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Ec Development, Inc. (ECDI) SEC Filing 10-Q Quarterly report for the period ending Saturday, March 31, 2012

Ec Development, Inc.

CIK: 761034 Ticker: ECDI
Document And Entity Information
3 Months Ended
Mar. 31, 2012
May 03, 2012
Document and Entity Information [Abstract]    
Entity Registrant Name EC Development, Inc.  
Document Type 10-Q  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   29,230,451
Amendment Flag false  
Entity Central Index Key 0000761034  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Filer Category Smaller Reporting Company  
Entity Well-known Seasoned Issuer No  
Document Period End Date Mar. 31, 2012  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q1  


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

 
FORM 10-Q



(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from                                  to                                         
 
Commission File Number 33-42498

EC Development, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
11-2714721
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
   
 

23 E. 9th Street, Suite 229, Shawnee, Oklahoma, 74801
(Address of principal executive offices)
 
(405) 273-3330
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
 
Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
 
Yes x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Q or any amendment to this Form 10-Q.
 
 
x
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 Securities Exchange Act of 1934.
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer o
(Do not check if a smaller reporting company)  
 
 
Smaller reporting company  x
 
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 126.2 of the Exchange Act).
  Yes o     No x
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes x     No o
 
 
The number of shares of common stock outstanding as of May 3, 2012 was 29,230,451.
 

 
EC Development, Inc.

     
PART I. FINANCIAL INFORMATION
 
Item 1.
3
  Statement of Operations 4
  Statement of Cash Flows 5
  Notes to Financial Statements 6
Item 2.
15
Item 3.
20
Item 4.
20
     
Part II. OTHER INFORMATION
 
Item 1.
22
Item1a.
22
Item 2.
22
Item 3.
23
Item 4.
23
Item 5.
23
Item 6.
23
SIGNATURES
24
EX-31.1
Certification
 
EX-31.2
Certification
 
EX-32.1
Certification
 
     
     

 
PART I
 
ITEM 1     FINANCIAL STATEMENTS
 
EC DEVELOPMENT, INC.
(Formerly EC Development, LLC)
BALANCE SHEET
 
 
March 31,
   
December 31,
 
 
2012
   
2011
 
 
(Unaudited)
       
ASSETS
           
             
Current Assets
           
Cash
  $ 286,609     $ 614  
Accounts receivable
    128,825       187,892  
Prepaid expenses
    2,908       -  
                 
Total current assets
    418,342       188,506  
                 
Fixed assets - net
    128,837       132,116  
                 
Intangible assets -software
    5,250,000       5,500,000  
                 
Deferred patent costs
    36,850       37,623  
                 
 TOTAL ASSETS
  $ 5,834,029     $ 5,858,245  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
Accounts payable and accrued expenses
  $ 516,755     $ 567,896  
Distributions due to LLC members
    -       139,378  
Current portion of long-term debt
    350,708       398,446  
Note payable - related party
    15,000       15,000  
Loan payable - related party
    250       96,686  
Deferred revenue
    68,006       -  
                 
Total current liabilities
    950,719       1,217,406  
                 
Long-term debt
    467,761       596,829  
                 
TOTAL LIABILITIES
    1,418,480       1,814,235  
                 
STOCKHOLDERS'  EQUITY
               
Preferred stock, $.001 par value, 20,000,000 shares
   authorized;  none issued
    -       -  
Common stock, $.001 par value, 100,000,000 shares
  authorized;  27,230,451 and 26,825,194 issued and
   outstanding as of March 31, 2012 (Unaudited) and
   December 31, 2011, respectively
    27,230       26,825  
Additional paid-in capital
    13,801,102       13,161,939  
Accumulated deficit
    (9,412,783 )     (9,144,754 )
                 
     TOTAL STOCKHOLDERS' EQUITY
    4,415,549       4,044,010  
                 
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 5,834,029     $ 5,858,245  
 
See notes to financial statements
 
 
EC DEVELOPMENT, INC.
STATEMENT OF OPERATIONS
(Formerly EC Development, LLC)
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)
 
   
2012
   
2011
 
             
             
Revenues
  $ 164,985     $ 56,591  
                 
Cost of revenues
    40,693       -  
                 
Gross Margin
    124,292       56,591  
                 
Operating Expenses
               
Compensation expense
    106,367       183,345  
Amortization and depreciation
    254,052       254,052  
General & administrative expenses
    123,192       55,677  
Forgiveness of debt
    (120,000 )     -  
Interest expense
    10,785       8,829  
                 
Total Operating Expenses
    374,396       501,903  
                 
Net loss
  $ (250,104 )   $ (445,312 )
                 
                 
Net loss per share - basic and diluted
  $ (0.01 )   $ (0.02 )
                 
Weighted average common shares outstanding - basic and diluted
    26,616,923       25,834,236  
 
See notes to financial statements
 
 
EC DEVELOPMENT, INC.
(Formerly EC Development, LLC)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)
 
   
2012
   
2011
 
             
             
 CASH FLOWS FROM OPERATING ACTIVITIES
           
 Net loss
  $ (250,104 )   $ (445,312 )
 Adjustments to reconcile net loss to net cash used in operating activities:
               
     Depreciation and amortization
    254,052       254,052  
     Distributions to LLC members
    (120,000 )     -  
     Stock issued for interest
    6,000       -  
 Changes in assets and liabilities:
               
     Accounts receivable
    59,067       (3,658 )
     Prepaid expenses
    (2,908 )     -  
     Accounts payable and accrued expenses
    (51,141 )     93,254  
     Deferred revenue
    68,006       -  
                 
