Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 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, 2009**

 

**or**

** **
| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-------|------------|-----------------------------------------------------------------------------------------------------|

 

**For the transition period from                 to                **

 

**COMMISSION FILE NUMBER 333-151108**

 

**WASTE2ENERGY HOLDINGS, INC.**

(ExactName of Registrant as Specified in its Charter)

 

| **Delaware**

(State  or Other Jurisdiction of

Incorporation  or Organization)                      | ** ** | **26-2255797**

(IRS  Employer

Identification  Number) |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|
| ** **                                                                                           | ** ** | ** **                                              |
| **1  Chick Springs Road, Suite 218, Greenville, SC**

(Address  of Principal Executive Offices) | ** ** | **29609**

(Zip  Code)                                  |

 

Registrant’s telephone number including area code:**(864)679-1625**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x Noo

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or such shorter period that the registrant was required to submit andpost such files.  Yes o No  ̈

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

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

 

**Applicable Only to Corporate Issuers:**

The number of shares of the Registrant’s Common Stock outstanding as ofthe last practicable date:

 

| **Class**                      | ** ** | **Outstanding  as of November 5, 2009** |
|--------------------------------|------------|----------------------------------------------|
| Common Stock, $.0001 par value | ** ** | 50,001,241                                   |

 

 

 

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**WASTE2ENERGY HOLDINGS, INC.**

 

**TABLE OFCONTENTS**

 
| ** **                                                                                                | **Page** |
|-----------------------------------------------------------------------------------------------------------|----------|
| **PART I -  FINANCIAL INFORMATION**                                                                  |     |
|                                                                                                      |     |
| Item 1. Financial Statements                                                                              | 3        |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results  of Operations | 28       |
| Item 3. Quantitative  and Qualitative Disclosures About Market Risk                                       | 32       |
| Item 4T. Controls  and Procedures                                                                         | 32       |
| **PART II -  OTHER INFORMATION**                                                                     |     |
|                                                                                                      |     |
| Item 1. Legal Proceedings                                                                                 | 33       |
| Item 1A. Risk Factors                                                                                     |     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                      | 34       |
| Item 3.  Defaults Upon Senior Securities                                                                  | 34       |
| Item 4.  Submission of Matters to a Vote of Security Holders                                              | 34       |
| Item 5. Other  Information                                                                                | 34       |
| Item 6. Exhibits                                                                                          | 34       |
| **SIGNATURES**                                                                                            | 35       |

 

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**PART IFinancial Information**

 

**ITEM1 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS.**

 

**WASTE2ENERGY HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**SEPTEMBER 30, 2009 AND MARCH 31, 2009**

 
| ** **                                                                                                                                                                                | ** ** | **September 30,** | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2009**               | ** ** | **2009**           | ** ** |
| ** **                                                                                                                                                                                | ** ** | **(Unaudited)**        | ** ** | ** **         | ** ** |
| ASSETS                                                                                                                                                                                    | ** ** | ** **             | ** ** | ** **         | ** ** |
| CURRENT  ASSETS:                                                                                                                                                                          |       |                   |       |               |       |
| Cash                                                                                                                                                                                      |       | $                      | 9,047      |               | $          | 27,360 |   |
| Contracts  Receivable                                                                                                                                                                     |       | —                 |       | 53,250             |       |
| Unbilled  amounts due on uncompleted contracts                                                                                                                                            |       | 499,857                |       | 118,123            |       |
| Deferred  job costs                                                                                                                                                                       |       | 193,358                |       | —             |       |
| Deferred  financing costs                                                                                                                                                                 |       | 112,826                |       | 107,300            |       |
| VAT  recoverable                                                                                                                                                                          |       | 30,897                 |       | —             |       |
| Other  current assets                                                                                                                                                                     |       | 10,711                 |       | 60,135             |       |
| Current  assets from discontinued operations                                                                                                                                              |       | 7,545                  |       | 1,413              |       |
| Total  current assets                                                                                                                                                                     |       | 864,241                |       | 367,581            |       |
| Equipment,  net                                                                                                                                                                           |       | 34,363                 |       | —             |       |
| Investment  in Enerwaste Europe, Ltd.                                                                                                                                                     |       | —                 |       | —             |       |
| Security  deposits                                                                                                                                                                        |       | 6,978                  |       | 2,971              |       |
| **TOTAL ASSETS**                                                                                                                                                                          |       | $                      | 905,582    |               | $          | 370,552 |   |
|                                                                                                                                                                                      |       |                   |       |               |       |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                                                                                               |       |                   |       |               |       |
| CURRENT  LIABILITIES:                                                                                                                                                                     |       |                   |       |               |       |
| Notes  payable, net                                                                                                                                                                       |       | $                      | 2,972,019  |               | $          | 2,279,828 |   |
| Accounts  payable                                                                                                                                                                         |       | 1,438,389              |       | 659,156            |       |
| Accrued  expenses                                                                                                                                                                         |       | 1,038,885              |       | 2,948,931          |       |
| Deferred  revenue                                                                                                                                                                         |       | 41,250                 |       | 41,250             |       |
| VAT  payable                                                                                                                                                                              |       | —                 |       | 8,354              |       |
| Due  to related parties                                                                                                                                                                   |       | 702,245                |       | 388,368            |       |
| Other  current liabilities                                                                                                                                                                |       | 30,487                 |       | 53,005             |       |
| Current  liabilities from discontinued operations                                                                                                                                         |       | 286,972                |       | 297,271            |       |
| Total  current liabilities                                                                                                                                                                |       | 6,510,247              |       | 6,676,163          |       |
| **TOTAL LIABILITIES**                                                                                                                                                                     |       | 6,510,247              |       | 6,676,163          |       |
|                                                                                                                                                                                      |       |                   |       |               |       |
| COMMITMENTS  AND CONTINGENCIES (Note 6 and 9)                                                                                                                                             |       |                   |       |               |       |
|                                                                                                                                                                                      |       |                   |       |               |       |
| STOCKHOLDERS’  DEFICIT:                                                                                                                                                              |       |                   |       |               |       |
| Common  stock, $.0001 par value, 80,000,000 shares authorized, 47,977,850 and  41,152,100 shares issued and outstanding at September 30, 2009 and  March 31, 2009, respectively |       | 4,798                  |       | 4,115              |       |
| Additional  paid in capital                                                                                                                                                               |       | 18,027,160             |       | 12,514,724         |       |
| Foreign  currency translation adjustment                                                                                                                                                  |       | 38,758                 |       | (92,101            | )          |
| Accumulated  deficit                                                                                                                                                                      |       | (23,675,381            | )          | (18,732,349        | )          |
| **TOTAL STOCKHOLDERS’ DEFICIT**                                                                                                                                                      |       | (5,604,665             | )          | (6,305,611         | )          |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                                                                                      |       | $                      | 905,582    |               | $          | 370,552 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**WASTE2ENERGY HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**

** (Unaudited)**

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**   | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                 | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                       |       |                   |       |                   |       |   |   |   |   |
| Contract  revenues                                         |       | $                      | 408,829    |                   | $          | 1,702,425 |   | $ | 1,179,217 |   | $ | 1,702,425 |   |
| Contract  costs                                            |       | 730,569                |       | 1,567,343              |       | 1,501,119 |   | 1,567,343 |   |
| **GROSS (LOSS) PROFIT**                                    |       | (321,740               | )          | 135,082                |       | (321,902 | ) | 135,082 |   |
| Operating  Expenses                                        |       | 1,905,544              |       | 1,736,554              |       | 3,764,690 |   | 3,709,191 |   |
| **OPERATING LOSS**                                         |       | (2,227,284             | )          | (1,601,472             | )          | (4,086,592 | ) | (3,574,109 | ) |
| **OTHER INCOME (EXPENSE):**                                |       |                   |       |                   |       |   |   |   |   |
| Interest  expense                                          |       | (1,269,904             | )          | (109,780               | )          | (1,696,299 | ) | (109,780 | ) |
| Interest  income                                           |       | 7                      |       | (2,256                 | )          | 139 |   | — |   |
| Loss  on deemed extinguishment of debt                     |       | —                 |       | —                 |       | (669,082 | ) | — |   |
| Foreign  currency exchange (loss) gain                     |       | (38,700                | )          | 171,600                |       | (2,124 | ) | 171,600 |   |
| Loss  on equity method investment                          |       | —                 |       | —                 |       | — |   | (506,757 | ) |
| Gain  on legal settlement                                  |       | —                 |       | —                 |       | 1,510,995 |   | — |   |
| Gain  on disposal of assets                                |       | —                 |       | 13,834                 |       | — |   | 13,834 |   |
| **TOTAL OTHER INCOME (EXPENSE), NET**                      |       | (1,308,597             | )          | 73,398                 |       | (856,371 | ) | (431,103 | ) |
| Loss  from continuing operations before income tax benefit |       | (3,535,881             | )          | (1,528,074             | )          | (4,942,963 | ) | (4,005,212 | ) |
| Income  tax benefit                                        |       | —                 |       | 866,426                |       | — |   | 1,527,226 |   |
| **LOSS FROM CONTINUING OPERATIONS**                        |       | (3,535,881             | )          | (661,648               | )          | (4,942,963 | ) | (2,477,986 | ) |
| **LOSS FROM DISCONTINUED OPERATIONS**                      |       | (45                    | )          | 9,077                  |       | (69 | ) | (29,419 | ) |
| **NET LOSS**                                               |       | (3,535,926             | )          | (652,571               | )          | (4,943,032 | ) | (2,507,405 | ) |
| Foreign  currency translation adjustment                   |       | 157,128                |       | (1,553,710             | )          | 130,859 |   | (730,344 | ) |
| **COMPREHENSIVE LOSS**                                     |       | $                      | (3,378,798 | )                      | $          | (2,206,281 | ) | $ | (4,812,173 | ) | $ | (3,237,749 | ) |
|                                                       |       |                   |       |                   |       |   |   |   |   |
| Weighted  Average Common Shares Outstanding:               |       |                   |       |                   |       |   |   |   |   |
| Basic                                                      |       | 49,672,519             |       | 39,617,595             |       | 48,198,041 |   | 36,298,211 |   |
| Diluted                                                    |       | 49,672,519             |       | 39,617,595             |       | 48,198,041 |   | 36,298,211 |   |
| **LOSS PER COMMON SHARE (Basic and Diluted):**             |       |                   |       |                   |       |   |   |   |   |
| Continuing  operations                                     |       | $                      | (0.07      | )                      | $          | (0.02 | ) | $ | (0.10 | ) | $ | (0.07 | ) |
| Discontinued  operations                                   |       | —                 |       | —                 |       | — |   | — |   |
| **NET LOSS PER COMMON SHARE**                              |       | $                      | (0.07      | )                      | $          | (0.02 | ) | $ | (0.10 | ) | $ | (0.07 | ) |

 

The accompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**CONDENSED CONSOLIDATED CASH FLOWS**

**FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2008**

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Operating activities:**                                                                            |       |       |       |       |       |
| **Loss from continuing operations**                                                                  |       | $          | (4,942,963 | )          | $          | (2,477,986 | ) |
| Adjustments  to reconcile loss from continuing operations to net cash used in operating  activities: |       |       |       |       |       |
| Foreign  currency exchange gains                                                                     |       | 2,124      |       | (171,600   | )          |
| Equity  in loss on investment in EnerWaste Europe, Ltd                                               |       | —     |       | 506,757    |       |
| Depreciation  and amortization                                                                       |       | —     |       | 262,618    |       |
| Amortization  of discount on notes payable                                                           |       | 997,051    |       | 8,425      |       |
| Amortization  of deferred financing costs                                                            |       | 468,227    |       | —     |       |
| Loss  on deemed extinguishment of debt                                                               |       | 669,082    |       | —     |       |
| Warrants  issued for consulting services                                                             |       | —     |       | 775,899    |       |
| Warrants  issued for compensation                                                                    |       | 140,562    |       | 1,287,444  |       |
| Common  stock issued for consulting services                                                         |       | 630,000    |       | 351,250    |       |
| Deferred  taxes                                                                                      |       | —     |       | (1,525,325 | )          |
| Gain  on legal settlement                                                                            |       | (1,510,996 | )          | —     |       |
| **Changes in assets and liabilities:**                                                               |       |       |       |       |       |
| Due  from escrow agent                                                                               |       | —     |       | 373,582    |       |
| Contracts  Receivable                                                                                |       | 53,250     |       | (41,250    | )          |
| Unbilled  amounts due on uncompleted contracts                                                       |       | (368,172   | )          | (542,311   | )          |
| Deferred  job costs                                                                                  |       | (193,358   | )          | —     |       |
| Other  assets                                                                                        |       | 41,278     |       | 126        |       |
| Accounts  payable                                                                                    |       | 1,277,049  |       | 168,395    |       |
| Accrued  expenses                                                                                    |       | 320,194    |       | 95,784     |       |
| Deferred  revenue                                                                                    |       | —     |       | 41,250     |       |
| VAT  payable/recoverable                                                                             |       | (40,337    | )          | (33,927    | )          |
| Due  to related parties                                                                              |       | 297,992    |       | (159,948   | )          |
| Other  current liabilities                                                                           |       | 27,596     |       | —     |       |
| **Net cash used in operating activities**                                                            |       | (2,131,421 | )          | (1,080,817 | )          |
| Investing  activities:                                                                               |       |       |       |       |       |
| Purchase  of equipment                                                                               |       | (34,385    | )          | —     |       |
| Cash  acquired in acquisition                                                                        |       | —     |       | 718        |       |
| **Net cash (used in) provided by investing activities**                                              |       | (34,385    | )          | 718        |       |
| Financing  activities:                                                                               |       |       |       |       |       |
| Proceeds  from lines of credit, net                                                                  |       | —     |       | 141,631    |       |
| Proceeds  from notes payable, net of financing costs                                                 |       | 2,405,415  |       | 150,000    |       |
| Principal  payments on note payable                                                                  |       | (943,000   | )          | (64,492    | )          |
| Consideration  for cancellation and return of common stock                                           |       | (20,000    | )          | —     |       |
| Issuance  of common stock in private placement                                                       |       | —     |       | 56,364     |       |
| Fees  in connection with acquisition of public shell                                                 |       | (210,050   | )          | —     |       |
| Issuance  of common stock in private placement, net of financing costs                               |       | 899,211    |       | —     |       |
| **Net cash provided by financing activities**                                                        |       | 2,131,576  |       | 283,503    |       |
| Discontinued  operations:                                                                            |       |       |       |       |       |
| Operating  cash flows                                                                                |       | (16,500    | )          | (198,506   | )          |
| **Net cash (used in) discontinued operations**                                                       |       | (16,500    | )          | (198,506   | )          |
| Effect  of exchange rate changes on cash                                                             |       | 32,417     |       | 321,125    |       |
| **Net decrease in cash**                                                                             |       | (18,313    | )          | (673,977   | )          |
| Cash  — beginning                                                                               |       | 27,360     |       | 723,655    |       |
| **CASH — Ending**                                                                               |       | $          | 9,047      |       | $          | 49,678 |   |

 

 The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 1.**                     **THE COMPANY**

 

Theterms “we,” “ours,” “us,” and “Company” refer to Waste2Energy Holdings, Inc.and its subsidiaries.

 

**Organization**

 

We are a “cleantech”acquisition and technology company. We target waste to energy technologies thatgenerate “green power” converting waste streams, traditionally destined forlandfill, into clean, renewable energy.  The Company seeks smallfootprint, simple, cost effective technologies that are scalable, modular,environmentally friendly and robust enough to operate in harsh and remoteenvironments.  The Company is forging strategic alliances for theregional fabrication and manufacturing of its BOS TMsystems and the development of sales and distribution channels.

 

On May 6, 2009, theCompany entered into an Agreement and Plan of Merger (the “Merger Agreement”)with Waste2Energy Acquisition Co., a Delaware corporation and wholly ownedsubsidiary of the Company (the “Subsidiary”) and Waste2Energy, Inc. (“W2E”).   OnMay 28 2009, the Company, Subsidiary and W2E entered into Amendment No. 1to the Merger Agreement (“Amendment No. 1.”).  Pursuant toAmendment No. 1, the definition of Acquisition Shares was revised tomean 45,981,770 shares of W2E and Section 5.19(e) of the MergerAgreement was revised to note that the issued and outstanding share capital ofW2E consists of 45,981,770 issued and outstanding shares.  (TheMerger Agreement as amended by Amendment No. 1 is hereinafter referred toas the “Merger Agreement”). Pursuant to the Merger Agreement, on May 28,2009 (the “Closing”), the Subsidiary merged with and into W2E resulting in W2Ebecoming a wholly-owned subsidiary of the Company (the “Merger”). TheMerger was accounted for as a reverse merger and recapitalization.Pursuant to the Merger Agreement, the Company issued 45,981,770 shares ofcommon stock (the “Common Stock”) of the Company (the “Acquisition Shares”) tothe shareholders of W2E, representing approximately 96% of the issued andoutstanding Common Stock following the closing of the Merger and the saleof  Units (as defined below) concurrently with the Closing, andwarrants to purchase 18,760,000 shares of Common Stock (the “AcquisitionWarrants”) to the warrant holders of W2E at exercise prices ranging from $.10to $.75. Pursuant to the Merger Agreement, the outstanding shares of commonstock and warrants to purchase shares of common stock of W2E werecancelled.  Subsequent to the closing of the Merger, the Company willcontinue W2E’s operations. In July 2009, the name was changed toWaste2Energy Holdings, Inc.   On the Closing, the Company soldin a private placement 254,500 units (the “Units”) to investors (the “Investors”),each Unit consisting of (i) three (3) shares of Common Stock and (ii) athree-year warrant (the “Warrants”) to purchase three (3) additionalshares of Common Stock at an exercise price of $1.25 per share, at a purchaseprice of $2.00 per Unit and, as a result, the Company received gross proceedsof approximately $509,000 and issued the Investors an aggregate of 763,500shares of Common Stock and Warrants to purchase 763,500 shares of Common Stock(the “Warrant Shares”). The Warrants may not be exercised to the extent suchexercise would cause the holder of the Warrant, together with its affiliates,to beneficially own a number of shares of Common Stock which would exceed 4.99%of the Company’s then outstanding shares of Common Stock following suchexercise.

 

The private placement wasterminated in September 2009 and, including the units sold in May 2009,the Company raised $1,200,465 from the offering. In July and August 2009,the Company issued $2,500,000 of Debentures due 90 days from the date ofissuance. This debt bears interest at 10% and was used to refinance existingdebt and to fund operating expenses. In October and November 2009,the Company issued $4,485,147 of Senior Convertible Debentures bearing interestat 12% and due one year from date of issue. This debt was used to refinance existing debt and to fund operatingexpenses.

 

Management believes that theCompany’s ability to continue operations is dependent on its ability to raisecapital.  If the Company is unable to raise additional capital orencounters unforeseen circumstances, it may be required to take additionalmeasures to conserve liquidity, which could include, but not necessarily belimited to, curtailing its operations, suspending the pursuit of its businessplan, and controlling overhead expenses.  The Company cannot provideany assurance that it will raise additional capital as necessary nor can itprovide any assurance that new financing will be available to it on acceptableterms, if at all.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

***Basis of Presentation***

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith United States generally accepted accounting principles (“GAAP”) and withthe instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not include all information and footnotesrequired by GAAP for a complete set of financial statements.  In theopinion of management, all adjustments, (including normal recurring accruals) considerednecessary for a fair presentation have been included in the financialstatements.  Operating results for the interim period are notnecessarily indicative of the results that may be expected for the fiscal yearended March 31, 2010.  This form 10-Q should be read inconjunction with the Audited Consolidated Financial Statements and accompanyingNotes to the Consolidated Financial Statements in our Form 8K-A for theyear ended March 31, 2009 which was filed on October 1, 2009.

 

All significant intercompanyaccounts and transactions have been eliminated inconsolidation.  Significant events which occurred subsequent to September 30,2009, and prior to our filing date, have been disclosed in Note 11, SubsequentEvents.

 

**NOTE 2.**                     **LIQUIDITY, FINANCIAL CONDITIONAND MANAGEMENT’S PLANS**

 

The Company incurred a netloss from continuing operations of $4,942,963 and used $2,131,421 of cash incontinuing operations for the six months ended September 30,2009.  At September 30, 2009, the Company had a working capitaldeficit of $5,646,006 and a $23,675,381 accumulated deficit. These conditionsraise substantial doubt about the Company’s ability to continue as a goingconcern. These unaudited interim consolidated financial statements do notinclude any adjustments relating to the recovery of assets or theclassification of liabilities should the Company be unable to continue as agoing concern.

 

On May 28, 2009,simultaneous with the Merger, the Company also initiated a private placementoffering (“May Private Placement”) of up to 4,000,000 units (“Units’).Each Unit consists of (i) three shares of common stock, par value $0.001per share and (ii) a three-year warrant to purchase three additionalshares of common stock at an exercise price of$1.25 per share. This offering was terminatedin September 2009 and the Company raised $1,200,465 of capital with thistransaction. In July and August 2009, the Company issued $2,500,000of Debentures due 90 days from the date of issuance. This debt bears interestat 10% and was used to refinance existing debt and to fund operating expenses.

 

In October and November 2009,the Company issued $4,485,147 of Senior Convertible Debentures bearing interestat 12% and due one year from date of issue. This debt was used to refinance existing debt and to fund operatingexpenses. The Company cannot provide any assurance that it will successfullyraise any additional capital.

 

Management believes that thefunds the Company has raised, and the funds it expects to generate fromoperations, and its ability to raise additional capital, may enable it tosustain the business through September 30, 2010.  If the Companyis unable to raise additional capital or encounters unforeseen circumstances,it may be required to take additional measures to conserve liquidity, whichcould include, but not necessarily be limited to, curtailing its operations,suspending the pursuit of its business plan, and controlling overheadexpenses.  The Company cannot provide any assurance that it willraise additional capital as necessary nor can it provide any assurance that newfinancing will be available to it on acceptable terms, if at all.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 3.**                     **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

Thefollowing is a summary of the significant accounting policies followed in thepreparation of the accompanying condensed consolidated financial statements. OnJuly 1, 2009, the Financial Accounting Standards Board (“FASB”) issued theFASB Accounting Standards Codification (“ASC” or “the Codification”), thesingle source of authoritative, nongovernmental GAAP, except for rules andinterpretive releases of the Securities and Exchange Commission (“SEC”), whichare sources of authoritative GAAP for SEC registrants. All othernon-grandfathered, non-SEC accounting literature not included in theCodification is non-authoritative. The new guidelines and numbering systemprescribed by the Codification are used when referring to GAAP in this Form 10-Q.As the Codification was not intended to change or alter existing GAAP, it willnot have any impact on the Company’s condensed consolidated financialstatements.

 

***Use of Estimates***

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts of income andexpenses during the reported period.  The Company evaluates all ofits estimates on an on-going basis. Significant estimates and assumptionsinclude the valuation of acquired assets including the establishment of adeferred tax liability, the useful lives of acquired intangible assets and thevaluation of equity instruments.  In addition, the Company’s businessinvolves making significant estimates and assumptions in the normal course ofbusiness relating to its contracts and the long-term duration of a contractcycle. The most significant estimates with regard to its contracts relate tothe estimating of total forecasted construction contract revenues, costs andprofits in accordance with accounting for long-term contracts, as well asestimating the allowance for doubtful accounts with respect to contractsreceivable and reserves associated with warranty obligations.

 

Making estimates requiresmanagement to exercise significant judgment. It is at least reasonably possiblethat the estimate of the effect on the financial statements of a condition,situation or set of circumstances that existed at the date of the consolidatedfinancial statements, which management considered in formulating its estimatecould change in the near term due to one or more future confirming events. Accordingly,actual results could differ in the near term from these estimates, and suchdifferences could be material.

 

***Concentrations of Credit Risk***

 

Financialinstruments that potentially expose the Company to credit risk include cash. Attimes, our cash may be in uninsured or in deposit accounts that exceed theFederal Deposit Insurance Corporation (“FDIC”) insurance limit.  The Company places its cash with variousfinancial institutions and has not experienced any losses on these accounts.

