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EX-31.1 - CERTIFICATION - EAST COAST DIVERSIFIED CORPecdc_10k-ex3101.htm
EX-32.1 - CERTIFICATION - EAST COAST DIVERSIFIED CORPecdc_10k-ex3201.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

ý
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: December 31, 2011
 
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 000-50302
 
EAST COAST DIVERSIFIED CORPORATION
(Exact name of registrant as specified in its charter)
   
Nevada
55-0840109
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
810 Franklin Court, Suite H
Marietta, Georgia 30067
(Address of principal executive offices)
 
(770) 953-4184
(Registrant’s telephone number, including area code)
   
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
 
Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨  No ý
  
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨  No ý

Indicate by checkmark 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.  Yes ý  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). Yes ý  No o

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

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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
¨
Accelerated Filer
o
Non-Accelerated Filer
o
Smaller reporting company
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ¨  No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on a closing price of $0.0199 on June 30, 2011 was approximately $1,437,200. As of April 11, 2012, the registrant had 447,974,560 shares of its common stock, par value $0.001, outstanding.

Documents Incorporated By Reference: None.


 
 
 
 
  
TABLE OF CONTENTS
 
 
    
PAGE
PART I
  4
     
ITEM 1.
Business
4
ITEM 1A.
Risk Factors.
9
ITEM 1B.
Unresolved Staff Comments.
16
ITEM 2.
Properties.
16
ITEM 3.
Legal Proceedings.
16
ITEM.4.
Mine Safety Disclosures
16
     
PART II
  17
     
ITEM 5.
Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities.
17
ITEM 6.
Selected Financial Data.
21
ITEM 7.
Management’s Discussion and Analysis Of Financial Condition And Results of Operation.
22
ITEM 7A
Quantitative And Qualitative Disclosures About Market Risk.
27
ITEM 8.
Financial Statements and Supplementary Data
27
ITEM 9.
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.
27
ITEM 9A.
Controls And Procedures.
27
ITEM 9B.
Other Information.
28
     
PART III
  29
     
ITEM 10.
Directors, Executive Officers And Corporate Governance.
29
ITEM 11.
Executive Compensation.
31
ITEM 12.
Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters.
33
ITEM 13.
Certain Relationships And Related Transactions, And Director Independence.
34
ITEM 14.
Principal Accounting Fees And Services.
36
     
PART IV
  36
     
ITEM 15.
Exhibits, Financial Statements Schedules.
36
  
 
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FORWARD LOOKING STATEMENTS

Included in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
      
 
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PART I

Item 1Business.

Background

Overview

East Coast Diversified Corporation (the "Company", “East Coast”, “ECDC”, “we”, “us” or “our”), through its majority owned Subsidiary, EarthSearch Communications International, Inc. (“EarthSearch”), offers a portfolio of GPS devices, RFID interrogators, integrated GPS/RFID technologies and Tag designs. These solutions help businesses worldwide to increase asset management, provide safety and security, increase productivity, and deliver real-time visibility of the supply chain through automation.  EarthSearch is an international provider of Global Positioning Systems (GPS) and telemetric devices, applications and solutions for both consumer and commercial markets.  EarthSearch developed and created devices which feature the world’s first wireless communication between RFID and GPS technologies. These devices provide real-time visibility of assets and goods in transit as well providing specialized security applications for sea ports, shipyards, and power and energy plants.
 
EarthSearch GPS devices offer trucking fleet owners a suite of security, safety and convenience features for both consumer and commercial fleets. EarthSearch offerings such as AutoSearchGPS™, AutoSearchRFID and HALO are vehicle and supply chain management solutions.  The products are designed to be easily installed into any type of vehicle, including automobiles, construction equipment, trucks, buses and other mobile machinery. Customers can use these proprietary devices to address their specific needs, such as substantially reducing the risk of assets being lost, stolen or misrouted; managing a commercial vehicle or a fleet; and precisely track the location of their goods, inventory, and/or vehicles in real-time.
 
Additionally, EarthSearch has developed SchoolConnect - the first school transportation solution and class attendance monitoring system utilizing integrated GPS/RFID technology. This unique solution is designed to provide real-time visibility and security of students traveling on scheduled school bus routes as well as provide parents with real time notification when students miss classes.  This unprecedented technology monitors the real-time status of students as they enter and exit school buses and class rooms.  SchoolConnect can provide real-time alerts to parents and schools when a student gets on the bus or off the bus.  Alerts are sent should a student exit at the wrong bus stop, or should a student fail to get on or off the bus at a scheduled location. The SchoolConnect system provides real-time notification to parents with hand-held devices, such as smart phones as well as communication between parents and teachers.

On October 23, 2011, the Company acquired Rogue Paper, Inc., a California corporation (“Rogue Paper”). Rogue Paper was founded in February 2010 and has developed a proprietary Audience Engagement Platform for media companies to interact with their television audiences via a secondary device, such as a tablet, PC or smart phone. The technology is the integration of a social media platform with entertainment technology. Rogue Paper licenses and provides private label brands to its media clients. Rogue Paper continues to improve and expand the application of its technology, including the collection of audience data behavior patterns and content interest that will become part of its service offering to media clients and other companies looking to increase interactivity and engagement around their content via a second screen or mobile device.

StudentConnect is one of our most recent divisions utilizing GPS technology to enhance the safety of student bus riders. Our ability to create a social application that will enhance user experience will improve the success of this technology and Rogue Paper can play a significant role in helping us achieve this objective.  It is our objective to support the management of Rogue Paper implements its business plan and strategies, including acquisitions, to enhance Rogue Paper's growth.

The addition of Rogue Paper to the Company’s current operations is a strategic approach to continuing innovation of our business and diversification of the business portfolio. The Company plans to add experienced management with an extensive background in social media to its management team in the near future.

Company History

East Coast Diversified Corporation, the “Company”, was incorporated under the laws of the State of Florida on May 27, 1994 under the name Plantastic Corp. to engage in the business of purchasing and operating a tree farm and nursery.  The Company was unsuccessful in this venture and in March 1997, the Company amended its articles of incorporation, reorganized its capital structure and changed its name to Viva Golf, USA Corp.  The Company then acquired the assets of Viva Golf, USA Corp., a Delaware corporation, which consisted of a golf equipment marketing plan and other related assets.  The Company unsuccessfully engaged in the business of golf club manufacturing and marketing and ceased those operations in 1998.
  
 
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The Company acquired 100% of the issued and outstanding shares of common stock of Lifekeepers International, Inc. in exchange for 1,000,000 of its newly issued shares under an Agreement and Plan of Reorganization on October 22, 1998. In connection with this acquisition, the Company changed its name to Lifekeepers International, Inc.  On May 29, 2003, the Company changed its name to East Coast Diversified Corporation and changed its domicile to Nevada. During the year 2001, the Company discontinued its operations, and remained inoperative until April 26, 2006.

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

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

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

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

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

EarthSearch Transactions

On December 18, 2009, the Company's principal stockholders, Frank Rovito, Aaron Goldstein and Green Energy Partners, LLC ( the "Sellers") entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Kayode Aladesuyi (the “Buyer”) pursuant to which the Sellers, owners of record and beneficially of an aggregate of 6,997,150 shares of common stock, par value $0.001 per share  of ECDC (the “Sellers’ Shares”), agreed to sell and transfer the Sellers’ Shares to the Buyer for total consideration of Three Hundred Thousand ($300,000) Dollars. The Purchase Agreement also provided that the Company would enter into a share exchange agreement with EarthSearch Communications International, Inc. ("EarthSearch").
 
On January 15, 2010, ECDC and EarthSearch executed a Share Exchange Agreement (the “Share Exchange Agreement”)  pursuant to which the Company agreed to issue 35,000,000 restricted shares to the shareholders of EarthSearch.  On April 2, 2010 EarthSearch consummated all obligations under the Purchase Agreement and the Share Exchange Agreement. In accordance with the terms and provisions of the Purchase Agreement, the Company acquired 93.49% of the issued and outstanding common stock of EarthSearch.  As a result of the execution and closing of the Purchase Agreement and Share Exchange Agreement, our principal business became the business of EarthSearch.  The board of directors of ECDC passed a resolution electing the board and management of the Company and effectively resigned from the board of ECDC.

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

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

The operations of its former wholly-owned subsidiary, EarthSearch Localizacao de Veiculos, Ltda in Brazil, were discontinued during 2007.
  
 
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On December 31, 2010, the Company acquired 1,800,000 additional shares of EarthSearch from a non-controlling shareholder in exchange for 439,024 of the Company’s common stock.  The Company owns 94.66% of the issued and outstanding stock of EarthSearch at December 31, 2010.

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

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

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

Our internal research showed GPS solutions will become inadequate for business needs and the market would demand or require more sophisticated solutions for asset management, workforce optimization and security. RFID technology was growing at significant rate and a combination of both technologies was inevitable. Management seized the opportunity of the slow economy to develop the world’s first solution for continuous visibility of assets and become a global leader in offering such an integrated solution. We are also continuing to utilize the technology to provide other applications such as oil pipeline monitoring
 
We completed our product development in the first quarter of 2010, and began commercial beta tests in the summer of 2010. We officially launched our new business and product portfolio in 4 th  quarter of 2010. We immediately saw revenue growth as 60% of our 2010 revenue came in the 4 th  quarter of 2010. We expect to outperform our entire 2010 revenue levels in the 1 st  quarter of 2011 and we expect to continue to see significant increases in revenue throughout 2011. We are currently engaged in numerous pilot projects with several major organizations. We have also expanded our product offering into military logistics

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

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

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

Products and Services

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

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

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

Bridging the communication between GPS/RFID and integrating with sensor technology creates solutions that challenge the imagination. We are the creator of the world’s first wireless communication between GPS and RFID interrogators and we solve complex business security, logistics and operational issues.
  
 
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We engage our customers from strategic planning to implementation to make the customer’s desired solution a reality. EarthSearch provides professional services in key areas to ensure successful delivery of the desired solution to the customer. We begin with a clearly defined project objective, creating easy to understand scope of work and project design that clearly explains how we will accomplish our customer’s desired solution.

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

Whatever the industry, EarthSearch uses its proprietary wireless communication between GPS and RFID, integrated with sensor technology, to deliver the most advanced Auto ID solutions in the market. Our proprietary  GATIS  software uses integrated RFID/GPS data with intelligent business logic to deliver solution and information for business decisions.
  
Additionally, EarthSearch has developed SchoolConnect - the first school bus security solution with integrated GPS/RFID technology .  This unique solution is designed to provide real-time visibility and security of students traveling on scheduled school bus routes.  This unprecedented technology monitors the real-time status of students as they enter and exit school buses.
 
SchoolConnect can provide real-time alerts to parents and schools when a student gets on the bus or off the bus.  Alerts are sent should a student exit at the wrong bus stop, or should a student fail to get on or off the bus at a scheduled location. The SchoolConnect  system provides real-time notification to parents with hand-held devices, such as smart phones.

Intellectual Properties

Patents and Other Proprietary Properties

The patent under publication NO US-2009-0069954-A1 was assigned to the company in 2009 by Mr. Kayode Aladesuyi, our Chairman and Chief Executive Officer.  Mr. Aladesuyi also holds a patent and has a patent pending relating to our technology.  These patents are licensed directly to the Company by Mr. Aladesuyi.