 Net cash provided by (used in) operating activities
    (37,028 )     (101,664 )
                 
                 
 CASH FLOWS FROM FINANCING ACTIVITIES
               
       Sales of common stock
    1,050,000       10,000  
       Sales of warrants
    -       285,800  
      Purchase and cancellation of common stock
    (503,735 )     -  
       Decrease in loan payable - stockholder/officer
    -       (806 )
       Distributions to LLC members
    -       (100,000 )
       Decrease in note payable - related party
    (96,436 )     (15,814 )
       Payments of notes payable
    (126,806 )     (76,300 )
                 
 Net cash provided by financing activities
    323,023       102,880  
                 
 Net increase in cash
    285,995       1,216  
                 
 Cash, beginning of period
    614       1,940  
                 
 Cash, end of period
  $ 286,609     $ 3,156  
                 
                 
 Supplemental disclosures of cash flow information:
               
                 
  Cash paid for interest
  $ 7,300     $ 8,829  
                 
 Summary of non-cash investing and financing transactions
               
                 
 Common stock in settlement of note payable and interest
  $ 56,000     $ -  
                 
 Forgiveness of Distributions due to LLC members
  $ 120,000       -  
                 
 Common stock for settlement of distributions due to LLC members
  $ 37,303     $ -  
 
 
See notes to financial statements
 
 
EC Development, Inc.
(Formerly EC Development, LLC)
Notes to Financial Statements
(Unaudited)
 
1. ORGANIZATION AND OPERATIONS

EC Development, Inc. (Company) designs, develops and markets software and data acquisition tools to monitor, audit and provide analysis and reporting of usage and financial transactions for customers of the gaming industry. The Company’s principal product is their Tahoe Casino Management System.

Acquisition

EC Development, LLC (LLC) was organized in Oklahoma on November 9, 2005.  Effective August 1, 2010, the Company acquired all the membership interests of the LLC in exchange for 15,000,000 shares of common stock of the Company (Acquisition).  The LLC was then merged into the Company, with the Company as the survivor, and the Company changed its name to EC Development, Inc. (by merger into a newly formed Delaware corporation) upon its acquisition of the LLC. The Acquisition has been accounted for as a reverse acquisition and recapitalization, whereby LLC is deemed to be the accounting acquirer (legal acquiree) and the Company is deemed to be the accounting acquiree (legal acquirer). Accordingly, LLC’s historical financial statements for the periods prior to the Acquisition became those of the Company retroactively restated for, and giving effect to, the number of shares received in the Acquisition.  The assets, liabilities, revenues and expenses of the Company are included in the accompanying financial statements from the effective date of the acquisition.  

Distributions Due to LLC Members

Effective May 29, 2007, EC Development, LLC (LLC) and SueMac, Inc. (SueMac) entered into a Unit Purchase Agreement (Agreement). This Agreement provided that SueMac purchase 5% of the outstanding membership of the LLC initially with an option to purchase up to an additional 15%, as defined, with a repurchase option.  The purchase price for the units were equal to $100,000 per 1% of ownership interest purchased and totaled $1,500,000.  Upon execution of the purchase, SueMac was entitled to begin receiving quarterly preferred distributions equal to the cost of the money to the purchaser plus a premium of 20%.
 
On March 22, 2012, the Company entered into an agreement with SueMac, Inc. to liquidate all amounts remaining due under the Unit Purchase Agreement which will (1) terminate the prior agreements; (2) settle the obligation of distributions due to LLC members which was $157,303 as of March 1, 2012; and (3) to repay the loan of $50,000, plus interest of $6,000, in exchange for 205,257 shares of the Company’s common stock.  Included in the terms of this agreement is the settlement of a separate obligation of two officers of the Company to SueMac, arising prior to the merger, and a portion of the distributions due to LLC members liability for an aggregate of 340,152 shares of the Company’s common stock owned by the two officers.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the rules and regulations under Regulation S-X of the Securities and Exchange Commission for Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements presentation.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim financial statements have been included.  These financial statements should be read in conjunction with the financial statements of the Company together with the Company’s management discussion and analysis in Item 2 of this report and in the Company’s Form 10-K for the year ended December 31, 2011.  Interim results are not necessarily indicative of the results for a full year.
  
 
Financial Statements
 
The Company's financial statements include all the accounts of the Company.

Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
 
Financial Instruments
 
The Company considers the carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued expenses and notes and loans payable to approximate their fair values because of their relatively short maturities.

Accounts and Other Receivables

Accounts receivable consist of amounts due from customers. The Company records a provision for doubtful receivables, if necessary, to allow for any amounts which may be unrecoverable, which is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends.
 
Property and Equipment
 
Property and equipment were recorded at cost and depreciated over their estimated useful lives using the straight-line method.
 
Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated depreciation of assets retired or otherwise disposed of are relieved from the appropriate accounts and any profit or loss on the sale or disposition of such assets is credited or charged to income.
  
 Intangible Assets

 Intangible asset - software was recorded at cost and is amortized on the straight-line method over the estimated useful life of the related asset.

The carrying value of intangible assets is reviewed for impairment by management at least annually or upon the occurrence of an event which may indicate that the carrying amount may be greater than its fair value. If impaired, the Company will write-down such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon the occurrence of an event which may indicate that the useful life may have changed.
 
 
Intangible assets - software were valued based management’s forecast of expected future net cash flows, with revenues based on projected revenues under the agreements in place or being negotiated and are being amortized over ten years.

