UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




Form 10-Q




x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended June 30, 2010
  or


o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from__________to ___________
 Commission File Number 333-120682
  ENVIRONMENTAL CONTROL CORP.
 (Exact name of registrant as specified in its charter)
  Nevada

20-3626387(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)


85 Kenmount Road, St. John’s Newfoundland, Canada


(Address of principal executive offices)


A1B 3N7


(Zip Code)
  888.669.3588
 (Registrant’s telephone number, including area code)
 N/A
 (Former name, former address and former fiscal year, if changed since last report)
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES    o NO
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
  Large accelerated filer oAccelerated filer o Non-accelerated filer oSmaller reporting company x
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act  o YES    x NO
 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). o YES    x NO
 
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 
 Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  o YES    o NO
 APPLICABLE ONLY TO CORPORATE ISSUERS
 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 45,569,068 common shares issued and outstanding as of August 12, 2010










Table of Contents




Part I - FINANCIAL INFORMATION
2Item 1.  Financial Statements
2Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
3Item 3.  Quantitative and Qualitative Disclosures About Market Risk
8Item 4.  Controls and Procedures
8PART II - OTHER INFORMATION
9Item 1.  Legal Proceedings
9Item 1A.  Risk Factors
9Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
9Item 3.  Defaults Upon Senior Securities
9Item 4.  [Removed and Reserved]
9Item 5.  Other Information
9Item 6.  Exhibits
9


1




Part I - FINANCIAL INFORMATION




Item 1.  Financial Statements




Environmental Control Corp.


(A Development Stage Company)




June 30, 2010




Balance Sheets
F-1Statements of Operations
F-2Statements of Cash Flows
F-3Notes to the Financial Statements
F-4
 
 2


Environmental Control Corp.


(A Development Stage Company)


Balance Sheets


(Expressed in Canadian Dollars)




(unaudited)ASSETSCurrent AssetsCash


63,991



117,489Amounts receivable


11,705



8,406Investment tax credit receivable (Note 2(n))


14,880



14,880Total Current Assets


90,576



140,775Property and equipment (Note 3)


9,940



11,374Total Assets


100,516



152,149LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent LiabilitiesAccounts payable


49,548



48,584Accrued liabilities


1,716



1,702Accrued convertible interest payable to related parties (Note 5)


24,204



11,785Advances from related parties (Note 6(a))


26,906



26,906Total Current Liabilities


102,374



88,977Convertible debentures issued to related parties (Note 5)


298,104



250,951Advances from related parties (Note 6(b))


26,615



26,275Total Liabilities


427,093



366,203Contingencies and Commitments (Notes 1 and 9)Stockholders’ DeficitCommon stock, 75,000,000 shares authorized, US$0.001 par value;

45,569,068 shares issued and outstanding (December 31, 2009 – 45,869,068 shares)


52,810



53,158Additional paid-in capital


1,657,215



1,632,019Common stock to be issued (Note 7(b))


2,320



2,627Deficit accumulated during the development stage


(2,038,922
)


(1,901,858
)Total Stockholders’ Deficit


(326,577
)


(214,054
)Total Liabilities and Stockholders’ Deficit


100,516



152,149




(The accompanying notes are an integral part of these financial statements)




F-1





Environmental Control Corp.


(A Development Stage Company)


Statements of Operations


(Expressed in Canadian Dollars)


(unaudited)





Accumulated from


For the


For the


For the


For theMarch 6, 1999


Three months


Three months


Six months


Six months(Date of Inception)


Ended


Ended


Ended


Endedto June 30, 2010


June 30, 2010


June 30, 2009


June 30, 2010


June 30, 2009$



$



$



$



$Revenue


–



–



–



–



–ExpensesDepreciation


16,427



692



916



1,434



1,899Foreign exchange (gain) loss


(12,942
)


13,869



(15,933
)


5,483



(11,735
)General and administrative (Note 4)


1,531,659



40,407



82,290



101,123



169,118Research and development


79,816



800



14,503



3,853



16,436Total Operating Expenses


1,614,960



55,768



81,776



111,893



175,718Loss From Operations


(1,614,960
)


(55,768
)


(81,776
)


(111,893
)


(175,718
)Other ExpensesAccretion of discounts on convertible debentures


(354,306
)


(4,767
)


(6,524
)


(13,124
)


(7,255
)Interest expense


(69,656
)


(8,549
)


(2,607
)


(12,047
)


(5,255
)Total Other Expenses


(423,962
)


(13,316
)


(9,131
)


(25,171
)


(12,510
)Net Loss for the Period


(2,038,922
)


(69,084
)


(90,907
)


(137,064
)


(188,228
)Net Loss Per Share – Basic and Diluted






–



–



–



–Weighted Average Shares Outstanding






45,569,000



45,369,000



45,619,000



45,043,000




(The accompanying notes are an integral part of these financial statements)


F-2





Environmental Control Corp.