 

For the three and six monthsended September 30, 2009 and 2008, substantially all the Company’srevenues were derived from one contract.  Prior to June 25, 2008, therevenues and results of operations of Enerwaste Europe, Ltd. (“EWE”) wereincluded in the Company’s loss on investment in EWE.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 3.**                     **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONTINUED)**

 

***Deferred Financing Costs***

 

Costs relating to obtainingthe debt portion of private placement offerings and notes are capitalized andamortized over the term of the related debt using the straight-line methodwhich approximates the interest method.  When a loan is paid in full,any unamortized financing costs are removed from the related accounts andcharged to operations.  During the six months ended September 30,2009, the Company incurred $137,585 in financing costs paid to third parties,in connection with the extension of outstanding loans and issuance of Notespayable, and $364,000 in placement fees incurred in connection with theissuance of Notes payable. Accumulated amortization at September 30, 2009was $239,239. Amortization of deferred financing costs charged to operationswas $319,158 and $468,227 for the three and six months ended September 30,2009, respectively.

 

***Debt Extinguishment Accounting***

 

The Company accounted foramendments to certain debt instruments to extended maturity dates, inaccordance with the guidelines enumerated in ASC 470 “Debt” (“ASC 470”)(formerly FASB Staff Position EITF Issue No. 96-19 “Debtor’s Accountingfor a Modification or Exchange of Debt Instruments.”) ASC 470 provides that asubstantial modification of terms in an existing debt instrument should beaccounted for like, and reported in the same manner as, an extinguishment ofdebt. ASC 470 further provides that the modification of a debt instrument by adebtor and a creditor in a non-troubled debt situation is deemed to have beenaccomplished with debt instruments that are substantially different if thepresent value of the cash flows under the terms of the new debt instrument isat least ten percent different from the present value of the remaining cashflows under the terms of the original instrument at the date of themodification.

 

The Company evaluated itsissuance of the note extensions and the related issuance of equity instruments todetermine whether the modification for the change in the maturity date and therelated issuance of equity instruments resulted in the issuance of asubstantially different debt instrument. The Company determined after givingeffect to the changes in the extended due dates and the consideration paid tothe debt holders that the Company had issued substantially different debtinstruments, which resulted in a constructive extinguishment of the originaldebt instrument. Accordingly, the Company recorded a loss on the extinguishmentof debt in the amount of $0 and $669,082 for the three and six months ended September 30,2009, respectively, which represented the value of additional equityinstruments given to debt holders to extend the maturity.  The debtinstrument charge is included in the accompanying statement of operations forthe six months ended September 30, 2009 (See Note 6).

 

***Net Loss Per Share***

 

The Company computes netloss per share in accordance with ASC 260 (formerly SFAS No. 128, “EarningsPer Share.”) Under ASC 260, basic net loss per share is computed by dividingnet loss per share available to common stockholders by the weighted averagenumber of shares outstanding for the period and excludes the effects of anypotentially dilutive securities. Diluted earnings per share, if presented,would include the dilution that would occur upon the exercise or conversion ofall potentially dilutive securities into common stock using the “treasury stock”and/or “if converted” methods as applicable. The computation of basic loss pershare for the three and six months ended September 30, 2009 and 2008excludes potentially dilutive securities because their inclusion would beanti-dilutive.

 

Warrantsto purchase 19,160,000 and 10,300,000 shares of common stock, respectively,were excluded from the computation of basic and diluted net loss pershare.  Weighted average sharesoutstanding (basic and diluted) includes 2,000,000 warrants exercisable at $.01issued to the placement agent on August 19, 2009, which are deemed to beoutstanding common stock for this calculation because of the $.01 exerciseprice.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 3.**                     **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONTINUED)**

 

The Company retrospectivelyadopted the provisions of ASC 260 “Earnings per Share” (formerly FASB StaffPosition EITF 03-6-1, “Determining Whether Instruments Granted in Share-BasedPayment Transactions Are Participating Securities”) on April 1, 2009.Under the new standard ASC 260 addresses whether instruments granted in sharebased payment transactions are participating securities prior to vesting and,therefore, need to be included in the earnings allocation in computing earningsper share (EPS) under the two class method described.  This provision of ASC 260 is effective forfinancial statements issued for fiscal years beginning after December 15,2008, and interim periods within those years. The adoption of this provision ofASC 260 did not have a material impact on the Company’s consolidated financialposition, results of operations or cash flows.

 

***Non-Controlling Interest***

 

The Company prospectivelyadopted the provisions of ASC 810 “Noncontrolling Interests in ConsolidatedFinancial Statements” (formerly SFAS No. 160, “Non-controlling Interestsin Consolidated Financial Statements”). ASC 810 establishes accounting andreporting standards for the non-controlling interest in a subsidiary and forthe deconsolidation of a subsidiary. This provision of ASC 810 is effective forfiscal years and interim periods within those fiscal years beginning on or afterDecember 15, 2008. Earlier adoption is prohibited. The adoption of thisprovision of ASC 810 did not have a material effect on the Company’sconsolidated financial position, results of operations or cash flows.

 

***Financial Instruments***

 

The Company adopted theprovisions of ASC 815-40 “Contracts in Entity’s Own Equity” (formerly EITFIssue No. 07-5, “Determining Whether an Instrument (or an EmbeddedFeature) Is Indexed to an Entity’s Own Stock”). ASC 815-40 provides that anentity should use a two step approach to evaluate whether an equity-linkedfinancial instrument, or embedded feature, is indexed to its own stock,including evaluating the instrument’s contingent exercise and settlementprovisions. It also clarifies on the impact of foreign currency denominatedstrike prices and market-based employee stock option valuations. This provisionof ASC 815-40 is effective for fiscal years beginning after December 15,2008 and interim periods within those fiscal years.  The adoption ofthe provisions of ASC 815-40 did not have a material effect on the Company’sconsolidated financial position, results of operations or cash flows.

 

***Recent Accounting Pronouncements***

 

The Company adopted theprovisions of ASC 855 “Subsequent Events” (formerly SFAS 165 “Subsequent Events”),which establishes general standards of accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued or are available to be issued. The provisions of ASC 855 are effectivefor interim and annual reporting periods ending after June 15, 2009. Weadopted the provisions of ASC 855 during the first quarter of fiscal 2009 andas the pronouncement only requires additional disclosures, the adoption did nothave an impact on our consolidated financial position, results of operations orcash flows. We have evaluated subsequent events through November 16, 2009,the date that these financial statements were issued.

 

In June 2009 the FASBissued SFAS 166, “Accounting for Transfers of financial Assets — an amendmentof FASB Statement No. 140” (SFAS 166). SFAS 166 eliminates the concept ofa qualifying special-purpose entity, creates more stringent conditions forreporting a transfer of a portion of a financial asset as a sale, clarifiesother sale-accounting criteria, and changes the initial measurement of atransferor’s interest in transferred financial assets. SFAS 166 will beeffective  April 1, 2010  The Company is in the process of evaluatingthe impact of this pronouncement on its consolidated financial position andresults of operations. The adoption of this pronouncement is not expected tohave a material impact on the Company’s financial position and results ofoperations.

 

In June 2009 the FASBissued SFAS 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167).SFAS 167 eliminates Interpretation 46(R)’s exceptions to consolidatingqualifying special-purpose entities, contains new criteria for

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 3.**                     **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONTINUED)**

 

determining the primarybeneficiary, and increases the frequency of required reassessments to determinewhether a company is the primary beneficiary of a variable interest entity.SFAS 167 also contains a new requirement that any term, transaction, orarrangement that does not have a substantive effect on an entity’s status as avariable interest entity, a company’s power over a variable interest entity, ora company’s obligation to absorb losses or its right to receive benefits of anentity must be disregarded in applying Interpretation 46(R)’s provisions. Theelimination of the qualifying special-purpose entity concept and itsconsolidation exceptions means more entities will be subject to consolidationassessments and reassessments. SFAS 167 will be effective April 1, 2010The adoption of this pronouncement is not expected to have a material impact onthe Company’s financial position and results of operations.

 

In August 2009, FASBissued Accounting Standards Update 2009-05 which includes amendments toSubtopic 820-10, Fair Value Measurements and Disclosures—Overall. The updateprovides clarification that in circumstances in which a quoted price in anactive market for the identical liability is not available, a reporting entityis required to measure fair value using one or more of the techniques providedfor in this update. The amendments in this Update clarify that a reportingentity is not required to include a separate input or adjustment to otherinputs relating to the existence of a restriction that prevents the transfer ofthe liability and  also clarifies  that both a quoted price in an active marketfor the identical liability at the measurement date and the quoted price forthe identical liability when traded as an asset in an active market when noadjustments to the quoted price of the asset are required are Level 1 fairvalue measurements. The adoption of this standard did not have a materialimpact on the Company’s financial position and results of operations.

 

The FASB has published FASBAccounting Standards Update 2009-13, Revenue Recognition (Topic 605)-MultipleDeliverable Revenue Arrangements which addresses the accounting formultiple-deliverable arrangements to enable vendors to account for products orservices (deliverables) separately rather than as a combined unit. Specifically,this guidance amends the criteria in Subtopic 605-25, RevenueRecognition-Multiple-Element Arrangements, for separating consideration inmultiple-deliverable arrangements. This guidance establishes a selling pricehierarchy for determining the selling price of a deliverable, which is basedon: (a) vendor-specific objective evidence; (b) third-party evidence;or (c) estimates. This guidance also eliminates the residual method ofallocation and requires that arrangement consideration be allocated at the inceptionof the arrangement to all deliverables using the relative selling price methodand also requires expanded disclosures. FASB Accounting Standards Update2009-13 is effective prospectively for revenue arrangements entered into ormaterially modified in fiscal years beginning on or after June 15, 2010.Early adoption is permitted. The adoption of this standard is not expected tohave a material impact on the Company’s financial position and results ofoperations.

 

Accounting standards thathave been issued or proposed by the FASB or other standards-setting bodies thatdo not require adoption until a future date are not expected to have a materialimpact on our unaudited interim consolidated financial statements uponadoption.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 4.**                     **CONTRACTS IN PROGRESS**

 

The following is a summaryof the contracts in progress at September 30, 2009:

 
| Cost  incurred on uncompleted contract |   | $          | 4,776,607 |   |
|----------------------------------------|--------|------------|-----------|--------|
| Estimated  loss on contract            |   | (563,150   | )         |
|                                   |   | 4,213,457  |      |
| Less:  billings to date                |   | (3,713,600 | )         |
|                                   |   | $          | 499,857   |   |

 

Estimated future losses oncontracts in progress which are included in accrued expenses in theaccompanying consolidated balance sheet amounted to $8,161 at September 30,2009.  The one contract in progress has incurred cost overruns andother costs that the customer asserts should be part of thecontract.  The Company and its customer intend to negotiate thesettlement of these costs upon final completion of thecontract.  Management cannot at this time estimate the ultimateoutcome of the additional chargebacks by the customer or additional billings tobe charged to the customer at September 30, 2009. (See Note 9)

 

Included in the followingbalance sheet captions:

 
| Unbilled  amounts due on uncompleted contracts |   | $ | 499,857 |   |
|------------------------------------------------|--------|---|---------|--------|

 

**NOTE 5.**                     **ACQUISITION OF SUBSIDIARYAND DISCONTINUED OPERATIONS**

 

On July 10, 2007, theCompany entered into a stock purchase agreement pursuant to which the Companyagreed to acquire 95% of the issued and outstanding shares of common stock ofEWI.

