Form 10-Q

Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

R

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

 

 

 

  For the quarterly period ended March 31, 2012

 

 

or

 

 

£

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

 

 

      For the transition period from

 to


     Commission File Number: 333-125678 (1933 Act)


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)


(973) 655-9001

(Registrant’s telephone number, including area code)


N/A

(Former name, former address and former fiscal year, if changed since last report)


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


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).       

                              £ Yes R No


    As of May 7, 2012 there were 476,413,525 shares of common stock of Global Ecology Corporation outstanding.

 




Page 1 of 43


Table of Contents


GLOBAL ECOLOGY CORPORATION

(A Nevada Corporation)


TABLE OF CONTENTS

 

 

PART I — FINANCIAL INFORMATION


 

 

Item 1. Financial Statements

3


Report of Independent Registered Public Accounting Firm

3


Balance Sheet as of  March 31, 2012 (Unaudited) and December 31, 2011 (Unaudited)

4


Statement of Operations for the Three Ended March 31, 2012 (Unaudited) and March 31, 2011 (Unaudited)

5

  

Statement of Cash Flows for the Three Months Ended March 31, 2011 (Unaudited) and March 31, 2010 (Unaudited)

6


Notes to Condensed Financial Statements (Unaudited)

7

 

 

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

32

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

 

 

Item 4. Controls and Procedures

38

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

39

 

 

Item 1A. Risk Factors

38

 

 

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

38

 

 

Item 3. Defaults Upon Senior Securities

40

 

 

Item 4. [Removed and Reserved.]

41

 

 

Item 5. Other Information

41

 

 

Item 6. Exhibits

41

 

 

Signatures

42


Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

EX-101 INSTANCE DOCUMENT

EX-101 SCHEMA DOCUMENT

EX-101 CALCULATION LINKBASE DOCUMENT

EX-101 LABELS LINKBASE DOCUMENT

EX-101 PRESENTATION LINKBASE DOCUMENT

EX-101 DEFINITION LINKBASE DOCUMENT





Page 2 of 43


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors:


Global Ecology Corporation

96 Park Street

Montclair, NJ  07042



We have reviewed the accompanying balance sheet of Global Ecology Corporation f/k/a Homeland Security, Inc. as of March 31, 2012 and the related statements of operations and cash flows for the three month periods ended March 31, 2012. These financial statements are the responsibility of the Company’s management.


We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4, conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.


/S/ W.T. Uniack

W.T. UNIACK & CO, CPA’s, P.C.


May 10, 2012

Woodstock, Georgia



Page 3 of 43


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PART I - FINANCIAL INFORMATION


Item 1. Financial Statements

GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Balance Sheet

as of

 

 

Un-Audited

 

 

 

March 31,

December 31,

 

 

2012

2011

Assets

 

 

Current Assets

 

 

 

Cash and cash equivalents

 $                  110,506

 $                  547,923

 

Accounts receivable – trade

                               -

                               -

 

Inventories

                      42,693

                               -

 

Total current assets

                     153,199

                     547,923

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation

                     387,404

                     302,414

 

Capitalized software, net of accumulated amortization

                               -

                      17,498

 

Other intangible assets

                      21,500

                      21,500

 

Deposits

                      15,000

                      15,000

 

Investment in joint venture

                     780,000

                     780,000

 

Reserve for impairment of Investment in joint venture

                   (780,000)

                   (780,000)

Total Assets

 $                  577,103

 $                  904,335

 

 

 

 

Liabilities and Shareholders' Deficit

 

 

 

Accounts payable and accrued liabilities

 $                  848,408

 $                  873,195

 

Accounts payable and accrued liabilities to related parties

                      92,543

                               -

 

Notes payable and advances related parties

                     885,205

                     932,205

 

Notes payable

                  1,101,493

                  1,258,318

 

Line of credit

                     166,085

                     166,085

 

Total current liabilities

                  3,093,734

                  3,229,803

 