(A Development Stage Company)


Statements of Cash Flows


(Expressed in Canadian Dollars)


(unaudited)





For the


For theSix months


Six monthsEnded


EndedJune 30, 2010


June 30, 2009$



$Operating ActivitiesNet loss for the period


(137,064
)


(188,228
)Adjustments to reconcile net loss to net cash used in operating activities:Accretion of discounts on convertible debentures


13,124



7,255Depreciation


1,434



1,899Stock-based compensation


2,320



–Foreign exchange translation (gain) loss


5,178



(12,152
)Changes in operating assets and liabilities:Receivables


(3,299
)


–Investment tax credit receivable


–



–Prepaid expenses


–



1,125Accounts payable and accrued liabilities


912



(16,333
)Accrued convertible interest payable


12,047



4,820Net Cash Used In Operating Activities


(105,348
)


(201,614
)Financing ActivitiesProceeds from convertible debt


51,850



250,000Proceeds from issuance of shares


–



–Net Cash Provided by Financing Activities


51,850



250,000Increase (Decrease) in Cash


(53,498
)


48,386Cash - Beginning of Period


117,489



125,251Cash - End of Period


63,991



173,637Supplemental DisclosuresInterest paid


–



–Income taxes paid


–



–




(The accompanying notes are an integral part of these financial statements)




F-3




Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)




1.Nature of Business and Continuance of Operations




Environmental Control Corp. (the “Company”) was incorporated in the State of Nevada on February 17, 2004 under the name Boss Minerals, Inc. and, effective April 13, 2006, changed its name to Environmental Control Corp. Boss Minerals, Inc.’s initial operations included the acquisition and exploration of mineral resources.




On March 20, 2006, management changed its primary business focus to that of development of emission control devices for small spark ignition combustion engines. On March 20, 2006, the Company entered into an Asset Acquisition Agreement (the “Agreement”) to acquire the principal assets of Environmental Control Corp. (“ECC”), a private Canadian based company. The Company is in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, Development Stage Entities. On April 4, 2006, the Company authorized a 5:1 stock split to be applied retroactively. In addition, the Company increased its authorized share capital to 200,000,000 common shares. All share amounts stated herein have been restated to reflect the stock split. On February 26, 2007, the acquisition of the business of ECC was completed through the issuance of 22,500,000 shares of common stock. Prior to the acquisition of ECC, the Company was a non-operating shell company. The acquisition was a capital transaction in substance and therefore has been accounted for as a recapitalization, which is outside the scope of ASC 805, Business Combinations. Under recapitalization accounting, ECC was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed were reported at their historical amounts. These financial statements include the accounts of the Company since the effective date of the recapitalization (February 26, 2007) and the historical accounts of the business of ECC since inception on March 6, 1999.




These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at June 30, 2010, the Company has a working capital deficiency of $11,798 and has incurred losses totalling $2,038,922 since inception, and has not yet generated any revenue from operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.




Management estimates expenditures of approximately $80,000 for research and development activities, and approximately $190,000 for other operational costs over the next twelve months. The Company had $63,991 in cash on hand at June 30, 2010. The Company currently has no revenues and must rely on debt financing and the sale of equity securities to fund operations. The Company does not have any arrangements in place for any future equity or debt financings, and there is no assurance that the Company will be able to obtain the necessary financings to complete its objectives.




2.Summary of Significant Accounting Policies




a) Basis of Presentation




The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States and are expressed in Canadian dollars. The Company’s fiscal year end is December 31.




b) Interim Financial Statements




These interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10K filed March 31, 2010 with the SEC.




The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at June 30, 2010, and the results of its operations and cash flows for the six month and three month periods ended June 30, 2010 and 2009. The results of operations for the period ended June 30, 2010 are not necessarily indicative of the results to be expected for future quarters or the full year.




