CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
1 – Business Organization
These
financial statements represent the financial statements of National Waste Management Holdings, Inc. (“NWMH”) and its
wholly owned operating subsidiaries, Sand/Land of Florida Enterprises, Inc. (“Sand/Land”), Waste Recovery Enterprises,
LLC (“WRE”) and Gateway Rolloff Services, LP (“Gateway”). NWMH, Sand/Land, WRE and Gateway are collectively
referred to herein as the “Company”. The Company changed its name from Kopjaggers, Inc. to National Waste Management
Holdings, Inc. effective October 31, 2014.
On
June 16, 2014, pursuant to a share exchange agreement, NWMH merged with Sand/Land, a Florida corporation formed as a S-Corporation
under the laws of the State of Florida on August 15, 1986, in which the existing stockholders of Sand/Land exchanged all of their
issued and outstanding shares of common stock for 9,490,000 shares of common stock of NWMH (the “Reverse Merger”).
After the consummation of the Reverse Merger, stockholders of Sand/Land owned 47.45% of NWMH’s outstanding common stock.
As
a result of the Reverse Merger, Sand/Land became a wholly owned subsidiary of NWMH. For accounting purposes, the Reverse Merger
was treated as a reverse acquisition with Sand/Land as the acquirer and NWMH as the acquired party.
WRE
and Gateway were related party acquisitions. They were acquired on October 15, 2015 and December 1, 2015, respectively. See Notes
9 and 10, “Related Party Transactions” and “Acquisitions”, respectively.
Sand/Land
is a solid waste management company headquartered in Central Florida, currently operating a licensed Construction & Demolition
landfill. The Company’s primary operations are based near Tampa, Florida.
WRE
is a waste management company that offers trash collection services, roll-off services and a full service transfer station. The
Company also offers wood grinding, demolition, mulch and gravel services. The Company’s primary operations are based near
Binghamton, New York. The Company was founded in 1998 and principally serves the Northeastern U.S. industrial and residential
markets.
Gateway
offers commercial and residential dumpster service and roll-off boxes for construction and clean up projects specializing in the
removal of debris, garbage, waste, hauling construction and demolition debris, focused on servicing general contractors, new home
builders, reconstruction, renovation, landscaping and home improvement professionals. The Company’s primary operations are
based near Tampa, FL.
The
Company, as a consolidated entity, is a full service solid waste management company headquartered near Tampa, Florida with operations
in Florida and New York.
Basis
of Presentation
The
financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The Consolidated financial statements include the operations of
Sand/Land, WRE and Gateway, together, NWMH.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could differ from those estimates.
Fair
Value of Financial Instruments
For
certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, advances payable
and notes payable, the carrying amounts approximate fair value due to their relatively short maturities.
The
Company adopted ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value
measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy
are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities
in active markets.
|
|
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
|
The
Company did not identify any non-recurring assets and liabilities that are required to be presented in the balance sheets at fair
value in accordance with ASC 815.
In
February 2007, the FASB issued ASC 825-10 “Financial Instruments.” ASC 825-10 permits entities to choose to measure
many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings.
The
carrying amounts of cash and current liabilities approximate fair value due to the short maturity of these items. These fair value
estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial
instruments for trading purposes, nor does it utilize derivative instruments in the management of foreign exchange, commodity
price, or interest rate market risks.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Revenue
and Cost Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes
revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all
of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the sales price is fixed or determinable,
(iii) collectability is reasonably assured and (iv) goods have been shipped and/or services rendered.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, the Company considers cash and cash equivalents to be all highly liquid deposits with maturities
of three months or less. Cash equivalents are carried at cost, which approximates market value.
The
Company maintains its cash and cash equivalents at various financial institutions where they are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $250,000. The balances of these accounts from time to time may exceed federally insured limits.
The Company has not experienced any losses in such accounts.
Accounts
Receivable, Bad Debts and Allowance for Doubtful Accounts
An
allowance for doubtful accounts is provided for as a percentage of trade accounts receivable based on historical loss experience.
As of June 30, 2016 and December 31, 2015, the allowance for doubtful accounts was approximately $20,000 and $20,000, respectively.
Consolidated bad debt expense recognized for the six months ended June 30, 2016 and 2015 was $3,613 and ($81,761), respectively.
