NOTE 8 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of March 31, 2014 and December 31, 2013:
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March 31,
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December 31,
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2014
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2013
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Equipment
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$
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187,384
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$
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165,518
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Automobiles
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20,926
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20,926
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Computer Software
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8,558
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-
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Leasehold Improvements
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80,608
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-
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Less: accumulated depreciation
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(16,917
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)
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(4,724
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)
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Property and Equipment, Net
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$
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280,559
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$
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181,720
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Depreciation expense for the three months ended March 31, 2014 and 2013 was $12,193 and $0, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS
Transactions Involving Non-Officers and Directors
Effective October 28, 2011 the Company received $12,000 in cash from a related party in exchange for a convertible note payable. The note accrues interest at 12% and is due twelve months from the date of origination or October 28, 2012. The principal balance of the note along with accrued interest is convertible at any time, at the option of the note holder, into the Company's common stock on or before the maturity date at a price of $0.25 per share. The Company recognized $355 and $252 of interest expense on the related party convertible note payable leaving a balance in accrued interest of $3,492 and $1,697 as of March 31, 2014 and 2013, respectively. The note has been extended and has a maturity date of November 22, 2014.
On May 1, 2013, the Company issued 1,500,000 shares of common stock to an employee for past obligations due.
At March 31, 2014, the Company had payables to related parties totaling $4,948.
Transactions Involving Officers and Directors
During the three months ended March 31, 2014, the Company accrued $91,035 in officer compensation, leaving an ending balance of $1,358,308 in accrued officer and director compensation at March 31, 2014.
NOTE 10 – NOTES AND LOANS PAYABLE
Effective October 28, 2011, the Company received $12,000 in cash from a related party in exchange for a convertible note payable. The note accrues interest at 12% and is due twelve months from the date of origination or October 28, 2012. The principal balance of the note along with accrued interest is convertible at any time, at the option of the note holder, into the Company's common stock on or before the maturity date at a price of $0.25 per share. The balance in accrued interest is $3,492 and $2,052 as of March 31, 2014 and 2013, respectively. The note has been extended and has a maturity date of October 28, 2014.
Subsequent to this, on April 28, 2014, the Company paid the note holder the amount of $6,000 in cash toward the principal amount due on this note as of the date of the payment.
Effective February 3, 2012, and February 21, 2012 the Company borrowed $40,000 and $35,000, respectively, from an unrelated third party entity in the form of two promissory notes. The notes bear interest at 14%, are unsecured and are due on demand. During the year ended December 31, 2013, the Company recognized $7,714 of interest expense on these notes payable leaving balances in accrued interest of $403, respectively as of December 31, 2013.
Effective April 3, 2013, the Company entered into a settlement agreement with a note holder whereby the Company would pay interest to the note holder from inception of the two notes through and including May 31, 2013. Payment of the interest due of $13,653 was made in the form of 2,185,879 shares of Rule 144 unrestricted common stock.
It was further agreed that the principal amount of the combined notes would be paid on a monthly basis in the amounts of $5,833 for the $35,000 Note, and $6,667 for the $40,000 Note. Interest will continue to accrue at the agreed upon 14% per annum on each note until the principal balance has been retired. During the year ending December 31, 2013, the Company made three of the required aggregate monthly payments to the note holder in the form of the Company’s Unrestricted Common Stock. The aggregate payment for both notes for the month of May 2013 resulted in an issuance of 1,543,210 shares at a price per share of $0.0081. The aggregate payment for both notes for the month of June 2013 resulted in an issuance of 1,344,086 shares at a price per share of $0.0093. The aggregate payment for both notes for the month of July 2013 resulted in an issuance of 828,912 shares at a price per share of $0.0151.
