UNITED STATES


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)

R

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

 

 

For the fiscal year ended December 31, 2011

 

 

or

 

 

£

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

 

 

For the transition period from ____________________ to ____________________


Commission File Number: 000-15216


GLOBAL ECOLOGY CORPORATION

 (Exact name of registrant as specified in its charter)


Nevada

86-0892913

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

96 Park Street, Montclair, New Jersey

07042

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code: (973) 655-9001


Securities registered pursuant to Section 12(b) of the Act:


Title of each class

Name of each exchange on which registered

Common Stock

OTCQB


Securities registered pursuant to Section 12(g) of the Act:


None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes  þ No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes þ No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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.                                                                       þ Yes o 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).               þ Yes o No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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.                                                                 þ


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


Large accelerated filer

  

o

  

Accelerated filer

  

o

Non-accelerated filer

  

o (Do not check if a smaller reporting company)

  

Smaller reporting company

  

þ


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  þ No


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of June 30, 2011: $4,518,217 based on the average of the bid and asked price of $0.013 per share.


State the number of shares outstanding of each of the issuer’s classes of common equity, as March 30, 2012: 474,263,526 shares of common stock, $.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

None.




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GLOBAL ECOLOGY CORPORATION

(A Nevada Corporation)


TABLE OF CONTENTS


 

 

Page

PART I

Item 1.

Business

3

Item 1A.

Risk Factors

8

Item 1B.

Unresolved Staff Comments

10

Item 2.

Properties

10

Item 3.

Legal Proceedings

11

Item 4.

Submission of Matters to a Vote of Security Holders

11

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

Item 6.

Selected Financial Data

16

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 8.

Financial Statements and Supplementary Data

23

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

50

Item 9A.

Controls and Procedures

50

Item 9B.

Other Information

50

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

50

Item 11.

Executive Compensation

54

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

56

Item 13.

Certain Relationships and Related Transactions, and Director Independence

57

Item 14.

Principal Accounting Fees and Services

58

PART IV

Item 15.

Exhibits, Financial Statement Schedules

59

SIGNATURES

60








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Cautionary Statement Regarding Forward Looking Statements


Certain of the statements contained in this Form 10-K for the period ended December 31, 2011 should be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect the current views of Global Ecology Corporation (collectively, with its subsidiaries, “GECO” or the “Company”) with respect to current events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should,” and “continue” or similar words. These forward-looking statements may also use different phrases. From time to time, GECO also provides forward-looking statements in other materials GECO releases to the public or files with the SEC, as well as oral forward-looking statements. You should consult any further disclosures on related subjects in GECO’s quarterly reports on Form 10-Q and Current Reports on Form 8-K filed with the United States Securities and Exchange Commission, or the SEC.


Such forward-looking statements are and will be subject to many risks, uncertainties and factors relating to GECO’s operations and the business environment in which GECO operates, which may cause its actual results to be materially different from any future results, express or implied, by such forward-looking statements. Statements in this annual report and the exhibits to this report should be evaluated in light of these important risks, uncertainties and factors. GECO is not obligated to, and undertakes no obligation to publicly update any forward-looking statement due to actual results, changes in assumptions, new information or as the result of future events.


This Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available free of charge through the SEC’s website (www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, these documents are made available on GECO’s website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC. The public may read and copy any material GECO files with the SEC at the SEC’s Public Reference Room located at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.


Item I.  Business


Our Company


Global Ecology Corporation (“GECO”) is a Nevada corporation formed in 1993. Our principal executive office is located at 96 Park Street Montclair, New Jersey 07042 and our telephone number is (973) 655-9001. GECO’s website is www.geco.us.  From 1998 until the third quarter of 2004, we provided financial products and related services to the new and pre-owned automotive finance industry. We primarily purchased and subsequently sold automobile finance receivables collateralized by new and pre-owned automobiles. The receivables were predominately purchased from automobile retailers nationwide and sold to banks and credit unions.


We changed our name to Homeland Security Network, Inc. on March 1, 2005 to reflect the direction of a new course of business. HSNI targeted markets such as commercial trucking and cargo management, commercial fleet management, equipment rental and personal vehicle tracking. During the period from March, 2005 until the end of 2007, we provided the GPS tracking industry with state-of-the-art software, as well as low cost tracking hardware, and the ability to offer a cost-effective data transmission fee.


In the fourth quarter of 2007, we began investing in a new industry and we secured distribution rights to a patented water restoration technology, which represented a substantial opportunity in the multi-billon dollar global water purification market. Our company has proposed the use of its services in the United States and in several foreign countries. On August 18, 2009 we changed our name to Global Ecology Corporation to reflect this shift in business direction to the environmental sector.



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GEC Organics Corporation


In addition, we also entered into a joint venture with Huma-Clean, LLC, a Texas-based soil remediation and re-seller of processed soil for consumer and commercial users.  The first project is underway in Juarez, Mexico, and we are hopeful that the next sites will be located in the United States.   Our initial belief was that revenue from these activities would begin to be recorded in the fourth quarter of 2008 and that the first order of its processed soil has would have been received for in excess of $2,000,000. However, the violence that occurred and continues to occur in the City of Juarez, Mexico, and the surrounding area has taken the government officials’ focus away from the building and expansion of their farmlands.


As a result, on May 25, 2011, we executed letters of intent with the Town of Castleberry, the Town of For Deposit and the City of White Hall, which are located in the State of Alabama for the development of locations in each of the three cities for the accumulation of certain organic waste which will be used in the production of our natural fertilizer/soil additive and allow for the expansion of the market where we can sell our soil and water remediation technologies. On October 25, 2011, we received the first tranche of the funding necessary to begin the construction process on its first domestic organic soil amendment site in Castleberry, Alabama. The location, which encompasses nearly 70 acres, will be one of the largest of its kind in the U.S.  Though our wholly-owned subsidiary GEC Organics Corporation, we began to produce our proprietary compost product at our 70-acre facility located in the Town of Castleberry in January 2012.  Our proprietary compost product is designed to greatly enhance crop yield and turf growth while continuing to maintain soil integrity. The highly nutritious compost is made from chicken waste blended with green waste and enhanced with GEC's licensed microbial formula.  When fully operational, the Castleberry, Alabama site will be able to produce up to 20,000 tons of OAS100 solid compost and in excess of 10,000 gallons of OSA CT1000 liquid compost each month.  As of December 31, 2011, we had not begun the production phase; and therefore, no revenues had been generated.  While, we have now begun limited production and marketing of our organic soil product, we can provide no assurance that the product will be widely accepted by our targeted consumers in order for us recognize a return on our investment.


GEC Africa


In December 2010, we executed a Joint Venture Agreement with Isongo Water (Pty), Ltd., of Pietermartizburg South Africa (“Isongo”), whereby we have agreed to form a subsidiary company to be named GEC Africa (the “JV Company”) with Isongo, which will be jointly owned 50% by each company. The JV Company will pursue business interests throughout South Africa and neighboring countries that will initially commence with the sale of our Mobile PureWater System (“MPWS”) and our ionized mineral solution, IMS1000. Based on the success of the venture we intend to later incorporate the sale of our other proprietary and licensed technologies through the JV Company in certain African territories. As part of joint venture relationship, Isongo will be granted an exclusive license for the sole benefit of GEC Africa for the sale and distribution of the MPWS and the IMS1000. The intention of the parties is for GEC Africa to have its own local manufacturing facility for the MPWS and its solution, which Isongo has the capability to provide. There will be minimum sales volume requirements for the continuation of the relationship. We can provide no assurances that the joint venture relationship with Isongo will be successful or be able to generate significant revenue, if at all. As of December 31, 2011 there has been no activity to report.


We continue to develop our relationships in South Africa through our subsidiary GEC Africa which is a joint partnership with Isongo. Representatives of our company demonstrated our MPWS in real time as it produced potable water from several contaminated sources. These demonstrations were performed in the most challenging conditions where rivers look like dark chocolate and E. coli, streptococcus, and other dangerous pathogens are abundant. Our group met with government officials from municipalities and water processing facilities including, The Department of Water Affairs and The South African Bureau of Standards, which has now agreed to accelerate the registration process for our licensed, proprietary formula, IMS1000. Many public and private entities in Africa are seeking ways to provide safe water without the use of chlorine and our IMS1000 solution will help to accomplish this goal. We also had discussions with two municipalities for the use of our bio-remediation technology for the processing of bio-solids from their waste water treatment facilities. Additional uses of IMS1000 such as the de-contamination of large bodies of water, vegetable washes, poultry processing plants, and mining water reclamation are currently under discussion. GEC Africa has now engaged several distributors to market our products and services throughout the continent. This distribution channel under the



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supervision of GEC Africa is expected to accelerate the development of our coverage and produce sustainable revenue.  As of December 31, 2011 there has been no activity to report.

Clean Tower Technologies, Inc.


In January of 2011, we formed a wholly subsidiary, CleanTower Technologies, Inc., for the purpose of developing a market for our licensed environmentally safe chemical IMS1000. The solution is produced under a private label arrangement with our Canadian supplier, EnvirEau Technologies, Inc. This new company will eventually include a number of affiliates with industry experience to help us build the operation. As of September 30, 2011 there has been no activity to report.


As a part of our ongoing marketing efforts, we have supported a number of events at the United Nations and have established our self as a strategic partner with International Renewable Energy Organization (“IREO”), a Brazilian private partner of the United Nations.  Peter Ubaldi, our President and CEO, has been appointed as Chairman of IREO’s Water Restoration Committee.  We have proposed our remediation technology for contaminated bodies of water and for the remediation of soil in South America, Central America, the Philippines and the United States as part of its expanding marketing efforts.


We have incurred operating losses of ($1,249,621) and ($767,694) for the years ended December 31, 2011 and 2010, respectively, and we have had working capital deficiencies in both years. Our financial statements have been prepared on the assumption that the Company will continue as a going concern. We are seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The additional funding would alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding.


If additional financing arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.


Plan of Operation


Management is taking the following steps to create shareholder value and revenue growth for our company: (i) development of global partnerships to create distribution channels for our products; (ii) entering into and exploring a number of strategic partnerships both domestically within the United States and internationally to assist us in the development of our technologies; (iii) expansion of sales and marketing efforts into various markets impacted by environmental issues such as the water cooling tower market; (iv) continual development of proprietary technologies as well as development of new licensing arrangements for technologies that complement our current product offerings; and (v) aggressively pursuing regulatory approval in both the united states and internationally to allow for the use of our products in a broad range of environmental remedial markets.


Our future success is likely dependent on its ability to create profitable growth and attain additional capital to support growth and ultimately our ability to reach profitability and maintain profitability one we have reached that stage. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.


Our Products and Services


Our current portfolio of proprietary and licensed technologies focus on point-of-use water purification systems, and water and soil remediation solutions which meet the long and short term water and soil quality requirements of world markets for residential, commercial, industrial, and emergency applications. Our current portfolio of technologies includes:



5




Mobile PureWater System (MPWS)


MPWS is a flexible and mobile water purification system for use in areas where safe and clean drinking water is scarce or affected by natural disasters. It is the most cost effective, transportable; high-volume purified water production system available in the market today and can meet the daily water consummation needs of 5,000 people.


Water Remediation


Our water remediation licensed technology uses the Ionized Mineral Solution IMS1000™ to treat contaminated bodies of water which is Health Canada, NSF and EU certified and approved. It is used for numerous applications including, treating reservoirs, lakes and other large bodies of water. Additionally we can serve large HVAC systems, waste water systems, drilling water de-contamination, and various agricultural applications. It is also a vital component of our MWPS technology. The chemical not only safely cleans the water, but provides the added benefit of keeping water infrastructure delivery systems free of harmful bacteria and bio-fouling organisms. IMS 1000™ is produced for GEC by Canadian company EnvirEau Technologies.


Soil Remediation


We use a licensed product from HumaClean’s proprietary mixture of several different organic components that breaks down and eliminates contaminants yielding a very high grade organic top soil.


GEC’s expanding portfolio of patented and licensed environmental remediation technologies are specifically targeted at contaminated water and soil environments. We provide site owners, engineers, consultants, governmental agencies, and the academic community unbiased design and cost-effective remediation strategies. Our field-proven biotechnology-based solutions are used around the world to effectively manage complex, challenging environmental liabilities, while saving clients significant time and money. Our technically superior remediation solutions are proven to treat the widest range of organic contaminants by accelerating natural attenuation in water and soil.


Sales Strategy and Distribution Channels


GEC focuses on three market segments to implement its highly focused sales strategy:


·

National, State and Local Municipalities: GEC works with domestic governmental agencies on the national, state and local levels to provide its remediation technologies for the treatment of soils and groundwater that these agencies oversee.

·

International Organizations: GEC is an affiliate of two Private Partners to the United Nations. There are only approximately 186 companies with this designation. Furthermore, the company is committed to working with other international organizations and foreign governments to address the worldwide problem of contaminated water and soil.

·

Private Engineering Firms: GEC is also committed to serving environmental engineering firms with a range of services in support of on-site and in situ soil and groundwater remediation.


Partnership Approach


Our partnership strategy is to engage and enter into strategic partnerships with local companies capable of deploying our technologies in a particular country, region or continent. We believe this strategy helps to develop relationships with local, national and regional regulatory bodies that are interested in deploying our technology while at the same time giving us a local footprint for construction, development and deployment of our technologies at a lower cost point if we were only to operate within the United States. We also review our customer’s processes to identify value added processes, and reduce redundancy. This process has been an effective way of integrating our process to customer’s needs and has resulted in improving our customer’s relations and integration of our products into international markets.


Competition




6



The environmental industry is large, competitive and diverse, and is serviced by many companies, including several that have achieved significant market share. We compete with numerous domestic and foreign firms developing and deploying solutions to environmental concerns impacting many regions around the world. Because of our market’s size and diversity, we do not typically compete for contracts with a discreet group of competitors. We compete with different companies depending on the type of service and/or geographic area. Certain of our competitors may have greater manufacturing, financial, research and development and marketing resources. We also face competition from current and prospective partners that evaluate our capabilities against the merits of manufacturing products internally or licensing our licensed products directly from the manufacturing source.


Competitive Advantage


We believe our company stands alone from any current competition.  Through our portfolio of technologies we are able to offer their customers a comprehensive solution to their contaminated water and soil problems in an “eco-friendly” manner.  Furthermore, we believe that its extensive governmental relationships both with domestic and international agencies provide the company an advantage in over the competition in access to distribution channels for the Company’s products.


Legal and Regulatory Issues


The laws, rules, and standards applicable to water quality and wastewater cleanup vary widely from country to country. The regulations have a profound impact on all who use water and discharge wastewater. The prevailing trend in recent decades favored stricter regulations, with higher levels of monitoring and penalties. Water testing has become routine; companies can be fined for a full day for a momentary lapse. Thus, operators are more vigilant in ensuring that plant effluents meet the mandated minimum levels.


As a general rule, the richest countries have the most restrictive rules about water quality. In North America, Canada and the United States have strong legislation and high standards, and enforcement is becoming more stringent. Canada's system is relatively decentralized, with authority shared among federal, provincial, and local authorities. In the United States, the Environmental Protection Agency administers primary government directives. Mexico's environmental regulations are considered the weakest of these three North American countries. Regulations in Western Europe are among the toughest in the world. The European Union adopted directives in 1991 vis-a-vis urban and industrial wastewater with deadlines in 2005. In other regions, rules are uneven and enforcement is non-existent or spotty. Along with others, we see a general trend toward stricter laws and improved enforcement.


Reliance on Strategic Partners and Licensors


We rely heavily on strategic partners to deploy our product offering and licensors to continue to license to us their proprietary technologies which are either a main product offering comprising our suite of product offerings or are a main component of our own proprietary technology. If we are unable to continue these strategic partnerships or license our products from our licensors it could have a negative impact on our operations, our potential sources for revenue and such shareholder value that could result from such relationships.


Personnel


As of December 31, 2011, we employed a total of 4 people. No employees are covered by a collective bargaining agreement.


Item 1a.  Risk Factors


Going-Concern Opinion of our Financial Statements:


The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had: (i) a net loss of ($1,249,621) from operations; (ii) used ($341,494) in cash from operations; (iii) a total shareholders’ deficit of ($3,825,468); and (iv) a total net loss of ($1,235,944) for the year ended December 31, 2011.  Therefore the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to begin to generate positive cash flow from operations.




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Limited Operating History of Present Business:


Our prospects must be considered in light of the risks, expenses, difficulties and problems frequently encountered in transitioning a company into new business opportunities.


Risks, uncertainties and factors that could cause GECO’s actual results to differ materially from forward-looking statements include, but are not limited to, the following:


·

The ability to maintain adequate liquidity and produce sufficient cash flow to meet our capital expenditure requirements;

·

The ability to attract and retain qualified management and other personnel;

·

The number of potential customers in a target market;

·

Changes in the competitive environment in which we operates;

·

Changes in government and regulatory policies;

·

Uncertainty relating to economic conditions generally and in particular affecting the markets in which we operate;

·

Pricing and availability of equipment, materials, inventory and programming;

·

The ability to complete acquisitions or divestitures and to integrate any business or operation acquired;

·

The ability to enter into strategic alliances or other business relationships;

·

The ability to overcome significant operating losses;

·

The ability to reduce costs;

·

The ability to develop our products and services and to penetrate existing and new markets; and

·

Technological developments and changes in the industry.


Risk Associated with Expansion:


Our growth strategy may include future mergers or acquisitions, or expansion of services and products offered. There can be no assurance that management will successfully integrate our “refocused” operations with those that may be acquired or established in the future and effectively manage the combined enterprise. There will be a need to limit overhead as additional operations may be acquired while still maintaining sufficient staff. Failure to do so would have a materially adverse effect on our business, financial condition and results of operations (See Plan of Operations).


Competition:


We will also experience competition in the water purification and soil remediation industries. Both of these segments rely on technologies that must satisfy numerous regulatory and compliance requirements which have already been overcome by the developers of the technology that we have licensed.  We are aligning our self with established professionals and experts in these industries. We anticipate that the new technologies which it will bring to the market should provide a competitive advantage.  However, there are large and well capitalized businesses that will offer competition that could make our progress into this new business segment difficult.