 

Effective on the date ofacquisition, the Company discontinued the operational segment of EWI and ceasedall operations of EWI. The Company has utilized outsourced manufacturing andservices to complete any contracts secured prior to the date ofacquisition.  In addition, the Company has discontinued all of EWI’sproduct lines and terminated all vendor relationships. Accordingly, the resultsof activities for EWI are classified as discontinued operations in theaccompanying consolidated financial statements.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 5.**                     **ACQUISITION OF SUBSIDIARYAND DISCONTINUED OPERATIONS  (CONTINUED)**

 

A summary of EWI’s assetsand liabilities from discontinued operations as of September 30, 2009 and March 31,2009, and its results of discontinued operations for the three and six monthsended September 30, 2009 and 2008 are as follows:

 
| ** **                                        | ** ** | **September 30,** | ** ** | **March 31,** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|--------------------|------------|
| ** **                                        | ** ** | **2009**               | ** ** | **2009**           | ** ** |
|                                              |       |                   |       |               |       |
| Assets  from discontinued operations              |       |                   |       |               |       |
| Cash                                              |       | $                      | 7,545      |               | $          | 1,413 |   |
| Current  assets from discontinued operations      |       | $                      | 7,545      |               | $          | 1,413 |   |
|                                              |       |                   |       |               |       |
| Liabilities  from discontinued operations         |       |                   |       |               |       |
| Accounts  payable and accrued expenses            |       | $                      | 160,420    |               | $          | 170,719 |   |
| Income  taxes payable                             |       | 126,552                |       | 126,552            |       |
| Current  liabilities from discontinued operations |       | $                      | 286,972    |               | $          | 297,271 |   |

 
|                                | ** ** | **Three  Months Ended**      | ** ** |
|-------------------------------------|------------|------------------------------|------------|
|                                | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| Results  of discontinued operations |       |                         |       |   |   |
| Net  revenue                        |       | $                            | —     |   | $ | 474,236 |   |
| Cost  of revenue                    |       | —                       |       | (362,250 | ) |
| Operating  expenses                 |       | (45                          | )          | (110,648 | ) |
| Interest  income, net               |       | —                       |       | 7,371 |   |
| Benefit  from income taxes          |       | —                       |       | 368 |   |
| Loss  from discontinued operations  |       | $                            | (45        | ) | $ | 9,077 |   |

 
|                                | ** ** | **Six  Months Ended**        | ** ** |
|-------------------------------------|------------|------------------------------|------------|
|                                | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| Results  of discontinued operations |       |                         |       |   |   |
| Net  revenue                        |       | $                            | —     |   | $ | 518,003 |   |
| Cost  of revenue                    |       | —                       |       | (404,128 | ) |
| Operating  expenses                 |       | (70                          | )          | (164,691 | ) |
| Interest  income, net               |       | 1                            |       | 214 |   |
| Other  income                       |       | —                       |       | 984 |   |
| Benefit  from income taxes          |       | —                       |       | 20,199 |   |
| Loss  from discontinued operations  |       | $                            | (69        | ) | $ | (29,419 | ) |

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 6.**                     **NOTES PAYABLE**

 

A summary of the notespayable as of September 30, 2009 and March 31, 2009 is as follows:

 
| ** **                                         | ** ** | **September 30,  2009** | ** ** | **March 31,  2009** | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| Promissory  Notes                                  |       | $                            | 384,384    |                     | $          | 1,508,898 |   |
| Promissory  Notes - Private Placement Offering (1) |       | —                       |       | 500,000                  |       |
| Promissory  Notes - Private Placement Offering (2) |       | 2,500,000                    |       | —                   |       |
| Convertible  Notes                                 |       | 350,000                      |       | 100,000                  |       |
| Bridge  Loans                                      |       | 25,000                       |       | 200,000                  |       |
| Bridge  Loans - Related Parties                    |       | 39,000                       |       | 25,000                   |       |
| Subtotal                                           |       | 3,298,384                    |       | 2,333,898                |       |
| Unamortized  Discounts                             |       | (326,365                     | )          | (54,070                  | )          |
| Total  Notes Payable, net of unamortized discounts |       | $                            | 2,972,019  |                     | $          | 2,279,828 |   |

 

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(1)   Notes issued in connection withDecember 2008 Private Placement

 

(2)   Notes issued in connection with July 2009Private Placement

 

The activity associatedwith the capitalization and amortization of deferred financing costs anddiscounts on notes payable for the period from April 1, 2009 to September 30,2009 is as follows:

 
| **Discount  on Notes Payable**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |
| Balance,  April 1, 2009      |       | $          | 54,070     |   |
| Additions                         |       | 370,412    |       |
| Amortization                      |       | (120,951   | )          |
| Balance,  June 30, 2009      |       | 303,531    |       |
| Additions                         |       | 898,933    |       |
| Amortization                      |       | (876,099   | )          |
| Balance,  September 30, 2009 |       | $          | 326,365    |   |

 
| **Deferred Financing Costs**           |   |     |    |
|----------------------------------------|--------|----------|---------|
|                                   |   |     |    |
| Balance,  April 1, 2009           |   | $        | 107,300 |   |
| Additions                              |   | 829,770  |    |
| Amortization                           |   | (149,069 | )       |
| Loss  on deemed extinguishment of debt |   | (669,082 | )       |
| Balance,  June 30, 2009           |   | 118,919  |    |
| Additions                              |   | 313,065  |    |
| Amortization                           |   | (319,158 | )       |
| Balance,  September 30, 2009      |   | $        | 112,826 |   |

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

**NOTE 6.                     NOTES PAYABLE (continued)**

 

***Promissory Notes***

 

On November 7, 2007,the Company issued a promissory note in connection with the acquisition of EWIin the principal amount of $2,250,000. The promissory note bears interest at 8%per annum and was due to mature on May 8, 2008. The promissory note issecured by the Company’s 95% interest in EWI.  On April 21,2009, the Company entered into a release and Settlement Agreement (the “SettlementAgreement”) with the note holder whereby the Company agreed to pay $125,000 infull settlement of any and all amounts due under the July 10, 2007 StockPurchase Agreement, as amended, the September 7, 2007 consulting agreementand the November 7, 2007 promissory note, as amended. In addition, theCompany and the note holder released each other from any and all claims, asdefined in the Settlement Agreement.  Asa result of the Settlement Agreement the loan balance and accrued interest wasreduced by $1,383,898 and $127,097, respectively.  The note wasrepaid on July 17, 2009.

 

In April 2009, theCompany entered into a promissory note for $265,000 with a vendor forpreviously provided services that had been included in accounts payable andaccrued expenses.  The note was due in ninety days bearing interestat 10% per annum.   Also, in July 2009, the Company enteredinto a second promissory note with the same vendor for $119,384 for previouslyprovided services.  The second note alsowas due in ninety days bearing interest at 10% per annum.  In September 2009 the due date of thenotes was extended through an amendment. The due date of the notes was amendedand repayment is now expected to be repaid using proceeds from future capitalraises and/or operations.  In October 2009,the Company repaid $131,330 of the original note of $265,000.

 

***Promissory Notes—Private Placement Offering (December 2008)***

 

In January 2009, inconnection with its December 2008 PPM, the Company sold ten units and,accordingly, issued promissory notes totaling $500,000 and issued 100,000shares of common stock.    The notes boreinterest of $150,000. Principal, plus all accrued and unpaid interest thereon,were due in April, 2009. The maturity dates on the promissory notes in theaggregate amount of $500,000 scheduled to mature in April 2009 wereextended to October 2009. In connection with the extension of the maturitydates, the Company issued 1,000,000 shares of common stock to the debt holders,valued at $450,000. In accordance with ASC 470, the Company recorded a loss onthe deemed extinguishments of debt in the amount of $450,000 which representedthe value of additional equity instruments given to debt holders to extend thematurity.  The debt instrument charge isincluded in the accompanying condensed consolidated statement of operations forthe six months ended September 30, 2009. These notes were repaid in full on July 31, 2009.

 

***P******romissoryNotes — Private Placement Offering (July 2009)***

 

On June 25, 2009, theCompany issued notes in the aggregate amount of $804,000.  The notesbear interest at a rate of 10% per annum. Principal, plus all accrued andunpaid interest thereon, is due on September 25, 2009. The Company hasobtained extension agreements on the notes which now mature on October 2,2009.  The notes are automatically due and payable, including accruedinterest thereon, upon the initial closing of an equity financing of theCompany in the minimum amount of $5,000,000. The Company issued 804,000 sharesof its common stock to the payees.  The Company allocated a portion ofthe proceeds from the note to the common stock based on the relative fair valueof the notes and common

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 6.**                     **NOTES PAYABLE (Continued)**

 

stock.  The relativefair value of the common stock, which amounted to $249,517, was recorded as adiscount to the notes. This amount is being accreted to interest expense overthe contracted term of the notes.  In October 2009, the Companyrepaid in full $650,000 of the notes using proceeds from a private debtplacement (Note 11).   The remaining$154,000 of notes have not been repaid. The notes are expected to be repaid using proceeds from future capitalraises and/or operations.

 

On July 17, 2009, theCompany issued a note payable in the aggregate amount of$125,000.  The note bears interest at a rate of 10% per annum.Principal, plus all accrued and unpaid interest thereon, is due on October 17,2009. The notes are automatically due and payable, including accrued interestthereon, upon the initial closing of an equity financing of the Company in theminimum amount of $5,000,000. The Company issued 125,000 shares of its commonstock to the payee.  The Company allocated a portion of the proceedsfrom the note to the common stock based on the relative fair value of the notesand common stock.  The relative fair value of the common stock, whichamounted to $38,793, was recorded as a discount to the notes. This amount isbeing accreted to interest expense over the contracted term of thenotes. In connection with issuance, the Company paid a placement agent$12,500 (10% of the amount of the notes issued) and a non-accountable expenseallowance equal to $3,750 (3% of the amount of the notes issued).  The Company did not repay this note atmaturity.  The note is expected to berepaid using proceeds from future capital raises and/or operations.

 

On August 4, 2009, theCompany issued notes in the aggregate amount of $1,571,000.  Thenotes bear interest at a rate of 10% per annum. Principal, plus all accrued andunpaid interest thereon, is due on November 4, 2009. The notes areautomatically due and payable, including accrued interest thereon, upon theinitial closing of an equity financing of the Company in the minimum amount of$5,000,000. The Company issued 1,571,000 shares of its common stock to thepayees.  The Company allocated a portion of the proceeds from thenotes to the common stock based on the relative fair value of the notes andcommon stock.  The relative fair value of the common stock, whichamounted to $860,140, was recorded as a discount to the notes. This amount isbeing accreted to interest expense over the contracted term of the notes. Inconnection with issuance, the Company paid a placement agent $157,100 (10% of theamount of the notes issued) and a non-accountable expense allowance equal to$47,130 (3% of the amount of the notes issued).  In October 2009,the Company repaid $990,000 of the notes using proceeds from a private debtplacement (Note 11).   The remaining$581,000 of notes have not been repaid. The notes are expected to be repaid using proceeds from future capitalraises and/or operations.

 

***Convertible Note***

 

On March 17, 2009, theCompany issued a convertible note in the amount of $100,000. The note bearsinterest at a rate of 10% per annum. Principal, plus all accrued and unpaidinterest thereon, and are due on June 17, 2009. The note is automaticallydue and payable, including accrued interest thereon, upon the initial closingof an equity financing of the Company in the minimum amount of $2,000,000. Thenote is convertible at the option of the payee into shares of the Company’scommon stock at a conversion price of $0.50 per share. In addition, the Companyissued 150,000 shares of its common stock to the payee on April 1, 2009.The Company allocated a portion of the proceeds from the note to the commonstock based on the relative fair value of the notes and commonstock.  The relative fair value of the common stock, which amountedto $40,299, was recorded as a discount to the notes. This amount is beingaccreted to interest expense over the contracted term of thenotes.  The Company did not make the final payment on the promissorynote on June 17, 2009, but obtained an extension of the note through November 4,2009.  On October 1, 2009, the note was repaid in full.

 

On April 6, 2009, theCompany issued a convertible note in the amount of $200,000.  Thenote bears interest at a rate of 10% per annum. Principal, plus all accrued andunpaid interest thereon, are due on October 6, 2009. The note isautomatically due and payable, including accrued interest thereon, upon theinitial closing of an equity financing of the Company in the minimum amount of$2,000,000. The note is convertible at the option of the payee into shares ofthe Company’s common stock at a conversion price of $0.50 per share. Inaddition, the Company issued 300,000 shares of its common stock to thepayee.  The Company allocated a portion of the proceeds from the noteto the common stock based on the relative fair value of the note and commonstock.  The relative fair value of the common stock, which amountedto $80,597, was recorded as a discount to the notes. This amount is beingaccreted to interest expense over the contracted term

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 6.**                     **NOTES PAYABLE (CONTINUED)**

 

of the notes.  The note was extended to October 12,2009 and the Company has not repaid this debt. The note is expected to be repaid using proceeds from future capitalraises and/or operations.