Effective November 1, 2013 the Company issued an aggregate of 1,253,117 shares of the Company’s unrestricted common stock as payment in full of the existing debt to this note holder as follows: the Company issued 644,330 shares at a price of $0.0194 for the month of August; in addition, the Company issued 256,674 at a price of $0.0487 for the month of September and we also issued 352,113 at a price of $0.0355 for the month of October, 2013. Upon receipt of all the shares listed in this paragraph, the note holder acknowledged that the principal amount of the note had been paid in full and requested that the interest payment in the form of stock also to be issued at this time.
Effective February 24, 2012, the Company borrowed $100,000 from an unrelated third party in the form of a Line of Credit. The funds were to support the working capital requirements of E-Waste Systems (Ohio) and specifically, the procurement of electronic waste for refurbishment or recycling. The promissory note accrues interest at 14% and is due on March 24, 2013. On April 22, 2013 the Company issued 1,029,479 shares of the Company’s common stock in payment of all interest from inception of the note through May 31, 2013. The note holder has agreed to accept no payment on the principal amount of the note for the present time, and interest will continue to accrue on the note beginning with June 1, 2013 through the time the note is completely retired. During the period ended December 31, 2013 the Company recognized $14,000 of interest expense and made no payments on this promissory note leaving a balance of $8,167 accrued interest as of December 31, 2013. During the period ended March 31, 2014 the Company recognized $3,500 of interest expense and made no payments on this promissory note leaving a balance of $8,167 in accrued interest as of March 31, 2014.
Effective August 27, 2012, the Company executed a convertible promissory note in the principal sum of $150,000. The consideration to be provided by the note holder is no more than $135,000. A $13,500 (10%) original issue discount (“OID”) applies to the principal sum. The note holder made payments to the Company of $25,000 and $15,000 of the total consideration during the year ended December 31, 2012, $95,000 through the year ended December 31, 2013. The principal sum due to the note holder is to be prorated based on the consideration actually paid together with the 10% original issue discount that will also be prorated based on the amount of consideration actually paid as well as any other interest or fees. The maturity date is one year from the date of each payment of consideration and is the date upon which the principal sum, as well as any unpaid interest and other fees, shall be due and payable. The OID in respect of the consideration received on the date of execution equaled $4,445 for the year ended December 31, 2012, and $10,556 for the year ended December 31, 2013.
Effective February 28, 2013, the note holder elected to convert $7,350 of the principal balance into 1,500,000 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $3,625 to interest expense.
Effective March 20, 2013, the note holder elected to convert an additional $11,466 of the principal into 1,800,000 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $5,026 to interest expense.
Effective April 16, 2013, the note holder elected to convert $9,931 of the principal balance resulting in the issuance of 2,695,650 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $3,265 to interest expense.
Effective May 6, 2013, the note holder elected to convert $8,341 of the principal balance resulting in the issuance of 2,500,000 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $4,062 to interest expense.
Effective June 13, 2013, the note holder elected to convert $8,217 of the principal balance resulting in the issuance of 2,981,397 shares of the Company’s
co
mmon stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $168 to interest expense.
Effective August 27, 2013, the note holder elected to convert $27,778 of the principal balance resulting in the issuance of 4,700,856 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $18,418 to interest expense.
Effective January 21, 2014, the note holder elected to convert $27,778 of the principal balance resulting in the issuance of 3,055,556 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $12,406 to interest expense.
Effective February 25, 2013, the note holder elected to convert $27,778 of the principal balance resulting in the issuance of 3,055,556 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $17,199 to interest expense.
Effective March 26, 2013, the note holder elected to convert $22,222 of the principal balance resulting in the issuance of 2,444,444 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $16,377 to interest expense. This loan is now considered to be paid in full and all debt discount has been amortized in full.