F-4




Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)




2.Summary of Significant Accounting Policies (continued)




c)  Use of Estimates




The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the recoverability of receivables and investment tax credit receivable, deferred income tax asset valuation allowances, stock-based compensation and financial instrument valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.




d) Cash and Cash Equivalents




The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.




e) Financial Instruments




The Company’s financial instruments consist principally of cash, accounts payable, advances from related parties and convertible debentures issued to related parties. Pursuant to ASC 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments the fair value of the Company’s cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the Company’s other financial instruments approximate their current fair values.




Assets measured at fair value on a recurring basis were presented on the Company’s balance sheet as of June 30, 2010 as follows:




Fair Value Measurements UsingQuoted Prices in

Active Markets

For Identical

Instruments

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Balance as of

June 30, 2010Assets:Cash

$
63,991


$
–


$
–


$
63,991




The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.




f) Earnings (Loss) Per Share




The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2010, the Company has 2,494,990 potentially dilutive securities outstanding.




F-5


Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)
 
 2.Summary of Significant Accounting Policies (continued)




g) Comprehensive Loss




ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at June 30, 2010 and 2009, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.




h) Foreign Currency Translation




Effective on the closing of the Agreement on February 26, 2007 (see Note 1), the Company’s functional and reporting currency changed to the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with ASC 830, Foreign Currency Translation Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.




i) Stock-based Compensation




In accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505-50, Equity Based Payments to Non-Employees, the Company accounts for share-based payments using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.




j) Property and Equipment




Property and equipment consists of office furniture, equipment, and computer equipment which are recorded at cost. Office furniture is amortized on a declining-balance basis at 20% per annum, equipment is amortized on a declining-balance basis at 30% per annum, and computer equipment is amortized on a declining-balance basis at 30% per annum.




k) Long-lived Assets




In accordance with ASC 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.




l) Research and Development Costs




In accordance with ASC 730, Research and Development, research costs are expensed in the period in which they are incurred. Development costs are also expensed unless they meet the criteria for deferral. When development costs meet the criteria for deferral, the development costs are deferred to the extent their recoverability can be reasonably assured. Deferred development costs represent the cost of developing specific products and are amortized on a straight line basis over the expected commercial life of the product.




F-6




Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)




2.Summary of Significant Accounting Policies (continued)




m) Income Taxes




The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.




n) Investment Tax Credits




The Company incurs research and development expenditures that may qualify for investment tax credits recoverable from Canadian tax authorities. Investment tax credits are accounted for using the cost reduction approach. Under this approach, investment tax credits received or receivable are deducted from research and development expenditures when the Company has made the qualifying expenditures, provided that there is reasonable assurance that the credits will be realized. Realization is assessed based on the Company’s collection history. During the year ended December 31, 2009, the Company recognized $14,880 in investment tax credits (2008 - $nil) which were applied against research and development expenditures in the statement of operations. As at June 30, 2010, the Company has $14,880 in investment tax credits receivable (December 31, 2009 - $14,880). The investment tax credits must be examined and approved by the tax authorities and the amounts granted may differ from the amounts recorded.




o) Recent Accounting Pronouncements




The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.




3.Property and Equipment




Cost

$


Accumulated

Amortization

$


June 30,2010

Net Carrying

Value

$


December 31, 2009

Net Carrying

Value

$Equipment


13,617



8,542



5,075



5,931Computer equipment


3,283



2,426



857



1,001Office furniture


9,467



5,459



4,008



4,44226,367



16,427



9,940



11,374




4.Related Party Transaction




During the six-month period ended June 30, 2010, the Company recognized $12,000 (2009 – $12,000) for rent due to a company controlled by a director of the Company. The transaction was in the normal course of operations and was recorded at the exchange amount, which is the amount agreed upon by the related parties.




