E-Waste Systems (EWSI) 10-Q 2014 Q3 Quarterly report

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.

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Condensed Consolidated Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4:	Controls and Procedures	11
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	12
Item 1A:	Risk Factors	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3:	Defaults Upon Senior Securities	13
Item 4:	(Removed and Reserved)	13
Item 5:	Other Information	13
Item 6:	Exhibits	13

- 2 -

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

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

F-1   Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013

F-2   Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2014 and September 30, 2013 (restated);

F-3   Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014, and September 30, 2013 (restated);

F-4   Notes to Condensed Consolidated Financial Statements (unaudited).

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.

- 3 -

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

F - 1

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

F - 2

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

F - 3

E-Waste Systems, Inc. and Subsidiaries

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

F - 4

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

F - 5

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

F - 6

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

F - 7

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.

F - 8

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.

F - 9

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		9,858			-
Leasehold Improvements		88,937				-
Less:  accumulated depreciation		(53,002	)		(4,724)
Property and Equipment, Net	$	254,103		$	181,720

Depreciation expense for the nine months ended September 30, 2014 and 2013 was $48,278 and $0, respectively.

F - 16

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 $769 and $1,077 of interest expense on the related party convertible note payable leaving a balance in accrued interest of $3,906 and $2,774 as of September 30, 2014 and 2013, respectively. The note has been extended and has a maturity date of November 22, 2014. 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.

On May 1, 2013, the Company issued 1,500,000 shares of common stock to an employee for past obligations due. 

At September 30, 2014, the Company had payables to related parties totaling $31,610. 

Transactions Involving Officers and Directors

During the nine months ended September 30, 2014, the Company accrued $564,735 in officer compensation, and wrote off $566,825 in accrued compensation to former officers.  The Company also issued 1,000,000 shares of common stock valued at $23,550, and issued 292,500 shares of Series B preferred stock valued at $292,500, leaving an ending balance of $919,133 in accrued officer and director compensation at September 30, 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 $3,806 and $2,411 as of September 30, 2014 and 2013, respectively. The note has been extended and has a maturity date of October 28, 2014.  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.  As a result, the notes have been paid in full.

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 September 30, 2014 the Company recognized $10,500 of interest expense and made no payments on this promissory note leaving a balance of $18,667 in accrued interest as of September 30, 2014.

F - 17

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 common 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, 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 $17,199 to interest expense.  Effective March 26, 2014, 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. 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 September 30, 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. This loan is now considered to be paid in full and all debt discount has been amortized in full.

Effective December 31, 2012, the Company negotiated satisfaction of an 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 September 30, 2014 and December 31, 2013, the Company had recognized amortization on the debt discounts on these notes of $5,121 and $17,493 of the total outstanding debt discounts leaving an unamortized debt discounts of $283, and $7,820, 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.  As a result, the $11,000 note has been paid in full.    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 $29,000 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 September 30, 2014, the Company had recognized amortization on the debt discounts on this note of $40,959 of the total outstanding debt discounts leaving an unamortized debt discounts $73,162.

F - 18

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.

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 consolidated balance sheet, $74,539 is classified in accrued expenses, related party, and $90,000 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, $205,563 is deemed to be the short term portion and is included in short-term notes payable on the consolidated balance sheet.

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.

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.  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.  On April 23, 2014, the note holder elected to convert the balance of the principal of $12,500 and accrued interest of $1,300 on this note into 2,059,701 shares of common stock.   As a result, this note has been paid in full and the remaining derivative liability balance associated with this note has reversed.

On November 30, 2013, the Company entered into a Credit Agreement with TCA Global Credit Master Fund 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 $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.  The Company determined the note qualified for derivative liability treatment under ASC 815.  This note was restated on July 29, 2014, and this restatement replaces and supersedes the $1,000,000 note.

F - 19

On July 29, 2014, the Company entered into an amendment to the Credit Agreement with TCA Global Credit Master Fund and contemporaneous agreements with Redwood Management LLC to assume the TCA obligations through a series of note modification transactions.  The terms of the agreement initially provided for the $1,000,000 plus accrued interest to be divided into two revolving notes for $135,710 and $949,970, respectively that replace and supersede a revolving convertible promissory note for $1,000,000 that was issued by the Company on July 31, 2013 and made effective on December 6, 2013.  The aggregate of the new notes include the $1,000,000 in principal from the original note plus $51,685 of accrued interest and fees of $33,995.  The notes carry an interest rate of 16.5% per annum calculated on the actual number of days elapsed over a 360-day year.   These notes are convertible into common stock of the Company at a price equal to 85% of the lowest daily volume weighted average price of the common stock during the 5 business days immediately prior to the conversion date.  During the period ended September 30, 2014, a total of $271,420 was assigned to Redwood Management LLC in the form of two separate convertible promissory notes.  Effective July 31, 2014, the note holder elected to convert $61,824 of the principal balance resulting in the issuance of 22,400,000 shares of the Company’s common stock at a per share price of $0.0028.   Effective August 12, 2014, the note holder elected to convert $34,413 of the principal balance resulting in the issuance of 24,757,400 shares of the Company’s common stock at a per share price of $0.0014. Effective August 18, 2014, the note holder elected to convert $30,852 of the principal balance resulting in the issuance of 24,880,900 shares of the Company’s common stock at a per share price of $0.0012. Effective August 21, 2014, the note holder elected to convert $8,621 of the principal balance resulting in the issuance of 8,707,959 shares of the Company’s common stock at a per share price of $0.001.  Effective September 3, 2014, the note holder elected to convert $20,363 of the principal balance resulting in the issuance of 29,512,000 shares of the Company’s common stock at a per share price of $0.0007.  Effective September 9, 2014, the note holder elected to convert $18,635 of the principal balance resulting in the issuance of 31,058,000 shares of the Company’s common stock at a per share price of $0.0006.   Effective September 15, 2014, the note holder elected to convert $15,056 of the principal balance resulting in the issuance of 36,020,100 shares of the Company’s common stock at a per share price of $0.0004. Effective September 17, 2014, the note holder elected to convert $13,760 of the principal balance resulting in the issuance of 37,907,400 shares of the Company’s common stock at a per share price of $0.0004.  Effective September 20, 2014, the note holder elected to convert $11,569 of the principal balance resulting in the issuance of 39,893,500 shares of the Company’s common stock at a per share price of $0.0003.  Effective September 29, 2014, the note holder elected to convert $8,439 of the principal balance resulting in the issuance of 41,983,780 shares of the Company’s common stock at a per share price of $0.0002.

