock and Derivative Liability



During the six months ended June 30, 2012,
Ironridge Global IV, Ltd. (“Ironridge”) purchased $826,367 of accounts payable and $241,978 of loans payable, for a
total of $1,068,345, from certain creditors of the Company. On April 20, 2012, the Superior Court of the State of California for
the County of Los Angeles, Central District approved a Stipulation for Settlement of Claims (the “Settlement of Claims”)
in the favor of Ironridge. The Settlement of Claims calls for the amount to be paid by issuance of the Company’s common stock.
The number of shares of the common stock is to be calculated based on the volume weighted average price (“VWAP”) of
the common stock over the calculation period, not to exceed the arithmetic average of the individual daily VWAPs of any five trading
days during the calculation period, less a discount of 35%. The calculation period is defined as the period from the approval of
the Settlement of Claims until the settlement is completed.



19







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 4 – Amounts Payable in Common
Stock and Derivative Liability (Continued)



As the terms of the settlement include
issuing common stock at a 35% discount to the conversion price, a derivative liability for the discount was established at the
time of the Settlement of Claims of $575,263, which was charged to operations during the six months ended June 30, 2012 as a loss
on conversion of debt. The derivative liability is revalued at the end of each reporting period with any change in the liability
being charged to operations.



As common stock is issued in installments
on the settlement, the Amounts Payable in Common Stock and the Derivative Liability will be reduced accordingly. During the six
months ended June 30, 2012, 109,500,000 shares of common stock, with a market value of $563,460, were issued to Ironridge in settlement
of $359,223 of the liability, resulting in the reduction of the derivative liability of $204,237.



Note 5 – Stockholders’ Deficit



Authorized Capital



On September 17, 2010, the Board authorized
the creation of a common stock incentive plan (the “2010 Stock Incentive Plan”) for our management and consultants.
The Company registered twenty five million (25,000,000) shares of its common stock pursuant to the 2010 Stock Incentive Plan on
Form S-8 filed with the Commission on September 27, 2010. As of June 30, 2012, no options have been granted under the plan.



On July 6, 2012 the Company filed a certificate
of amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to increase the Company’s
authorized capital stock to 2,050,000,000 shares, par value $0.001 per share, including (i) 2,000,000,000 shares of common stock,
par value $0.001 per share and (ii) 50,000,000 shares of preferred stock, par value $0.001 per share.



Preferred Stock Issued for Cash



During the six months ended June 30, 2012,
the Company issued 3,364,718 shares of Series A Preferred in private placements for a total of $113,400 ($0.0337 per share average).



Preferred Stock Issued for Subscriptions



During the six months ended June 30, 2012,
the Company issued 1,500 shares of series B preferred stock in a private placement for a total of $1,500,000 ($1,000 per share).
During the six months ended June 30, 2012, $115,002 of the subscription receivable was received in cash.



Preferred Stock Issued in Conversion of Debt



During the six months ended June 30, 2012,
the Company issued 2,592,898 shares of Series A Preferred in the conversion of $87,500 of notes payable to related parties (see
Note 3 – Related Parties) and 1,000,000 shares of Series A Preferred in the conversion of $57,000 of notes payable to unrelated
parties (see Note 2 – Loans Payable).



Preferred Stock Issued for Services



During the six months ended June 30, 2012,
the Company converted $40,000 of accrued compensation to its board of directors to 408,164 shares of Series A Preferred (see Note
3 – Related Parties) and issued 607,487 shares of Series A Preferred stock to an unrelated party for services at the fair
value of the services rendered of $45,000.



20







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 5 – Stockholders’ Deficit
(Continued)



Preferred Stock Issued in Conversion of Common Stock



During the six months ended June 30, 2012, the Company issued
4,324,515 shares of Series A Preferred stock to related parties for the conversion and return of 86,490,344 shares of common stock
and issued 372,000 shares of Series A Preferred stock to unrelated parties for the conversion and return of 7,440,000 shares of
common stock.



Common Stock Issued for Cash



During the six months ended June 30, 2012,
the Company issued 250,000 shares of common stock in private placements for a total of $1,000 ($0.004 per share).



Common Stock Issued in Conversion of Debt



During the six months ended June 30, 2012,
the Company issued 334,850,199 shares of common stock in the conversion of $503,836 of notes payable to unrelated parties (see
Note 2 – Loans Payable).



