UPDATE: E-Waste Systems faces serious financial hurdles

 

UPDATE: E-Waste Systems faces serious financial hurdles

By Editorial Staff, Resource Recycling

At first glance, it would appear that E-Waste Systems, Inc. is a rising player in the electronics recycling industry, but a closer look at the firm's financial data tells a very different story.

E-Waste Systems may sound familiar to followers of electronics recycling trade press. Just this year, the company has issued press releases announcing the acquisition of processor 2TRG on July 9, the acquisition of Surf Investments Ltd. on June 24, the creation of a new business unit to enter the Indian market on June 20, a partnership with 1800eWaste to process material in Australia on May 14, the opening of an office in Shanghai on February 14, and numerous other expansions.

Yet this image the company is presenting to the public does not match the one it is presenting to shareholders.

According to E-Waste Systems' publicly-available 10-K filings with the the U.S. Securities and Exchange Commission, the company reported zero revenue for both FY 2012 and FY 2011. As a result, the company has paid no income tax for the past two years.

There are other red flags in the financial statements as well, such as the fact that at the end of FY 2012, the company had just $139 in cash on hand. The company's current ratio — its current assets divided by current liabilities — has been hovering just above zero for the past two years, indicating serious liquidity problems at E-Waste Systems.

EWSI Balance Sheet

Additionally, E-Waste Systems lists only three employees — the CEO, CFO and secretary/treasurer. In 2012, the CEO's annual compensation was $372,969 (all cash), the secretary's was $86,000, and the CFO was unpaid. This irregular compensation arrangement was in place despite year-over-year losses. In 2011 and 2012 the company had an operational loss of $1,057,509 and $1,296,917 respectively, the majority (over 97 percent) of which went to cover officer and director compensation and "professional fees."

EWSI Compensation

But the inconsistencies don't end there. For instance, page 7 of the company's 10-K states, "We have voluntarily adopted the R2 and WEEE Directive compliance standards even though we are not required to do so." However, there is no record of E-Waste Systems on the R2 Solutions roster of certified companies, nor is there any record of TDI, which the company acquired in 2011, currently doing business as E-Waste Systems Ohio. E-scrap processor 2TRG is both e-Stewards and R2 certified, but E-Waste Systems' 2012 financial statements predate the acquisition of this company.

E-Waste Systems did not return repeated requests for comment on this story by press time. This story will be updated with their responses when they are received by E-Scrap News.

UPDATE: E-Waste Systems' CEO Martin Nielson has replied to the intial story with an open letter to the company's shareholders and stakeholders.  E-Scrap News contacted E-Waste Systems five times before going to print with the story and will update the story again if the company responds to those initial queries.

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Comments

Busted

How can can yoiu possibly call attention to the fact that E waste is broke, just because they are?

Hell hath no fury

Hell hath no fury like a woman scorn, or in this case, an investor forced to look at what he actually bought.

The E-waste shareholders are somewhat like a cult which believes that in the whole wide world, they are the only ones who have the foresight to see the true value of this company and that it will in turn make them all multi-millionaires.  You, on the otherhand, must either have an agenda or be incompetent to not see what is so obvious to them.

It  would be funny if not so pathic. 

They point to the latest 10k as proof that they are right and you are wrong, never noticing that that the OS has increased by 40%, the licensing fees are recievables (and will probably remain so forever) and they spent another 3/4 of a million to accomplish all this.

Then they proudly boast of the new finance package,  Ah yes, the toxic finacing of Global Credit whereby they give EWSI some money in exchange for stock at a fraction of the then current pps, sell it on the open market driving down the price, and continually repeat the process until the OS has reached it limit.  They then implemant a R/S, bring in a new group of sucker and start the process all over again.

I don't know whether to laugh or cry.

 

Hatchet Job

If you have not asked for an independent evaluation of this article, you should.  The failure to incorporate the latest corporate filing, while citing the most recent announcements is logically flawed.  It makes me questions any of your articles.  I especialy like the way you removed the names of the authors as soon as you realized you had a problem.  Let me guess, interns?  Guest writers?  You have used your publication to seriously hurt a company, trying to solve a problem in your industry, through sloppy research and sloppier writing, and now you are not strong enough to stand up and admit your mistake.  You owe the company and your readers an apology and a commitment to get better researchers and do more thorough review before you print old news and present it as something new, and then get it wrong.  But don't trust me.  I am a shareholder trying to help this company be successful, so I'm biased.  Find some independent people to review what you have done and see what they say.  But you already know the answer or you would not have removed the authors' names.

Please respond ...

From the Open Letter ...

1) The reporters never indicated their real intention for this article; asked for answers to questions without context and then published this article without receipt of our comments.

I would like Resource Recycling to provide more detail regarding the questions asked, in what context, and time allowed for company to prepare a response that was properly vetted with the audit and legal teams.