The Company has licensing agreements dated September 1, 2010 with two entities for various patents issued in the United States and internationally.

Trademarks

The Company plans to register multiple trademarks with the USPTO. They are LogiBoxx, GATIS, TrailerSeal, RFSeal, and MobileMANAGER.

Copyrights

Although the Company does not hold registered copyrights, the Company does claim copyright protection on all text and graphics used in conjunction with our published digital media (web site) and published printed promotional materials as stated generally in Title 17 of the United States Code, Circular 92, Chapter 1, Section 102.

Competition

We do not believe we have any competitors to our wireless communication between GPS/RFID. This unique solution gives us a significant competitive advantage in the market place. We deliver solutions to complex business issues that cannot be addressed by current technologies in the market.

There are numerous companies globally offering GPS and RFID products. There are also a number of other companies offering RTLS (Real-time Location Services) using software to communicate information to a back-end server for analysis of information collected from GPS/RFID hardware. The information provided by competing services is considered “almost accurate.” Our products and solutions provide real time information for event management with business intelligence decisions made by the hardware in the field.
 
For our standard GPS or RFID solution, some of our competitors are much larger with better resources than us. Our objective is to focus on those areas where we have the greatest competitive advantage in the market. Most of our smaller competitors globally are becoming resellers for our product. More than 70% of our current partners and distributors are former competitors to our GPS offering and now offer our integrated GPS/RFID solution to their customers
  
 
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Rogue Paper, Inc.

On October 23, 2011, the Company acquired Rogue Paper, Inc., a California corporation (“Rogue Paper”). Rogue Paper was founded in February 2010 and has developed a proprietary Audience Engagement Platform for media companies to interact with their television audiences via a secondary device, such as a tablet, PC or smart phone. The technology is the integration of a social media platform with entertainment technology. Rogue Paper licenses and provides private label brands to its media clients. Rogue Paper continues to improve and expand the application of its technology, including the collection of audience data behavior patterns and content interest that will become part of its service offering to media clients and other companies looking to increase interactivity and engagement around their content via a second screen or mobile device.

Based in San Francisco, California and New York City, Rogue Paper is one of the first social TV platforms in market, creating category-leading and award winning social TV experiences such as MTV WatchWith and VH1 Co-Star. For those services Rogue Paper provided an end-to-end development experience from product concept, visual and interaction design, to application development for tablets and smartphones, as well as the social TV platform that powers the application experience.
 
In mid-2011, Rogue Paper’s founders and board made a decision to move from providing highly customized front-end solutions to providing the total solution out-of-the-box for media companies, and a core platform for developing in order to expand and reach more media companies and users.
 
This shift in strategy required creating two divisions, a professional services division for the front-end development and custom engagements for media clients and a platform R&D unit. The Platform R&D unit is focused on creating a core platform for new clients and providing access to our core functionality to third-party developers who are interested in adding social TV interactions to their existing applications. These two divisions will allow Rogue Paper to reach the greatest number of users across the most media properties. Aggregating users and understanding how users interact with television provides for compelling business, new revenue opportunities, and allows Rogue Paper to continue to innovate in the social TV market.
  
Products and Services
 
TV Tune-In is one of the world’s first social TV platform that allows media companies to develop branded iPhone, iPad  and Android applications for television shows and channels. TV Tune-In is Rogue Paper’s proprietary platform, designed to provide a feature-rich Audience Engagement Platform to media and entertainment companies. Whether a viewer engages with a second screen via smartphone, tablet or desktop, TV Tune-In is the ideal white-label solution. It allows broadcasters to quickly onboard television properties and content producers to engage viewers through timed content, curated social commentary and other customized interactions.

These applications aim to attract fans to interact around live viewing of their favorite show, event, or sports team. Users can actively comment, message on Twitter or Facebook and Like their favorite show, chat with friends, play trivia, watch exclusive video content, photos and more. As users interact with the application, they can earn rewards such as virtual badges. TV Tune-In also has the ability to time-shift interactions and commentary in case you aren't watching a show live.

Rogue Paper’s TV Tune-In solution aggregates social commentary from social networks and delivers real-time, individually-curated message stream utilizing services like Facebook and Twitter.

We engage our customers from strategic planning to implementation to make the customer's desired interactive solution a reality. Rogue Paper’s professional services team engages in an iterative, user-centered design process to design world-class user experiences. Our goal is to understand the user and engage in primary research to fully understand the target audience and how they want to interact with the television properties.

Trademarks

The Company registered TV Tune-In trademarks with the United States Patent and Trademark Office.
 
Competition
 
There are numerous platforms direct-to-consumer platforms providing experiences that compete with TV broadcasters for viewer mindshare.  Several other companies, such as Into Now and Miso, can be considered direct competitors to Rogue Paper and have more access to capital.  However, we believe that utilizing the Rogue Paper technology in various social medial platforms, as well within our own business divisions, will provide Rogue Paper with more deployment opportunities and a greater potential for growth.
  
 
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Employees

As of December 31, 2011, we had 15 full-time employees and ]1 full-time consultants.

Available Information

All reports of the Company filed with the SEC are available free of charge through the SEC’s Web site at www.sec.gov.  In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549.  The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

Item 1A. Risk Factors.

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects.  The risks and uncertainties described below are not the only ones facing the Company.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.  The occurrence of any of the following risks could harm our business, financial condition or results of operations.  

Risks Related To Our Business

THERE IS SUBSTANTIAL DOUBT ABOUT THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN.

Our auditor’s report in our 2011 consolidated financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing concern. Because obtaining investment capital in not certain, or that our officers and directors may be unable or unwilling to loan or advance any additional capital to the Company, we may not have the funds necessary to continue our operations. Currently, our liabilities are greater than our assets. Our ability to meet our operating needs depends in large part on our ability to secure third party financing. We cannot provide any assurances that we will be able to obtain financing. See “December 31, 2011 Audited Consolidated Financial Statements.”

WE HAVE SUSTAINED RECURRING LOSSES SINCE INCEPTION AND EXPECT TO INCUR ADDITIONAL LOSSES IN THE FORESEEABLE FUTURE.

Our main operating subsidiary was formed in November 2003 and has reported annual net losses since inception. For our fiscal years ended December 31, 2011 and 2010, we experienced losses of $2,316,173, $2,496,892, respectively. As of December 31, 2011 we had an accumulated deficit of $13,098,092. In addition, we expect to incur additional losses in the foreseeable future, and there can be no assurance that we will ever achieve profitability. Our future viability, profitability and growth depend upon our ability to successfully operate, expand our operations and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue to incur operating losses in the future.

WE DO NOT HAVE SUBSTANTIAL CASH RESOURCES AND IF WE CANNOT RAISE ADDITIONAL FUNDS OR GENERATE MORE REVENUES, WE WILL NOT BE ABLE TO PAY OUR VENDORS AND WILL PROBABLY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.

As of December 31, 2011 our available cash balance was $53,519. We will need to raise additional funds to pay outstanding vendor invoices and execute our business plan. We estimate that it will require an additional $1,000,000 to pay our outstanding vendor invoices and execute our business plan. Our future cash flows depend on our ability to enter into, and be paid under, contracts with merchants to provide our products to their customers. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.
  
 
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Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

THE LIMITED HISTORY OF OUR BUSINESS MAKES IT DIFFICULT TO EVALUATE AN INVESTMENT IN OUR COMPANY.
Due to the early stage of our development, limited financial and other historical data is available for investors to evaluate whether we will be able to fulfill our business strategy and plans, including whether we will be able to achieve sales growth or meet our sales objectives. Further, financial and other limitations may force us to modify, alter, or significantly delay the implementation of such plans. Our anticipated investments include, but are not limited to, information systems, sales and marketing, research and development, distribution and fulfillment, customer support and administrative infrastructure. We may incur substantial losses in the future, making it extremely difficult to implement our business plans and strategies and sustain our then current level of operations. Furthermore, no assurances can be given that our strategy will result in an improvement in operating results or that our operations will become profitable.

OUR BUSINESS MODEL IS UNPROVEN AND MAY ULTIMATELY PROVE TO BE COMMERCIALLY UNVIABLE.

Because of our limited history of operations, we are unable to predict whether our business model will prove to be viable, whether the actual demand we anticipate for our products and services will materialize, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future revenue streams and/or pricing levels will be sustainable. There can be no assurances we will be able to achieve or sustain such revenue streams and/or pricing levels, the results of which could have a material, adverse effect on our business, financial condition and results of operations. Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control, including, among other things, the risks described herein. Our likelihood of success must be considered in light of the problems, expenses, complications, delays, and disruptions typically encountered in forming a new management team, hiring and training new employees, expanding into new markets, application of GPS, telematics and wireless technology still in its infancy and the competitive environment in which we intend to operate.

COMPETITION MAY INCREASE IN THE GPS DEVICE MARKET.

We may in the future compete for potential customers with companies not yet offering GPS devices. Competition in the GPS related industry may increase in the future, partly due to the potentially rebounding economic situation in the United States and internationally. Increased competition could result in price reductions, reduced margins or loss of market share and greater competition for major merchants.

OUR SIGNIFICANT INTERNATIONAL SALES MAKE US SUSECUPIBLE TO A VARIETY OF CURRENCY, GOVERNMENTAL AND BUSINESS CUSTOM RISKS.

Sales to customers outside the United States in Kenya, Nigeria and Tanzania represented 80% of our revenue for the twelve months ended December 31, 2011. We expect that our international business will continue to account for a significant portion of our future revenue. An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and therefore less competitive in foreign markets. Additional risks inherent in our international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers, longer accounts receivable payment cycles, potentially adverse tax consequences, and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have an adverse effect on our future revenue and our results of operations.

WE ARE DEPENDENT ON KAYODE ALADESUYI. OUR FAILURE TO RETAIN MR. ALADESUYI AND/OR ATTRACT NEW HIGHLY QUALIFIED MEMBERS TO OUR COMPANY’S MANAGEMENT TEAM WOULD ADVERSELY AFFECT OUR ABILITY TO GROW OR REMAIN IN OPERATION.

Our success to date has largely been attributable to the skills and efforts of Kayode Aladesuyi, our Chief Executive Officer, President and Treasurer. Our growth and profitability will depend on our ability to strengthen our leadership infrastructure by recruiting and retaining qualified, experienced executive personnel. Competition in our industry for executive-level personnel is fierce, and there can be no assurance that we will be able to hire and retain other highly skilled executive employees, or that we can do so on economically feasible or desirable terms. The loss of Mr. Aladesuyi or our inability to hire and retain other such executives would have a material adverse effect on our business, financial condition and results of operations. In addition, the other members of our management team do not have substantial, if any, experience in the telematics industry.
 
10

 
  
IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN HIGHLY QUALIFIED PERSONNEL, THE QUALITY OF OUR SERVICES MAY DECLINE AND WE MAY NOT SUCCESSFULLY EXECUTE OUR INTERNAL GROWTH STRATEGIES.

Our success depends in large part upon our ability to continue to attract, train, motivate and retain highly skilled and experienced employees, including technical personnel. Qualified technical employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. While we currently have available technical expertise sufficient for the requirements of our business, expansion of our business could require us to employ additional highly skilled technical personnel.

There can be no assurance that we will be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates of compensation could impair our ability to secure and complete customer engagements and could harm our business.

