The aggregate market value of registrant’s
voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference
to the average bid and asked price of such common equity on June 30, 2016, was $18,409,170. As of April 13, 2017, the registrant
has one class of common equity, and the number of shares issued and outstanding of such common equity was 6,944,244.
PART
I
FORWARD
LOOKING STATEMENTS
Except
for historical information, this document contains various “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These forward-looking statements involve risks and uncertainties, including, among other things, statements
regarding our revenue mix, anticipated costs and expenses, development, relationships with strategic partners and other factors
discussed under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations”. These forward-looking statements may include declarations regarding our belief or current expectations
of management, such as statements indicating that “we expect,” “we anticipate,” “we intend,”
“we believe,” and similar language. We caution that any forward-looking statement made by us in this Form
10-K or in other announcements made by us are further qualified by important factors that could cause actual results to differ
materially from those projected in the forward-looking statements, including without limitation the risk factors set forth in
this Form 10-K beginning on page 12.
Item
1. Business
As
used in this Annual Report, “we,” “us,” “our,” “Meridian,” “Company”
or “our Company” refers to Meridian Waste Solutions, Inc.
Our
Company
We,
through our operating subsidiaries, are an integrated provider of non-hazardous solid waste collection, transfer and disposal
services. We currently have all of our operations in Missouri and Virginia but are looking to expand our presence across the Midwest,
South and East regions of the United States.
History
Meridian
Waste Solutions, Inc. (the “Company”) was incorporated
in November 1993 in New York. Prior to October 17, 2014, the Company derived revenue by licensing its trademarks to
a third party (the “Legacy Business”).
On
October 17, 2014, the Company entered into that certain Membership Interest Purchase Agreement (the “Purchase Agreement”)
by and among Here to Serve Holding Corp., a Delaware corporation, as seller (“Here to Serve”), the Company, as parent,
Brooklyn Cheesecake & Dessert Acquisition Corp., a wholly-owned subsidiary of the Company, as buyer (the “Acquisition
Corp.”), the Chief Executive Officer of the Company (the “Company Executive”), the majority shareholder of the
Company (the “Company Majority Shareholder”) and certain shareholders of Here to Serve (the “Here to Serve Shareholders”),
pursuant to which the Acquisition Corp acquired from Here to Serve all of Here to Serve’s right, title and interest in and
to (i) 100% of the membership interests of Here to Serve – Missouri Waste Division, LLC d/b/a Meridian Waste, a Missouri
limited liability company (“HTS Waste”); (ii) 100% of the membership interests of Here to Serve Technology, LLC, a
Georgia limited liability company (“HTS Tech”); and (iii) 100% of the membership interests of Here to Serve Georgia
Waste Division, LLC, a Georgia limited liability company (“HTS Waste Georgia”, and together with HTS Waste and HTS
Tech, collectively, the “Membership Interests”). As consideration for the Membership Interests, on October
31, 2014 (the “Closing Date”) (i) the Company issued to Here to Serve 452,707 shares of the Company’s common
stock (the “HTS Common Stock”); (ii) the Company issued to the holder of Class A Preferred Stock of Here to Serve
(“Here to Serve’s Class A Preferred Stock”) 51 shares of the Company’s Series A Preferred Stock (the
“Series A Preferred Stock”); (iii) the Company issued to the holder of Class B Preferred Stock of Here to Serve (“Here
to Serve’s Class B Preferred Stock”) an aggregate of 71,120 shares of the Company’s Series B Preferred Stock (the
“Series B Preferred Stock,” together with the HTS Common Stock and the Series A Preferred Stock, the “Purchase
Price Shares”); and (iv) the Company assumed certain liabilities.
As further consideration, on the
Closing Date of the transaction contemplated under the Purchase Agreement, (i) in satisfaction of all accounts payable and shareholder
loans, Here to Serve paid to the Company Majority Shareholder $70,000 and (ii) Here to Serve purchased from the Company Majority
Shareholder 11,500 shares of the Company’s common stock for a purchase price of $230,000. Pursuant to the Purchase Agreement,
to the extent Purchase Price Shares are issued to individual shareholders of Here to Serve at or upon closing of the Purchase Agreement:
(i) shares of common stock of Here to Serve held by the individuals listed on Schedule 2.2 of the Purchase Agreement valued at
$2,564,374.95 were cancelled in accordance with such Schedule 2.2; (ii) 50,000 shares of Here to Serve’s Class A Preferred
Stock valued at $1,000 were cancelled; and (iii) 71,120 shares of Here to Serve’s Class B Preferred Stock valued at $7,121,000
were cancelled.
The
closing of the Purchase Agreement resulted in a change of control of the Company and the Legacy Business was spun out to a shareholder
in connection with the same.
On
March 27, 2015, the Company filed a Certificate of Amendment of the Certificate of Incorporation to change the name of the Company
from Brooklyn Cheesecake & Desserts Company, Inc. to Meridian Waste Solutions, Inc. (the “Name Change”).
On April 15, 2015, the Company received approval from FINRA for the Name Change and to change its stock symbol from BCKE
to MRDN.
Corporate
Structure
Missouri Waste Operations
Here to Serve – Missouri Waste Division, LLC d/b/a Meridian
Waste
Here to Serve – Missouri Waste
Division, LLC (“HTS Waste”) is a non-hazardous solid waste management company providing collection services
for approximately 45,000 commercial, industrial and residential customers in Missouri. We own one collection operation based
out of Bridgeton, Missouri. Approximately 100% of HTS Waste’s 2016 and 2015 revenue was from collection, utilizing over 60 collection vehicles.
HTS Waste began non-hazardous waste collection
operations in May 2014 upon the acquisition of nearly all of the assets from Meridian Waste Services, LLC that in turn became
the core of our operations. From our formation through today, we have begun to create the infrastructure needed to expand our
operations through acquisitions and market development opportunities.
Christian Disposal, LLC; FWCD
Effective December 22, 2015, the Company consummated
the closing of the Amended and Restated Membership Interest Purchase Agreement, dated October 16, 2015, by and among the Company,
Timothy M. Drury, Christian Disposal LLC (“Christian Disposal”), FWCD, LLC (“FWCD”), Missouri Waste and
Georgia Waste, as amended by that certain First Amendment thereto, dated December 4, 2015, pursuant to which Christian Disposal
became a wholly-owned subsidiary of the Company in exchange for: (i) Thirteen Million Dollars ($13,000,000), subject to working
capital adjustment, (ii) 87,500 shares of the Company’s Common Stock, (iii) a Convertible Promissory Note in the amount of
One Million Two Hundred Fifty Thousand Dollars ($1,250,000), bearing interest at 8% per annum and (iv) an additional purchase price
of Two Million Dollars ($2,000,000), due upon completion of an extension under a certain contract to which Christian Disposal is
party (the “Additional Purchase Price”), each payable to the former stockholders of Christian Disposal. The Additional
Purchase Price will not become due, because an extension was not, and will not be, granted in connection with the relevant contract.
Christian Disposal, along with its subsidiary, FWCD, is a non-hazardous solid waste management company
providing collection and transfer services for approximately 35,000 commercial, industrial and residential customers in Missouri.
Christian Disposal’s collection operation is based out of Winfield, Missouri. Along with operations in Winfield, Christian
Disposal operates two transfer stations, in O’Fallon, Missouri and St. Peters, Missouri, and owns one transfer station, in
Winfield, Missouri. Almost all of Christian Disposal and FWCD’s 2015 revenue and revenue in 2016 was from collection and
transfer, utilizing over 35 collection vehicles.
Christian Disposal began non-hazardous waste collection
operations in 1978. Our acquisition of Christian Disposal is a key element of our strategy to create the vertically integrated
infrastructure needed to expand our operations.
Meridian Land Company, LLC (Assets of Eagle Ridge
Landfill & Hauling)
Effective December 22, 2015, Meridian Land Company,
LLC (“Meridian Land Company”), a wholly-owned subsidiary of the Company, consummated the closing of that certain Asset
Purchase Agreement, dated November 13, 2015, by and between Meridian Land Company and Eagle Ridge Landfill, LLC (“Eagle”),
as amended by that certain Amendment to Asset Purchase Agreement, dated December 18, 2015, to which the Company and WCA Waste Corporation
are also party, pursuant to which the Company, through Meridian Land Company, purchased from Eagle a landfill in Pike County,
Missouri (the “Eagle Ridge Landfill”) and substantially all of the assets used by Eagle related to the Eagle Ridge
Landfill, including certain debts, in exchange for $9,506,500 in cash, subject to a working capital adjustment.
The Eagle Ridge Landfill is currently permitted to
accept municipal solid waste. The Eagle Ridge Landfill is located in Bowling Green, Missouri. Meridian Land Company currently owns
265 acres at Eagle Ridge with 56.7 acres permitted and constructed to receive waste.
In addition to the Eagle Ridge Landfill, the Company
operates, through Meridian Land Company, hauling operations in Bowling Green, Missouri, servicing commercial, residential and roll
off customers in this market. The Company will be looking to expand its footprint in the market through an aggressive sales and
marketing strategy, as well as through additional acquisitions.
Virginia Waste Operations
The CFS Group, LLC; The CFS Disposal & Recycling
Services, LLC; RWG5, LLC
On February 15, 2017, the Company consummated the
closing of the Membership Interest Purchase Agreement (the “Virginia Purchase Agreement”) by and between the
Company and Waste Services Industries, LLC ("Seller"), pursuant to which the Company purchased from Seller 100% of
the membership interests of The CFS Group, LLC (“CFS”), The CFS Disposal & Recycling Services, LLC
(“CFS Disposal”), RWG5, LLC (“RWG5” and, together with CFS and CFS Disposal, the “CFS
Companies”), in exchange for the following: (i) $40,000,000 in cash and assumption of certain capital leases, subject
to a working capital adjustment in accordance with Section 2.6 of the Virginia Purchase Agreement and (ii) 500,000 shares of
the Company’s common stock.
Collectively, the CFS Companies are non-hazardous solid waste management companies providing collection and
transfer services for more than 30,000 commercial, industrial and residential customers in Virginia, with its main facility in
Petersburg, Virginia and satellite facilities in Lunenberg, Virginia and Prince George, Virginia. Along with the collection operation
in Petersburg, the CFS Companies operate a transfer station, in Lunenberg, and two owned landfills, in Petersburg and Lunenberg.
Approximately 81% of the CFS Companies’ 2015 revenue was from collection and transfer, utilizing over 60 collection vehicles.
Our acquisition of the CFS Companies is a key element
of our strategy to create the vertically integrated infrastructure needed to expand our operations.
Customers
For the year ended December 31, 2016, the
Company had one contract that accounted for approximately 11% of the Company's revenue. This one contract currently runs
through March 2019. During the year ended December 31, 2015, the Company had two contracts that accounted for
approximately 44% of the Company’s revenues, with one of such contracts accounting for approximately 26% and the other
such contract accounting for approximately 18% of the Company’s revenues.