 

 

 

 

Long term notes payable, net of current portion

                  1,500,000

                  1,500,000

Total Liabilities

       4,593,734

       4,729,803

 

 

 

 

Shareholders' Deficit:

 

 

 

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

                        2,150

                        2,150

 

Series B cumulative 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, 476,413,525 and 474,263,562 shares issued and outstanding, respectively

                     474,264

                     469,715

 

Additional paid-in-capital

                26,660,755

                26,637,804

 

Accumulated deficit

               (30,690,981)

               (30,484,199)

 

Less treasury at cost, 1,817,000 shares

                   (462,819)

                   (450,939)

 

Total shareholders’ deficit

                 (4,016,631)

                 (3,825,468)

Total liabilities and shareholders’ deficit

 $                  577,103

 $                  904,335

The accompanying notes are an integral part of these financial statements.



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GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statement of Operations

for the three months ended March 31,

Un-Audited

 

2012

2011

 

 

 

Sales

 $                         -

 $               35,000

Cost of Goods Sold

                           -   

                   43,250

Gross Profit

                           -   

                   (8,250)

 

 

 

General And Administrative

                313,164

                123,558

Beneficial conversion feature

                           -   

                           -   

Shares issued for Services

                           -   

                254,600

Net Profit / (Loss) From Operations

              (313,164)

              (386,408)

 

 

 

Other Income / (expense)

                197,369

                           -   

Impairment Expense

                           -   

                           -   

Interest Expense

                (90,989)

                 (38,104)

Net Profit / (Loss) Before Income Taxes

              (206,784)

              (424,512)

Income Tax Expense

                             -

                             -

Net Profit / (Loss)

 $          (206,784)

 $           (424,512)

 

 

 

Per Share Information:

 

 

Basic and diluted weighted average number of common shares outstanding

        472,678,201

         403,899,576

 

 

 

Net Profit / (Loss) per common share

                    (0.00)

                     (0.00)

 

 

 

Per Share Information:

 

 

Diluted, weighted average number

 

 

of common shares outstanding

 472,678,201

   403,899,576

 

 

 

Diluted, Net Profit / (Loss) per common share

                   (0.00)

                    (0.00)




The accompanying notes are an integral part of these financial statements.

 



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GLOBAL ECOLOGY CORPORATION

Condensed Consolidated Statements of Cash Flows

for the three months ended March 31,

Un-Audited

 

 

2012

2011

Cash flows from operating activities:

 

 

Net loss

 $            (206,784)

 $            (424,513)

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

 

 

Depreciation and amortization

                   31,302

                     5,834

Common stock issued for services and compensation

                           -   

                 254,600

Benficial conversion expense

                           -   

                           -   

Reserve for asset impairement

                           -   

                           -   

Gain on cancellation of debt

               (198,133)

                           -   

Changes in:

 

 

Inventory

                 (42,693)

 

Other assets

                           -   

                           -   

Accounts payable and other accrued expenses (net of settlements)

                 169,565

                   57,006

Net cash provided (used) in operating activities

               (246,743)

               (107,073)

 

 

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

                 (98,794)

                           -   

 Net cash used in investing activities

                 (98,794)

                           -   

 

 

 

Cash flows from financing activities:

 

 

Borrowing (repayment) under line of credit

 

                           -   

Repurchase Treasury Stock

                 (11,880)

                           -   

Proceeds / (repayment) from notes payable

                 (33,000)

                           -   

Advances / (repayment) -  related parties

                 (47,000)

                 (14,000)

Net cash provided by financing activities

                 (91,880)

                 (14,000)

 

 

 

Net increase (decrease) in cash

               (437,417)

               (121,073)

Cash beginning of the period

                 547,923

                 225,740

Cash end of the period

 $              110,506

 $              104,667

 

 

 

Supplemental information

 

 

Interest paid

                     4,000

 

Stock issued for Debt settlement

                   27,500

                 569,500



The accompanying notes are an integral part of these financial statements.

