EWaste Systems, Inc. - FORM 8-K/A - EX-99.2 - EXHIBIT992 - February 29, 2012

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EXHIBIT 99.2
 
 
Unaudited pro forma condensed consolidated financial data
 
Effective October 14, 2011, we completed the acquisition of Tech Disposal, Inc., whereby we purchased all of the issued and outstanding shares of Tech Disposal, Inc. for an initial consideration comprised of: 400 newly issued shares of E-Waste Systems, Inc. Series A preferred stock, each share having a face value of $100 and 200,000 newly issued shares of restricted common stock of E-Waste Systems, Inc., each share valued  at $0.50 at the date of the transaction. The total amount of the deferred consideration and therefore the eventual number of E-Waste Systems, Inc. shares of common stock to be issued will be computed by reference to 4.5 times the adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of Tech Disposal, Inc. for the 12 month period commencing October 14, 2011 divided by the agreed value of $0.50 per share, subject to the value of the deferred consideration not exceeding $2 million.
 
The unaudited pro forma condensed consolidated statement of income data are based on our audited consolidated statement of income for the year ended December 31, 2010, and our unaudited interim consolidated statement of income for the six months ended June 30, 2011. The unaudited pro forma statement of income data have been prepared to reflect the acquisition of Tech Disposal, Inc. as if it had occurred on January 1, 2010.
 
The unaudited pro forma condensed consolidated balance sheet data are based on our unaudited interim consolidated balance sheet as of June 30, 2011. The unaudited pro forma condensed consolidated balance sheet data have been prepared to reflect the acquisition of Tech Disposal, Inc. as if it had occurred on June 30, 2011.
 
The unaudited pro forma condensed consolidated financial data appearing below are based on our financial statements prepared in accordance with U.S. GAAP. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenue and expenses. Management believes those estimates are reasonable, but actual results could differ from those estimates. The unaudited pro forma condensed consolidated financial data have been prepared based on the assumptions described in the notes thereto, which management believes are reasonable and may be revised as additional information becomes available. The object of the unaudited pro forma condensed consolidated data is to provide information about the continuing effect of the acquisition of Tech Disposal, Inc. by indicating how that transaction might have affected our historical consolidated statement of income had it occurred as of January 1, 2010 and our historical consolidated balance sheet had it occurred as of June 30, 2011. The transaction is accounted for as a purchase with the purchase price allocated to the fair value of the assets acquired and the liabilities assumed.
 
The following paragraphs describe the bases on which we have carried out our preliminary purchase price allocations to the separate assets and liabilities acquired as a result of the purchase business combination that records the acquisition of Tech Disposal, Inc.
 
Customer lists have been valued using an income-based methodology that uses discounted cash flows. The operating cash flows attributable to each customer list are calculated by charging appropriate costs to the identifiable revenue stream. These cash flows represent a return on all of the assets employed in their generation. In order to separately value customer lists, the value of the required return for other identifiable assets must be determined. These contributory asset charges represent the fair return required on all assets that are necessary for the realization of the cash flows and as such are made for all assets that contribute to the cash flows in line with their contribution. Charges for the use of contributory assets have been calculated, in the aggregate, for the use of net working capital and fixed assets. The contributory asset charges are deducted from the cash flows calculating a net present value attributable to each customer list. Estimates have been made of the useful economic lives of individual customer lists based on the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the entity.
 
 
 

 
F - 1
 


 
Inventory has been valued using a market value based methodology that makes an estimate of the price a market participant would be prepared to pay to acquire the inventory in its present location and condition.
 
Deferred taxes have been calculated using substantively enacted tax rates. Deferred tax assets are recorded to the extent that it is probable that future taxable profits will be available to utilize the deductible temporary difference.
 
Contingent consideration has been recorded based on an estimated outcome of the contractual contingencies, the terms of which are set out in the share purchase agreement and takes the form of a forward 12 months earn-out based on EBITDA. The maximum value of the contingent consideration is $2 million. Because the amount of contingent consideration payable cannot be determined with certainty at the date of acquisition it is accounted for as a liability. When the amount of contingent consideration is eventually fixed by reference to the contractual terms, the liability will be settled by issuing a corresponding number of shares of common stock. In addition, the contractual terms of the consulting agreement entered into with the selling shareholder have been evaluated against the criteria set out in EITF 95-8, Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination, and based on such evaluation the contingent consideration has been categorized as an adjustment to the purchase consideration as opposed to compensation for services.
 
As we complete the processes necessary for the determination of a final allocation of the purchase consideration, adjustments to certain assets and liabilities will be made, including the potential reclassification of amounts between tangible fixed assets, intangible fixed assets and other assets and liabilities that may, in turn, result in changes to amortization and depreciation. The financial effect of such changes to amortization and depreciation could be significant depending on the amounts allocated and the estimated useful life of those assets.
 