Dependence on Key Alliances:


Presently, we no longer are dependent on a single electronics developer and manufacturer to develop and manufacture our products. However, it is possible that new emerging technologies could render our products obsolete or that procurement of supplies could become scarce or more costly to acquire should our suppliers terminate their alliance with us.


Additionally, we presently rely on the ability of a wholesale distributor, strategic alliances and a limited in-house sales force to market and sell the products. Many competitors are larger and have greater financial and marketing resources than us.


Dependence on Management Information Systems:


Our future success depends in part on the ability to continue to adapt technology on a timely and cost-effective basis to meet changing customer and industry standards and requirements.



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Dependence on Key Personnel:


We are highly dependent on the services of certain key employees. We have entered into an employment agreement with some, but not all such employees. The loss of certain key employees' services could have a materially adverse effect on our business and operations. In addition, our future success depends upon its ability to attract and retain qualified general personnel, which have sufficient and suited expertise in the water purification industry and the soil remediation business.  There can be no assurance of success in attracting and retaining qualified personnel in the future.


Market for Common Stock; Volatility of Prices:


There has been a limited public trading market for our shares of common stock. There can be no assurance that a regular trading market for the common stock will ever develop or, if developed, that it will be sustained.  The market price of the common stock could also be subject to significant fluctuations in response to such factors as variations in the anticipated or actual results of operations of the Company, changes in conditions affecting the economy generally, analyst reports, general trends in industry, and other political or socioeconomic events or factors.


Liquidity and Need for Additional Funding:


Due to recurring operating losses and our current working capital deficit, there is a need to obtain additional funding of working capital for us to operate as a going concern. Various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures on other forms of debt will be pursued. We are currently negotiating additional investments in the company.  However, there can be no assurance that additional funding will be available when needed, or if available, that its terms will be favorable or acceptable.


Substantial Leverage:


Although substantially leveraged at the end of fiscal year 2008, in order to meet the ongoing working capital requirements of us, additional indebtedness may have to be incurred, perhaps resulting in a more highly leveraged capital structure. A highly leveraged capital structure could have adverse consequences, including:


·

Limiting the ability to obtain additional financing;

·

Requiring the use of operating cash flow to meet interest and principal repayment obligations;

·

Increasing our vulnerability to changes in general economic conditions and competitive pressures; and

·

Limiting our ability to realize some or all of the benefits of significant business opportunities.


In addition, any indebtedness that would be incurred is expected to contain covenants that limit, among other things, the ability to incur additional indebtedness, engage in mergers and acquisitions, pay dividends or take other actions. These covenants may also require the meeting of certain financial tests and the maintenance of a minimum level of collateral and may give the lender the right to perform periodic audits to ensure compliance with the terms of the applicable loan. Non-compliance with any of the terms of such covenants may result in a suspension of funding, acceleration and consequent demand for repayment and a foreclosure on collateral, as well as the pursuit of other rights and remedies, all of which could have a materially adverse effect on our financial condition, results of operations and prospects of the company.


Interest Rate Fluctuations:


Our profitability is based, in part, on the interest rate charged on interest bearing liabilities. Interest rates with respect to outstanding indebtedness or indebtedness that may be incurred in the future are, or will be, as the case may be, based on interest rates prevailing in the market at the time the debt is incurred. In some cases, the rates may be floating rates. Increases in interest rates paid on outstanding indebtedness would adversely affect our profitability and consume cash allocated for other operating activities.


Lack of Prospective Dividends:




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We have not paid any dividends on its common stock and anticipates that future earnings, if any, will be used to reduce debt or finance future growth and that dividends will not be paid to shareholders. There can be no assurance that operations will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flow. Accordingly, we do not anticipate the payment of any dividends on common stock for the foreseeable future (see Item 5, Market for Common Equity and Related Stockholder Matters).


Inflation:


Higher interest rates, which generally occur with inflation, would tend to increase the cost of credit used by us and would thus, decrease profits.


Possible Other Risks:


In addition to all risks and assumptions including, but not limited to, those identified under this "Risk Factors" section, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this report, investors and potential investors should keep in mind other possible risks that could be important. Among key factors that may have a direct bearing on our results are competitive practices in GPS tracking industries and the environmental restoration business, the ability to meet existing financial obligations in the event of adverse industry or economic conditions or to obtain additional capital to fund future research and development requirements of their products, commitments and expansion, and the impact of current and future laws and governmental regulations on operations.


Item 1b. Unresolved Staff Comments


None.


Item 2. Description of Property


The principal executive office of the Company is located at 96 Park Street, Montclair, New Jersey 07042 75254. Approximately 1,000 square feet of leased premises are at this location. The rent is approximately $13,000 per year. The lease expires in January 2013.  We also lease 70 acres associated with our production facilities in Castleberry, Alabama.  The rent is $60,000 per year.


Item 3. Legal Proceedings


The Company is presently a party to legal proceeding as follows:  


(1)

We, through our former wholly owned subsidiary, Autocorp Financial Services, Inc. (“ACFS”) had entered into an auto loan servicing agreement dated January 7, 2003. ACFS and HPCU have disputes over collection of certain auto finance receivables and general performance under the servicing agreement. During 2008, HPCU and the Company entered into a $41,000 settlement agreement. Under the terms of this agreement, we were to pay $5,000 upon signing of the document and make monthly payments of $1,000 through February 2009. A balloon payment of $24,000 was due on March 1, 2009. This settlement is secured by a $41,000 judgment. As of December 31, 2011 payments totaling $9,000 have been made under this settlement agreement.

(2)

We entered into a consulting service agreement with Waterville Associates on March 20, 2007. The agreement called for certain services by Waterville Associates which included: (a) posting information about us on their web site; (b) production of an 8 to 10 page research report providing data on us; and (c) assisting us in the creation of capital to implement our business plan. We agreed to compensate Waterville for their services by issuing shares of our common stock as these services were performed. We have not received any of the services by Waterville as outlined in the agreement. Waterville is seeking a claim for compensation as provided for in the agreement. Although we believe that the lawsuit is without merit we have determined that based on the potential legal fees to mount a defense, especially given the venue of the proceedings it was better to settle this litigation. Therefore, we issued Waterville 1,000,000 shares of Restricted Stock Common Stock as settlement in full.

(3)

We entered into a convertible promissory note for $100,000 with Chris Verrone in May 2008. In June 2008, the note was converted into shares of common stock at the holder’s request. Subsequently, the individual requested additional consideration and even though the Company had no obligation to accommodate the request, the Chairman of the Company advanced him $25,000 of his own funds and the Company signed an



10



agreement in September 2008 to pay him an additional $75,000 within 60 days. We have not been able to meet this deadline and the individual had commenced litigation and received a judgment. This amount has been provided for in the financial statements under the notes payable.

(4)

In 2005, we obtained funds under a financing arrangement from Market Connexxion. The note provided a line of credit totaling $500,000 and accrued interest at a rate of 8.00% per annum. It originally matured on January 28, 2006, at which time the unpaid principal was $229,365. Interest due on the note was $16,960. The note was amended in February 2006 to incorporate the interest into the principal and extend the term through January 2007. The note is uncollateralized and the proceeds were utilized for working capital. On March 28, 2011 we entered into a settlement agreement, whereby the company would issue 5,000,000 shares of its common stock in settlement of the outstanding balance of $338,459. However if the 5,000,000 shares; when liquidated were not sufficient to cover the outstanding balance then the shortfall would be covered by issuing additional shares of shares of common stock or paid in cash. The shares were issued on April 18, 2011 at a market value of $.02 per share. We booked a reduction in the principal balance of $100,000. Although as of December 31, 2011 the outstanding balance was $219,313, this balance may be adjusted in the future due to the uncertainty of future stock prices and liquidated value of the stock. This dispute was subsequently settled in full in January of 2012. See Note 21. Subsequent Events, for more information.


In addition to the matter described above, we are involved in various legal actions and claims from time to time, which arise in the normal course of business. In our opinion, the final disposition of these matters will not have a material adverse effect on our financial position or results of operations.


Item 4. [Removed and Reserved.]


PART II


Item 5. Market for Common Equity and Related Stockholder Matters


Our common stock was traded on the OTC Bulletin Board but due to late filings, it has been put on the Pink Sheets.  There were several mitigating circumstances which created this event and although the Company appealed the decision it was unable to immediately regain Bulletin Board status.  However the Company has met and continues to meet the filing deadlines and will re-apply for Bulletin Board status during 2010.  

.  

The table below lists the high and low bid prices for each quarter of the last two fiscal years.


Bid Quotations*

                             

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2011:

 

Low 

 

High 

First Quarter              

0.014

0.039

Second Quarter              

 

0.013

 

0.027

Third Quarter              

 

0.008

 

0.016

Fourth Quarter              

 

0.0066

 

0.0131

 

 

 

 

 

Fiscal 2010:

 

 

 

 

First Quarter              

0.008

0.09

Second Quarter              

 

0.005

 

0.012

Third Quarter              

 

0.008

 

0.022

Fourth Quarter              

 

0.0159

 

0.037


*These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and thus may not represent actual transactions.


Information Relating to Our Voting Securities


Common Stock




11



Shares of common stock are our only voting securities.  Holders of the common stock are entitled to one vote on all matters presented to stockholders for each share registered in their respective names. As of March 31, 2012, there were 474,263,562 shares of common stock outstanding. The Series A and Series B Preferred Stock has no voting rights.  As of December 31, 2011, there were approximately 1,925 holders of record of the common stock shares of the company. We have not paid any dividends on our common stock and we anticipate that future earnings, if any, will be retained to fund finance future growth.


Preferred Stock


As part of the 2003 merger transaction, of the 10,000,000 Preferred Shares authorized in the company's Articles of Incorporation, a total of 4,086,856 of those shares were designated as Series "A".


·

The terms of the Series "A" Preferred Shares are:


·

They have no voting rights, sinking fund provision or redemption rights; and


·

They are convertible into common stock on a 10-for-1 basis at any time at the option of the holder.


·

The Company has authorized 2,000,000 shares of Series "B" Preferred Stock of which 1,621,642 shares have been issued. The terms of the Series "B" Preferred Shares are:


·

They pay non-cumulative dividends at the rate of 5% per year;


·

They have a liquidation preference of $14.64 per share;


·

They have no voting rights, sinking fund provisions or redemption rights; and


·

They are convertible into common stock on a 1-for-1 basis.


·

The holder of the preferred shares will have the right and option with the conversion. A required conversion at the Company’s election will occur if either of the following events takes place:


·

When or if the Company's common stock is accepted for trading in the NASDAQ National Marketing System; and


·

When or if the Company's common stock is publicly traded at a price equal to $14.64 per share or more.


When or if the Company's common stock is accepted for trading in the NASDAQ National Marketing System, the Company will obtain conversion rights with respect to the preferred stock.


Stock Repurchase Program

On October 28, 2011, the Company adopted a plan to repurchase up to 10,000,000 shares of its issued and outstanding common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

The plan allows Global Ecology to purchase its issued and outstanding common shares in the open market or in negotiated transactions, from time to time, depending on market conditions and other factors as well as being subject to relevant rules under Untied States securities regulations. The plan does not obligate the Company to make any purchases, at any specific time or in any particular situation. The plan may be suspended or discontinued at any time at the sole discretion of the Company. Share repurchases will be funded with the Company's available cash, after determining the working capital requirements of the Company. Accordingly, there is no guarantee as to the exact number of shares that will be repurchased under the plan.

The company's Board of Directors authorized the repurchase plan because it believes recent market conditions may have caused the Company's common stock to be undervalued. The timing and number of any shares repurchased will depend on the terms and conditions of the plan and no assurance can be given that any specific amount of common stock will be repurchased.



12



As of December 31, 2011, we had repurchased 4,554,937 shares of our common stock.

Recent Sales of Unregistered Securities


For the years ending December 31, 2010 and 2011, we issued the following securities without registration under the Securities Act of 1933. These shares were issued under the Section 4(2) exemption of the Securities Act:


In February 2010 we issued 5,000,000 shares of common stock to Joseph Battiato for consulting services he performed for us. Mr. Battiato is also our Chairman.


In February 2010 we issued 12,000,000 shares common stock to Peter Ubaldi, our President & CEO for employment compensation for the 12 month year ending December 31, 2009. Mr. Ubaldi’s employment contract is $250,000 per year and the Company has been unable to pay this amount in cash. Mr. Ubaldi agreed to accept shares of our common stock as payment in lieu of cash. The average share price per month over the 12 month period would have required a stock issuance of 17,811,000 but Mr. Ubaldi agreed to accept 12,000,000 shares as payment in full.


In February 2010, we issued 2,000,000 shares of common stock to William Merritt for consulting services he has performed for us.


On April 20, 2010, we issued 2,300,000 share of our common stock to Larry Wolfe Consulting pursuant to a consulting agreement dated August 19, 2010.


On April 20, 2010, we issued 2,100,000 share of our common stock to Sherlock Consulting pursuant to a consulting agreement dated April 19, 2010.


On July 15, 2010, we issued 1,750,000 shares to Advent Consulting Group, LLC in exchange for business and financial consulting services performed from January 1, 2009 to July 1, 2010 pursuant to a consulting agreement we entered into with Advent on January 1, 2010. The stock issued to Advent was issued at $0.02 per share.


On November 22, 2010 the company issued 135,416 shares of its common stock to Thomas Darcey for services in connection with our demonstration and the promotion of the Mobile PureWater System (”MPWS”) on October 9, 2010. His services, in addition to promotion, included finding a site, preparation of the location and advertising to find prospective attendees.


On November 22, 2010 the company issued 93,750 shares of its common stock to Ronald Baslow for his work in editing the footage taken at the MPWS event on October 9, 2010 and producing the two videos for our web site.


On November 22, 2010 the company issued 112,500 shares of its common stock to Jessica Jones for her work in writing, producing, directing and performing in the final video used on the Company web site and additional footage for sales presentations.


On November 22, 2010 the company issued 100,000 shares of its common stock to Christopher Martin for consulting services in connection with our efforts in expanding international relationships, system development and the production of promotional material.


On November 22, 2010 the company issued 15,568,925 shares of its common stock to Peter Ubaldi for payment of unpaid wages from January 2010 through October 2010. Mr. Ubaldi’s Employment Contract called for the payment of $208,333 for the 10 month period and we were unable to pay this amount in cash. Mr. Ubaldi agreed to accept shares of our common stock in lieu of the required cash payment. The average share price per month for this period would have required a stock issuance of 20,757,727. However, Mr. Ubaldi agreed to a 25% reduction and was issued 15,568,925 as settlement in full.


On November 22, 2010 the company issued 750,000 shares of its common stock to Michael Madison for the conversion of a note payable dated November10, 2009, in the amount of $7,500.


On December 6, 2010, the company issued 2,000,000 shares of its common stock to Waterville Investment Research per a settlement agreement dated September 23, 2010.


On December 6, 2010, the company recorded the issuance of 3,000,000 shares of its common stock to eFund Capital Partners, LLC for services.



13




On January 24, 2011we issued 500,000 shares of our common stock as consideration to extend a note due date to December 31, 2011 held by Nicholas Milazzo.


On January 24, 2011 we issued 500,000 shares of our common stock as consideration to extend a note due date to December 31, 2011 held by Robert Tabacchi.


On January 24, 2011 we issued 3,000,000 shares of our common stock for legal services.


On January 24, 2011 we issued 2,500,000 shares of our common stock for consulting services.


On January 24, 2011 we issued 1,072,100 shares of our common stock or consulting services.


On January 24, 2011 we issued 1,235,403 as payment for back wages of $41,600 to Peter Ubaldi, our chief executive officer.


On February 1, 2011 we issued 2,400,000 shares of our common stock or consulting services.


On April 18, 2011 we issued 1,821,507 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On April 18, 2011 we issued 659,698 shares of common stock to Advent Consulting Group, LLC, in lieu of the cash compensation for consulting services performed during the first quarter of 2011 pursuant to the terms of our consulting agreement with Advent Consulting Group, LLC


On April 18, 2011 we issued 500,000 shares of our common stock for consulting services.


On April 18, 2011 we issued 5,000,000 shares of our common stock for consulting services.


On April 18, 2011 we issued 372,708 shares of our common stock for consulting services.


On September 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). Asher Enterprises elected to convert its note into 1,750,958 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On October 8, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $25,000. Asher Enterprises elected to convert its note into 3,015,309 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On November 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). Asher Enterprises elected to convert its note into 3,647,192 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On November 23, 2011, we issued 130,000 shares of common stock as interest payments for two promissory notes we entered on December 1, 2006 and February 8, 2008 with an unrelated third party.


On November 23, 2011, we issued 2,500,000 shares of common stock for consulting services.


On November 23, 2011, we issued 2,701,749 shares of common stock for legal services.


On November 23, 2011, we issued 2,000,000 shares of common stock in connection with the terms financing we completed with an unrelated third party.


On November 23, 2011, we issued 8,474945 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.




14



On November 23, 2011, we issued 2,701,749 shares of common stock for consulting services at $0.02 per share for services rendered for the last three quarters of 2011.


On November 23, 2011, we issued 10,000,000 to our Chairman, Mr. Battiato in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 10,000,000 to our Managing Director of Business Development, Mr. Merrit in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 500,000 shares of common stock for consulting services.


On April 1, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $32,500. The promissory note had an interest rate of 8.00% per annum, and matures on January 30, 2011. Asher Enterprises had an option to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $31,225. We made a partial repayment of $4,500 and prepayment penalty of $7,500. This note was converted into 7,413,181 shares of common stock on October 17, 2011. As of December 31, 2011, $0 was outstanding.


Subsequent Sales of Unregistered Securities


On July 18, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500. The promissory note has an interest rate of 8.00% per annum. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 42.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $19,914. As of December 31, 2011 the outstanding balance was $28,323.  Subsequently, on January 26, 2011, January 31, 2012 and February 15, 2012, Asher elected to convert this note into 1,904,763, 1,562,500 and 1,081,967 shares of our common stock, respectively, for a total of 4,549,230 shares of our common stock.


Item 6. Selected Financial Data


Not applicable.


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Certain of the statements contained in this Form 10-K for the period ended December 31, 2011 should be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect the current views of Global Ecology Corporation (collectively, with its subsidiaries, “GECO” or the “Company”) with respect to current events and financial performance. You can identify these statements by forward-looking words such as, “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should,” and “continue” or similar words. These forward-looking statements may also use different phrases. From time to time, GECO also provides forward-looking statements in other materials GECO releases to the public or files with the SEC, as well as oral forward-looking statements. You should consult any further disclosures on related subjects in GECO’s quarterly reports on Form 10-Q and Current Reports on Form 8-K filed with the United States Securities and Exchange Commission, or the SEC.