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.  On June 18, 2014, the note holder elected to convert $20,000 of this note into 3,846,154 shares of common stock at a price per share of $0.0052.  On June 23, 2014, the note holder elected to convert $23,000 of this note into 4,693,878 shares of common stock at a price per share of $0.0049.  On June 26, 2014, the note holder elected to convert $12,000 of this note into 2,727,273 shares of common stock at a price per share of $0.0044.   On July 2, 2014, the note holder elected to convert the remaining $8,000 principal balance along with $2,520 of accrued interest into 2,768,421 shares of common stock at a per share price of  $0.0038.  As a result this note has been paid in full.

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 payments of $225,000 total to the Company of the total consideration during the period ending September 30, 2014, along with a one-time interest charge per payment that is added to the total principal in the amount of $13,500.  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 $338,975 on the payment date of the notes for the period ended June 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.  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 August 12, 2014, the note holder elected to convert $9,600 of the principal balance resulting in the issuance of 8,000,000 shares of the Company’s common stock at a per share price of $0.0012. Effective August 26, 2014, the note holder elected to convert $9,000 of the principal balance resulting in the issuance of 15,000,000 shares of the Company’s common stock at a per share price of $0.0006.   Effective September 15, 2014, the note holder elected to convert $6,375 of the principal balance resulting in the issuance of 21,250,000 shares of the Company’s common stock at a per share price of $0.0003. Effective September 26, 2014, the note holder elected to convert $4,428 of the principal balance resulting in the issuance of 24,600,000 shares of the Company’s common stock at a per share price of $0.0002.

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 June 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.  Effective August 19 2014, the note holder elected to convert the entire principal balance along with $720 in accrued interest into 15,600,000 shares of the Company’s common stock at a per share price of $0.0012.  As a result, this note is paid in full.

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 July 31, 2014 the note holder elected to convert the $28,290 of this note into 10,000,000 shares of common stock at a per share price of $0.0028.  On August 13, 2014 the note holder elected to convert the $29,201 of this note into 21,260,000 shares of common stock at a per share price of $0.0014.  On September 4, 2014 the note holder elected to convert the $13,776 of this note into 21,000,000 shares of common stock at a per share price of $0.0007.  On September 23, 2014 the note holder elected to convert the $7,817 of this note into 32,800,000 shares of common stock at a per share price of $0.0002.  The unconverted balance due on this note is $78,406.67.

F - 20

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 April 1, 2014 the note holder elected to convert the $28,126 of this note into 2,000,000 shares of common stock at a per share price of $0.0270.  On April 23, 2014, the note holder elected to convert the remaining balance of the note, and the related accrued interest, totaling $16,513, into 2,411,674 shares of common stock at a per share price of $0.0068.  As a result, this note is paid in full.

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 May 1, 2014, the note holder elected to convert the note and accrued interest totaling $18,775 into 2,742,054 shares of common stock at a per share price of $0.0068.  As a result, this note is paid in full.

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 May 5, 2014, the note holder elected to convert the remaining balance of the note, and the related accrued interest, totaling $31,539, into 4,606,292 shares of common stock at a per share price of $0.0068.  As a result, this note is paid in full.

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.  Effective September 17, 2014, the note holder elected to convert $3,098 of the principal balance resulting in the issuance of 10,500,000 shares of the Company’s common stock at a per share price of $0.0003.  Effective September 24, 2014, the note holder elected to convert $4,720 of the principal balance resulting in the issuance of 20,000,000 shares of the Company’s common stock at a per share price of $0.0002. Effective September 30, 2014, the note holder elected to convert $3,540 of the principal balance resulting in the issuance of 20,000,000 shares of the Company’s common stock at a per share price of $0.0002 leaving a principal balance of $87,942.50.

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.  Effective September 15, 2014, the note holder elected to convert $13,610 of the principal balance resulting in the issuance of 35,350,649 shares of the Company’s common stock at a per share price of $0.0012 leaving a balance of $46,390.00.

F - 21

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, 2014.  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.  Effective September 24, 2014, the note holder elected to convert $9,000 of the principal balance and $361 of accrued interest resulting in the issuance of 39,004,125 shares of the Company’s common stock at a per share price of $0.0002 leaving a balance due on the note of $75,000.

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.

On April 1, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $102,600 with an interest rate of 8% per annum, in satisfaction of obligations for consulting services performed by the holder.  This note is due on demand.  Conversion features initially included in this note were deleted by agreement.

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, which are being recorded as notes receivable on the consolidated balance sheet.  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 Market Price, as defined in the Convertible Promissory Note, 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, whereby $5,000 is original issue discount.  This note will mature on April 3, 2015.  The note holder can convert any unpaid balance after six months 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 $81,989 on the payment date of the note for the period ended June 30, 2014.   See Note 11 for treatment of derivative liability associated with convertible notes payable.