Collection
Services
Meridian, through its
subsidiaries, provides solid waste collection services to approximately 65,000 industrial, commercial and residential
customers in the Metropolitan St. Louis, Missouri area, and, recently, approximately 33,000 in Virginia. In 2015, our
collection revenue consisted of approximately 17% from services provided to industrial customers, 13% from services provided
to commercial customers and 70% from services provided to residential customers.
In
our commercial collection operations, we supply our customers with waste containers of various types and sizes. These
containers are designed so that they can be lifted mechanically and emptied into a collection truck to be transported to a disposal
facility. By using these containers, we can service most of our commercial customers with trucks operated by a single
employee. Commercial collection services are generally performed under service agreements with a duration of one to
five years with possible renewal options. Fees are generally determined by such considerations as individual market
factors, collection frequency, the type of equipment we furnish, the type and volume or weight of the waste to be collected, the
distance to the disposal facility and the cost of disposal.
Residential
solid waste collection services often are performed under contracts with municipalities, which we generally secure by competitive
bid and which give us exclusive rights to service all or a portion of the homes in these municipalities. These contracts
usually range in duration from one to five years with possible renewal options. Generally, the renewal options are
automatic upon the mutual agreement of the municipality and the provider; however, some agreements provide for mandatory re-bidding.
Alternatively, residential solid waste collection services may be performed on a subscription basis, in which individual households
or homeowners’ or similar associations contract directly with us. In either case, the fees received for residential
collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and the
cost of disposal.
Additionally,
we rent waste containers and provide collection services to construction, demolition, and industrial sites and some larger commercial
locations. We load the containers onto our vehicles and transport them with the waste to a landfill, a transfer station,
or a recycling facility for disposal. We refer to this as “roll-off” collection. Roll-off collection
services are generally performed on a contractual basis. Contract terms tend to be shorter in length, in some cases
having terms of only six months, and may vary according to the customers’ underlying projects.
Transfer
and Disposal Services
Landfills
are the main depository for solid waste in the United States. Solid waste landfills are built, operated, and tied to
a state permit under stringent federal, state and local regulations. Currently, solid waste landfills in the United
States must be designed, permitted, operated, closed and maintained after closure in compliance with federal, state and local
regulations pursuant to Subtitle D of the Resource Conservation and Recovery Act of 1976, as amended. We do not operate
any hazardous waste landfills, which may be subject to even greater regulations. Operating a solid waste landfill includes
excavating, constructing liners, continually spreading and compacting waste and covering waste with earth or other inert material
as required, final capping, closure and post-closure monitoring. The objectives of these operations are to maintain
sanitary conditions, to ensure the best possible use of the airspace and to prepare the site so that it can ultimately be used
for other end use purposes.
Access
to a disposal facility is a necessity for all solid waste management companies. While access to disposal facilities
owned or operated by third parties can be obtained, we believe that it is preferable to internalize the waste streams when possible. Meridian
is targeting further geographic, as well as operational expansion, by focusing on markets with transfer stations and landfills
available for acquisition.
Our
transfer stations allow us to consolidate waste for subsequent transfer in larger loads, thereby making disposal in our otherwise
remote landfills economically feasible. A transfer station is a facility located near residential and commercial collection
routes where collection trucks take the solid waste that has been collected. The waste is unloaded from the collection
trucks and reloaded onto larger transfer trucks for transportation to a landfill for final disposal. As an
alternative to operating a transfer station directly, we could negotiate the use of a transfer station owned by a private party
or operated by a competitor, which may not be as profitable as operating our own transfer station. In addition to increasing our
ability to internalize the waste that our collection operations collect, using transfer stations reduces the costs associated
with transporting waste to final disposal sites because the trucks we use for transfer have a larger capacity than collection
trucks, thus allowing more waste to be transported to the disposal facility on each trip.
Our
Operating Strengths
Experienced Leadership
We have a proven and experienced senior management
team. Our Chairman and Chief Executive Officer, Jeffrey S. Cosman, and President and Chief Operating Officer, Walter H. Hall,
Jr., combine over 35 years of experience in the solid waste industry, including significant experience in
local
and regional operations, local and regional accounting,
mergers & acquisitions, integration and the development
of disposal capacity. Members of our team have held senior positions at Republic Services, Advanced Disposal, Southland Waste Services
and Browning Ferris Industries. Our team has a proven track record with
development
and implementation of strategic marketplace plans, sales, safety, acquisitions, and coordination of assets and personnel.
While
our senior leadership team creates and drives our overall growth strategy, we rely on a decentralized management structure which
does not interfere with local management and may afford us the opportunity to capitalize on growth and cost reduction at the local
level.
Vertically Integrated Operations
The
vertical integration of our operations allows us to manage the waste stream from the point of collection through disposal, which
we hope will enable us to maximize profit by controlling costs and gaining competitive advantages, while still providing high-quality
service to our customers. In the St. Louis market, because we have integrated our network of collection, transfer and disposal
assets, primarily using our own resources, we generate a steady, predictable stream of waste volume and capture an incremental
disposal margin. We charge tipping fees to third-party collection service providers for the use of our transfer stations or landfills,
providing a source of recurring revenue. We believe the internalization of waste provides us with a significant cost advantage
over our competitors, positioning us well to win additional profitable business through new customer acquisition and municipal
contract awards. We also believe this vertically integrated structure enables us to quickly and efficiently integrate future acquisitions
of transfer stations, collection operations or landfills into our current operations.
Landfill Assets
We
now have three active and strategically located landfills at the core of our integrated operations which we believe provides
us a significant competitive advantage, in that we do not need to use our competitors’ landfills. Our
landfills have substantial remaining airspace.
The
value of our landfills may be further enhanced by synergies associated with our vertically integrated operations, including our
transfer stations, which enable us to cover a greater geographic area surrounding the landfills, and provide competitive advantages
in that we would not need to use our competitors’ landfills. In our experience there has generally been a shift towards
fewer, larger landfills, which has resulted in landfills that are generally located farther from population centers, with
waste being transported longer distances between collection and disposal, typically after consolidation at a transfer station.
With landfills, transfer stations and collection services in place, we aim to provide vertically integrated operations that cover
the substantial geographic area surrounding the landfill.
Acquisition Integration and Municipal Contracts
Our
business model contemplates our ability to execute and integrate value-enhancing, tuck-in acquisitions and win new municipal contracts
as a core component of our growth.
As
a management team, we have experience executing large-scale transactions by direct association with our historical success at
Republic Services, Advanced Disposal and Browning Ferris Industries. In addition to significantly expanding our
scale of operations, the acquisitions of Christian Disposal and Eagle Ridge Landfill enhanced our geographic footprint by providing
us with complementary operations in the state of Missouri. This has helped us realize cost efficiencies through improved
internalization by virtue of increased route concentration and more efficient utilization of our assets.
Finally,
our management team has demonstrated success in municipal contract bidding, as we currently serve approximately 30 municipalities
and townships via contracts, historical arrangements or subscriptions with residents.
Long-Term Contracts
In Missouri, we serve approximately
65,000 residential, commercial, and construction and industrial customers, with no single customer representing more than 11%
of revenue in 2016. Our municipal customer relationships are generally supported by contracts ranging from three to seven
years in initial duration most with subsequent renewal periods, and we have a historical renewal rate of 100% with such
customers. Our standard service agreement is a five-year renewable agreement. We believe our customer relationships,
long-term contracts and exceptional retention rate provide us with a high degree of stability as we continue to grow.
Customer Service
We maintain
a central focus on customer service and we pride ourselves on trying to consistently exceed our customers’ expectations.
We believe investing in our customers’ satisfaction will ultimately maximize customer loyalty price stability.
Commitment
to Safety
The
safety of our employees and customers is extremely important to us and we have a strong track record of safety and environmental
compliance. We constantly review and assess our policies, practices and procedures in order to create a safer work environment
for our employees and to reduce the frequency of workplace injuries.
Our
Growth Strategy
Growth of Existing Markets
We
believe that as the residential population and number of businesses grow in our existing market, we will see waste volumes increase
organically. We seek to remain active and alert with respect to the changing landscapes in the communities in which we already
provide service in order obtain long-term contracts for collecting solid waste for residential collection, collection from municipalities,
as well as collection from small and large commercial and industrial contracts. Obtaining long-term contracts may enable us to
grow our revenue base at the same rate as the underlying economic growth in these markets. Furthermore, securing long-term contracts
provides a significant barrier to entry from competitors in these markets.
Expanding
into New Markets
Our
operating model focuses on vertically integrated operations. We continue to pursue a growth strategy that includes
acquiring solid waste companies that complement our existing business. Our goal is to create market-specific, vertically integrated
operations consisting of one or more collection operations, transfer stations and landfills.
We plan to start new market development
projects in certain disposal-neutral markets in which we will provide services under exclusive arrangements with municipal customers,
which facilitates highly-efficient and profitable collection operations and lower capital requirements. We believe this strategic
focus positions us to maintain significant share within our target markets, maximize customer retention and benefit from a higher
and more stable pricing environment.
Acquisition and Integration
Our revenue model is based on organic growth of operations,
the acquisition of established operations in new markets, as well as being able to execute value-adding, tuck-in acquisitions.
We hope to direct acquisition efforts towards those markets in which we would be able to provide vertically integrated collection
and disposal services and/or provide waste collection services, pursuant to contracts that grant exclusivity. Prior
to acquisition, we analyze each prospective target for cost savings through the elimination of inefficiencies and excesses that
are typically associated with private companies competing in fragmented industries. We aim to realize synergies from
consolidating businesses into our existing operations, which we hope will allow us to reduce capital and expense requirements associated
with truck routing, personnel, fleet maintenance, inventories and back-office administration.
Pursue Additional Exclusive Municipal Contracts
We
intend to devote significant resources to securing additional municipal contracts. Our management team is well versed in bidding
for municipal contracts with over 35 years of experience and working knowledge in the solid waste industry and local service
areas in existing and target markets. We hope to procure and negotiate additional exclusive municipal contracts, allowing us to
maintain stable recurring revenue but also providing a significant barrier to entry to our competitors in those markets.
Invest in Strategic Infrastructure
We
will continue to invest in our infrastructure to support growth and increase our margins. Given the long remaining life of our
existing landfill, we will invest resources toward its development and enhancement in order to increase our disposal capacity.
Similarly, we will continue to evaluate opportunities to maximize the efficiency of our collection operations.
Waste
Industry Overview
The
non-hazardous solid waste industry can be divided into the following three categories: collection, transfer and disposal
services. In our management’s experience, companies engaging in collection and/or transfer operations of solid
waste typically have lower margins than those additionally performing disposal service operations. By vertically integrating
collection, transfer and disposal operations, operators seek to capture significant waste volumes and improve operating margins.