WE ARE EXPOSED TO RISKS ASSOCIATED WITH THE ONGOING FINANCIAL CRISIS AND WEAKENING GLOBAL ECONOMY, WHICH INCREASE THE UNCERTAINTY OF CONSUMERS PURCHASING PRODUCTS AND/OR SERVICES.

The effects of the global financial crisis and resulting economic downturn include, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, and concerns that the worldwide economy has entered into or may enter into a further prolonged recessionary period.

This financial crisis has adversely affected and may continue to materially adversely affect our customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit securing purchases of our products, which could potentially negatively impact our orders, revenue conversion cycle, and cash flows.

In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for our products as they try to improve their operating performance within their reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key differentiator. Where price is a primary decision driver, we may not be able to affectively compete or we may chose not to compete due to unacceptable margins.

The potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.

IF WE ARE NOT SUCCESSFUL IN THE CONTINUED DEVELOPMENT, INTRODUCTION, OR TIMELY MANUFACTURE OF NEW PRODUCTS, DEMAND FOR OUR PRODUCTS AND SERVICES COULD DECREASE SUBSTANTIALLY.

We expect that a significant portion of our future revenue will be derived from sales of newly introduced products and services. The market for our products and services is characterized by rapidly changing technology, evolving industry standards, and changes in customer needs. Specifically, the GPS, telematics, and wireless industries are experiencing significant technological change and advancement, and the industry in which we operate may coalesce in support of one or more particular advanced technologies that our company does not possess. If we fail to modify or improve our products and services in response to changes in technology, industry standards or customer needs, our products and services could rapidly become less competitive or obsolete. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance.

If we are unable to successfully develop and introduce competitive new products and services, and enhance our existing products and services, our future results of operations would be adversely affected. Our pursuit of necessary technology may require substantial time and expense, and we may need to license new technologies to respond to technological change. These licenses may not be available, desirable or contain acceptable terms. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that we will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. We may experience delays in shipping certain of our products and, whether due to manufacturing delays, lack of market acceptance, delays in regulatory approval, or otherwise, they could have a material adverse effect on our business, financial condition and results of operations.
 
11

 
  
WE WILL DERIVE A SIGNIFICANT PORTION OF OUR REVENUES FROM SALES OUTSIDE THE UNITED STATES, AND NUMEROUS FACTORS RELATED TO INTERNATIONAL BUSINESS ACTIVITIES WILL SUBJECT US TO RISKS THAT COULD, AMONG OTHER THINGS, AFFECT THE DEMAND FOR OUR PRODUCTS, NEGATIVELY AFFECTING OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

Part of our strategy will involve the pursuit of growth opportunities in a number of foreign markets. If we are not able to maintain or increase international market demand for our products, services and technologies, then we may not be able to achieve our financial goals.

In many foreign markets, barriers to entry are created by long-standing relationships between potential customers and their local providers and protective regulations, including local content and service requirements. In addition, the pursuit of international growth opportunities requires significant efforts for an extended period before substantial revenues from these markets are realized. Our business could be adversely affected by a variety of uncontrollable and changing factors, including:

 
Unexpected changes in legal or regulatory requirements;
 
Difficulty in protecting our intellectual property rights in a particular foreign jurisdiction;
 
Cultural differences in the conduct of business;
 
Difficulty in attracting qualified personnel and managing foreign activities;
 
Recessions in foreign economies;
 
Longer payment cycles for and greater difficulties collecting accounts receivable;
 
Export controls, tariffs, and other trade protection measures;
 
Fluctuations in currency exchange rates;
 
Nationalization, expropriation, and limitations on repatriation of cash;
 
Social, economic, and political instability;
 
Natural disasters, acts of terrorism, and war;
 
Taxation; and
 
Changes in laws and policies affecting trade, foreign investment, and loans.
   
During the last fiscal year, more than 60% of our revenue was from international partners who were purchasing initial products as part of their partnership program. Our partnership program is a white label program that allow us to brand our technology and software for our partners. We customize the technology (hardware and software) under their corporate brand, makes software modifications and changes to meet the individual local culture. Currently, 50% of our revenue now comes from the domestic market and the other 50% from foreign markets. We generate approximately 60% of our revenue from emerging markets in Africa and Middle East and SE. Asia. Some of the countries where we have generated significant portion of our revenue include Kenya, Tanzania, Nigeria, UAE, Indonesia, Turkey and Vietnam. Approximately 30% of our first fiscal quarter revenue came from Nigeria while approximately 50% of our revenue in the second fiscal quarter came from Kenya and Tanzania.

WE RELY ON THIRD-PARTY RFID DEVICES WE INTEGRATED WITH OUR PRODUCT. THE LOSS OR INABILITY TO MAINTAIN LICENSES WITH SUCH THIRD-PARTIES COULD MATERIALLY, NEGATIVELY IMPACT OUR BUSINESS.

We currently rely upon certain software licensed from third-parties, including software that is integrated with our internally developed software and used to perform key functions. Certain of these licenses, including our license with Google, are for limited terms and can be renewed only by mutual consent. In addition, these licenses may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. There can be no assurance that such licenses will be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain or obtain licenses on such third-party software could result in the discontinuation of, or delays or reductions in, product shipments unless and until equivalent technology is identified, licensed, and integrated with our software. Any such discontinuation, delay, or reduction would harm our business, results of operations, and financial condition.

In addition, the third-party licenses that we may need to acquire in the future may not be exclusive, and there can be no assurance that our competitors will not obtain similar licenses and utilize such technology in competition with us. There can be no assurance that the vendors of certain technology that we may need to utilize in our products, will be able to provide such technology in the form we require, nor can there be any assurance that we will be able to modify our own products to adapt to changes in such technology. In addition, there can be no assurance that financial or other difficulties that may be experienced by such third-party vendors will not have a material adverse effect upon the technologies that may be incorporated into our products, or that, if such technologies become unavailable, we will be able to find suitable alternatives if we in fact need them. The loss of, or inability to maintain or obtain, any such software licenses could potentially result in shipment delays or reductions until equivalent software can be developed, identified, licensed and integrated, and could harm our business, operating results, and financial condition if we ultimately need to rely on such software.
  
 
12

 
   
IF WE DO NOT CORRECTLY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR PRODUCTS, OR WE COULD HAVE COSTLY EXCESS PRODUCTION OR INVENTORIES.

We expect that it will become more difficult to forecast demand as we introduce and support multiple products and as competition in the market for our products intensifies. Significant unanticipated fluctuations in demand could cause the following problems in our operations:

 
If demand increases beyond what we forecast, we would have to rapidly increase production. We would depend on suppliers to provide additional volumes of components, and those suppliers might not be able to increase production rapidly enough to meet unexpected demand.
     
 
Rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing quality could decline, which may also lower our profit margins.
     
 
If forecasted demand does not develop, we could have excess production resulting in higher inventories of finished products and components, which would use cash and could lead to write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity at our facilities, which could result in lower margins.
   
OUR SALES AND GROSS MARGINS FOR OUR PRODUCTS MAY FLUCTUATE OR ERODE.

Our sales and gross margins for our products may fluctuate from quarter to quarter due to a number of factors, including product mix, competition, and unit volumes. In particular, the average selling prices of a specific product tend to decrease over that product’s life. To offset such decreases, we intend to rely primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and, therefore, can be sold at higher average selling prices. However, there can be no assurance that we will be able to obtain any such yield improvements, or cost reductions, or introduce any such new products in the future. To the extent that such cost reductions and new product introductions do not occur in a timely manner or our products do not achieve market acceptance, our business, financial condition, and results of operations could be materially, adversely affected.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AGAINST PIRACY OR THE INFRINGEMENT OF THE PATENTS THAT WE USE BY THIRD-PARTIES DUE TO THE DECLINING LEGAL PROTECTION GIVEN TO INTELLECTUAL PROPERTY.

Preventing unauthorized use or infringement of intellectual property rights that we use is difficult. Piracy of our software represents a potential loss of significant revenue. While this would adversely affect our revenue from the United States market, the impact on revenue from abroad is more significant, particularly in countries where laws are less protective of intellectual property rights. Similarly, the absence of harmonized patent laws makes it more difficult to ensure consistent respect for patent rights. Moreover, future legal changes could make defending our intellectual property rights even more challenging. Continued enforcement efforts of our intellectual property rights may not affect revenue positively, and revenue could be adversely affected by reductions in the legal protection for intellectual property rights for software developers or by compliance with additional legal obligations impacting the intellectual property rights of software developers.

WE RELY ON LIMITED INTELLECTUAL PROPERTY PROTECTION AS AN IMPORTANT ELEMENT OF COMPETITION.

We currently have no trademark registration for any of our products. We rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights generally are limited to the geographic area in which the trademark is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the United States. We intend to register our trademarks in certain jurisdictions where our products are sold. The Company plans to register multiple trademarks with the USPTO. The trademarks being requested are being completed in connection with the LogiBoxx, GATIS, TrailerSeal, RFSeal, and MobileMANAGER products. The Company currently has licenses for several patents, however, to the extent we do not have patents on our products, another company may be able to replicate one or more of our products. Although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us.
  
 
13

 
  
THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT TEAM OR A SIGNIFICANT NUMBER OF OUR MANAGERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO MANAGE OUR BUSINESS.

Our operations depend heavily on the skills and efforts of our senior management team, our President and Chief Executive Officer. We will rely substantially on the experience of the management of our subsidiaries with regard to day-to-day operations. We face intense competition for qualified personnel, and many of our competitors have greater resources than we have to hire qualified personnel. The loss of any member of our senior management team or a significant number of managers could have a material adverse effect on our ability to manage our business.

LIMITED LIABILITY OF DIRECTORS AND OFFICERS.

The Company has adopted provisions to its Articles of Incorporation and Bylaws which limit the liability of its Officers and Directors, and provide for indemnification by the Company of its Officers and Directors to the full extent permitted by Nevada corporate law, which generally provides that its officers and directors shall have no personal liability to the Company or its stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit the shareholder’s ability to hold officers and directors liable for breaches of fiduciary duty, and may require the Company to indemnify its officers and directors.

IF WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR TO PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE OF OUR COMMON STOCK.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current and may adversely affect any market for, and the liquidity of, our common stock.

PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT FOR US TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS.

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

Risks Related to Our Common Stock

IF WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR TO PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE OF OUR COMMON STOCK.
 
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current and may adversely affect any market for, and the liquidity of, our common stock.
  
 
14

 
  
THERE IS A VOLATILE AND LIMITED MARKET FOR OUR COMMON STOCK.

Recent history relating to the market prices of public companies indicates that, from time to time, there may be periods of extreme volatility in the market price of the Company’s securities due to factors unrelated to the operating performance of the Company, or announcements concerning the condition of the Company, especially for stock quoted on the OTCBB. In the last 52 week period, the common stock was quoted on the OTCBB from a high closing price of $0.068 to a low closing price of $0.005 per share. See “Market for Common Equity, Related Stockholder Matter and Issuer Purchases of Equity Securities.” General market price declines, market volatility, especially for low priced securities, or factors related to the general economy or specifically to the Company in the future could adversely affect the price of the common stock. With the low price of the common stock, securities placement by the Company could be very dilutive to existing stockholders, thereby limiting the nature of future equity placements.