On April 7, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $40,000 with an interest rate of 8% per annum, whereby $2,000 of the proceeds were recorded as legal fees, and $4,000 of the proceeds were recorded as financing costs.  This note will mature on April 7, 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 $54,228 on the payment date of the note for the period ended June 30, 2014.   See Note 11 for treatment of derivative liability associated with convertible notes payable.

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, whereby $5,000 is original issue discount.  This note will mature on April 3, 2015.  The note holder can convert any unpaid balance after six months 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 $41,870 on the payment date of the note for the period ended June 30, 2014.   See Note 11 for treatment of derivative liability associated with convertible notes payable.

On May 2, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $42,500 which carries an interest rate of 8% per annum.  This note will mature on February 16, 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 $72,489 on the payment date of the note for the period ended June 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.

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.  The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $69,167 on the payment date of the note for the period ended June 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.

On June 18, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $32,500 which carries an interest rate of 8% per annum.  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.  The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $44,859 on the payment date of the note for the period ended June 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.

F - 22

On July 25, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $200,000, which carries an interest rate of 10% per annum.  This note will mature on January 25, 2015.  The note holder can convert any unpaid balance of the note at any time after 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 $223,206 on the payment date of the note for the period ended September 30, 2014.  See Note 11 for treatment of derivative liability associated with convertible notes payable.

On August 22, 2014, the Company entered into a Convertible Promissory Note with an unrelated third party in the amount of $32,500 which carries an interest rate of 8% per annum.  This note will mature on May 26, 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 $43,033 on the payment date of the note for the period ended September 30, 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.

The Company accounted for the detachable warrants included with the convertible notes as liabilities in accordance with ASC 815, as the warrants are subject to anti-dilution protection and could result in them being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate feature of the warrants at the relevant commitment dates to total $464,456 utilizing a Black-Scholes valuation model as of September 30, 2014.

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 September 30, 2014, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.12 and 1.73 years, a risk free rate of between 0.13% and 0.58%, and annualized volatility of 192.53% and determined that, during the nine months ended September 30, 2014, the Company’s derivative liability increased by $1,612,523 to a total of $2,078,403, of which $285,879 is considered long term. The Company recognized a corresponding loss on derivative liability in conjunction with this revaluation.

At September 30, 2014, the Company revalued the detachable warrants using the following assumptions: dividend yield of zero, years to maturity of 4.50 years, a risk free rate of between 1.78%, and annualized volatility of 192.53% and determined that the change in fair value of the liability for the conversion feature of the detachable warrants resulted in a net expense of $4,309 for the nine months ended September 30, 2014. The fair value of the derivative conversion features for the detachable warrants was determined to be $4,309 at September 30, 2014, of which $4,309 is considered long term.  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.

F - 23

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 entered into three operating agreements to operate businesses on behalf of property and business owners during 2013. Those agreements required facility and equipment payments and personnel payments along with other possible payments in the course of operating these businesses. These agreements were on a quarter-to-quarter basis and terminable at will.  In connection with the suspension of the agreements with with XuFu (Shanghai) Co, Ltd, a company incorporated in the People’s Republic of China (“PRC”) and formerly known as Yazhuo, these agreements, and the corresponding management contracts, were terminated by the Company and new arrangements are in negotiation.  Those companies considered part of the eIncubator operations were evaluated based upon the initial evaluation as per Company policy to determine actual value and desirability for further consideration.  With respect to those entities the Company wishes to pursue and move to the eVolve division, new contracts will be negotiated with the entities and the managers as determined by the Company in its sole and absolute discretion.  Terminations of agreements are as determined by the Company in its discretion are managed by senior managers to take retain residual value for the Company and severance of corresponding managers under management agreements is  determined based upon the Company’s plan for the markets and industry – based on potential for added value.

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

Warrants

In connection with the Convertible Promissory Note issued 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 Market Price, as defined in the Convertible Promissory Note, of the Company’s common stock on the date of issuance with an exercise price of $0.055 per share.  The value of the Market Price is defined as the lesser of (i) $0.05, or (ii) 65% of the average of the three lowest closing bid prices in the twenty trading days immediately preceding the applicable conversion, provided that if at any time the average of the three lowest closing bid prices in the twenty trading days immediately preceding any date of measurement is below $0.01, then in such event the conversion factor shall be reduced to 55% for all future conversions.  Based on the Market Price defined above, the total number of warrants issued on March 31, 2014, is 20,461,538, valued by dividing $332,500 by the calculated Market Price of $0.01625. The warrants expire on March 31, 2020.

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock issued to shareholders at September 30, 2014:

Exercise Price		Number Outstanding	Warrants Outstanding Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise price		Number Exercisable	Warrants Exercisable Weighted Average Exercise Price
$	0.055	20,461,538	4.50	$	0.055	20,461,538	$	0.055

F - 24

Transactions involving the Company’s warrant issuance are summarized as follows:

	Number of Shares		Weighted Average Price Per Share
Outstanding at December 31, 2013		-	$	-
Issued		20,461,538		0.055
Exercised		-		-
Expired		-		-
Outstanding at September 30, 2014		20,461,538	$	0.055

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 current post-split par value of $0.0001.  As of September 30, 2014, and December 31, 2013, there were 5,516 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 September 30, 2014 and September 30, 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.

F - 25

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) 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

(ii) 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.

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 current par value of $0.0001.  As of September 30, 2014, and December 31, 2013, there were 487,500 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 adjusted for changes in the authorized capital pro-rata from time to time.

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).

F - 26

Redemption

The Series B Preferred Stock shares are only redeemable for cash by mutual agreement.

Preferred Stock A Activity for the nine months ended September 30, 2014

For the nine months ended September 30, 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 and financing costs valued at $2,817,100.

For the nine months ended September 30, 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 nine months ended September 30, 2014, 1,457 shares of Series A Preferred Stock was converted into 34,335,047 shares of common stock in accordance with the provisions of the Series A Preferred Stock.