F-7


Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)




5.Convertible Debentures Issued to Related Parties




a) On July 30, 2008, the Company entered into a convertible debenture agreement with a company controlled by the President of the Company. The Company received US$36,376 ($36,960) which bears interest at 10% per annum and is due five years from the advancement date. No interest shall be payable for the first year from the advancement date but shall accrue from the advancement date and all accrued interest shall be payable annually, on the subsequent anniversaries of the advancement date. Proceeds of the loan are to be used to acquire certain patents and intellectual property rights and the loan amount is secured against such intellectual property. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of US$0.17 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of US$6,419 ($6,523) as additional paid-in capital and reduced the carrying value of the convertible debenture to US$29,957 ($30,437). The carrying value will be accreted over the term of the convertible debenture up to its face value of US$36,376. As at June 30, 2010, the carrying values of the convertible debenture and accrued convertible interest payable thereon were $34,199 and $7,427, respectively, after translation into Canadian dollars. The Company can repay any portion of the loan and accrued interest at any time without penalty.




b) On October 16, 2008, the Company entered into a convertible debenture agreement with the President of the Company. The Company received US$50,000 ($59,110) which bears interest at 10% per annum and is due five years from the advancement date. No interest shall be payable for the first year from the advancement date but shall accrue from the advancement date and all accrued interest shall be payable annually, on the subsequent anniversaries of the advancement date. Proceeds of the loan are to be used to repay an outstanding loan and to further business development and research and development activities. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of US$0.07 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of US$14,286 ($16,889) as additional paid-in capital and reduced the carrying value of the convertible debenture to US$35,714 ($42,221). The carrying value will be accreted over the term of the convertible debenture up to its face value of US$50,000. As at June 30, 2010, the carrying values of the convertible debenture and accrued convertible interest thereon were $41,971 and $9,071, respectively, after translation into Canadian dollars. The Company can repay any portion of the loan and accrued interest at any time without penalty.




c) On April 9, 2009, the Company entered into a convertible loan agreement with a company controlled by directors of the Company. The Company received US$202,920 ($250,000) which bears interest at 10% per annum and is due five years from the advancement date. No interest shall accrue for the first year from the advancement date but shall begin to accrue on the second anniversary of the advancement date and all accrued interest shall be payable annually, on the subsequent anniversaries of the advancement date. Proceeds from the loan are to be used to further advance current business development and marketing initiatives, and to complete testing. The loan amount is secured against intellectual property rights owned by the Company. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of US$0.06 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of US$101,460 ($125,000) as additional paid-in capital and reduced the carrying value of the convertible debenture to US$101,460 ($125,000). The carrying value will be accreted over the term of the convertible debenture up to its face value of US$202,920. As at June 30, 2010, the carrying value of the convertible debenture and accrued convertible interest thereon were $138,206 and $4,439, respectively, after translation into Canadian dollars. The Company can repay any portion of the loan and accrued interest at any time without penalty.




d) On December 31, 2009, the Company entered into a convertible loan agreement with a company controlled by the President of the Company. The Company received US$50,000 ($52,550) which bears interest at 10% per annum and is due five years from the advancement date. Interest shall accrue from the advancement date and shall be payable on the fifth anniversary of the advancement date. Proceeds of the loan are to be used to continue with current business development activities. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of US$0.05 per share. As at June 30, 2010, the carrying values of the convertible debenture and accrued convertible interest thereon were $53,230 and $2,640, respectively, after translation into Canadian dollars. The Company can repay any portion of the loan and accrued interest at any time without penalty.




F-8





Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)





5.  Convertible Debentures Issued to Related Parties (continued)




e) On May 18, 2010, the Company entered into a convertible loan agreement with a company controlled by the President of the Company. The Company received US$50,000 ($51,850) which bears interest at 10% per annum and is due five years from the advancement date. Interest shall accrue from the advancement date and shall be payable on the fifth anniversary of the advancement date. Proceeds of the loan are to be used to continue with current business development activities. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of US$0.035 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of US$21,429 ($22,221) as additional paid-in capital and reduced the carrying value of the convertible debenture to US$28,571 ($29,629). The carrying value will be accreted over the term of the convertible debenture up to its face value of US$50,000.  As at June 30, 2010, the carrying values of the convertible debenture and accrued convertible interest thereon were $30,498 and $627, respectively, after translation into Canadian dollars. The Company can repay any portion of the loan and accrued interest at any time without penalty.





6.Advances From Related Parties




a) On December 9, 2008, the Company received $25,000 from a company controlled by the President of the Company. The amount owing is unsecured, non-interest bearing, and has no specified repayment terms. As at June 30, 2010, the Company owed this company $1,906 (December 31, 2009 - $1,906) for payment of expenses on behalf of the Company.




b) On September 5, 2008, the Company entered into a loan agreement with a company controlled by the President of the Company. The Company received US$25,000 ($26,388) which is non-interest bearing and is due five years from the advancement date. As at June 30, 2010, the loan payable was $26,615 (December 31, 2009 - $26,275) after translation into Canadian dollars.