The reason for the negative bad debt expense balance at June 30, 2015 is due to the allowance being overstated at June 30, 2015
and requiring adjustment. Consolidated bad debt expense for the three months ended June 30, 2016 and 2015 was $3,281 and $762,
respectively.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are
capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss thereon is recognized as other operating income or expenses.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Property,
Plant and Equipment (Continued)
Depreciation
is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term
of the related lease, including renewal periods, if shorter. Estimated useful lives are as follows:
Transportation equipment
|
|
5 years
|
Office and machinery equipment
|
|
5 years
|
Roll off containers
|
|
5-7 years
|
Buildings
|
|
39.5 years
|
Airspace
|
|
39.5 years
|
The
Company reviews property, plant and equipment and all amortizable intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability is based on estimated
undiscounted cash flows. Measurement of the impairment loss, if any, is based on the difference between the carrying value and
fair value.
Impairment
of Long-Lived Assets and Amortizable Intangible Assets
The
Company follows ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach
to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for
a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset
is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition
of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Through June 30, 2016, the Company has not experienced impairment losses on its long-lived assets or intangible assets.
Goodwill
Goodwill
consists of the excess of cost over identifiable net tangible and intangible assets of company’s acquired. In accordance
with the Accounting Standards Codification (“ASC”) 350, “Intangibles-Goodwill and Other”, the carrying
amount of goodwill and intangible assets is to be reviewed at least annually for impairment, and losses in value, if any, will
be charged to operations in the period of impairment. Goodwill was determined to not be impaired as of June 30, 2016. The test
for impairment was done in accordance with guidance in Accounting Standards Update (ASU) 2011-8 for the year ended December 31,
2015. ASU 2011-8 permits an entity to evaluate qualitative factors to assess whether impairment is more likely than not to have
occurred.
The
Company acquired two related entities during 2015, assigning $1,238,173 and $941,010 of Goodwill to the purchase prices of WRE
and Gateway, respectively. During the six months ended June 30, 2016, the Company acquired a company for $230,000, and assigned
$36,053 to goodwill based on the acquisition purchase price allocation. Total Goodwill at June 30, 2016 and December 31, 2015
was $2,215,236 and $2,179,183, respectively. See Note 10, “Acquisitions” for the purchase price allocation of the
business.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Intangible
Assets
The
Company has certain intangible assets resulting from business combinations and acquisitions that are recorded at cost. Intangible
assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives.
Intangible
assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying
value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, usually
determined by the estimated discounted future cash flows of the asset. See note 10, “Acquisitions” for details related
to the purchase price allocation of identified definite lived amortizable intangible assets, including customer lists, licenses,
permits, non-compete agreements and trademarks. The Company has a customer list that was bought from a related party in 2011,
a website built in 2015 and engineering costs as part of a 10 year permit renewal with the Department of Environmental Protection.
The Company purchased two related entities during 2015 and one unrelated business in 2016, assigning a portion of the purchase
price to intangible assets, primarily customer lists to the purchases accordingly. See note 4, “Intangible Assets”
and Note 10, “Acquisitions”.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Consolidated advertising expenses for the six months ended June 30, 2016 and
2015 were $6,405 and $2,674, respectively. The consolidated advertising expenses for the three months ended June 30, 2016 and
2015 were $3,605 and $2,302, respectively.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The Company reviews the tax positions taken or expected to be taken on tax returns to
determine whether and to what extent a benefit can be recognized in our consolidated financial statements. To the extent interest
and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts are accrued and classified
as a component of income tax expense. For the six and three months ended June 30, 2016 and 2015, we did not recognize any accrued
interest or penalties.
The
Company files income tax returns in the United States and Florida, which are subject to examination by the tax authorities in
these jurisdictions, generally for three years after the filing date.
Management
has evaluated tax positions in accordance with FASB ASC 740, Income Taxes, and has not identified any tax positions that require
disclosure.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Income
Taxes (Continued)
As
of June 30, 2016, the following tax years are subject to examination:
Jurisdiction
|
|
Open Years for Filed Returns
|
Federal
|
|
December 31, 2012 – 2015
|
Environmental
Remediation Liability
The
Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably
estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion
of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt is deemed probable.
Operating,
General and Administrative Expenses
Business
operating costs including expenses generated from administration and purchasing functions, are recorded in “Operating, general
and administrative expenses” in the Consolidated Statements of Operations. Business operating costs include items such as
wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, depreciation not related
to equipment used in operations, amortization of intangible assets, leasehold amortization and costs for outside provided services.