Preferred Stock B Activity for the nine months ended September 30, 2014

For the nine months ended September 30, 2014, the Company issued a total of 292,500 shares of Series B Preferred Stock as payment of debt to a related party valued at $292,500 for a total issued of 487,500 shares of Preferred Stock B

Common Stock

On March 31, 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 790,000,000 shares.  On June 27, 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 790,000,000 shares to 975,000,000 shares.  On July 25, 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 975,000,000 shares to 1,500,000,000 shares. On September 24, 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 1,500,000,000 shares to 3,000,000,000 shares. On October 6, 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 3,000,000,000 shares to 6,000,000,000 shares. The Company’s authorized shares of preferred stock were not affected in these corporate actions. The Company’s authorized shares of preferred stock were not affected in this corporate action. As of September 30, 2014 and December 31, 2013, there were 1,107,817,477 and 262,734,973 shares of common stock issued and outstanding, respectively. On September 29, 2014, the Board of Directors approved a 1:250 reverse split which was effective on October 27, 2014 upon approval by FINRA and referral to DTCC.  The new CUSIP number is 26927B209.

Common Stock Activity for the nine months ended September 30, 2014

During the nine months ended September 30, 2014, the Company issued 98,864,344 (pre-reverse split) shares of common stock at prices ranging from $0.0003 to $0.0425 per share for services valued at $871,347. 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 nine months ended September 30, 2014,  the Company issued 632,140,419 (pre-reverse split) shares of common stock at $0.002 to $0.0391 per share for settlement of all accounts payable, accrued expense, accrued interest, and debt transactions valued at $716,284. 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.

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During the nine months ended September 30, 2014, 2013, the Company issued 73,236,414 (pre-reverse split) shares of common stock at $0.0061 to $0.0279 per share as stock based compensation valued at $1,658,442. 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 nine months ended September 30, 2014, the Company issued 9,000,000 (pre-reverse split) 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 nine months ended September 30, 2014, the Company issued 34,335,047 (pre-reverse split) shares of common stock to Series A Preferred Stock shareholders for their 1,457 shares of Series A Preferred Stock in accordance with the provisions set forth for the Series A Preferred Stock.

During the nine months ended September 30, 2014, the Company retired 2,493,720 (pre-reverse split) shares of common 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

The Company has approved a two hundred fifty-for-one (250:1) reverse stock split (the "Reverse Split") of the Company's common stock and a change in the par value of the common stock and the preferred stock from $.001 to a new par value of $.0001.  The Company's Board of Directors has determined that it would be in the Company's best interest to conduct the Reverse Split and to change the par value of its stock and approved this corporate action by unanimous written consent.

Subsequent to September 30, 2014 and through the date of this filing, the Company issued 7,268,421 (pre-reverse split) shares of common stock for various services rendered and conversions of debt.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements.  These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control.  Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs.  There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

With respect to this discussion, the terms “EWSI,” the “Company,” “we,” “us,” and “our” refer to E-Waste Systems, Inc. and the term “EWSO” refers to E-Waste Systems (Ohio), Inc. (formerly known as Tech Disposal, Inc.)  This discussion and analysis should be read in conjunction with the financial statements and notes, and other financial information included in this quarterly report.

Company Overview

We were incorporated in the State of Nevada on December 19, 2008.  In May 2011, we changed our name to “E-Waste Systems, Inc.” to reflect the strategy we are now operating.

2014 Operations

Acquisitions - The Company is actively seeking strategic acquisitions to expand its footprint world-wide and to add core capabilities, expand critical mass and provide and expanded pool of talent.

Every potential acquisition is evaluation based upon three criteria:

●   Strategic: Synergies, Differentiation and Compliance;

●   Financial: Financial Strength, P/E, Growth;

●   Management: Vision, Culture, Quality.

EWSI completed two transactions in US during 2013: Surf/CPU and 2TRG.  Surf is located in Los Angeles, California. Surf was rebranded EW California but is doing business also through the former name to maintain a market position with the existing customers.  The management, as well as all the employees (7 people), remained on board.  In the first year of business under EWSI’s wings, Surf implemented and expanded its operations to profitability and is still growing. The goals for 2014 are to double the revenues as well as the profits and expand furthermore the business to new areas of interest.  The transaction put in place with 2TRG involved the acquisition of the assets from the locations in Cincinnati and Geneva. A newly branded company was created to run the operations, E-Waste Cincinnati, Inc. (a wholly owned subsidiary of the Company). A plan for hiring new employees and business developers is being implemented. In March took place the grand opening of the facility to start the business in new working space in the Cincinnati area. The operation has been focused on establishing its presence in the market and on obtaining key certifications while building an organization.  Its new facility will be the showpiece plant implementing the latest and most efficient technologies.  Goals established for 2014 are premised on (1) creating an operational team to expand the operations both utilizing the existing facilities and other strategic locations (2) identifying strategic partners and establishing relationships through contract or acquisition to bring the locations under the EWS-C umbrella and (3) obtaining new contracts to capitalize the full processing volume of 750 million pounds annually and growing of the revenues.

A major refurbisher currently working with the Company is the target for 2014 in Europe. This acquisition brings the footprint of EWSI in the old continent. The term-sheet for the transaction has been delivered and if agreed the process is expected to be completed by the second half of the year. Due to the high potential of this operation and to complete the reverse logistic process, an ePlant is already considered as part of the first steps to make this location the show piece for the European market. The Company is in discussion with another party that is fully funded to expand the scope of the project and move more quickly to the implementation phase.

Other targets are under consideration.