During
the past four decades, our industry has experienced periods of substantial consolidation activity; however, we believe significant
fragmentation remains. We believe that there are two primary factors that lead to consolidation:
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stringent
industry regulations have caused operating and capital costs to rise, with many local industry participants finding these
costs difficult to bear and deciding to either close their operations or sell them to larger operators; and
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larger
operators are increasingly pursuing economies of scale by vertically integrating their operations or by utilizing their facility,
asset and management infrastructure over larger volumes and, accordingly, larger solid waste collection and disposal companies
aim to become more cost-effective and competitive by controlling a larger waste stream and by gaining access to significant
financial resources to make acquisitions.
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Competition
The solid waste collection and disposal
industry is highly competitive and, following consolidation, remains fragmented, and requires substantial labor and capital resources.
The industry presently includes large, publicly-held, national waste companies such as Republic Services, Inc, Waste Connections,
Inc., Advanced Disposal, Inc. and Waste Management, Inc., as well as numerous other public and privately-held waste companies.
Our existing market and certain of the markets in which we will likely compete are served by one or more of these companies, as
well as by numerous privately-held regional and local solid waste companies of varying sizes and resources, some of which have
accumulated substantial goodwill in their markets. We also compete with operators of alternative disposal facilities and with counties,
municipalities and solid waste districts that maintain their own waste collection and disposal operations. Public sector operations
may have financial advantages over us because of potential access to user fees and similar charges, tax revenues and tax-exempt
financing.
We
compete for collection based primarily on geographic location and the price and quality of our services. From time
to time, our competitors may reduce the price of their services in an effort to expand their market share or service areas or
to win competitively bid municipal contracts. These practices may cause us to reduce the price of our services or,
if we elect not to do so, to lose business.
Our
management has observed significant consolidation in the solid waste collection and disposal industry, and, as a result of this
perceived consolidation, we encounter competition in our efforts to acquire landfills, transfer stations and collection operations. Competition
exists not only for collection, transfer and disposal volume but also for acquisition candidates. We generally compete
for acquisition candidates with large, publicly-held waste management companies, private equity backed firms as well as numerous
privately-held regional and local solid waste companies of varying sizes and resources. Competition in the disposal
industry may also be affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce
the volume of waste deposited in landfills. Accordingly, it may become uneconomical for us to make further acquisitions
or we may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that we consider
appropriate, particularly in markets we do not already serve.
Sales
and Marketing
We
focus our marketing efforts on increasing and extending business with existing customers, as well as increasing our new customer
base. Our sales and marketing strategy is to provide prompt, high quality, comprehensive solid waste collection to
our customers at competitive prices. We target potential customers of all sizes, from small quantity generators to
large companies and municipalities. Because the waste collection and disposal business is a highly localized business,
most of our marketing activity is local in nature.
Government
Contracts
We
are party to contracts with municipalities and other associations and agencies. Many of these contracts are or will
be subject to competitive bidding. We may not be the successful bidder, or we may have to substantially lower prices
in order to be the successful bidder. In addition, some of our customers may have the right to terminate their contracts
with us before the end of the contract term.
Municipalities
may annex unincorporated areas within counties where we provide collection services, and as a result, our customers in annexed
areas may be required to obtain service from competitors who have been franchised or contracted by the annexing municipalities
to provide those services. Some of the local jurisdictions in which we currently operate grant exclusive franchises
to collection and disposal companies, others may do so in the future, and we may enter markets where franchises are granted by
certain municipalities, thereby reducing the potential market opportunity for us.
Regulation
Our
business is subject to extensive and evolving federal, state and local environmental, health, safety and transportation laws and
regulations. These laws and regulations are administered by the U.S. Environmental Protection Agency, or EPA, and various
other federal, state and local environmental, zoning, air, water, transportation, land use, health and safety agencies. Many
of these agencies regularly inspect our operations to monitor compliance with these laws and regulations. Governmental
agencies have the authority to enforce compliance with these laws and regulations and to obtain injunctions or impose civil or
criminal penalties in cases of violations. We believe that regulation of the waste industry will continue to evolve,
and we will adapt to future legal and regulatory requirements to ensure compliance.
The permit for our landfill requires us to
post a closure bond, which currently stands at approximately $7.4 million, with premiums in the approximate amount of $250,000.
Our
operations are subject to extensive regulation, principally under the federal statutes described below.
The
Resource Conservation and Recovery Act of 1976, as amended, or RCRA.
RCRA regulates the handling, transportation
and disposal of hazardous and non-hazardous wastes and delegates authority to states to develop programs to ensure the safe disposal
of solid wastes. On October 9, 1991, the EPA promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid
waste landfills under Subtitle D of RCRA. Subtitle D includes location standards, facility design and operating criteria,
closure and post-closure requirements, financial assurance standards and groundwater monitoring, as well as corrective action
standards, many of which had not commonly been in place or enforced at landfills. Subtitle D applies to all solid waste
landfill cells that received waste after October 9, 1991, and, with limited exceptions, required all landfills to meet these requirements
by October 9, 1993. All states in which we operate have EPA-approved programs which implemented at least the minimum requirements
of Subtitle D and in some states even more stringent requirements.
The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or “CERCLA.”
CERCLA, which is also known as Superfund, addresses
problems created by the release or threatened release of hazardous substances (as defined in CERCLA) into the environment. CERCLA’s
primary mechanism for achieving remediation of such problems is to impose strict joint and several liability for cleanup of disposal
sites on current owners and operators of the site, former site owners and operators at the time of disposal and parties who arranged
for disposal at the facility (
i.e.
, generators of the waste and transporters who select the disposal site). The costs of
a CERCLA cleanup can be substantial. In addition to ordering remediation work to be undertaken, federal or state agencies can perform
remediation work themselves and seek reimbursement of their costs from potentially liable parties, and may record liens to enforce
their cost recovery claims. Beyond cleanup costs, federal and state agencies may also assert claims for damages to natural resources,
like groundwater aquifers, surface water bodies and ecosystems. Liability under CERCLA is not dependent on the existence or intentional
disposal of “hazardous wastes” (as defined under RCRA), but can also be based upon the release or threatened release,
even as a result of lawful, unintentional and non-negligent action, of any one of the more than 700 “hazardous substances”
listed by the EPA, even in minute amounts.
The
Federal Water Pollution Control Act of 1972, as amended, or the Clean Water Act.
This act establishes rules regulating
the discharge of pollutants into streams and other waters of the United States (as defined in the Clean Water Act) from a variety
of sources, including solid waste disposal sites. If wastewater or stormwater from our transfer stations may be
discharged into surface waters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants in those discharges. In 1990, the EPA
issued additional rules under the Clean Water Act, which establish standards for management of storm water runoff from landfills
and which require landfills that receive, or in the past received, industrial waste to obtain storm water discharge permits. In
addition, if a landfill or transfer station discharges wastewater through a sewage system to a publicly-owned treatment works,
the facility must comply with discharge limits imposed by the treatment works. Also, if development of a landfill may
alter or affect “wetlands,” the owner may have to obtain a permit and undertake certain mitigation measures before
development may begin. This requirement is likely to affect the construction or expansion of many solid waste disposal
sites.
The
Clean Air Act of 1970, as amended, or the Clean Air Act.
The Clean Air Act provides for increased federal, state
and local regulation of the emission of air pollutants. The EPA has applied the Clean Air Act to solid waste landfills
and vehicles with heavy duty engines, such as waste collection vehicles. Additionally, in March 1996, the EPA adopted
New Source Performance Standards and Emission Guidelines (the “Emission Guidelines”) for municipal solid waste landfills
to control emissions of landfill gases. These regulations impose limits on air emissions from solid waste landfills. The
Emission Guidelines impose two sets of emissions standards, one of which is applicable to all solid waste landfills for which
construction, reconstruction or modification was commenced before May 30, 1991. The other applies to all municipal
solid waste landfills for which construction, reconstruction or modification was commenced on or after May 30, 1991. These
guidelines, combined with the new permitting programs established under the Clean Air Act, could subject solid waste landfills
to significant permitting requirements and, in some instances, require installation of gas recovery systems to reduce emissions
to allowable limits. The EPA also regulates the emission of hazardous air pollutants from municipal landfills and has
promulgated regulations that require measures to monitor and reduce such emissions.
Climate
Change
. A variety of regulatory developments, proposals or requirements have been introduced that are focused on
restricting the emission of carbon dioxide, methane and other gases known as greenhouse gases. Congress has considered
legislation directed at reducing greenhouse gas emissions. There has been support in various regions of the country
for legislation that requires reductions in greenhouse gas emissions, and some states have already adopted legislation addressing
greenhouse gas emissions from various sources. In 2007, the U.S. Supreme Court held in Massachusetts, et al. v. EPA
that greenhouse gases are an “air pollutant” under the federal Clean Air Act and, thus, subject to future regulation. In
a move toward regulating greenhouse gases, on December 15, 2009, the EPA published its findings that emission of carbon dioxide,
methane and other greenhouse gases present an endangerment to human health and the environment because greenhouse gases are, according
to EPA, contributing to climate change. On October 30, 2009, the EPA published the greenhouse gas reporting final
rule, effective December 29, 2009, which establishes a new comprehensive scheme requiring certain specified industries as well
as operators of stationary sources emitting more than established annual thresholds of carbon dioxide-equivalent greenhouse gases
to inventory and report their greenhouse gas emissions annually. Municipal solid waste landfills are subject to the
rule. In 2009, the EPA also proposed regulations that would require a reduction in emissions of greenhouse gases from motor
vehicles. According to the EPA, the final motor vehicle greenhouse gas standards will trigger construction and operating
permit requirements for stationary sources that exceed potential-to-emit (PTE) thresholds for regulated pollutants. As a
result, the EPA has proposed to tailor these programs such that only large stationary sources, such as electric generating units,
cement production facilities, and petroleum refineries will be required to have air permits that authorize greenhouse gas emissions.
The
Occupational Safety and Health Act of 1970, as amended, or OSHA.
OSHA establishes certain employer responsibilities,
including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards
promulgated by the Occupational Safety and Health Administration and various record keeping, disclosure and procedural requirements. Various
standards, including standards for notices of hazards, safety in excavation and demolition work and the handling of asbestos,
may apply to our operations.
Flow
Control/Interstate Waste Restrictions.
Certain permits and approvals, as well as certain state and local regulations,
may limit a landfill or transfer station to accepting waste that originates from specified geographic areas, restrict the importation
of out-of-state waste or wastes originating outside the local jurisdiction or otherwise discriminate against non-local waste. From
time to time, federal legislation is proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should be enacted in the future, states in which we
use landfills could limit or prohibit the importation of out-of-state waste or direct that wastes be handled at specified facilities. These
restrictions could also result in higher disposal costs for our collection operations. If we were unable to pass such
higher costs through to our customers, our business, financial condition and operating results could be adversely affected.
State
and Local Regulation.
Each state in which we now operate or may operate in the future has laws and regulations
governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of
landfills and transfer stations. State and local permits and approval for these operations may be required and may
be subject to periodic renewal, modification or revocation by the issuing agencies. In addition, many states have adopted
statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation
and cleanup of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition
of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws
and regulations affecting our operations. These include zoning and health measures that limit solid waste management
activities to specified sites or activities, flow control provisions that direct or restrict the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection services and then put such franchises out for bid
and bans or other restrictions on the movement of solid wastes into a municipality.