Such forward-looking statements are and will be subject to many risks, uncertainties and factors relating to GECO’s operations and the business environment in which GECO operates, which may cause its actual results to be materially different from any future results, express or implied, by such forward-looking statements. Statements in this annual report and the exhibits to this report should be evaluated in light of these important risks, uncertainties and factors. GECO is not obligated to, and undertakes no obligation to publicly update any forward-looking statement due to actual results, changes in assumptions, new information or as the result of future events.


This Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available free of charge through the SEC’s website (www.sec.gov), which contains reports, proxy and information statements and other information regarding



15



issuers that file electronically with the SEC. In addition, these documents are made available on GECO’s website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC. The public may read and copy any material GECO files with the SEC at the SEC’s Public Reference Room located at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.


The Company


Global Ecology Corporation (“GECO”) is a Nevada corporation formed in 1993. Our principal executive office is located at 96 Park Street Montclair, New Jersey 07042 and our telephone number is (973) 655-9001. GECO’s website is www.geco.us.  From 1998 until the third quarter of 2004, we provided financial products and related services to the new and pre-owned automotive finance industry. We primarily purchased and subsequently sold automobile finance receivables collateralized by new and pre-owned automobiles. The receivables were predominately purchased from automobile retailers nationwide and sold to banks and credit unions.


We changed our name to Homeland Security Network, Inc. on March 1, 2005 to reflect the direction of a new course of business. HSNI targeted markets such as commercial trucking and cargo management, commercial fleet management, equipment rental and personal vehicle tracking. During the period from March, 2005 until the end of 2007, we provided the GPS tracking industry with state-of-the-art software, as well as low cost tracking hardware, and the ability to offer a cost-effective data transmission fee


In the fourth quarter of 2007, we began investing in a new industry and we secured distribution rights to a patented water restoration technology, which represented a substantial opportunity in the multi-billon dollar global water purification market. Our company has proposed the use of its services in the United States and several foreign counties. On August 18, 2009 we changed our name to Global Ecology Corporation to reflect this shift in business direction to the environmental sector.


GEC Organics Corporation


In addition, we also entered into a joint venture with Huma-Clean, LLC, a Texas-based soil remediation and re-seller of processed soil for consumer and commercial users.  The first project is underway in Juarez, Mexico, and we are hopeful that the next sites will be located in the United States.   Our initial belief was that revenue from these activities would begin to be recorded in the fourth quarter of 2008 and that the first order of its processed soil has would have been received for in excess of $2,000,000. However, the violence that occurred and continues to occur in the City of Juarez, Mexico, and the surrounding area has taken the government officials’ focus away from the building and expansion of their farmlands.


As a result, on May 25, 2011, we executed letters of intent with the Town of Castleberry, the Town of Fort Deposit and the City of White Hall, which are located in the State of Alabama for the development of locations in each of the three cities for the accumulation of certain organic waste which will be used in the production of our natural fertilizer/soil additive and allow for the expansion of the market where we can sell our soil and water remediation technologies. On October 25, 2011, we received the first tranche of the funding necessary to begin the construction process on its first domestic organic soil amendment site in Castleberry, Alabama. The location, which encompasses nearly 70 acres, will be one of the largest of its kind in the U.S.  Though our wholly-owned subsidiary GEC Organics Corporation, we began to produce our proprietary compost product at our 70-acre facility located in the Town of Castleberry in January 2012.  Our proprietary compost product is designed to greatly enhance crop yield and turf growth while continuing to maintain soil integrity. The highly nutritious compost is made from chicken waste blended with green waste and enhanced with GEC's licensed microbial formula.  When fully operational, the Castleberry, Alabama site will be able to produce up to 20,000 tons of OAS1000 solid compost and in excess of 10,000 gallons of OSA101 liquid compost each month.  As of December 31, 2011, we had not begun the production phase; and therefore, no revenues had been generated.  While, we have now begun limited production and marketing of our organic soil product, we can provide no assurance that the product will be widely accepted by our targeted consumers in order for us recognize a return on our investment.


GEC Africa


In December 2010, we executed a Joint Venture Agreement with Isongo Water (Pty), Ltd., of Pietermartizburg South Africa (“Isongo”), whereby we have agreed to form a subsidiary company to be named GEC Africa (the “JV Company”) with Isongo, which will be jointly owned 50% by each company. The JV Company will pursue business interests throughout South Africa and neighboring countries that will initially commence with the sale of



16



our Mobile PureWater System (“MPWS”) and our ionized mineral solution, IMS1000. Based on the success of the venture we intend to later incorporate the sale of our other proprietary and licensed technologies through the JV Company in certain African territories. As part of joint venture relationship, Isongo will be granted an exclusive license for the sole benefit of GEC Africa for the sale and distribution of the MPWS and the IMS1000. The intention of the parties is for GEC Africa to have its own local manufacturing facility for the MPWS and its solution, which Isongo has the capability to provide. There will be minimum sales volume requirements for the continuation of the relationship. We can provide no assurances that the joint venture relationship with Isongo will be successful or be able to generate significant revenue, if at all. As of December 31, 2011 there has been no activity to report.


We continue to develop our relationships in South Africa through our subsidiary GEC Africa which is a joint partnership with Isongo. Representatives of our company demonstrated our MPWS in real time as it produced potable water from several contaminated sources. These demonstrations were performed in the most challenging conditions where rivers look like dark chocolate and E. coli, streptococcus, and other dangerous pathogens are abundant. Our group met with government officials from municipalities and water processing facilities including, The Department of Water Affairs and The South African Bureau of Standards, which has now agreed to accelerate the registration process for our licensed, proprietary formula, IMS1000. Many public and private entities in Africa are seeking ways to provide safe water without the use of chlorine and our IMS1000 solution will help to accomplish this goal. We also had discussions with two municipalities for the use of our bio-remediation technology for the processing of bio-solids from their waste water treatment facilities. Additional uses of IMS1000 such as the de-contamination of large bodies of water, vegetable washes, poultry processing plants, and mining water reclamation are currently under discussion. GEC Africa has now engaged several distributors to market our products and services throughout the continent. This distribution channel under the supervision of GEC Africa is expected to accelerate the development of our coverage and produce sustainable revenue.  As of December 31, 2011 there has been no activity to report.


Clean Tower Technologies, Inc.


In January of 2011, we formed a wholly subsidiary, CleanTower Technologies, Inc., for the purpose of developing a market for our licensed environmentally safe chemical IMS1000. The solution is produced under a private label arrangement with our Canadian supplier, EnvirEau Technologies, Inc. This new company will eventually include a number of affiliates with industry experience to help us build the operation. As of September 30, 2011 there has been no activity to report.


As a part of our We have supported a number of events at the United Nations and have established our self as a strategic partner with International Renewable Energy Organization (“IREO”), a Brazilian private partner of the United Nations.  Peter Ubaldi, our President and CEO, has been appointed as Chairman of IREO’s Water Restoration Committee.  We have proposed our remediation technology for contaminated bodies of water and for the remediation of soil in South America, Central America, the Philippines and the United States as part of its expanding marketing efforts.


The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had: (i) a net loss of ($1,249,621) from operations; (ii) used ($341,494) in cash from operations; (iii) a total shareholders’ deficit of ($3,825,468); and (iv) a total net loss of ($1,235,944) for the year ended December 31, 2011.  Therefore, the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to begin to generate positive cash flow from operations. We are seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The additional funding would alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding.


If additional financing arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.


Plan of Operation



17




Management is taking the following steps to create shareholder value and revenue growth for our company: (i) development of global partnerships to create distribution channels for our products; (ii) entering into and exploring a number of strategic partnerships both domestically within the United States and internationally to assist us in the development of our technologies; (iii) expansion of sales and marketing efforts into various markets impacted by environmental issues such as the water cooling tower market; (iv) continual development of proprietary technologies as well as development of new licensing arrangements for technologies that complement our current product offerings; and (v) aggressively pursuing regulatory approval in both the united states and internationally to allow for the use of our products in a broad range of environmental remedial markets.


Our future success is likely dependent on its ability to create profitable growth and attain additional capital to support growth and ultimately our ability to reach profitability and maintain profitability one we have reached that stage. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.


Employees


At December 31, 2011, we had employed a total of 4 people. No employees are covered by a collective bargaining agreement.


Going Concern


The Company had: (i) a net loss of ($1,249,621) from operations; (ii) used ($341,494) in cash from operations; (iii) a total shareholders’ deficit of ($3,825,468); and (iv) a total net loss of ($1,235,944) for the year ended December 31, 2011.  Therefore, the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to begin to generate positive cash flow from operations.


We are seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The additional funding would alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding.


If the additional financing or arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about GECO’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if we become unable to continue as a going concern.


Selected financial Data:


GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statement of Operations

for the years ended December 31,

 

 

2011

2010

 

 

 

Sales

 $                35,000

 $                         -

Cost of Goods Sold

                   43,252

                          -   

Gross Profit

                   (8,252)

                          -   

 

 

 

General And Administrative

                 642,504

                 180,332

Beneficial conversion feature

                   82,365

                 124,556

Shares issued for Services

                 516,500

                 462,806

Net Profit / (Loss) From Operations

            (1,249,621)

               (767,694)

 

 

 

Other Income / (expense)

                 252,415

                 153,935

Impairment Expense

                          -   

               (780,000)

Interest Expense

               (238,738)

               (129,096)

Net Profit / (Loss) Before Income Taxes

            (1,235,944)

            (1,522,855)

Income Tax Expense

                            -

                            -

Net Profit / (Loss)

 $         (1,235,944)

 $         (1,522,855)


Revenues


Product Sales:


For the year ended December 31, 2011, revenues from product sales were $35,000 as compared to $0 for the same period in 2010, due to the commercialization and sale of our Mobile PureWater System.


Cost of Sales


For the year ended December 31, 2011, Cost of sales increased by $43,252 due to the commercialization and sale of our Mobile PureWater System.


Other Income:


For the year ended December 31, 2011 revenue from sources categorized as other income was $252,415 compared to $153,935 for the same period in 2010. These amounts are due to the write-off of certain trade payables of three former subsidiaries of the Company. The Company had not guaranteed these debts nor pledged its assets to secure such debts and sold the three subsidiaries to Monet Acquisition together with all the assets and liabilities.  


Operating Expenses


For the year ended December 31, 2011, General and administrative expenses increased by were $642,504 compared to $180,332 for the same period in 2010.  The increase was mainly due to an increase in our consulting fees.


For the year ended December 31, 2011, we recognized a beneficial conversion expense of $82,365 compared to $124,556 for the same period in 2010.


For the year ended December 31, 2011, we issued shares for services and recognized an expense of $516,500 compared to $462,806 for the same period in 2010.


Liquidity


Our consolidated financial statements have been prepared on the assumption that we will continue as a going concern. Management is seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The funding should alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of our efforts to achieve profitability. Also, there can be no assurance that additional funding will be available when needed or, if available, that its terms will be favorable or acceptable.


These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.  Management is seeking to raise additional capital and to renegotiate certain liabilities in order to alleviate the working capital deficiency.


Due to recurring operating losses and our current working capital deficit, there is a need to obtain additional funding of working capital for us to operate as a going concern. We incurred operating losses of ($1,249,621) and net losses of ($1,235,944) for the year ended December 31, 2011.  In 2011, we have been able to minimally sustain its working capital needs based on capital derived primarily from the issuance of additional common stock and debt financings.




19



Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table:


GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statements of Cash Flows

for the years ended December 31,

 

 

 

 

2011

2010

Net cash provided (used) in operating activities

 $            (341,494)

 $              (47,976)

 Net cash used in investing activities

               (308,341)

                           -   

Net cash provided by financing activities

                 972,018

                 271,081

Net increase (decrease) in cash

                 322,183

                 223,105

Cash beginning of the period

                 225,740

                     2,635

Cash end of the period

 $              547,923

 $              225,740


Net cash used in operating activities for the year ended December 31, 2011 increased by $282,218 from cash used in operations for the previous year ended due primarily from the issuance of common stock for services. The operating loss of $(1,179,619) for the year ended December 31, 2010 included the following non-cash items:


Non-cash expense for the year ended December 31, 2011

Depreciation and amortization

$29,264

Common stock issued for services and compensation

$516,500

Common stock issued for debt settlement

$569,500

Beneficial conversion expense

$82,364

Reserve for asset impairment

$

Gain on cancellation of debt

$

Total non-cash expense

1,197,628


Accounts payable and other accrued expenses, decreased by $257,258 for the year ended December 31, 2011 as compared 2010, primarily due to the conversion of related party accruals into notes payable.


Net cash used by investing activities for the year ended December 31, 2011 increased by $282,218 as compared to the same period in 2010, due increased issuance of common stock for services and compensation.


Net cash provided by financing activities increased by $667,937 for the year ended December 31, 20010 compared to the prior year due to increased borrowing in 2011.


Market for Common Stock; Volatility of Prices


There has been a limited public trading market for shares of our common stock. There can be no assurance that a regular trading market for our common stock will ever develop or, if developed, that it will be sustained. The market price of our common stock could also be subject to significant fluctuations in response to such factors as variations in the anticipated or actual results of our operations or other companies in the business of environmental restoration, changes in conditions affecting the economy generally, analyst reports, general trends in industry, and other political or socioeconomic events or factors.


Off Balance Sheet Arrangements


We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.


Deferred Tax Valuation




20



We continue to incur tax net operating losses, which are available to carry forward and offset future taxable income. These net operating losses were generated, principally as a result of losses resulting from our operations.  A deferred tax asset results from the benefit of utilizing these net operating loss carry-forwards in future years.


Due to the current uncertainty of realizing the benefits of the tax net carry loss carry-forward, a valuation allowance equal to the tax benefits for the deferred taxes has been established. The full realization of the tax benefit associated with the carry-forward depends predominately upon our ability to generate taxable income during future periods, which is not assured.


Indemnification of Directors and Officers


Subject to and subsequent to an appointment or election as an officer or director, we provide contractual indemnification.


We also agree to indemnify the positions of directors and officers as follows: A director or officer shall not be liable for any claim or demand on account of damages in any manner. We agree to indemnify and hold directors or officers, without limitation, harmless from any and all damages, losses (which shall include any diminution in value), shortages, liabilities (joint or several), payments, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or nature whatsoever, specifically including without limitation, fees, disbursements and expenses of attorneys, accountants and other professional advisors and of expert witnesses and cost of investigation and preparation. A director or officer will be indemnified from any decision or action taken prior to his or her hire date as


Stock-Based Compensation


Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payments , (SFAS No. 123(R)) for all share-based payment awards to employees and directors including stock options, restricted stock units and employee stock purchases related to our employee stock purchase plan.  In accordance with SFAS No. 123(R), shares issued are recorded based on grant-date fair value.  All shares issued for compensation or services are valued at the fair value of the shares at the time or the value of the services rendered, which ever is more accurately attained at the time.



Item 7a. Quantitative and Qualitative Disclosures About Market Risk


Not applicable.



21





Item 8. Financial Statements and Supplementary Data


Global Ecology Corporation

10-K

TABLE OF CONTENTS



Financial Statements

Page

Report of independent registered public accounting firm

24

Consolidated Balance Sheet as of December 31, 2011 and 2010

25

Consolidated Statement of Operations for the years ended December 31, 2011 and 2010

25

Consolidated Statement of Stockholders Equity for the years ended December 31, 2011 and 2010

27

Consolidated Statement of Cash flows for the years ended December 31, 2011 and 2010

28

Footnotes to the Financial Statements

29



22



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

Global Ecology Corporation

96 Park Street

Montclair, NJ  07042


We have audited the accompanying balance sheets of Global Ecology Corporation as of December 31, 2011 and 2010 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2011 and 2010.  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 audits 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 Global Ecology Corporation as of December 31, 2011 and 2010 and the results of its operations and its cash flows for each of the years in the period ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Global Ecology Corporation will continue as a going concern. As discussed in Note 4, conditions exist which raise uncertainty about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 4.  The financial statements do not include adjustments that might result from the outcome of these uncertainties.

The Company is in default of certain notes payable totaling $972,287 as of December 31, 2011.  These are classified as current liabilities in the company financial statements.


/s/W.T. Uniack & Co., CPA’s P.C.