Stock
Issued to Non-Employees for Services Rendered
The
Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments
to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or
services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment
is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments
is complete (that is, the vesting date).
Earnings
Per-Share
Earnings
per share are based on the weighted-average number of common shares outstanding at each reporting period.
Reclassifications
Certain
reclassifications have been made in prior year balances to conform to the current year presentation. Such reclassifications had
no effect on net income or retained earnings as previously reported.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
3 – Property, Plant and Equipment
Property,
plant and equipment and related accumulated depreciation consist of the following at June 30, 2016 and December 31, 2015:
|
|
|
2016
|
|
|
|
2015
|
|
Machinery and equipment
|
|
|
3,265,812
|
|
|
|
3,209,228
|
|
Transportation equipment
|
|
|
2,179,722
|
|
|
|
2,119,472
|
|
Containers
|
|
|
1,080,335
|
|
|
|
942,400
|
|
Airspace
|
|
|
865,076
|
|
|
|
865,076
|
|
Buildings
|
|
|
503,195
|
|
|
|
493,225
|
|
Improvements
|
|
|
338,799
|
|
|
|
338,799
|
|
Land
|
|
|
225,000
|
|
|
|
225,000
|
|
Leased equipment
|
|
|
179,620
|
|
|
|
179,620
|
|
Landfill area
|
|
|
72,098
|
|
|
|
72,098
|
|
Office furniture and equipment
|
|
|
4,186
|
|
|
|
5,771
|
|
Total Property, plant and equipment
|
|
|
8,713,843
|
|
|
|
8,450,689
|
|
Less: accumulated depreciation
|
|
|
(3,783,814
|
)
|
|
|
(3,409,409
|
)
|
Property, plant and equipment, net
|
|
$
|
4,930,029
|
|
|
$
|
5,041,280
|
|
Depreciation
expense for the six months ended June 30, 2016 and 2015 was $375,992 and $71,198, respectively. Depreciation expense for the three
months ended June 30, 2016 and 2015 was $190,438 and $39,736, respectively.
Note
4 – Amortizable Intangible Assets
Intangible
assets consist of the following at June 30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
|
Amortization
Period
|
Customer list
|
|
|
1,493,419
|
|
|
$
|
1,413,872
|
|
|
5 years
|
Website costs
|
|
|
7,954
|
|
|
|
7,954
|
|
|
3 years
|
Licenses and permits
|
|
|
66,318
|
|
|
|
66,318
|
|
|
10 years
|
Non-compete agreement
|
|
|
10,000
|
|
|
|
-
|
|
|
5 years
|
Less accumulated amortization
|
|
|
(222,970
|
)
|
|
|
(74,791
|
)
|
|
|
Intangible assets, net
|
|
$
|
1,354,721
|
|
|
$
|
1,413,353
|
|
|
|
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
4 – Amortizable Intangible Assets (Continued)
The
estimated aggregate amortization expenses for the six months ended December 31, 2016 and for each of following four years ended
December 31, are as follows:
Year Ending
|
|
|
|
2016 (six months)
|
|
|
154,150
|
|
2017
|
|
|
290,138
|
|
2018
|
|
|
288,812
|
|
2019
|
|
|
287,486
|
|
2020
|
|
|
287,486
|
|
Thereafter
|
|
|
46,649
|
|
Total
|
|
|
1,354,721
|
|
Amortization
expense for the six months ended June 30, 2016 and 2015 was $148,179 and $9,081, respectively. Amortization expense for the three
months ended June 30, 2016 and 2015 was $75,582 and $4,051, respectively.
Note
5 – Commitments and Contingencies
General
During
the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation,
it evaluates the merits of the case in accordance with FASB ASC 450, Contingencies. The Company evaluates its exposure to the
matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an
unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies
held by the Company may reduce the cash outflows with respect to an adverse outcome of certain of these litigation matters.
Landfill
Related Environmental Remediation
The
Company currently operates a fully licensed landfill under approval by the Florida Department of Environmental Protection. As
such, the Company has set up a reserve allowance of $424,596 against estimated future closing costs. As of December 31, 2013,
the Florida Department of Environmental Protection has approved the secured letter of credit cash reserve of $324,950 set aside
by the Company at June 30, 2016 and December 31, 2015, respectively, in order to be in compliance with the financial assurance
requirements for long term care cost of the facility. It is reasonably possible that the recorded estimate of the obligation may
change in the near term.