Certain
state and local jurisdictions may also seek to enforce flow control restrictions through local legislation or contractually. In
certain cases, we may elect not to challenge such restrictions. These restrictions could reduce the volume of waste
going to landfills in certain areas, which may adversely affect our ability to operate our landfills at their full capacity and/or
reduce the prices that we can charge for landfill disposal services. These restrictions may also result in higher disposal
costs for our collection operations. If we were unable to pass such higher costs through to our customers, our business,
financial condition and operating results could be adversely affected.
Permits
or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity
of waste that may be accepted at the landfill during a given time period and/or specify the types of waste that may be accepted
at the landfill. Once an operating permit for a landfill is obtained, it must generally be renewed periodically.
There
has been an increasing trend at the state and local level to mandate and encourage waste reduction and recycling and to prohibit
or restrict the disposal in landfills of certain types of solid wastes, such as construction and demolition debris, yard wastes,
food waste, beverage containers, unshredded tires, lead-acid batteries, paper, cardboard and household appliances.
Many
states and local jurisdictions have enacted “bad boy” laws that allow the agencies that have jurisdiction over waste
services contracts or permits to deny or revoke these contracts or permits based on the applicant’s or permit holder’s
compliance history. Some states and local jurisdictions go further and consider the compliance history of the parent,
subsidiaries or affiliated companies, in addition to that of the applicant or permit holder. These laws authorize the agencies
to make determinations of an applicant’s or permit holder’s fitness to be awarded a contract to operate and to deny
or revoke a contract or permit because of unfitness unless there is a showing that the applicant or permit holder has been rehabilitated
through the adoption of various operating policies and procedures put in place to assure future compliance with applicable laws
and regulations.
Some
state and local authorities enforce certain federal laws in addition to state and local laws and regulations. For example, in
some states, RCRA, OSHA, parts of the Clean Air Act and parts of the Clean Water Act are enforced by local or state authorities
instead of the EPA, and in some states those laws are enforced jointly by state or local and federal authorities.
Public
Utility Regulation.
In many states, public authorities regulate the rates that landfill operators may charge.
Seasonality
Based
on our industry and our historic trends, we expect our operations to vary seasonally. Typically, revenue will be highest
in the second and third calendar quarters and lowest in the first and fourth calendar quarters. These seasonal variations
result in fluctuations in waste volumes due to weather conditions and general economic activity. We also expect that
our operating expenses may be higher during the winter months due to periodic adverse weather conditions that can slow the collection
of waste, resulting in higher labor and operational costs.
Employees
We have approximately 180 full-time employees. None of our employees are represented by a labor
union. We have not experienced any work stoppages and we believe that our relations with our employees are good.
Properties
Our principal executive office is located
at 12540 Broadwell Road, Suite 2104, Milton, Georgia and is an approximately 3,500 sq. ft. office space rented at a rate of approximately
$3,000 per month. We also lease approximately 8,500 sq. ft. of office space rented at a rate of $23,000 per month in Bridgeton,
Missouri and approximately 84,000 sq. ft. of office and warehouse space rented at a rate of approximately $50,000 per month in
Petersburg, Virginia. Additional space may be required as we expand our business activities, but we do not foresee any significant
difficulties in obtaining additional office facilities if deemed necessary.
Our principal property is comprised
of land, three landfills, buildings, and equipment owned and/or leased in Missouri and Virginia. These properties are sufficient
to meet the Company’s current operational needs; however, the Company is exploring the potential acquisition and/or leasing
of additional properties pursuant to its growth strategies.
Available
Information
We
electronically file certain documents with the Securities and Exchange Commission (the SEC). We file annual reports
on Form 10-K; quarterly reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments
and supplements thereto. From time-to-time, we may also file registration statements and related documents in connection
with equity or debt offerings. You may read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling
the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at
www.sec.gov
that
contains reports and other information regarding registrants that file electronically with the SEC.
Item
1A. Risk Factors
RISK
FACTORS
You should carefully consider the risks described below, together with all of the other information included
in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing
the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair
our business operations. The occurrence of any of the following risks could harm our business, financial condition or results
of operations.
RISKS
RELATED TO OUR COMPANY AND OUR INDUSTRY
WE
ARE SUBJECT TO ENVIRONMENTAL AND SAFETY LAWS, WHICH RESTRICT OUR OPERATIONS AND INCREASE OUR COSTS.
We
are subject to extensive federal, state and local laws and regulations relating to environmental protection and occupational safety
and health. These include, among other things, laws and regulations governing the use, treatment, storage and disposal
of wastes and materials, air quality, water quality and the remediation of contamination associated with the release of hazardous
substances. Our compliance with existing regulatory requirements is costly, and continued changes in these regulations
could increase our compliance costs. Government laws and regulations often require us to enhance or replace our equipment. We
are required to obtain and maintain permits that are subject to strict regulatory requirements and are difficult and costly to
obtain and maintain. We may be unable to implement price increases sufficient to offset the cost of complying with
these laws and regulations. In addition, regulatory changes could accelerate or increase expenditures for closure and
post-closure monitoring at solid waste facilities and obligate us to spend sums over the amounts that we have accrued. In order
to develop, expand or operate a landfill or other waste management facility, we must have various facility permits and other governmental
approvals, including those relating to zoning, environmental protection and land use. The permits and approvals are often difficult,
time consuming and costly to obtain and could contain conditions that limit our operations.
WE
MAY BECOME SUBJECT TO ENVIRONMENTAL CLEAN-UP COSTS OR LITIGATION THAT COULD CURTAIL OUR BUSINESS OPERATIONS AND MATERIALLY DECREASE
OUR EARNINGS.
CERCLA, and analogous state laws provide
for the remediation of contaminated facilities and impose strict joint and several liability for remediation costs on current and
former owners or operators of a facility at which there has been a release or a threatened release of a hazardous substance. This
liability is also imposed on persons who arrange for the disposal of and who transport such substances to the facility. Hundreds
of substances are defined as hazardous under CERCLA and their presence, even in small amounts, can result in substantial liability.
The expense of conducting a cleanup can be significant. Notwithstanding our efforts to comply with applicable regulations and to
avoid transporting and receiving hazardous substances, we may have liability because these substances may be present in waste collected
by us. The actual costs for these liabilities could be significantly greater than the amounts that we might be required to accrue
on our financial statements from time to time.
In
addition to the costs of complying with environmental regulations, we may incur costs to defend against litigation brought by
government agencies and private parties. As a result, we may be required to pay fines or our permits and licenses may
be modified or revoked. We may in the future be a defendant in lawsuits brought by governmental agencies and private
parties who assert claims alleging environmental damage, personal injury, property damage and/or violations of permits and licenses
by us. A significant judgment against us, the loss of a significant permit or license or the imposition of a significant
fine could curtail our business operations and may decrease our earnings.
OUR
BUSINESS IS CAPITAL INTENSIVE, REQUIRING ONGOING CASH OUTLAYS THAT MAY STRAIN OR CONSUME OUR AVAILABLE CAPITAL AND FORCE US TO
SELL ASSETS, INCUR DEBT, OR SELL EQUITY ON UNFAVORABLE TERMS.
Our
ability to remain competitive, grow and maintain operations largely depends on our cash flow from operations and access to capital. Maintaining
our existing operations and expanding them through internal growth or acquisitions requires large capital expenditures. As
we undertake more acquisitions and further expand our operations, the amount we expend on capital will increase. These increases
in expenditures may result in lower levels of working capital or require us to finance working capital deficits. We
intend to continue to fund our cash needs through cash flow from operations and borrowings under our credit facility, if necessary. However,
we may require additional equity or debt financing to fund our growth.
We
do not have complete control over our future performance because it is subject to general economic, political, financial, competitive,
legislative, regulatory and other factors. It is possible that our business may not generate sufficient cash flow from
operations, and we may not otherwise have the capital resources, to allow us to make necessary capital expenditures. If
this occurs, we may have to sell assets, restructure our debt or obtain additional equity capital, which could be dilutive to
our stockholders. We may not be able to take any of the foregoing actions, and we may not be able to do so on terms
favorable to us or our stockholders.
THE
COMPANY’S FAILURE TO COMPLY WITH THE RESTRICTIVE COVENANTS AND OTHER OBLIGATIONS UNDER THE CREDIT AGREEMENT MAY
RESULT IN THE FORECLOSURE OF THE COMPANY’S OR ITS SUBSIDIARIES’ PLEDGED ASSETS AND OTHER
ADVERSE CONSEQUENCES.
Pursuant to the current
Credit Agreement, the Lenders have agreed to extend certain credit facilities to the Company, in an aggregate amount not to
exceed $89,100,000, consisting of $65,500,000 aggregate principal amount of Tranche A Term Loans (the “Tranche A
Term Loans”), $8,600,000 aggregate principal amount of Tranche B Term Loans (the “Tranche B Term
Loans”), $10,000,000 aggregate principal amount of MultiDraw Term Loans (the “MDTL Term Loans”), and up to
$5,000,000 aggregate principal amount of Revolving Loans (the “Revolving Loans ” and, together with the Tranche A
Term Loans, Tranche B Term Loans and the MDTL Term Loans, the “Loans”). As of December 31, 2016, we had an
outstanding principal balance of $43,195,000 under the Loans as in effect at such time, which is secured by a first position
security interest in substantially all of the Company’s assets in favor of Goldman Sachs Specialty Group, LP (“GS”), as
collateral agent, for the benefit of the lenders and other secured parties. The Credit Agreement requires us to comply with a
number of covenants, including restrictive covenants that limit our ability to, among other things: incur
additional indebtedness; create or permit liens on assets; make investments; and pay dividends. A breach of
any of these covenants or our inability to comply with the required financial ratios set forth in the Credit Agreement and
related documents or the occurrence of certain other specified events could result in an event of default under the Credit
Agreement (an “Event of Default”). Events of Default under the Credit Agreement also include, without limitation,
the Company’s failure to make payments when due, defaults under other agreements, bankruptcy, changes of control
and termination of a material contract. Due to our recent failures to comply with the leverage ratio and certain other
covenants required under the Prior Credit Agreement, we entered into several amendments thereto. Any future Event(s) of Default under the
Credit Agreement, could result in the acceleration of all or a substantial portion of our debt, potential foreclosure on our
assets and other adverse consequences.
IF THE COMPANY IS NOT ABLE TO
MAINTAIN CERTAIN LEVERAGE RATIOS SET FORTH IN THE CREDIT AGREEMENT, WE ME BE UNABLE TO DRAW DOWN ADDITIONAL FUNDS PURSUANT TO THE
CREDIT AGREEMENT, AND AS A RESULT, WE MAY NEED TO SEEK OTHER SOURCES OF CAPITAL, WHICH COULD BE ON LESS FAVORABLE TERMS.