WE HAVE NEVER PAID DIVIDENDS AND WE DO NOT ANTICIPATE PAYING DIVIDENDS IN THE FUTURE.

We do not believe that we will pay any cash dividends on our common stock in the future. We have never declared any cash dividends on our common stock, and if we were to become profitable, it would be expected that all of such earnings would be retained to support our business. Since we have no plan to pay cash dividends, an investor would only realize income from his investment in our shares if there is a rise in the market price of our common stock, which is uncertain and unpredictable.

WE ARE SUBJECT TO PENNY STOCK REGULATIONS AND RESTRICTIONS.

The SEC has adopted regulations that generally define penny stocks to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As a penny stock, our common stock may become subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), or the “Penny Stock Rule.” This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is required to be made regarding sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be provided disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

Our common stock might not qualify for exemption from the penny stock restrictions. In any event, even if our common stock were exempt from the penny stock restrictions, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

AS AN ISSUER OF “PENNY STOCK,” THE PROTECTION PROVIDED BY THE FEDERAL SECURITIES LAWS RELATING TO FORWARD LOOKING STATEMENTS DOES NOT APPLY TO US.

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

ADDITIONAL SHARES OF OUR AUTHORIZED CAPITAL STOCK WHICH ARE ISSUED IN THE FUTURE WILL DECREASE EQUITY OWNERSHIP PERCENTAGES OF EXISTING SHAREHOLDERS, COULD ALSO BE DILUTIVE TO EXISTING SHAREHOLDERS, AND COULD DELAY OR PREVENT A CHANGE OF CONTROL OF OUR COMPANY.

We are authorized to issue up to 950,000,000 shares of common stock, and our board of directors has the sole authority to issue unissued authorized stock without further shareholder approval. To the extent that additional common shares are issued in the future, they will decrease existing shareholders’ percentage equity ownership and, depending upon the prices at which they are issued, could be dilutive to existing shareholders.
  
 
15

 
Item 1B.  Unresolved Staff Comments.

Not applicable.

Item 2.  Description of Property.

Properties

Our principal executive office is located at 810 Franklin Court, Suite H, Marietta, Ga. 30067.  We currently lease approximately 3708 square feet of generic office space on 6 year term for $2163, 2227.00, 2295.00, 2363.00, $2434, and 2509 from each month for the 1st through the sixth year respectivelyr . This lease expires 2018.  This space is utilized for office purposes and it is our belief that the space is adequate for our immediate needs. Additional space may be required as we expand our business activities. We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary.

Item 3.  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 4.  Mine Safety Disclosures
 
Not applicable.
  
 
16

 
  
PART II
  
Item 5.  Market for Common Equity and Related Stockholder Matters.

(a) Market Information

Our Class A common stock, $0.001 par value, is quoted on the OTC Bulletin Board under the symbol “ECDC.”

Quarter ended
 
High
 
Low
December 31, 2011
 
$
0.0250
   
$
0.0022
 
September 30, 2011
 
$
0.0299
   
$
0.0069
 
June 30, 2011
 
$
0.0570
   
$
0.0080
 
March 31, 2011
 
$
0.0750
   
$
0.0050
 
December 31, 2010
 
$
0.0450
   
$
0.0044
 
September 30, 2010
 
$
0.2000
   
$
0.0110
 
June 30, 2010
 
$
2.2500
   
$
0.0610
 
March 31, 2010
 
$
1.7500
   
$
0.1000
 

(b) Holders of Common Equity.

As of April 11, 2012, there were approximately 472 holders of record of our common stock. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.

(c) Dividend Information.

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business.

Sales of Unregistered Securities

In the year ending December 31, 2011, the Company issued the following securities pursuant to exemptions from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

On January 4, 2011, pursuant to a consulting agreement, the Company issued 400,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $3,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 8, 2011, the Company issued 32,857,143 shares of the Company’s common stock to Kayode Aladesuyi, the Company’s Chief Executive Officer, in lieu of salary.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 8, 2011, the Company issued 357,143 shares of the Company’s common stock to a vendor for payment of accounts payable in the amount of $2,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 11, 2011, pursuant to stock purchase agreements, the Company issued a total of 1,350,000 shares of the Company’s common stock to two shareholders for an aggregate purchase price of $9,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 12, 2011, pursuant to a stock purchase agreement, the Company issued 1,350,000 shares of the Company’s common stock to a shareholder for a purchase price of $2,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 13, 2011, pursuant to stock purchase agreements, the Company issued a total of 1,125,000 shares of the Company’s common stock to two shareholders for an aggregate purchase price of $7,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
   
 
17

 
  
On January 17, 2011, pursuant to a debt conversion notice, the Company issued 5,000,000 shares of the Company’s common stock to satisfy a debt obligation of $50,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 19, 2011, pursuant to a stock purchase agreement, the Company issued 750,000 shares of the Company’s common stock to one investor for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 27, 2011, pursuant to a stock purchase agreement, the Company issued 100,000 shares of the Company’s common stock to one investor for a purchase price of $1,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On February 10, 2011, pursuant to a stock purchase agreement, the Company issued 78,125 shares of the Company’s common stock to a shareholder for a purchase price of $2,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On February 17, 2011, pursuant to a debt conversion notice, the Company issued 800,000 shares of the Company’s common stock to satisfy a debt obligation of $20,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On February 25, 2011, pursuant to a debt conversion notice, the Company issued 4,055,556 shares of the Company’s common stock to satisfy a debt obligation to a director of $37,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On March 1, 2011, pursuant to a consulting agreement, the Company issued 100,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $3,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On March 14, 2011, pursuant to a stock purchase agreement, the Company issued 156,250 shares of the Company’s common stock to a shareholder for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On March 21, 2011, pursuant to a stock purchase agreement, the Company issued 285,714 shares of the Company’s common stock to a shareholder for a purchase price of $10,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On April 3, 2011, pursuant to a stock purchase agreement, the Company issued 450,000 shares of the Company’s common stock to a shareholder for a purchase price of $10,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On April 22, 2011, pursuant to a stock purchase agreement, the Company issued 500,000 shares of the Company’s common stock to a shareholder for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On April 25, 2011, pursuant to stock purchase agreements, the Company issued 852,525 shares of the Company’s common stock to a shareholder for an aggregate purchase price of $15,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On May 2, 2011, pursuant to a consulting agreement, the Company issued 150,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $5,250.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On May 3, 2011, pursuant to a stock purchase agreement, the Company issued 350,000 shares of the Company’s common stock to a shareholder for a purchase price of $2,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On May 5, 2011, pursuant to a consulting agreement, the Company issued 4,166,666 shares of the Company’s common stock to a consultant for services rendered in the amount of $100,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
  
 
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On May 12, 2011, pursuant to a stock purchase agreement, the Company issued 36,667 shares of the Company’s common stock to one investor for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On May 19, 2011, pursuant to a stock purchase agreement, the Company issued 250,000 shares of the Company’s common stock to a shareholder for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 9, 2011, pursuant to a stock purchase agreement, the Company issued 125,000 shares of the Company’s common stock to a shareholder for a purchase price of $3,750.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 10, 2011, pursuant to a stock purchase agreement, the Company issued 625,000 shares of the Company’s common stock to a shareholder for a purchase price of $3,750.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 14, 2011, pursuant to a debt conversion notice, the Company issued 1,200,000 shares of the Company’s common stock to satisfy a debt obligation of $30,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 14, 2011, pursuant to a consulting agreement, the Company issued 800,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $20,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 17, 2011, pursuant to a stock purchase agreement, the Company issued 250,000 shares of the Company’s common stock to one investor for a purchase price of $7,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On June 27, 2011, pursuant to a stock purchase agreement, the Company issued 365,000 shares of the Company’s common stock to a shareholder for a purchase price of $3,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 6, 2011, pursuant to a stock purchase agreement, the Company issued 1,277,777 shares of the Company’s common stock to two investors for a purchase price of $22,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 14, 2011, pursuant to a stock purchase agreement, the Company issued 213,889 shares of the Company’s common stock to two investors for a purchase price of $7,700.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 18, 2011, pursuant to a stock purchase agreement, the Company issued 277,777 shares of the Company’s common stock to one investor for a purchase price of $7,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 18, 2011, the Company issued 5,000,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $137,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 18, 2011, the Company issued 750,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $20,625.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 18, 2011, the Company issued 600,000 shares of the Company’s common stock to a consultant for services rendered in the amount of $16,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 25, 2011, pursuant to a stock purchase agreement, the Company issued 400,000 shares of the Company’s common stock to one investor for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
  
 
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On July 28, 2011, pursuant to a stock purchase agreement, the Company issued 328,000 shares of the Company’s common stock to one investor for a purchase price of $4,100.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On July 29, 2011, pursuant to a stock purchase agreement, the Company issued 333,333 shares of the Company’s common stock to one investor for a purchase price of $4,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On August 5, 2011, pursuant to a stock purchase agreement, the Company issued 300,000 shares of the Company’s common stock to one investor for a purchase price of $1,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On August 8, 2011, pursuant to a stock purchase agreement, the Company issued 500,000 shares of the Company’s common stock to two investors for a purchase price of $4,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On August 15, 2011, pursuant to a stock purchase agreement, the Company issued 100,000 shares of the Company’s common stock to one investor for a purchase price of $1,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On August 22, 2011, pursuant to a stock purchase agreement, the Company issued 600,000 shares of the Company’s common stock to one investor for a purchase price of $4,950.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On September 14, 2011, pursuant to a stock purchase agreement, the Company issued 833,333 shares of the Company’s common stock to one investor for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 1, 2011, the Company issued 1,002,000 shares of the Company’s common stock to two consultants for services rendered in the amount of $6,555.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 3, 2011, the Company issued 1,250,000 shares of the Company’s common stock to two consultants for services rendered in the amount of $25,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 5, 2011, pursuant to a debt conversion notice, the Company issued 6,000,240 shares of the Company’s common stock to satisfy a debt obligation of $25,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 14, 2011, pursuant to a stock purchase agreement, the Company issued 100,000 shares of the Company’s common stock to one investor for a purchase price of $1,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 14 2011, pursuant to a debt conversion notice, the Company issued 3,447,290 shares of the Company’s common stock to satisfy a debt obligation of $16,391.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 18 2011, pursuant to a debt conversion notice, the Company issued 3,750,000 shares of the Company’s common stock to satisfy a debt obligation of $13,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 19, 2011, pursuant to a stock purchase agreement, the Company issued 1,000,000 shares of the Company’s common stock to one investor for a purchase price of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
  
 
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On October 26, 2011, pursuant to a stock purchase agreement, the Company issued 3,000,000 shares of the Company’s common stock to one investor for a purchase price of $10,950.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On October 31, 2011, pursuant to a debt conversion notice, the Company issued 10,000,000 shares of the Company’s common stock to satisfy a debt obligation of $32,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On November 1, 2011, pursuant to a debt conversion notice, the Company issued 8,000,000 shares of the Company’s common stock to satisfy a debt obligation of $36,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On November 1, 2011, pursuant to a debt conversion notice, the Company issued 3,000,000 shares of the Company’s common stock to satisfy a debt obligation of $15,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On November 29, 2011, pursuant to a debt conversion notice, the Company issued 11,750,000 shares of the Company’s common stock to satisfy a debt obligation of $32,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On November 30, 2011, pursuant to a debt conversion notice, the Company issued 3,000,000 shares of the Company’s common stock to satisfy a debt obligation of $15,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On December 8, 2011, pursuant to a debt conversion notice, the Company issued 1,000,000 shares of the Company’s common stock to satisfy a debt obligation of $5,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On December 8, 2011, pursuant to a debt conversion notice, the Company issued 800,000 shares of the Company’s common stock to satisfy a debt obligation of $4,000.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On December 15, 2011, pursuant to a debt conversion notice, the Company issued 23,868,825 shares of the Company’s common stock to satisfy a debt obligation of $28,750.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On December 21, 2011, pursuant to a debt conversion notice, the Company issued 11,750,000 shares of the Company’s common stock to satisfy a debt obligation of $32,500.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

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

(d) Securities Authorized For Issuance Under Equity Compensation Plans

In September 2010, the Company’s Board of Directors approved and adopted the East Coast Diversified Corporation 2010 Incentive Stock Plan (the “Plan”) and reserved 25,000,000 shares of the Company’s common stock for issuance under the Plan.  The Plan allows for two types of grants: 1) options and 2) stock awards and restricted stock purchase offers.  On March 16, 2012 the Board of Directors amended the Plan to increase the authorized shares under the plan to 50,000,000 shares.  As of April 15, 2012, total stock awards of 9,500,000 shares were granted to certain individuals as compensation for legal services.

