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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2012
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the transition period from _________ to ________
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Commission file number: 333-165863
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E-Waste Systems, Inc.
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(Exact name of registrant as specified in its charter)
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Nevada
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26-4018362
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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101 First Street #493, Los Altos, CA
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94022
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number: 650.283.2907
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Securities registered under Section 12(b) of the Exchange Act:
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Title of each class
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Name of each exchange on which registered
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None
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not applicable
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Securities registered under Section 12(g) of the Exchange Act:
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Title of each class
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None
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Signature and Title
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Date
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/s/ Martin Nielson
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April 26, 2013
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Martin Nielson,
Chief Executive Officer and Director
(Principal Executive Officer)
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/s/ David Severson
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April 26, 2013
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David Severson,
Interim Chief Financial Officer
(Principal Financial Officer)
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Exhibit
Number
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Description
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Incorporated by Reference to:
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Filed
Herewith
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3.1
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Amended and Restated Articles of Incorporation of E-Waste Systems, Inc.
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Exhibit 3.1 and 3.2 of the Company’s Form 8K filed on March 15, 2011
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3.2
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Articles of Amendment to the Restated Articles of Incorporation of E-Waste Systems, Inc.
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Exhibit 3.1 of the Company’s Form 8-K dated January 25, 2013.
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3.3
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By-laws of E-Waste Systems, Inc., as amended
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Exhibit 3.2 of the Company’s Form S-1 filed on April 1, 2010
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4.1
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Demand Note in the amount of $50.240.
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Exhibit 4.1 of the Company’s Form 8K dated November 21, 2011
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4.2
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Amended and Restated Convertible Note in the amount of $73,500
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Exhibit 4.2 of the Company’s Form 8K Report dated November 21, 2011
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10.1
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Line-of-Credit Agreement by and between E-Waste Systems, Inc. and Val M. Warhaft, M.D.
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Exhibit 10.1 of the Company’s Form 8K dated March 12, 2012
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10.2
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Series A Convertible Callable Preferred Stock Purchase Agreement
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Exhibit 10.1 of the Company’s Form 8K Report dated April 8, 2013
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20.1
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Modified Business Plan Summary of E-Waste Systems, Inc.
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Exhibit 20.1 of the Company’s Form 8K Report dated January 19, 2013
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31.1 * |
Certificate of Martin Nielson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2 * |
Certificate of David Severson, Interim Chief Finance Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1 * | Certificate of Martin Nielson, Chief Executive Officer, and David Severson, Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
99.1
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Shanghai YaZhuo Jiudian Guanli Operating Agreement
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Exhibit 99.1 of the Company’s Form 8-K filed April 2, 2013
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99.2
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Shanghai YaZhuo Jiudian Guanli Management Services Agreement.
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Exhibit 99.2 of the Company’s Form 8-K filed April 2, 2013
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99.3
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Shanghai YaZhuo Jiudian Guanli Equity Pledge Agreement
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Exhibit 99.3 of the Company’s Form 8-K filed April 2, 2013
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99.4
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Shanghai YaZhuo Jiudian Guanli Option Agreement
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Exhibit 99.4 of the Company’s Form 8-K filed April 2, 2013
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99.5
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Shanghai YaZhuo Jiudian Guanli Voting Right Proxy Agreement
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Exhibit 99.5 of the Company’s Form 8-K filed April 2, 2013
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101.INS †
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XBRL Instance Document
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101.SCH †
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XBRL Taxonomy Extension Schema Document
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101.CAL †
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF †
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB †
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XBRL Extension Labels Linkbase Document
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101.PRE †
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XBRL Taxonomy Extension Presentation Linkbase Document
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*
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Filed as an exhibit to the original Form 10-K for the fiscal year ended December 31, 2012, filed April 16, 2013.
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†
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In accordance with SEC rules, this interactive data file is deemed “furnished” and not “filed” for purposes of Sections 11 or 12 of the Securities Act of 1933 and Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under those sections or acts.