During the six months ended June 30, 2012,
the Company issued 109,500,000 shares of common stock, with a market value of $563,460, to Ironridge in settlement of $359,223
of amounts payable in common stock (see Note 4 – Amounts Payable in Common Stock and Derivative Liability).



Common Stock Issued for Services



During the six months ended June 30, 2012,
the Company issued 12,819,231 shares of common stock to unrelated parties for services of $80,205, or an average price of $0.006
per share based on the market value of the shares at the time of issuance.  These shares were issued under the 2010 Stock
Incentive Plan (“2010 Plan”) dated September 17, 2010. As of June 30, 2012, 230,000 shares remain unissued under the
2010 Plan.



During the six months ended June 30, 2012,
the Company converted $22,500 of accrued salaries due to Ms. Rocha to 7,500,000 shares of common stock, at a price of $0.007 per
share based on the market value of the shares at the time of issuance (see Note 3 – Related Parties).



During the six months ended June 30, 2012,
the Company issued 600,000 shares of common stock to an unrelated party for an incentive to enter into a loan agreement, at an
average price of $0.0036 per share based on the market value of the shares at the time of issuance (see Note 2 – Loans Payable).





21







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 6 – Commitments and
Contingencies



Operating Leases



The Company leases its office facilities
in Marietta, Georgia. The term of the lease is 66 months with escalating lease payments beginning at $2,163 per month. At June
30, 2012, future minimum lease payments under the lease are as follows:



|2012 |  | $ | 12,978  | 
|---- |  | - | ------- | 
|2013 |  |   | 26,735  | 
|2014 |  |   | 27,550  | 
|2015 |  |   | 28,366  | 
|2016 |  |   | 29,219  | 
|2017 |  |   | 15,054  | 
|     |  | $ | 139,902 | 



Rent expense was $15,143 and $32,641 for the three months ended
June 30, 2012 and 2011, respectively.



Acquisition Liabilities



Pursuant to the Share Exchange Agreement
with Rogue Paper, Inc., commencing six months from the Execution Date, both the Company and the holders of the Preferred Shares
shall have the option to redeem any portion of such holders Preferred Shares for cash, at a price of sixty cents ($0.60) per share,
or $1,075,000.  Commencing twenty four (24) months from the Execution Date, holders of the remaining forty-nine percent
(49%) of Rogue Paper Common Shares, have the option to have such shares redeemed by the Company for cash, at a price of $0.03 per
share, or $29,973.



License Agreement



On October 5, 2011, the Company entered
into a license with BBGN&K LLC (“BBGN&K”) for the rights to use certain patented technologies of which BBGN&K
owns the patents. The license agreement calls for royalty payments beginning in 2012 of 8% of EarthSearch’s revenues to be
paid quarterly (see Note 3 – Related Parties).



Note 7 – Subsequent Events



On July 2, 2012,
the Company issued 75,700,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption
from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares
issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the
Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20,
2012 in settlement of claims purchased by Ironridge from certain creditors of the Company.



On July 5, 2012, the Company issued 8,209,315
shares of its common stock in conversion of loans payable in the amount of $9,000.



On July 5, 2012, the Company issued 536
shares of its series B preferred stock in conversion of 1,032,011 shares of its Series A Preferred stock to an investor.



On July 6, 2012,
the Company issued a $5,500 unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per
annum, is due March 6, 2013, and is convertible at a 45% discount to the average of the three low trading prices during the ten
day period prior to the conversion date.



22







East Cost Diversified Corporation and
Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)



Note 7 – Subsequent Events
(Continued)



On July 10, 2012, the Company issued 33,644,523
shares of its common stock in conversion of loans payable in the amount of $40,400.



On July 13, 2012, the Company issued 5,272,727
shares of its common stock in conversion of loans payable in the amount of $5,800.



On July 17, 2012,
the Company issued a $42,500 unsecured convertible promissory note to Asher Enterprises, Inc. The note bears interest at 8% per
annum, is due April 19, 2013, and is convertible at a 42% discount to the average of the three low trading prices during the ten
day period prior to the conversion date.



On July 19, 2012,
the Company issued 40,000,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption
from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares
issued to Ironridge were issued pursuant to the Stipulation filed by the Company and Ironridge in the Superior Court for the State
of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from
certain creditors of the Company.