Concentrations
of Revenues and Receivables
As
discussed in note 8, “Related Party Transactions”, during the six months ended June 30, 2016 and 2015, approximately
15% and 26% of the Company’s revenues were generated from a related party. During the three months ended June 30, 2016 and
2015, approximately 19% and 26% of the Company’s revenues were generated from a related party. As of June 30, 2016 and December
31, 2015, 17% and 16% of total consolidated trade accounts receivables were due from a related party, respectively.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
6 – Long-Term Debt
Following
is a breakdown of non-related party long term debt:
|
|
2016
|
|
|
2015
|
|
Notes payable to various banks, to finance various equipment purchases, payable in
monthly installments between $646 and $10,107, with interest rates ranging from 2.39% to 9.63%, maturing from June 30, 2016
through December 28, 2020
|
|
$
|
495,503
|
|
|
$
|
604,005
|
|
Less current portion of long-term debt:
|
|
|
(146,073
|
)
|
|
|
(184,932
|
)
|
Long-term debt, net of current portion
|
|
$
|
349,430
|
|
|
$
|
419,073
|
|
The
aggregate annual maturities of non-related party long-term debt are as follows:
Period Ending June 30,
|
|
|
|
2017
|
|
$
|
146,073
|
|
2018
|
|
|
132,555
|
|
2019
|
|
|
131,387
|
|
2020
|
|
|
71,235
|
|
2021
|
|
|
14,253
|
|
Total
|
|
$
|
495,503
|
|
Related
Party Shareholder Loan
The
Company had a note due to the largest shareholder of the Company. This note was unsecured, had a maturity date of December 31,
2016 and carried a 1% interest rate. On approximately January 1, 2016, the Note was converted to 10% cumulative preferred stock
and the Note was cancelled. The total converted debt was $2,000,000. The balance of the note as of June 30, 2016 and December
31, 2015 was $0 and $2,017,301, respectively. The residual balance of $17,301 that was not converted was reclassified to a short
term, unsecured, non-interest bearing related party payable, included with due to related party on our consolidated balance sheet.
On
October 15, 2015, the Company acquired a related entity that was 50% owned by the largest shareholder of the Company. As part
of that acquisition, the Company acquired a shareholder note owed to the same majority shareholder of the Company. The balance
of the note, including accrued interest on the acquisition date was $1,512,753. As discussed above, $1,500,000 of this total was
converted to Preferred Stock on approximately January 1, 2016.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
6 – Long-Term Debt (Continued)
On
October 15, 2015, the Company acquired a related entity that was 50% owned by the largest shareholder of the Company. As part
of that acquisition, the Company acquired a shareholder note owed to the same majority shareholder of the Company. The balance
of the note, including accrued interest on the acquisition date was $1,512,753. As discussed above, $1,500,000 of this total was
converted to Preferred Stock on approximately January 1, 2016.
Note
7 – Capital Leases
During
2014, the Company purchased equipment under a capital lease obligation. The lease is payable in 60 monthly payments of $3,750,
beginning December 20, 2014, maturing December 20, 2019. The capital lease is collateralized by the equipment purchased. The capital
lease is personally guaranteed by the Chairman and CEO of the Company.
Following
is a breakdown of our capital lease obligation as of June 30 and December 31:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Capital lease to purchase equipment
|
|
$
|
111,781
|
|
|
$
|
128,060
|
|
Less current portion of capital lease obligations:
|
|
|
(28,125
|
)
|
|
|
(25,131
|
)
|
Long-term capital lease obligations, net of current portion
|
|
$
|
83,656
|
|
|
$
|
102,929
|
|
Future
minimum lease payments under the lease as of June 30, 2016 are as follows:
Twelve Months Ended, June 30th:
|
|
|
|
|
2017
|
|
|
28,125
|
|
2018
|
|
|
32,373
|
|
2019
|
|
|
38,326
|
|
2020
|
|
|
12,957
|
|
Total capital lease obligation
|
|
$
|
111,781
|
|
The
following is a summary of leased assets included in machinery and equipment as of June 30 and December 31:
|
|
2016
|
|
|
2015
|
|
Leased Equipment
|
|
$
|
179,620
|
|
|
$
|
179,620
|
|
Less accumulated depreciation
|
|
|
(53,886
|
)
|
|
|
(35,924
|
)
|
Net leased assets
|
|
$
|
125,734
|
|
|
$
|
143,696
|
|
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
8 – Related Party Transactions
Related
Party Sales and Accounts Receivable
The
Company generates a significant portion of their revenue from a related entity transfer station, owned by the majority shareholder
of the Company. This related entity uses the Company’s landfill (Sand/Land) as its primary source of disposal for construction
and demolition debris. Sand/Land also trucks the disposal costs from the Company’s site, either directly or through a third
party and bills the Company accordingly for trucking services. Total revenue generated from the related entity during the six
months ended June 30, 2016 and 2015 were $456,245 and $224,485 or 15% and 26% of total consolidated revenue, respectively. Total
revenues generated from the related entity during the three months ended June 30, 2016 and 2015 for disposal costs were $283,710
and $124,135 or 19% and 26% of total consolidated revenue, respectively. Total related party accounts receivable as of June 30,
2016 and December 31, 2015 related to these sales were approximately $114,000 and $91,000, respectively, or 17% and 16% of total
net accounts receivable, respectively.