The note contains a conversion feature wherein the note may be converted to shares of the Company’s common stock at a conversion price of the lesser of $0.01 or 70% of the lowest trade price in the 25 trading days prior to the conversion date. Unless otherwise agreed in writing by both parties, at no time will the holder of the note convert any amount outstanding into common stock that would result in it owning more than 4.99% of the total common stock outstanding. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $402,675 and debt discounts of $105,556 on the payment dates of the note for the year ended December 31, 2013. As of March 31, 2014, the Company had recognized amortization on debt discounts on these notes of $45,982, leaving unamortized debt discounts of $0. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On February 6, 2014, the Company executed a convertible promissory note in the principal sum of $500,000. The consideration to be paid to the Lender shall be equal to the consideration actually paid by the Lender plus prorated interest and any other fees such that the Company shall be required to pay. The Company will incur a one-time interest charge of 6% on the principal amount of each loan. The note holder made a payment to the Company of $100,000 of the total consideration during the period ending March 31, 2014, along with a one-time interest charge that is added to the principal in the amount of $6,000. The maturity date is two years from the date of each payment to the Company, and is the date upon which the principal sum, as well as any unpaid interest and other fees, shall be due and payable. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $199,376 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
Effective December 31, 2012, the Company negotiated the forgiveness of accounts payable of $50,000 owed to a Company consultant in exchange for the execution of a convertible note payable with a face value of $162,500. On the same date and under the same terms, the Company executed two other convertible notes payable with face values of $11,000 and $29,000 in exchange for services provided to the Company. The notes are unsecured, bear interest at 6% per annum and are due on December 31, 2015. The notes are also convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the lower of $0.0064 or the average of the three lowest volume weighted-average prices per share during the 30 calendar day period immediately prior to the date of conversion
The intrinsic value of the beneficial conversion features and the debt discounts associated with the equity issued in connection with these convertible debts were recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470. The total initial beneficial conversion feature recorded was $25,313. The discount will be amortized and recorded to the statement of operations over the stated term of the notes and is included within interest expense. As of March 31, 2014 and 2013, the Company had recognized amortization on the debt discounts on these note of $4,123 and $-0- of the total outstanding debt discounts leaving an unamortized debt discounts of $3,697 and $25,313, respectively.
Effective September 9, 2013, the note holder elected to convert $11,000 of the principal balance and accrued interest of $435 at $0.0064 per share into 1,786,641 shares of the Company’s common stock. In connection with the conversion, the Company recognized a pro rata portion of the unamortized debt discount of $1,114 to interest expense.
Effective March 12, 2014, a settlement was reached with the note holder of the $29,000 convertible note whereby his note and all accrued interest was purchased by an unrelated third party. This note has been retired in its entirety.
On January 18, 2013, the Company executed a convertible note payable with a face value of $41,557 in exchange for services provided to the Company. This note is unsecured, bears interest at 6% per annum and is due January 18, 2016. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the lower of $0.0064 or the average of the three lowest volume weighted-average prices per share during the 30 calendar day period immediately prior to the date of conversion. The intrinsic value of the beneficial conversion features and the debt discounts associated with the equity issued in connection with the convertible debt was recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470. The total initial beneficial conversion feature recorded was $41,557.
Effective March 12, 2014, a settlement was reached with the note holder whereby his note and all accrued interest was purchased by an unrelated third party. This note has been retired in its entirety, and the remaining debt discount of $28,387 was amortized in full.
Effective February 8, 2013, the Company executed a convertible note payable with a face value of $162,500 in exchange for services provided to the Company in the amount of $115,400 and forgiveness of accounts payable of $47,060. The intrinsic value of the beneficial conversion features and the debt discounts associated with the equity issued in connection with the convertible debts were recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470. The total initial beneficial conversion feature recorded was $162,500. The discount will be amortized and recorded to the statement of operations over the stated term of the note and is included within as interest expense. As of March 31, 2014, the Company had recognized amortization on the debt discounts on this note of $13,653 of the total outstanding debt discounts leaving an unamortized debt discounts $100,468.
This note is unsecured, bears interest at 6% per annum and is due February 8, 2016. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the lower of $0.0064 or the average of the three lowest volume weighted-average prices per share during the 30 calendar day period immediately prior to the date of conversion.