Transfer Agent

Our transfer agent is ClearTrust, LLC with an address at 16540 Pointe Village Dr. Suite 206 Lutz, FL 33558.

Item 6.  Selected Financial Data.

Not applicable.
  
 
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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis of our financial condition and results of operations includes “forward-looking” statements that reflect our current views with respect to future events and financial performance.  We use words such as “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements.  You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements.  We will not necessarily update the information in this discussion if any forward-looking statement later turns out to be inaccurate.  This discussion and analysis of financial condition and results of operations should be read in conjunction with our Financial Statements included in this filing.  Management is uncertain that it can generate sufficient cash to sustain its operations in the next twelve months, or beyond.  We can give no assurances that we will be able to generate sufficient revenues to be profitable, obtain adequate capital funding or continue as a going concern.

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

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

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

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

We completed our product development in the first quarter of 2010, and began commercial beta tests in the summer of 2010. We officially launched our new business and product portfolio in fourth quarter of 2010. We immediately saw revenue growth as 60% of our 2010 revenue came in the 4th quarter of 2010. We outperformed our entire 2010 revenue levels in the 1st quarter of 2011 and we expect to continue to see significant increases in revenue throughout 2011. We are currently engaged in numerous pilot projects with several major organizations, including but not limited to the following partners and customers:   G3 enterprises (Gallo Wines), Tanzania Revenue Authority through Utrack, Servpro in Arizona, Interactive Group in UAE and Pakistan, Belfor in Canada, Utrack in Canada,  Cnord in Russia and Conctena in Switzerland,   Our business with each of the aforementioned organizations consists of the following:

G3 enterprises (“Gallo Wines”) :

We have executed a GPS service agreement with G3 Enterprises. We have successfully completed phase one of the pilot which involved the tracing, tracking and locating of 1,200 tractor trailers carrying grapes. Phase 2 of the pilot is to complete testing of our system on wine tankers and to implement a custom application that will identify the weight of wine loaded at the winery. We have received compensation for the initial pilot and have developed software that will be deployed upon completion. We receive monthly subscription fees for the products currently deployed in the pilot.

Tanzania Revenue Authority through Utrack :

The RFP of “Request For Proposal” issued by the Tanzania revenue authority is still under evaluation. However, we have successfully delivered more than $75,000 worth of products and services to Utrack for sales to private oil distribution companies throughout Eastern Africa. We also receive ongoing subscription fees for the devices deployed under the agreement. We have executed a distributor agreement between EarthSearch and Utrack. We have completed the pilot (our pilot program consists of physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment) and have begun to receive compensation for subscription services for all devices activated as well as additional purchase orders from Utrack under the distributor licensing agreement.
   
 
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Servpro in Arizona :

We are still in the early stages of the pilot phase. We have been paid for the hardware delivered under the pilot agreement. Once the pilot program (consisting of physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment) is completed we will be able to present the solution to all Servpro licensees across North America.

Interactive Group in UAE and Pakistan:

We have delivered products to Interactive Group and have been paid for all devices used under the pilot program, which consisted of physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment.  We are not receiving any compensation during the pilot phase. We expect the pilot will be completed by the end of first fiscal quarter in 2012.  We have executed a Distributor licensing agreement with Interactive Group.

Belfor in Canada :

We have delivered integrated GPS/RFID products to Belfor pursuant to a GPS service agreement. We have successfully deployed products and services for the automation of monitoring of equipment usage by drivers in the field using RFID, while also creating a billing log using GPS data. We have been paid for the products and will begin receiving on-going subscription service fees for all products beginning January 2012.

Cnord in Russia and Conctena in Switzerland :

We are still in the pilot phases for both CNord and Contecna, with our pilot program consisting of, physical installation of our products and devices on vehicles locally and provisioning of our software for local deployment. We need to complete local certification in both markets before we will fully deploy in the markets. The Russian and European Union require domestic certification similar to that of the Federal Communication Commission. We have successfully completed both pilots and hope to commence further operations later in the first quarter of 2012. We have not executed any partner agreements with either of these companies.

MultiPlant LTD, Ghana:

The RFP or “Request For Proposal” is still under evaluation by the Ghanaian Revenue Authority. However, we have delivered the products required for the pilot. The pilot project will involve the installation of our products on vehicles locally and deployed with our software. We have executed a distributor licensing agreement with Multiplant LTD.

We have also expanded our product offering into military logistics. Our integrated GPS/RFID technology would allow most military supply chain operations to monitor and track movement of supply in the theater of operation, (real-time) validating destination, equipment and material delivered to specific troops in the theatre of operation. We have submitted a proposal to the Military of Nigeria and the project continues to be under consideration.

Pursuant to a partner agreement the Company has been granted distribution rights to MW Marketing, a New Jersey based Department of Defense minority contractor with registration rights to bid in government contracts. We have also made an unsolicited proposal to the US department of Defense and continue to pursue these opportunities as part of our expansion into military logistics.

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

Part of our strategy is to implement a merger and acquisition plan as a part of the 2011 growth strategy. We will focus on targeting those GPS firms with a concentration of clients with advanced supply chain solution needs.  As aforementioned, on October 23, 2011, the Company acquired 51% of Rogue Paper pursuant to the Rogue Paper Share Exchange Agreement. The Company will also seek joint venture opportunities where its technology will have significant impact on the success of the opportunities.
   
 
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Results of Operations

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

Revenue

For the year ended December 31, 2011, our revenue was $612,482 compared to $129,248 for the same period in 2010, representing an increase of 374%. This increase in revenue was directly attributable to the Company’s decision to change its business focus and product portfolio in 2010, from simply marketing GPS devices to developing full-fledged supply chain solutions which include RFID technologies, other supply chain and warehouse solutions, the expansion of marketing activities to develop a global distribution network for its new product portfolios, and the acquisition of Rogue Paper, Inc, which represented $94,821 of total revenues.  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 $203,776 and $76,984 for the years ended December 31, 2011 and 2010, respectively.  Revenues for consulting services were $352,041 for the year ended December 31, 2011, compared to $21,757 for the year ended December 31, 2010.  User fees were $56,665 and $30,507 for the years ended December 31, 2011 and 2010, respectively.

Operating Expenses

For the year ended December 31, 2011, operating expenses were $2,517,768 compared to $2,508,156 for the same period in 2010, an increase of 0.4%.

Cost of revenues increased $219,275 and is directly attributable to the increase in revenues for the year ended December 31, 2011.

For the year ended December 31, 2011, selling, general and administrative expenses were $2,216,920 compared to $2,404,804 for the same period in 2010, a decrease of 7.8%. This decrease was primarily caused by accounting fees decreased from $89,278 to $27,282, compensation for board members decreased from $170,000 to $80,000, professional fees related to public company compliance and investor relations increased from $160,350 to $475,997, research and development costs decreased from $333,971 to $75,372, and salary expenses decreased from $1,408,008 to $1,172,382.
 
Our salary expenses decreased significantly in 2011 over the same period in 2010 due to the streamlining of production and sales functions and the due to the conducting of beta tests for our integrated GPS/RFID solution in 2010. 
 
Our professional fees related to public company compliance and investor relations increased significantly because we filed an S-1 registration statement in 2011 as well as increased our investor relations efforts.
 
Further, we had various fees associated with the acquisition of Rogue Paper, including but not limited to, legal fees, transfer agent fees and other related costs causing us to incur significant expenses.
 
The lack of immediate success in the marketing and promotion of our Integrated GPS/RFID product in 2010 coupled with our inability to raise significant capital, caused us to terminate all of the employees hired in 2010 to the develop our marketing program.
 
Net Loss

We generated net losses of $2,316,173 for the year ended December 31, 2011 compared to $2,496,892 for the same period in 2010, a decrease of 7.2%.  Included in the net loss for the year ended December 31, 2011 was a loss on the conversion of debt of $432,270, interest expense of $177,308, reduced by a gain on the recovery of accounts payable of $146,859 and non-controlling interests’ share of the net loss of EarthSearch and Rogue Paper of $51,832.  Included in the net loss for the year ended December 31, 2011 was a loss on the conversion of debt of $66,157, loss on the purchase of non-controlling interest of $55,849 and interest expense of $108,550, reduced by non-controlling interests’ share of the net loss of EarthSearch of $112,507.
  
 
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Liquidity and Capital Resources

Overview

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

Liquidity and Capital Resources during the year ended December 31, 2011 compared to the year ended December 31, 2010

As of December 31, 2011, we had cash of $53,519 and a working capital deficit of $4,499,271.  The Company generated a negative cash flow from operations of $533,325 for the year ended December 31, 2011, as compared to cash used in operations of $1,060,618 for the year ended December 31, 2010. The negative cash flow from operating activities for the year ended December 31, 2011 is primarily attributable to the Company's net loss from operations of $2,316,173, offset by noncash depreciation and amortization of $110,390, stock issued for services of $345,430, loss on the conversion of debt of $432,270, accrued interest on loans payable of $111,347, accretion of beneficial conversion feature on notes payable of $42,358, amortization of payment redemption premium of $16,899, amortization of prepaid license fee of $50,000 and net cash from changes in operating assets and liabilities of $725,986, offset by noncontrolling interests in the loss of EarthSearch and Rogue Paper of $51,832.  

The negative cash flow from operating activities for the year ended December 31, 2010 is primarily attributable to the Company's net loss from operations of $2,496,892, offset by depreciation and amortization expense of $197,112, stock issued in lieu of cash compensation of $183,159, in-kind contribution of services of $347,846, loss on conversion of debt of $66.157, loss on disposal of assets of $21,779, loss on acquisition of non-controlling interest in EarthSearch of $55,849, interest accrued on notes payable of $91.755, and decreased investment in operating working capital elements of $555,124, offset by noncontrolling interests in the loss of EarthSearch of $112,507.  