The pro forma condensed consolidated financial data is unaudited, is provided for information purposes only and is not necessarily indicative of what the results of operations would have been had the acquisition of Tech Disposal, Inc. actually taken place as of January 1, 2010 or June 30, 2011. Furthermore, the unaudited pro forma condensed consolidated financial data do not purport to represent what our financial position or results of operations might be for any future period.
 
You should read the unaudited pro forma condensed consolidated financial data in conjunction with “management’s discussion and analysis of financial condition and results of operations” and our historical audited and unaudited financial statements and the related notes included elsewhere in the Form 8-K.
 
The purchase price was calculated as shown in the table below:

Purchase Price
 
Common
Shares or
Equivalents
   
Price
   
Total
 
Common shares
   
200,000
   
$
0.50
   
$
100,000
 
Preferred shares
   
80,000
   
$
0.50
     
40,000
 
Total Purchase Price
                   
140,000
 
Tangible Assets Acquired
                   
(100,235
)
Total Liabilities Assumed
                   
         576,565
 
Cost of Distributorship and Customer Base Acquired
           
$
616,330
 

 

 
F - 2
 
 

E-WASTE SYSTEMS, INC.
 
(FKA Dragon Beverage, Inc.)
 
Unaudited proforma Consolidated Balance Sheet
 
June 30, 2011
 
                         
                     
Adjusted
 
   
E-Waste
   
Tech
   
Pro Forma
   
ProForma
 
   
Systems, Inc.
   
Disposal, Inc.
   
Adjustments
   
Totals
 
ASSETS
                       
                         
CURRENT ASSETS
                       
                         
   Cash
 
$
3,447
   
$
20,005
   
$
-
   
$
23,452
 
       Accounts receivable, net
   
-
     
-
     
-
     
-
 
       Inventory
   
-
     
-
     
66,588
     
66,588
 
       Prepaid expenses
   
-
     
-
     
-
     
-
 
      Accounts receivable, net
   
-
     
-
     
-
     
-
 
                                 
                         Total Current Assets
   
3,447
     
20,005
     
66,588
     
90,040
 
                                 
PROPERTY AND EQUIPMENT, net
   
-
     
11,142
     
-
     
11,142
 
                                 
OTHER ASSETS
                               
                               
    
       Goodwill
                   
-
     
-
 
       Customer lists
   
-
     
-
     
616,330
     
616,330
 
       Deposits
   
-
     
2,500
     
-
     
2,500
 
                                 
                         Total Other Assets
   
-
     
2,500
     
616,330
     
618,830
 
                                 
                         TOTAL ASSETS
 
$
3,447
   
$
33,647
   
$
682,918
   
$
720,012
 
                                 
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                               
                                 
CURRENT LIABILITIES
                               
     Accounts payable and accrued expenses
 
$
36,850
   
$
78
   
$
-
   
$
36,928
 
     Related party payable
   
27,640
     
-
     
-
     
27,640
 
     Derivative liability
   
103,058
             
-
     
103,058
 
     Convertible notes payable
   
73,500
     
-
     
-
     
73,500
 
                                 
                         Total Current Liabilities
   
241,048
     
78
     
-
     
241,126
 
                                 
LONG TERM LIABILITIES
                               
     Contingent consideration
   
-
     
-
     
336,118
     
336,118
 
     Deferred taxes
   
-
     
-
     
240,369
     
240,369
 
                                 
                          Long term liabilities
   
-
     
-
     
576,487
     
576,487
 
                                 
                          TOTAL LIABILITIES
   
241,048
     
78
     
576,487
     
817,613
 
                                 
STOCKHOLDERS' EQUITY
                               
                                 
     Preferred stock
   
-
     
-
     
-
     
-
 
     Common stock
   
100,000
     
100
     
100
     
100,200
 
     Additional paid-in capital
   
(92,000
)
   
62,525
     
77,275
     
47,800
 
     Retained earnings (deficit)
   
(245,601
)
   
(29,056
)
   
29,056
     
(245,601
)
                                 
                                 
                          Total Stockholders' Equity
   
(237,601
)
   
33,569
     
106,431
     
(97,601
)
                                 
                          TOTAL LIABILITIES AND
                               
                              STOCKHOLDERS' EQUITY (DEFICIT)
 
$
3,447
   
$
33,647
   
$
682,918
   
$
720,012
 
 
 
 
 
F - 3
 
 
 

E-WASTE SYSTEMS, INC.
 
(FKA Dragon Beverage, Inc.)
 
Unaudited proforma Consolidated Statements of Operations
 
For the Six Months Ended June 30, 2011
 
                         
                     
Pro-Forma
 
   
E-Waste
   
Tech
   
Pro Forma
   
Adjusted
 
   
Systems, Inc.
   