 

On April 17, 2009, theCompany issued a convertible note in the aggregate amount of $50,000 to itsPresident and COO. The note bore interest at a rate of 10% per annum.Principal, plus all accrued and unpaid interest thereon, were due on August 17,2009. The note is automatically due and payable, including accrued interestthereon, upon the initial closing of an equity financing of the Company in theminimum amount of $2,000,000. The note was convertible at the option of thepayee into shares of the Company’s common stock at a conversion price of $0.50per share. In addition, the Company issued 75,000 shares of its common stock tothe payee. The relative fair value of the common stock, which amounted to$20,149, was recorded as a discount to the notes. This amount was accreted tointerest expense over the contracted term of the notes.  The note waspaid in full in August 2009.

 

On April 17, 2009, theCompany issued a convertible note in the aggregate amount of$50,000.  The note bears interest at a rate of 10% per annum.Principal, plus all accrued and unpaid interest thereon, is due on October 17,2009. The notes are automatically due and payable, including accrued interestthereon, upon the initial closing of an equity financing of the Company in theminimum amount of $2,000,000. In addition, the Company issued 75,000 shares ofits common stock to the payee.   The relative fair value of thecommon stock, which amounted to $20,149, was recorded as a discount to thenotes. This amount is being accreted to interest expense over the contractedterm of the notes.

 

***Bridge Loans***

 

The Company issued $375,000of notes payable to eight individuals, including two related parties, from September 2008through December 2008.  Of this amount, $350,000 has been repaidas of September 30, 2009.

 

During September 2008,the Company issued two notes payable in the aggregate amount of $50,000(including a note issued to a shareholder of the Company for $25,000). Thenotes mature one year from the date of issuance. Additionally, the Companyissued a $100,000 note payable in September 2008 which matured ninety daysfrom the date of issuance.  The notes bear interest at 10% per annumand require the issuance of 300,000 shares of the Company’s common stock. Theaggregate fair value of the 300,000 shares of the Company’s common stock was$150,000, or $0.50 per share.  The Company allocated a portion of theproceeds from the notes to the common stock based on the relative fair value ofthe notes and common stock.  The relative fair value of the commonstock, which amounted to $75,000, was recorded as a discount to the notes. Thisamount is being accreted to interest expense over the contracted term of thenotes.

 

Uponmaturity, the note for $100,000 was satisfied through the issuance of 200,000shares of the Company’s common stock.

 

During October, November andDecember 2008 the Company issued notes payable in the aggregate amount of$200,000 and warrants granting the holders the right to purchase up to 460,000shares of common stock at $0.50 per share exercisable for a period of threeyears. The aggregate fair value of the warrants issued, amounted to $150,617,which was determined using the Black Scholes option pricing model at a range of$0.32 and $0.33 per warrant utilizing the following assumptions: expectedvolatility ranging from 105.15% to 110.91%, risk free interest rate rangingfrom 1.80% to 1.41%, expected term of three years and a market price of $0.50.The warrants expire three years from the date of issuance and contain aprovision allowing for a cashless exercise. The notes had a three month term and bore interest at a rate of 5% perannum. These notes were all repaid prior to July 31, 2009.

 

The Company allocated aportion of the proceeds from the notes to the warrants.  The relativefair value of the warrants, which amounted to $84,420, was recorded as adiscount to the notes.  This amount is being accreted to interestexpense over the contracted term of the notes.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 6.**                     **NOTES PAYABLE (Continued)**

 

In April and May 2009,the maturity dates on bridge notes in the aggregate amount of $175,000scheduled to mature in January and February 2009 were extended to April andMay 2009, respectively.  Thematurity of the notes was later extended to June 2009.  In connection with the second extension ofthe maturity dates, the Company issued 425,000 shares of common stock to thedebt holders, valued at $219,082.  Inaccordance with ASC 470, the Company recorded a loss on the deemedextinguishments of debt in the amount of $219,082 which represented the valueof additional equity instruments given to debt holders to extend thematurity.  The debt instrument charge isincluded in the accompanying condensed consolidated statement of operations forthe six months ended September 30, 2009. These notes were repaid in full on July 31, 2009.

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 7.**                     **ENERWASTE EUROPE, LTD**

 

***Bankruptcy of Enerwaste Europe, Ltd on February 19, 2009***

 

The Company’s subsidiary,EWE, had significant operations in Iceland and historically paid a largeproportion of its fixed costs in Icelandic Krona (ISK), while its sales aregenerally denominated in Euros and its reporting currency is the U.S. dollar.Beginning in the third quarter of 2008 and particularly in the first weeks ofthe fourth quarter, the effects of the global credit and financial crisis had asignificant adverse effect on the Icelandic economy. In mid October 2008,the Icelandic parliament passed emergency legislation to minimize the impact ofthe financial crisis, resulting in the government takeover of the three largestIcelandic banks, including Glitnir Bank (“Glitnir”), with whom EWE had bankaccounts, lines of credit and a loan payable. The financial crisis has hadserious consequences for the Icelandic economy; the national currency hasfallen sharply in value, foreign currency transactions were virtually suspendedfor weeks, and the market capitalization of the Icelandic stock exchangedropped significantly.

 

The turmoil in the Icelandicfinancial sector and economy as a whole had a significant impact on the Companyand a material adverse impact on the day to day operations ofEWE.  In October 2008, the Company was made aware that GlitnirBank (“Glitnir”) was placed into receivership due to serious financialdifficulties and that transfers of funds between the United Kingdom and Icelandwere subject to significant delays and uncertainties. As a result of thesignificant delays caused by Glitnir, EWE’s Dargavel contract with AscotEnvironmental Ltd (“Ascot”) was seriously jeopardized, since EWE could notsatisfy the terms of its sub contractual agreements with third parties. As aresult of Glitnir’s inability to transfer funds into and out of Iceland, EWEwas unable to continue work on the Dargavel contract and EWE was unable to payits manufacturing and site workers, sub contractors or material suppliers andwas accumulating significant penalties for non performance and delays on thecontract.

 

Due to the above events,Ascot terminated EWE’s Dargavel contract on November 10, 2008 andcancelled their letter of credit securing a line of credit forEWE.  In addition, because the contract was canceled and EWE wasunable to fulfill its duties under the contract, EWE was unable to bill Ascotfor costs they expended on the contract in excess of billings.  Theresulting loss on the cancellation of the contract for the year ended March 31,2009, totaled $835,079.

 

On November 10, 2008, anew contract was entered into between Ascot and IOM to complete the project. Asa result of the loss of this major contract, on February 19, 2009, acreditor commenced bankruptcy proceedings against EWE and itwas  placed in involuntary receivership (bankruptcy) and wasappointed an Administrator under the supervision of the local courts. EWEsubsequently delivered all of its books and records, money, bank accounts, bondsand any other valuable assets to the Administrator. Further, under Icelandiclaw, a ruling of bankruptcy has the effect that a new legal entity emerges thatis controlled by the Administrator.  Management does not believe thatthe Company will be materially impacted by the bankruptcy of EWE beyond theimpact that has occurred to date.  Further, management does notintend to reorganize EWE and continue its operations upon completion of thebankruptcy proceedings.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 8.**                     **STOCKHOLDER’S EQUITY**

 

***Common Stock***

 

In April 2009, theCompany issued 525,000 shares of common stock in connection with the issuanceof convertible notes that were previously issued.  Additionally, the Company issued 125,000shares of common stock in connection with a promissory note that was previouslyissued.

 

On April 22, 2009, theCompany issued 500,000 shares of common stock in connection with consultingservices rendered, valued at $0.45 per share.  Accordingly, theCompany recorded $225,000 of consulting expense during the six months ended September 30,2009.

 

On April 22, 2009, theCompany issued 500,000 shares of common stock in connection with identifying it’smerger candidate, valued at $0.45 per share. Accordingly, the Company recorded$225,000 of expense during the six months ended September 30, 2009.

 

On April 22, 2009, theCompany issued 1,000,000 shares of common stock in connection with theextension of the maturity dates of certain notes payable related to the December 2008Private Placement Memorandum, which were repaid  during the sixmonths ended September 30, 2009.  The Company recorded the costas a loss on deemed extinguishment of debt in accordance with ASC 470.

 

On April 22, 2009, theCompany issued 100,000 shares of common stock, to consultants in connectionwith the extension of a bridge loan, valued at $0.45 pershare.  These costs have been recorded as deferred financing costswhich are being amortized over the term of the notes.

 

In April 2009, theCompany issued 425,000 shares of common stock in connection with the extensionof the maturity dates of certain notes payable (See Note 6).  The Company recorded the cost as a loss ondeemed extinguishment of debt in accordance with ASC 470.

 

On April 30, 2009, theCompany issued 50,000 shares of common stock in connection with consultingservices rendered, valued at $0.45 per share.  Accordingly, theCompany recorded $22,500 of consulting expense during the six months ended September 30,2009.

 

On May 4, 2009, theCompany issued 750,000 shares of common stock in connection with consultingservices rendered, valued at $0.45 per share.  Accordingly, theCompany recorded $337,500 of consulting expense during the six months ended September 30,2009.

 

In May 2009, inconnection with the reverse merger, Maven Media had 3,000,000 shares of commonstock issued and outstanding.  As of themerger date, 2,000,000 shares were canceled and 1,000,000 were reissued in thenew company.

 

During theperiod  from May 2009 through August 2009 the Companyissued 1,800,750  shares of common stockin connection with equity units sold in the May 2009 Private Placementoffering.  Additionally, the Companyissued 2,500,000 shares in connection with the issue of promissory notes anddebentures between June 2009 and August 2009.

 

***Cancellation and Return of Common Stock***

 

On May 7, 2009,pursuant to return to treasury agreements with certain former shareholders suchshareholders agreed to return 1,200,000 shares of common stock to the Companyin consideration for $10,503 which were then cancelled.

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 8.**                     **STOCKHOLDER’S EQUITY(Continued)**

 

In May 2009, 1,250,000shares of common stock, held by a shareholder, were canceled by the Company fornon-payment of their subscription agreement amounting to $12,500.

 

***Common Stock Purchase Warrants***

 

Warrant activity for theperiod from April 1, 2009 to September 30, 2009 is as follows:

 
| ** **                                                                                | ** ** | **Number  of  Warrants** | ** ** | **Weighted********Average  Exercise  Price** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------------|------------|
| Outstanding  at March 31, 2009                                                       |       | 11,410,000               |       | $                                            | 0.57       |   |
| Granted                                                                                   |       | 7,350,000                |       | 0.53                                         |       |
| Exercised                                                                                 |       | —                   |       | —                                       |       |
| Forfeited                                                                                 |       | —                   |       | —                                       |       |
| Outstanding  at June 30, 2009                                                        |       | 18,760,000               |       | .54                                          |       |
| Granted                                                                                   |       | 2,400,000                |       | .12                                          |       |
| Exercised                                                                                 |       | —                   |       | —                                       |       |
| Forfeited                                                                                 |       | —                   |       | —                                       |       |
| Outstanding  at September 30, 2009                                                   |       | 21,160,000               |       | $                                            | 0.49       |   |
|                                                                                      |       |                     |       |                                         |       |
| Weighted  average fair value granted during the six months ended September 30,  2009 |       |                     |       | $                                            | .37        |   |

 

***Warrants issued to Non-Employees***

 

On April 2, 2009, theCompany issued warrants to purchase 2,000,000 shares of the Company’s commonstock to a vendor, previously granted on March 31, 2009 at an exerciseprice of $0.50.  The warrants expire on April 2, 2014 andcontain a provision allowing for a cashless exercise. The fair value of thewarrants issued, amounting to $701,541, was determined using the Black Scholesoption pricing model at $0.35 per warrant utilizing the following assumptions:expected volatility of 110.04%, risk-free interest rate of 1.74%, contractualterm of five years and a market price of $0.45.  The value of thewarrants was accrued as a consulting expense payable at March 31, 2009.