Related
Party Disposal Costs and Accounts Payable
On
December 1, 2015, the Company acquired Gateway, a related entity that was previously owned 50% by the largest shareholder of the
Company. See note 10, “Acquisitions” for details. Gateway disposes a large portion of their construction and debris
collected in the related entities transfer station. Total expenses incurred from the related entity during the six months ended
June 30, 2016 and 2015, were $67,058 and $0, respectively. Total expenses incurred from the related entity during the three months
ended June 30, 2016 and 2015, were $32,279 and $0, respectively. Total related party accounts payable of the consolidated entity
as of June 30, 2016 and December 31, 2015, related to these expenses were approximately $21,000 and $17,000, respectively.
Related
Party Shareholder Loan
The
Company had a note due the largest shareholder of the Company. This note was unsecured, had a maturity date of December 31, 2016
and carried a 1% interest rate. On approximately January 1, 2016, the Note was converted to 10% cumulative preferred stock and
the Note was cancelled. The total converted debt was $2,000,000. The balance of the note as of June 30, 2016 and December 31,
2015 was $0 and $2,017,301, respectively. The residual balance of $17,301 that was not converted, was reclassified to a short
term, unsecured, non-interest bearing short term payable, included with due to related party on our consolidated balance sheet.
On
October 15, 2015, the Company acquired a related entity that was 50% owned by the largest shareholder of the Company. As part
of that acquisition, the Company acquired a shareholder note owed to the same majority shareholder of the Company. The balance
of the note, including accrued interest on the acquisition date was $1,512,753. As discussed above, $1,500,000 of this total was
converted to Preferred Stock on approximately January 1, 2016.
Related
Party Consulting Agreement
The
Chairman of the Board is a consultant for the Company, meets with each subsidiary general manager on a regular basis, consulting
on matters such as acquisitions and integration, growth plan objectives, operating effectiveness, organization structure, equipment
and financing requirements, among other matters. Total related party consulting expenses incurred and paid to the Chairman for
the six months ended June 30, 2016 and 2015 were $65,000 and $0, respectively. Total related party consulting expenses incurred
and paid to the Chairman for the three months ended June 30, 2016 and 2015 were $42,000 and $0, respectively.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
8 – Related Party Transactions (Continued)
Expenses
Paid on Behalf of the Company by a Related Party
Throughout
the three months ended March 31, 2016 Strategic Capital Markets (“Strategic”), a related party, paid for expenditures
of the Company as well as deposits on a landfill acquisition on behalf of the Company. These expenditures primarily related to
professional fees incurred for compliance related to being a public company as well as marketing the Company’s investment
strategy. Total expenses incurred for these services for the three months ended March 31, 2016 were $112,154, including approximately
$62,000 in professional fees and $50,000 for a non-refundable deposit on a landfill that was written off in February of 2016 due
to the acquisition not closing. During the three months ended March 31, 2016, $592,829 of the amount due to the related party
at December 31, 2015 were settled for 592,829 shares of the Company’s restricted common stock ($1 per share conversion).
The expenditures for professional fees and investment relations incurred during the three months ended March 31, 2016 of $112,154
were converted to the Company’s subscribed restricted common stock at $0.50 per share, or 224,308 subscribed shares as of
June 30, 2016. The shares were not issued as of June 30, 2016 and thus are included on the Company’s consolidated balance
sheet as shares subscribed. No expenses were paid on behalf of the Company by this related entity during the three months ended
June 30, 2016 (period from April 1, 2016 through June 30, 2016).