As a result of the Company’s failure
historically to comply with the leverage ratio under the Prior Credit Agreement, the Company was able to draw down additional funds
under the Prior Credit Agreement solely as the result of the execution of the Fourth Amendment. Although the Credit Agreement currently
provides for increased leverage ratios, in the future, the Company may not be able to draw down additional funds pursuant to the
Credit Agreement until such time as either such leverage ratio complies with the requirements of the Credit Agreement and the Company
can show that it reasonably expects to be in pro forma compliance with such ratios or the requisite lenders under the Credit Agreement
waive such requirement or otherwise consent to advance additional funds (the Lenders under our Credit Agreement having no requirement
to grant such a consent or waiver and there can be no assurance that any such consent or waiver would be forthcoming). Due to certain
unanticipated delays in integration of landfill operations, including due to flooding in the St. Louis area in December 2015, the
Company had historically not been able to maintain the leverage ratios set forth in the Prior Credit Agreement. The Company’s
ability to maintain leverage ratios under the Credit Agreement may be beyond the Company’s control. If the Company is unable
to draw down additional funds pursuant to the Credit Agreement, it may be required to seek other sources of capital, and such capital
may only be available on terms that are substantially less favorable than the terms of the Credit Agreement.
WE
DEPEND ON A LIMITED NUMBER OF CUSTOMERS FOR OUR REVENUE.
At this time, the Company has a municipal contract
that accounts for 11% of our long term contracted revenues for the fiscal year ended December 31, 2016. Because we depend on this
customer for a large portion of our revenue, a loss of this customer could materially adversely affect our business and financial
condition. If this customer were to cease using our services, our business could be materially adversely affected.
GOVERNMENTAL
AUTHORITIES MAY ENACT CLIMATE CHANGE REGULATIONS THAT COULD INCREASE OUR COSTS TO OPERATE.
Environmental
advocacy groups and regulatory agencies in the United States have been focusing considerable attention on the emissions of greenhouse
gases and their potential role in climate change. Congress has considered recent proposed legislation directed at reducing
greenhouse gas emissions and President Obama had indicated his support of legislation aimed at reducing greenhouse gases. EPA
has proposed rules to regulate greenhouse gases, regional initiatives have formed to control greenhouse gases and certain of the
states in which we operate are contemplating air pollution control regulations that are more stringent than existing and proposed
federal regulations, in particular the regulation of emissions of greenhouse gases. The adoption of laws and regulations
to implement controls of greenhouse gases, including the imposition of fees or taxes, could adversely affect our collection operations. Changing
environmental regulations could require us to take any number of actions, including the purchase of emission allowances or installation
of additional pollution control technology, and could make some operations less profitable, which could adversely affect our results
of operations.
OUR
OPERATIONS ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS, AS WELL AS CONTRACTUAL OBLIGATIONS THAT MAY RESULT
IN SIGNIFICANT LIABILITIES.
We
risk incurring significant environmental liabilities in connection with our use, treatment, storage, transfer and disposal
of waste materials. Under applicable environmental laws and regulations, we could be liable if our operations are found to cause
environmental damage to our properties or to the property of other landowners, particularly as a result of the contamination of
air, drinking water or soil. Under current law, we could also be held liable for damage caused by conditions that existed before
we acquired the assets or operations involved. This risk is of particular concern as we execute our growth strategy, partially
though acquisitions, because we may be unsuccessful in identifying and assessing potential liabilities during our due diligence
investigations. Further, the counterparties in such transactions may be unable to perform their indemnification obligations owed
to us. Additionally, we could be liable if we arrange for the transportation, disposal or treatment of hazardous substances that
cause environmental contamination, or if a predecessor owner made such arrangements and, under applicable law, we are treated
as a successor to the prior owner. Any substantial liability for environmental damage could have a material adverse effect on
our financial condition, results of operations and cash flows.
OUR
BUSINESS IS SUBJECT TO OPERATIONAL AND SAFETY RISKS, INCLUDING THE RISK OF PERSONAL INJURY TO EMPLOYEES AND OTHERS.
Providing
environmental and waste management services, including operating landfills, involves risks such as vehicular accidents and equipment
defects, malfunctions and failures. Additionally, there are risks associated with waste mass instability and releases of hazardous
materials or odors. There may also be risks presented by the potential for subsurface chemical reactions causing elevated landfill
temperatures and increased production of leachate, landfill gas and odors. Any of these risks could potentially result in injury
or death of employees and others, a need to shut down or reduce operation of facilities, increased operating expense and exposure
to liability for pollution and other environmental damage, and property damage or destruction.
While
we seek to minimize our exposure to such risks through comprehensive training, compliance and response and recovery programs,
as well as vehicle and equipment maintenance programs, if we were to incur substantial liabilities in excess of any applicable
insurance, our business, results of operations and financial condition could be adversely affected. Any such incidents could also
adversely impact our reputation and reduce the value of our brand. Additionally, a major operational failure, even if suffered
by a competitor, may bring enhanced scrutiny and regulation of our industry, with a corresponding increase in operating expense.
INCREASES
IN THE COSTS OF FUEL MAY REDUCE OUR OPERATING MARGINS.
The
price and supply of fuel needed to run our collection vehicles is unpredictable and fluctuates based on events outside our control,
including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and
unrest in oil producing countries, regional production patterns and environmental concerns. Any significant price escalations
or reductions in the supply could increase our operating expenses or interrupt or curtail our operations. Failure to
offset all or a portion of any increased fuel costs through increased fees or charges would reduce our operating margins.
CHANGES
IN INTEREST RATES WOULD AFFECT OUR PROFITABILITY.
Our
acquisitions could require us to incur substantial additional indebtedness in the future, which will increase our interest expense. Further,
to the extent that these borrowings are subject to variable rates of interest, increases in interest rates will increase our interest
expense, which will affect our profitability. We bear exposure to, and are primarily affected by, changes in LIBOR
rates.
INCREASES
IN THE COSTS OF DISPOSAL MAY REDUCE OUR OPERATING MARGINS.
In 2016, we disposed of approximately 70% of
the waste that we collect in landfills operated by others, and that rate may not decrease significantly in the future. We
may incur increases in disposal fees paid to third parties. Failure to pass these costs on to our customers may reduce
our operating margins. In December 2015, the Company purchased Eagle Ridge Landfill, LLC and, in February 2017, the
Company purchased two landfills located in Virginia, as part of the Company’s strategy to internalize a majority of its volume. As
of July 2016, the Company has begun to move its volume away from third party landfills. Going forward, the Company
may not internalize its volume in its own landfills to the extent desired, which may limit the expected savings it anticipated
from the acquisition of Eagle Ridge Landfill, LLC and the CFS Group.
INCREASES
IN THE COSTS OF LABOR MAY REDUCE OUR OPERATING MARGINS.
We
compete with other businesses in our markets for qualified employees. A shortage of qualified employees would require
us to enhance our wage and benefits packages to compete more effectively for employees or to hire more expensive temporary employees. Labor
is our second largest operating cost, and even relatively small increases in labor costs per employee could materially affect
our cost structure. Failure to attract and retain qualified employees, to control our labor costs, or to recover any
increased labor costs through increased prices we charge for our services or otherwise offset such increases with cost savings
in other areas may reduce our operating margins.
INCREASES
IN COSTS OF INSURANCE WOULD REDUCE OUR OPERATING MARGINS.
One
of our largest operating costs is for insurance coverage, including general liability, automobile physical damage and liability,
property, employment practices, pollution, directors and officers, fiduciary, workers’ compensation and employer’s
liability coverage, as well as umbrella liability policies to provide excess coverage over the underlying limits contained in
our primary general liability, automobile liability and employer’s liability policies. Changes in our operating
experience, such as an increase in accidents or lawsuits or a catastrophic loss, could cause our insurance costs to increase significantly
or could cause us to be unable to obtain certain insurance. Increases in insurance costs would reduce our operating margins. Changes
in our industry and perceived risks in our business could have a similar effect.
WE
MAY NOT BE ABLE TO MAINTAIN SUFFICIENT INSURANCE COVERAGE TO COVER THE RISKS ASSOCIATED WITH OUR OPERATIONS, WHICH COULD RESULT
IN UNINSURED LOSSES THAT WOULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Integrated
non-hazardous waste companies are exposed to a variety of risks that are typically covered by insurance arrangements. However,
we may not be able to maintain sufficient insurance coverage to cover the risks associated with our operations for a variety of
reasons. Increases in insurance costs and changes in the insurance markets may, given our resources, limit the coverage
that we are able to maintain or prevent us from insuring against certain risks. Large or unexpected losses may exceed
our policy limits, adversely affecting our results of operations, and may result in the termination or limitation of coverage,
exposing us to uninsured losses, thereby adversely affecting our financial condition.
OUR
FAILURE TO REMAIN COMPETITIVE WITH OUR NUMEROUS COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES, COULD ADVERSELY AFFECT OUR ABILITY
TO RETAIN EXISTING CUSTOMERS AND OBTAIN FUTURE BUSINESS.
Because
our industry is highly competitive, we compete with large companies and municipalities, many of whom have greater financial and
operational resources. The non-hazardous solid waste collection and disposal industry includes large national, publicly-traded
waste management companies; regional, publicly-held and privately-owned companies; and numerous small, local, privately-owned
companies. Additionally, many counties and municipalities operate their own waste collection and disposal facilities
and have competitive advantages not available to private enterprises. If we are unable to successfully compete against our competitors,
our ability to retain existing customers and obtain future business could be adversely affected.
WE
MAY LOSE CONTRACTS THROUGH COMPETITIVE BIDDING, EARLY TERMINATION OR GOVERNMENTAL ACTION, OR WE MAY HAVE TO SUBSTANTIALLY LOWER
PRICES IN ORDER TO RETAIN CERTAIN CONTRACTS, ANY OF WHICH WOULD CAUSE OUR REVENUE TO DECLINE.
We are party to contracts with municipalities and other
associations and agencies. Many of these contracts are or will be subject to competitive bidding. We may
not be the successful bidder, or we may have to substantially lower prices in order to be the successful bidder. In
addition, some of our customers may terminate their contracts with us before the end of the contract term. If we are
not able to replace revenue from contracts lost through competitive bidding or early termination or from lowering prices or from
the renegotiation of existing contracts with other revenue within a reasonable time period, our revenue could decline.
Municipalities
may annex unincorporated areas within counties where we provide collection services, and as a result, our customers in annexed
areas may be required to obtain service from competitors who have been franchised or contracted by the annexing municipalities
to provide those services. Some of the local jurisdictions in which we currently operate grant exclusive franchises
to collection and disposal companies, others may do so in the future, and we may enter markets where franchises are granted by
certain municipalities. Unless we are awarded a franchise by these municipalities, we will lose customers, which will
cause our revenue to decline.
We
are currently pursuing through a bidding process the renewal of an agreement to which we are currently party, for the operation
of a transfer station, scheduled to expire in the fourth quarter of 2016. If we are not awarded renewal of this agreement, we
will be forced to utilize other transfer stations which would cause our revenue to decline.