 

On August 19, 2009, theCompany issued warrants to purchase 2,000,000 shares of the Company’s commonstock to its placement agent in connection with the settlement of all amountsdue under the previous investment banking agreement.  The warrants were granted with an exerciseprice of $.01.  The warrants expire on August 19, 2012 andcontain a provision allowing for a cashless exercise. The fair value of thewarrants issued, amounting to $2,002,335, was determined using the BlackScholes option pricing model at $1.0012 per warrant utilizing the followingassumptions: expected volatility of 124.2%, risk-free interest rate of 1.54%,contractual term of five years and a market price of $1.01.  Thevalue of the warrants was recorded as a cost of capital for the quarter ended September 30,2009.

 

The Company recorded $0 and$335,213 of consulting expense during the three months ended September 30,2009 and 2008, respectively, relating to warrants awarded.  For the six months ended September 30,2009 and 2008, the Company recorded $0 and $775,899, respectively, of consultingexpense relating to warrants awarded.

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 8.**                     **STOCKHOLDER’S EQUITY(Continued)**

 

***Warrants Issued to Employees***

 

On April 2, 2009, theCompany issued warrants to purchase 2,000,000 shares of the Company’s commonstock to the CEO previously granted on March 31, 2009 at an exercise priceof $0.50.  The warrants expire on April 2, 2014 and contain aprovision allowing for a cashless exercise. The fair value of the warrantsissued, amounting to $541,242, was determined using the Black Scholes optionpricing model at $0.27 per warrant utilizing the following assumptions:expected volatility of 110.05%, risk-free interest rate of 1.25%, expected termof three years and a market price of $0.45.  The value of thewarrants was accrued as a consulting expense payable at March 31, 2009.

 

On April 2, 2009, theCompany issued warrants to purchase 1,400,000 shares of the Company’s commonstock to the President and COO previously granted on March 31, 2009 andincluded on March 31, 2009 at an exercise price of $0.50.  The warrantsexpire on April 2, 2014 and contain a provision allowing for a cashlessexercise.  The fair value of the warrants issued, amounting to$378,870, was determined using the Black Scholes option pricing model at $0.27per warrant utilizing the following assumptions: expected volatility of110.05%, risk-free interest rate of 1.25%, expected term of three years and amarket price of $0.45.  The value of the warrants was accrued ascompensation expense payable at March 31, 2009.

 

On April 2, 2009, theCompany issued warrants to purchase 350,000 shares of the Company’s commonstock to certain employees  previously granted on March 31, 2009at an exercise price of $0.50.  The warrants expire on April 2,2014 and contain a provision allowing for a cashless exercise.  Thefair value of the warrants issued, amounting to $94,717, was determined usingthe Black Scholes option pricing model at $0.27 per warrant utilizing thefollowing assumptions: expected volatility of 110.05%, risk-free interest rateof 1.25%, a expected term of three years and a market price of $0.45.  The value of the warrants were accrued as compensation expense payable at March 31,2009.

 

On May 4, 2009, theCompany issued warrants to purchase 600,000 shares of the Company’s commonstock to employees  previously granted on March 31, 2009 at anexercise price of $0.50.  The warrants expire on May 14, 2014and contain a provision allowing for a cashless exercise. The fair value of thewarrants issued, amounting to $162,551, was determined using the Black Scholesoption pricing model at $0.27 per warrant utilizing the following assumptions:expected volatility of 110.04%, risk-free interest rate of 1.40%, a expectedterm of three years and a market price of $0.45.  The value of thewarrants were accrued as compensation expense payable at March 31, 2009.

 

On April 2, 2009, theCompany issued warrants to purchase 1,000,000 shares of the Company’s commonstock to the Chief Technology Officer previously granted on March 31, 2009at an exercise price of $0.75.  The warrants expire on April 2,2014 and contain a provision allowing for a cashless exercise.  Thefair value of the warrants issued, amounting to $233,948, was determined usingthe Black Scholes option pricing model at $0.23 per warrant utilizing thefollowing assumptions: expected volatility of 110.05%, risk-free interest rateof 1.15%, expected term of three years and a market price of$0.45.  The value of the warrants were accrued as compensationexpense payable at March 31, 2009.

 

On July 13, 2009, theCompany granted warrants to purchase 400,000 shares of the Company’s commonstock to the Chief Financial Officer at an exercise price of $0.67 inconnection with an employment agreement.  The warrants expire on July 13,2014 and contain a provision allowing for a cashless exercise.  Thefair value of the warrants issued, amounting to $112,010, was determined usingthe Black Scholes option pricing model at $0.28 per warrant utilizing thefollowing assumptions: expected volatility of 126.19%, risk free interest rateof 1.60%, expected term of three years and a market price of $0.45.

 

The Company recorded $83,458and $290,988 of compensation expense during the three months ended September 30,2009 and 2008, respectively, relating to warrants awarded.  For the six months ended September 30,2009 and 2008, respectively, the Company recorded expense of $140,562 and$1,287,444.

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 8.**                     **STOCKHOLDER’S EQUITY(Continued)**

 

***Merger and Private Placement Offering — May 2009***

 

On May 6, 2009 underthe Merger Agreement, (i) the stockholders of W2E surrendered all of theissued and outstanding shares of W2E capital stock and received, in exchangefor 45,981,770 shares of common stock of the Company, referred to as “Pubco”;(ii) all warrants to purchase shares of W2E common stock outstandingimmediately prior to the Merger was replaced with corresponding new warrants topurchase shares of Pubco common stock; (iii) the former stockholders Pubcoretained 1,000,000 shares of common stock of Pubco. This has been accounted foras a reverse merger with the acquiring company being W2E.

 

Simultaneous with thereverse merger transaction in May 2009, the Company also initiated aprivate placement offering (“May Private Placement”) of up to 4,000,000units of (the Company “Units’). Each Unit consists of (i) three shares ofcommon stock, par value $0.001 per share and (ii) a three-year warrant topurchase three additional shares of common stock at an exercise price of $1.25per share. The Company was attempting to raise $8,000,000 capital with thistransaction. The initial closing of the May Private Placement was on May 28,2009. As of August 24 2009, the Company completed an offering of 600,250Units at $2.00 per Unit.

 

The Units were being offeredon behalf of the Company by a Placement agent, and the Company paid theplacement agent the following (i) sales commissions in an amount of$289,654); (ii) a non-accountable expense allowance of $79,654 and (iii) aninvestment banking fee of $60,023. Additionally, the Placement agent received two million warrants valuedat $.01 per share upon conclusion of the offering in full settlement of allamounts due to the agent under the investment banking agreement.  Further, upon exercise of the Warrants issuedto investors, the Placement agent will receive a ten percent (10%) commissionand a three percent (3%) non-accountable expense allowance, and will also beissued a three-year warrant exercisable to purchase such number of shares ofcommon stock equal to 4.5% of the number of the fully diluted outstandingshares of common stock.

 

Detailsof  outstanding shares of common stock are as follows:

 
| ** **                                                                      | ** ** | **Shares** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|
| Shares  of Pubco at March 31, 2009                                         |       | 3,000,000  |       |
| Cancellation  of Pubco shares at merger date                                    |       | (2,000,000 | )          |
| Recapitalized  shares of W2E’s stockholders at exchange (one for one) |       | 41,152,100 |       |
| Issuance  of shares in connection with notes payable                            |       | 4,575,000  |       |
| Issuance  of shares in connection with consulting agreement                |       | 1,900,000  |       |
| Issuance  of shares in connection with May 2009 private placement          |       | 1,800,750  |       |
| Cancellation  and return of shares                                              |       | (2,450,000 | )          |
| Common  stock shares outstanding at September 30, 2009                     |       | 47,977,850 |       |

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

**NOTE 9.**                     **COMMITMENTS ANDCONTINGENCIES**

 

***Income Tax Liabilities***

 

At September 30, 2009and March 31,  2009, the Company has included in income taxespayable an accrual of approximately $127,000,  inclusive of interestand penalties of approximately $25,000, that relate to EWI for the period priorto its acquisition.  Such amounts are included in current liabilitiesfrom discontinued operations in the accompanying condensed consolidated balancesheets.

 

***Employment Agreements***

 

At September 30, 2009,the Company has accrued unpaid fees of $515,788 for the Former Chief ExecutiveOfficer and sole board member, $148,958 for the President and Chief ExecutiveOfficer, $14,583 for the Chief Financial Officer and $18,750 for the VP relatedto unpaid compensation under their respective employmentagreements.  These amounts are included in due to related parties inthe consolidated balance sheet as of September 30, 2009.

 

On July 13, 2009, theCompany entered into an employment agreement with its Chief Financial Officer (“CFO”).  Theagreement is for a one year term; thereafter the agreement automatically renewsfor successive one year terms, unless terminated sooner, upon 30 daysnotice.   Under the terms of the agreement, the CFO will receivean annual base salary of $175,000.  The CFO’s base salary will bereviewed, from time to time, and may be adjusted  at the discretionof the Board. The first such review shall be at the first anniversary date ofthis agreement. In addition, on July 13, 2009, the CFO was granted 400,000warrants to purchase the Company’s common stock at an exercise price of $0.67per share vested two years from the effective date of the registrationstatement, or immediately if the Company fails to raise a minimum of $4,000,000in the equity offering, provided the CFO is still employed by the Company onsuch date.  The warrants expire on July 13, 2014 and contain aprovision allowing for a cashless exercise.  The fair value of thewarrants issued, amounting to $112,010, was determined using the Black Scholesoption pricing model at $0.28 per warrant utilizing the following assumptions:expected volatility of 126.19%, risk free interest rate of 1.60%, expected termof three years and a market price of $0.45.

 

***Investment Banking Agreement***

 

On March 30, 2009, theCompany entered into an agreement with a registered broker dealer (“Placementagent”) whereby the Placement agent will assist the Company with its investmentbanking requirements which includes assistance with mergers, acquisition andinternal capital structuring, as well as the placement of new debt and/orequity issues. The Placement agent will also assist the Company in placing upto $8,000,000 of the Company’s securities (the “Offering”).

 

The Company was required topay the Placement agent a retainer of $400,000. In connection with theOffering, the Company agreed to pay the Placement agent (i) placement feesequal to 10% of the gross proceeds of the Offering and 3% of the gross proceedsof the Offering as a non-accountable expense allowance; and (ii) issue3,304,670 shares of the Company’s common stock valued at $0.45 per share.

 

In September 2009, the May PrivatePlacement was terminated.  The Placement agent was previously issued3,304,670 shares of the Company’s common stock for services rendered inconnection with the Offering.  Subsequent to the issuance, the commonshares were canceled and replaced with warrants to purchase 2,000,000 shares ofthe Company’s common stock at an exercise price of $0.01.  Thewarrants expire on August 19, 2012 and contain a provision allowing for acashless exercise. The fair value of the warrants issued, amounting to$2,002,335, was determined using the Black Scholes option pricing model at$1.0012 per warrant utilizing the following assumptions: expected volatility of124.20%, risk free interest rate of 1.54%, contractual term of three years anda market price of $1.01.  The warrantswere exercised on a cashless basis resulting in the issuance of 1,981,391shares of common stock in October 2009 (See Note 11).

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 9.**                     **COMMITMENTS ANDCONTINGENCIES (CONTINUED)**

 

***Transition Agreement***

 

On May 28, 2009, theCompany, Christopher d’Arnaud-Taylor (“Mr. d’Arnaud-Taylor”) and PeterBohan entered into a Transition Agreement (the “Transition Agreement”).Pursuant to the Transition Agreement, Mr. d’Arnaud-Taylor agreed that,effective on the final closing May Private Placement, he will resign asChief Executive Officer of the Company and at such time his employmentagreement with the Company will be terminated.  He will continue toserve as a director of the Company. Mr. d’Arnaud-Taylor entered into aconsulting agreement, dated as of May 28, 2009 (the “Consulting Agreement”).  Pursuantto the Consulting Agreement, which shall become effective upon the finalclosing of the May Private Placement, Mr. d’Arnaud-Taylor will serveas a consultant to W2E Group Holdings and shall be paid an annual fee of$300,000. The Company has guaranteed the payments due to Mr. d’Arnaud-Taylorpursuant to the Consulting Agreement.  Upon his resignation, Mr. Bohanwill become the Company’s Chief Executive Officer. In September 2009, theCompany amended the Transition Agreement such that Mr. Taylor would resignupon termination of the May Private Placement.  This waseffective September 4, 2009 and Mr. Bohan assumed the role of CEO asof that date.  The Company recorded anaccrual of $300,000 for severance to Mr. Taylor in connection with hisdeparture and the terms of his employment agreement.  This is included as a component of Due torelated parties in the condensed consolidated balance sheet as of September 30,2009.