 

 




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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


The use of the words “we,” “us,” “our” or “the Company” refers to Probe Manufacturing, Inc. and its subsidiaries, except where the context otherwise requires.


1. Organization and Description of the 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 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.


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



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 Pure Water 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 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



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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.


Going Concern


We have incurred operating losses of ($206,784) and (424,512) in three months ended March 31, 2012 and 2011, respectively, and we have had working capital deficiencies in both quarters. 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


2. Basis of Presentation


The financial information presented in this report comprises the unaudited financial statements (i) for the three months ended March 31, 2012 and 2011.


We, without audit, have prepared the accompanying interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with

generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on April 13, 2012.


In the opinion of our management, the financial statements include all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows of our Company for the periods presented. The results of operations for the period ended March 31, 2012 are not necessarily indicative of operating results expected for the full year or future interim periods.


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


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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


Accounts Receivable


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 March 31, 2012 and 2011, 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 March 31, 2012 and 2011, 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.


Inventory


Inventory consists of products to be sold through GEC Organics and consists of  Raw Material of $42,693 and $0 of work in process and $0 in finished goods.


 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 three month periods ended March 31, 2011 and 2010, no expenditures relating to application development were capitalized by our Company.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 SFAS No. 142, 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 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 March 31, 2012 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 $(30,690,982) and a deferred tax asset of $10,434,934 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 $10,434,934.


 

March 31, 2012

Deferred Tax Asset

                                     10,434,934

Valuation Allowance

                                    (10,434,934)

Deferred Tax Asset (Net)

 $                                   -   



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, 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 nonfinancial assets and nonfinancial 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 nonfinancial assets and liabilities effective January 1, 2009; this did not have a material effect on the Company’s financial condition or results of operations.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 March 31, 2012, 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 March 31, 2012:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

Active Markets for Identical Assets

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant

Unobservable Inputs

(Level 3)

 

Total

 

 

 

 

 

 

 

 

Cash and cash equivalents

$                 110,506

 

-

 

-

 

$               110,506

Total assets

$                 110,506

 

-

 

-

 

$                110,506


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.




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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


Concentrations of Credit Risk


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


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 SFAS No. 123. Effective January 1, 2006, The Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payments, (“SFAS No. 123(R)”) (contained in FASB Codification Topic 718, Compensation-Stock Compensation) 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 SFAS No. 123(R).

We adopted FASB Codification Topic 718using 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 three-month periods ending March 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 718requires 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 March 31, 2012.

Liabilities

We have adopted the policy of writing-off any liabilities outside the statute of limitations and over four years.

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 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 have 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 derecognition, 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 three months ended March 31, 2012 there were no changes in our unrecognized tax benefits and we had no accrued interest or penalties as of March 31, 2012.


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 three months ended March 31, 2012 and year ended December 31, 2011 and we have had working capital deficiencies both periods.


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. 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 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


5. Income (Loss) Per Share


Basic profit / (loss) per share is computed on the basis of the weighted average number of common stock shares outstanding. At March 31, 2012 the Company had outstanding common stock shares of 476,413,525 used in the calculation of basic earnings per share. Basic Weighted average common stock shares and equivalents at March 31, 2012 and 2011 were 470,714,296 and 403,899,576, respectively. As of March 31, 2012 and 2011 the Company had outstanding preferred shares which would have been assumed to be converted and have a dilutive effect of 21,500,000 shares on our common stock. For the three months ended, March 31, 2012 and 2011, all of the Company's shares of common stock equivalents were excluded from the calculation of diluted loss per common stock share because they were anti-dilutive, due to the Company's net loss in those periods.