Effective March 5, 2013, the Company executed a convertible note payable with a face value of $17,417 in exchange for services provided to the Company. This note is unsecured, bears interest at 6% per annum and is due March 5, 2016. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the lower of $0.0064 or the average of the three lowest volume weighted-average prices per share during the 30 calendar day period immediately prior to the date of conversion.
Effective March 12, 2014, a settlement was reached with the note holder whereby his note and all accrued interest was purchased by an unrelated third party. This note has been retired in its entirety, and the remaining debt discount of $11,240 was amortized in full.
The intrinsic value of the beneficial conversion features and the debt discounts associated with equity issued in connection with the convertible debts has been recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470. The total initial beneficial conversion feature recorded was $15,371. The discount will be amortized and recorded to the statement of operations over the stated term of the note and is included within as interest expense. As of December 31, 2013, the Company has amortized $6,177 of the total outstanding debt discounts leaving an unamortized debt discount of $11,240.
Effective June 3, 2013, the Company executed a convertible note payable with a face value of $32,500. This note is unsecured, bears interest at 8% per annum and is due June 2, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55 percent. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $60,352 and debt discount of $32,500 on the payment dates of the note for the period ended September 30, 2013. As of December 31, 2013, the Company had recognized amortization on debt discounts on these notes of $32,500 leaving unamortized debt discounts of $0. See Note 11 for treatment of derivative liability associated with convertible notes payable. On October 28, 2013, this note was paid in full by the Company.
Effective July 15, 2013, the Company executed a convertible note payable with a face value of $32,500. This note is unsecured, bears interest at 8% per annum and is due April 17, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55 percent. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $12,258 and debt discount of $32,500 on the payment dates of the note
.
As of December 31, 2013, the Company had recognized amortization on debt discounts on these notes of $32,500 leaving unamortized debt discounts of $0 See Note 11 for treatment of derivative liability associated with convertible notes payable. On December 31, 2013, this note was paid in full by the Company.
Effective August 27, 2013, the Company executed a convertible note payable with a face value of $27,500. This note is unsecured, bears interest at 8% per annum and is due May 29, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55 percent. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $55,751 and debt discount of $27,500 on the payment dates of the note for the period ended September 30, 2013. As of December 31, 2013, the Company had recognized amortization on debt discounts on these notes of $12,600 leaving unamortized debt discounts of $14,900. See Note 11 for treatment of derivative liability associated with convertible notes payable. On March 10, 2014, this note was paid in full by the Company, and the remaining debt discount of $14,900 was amortized in full, and the remaining derivative liability was reversed in full.
On June 25, 2013, the Company assumed loans payable with the acquisition of Surf in the amount of $222,928. These loans are non-interest bearing and due upon demand. Of the total amount of these loans, on the condensed consolidated balance sheet, $82,500 is classified in accrued expenses, related party, and $140,428 is classified in accounts payable and accrued expenses.
In connection with its acquisition of EWS-C, the Company assumed five financing agreements that comprise all the equipment listed in EWS-C. The total value of these notes is $180,368. The original terms of these notes consist of a term of 60 months, with interest rates ranging from 4.60% to 9.24%, due dates of May 1, 2015, May 27, 2015, September 30, 2015, June 14, 2016, and October 1, 2016, and total payments ranging from $282 to $3,414. Of the total balance of these notes, $85,027 is deemed to be the short term portion and is included in short-term notes payable on the condensed consolidated balance sheet.
Effective October 1, 2013, the Company executed a convertible note payable with a face value of $32,500. This note is unsecured, bears interest at 8% per annum and is due June 2, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55%. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $25,339 on the payment dates of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
Subsequent to this, on April 18, 2014, the note holder elected to convert $20,000 of this note into 2,531,646 at a price per share of $0.00790, leaving an unconverted amount due of $12,500.