Woodstock, Georgia

April 12, 2012



23




GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Balance Sheet

as of

 

 

 

 

 

 

December 31,

December 31,

 

 

2011

2010

Assets

 

 

Current Assets

 

 

 

Cash and cash equivalents

 $                 547,923

 $                 225,740

 

Accounts receivable – trade

                               -

                               -

 

Inventories

                               -

                               -

 

Total current assets

                    547,923

                    225,740

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation

                    302,414

                               -

 

Capitalized software, net of accumulated amortization

                      17,498

                      40,835

 

Other intangible assets

                      21,500

                      21,500

 

Deposits

                      15,000

                               -

 

Investment in joint venture

                    780,000

                    780,000

 

Reserve for impairment of Investment in joint venture

                  (780,000)

                  (780,000)

Total Assets

 $                 904,335

 $                 288,075

 

 

 

 

Liabilities and Shareholders' Deficit

 

 

 

Accounts payable and accrued liabilities

 $                 873,195

 $                 649,194

 

Accounts payable and accrued liabilities to related parties

                               -

                    481,259

 

Notes payable and advances related parties

                    932,205

                 1,062,698

 

Notes payable

                 1,258,318

                 1,635,529

 

Line of credit

                    166,085

                    166,085

 

Total current liabilities

                 3,229,803

                 3,994,765

 

 

 

 

 

Long term notes payable, net of current portion

                 1,500,000

                               -

Total Liabilities

     4,729,803

     3,994,765

 

 

 

 

Shareholders' Deficit:

 

 

 

Series A convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 2,150,000 issued and outstanding

                        2,150

                        2,150

 

Series B convertible preferred stock, no par value, 5% non-cumulative; liquidation preference of $14.64 per share; 2,000,000 shares authorized, 0 issued and outstanding

                             -   

                             -   

 

Common Stock, par value $.001; 500,000,000 shares authorized, 469,714,296 and 395,769,546 shares issued and outstanding, respectively'

                    469,715

                    395,770

 

Additional paid-in-capital

               26,637,804

               25,543,385

 

Accumulated deficit

             (30,484,198)

             (29,248,255)

 

Less treasury at cost, 6,371,937 and 1,817,000 shares, respectively

                  (450,939)

                  (399,740)

 

Total shareholders’ deficit

               (3,825,468)

               (3,706,690)

Total liabilities and shareholders’ deficit

 $                 904,334

 $                 288,075



The accompanying footnotes are an integral part of these financial statements



24





GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statement of Operations

for the years ended December 31,

 

 

2011

2010

 

 

 

Sales

 $                35,000

 $                         -

Cost of Goods Sold

                   43,252

                          -   

Gross Profit

                   (8,252)

                          -   

 

 

 

General And Administrative

                 642,504

                 180,332

Beneficial conversion feature

                   82,365

                 124,556

Shares issued for Services

                 516,500

                 462,806

Net Profit / (Loss) From Operations

            (1,249,621)

               (767,694)

 

 

 

Other Income / (expense)

                 252,415

                 153,935

Impairment Expense

                          -   

               (780,000)

Interest Expense

               (238,738)

               (129,096)

Net Profit / (Loss) Before Income Taxes

            (1,235,944)

            (1,522,855)

Income Tax Expense

                            -

                            -

Net Profit / (Loss)

 $         (1,235,944)

 $         (1,522,855)

 

 

 

Per Share Information:

 

 

Basic and diluted weighted average number of common shares outstanding

          423,647,114

          329,631,151

 

 

 

Net Profit / (Loss) per common share

 $                (0.003)

 $                (0.005)

 

 

 

Per Share Information:

 

 

Diluted, weighted average number

 

 

of common shares outstanding

          423,647,114

          329,631,151

 

 

 

Diluted, Net Profit / (Loss) per common share

 $            (0.003)

 $            (0.005)



The accompanying footnotes are an integral part of these financial statements



25







GLOBAL ECOLOGY CORPORATION  AND SUBSIDIARIES   

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit)

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Common Stock

Preferred Stock – Series A

Treasury Stock

Additional Paid-In Capital

Accumulated Deficit

Total Stockholders Deficit

 

Shares

Amount

Shares

Amount

Shares

Amount

 

 

 

Balance at December 31, 2009

   348,859,585

          348,860

       2,150,000

                2,150

        1,817,000

        (399,740)

    24,752,933

  (27,725,400)

      (3,021,197)

 

 

 

 

 

 

 

 

 

 

Shares issued for Services

       46,909,961

             46,910

 

 

 

 

          665,896

 

           712,806

 

 

 

 

 

 

 

 

 

 

Beneficial conversion Feature

 

 

 

 

 

 

           124,556

 

           124,556

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

     (1,522,855)

     (1,522,855)

 

 

 

 

 

 

 

 

 

                      -   

Balance at December 31, 2010

   395,769,546

          395,770

       2,150,000

                2,150

        1,817,000

        (399,740)

    25,543,385

  (29,248,255)

    (3,706,690)

 

 

 

 

 

 

 

 

 

 

Shares issued for Services

          38,118,110

              38,118

 

 

 

 

          739,882

 

          778,000

 

 

 

 

 

 

 

 

 

 

Shares issued for debt conversion

      35,826,640

            35,827

 

 

 

 

           272,173

 

          308,000

 

 

 

 

 

 

 

 

 

 

Beneficial conversion Feature

 

 

 

 

 

 

            82,364

 

            82,364

 

 

 

 

 

 

 

 

 

 

Treasury Stock Repurchase

 

 

 

 

      4,554,937

            (51,199)

 

 

            (51,199)

 

 

 

 

 

 

 

 

 

 

Net Income / (Loss)

 

 

 

 

 

 

 

     (1,235,943)

     (1,235,943)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

    469,714,296

           469,715

       2,150,000

                2,150

       6,371,937

        (450,939)

    26,637,804

   (30,484,198)

    (3,825,468)


The accompanying footnotes are an integral part of these financial statements



26








GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statements of Cash Flows

for the years ended December 31,

 

 

 

 

 

 

 

2011

2010

Cash flows from operating activities:

 

 

Net loss

 $         (1,235,944)

 $         (1,522,855)

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:

 

 

Depreciation and amortization

                   29,264

                   23,337

Common stock issued for services and compensation

                 516,500

                 462,806

Beneficial conversion expense

                   82,364

                 124,556

Reserve for asset impairment

 

                 780,000

Gain on cancellation of debt

 

               (153,935)

Changes in:

 

 

Other assets

                 (15,000)

                     1,124

Accounts payable and other accrued expenses (net of settlements)

                 281,322

                 236,991

Net cash provided (used) in operating activities

               (341,494)

                 (47,976)

 

 

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

               (308,341)

                           -   

 Net cash used in investing activities

               (308,341)

                           -   

 

 

 

Cash flows from financing activities:

 

 

Borrowing (repayment) under line of credit

 

                           -   

Repurchase Treasury Stock

                 (51,199)

 

Proceeds from notes payable

              1,280,089

                 215,628

Advances / (repayment) -  related parties

               (256,872)

                   55,453

Net cash provided by financing activities

                 972,018

                 271,081

 

 

 

Net increase (decrease) in cash

                 322,183

                 223,105

Cash beginning of the period

                 225,740

                     2,635

Cash end of the period

 $              547,923

 $              225,740

 

 

 

Supplemental information

 

 

Stock issued for debt settlement

    $             569,500

      $            250,000


The accompanying footnotes are an integral part of these financial statements



27




GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010


 The use of the words “we,” “us,” “our” “GECO” or “the Company” refers to Global Ecology Corporation and its subsidiaries, except where the context otherwise requires.


1. Organization and Description of Business


Global Ecology Corporation (“GECO”) is a Nevada corporation formed in 1993. Our principal executive office is located at 96 Park Street Montclair, New Jersey 07042 and our telephone number is (973) 655-9001. GECO’s website is www.geco.us.  From 1998 until the third quarter of 2004, we provided financial products and related services to the new and pre-owned automotive finance industry. We primarily purchased and subsequently sold automobile finance receivables collateralized by new and pre-owned automobiles. The receivables were predominately purchased from automobile retailers nationwide and sold to banks and credit unions.


We changed our name to Homeland Security Network, Inc. on March 1, 2005 to reflect the direction of a new course of business. HSNI targeted markets such as commercial trucking and cargo management, commercial fleet management, equipment rental and personal vehicle tracking. During the period from March, 2005 until the end of 2007, we provided the GPS tracking industry with state-of-the-art software, as well as low cost tracking hardware, and the ability to offer a cost-effective data transmission fee


In the fourth quarter of 2007, we began investing in a new industry and we secured distribution rights to a patented water restoration technology, which represented a substantial opportunity in the multi-billon dollar global water purification market. Our company has proposed the use of its services in the United States and several foreign counties. On August 18, 2009 we changed our name to Global Ecology Corporation to reflect this shift in business direction to the environmental sector.


GEC Organics Corporation


In addition, we also entered into a joint venture with Huma-Clean, LLC, a Texas-based soil remediation and re-seller of processed soil for consumer and commercial users.  The first project is underway in Juarez, Mexico, and we are hopeful that the next sites will be located in the United States.   Our initial belief was that revenue from these activities would begin to be recorded in the fourth quarter of 2008 and that the first order of its processed soil has would have been received for in excess of $2,000,000. However, the violence that occurred and continues to occur in the City of Juarez, Mexico, and the surrounding area has taken the government officials’ focus away from the building and expansion of their farmlands.


As a result, on May 25, 2011, we executed letters of intent with the Town of Castleberry, the Town of Fort Deposit and the City of White Hall, which are located in the State of Alabama for the development of locations in each of the three cities for the accumulation of certain organic waste which will be used in the production of our natural fertilizer/soil additive and allow for the expansion of the market where we can sell our soil and water remediation technologies. On October 25, 2011, we received the first tranche of the funding necessary to begin the construction process on its first domestic organic soil amendment site in Castleberry, Alabama. The location, which encompasses nearly 70 acres, will be one of the largest of its kind in the U.S.  Though our wholly-owned subsidiary GEC Organics Corporation, we began to produce our proprietary compost product at our 70-acre facility located in the Town of Castleberry in January 2012.  Our proprietary compost product is designed to greatly enhance crop yield and turf growth while continuing to maintain soil integrity. The highly nutritious compost is made from chicken waste blended with green waste and enhanced with GEC's licensed microbial formula.  When fully operational, the Castleberry, Alabama site will be able to produce up to 20,000 tons of OAS1000 solid compost and in excess of 10,000 gallons of OSA CT1000 liquid compost each month.  As of December 31, 2011, we had not begun the production phase; and therefore, no revenues had been generated.  While, we have now begun limited production and marketing of our organic soil product, we can provide no assurance that the product will be widely accepted by our targeted consumers in order for us recognize a return on our investment.


GEC Africa


In December 2010, we executed a Joint Venture Agreement with Isongo Water (Pty), Ltd., of Pietermartizburg South Africa (“Isongo”), whereby we have agreed to form a subsidiary company to be named GEC Africa (the



28




GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


“JV Company”) with Isongo, which will be jointly owned 50% by each company. The JV Company will pursue business interests throughout South Africa and neighboring countries that will initially commence with the sale of our Mobile PureWater System (“MPWS”) and our ionized mineral solution, IMS1000. Based on the success of the venture we intend to later incorporate the sale of our other proprietary and licensed technologies through the JV Company in certain African territories. As part of joint venture relationship, Isongo will be granted an exclusive license for the sole benefit of GEC Africa for the sale and distribution of the MPWS and the IMS1000. The intention of the parties is for GEC Africa to have its own local manufacturing facility for the MPWS and its solution, which Isongo has the capability to provide. There will be minimum sales volume requirements for the continuation of the relationship. We can provide no assurances that the joint venture relationship with Isongo will be successful or be able to generate significant revenue, if at all. As of December 31, 2011 there has been no activity to report.


We continue to develop our relationships in South Africa through our subsidiary GEC Africa which is a joint partnership with Isongo. Representatives of our company demonstrated our MPWS in real time as it produced potable water from several contaminated sources. These demonstrations were performed in the most challenging conditions where rivers look like dark chocolate and E. coli, streptococcus, and other dangerous pathogens are abundant. Our group met with government officials from municipalities and water processing facilities including, The Department of Water Affairs and The South African Bureau of Standards, which has now agreed to accelerate the registration process for our licensed, proprietary formula, IMS1000. Many public and private entities in Africa are seeking ways to provide safe water without the use of chlorine and our IMS1000 solution will help to accomplish this goal. We also had discussions with two municipalities for the use of our bio-remediation technology for the processing of bio-solids from their waste water treatment facilities. Additional uses of IMS1000 such as the de-contamination of large bodies of water, vegetable washes, poultry processing plants, and mining water reclamation are currently under discussion. GEC Africa has now engaged several distributors to market our products and services throughout the continent. This distribution channel under the supervision of GEC Africa is expected to accelerate the development of our coverage and produce sustainable revenue.  As of December 31, 2011 there has been no activity to report.


Clean Tower Technologies, Inc.


In January of 2011, we formed a wholly subsidiary, CleanTower Technologies, Inc., for the purpose of developing a market for our licensed environmentally safe chemical IMS1000. The solution is produced under a private label arrangement with our Canadian supplier, EnvirEau Technologies, Inc. This new company will eventually include a number of affiliates with industry experience to help us build the operation. As of September 30, 2011 there has been no activity to report.


As a part of our We have supported a number of events at the United Nations and have established our self as a strategic partner with International Renewable Energy Organization (“IREO”), a Brazilian private partner of the United Nations.  Peter Ubaldi, our President and CEO, has been appointed as Chairman of IREO’s Water Restoration Committee.  We have proposed our remediation technology for contaminated bodies of water and for the remediation of soil in South America, Central America, the Philippines and the United States as part of its expanding marketing efforts.


The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had: (i) a net loss of ($1,249,621) from operations; (ii) used ($341,494) in cash from operations; (iii) a total shareholders’ deficit of ($3,825,468); and (iv) a total net loss of ($1,235,944) for the year ended December 31, 2011.  Therefore the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to begin to generate positive cash flow from operations. We are seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The additional funding would alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding.



29





GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


If additional financing arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.


Also, there can be no assurance that additional funding will be available when needed or, if available, that its terms will be favorable or acceptable. We are also seeking to renegotiate certain liabilities in order to alleviate the working capital deficiency.


If the additional financing or arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.


2. Basis of Presentation


The financial information presented in this report comprises the audited financial statements as of and for the years ended December 31, 2011 and 2010.


We have prepared the accompanying financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”).


3. Significant Accounting Policies


Use of Estimates


Our financial statements are prepared in accordance with accounting GAAP. These accounting principles require management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. When sources of information regarding the carrying values of assets, liabilities and reported amounts of revenue and expenses are not readily apparent, we base our estimates on historical experience and on various other assumptions that our management believes to be reasonable for making judgments. We evaluate all of its estimates on an on-going basis and may consult outside experts to assist in our evaluations. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Actual results could differ from those estimates.


Revenue Recognition


We recognized revenue of $35,000 for the sale of our Mobile PureWater System during the year ended December 31, 2011.


When revenue is generated from the sale of products and services of our environmental restoration activities, we will record this revenue in accordance with guidance provided by the SEC’s Staff Accounting Bulletin No. 104, or SAB No. 104., Revenue Recognition;, revenue is recognized when all of the following are met: (i) persuasive evidence of an arrangement exists, (ii) title and risk of loss have passed, (iii) delivery has occurred or the services have been rendered, (iv) the sales price is fixed or determinable and (v) collection is reasonably assured.


Accounts Receivable



30







GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


Accounts receivable relating to our tracking device segment consists of payments due from users of the products.  In the normal course of business, we monitor the financial condition of our customer base.  As of December 31, 2011 and December 31, 2010, the Company has recorded a provision for uncollectible accounts of $133,250 and $133,250, respectively, related to a long-outstanding balance. The account deemed uncollectible relates to an individual customer; we have a note payable outstanding to an affiliated entity (Riverside Corporation) of the customer with a principal balance of $141,875 and $141,875 as of December 31, 2011 and December 31, 2010, respectively. As the

note payable terms do not have a right of offset, we have reserved the balance in full in accordance with its own accounting policies; however, we believe we have a legal right of offset if the affiliated entity of the customer pursues further collection efforts on the notes payable balance.


Property, Plant and Equipment


Furniture and equipment are carried at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the assets, which is three years.  Leasehold improvements are carried at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the life of the lease.


Capitalized Software


We capitalize certain computer software costs, after technological feasibility has been established.  These costs are amortized utilizing the straight-line method over the software’s economic life, which has been estimated at five years.  Development costs of the software are accounted for in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”).  SOP 98-1 permits capitalization of software costs if they are expenditures related to the applications development.   In the past, and prospectively, the Company has and will capitalize expenditures directly related to the development of  applications.  For the years ended December 31, 2011 and 2010, no expenditures relating to application development were capitalized by our Company.


Goodwill and Intangible Assets


Goodwill and intangible assets are accounted for in accordance with SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142") (now contained in FASB Codification Topic 350, Intangibles-Goodwill and Other). Under Topic 350, goodwill and indefinite lived intangible assets are not amortized but instead are reviewed annually for impairment, or more frequently, if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their estimated useful lives. The Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill or other intangible assets may not be recoverable, or at least annually at December 31 of each year. These tests are performed at the reporting unit level using a two-step, fair-value based approach. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, a second step is performed to measure the amount of impairment loss. The second step allocates the fair value of the reporting unit to the Company's tangible and intangible assets and liabilities. This derives an implied fair value for the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to that excess.  In the event that the Company determines that the value of goodwill or other intangible assets have become impaired, the Company will incur a charge for the amount of the impairment during the fiscal quarter in which the determination is made.


Investment in Joint Venture


In March 2008, we entered into a joint venture agreement with Huma-Clean, LLC of Houston Texas. Under the terms of the agreement, the funding for the venture was $800,000, which was advanced in several installments by



31



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


us. This funding is in the form of a loan that will be repaid out of the initial proceeds of the venture.  Any income or loss generated by the joint venture is to be allocated 50% to us and 50% to Huma-Clean, LLC. As of December


31, 2011 we advanced $780,000 under this agreement, which has been recorded on a cost basis. The investment has not been recorded on an equity method basis because of our inability to exercise significant influence over the

venture. Management feels that there is a high degree of uncertainty regarding the collectability of this asset; therefore they have decided to reserve $780,000 for potential impairment of the asset. As of December 31, 2011 the net carrying value of this asset is $0.   


Deferred financing costs


We capitalize costs associated with the issuance of debt instruments. These costs are amortized on a straight-line basis over the term of the related debt instruments.


Income Taxes


The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes.  Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of December 31, 2011, we had a net operating loss carry forward of $(30,484,199) and a deferred tax asset of $10,364,628 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years.  However, due to the uncertainty of future events we have booked valuation allowance of $10,364,628.



 

December 31, 2011

NOL 12/31/2010

                                 $   (29,248,255)

Net Loss

                                      (1,235,944)

NOL 12/31/2011

                                    (30,484,199)

 

 

Tax at 34%

                     $   (10,364,628)


Long-Lived Assets


We account for our long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS No. 144”) (now contained in FASB Codification Section 360-10, Property, Plant, and Equipment-- Accounting for the Impairment or Disposal of Long-Lived Asset subsections), which requires that long-lived assets be evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized for the difference between the estimated fair value and the carrying value of the asset or asset group.

 

Fair Value of Financial Instruments


On September 15, 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”) (now contained in FASB Codification Section 825-10-65, Fair Value Measurements and Disclosures-Overall-Transition and Open Effective Date Information), which addresses standardizing the measurement of fair value for companies who are required to use a fair value measure for recognition or disclosure purposes. The FASB Codification Section 825-10-65 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  The Company’s adoption of the required portions of FASB Codification Section 825-10-65 as of January 1, 2008 did not have a material impact on the Company’s financial position, results of operations and cash flows. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,




32



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


Effective Date of FASB Statement No. 157 (“FSP 157-2”), permitting entities to delay application of SFAS No. 157 to fiscal years beginning after November 15, 2008, for non-financial assets and non-financial liabilities,

except for items recognized or disclosed at fair value on a recurring basis. The Company adopted the application of FASB Codification Section 825-10-65to non-financial assets and liabilities effective January 1, 2009; this did not have a material effect on the Company’s financial condition or results of operations. FASB Codification Section 825-10-65established a fair value hierarchy to prioritize the inputs used in valuation techniques into three levels as follows. The hierarchy gives the highest priority to quoted prices in active markets

for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).