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NOTE 5 - DISCONTINUED OPERATIONS (Details Narrative) (USD $)
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1 Months Ended |
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Sep. 20, 2012
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Discontinued Operations and Disposal Groups [Abstract] | |
Loss on disposal of assets | $ 36,963 |
NOTE 12 - PREFERRED STOCK (Details Narrative) (USD $)
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1 Months Ended | 0 Months Ended | 4 Months Ended | 12 Months Ended | ||
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Aug. 27, 2012
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Oct. 14, 2011
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Dec. 31, 2012
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Dec. 31, 2012
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Dec. 31, 2011
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Mar. 05, 2013
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Equity [Abstract] | ||||||
Preferred Stock Shares Authorized | 10,000,000 | 10,000,000 | 10,000,000 | |||
Preferred Stock Par Value | $ 0.001 | $ 0.001 | $ 0.001 | |||
Preferred Stock Shares Issued | 0 | 0 | 400 | |||
Preferred Stock | $ 100 | $ 100 | ||||
Preferred Stock Conversion Price per Share | 110 | 110 | ||||
Preferred Shares Issued for Acquisition | 400 | 400 | ||||
Fair Value Preferred Shares | $ 17,520 | $ 17,520 | ||||
Assumptions stock price | $ 0.26 | $ 0.0064 | ||||
Dividend yield | 65.00% | |||||
Risk free rate | 18.00% | 16.00% | 11.00% | |||
Volatility Rate | 585.00% | |||||
Preferred Shares Redeemed | 400 | |||||
Face Value Preferred Stock | $ 100 | $ 100 | ||||
Value of Stock Issued for Oustanding Liabilities | 54,000 | |||||
Value of Preferred Shares Converted | $ 48,400 | |||||
Common Shares Issued upon Conversion | 28,951 | |||||
Common Shares Issued on Early Redemption | 32,301 |
NOTE 10 - DERIVATIVE LIABILITY (Details Narrative) (USD $)
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1 Months Ended | 4 Months Ended | 12 Months Ended | |
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Aug. 27, 2012
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Dec. 31, 2012
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Dec. 31, 2012
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Dec. 31, 2011
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Notes to Financial Statements | ||||
Face Value Convertible Note | $ 44,445 | |||
Fair Value Assumptions Expected Term | 1 year | |||
Risk free rate | 18.00% | 16.00% | 11.00% | |
Volatility Rate Minimum | 260.00% | 310.00% | ||
Volatility Rate Maximum | 282.00% | 331.00% | ||
Derivative Liability | 58,646 | 61,545 | 61,545 | |
Fair Value Assumptions Minimum Expected Term | 0.65 | 0.65 | ||
Fair Value Assumptions Maximum Expected Term | 0.78 | 0.78 | ||
Decrease in Derivative Liability | 2,899 | |||
Gain on Derivative Liability | 3,329 | |||
Net Gain on Derivative Liability | $ 430 | $ (430) | $ (19,533) |
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule of Inventory (Details) (USD $)
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Dec. 31, 2012
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Dec. 31, 2011
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Accounting Policies [Abstract] | ||
Raw materials | ||
Finished goods | 17,000 | |
Work in process | ||
Subtotal | 17,000 | |
Reserve for Obsolescence | ||
Total | $ 17,000 |
NOTE 4 - ACQUISITION OF SUBSIDIARIES (Tables)
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Business Acquisition |
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NOTE 14 - INCOME TAXES - Schedule of Deferred Tax Assets (Details) (USD $)
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12 Months Ended | |
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Dec. 31, 2012
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Dec. 31, 2011
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Income Tax Disclosure [Abstract] | ||
Book income (loss) from operations | $ (997,775) | $ (499,112) |
Impairment expense | 115,515 | 115,515 |
Losses on debt settlements and asset dispositions | 35,236 | |
Amortization of debt discounts | 24,400 | 9,147 |
Change in derivative liability | (6,787) | (6,641) |
Common stock issued for services | 109,865 | 72,574 |
Valuation allowance | 719,546 | 308,517 |
Total provision for income taxes |
NOTE 7 - GOODWILL AND INTANGIBLE ASSETS (Details Narrative) (USD $)
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12 Months Ended |
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Dec. 31, 2011
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Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill Impairment | $ 249,749 |
Intangible Asset Impairment | $ 90,000 |
NOTE 4 - ACQUISITION OF SUBSIDIARIES (Details Narrative) (USD $)
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0 Months Ended | 3 Months Ended | 12 Months Ended |
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Oct. 14, 2011
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Dec. 31, 2011
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Dec. 31, 2011
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Notes to Financial Statements | |||
Common shares issued for acquisition | 200,000 | ||
Value of shares issued for acquisition | $ 52,000 | ||
Preferred shares issued for acquisition | 400 | 400 | |
Value of shares issued for acquisition | $ 17,520 | $ 17,520 | |
Percent of total shares representing acquisition | 0.20% | ||
Multiple of adjusted ebitda | 4.5 | 4.5 |
NOTE 14 - INCOME TAXES (Details Narrative) (USD $)
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12 Months Ended | |
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Dec. 31, 2012
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Dec. 31, 2011
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Income Tax Disclosure [Abstract] | ||
Federal Tax Rate | 34.00% | |
Loss Carryforwards | $ 997,775 | $ 499,112 |
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $)
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0 Months Ended | 3 Months Ended | 12 Months Ended | 37 Months Ended | |||