7.Common Stock




a) On February 8, 2010, the Company issued 75,000 shares of common stock at a value of $2,627 as compensation for investor relations and marketing services per the terms of an agreement dated July 1, 2009. This amount was included in common stock to be issued at December 31, 2009. Refer to Note 9(c).




b) On January 8, 2010, the Company was to issue 75,000 shares of common stock at a value of $2,320 as compensation for investor relations and marketing services per the agreement described in Note 9(c).  This amount is included in common stock to be issued at June 30, 2010.




c) On December 16, 2009, the Company issued 125,000 shares of common stock to a former employee according to the employment agreement referred to in Note 9(a) for services performed for the years ended July 28, 2008 and 2009. As at December 31, 2009, the 375,000 shares purchase warrants that were to have been issued under the agreement were not issued, however, 375,000 shares were issued in error.  At December 31, 2009, the par value of these shares had been recorded as additional paid-in capital and 375,000 of the share purchase warrants have been presented as issued. On February 1, 2010, the Company cancelled the additional 375,000 shares.




8.Share Purchase Warrants




A summary of the changes in the Company’s common share purchase warrants is presented below:




Number of Warrants


Weighted Average

ExercisePriceBalance – December 31, 2009


4,624,277


$
US0.15Expired


(970,585
)

$
US0.30Balance – June 30, 2010


3,653,692


$
US0.15




F-9


Environmental Control Corp.
 (A Development Stage Company)
 Notes to the Financial Statements
 (Expressed in Canadian Dollars)
 (unaudited)




8.  Share Purchase Warrants (continued)




As at June 30, 2010, the following common share purchase warrants were outstanding:




Number of Warrants
ExercisePrice
Expiry Date3,278,692
US$0.11
February 5, 2011187,500
US$0.23
July 28, 2010187,500
US$0.07
July 28, 20113,653,692




9.Commitments




a) On July 28, 2006, the Company’s board of directors resolved to issue certain share-based payments to an employee of the Company over a three year period. Under the arrangement, the employee was to be issued 62,500 shares of common stock and 187,500 share purchase warrants, each on July 28, 2006, 2007, 2008, and 2009. The Company issued 62,500 shares on each of March 15, 2007 and August 19, 2008, and issued 125,000 shares on December 16, 2009. On September 12, 2008, the employee resigned and became a consultant to the Company (refer to Note 9(b)). It was mutually agreed that the former employee was entitled to the remaining shares and warrants to be issued under the arrangement. For the year ended December 31, 2009, stock-based compensation of $7,823 (2008 - $33,918) was recorded for the 187,500 warrants earned on July 28, 2009 (2008 – July 28, 2008).




b) On September 15, 2008, the Company entered into a consulting agreement with the former employee in Note 9(a), for administrative services. Pursuant to the agreement, the Company agreed to pay the former employee $6,800 per month. This agreement may be terminated upon three months prior written notice.




c) On July 1, 2009, the Company entered into an investor relations agreement.  Pursuant to the agreement, the Company agreed to pay a fee of $1,000 per month for a period of six months beginning on August 1, 2009, and ending January 1, 2010. The Company must also issue 75,000 shares within 7 days of signing the agreement.  Any payments over 45 days will be subject to a penalty fee of 10% per week.  On February 8, 2010, the Company issued 75,000 shares of common stock, which was included in common stock to be issued at December 31, 2009.  On January 1, 2010, the agreement was extended for twelve months and the Company will issue an additional 75,000 shares.  As at June 30, 2010, the additional shares have not been issued and have been included in common stock to be issued.




d) On October 15, 2009, the Company entered into a license agreement with a licensee to grant a non-exclusive license to use, market and sell the Company’s intellectual property for a period of two years.  License and royalty fees are to be determined prior to the first sale.   At the end of the two year period, the agreement can be renewed for a successive two year period by mutual agreement.





F-10





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




Forward-Looking Statements




This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.




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




Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.




In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.




As used in this current report and unless otherwise indicated, the terms "we", "us" and "our" mean Environmental Control Corp., and our wholly-owned subsidiary Environmental Control Corporation, a private Canadian company, unless otherwise indicated.