The decrease in investing activities is attributable to the purchase of equipment of $6,760 during the year ended December 31, 2010, compared to $4,391in 2011, $62,698 of cash received in the acquisition of Rogue Paper during the year ended December 31, 2011 2011, and the proceeds received and payments of escrow deposits in the year ended December 31, 2010.
  
Cash generated from our financing activities was $527,259 for the year ended December 31, 2011, compared to $992,884 during the comparable period in 2010. This decrease was primarily attributed to the proceeds from the issuance of common stock, a decrease from $656,125 to $186,200, proceeds for the sale of preferred stock in 2011 of $5,000, proceeds from loans payable to related parties, a decrease from $264,823 to $205,919, proceeds from loans payable to unrelated parties, a decrease from $376,931 to $244,755, offset by the repayments of loans payable to related parties, a decrease from $281,995 to $112,115 and repayments of loans payable to unrelated parties in 2011 of $2,500.

We will require additional financing during the current fiscal year according to our planned growth activities. During the period from January 1, 2012 to April 13, 2012, we received proceeds from the sale of 250,000 shares of our common stock of $1,000 and $60,000 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-five 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.

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

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

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

The Company grants unsecured credit to commercial and governmental customers in the United States and abroad.  Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.  The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions

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

Inventories

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

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

 
·
Revenue for RFID/GPS products is recognized when shipments are made to customers.  The Company recognizes a sale when the product has been shipped and risk of loss has passed to the customer.
 
·
Revenue for consulting services is recognized when the services have been performed.
 
·
Revenue for service fees is recognized ratably over the term of the use agreement.
  
 
26

 
   
Impairment or Disposal of Long-Lived Assets

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

Stock-Based Compensation

The Company accounts for Employee Stock-Based Compensation under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.  
 
The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees” ("ASC 505-50"). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders' equity/(deficit) over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.

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

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.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

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

Item 8.  Financial Statements.

Our financial statements are contained in pages F-1 through F-22 which appear at the end of this Annual Report.

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.  Controls and Procedures.

(a) Evaluation of Disclosure and Control Procedures

The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
  
 
27

 
  
Our principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011, and concluded that the disclosure controls and procedures were not effective as a whole.

(b) Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.  The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). 
 
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements.  Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management has conducted, with the participation of our Chief Executive Officer and our Principal Accounting Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011.  Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control over Financial Reporting – Guidance for Smaller Public Companies. Based on this evaluation, Management concluded that our system of internal control over financial reporting was not effective as of December 31, 2011, based on these criteria. 

(c) 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.

Item 9B.  Other Information.

None.
   
 
28

 
  
Part III

Item 10.  Directors, Executive Officers, and Corporate Governance.

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at April 16, 2012:

Name
 
Age
 
Positions
 
Held
Position
Since
             
Kayode A. Aladesuyi
 
51
 
Chief Executive Officer, President, Interim Chief Financial Officer and Chairman
 
4/2/2010
Frank Russo
 
53
 
Director
 
4/2/2010
Edward H. Eppel
 
68
 
Director
 
4/2/2010
Anis D. Sherali
 
61
 
Director
 
4/2/2010

Kayode A. Aladesuyi ,

Kayode A. Aladesuyi is a founder of EarthSearch, and was appointed as Chairman of the Board of Directors, Chief Executive Officer, President and Interim Chief Financial Officer of the Company on April 2, 2010.  Mr. Aladesuyi held similar positions with EarthSearch since January 2004. Prior to EarthSearch, Mr. Aladesuyi was the founder (in 1999), chief executive officer, and president of PlanetLink Communications, Inc. which engaged in the development of satellite-enabled products based on GPS technology and provision of monitoring services in the United States. Mr. Aladesuyi resigned from PlanetLink Communications to establish EarthSearch. He has a B.S. degree in accounting from Alabama State University.

Edward H. Eppel

Edward H Eppel was appointed as a Director on April 2, 2010 and had served as a Director of EarthSearch since October 2009.  Mr. Eppel currently is the vice president of LPS Ind., a leading manufacturer of special printed flexible films for the Medical/Food/Beverage manufacturing industries, with sales in both North America and Europe. He was the founder and president of RAE Container Inc., a manufacturer of corrugated products, molded form, cushioning and protective materials for Air/Sea/Ground shipments. Mr. Eppel and RAE Container Inc., merged with LPS in 1997. He is a "Lifetime" member of the IOPP (Institute of Packaging Professionals) and past President of the Meadowlands chapter. Mr. Eppel also served as president of the Society of Packaging and Handling Engineers, along with serving as chairman of Morris County Municipality Utilities Authority (NJ) for the past 25 years. This public utility serves more than 500,000 residents with water and a complete recycling program reducing landfill waste by over 50%. Mr. Eppel has a B.S. degree in industrial management from Rutgers University.

Anis D. Sherali

Anis Sherali was appointed as a Director on April 2, 2010 and had served as a Director of EarthSearch since June 2009. Mr. Sherali is currently the president/CEO of Energy Consulting Group and has assisted numerous electric utility clients analyze and solve optimization problems related to electric utility operations and economic dispatch. His responsibilities include the preparation of engineering feasibility analyses of alternative power supply sources, long-range planning studies for generation and transmission systems, software development related to power supply planning and utility rate analysis. Mr. Sherali has more than 25 years of experience in power supply planning and pooling evaluations, wheeling and coordination analysis, electric utility rates, finance and accounting, contract negotiations, generation analysis, utility operations and dispatch, economic and regulatory support and power supply consulting with numerous clients in more than 15 states. Mr. Sherali has a masters degree in industrial management from Georgia Tech.

Frank Russo

Frank Russo was appointed Executive Vice President and a Director on April 2, 2010 and served as Executive Vice President of EarthSearch from January 2010 through October 1, 2010. Mr. Russo’s position as Executive Vice President was terminated in October 2010 but he continues to serve as a director of the Company.  Currently, Mr. Russo is representing various manufacturers, including FIFA, Kappa and KangaROOS, consulting with their sales and marketing departments throughout Metro NY/NJ and the Mid-Atlantic regions. He was formerly the president of Gladiator Sales, a regional marketing and sales company that represented Puma North America ($500+ million in sales) throughout New England, Mid-Atlantic and the Metro NY/NJ regions. Prior to Gladiator Sales, he managed a sales division for Diadora, an Italian sporting goods manufacturer. Mr. Russo has a B.S. degree in business administration from Saint Michael’s College.
    
 
29

 
  
Board of Directors

Directors are elected at our annual meeting of shareholders and serve for one year until the next annual meeting of shareholders or until their successors are elected and qualified.

Nominating Committee

The Company does not have a standing nominating committee or a committee performing similar functions.

There are no agreements or understandings for the officer or director to resign at the request of another person and the above-named officers are not acting on behalf of nor will act at the direction of any other person..

For the year ended December 31, 2011, the Board held 4 meetings but acted by Unanimous Written Consent 3 times.

Audit Committee

The Company does not have an Audit committee or a committee performing similar functions.

Family Relationships

There are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.

Subsequent Executive Relationships

No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past five years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past five years.

None of our directors or executive officers or their respective immediate family members or affiliates are indebted to us.

Legal Proceedings

None of the members of the board of directors or other executives has been involved in any bankruptcy proceedings, criminal proceedings, any proceeding involving any possibility of enjoining or suspending members of our board of directors or other executives from engaging in any business, securities or banking activities, and have not been found to have violated, nor been accused of having violated, any Federal or State securities or commodities laws.

Compliance with Section 16(A) of the Exchange Act

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
 
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended December 31, 2011, were timely.
  
 
30

 
  
Code of Ethics.

We do not currently have a Code of Ethics.  We intend to adopt a code of ethics that would be appropriate for our business as soon as practicable.
  
Item 11.  Executive Compensation.

The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last two completed fiscal years.  The following information includes the dollar value of base salaries and certain other compensation, if any, whether paid or deferred.  The executive officers of the company did not receive any stock award, option award, non-equity incentive plan compensation, or nonqualified deferred compensation earnings during the last two completed fiscal years.
   
Summary Compensation Table
    
Name and Principal
Position
 
Year
 
Salary
   
Bonus
   
Stock
Awards (7)
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
   
All Other
Compensation
   
Total
 
                                               
Kayode Aladesuyi, Chariman,
 
2011
 
$
175,000
   
$
600,000
   
$
-
   
$
-
   
$
-
   
$
21,723(5)
   
$
706,723
 
Chief Executive Officer, President
 
2010
 
$
350,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
18,530
(5)
 
$
408,530
 
and Chief Financial Officer (1)
 
2009
 
$
271,876
   
$
-
   
$
-
   
$
-
   
$
-
   
$
12,000
(5)
 
$
283,876
 
                                                             
Frank Russo, Executive
 
2011
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Vice President (1) (2)
 
2010
 
$
187,500
   
$
-
   
$
-
   
$
-
   
$
-
   
$
6,530(6)
   
$
194,034
 
   
2009
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                             
John Ferguson
 
2011
 
$
 
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Vice President (1) (3)
 
2010
 
$
43,068
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
43,068
 
   
2009
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                             
Frank Rovito, Chief
 
2011
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Executive Officer, Chief
 
2010
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Financial Officer and Director (4)
 
2009
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                             
Aaron Goldstein, Vice
 
2011
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
President and Chairman (4)
 
2010
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
   
2009
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
  
(1)  Appointed on April 2, 2010.
 
(2)  Position was eliminated on October 1, 2010.
 
(3)  Resigned on September 21, 2010.
 
(4)  Resigned on April 2, 2010.
 
(5)  All other compensations includes f car allowance each year and  health insurance premiums.
 
(6)  All other compensation includes $6,350 of health insurance premiums.
 
(7)  Stock awards are valued at Market Value on date of award.
  
 
31

 
   
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The Company had no outstanding equity awards at the end of the most recent completed fiscal year.

Compensation of Directors

The general policy of the Board is that Directors earn $10,000 per quarter for each quarter served. The Board of Directors has the primary responsibility for considering and determining the amount of Director compensation. The board waived compensation for the 2nd and 3rd quarters if the year ended 2011. The Company accrued compensation for the board for the 1st and 4th quarters

The following table shows amounts earned by each Director in the fiscal year ended December 31, 2011.
     
Director
 
Year
 
Fees Earned
or Paid in
Cash (1)
   
Stock
Awards (2)
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
   
Change in
Pension
Value and Nonqualified
Deferred
Compensation
Earnings
   
All Other
Compensation
   
Total
 
                                               
Kayode Aladesuyi
 
2011
 
$
20,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
20,000
 
   
2010
 
$
40,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
40,000
 
                                                             
Frank Russo
 
2011
 
$
20,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
20,000
 
   
2010
 
$
40,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
40,000
 
                                                             
Edward Eppel
 
2011
 
$
20,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
20,000
 
   
2010
 
$
40,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
40,000
 
                                                             
Anis D. Sherali
 
2011
 
$
20,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
20,000
 
   
2010
 
$
40,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
40,000
 
                                                             
Afred ("Ted") Ruhly (3)
 
2011
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
   
2010
 
$
10,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
10,000
 
    
(1)  Reflects the amount of fees earned during each year ended on December 31.
 
(2)  Stock awards are valued at Market Value on date of award.
 
(3)  Mr. Ruhly was removed as a Director on September 30, 2010.
   