 

***Dargavel Contract Cost Dispute***

 

During the course of theconstruction of the Dargavel plant, the Company and its customer haveencountered a number of significant issues that have resulted in delays andcost increases to the project.  These issues include the Icelandiceconomy collapse, project scoping changes, and changes required by engineershired by the customer and the Scottish Environment Protection Agency (“SEPA”).  Theseissues have resulted in substantial increases to the costs to complete thisproject.  The customer claims that they have incurred liquidated damagesdue to the project not being completed on schedule based on the originalcontract with our Icelandic subsidiary, Enerwaste  Europe of approximately€470,000.  The Company is contesting this claim based on our beliefthat a Force Majeure occurred with respect to the Iceland collapse and theimpact on our business operations based in Iceland.  Additionally, thereare significant other costs that the customer claims are our responsibility,the majority of which are costs associated with the engineering firm that theyengaged to participate in the project.  We do not believe the vastmajority of these costs are our responsibility and intend to contest this claimvigorously.  Additionally, the Company is in the process of pullingtogether its counter claims with respect to cost increases incurred that wereoutside of our control and are not solely our responsibility.   Thecompilation of those costs is not yet complete and therefore we are unable toquantify the amount of those costs.  Management is currently unableto estimate the ultimate outcome of the negotiations and whether or not therewill be any additional amounts owed to the customer by the Company,particularly since we are not yet able to fully quantify ourcounterclaim.  The Company expects to commence discussions with thecustomer regarding the situation during the third fiscal quarter. Based on theamounts the customer has provided to us as their claim, we estimate the rangeof potential future costs to settle this could range from €0 to€900,000.  We have not recorded an accrual for these costs as thelikelihood is reasonably possible but the amounts cannot be estimated at thistime. (See Note 4).

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 10.                   INCOME TAXES**

 

The Company recognized adeferred tax asset of approximately $5,349,416 as of September 30, 2009,primarily relating to net operating loss carryforwards of approximately$8,112,994 available to offset future taxable income through2030.   Due to changes in ownership, these federal net operatingloss carryforwards are subject to annual limitations in their use in accordancewith Internal Revenue Code Section 382.  Accordingly, the extentto which the loss carryforwards can be used to offset future taxable income maybe limited.  The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible. The Company considersprojected future taxable income and tax planning strategies in making thisassessment. At present, the Company does not have a sufficient history ofincome to conclude that it is more likely than not that the Company will beable to realize all of its tax benefits in the near future and therefore avaluation allowance was established in the full value of the deferred taxasset.

 

A valuation allowance willbe maintained until sufficient positive evidence exists to support the reversalof any portion or all of the valuation allowance net of appropriate reserves.Should the Company then continue to be profitable in future periods withsupportable trends, the valuation allowance will be reversed accordingly.

 

**NOTE 11.**                   **SUBSEQUENT EVENTS**

 

***Senior Convertible Debentures***

 

In October andNovember, 2009, the Company issued Senior Convertible Debentures in theaggregate amount of $4,485,147 in a private placement.  The notesbear interest at a rate of 12% per annum and are due one year from date ofissue. The notes are convertible into one share of common stock with aconversion price of $1.00.  Also, for each dollar invested, a warrantwas issued which entitles the note holder to purchase one share of common stockfor an exercise price of $2.00 per share.  In connection with theissuance, the Company paid a placement agent $448,515 (10% of the amount of thenotes issued) and a non-accountable expense allowance equal to $134,879 (3% ofthe amount of the notes issued).  Additionally an investment bankingfee of $224,382 (5% of the amount of notes issued) was paid to the placement agent.  An amount of $538,218 was placed into anescrow account at closing which represents the 12% interest to be paid on thenotes.

 

***Warrants***

 

On October 9, 2009, theplacement agent exercised the 2,000,000 warrants that were issued in September 2009at a price of $.01 per share into common shares in a cashless exercise.  The company issued 1,981,391 shares of commonstock as a result of this transaction (See Note 9).

 

In October 2009, theCompany issued 1,100,000 warrants to purchase shares of common stock toemployees of the company.  Additionally,the Company issued 100,000 warrants to purchase shares of common stock to avendor in connection with their continued services on behalf of the Company.

 

***Legal Settlement***

 

On October 17, 2009,the Company entered into a settlement agreement with a consultant over disputedfees.  This agreement required that theCompany pay $35,000 and issue 42,000 shares of common stock to the consultantin exchange for full settlement of all outstanding bills and claims that theconsultant had with the Company.  Thecommon stock is required to be issued within 30 days of the settlement date.

 

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**WASTE2ENERGY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**NOTE 12.                   SUPPLEMENTAL DISCLOSURES OFCASH FLOW INFORMATION**

 
| ** **                                                                                       | ** ** | **Six Months Ended**        | ** ** | **Six Months Ended**        | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                       | ** ** | **September 30, 2009** | ** ** | **September 30, 2008** | ** ** |
| Cash  paid for:                                                                                  |       |                        |       |                        |       |
| Interest                                                                                         |       | $                           | 260,667    |                        | $          | — |   |
|                                                                                             |       |                        |       |                        |       |
| Acquisition  of Enerwaste Europe, Ltd.:                                                          |       |                        |       |                        |       |
| Current  assets                                                                                  |       | $                           | —     |                        | $          | 2,148,448 |   |
| Other  liabilities assumed                                                                       |       | —                      |       | (3,947,343                  | )          |
| Building  and equipment                                                                          |       | —                      |       | 208,662                     |       |
| Goodwill                                                                                         |       | —                      |       | 333,500                     |       |
| Technology                                                                                       |       | —                      |       | 7,509,515                   |       |
| Deferred  tax liability                                                                          |       | —                      |       | (2,928,714                  | )          |
| Issuance  of note payable                                                                        |       | —                      |       | (324,068                    | )          |
| Issuance  of common stock                                                                        |       | —                      |       | (3,000,000                  | )          |
| Cash  paid for acquisition                                                                       |       | $                           | —     |                        | $          | — |   |
|                                                                                             |       |                        |       |                        |       |
| Deferred  tax liability related to acquired intangibles in Investment in Enerwaste  Europe, Ltd. |       | $                           | —     |                        | $          | 2,928,715 |   |
|                                                                                             |       |                        |       |                        |       |
| Non-cash  investing and financing activities:                                                    |       |                        |       |                        |       |
| Common  stock issued in connection with notes payable                                            |       | $                           | 1,322,140  |                        | $          | — |   |
| Common  stock issued in connection with modifications of notes payable                           |       | 641,250                     |       | —                      |       |
| Common  stock issued for acquisition of Enerwaste Europe, Ltd.                                   |       | —                      |       | 3,000,000                   |       |
| Promissory  note issued for acquisition of Enerwaste Europe, Ltd.                                |       | —                      |       | 324,068                     |       |
| Common  stock outstanding from share exchange transaction                                        |       | 100                         |       | —                      |       |
| Cancellation  and return of common stock                                                         |       | 3,003                       |       | —                      |       |
|                                                                                             |       |                        |       |                        |       |
| Non-cash  operating and financing activities:                                                    |       |                        |       |                        |       |
| Warrants  issued for satisfaction of accrued expenses                                            |       | 2,112,870                   |       | —                      |       |
| Conversion  of accrued expenses to notes payable                                                 |       | $                           | 384,384    |                        | $          | — |   |

 

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**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

***Forward-Looking Statements and Associated Risks.***

 

*Thefollowing discussion should be read in conjunction with the condensedconsolidated financial statements and the notes to those statements includedelsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Qcontains certain statements that are forward-looking within the meaning of thePrivate Securities Litigation Reform Act of 1995. Certain statements containedin the MD&A are forward-looking statements that involve risks anduncertainties. The forward-looking statements are not historical facts, butrather are based on current expectations, estimates, assumptions andprojections about our industry, business and future financial results. Ouractual results could differ materially from the results contemplated by these forward-lookingstatements due to a number of factors, including those discussed in othersections of this Quarterly Report on Form 10-Q.*

 

**Plan of Operation**

 

We intend to compete in thegrowing worldwide market for waste-to-energy systems that simultaneouslydestroy waste and generate green energy. Our business plan calls for us todesign, manufacture and install small footprint, simple, cost-effectivegasification technologies that are scalable, modular, environment friendly androbust enough to operate in harsh and remote environments. We intend to providecustomized engineering solutions that we believe will enable our current andfuture customers to convert solid waste streams traditionally destined forlandfill or incineration into clean, renewable energy.

 

We intend to target thelocal waste-to-energy sector in the small to mid-range market — from one tonbatch systems all the way up to the continuous 500 metric ton per day (TPD)range — not large centralized plants such as those operated by waste-to-energycompanies like Covanta or Wheelabrator who typically develop major facilitiesin the 1,000+ TPD range.  We intend to focus on providing anycustomers we obtain with the technologies to recover the energy trapped inmunicipal solid waste, construction and demolition debris, industrial andcommercial waste, and biomass.

 

To date we have financed ouractivities and acquisitions through private placements of our securities,including the Private Placement.  To date we have generated limitedrevenues, have substantial operating losses and an accumulated deficit sinceour inception in April 2007.

 

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**Results of Operations**

 

*For the three months ended September 30, 2009 comparedto September 30, 2008*

 

For the three months ended September 30,2009, contract revenue was $408,829 compared to $1,702,425 in the prior yearquarter.   The decrease in contract revenue was primarily due tothe progress toward completion of the Dargavel contract, which is beingaccounted for using percentage of completion accounting.

 

For the three months ended September 30,2009, contract costs totaled $730,569 compared to $1,567,343 in the prior yearperiod.  Project costs include all costs incurred to date as well asestimated future costs on the contract.  Additionally, during thecurrent quarter the Company recorded a warranty reserve of approximately$200,000 related to future warranty liabilities associated with the Dargavelplant.  The overall decrease in costs wasassociated with the fact that in the current year period the project is nearerto completion.

 

For the three months ended September 30,2009, gross loss on contracts totaled $321,740, compared to gross profit of$135,082 in the prior year period.  Theloss in the current year is due to the delays and cost overruns that have beenincurred on the current project in Dumfries Scotland.

 

Selling, general andadministrative expenses for the three months ended September 30, 2009,were $1,905,544 compared to $1,736,554 for the quarter ended September 30,2008, an increase of 10%.  The increasewas primarily attributable to increases in professional fees for accounting andlegal services and higher salary expenses offset by a decrease in consultingfee expenses.

 

Other income/expenses forthe three months ended September 30, 2009 were net other expense of$1,308,597 compared to net other income of $73,398 for the three months ended September 30,2008.  The increase in expenses was primarily due to an increase ininterest expense for the period, which was attributable to the higher debtbalances as well as the amortization of discounts and write off of deferredfinancing costs, all of which is included in interest expense.

 

The Company did not recordan income tax benefit for the pre-tax loss from continuing operations for thecurrent year period because the deferred tax asset that is associated with thisbenefit is totally reserved for as the Company does not have a sufficienthistory of income to conclude that it is more likely than not that the Companywill be able to realize all of its tax benefits in the near future, andtherefore a valuation allowance was established in the full value of the deferredtax asset.  The prior year quarterincluded an income tax benefit of $866,426 due to recording the benefit oflosses and deferred tax assets that were used to offset deferred taxliabilities for the period.

 

*For the six months ended September 30, 2009 compared toSeptember 30, 2008*

 

For the six months ended September 30,2009, contract revenue was $1,179,217 compared to $1,702,425 in the prior yearperiod.   The decrease in contract revenue was primarily due tothe progress toward completion of the Dargavel contract.