General Overview




We are a development stage company engaged in the production, research and development of catalytic muffler technology for small displacement engines. Our catalytic muffler technology is registered for two patents in the United States under the titles of “Combined Catalytic Muffler” and “Reverse Flow Catalytic Muffler”. We also hold two patents in Canada under the titles “Combined Catalytic Muffler” and “Reverse Flow Catalytic Muffler” and one patent in Europe under the title of “Reverse Flow Catalytic Muffler”. The filing numbers are located below:





Area
Filing NumberUnited States
6,622,4827,108,590Canada
2,448,7422,448,648Europe
02742591.7




We currently target small spark-ignition engines, including personal transportation devices, off-road recreational vehicles, personal watercrafts, water pumps and in particular the lawn and garden industry. Included under the lawn and garden segment are: walk behind rotary mowers, rear engine riding mowers, front engine lawn tractors, riding garden tractors, walk-behind rotary tillers, snow throwers, commercial turf intermediate walk-behind rotary mowers, commercial turf riding rotary mowers, gasoline powered chainsaws, gasoline powered hand-held blowers, gasoline powered backpack blowers, gasoline powered trimmers/brushcutters and gasoline powered hedge trimmers. We are currently focused on the North American market and we are targeting Original Engine Manufacturers (OEMs). The aftermarket parts segment represents a secondary market.




Cash Requirements




Based on our planned expenditures, we will require approximately $270,000 to proceed with our business plan over the next 12 months. If we secure less than the full amount of financing than we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.




We intend to raise the balance of our cash requirements for the next 12 months from private placements, loans from related parties or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us.




Even though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for funding our operations as we do not have tangible assets to secure any such financing. We anticipate that any additional funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such financing, we may be forced to abandon our business plan.




3




Over the next twelve months we expect to expend funds as follows:




Estimated Net Expenditures During the Next Twelve Months




$Sales and marketing expenses


110,000Research and development expenses


80,000General and administrative expenses


80,000Total


270,000




We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed.




The continuation of our business is dependent upon obtaining further financing, a successful program of exploration and/or development, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.




There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.




Off-Balance Sheet Arrangements




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




Equity Compensation




We currently do not have any stock option or equity compensation plans or arrangements.




Critical Accounting Policies




The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America.  Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.  These estimates and assumptions are affected by management’s application of accounting policies.  We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.




Use of Estimates




The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.




4




Earnings (Loss) Per Share




We compute net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. At March 31, 2010, we have no potentially dilutive securities outstanding.




Financial Instruments




Our financial instruments consist principally of cash, accounts payable, advances from related parties and convertible debentures issued to related parties. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.




Our operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to our operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, we do not use derivative instruments to reduce our exposure to foreign currency risk.




Inflation




The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.




Going Concern




As of June 30, 2010, we have accumulated losses of $2,038,922 since inception, we have a working capital deficiency of $11,798 and have earned no revenues since inception. We rely upon the sale of our common stock to fund our operations. We may not generate any revenues in the future and if we are unable to raise equity or secure alternative financing, we may not be able to continue our operations and our business plan may fail.




If our operations and cash flow improve, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations.




5





Results of Operations – Three Months Ended June 30, 2010 and Three Months Ended June 30, 2009




The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended June 30, 2010, which are included herein.




Our operating results for the three months ended June 30, 2010, for the three months ended June 30, 2009 and the changes between those periods for the respective items are summarized as follows:




Three Months Ended

June 30,2010


Three Months Ended

June 30,2009


Change Between

Three Month Period

Ended

June 30, 2010 and

June 30, 2009Revenue

$Nil


$Nil


$NilDepreciation


692



916



(224
)Foreign exchange loss (gain) loss


13,869



(15,933
)


29,802General and administrative


40,407



82,290



(41,883
)Research and development


800



14,503



(13,703
)Net (Loss)

$
(69,084
)

$
(90,907
)

$
21,823




Our accumulated losses increased to $2,038,922 as of June 30, 2010. Our financial statements report a net loss of $69,084 for the three month period ended June 30, 2010 compared to a net loss of $90,907 for the three month period ended June 30, 2009. Our losses have decreased primarily as a result of decreased wages and lower general and administrative costs.




Results of Operations – Six Months Ended June 30, 2010 and Six Months Ended June 30, 2009




The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended June 30, 2010, which are included herein.




