Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - EWaste Systems, Inc.Financial_Report.xls
EX-31.1 - EXHIBIT311 - EWaste Systems, Inc.exhibit311.htm
EX-32.1 - EXHIBIT321 - EWaste Systems, Inc.exhibit321.htm
EX-32.2 - EXHIBIT322 - EWaste Systems, Inc.exhibit322.htm
EX-31.2 - EXHIBIT312 - EWaste Systems, Inc.exhibit312.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the quarterly period ended:  September 30, 2014
   
o
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the transition period from __________ to __________
   
 
Commission File Number:  333-165863

E-Waste Systems, Inc.
(Exact name of registrant as specified in its charter)

Nevada
26-4018362
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
            1350 E. Flamingo, #3101, Las Vegas, NV                                                        89119
              (Address of principal executive offices)                                                       (Zip Code)

650-283-2907
(Registrant’s telephone number)
 __
(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 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 (§ 229.405 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer    o
Accelerated filer                         o
Non-accelerated filer      o
Smaller reporting company       x

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 6, 2014, there were 9,759,856 shares of our common stock issued and outstanding following a reverse split of 1:250 .and declared effective by FINRA on November 5, 2014.

 NOTE:  All stock references are in pre-reverse split numbers unless specifically identified otherwise.
 
 
 
 
 

 
 
 

  
 
 
 
Page
     
PART I – FINANCIAL INFORMATION
 
Item 1:
3
     
Item 2:
4
     
Item 3:
11
     
Item 4:
11
     
PART II – OTHER INFORMATION
 
Item 1:
12
     
Item 1A:
12
     
Item 2:
13
     
Item 3:
13
     
Item 4:
13
     
Item 5:
13
     
Item 6:
13
 
 











PART I - FINANCIAL INFORMATION


Our condensed consolidated financial statements included in this Form 10-Q are comprised of the following:





These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that can be expected for the full year.
 
 












 
 
 
 
E-Waste Systems, Inc. and Subsidiaries
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
   
September 30,
   
December 31,
 
   
2014
   
2013
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 14,419     $ 145,778  
Restricted cash held in escrow
    140,000       140,000  
Accounts receivable, net
    172,279       63,217  
Related parties receivable
    -       1,052  
Inventory
    3,315       5,752  
Deferred financing costs
    25,956       -  
Other current assets
    112,829       3,833  
Total Current Assets
    468,798       359,632  
                 
Property and equipment, net
    254,103       181,720  
Security deposits
    107,737       3,270  
Intangible assets
    259,230       324,011  
Investments
    285,573       285,573  
TOTAL ASSETS
  $ 1,375,441     $ 1,154,206  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 919,247     $ 479,884  
Accrued expenses, related parties
    993,672       1,320,918  
Due to related parties
    31,610       -  
Due to others
    12,965       -  
Payroll and related liabilities
    21,745       -  
Deferred rent
    6,681       -  
Deferred revenue
    111,562       -  
Short-term notes payable
    208,563       194,460  
Short-term related party convertible notes payable, net
    6,000       12,000  
Short-term convertible notes payable, net
    2,091,152       1,139,897  
Derivative liability on short-term convertible notes payable
    1,792,524       465,880  
Total Current Liabilities
    6,195,721       3,613,039  
                 
Long term portion of notes payable
    17,512       85,908  
Long term portion of convertible notes payable, net
    636,697       251,406  
Long-term portion of derivative liabilities
    290,188       -  
TOTAL LIABILITIES
    7,140,118       3,950,353  
                 
                 
STOCKHOLDERS' DEFICIT:
               
Preferred stock, Series A, $0.001 par value, 200,000 shares authorized;
               
5,516 and 1,903 shares issued and outstanding, respectively
    6       2  
Preferred stock, Series B, $0.001 par value, 500,000 shares authorized;
               
487,500 and 195,000 shares issued and outstanding, respectively
    487       195  
Common stock, $0.001 par value, 6,000,000,000 shares authorized;
               
1,107,817,477 and 262,734,973 shares issued and outstanding, respectively
    1,107,818       262,735  
Additional paid-in capital
    12,875,909       7,154,225  
Accumulated deficit
    (19,748,897 )     (10,213,304 )
TOTAL STOCKHOLDERS' DEFICIT
    (5,764,677 )     (2,796,147 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 1,375,441     $ 1,154,206  
                 
   
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
 
 
 
 

 

 
 
 
 
 
E-Waste Systems, Inc. and Subsidiaries
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
                         
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
         
(Restated)
         
(Restated)
 
NET REVENUES:
                       
Product sales revenue
  $ 227,978     $ 106,041     $ 675,627     $ 274,415  
Service revenues
    97,923       71,483       704,556       160,121  
TOTAL REVENUES
    325,901       177,524       1,380,183       434,536  
                                 
Cost of sales
    110,398       105,755       906,437       249,639  
                                 
GROSS PROFIT
    215,503       71,769       473,746       184,897  
                                 
OPERATING EXPENSES:
                               