·

Level 1 – Observable inputs that reflect quoted prices in active markets for identical assets or liabilities in active markets.


·

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


·

Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data.


At December 31, 2010, our assets and liabilities reported at fair value utilizing Level 1 inputs include cash and cash equivalents. For these items, quoted current market prices are readily available. We do not currently have any financial instruments utilizing Level 2 and Level 3 inputs.


The following table presents information about the Company’s fair value hierarchy for financial assets as of December 31, 2011:


 

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs (Level 2)

Significant

Total

(Level 1)

Unobservable Inputs

 

(Level 3)

Cash and Cash Equivalents

 $                                       547,923

 

 

 $  547,923

Total

 $                                       547,923

 

 

 $  547,923


The carrying amounts of trade receivables and payables, accrued expenses and other current liabilities approximate fair value due to their short-term nature.  


In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”) (now contained in FASB Codification Topic 825-10, Financial Instruments-Fair Value Option subsections), which permits companies to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently measured at fair value.  Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting date.  Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred.  The Company did not elect the fair value option for any of its existing financial instruments other than those already measured at fair value.  Therefore, our adoption of FASB Codification Topic 825-10 as of January 1, 2008 did not have an impact on our financial position, results of operations or cash flows.


Concentrations of Credit Risk


We maintain our cash with high credit quality financial institutions. The Federal Deposit Insurance Corporation secures each deposit or up to $250,000.



33



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


Stock-Based Compensation


Prior to January 1, 2006, we elected to follow Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees , and related interpretations to account for our employee and director stock options,

as permitted by Statement of Financial Accounting Standards (SFAS) No. 123,  Accounting for Stock-Based Compensation(contained in FASB Codification Topic 718, Compensation-Stock Compensation). We accounted for stock-based compensation for non-employees under the fair value method prescribed by Topic 718. Effective January 1, 2006, The Company adopted the fair value recognition provisions of Topic 718  for all share-based payment awards to employees and directors including stock options, restricted stock units and employee stock purchases related to our employee stock purchase plan. In addition, the Company has applied the provisions of Staff Accounting Bulletin No. 107 (SAB No. 107), issued by the Securities and Exchange Commission, in our adoption of Topic 718.


We adopted FASB Codification Topic 718 using the modified-prospective-transition method. Under this transition method, stock-based compensation expense recognized after the effective date includes: (1) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006,

based on the measurement date fair value estimate in accordance with the original provisions of FASB Codification Topic 718, and (2) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the measurement date fair value estimate in accordance with the provisions of FASB Codification Topic 718. Results from prior periods have not been restated and do not include the impact of FASB Codification Topic 718. For the years ended December 31, 2011 and year ended December 31, 2010, we recognized no stock-based compensation expense under FASB Codification Topic 718 relating to employee and director stock options, restricted stock units or the employee stock purchase plan.


Stock-based compensation expense recognized each period is based on the greater of the value of the portion of share-base payment awards under the straight-line method or the value of the portion of share-based payment awards that is ultimately expected to vest during the period. FASB Codification Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.


Upon adoption of FASB Codification Topic 718, the Company elected to use the Black-Scholes-Merton option-pricing formula to value share-based payments granted to employees subsequent to January 1, 2006 and elected

to attribute the value of stock-based compensation to expense using the straight-line single option method. These methods were previously used for our pro forma information required under FASB Codification Topic 718.

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards , which detailed an alternative transition method for calculating the tax effects of stock-based compensation pursuant to FASB Codification Topic 718. This alternative transition method included simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation and to determine the subsequent impact on the APIC pool and Statement of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of FASB Codification Topic 718. Due to the Company’s historical net operating losses, the Company has not recorded the tax effects of employee stock-based compensation and has no APIC pool. Prior to the adoption of FASB Codification Topic 718, all tax benefits of deductions resulting from the exercise of stock options were required to be presented as operating cash flows in the Consolidated Statement of Cash Flows. FASB Codification Topic 718 requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. Due to our historical net operating loss position, we have not recorded these excess tax benefits as of December 31, 2011.


Recently Issued Accounting Pronouncements


In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”) (now contained in FASB Codification Topic 805- Business Combinations). Among other changes, FASB Codification Topic 805requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction at fair value; and establishes the acquisition-date fair value as the



34



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


measurement objective for all assets acquired and liabilities assumed, including earn-out provisions. Effective January 1, 2009, the Company adopted FASB Codification Topic 805.  The adoption of FASB Codification Topic 805has not had and is not expected to have a material impact on the results of operations and financial position.


In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”) (now contained in FASB Codification Topic 350-30, Intangibles other than Goodwill),

which amends the factors that should be considered when developing renewal or extension assumptions used to determine the useful life of an intangible asset under FASB Codification Topic 350-30, in order to improve consistency between FASB Codification Topic 350-30and the period of expected cash flows to measure the fair value of the asset under Statement of Financial Accounting Standards No. 141 (revised 2007),  Business Combinations, and other U.S. generally accepted accounting practices. Effective January 1, 2009, the Company adopted FASB Codification Topic 350-30. The adoption of FSP No. 142-3 has not had and is not expected to have a material impact on the results of operations and financial position.


In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with GAAP.  With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We have evaluated the new statement and has determined that it will not have a significant impact on the determination or reporting of its financial results.


We adopted FIN 48, Accounting for Uncertainty in Income Taxes – An interpretation of FASB Statement No. 109 (“FIN48”) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in tax positions by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We had no unrecognized tax benefits and no accrued interest or penalties recognized as of the date of our adoption of FIN48. During the year ended December 31, 2011 there were no changes in our unrecognized tax benefits and we had no accrued interest or penalties as of December 31, 2011.


Reclassifications


Certain reclassifications have been made to the prior period balances to conform to the current period presentation.

  

4. Going Concern Uncertainty


We have incurred net losses in the years ended December 31, 2011 and year ended December 31, 2010 and we have had working capital deficiencies both periods.


Our financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business.  The Company had: (i) a net loss of ($1,249,621) from operations; (ii) used ($341,494) in cash from operations; (iii) a total shareholders’ deficit of ($3,825,468); and (iv) a total net loss of ($1,235,944) for the year ended December 31, 2011.  Therefore, the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to begin to generate positive cash flow from operations.


We are seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The additional funding would alleviate our working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding.




35



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


If the additional financing or arrangements cannot be obtained, we would be materially and adversely affected and there would be substantial doubt about our ability to continue as a going concern. The consolidated financial

statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.


5. Income (Loss) Per Share


Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At December 31, 2011 the Company had outstanding common shares of 469,714,296 used in the calculation of basic earnings per share.  Basic Weighted average common shares and equivalents at December 31, 2011 were 423,647,144. As of December 31, 2011 the Company had outstanding preferred shares which would have been assumed to be converted and have a dilutive effect of $21,500,000 common shares.  For the years ended, December 31, 2011 and 2010, all of the Company's common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Company's net loss in those periods.


6. Property, Plant and Equipment

 

Property and Equipment


Property and equipment are stated at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets.  We follow the practice of capitalizing property and equipment purchased over $5,000. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:



Furniture and fixtures

3 to 7 years

Equipment

7 to 10 years

Leasehold improvements

7 to 10 years



 

December 31, 2011

December 31, 2010

Furniture and fixtures

 $                           -   

 $                             -   

Equipment

                     233,198

                                -   

Leasehold improvements

                       75,142

                                -   

Total

                     308,340

                                -   

Accumulated Depreciation

                       (5,927)

                                -   

Net Fixed Assets

 $                  302,412

 $                             -   


7. Capitalized Software Costs

 

The Company accounts for the development cost of software intended for sale in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (“SFAS No. 86”) (now contained in FASB Codification 985-20, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed). FASB Codification 985-20 requires product development costs to be charged to expense as incurred until technological feasibility is attained. Technological feasibility is attained when the Company’s software has completed system testing and been determined viable for its intended use. Accordingly the Company did not capitalize any development costs other than product development costs acquired through a third party purchase. The Company capitalizes software through technology purchases if the related software under development has reached technological feasibility or if there are alternative future uses for the software.




36



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


During the year ended December 31, 2007, the Company acquired new software to operate and enhance its GPS

system. The development costs of this software, which totaled $116,682, were capitalized and placed in service at the end of September 2007 and are being amortized over their estimate useful life of five years.  No such


Capitalized software costs and accumulated amortization were as follows as of December 31, 2011 and December 31, 2010:


 

December 31,

December 31,

 

2011

2010

Software development costs 

$116,682

$116,682

 

(99,184)

(75,847)

Capitalized Software, net 

$17,498

$40,835


Expected future capitalized software amortization expense for the years ending December 31st is as follows.

  

Year

Amount  

2012

 $             17,498

Total

 $             17,498



8.  Other Intangible Assets


On June 6, 2008, we acquired a mobile water purification plant and computerized ballast water distribution system from Robert Elfstrom. We agreed to purchase these assets in consideration for 1,000,000 shares of the Company’s common stock to be issued as follows: 100,000 shares upon the execution of the Bill of Sale and the remaining balance of shares to be issued in increments of 300,000 shares each time we accumulate net revenues of $2,000,000 from the utilization of the technology. We initially recorded the asset at the fair value of the full 1,000,000 shares at the date of the sale, which was $215,000, and recorded a liability for the remaining 900,000 shares to be issued.  As of December 31, 2010, no revenues had been generated from this technology and thus no additional shares had been issued. We determined that it was more appropriate to reverse the liability for the remaining contingent shares and to reduce the value of the assets to the fair value of the 100,000 shares issued at execution of the agreement, or $21,500.  If and when the remaining shares are issued, they will be recorded as a royalty expense. However, during 2009 a dispute had arisen with Mr. Elfstrom concerning his performance under this arrangement which we felt would directly impact the success of the System.  All unpaid compensation whether in stock or fees has been withheld pending final negotiation with Mr. Elfstrom. We have also made arrangements with a manufacturing/ joint venture partner for the production of our own Mobile PureWater System (“MPWS”) which is now being demonstrated in Nigeria and has been offered to several relief agencies. The next generation of the MPWS has been completed by the same manufacturer and is being test in New Jersey.


9.

Investment in Joint Venture and Other


In March 2008, we entered into a joint venture agreement with Huma-Clean, LLC of Houston Texas. Under the terms of the agreement, the funding for the venture was $800,000, which was advanced in several installments by us. This funding is in the form of a loan that will be repaid out of the initial proceeds of the venture.  Any income or loss generated by the joint venture is to be allocated 50% to us and 50% to Huma-Clean, LLC. As of December 31, 2010 we advanced $780,000 under this agreement, which has been recorded on a cost basis. The investment has not been recorded on an equity method basis because of our inability to exercise significant influence over the venture. Management feels that there is a high degree of uncertainty regarding the collectability of this asset; therefore they have decided to reserve $780,000 for potential impairment of the asset. As of December 31, 2011 the net carrying value of this asset is $0.   


10.

Notes Payable to Related Parties





37



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


(a)

On February 17, 2010 we entered into a note agreement with our chief executive officer for an amount up to $10,000. The note bears interest at the rate of 7% per annum. The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,071. As December 31, 20111, the outstanding balance on the note payable was zero.



(b)

On February 17, 2010 we entered into a note agreement with Joseph Battiato, our director, for an amount up to $10,000.  The note bears interest at the rate of 7% per annum.  The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,393.  As of December 31, 2011, the outstanding balance on the note payable was zero.


(c)

From time to time certain employees and/or officers advance funds to the Company in order for the Company to meet its operating needs or make payments directly on the Company’s behalf. Such advances were recorded as liabilities on the Company’s balance sheet in previous years. The amounts were loaned to the Company without any formal note agreement and do not bear interest. In December of 2011, we entered into three separate notes with Peter Ubaldi, our CEO, Joseph Battiato, our Chairman, and William Merritt, our Managing Director of Business Development, to formalize the advancements that had been made by the three individuals.  Thus, we entered promissory notes with Mr. Ubaldi for $634,026; Mr. Battiato for $295,678; and $13,530, respectively, which incorporated all previous amounts

due to the three executives from previous advancements, notes payable and in the case of Mr. Ubaldi, amounts accrued for wages and benefits (the “Master Notes”).   The Master Notes bear interest at 10.00% per annum.


11.  Notes Payable


In March 2005, we obtained $134,500 under a financing arrangement bearing interest at 7.00% per annum from entity affiliated with our chief executive officer. The note originally matured on June 28, 2005. The note was amended in January 2006 to incorporate the related accrued interest of $7,375 into the principal of the note and extend the maturity date through April 28, 2006.  The note is uncollateralized and the proceeds were utilized for working capital. The note is past due and in default. As of December 31, 2011, $176,334 was outstanding on the loan payable.


In 2005, we obtained funds under a financing arrangement from Market Connexxion, an unaffiliated third party. The note provided a line of credit totaling $500,000 and accrued interest at a rate of 8.00% per annum. It originally matured on January 28, 2006, at which time the unpaid principal was $229,365. Interest due on the note was $16,960. The note was amended in February 2006 to incorporate the interest into the principal and extend the term through January 2007. The note is uncollateralized and the proceeds were utilized for working capital. On March 28, 2011 we entered into a settlement agreement, whereby the company would issue 5,000,000 shares of its common stock in settlement of the outstanding balance of $338,459. However, if the 5,000,000 shares; when liquidated were not sufficient to cover the outstanding balance then the shortfall would be covered by issuing additional shares of shares of common stock or paid in cash. The shares were issued on April 18, 2011 at a market value of $.02 per share. We booked a reduction in the principal balance of $100,000. Although as of September 30, 2011 the outstanding balance was $219,319 this balance may be adjusted in the future due to the uncertainty of future stock prices and liquidated value of the stock.


We have a note payable to Monet Acquisition, LLC, an unaffiliated third party. The note bears interest at a rate of 10.00% per annum and matured on April 25, 2010. It is personally guaranteed by our chief executive officer. The note is past due and in default. December 31, 2011, $138,902 is outstanding on the loan payable.


In March 2006, we entered into a note payable for $27,000. This note bears interest at a rate of 7.00% per annum and originally matured on May 27, 2006. The maturity date was extended through December 31, 2007.  The note is past due and in default. As of December 31, 2011, $34,566 is outstanding on the loan payable.





38



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


On December 1, 2006, we entered into a promissory note with a former director in the amount of $195,000 which bears interest at a fixed rate of 8.00% per annum. The note matured in February of 2007 and is currently in default. As of December 31, 2011, $289,000 is outstanding on the note payable.


In February 2006, we obtained funds under a convertible promissory note with an unaffiliated third party in the amount of $100,000 which bears interest at 10.00% per year. The note matured on February 1, 2007 and is convertible into shares of our common stock at a fixed rate. On January 24, 2011, the company issued 500,000 shares of its common stock as consideration to extend the note due date to December 31, 2011. As of December 31, 2011, $132,945 is outstanding on the loan payable and the note is currently in default


From time to time a former employee has advanced the company money to fund operations.  As of December 31, 2011, we owe this former employee $54,687 for such advances.  There is no interest associated with these advances.

We entered into a letter agreement with a former employee in March 2007. Per the terms of this agreement, we were to pay the former employee $12,000 in monthly installment payments with the entire balance being fully paid no later than November 15, 2007. There is no interest associated with letter agreement. No payments have been made related to this agreement. The note is past due and in default. As of September 30, 2011, $12,000 is outstanding on the loan payable.


In February 2008, we entered into a promissory note for $50,000. The note bears interest at a fixed rate of 12.00% per annum and matures on January 31, 2010. On January 24, 2011 the company issued 500,000 shares of its common stock as consideration to extend the note due date to December 31, 2011. The note is convertible at any time to shares of our common stock at a fixed rate. As of December 31, 2011, $62,500 is outstanding on the loan payable.


In February 2008, we entered into a promissory note for $50,000. The note bears interest at a fixed rate of 12.00% per annum and matures on January 31, 2010. On January 24, 2011 the company issued 500,000 shares of its common stock as consideration to extend the note due date to December 31, 2011.The note is convertible at any time to shares of our common stock at a fixed rate. As of December 31, 2011, $70,000 is outstanding on the loan payable.


In September 2008, we entered into a $100,000 settlement agreement with an unaffiliated third party, of which $25,000 was paid in cash and the remaining $75,000 was to be paid by November 21, 2008. No additional payments have been made. The amount is past due and in default. There is no interest rate associated with this settlement agreement. As of December 31, 2011, $75,000 is outstanding on the loan payable.


In February 2009, we entered into a promissory note for $107,500 with an unaffiliated third party. The note bears interest at a rate of 10.00% per annum and matured on January 31, 2010. The note was extended to August 9, 2010. The note is collateralized by our pledge of 2,150,000 shares of our preferred A shares convertible at a 10 to 1 ratio of common stock. The pledged collateral is to be held in escrow until an event of default or payment in full of the loan. This loan is in default and as of December 31, 2011, $138,536 is outstanding.


On October 29, 2009, our chief executive officer and an affiliated entity entered into a settlement agreement with Lender’s Funding whereby the Company agreed to assume the liability and the parties agreed to enter into an installment note in the principal amount of $7,500 which has no interest rate and payments of $250 are due monthly. The amount is past due and in default. As of September 30, 2011, $6,750 is outstanding. Our chief executive officer is in the process of settling this obligation and the 1,000,000 shares are being held by Lender’s Funding pending final disposition of this obligation.


In November 2009, we incurred a note payable to an unaffiliated third party for $7,500 at an interest rate of 12.00% per annum. The note was due on November 10, 2010. On November 22, 2010, this note was converted into 750,000 of the company’s common stock. As of December 31, 2011, $0 is outstanding on the loan.


On September 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). The promissory note has a interest rate of 8.00% per annum, a default interest rate of 22.00%, and matured on June 20, 2011. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from September 17, 2010 at conversion rate equal to a 42.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of



39



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


$19,068. As of September 30, 2011, $0 is due and outstanding on the note due to the fact that Asher Enterprises elected to convert its note into 1,750,958 shares of our common stock.