6. Property, Plant 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


GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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



 

March 31, 2012

December 31, 2011

Furniture and fixtures

 $                           -   

 $                           -   

Equipment

                     311,967

                     233,198

Leasehold improvements

                       95,168

                       75,142

Total

                    407,136

                     308,340

Accumulated Depreciation

(19732)

                       (5,927)

Net Fixed Assets

 $387,404               

 $                  302,412




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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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). SFAS No. 86 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.


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 software development costs were capitalized during the three month periods ended March 31, 2012 and 2011 and an amortization expense of $31,302 and $5,834 was recognized related to this capitalized software during the three month periods ended March 31, 2012 and 2011, respectively.  


Capitalized software costs and accumulated amortization were as follows as of March 31, 2012 and December 31, 2011:


 

March 31,

December 31,

 

2011

2011

Software development costs 

 $           116,682

 $           116,682

 

              (116,682)

              (99,184)

Capitalized Software, net 

 $             -

 $             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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 March 31, 2011 we have 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 March 31, 2012 the net carrying value of this asset is $0.


10.   Notes Payable to Related Parties


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 March 31, 2012, 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 March 31, 2012, the outstanding balance on the note payable was zero.


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 March 31, 2012, $178,817 was outstanding on the loan payable.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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 entered into a settlement agreement with Market Connexxion whereby by we made two payments of $50,000 for a full release.  As of March 32, 2012, the balance of this loan is zero.  As a result we recognized a gain of 198,133 due to the forgiveness of  $96,325 of Principal and $101,807 in accrued interest.


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. As of March 31, 2012, $141,277 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 March 31, 2012, $35,041 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 March 31, 2012, $292,900 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 March 31, 2012, $131,446 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 March 31, 2012, we owe this former employee $54,587 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 March 31, 2012, $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. The note is past due and in default. As of March 31, 2012, $64,000 is outstanding on the loan payable.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)



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. The note is past due and in default. As of March 31, 2012, $84,500 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 March 31, 2012, $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 March 31, 2012, $141,223 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 March 31, 2012, $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 March 31, 2012, $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 an 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 $19,068. As of March 31, 2012, $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 March 31, 2012, $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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)



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 March 31, 2012, $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 March 31, 2012, $220,701 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 March 31, 2012, $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 prepayment penalty of $17,532. As of March 31, 2012, $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.  On January 26, 2012, 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 March 31, 2012, the outstanding balance was $1,574,219.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


12.  Defaults of 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 March 31, 2012, $178,817 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. As of March 31, 2012, $141,277 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 March 31, 2012, $35,041 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 March 31, 2012, $292,900 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 March 31, 2012, $131,446 is outstanding on the loan payable and the note is currently in default.


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 March 31, 2012, $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. The note is past due and in default. As of March 31, 2012, $64,000 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. The note is past due and in default. As of March 31, 2012, $84,500 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




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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


associated with this settlement agreement. As of March 31, 2012, $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 March 31, 2012, $141,223 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 March 31, 2012, $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 March 31, 2012, $220,701 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 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 March 31, 2012, 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 March 31, 2012, 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.  






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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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.


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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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.  


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 Mr. Merritt for $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 March 31, 2012, 1,990,289 shares had been exercised and issued under the Plan.


On November 8, 2006, we filed a Non-Statutory Stock Option Plan with the SEC.  This 2006 Non-Statutory Stock Option 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; 14,100,000 shares have been issued from the Plan as of March 31, 2012.


17. Stock Transactions


For the three months ended March 31, 2012, 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:



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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.  On January 26, 2012, 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.


18.  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, 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 Company’s 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 Companys 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.



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GLOBAL ECOLOGY CORPORATION


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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.


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.



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NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) – (CONT’D)


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, 2012, 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


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


19.  Pension Plans


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


20.  Legal Proceedings


As of March 31, 2012, The Company is presently a party to legal proceeding as follows:  


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 March 31, 2012, payments totaling $9,000 have been made under this settlement agreement.


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.



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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 March 31, 2012 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.