Officer and director compensation
    (139,094 )     313,590       42,976       538,107  
Professional fees
    171,538       1,532,155       4,097,376       2,071,249  
Financing costs
    49,369       -       262,229       -  
Stock based compensation
    31,650       -       1,658,442       -  
Impairment in available for sale securities
    -       715,000       -       1,445,000  
General and administrative expenses
    525,030       101,107       1,775,299       345,135  
TOTAL OPERATING EXPENSES
    638,493       2,661,852       7,836,322       4,399,491  
                                 
LOSS FROM OPERATIONS
    (422,990 )     (2,590,083 )     (7,362,576 )     (4,214,594 )
                                 
OTHER INCOME (EXPENSE)
                               
Interest expense, net
    (116,575 )     (78,651 )     (470,929 )     (247,679 )
Change in derivative liability
    336,949       (288,319 )     (1,616,831 )     (245,245 )
Gain (loss) on conversion of notes payable
    225       -       (3,434 )     -  
TOTAL OTHER INCOME (EXPENSE)
    220,599       (366,970 )     (2,091,194 )     (492,924 )
                                 
NET LOSS FROM CONTINUING OPERATIONS
    (202,391 )     (2,957,053 )     (9,453,770 )     (4,707,518 )
                                 
Loss (Income) from Discontinued Operations, net of Income Taxes
    6,275       (3,500 )     (81,823 )     143  
                                 
NET LOSS
  $ (196,116 )   $ (2,960,553 )   $ (9,535,593 )   $ (4,707,375 )
                                 
NET LOSS PER COMMON SHARE:
                               
Basic and Diluted Loss per Share from Continuing Operations
  $ 0.00     $ (0.01 )   $ (0.02 )   $ (0.03 )
Basic and Diluted Loss per Share from Discontinued Operations
  $ 0.00     $ 0.00     $ 0.00     $ 0.00  
NET LOSS PER SHARE - BASIC AND DILUTED
  $ 0.00     $ (0.01 )   $ (0.02 )   $ (0.03 )
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
                               
Basic and diluted
    587,232,178       228,588,198       426,339,609       166,317,420  
                                 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
 
 
 


 

 
 
E-Waste Systems, Inc. and Subsidiaries
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
For the Nine Months Ended
 
   
September 30,
 
   
2014
   
2013
 
         
(Restated)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss from continuing operations
  $ (9,453,770 )   $ (4,707,518 )
Adjustment to reconcile net loss to net cash used in operating activities:
               
Bad debt provision
    2,036       2,700  
Amortization of deferred financing costs
    34,544       158,843  
Depreciation expense
    48,278       -  
Amortization of intangible assets
    64,781       21,594  
Origination interest charge
    88,500       -  
Convertible notes payable executed for services
    191,140       117,940  
Amortization of debt discount
    149,005       -  
Origination interest on derivative liability
    -       10,556  
Change in derivative liability
    1,616,832       245,245  
Common stock issued for services
    871,345       2,104,255  
Stock based compensation
    1,658,442       -  
Loss on conversion of debt
    3,659       43,970  
Preferred stock issued for services
    2,817,100       -  
Gain on settlement of debt
    51,685       -  
Write off of former officer and director accrued compensation
    566,825       -  
Impairment on available for sale securities
    -       1,445,000  
Contributed capital
    -       95,420  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (111,098 )     (49,831 )
License fees receivable
    -       -  
Related parties receivable
    1,052       (750 )
Inventory
    2,437       (6,520 )
Other current assets
    1,004       -  
Accounts payable and accrued expenses
    533,609       309,735  
Accrued expenses, related parties
    (570,059 )     322,271  
Payroll and related liabilities
    21,745       -  
Deferred revenue
    111,562       2,046  
Deferred rent
    6,681       -  
                 
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATING ACTIVITIES
    (1,292,665 )     114,956  
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATING ACTIVITIES
    (81,823 )     143  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    (1,374,488 )     115,099  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Cash acquired with purchase of subsidiary
    -       -  
Purchase of equipment
    (120,661 )     -  
Payments towards security deposits
    (104,467 )     (1,589 )
Payments towards intangible assets
    -       (247,153 )
                 
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
    (225,128 )     (248,742 )
NET CASH USED IN INVESTING ACTIVITIES
    (225,128 )     (248,742 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from convertible notes payable
    1,358,475       178,750  
Principal payments towards convertible notes payable
    (27,500 )     -  
Principal payments towards notes payable
    (54,293 )     -  
Principal payments towards convertible notes payable, related parties
    (6,000 )     -  
Advances from related parties
    31,610       -  
Advances from others
    12,965       -  
Issuance of common stock for cash
    153,000       -  
                 
NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES
    1,468,257       178,750  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    1,468,257       178,750  
                 
Effects of exchange rates on cash
    -       -  
                 
Net (decrease) increase in cash and cash equivalents
    (131,359 )     45,107  
                 
Cash and cash equivalents, beginning of period
    145,778       139  
                 
Cash and cash equivalents, end of period
  $ 14,419     $ 45,246  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for interest
  $ 70,999     $ -  
Cash paid for taxes
  $ -     $ -  
                 
NON-CASH ACTIVITIES:
               