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ePlants and Technologies - While the ePlants in Cincinnati and Geneva will be upgrades of existing technology, those will be new facilities using the best and most efficient technologies delivered on EWSI specs. A fully deployed ePlant can generate an annualized revenue stream of over $9M with basic working shifts and up to $36M for a continuous operation. The recent agreement with Chinese Technology firm Loyalty provides and opportunity to implement a fully functional ePlant quickly and efficiently with a goal to enable implementation in just 6 months from the initial order of the hardware.  Those two specific home appliances are becoming a sensitively big number in the ewaste stream and providing a complete recycling solution, including insulation.  Recent developments with a US R&D firm brought into signing a letter of interest to test a Rare Earths Elements (“REE”) sorting technology into one of the EWSI’s operational sites in the US.  REE sorting is one of the last step into achieving the 100% no-landfill policy to which EWSI has voluntarily committed.

History and background

Mission Statement

Create a market-leading, integrated business group in the emerging electronic waste and reverse logistics industry, in the advisory for compliant management and in the development of new commercial and technological ventures by offering customers global, seamless, and expanded custom services.

Company History

After 5 years of research, planning and operating various companies in the industry, Martin Nielson founded E-Waste Systems as a wholly owned subsidiary of a US public company shell, specifically to grow by completing a series of acquisitions as its basis for operations. EWSI has three operating units in US, UK and China, corresponding to the first geographies in which EWSI is completing acquisitions.

Financial Strategy

Execution of the Company’s Business Plan requires a foundation capable of sustaining rapid growth.  This foundation consists of a global brand, proprietary technologies and substantial revenues.  In addition, the Company’s financial plan needs to support the potential for very rapid quarter to quarter growth over the next few years, which could be 50% or more.

Key Elements

The total value of our Company’s economic resources is capital invested in our equity plus debt we assume. The Company must make efficient use of a combination of debt and equity in our operations to fuel growth.  Equity is the portion of our Company’s economic resources that our shareholders own and debt will be used to leverage equity by using borrowed money to obtain additional economic resources.  Leverage, while increasing investment returns, must be used wisely. Accordingly, the basic elements of our financing strategy are the following:

1.   Balance Sheet Strengthening.  We will strengthen our balance sheet and the balance sheets of our subsidiaries and key affiliates by acquiring tangible and intellectual assets.  We will also convert certain liabilities into equity, eliminate debt of high burden, and avoid both short term liabilities that cannot be managed and unsustainable long term liabilities.

2.   Financing for ePlant™ and other Technology.  We will seek friendly third party financing for new capital equipment, such as ePlant™ and other eWaste™ systems in order to improve the operating performance of our business units. We will invest in developing our proprietary technologies using equity wherever possible.

3.   Financing for our Subsidiaries and Affiliates.  The growth of our subsidiaries and affiliates directly contributes to our company growth. We will provide financial support to our subsidiaries and affiliates in a manner in which the investment can lead to superior returns and within manageable and acceptable risks.

4.   Manage a Sustainable Capitalization Structure.   It is in the best interest of the Company to have a high market capitalization, higher share prices, and strong liquidity to obtain sufficient capital for our growth and for acquisitions.  Maintaining a balance of sensible debt alongside a robust market capitalization is targeted.

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5.   Use of Performance-Based Incentives.  The Company believes in creating an atmosphere that encourages and motivates our people to out-perform the competition.  Disciplined and hard-working management, professionals, and other individuals can help us meet or exceed our company’s objectives and are fundamental to the growth we seek.  Incentive compensation plans tied to equity will be a key element of our compensation packages and our officers must set the example by accepting equity as a primary component of their compensation.

6.   Equity as Growth Capital. Preferred shares will be increasingly used to increase asset values, to minimize current dilution of common stock and to enhance overall shareholder equity while providing for attractive means to maintain sensible voting and conversion features.  Alongside preferred equity instruments, registered shares will be used to compensate qualified individuals to grow the Company.  Wherever possible, we will also use equity as a currency for acquisitions.

7.   Debt Financing.  Debt can leverage our equity and capital.  We will selectively obtain debt financing, even paying premium interest rates if necessary so that we can avoid toxic convertible debt.  And, we will establish plans to buy out potentially toxic liabilities by using loyal and long term investors.

8.   Investor Relations, Communication and Awareness.  We intend to have a strong and comprehensive investor communications plan using regular press releases, information 8K filings with the SEC, social media programs, frequent website updates; and an increasing use of CEO and management interviews and media relations programs.  These are all designed to make the investing public and our other constituents fully aware our plans, accomplishments, and developments as they occur.

9.   Secondary Public Offering and Upgrade Listing. The Company will seek to raise capital from a public offering to fuel its growth and, at the proper time, consider migration to a national exchange like NASDAQ or NYSE to have access to higher quality and quantity of capital to fuel its desire for expansive growth.

The EWSI strategy for growth is premised upon the following key elements:

●   Market Leading Brand: The market does not have a leading e-waste brand, especially not at the global level.  Our brand is unique and is promoted aggressively and globally to attain maximum awareness aligned with the highest compliance standards in the world (including those of the WEEE directive). Our commitment is to achieve and continuously enhance the best brand in the industry.

●   Global Reach: EWSI recognizes that e-waste is a global problem that requires a global solution.  We are therefore committed to developing and managing a worldwide presence, with primary focus on the Americas, Europe, and Asia. EWSI now has a presence in the USA, UK, Australia, China, India, Mexico and the Caribbean.

●   Proprietary Technology: We are committed to developing and deploying a portfolio of proprietary engineering and technologies that can extract maximum value from end-of-life assets while minimizing environmental impact. This includes software solutions as well as high-end separation, enrichment, and processing technologies applied to component materials and output streams such as plastics, precious metals, glass, carbon, and bio-materials.