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Oct. 14, 2011
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Dec. 31, 2011
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Nov. 30, 2014
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Nov. 30, 2013
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Dec. 31, 2012
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Dec. 31, 2017
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Mar. 22, 2012
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Commitments and Contingencies Disclosure [Abstract] | |||||||
Monthly Payments for Lease | $ 4,400 | $ 4,200 | $ 4,568 | ||||
Multiple of EBITDA | 4.5 | 4.5 | |||||
Contingent Liability | 291,999 | ||||||
Settlement of contingent consideration | 388,000 | ||||||
Loss on Settlement of contingent consideration | $ 66,671 | ||||||
Shares issued for settlement of contingent consideration | 293,341 |
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended December 31, 2012 include the accounts of the Company and its wholly-owned subsidiary, E-Waste Systems of Ohio, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Accounting Basis
The basis is accounting principles generally accepted in the United States of America. The Company has adopted a December 31 fiscal year end.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company had $139 and $6,493 in cash and cash equivalents at December 31, 2012 and 2011, respectively.
Inventory
Inventories are stated at the lower of cost or market using the average cost or specific identification methods and consist of finished goods available for sale. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those anticipated, inventory adjustments may be required. As of December 31, 2012 and 2011, the Company recorded no inventory adjustments that were considered necessary due to such market conditions.
In accordance with ARB No. 43 “Inventory Pricing,” the Company’s inventory is valued at the lower of cost (the purchase price, including additional fees) or market based on using the entire value of inventory. The entire amount of inventory at December 31, 2011 was owned by EWSO and as such has been included in liabilities from discontinued operations, net on the face of the balance sheet at year end. Inventories are determined based on the first-in first-out (FIFO) basis. Inventory consists of solely of finished goods. As of December 31, 2012 and 2011 inventory consisted of the following:
Property and Equipment
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.
The Company generally uses the following depreciable lives for its major classifications of property and equipment:
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.
Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable net assets acquired. The Company tests goodwill for impairment in each quarter of the year, and whenever events or changes in circumstances arise during the year that indicate the carrying amount of goodwill may not be recoverable. In evaluating whether an impairment of goodwill exists, the Company first compares the estimated fair value of a reporting unit against its carrying value. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the fair value of the reporting unit to the fair value of the assets and liabilities plus the goodwill carrying value of the reporting unit. If the fair value of the reporting unit is less than the fair value of its assets and liabilities plus goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference.
The gross amount of goodwill at December 31, 2012 and 2011 was $249,749 and $249,749, respectively, with accumulated impairments of $249,749. The net amount of goodwill at December 31, 2012 and 2011 was $-0- and $-0-, respectively. During the year ended December 31, 2011, the Company recorded an impairment charge totaling $249,749 related to purchased goodwill whose carrying value was determined to be greater than its fair value under the methodology described above.
Business Acquisitions
Business acquisitions are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. The Company makes certain judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles. Using different assumptions than those used by the Company in determining fair value could materially impact the purchase price allocation and the Company’s financial position and results of operations. Results of operations for acquired businesses are included in the consolidated financial statements from the date of acquisition.
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.
The Company sells refurbished electronic equipment and scrap electronic materials. Typically, sales are for cash upon delivery of the product. Accordingly, revenues are recognized simultaneously when cash is received and the product is delivered. The Company rarely extends credit to its customers but rather requires cash payment upon delivery.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expense of $11,000 and $-0- as of December 31, 2012 and 2011, respectively.
Stock-Based Compensation
The Company has adopted ASC 718, using the modified prospective method, in accounting for stock-based compensation. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted based on the grant-date fair value estimated in accordance with the provisions of ASC 718. As of December 31, 2012 and 2011, the Company has not issued any share-based payments to its employees or third parties.
Foreign Currency
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.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Basic and Diluted Loss per Common Share
Basic (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There were66,681,550 such common stock equivalents as a result of convertible notes payable outstanding as of December 31, 2012 and 2011.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1- Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of our cash and derivative liability is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
Reclassification of Financial Statement Accounts
Certain amounts in the December 31, 2011 financial statements have been reclassified to conform to the presentation in the December 31, 2012 financial statements. |