Deferred financing costs associated with convertible notes payable issuances
  $ 60,500     $ -  
Conversions of convertible notes payable and accrued interest into shares of common stock
  $ 661,237     $ 120,723  
Preferred stock issued for cost method investment
  $ -     $ 27,273  
Common stock issued for cost method investment
  $ -     $ 258,300  
Issuance of common stock as payment towards accrued expenses
  $ 27,838     $ -  
Conversion of preferred Series A stock into common stock
  $ 34,335     $ -  
Issuance of preferred Series A stock for payment of accrued expenses, related parties
  $ 300,169     $ -  
Issuance of preferred Series A stock for payment of accounts payable and accrued expenses
  $ 50,428     $ -  
Issuance of preferred Series B stock for payment of accrued expenses, related parties
  $ -     $ 195,000  
Accrued interest added to principal in connection with assignments of convertible notes payable between third parties
  $ 3,913     $ -  
Monies due from convertible notes payable
  $ 110,000     $ -  
Issuance of common stock as payment towards accrued expenses, related parties
  $ 23,550     $ 106,473  
Retirement of common stock
  $ 2,494     $ -  
Debt discounts on convertible notes payable
  $ -     $ 419,550  
Intangible assets from investment in Surf
  $ -     $ 120,046  
Convertible notes payable executed for accounts payable and accrued expenses
  $ -     $ 112,284  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
 
 

 


 
E-Waste Systems, Inc. and Subsidiaries
NOTE 1 - BACKGROUND INFORMATION
 
Organization and Business
 
We were incorporated on December 19, 2008 in the State of Nevada.  Our wholly owned subsidiary, E-Waste Systems (UK) Ltd. was founded in January 2011 for the purpose of implementing our business strategy. We acquired all of the issued and outstanding capital stock of EWSO on October 14, 2011. On September 20, 2012, certain of the assets and business of EWSO were physically transferred to Two Fat Greek, LLC, and thereafter certain acquisitions and strategic transactions were concluded as set out herein.

Surf Investments, Ltd. (Surf)

On June 25, 2013, the Company entered into a binding agreement to acquire 100% of the shares of Surf Investments, Ltd, ("Surf") a California company in the mobile computing and e-waste recycling business. The Company acquired Surf because of it e-waste certifications in the state of California and the access to customers that will benefit the Company in expanding its sales and services. Consideration paid was the assumption of liabilities of $222,928 and the issuance of 223 shares of Series A Preferred Stock valued at $27,256 for a total consideration of $250,184. Fair values of assets and liabilities acquired are estimates of management.

E-Waste Systems Cincinnati Inc. (EWS-C)

E-Waste Systems Cincinnati Inc. (EWS-C) was formed as a wholly owned subsidiary on November 16, 2013 to acquire certain debt from Fifth Third Bank secured by the assets of WWS Associates d/b/a 2TRG.  The transaction for the purchase of the debt was concluded in December of 2013. Subsequent to the acquisition of the debt, the obligors surrendered the collateral to the Company and EWS-C began operations with operations in Ohio and New York.

NOTE 2 - GOING CONCERN

The Company’s condensed consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred net losses of $9,535,593 and $4,707,375 during the nine months ended September 30, 2014 and 2013, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of September 30, 2014, and operating expenses and capital expenditure requirements for at least twelve months from the consolidated balance sheet date. As of September 30, 2014 and December 31, 2013, the Company had working capital deficits of $5,726,923 and $3,253,407, respectively. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to seek equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
  
NOTE 3 - RESTATEMENT

On March 26, 2013, EWSI entered into a set of agreements with XuFu (Shanghai) Co, Ltd, (“XuFu”) a company incorporated in the People’s Republic of China (“PRC”) and formerly known as Yazhuo.  The interests in XuFu were initially consolidated on the Company’s interim financial statements as a Variable Interest Entity (“VIE”) as of March 31, 2013, June 30, 2013 and September 30, 2013.  Upon further analysis, prior to filing its 10-K for the year ended December 31, 2013, the Company concluded that consolidation was not proper. The VIE agreements and all corresponding Lease and Operating Agreements and Management Agreements were terminated by action of the Board of Directors.  Discussions with potential targets to the extent deemed prudent by management are on-going and new agreements will be executed as and when deemed to be in the best interest of the Company. Accordingly, the Company has not consolidated Xufu in the quarterly statements for the nine months ended September 30, 2014 and 2013.
 
 
 
 
 
 
 

 
The following represents the changes to the restated consolidated financial statements as of and for the nine months ended September 30, 2014:
 
Condensed Consolidated Balance Sheets
 
(Unaudited)
 
                   
   
Restated
   
Amended
       
   
September 30, 2013
   
September 30, 2013
   
Differences
 
ASSETS
                 
Current Assets
                 
Cash
  $ 45,246     $ 44,988     $ 258  
Accounts receivable
    47,131       2,645,213       (2,598,082 )
Related parties receivable
    750       -       750  
Inventory
    6,520       536,984       (530,464 )
Other current assets
    -       1,009       (1,009 )
Marketable securities, available-for-sale
    -       1,595,000       (1,595,000 )
Total Current Assets
    99,647       4,823,194       (4,723,547 )
                         
License fees receivables
    -       375,000       (375,000 )
Security deposits
    1,589       -       1,589  
Intangible assets, net
    345,605       345,605       -  
Investments
    285,573       285,573       -  
Other assets
    -       1,942       (1,942 )
Total Assets
  $ 732,414     $ 5,831,314     $ (5,098,900 )
                         