 Revenue Recognition
 
Revenues are recognized when evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred.
 
Revenues result from the sales of hardware, software, technical support service contracts and related consulting services to the gaming industry. The licenses under the software do not require the Company to provide any continuing involvement. As the Company’s arrangements to deliver hardware and software generally do not require significant production, modification or customization of the software program, revenue is recognized when the software is installed.

Revenues from technical support service contracts that provide for unspecified updates and upgrades, on a when and if available basis, and remote telephone support will be recognized on a straight-line basis over the term of the contract beginning with the installation of the product unless otherwise specified in the contract.  Technical support services contracts are priced separately and are a separate item on all sales agreements.

Revenues from services such as training, installation and consulting are accounted for separately when priced separately in the arrangement, such that the total contract price would vary as the result of the inclusion or exclusion of the services.

Loss per Common Share
 
Basic loss per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each period.
 
Share-Based Compensation

The Company recognizes compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant.  Common stock equivalents are valued using the Black-Scholes Option-Pricing Model using the market price of our common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility of our common stock.
 
Income Taxes
 
Deferred income taxes have been provided for temporary differences between financial statement and income tax reporting under the liability method, using expected tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is provided when realization is not considered more likely than not.
 
The Company’s policy is to classify income tax assessments, if any, for interest in interest expense and for penalties in general and administrative expenses.
 
Leases

Rent expense is recognized on the straight-line basis over the term of the lease.

 
Recently Adopted Accounting Pronouncements
 
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (GAAP) and International Financial Reporting Standards.  While many of the amendments to GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements.  Adoption of ASU 2011-04 is did not have an impact on the Company's financial position or results of operations.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

3.  GOING CONCERN AND MANAGEMENT'S PLANS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had incurred cumulative losses of $9,412,783 and has negative working capital of $532,377. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations arising from normal business operations when they come due. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue.

Management plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence: (i) management intends to continue to raise additional financing through private equity or debt financing to pay down Company debt and/or reduce the cost of debt service; (ii) management is also planning to continue to finance the Company through officer/stockholder loans; and (iii) management intends to increase revenues and is actively pursuing additional contracts.
 
4.  PROPERTY AND EQUIPMENT
 
As of March 31, 2012 and December 31, 2011, property and equipment consisted of the following:
 
   
2012
   
2011
 
             
 Building and building improvements
 
$
176,345
   
$
176,345
 
 Furniture & fixtures
   
9,517
     
9,517
 
                 
     
185,862
     
185,862
 
 Less:  Accumulated depreciation
   
(57,025
)
   
(53,746
)
                 
   
$
128,837
   
$
132,116
 
                                                                       
 
For the three months ended March 31, 2012 and 2011, depreciation expense was $3,279 and $3,279, respectively.

 
5.  INTANGIBLE ASSETS – SOFTWARE
 
Intangible assets – software, Tahoe Casino Management System, consists of three patents purchased from a company owned by the principle stockholders of the Company, in 2007, all relating to software and hardware solutions for the gaming industry. The software provides analysis and reporting of usage and financial transactions for customers of the gaming industry. The Company holds numerous trademarks relating to the brand and identity of its product line.

Management had projected discounted cash flows for a five year period, based on proposals and licensing agreements and determined that the fair value of the intangible asset was in excess of its book value.

As of the March 31, 2012, management has determined that no impairment of the intangible assets -software has occurred.

As of March 31, 2012 and December 31, 2011, intangible asset - software consisted of the following:
 
     
2012
     
2011
 
Software – at cost
 
$
10,000,000
   
$
10,000,000
 
                 
Less:  Accumulated amortization
   
( 4,750,000
)
   
(4,500,000
)
                 
Total intangible assets
 
$
5,250,000
   
$
5,500,000
 
                                                
For the three months ended March 31, 2012 and 2011, amortization expense, including deferred patent costs, was $250,773 and $250,773, respectively.

As of March 31, 2012, the estimated aggregate amortization expense for each of the five succeeding years was as follows:

2013
  $ 1,003,092  
2014
    1,003,092  
2015
    1,003,092  
2016
    1,003,092  
2017
    1,003,092  
    $ 5,015,460  
 
 
6. NOTE PAYABLES
 
As of March 31, 2012 and 2011, notes payable consisted of the following:
 
   
2012
   
2011
 
             
Note payable - Internal Revenue Service (a)
 
$
724,789
   
$
847,602
 
Note payable  (b)
   
25,000
     
25,000
 
Mortgage payable - bank ( c)
   
53,680
     
57,673
 
Loan payable – other
   
15,000
     
15,000
 
Note payable – related party (d)
 
 
15,000
     
-
 
Promissory note payable (Note 7)
   
-
     
50,000
 
       
 
       
     
833,469
     
1,012,275
 
                 
      Current portion
   
365,708
     
413,446
 
                 
   
$
467,761
   
$
596,829
 
                       
(a)  
Payable in equal monthly payments of monthly installments of $25,593.57, plus interest at approximately 1.5% through July 7, 2014.

(b)  
Payable on October 5, 2012, plus interest at 7%, per annum, payable monthly. The Company issued 50,000 shares of common stock in connection with the note, which were valued at $2,352.

(c)  
Payable in monthly installments of $1,400 through November 15, 2015, including interest at 8.25%, per annum. The note is collateralized by the land and building.

(d)  
In June 2011 and through October 2011, a related party loaned the Company an aggregate of $98,000 of which $83,000 was repaid as of March 31, 2012.
 