EFFORTS
BY LABOR UNIONS TO ORGANIZE OUR EMPLOYEES COULD DIVERT MANAGEMENT ATTENTION AND INCREASE OUR OPERATING EXPENSES.
We
do not have any union representation in our operations. Groups of employees may seek union representation in the future,
and the negotiation of collective bargaining agreements could divert management attention and result in increased operating expenses
and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait
through “cooling off” periods, which are often followed by union-initiated work stoppages, including strikes. Depending
on the type and duration of these work stoppages, our operating expenses could increase significantly.
POOR
DECISIONS BY OUR REGIONAL AND LOCAL MANAGERS COULD RESULT IN THE LOSS OF CUSTOMERS OR AN INCREASE IN COSTS, OR ADVERSELY AFFECT
OUR ABILITY TO OBTAIN FUTURE BUSINESS.
We
manage our operations on a decentralized basis. Therefore, regional and local managers have the authority to make many
decisions concerning their operations without obtaining prior approval from executive officers. Poor decisions by regional
or local managers could result in the loss of customers or an increase in costs, or adversely affect our ability to obtain future
business.
WE
ARE VULNERABLE TO FACTORS AFFECTING OUR LOCAL MARKETS, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE RELATIVE TO OUR COMPETITORS.
Because
the non-hazardous waste business is local in nature, our business in one or more regions or local markets may be adversely affected
by events and economic conditions relating to those regions or markets even if the other regions of the country are not affected. As
a result, our financial performance may not compare favorably to our competitors with operations in other regions, and our stock
price could be adversely affected by our inability to compete effectively with our competitors.
SEASONAL
FLUCTUATIONS WILL CAUSE OUR BUSINESS AND RESULTS OF OPERATIONS TO VARY AMONG QUARTERS, WHICH COULD ADVERSELY AFFECT OUR STOCK
PRICE.
Based
on historic trends experienced by the businesses we have acquired, we expect our operating results to vary seasonally, with revenue
typically lowest in the first quarter, higher in the second and third quarters, and again lower in the fourth quarter. This
seasonality generally reflects the lower volume of waste during the winter months. Adverse weather conditions negatively
affect waste collection productivity, resulting in higher labor and operational costs. The general increase in precipitation
during the winter months increases the weight of collected waste, resulting in higher disposal costs, as costs are often calculated
on a per ton basis. Because of these factors, we expect operating income to be generally lower in the winter months. As
a result, our operating results may be negatively affected by these variations. Additionally, severe weather during
any time of the year can negatively affect the costs of collection and disposal and may cause temporary suspensions of our collection
services. Long periods of inclement weather may interfere with collection operations and reduce the volume of waste
generated by our customers. Any of these conditions can adversely affect our business and results of operations, which
could negatively affect our stock price.
WE
ARE DEPENDENT ON OUR MANAGEMENT TEAM AND DEVELOPMENT AND OPERATIONS PERSONNEL, AND THE LOSS OF ONE OR MORE KEY EMPLOYEES OR GROUPS
COULD HARM OUR BUSINESS AND PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY MANNER.
Our success depends substantially upon the continued
services of our executive officers and other key members of management, particularly our Chief Executive Officer, Mr. Jeffrey S.
Cosman. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives.
Such changes in our executive management team may be disruptive to our business. We are also substantially dependent on the continued
service of our existing development and operations personnel because of the complexity of our service and technologies. We have
an employment agreement with Mr. Cosman. We maintain a key person life insurance policy on Mr. Cosman. The loss of one or more
of our key employees or groups could seriously harm our business.
WE
HAVE IDENTIFIED A MATERIAL WEAKNESS IN OUR INTERNAL CONTROLS, WHICH COULD CAUSE STOCKHOLDERS AND PROSPECTIVE INVESTORS TO LOSE
CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL REPORTING.
Currently, the Company has an Audit Committee to oversee
the financial reporting process; however, for much of the year ended December 31, 2016, the Company did not have an Audit Committee.
Accordingly, based on these material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective during the period covered by this report, December 31, 2016, to ensure that information
required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules.
To address these weaknesses, the Company's management has added independent Directors so that the Company
will have an Audit Committee that meets regulatory requirements for independence and financial expert experience. The Company also
started the process of retaining additional staff to assist its internal staff with compliance issues.
OUR
BUSINESS IS SUBJECT TO CHANGING REGULATIONS REGARDING CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE THAT HAVE INCREASED BOTH OUR
COSTS AND THE RISK OF NON-COMPLIANCE.
We
are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission,
which are charged with the protection of investors and the oversight of companies whose securities are publicly traded. Our efforts
to comply with new and changing regulations have resulted in and are likely to continue to result in, increased general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Moreover,
because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve
over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters
and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply
with these regulations and any subsequent changes, our business may be harmed.
WE
NEED ADDITIONAL CAPITAL TO DEVELOP OUR BUSINESS.
The
development of our services will require the commitment of substantial resources to implement our business plan. In addition,
substantial expenditures will be required to enable us to complete projects in the future. Currently, we have a credit
agreement with Goldman Sachs Specialty Lending Group. However, it is likely we would need to seek additional financing
through subsequent future private or public offerings of our equity securities or through strategic partnerships and other arrangements
with corporate partners.
We
cannot give any assurance that any additional financing will be available to us, or if available, will be on terms favorable
to us. The sale of additional equity securities will result in dilution to our stockholders. The occurrence
of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants
that would restrict our operations. If adequate additional financing is not available on acceptable terms, we may not be able
to implement our business development plan or continue our business operations.
RISKS
RELATED TO OWNERSHIP OF OUR SECURITIES
THE
MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND COULD SUBJECT US TO LITIGATION.
The
market price of our common stock has been and is likely to continue to be subject to wide fluctuations. Factors affecting the
market price of our common stock include:
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●
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variations
in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial
metrics and non-financial metrics, and how those results compare to analyst expectations;
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issuances
of new stock which dilutes earnings per share;
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forward
looking guidance to industry and financial analysts related to future revenue and earnings per share;
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the
net increases in the number of customers and paying subscriptions, either independently or as compared with published expectations
of industry, financial or other analysts that cover our company;
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changes
in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow our common
stock;
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announcements
of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or
by our competitors;
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announcements
by us or by our competitors of mergers or other strategic acquisitions, or rumors of such transactions involving us or our
competitors;
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announcements
of customer additions and customer cancellations or delays in customer purchases;
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recruitment
or departure of key personnel;
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trading
activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock.
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In
addition, if the stock market in general experiences uneven investor confidence, the market price of our common stock could decline
for reasons unrelated to our business, operating results or financial condition. The market price of our common stock might also
decline in reaction to events that affect other companies within, or outside, our industries even if these events do not directly
affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities
class action litigation. If we are to become the subject of such litigation, it could result in substantial costs and a diversion
of management’s attention and resources.
THE
OWNERSHIP BY OUR CHIEF EXECUTIVE OFFICER OF SERIES A PREFERRED STOCK WILL LIKELY LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS.
Mr.
Jeffrey S. Cosman, our chief executive officer, is the beneficial owner of 100% of the outstanding shares of the Company’s
Series A Preferred Stock. As a result, our chief executive officer would have significant influence over most matters that require
approval by our stockholders, including the election of directors and approval of significant corporate transactions, even if
other stockholders oppose them. In addition, Mr. Cosman beneficially owns approximately 18% of our issued and outstanding common
stock. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company
that other stockholders may view as beneficial.
ALTHOUGH
OUR SHARES AND WARRANTS HAVE BEEN APPROVED FOR LISTING ON THE NASDAQ CAPITAL MARKET, OUR SHARES MAY BE SUBJECT TO POTENTIAL DELISTING
IF WE DO NOT MEET OR CONTINUE TO MAINTAIN THE LISTING REQUIREMENTS OF THE NASDAQ CAPITAL MARKET.
Our
shares and warrants have been approved for listing on The Nasdaq Capital Market (“Nasdaq”); however Nasdaq has rules for continued
listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our
listing, or delisting from Nasdaq, would make it more difficult for shareholders to dispose of our common stock and more
difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of our
common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any
financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a
national securities exchange.
Our
stock price could fall and we could be delisted from NASDAQ in which case because they may be considered penny stocks and thus
be subject to the penny stock rules, WHICH COULD RESULT IN U.S. broker-dealers BECOMING discouraged from effecting transactions
in shares of our common stock.
The SEC has adopted a number of rules
to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934,
as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are
equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is
provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny
stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers
may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market
liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks.”
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
THERE
MAY BE RESTRICTIONS ON YOUR ABILITY TO RESELL SHARES OF COMMON STOCK UNDER RULE 144.
Currently,
Rule 144 under the Securities Act permits the public resale of securities under certain conditions after a six or twelve month
holding period by the seller, including requirements with respect to the manner of sale, sales volume restrictions, filing requirements
and a requirement that certain information about the issuer is publicly available. At the time that stockholders intend to resell
their shares under Rule 144, there can be no assurances that we will be subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) or, if so, current in our reporting requirements under the Exchange
Act, in order for stockholders to be eligible to rely on Rule 144 at such time.
In
addition to the foregoing requirements of Rule 144 under the Federal securities laws, the various state securities laws may impose
further restrictions on the ability of a holder to sell or transfer the shares of common stock.
SALES
OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR
SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK
A
substantial majority of our outstanding shares of common stock are “restricted securities” within the meaning of Rule
144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required
under applicable state securities laws. Rule 144 provides in essence that an Affiliate (as such term is defined in
Rule 144(a)(1)) of an issuer who has held restricted securities for a period of at least six months (one year after filing Form
10 information with the SEC for shell companies and former shell companies) may, under certain conditions, sell every three months,
in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of
common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule
does not apply to companies quoted on the OTC Bulletin Board). Rule 144 also permits, under certain circumstances,
the sale of securities, without any limitation, by a person who is not an Affiliate of the Company and who has satisfied a one-year
holding period. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registrations
of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market
that may develop.
YOU
MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND
OUR PREFERRED STOCK.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 80,000,000 shares of capital
stock, which includes 4,861,468 shares of blank check preferred stock, par value $0.001, for which the designations, rights
and preferences may be established by the Board.
We
may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock
in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital
raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock
or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that
we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with
hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes
or for other business purposes, including at a price (or exercise prices) below the price at which shares of our common stock
are trading.
POSSIBLE
ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK
Our
Restated Certificate of Incorporation authorizes the issuance of 5,000,000 shares of preferred stock, of which 4,861,468 shares
are available for issuance, with designations, rights and preferences as determined from time to time by the Board of Directors.
As a result of the foregoing, the Board of Directors can issue, without further shareholder approval, Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of
Common Stock. The issuance of Preferred Stock could, under certain circumstances, discourage, delay or prevent a change
in control of the Company.
WE
DO NOT EXPECT TO PAY DIVIDENDS AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK EXPECTING TO RECEIVE DIVIDENDS.