On October 8, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $25,000.The promissory note had an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matured on August 19, 2011. Asher Enterprises had an option to convert the note in shares of our common stock any time after six months from October 8, 2010 at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $24,020. As of December 31, 2011, $0 is due and outstanding on the note due to the fact that Asher Enterprises elected to convert its note into 3,015,309 shares of our common stock


On November 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). The promissory note had an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on July 12, 2011. Asher Enterprises had an option to convert the note in shares of our common stock any time after six months from November 17, 2010 at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $26,422. As of December 31, 2011, $0 is due and outstanding on the note due to the fact that Asher Enterprises elected to convert its note into 3,647,192 shares of our common stock.


On December 15, 2010, we entered into a convertible promissory note for a principal amount of $200,000 with an unaffiliated third party. The promissory note has an interest rate of 8.00% per annum, and matured on August 19, 2011. As of December 31, 2011, $216,701 is due and outstanding on the note.   The note is currently in default.


On April 1, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $32,500. The promissory note had an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises had an option to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $31,225. We made a partial repayment of $4,500 and prepayment penalty of $7,500. This note was converted into 7,413,181 shares of common stock on October 17, 2011. As of December 31, 2011, $0 was outstanding.


On May 3, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $32,500. The promissory note has an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $31,225. We repaid this note prior to maturity; therefore, we paid a We paid a prepayment penalty of $17,532. As of December 31, 2011, $0 was outstanding.


On July 18, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500. The promissory note has an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 42.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $19,914. As of December 31, 2011 the outstanding balance was $28,323.  Subsequently, on January 26, 2011, January 31, 2012 and February 15, 2012, Asher elected to convert this note into 1,904,763, 1,562,500 and 1,081,967 shares of our common stock, respectively, for a total of 4,549,230 shares of our common stock.


On August 12, 2011, we entered into a promissory note to provided financing up to $1,500,000 with an interest rate of 10% per annum on the outstanding balance, with a due date of August 11, 2014. On August 12, 2011 we received the first advance of $225,000. On August 26, 2011 we received a second advance of $225,000.  On October 21, 2011 we received the final advance of $1,050,000.  As of December 31, 2011 the outstanding balance was $1,536,719.




40



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


12. Defaults of Note Payable


In March 2005, we obtained $134,500 under a financing arrangement bearing interest at 7.00% per annum from entity affiliated with our chief executive officer. The note originally matured on June 28, 2005. The note was amended in January 2006 to incorporate the related accrued interest of $7,375 into the principal of the note and extend the maturity date through April 28, 2006.  The note is uncollateralized and the proceeds were utilized for working capital. The note is past due and in default. As of December 31, 2011, $176,334 was outstanding on the loan payable.


We have a note payable to Monet Acquisition, LLC, an unaffiliated third party. The note bears interest at a rate of 10.00% per annum and matured on April 25, 2010. It is personally guaranteed by our chief executive officer. The note is past due and in default. December 31, 2011, $138,902 is outstanding on the loan payable.


In March 2006, we entered into a note payable for $27,000. This note bears interest at a rate of 7.00% per annum and originally matured on May 27, 2006. The maturity date was extended through December 31, 2007.  The note is past due and in default. As of December 31, 2011, $34,566 is outstanding on the loan payable.


On December 1, 2006, we entered into a promissory note with a former director in the amount of $195,000 which bears interest at a fixed rate of 8.00% per annum. The note matured in February of 2007 and is currently in default. As of December 31, 2011, $289,000 is outstanding on the note payable.


From time to time a former employee has advanced the company money to fund operations.  As of December 31, 2011, we owe this former employee $54,687 for such advances.  There is no interest associated with these advances.

We entered into a letter agreement with a former employee in March 2007. Per the terms of this agreement, we were to pay the former employee $12,000 in monthly installment payments with the entire balance being fully paid no later than November 15, 2007. There is no interest associated with letter agreement. No payments have been made related to this agreement. The note is past due and in default. As of September 30, 2011, $12,000 is outstanding on the loan payable.


In September 2008, we entered into a $100,000 settlement agreement with an unaffiliated third party, of which $25,000 was paid in cash and the remaining $75,000 was to be paid by November 21, 2008. No additional payments have been made. The amount is past due and in default. There is no interest rate associated with this settlement agreement. As of December 31, 2011, $75,000 is outstanding on the loan payable.


In February 2009, we entered into a promissory note for $107,500 with an unaffiliated third party. The note bears interest at a rate of 10.00% per annum and matured on January 31, 2010. The note was extended to August 9, 2010. The note is collateralized by our pledge of 2,150,000 shares of our preferred A shares convertible at a 10 to 1 ratio of common stock. The pledged collateral is to be held in escrow until an event of default or payment in full of the loan. This loan is in default and as of December 31, 2011, $138,536 is outstanding.


On October 29, 2009, our chief executive officer and an affiliated entity entered into a settlement agreement with Lender’s Funding whereby the Company agreed to assume the liability and the parties agreed to enter into an installment note in the principal amount of $7,500 which has no interest rate and payments of $250 are due monthly. The amount is past due and in default. As of September 30, 2011, $6,750 is outstanding. Our chief executive officer is in the process of settling this obligation and the 1,000,000 shares are being held by Lender’s Funding pending final disposition of this obligation.


On December 15, 2010, we entered into a convertible promissory note for a principal amount of $200,000 with an unaffiliated third party. The promissory note has an interest rate of 8.00% per annum, and matured on August 19, 2011. As of December 31, 2011, $216,701 is due and outstanding on the note.   The note is currently in default.


13. Credit Union Participations


We no longer services automobile finance receivables. However, there was one remaining credit union relationship (Houston Postal Credit Union/Plus4 Credit Union) through our former wholly owned subsidiary, Autocorp Financial Services, Inc., which resulted in a dispute over amounts due on the collection of auto



41



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


finance contracts.  During January 2008, the Company arrived at a $41,000 settlement with this credit union.  Per the terms of this agreement, we were to make an initial payment of $5,000, payments of $1,000 per month through February 2009 and a balloon payment of $24,000 at March 1, 2009. This settlement is secured by a $41,000 judgment.  As of December 31, 2011 payments totaling $9,000 had been made under the settlement agreement. The remaining settlement obligation is past due.

 

14. Lines of Credit


In November 2003, the Company executed a revolving credit facility in the amount of $10,000,000 with a financial institution that bore interest at a rate of prime plus 2% and matured in November 2004.  The purpose of the credit facility was to provide funding for the purchase of automobile finance installment contracts for sale to banks and credit unions which is no longer our line of business.  There was outstanding balance totaling $322,562 at both December 31, 2011, including interest and the line of credit was in default. We will negotiate revised payment terms and a settlement with the lender as soon we are able to make a firm commitment.


In April 2007, our chief executive officer at the time provided a line of credit in the amount of $50,000 to us from Atlantic Financial Advisors, Inc. (“AFA”), a corporation which is 100% owned by him. This line was used for the purchase of inventory of GPS hardware.  As we have discontinued the GPS business, there is no longer a need for this facility. We have arranged for a settlement for a long term installment payment of $250.00 per month for 30 months to liquidate the remaining balance.  The installments are secured by 1,000,000 shares of our common stock.  


15.  Related Party Transactions


On February 17, 2010 we entered into a note agreement with our chief executive officer for an amount up to $10,000. The note bears interest at the rate of 7% per annum. The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,071. As December 31, 20111, the outstanding balance on the note payable was zero.


On February 17, 2010 we entered into a note agreement with Joseph Battiato, our director, for an amount up to $10,000.  The note bears interest at the rate of 7% per annum.  The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,393.  As of December 31, 2011, the outstanding balance on the note payable was zero.


In February 2010 we issued 12,000,000 shares common stock to Peter Ubaldi, our chief executive officer, for employment compensation for the 12 month period ending December 31, 2009. Mr. Ubaldi’s employment contract is $250,000 per year and the Company has been unable to pay this amount in cash.  Mr. Ubaldi agreed to accept shares of our common stock as payment in lieu of cash.  The average share price per month over the 12 month period would have required a stock issuance of 17,811,000 but Mr. Ubaldi agreed to accept 12,000,000 shares as payment in full.


On February 16, 2010 we issued 5,000,000 shares to Joseph Battiato in exchange for initial compensation under the consulting agreement dated January 1, 2010 with Smith Street Holdings of which Joseph Battiato is a Principal.


On November 22, 2010 the company issued 15,568,925 shares of its common stock to Peter Ubaldi, our chief executive officer, for payment of unpaid wages from January 2010 through October 2010. Mr. Ubaldi’s Employment Contract called for the payment of $208,333 for the 10 month period and we were unable to pay this amount in cash.  Mr. Ubaldi agreed to accept shares of our common stock in lieu of the required cash payment.  The average share price

per month for this period would have required a stock issuance of 20,757,727.  However, Mr. Ubaldi agreed to a 25% reduction and was issued 15,568,925 as settlement in full.  


On January 24, 2011 we issued 1,235,403 as payment for back wages of $41,600 to Peter Ubaldi, our chief executive officer.



42



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


On April 18, 2011 we issued 1,821,507 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On November 23, 2011, we issued 8,474945 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On November 23, 2011, we issued 10,000,000 to our Chairman, Mr. Battiato in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 10,000,000 to our Managing Director of Business Development, Mr. Merrit in consideration for the reduction in the principal balance of a promissory note he has with the company.  


From time to time certain employees and/or officers advance funds to the Company in order for the Company to meet its operating needs or make payments directly on the Company’s behalf. Such advances were recorded as liabilities on the Company’s balance sheet in previous years. The amounts were loaned to the Company without any formal note agreement and do not bear interest. In December of 2011, we entered into three separate notes with Peter Ubaldi, our CEO, Joseph Battiato, our Chairman, and William Merritt, our Managing Director of Business Development, to formalize the advancements that had been made by the three individuals.  Thus, we entered promissory notes with Mr. Ubaldi for $634,026; Mr. Battiato for $295,678; and $13,530, respectively, which incorporated all previous amounts due to the three executives from previous advancements, notes payable and in the case of Mr. Ubaldi, amounts accrued for wages and benefits (the “Master Notes”).   The Master Notes bear interest at 10.00% per annum.


16.  Stock Plans

 

We have a non-qualified stock option plan (the “Plan”) that was adopted by the Board of Directors in March 1997. The Plan, as authorized, provides for the issuance of up to 2,000,000 shares of our common stock.


Persons eligible to participate in the Plan as recipients of stock options include full and part-time employees of the Company, as well as officers, directors, attorneys, consultants and other advisors to the Company or affiliated corporations.


Options issued under the Plan are exercisable at a price that is not less than twenty percent (20%) of the fair

market value of such shares (as defined) on the date the options are granted. The non-qualified stock options are generally non-transferable and are exercisable over a period not to exceed ten (10) years from the date of the grant. Earlier expiration is operative due to termination of employment or death of the issue. The entire Plan expired on March 20, 2007, except as to non-qualified stock options then outstanding, which will remain in effect until they have expired or have been exercised. As of December 31, 2009, 1,990,289 shares had been exercised and issued under the Plan.


On November 8, 2006, we filed a Non-Statutory Stock Option Plan, or the Plan, with the SEC. This Plan was intended as an employment incentive, to aid in attracting and retaining persons of experience and ability and whose services are considered valuable to encourage the sense of proprietorship in such persons, and to stimulate the active interest of such persons in our development and success. This Plan provides for the issuance of non-statutory stock options which are not intended to qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended. There were a total of 15,000,000 shares in the Plan at inception and 14,100,000 shares have been issued from the Plan as of December 31, 2011.


17.  Sale of GPS Business


In September 2008, we entered into a contract with Global Safety Holdings Corp., (“GSH”), a U.S. privately held company with a substantial presence in Russia, which is an unaffiliated third party.  Under the terms of this agreement, we sold the rights to our technology to GSH for use throughout Europe and Asia but specifically in Russia. We have received a 10% non-dilutive interest in GSH and a percentage of the Company’s cash flow.  We have also retained its rights exclusively to market this technology in the United States and Mexico.  The Company recorded the transaction as a non-monetary exchange and assigned no fair value to the consideration given or



43



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


received as currently no GPS operations exist in Russia; thus, the fair value of the consideration is contingent upon successful execution of the business model by GSH.


18. Stock Transactions


Effective September 27, 2010, the Company increased the number of authorized shares of its common stock from 400,000,000 to 500,000,000.


For the years ending December 31, 2010 and 2011, we issued the following securities without registration under the Securities Act of 1933. These shares were issued under the Section 4(2) exemption of the Securities Act:


In February 2010 we issued 5,000,000 shares of common stock to Joseph Battiato for consulting services he performed for us. Mr. Battiato is also our Chairman.


In February 2010 we issued 12,000,000 shares common stock to Peter Ubaldi, our President  & CEO for employment compensation for the 12 month year ending December 31, 2009. Mr. Ubaldi’s employment contract is $250,000 per year and the Company has been unable to pay this amount in cash. Mr. Ubaldi agreed to accept shares of our common stock as payment in lieu of cash. The average share price per month over the 12 month period would have required a stock issuance of 17,811,000 but Mr. Ubaldi agreed to accept 12,000,000 shares as payment in full.


In February 2010, we issued 2,000,000 shares of common stock to William Merritt for consulting services he has performed for us.


On April 20, 2010, we issued 2,300,000 share of our common stock to Larry Wolfe Consulting pursuant to a consulting agreement dated August 19, 2010.


On April 20, 2010, we issued 2,100,000 share of our common stock to Sherlock Consulting pursuant to a consulting agreement dated April 19, 2010.


On July 15, 2010, we issued 1,750,000 shares to Advent Consulting Group, LLC in exchange for business and financial consulting services performed from January 1, 2009 to July 1, 2010 pursuant to a consulting agreement we entered into with Advent on January 1, 2010. The stock issued to Advent was issued at $0.02 per share.


On November 22, 2010 the company issued 135,416 shares of its common stock to Thomas Darcey for services in connection with our demonstration and the promotion of the Mobile PureWater System (”MPWS”) on October 9, 2010. His services, in addition to promotion, included finding a site, preparation of the location and advertising to find prospective attendees.


On November 22, 2010 the company issued 93,750 shares of its common stock to Ronald Baslow for his work in editing the footage taken at the MPWS event on October 9, 2010 and producing the two videos for our web site.


On November 22, 2010 the company issued 112,500 shares of its common stock to Jessica Jones for her work in writing, producing, directing and performing in the final video used on the Company web site and additional footage for sales presentations.


On November 22, 2010 the company issued 100,000 shares of its common stock to Christopher Martin for consulting services in connection with our efforts in expanding international relationships, system development and the production of promotional material.


On November 22, 2010 the company issued 15,568,925 shares of its common stock to Peter Ubaldi for payment of unpaid wages from January 2010 through October 2010. Mr. Ubaldi’s Employment Contract called for the payment of $208,333 for the 10 month period and we were unable to pay this amount in cash. Mr. Ubaldi agreed to accept shares of our common stock in lieu of the required cash payment. The average share price per month for this period would have required a stock issuance of 20,757,727. However, Mr. Ubaldi agreed to a 25% reduction and was issued 15,568,925 as settlement in full.



44



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


On November 22, 2010 the company issued 750,000 shares of its common stock to Michael Madison for the conversion of a note payable dated November10, 2009, in the amount of $7,500.


On December 6, 2010, the company issued 2,000,000 shares of its common stock to Waterville Investment Research per a settlement agreement dated September 23, 2010.


On December 6, 2010, the company recorded the issuance of 3,000,000 shares of its common stock to eFund Capital Partners, LLC for services.


On January 24, 2011we issued 500,000 shares of our common stock as consideration to extend a note due date to December 31, 2011 held by Nicholas Milazzo.


On January 24, 2011 we issued 500,000 shares of our common stock as consideration to extend a note due date to December 31, 2011 held by Robert Tabacchi.


On January 24, 2011 we issued 3,000,000 shares of our common stock for legal services.


On January 24, 2011 we issued 2,500,000 shares of our common stock for consulting services.


On January 24, 2011 we issued 1,072,100 shares of our common stock or consulting services.


On January 24, 2011 we issued 1,235,403 as payment for back wages of $41,600 to Peter Ubaldi, our chief executive officer.


On February 1, 2011 we issued 2,400,000 shares of our common stock or consulting services.


On April 18, 2011 we issued 1,821,507 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On April 18, 2011 we issued 659,698 shares of common stock to Advent Consulting Group, LLC, in lieu of the cash compensation for consulting services performed during the first quarter of 2011 pursuant to the terms of our consulting agreement with Advent Consulting Group, LLC


On April 18, 2011 we issued 500,000 shares of our common stock for consulting services.


On April 18, 2011 we issued 5,000,000 shares of our common stock for consulting services.


On April 18, 2011 we issued 372,708 shares of our common stock for consulting services.


On September 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). Asher Enterprises elected to convert its note into 1,750,958 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On October 8, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $25,000. Asher Enterprises elected to convert its note into 3,015,309 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On November 17, 2010, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500 ($25,000 net to the Company after paying $2,500 in finance related charges). Asher Enterprises elected to convert its note into 3,647,192 shares of our common stock pursuant to the terms of the convertible promissory note. These shares were issued on April 18, 2011.


On November 23, 2011, we issued 130,000 shares of common stock as interest payments for two promissory notes we entered on December 1, 2006 and February 8, 2008 with an unrelated third party.



45



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


On November 23, 2011, we issued 2,500,000 shares of common stock for consulting services.


On November 23, 2011, we issued 2,701,749 shares of common stock for legal services.


On November 23, 2011, we issued 2,000,000 shares of common stock in connection with the terms financing we completed with an unrelated third party.


On November 23, 2011, we issued 8,474945 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On November 23, 2011, we issued 2,701,749 shares of common stock for consulting services at $0.02 per share for services rendered for the last three quarters of 2011.


On November 23, 2011, we issued 10,000,000 to our Chairman, Mr. Battiato in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 10,000,000 to our Managing Director of Business Development, Mr. Merritt in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 500,000 shares of common stock for consulting services.


On April 1, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $32,500. The promissory note had an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises had an option to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 49.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $31,225. We made a partial repayment of $4,500 and prepayment penalty of $7,500. This note was converted into 7,413,181 shares of common stock on October 17, 2011. As of December 31, 2011, $0 was outstanding.