Our operating results for the six months ended June 30, 2010, for the six months ended June 30, 2009 and the changes between those periods for the respective items are summarized as follows:




Six Months Ended

June 30,2010


Six Months Ended

June 30,2009


Change Between

Six Month Period

Ended

June 30, 2010 and

June 30, 2009Revenue

$Nil


$Nil


$NilDepreciation


1,434



1,899



465Foreign exchange loss (gain) loss


5,483



(11,735
)


17,218General and administrative


101,123



169,118



67,995Research and development


3,853



16,436



12,583Net (Loss)

$
(137,064
)

$
(188,228
)

$
51,164




Our accumulated losses increased to $2,038,922 as of June 30, 2010. Our financial statements report a net loss of $137,064 for the six month period ended June 30, 2010 compared to a net loss of $188,228 for the six month period ended June 30, 2009. Our losses have decreased primarily as a result of decreased wages and lower general and administrative costs.




Our total current liabilities as of June 30, 2010 were $102,374 as compared to total liabilities of $71,910 as of June 30, 2009. The increase was due to outstanding auditing and legal fees.




6





Liquidity and Financial Condition




Working Capital




At

June 30,2010

$


At

December 31,2009

$Current assets


90,576



140,775Current liabilities


102,374



88,977Working capital (deficit)


11,798



51,798


Cash Flows




At

June 30,2010

$


At

June 30,2009

$Net cash used in operating activities


(105,348
)


(201,614
)Net cash used in investing activities

Nil


NilNet cash provided by financing activities


51,850



250,000Net increase (decrease) in cash during period


(53,498
)


48,386


Operating Activities




Net cash used by operating activities was $105,348 in the six months ended June 30, 2010 compared with net cash provided by operating activities of $201,6147 in the six months ended June 30, 2009. The decrease in use of cash of $96,266 in operating activities is mainly attributable to accretion of discounts on convertible debentures, stock-based compensation and a gain on foreign exchange.




Investing Activities




Net cash used in investing activities was $nil in the six months ended June 30, 2010 compared to net cash used in investing activities of $nil in the six months ended June 30, 2009.




Financing Activities




Net cash provided by financing activities was $51,850 in the six months ended June 30, 2010 compared to $250,000 provided by financing activities in the six months ended June 30, 2009.




7




Item 3.  Quantitative and Qualitative Disclosures About Market Risk




Not applicable.




Item 4.  Controls and Procedures.




Management’s Report on Disclosure Controls and Procedures




We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.




As of June 30, 2010, the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were (1) designed to ensure that material information relating to our company is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in a timely manner, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information we are required to disclose in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms




Changes in Internal Control over Financial Reporting




There have been no changes in our internal controls over financial reporting that occurred during our quarter ended June 30, 2010 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.




8





PART II - OTHER INFORMATION




Item 1.  Legal Proceedings




We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.




Item 1A.  Risk Factors




As a “smaller reporting company”, we are not required to provide the information required by this Item.




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




None.




Item 3.  Defaults Upon Senior Securities




None.




Item 4.  [Removed and Reserved]




Item 5.  Other Information




None.




Item 6.  Exhibits





Exhibit Number
Description(3)
Articles of Incorporation and Bylaws3.1
Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on May 4, 2005).3.2
By-laws (incorporated by reference from our Registration Statement on Form SB-2 filed on May 4, 2005).(10)
Material Contracts10.1
Contribution Agreement with National Research Council of Canada Industrial Research Program (incorporated by reference from our Current Report on Form 8-K February 4, 2009).(14)
Code of Ethics14.1
Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2008).(31)
Section 302 Certifications31.1*
Section 302 Certification of Principal Executive Officer.31.2*
Section 302 Certification of Principal Financial Officer and Principal Accounting Officer.(32)
Section 906 Certification32.1*
Section 906 Certification of Principal Executive Officer.32.2*
Section 906 Certification of Principal Financial Officer and Principal Accounting Officer.




*    Filed herewith.




9





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.




ENVIRONMENTAL CONTROL CORP.(Registrant)Dated:  August 16, 2010
/s/ Albert HickmanAlbert HickmanPresident and Chief Executive Officer(Principal Executive Officer)Dated:  August 16, 2010
/s/ Gary BishopGary BishopChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)


10