 

For the six months ended September 30,2009, contract costs totaled $1,501,119 compared to $1,567,343 in the prioryear period.  Project costs include all costs incurred to date aswell as estimated future costs on the contract.  Additionally, duringthe current period the Company recorded a warranty reserve of approximately$200,000 related to future warranty liabilities associated with the Dargavelplant.  The prior year contract coststhat were incurred through June 25, 2008 were accounted for under theequity method and included as a component of “Loss on equity method investmentin EnerWaste Europe, Ltd.” in the accompanying condensed consolidated statementof operations.  As of June 25, 2008,the results of Enerwaste Europe were fully consolidated (See Note 7).

 

Selling, general andadministrative expenses for the six months ended September 30, 2009, were$3,764,690 compared to $3,709,191 for the six months ended September 30,2008, an increase of $55,499, or 1%.  Included in this increase was highercorporate expenses related to salaries and professional fees, offset by theimpact of the deconsolidation of the Company’s Enerwaste Europe subsidiary dueto the bankruptcy of that subsidiary (See Note 7 in the accompanying Notes tothe unaudited Condensed Consolidated Financial Statements).

 

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Other income/expenses forthe six months ended September 30, 2009 were net other expenses of$856,371 compared to net other expense of $431,103 for the six months ended September 30,2008.  The current year period included a gain related toextinguishment of a debt obligation payable to the former owner and CEO ofEnerwaste International as a result of a settlement agreement executed in April 2009.  Thisgain was offset by interest expense on our debt obligations and a loss on theearly extinguishment of debt.  The prior year included the net losson the Company’s equity investment in Enerwaste Europe for the period April 1to June 25, 2008 and foreign exchange gains. The foreign exchange gains in2008 were primarily due to the impact of the devaluation of the Icelandic Kronawith respect to the Enerwaste Europe debt and its receivable from the customeron the Dargavel contract which were transacted in Euros.

 

The Company did not recordan income tax benefit for the pre-tax loss from continuing operations for 2009because the deferred tax asset that is associated with this benefit is totallyreserved for as the Company does not have a sufficient history of income toconclude that it is more likely than not that the Company will be able torealize all of its tax benefits in the near future, and therefore a valuation allowancewas established in the full value of the deferred tax asset.  The prior year quarter included an income taxbenefit of $1,527,226 due to recording the benefit of losses and deferred taxassets that were used to offset deferred tax liabilities for the period.

 

**Liquidity and Capital Resources**

 

We have incurred operatinglosses since inception. As of September 30, 2009, we had $9,047 in cashcompared to $27,360 at March 31, 2009.  As of September 30,2009, we had a working capital deficiency of $5,646,006, compared to a workingcapital deficiency of $6,308,582 as of March 31, 2009.

 

Net cash used in operatingactivities for the six months ended September 30, 2009 was $2,131,421,compared with net cash used of $1,080,817 for the prior yearperiod.  The majority of the increase in net cash used was due to anincrease in operating losses due to higher operating expenses, increases inproject costs, and a decrease in amounts due from escrow agent, offset byincreases to accounts payable and accrued expenses. Net cash used in investingactivities increased over the prior year due to the purchase of computerequipment and other fixed assets.  Net cash provided by financingactivities for the six months ended September 30, 2009 was $2,131,576,compared to net cash provided by financing activities in the prior year periodof $283,503.  The principal reasons for the increase were higherproceeds from notes payable and issuance of stock.

 

The Company must raiseadditional funds on an immediate basis in order to fund our continuedoperations.  We may not be successful in our efforts to raiseadditional funds. Even if we are able to raise additional funds through thesale of our securities or through the issuance of debt securities, our cashneeds could be greater than anticipated in which case we could be forced toraise additional capital. At the present time, we have no commitments for anyadditional financing, and there can be no assurance that, if needed, additionalcapital will be available to us on commercially acceptable terms or at all.These conditions raise substantial doubt as to our ability to continue as agoing concern, which may make it more difficult for us to raise additionalcapital when needed.

 

Our significant financingand investing activities for the six months ended September 30, 2009consisted of the following:

 

In connection with theprivate placement, the Company sold to accredited investors 600,250 Unitsto investors at $2.00 per Unit, each Unit consisting of three shares of CommonStock and a three-year warrant to purchase three additional shares of CommonStock at an exercise price of $1.25 per share.  The Company receivedgross proceeds of approximately $1.2 million from the sale of the Units. Abroker-dealer acted as the exclusive placement agent for the Private Placement.We received net proceeds of approximately $825,000 after deducting commissionsand expenses of the Private Placement.

 

In June 2009, theCompany issued $804,000 of notes payable to accredited investors bearinginterest at 10% and due 90 days from date of issue.  Of the total,$650,000 was repaid in October 2009 using proceeds from a privateplacement offering of the Company’s 12% Senior Convertible Debentures.  The remainder of the notes totaling $154,000were due on October 2, 2009 and have not yet been repaid.

 

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In August 2009, theCompany issued $1,571,000 of notes payable to accredited investors bearinginterest at 10% and due 90 days from date of issue.  Of the total,$990,000 was repaid in October 2009 using proceeds from a privateplacement offering of the Company’s 12% Senior Convertible Debentures. Theremainder of the notes totaling $581,000 were due on November 4, 2009 andhave not yet been repaid.

 

As of November 5, 2009,the Company had debt obligations totaling $1,060,000 that had matured and havenot been repaid.

 

In October and November 2009,the Company issued approximately $4.5 million of its 12% Senior ConvertibleDebentures in a series of private placement transactions.  In connection with the offerings, the Companypaid its placement agent commissions of $448,515 (10%) and a non-accountableexpense allowance of $134,879 (3%). Additionally an investment banking fee was paid of $224,382 (5%).  The interest associated with the Debenturestotaling $538,218 has been put into escrow.

 

In the third and fourthquarters of fiscal 2009, management anticipates new order intake once theDargavel plant is commissioned, which will start to provide funding foroperational expenses on an on-going basis.

 

However, depending on ourfuture needs and changes and trends in the capital markets affecting our sharesand us, we may determine to seek additional equity or debt financing in theprivate or public markets. Additional financing, whether through public orprivate equity or debt financing, arrangements with stockholders or othersources to fund operations, may not be available, or if available, may be onterms unacceptable to us.

 

Our material capitalexpenditure requirements for the remaining period of the year ending March 31,2010 will be approximately $200,000 to procure office equipment, furniture andIT equipment.

 

We anticipate that ourlong-term operational expenses will be approximately $400,000 to $600,000 permonth, consisting primarily of SG&A expenses.

 

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**RecentAccounting Pronouncements**

 

See Note 3 to the CondensedConsolidated Financial Statements.

 

**Off BalanceSheet Arrangements**

 

None.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

Not Applicable

 

**ITEM 4T. CONTROLSAND PROCEDURES.**

 

**Evaluationof Disclosure Controls and Procedures**

 

Our management isresponsible for establishing and maintaining a system of disclosure controlsand procedures (as defined in Rule 13a-15(e) under the Exchange Act)that is designed to ensure that information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time specified in theCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports that it files or submitsunder the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, isaccumulated and communicated to the issuer’s management, including itsprincipal executive officer or officers and principal financial officer orofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) underthe Exchange Act, the Company carried out an evaluation with the participationof the Company’s management, including Peter Bohan, the Company’s ChiefExecutive Officer and Craig Brown, the Company’s Chief Financial Officer, ofthe effectiveness of the Company’s disclosure controls and procedures (asdefined under Rule 13a-15(e) under the Exchange Act) as of September 30,2009.  Based upon that evaluation, the Company’s Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were not effective.Furthermore, certain matters involving our internal control over financialreporting constitute a material weakness under standards established by thePublic Company Accounting Oversight Board (“PCAOB”).  The Company’sdisclosure controls and procedures were not effective due to a lack of internalresources to account for the completeness of transactions to ensure thatinformation required to be disclosed by the Company in the reports that theCompany files or submits under the Exchange Act, is recorded, processed,summarized and reported, within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to the Company’smanagement, including the Company’s CEO, as appropriate, to allow timelydecisions regarding required disclosure. The Company is evaluating itsstructure and processes and procedures so that it can begin to implementcorrective action where necessary to ensure that the appropriate resources arein place throughout the company to ensure the Company’s disclosure controls andprocedures are effective.  Additionally, the Company hired a ChiefFinancial Officer in July 2009 and will be evaluating the systems andrequired changes needed to strengthen our internal controls.

 

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Our management, includingour Chief Executive Officer and Chief Financial Officer, believes that anydisclosure controls and procedures or internal controls and procedures, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further,the design of a control system must consider the benefits of controls relativeto their costs. Inherent limitations within a control system include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by unauthorized override of the control. While the design of anysystem of controls is to provide reasonable assurance of the effectiveness ofdisclosure controls, such design is also based in part upon certain assumptionsabout the likelihood of future events, and such assumptions, while reasonable,may not take into account all potential future conditions. Accordingly, becauseof the inherent limitations in a cost effective control system, misstatementsdue to error or fraud may occur and may not be prevented or detected.

 

**Changes ininternal controls**

 

Our management, with theparticipation of our Chief Executive Officer and Chief Financial Officerperformed an evaluation as to whether any change in our internal controls overfinancial reporting occurred during the quarter ended September 30,2009.  Management concluded that no significant changes occurred duringthe quarter.

 

**PART II**

**OTHER INFORMATION**

 

**ITEM 1 -LEGAL PROCEEDINGS**

 

Other than as stated herein,we are not a party to any pending legal proceeding, nor is our property thesubject of a pending legal proceeding, that is not in the ordinary course ofbusiness or otherwise material to the financial condition of our business. Noneof our directors, officers or affiliates is involved in a proceeding adverse toour business or has a material interest adverse to our business.

 

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**ITEM 2 -UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

**NOTAPPLICABLE**

 

**ITEM 3 -DEFAULTS UPON SENIOR SECURITIES**

 

As of the date of thisfiling the Company is in default on the repayment of certain debt instrumentsthat have not been cured within thirty (30) days.  The following table summarizes the defaultstatus by instrument and includes the principal amount, interest rate, currentaccrued interest payable, and the number of days in default as of the filingdate of this Quarterly Report on Form 10Q:

 
| **Principal** | ** ** | **Rate** | ** ** | **Accrued Interest as of  Filing Date** | ** ** | **Days in arrears** | ** ** |
|---------------|------------|----------|------------|-----------------------------------------|------------|---------------------|------------|
|          |       |     |       |                                    |       |                |       |
| $             | 50,000     |     | 10         | %                                       | $          | 1,973               |       | 45 |   |
| $             | 39,625     |     | 10         | %                                       | $          | 1,563               |       | 45 |   |
| $             | 64,375     |     | 10         | %                                       | $          | 2,540               |       | 45 |   |

 

**ITEM 4 -SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5 -OTHER INFORMATION**

 

None.

 

**ITEM 6.Exhibits**

 
| **Exhibit   Number** | ** ** | **Description**                                                                       |
|---------------------------|------------|---------------------------------------------------------------------------------------|
|                      |       |                                                                                  |
| 31.1                      |       | Certification by Chief  Executive Officer pursuant to Sarbanes Oxley Section 302 |
| 31.2                      |       | Certification by Chief  Financial Officer pursuant to Sarbanes Oxley Section 302 |
| 32.1                      |       | Certification by Chief  Executive Officer pursuant to 18 U.S.C. Section 1350     |
| 32. 2                     |       | Certification by Chief  Financial Officer pursuant to 18 U.S.C. Section 1350     |

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                          | **WASTE2ENERGY  HOLDINGS, INC.** |
|-------------------------------|----------------------------------|
|                          |                             |   |
| Date: November 16,  2009 | By:                              | /s/ Peter Bohan |
|                          |                             | Peter Bohan  Chief Executive Officer(Principal Executive Officer) |
|                          |                             |   |
|                          |                             |   |
|                          | By:                              | /s/ Craig L. Brown |
|                          |                             | Chief Financial Officer  (Principal Financial Officer) |

 

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