Subsequent Sales of Unregistered Securities


On July 18, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500. The promissory note has an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 42.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $19,914. As of December 31, 2011 the outstanding balance was $28,323.  Subsequently, on January 26, 2011, January 31, 2012 and February 15, 2012, Asher elected to convert this note into 1,904,763, 1,562,500 and 1,081,967 shares of our common stock, respectively, for a total of 4,549,230 shares of our common stock.


19.  Commitments and Contingencies


Consulting and Employment Contracts


In May 2004, (amended and restated January 2005) we entered into an Employment Agreement (“Agreement”) with Peter Ubaldi. The Agreement provided that Mr. Ubaldi should serve as our president of through January 1, 2007. In January of 2007, the Company renewed Mr. Ubaldi’s Employment Contract for an additional two years under the same terms and conditions as the original agreement. At any time prior to the expiration of the Agreement, the Company and Mr. Ubaldi may mutually agree to extend the duration of employment under the terms of the Agreement for an additional period or periods. As payment for services, the Company agrees to pay Mr. Ubaldi, as the president, a minimum base salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is eligible to be paid bonuses, from time to time, at the discretion of the Company’s Board of Directors,




46



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


of cash, stock or other valid form of compensation. Upon termination of and under the terms of the Agreement, Mr. Ubaldi shall be entitled to severance compensation in an amount equal to twenty-four months of base salary

as shall exist at the time of such termination.  In January of 2010 we entered into a new Employment Agreement with Peter Ubaldi to continue as president and chief executive officer for the same base salary, medical benefits and expenses as previously agreed to in May 2004. The term of the agreement is for 5 years with renewal options for 5 additional 1 year terms.   


In June of 2008, we entered into a consulting agreement with Vincent Nunez for his contribution in developing the business with Huma-Clean, LLC of Houston, Texas.  The term of the contract is 5 years.  The provisions in the agreement include:


·

Mr. Nunez was issued 500,000 shares of the Companys common stock upon execution of the consulting agreement.


·

Each time we accumulate $2,000,000 in gross revenues from sales generated in connection with the technology and services of Huma-Clean, LLC, and an additional 500,000 shares of the Company’s common stock will be issued to the consultant, limited to 2,500,000 total shares.


·

A quarterly cash distribution equal to 20% of the net revenues generated by the sales of the consultant, limited to $500,000 for any given quarter.


In June of 2008, the Company entered into an employment agreement with Robert W. Elfstrom.  The term of the contract is 2 years with a base compensation of $104,000 per year.  Additional provisions in the agreement include:


·

Mr. Elfstrom shall earn a bonus of $50,000 to be paid within 90 days from the date of execution of the employment agreement.


·

A quarterly cash distribution equal to 20% of the net revenues generated by the sales of the employee, or the use of this technology, limited to $250,000 for any given quarter.


Mr. Elfstrom and We are reviewing their arrangement as there are certain disputes in performance on the part of Mr. Elfstrom.  As a result, we have withheld the $50,000 bonus referred to below along with the weekly

compensation as stated in the contract.  These amounts have been accrued for as of December 31, 2009 and no additional accruals have been recorded by us.  We expect to reach an amicable conclusion with Mr. Elfstrom for the termination of his services.


On January 1, 2010, we entered into a 5 year consulting agreement with Smith Street Holdings to provide business acquisition services.  Consulting fees to include a quarterly cash distribution in an amount to be determined by the

Board of Directors based on the net revenue generated by transactions initiated by the consultant.  In addition the consultant was granted 5,000,000 shares of company stock upon signing the agreement. Also in addition, each time the consultant accumulates $2,000,000 in net revenue less fees paid to the consultant in any given quarter, 3,000,000 shares of the company stock will be granted, not to exceed 10,500,000 shares.


On January 1, 2010, we entered into a 3 year consulting agreement with BBK Investments, LLC to provide business acquisition and product development services. The consulting fees are to include 2,000,000 shares of company stock to be granted upon signing the agreement. Also in addition, each time the consultant accumulates $2,000,000 in net

revenue less fees paid to the consultant in any given quarter, 1,000,000 shares of the company stock will be granted, not to exceed 10,000,000 shares.


On January 1, 2010, we entered into a twelve month consulting agreement with Advent Consulting Group, LLC to provide accounting services for a monthly retainer fee of $5,000, which may be paid in cash or company stock.  In addition, we agreed to pay an upfront cash retainer fee of $3,000 which as of December 31, 2010 we have not paid all the compensation due but we subsequently paid the compensation in January of 2011. This agreement was subsequently renewed on January 1, 2011 for an additional one-year term.



47






GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


In June 2010, we entered into a consulting agreement with Christopher Martin.to assist in the development of the GEC business.  Mr. Martin received 100,000 shares of stock as a signing bonus and has managed our relationships during the Gulf Oil Spill, our MPWS manufacturer and most recently has traveled to South Africa to help with the setup of GEC Africa.


In April of 2010, we entered into a consulting agreement with Larry Wolfe and issued him 2,300,000 shares as a signing bonus for his services.  Mr. Wolfe has assisted in the development of our MPWS and has used his numerous

relationships to help in the marketing of this System. More specifically, he has provided the opportunity for us to demonstrate our technology with The Rotary clubs, one of the largest humanitarian organizations in the world.


In April of 2010, we entered into a Consulting Agreement with James Sherlock. At that time we paid Mr. Shirlock 2,100,000 shares of common stock as a signing bonus.  Mr. Shirlock has managed and developed our United Nations’ contacts and has traveled extensively promoting our MPWS business.  In addition, he has opened up new opportunities for the use of our soil additive production in a number of countries.


Operating Leases


We currently lease office space in one location.  The following table sets forth the Company’s lease commitment at 96 Park Street, Montclair, New Jersey 07042 for the year ended December 31, 2010 until December 31, 2012.  The rent for 2012 is $13,200. We also entered into a short term commercial lease for the 70 acres associated with our production facilities in Castleberry, Alabama, with an option to purchase the real estate. The lease is $5,000 per month and expires January 31, 2011, at which time we can either extend the lease or purchase the property.


Future minimum annual payments expected under the operating lease are as follows:


December 31,

Amount

 

 

2012

73,200

Total

73,200


20.  Pension Plans


The Company does not currently provide, administer or manage a 401(K) plan or any other pension plan.


21.  Legal Proceedings


The Company is presently a party to legal proceeding as follows:  


(1)

We, through our former wholly owned subsidiary, Autocorp Financial Services, Inc. (“ACFS”) had entered into an auto loan servicing agreement dated January 7, 2003. ACFS and HPCU have disputes over collection of certain auto finance receivables and general performance under the servicing agreement. During 2008, HPCU and the Company entered into a $41,000 settlement agreement. Under the terms of this agreement, we were to pay $5,000 upon signing of the document and make monthly payments of $1,000 through February 2009. A balloon payment of $24,000 was due on March 1, 2009. This settlement is secured by a $41,000 judgment. As of December 31, 2011 payments totaling $9,000 have been made under this settlement agreement.

(2)

We entered into a consulting service agreement with Waterville Associates on March 20, 2007. The agreement called for certain services by Waterville Associates which included: (a) posting information about us on their web site; (b) production of an 8 to 10 page research report providing data on us; and (c) assisting us in the creation of capital to implement our business plan. We agreed to compensate Waterville for their services by issuing shares of our common stock as these services were performed. We have not received any of the services by Waterville as outlined in the agreement. Waterville is seeking a claim for compensation as



48



GLOBAL ECOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 – (CONT’D)


provided for in the agreement. Although we believe that the lawsuit is without merit we have determined that based on the potential legal fees to mount a defense, especially given the venue of the proceedings it was

better to settle this litigation. Therefore, we issued Waterville 1,000,000 shares of Restricted Stock Common Stock as settlement in full.

(3)

We entered into a convertible promissory note for $100,000 with Chris Verrone in May 2008. In June 2008, the note was converted into shares of common stock at the holder’s request. Subsequently, the individual requested additional consideration and even though the Company had no obligation to accommodate the request, the Chairman of the Company advanced him $25,000 of his own funds and the Company signed an agreement in September 2008 to pay him an additional $75,000 within 60 days. We have not been able to meet this deadline and the individual had commenced litigation and received a judgment. This amount has been provided for in the financial statements under the notes payable.

(4)

In 2005, we obtained funds under a financing arrangement from Market Connexxion. The note provided a line of credit totaling $500,000 and accrued interest at a rate of 8.00% per annum. It originally matured on January 28, 2006, at which time the unpaid principal was $229,365. Interest due on the note was $16,960. The note was amended in February 2006 to incorporate the interest into the principal and extend the term through January 2007. The note is uncollateralized and the proceeds were utilized for working capital. On

March 28, 2011 we entered into a settlement agreement, whereby the company would issue 5,000,000 shares of its common stock in settlement of the outstanding balance of $338,459. However if the 5,000,000 shares; when liquidated were not sufficient to cover the outstanding balance then the shortfall would be covered by issuing additional shares of shares of common stock or paid in cash. The shares were issued on April 18, 2011 at a market value of $.02 per share. We booked a reduction in the principal balance of $100,000. Although as of December 31, 2011 the outstanding balance was $238,459, this balance may be adjusted in the future due to the uncertainty of future stock prices and liquidated value of the stock.


In addition to the matter described above, we are involved in various legal actions and claims from time to time, which arise in the normal course of business. In our opinion, the final disposition of these matters will not have a material adverse effect on our financial position or results of operations.


22. Subsequent Events (Un-Audited)


On July 18, 2011, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $27,500. The promissory note has an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 30, 2011. Asher Enterprises may elect to convert the note in shares of our common stock any time after six months from the date of the note at conversion rate equal to a 42.0% discount to the three lowest closing market prices for the 10 days preceding its election to convert. As a result we booked a beneficial conversion feature of $19,914. As of December 31, 2011 the outstanding balance was $28,323.  Subsequently, on January 26, 2011, January 31, 2012 and February 15, 2012, Asher elected to convert this note into 1,904,763, 1,562,500 and 1,081,967 shares of our common stock, respectively, for a total of 4,549,230 shares of our common stock.


On December 7, 2011, we entered into a settlement agreement with Market Connexxion related to a financing arrangement is 2005 and previous settlement agreement entered into on March 28, 2011, as discussed above in Note 21 Legal Proceedings.  Pursuant to the terms of the agreement we made payments of $25,000 on December 7, 2011 and $25,000 on January 31, 2012, in full satisfaction of any and all outstanding claims arising from said financing.


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


None.


Item 9a.  Controls and Procedures.


(a)

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act, of 1934, as amended, or the Exchange Act, is recorded,



49



processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.


As required by Rules 13a-15(b) of the Exchange Act, an evaluation as of December 31, 2011 was conducted under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.  

 

(b)

Report of Management on Internal Control over Financial Reporting

 

We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management including our of our chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO


Based on our evaluation under the Internal Control-Integrated Framework, our chief executive officer and principal financial officer concluded that our internal control over financial reporting was effective as of December 31, 2011.


(c)

Changes in Internal Control over Financial Reporting

 

There have been no other changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K for the year ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9b. Other Information


None.


PART III


Item 10. Directors, Executive Officers, and Corporate Governance


Members of the Board of Directors are elected to serve until the next annual meeting or until their successor is elected and qualified. As of March 30, 2012, the date of the next annual meeting has not been selected. The Company presently contemplates that should a 2012 Annual Meeting of Shareholders be held, the newly elected Directors will hold a regular annual meeting of the Board of Directors. If a regular meeting is not held, the Directors will sign a unanimous consent in lieu of holding the meeting and will re-elect certain current officers and add new officers and directors for the coming year.

 

Our Directors


The Executive Officers and Directors of the Company as of March 30, 2012 are:


NAME

AGE

POSITION

DIRECTOR SINCE


Peter Ubaldi

65

Chief Executive Officer

2004

President, Principal Accounting

Officer and Director


Joseph Battiato

54

Director and Chairman

2008





50



Peter Ubaldi .  Mr. Ubaldi has worked in the finance industry for thirty-six years. Mr. Ubaldi began his career with a major CPA firm and has since specialized in various finance-related industries as an investment banker and executive manager. Mr. Ubaldi has extensive experience with major banking institutions, as well as specialty finance and equipment leasing companies. Mr. Ubaldi had been the comptroller of one of the country’s first publicly traded auto and equipment leasing companies.


Our Board of Directors selected Mr. Ubaldi to serve as a director because he is our Chief Executive Officer and has served in various executive roles with our company for 14 years, with a focus on corporate sales and operations. Mr. Ubaldi has profound insight into the development, marketing, finance, and operations aspects of our company. He has expansive relationships with chief executives and other senior management at companies in the same or complimentary industries. Our Board of Directors believes that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.


Joseph Battiato . Mr. Battiato has over 34 years experience in the financial industry and capital markets.  He is a principal in Ellington Management Group, where he is responsible for the acquisition, valuation and surveillance of whole loan mortgages and mortgage-backed transactions.  He previously served as president of Riverside Professional Services a consulting firm providing assistance during mergers and acquisitions.  Prior to that, Battiato was president of Aegis Consumer Funding Group where he supervised all aspects of business operations and SEC compliance.


Our Board of Directors selected Mr. Battiato to serve as a director due to his strong relationships and understanding of

the operations of technology companies. Mr. Battiato’s vast experience in financial industry enhances his ability to contribute insight on achieving business success in a diverse range of economic conditions and competitive environments. Our Board of Directors believes that this experience will bring valuable knowledge and insight to our company.

Director Qualifications

We believe that our Board of Directors should encompass a diverse range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to our operations and interests. Each director also is expected to: exhibit high standards of integrity, commitment and independence of thought and judgment; use his or her skills and experiences to provide independent oversight to our business; participate in a constructive and collegial manner; be willing to devote sufficient time to carrying out their duties and responsibilities effectively; devote the time and effort necessary to learn our business; and represent the long-term interests of our Shareholders. Furthermore, we believe our Board of Directors should be comprised of persons with skills in areas such as: finance, soil and water remediation, leadership of business organizations and legal matters.

In addition to the targeted skill areas as noted above, we endeavor to select members of our Board of Directors which have a strong record of achievement in key knowledge areas that are critical for directors to add value to our Board of Directors, including:

·

Strategy — knowledge of our business model, the formulation of corporate strategies, knowledge of key competitors and markets;


·

Relationships — understanding how to interact with investors, accountants, attorneys, management companies, and markets in which we operate; and


·

Functional — understanding of finance matters, financial statements and auditing procedures, technical expertise, legal issues and marketing.


Corporate Governance


Director Attendance at Meetings of the Board of Directors


Our Board of Directors held 3 meetings during the fiscal year ended December 31, 2011. Each of our incumbent directors attended at least 75.0% of the aggregate total number of meetings of our Board of Directors held during the period for which he served as a director.


Director Attendance at Annual Meetings of the Shareholders



51





Although we have no policy with regard to attendance by the members of our Board of Directors at our annual meetings, we invite and encourage the members of our Board of Directors to attend our annual meetings to foster communication between Shareholders and our Board of Directors.


Stockholder Communication with the Board of Directors


Any stockholder who desires to contact members of our Board of Directors, or a specified committee of our Board of Directors, may do so by writing to: Global Ecology Corporation., Board of Directors, 96 Park Street, Montclair, New Jersey 07042, Attention: Chief Executive Officer. Communications received will be distributed by our Secretary to such member or members of our Board of Directors as deemed appropriate by our Secretary, depending on the facts and circumstances outlined in the communication received.


Director Independence


We have a two-member Board of Directors. Due to the size of our company and the difficulty in finding directors that are competent or have experience in our industry, none of our directors can be deemed an “independent director.”


We are currently searching for additional independent members to serve on our board of directors.


Board Leadership Structure; Independent Lead Director


Mr. Battiato serves as our Chairman of the Board of Directors and Mr. Ubaldi as our Chief Executive Officer. Our Board of Directors has determined that the most effective leadership structure for our company at the present time is to have a non-executive chairman in order to provide some level of independent oversight. In addition, although we do not have a lead independent director, our Board of Directors believes that the current structure is appropriate, due to the current size of our operations.


Our Board of Directors also believes, for the reasons set forth below, that its existing corporate governance practices achieve independent oversight and management accountability, which is the goal that many companies seek to achieve by separating the roles of Chairman of the Board of Directors and Chief Executive Officer. Our governance practices provide for strong independent leadership, independent discussion among directors and for independent evaluation of, and communication with, members of senior management. These governance practices are reflected in our Code of Business Conduct and Ethics, or our Code of Ethics.


Committees of our Board of Directors


We have no standing committees of our Board of Directors at the current time, which is again due to the size of our operations. From time to time, our Board of Directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full Board of Directors meeting. As our company grows, we plan to establish an audit committee, compensation committee and nominating and corporate governance committee.  The functions that these committees will perform are currently being performed by our two-member Board.


Director Nomination Procedures and Diversity


As outlined above, in selecting a qualified nominee, our Board of Directors considers such factors as it deems appropriate, which may include: the current composition of our Board of Directors; the range of talents of a nominee that would best complement those already represented on our Board of Directors; the extent to which a nominee would diversify our Board of Directors; a nominee’s standards of integrity, commitment and independence of thought and judgment; a nominee’s ability to represent the long-term interests of our shareholders as a whole; a nominee’s relevant expertise and experience upon which to be able to offer advice and guidance to management; a nominee who is accomplished in his or her respective field, with superior credentials and recognition; and the need for specialized expertise. While we do not have a formal diversity policy, we believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities. Applying these criteria, our Board of Directors considers candidates for membership on our Board of Directors suggested by its members, as well as by our Shareholders. Members of our Board of Directors annually review our Board of Directors’ composition by evaluating whether our Board of Directors has the right mix of skills, experience and backgrounds. Our Board of Directors may also consider an assessment of its diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.



52





Our Board of Directors identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service. Current members of our Board of Directors with skills and experience relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of our Board of Directors does not wish to continue in service or if our Board of Directors decides not to nominate a member for re-election, our Board of Directors will review the desired skills and experience of a new nominee in light of the criteria set forth above.