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                       
Current Liabilities
                       
Accounts payable and accrued expenses
  $ 448,493     $ 2,153,861     $ (1,705,368 )
Accounts payable - related party
    1,228,738       1,216,222       12,516  
Checks in excess of bank
    -       1,258,168       (1,258,168 )
Deferred revenue
    2,046       -       2,046  
Short-term notes payable
    137,500       360,428       (222,928 )
Short-term related party convertible notes payable, net
    12,000       12,000       -  
Short-term convertible notes payable, net
    35,177       35,197       (20 )
Derivative liability on short-term convertible notes payable
    306,790       245,008       61,782  
Total Current Liabilities
    2,170,744       5,280,884       (3,110,140 )
                         
Long-Term Liabilities
                       
Long-term convertible notes payable, net
    230,944       166,925       64,019  
Total Long-Term Liabilities
    230,944       166,925       64,019  
Total Liabilities
    2,401,688       5,447,809       (3,046,121 )
                         
Stockholders' Deficiency
                       
Preferred Series A stock, $0.001 par value; 9,500,000 shares authorized, 1,903 and 0 shares issued and outstanding, respectively
    2       2       -  
Preferred Series B stock, $0.001 par value; 500,000 shares authorized, 195,000 and 0 shares issued and outstanding, respectively
    195       195       -  
Common stock, $0.001 par value; 490,000,000 shares authorized, 232,560,140 and 106,504,926 shares issued and outstanding, respectively
    232,560       242,782       (10,222 )
Additional paid-in capital
    5,840,314       5,634,977       205,337  
Accumulated other comprehensive income
    -       705       (705 )
Accumulated deficit
    (7,742,345 )     (5,495,156 )     (2,247,189 )
Total Stockholders' Deficiency
    (1,669,274 )     383,505       (2,052,779 )
                         
Total Liabilities and Stockholders' Deficiency
  $ 732,414     $ 5,831,314     $ (5,098,900 )
                         
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Operations
 
(Unaudited)
 
                                     
 
For the Three Months Ended
         
For the Nine Months Ended
       
 
Restated
   
Amended
         
Restated
   
Amended
       
 
September 30, 2013
   
September 30, 2013
   
Differences
   
September 30, 2013
   
September 30, 2013
   
Differences
 
                                     
Product sales revenue
  $ 106,041     $ 2,076,130     $ (1,970,089 )   $ 274,415     $ 3,753,818     $ (3,479,403 )
Service revenue
    71,483       3,254,310       (3,182,827 )     160,121       4,017,934       (3,857,813 )
Revenues from license fees
    -       -       -       -       525,000       (525,000 )
Total Revenues
    177,524       5,330,440       (5,152,916 )     434,536       8,296,752       (7,862,216 )
                                                 
Cost of goods sold
    105,755       3,999,856       (3,894,101 )     249,639       6,536,621       (6,286,982 )
Gross Margin
    71,769       1,330,584       (1,258,815 )     184,897       1,760,131       (1,575,234 )
                                                 
Operating Expenses
                                               
Officer and director compensation
    313,590       317,709       (4,119 )     538,107       556,340       (18,233 )
Professional fees
    1,532,155       1,958,179       (426,024 )     2,071,249       2,542,605       (471,356 )
Impairment in available for sale securities
    715,000       -       715,000       1,445,000       -       1,445,000  
General and administrative
    101,107       665,833       (564,726 )     345,135       747,918       (402,783 )
Total Operating Expenses
    2,661,852       2,941,721       (279,869 )     4,399,491       3,846,863       552,628  
                                                 
Loss from Operations
    (2,590,083 )     (1,611,137 )     (978,946 )     (4,214,594 )     (2,086,732 )     (2,127,862 )
                                                 
Other Income/(Expenses)
                                               
Interest expense
    (78,651 )     (599,712 )     521,061       (247,679 )     (816,060 )     568,381  
Gain (loss) on derivative liability
    (288,319 )     386,522       (674,841 )     (245,245 )     438,990       (684,235 )
Foreign currency transaction gain
    -       -                       5,149       (5,149 )
Total Other Income/(Expenses)
    (366,970 )     (213,190 )     (153,780 )     (492,924 )     (371,921 )     (121,003 )
                                                 
Loss from Operations before Income Taxes
    (2,957,053 )     (1,824,327 )     (1,132,726 )     (4,707,518 )     (2,458,653 )     (2,248,865 )
Provision for Income Taxes
    -       -       -       -       -       -  
                                                 
Net Loss from Continuing Operations
    (2,957,053 )     (1,824,327 )     (1,132,726 )     (4,707,518 )     (2,458,653 )     (2,248,865 )
Loss from Discontinued Operations, net of Income Taxes
    (3,500 )     -       (3,500 )     143       -       143  
Net Loss
  $ (2,960,553 )   $ (1,824,327 )   $ (1,136,226 )   $ (4,707,375 )   $ (2,458,653 )   $ (2,248,722 )
                                                 