We
have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in
the foreseeable future. Consequently, investors will only realize an economic gain on their investment in our common
stock if the price appreciates. Investors should not purchase our common stock expecting to receive cash dividends.
Because we do not pay dividends, and there may be limited trading, investors may not have any manner to liquidate or receive any
payment on their investment. Therefore, our failure to pay dividends may cause investors to not see any return on investment
even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble
raising additional funds, which could affect our ability to expand our business operations.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
Our principal executive office is located
at 12540 Broadwell Road, Suite 2104, Milton, Georgia and is an approximately 3,500 sq. ft. office space rented at a rate of approximately
$3,000 per month. We also lease approximately 8,500 sq. ft. of office space rented at a rate of $23,000 per month in Bridgeton,
Missouri and approximately 84,000 sq. ft. of office and warehouse space rented at a rate of approximately $50,000 per month in
Petersburg, Virginia. Additional space may be required as we expand our business activities, but we do not foresee any significant
difficulties in obtaining additional office facilities if deemed necessary.
Our principal property is comprised
of land, three landfills, buildings and equipment owned and/or leased in Missouri and Virginia. These properties are sufficient
to meet the Company’s current operational needs; however, the Company is exploring the potential acquisition and/or leasing
of additional properties pursuant to its growth strategies.
Item
3. Legal Proceedings
We are not currently involved in any
litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is
no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened
against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’
officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
However,
from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Information
Concerning the Board of Directors and Executive Officers of the Company
The
following table and text sets forth the names and ages of all our directors and executive officers and our key management
personnel. All of our directors serve until the next annual meeting of stockholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the
discretion of the Board of Directors, and subject the terms and conditions of their employment agreements, are elected or
appointed to serve until the next Board of Directors meeting following the annual meeting of stockholders, and until their
successors are elected and qualified, or until their earlier death, resignation or removal. Also provided is a brief
description of the business experience of each director and executive officer and the key management personnel during the
past five years and an indication of directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
Name
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Age
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Position
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Jeffrey
Cosman (1)
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46
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Chief
Executive Officer, Chairman of the Board of Directors
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Joseph
D'Arelli (2)
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47
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Chief
Financial Officer
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Walter
H. Hall (3)
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58
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President,
Chief Operating Officer, Director
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Thomas
J. Cowee (4)
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60
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Director,
Audit Committee Chair
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Jackson
Davis (5)
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45
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Director,
Nominating Committee Chair
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Joseph
Ardagna (6)
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55
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Director,
Compensation Committee Chair
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(1)
|
Jeffrey
Cosman was appointed Chief Executive Officer and Director on October 31, 2014. Mr. Cosman
was confirmed as the Chairman of the Board on February 10, 2016.
|
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(2)
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Joseph
D'Arelli was appointed Chief Financial Officer on November 29, 2016.
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(3)
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Walter
H. Hall was appointed President, Chief Operating Officer, and a member of the Board of
Directors on March 11, 2016.
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(4)
|
Thomas
J. Cowee was appointed as a member of the Board of Directors and Audit Committee Chair
on November 1, 2016.
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(5)
|
Jackson
Davis was appointed as a member of the Board of Directors and Nominating Committee Chair
on November 1, 2016.
|
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(6)
|
Joseph
Ardagna was appointed as a member of the Board of Directors and Compensation Committee
Chair on November 1, 2016.
|
All
directors hold office until the next annual meeting of shareholders and until their successors are elected and qualified.
Officers
are appointed by the Board of Directors and serve at the discretion of the Board.
Jeffrey
S. Cosman, age 46, Chief Executive Officer, Director
Jeffrey
S. Cosman
combines over 10 years’ experience in the solid waste industry, which includes local operations, local
and regional accounting and corporate finance. Mr. Cosman has served as the Chief Executive Officer and a Director
of the Company since October 31, 2014, and has managed the operations of Here to Serve - Missouri Waste Division, LLC and Here
to Serve - Georgia Waste Division, LLC since May 2014. In 2012, Mr. Cosman purchased Rosewood Communication Supply, a warehouse
centric telecom parts and supplies distributor. In 2010, Mr. Cosman shifted his career focus back to the solid waste industry,
founding, in 2010, Legacy Waste Solutions, LLC, a compressed natural gas consulting business. Prior to that, in the
early 2000’s, Mr. Cosman became involved in start-up technology in the medical device industry, following his work
at Republic Services from February 1996 until February 1999, where, in his role in Corporate Finance, Mr. Cosman assisted due
diligence of acquisitions, provided accounting guidance in over 168 transactions totaling $1.6 Billion in annualized revenue, supported
corporate controllers in monthly reporting and assisted in the preparation of a registration statement for Republic Services.
From 1993 through 1996, Mr. Cosman had a career in professional baseball with the New York Mets’ minor league organization. In
addition, Mr. Cosman has experience in mobile-based app development, medical device sales leadership and capital raising. Mr.
Cosman holds a B.B.A. in Managerial Finance and Banking and Finance, and a Bachelors of Accountancy from the University of Mississippi.
The Board of Directors believes that Mr. Cosman’s “ground up” experience in the solid waste industry, together
with his background in related fields, as well as finance, will support the Company’s growth plans as it moves forward in
implementing its transition into the waste industry.
Mr.
Cosman is the majority shareholder in Here To Serve Holding Corp, an OTC Markets company based in Milton, Georgia. Mr.
Cosman has approximately 65% of the outstanding shares of Here To Serve Holding Corp. The Company does not have an
arrangement with Here To Serve or Mr. Cosman for past, current or future services to be performed between Here To Serve and Meridian
Waste Solutions, Inc. Mr. Cosman may in the future consult from time to time with Here To Serve on matters that do not conflict
with the operation of the Company. Mr. Cosman spends several hours a month on Here To Serve.
Additionally,
Mr. Cosman has a minority equity interest in Rush The Puck, LLC, a limited liability company in which Mr. Cosman and his wife
are the sole members. The Company does not have an arrangement with Rush The Puck, LLC or Mr. Cosman for past, current or future
services to be performed between Rush The Puck LLC and Meridian Waste Solutions, Inc. Mr. Cosman spends approximately one hour
per week on Rush The Puck, LLC.
Joseph
D'Arelli, age 47, Chief Financial Officer
Joseph
D'Arelli, age 47 has almost 25 years of experience in public accounting, including partnership and senior management positions.
He has extensive experience in auditing public and private companies in such industries as Waste Management, Financial Services;
Broker/Dealers; Distribution and Technology Companies. From October 2012 until May of 2016 he was a Partner/Shareholder at D'Arelli
Pruzansky, P.A. and is licensed in the states of Florida and New York. He continues his affiliations with the American Institute
of Certified Public Accountants (AICPA), New York State Society of Certified Public Accountants (NYSSCPA), Florida Institute of
Certified Public Accountants (FICPA), and is a Certified Public Accountant in the states of Florida and New York. Mr. D'Arelli
has a Bachelor's Degree in Accounting from St. John's University.
On
September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities
Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (collectively, the “Order”) against D’Arelli
Pruzansky, P.A. (the “Firm”), Joseph D’Arelli, CPA, and Mitchell Pruzansky, CPA (collectively, the “Respondents”).
Mr. D’Arelli, currently the Company’s Chief Financial Officer, was a partner and shareholder of the Firm from October
2012 through May 2016. Respondents have consented to the Order pursuant to Offers of Settlement, accepted by the SEC, pursuant
to which Respondents neither admitted nor denied the findings in the Order. During a Public Company Accounting Oversight Board
(PCAOB) inspection in July 2015, the Firm was informed that it had failed to comply with the SEC’s partner rotation requirements
because Mr. D’Arelli and Mr. Pruzansky performed quarterly reviews after being the lead audit partner for five consecutive
audits, with respect to two issuer audit clients. In August 2015, the Firm reviewed all of its engagements and self-reported instances
of such rotation issue regarding additional issuer audit clients. Respondents have been ordered to cease and desist from committing
or causing any violations and any future violations of Sections 10A(j) and 13(a) of the Exchange Act and Rules 10A-2 and 13a-13
thereunder and to pay, jointly and severally, a civil penalty of $50,000.
Walter
H. Hall, age 58, President, Chief Operating Officer, Director
Walter
H. Hall, age 58, brings 25 years of management experience in the waste industry. Most recently Mr. Hall served as Chief Operating
Officer for Advanced Disposal Services, Inc., from 2001 through 2014, where he had direct responsibility for profit and loss decisions,
development and implementation of strategic marketplace plans, sales, safety, acquisitions, and coordination of assets and personnel
for a company having operations in multiple states with annual revenues in excess of $1 billion. Prior to that, Mr. Hall held
positions as President and General Manager with Southland Waste Systems and Southland Waste Systems of Georgia, respectively,
following six years with Browning Ferris Industries as District Manager and Regional Operations Manager. Mr. Hall has an
undergraduate degree from Mississippi College. The Board of Directors believes that Mr. Hall’s extensive and directly
applicable experience within the waste industry makes him ideally qualified to help lead the Company towards continued growth.
Thomas
J. Cowee, age 60, Director, Audit Committee Chair
Thomas
J. Cowee, age 60, has 38 years of experience in the environmental industry, including 15 years as a Chief Financial Officer. After
retiring from Progressive Waste Solutions Ltd in December 2012, Mr. Cowee began serving as a board director for companies and
is currently serving as a director for Enviro Group, LLC and STC Investors, LLC, both privately owned environmental companies,
positions he has held since 2015. Enviro Group, LLC is a hazardous trucking and transfer company, and STC Investors, LLC is primarily
a refinery services and trucking company. Previously Mr. Cowee served as a director on the board of Rizzo Group, LLC, a privately
owned solid waste collection, transfer and recycling business from 2014 to 2016, until sold. Mr. Cowee was Vice President and
Chief Financial Officer of Progressive Waste Solutions Ltd, from 2005 to 2012. Progressive Waste Solutions Ltd, was a publicly
traded solid waste collection, transfer, recycling and landfill business, with operations in the United States and Canada. Mr.
Cowee joined IESI Corporation in 1997 as its Chief Financial Officer and in 2000 was appointed Senior Vice President and Chief
Financial Officer until IESI Corporation was acquired by Progressive Waste Solutions Ltd in 2005. From 1995 to 1997, he was Assistant
Corporate Controller of USA Waste Services, Inc., and from 1979 to 1995 he held various field accounting positions with Waste
Management Inc. Mr. Cowee has a B.Sc. in accounting from The Ohio State University. Mr. Cowee is qualified to serve on our Board
of Directors because of his extensive experience in the environmental and waste industry, including serving as a director.
Jackson
Davis, age 45, Director, Nominating Committee Chair
Jackson
Davis, age 45, has more than 20 years of experience in technology and technology leadership, previously holding roles with software
development companies providing mobile infrastructure management and wholesale financing solutions. Mr. Davis holds a BSBA in
Decision Science with concentration in Management Information Systems from East Carolina University and has extensive experience
in guiding organizational business strategy to propel improvement and maximum impact, while focusing on cost-efficiency and productivity.