Related
Party Acquisitions
On
October 15, 2015 and December 1, 2015, the Company closed on the Acquisition of WRE and Gateway, respectively. Each of these acquired
entities was owned 50% by the majority shareholder of the Company prior to the acquisitions. In each acquisition, a second owner
owned 50% of the each acquired entity.
WRE
was acquired for a $250,000 owner financed note that was paid in January of 2016 by a related entity on behalf of the Company
and 2,750,000 shares of the Company’s restricted common stock. Gateway was acquired for $450,000 in cash and a total of
2,400,000 shares of the Company’s restricted common stock. The majority shareholder of the Company received no cash or notes;
he received 1,500,000 and 1,650,000 shares of the Company’s restricted common stock. The 3,150,000 shares of the Company’s
restricted common stock were not issued as of December 31, 2015, and thus were presented on the balance sheet as common stock
subscribed in the equity section of the balance sheet through December 31, 2015. The shares were issued during 2016 and have been
reclassified to additional paid in capital, valued at $1 per share, equivalent with the settlement with Strategic as described
above in the related party note section describing the expenses paid on behalf of the Company.
See
note 10, “Acquisitions” for further information related to the acquisitions and the purchase price allocation.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
9 – Stockholders’ Deficit
Shares
issued to Strategic for Expenses, Deposits and Acquisitions paid for on Behalf of the Company
As
discussed in Note 8 above, a related entity incurred costs and paid landfill acquisition deposits and paid the cash portion of
an acquisition on behalf of the Company. Total restricted common shares issued during the three months ended March 31, 2016 for
settlement of these costs totaled 592,829 (settled for $1 per share).
Shares
issued to consultant for professional fees:
The
Company entered into an agreement with a consulting firm for investor relation services throughout a twelve-month period, from
May 10, 2016 through May 9, 2017. Total shares granted for the services were 400,000. As of June 30, 2016, 300,000 shares had
been issued and 100,000 shares will be issued on August 10, 2016. The remaining 100,000 shares are included in subscribed shares
as of June 30, 2016 (see below, shares subscribed during the three months ended June 30, 2016). The granted shares were valued
based on the value of the stock on the date of grant, May 10, 2016, of $0.13. The total value of the shares issued was approximately
$53,000. As of June 30, 2016, approximately $8,000 was expensed and the remaining $45,000 was included in our consolidated prepaid
expenses and will be amortized monthly over the term of the contract.
Shares
Subscribed, Issued During the Three Months Ended March 31, 2016:
As
discussed in note 10, the Company acquired two related party entities; as part of the Consideration for the purchase, the Company
granted the Shareholder a total of 3,150,000 restricted common shares of the Company’s restricted common stock as part of
the acquisition. As of December 31, 2015, the shares were not issued, and thus were included in common stock subscribed on our
consolidated balance sheet. During the three months ended March 31, 2016, all 3,150,000 shares were issued and transferred from
common stock subscribed to additional paid in capital.
Shares
subscribed during the three months ended June 30, 2016:
During
the three months ended June 30, 2016, the Company settled amounts due to a related entity for expenses paid on behalf of the Company
by the related entity and for payment of the short term acquisition note paid on behalf of the Company by the related entity as
part of the WRE acquisition, totaling $250,000. The $250,000 acquisition note with WRE was settled for $1 per share of the Company’s
stock for a total of 250,000 subscribed shares of the Company’s restricted common stock. The Company settled $112,154 of
expenses paid by the third party for expenses incurred by the Company during the period from January 1, 2016 through March 31,
2016, primarily for professional fees for $0.50 per share subscribed, or 224,308 subscribed shares of the Company’s restricted
common stock. The Company also incurred professional fees with a vendor that were settled for 100,000 shares of the Company’s
common stock, valued at $13,150 by the share price on the date of Grant, May 11, 2016, multiplied by the shares granted (see above,
Shares issued to consultant for professional fees).