Other Comprehensive Income
                                               
Foreign currency translation adjustments
    -       191       (191 )     -       705       (705 )
Total Other Comprehensive Income
  $ (2,960,553 )   $ (1,824,136 )   $ (1,136,417 )   $ (4,707,375 )   $ (2,457,948 )   $ (2,249,427 )
                                                 
Basic and Diluted Loss per Share from Continuing Operations
  $ (0.01 )   $ (0.01 )   $ 0.00     $ (0.03 )   $ (0.01 )   $ (0.02 )
Basic and Diluted loss per Share from Discontinued Operations
  $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Net loss per share - Basic and Diluted
  $ (0.01 )   $ (0.01 )   $ 0.00     $ (0.03 )   $ (0.01 )   $ (0.02 )
                                                 
Weighted average number of shares outstanding during the period - Basic and Diluted
    228,588,198       218,801,511       9,786,687       166,317,420       170,554,213       (4,236,793 )
                                                 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
(Unaudited)
 
                   
   
Restated
   
Amended
       
   
September 30, 2013
   
September 30, 2013
   
Differences
 
                   
Cash Flows From Operating Activities:
                 
Net Loss
  $ (4,707,518 )   $ (2,458,653 )   $ (2,248,865 )
Adjustments to reconcile net loss to net cash used in operations
                       
Currency translation gain
    -       (5,149 )     5,149  
Amortization of debt discounts
    158,843       128,578       30,265  
Origination interest on derivative liability
    10,556       553,176       (542,620 )
Change in derivative liability
    245,245       (438,990 )     684,235  
Debt issued for services
    -       17,417       (17,417 )
Common stock issued for services
    2,104,255       2,143,125       (38,870 )
Bad debt provision
    2,700       -       2,700  
Contributed capital
    95,420       -       95,420  
Convertible notes payable executed for services
    117,940       -       117,940  
Loss on conversion of debt
    43,970       -       43,970  
Impairment in available for sale securities
    1,445,000       -       1,445,000  
Amortization expense
    21,594       21,593       1  
Provision for allowance on A/R
    -       (28,177 )     28,177  
Changes in operating assets and liabilities:
                       
(Increase)/Decrease in accounts and other receivables
    (49,831 )     (2,559,198 )     2,509,367  
(Increase)/Decrease in related parties receivable
    (750 )     -       (750 )
(Increase)/Decrease in other current assets
    -       1,028       (1,028 )
(Increase)/Decrease in inventory
    (6,520 )     (531,320 )     524,800  
(Increase)/Decrease in license fees receivable
    -       (525,000 )     525,000  
Increase/(Decrease) in accounts payable and accrued expenses
    309,735       1,955,440       (1,645,705 )
Increase/(Decrease) in accrued expenses - related party
    322,271       281,487       40,784  
Increase/(Decrease) in checks in excess of bank
    -       1,247,242       (1,247,242 )
Increase/(Decrease) in deferred revenue
    2,046       -       2,046  
Net Cash Used In Continuing Operating Activities
    114,956       (197,401 )     312,357  
Net Cash Provided by Discontinued Operating Activities
    143       -       143  
Net Cash Used in Operating Activities
    115,099       (197,401 )     312,500  
                         
Cash Flows From Investing Activities:
                       
Payments towards security deposits
    (1,589 )     -       (1,589 )
Cash acquired with purchase of subsidiary
    -       42,549       (42,549 )
Payments towards intangible assets
    (247,153 )     -       (247,153 )
Net Cash Used In Continuing Investing Activities
    (248,742 )     42,549       (291,291 )
Net Cash Used In Discontinued Investing Activities
    -       -       -  
Net Cash Used In Investing Activities
    (248,742 )     42,549       (291,291 )
                         
Cash Flows From Financing Activities:
                       
Proceeds from notes payable
    178,750       187,500       (8,750 )
Expenses paid on behalf of Company
    -       11,977       (11,977 )
Net Cash Provided by Continuing Financing Activities
    178,750       199,477       (20,727 )
Net Cash Provided by Discontinued Financing Activities
    -       -       -  
Net Cash Provided by Financing Activities
    178,750       199,477       (20,727 )
                         
Effects of exchange rates on cash
    -       224       (224 )
                         
Net Increase / (Decrease) in Cash
    45,107       44,849       258  
Cash at Beginning of Period
    139       139       -  
                         
Cash at End of Period
  $ 45,246     $ 44,988     $ 258  
                         
Supplemental disclosure of cash flow information:
                       
                         
Cash paid for interest
  $ -     $ -     $ -  
Cash paid for taxes
  $ -     $ -     $ -  
                         
Supplemental disclosure of non-cash investing and financing activities:
                       
Debt discounts on convertible notes payable
  $ 419,550     $ 151,026     $ 268,524  
Preferred stock issued for marketable securities
  $ -     $ 1,445,000     $ (1,445,000 )
Preferred stock issued for acquisition of subsidiary
  $ -     $ 27,256     $ (27,256 )
Preferred stock issued for cost method of investment
  $ 27,273     $ 27,273     $ -  
Common stock issued for cost method of investment
  $ 258,300     $ 258,300     $ -  
Common stock issued for intangible assets
  $ -     $ 97,014     $ (97,014 )
Preferred stock issued for conversion of debt
  $ -     $ 71,538     $ (71,538 )
Common stock issued for conversion of debt
  $ 120,723     $ 342,865     $ (222,142 )
Issuance of preferred stock series B as payment towards accrued expenses, related parties
  $ 195,000     $ -     $ 195,000  
Issuance of common stock as payment towards accounts payable and accrued expenses, related parties
  $ 106,473     $ -     $ 106,473  
Convertible notes payable executed for accounts payable and accrued expenses
  $ 112,284     $ -     $ 112,284  
Intangible assets from investment in Surf
  $ 120,046     $ -     $ 120,046  
                         
 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
 
 
 
 

 
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the SEC.  The Financial Statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”).