On July 20, 2012, the Company issued 62,598,277
shares of its common stock in conversion of loans payable in the amount of $50,000.



On July 26, 2012,
the Company issued a $15,000 unsecured convertible promissory note to Hanover Holdings I, LLC. The note bears interest at 12% per
annum, is due March 26, 2013, and is convertible at a 45% discount to the average of the three low trading prices during the ten
day period prior to the conversion date.



On July 27, 2012,
the Company issued 50,000,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption
from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares
issued to Ironridge were issued pursuant to the Stipulation filed by the Company and Ironridge in the Superior Court for the State
of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from
certain creditors of the Company.



On July 30, 2012, the Company issued 22,222,223
shares of its common stock in conversion of loans payable in the amount of $20,000.



On August 5, 2012, the Company’s
wholly-owned subsidiary, Wetwinds Inc., entered into a license agreement with WEC ASSET LLC for the rights to use a certain Social
Media concept developed by WEB ASSET LLC. The license agreement calls for royalty payments of 49% of all revenues derived for the
use of the licensed rights subsequent to the Company’s initial $2,000,000 of revenue, to be paid quarterly. WEB ASSET LLC
is owned by BBGN&K, which Mr. Kayode Aladesuyi is the managing member.



On August 6, 2012, the Company issued 25,641,025
shares of its common stock in conversion of loans payable in the amount of $20,000.



On August 6, 2012,
the Company issued 49,000,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption
from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares
issued to Ironridge were issued pursuant to the Stipulation filed by the Company and Ironridge in the Superior Court for the State
of California, County of Los Angeles (Case No. BC481395) on April 20, 2012 in settlement of claims purchased by Ironridge from
certain creditors of the Company.





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.



23







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



This quarterly report on Form 10-Q and
other reports filed by East Coast Diversified Corporation from time to time with the U.S. Securities and Exchange Commission contain
or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to,
the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not
to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When
used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company
or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company
with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended, or planned.



Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of
activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States,
the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.



Our financial statements are prepared in
accordance with accounting principles generally accepted in the United States. These accounting principles require us to make certain
estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable
based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates,
judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements
as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected
to the extent there are material differences between these estimates.



Plan of Operation



For the next 12 months, ECDC’s overall
operation plan will be to expand its overall marketing and sales efforts of its proprietary technologies in all four subsidiaries
which include EarthSearch, StudentConnect, Roque Paper and WetWinds.





Marketing and Business Development



ECDC recently hired a Director of Marketing
and Business Development responsible for orchestrating marketing and sales support and managing market research, advertising and
sales support to sales teams within each corporate subsidiary.



The Marketing and Business Development
division will help manage communications outreach and will outsource marketing and public relations consultants to launch and promote
products and services within various mediums including print, interactive media and industry events as a means to get exposure
and visibility in the marketplace.



EarthSearch Communications



Clients



We have completed the customization of
our GATIS software for the Kenyan Revenue Authority and expect deployment by end of August. Our marketing division will support
our local partners in Kenya to increase sales in the market. We will also market the software to other revenue agencies around
the globe looking to closely monitor and manage movement of cargo across the border.



We recently entered a joint venture agreement
with McLeod software to provide a software integration agreement with SAP. The Company will focus on introducing our products and
services to logistics companies currently utilizing McLeod Software and SAP partners globally as a means to introduce them to our
wireless GPS/RFID technology. This technology will be offered to clients facing complex logistics issues. Our integrated GP/RFID
products, combined with our GATIS software, offers a unique solutions for several industries. We intend to publish white papers
via on our web sites and industry journals to demonstrate and introduce advanced solutions that our technology can provide. The
GATIS software offers an end-to-end integrated RFID/GPS solution that can provide continuous visibility from sales processing to
warehouse operations, wet cargo and containerized cargo monitoring, workforce solution and demand visibility for the manufacturing
industry.



24







StudentConnect



ECDC has officially launched StudentConnect,
our school transportation and safety division. We have had several presentations to a number of school districts throughout metro
Atlanta. As a result of the positive response from parents and school officials, we expect to formally launch services to a number
of schools during the new school year. Our strategy is to focus on the metro Atlanta market and strategically expand service offering
to other parts of the country for effective deployment of the product.



We have also received a positive response
from other countries specifically Nigeria, Guatemala and Dubai and will look to develop support operation for international deployment
over the next 12 months.