Disposal, Inc.
   
Adjustments
   
Totals
 
                                 
REVENUES
 
$
-
   
$
173,524
   
$
-
   
$
173,524
 
COST OF SALES
   
-
     
111,487
     
-
     
111,487
 
                                 
GROSS PROFIT
   
-
     
62,037
     
-
     
62,037
 
                                 
OPERATING EXPENSES
                               
                                 
    General and administrative
   
92,154
     
49,865
     
-
     
142,019
 
        Depreciation expense
   
-
     
-
     
-
     
-
 
        Amortization of intangible assets
   
-
     
-
     
15,408
     
15,408
 
                                 
                                          Total Costs and Expenses
   
92,154
     
49,865
     
15,408
     
157,427
 
                                 
                                               OPERATING LOSS
   
(92,154
)
   
12,172
     
(15,408
)
   
(95,390
)
                                 
OTHER INCOME (EXPENSE)
                               
                                 
        Loss on derivative liability
   
(79,434
)
   
-
     
-
     
(79,434
)
        Interest income
   
-
     
-
     
-
     
-
 
        Interest expense
   
(26,516
)
   
-
     
-
     
(26,516
)
                                 
                                               Total Other Income (Expense)
   
(105,950
)
   
-
     
-
     
(105,950
)
                                 
                                                LOSS BEFORE INCOME TAXES
   
(198,104
)
   
12,172
     
(15,408
)
   
(201,340
)
                                                PROVISION FOR INCOME TAXES
   
-
     
-
     
6,009
     
6,009
 
                                 
                                                LOSS FROM CONTINUING OPERATIONS
   
(198,104
)
   
12,172
     
(9,399
)
   
(195,331
)
                                 
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS
   
-
     
-
     
-
     
-
 
LOSS FROM DISCONTINUED OPERATIONS
   
-
     
-
     
-
     
-
 
                                 
                                                NET LOSS
 
$
(198,104
)
 
$
12,172
   
$
(9,399
)
 
$
(195,331
)
                                 
Basic loss per share
                         
$
(0.00
)
Diluted loss per share
                         
$
(0.00
)
                                 
Diluted weighted average number of shares outstanding
                           
100,823,333
 
 
 
 

 
 
F - 4
 
 
 

E-WASTE SYSTEMS, INC.
 
(FKA Dragon Beverage, Inc.)
 
Unaudited proforma Consolidated Statements of Operations
 
For the Year Ended December 31, 2010
 
                         
                     
Pro-Forma
 
   
E-Waste
   
Tech
   
Pro Forma
   
Adjusted
 
   
Systems, Inc.
   
Disposal, Inc.
   
Adjustments
   
Totals
 
                                 
REVENUES
 
$
-
   
$
1,900
   
$
-
   
$
1,900
 
COST OF SALES
   
-
     
2,519
     
-
     
2,519
 
                                 
GROSS PROFIT
   
-
     
(619
)
   
-
     
(619
)
                                 
OPERATING EXPENSES
                               
                                 
General and administrative
   
34,498
     
40,609
     
-
     
75,107
 
Depreciation expense
   
-
     
-
     
-
     
-
 
Amortization of intangible assets
   
-
     
-
     
23,112
     
23,112
 
                                 
                                              Total Costs and Expenses
   
34,498
     
40,609
     
23,112
     
98,219
 
                                 
                                                   OPERATING LOSS
   
(34,498
)
   
(41,228
)
   
(23,112
)
   
(98,838
)
                                 
OTHER INCOME (EXPENSE)
                               
                                 
Interest income
   
-
     
-
     
-
     
-
 
Interest expense
   
(930
)
   
-
     
-
     
(930
)
                                 
Total Other Income (Expense)
   
(930
)
   
-
     
-
     
(930
)
                                 
LOSS BEFORE INCOME TAXES
   
(35,428
)
   
(41,228
)
   
(23,112
)
   
(99,768
)
PROVISION FOR INCOME TAXES
   
-
     
-
     
9,014
     
9,014
 
                                 
LOSS FROM CONTINUING OPERATIONS
   
(35,428
)
   
(41,228
)
   
(14,098
)
   
(90,754
)
                                 
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS
   
-
     
-
     
-
     
-
 
LOSS FROM DISCONTINUED OPERATIONS
   
-
     
-
     
-
     
-
 
                                 
NET LOSS
 
$
(35,428
)
 
$
(41,228
)
 
$
(14,098
)
 
$
(90,754
)
                                 
Basic loss per share
                         
$
(0.00
)
Diluted loss per share
                         
$
(0.00
)
                                 
Diluted weighted average number of shares outstanding
                           
94,042,508
 
 
 

 
 
F - 5
 


 

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