Effective December 9, 2013, the Company executed a convertible note payable with a face value of $63,000. This note is unsecured, bears interest at 8% per annum and is due September 9, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55%. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $75,362 on the payment date of the note for the period ended December 31, 2013. See Note 11 for treatment of derivative liability associated with convertible notes payable.
Effective February 10, 2014, the Company executed a convertible note payable with a face value of $18,000, whereby the full $18,000 went towards payment for professional fees. This note is unsecured, bears interest at 8% per annum and is due September 9, 2014. The note is convertible, at the option of the holder, into shares of the Company’s common stock at a share price of the average of the three lowest volume weighted-average prices per share during the 10 calendar day period immediately prior to the date of conversion times 55%. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $22,230 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On November 30, 2013, the Company entered into a Credit Agreement with TCA Global Credit Master Fund for a loan of up to $5.0 Million with an initial draw of $1.0 Million. At the initial funding of the first $1.0 Million on the TCA revolving credit facility, TCA held in reserve/escrow $160,000 pending completion of several post-closing matters. Those funds have not yet been released. The debt is secured by assets of the Company and its subsidiaries Surf and e-Waste Systems Cincinnati, Inc. and e-Waste Systems Ohio, Inc. Interest accrues at the rate of 16.5% per annum, calculated on the actual number of days elapsed over a 360-day year. Provisions for a Reserve of 15% there is a mandatory repayment of not less than 15% of the gross revenues. At the present time, this loan is in default. The Company determined the note qualified for derivative liability treatment under ASC 815.
On January 30, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $100,000 which carries an interest rate of 12% per annum, whereby $10,000 of the proceeds were recorded as deferred financing costs. This note will mature on January 30, 2015. The issuer of the Note can convert unpaid portions of this Note any time after July 30, 2014. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $200,870 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 12, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $44,425 which carries an interest rate of 12% per annum. This note will mature on February 28, 2015. The issuer of the Note can convert unpaid portions of this Note any time after September 12, 2014. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $99,524 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 12, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $18,483 which carries an interest rate of 12% per annum. This note will mature on February 28, 2015. The issuer of the Note can convert unpaid portions of this Note any time after September 12, 2014. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $41,407 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 12, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $29,000 which carries an interest rate of 12% per annum. This note will mature on February 28, 2015. The issuer of the Note can convert unpaid portions of this Note any time after September 12, 2014. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $64,969 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 25, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $50,000 which carries an interest rate of 12% per annum, whereby $5,000 of the proceeds were recorded as deferred financing costs. This note will mature on March 25, 2015. The issuer of the Note can convert unpaid portions of this Note any time after September 25, 2014. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $69,748 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 7, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $60,000 with an interest rate of 8% per annum. This note will mature on February 28, 2015. The note holder can convert any unpaid balance only after the note has reached its maturity date. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $66,442 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 7, 2014, the Company entered into a Convertible Promissory note in the amount of $100,000 that carries an interest rate of 8% per annum, whereby $10,000 of the proceeds were recorded as deferred financing costs. This note will mature on September 7, 2014 and note holder can convert to the Company’s common stock any time after the maturity date. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $101,215 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 7, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $50,000 with an interest rate of 8% per annum, whereby $7,500 of the proceeds were recorded as deferred financing costs. This note will mature on February 28, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note. This Note also contains a Back End note for $50,000 wherein note holder can convert to the Company’s common stock after 180 days and after full cash payment has been made for the convertible shares thereunder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $50,295 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 20, 2014, the Company entered into a Convertible Promissory Note with an additional unrelated third party in the amount of $60,000 with an interest rate of 8% per annum. This note will mature on November 12, 2014. The note holder can convert any unpaid balance only after the note has reached its maturity date. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $59,406 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 20, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $84,000 with an interest rate of 8% per annum, whereby $4,000 of the proceeds were recorded as deferred financing costs. This note will mature on March 20, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note. On March 20, 2014, we also entered into a Back End Convertible Note with this Note Holder for $84,000. This note has an interest rate of 8% per annum and will mature on March 20, 2015. On March 20, 2014 the Company also entered into a Collateralized Secured Promissory Back End Note with the same note holder in the amount of $84,000 with a Maturity date of November 20, 2104. The Back End Note and the Collateralized Secured Promissory Note can be offset against one another if the third party does not fund the Back End Note. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $121,705 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
On March 21, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $50,000 with an interest rate of 8% per annum, whereby $7,500 of the proceeds were recorded as deferred financing costs. This note will mature on March 21, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $74,016 on the payment date of the note for the period ended March 31, 2014. See Note 11 for treatment of derivative liability associated with convertible notes payable.