WetWinds



WetWinds is global technology company that
provides interactive social media experiences for users across the globe. We are currently developing a virtual desktop-to-mobile
technology called “Vir2o” that will help change the way users socialize and interact on the web in real-time. As part
of its operations, WetWinds has hired a team of seasoned designers anddevelopers to complete the development of the social media
site and mobile application.



We intend to deploy the site on game consoles,
mobile devices and desktops.. Vir2o beta platform is schedule to launch by end of 2012.



Rogue Paper





Rogue
recently relocated to a larger facility and is hoping to expand its sales force by the end of the fiscal year 2012. Our
key client recently expanded the use of our software and we intend to continue adding additional programs to the platform. 
The Company is hoping to grow via merger or acquisition  over the next twelve months in order to help  enhance revenue
opportunity and add key personnel to our operations.





Results of Operations



For the Three Months Ended June 30, 2012 and 2011



Revenues



For the three months ended June 30, 2012,
our revenue was $451,200 compared to $206,014 for the same period in 2011, representing an increase of 119%. This increase in revenue
was directly attributable to the Company’s decision to change its business focus and product portfolio in 2010 and early
2011 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, and the acquisition of Rogue Paper, which represented $119,110 of total revenues for the three
months ended June 30, 2012. 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 $313,744 and $76,733 for the three months ended June
30, 2012 and 2011, respectively.  Revenues for consulting services were $119,110 for the three months ended June 30,
2012, compared to $116,000 for the three months ended June 30, 2011.  User fees were $18,346 and $13,281 for the three
months ended June 30, 2012 and 2011, respectively.



Operating Expenses



For the three months ended June 30, 2012,
operating expenses were $1,319,732 compared to $431,174 for the same period in 2011, an increase of 206%.



Cost of revenues increased $182,415 and
is directly attributable to the increase in revenues for the three months ended June 30, 2012.



For the three months ended June 30, 2012,
selling, general and administrative expenses were $1,018,985 compared to $312,842 for the same period in 2011, an increase of 226%.
This increase was primarily caused by $87,925 of selling general and administrative expenses of Rogue Paper, Inc. in 2012; professional
fees related to public company compliance and investor relations increased from $126,918 to $254,019; royalties owed on a license
agreement increased from $0 to $24,888; salary expenses increased from $73,948 to $178,378; research and development expense increased
from $0 to $138,350; bad debt expense increased from $nil to $186,669; and amortization of intangible assets and prepaid license
fees increased from $0 to $50,750.



Our professional fees related to public
company compliance and investor relations increased significantly because we filed a Registration Statement on Form S-1 in 2011,
as well as continuing increases in our investor relations efforts.



25







Net Loss



We generated net losses of $1,470,919 for
the three months ended June 30, 2012 compared to $240,589 for the same period in 2011, an increase of 511%. Included in the net
loss for the three months ended June 30, 2012 was interest expense of $193,064 (of which $174,082 represents accretion of embedded
beneficial conversion features on notes payable), reduced by other income of $25, gain on settlement of debt of $141,141, a loss
on the conversion of debt of $575,263, and non-controlling interests’ share of the net loss of EarthSearch and Rogue Paper
of $35,583.  Included in the net loss for the three months ended June 30, 2012 was interest expense of $21,938, reduced
by non-controlling interests’ share of the net loss of EarthSearch of $6,509.



For the Six Months Ended June 30, 2012 and 2011



Revenues



For the six months ended June 30, 2012,
our revenue was $901,694 compared to $370,092 for the same period in 2011, representing an increase of 144%. This increase in revenue
was directly attributable to the Company’s decision to change its business focus and product portfolio in 2010 and early
2011 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, and the acquisition of Rogue Paper, which represented $257,290 of total revenues for the six months
ended June 30, 2012. 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 $461,676 and $169,630 for the six months ended June
30, 2012 and 2011, respectively.  Revenues for consulting services were $409,210 for the six months ended June 30, 2012,
compared to $167,500 for the six months ended June 30, 2011.  User fees were $30,808 and $32,962 for the six months ended
June 30, 2012 and 2011, respectively.



Operating Expenses



For the six months ended June 30, 2012,
operating expenses were $2,218,054 compared to $821,231 for the same period in 2011, an increase of 170%.



Cost of revenues increased $277,034 and
is directly attributable to the increase in revenues for the six months ended June 30, 2012.