2)  In fact their ‘financial analysis’ completely ignored any of the developments this year.

Again, please provide some commentary on why the reporters chose to ignore current events, financials, and other publicly available information, and instead focused on previous years data that did/does not reflect the company's accomplishments under current management.

Re: Please respond ...

Our questions were given to the company several days before we went to print. We still have not received answers to any of the questions asked. We welcome the company's responses and will likely follow up this article with another when we receive responses to those queries.

The article was obviously not a holistic look at the company.  It was a snapshot of the firm -- which had, in recent months, issued numerous press releases touting various marketing deals and expansions -- viewed through it's year-end earnings release.  There was no agenda behind the article other than a curiosity stemming from the numerous releases from the company. 

Dylan de Thomas
Editorial Director
Resource Recycling, Inc.
dylan@resource-recycling.com

General Comment

You're right!  It was not a holistic evaluation of EWSI.  It was a snapshot from an old filing that set the stage for a new business plan which has been aggressively executed throughout 2013.  Curiosity?  There were a couple totally false statements in your article based on your review of the 10-K.  You could not have possibly read the document.  You browsed it and then tossed out so many "red flag" statements that a reader could only come away with a negative bias toward the company.  An accurate snapshot of the company would have been better served from their Q1 filing, which you clearly did not see fit to evaluate.  2012 is absolutely not an updated snapshot of the company.   It is utterly amazing you only waited a few days to get responses to your questions from a multi-national company conducting business around the globe.   Q2 will be filed within four weeks time.  This will provide the most current and up to date information available to all stakeholders.  It will be worth the wait I think. 

I am intrigued...

I am intrigued. This is an interesting way to introduce this company. The article reads like you guys have a philosophical difference with this company or a personal beef, but you don't specifically say what that is, but it is definitely there between the lines and in the front page and article headlines.

Is there something in their business strategy and/or environmental philosophy that is at odds with your organization that guided the angle you took on them?

 

and your editorial staff's answer is....?

and your editorial staff's answer to the question is.....?

could you clarify

with regards to this line in your article, "Yet this image the company is presenting to the public does not match the one it is presenting to shareholders," I am very curious as to what you mean.

Do you mean to imply you believe they aren't a rising player and are misleading people about that or do you mean that they are a rising player and as of print time you haven't figured out their current financing model that is allowing them to create the partnerships and acquisitions of 2013 that they have been talking about in their press releases?

The letter to shareholders that you linked your article to says that they needed to run their responses by auditors and legal. are those questions you are awaiting answers on related to their 2013 current financing and business strategy and didn't get to you in time to help form your assumptions?

I ask because I don't see the information from financials and form 8k info from this year, so I am assuming there is a reason. After reading through those filings from 2013 and the other statements from the company available off of their website and blog I am confused though as those seem to already be publicly available.

Thanks in advance for clarification.

will you address these questions too?

will you be addressing these questions as well? especially, why you elected to not include the publicly available data and information about the company from 2013?

What's Current

Here's what you should be talking about ..... ACCOMPLLISHMENTS so far this year:

 To date in 2013, EWSI has established its brand in the USA, UK, Australia, China, India, and Mexico, and before the end of the year the Company expects 
to be in a dozen or more countries via branding & licensing agreements.
 The recent acquisition of Surf Investments, now to be trading as E-Waste Systems (CA) is in need of new space and with EWSI’s current sponsorship 
by the Los Angeles Cleantech Incubator (‘LACI’), among the options being considered is a merging of operations into facilities which are part of LACI.
 EWSI’s recently announced Mexico (SCOEX) logistics technology deal is expected to generate $1.7M in revenues in its first year.
 When asked about trends in sector, Mr. Nielson pointed out that the industry needs leadership; that the industry knows no international borders; and that 
EWSI is offering to bring e-waste solutions globally. The eWaste brand is now in the USA, UK, Australia, China, India, and Mexico. 
 EWSI maintains a zero landfill policy and operates voluntarily under the world's strictest e-waste standards, which it believes to be the European Union’s WEEE Directive. EWSI will only partner with companies that share their same high standards.
 Revenues are expected to continue to accelerate throughout 2013 and EWSI’s first $1 million quarter could be achieved shortly.
 Before the end of the year EWSI expects to be in a dozen or more countries via branding/licensing agreements.
 At least one more acquisition is expected to be completed before the end of the year. EWSI announced 2TRG as the next acquisition focus with a potential 
$5 million in added annual revenues and over 75 million tons of capacity.
 Up to five more eManagement Contracts will be signed before the end of the year.
 New technology offerings are expected to gain serious commercial traction. eWasteCC™ (Carbon Credit), ePlant1000™, and the just announced eWasteTRACK™ will lead the way. EWSI also indicated there may be more technologies to be added. Nielson added the quote, “The SCOEX team of technically savvy professionals has created an integrated global platform from source to destination that we can use to weed out improper transport and import/export trading, ensure compliance, while streamlining the entire trading process. The commercial synergies possible with the Mexico-California presence of our two companies are expected to be used as solid building blocks for our growth”.
 