Use of estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2014, and for all periods presented herein, have been made.
 
Beneficial Conversion Feature
 
Costs incurred with parties who are providing financing, which include the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount.  These discounts are generally amortized over the life of the related debt.  In certain circumstances, the intrinsic value of the beneficial conversion feature may be greater than the proceeds associated to the convertible instrument.  In such situations, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument.
 
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument”.

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
 
 
 
 

 
 
 
The Company evaluated the conversion option embedded in the Series A Preferred Stock and determined, in accordance with the provisions of these statements, that such conversion option does not meet the criteria requiring bifurcation of these instruments. The characteristics of the common stock that is issuable upon a holder’s exercise of the conversion option embedded in the convertible preferred stock are deemed to be clearly and closely related to the characteristics of the preferred shares. Additionally, the Company’s conversion options, if free standing, would not be considered derivatives subject to the accounting guidelines prescribed in accordance with professional standards.

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could require net cash settlement, then the contract shall be classified as an asset or a liability.

Cash and Cash Equivalents
 
For the purpose of the financial statements cash equivalents include all highly liquid investments with maturity of three months or less. Cash and cash equivalents were $14,419 and $145,778 at September 30, 2014 and December 31, 2013, respectively. See Note 6 – Restricted Cash Held in Escrow
 
Cash Flows Reporting
 
The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period.

Commitments and Contingencies
 
The Company follows ASC 440, Commitments and ASC 450, Loss Contingencies, to report accounting for commitments and contingencies. 
 
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.  There were no commitments or contingencies at September 30, 2014 and 2013.
 
Earnings per Share
 
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. 
 
For the nine months ended September 30, 2014 and 2013, the effect of common stock equivalents has been excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.
 
The Company currently has convertible debt, warrants and preferred stock which if converted as of September 30, 2014, would have caused diluted shares totaling 27,766,004,614 in pre-reverse split shares.
 
At September 30, 2014, there were no stock options.
 
 
 
 
 
 
 
 
 
Fair Value of Financial Instruments
 
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
 
Level 1
 
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2
 
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3
 
Pricing inputs that are generally unobservable inputs and not corroborated by market data.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
 
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
 
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and loans payable approximate their fair values because of the short maturity of these instruments. Loans payable are recorded at their issue value.
  
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
 
It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.
 
The following table presents assets and liabilities that are measured and recognized at fair value as of September 30, 2014 and December 31, 2013, on a recurring basis:
 
Assets and liabilities measured at fair value on a
recurring basis at September 30, 2014
Level 1
 
Level 2
 
Level 3
 
Total
Carrying
Value
 
                                 
Derivative liabilities
 
-
   
-
   
(2,082,712
)
 
(2,082,712
)
 
Assets and liabilities measured at fair value on a
recurring basis at December 31, 2013
Level 1
 
Level 2
 
Level 3
 
Total
Carrying
Value
 
                         
                                 
Derivative liabilities
 
-
   
-
   
(465,880
)
 
(465,880
)

 
 
 
 
 
 
F - 10

 
 

 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation was calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years.  Expenditures for additions and improvements were capitalized, while repairs and maintenance costs were expensed as incurred.  The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of were removed from the accounts and any gain or loss was recorded in the year of disposal.  Depreciation expense for the nine months ended September 30, 2014 and 2013 was $48,278 and $0, respectively.
 
Related Parties
 
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.  Related party transactions for the nine months ending September 30, 2014 and 2013 are reflected in Note 9.
 
Stock Based Compensation

ASC 718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired.  Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights.  Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, Equity – based Payments to Non-Employees.  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable:  (a) the goods or services received; or (b) the equity instruments issued.  The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.  
 
Under our stock compensation plan (the “Stock Plan”) which is registered under Form S8, or through newly issued restricted common stock, we pay qualified contractors and advisors common shares in lieu of compensation for services provided including business development, management, technology development, consulting, legal services and accounting services.
 
Share-based expense for the nine months ended September 30, 2014 and 2013 was $1,658,442 and $0, respectively.
 
Reclassifications

Certain balances in previously issued financial statements have been reclassified to be consistent with current period presentation.

Principles of Consolidation

The accompanying condensed consolidated financial statements for the nine months ended September 30, 2014, include the accounts of the Company and its wholly-owned subsidiary E-Waste Systems Cincinnati, Inc. (“EWS-C”), and Surf Investments, Ltd. (“Surf”). All significant intercompany balances and transactions have been eliminated in consolidation.
 