For the six months ended June 30, 2012,
selling, general and administrative expenses were $1,772,946 compared to $653,157 for the same period in 2011, an increase of 171%.
This increase was primarily caused by $199,680 of selling general and administrative expenses of Rogue Paper, Inc. in 2012; professional
fees related to public company compliance and investor relations increased from $135,918 to $405,249; royalties owed on a license
agreement increased from $0 to $39,873; salary expenses increased from $256,721 to $406,952; research and development expense increased
from $0 to $138,350; bad debts expense increased from $nil to $186,669; and amortization of intangible assets and prepaid license
fees increased from $0 to $101,500.



Our professional fees related to public
company compliance and investor relations increased significantly because we filed a Registration Statement on Form S-1 in 2011
as well as continuing increases in our investor relations efforts.



Net Loss



We generated net losses of $2,210,904 for
the six months ended June 30, 2012 compared to $478,199 for the same period in 2011, an increase of 325%. Included in the net loss
for the six months ended June 30, 2012 was interest expense of $501,197 (of which $466,611 represents accretion of embedded beneficial
conversion features on notes payable), reduced by other income of $1,412, a gain on the settlement of debt of $141,141, a loss
on the conversion of debt of $575,263, and non-controlling interests’ share of the net loss of EarthSearch and Rogue Paper
of $50,172.  Included in the net loss for the six months ended June 30, 2012 was interest expense of $44,383, reduced
by non-controlling interests’ share of the net loss of EarthSearch of $17,323.



Liquidity and Capital Resources



Overview



For the six months ended June 30, 2012
and 2011, we funded our operations through financing activities consisting of private placements of equity securities with outside
investors and loans from related and unrelated parties. Our principal use of funds during the six months ended June 30, 2012 and
2011 has been for working capital and general corporate expenses.



26







Liquidity and Capital Resources during
the six months ended June 30, 2012 compared to the six months ended June 30, 2011



As of June 30, 2012, we had cash of $37,363
and a working capital deficit of $2,200,580.  The Company generated a negative cash flow from operations of $778,184
for the six months ended June 30, 2012, as compared to cash used in operations of $187,530 for the six months ended June 30, 2011.
The negative cash flow from operating activities for the six months ended June 30, 2012 is primarily attributable to the Company's
net loss from operations of $2,034,207, offset by noncash depreciation and amortization of $90,132, provision for doubtful accounts
of $186,669, issuance of loan payable for prepaid services of $60,000, stock issued for services of $125,205, amortization of prepaid
license fees of $25,000, amortization or payment redemption premiums of $12,076, accretion of beneficial conversion features on
convertible notes payable of $466,611, accretion of stock discounts on convertible notes payable of $2,160, accrued interest on
loans payable of $40,280, loss on conversion of debt of $575,263, change in derivative liability of $10,809, changes in operating
assets and liabilities of $47,453, and increased by a gain on recovery of redemption premiums of $17,625, gains on settlement of
accounts payable of $102,495, gains on settlement of debt of $38,616, and noncontrolling interests in the losses of EarthSearch
and Rogue Paper of $40,200.



The negative cash flow from operating activities
for the six months ended June 30, 2011 is primarily attributable to the Company's net loss from operations of $478,199, offset
by noncash depreciation and amortization of $79,890, stock issued for services of $131,250, accrued interest on loans payable of
$42,129, and net cash from changes in operating assets and liabilities of $54,723, and increased by noncontrolling interests in
the loss of EarthSearch of $17,323.



Cash used in investing activities consisted
of $700 in capital expenditures for the six months ended June 30, 2012 compared to $nil for the same period in 2011.



Cash generated from our financing activities
was $762,728 for the six months ended June 30, 2012, compared to $186,844 during the comparable period in 2011. This increase was
primarily attributed to the proceeds from proceeds from the issuance of preferred stock of $228,402 in 2012, proceeds from loans
payable of $486,926 in 2012, a decrease in repayments of loans payable to related parties from $46,575 to $0; offset by a decrease
in proceeds from the issuance of common stock from $103,000 to $1,000, a decrease in proceeds from loans payable – related
parties from $130,419 to $56,500, and the repayment of loans payable of $10,100 in 2012.



We will require additional financing during
the current fiscal year. During the period from July 1, 2012 to August 8, 2012, we received proceeds of $63,000 from the issuance
of convertible promissory notes.