21.  Subsequent Events


Effective April 16, 2012, we entered into a convertible promissory note with Asher Enterprises, Inc., an unaffiliated third party, for a principal amount of $75,000. The promissory note has an interest rate of 8.00% per annum, a default interest rate of 22.00%, and matures on January 2, 2013. 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 will book a beneficial conversion feature of $54,310.

 




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

 

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


The following discussion of the Company’s financial condition, changes in financial conditions and results of operations should be read in conjunction with the financial statements and notes for the period ended March 31, 2012 contained in this Form 10-Q, and with the audited financial statements and notes as well as other items thereto included in our annual report on Form 10-K for the year ended December 31, 2011. This report, annual reports on Form 10-K, 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 United States Securities and Exchange Commission’s, or 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 our website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC. The public may read and copy of any of our material filed 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.


Cautionary Statement Regarding Forward Looking Statements


Certain of the statements contained in this Form 10-Q for the three months ended March 31, 2012 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 our 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,


We may also provide forward-looking statements in other materials and 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 our previous Annual Report on Form 10-K, quarterly reports filed on Form10-Q and current reports on Form 8-K filed with the SEC.


Such forward-looking statements are and will be subject to many risks, uncertainties and factors relating to our operations and the business environment in which we operate, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. Statements in this quarterly report and the exhibits to this report should be evaluated in light of these important risks, uncertainties and factors. We are 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.


Overview


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.




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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.


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



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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 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.


Going Concern


We have incurred operating losses of ($206,784) and (424,512) in three months ended March 31, 2012 and 2011, respectively, and we have had working capital deficiencies in both quarters. 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.



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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.


Employees


As of March 31, 2012, we have employed a total of 4 people. No employees are covered by a collective bargaining agreement.


Results of Operations


GLOBAL ECOLOGY CORPORATION

CONDENSED  STATEMENTS OF OPERATIONS

for the three months ended March 31,

 

 

Un-Audited

Un-Audited

 

2012

2011

 

 

 

Sales

 $                             -

 $                35,000

Cost of Goods Sold

                   -

                   43,250

Gross Profit

                   -

                   (8,250)

 

 

 

General And Administrative

                 313,164

                 123,558

Shares issued for Services

-

                 254,600

Net Profit / (Loss) From Operations

               (313,164)

               (386,408)

 

 

 

Interest Expense

                 (90,898)

                 (38,104)

Net Profit / (Loss) Before Income Taxes

               (206,784)

               (424,512)

Income Tax Expense

                            -

                            -

Net Profit / (Loss)

 $            (206,784)

 $            (424,512)


Revenues




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Product Sales


For the three months ended March 31, 2012, we had $0 in sales revenue as compared to $35,000 in sales revenue for the three months ended March 31, 2011 due to the sale of 1 water cart.


Cost of Sales


For the three months ended March 31, 2012, cost of product sales were $0 as compared to $43,250

in the same period in 2011 due to the sale of the 1 water cart for the three months ended March 31, 2011.  


Operating Expenses


General and administrative expenses increased by $189,606 compared to the same period in 2011, mainly due to the increase in consulting, sales and rent expense for our subsidiary GEC Organics.


Other Income


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 entered into a settlement agreement with Market Connexxion whereby by we made two payments of $50,000 for a full release.  As of March 32, 2012, the balance of this loan is zero.  As a result we recognized a gain of $198,133 due to the forgiveness of $96,325 of Principal and $101,807 in accrued interest.


Interest Expenses


Interest expense increased by $52,885 for the three months ended March 31, 2012, as compared to the same period in 2011 due to the increase in debt financings.


Liquidity


The Company's consolidated financial statements have been prepared on the assumption that the Company 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 will be pursued. The funding should alleviate the Company's working capital deficiency and increase profitability. However, it is not possible to predict the success of management's 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 the Company's 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 the Company 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 the Company's current working capital deficit, there is a need to obtain additional funding of working capital for the Company to operate as a going concern. The



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Company incurred operating losses of ($206,708) and ($424,512) for the three month periods ended March 31, 2012 and 2011, respectively.