NOTE 11 – DERIVATIVE LIABILITY
Effective July 31, 2009, the Company adopted ASC 815 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The conversion terms of the convertible notes executed on June 3, 2013, June 11, 2013, July 15, 2013, August 14, 2013, August 27, 2013 and September 26, 2013 (total unpaid face value of $170,278) are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. As a result, the Company has determined that the conversion features imbedded in the notes are not considered to be solely indexed to the Company’s own stock and are therefore not afforded equity treatment. In accordance with ASC 815, the Company has bi-furcated the conversion feature of the note and recorded a derivative liability.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with convertible notes payable.
At origination, the Company valued the conversion features using the following assumptions: dividend yield of zero, years to maturity of 0.75 to 1.00 year, average risk free rates over between 0.11 and 0.18 percent, and annualized volatility of between 5 and 230 percent to record derivative liabilities of $752,749. At December 31, 2013, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.29 and 0.70 years, a risk free rate of 0.13%, and annualized volatility of 232.29% and determined that, during the year ended December 31, 2013, the Company’s derivative liability increased by $404,335 to $465,880. The Company recognized a corresponding loss on derivative liability in conjunction with this revaluation.
At March 31, 2014, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.18 and 1.85 years, a risk free rate of 0.13%, and annualized volatility of 199.03% and determined that, during the year ended March 31, 2014, the Company’s derivative liability increased by $1,216,507 to $1,682,387. The Company recognized a corresponding loss on derivative liability in conjunction with this revaluation.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
As of the date of this filing, the Company is not aware of any current or pending legal actions expected to have a material impact.
Occupancy Leases
The Company leased office and warehouse space in Columbus, Ohio under an operating lease. The lease provided for a lease payment of $4,200 per month from December 1, 2012 through November 30, 2013, and a lease payment of $4,400 per month from December 1, 2013 through November 30, 2014, and lease payments thereafter on a month-to-month basis at a rate of $4,568 per month. On September 20, 2012, this lease was assigned to the purchaser as part of the transfer of the Company’s assets and business on September 20, 2012. As such, the Company has no ongoing minimum lease payments associated with the lease.
Effective February 12, 2013, the Company entered into a Lease Agreement with Evotech Capital Ltd in a commercial building in Shanghai, China. The term of the lease runs from February 12, 2013 through February 12, 2015. The terms of the lease calls for the Company to issue Evotech Capital 250,000 shares of common stock within 180 days of the beginning of the lease term. This represents the only payment required during the term of the lease. The Company has not issued those shares.
Effective February 6, 2014, EWSI’s wholly owned subsidiary e-Waste Systems Cincinnati, Inc. entered into a lease with DTC Northwest OH LLC, a Delaware limited liability company for its newly operational Cincinnati, Ohio facility. The building is approximately 126,500 square foot of warehouse building located at 12075 Northwest Blvd., Springdale, OH 45246. The monthly rent for this facility for Month 1 through 12 of the first year will be $11,916. The monthly rent for the facility for Month 1 through 12 of the second year will be $12,274. The monthly rent for the facility for month 1 through 12 of the third year will be $12,642.