On
July 1, 2011, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Southridge Partners
II, LP (“Southridge”). Pursuant to the Equity Purchase Agreement, Southridge shall commit to purchase up to Ten Million
Dollars ($10,000,000) of our common stock over the course of twenty four (24) months commencing the effective date of the initial
Registration Statement (as defined below) covering the Registrable Securities pursuant to the Equity Purchase Agreement. For each
share of our common stock purchased under the Agreement, Southridge will pay ninety-two percent (92%) of the average of the lowest
closing bid price of our common stock in any two trading days, consecutive or inconsecutive, of the five consecutive trading day
period (the “Valuation Period”) commencing the date a put notice (the “Put Notice”) is delivered to Southridge
in a manner provided by the Equity Purchase Agreement. Subject
to certain limitations and floor price reductions, the Company may, at its sole discretion, issue a Put Notice to Southridge and
Southridge will then be irrevocably bound to acquire such shares. To date, the Company has not completed the registration process
and therefore is unable to put shares under the Equity Purchase Agreement.



On April 20, 2012,
the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Ironridge Technology Co.,
a division of Ironridge Global IV, Ltd. (“Ironridge”), providing for the issuance and sale by the Company to the Ironridge
of an aggregate of 1,500 shares of the Company’s Series B Preferred Stock (the “Preferred Shares”) in fifteen
(15) equal tranches of 100 Preferred Shares each, at a price of $1,000 per Preferred Share. Pursuant to the Certificate of Designation
to create the Series B Preferred Shares, each Preferred Share may be converted at any time at the option of Ironridge into shares
of the Company’s common stock, par value $0.001 at a conversion price of $.01 per share, subject to certain adjustments.
During the quarter ended June 30, 2012, the Company received $100,000 for the first tranche of 100 shares and $15,002 towards the
second tranche of 100 shares of Series B Preferred stock sold to Ironridge.



In connection with the Closing, on April
20, 2012 the Company entered into a Registration Rights Agreement with Ironridge, pursuant to which the Company will file a registration
statement related to the Stock Purchase Agreement with the Securities and Exchange Commission covering the resale of the Common
Stock that will be issued to Ironridge upon conversion of the Preferred Shares.



27







On April 20, 2012,
the Company issued 49,700,000 shares of the Company’s common stock to Ironridge in reliance on the private placement exemption
from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares
issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the
Company and Ironridge in the Superior Court for the State of California, County of Los Angeles (Case No. BC481395) on April 20,
2012 in settlement of claims purchased by Ironridge from certain creditors of the Company in the aggregate amount equal to $1,079,991
(the “Claim Amount”), plus attorney’s fees and costs. Pursuant to the Stipulation, the Company was required to
issue and deliver 49,700,000 shares of Common Stock (the “Initial Issuance”). Ironridge will ultimately be entitled
to retain a number of shares of Common Stock (the “Final Amount”) that is equal to: (a) the sum of $1,068,344.86 plus
a transaction fee of $40,000 and reasonable attorney’s fees, (b) divided by sixty-five percent (65%) of the volume weighted
average price (“VWAP”) of the Common Stock as reported by Bloomberg Professional service of Bloomberg LP over a period
of time beginning on the date on which Ironridge receives the Initial Issuance and ending on the date on which the aggregate trading
volume of the Company’s Common Stock exceeds $5,000,000 (such period being the “Calculation Period”), not to
exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period. For every 20
million shares that trade during the Calculation Period, or if any time during the Calculation Period a daily VWAP is below 80%
of the closing price of the Company’s Common Stock on the day before the date of the Initial Issuance, Ironridge has the
right to cause the Company to immediately issue to Ironridge additional shares of Common Stock (each, an “Additional Issuance”)
(provided, however, that at no time may Ironridge and its affiliates collectively own more than 9.99% of the total number of shares
of Common Stock outstanding). At the end of the Calculation Period, (a) if the sum of the Initial Issuance and any Additional Issuance
is less than the Final Amount, the Company shall immediately issue additional shares to Ironridge so that the total issuance is
equal to the Final Amount and (b) if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount,
Ironridge will return any remaining shares to the Company for cancellation. Subsequent to April 24, 2012 and through August 8,
2012, the Company has issued an additional 324,200,000 shares of the Company’s common stock pursuant to the Stipulation.