 
As of March 31, 2012, future minimum payments of notes payable are as follows:
 
2013
 
$
316,463
 
2014
   
139,242
 
2015
   
12,056
 
         
   
$
467,761
 

7. RELATED PARTY TRANACTIONS

Promissory note payable is due November 1, 2011 with interest at 12%, per annum, owned by a former member of the LLC. As additional consideration for the $ 50,000 loan, the Company issued 50,000 shares of its common stock as interest on the note valued at $12,500, $0.25, per share. On March 22, 2012, the Company issued 112,000 shares of common stock in payment of the note payable of $50,000 and interest on note payable of $6,000, $0.50, per share.

8.  COMMITMENTS

The Company is committed under a lease for office space for $2,900, per month, through October 31, 2012.

For the three months ended March 31, 2012 and 2011, rent expense was $19,567 and $11,131, respectively.

As of March 31, 2012, future minimum lease commitments under the lease were $20,300.

9. COMMON STOCK

In connection with the Bankruptcy and reorganization, the Company’s common stock was subject to a 200:1 reverse stock split resulting in 265,992 shares of common stock of the Company outstanding to the then existing stockholders of eNucleus, Inc.

All per share amounts were stated to reflect the reverse stock-split.

On January 20, 2012, the Company sold 200,000 shares of common stock at $0.25, per share.

On March 1, 2012, the Company sold 600,000 shares of common stock and an option to purchase 2,400,000 shares of the Company’s common stock at $0.50, per share, through March 26, 2012, for $300,000.  As of March 31, 2012, none of the options were exercised.

On March 1, 2012, the Company entered into a Memorandum of Understanding with two officers of the Company who are members of Techrescue, a related party of the Company.  Pursuant to this Memorandum, the Company purchased 1,000,000 shares of its own common stock from each of these officers and extinguished the $96,266 debt owed to Techrescue for an aggregate of $600,000.  The transaction became effective March 28, 2012 when the Company purchased the 2,000,000 shares as treasury shares and immediately canceled the shares.
 
 
On March 22, 2012, the Company issued 112,000 shares of common stock in payment of a note payable of $50,000 and interest on the note of $6,000, $0.50, per share.

On March 22, 2012, the Company issued 93,257 shares of common stock in payment of distributions due to LLC members of $37,303. $0.40, per share. The balance of the $157,303 of distributions due to LLC members of $120,000 was recorded as forgiveness of debt.

On March 26, 2012, the Company sold 1,400,000 shares of the Company’s common stock for $700,000, $0.50, per share.

10.  WARRANT

On February 7, 2011, as amended, the Company entered into a Common Stock Warrant Agreement (Agreement) with a purchaser to sell a warrant to purchase up to an initial aggregate of 1,331,000 shares of the Company’s common stock at a purchase price of $0.60, per share.  The warrant is exercisable through one year from the date of issuance.  The warrant provides for no cashless exercise and the Company covenants to have authorized and reserved shares for issuance as would be required upon complete exercise of the warrant.

The number and kind of securities purchasable upon the exercise of the warrant and the warrant price shall be subject to adjustment in the event of: (1) any reclassification or change of outstanding securities issuable upon exercise of the warrant; (2) any consolidation or merger of the Company, unless the Company is the surviving corporation,; and (3) any sale or transfer to another corporation of all, or substantially all, of the property of the Company.  In such events, the Company or successor or purchasing corporation shall execute a new warrant which will provide that the holder shall have the right to exercise the new warrant and purchase comparable securities, without extending the time for exercise.  The warrant is subject to be proportionately reduced or increased if at any time while the warrant is outstanding the common stock undergoes a split.  The warrant does not provide for any other adjustment or reset of the price for common stock to be acquired.

The Agreement calls for an early termination of rights in the event that the closing price of the Company’s common stock as reported by the OTC Markets for each of fifteen successive days the stock is traded shall be above the product of the warrant price multiplied by 150%.  In this event, the last day on which the warrant may be exercised shall be the 60th day following the 15th successive day the closing price exceeds that level.

As of December 31, 2011, a warrant to purchase an aggregate of 1,331,000 shares of the Company’s common stock was sold under the Agreement for $698,600.  The proceeds of the sale of the warrant were recorded as additional paid-in-capital, in accordance with ASC 815, Derivative and Hedging, 815-40, Contracts in Entity’s Own Equity. Under this agreement with the purchaser, a warrant to purchase 166,667 shares of the Company’s common stock, valued at $100,000, was applied against the distributions due to LLC members.  As of March 31, 2012, none of the warrants were exercised.
 
 
11. INCOME TAXES
 
The LLC has filed income tax returns through July 31, 2010 as a limited liability company for Federal and state income tax purpose and, as such, was not required to pay Federal or state income taxes.
 
The Company has not filed income tax returns for the years ended December 31, 2011 and 2010 and anticipates no significant income tax expenses as a result of these filings.

As of March 31, 2012, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements.
 
12. LITIGATION

On March 20, 2012 the Company was named as a defendant in the District Court of Oklahoma County, State of Oklahoma with respect to a dispute over an entitlement fee for financing arrangements pertaining to 2005.  Members of EC Development, LLC, who are now officers of the Company and stockholders of the Company, are named in the lawsuit.  The Company considers the lawsuit to be frivolous and without merit and intends to vigorously defend against it.

An Administrative Order of Determination was entered on April 9, 2012, at the Department of Labor, Oklahoma City, Oklahoma in favor of the claimant for  $49,713 for a promised raise in wages for services performed as a technician for the Company.  The Company believes that this claim is without merit and intends to appeal and defend against it.