 
32

 
  
Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The following table summarizes certain information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of outstanding Common Stock as of August 15, 2011, by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of our directors, (iii) each of our named executive officers (as defined in Item 403(a) of Regulation S-K under the Securities Act), and (iv) all executive officers and directors as a group. Except as indicated in the footnotes below, the security and stockholders listed below possess sole voting and investment power with respect to their shares.

Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Ownership (1)
   
Percent of Class (2)
 
                 
Kayode Aladesuyi (3)
   
48,717,281
     
26.94%
 
                 
Frank Russo (4)
   
7,073,895
     
3.91%
 
                 
Edward Eppel
   
2,607,154
     
1.44%
 
                 
AnisSherali (5)
   
33,104,689
     
18.30%
 
                 
All Directors and Executive Officers as a Group (4 persons)
   
91,503,019
     
50.59%
 

(1)
“Beneficial Owner” means having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. The definition of beneficial ownership includes shares, underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power. The mailing address for all officers and directors is 120 Interstate North Parkway SE, Suite 445, Atlanta, GA 20853.

(2)
For each shareholder, the calculation of percentage of beneficial ownership is based upon 180,861,766 shares of Common Stock outstanding as of August 15, 2011, and shares of Common Stock subject to options, warrants and/or conversion rights held by the shareholder that are currently exercisable or exercisable within 60 days, which are deemed to be outstanding and to be beneficially owned by the shareholder holding such options, warrants, or conversion rights. The percentage ownership of any shareholder is determined by assuming that the shareholder has exercised all options, warrants and conversion rights to obtain additional securities and that no other shareholder has exercised such rights.

(3)
This total includes 3,329,216 shares held by Mr. Aladesuyi’s five dependent children, of which he has voting and dispositive power.

(4)
This total includes 120,724 shares held by Mr. Russo’s three dependent children, of which he has voting and dispositive power.

(5)
Includes 250,000 shares held by Mr. Sherali’s wife, Farah Sherali, of which he has shared voting and dispositive power.
  
 
33

 
    
Description of Securities
  
The following summary includes a description of material provisions of the Company’s capital stock.

Authorized and Outstanding Securities

The Company is authorized to issue 950,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of our preferred stock par value $0.001 per share. As of April 11, 2012, there were issued and outstanding 447,974,560  shares of our common stock and no shares of our Series A preferred stock.

Common Stock

The holders of our common stock are entitled to one vote for each share on all matters to be voted on by the shareholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefore. In the event of a liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.

Dividends

Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of our board of directors. We intend to retain earnings, if any, for use in its business operations and accordingly, the board of directors does not anticipate declaring any dividends prior to a business combination transaction.

Undesignated Preferred Stock

Our Articles of Incorporation authorize the issuance of 50,000,000 shares of preferred stock, par value $0.001, and vest in the Company’s board of directors the authority to establish series of unissued preferred shares by the designations, preferences, limitations and relative rights, including voting rights, of the preferred shares of any series so established to the same extent that such designations, preferences, limitations, and relative rights could have been fully stated in the Articles of Incorporation, and in order to establish a series, the board of directors shall adopt a resolution setting forth the designation of the series and fixing and determining the designations, preferences, limitations and relative rights, including voting rights, thereof or so much thereof as shall not be fixed and determined by the Articles of Incorporation. The board of directors is authorized, without further action by our shareholders, to provide for the issuance of preferred shares and any preferred shares so issued would have priority over the common stock with respect to dividend or liquidation rights. Any issuance of preferred shares may have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of the holders of common stock.

Series A Preferred Stock

The Company is authorized to issue 1,000,000 shares of the Company’s Series A Preferred Stock. As of December 31, 2011, 0 shares of the Company’s Series A Preferred Stock are issued and outstanding. One share of Series A Preferred Stock entitles holders to 100 votes for all matters submitted to a vote of the Company’s common stockholders.

Item 13.  Certain Relationships and Related Transactions.

Frank Russo, a Director of the Company, is a holder of an unsecured non-interest bearing note of the Company.  At December 31, 2009, $476,206 was due to Mr. Russo.  During the year ended December 31, 2010, Mr. Russo converted $60,000 of the note into 6,000,000 shares of the Company’s common stock.  The Company borrowed $0 and $29,800 from and repaid $12,027 and $24,000 to Mr. Russo during the years ended December 31, 2011 and 2010, respectively.
  
 
34

 
  
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, 2009, $126,400 was due to Mr. Eppel.  The Company borrowed $299 and $31,085 from Mr. Eppel during the years ended December 31, 2011 and 2010, respectively.  $15,763 and $15,771 of interest was accrued and included in the loan balance for the years ended December 31, 2011 and 2010, respectively.

On April 2, 2010, prior to the Share Exchange, Anis Sherali, a Director of the Company, purchased 200,000 shares of the Company’s common stock for $5,000.  From April 2, 2010 through December 31, 2010 Mr. Sherali purchased 27,769,232 shares of the Company’s stock for $265,900.  During the 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.

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

On July 30, 2010, Charms Investments Inc. (“Charms”) assigned its interest in their $174,425 convertible note to Mr. Aladesuyi. During the year ended December 31, 2010, the Company borrowed and additional $8,000 from and repaid $100,913 to Mr. Aladesuyi.  During the year ended December 31, 2011, the Company repaid $71,012 to Mr. Aladesuyi.  Also during the year ended December 31, 2011, Mr. Aladesuyi sold and assigned interest in $10,500 of the note to Charms and the Company converted the $10,500 of the note to common stock and issued 2,200,000 shares to Charms.  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, 2010.  During the year ended December 31, 2011, the Company converted $230,000 of accrued salaries due to Mr. Aladesuyi to common stock and issued 32,857,143 shares to Mr. Aladesuyi.

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

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

On September 17, 2010, 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 an initial license payment of $200,000 and royalty payments beginning in 2012 of 8% of EarthSearch’s revenues to be paid quarterly.  The Company issued 1,428,572 shares of preferred stock in payment of the $200,000 initial license payment.

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.
  
 
35

 
  
Item 14.  Principal Accountant Fees and Services.

On March 10, 2011, the Company replaced KBL, LLC and engaged Randall N. Drake, CPA P.A. as its independent registered public accounting firm as of and for the year ended December 31, 2010.  The change in independent registered public accounting firm is not the result of any disagreement with KBL, LLC.
 
   
2011
 
2010
         
Audit fees
 
$
   
$
[●]
Audit-related fees
   
-
   
-
Tax Fees
   
-
   
-
All other fees
   
-
   
-
             
   
$
   
$
[●]
   
Audit Fees consist of the aggregate fees billed for professional services rendered for the audit of our annual consolidated financial statements and the reviews of the consolidated financial statements included in our Forms 10-Q and for any other services that are normally provided by our independent public accountants in connection with our statutory and regulatory filings or engagements.

Audit Related Fees consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our consolidated financial statements and the financial statements of our subsidiaries that were not otherwise included in Audit Fees.

Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.

All Other Fees consist of the aggregate fees billed for products and services provided by our independent public accountants and not otherwise included in Audit Fees, Audit Related fees or Tax Fees.
     
PART IV
  
Item 15.  Exhibits
  
(a)

Exhibit No.
Description
Exhibit 3.1
Articles of Incorporation (2)
Exhibit 3.2
Bylaws (2)
Exhibit 3.3
Certificate of Amendment to Certificate of Incorporation (1)
Exhibit 10.1
Share Exchange Agreement between East Coast Diversified Corporation and EarthSearch Communications International, Inc. dated January 12, 2010 (1)
Exhibit 10.2
Private Stock Purchase Agreement dated April 6, 2010 between Energy Partners, LLC and Messrs. Aaron Goldstein and Frank Rovito (1)
Exhibit 10.3
East Coast Diversified Corporation 2010 Incentive Stock Plan (3)
Exhibit 31.1
Rule 13a-14(a) Certification by the Chief Executive Officer and Interim Chief Financial Officer (4)
Exhibit 32.1
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4)
                  
(1)
Incorporated by reference from Company’s Form 8-K filed with the Securities and Exchange Commission on April 12, 2010.
(2)
Incorporated by reference from Company’s Form 10-SB/12g filed with the Securities and Exchange Commission on August 6, 2003.
(3)
Incorporated by reference from Company’s Form S-8 filed with the Securities and Exchange Commission on September 27, 2010.
(4)
Filed herewith.
  
 
36

 
   
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.
 
/s/ Kayode Aladesuyi
 
April 16, 2012
Kayode Aladesuyi, Chief Executive Officer, President and Interim Chief Financial Officer
(Principal Executive and Principal Financial Officer)
 
Date
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
/s/ Kayode Aladesuyi
 
April 16, 2012
Kayode Aladesuyi, Director
 
Date
     
/s/ Frank Russo.
 
April 16, 2012
Frank Russo, Director
 
Date
     
/s/ Anis D. Sherali
 
April 16, 2012
Anis D. Sherali, Director
 
Date
     
/s/ Edward Eppel
 
April 16, 2012
Edward Eppel, Director
 
Date
   
 
37

 
 
PART F/S
 
INDEX TO FINANCIAL STATEMENTS
 
AUDITED FINANCIAL STATEMENTS

Independent Registered Public Accounting Firm
 
F-1
     
Consolidated Balance Sheets At December 31, 2011 and 2010
 
F-2
     
Consolidated Statements Of Operations  For the Years Ended December 31, 2011 and 2010
 
F-3
     
Consolidated Statements Of Cash Flows For the Years Ended December 31, 2011 and 2010
 
F-4 - F-5
     
Consolidated Statements Of Shareholders' Equity For the Years Ended December 31, 2011 and 2010
 
F-6 - F-7
     
Notes to Consolidated Financial Statements
 
F-8 - F-22
 
   
 
38

 
  
Drake & Klein CPAs
A PCAOB Registered Accounting Firm
   
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and
Stockholders of East Coast Diversified Corporation
 
 
We have audited the accompanying balance sheets of East Coast Diversified Corporation as of December 31, 2011 and 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the years then ended. The management of East Coast Diversified Corporation is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
  
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
   
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of East Coast Diversified Corporation as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
  
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in footnote 1 to the financial statements, the Company has not generated revenue and has not established operations which raise substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these matters are also described in Note x.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Drake & Klein CPAs

Drake & Klein CPAs
April 16, 2012

 
 
 

PO Box 24932451
Dunedin, FL 34697-2493
727-512-2743
McMullen Booth Rd.
Suite 210
Clearwater, FL 33759-1362
  
 
  F-1

 
  
East Coast Diversified Corporation and Subsidiaries
Consolidated Balance Sheets


   
December 31,
 
   
2011
   
2011
 
ASSETS
 
Current assets
           
Cash
  $ 53,519     $ 1,278  
Accounts receivable, net
    273,031       49,522  
Inventory
    33,523       51,618  
Prepaid license fees
    40.000       -  
Prepaid expenses
    3,076       -  
Total current assets
    403,149       102,418  
                 
Property and equipment, net
    22,814       15,309  
                 
Other assets
               
Capitalized research and development costs, net
    9,273       92,613  
Intangible assets, net
    739,500       -  
Goodwill
    742,107       -  
Prepaid license fees
    110,000       -  
Escrow deposits
    3,462       25,000  
Security deposits
    4,521       4,521  
Total other assets
    1,608,863       122,134  
Total assets
  $ 2,034,826     $ 239,861  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
Current liabilities
  $ 16,675     $ -  
Loans payable
    711,882       793,327  
Loans payable - related party
    630,298       695,230  
Acquisition liabilities
    1,104,973       -  
Accounts payable and accrued expenses
    721,010       813,411  
Accrued payroll and related liabilities
    1,717,582       1,663,700  
Total current liabilities
    4,902,420       3,965,668  
Other liabilities
    -       -  
Total liabilities
    4,902,420       3,965,668  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' deficit
               
Preferred stock, $0.002 par value, 20,000,000 shares authorized, 10,513,813 and no shares issued and outstanding at December 31, 2011 and 2010, respectively
    21,028       -  
Common stock, $0.001 par value, 480,000,000 and 200,000,000 shares authorized, 289,895,481 and 110,953,778 shares issued and outstanding at December 31, 2011 and 2010, respectively
    289,895       110,954  
Additional paid-in capital
    10,180,384       7,176,106  
Accumulated deficit
    (13,098,092 )     (10,781,919 )
Total East Coast Diversified stockholders' deficit
    (2,606,785 )     (3,494,859 )
Noncontrolling interest
    (260,809 )     (230,948 )
Total stockholders' deficit
    (2,867,594 )     (3,725,807 )
Total liabilities and stockholders' deficit
  $ 2,034,826     $ 239,861  
  
See accompanying notes to consolidated financial statements.
 