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, 2011 regarding concerns about our ability to continue as
a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead
to this conclusion by our independent auditors.



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



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



Off-Balance Sheet Arrangements



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



Critical Accounting Policies



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



See Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies”
in our audited consolidated financial statements for the year ended December 31, 2011, included in our Annual Report on Form 10-K/A
as filed on May 4, 2012, for a discussion of our critical accounting policies and estimates.

28







Item 3.    Quantitative
and Qualitative Disclosures About Market Risk.



We do not hold any derivative instruments
and do not engage in any hedging activities.



Item 4.    Controls and
Procedures.



| | (a) | Evaluation of Disclosure Controls and Procedures
| | --- | ------------------------------------------------



The Company’s management, with the
participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO
concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure
that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i)
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated
and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding
required disclosure.



| | (b) | Changes in Internal Control over Financial Reporting
| | --- | ----------------------------------------------------



There were no changes in our internal control
over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



PART II – OTHER INFORMATION



Item 1.    Legal Proceedings



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



Item 1A.  Risk Factors



We believe that there are no changes that
constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K/A for the year ended December
31, 2011, filed with the Securities and Exchange Commission on May 4, 2012.



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



On April 5, 2012, pursuant
to a debt conversion notice, the Company issued 5,845,949 shares of the Company’s common stock to satisfy a debt obligation
of $9,115.



On April 9, 2012, pursuant
to a debt conversion notice, the Company issued 46,224,257 shares of the Company’s common stock to satisfy a debt obligation
of $60,600.



On April 23, 2012, pursuant
to a debt conversion notice, the Company issued 49,700,000 shares of the Company’s common stock to satisfy a debt obligation
of $213,710.



On May 7, 2012, pursuant
to two debt conversion notices, the Company issued 62,872,534 shares of the Company’s common stock to satisfy debt obligations
of $359,450.



On June 7, 2012, pursuant
to a debt conversion notice the Company issued 23,675,890 shares of the Company’s common stock to satisfy a debt obligation
of $29,950.



On June 19, 2012, pursuant
to a debt conversion notice, the Company issued 9,500,000 shares of the Company’s common stock to satisfy a debt obligation
of $22,800.



These securities were not registered under
the Securities Act of 1933, as amended (the “Securities Act”), but qualified for exemption under Section 4(2) of the
Securities Act. The securities were exempt from registration under Section 4(2) of the Securities Act because the issuance of such
securities by the Company did not involve a “public offering,” as defined in Section 4(2) of the Securities Act, due
to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of
securities offered.



29







Item 3.    Defaults Upon
Senior Securities.



There has been no default in the payment
of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of
the Company during the quarter ended June 30, 2012.



Item 4.  Mine Safety Disclosures



Not applicable.



Item 5.    Other Information.



There is no other information required
to be disclosed under this item which was not previously disclosed.



Item 6.    Exhibits





|Exhibit No. | Description                                                                                                                                                   
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                               
|31.1        | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
|            |                                                                                                                                                               
|31.2        | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
|            |                                                                                                                                                               
|32.1        | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *           
|            |                                                                                                                                                               
|32.2        | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *           
|            |                                                                                                                                                               
|101.INS **  | XBRL Instance Document                                                                                                                                        
|            |                                                                                                                                                               
|101.SCH **  | XBRL Taxonomy Extension Schema Document                                                                                                                       
|            |                                                                                                                                                               
|101.CAL **  | XBRL Taxonomy Extension Calculation Linkbase Document                                                                                                         
|            |                                                                                                                                                               
|101.DEF **  | XBRL Taxonomy Extension Definition Linkbase Document                                                                                                          
|            |                                                                                                                                                               
|101.LAB **  | XBRL Taxonomy Extension Label Linkbase Document                                                                                                               
|            |                                                                                                                                                               
|101.PRE **  | XBRL Taxonomy Extension Presentation Linkbase Document                                                                                                        



* Filed herewith







** Pursuant to Rule 405(a)(2) of Regulation S-T, the
Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this
Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging
is required.





30







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:  August 14, 2012 |  | By: /s/ Kayode Aladesuyi                                                                                                                                                  
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |  | Kayode Aladesuyi                                                                                                                                                          
|                       |  | Chief Executive Officer
        (Principal Executive Officer)
        Chief Financial Officer
        (Principal Financial Officer)
        (Principal Accounting Officer)















31