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q for the quarter ended March 31, 2012 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and are considered by management to be reasonable. Our future operating results, however, are difficult to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
 
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

Company Overview

We are a corporation organized under the laws of the State of Delaware.  The business of the Company is the development and marketing, sales and support of casino gaming management software systems, which include the complete (or full) Tahoe Casino Management Systems as well as Tahoe TITO (ticket-in/ticket-out) system, Tahoe Table Tracking system (software packages available on a standalone basis) and other related software all under the brand name of “the Tahoe Suite of Software” to companies in the gaming industry.  These systems are proprietary and developed by the Company using open-sourced software, commercial hardware and software solutions.  The software is sold with appropriate licenses for use of included software belonging to others.  The hardware includes data-acquisition tools that interface with the software systems which are produced to the Company’s specifications by our suppliers as OEM devices.  The product line provides tools for owners and managers of gaming facilities for the management of and monitoring of all aspects of the operation of a casino.  The Company’s software is in daily use in small and medium-sized casinos in the United States and Mexico.  The Company believes that the software has proven to be reliable and technologically superior to that of its established rivals.  The Company markets the Tahoe products by distinguishing the software’s ability to support a wider range of game classes than do competing products and also by promoting its software as built to modern software engineering standards, which increases flexibility and reduces system management cost and complexity.  The Company’s products are sold directly to its customers through a variety of distribution channels.  The Company markets its products and services to the gaming industry both by direct sales and sales in conjunction with VAR’s and consultants who act as our distribution channel.

The Company’s software systems are standards-compliant and integrate management and reporting for both Class II and Class III games and related gaming systems.  The first generation of the Tahoe Software Suite was released in 2005.  Over the past five years, the Company has continued to expand and grow its gaming technology to provide what the Company believes is one of the most comprehensive and cutting edge casino management systems (sometimes referred to herein generically, as “CMS”) in the market.  At present, our system has already been deployed on thousands of gaming devices in casinos in the US and Mexico; the Company believes its system has proven to be both reliable and technologically superior to that of its established rivals.  The Company’s technology is subject to protections through multiple applications for patents (patents pending) with the United States Patent and Trademark Office.

Business Strategy

We plan to continue to develop our product line to expand the number and types of gaming systems to which it can be readily adapted.  Our focus has been to offer a “machine-agnostic” system; that is, a solution that is not restricted to one type of machine or brand of equipment so that operators of gaming facilities are not restricted to a particular brand of gaming equipment or a particular vendor of gaming equipment when adding, expanding or replacing their gaming equipment.  By offering a solution that adapts to equipment in place and does not restrict future purchase decisions, we believe we can offer a casino management solution that is better for the developers and operators of casinos.  We plan to market to newer markets where established brands of equipment are not yet dominant and thus, we believe, the flexibility of machine-agnostic systems will prove to be attractive and therefore a competitive advantage.
 
 
We are presently pursuing opportunities in niche markets that have may have been overlooked by larger competitors such as the Class II gaming facilities.  Specifically the Company is pursuing the following niche markets:
 
Emerging International Markets
 
We believe that Emerging International Markets for Class II gaming facilities are showing explosive growth.  There will be increased demand for the Tahoe system, which operates seamlessly between Class II and Class III environments, facilitating the customers in their growth from Class II to Class III environment.  Particularly, in Southeast Asia, South America and Central America, we believe that the opportunities are growing each year.
 
The Company has currently deployed its Tahoe CMS in a number of gaming facilities in Mexico which we believe demonstrates our ability to localize the Tahoe CMS program in both currency and language within Spanish speaking countries.
 
Growing global demand for CMS systems that are agnostic to Slot Machine Manufactures but have universal integration capabilities for both Class II and Class III present exceptional opportunities for EC Development.
 
Boutique Gaming
 
The boutique gaming market consists of two primary segments: the Cruise Ship industry and Award with Prize (AWP) segment.  The Tahoe CMS solution is built with state-of-the-art technologies which meet the unique requirements of these gaming sectors.
 
Tribal Gaming
 
The company is uniquely qualified to expand and grow in this market.  The founders of EC Development, LLC (the predecessor company) are Native American and have actively worked with a number of tribes.  The Company has demonstrated its ability to deploy the Tahoe CMS solution in gaming facilities owned by several tribes meeting the challenges of both Class II and Class III gaming environments and has earned a solid reputation.
 
We are also planning to continue the development of our user-monitoring and reporting systems which we believe will be more attractive to operators and management of gaming facilities who strive to build customer loyalty through frequency rewards and similar programs.

We believe our best opportunity for growth will be through development and expansion and refinement of our current product line, which, we believe, offers sufficient flexibility and opportunities for growth in the near-term future.  There are no material development expenditures expected in the pursuit of our current business strategy as the technology systems are fully developed and deployed in multiple languages and currencies.  Rather, we will continue to add refinements, through ongoing programming upgrades, that allow flexibility and ease deployment to additional markets.
 