Lease and Operating Agreements
The Company has entered into three operating agreements to operate businesses on behalf of property and business owners. The agreements require facility and equipment payments and personnel payments along with other possible payments in the course of operating these businesses. These agreements are on a quarter-to-quarter basis and can be terminated upon agreement of both parties.
Contingent Consideration
In connection with the acquisition of E-Waste Systems of Ohio, Inc. (formerly Tech Disposal, Inc.), this was disclosed in our annual filing with the SEC on Form 10-K, filed April 16, 2013 and incorporated by reference herein.
NOTE 13 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred Stock, of which there are 200,000 shares set aside as Series A Convertible Preferred Stock with a par value of $0.001. As of March 31, 2014, and December 31, 2013, there were 5,891 and 1,903 shares of Series A Convertible Preferred Stock issued and outstanding, respectively.
The Series A Preferred Shares have the following provisions:
Dividends
Series A convertible preferred stockholders’ are entitled to receive dividends when declared. As of March 31, 2014 and March 31, 2013 no dividends have been declared or paid.
Liquidation Preferences
In the event of liquidation, following the sale or disposition of all or substantially all of the Company’s assets, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the common stock by reason of their ownership thereof, an amount equal to $1,000 per share.
Voting Rights
Each holder of shares of the Series A Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which the preferred shares are convertible.
Conversion
Each share of Series A Preferred Stock is convertible, at the option of the holder, into the number of shares of common stock which is equal to $1,100 divided by the greater of (i) $0.001 or (ii) 90 percent of the volume weighted average closing price for the Company’s common stock during the ten trading days immediately prior to conversion.
Redemption
The Series A Preferred Stock shares are redeemable for cash, at the option of the Company any time after the date of issuance, plus all accrued but unpaid dividends, on the following basis:
(i)
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110 percent of the purchase price of each share of Series A Preferred Stock if redeemed any time before the first twelve months of the date of issuance; and
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(ii)
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105 percent of the purchase price of each share of Series A Preferred Stock on or after the first twelve months of the date of issuance.
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The Company is authorized to issue 10,000,000 shares of Preferred Stock, of which there are 500,000 shares set aside as Series B Convertible Preferred Stock with a par value of $0.001. As of March 31, 2014, and December 31, 2013, there were 195,000 and 195,000 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.
The Series B Preferred Shares have the following provisions:
Dividends
Initially, there will be no dividends due or payable on the Series B Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
Liquidation Preferences
If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the Holders of the Series B Preferred Stock and Holders of pari passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series B Preferred Stock and the pari passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares.
Voting Rights
Each holder of shares of the Series B Preferred Stock is entitled to 1,000 votes per share held.
Conversion
The Conversion Price for each share of Series B Preferred Stock in effect on any Conversion Date shall be the greater of $0.20 or (i) Eighty-Five percent (85%) of the average closing bid price of the Common Stock over the Twenty (20) trading days immediately preceding the date of conversion, (ii) but no less than Par Value of the Common Stock. For purposes of determining the closing bid price on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the NASD OTC Bulletin Board, as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices).
Redemption
The Series B Preferred Stock shares are only redeemable for cash by mutual agreement.
Preferred Stock A Activity for the three months ended March 31, 2014
For the three months ended March 31, 2014, the Company issued a total of 4,975 shares of Series A Preferred Stock for various services rendered per agreements entered into with the shareholders valued at $2,817,100.
For the three months ended March 31, 2014, the Company issued a total of 95 shares of Series A Preferred Stock as payment of debt to a related party valued at $58,389.
For the three months ended March 31, 2014, 1,082 shares of Series A Preferred Stock was converted into 14,877,500 shares of common stock in accordance with the provisions of the Series A Preferred Stock.
Common Stock
On March 28, 2014, the Company’s board of directors and majority shareholder approved an amendment to the Articles of Incorporation according to the Bylaws of the Company and the State of Nevada revised statutes for the purpose of increasing the authorized common stock from 490,000,000 shares to 800,000,000 shares. The Company’s authorized shares of preferred stock were not affected in this corporate action. As of March 31, 2014 and 2013, there were 334,892,542 and 137,791,286 shares of common stock issued and outstanding, respectively.