●   Franchising and Affiliations: We have and will continue to develop affiliations with quality companies that share our business and environmental principles.  Franchising and affiliation are among the quickest and most capital efficient ways to expand the geographic and service coverage of EWSI.

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●   Management Services: We offer our expertise in professional management practices and modern systems to our expanding affiliate network. The e-waste industry is highly fragmented with need for high level management.  Simultaneously, compliance and certification across all platforms are critical issues as national and international regulations expand and become enforced.

●   Joint Ventures and Acquisitions: Carefully selected acquisitions and joint ventures in the Americas, Europe, and Asia remain part of our strategy. The acquisitions will be done opportunistically in a separate division in order to focus EWSI management on its main task of building its eWaste™ brand globally. Each joint venture and acquisition must be a profit center with local brand value, an experienced management team, and solid commercial relationships with clients of strategic interest to EWSI. We completed one acquisition in the USA during 2012 and two acquisitions in 2013.  The Company is actively pursuing additional acquisitions.

●   Thought-Leading Business Development Initiatives: Leveraging our network of contacts and affiliates, we target key customer and market segments with the most innovative and customized e-waste solutions.

●   Fair Trade: EWSI is committed to the principles of Fair Trade. Opportunities to process end-of-life materials in countries with access to low cost of labor will be deployed to the fullest but only under the principles of at least living wages, the highest standards of environmental compliance, and corporate social responsibility suitably applied.

Company Structure

To provide a foundation for expansion internationally and streamline response to international business opportunities, the Company provides centralized organization and corporate services (legal, accounting, travel) as well as strategic direction and management to each of the units.

eWaste -= The business unit’s mission is to integrate the industry worldwide under a quality brand: namely, EWSI’s eWaste™ brand. Through its broad network of subsidiaries and affiliates, EWSI offers customized end-to-end solutions in IT Asset Recovery, E-Waste Management, and Electronics Reverse Logistics. EWSI leverages its affiliates’ complementary geographies, technical capabilities, and strong supplier relationships to expand the services offered to customers, cross-fertilize best management practices, streamline logistics, aggregate volumes, offer state-of-the-art engineering, and provide a truly global e-waste solution. The expertise, experience, and relationships of the EWSI senior management team, particularly in the application of scale cost reductions, business development, and technology implementation is a key differentiator. eWaste’s primary customer targets are organizations facing a mix of regulatory, environmental, and price pressures, as well as an increasing need to protect their brand names and safeguard their data in the management of their e-waste. eWaste Systems’ adherence to the principles of Fair Trade and the requirements of the WEEE Directive provides these customers with reassurance that end-of-life e-waste management is not only fully compliant and certified but is also done with social and environmental responsibility at the forefront.

eVolve - This unit provides bestpractices management and business lease agreements to companies that want to become compliant to US GAAP. The agreements entitle eVolve to become responsible to execution of activities related to sales, accounting, advisory, training and business development. The strategy behind the lease and management agreements provide growth acceleration with lower capital costs than acquisition and strategic industry penetration with synergies between the companies. In support of the eWaste branch, the agreements will include full commitment to the environmental compliance providing eco-friendly initiatives and services.  eVolve primary customers targets are companies that wish to grow their business and to enhance the management, accounting and operations of their business to such high standards that they may potentially become a public company or become attractive for investing/acquiring purposes. All companies under this type of agreement report directly for balance sheet purposes.

eIncubator takes in consideration different forms of investments and ventures directly and indirectly related to the e-waste market by which business can experience future growth by developing new products or processes to improve and expand operations and market opportunities. The companies involved in Joint Ventures with eIncubator benefit of added credibility and visibility through the wide network of affiliates of the group nevertheless of the expertise and know-how to develop and improve the business. The ideal candidates for Joint Venture investments with eIncubator are companies that have developed innovative technologies or other compelling businesses. eIncubator promotes and supports also social and environmental no-profit ventures.

Surf Investments.  Surf Investments, Ltd dba CPU Computer Repair has completed 2013 with a profit and followed that up with another profitable quarter ended March 31, 2014, utilizing a strategy of taking the company back to its core strengths of customer service and computer repair. Surf is focused on value add services such as corporate imaging services and custom solutions.

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E-Waste Systems Cincinnati, Inc.  E-Waste Systems Cincinnati acquired the new location in Springdale, OH on February 3, 2014 and was open for business March 2014. The core business is pick-up of e-waste from local business and processing the commodities for a profit. Our primary focus is to secure our R2/e-Steward certifications and refine our procedures/processes so they can be replicated for additional locations. Our Geneva NY location acquired the R2 certification during the third quarter and is continuing the process to obtain the e-Steward certifications.

Factors impacting EWSI’s Consolidated Results of Operations

The principal factors that impact our past and future results of operations include:

● Availability of feedstock volumes. We do not have any formal contracts with suppliers of feedstock batches. There is no mechanism in place that effectively underpins our access to a regular, predictable volume of feedstock each week/month. Our revenue streams are all dependent on batches of used electronic equipment being available to fuel the repair, refurbishment and spare parts recovery processes from which the revenue base is derived.

● Demand for second-hand electronic equipment. Our revenue, operating results and investment in working capital depend on the level of demand for second-hand electronic equipment that has been repaired and/or refurbished together with a requirement for recovered spare parts that can be used in repair and refurbishment operations.  We will usually have concluded an agreement or be in advanced negotiations to sell our repaired and refurbished units before we commit to buying feedstock batches. This careful management of the profits and cash cycles will be disrupted if demand for used electronics were to sharply decline for any reason including businesses and consumers curtailing their investment in new equipment in response to changes in economic conditions.