Impact of Regulatory Aspects of Gaming

Our product lines are used in gaming facilities which are themselves subject to extensive governmental oversight.  In some cases, governmental agencies rely on gaming equipment management tools to determine compliance with their regulations or insure accurate reporting for collection of taxes and other regulatory purposes.  Our product lines have been certified for use in many jurisdictions and we continue to seek additional approvals and certifications so that our product lines can be sold or installed in newer markets (with the understanding that we presently have approvals or certifications to sell in our present markets).  Certifications are an important part of our business model because our customers and potential customers may be required to acquire certified gaming management software to provide accurate reporting for their regulatory obligations.  We believe we have obtained the certifications which we need to transact business in each jurisdiction where we are actively marketing our product lines.  We recognize that regulatory aspects of owning gaming facilities can sometimes delay installation of our CMS systems where a facility has not received necessary approvals during the construction or installation phases and, as a result, we do not recognize revenue for contracts, even though such contracts would otherwise represent binding obligations on the part of the gaming facility owners and managers, until we are permitted to commence installation and the gaming facility has reached a point in the regulatory process where commencing operation has been authorized by governmental agencies.
 

Plan of Operation

The Company is presently focused on product development to refine and expand its product line to meet both current customer needs and the perceived needs in markets into which we plan to expand.  The Company produces its product line through development (generally writing software code) of its software and design and integration of data acquisition hardware which provides the link from the various types of gaming equipment to our management solutions.  Our product line is comprised of software and hardware which are sold directly to gaming facilities or bundled for sale for installation by VAR’s and consultants in the industry.  Hardware is sourced from a number of vendors who manufacture to our specifications.  We plan to continue this method of production.

Current operations consist of continued development of existing products including refinements and new ancillary products as well as upgraded versions of our product line; marketing through our own direct sales and through the strategic relationships with VAR’s and other consultants, sellers of complementary products such as gaming equipment and other vendors, all of whom comprise our distribution chain; selling our products, installation and support for installed products.  While we are expanding the geographical markets in which we operate, we are also trying to expand our market presence into certain niche markets that we believe are not adequately served by other competitors.  While we believe that we offer a competitive advantage in our product line, we believe that the Company can be most successful by selling in the niche markets.

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

As a result of the merger, the Company is actively executing on its business model which consists of design, development, marketing, production sales and distribution of CMS solutions and related systems for the gaming industry.  The nature of our model involves engaging employees and consultants to provide programing services to development and implement our products and services.  The Company utilizes few major capital items except its intangible assets in the delivery of its products and services and requires no significant plant expenses beyond ordinary commercial office space for both use by the employees and very limited storage of component devices for delivery along with its software.  Our financial statements reflect primarily income from sales of our products and services and expenses incurred to pay employees and consultants in sales, development and implementation as well as general administration expenses to manage the Company.
 
Results of Operations
 
REVENUES

Revenues for the first quarter ending March 31, 2012 were $164,985 compared to revenue for the first quarter ended March 31, 2011 of $56,591.  In 2010, the Company completed its merger and began executing a new marketing and sales strategy during the fourth quarter of 2010 which new strategy impacted the sales in the first quarter of 2011. This increase in revenues of $108,394 or approximately 192% was due in part to the Company’s having closed a significant number of transactions in the first quarter 2012 and not a corresponding number of transactions during the prior period while the new marketing and sales strategy was being initiated.  Due to the relatively long sales cycle associated with our products, new marketing efforts did not result in any immediate increase in sales during the first quarter of 2011.  Additionally, the nature of larger transactions (with slower installation cycles and therefore more time before revenue recognition) is reflected in the amount of revenue recognized during the first quarter of 2012 compared to contracts signed for which installations have not yet commenced (and therefore no revenue has been recognized).  Revenues are comprised of sales of our CMS solutions and include service and maintenance contracts for ongoing support and service-related sales of software programming, consulting and development services.

OPERATING AND OTHER EXPENSES

Cost of revenues for the first quarter ended March 31, 2012 were $40,693 compared to cost of sales for the first quarter ended March 31, 2011 of $0.  The increase in cost of revenues of $40,693 was due to the fact that sales for the first quarter ended March 31, 2011 required no allocation of cost of sales.  Cost of revenues is comprised primarily of the direct costs of certain hardware components for our CMS solutions and installation related expenses.

General & administrative expenses for the first quarter ended March 31, 2012 were $123,192 compared to general & administrative expenses for the first quarter ended March 31, 2011 of $55,677.  The increase in general & administrative expenses of $67,515 or approximately 121%, was due to the fact that general & administrative expenses were increased to meet the needs of support for contemplated sales and associated with the development and roll-out of certain of its products and increased staffing to manage the process.  General & administrative expenses are comprised primarily of expenses related to administrative operations and therefore reflects changes in staffing (including staffing of administrative positions and positions not directly tied to sales or programming; those costs are included in compensation costs discussed below) as well as legal services and accounting fees associated with operations.

Compensation expense for the first quarter ended March 31, 2012 was $106,367 compared to compensation expense for the first quarter ended March 31, 2011 of $183,345.  This decrease of $76,978 or approximately 42% was related to a reduction of staffing from programming after the roll-out of the software revisions and improvements during 2011.
 
 
Interest expense for the first quarter ended March 31, 2012 was $10,785 compared to interest expense for the first quarter ended March 31, 2011 of $8,829.  The increase in interest expense is a result of increased borrowing.