The Company's 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 three months ended March 31,

 

 

 

 

2012

2011

Net cash provided (used) in operating activities

 $            (246,743)

 $            (107,073)

 Net cash used in investing activities

                 (98,794)

                           -   

Net cash provided by financing activities

                 (91,880)

                 (14,000)

Net increase (decrease) in cash

               (437,417)

               (121,073)

Cash beginning of the period

                 547,923

                 225,740

Cash end of the period

 $              110,506

 $              104,667



 Net cash used in operating activities for the three months ended March 31, 2012 increased to $(246,743) from ($107,073) for the three months ended March 31, 2011 primarily due to increase spending in the current period for sales and marketing activity and the development and leasehold interest in our soil amendment production facility located in Castleberry, Alabama.


We had $(98,794) in cash used by investing activities for the three months ended March 31, 2012 compared to $0 in the same period of 2011 due to development and leasehold interest in our soil amendment production facility located in Castleberry, Alabama..


Net cash provided by financing activities was $(91,880) for the three months ended March 31, 2012 compared to net cash provided by financing activities of $(14,000) for the three months ended March 31, 2012 due to increased financings and advances from related parties.  


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 shares of our common stock will ever develop or, if developed, that it will be sustained. The market price of our shares of 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.



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Deferred Tax Valuation


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 NOL 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 contractually indemnification.


We 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.


Item 3.  Quantitative and Qualitative Disclosure about Market Risk.


Not applicable to smaller reporting companies.


Item 4.  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 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, 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 our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.


As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, 2012 was conducted under the supervision and with the participation of our chief executive officer and our 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 on this evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures, as of March 31, 2012, were effective.


(b)

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 



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PART II--OTHER INFORMATION

Item 1.

 Legal Proceedings


As of March 31, 2012, The Company is presently a party to legal proceeding as follows:  


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 March 31, 2012, payments totaling $9,000 have been made under this settlement agreement.


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.


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 March 31, 2012 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.


Item 1A.  Risk Factors.


There are no material changes from the risk factors previously disclosed in our 2011 Annual Report on Form 10-K, as filed with the SEC on April 13, 2012.


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


For the three months ended March 31, 2012, 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:


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.  On January 26, 2012, 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.




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Item 3.

 Defaults upon Senior Securities


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 March 31, 2012, $178,817 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. As of March 31, 2012, $141,277 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 March 31, 2012, $35,041 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 March 31, 2012, $292,900 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 March 31, 2012, $131,446 is outstanding on the loan payable and the note is currently in default.


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 March 31, 2012, $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. The note is past due and in default. As of March 31, 2012, $64,000 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. The note is past due and in default. As of March 31, 2012, $84,500 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 March 31, 2012, $75,000 is outstanding on the loan payable.



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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 March 31, 2012, $141,223 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 March 31, 2012, $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 March 31, 2012, $220,701 is due and outstanding on the note.   The note is currently in default.


Item 4.

 [Removed and Reserved.]


Item 5.

 Other Information


None.


Item 6.  Exhibits


The exhibit listed on the Exhibit Index (following the signatures section of this Quarterly Report on

Form 10-Q are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.



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SIGNATURES



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.


Signature                  

 Title                                

              

      Date


/s/ Peter D. Ubaldi

Chief Executive Officer & President      

May 14, 2012

_______________________

Peter D. Ubaldi


/s/ Peter D. Ubaldi

Principal Financial Officer

May 14, 2012

_______________________

Peter D. Ubaldi




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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 Quarterly Report on Form 10-Q for the period ended March 31, 2012 (are numbered in accordance with Item 601 of Regulation S-K).



EXHIBIT

NUMBER                                         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)


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


31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS** XBRL Instance Document


101.SCH** XBRL Taxonomy Extension Schema Document


101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document


101.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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