  ● Market prices for certain commodities. Our business is affected by changes in the market prices of certain traded commodities, notably those precious metals that are used to manufacture key components found in electronic equipment today. Movements in the prices at which these commodities are traded influences the prices at various stages of the reverse supply chain for electronic goods, including the prices that we negotiate to acquire our feedstock volumes and the value we are able to extract from the residual scrap remaining at the end of our repair, refurbishment and spare parts recovery processes.

● Regulatory changes. The businesses that derive their revenue and profits from handling electronic waste in the United States are exposed to increasingly pervasive legislative and regulatory regimes at both Federal and State levels of government. Each time the legal or regulatory backcloth changes it is likely that incremental cost is added to the reverse supply chain, which in turn implies that all participants in that supply chain will observe an increase in their operating cost base, which depending on their leverage may, or may not, be capable of being passed on downstream.

● General and administrative costs. Our business is still very young and at the beginning of its pursuit of organic and external growth. In order to execute on any strategy for growth, we expect to have to further increase its general and administrative overheads cost base. Our results from operations will be adversely impacted if these additional overhead costs are incurred before the growth in revenue is received.

Consolidated Results of Operations for E-Waste Systems, Inc. – Continuing Operations

Three months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013 (restated)

Revenues – Continuing Operations

We generated revenue of $325,901 during the three months ended September 30, 2014 compared to $177,524 for the three months ended September 30, 2013.  

Cost of Sales – Continuing Operations

Cost of sales was $110,398 for the three months ended September 30, 2014 compared to $105,755 for the three months ended September 30, 2013.

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Gross Profit – Continuing Operations

Gross profit for the three months ended September 30, 2014 was $215,503, compared to gross profit of $71,769 for the three months ended September 30, 2013.

Operating Expenses – Continuing Operations

.

We incurred operating expenses of $638,493 and $2,661,852 for three months ended September 30, 2014 and 2013, respectively.  Our operating expenses consisted of directors’ and officers’ accrued compensation, professional fees, impairment in goodwill related to debt purchase, impairment in available for sale securities, and general and administrative expenses.

Other Expenses – Continuing Operations

.

We incurred other expenses of $220,599 and other income of $366,970 for three months ended September 30, 2014 and 2013, respectively.  Our other expenses consisted of interest expense, net, changes in derivative liabilities, and currency exchange gain.

Net Loss – Continuing Operations

As a result of the above, we reported a net loss from continuing operations of $202,391 and $2,957,053 for the three months ended September 30, 2014 and 2013, respectively.

For the three months ended September 30, 2014 and 2013, we reported a loss from discontinued operations of $6,275 and net income of $3,500, due to the issuance of common stock to a former employee as part of a settlement agreement for services rendered for the three months ended September 30, 2014.

Nine months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013 (restated)

Revenues – Continuing Operations

We generated revenue of $1,380,183 during the nine months ended September 30, 2014 compared to $434,536 for the nine months ended September 30, 2013.  

Cost of Sales – Continuing Operations

Cost of sales was $906,437 for the nine months ended September 30, 2014 compared to $249,639 for the nine months ended September 30, 2013.

Gross Profit – Continuing Operations

Gross profit for the nine months ended September 30, 2014 was $473,746, compared to gross profit of $184,897 for the nine months ended September 30, 2013.

Operating Expenses – Continuing Operations

.

We incurred operating expenses of $7,836,322 and $4,399,491 for nine months ended September 30, 2014 and 2013, respectively.  Our operating expenses consisted of directors’ and officers’ accrued compensation, professional fees, impairment in goodwill related to debt purchase, impairment in available for sale securities, and general and administrative expenses.

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Other Expenses – Continuing Operations

.

We incurred other expenses of $2,091,194 and $492,924 for nine months ended September 30, 2014 and 2013, respectively.  Our other expenses consisted of interest expense, net, changes in derivative liabilities, and currency exchange gain.

Net Loss – Continuing Operations

As a result of the above, we reported a net loss from continuing operations of $9,453,770 and $4,707,518 for the nine months ended September 30, 2014 and 2013, respectively.

For the nine months ended September 30, 2014 and 2013, we reported income from discontinued operations of $81,823 and a loss of $143, due to the write off of outstanding payables for nine months ended September 30, 2014.

Liquidity and Capital Resources

As of September 30, 2014, our consolidated balance sheet presented total current assets of $468,798 and total current liabilities of $6,195,721, which resulted in a working capital deficit of $5,726,923.  

To date, we have relied upon issuances of unsecured notes to finance our operations and help us meet our short-term obligations.  There is no assurance that we will be able to continue to issue notes to finance our short-term obligations.  Our present capital resources are insufficient to implement our business plan.  The operating expenses for the year will consist primarily of compensation for senior management, professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as transfer agent fees, travel and general office expenses.  Our current cash on hand is insufficient to make our planned expenditures and to pay for our general operating expenses over the next twelve months.  Accordingly, we must obtain additional financing in order to continue to implement our business plan during and beyond the next twelve months.

We are working on debt financing based upon our growth of available collateral and expanded operations and in addition, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock.  We are currently seeking additional funding in the form of equity financing from the sale of our common stock, but cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to implement our business plan. Additional equity financings could result in significant dilution to our stockholders.  In the absence of such financing, we will not be able to implement our business plan or pursue any acquisition.  If we are unable to raise additional capital in the near future, we will experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.

Consolidated Cash Used in Operating Activities

Continuing operating activities during the nine months ended September 30, 2014 used cash of $1,292,665, which is a reflection of the corresponding period’s operating results.  Our consolidated net loss from continuing operations reported for the nine months ended September 30, 2014 of $9,453,770 was the primary reason for our negative operating cash flow.  The impact of consolidated net loss from continuing operations on our consolidated operating cash flow was substantially offset by convertible promissory notes issued for services of $191,140, amortization in debt discount of $149,005, changes in derivative liability of $1,616,832, common stock issued for services of $871,345, stock based compensation of $1,658,442, preferred stock issued for services of $2,817,100, a write off of former officer and director accrued compensation of $566,825, changes in accounts receivable, net of $(111,098), changes in accounts payable and accrued expenses of $533,609 and changes in accrued expenses, related party of $(570,059).