Net loss was $250,104 or $(.01) per share, for the first quarter ended March 31, 2012 as compared to net loss of $445,312 or $(0.02) per share, for the comparable period in 2011.  The decrease in net loss of $195,208 reflects the increase in customer contracts (recognized sales) as well as a decrease in compensation expense offset by a forgiveness of debt or $120,000 in the first quarter of 2012.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2012, the Company had negative working capital of $532,377 as compared to $1,028,900 for the comparable 2011 period, an increase of $496,523, resulting primarily from a decrease in debt.  Current assets consisted of cash and cash equivalents of $286,609 and accounts receivable of $128,825 as well as prepaid expenses of $2,908. The Company continues to enter into contracts for future work for which no revenue is recognized as installation has not commenced.  These contracts reflect the expectation and desire of gaming facility managers and owners for future sales once the gaming facilities have met certain approvals of governing agencies and are farther along in their construction.  Because they are subject to approvals and construction, we do not recognize the revenues until installation is completed.  Nevertheless, these contracts represent binding obligations of companies which we believe have both the intention and the wherewithal to fulfill their obligations and we anticipate realizing revenues which we believe will be adequate to meet the Company’s operating requirements for the next twelve months.  While extraordinary circumstances can occur such as a bankruptcy filing by a gaming facility manager or owner or a reversal or delay of a pending approval for a gaming facility, and therefore, such contracts are not absolute, we believe the projected revenues represent the foreseeable amounts that the Company will recognize and ultimately receive and we have based our discussion on this.

The pending contracts are material to the growth of our company.  The Company is expecting to realize approximately $3 million during CY 2012 (or next 12 months).  Each contract may be considered pending because of delays in construction before we begin installation, pending decisions of gaming facility managers and owners to purchase or install gaming machine equipment with which we will integrate our Tahoe System or delays in the approval process relating to routine processing by approval agencies.  The backlog of pending business consists of larger transactions which, because installations have not commenced, represent unrecognized revenues.  Smaller contracts signed previously accounted for the $164,985 revenue for the quarter.

The bookings from newly-executed contracts for the fiscal year ended December 31, 2011 reflect retooling of the marketing and sales processes along with innovation to the technology.  While the revenues declined towards the end of 2011, these resulting contracts allow us to project sufficient cash-flow to meet the Company's operating requirements during 2012.

Cash Flows from Operating Activities.  Cash provided by operating activities increased by approximately $64,636 for the first quarter ended March 31, 2012 as compared to the comparable 2011 period, resulting primarily from a decrease in net loss and an increase in deferred revenue offset by a decrease in accounts payable and accrued expenses.  

Cash Flows from Financing Activities.  Net cash provided by financing activities increased by $220,143, resulting primarily from a sale of common stock offset by the purchase and cancellation of common stock and a decrease in notes payable – related party.
 
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had incurred operating losses, negative working capital and no operating cash flow and future losses are anticipated.
 
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plan of operations is to generate operating cash flows from revenues on existing, but not yet recognized, contracts requiring scheduled installation which, is expected to adequately meet the Company’s current operating requirements.  The Company is continuing to promote its systems internationally and even if successful in the implementation of current contracts may not result in cash flow sufficient to fully develop its international business plan. The Company if required will seek additional equity to meets its cash flow need in its international development. Realization of assets is dependent upon future operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations.  The Company anticipates that its current operating results, based on its forecasted revenues and expenses, raise an issue about its ability to continue as a going concern, however, the Company anticipates cash flow based only upon its existing business and signed contracts (subject to routine delays or extraordinary events such bankruptcy of a customer – discussed above), which, if received in the ordinary course of business, would be sufficient to meet current expenses.  Therefore, assuming only performance under signed contracts, the ability of the Company to meet its future obligations may be greater than would be suggested by the results of previous periods, the factors on which such a caveat (the “going concern” caveat) is based.
 
 
These financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Capital Resources

The Company expects to need additional office space, computer systems, furniture and equipment as it expands operations.  This amount is not expected to exceed $50,000 in the next twelve months and is expected to be funded either through existing banking relationships, additional sales of equity or lease financing.

Impact of Inflation.

The services provided by the Company are generally comprised of consulting provided by our employees and consultants for which we incur payroll and other expenses.  These expenses can increase with overall inflation which will generally impact all segments of the economy and result in increased revenue from an increase in the rate at which the services of our employees and consultants are billed.  This minimizes the impact of inflation.  The Company does not acquire or maintain inventories that present a risk due to inflation.
 
Off Balance Sheet Arrangements

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

Critical Accounting Estimates and Policies
 
General
 
The Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors who serve as our audit committee.
 
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Financial Statements.
 
A summary of significant accounting policies is included in Note 2 to the financial statements included elsewhere in this Report. We believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.  The following are a summary of the significant accounting estimates and policies.
 
Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
 
 
Fair Value of Financial Instruments.  The Company considers the carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued expenses and notes payable to approximate their fair values because of their relatively short maturities.
 
Accounts Receivables.  Accounts receivables consist of amounts due from customers. The Company records a provision for doubtful receivables, if necessary, to allow for any amounts which may be unrecoverable, which is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends.
 
Intangible Assets.  Intangible assets are recorded at fair value and amortized on the straight-line method over the estimated useful lives of the related assets.  The carrying value of intangible assets are reviewed for impairment by management at least annually or upon the occurrence of an event which may indicate that the carrying amount may be greater than its fair value. If impaired, the Company will write-down such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon the occurrence of an event which may indicate that the useful life may have changed.
 
Revenue Recognition.  Revenue is recognized when it has persuasive evidence of an arrangement, the fee is fixed and determinable, performance of service has occurred and collection is reasonably assured. Revenue is recognized in the period the services are provided.
 
Recent Accounting Pronouncements.  

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.

ITEM 4.     CONTROLS AND PROCEDURES
 
(a)   Disclosure Controls and Procedures
 
The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are not effective (as explained below). 
 