Concentration of Credit Risk

SURF

For the nine months ended September 30, 2014, Customer A accounted for 28.50% of the Surf’s net revenue and 40.48% of Surf’s total accounts receivable. Customer B accounted for approximately 25.52% of Surf’s net revenue for the nine months September 30, 2014. Customer C accounted for approximately 11.38% of the Company’s net revenue.  Customer D accounted for 18.49% of Surf’s net revenue for the nine months ended September 30 2014.
 
 
 
 
 
 
F - 11


 
 
 
EWS-C

For the nine months ended September 30, 2014, Customer A accounted for 60.00% of EWS-C’s net revenue and 50.71% of EWS-C’s total accounts receivable.  Customer B accounted for approximately 21.04% of EWS-C’s net revenue.  Customer C accounted for approximately 11.31% of EWS-C’s accounts receivable for the nine months ended September 30, 2014.
 
Accounts Receivable

Trade accounts receivables are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivables are included in net cash provided by operating activities in the consolidated cash flow statements. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers a number of factors, including historical losses, current receivables aging reports, the counter party’s current ability to pay its obligation to the Company, and existing industry. The Company reviews its allowances every month. Past due invoices over 90 days that exceed a specific amount are reviewed individually for collectability. During the nine months ended September 30, 2014 and the year ended  December 31, 2013, allowance for doubtful accounts was $0 and $2,700, respectively. The Company does not have any off-balance sheet exposure related to its customers.

Inventory

Inventory is valued at the lower of cost (on a first-in, first-out (FIFO) basis) or market. The Company purchases its inventory direct from the manufacturer and includes these costs in its Cost of Sales as well as its packaging supplies, shipping, freight and duties costs. The Company evaluates inventory for items that have become obsolete. An allowance for obsolescence is established for items that are deemed not able to be sold. Currently, there are no obsolete inventory items.

Revenue Recognition

The Company applies the provisions of ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

Revenue from Sales of Brand Licenses

During the year, the Company sold brand licenses to customers which allow the promotion of business under the E-Waste Systems brand names in selected jurisdictions. The license agreements call for an initial payment plus a percentage of revenues generated under the brand during term of the license agreement. The initial fees are booked to revenues of the Company in the period first sold. License fees earned from subsequent revenues of the licensee company are only booked later after periodic reviews.  The Company will recognize the licensing revenue when collected or when collectability is probable.
 
Segment Reporting

The Company generates  revenues from the following sources: (1) licensing of technology and management services in electronic waste disposal, development of ePlants and similar processes for electronic waste disposal systems in return for license, consulting and management fees; (2) operation of strategic business development projects and market development projects through the eVolve divisions for which the Company obtains sales revenues and incurs day to day operational expenses including the cost of leases incurred through the activities, and (3) repair refurbishing and recycling of electronics for which the Company receives revenues from disposal contracts, and fees for disposal plus revenues from the sale of reclaimed components or reclaimed materials such a gold, platinum and other precious metals obtained through recycling processes and incurs costs associated recycling activities.
 
 
 
 
 
F - 12

 
 
 
 
Marketable Securities

The Company reports its investments in marketable securities under the provisions of ASC 320, Investments in Debt and Equity Securities. All the Company’s marketable securities are classified as “available for sale” securities, as the market value of the securities are readily determinable and the Company’s intention upon obtaining the securities was neither to sell them in the short term nor to hold them to maturity. Pursuant to ASC 320, securities which are classified as “available for sale” are recorded on the Company’s consolidated balance sheet at fair market value, with the resulting unrealized holding gains and losses excluded from earnings and reported as other comprehensive income until realized.
 
The Company evaluates securities for other-than-temporary impairment at least on a yearly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to the length of time and amount of the loss relative to cost, the nature and financial condition of the issuer and the ability and intent of the Company to hold the investment for a time sufficient to allow any anticipated recovery in fair value. Pursuant to ASC 320-5, other than temporary impairment losses are recorded as impairment expense in the statement of operations during the period in which the impairment is determined.  The Company did not record an impairment expense for the nine months ended September 30, 2014.

Intangible Assets

Intangible assets are recorded at the costs associated with the asset. These assets are then amortized using the straight-line method over the remaining useful economic life of each asset type. At each consolidated balance sheet date, the unamortized capitalized cost of the each intangible asset will be compared to the net realizable value of that asset. If the unamortized capitalized cost exceeds the net realizable value, then the difference will be written down to the net realizable value. Intangible assets consist of customer lists and certification.  Amortization of intangible assets for the nine months ended September 30, 2014 was $64,781. The Company did not record an impairment expense as of September 30, 2014.
 
Cost Method Investments

Cost method investments are recorded at the costs associated with the investments in accordance with ASC 325-20. The costs are valued at the most readily available source of value with the various aspects of the transaction.  The investments are presented at the cost.  No returns are recorded on the investments unless dividends are received.

Capitalized Software Development Costs

The Company applies the provisions of ASC 985-20, which provides guidance on the recognition, presentation and disclosure of software development costs in financial statements. The costs associated with developing the software is capitalized and will be amortized using the straight-line method over the economic life of the software. At each consolidated balance sheet date, the unamortized capitalized cost of the software product will be compared to the net realizable value of that product. If the unamortized capitalized cost exceeds the net realizable value, then the difference will be written down to the net realizable value.
 
Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable from the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.
 
 
 
 
 
F - 13

 

 
 
Property and equipment are recorded at historical cost less accumulated depreciation, unless impaired. Depreciation is charged to operations over the estimated useful lives of the assets using the straight-line. Upon retirement or sale, the historical cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Expenditures for repairs and maintenance are charged to expense as incurred.  Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:

Automobiles and Equipment
5 years
Computer Software
3 years
Leasehold Improvements
3 years

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350-30-35-4 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.  

Foreign Currency

Monetary assets and liabilities of the Company's foreign operations are translated into U.S. dollars at period-end exchange rates.  Non-monetary assets and liabilities are translated at historical rates. Net exchange gains or losses resulting from such translation are excluded from net loss but are included in comprehensive income and accumulated in a separate component of stockholders' equity. Income and expenses are translated at weighted average exchange rates for the period. Foreign currency transactions denominated in a currency other than the US Dollar, which is the Company’s functional currency, are included in determining net income for the period.

Accumulated Other Comprehensive Loss

Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ deficit.
 
Stock-Based Compensation

Under our stock compensation plan (the “Stock Plan”) which is registered under Form S8, or through newly issued restricted common stock, we pay qualified contractors and advisors common shares in lieu of compensation for services provided including business development, management, technology development, consulting, legal services and accounting services.
 
Income Taxes

Deferred income tax assets as of September 30, 2014, of $1,112 resulting from net operating losses and future amortization deductions, have been fully offset by valuation allowances.  The valuation allowances have been established equal to the full amounts of the deferred tax assets, as the Company is not assured that it is more likely than not that these benefits will be realized.
 
 
 
 
 
F - 14

 
 

 
Reconciliation between the statutory United States corporate income tax rate (35%) and the effective income tax rates based on continuing operations is as follows:
 
As of  September 30,
 
2014
   
2013
 
             
Income tax benefit at Federal statutory rate of 44%
 
$
(3,039,538
)
 
$
(556,480
)
State Income tax benefit, net of Federal effect
   
(842,146
)
   
(154,180
)
Permanent and other differences
   
-
     
-
 
                 
Change in valuation allowance
   
3,881,684
     
710,660
 
 Total
 
$
-
   
$
-
 

Components of deferred tax assets were approximately as follows:

 As of September 30,
 
2014
   
2013
 
                 
Fixed assets
 
$
219
   
$
-
 
Allowance for doubtful accounts
   
893
     
1,184 
 
Valuation allowance
   
(1,112
)
   
(1,184
)
Total
 
$
-
   
$
-
 

At September 30, 2014, the Company has available net operating losses of approximately $6,919,000 which may be carried forward to apply against future taxable income. These losses will expire in 2032. Deferred tax assets related to these losses have not been recorded due to uncertainty regarding their utilization.

The provisions of ASC 740 require companies to recognize in their condensed consolidated financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the condensed consolidated financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s condensed consolidated financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

The Company has not filed its applicable Federal and State tax returns for the year ended December 31, 2012 and may be subject to penalties for noncompliance. The Company has filed an extension for the 2013 filings.

Recently Issued Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.
 
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the impact of adopting this guidance.
 
 
 
 
 
F - 15

 
 
 
 
In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
 
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.
 
NOTE 5 – DISCONTINUED OPERATIONS

Disposition of E-Waste Systems of Ohio, Inc. (formerly Tech Disposal, Inc.)
 
On September 20, 2012, the Company’s wholly owned subsidiary, E-Waste Systems (Ohio), Inc. completed the physical transfer of its business and its assets to a company controlled by a minority shareholder in the Company (“the purchaser”). In connection with this transfer the purchaser has agreed to assume payments on the lease on the premises at 1033 Brentnell Avenue, Columbus, Ohio, formerly held by the Company. The value of any consideration receivable arising from the sale, including any gain on disposal, has been fully impaired as its collection is uncertain.  Accordingly, all activity related to the disposal of the assets of our Ohio business has been classified as discontinued operations.

NOTE 6 – RESTRICTED CASH HELD IN ESCROW

On November 30, 2013 the Company entered into a Credit Agreement with TCA Global Credit Master Fund (“TCA”) for a loan of up to $5,000,000 with an initial draw of $1,000,000. At the initial funding of the first $1,000,000 on the TCA revolving credit facility, TCA held in reserve/escrow $140,000 pending completion of several post-closing matters.  Those funds have not yet been released.

As of September 30, 2014, the Company had a balance of $140,000 in escrow.
 
NOTE 7 – DEFERRED FINANCING COSTS

During the period ended September 30, 2014, the Company incurred financing costs in connection with the issuance of various convertible promissory notes totaling $54,000.  The costs are being amortized over the term of their respective convertible promissory notes on the straight-line method, which approximates the interest rate method.  As of September 30, 2014, the Company amortized $34,544 of financing costs resulting in a balance of $25,956.

NOTE 8 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30, 2014 and December 31, 2013:

   
September 30,
   
December 31,
 
   
2014
   
2013
 
                 
Equipment
 
$
187,384
   
$
165,518
 
Automobiles
   
20,926
     
20,926 
 
Computer Software