 

General Comment

 

 It is very strange that you would just now be writing an article that references EWSI's 10-K filing several months after it was filed.  Why now??  The 10-K clearly described the company's difficulties during 2012, plus it also very clearly contained language indicating the company had already identified their mistakes and had tweaked their 2013 business model.  In essence, EWSI leadership learned from their mistakes and put their new plan to work.

 

Your article is factually incorrect in spots as well.  Suggesting the CEO received compensation in the form of all cash is simply wrong.  All you had to do was read the entire document, rather than copying and pasting a balance sheet and creating a "very late breaking...yet misleading article."  Anyone else would have read the entire filing, and then reviewed all of the 2013 filings/PRs plus the Q1 filing to validate progress in their business.  Anyone conducting reasonable DD would plainly see that they are making incredible strides in 2013, and they have attracted some of the best talent in the country and around the globe to join in their efforts to bring efficiencies to the 100B e-waste/reverse logistics market.  Do they have challenges?  Of course they do.  All recyclers are challenged.  The industry is fragmented, full of fraud and abuse, and it desperately needs a new direction.  EWSI is stepping up to the plate after six years of research and due diligance on the industry with a clear plan to consolidate the industry and provide a NO LANDFILL option for all stakeholders.  The players joining their team are incredibly well versed in the e-waste industry from all aspects, including federal government and state legislation.  They know changes need to occur, and they're joining Martin Nielson to make those changes occur now, rather than later, or never for that matter.  They are fully capable of quick and efficient execution at all levels of their organization.

 

I appreciate the opportunity to respond to your article.  Once people actually do take a closer look at EWSI as you suggest, I think they'll see something very powerful and bright that can in fact brings change to the e-waste and reverse logistics sector domestically and globally.  They are chock full of amazing talent (at least 30 people supporting their effort and growing all the time) and are executing very swifty and efficiently now.  Their proposition is huge and should be welcomed by the entire industry!!

(Disclaimer:  I am a current shareholder of EWSI common stock.  I am completely bullish on their chance for worldwide success and I do expect them at some point in the future to become a billion dollar company.)

Inconsistencies and sloppy reporting ...

 

It's really unfortunate to see such sloppy reporting of good company.  The article chooses to ignore any of the 2013 accomplishments to date and instead of using current data from the most recent 10Q, refers to old data from the 10K that does not take into account actions of the company and leadership since implementation of the realigned buisness approach announced in January 2013 (http://www.ewastesystems.com/wp-content/uploads/2012/09/press_release_2013-01-09.pdf).

Since you posted the 10K, I thought it only appropriate that the 10Q should be posted as well. Public information available shows a significant improvement in the balance sheet and revenue generation in just the 1st quarter (http://www.sec.gov/Archives/edgar/data/1488309/000111776813000310/mainbody.htm).

The writer (by omission) also chose to ignore public information regarding current staff available on the company's website ... E-Waste Systems is growing rapidly and presently has 29 employees, advisors, and associates ... not 3 (http://www.ewastesystems.com/company/our-team/).

If your going to write, take the time to do it right.

financials don't add up - something fishy to me

I'm not a CPA but in the first quarter:

The company LOST $487,000

Its liabilities ROSE $189,000

But its stockholders deficit DECREASED by $692,000 all while having TOTAL REVENUE of $227,000?

This does not appear to make any sense but again I'm no CPA.

I guess I'm missing something including how these acqusitions were paid for?

Hilarious!

You're not a CPA, yet you make comments about a balance sheet that doesn't make sense to you?  That is hilarious.  How are the acquisitions occurring?  Why don't you try reading the filings...it's all there.  Maybe you can question the 7M in financing support the company is receiving while you're at it! (LOL)  Maybe you could read the updated Business Summary that was posted on the EWSI web site yesterday explaining in great detail how they're going to move their business forward financially.  You should really be confused then!! (LOL)  Thanks for the laugh.  I needed that........

Why has the original article

Why has the original article been changed multiple times during the day today?  Changing who wrote the article and then changing how many times you contacted EWSI before you posted the article?

Funny thing is screen shots of the changes can be used against you ;) LOL!

If you do not believe in your own article quit changing it and retract it.

I am a shareholder and I believe EWSI will be on the BIG BOARDS in the end. Mark..

 

Re: Why has the original article

The article has been updated, per the headline, and the byline was changed to reflect that additional writers worked on the story.

Dylan de Thomas

Editorial Director
Resource Recycling, Inc.
dylan@resource-recycling.com

 

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