Cash used in discontinued operating activities for the nine months ended September 30, 2014 was $81,823.

Consolidated Cash Used in Investing Activities

We had used cash totaling $225,128 for investing activities from continuing operations.  This consisted of $120,661 used to purchase equipment in our subsidiaries, and $104,467 used towards security deposits.

We did not use any cash for discontinued investing activities in 2014 or 2013.

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Consolidated Cash from Financing Activities

We have financed our operations primarily from loans made to the Company.  Consolidated net cash flow provided by continuing financing activities for the nine months ended September 30, 2014 was $1,468,257.  This consisted of $1,358,475 in proceeds from convertible notes payable, $31,610 in advances from related parties, $12,965 in advances from others, and $153,000 in common stock issued for cash, all offset by principal payments towards convertible notes payable of $27,500, principal payments towards notes payable of $54,293, and principal payments towards convertible notes payable, related parties of $6,000.

We did not use any cash for discontinued financing activities in 2014 or 2013.

Going Concern

Our financial statements are 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. We have not yet established an on-going source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations.

In order to continue as a going concern, we will need, among other things, additional capital resources. Management’s plan is to obtain such resources for us by obtaining capital from management and significant shareholders sufficient to meet our minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Critical Accounting Policies

Our financial statements have been prepared in conformity with GAAP. For a full description of our accounting policies as required by GAAP, refer to our condensed consolidated financial statements for the year ended December 31, 2013, that are included in this Annual Report on Form 10-K. We consider certain accounting policies to be critical to an understanding of our condensed consolidated financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain. The specific risks related to these critical accounting policies are described in our condensed consolidated financial statements for the year ended December 31, 2013.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

(Not Applicable)

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Martin Nielson.  Based upon that evaluation, our Chief Executive Officer concluded that, as of September 30, 2014, our disclosure controls and procedures are not effective, we are, however, still in the process of evaluating and implementing changes in our disclosure controls and procedures.  

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Secretary/Treasurer, to allow timely decisions regarding required disclosure.

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Management’s Report on Internal Control over Financial Reporting

Changes in Internal Control over Financial Reporting 

During the nine months ended September 30, 2014, there have been no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2014 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2013, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with limited staff to carry out administrative duties: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

We are taking steps to enhance and improve the design of our internal control over financial reporting. To remediate such weaknesses, we began the process of implementing the following changes (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

The Company replaced its internal Chief Financial Officer (“CFO”) with a contract with the The CFO Squad to provide a depth of capability and significant knowledge base to guide the Company.

Remediation of Material Weakness

We are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees and upgrade both the applications and information technology environment that we make use of for financial reporting and control purposes.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

As of the filing of this document, the Company is not aware of any current or pending litigation expected to have a material adverse impact on the Company.

Item 1A – Risk Factors

Not required.

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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

Effective April 5, 2013, the Company entered into a Series A Convertible Callable Preferred Stock Purchase Agreement (“the Agreement”) pursuant to the Master License Agreement entered into with Tanke, Inc. (“TNKE”) on February 6, 2013, whereby the Company granted TNKE a master license for the People’s Republic of China and TNKE agreed to make an investment into the Company.  This agreement was previously filed with the SEC on Form 8K on April 8, 2013 and incorporated herein by reference.

The Agreement is for the purchase of Six Hundred Fifty (650) shares of the Company’s Series A Convertible Callable Preferred Stock at a price of One Thousand Dollars ($1,000) per share.

For the offer and sale of the preferred stock described above, we have relied upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D and/or Regulation S.

Effective June 18, 2013, the Company entered into a Series A Convertible Callable Preferred Stock Purchase Agreement (the “Agreement”) pursuant to the Master License Agreement entered into with TNKE on February 6, 2013, whereby the Company granted TNKE a master license for the People’s Republic of China and TNKE agreed to make an investment into the Company.

The Agreement is for the purchase of Eight Hundred (800) shares of the Company’s Series A Convertible Callable Preferred Stock at a price of One Thousand Dollars ($1,000) per share.

Item 3.     Defaults upon Senior Securities

Note 10 to our condensed consolidated financial statements record our current defaults on the terms of loan notes that we have issued since October 2011.

Item 4.     Removed and Reserved

Item 5.     Other Information

Item 6.      Exhibits

See the Exhibit Index following the signatures page of this report, which is incorporated herein by reference.

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	E-Waste Systems, Inc.
Date:	November 14, 2014
By:	/s/   Martin Nielson
	Martin Nielson
Title:	President, Chief Executive Officer,          Financial Officer and Director

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E-Waste Systems, Inc.

(the “Registrant”)

(Commission File No. 333-165863)

Exhibit Index

To Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2014

Exhibit Number	Description	Incorporated by Reference to:	Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
10.1	Redwood Management – TCA – E-Waste Systems, Inc. Debt Settlement Agreement filed as Exhibit 10.1 to our Form 10Q for the period ended June 30, 2014 as filed with the SEC on August 19, 2014 and incorporated herein by reference	X
101.INS  †	XBRL Instance Document		X
101.SCH  †	XBRL Taxonomy Extension Schema Document		X
101.CAL  †	XBRL Taxonomy Extension Calculation Linkbase Document		X
101.DEF  †	XBRL Taxonomy Extension Definition Linkbase Document		X
101.LAB  †	XBRL Extension Labels Linkbase Document		X
101.PRE   †	XBRL Taxonomy Extension Presentation Linkbase Document		X

  † 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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