Management’s Report on Internal Control Over Financial Reporting
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the 1934 Act as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer, respectively, and effected by the Company’s management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
·  
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;

·  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management; and

·  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
 
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2012.  In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, our Chief Executive Officer and our Chief Financial Officer believes that, as of March 31, 2012, our internal control over financial reporting is not effective based on those criteria, due to the following:

·  
Lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the disbursements related thereto due to our very limited staff, including our accounting personnel.  Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters.  However, at this time, management has decided that taking into account the abilities of the employees now involved, the control procedures in place and its awareness of the issues presented, the risks associated with such lack of segregation are low and the potential benefits of additional employees to clearly segregate duties do not justify the substantial expenses associated with such increases.
·  
Lack of effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
·  
Lack of effective controls over the control environment.  Specifically, the Board of Directors is comprised of two members and did not have independent members during the quarter ended March 31, 2012.  The current Board of Directors does not have any members who qualify as an audit committee financial expert as defined in Item 407(d) (5)(ii) of Regulation S-K and the audit committee did not become active during the quarter ended March 31 2012.  The Company has adopted a code of ethics but has not distributed this to all employees nor educated its employees regarding the expectations of proper and ethical conduct expected of them.  Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness

Management has undertaken an evaluation as to how the Company will remediate these material weaknesses and will provide the required disclosure when appropriate.
 
(b)   Changes in Internal Control Over Financial Reporting.
 
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the quarter ending March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



PART II
ITEM 1.     LEGAL PROCEEDINGS
 
On March 20, 2012, the Company was named as a defendant in the District Court of Oklahoma County, State of Oklahoma with respect to a dispute over an entitlement fee for financing arrangements pertaining to 2005.  Members of EC Development, LLC, who are now officers of the Company and stockholders of the Company, are named in the lawsuit.  The Company considers the lawsuit to be frivolous and without merit and intends to vigorously defend against it.

An Administrative Order of Determination was entered on April 9, 2012, at the Department of Labor, Oklahoma City, Oklahoma in favor of the claimant for approximately $49,713 for a promised raise in wages for services performed as a technician for the Company.  The Company believes that this claim is without merit and intends to appeal and defend against it.

ITEM 1A.   RISK FACTORS
 
Not applicable.
 
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Recent Sales of Unregistered Securities

In connection with the Bankruptcy and pursuant to the adoption of the Fourth Plan of Reorganization, the Company’s common stock was subject to a 200:1 reverse stock split resulting in 265,992 shares of common stock of the Company outstanding to the then existing stockholders of eNucleus, Inc.  All per share amounts were stated to reflect the reverse stock-split.

On January 20, 2012, the Company sold 200,000 shares of common stock at $0.25, per share.  Proceeds were used for general working capital needs of the Company.

On March 1, 2012, the Company sold 600,000 shares of common stock and an option to purchase 2,400,000 shares of the Company’s common stock at $0.50, per share, through March 26, 2012, for $300,000.  As of March 31, 2012, none of the options were exercised.  Proceeds were used for general working capital needs of the Company.

On March 1, 2012, the Company entered into a Memorandum of Understanding with two officers of the Company who are members of Techrescue, a related party of the Company.  Pursuant to this Memorandum, the Company agreed to purchase 1,000,000 shares of its own common stock from each of these officers and also extinguish the $96,266 debt owed to Techrescue for an aggregate of $600,000.  The transaction became effective March 28, 2012 when the Company purchased the 2,000,000 shares as treasury shares and immediately canceled the shares.

On March 22, 2012, the Company issued 112,000 shares of common stock in payment of a note payable of $50,000 and interest on the note of $6,000 or $0.50, per share.

On March 22, 2012, the Company issued 93,257 shares of common stock in payment of distributions due to LLC members of $37,303 or $0.40 per share.

On March 26, 2012, the Company sold 1,400,000 shares of the Company’s common stock for $700,000, $0.50, per share.  Proceeds were used for general working capital needs of the Company.

On December 31, 2011 (amended on February 7, 2012), the Company sold a warrant to purchase an aggregate of 1,331,000 shares of the Company’s common stock for $698,600.  As of March 31, 2012, none of the warrants were exercised.

Purchases of Equity Securities
 
In the first quarter of 2012, the Company purchased and canceled 2,000,000 shares of its common stock from two of its officers in a transaction that including retirement and resolution of certain obligations which originated before the merger and included obligations to related parties.  The existence of those transactions is discussed elsewhere in this quarterly report.
 
 
ITEM 3.      DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.      MINE SAFETY DISCLOSURES
 
Not applicable.

ITEM 5.      SELECTED FINANCIAL DATA
 
Not applicable

ITEM 6.      EXHIBITS
 
Item 601 of Regulation S-K
 
Exhibit No.
Exhibit
   
31.1
31.2
32.1
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 

 
SIGNATURES 
 
 In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereto duly authorized individual.
 
 
  EC Development, Inc.  
       
Date:  May 14, 2012
By:
/s/Randy Edgerton  
   
Randy Edgerton
 
   
Chief Financial Officer
 
       
 
 

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Definitive Proxy Statement (Form DEF 14A)
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Ec Development, Inc.'s Definitive Proxy Statement (Form DEF 14A) filed after their 2012 10-K Annual Report includes:

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Ticker: ECDI
CIK: 761034
Form Type: 10-Q Quarterly Report
Accession Number: 0001185185-12-001019
Submitted to the SEC: Mon May 14 2012 2:02:36 PM EST
Accepted by the SEC: Mon May 14 2012
Period: Saturday, March 31, 2012
Industry: Computer Rental And Leasing

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