F-2

 
  
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Operations
  

   
For the Year Ended December 31,
 
   
2011
   
2010
 
             
Revenues:
           
Product sales
  $ 203,776     $ 76,984  
Consulting and development
    352,041       21,757  
User fees
    56,665       30,507  
Total revenues
    612,482       129,248  
                 
Operating Expenses
               
Cost of revenues:
               
Product sales
    118,285       41,085  
Consulting and development
    107,648       1,901  
User fees
    74,915       38,587  
Selling, general and administative expense
    2,216,920       2,404,804  
Loss on disposal of assets
    -       21,779  
Total operating expenses
    2,517,768       2,508,156  
                 
Loss from operations
    (1,905,286 )     (2,378,908 )
                 
Other income (expense)
               
Other income
    146,859       65  
Interest expense
    (177,308 )     (108,550 )
Loss on conversion of debt
    (432,270 )     (66,157 )
Loss on acquisition of non-controlling interest
    -       (55,849 )
Total other income (expense)
    (462,719 )     (230,491 )
                 
Net loss before noncontrolling interests
    (2,368,005 )     (2,609,399 )
Net loss attributable to noncontrolling interests
    51,832       112,507  
                 
Net loss
  $ (2,316,173 )   $ (2,496,892 )
                 
Net loss per share - basic and diluted
  $ (0.01 )   $ (0.03 )
                 
Weighted average number of shares outsanding during the period -
basic and diluted
    184,066,678       77,118,976  

See accompanying notes to consolidated financial statements.

 
F-3

 
 
 
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Cash Flows
   

   
For the Year Ended December 31,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net loss
  $ (2,316,173 )   $ (2,496,892 )
Adjustments to reconcile net loss to net cash used in operations:
               
Noncontrolling interests
    (51,832 )     (112,507 )
Depreciation and amortization
    110,390       197,112  
Loss on conversion of debt
    432,270       66,157  
Loss on disposal of assets
    -       21,779  
Gain on recovery of accounts payable
    (146,859 )     -  
Loss on acquisition of noncontrolling interest
    -       55,849  
Stock issued in lieu of cash compensation
    -       183,159  
Stock issued for services
    345,430       -  
In-kind contribution of services
    -       347,846  
Amortization of prepaid license fee
    50,000       -  
Amortization of payment redemption premium as interest
    16,899       -  
Accretion of beneficial conversion feature on convertible notes payable as interest
    42,358       -  
Interest accrued on loans payable
    111,347       91,755  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (223,509 )     (47,263 )
Inventory
    18,095       (42,189 )
Prepaid expenses
    -       5,000  
Supplier advances
    -       29,576  
Escrow deposits
    21,538       -  
Bank overdraft
    16,675       (5,207 )
Accounts payable and accrued expenses
    31,164       104,917  
Accrued payroll and related liabilities
    1,008,882       540,290  
Net cash used in operating activities
    (533,325 )     (1,060,618 )
                 
Cash flows from investing activities:
               
Capital expenditures
    (4,391 )     (6,760 )
Cash received in acquisition
    62,698       -  
Cash received in reverse merger
    -       6  
Proceeds received for reimbursement of escrow deposits
    -       220,000  
Payments of escrow deposits
    -       (145,000 )
Net cash from investing activities
    58,307       68,246  
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    186,200       656,125  
Proceeds from issuance of preferred stock
    5,000       -  
Stock issuance costs
    -       (23,000 )
Proceeds from loans payable
    244,755       376,931  
Proceeds from loans payable - related party
    205,919       264,823  
Repayments of loans payable
    (2,500 )     -  
Repayments of loans payable - related party
    (112,115 )     (281,995 )
Net cash from financing activities
    527,259       992,884  
                 
Net increase (decrease) in cash
    52,241       512  
                 
Cash at beginning of period
    1,278       766  
                 
Cash at end of period
  $ 53,519     $ 1,278  

See accompanying notes to consolidated financial statements.

Continued

 
F-4

 
 
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
 
  
 
   
For the Year Ended December 31,
 
   
2011
   
2010
 
Supplemental disclosure of cash flow information:
           
             
Cash paid for interest
  $ 6,704     $ 16,795  
                 
Cash paid for taxes
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
                 
Issuance of 101,114,668 and 13,584,3830 shares of common stock in conversion of loans payable
  $ 394,619     $ 157,093  
                 
Issuance of 13,055,556 and 8,500,000 shares of common stock in conversion of loans payable - related party, respectively
  $ 137,500     $ 85,000  
                 
Issuance of 462,500 shares of preferred stock in conversion of loans payable - related party
  $ 37,000     $ -  
                 
Payment redemption premiums on convertible notes payable
  $ 18,975     $ -  
                 
Beneficial conversion feature of convertible notes payable
  $ 83,728     $ -  
                 
Issuance of 357,143 shares of common stock in conversion of accounts payable
  $ 2,500     $ -  
                 
Issuance of 32,857,143 shares of common stock in conversion of accrued salaries to related party
  $ 230,000     $ -  
                 
Issuance of 7,089,286 shares of preferred stock in conversion of accrued salaries to related parties
  $ 725,000     $ -  
                 
Issuance of 1,428,572 shares of preferred stock in payment of initial license fee to a related party
  $ 200,000     $ -  
                 
Issuance of 2,500,000 shares of preferred stock in acquisition of Rogue Paper, Inc.
  $ 425,000     $ -  
                 
Recognition of acquisition commitment liabilities in acquisition of Rogue Paper, Inc.
  $ 1,104,973     $ -  
                 
Reduction of 95,848,349 shares of common stock in stock exchange
  $ -     $ (1,387,429 )
                 
Recognition of noncontrolling interest at date of stock exchange
  $ -     $ (171,656 )
 
  
See accompanying notes to consolidated financial statements.
 

 
F-5

 

East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the Year Ended December 31, 2011
   

   
Preferred stock
   
Common stock
   
Additional
               
Total
 
                           
paid-in
   
Accumulated
   
Noncontrolling
   
stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
interest
   
deficit
 
                                                 
Balance, December 31, 2010
    -     $ -       110,953,778     $ 110,954     $ 7,176,106     $ (10,781,919 )   $ (230,948 )   $ (3,725,807 )
                                                                 
Common shares issued for cash
    -       -       16,888,527       16,888       169,312       -       -       186,200  
                                                                 
Preferred shares issued for cash
    37,500       75       -       -       4,925       -       -       5,000  
                                                                 
Common shares issued for conversion of loans payable - related party
    -       -       13,005,556       13,005       86,250       -       -       99,255  
                                                                 
Preferred shares issued for conversion of loans payable - related party
    462,500       925       -       -       36,075       -       -       37,000  
                                                                 
Common shares issued for conversion of loans payable
    -       -       101,114,668       101,115       764,019       -       -       865,134  
                                                                 
Common shares issued for conversion of accrued salaries to related party
    -       -       32,857,143       32,857       197,143       -       -       230,000  
                                                                 
Preferred shares issued for conversion of accrued salaries to related parties
    5,660,714       11,322       -       -       713,678       -       -       725,000  
                                                                 
Preferred shares issued for initial license payment to related party
    1,428,572       2,857       -       -       197,143       -       -       200,000  
                                                                 
Value of beneficial conversion feature of convertible notes payable
    -       -       -       -       83,728       -       -       83,728  
                                                                 
Common shares issued for conversion of accounts payable
    -       -       357,143       357       2,143       -       -       2,500  
                                                                 
Common shares issued for services
    -       -       14,718,666       14,719       285,711       -       -       300,430  
                                                                 
Preferred shares issued for services
    424,527       849       -       -       44,151       -       -       45,000  
                                                                 
Preferred shares issued for acquisition of 51% of the outstanding common stock of Rogue Paper, Inc.
    2,500,000       5,000       -       -       420,000       -       21,971       446,971  
                                                                 
Net loss for the year ended December 31, 2011
    -       -       -       -       -       (2,316,173 )     (51,832 )     (2,368,005 )
                                                                 
Balance, December 31, 2011
    10,513,813     $ 21,028       289,895,481     $ 289,895     $ 10,180,384     $ (13,098,092 )   $ (260,809 )   $ (2,867,594 )
    
See accompanying notes to consolidated financial statements.
  
 
 
F-6

 
 
  
East Coast Diversified Corporation and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the Year Ended December 31, 2010
  

   
Preferred stock
   
Common stock
   
Additional
               
Total
 
                           
paid-in
   
Accumulated
   
Noncontrolling
   
stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
interest
   
deficit
 
                                                 
Balance, December 31, 2009
    -     $ -       136,064,233     $ 1,360,642     $ 4,946,622     $ (8,898,907 )   $ -     $ (2,591,643 )
                                                                 
Common shares issued for cash prior to Stock Exchange
    -       -       7,445,417       74,455       48,545       -       -       123,000  
                                                                 
Common shares issued for conversion of loans payable - related party prior to Stock Exchange
    -       -       6,000,000       60,000       -       -       -       60,000  
                                                                 
Common shares issued for services prior to Stock Exchange
    -       -       4,000,000       40,000       -       -       -       40,000  
                                                                 
Effect of Stock Exchange on April 2, 2010
    -       -       (95,848,349 )     (1,387,429 )     1,402,429       -       -       15,000  
                                                                 
Noncontrolling interest at date of Stock Exchange
    -       -       (10,000,662 )     (100,007 )     (342,217 )     613,880       (171,656 )     -  
                                                                 
Recapitalization
    -       -       -       -       (67,994 )     -       -       (67,994 )
                                                                 
Common shares issued for cash after Stock Exchange
    -       -       39,069,732       39,070       494,055       -       -       533,125  
                                                                 
Common shares issued for conversion of loans payable - related party after Stock Exchange
    -       -       2,500,000       2,500       22,500       -       -       25,000  
                                                                 
Common shares issued for conversion of loans payable after Stock Exchange
    -       -       13,584,383       13,584       209,666       -       -       223,250  
          &