Common Stock Activity for the three months ended March 31, 2014
During the three months ended March 31, 2014, the Company issued 24,958,315 shares of common stock at prices ranging from $0.0096 to $0.0425 per share for services valued at $630,984. The value of the shares issued for services was based on the trading price of the Company’s common stock on the date of issuance.
During the three months ended March 31, 2014, the Company issued 9,267,513 shares of common stock at $0.01 to $0.0391 per share for settlement of all accounts payable, accrued expense, accrued interest, and debt transactions valued at $113,393. The value of shares issued for settlement of debt was based on the trading price of the Company’s common stock on the date of issuance or the face value of the debt extinguished.
During the three months ended March 31, 2014, the Company issued 23,888,784 shares of common stock at $0.027 to $0.0447 per share as stock based compensation valued at $936,509. The value of shares issued for stock based compensation was based on the trading price of the Company’s common stock on the date of issuance.
During the three months ended March 31, 2014, the Company issued 9,000,000 shares of common stock at $0.0132 to $0.0207 per share for cash valued at $153,000. The value of shares issued for cash was based on the agreements in place with the shareholders.
During the three months ended March 31, 2014, the Company issued 14,877,500 shares of common stock to Series A Preferred Stock shareholders for their 1,082 shares of Series A Preferred Stock in accordance with the provisions set forth for the Series A Preferred Stock.
NOTE 14 – COST METHOD INVESTMENT
GoEz Deals, Inc. (GED)
On August 9, 2013, the Company entered into a binding agreement to acquire 7% of the shares of GoEz Deals, Inc., ("GED") a California company in the mobile computing and e-waste recycling business. The Company acquired GED 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 issuance of 230 shares of Series A Preferred Stock valued at $27,273 and the issuance of 3,500,000 shares of common stock at $0.0738 per share valued at $258,300 for a total consideration of $285,573. The investment is recorded at the cost of the investment.
NOTE 15 - SUBSEQUENT EVENTS
On April 2, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $665,000 with an interest rate of 10% per annum, whereby $60,000 is original issue discount, and $5,000 is previously paid legal fees. The effective date of the note per the agreements is March 31, 2014, but will be recorded on April 2, 2014 as the proceeds of the note were issued on April 2, 2014 and all corresponding documents were signed on April 2, 2014 as well. This note will mature on May 31, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note. In connection with this Convertible Promissory Note, the Company also entered into four Secured Buyer Notes with this Note Holder for $100,000 each. This Secured Buyer Notes have an interest rate of 8% per annum and will mature on March 31, 2015. Also in connection with this Convertible Promissory Note, on March 31, 2014, the Company issued a warrant to purchase shares of the Company’s common stock equal to $332,500 divided by the fair market value of the Company’s common stock on the date of issuance with an exercise price of $0.055 per share. The warrants expire on March 31, 2020.
On April 4, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $55,000 with an interest rate of 8% per annum. This note will mature on April 4, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note.
On April 16, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $55,000 with an interest rate of 8% per annum. This note will mature on April 3, 2015. The note holder can convert any unpaid balance after 180 days from the original date of the note.
On May 13, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $250,000. The consideration to be paid to the Lender shall be equal to the consideration actually paid by the Lender plus prorated interest and any other fees such that the Company shall be required to pay. The Company will incur a one-time interest charge of 10% on the principal amount of each loan. The note holder made a payment to the Company of $50,000 of the total consideration on the date of the closing of the note, along with a one-time interest charge that is added to the principal in the amount of $5,000.This note will mature one year from the date of each payment of consideration. The note holder can convert any unpaid balance after 180 days from the original date of the note.
Subsequent to March 31, 2014, the Company issued 50,201,367 shares of common stock for various services rendered and conversions of debt.