Our Board of Directors also considers nominees for our Board of Directors recommended by Shareholders. Notice of proposed stockholder nominations for our Board of Directors must be delivered in accordance with the requirements set forth in our bylaws and SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Nominations must include the full name of the proposed nominee, a brief description of the proposed nominee’s business experience for at least the previous five years and a representation that the nominating stockholder is a beneficial or record owner of our common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. Nominations should be delivered to: Global Ecology Corporation., Board of Directors, 96 Park Street, Montclair, New Jersey 07042, Attention: Chief Executive Officer.


Our Board of Directors will recommend the slate of directors to be nominated for election at the annual meeting of shareholders. We have not and do not currently employ or pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential director nominees.


Board of Directors Role in Risk Oversight


Our Board of Directors oversees our shareholders’ interest in the long-term success of our business strategy and our overall financial strength.


Our Board of Directors is actively involved in overseeing risks associated with our business strategies and decisions. It does so, in part, through its approval of all acquisitions and business-related investments and all assumptions of debt, as well as its oversight of our executive officers pursuant to annual reviews. Our Board of Directors is also responsible for overseeing risks related to corporate governance and the selection of nominees to our Board of Directors.


In addition, the Board reviews risks related to our financial reporting. The Board meets with d with representatives of our independent registered public accounting firm from time to time to discuss and assess the risks related to our internal controls. Additionally, material violations of our Code of Ethics and related corporate policies are reported to our Board of Directors.


Code of Business Conduct and Ethics


We have adopted our Code of Ethics, which contains general guidelines for conducting our business and is designed to help our directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. Our Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, and persons performing similar functions and all members of our Board of Directors. Our Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Shareholders may request a copy of our Code of Ethics, which will be provided without charge, by writing to: Global Ecology Corporation, 96 Park St., Montclair, New Jersey 07042, Attention: Chief Executive Officer. Our Code of Ethics is also available on our website, www.geco.us. If, in the future, we amend, modify or waive a provision in our Code of Ethics, we may, rather than filing a Current Report on Form 8-K, satisfy the disclosure requirement by posting such information on our website, as necessary.


Compensation of Independent Directors

We currently do not have any independent directors, as such no compensation was paid for the fiscal 2010 and 2011 years.

Section 16(a) Beneficial Ownership Reporting Compliance

 



53



Section 16(a) of the Securities and Exchange Act of 1934, as amended, generally requires the Company’s directors and executive officers and persons who own more than 10% of a registered class of the Company’s equity securities (10% owners) to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors and executive officers and 10% owners are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. During preparation of this filing, we discovered that the reports required by Section 16(a) were not filed in connection with the securities issuances to our officers and directors during fiscal 2011.

 

Item 11. Executive Compensation.


The following table sets forth, for each of the last three fiscal years, compensation paid by the Company in common stock for its Chief Executive Officer, President and Executive Vice-President. None of the next highly compensated officers serving between December 31, 2009 and December 31, 2011 received more than $100,000.


Long Term Compensation

Name

Year

Salary

($)

Bonus

($)

Stock Awards ($)(2)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Compensations Earnings ($)

All Other Compensation ($)

Total ($)

Peter Ubaldi (1) :

 

 

 

 

 

 

 

 

 

CEO & President

2011

250,000

 

 

 

 

 

 

250,000

CEO & President

2010

250,000

250,000

CFO & President

2009

250,000

250,000

 

 

 

 

 

 

 

 

 

 

Roy Pardini (2):

 

 

 

 

 

 

 

 

 

Executive VP

2009

62,500

62,500

                                                 

_________________


(1)

In May 2004, (amended and restated January 2005) we entered into an Employment Agreement (“Agreement”) with Peter Ubaldi. The Agreement provided that Mr. Ubaldi should serve as the President of GECO to January 1, 2007.  In January of 2007, Mr. Ubaldi’s Employment Agreement was extended for an additional two years and he will continue to serve as President and as a member of the Board, as well as the Company’s CEO.  As payment for services, HSNI agrees to pay Mr. Ubaldi, as the President, a minimum base salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is eligible to be paid bonuses, from time to time, at the discretion of GECO’s Board of Directors, in cash, stock or other valid forms of compensation. Upon termination of and under the terms of the Agreement, Mr. Ubaldi shall be entitled to severance compensation in an amount equal to twenty-four months of base salary as shall exist at the time of such termination  Mr. Ubaldi’s contract was renewed by the Board of Directors for an additional 5 years beginning January 1, 2010.

(2)

Mr. Pardini resigned from the Company and the Board of Directors in June of 2009.

Compensation Discussion and Analysis

Compensation Philosophy and Objectives

We believe that the quality, skills and dedication of our executive officers are critical factors affecting the company's performance and shareholder value. Accordingly, the key objective of our compensation programs is to attract, retain and motivate superior executive talent while maintaining an appropriate cost structure. In addition, our compensation programs are designed to link a substantial component of our executives' compensation to the achievement of performance goals that directly correlate to the enhancement of shareholder value. Finally, our compensation programs are designed to have the right balance of short and long-term compensation elements to ensure an appropriate focus on operational objectives and the creation of long-term value.

To accomplish these objectives, the Board of Directors has structured our compensation programs to include the following key features and compensation elements:

·

base salaries, which generally are set below the median of our peer group companies and take into consideration the Company’s cash flow and revenues;




54



·

equity-based compensation, which aligns our executives' interests with those of our shareholders and promotes executive retention; and


·

in most cases, both our performance-based and service-based restricted share units will provide for vesting over four years, thereby promoting the enhancement of long-term shareholder value and executive retention.


The Board also generally seeks to compensate its executives through determinable base cash salaries that are sensitive to the company’s cash resources but that also provide for motivational incentive and maintain continuity of management.  In addition, executives are given equity awards to reward performance based on the company’s growth and economic achievements. The Board does not maintain fixed policies for allocating among current and long-term compensation or among cash and non-cash compensation. Instead, the Board maintains flexibility and adjusts different elements of compensation based upon its evaluation of the key compensation goals set forth above.


The Board seeks to maintain a balance among fixed and variable compensation, cash and equity, and annual and longer-term incentive compensation to mitigate the risk arising from any element of compensation. While compensation levels may differ among NEOs based on competitive factors, and the performance, job criticality, experience and skill set of each specific NEO, there are no material differences in the compensation philosophies, objectives or policies for our NEOs. We do not maintain a policy regarding internal pay equity.

Compensation Committee

We currently do not have a standing compensation committee of our Board of Directors at the current time, which is again due to the size of our operations. As our company grows, we plan to establish a compensation committee to address this specific area.  The functions of a compensation committee are currently being performed by our two-member Board.

Role of Executive Officers in Compensation Decisions

Since our Board is composed of CEO, our executives are directly involved in all facets of our compensation structure and in the implementation of the long-term executive agreements entered into with our chief executive officer.  However, in determining the fairness, which took into account the benefit to our shareholders in providing continuity of management at this critical stage in the company’s growth.  

Fiscal Year 2010 and 2011 Executive Compensation

Summary of Fiscal Year 2010 and 2011 Compensation Decisions

As a result of our CEO’s commitment to our Company, we decided in 2010 to enter into long-term employment agreement with our CEO to ensure continuity of management.

Elements of Compensation

We may allocate compensation among the following components for our named executive officers:

·

base salary;

·

annual incentive bonus awards;

·

performance-based and service-based stock incentive awards;

·

performance based deferred compensation; and

·

other benefits.

As discussed above, a key element of our compensation philosophy is that a significant portion of executive compensation is comprised of long-term elements that encourage our executives to stay with the company, which we believe provides for a stable working environment that ultimately benefits our shareholders

Other Benefits



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Executive officers are eligible to participate in all of the company's employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance, in each case on the same basis as other employees, subject to applicable law.

Compensation Risk Assessment

The Board reviewed our compensation policies and practices and determined that our compensation programs do not encourage excessive or inappropriate risk-taking. While, a majority of the Board is comprised of our CEO, the Board believes that the design and mix of our compensation programs appropriately encourage our executive and senior officers to focus on the creation of long-term shareholder value. However, due to the lack of independent review there may be some level of risk that our compensation could be subject to influence from our executives. In its review, the Board noted the following features:

·

base salaries, which generally are set below the median of our peer group companies and take into consideration the Company’s growth projections;


·

equity-based compensation, which aligns our executives' interests with those of our shareholders and promotes executive retention; and


·

in most cases, both our performance-based and service-based restricted share units will provide for vesting over four years, thereby promoting the enhancement of long-term shareholder value and executive retention.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


The following table sets forth certain information, as of March 30, 2011, concerning the beneficial ownership of Common Stock by all Directors and nominees, officers, all Directors and officers of the Company, as a group, and each person who beneficially owns more than 5% of the 474,263,526 outstanding shares of Common Stock, $.001 par value. Unless otherwise indicated, each person named has sole voting and investment power over the shares indicated;


 

 

 

Name and Address of Beneficial Owner(1)

Number of Shares

Percent of Class

AutoCorp Acquisition Partners (2)

18,140,202

3.82%

Peter Ubaldi, CEO and Director (2)

46,697,713

9.85%

Joseph Battiato, Chairman /Smith Street Holdings (3)

29,648,937

6.25%

Total

94,486,852

19.92%

 

 

 

______________

(1)

c/o Global Ecology Corporation, 96 Park St., Montclair, New Jersey 07042.

(2)

Peter Ubaldi is the 100% owner of AutoCorp Acquisition Partners.  AutoCorp Acquisition Partners as a company has a common equity position in GECO and also holds 2,150,000 shares of Series A Preferred Stock. The Series A shares are convertible into Common Shares on a 10-for-1 basis at any time at the option of the holder. The Series B stock pay non-cumulative dividends at the rate of 5% per year; have a liquidation preference of $14.64 per share; have no voting rights, sinking fund provisions or redemption rights; and are convertible into Common Shares on a 1-for-1 basis. These shares have been converted and are part of the table above for Autocorp Acquisition Partners in an amount of 1,621,641.

(3)

 Mr. Battiato is the Company’s Chairman and beneficially owns his shares in a holding company, Smith Street Holdings.  Mr. Battiato has 100% control over the voting and disposition of the shares he beneficially owns.


Item 13. Certain Relationships and Related Transactions, and Director Independence.

Director Independence



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We have a two-member Board of Directors. Due to the size of our company and the difficulty in finding directors that are competent or have experience in our industry, none of our directors can be deemed an “independent director.”

Review of Related Person Transactions

Our Code of Business Conduct and Ethics provides guidance for addressing actual or potential conflicts of interests, including those that may arise from transactions and relationships between us and our executive officers or directors, such as:

·

Business transaction between the company and any executive are prohibited, unless otherwise approved by the Board;  

·

Activities that may interfere with an executive’s performance in carrying out company responsibilities;

·

Activities that call for the use of the company’s influence, resources or facilities; and   

·

Activities that may discredit the name or reputation of the company.          

We have various procedures in place to identify potential related person transactions, and the Board of Directors and a separate compliance committee work together in reviewing and considering whether any identified transactions or relationships are covered by the Code of Business Conduct and Ethics. A copy of the company's Code of Business Conduct and Ethics on the Corporate Governance page of our website at www.geco.us.

Transactions with Related Persons

For the years ended December 31, 2010 and 2011, the company had the transactions which involved related persons:

On February 17, 2010 we entered into a note agreement with our chief executive officer for an amount up to $10,000. The note bears interest at the rate of 7% per annum. The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,071. As December 31, 20111, the outstanding balance on the note payable was zero.


On February 17, 2010 we entered into a note agreement with Joseph Battiato, our director, for an amount up to $10,000.  The note bears interest at the rate of 7% per annum.  The note is convertible into company stock at conversion rate equal to 70% of stock price at the time the advance was made.  For the years ended December 31, 2010 we recognized an expense for the beneficial conversion feature in the amount of $1,393.  As of December 31, 2011, the outstanding balance on the note payable was zero.


In February 2010 we issued 12,000,000 shares common stock to Peter Ubaldi, our chief executive officer, for employment compensation for the 12 month period ending December 31, 2009. Mr. Ubaldi’s employment contract is $250,000 per year and the Company has been unable to pay this amount in cash.  Mr. Ubaldi agreed to accept shares of our common stock as payment in lieu of cash.  The average share price per month over the 12 month period would have required a stock issuance of 17,811,000 but Mr. Ubaldi agreed to accept 12,000,000 shares as payment in full.


On February 16, 2010 we issued 5,000,000 shares to Joseph Battiato in exchange for initial compensation under the consulting agreement dated January 1, 2010 with Smith Street Holdings of which Joseph Battiato is a Principal.


On November 22, 2010 the company issued 15,568,925 shares of its common stock to Peter Ubaldi, our chief executive officer, for payment of unpaid wages from January 2010 through October 2010. Mr. Ubaldi’s Employment Contract called for the payment of $208,333 for the 10 month period and we were unable to pay this amount in cash.  Mr. Ubaldi agreed to accept shares of our common stock in lieu of the required cash payment.  The average share price per month for this period would have required a stock issuance of 20,757,727.  However, Mr. Ubaldi agreed to a 25% reduction and was issued 15,568,925 as settlement in full.  


On January 24, 2011 we issued 1,235,403 as payment for back wages of $41,600 to Peter Ubaldi, our chief executive officer.


On April 18, 2011 we issued 1,821,507 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.



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On November 23, 2011, we issued 8,474945 shares of common stock to our CEO, Peter Ubaldi, in lieu of the cash compensation to him under his employment contract.


On November 23, 2011, we issued 10,000,000 to our Chairman, Mr. Battiato in consideration for the reduction in the principal balance of a promissory note he has with the company.  


On November 23, 2011, we issued 10,000,000 to our Managing Director of Business Development, Mr. Merrit in consideration for the reduction in the principal balance of a promissory note he has with the company.  


From time to time certain employees and/or officers advance funds to the Company in order for the Company to meet its operating needs or make payments directly on the Company’s behalf. Such advances were recorded as liabilities on the Company’s balance sheet in previous years. The amounts were loaned to the Company without any formal note agreement and do not bear interest. In December of 2011, we entered into three separate notes with Peter Ubaldi, our CEO, Joseph Battiato, our Chairman, and William Merritt, our Managing Director of Business Development, to formalize the advancements that had been made by the three individuals.  Thus, we entered promissory notes with Mr. Ubaldi for $634,026; Mr. Battiato for $295,678; and $13,530, respectively, which incorporated all previous amounts due to the three executives from previous advancements, notes payable and in the case of Mr. Ubaldi, amounts accrued for wages and benefits (the “Master Notes”).   The Master Notes bear interest at 10.00% per annum.


Item 14. Principal Accountants Fees and Services


W.T. Uniack & Co, CPA’s, P.C. has served as our independent registered public accounting firm since October 26, 2009 and audited our financial statements for the period for the year ended December 31, 2010 and December 31, 2011.


The following table lists the fees for services billed by our independent registered public accounting firm in 2010 and 2011:


Services:

2011

2010

Audit Fees (1)

 $          24,000

 $          24,000

Audit Related Fees (2)

                     -   

                     -   

Tax Fees (3)

-   

-   

Total

 $          24,000

 $          24,000





(1)

Audit fees billed in 2010 and 2011 consisted of fees related to the audit of our annual financial statements, reviews of our quarterly financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC.

(2)

Audit-related fees related to financial accounting and reporting consultations, assurance and related services.

(3)

Tax services consist of tax compliance and tax planning and advice.


The Board of Directors pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC. All services rendered by W.T. Uniack & Co, CPA’s, P.C. for the year ended December 31, 2010 and 2011 were pre-approved in accordance with the policies and procedures described above.


Auditor Independence


The Board of Directors has considered whether the provision of the above noted services is compatible with maintaining our independent registered public accounting firm’s independence and has concluded that the provision of such services has not adversely affected the independent registered public accounting firm’s independence.


The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders.



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Board of Directors Audit Report to Shareholders


Since we do not have a standing Audit Committee our full Board of Directors oversees our financial reporting process. Our management has the primary responsibility for our financial statements as well as our financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of our financial statements and expressing an opinion as to the conformity of such financial statements with accounting principles generally accepted in the United States of America.


In this context, the Board of Directors has reviewed and discussed our audited financial statements as of December 31, 2010 and December 31, 2011 with management and the independent registered public accounting firm. The Board of Directors has discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, Professional Standards, as amended. In addition, the Board of Directors has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and it has discussed their independence with us.


Item 15.  Exhibits, Financial Statement Schedules.


(a)(1) Financial Statements:


The consolidated financial statements and the related notes are included in Item 8. herein.


 

(a)(2) Financial Statement Schedule:

 


All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

 


(a)(3) Exhibits:

 


The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.

 


(b) Exhibits:

 


See Item 15(a)(3) above.

 


(c) Financial Statement Schedule:

 


All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.



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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, in the City of Montclair, State of New Jersey on the 13th day of April 2012.


 

 

Homeland Security Network, Inc.

Registrant

 

 

 

/ s/ PETER UBALDI

Peter Ubaldi

President and Chief Executive Officer

Principal Financial Officer

 

 

Dated: April 13, 2012



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 date indicated.



 

 

 

Name

Title

Date

 

 

 

/s/ Peter Ubaldi                          

Peter Ubaldi

Chief Executive Officer & Director and President

April 13, 2012

 

 

 

/s/ Joseph Battiato                       

Director and Chairman

April 13, 2012

Joseph Battiato

 

 




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Exhibit Index


Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.


The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (and are numbered in accordance with Item 601 of Regulation S-K).



 

 

 

 

 

 

 Exhibit

 

Exhibit Description

2.1

 

Acquisition Agreement (included as Exhibit 2.1 to our Current Report on Form 8-K filed August 31, 1993 and incorporated herein by reference).

3.1

 

Amendments of Articles of Incorporation (included as Exhibit C to our Form 14C DEF filed February 7, 2006 and incorporated herein  by reference ).

3.2

 

Amendment of Articles of Incorporation (included as Exhibit 3.1 to our Current Report on Form 8-K filed November 3, 2009 and incorporated  herein by reference).

21.1

 

List of Subsidiaries

31.1*

 

Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

 Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

 

Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**       XBRL Instance Document

101.SCH**      XBRL Taxonomy Extension Schema Document

101.CAL**      XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**      XBRL Taxonomy Extension Label Linkbase Document

101.PRE**      XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF**      XBRL Taxonomy Extension Definition Linkbase Document

______________________

*

Filed herewith.


**

Furnished herewith.



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