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
9 – Stockholders’ Deficit (Continued)
Preferred
Stock
During
May 2015, the Company amended the Articles of Incorporation to authorize 10,000,000 shares of the Company’s Series A preferred
stock, no par value per share. On June 17, 2015, the Company issued one share of Series A Preferred Stock, no par value, to the
Company’s Chairman of the Board (the “Chairman”). As a holder of the outstanding share of Series A Preferred
Stock, the Chairman is entitled to voting power equivalent to the number of votes equal to the total number of the Company’s
common stock outstanding as of the record date for the determination of stockholders entitled to vote at each meeting of stockholders
of the Company and entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the
Company.
On
approximately January 1, 2016, the Company’s Board of Directors approved 10,000,000 shares of 10%, cumulative preferred
stock and $2,000,000 of Shareholder debt was converted to this class of preferred stock. During the six and three months ended
June 30, 2016, $100,000 and $50,000 of dividends was accrued, but not paid on this preferred stock. They are included in our consolidated
accrued liabilities as of June 30, 2016. Total accrued preferred stock dividends as of June 30, 2016 and December 31, 2015 were
$100,000 and $0, respectively.
Note
10 – Acquisitions
Related
Party Acquisitions
Waste
Recovery Enterprises, LLC
On
October 15, 2015, the Company acquired WRE, an entity that was 50% owned by the Majority shareholder of the Company. WRE offers
residential trash pickup, commercial and residential dumpster service and roll-off boxes for construction and clean up projects.
The Company has a transfer station that accepts construction and demolition debris, household trash, furniture and appliances.
The Company also offers wood grinding, demolition, mulch and gravel services. The Company’s primary operations are based
near Binghamton, New York.
See
the table below summarizing the purchase price paid to the related party owner and the 2
nd
, non-related party entity:
Party
|
|
Cash
|
|
|
Owner Financed Short Term Note
|
|
|
Restricted Common Shares
|
|
|
Value Assigned to Shares ($1/share)
|
|
|
Total Purchase Price
|
|
Majority Shareholder – 50% owner
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
Non-related entity - 50% owner
|
|
|
-
|
|
|
|
250,000
|
|
|
|
1,250,000
|
|
|
|
1,250,000
|
|
|
|
1,500,000
|
|
Total
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
|
2,750,000
|
|
|
$
|
2,750,000
|
|
|
$
|
3,000,000
|
|
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions (Continued)
Waste
Recovery Enterprises, LLC (Continued)
Operations
subsequent to October 15, 2015 are included in the accompanying consolidated financial statements. The acquisition has been accounted
for using the purchase method of accounting. The purchase price of $3,000,000 was allocated as follows:
Assets
|
|
|
|
Cash
|
|
$
|
29,625
|
|
Accounts receivable
|
|
|
32,706
|
|
Other current assets
|
|
|
54,598
|
|
Due from related party
|
|
|
45,953
|
|
Total current assets
|
|
|
162,882
|
|
Property and Equipment
|
|
|
|
|
Transportation equipment
|
|
|
1,116,682
|
|
Machinery and Equipment
|
|
|
756,800
|
|
Buildings
|
|
|
493,225
|
|
Land
|
|
|
225,000
|
|
Containers
|
|
|
160,400
|
|
Leasehold improvements
|
|
|
17,154
|
|
Furniture and fixtures
|
|
|
2,069
|
|
Total property and equipment
|
|
|
2,771,330
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer relationships
|
|
|
639,433
|
|
Licenses and permits
|
|
|
50,000
|
|
Goodwill
|
|
|
1,238,173
|
|
Total goodwill and intangible assets
|
|
|
1,927,607
|
|
Total assets
|
|
|
4,861,819
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(64,179
|
)
|
Due to related entity
|
|
|
(30,000
|
)
|
Total current liabilities
|
|
|
(94,179
|
)
|
Related party debt
|
|
|
(1,512,754
|
)
|
Long term debt
|
|
|
(254,886
|
)
|
Total liabilities
|
|
|
1,861,819
|
|
Total consideration for acquisition
|
|
$
|
3,000,000
|
|
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions (Continued)
Gateway
Rolloff Services, LP
On
December 1, 2015, the Company acquired Gateway, an entity that was 50% owned by the Majority shareholder of the Company. Gateway
offers commercial and residential dumpster service and roll-off boxes for construction and clean up projects specializing in the
removal of debris, garbage, waste, hauling construction and demolition debris, focused on servicing general contractors, new home
builders, reconstruction, renovation, landscaping and home improvement professionals. The Company’s primary operations are
based near Tampa, FL.
See
the table below summarizing the purchase price paid to the related party owner and the 2nd, non-related party entity.
Party
|
|
Cash
|
|
|
Cash Paid on Behalf of Company By Related
Entity
|
|
|
Restricted Common Shares
|
|
|
Owner financed short term note
|
|
|
Value Assigned to Shares ($1/share)
|
|
|
Total Purchase Price
|
|
Majority Shareholder – 50% owner
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
1,650,000
|
|
|
$
|
-
|
|
|
$
|
1,650,000
|
|
|
$
|
1,650,000
|
|
Non-related entity - 50% owner
|
|
|
-
|
|
|
$
|
450,000
|
|
|
|
750,000
|
|
|
|
100,000
|
|
|
|
750,000
|
|
|
$
|
1,300.000
|
|
Total
|
|
$
|
-
|
|
|
$
|
450,000
|
|
|
|
2,400,000
|
|
|
$
|
100,000
|
|
|
$
|
2,400,000
|
|
|
$
|
2,950,000
|
|
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions (Continued)
Gateway
Rolloff Services, LP (Continued)
Operations
subsequent to November 30, 2015 are included in the accompanying consolidated financial statements. The acquisition has been accounted
for using the purchase method of accounting. The purchase price of $2,950,000 was allocated as follows:
Assets
|
|
|
|
Cash
|
|
$
|
24,912
|
|
Accounts receivable
|
|
|
238,753
|
|
Total current assets
|
|
|
263,665
|
|
Property and Equipment
|
|
|
|
|
Transportation equipment
|
|
|
417,350
|
|
Containers
|
|
|
782,000
|
|
Total property and equipment
|
|
|
1,199,350
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer relationships
|
|
|
683,626
|
|
Goodwill
|
|
|
941,010
|
|
Total goodwill and intangible assets
|
|
|
1,624,636
|
|
Total assets
|
|
|
3,087,651
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(111,651
|
)
|
Due to related party
|
|
|
(26,000
|
)
|
Total current liabilities
|
|
|
(137,651
|
)
|
Total consideration for acquisition
|
|
$
|
2,950,000
|
|
The
Majority shareholder received a total of 3,150,000 shares of the Company’s restricted common stock.
The
$450,000 paid in cash by a related entity of the Company for the acquisition of Gateway was settled in restricted common stock
subsequent to year end, at $1 per share, for a total of 450,000 shares of the Company’s restricted common stock.
National
Waste Management Holdings, Inc.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
10 – Acquisitions (Continued)
Acquisition
of Business – Unrelated Entity
On
May 11, 2016, the Company purchased a business in Upstate New York, incorporating it into WRE’s operations. The business
was purchased for $230,000.
Operations
subsequent to May 11, 2016 are included in the accompanying consolidated financial statements. The acquisition has been accounted
for using the purchase method of accounting. The purchase price of $230,000 was allocated as follows:
Assets
|
|
|
|
Property and Equipment
|
|
$
|
104,400
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer list
|
|
|
79,547
|
|
5 year, 100 mile non-compete agreement
|
|
|
10,000
|
|
Goodwill
|
|
|
36,053
|
|
Total goodwill and intangible assets
|
|
|
125,600
|
|
Total purchase price
|
|
$
|
230,000
|
|
Landfill
Acquisition – Unrelated Entity
On
January 25, 2015, Sand/Land of Florida Enterprises, Inc., a Florida corporation and a wholly-owned subsidiary of NWMH, entered
into a commercial property purchase agreement (the “Agreement”) with Nova Resources, LLC, a Florida limited liability
company, to acquire a certain commercial and industrial construction and demolition landfill in the County of Citrus, Homosassa,
Florida for $2,500,000, on an “as is” basis.
The
Contract required monthly non-refundable payments towards the purchase price, with a final closing to be no later than February
26, 2016. The Company had a third party making the deposit payments as discussed in Note 8 and Note 9, “Related Party Transactions”
and “Stockholders’ Deficit”, respectively. During the six months ended June 30, 2016, the third party had made
2 payments of $25,000, totaling $50,000 and the Company made one payment of $22,473. The Company has written off a total of $72,473
of these non-cash deposits and cash deposits during the six months ended June 30, 2016 due to the Company not closing on the landfill
by February 26, 2016. The expense was included in other expenses as a onetime write off. There were no charges to expenses nor
were any further deposits made after February 2016, thus there was no additional activity during the three months ended June 30,
2016.