He is currently Director of Financial and Business Services Applications for Cox Enterprises a leading communications, media,
and automotive services company with revenues of $18 billion. Prior to Joining Cox Enterprises in July of 2016; Mr. Davis held
various roles at Cox Communications, most recently being Director of Corporate Business Systems, from August 2002 through July
2016. Mr. Davis is qualified to serve on our Board of Directors because of his extensive experience in the fields of technology
and infrastructure management.
Joseph
Ardagna, age 55, Director, Compensation Committee Chair
Joseph
Ardagna, age 55, brings 30 years of experience of managing businesses in the restaurant industry. Mr. Ardagna is currently an
owner/operator of Peace, Love and Pizza, a chain of pizza restaurants in Atlanta, founded in December 2012. Mr. Ardagna is responsible
for all aspects of the business including overseeing the operation of four pizza restaurants and the construction of a new store
scheduled to open in February 2017. Prior to that, from 1990 until 2012, Mr. Ardagna owned and operated Taco Mac Restaurants,
a 28-restaurant chain in Atlanta and the Carolinas having approximately $90 million in yearly sales at such time, as one of the
two founding partners responsible for managing the business, where he oversaw all aspects of the business, including finance,
legal, compensation, site selection, design and development, licensing and brand development. Mr. Ardagna sold a majority of his
interest in Taco Mac Restaurants to a private equity group in 2012, but currently still sits on its board of directors. In 2013,
Mr. Ardagna started a new venture in the restaurant industry in Atlanta and currently oversees the operation of four pizza restaurants
and the construction of a new store scheduled to open in February 2017. Mr. Ardagna has an undergraduate degree from Bowdoin College
in 1984 and serves on the Board of Trustees at the New Hampton School in New Hampshire. Mr. Ardagna is qualified to serve on our
Board of Directors because his extensive business experience.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than
ten percent (10%) of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (“SEC”). Officers, directors and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on our review of certain
reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended December
31, 2016, were timely, except for the late filing of Forms 4 related to the issuance of 962 shares of common stock to each of Joseph
Ardagna, Thomas Cowee and Jackson Davis, as of December 31, 2016 pursuant to their respective Director Agreements.
Board
Committees
Our
board of directors has established an audit committee, a nominating and corporate governance committee, and a compensation
committee. Each committee has its own charter, which is available on our website at
www.mwsinc.com.
Information
contained on our website is not incorporated herein by reference. Each of the board committees has the composition and
responsibilities described below.
Members
will serve on these committees until their resignation or until otherwise determined by our Board of Directors.
Audit
Committee
We
have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act of
1934, as amended (the “Exchange Act”). The Audit Committee consists of Mr. Cowee, Mr. Davis and Mr. Ardagna, each
of whom qualifies as “independent” within the meaning of Rule 10A-3 under the Exchange Act and the Nasdaq Stock Market
Rules. Mr. Thomas J. Cowee has been appointed as the Chair of the Audit Committee, effective November 1, 2016. Our board has determined
that Mr. Cowee is currently qualified as an “audit committee financial expert”, as such term is defined in Item 407(d)(5)
of Regulation S-K.
The
Audit Committee oversees our accounting and financial reporting processes and oversees the audit of our financial statements and
the effectiveness of our internal control over financial reporting. The specific functions of this Audit Committee include, without
limitation:
|
●
|
selecting
and recommending to our board of directors the appointment of an independent registered
public accounting firm and overseeing the engagement of such firm;
|
|
●
|
approving
the fees to be paid to the independent registered public accounting firm;
|
|
●
|
helping
to ensure the independence of the independent registered public accounting firm;
|
|
●
|
overseeing
the integrity of our financial statements;
|
|
●
|
preparing
an audit committee report as required by the SEC to be included in our annual proxy statement;
|
|
●
|
resolving
any disagreements between management and the auditors regarding financial reporting;
|
|
●
|
reviewing
with management and the independent auditors any correspondence with regulators and any
published reports that raise material issues regarding the Company’s accounting
policies;
|
|
●
|
reviewing
and approving all related-party transactions; and
|
|
●
|
overseeing
compliance with legal and regulatory requirements.
|
Compensation
Committee
We
have a stand-alone Compensation Committee, which consists of Mr. Ardagna, Mr. Davis and Mr. Cowee, each of whom is “independent”
within the meaning of the Nasdaq Stock Market Rules. In addition, each member of our Compensation Committee qualifies as a “non-employee
director” under Rule 16b-3 of the Exchange Act. Our Compensation Committee assists the board of directors in the discharge
of its responsibilities relating to the compensation of the board of directors and our executive officers. Mr. Ardagna has been
appointed as the Chair of the Compensation Committee, effective November 1, 2016.
The
Compensation Committee’s compensation-related responsibilities include, without limitation:
|
●
|
reviewing
and approving on an annual basis the corporate goals and objectives with respect to compensation
for our Chief Executive Officer;
|
|
●
|
reviewing,
approving and recommending to our board of directors on an annual basis the evaluation
process and compensation structure for our other executive officers;
|
|
●
|
providing
oversight of management’s decisions concerning the performance and compensation
of other company officers, employees, consultants and advisors;
|
|
●
|
reviewing
our incentive compensation and other equity-based plans and recommending changes in such
plans to our board of directors as needed, and exercising all the authority of our board
of directors with respect to the administration of such plans;
|
|
●
|
reviewing
and recommending to our board of directors the compensation of independent directors,
including incentive and equity-based compensation; and
|
|
●
|
selecting,
retaining and terminating such compensation consultants, outside counsel or other advisors
as it deems necessary or appropriate.
|
Nominating
and Corporate Governance Committee
We
have a stand-alone Nominating and Corporate Governance Committee, which consists of Mr. Cowee, Mr. Davis and Mr. Ardagna,
each of whom is “independent” within the meaning of the Nasdaq Stock Market Rules. The purpose of the Nominating and
Corporate Governance Committee is to recommend to the board nominees for election as directors and persons to be elected to fill
any vacancies on the board, develop and recommend a set of corporate governance principles and oversee the performance of the
board. Mr. Davis has been appointed as the Chair of the Nominating Committee, effective November 1, 2016.
The
Nominating and Corporate Governance Committee’s responsibilities include:
|
●
|
recommending
to the board of director nominees for election as directors at any meeting of stockholders
and nominees to fill vacancies on the board;
|
|
●
|
considering
candidates proposed by stockholders in accordance with the requirements in the Nominating
and Corporate Governance Committee charter;
|
|
●
|
overseeing
the administration of the Company’s code of business conduct and ethics;
|
|
●
|
reviewing
with the entire board of directors, on an annual basis, the requisite skills and criteria
for board candidates and the composition of the board as a whole;
|
|
●
|
the
authority to retain search firms to assist in identifying board candidates, approve the
terms of the search firm’s engagement, and cause the Company to pay the engaged
search firm’s engagement fee;
|
|
●
|
recommending
to the board of directors on an annual basis the directors to be appointed to each committee
of the board of directors;
|
|
●
|
overseeing
an annual self-evaluation of the board of directors and its committees to determine whether
it and its committees are functioning effectively; and
|
|
●
|
developing
and recommending to the board a set of corporate governance guidelines applicable to
the Company.
|
The
Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as it deems appropriate.
The Nominating and Corporate Governance Committee is authorized to retain independent legal and other advisors, and conduct or
authorize investigations into any matter within the scope of its duties.
Code
of Business Conduct and Ethics
We
have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and
all persons performing similar functions. A copy of that code is available on our corporate website at
www.mwsinc.com
.
We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.
Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director
or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company
or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has
filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer
has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director
or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten
years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during
the past ten years.
Item
11. Executive Compensation
Executive
Compensation
The
following Summary Compensation Table sets forth all compensation earned, in all capacities, during the fiscal years ended December
31, 2016 and 2015 by each of the executive officers.
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Stock
Awards
($)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Cosman (1)
|
|
|
2016
|
|
|
$
|
525,000
|
|
|
$
|
0
|
(2)
|
|
$
|
525,000
|
|
Chief Executive Officer, Director
|
|
|
2015
|
|
|
$
|
500,000
|
|
|
$
|
7,216,180
|
(2)
|
|
$
|
7,716,180
|
|
Walter H. Hall, Jr.
|
|
|
2016
|
|
|
|
0
|
|
|
|
3,100,000
|
|
|
|
3,100,000
|
|
President, Chief Operating Officer, Director (3)
|
|
|
2015
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Joseph D'Arelli
|
|
|
2016
|
|
|
|
159,550
|
|
|
|
450,000
|
|
|
|
609,550
|
|
Chief Financial Officer (4)
|
|
|
2015
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(1)
|
Effective October 31, 2014, Jeffrey S. Cosman was appointed Chief Executive Officer of the Company and Director. $187,500 of Mr. Cosman’s salary was accrued for 2015.
|
(2)
|
Mr. Cosman received 279,524 shares of Common Stock, having a grant date fair market value of $25.81 per share.
|
(3)
|
Mr. Hall was appointed President, Chief Operating Officer and Director on March 11, 2016. In March 2016, Mr. Hall received 100,000 shares of Common Stock having a grant date fair market value of $31.00 per share, subject to a vesting schedule.
|
(4)
|
Mr. D'Arelli was appointed Chief Financial Officer on November 29, 2016. In July 2016, Mr. D’Arelli received 15,000 shares of Common Stock, having a grant date fair market value of $30 per share, subject to a vesting schedule. Included in Mr. D’Arelli’s salary are amounts paid to Mr. D’Arelli by the Company for Mr. D’Arelli’s work as Corporate Controller during 2016, prior to Mr. D;Arelli’s appointment as Chief Financial Officer effective November 29, 2016.
|
Option
Grants
We
did not grant any options to any of our executive officers during the years ended December 31, 2016 and 2015.
Compensation
of Directors
At this time, each of our independent
directors, pursuant to their Director Agreements with the Company, receives, in addition to equity compensation, a monthly cash
stipend of $1,500 and, for so long as the Director serves as the chair of either the Audit Committee, the Compensation Committee
or the Nominating Committee the amount of such monthly cash stipend shall be increased to $2,000. In addition, each Director receives
a cash stipend of (i) $500 for every telephonic meeting of the Board that the Director attends which is longer than forty-five
minutes; (ii) $500 for every telephonic meeting of a Committee of the Board that the Director attends that is longer than forty-five
minutes; and (iii) $1,000 for every in-person meeting that the Director attends.
Executive
Compensation Program Components
Base
Salary
We
provide base salary as a fixed source of compensation for our executive officers, allowing them a degree of certainty when having
a meaningful portion of their compensation “at risk” in the form of equity awards covering the shares of a company
for whose shares there has been limited liquidity to date. The board of directors recognizes the importance of base salaries as
an element of compensation that helps to attract highly qualified executive talent.
Base
salaries for our executive officers were established primarily based on individual negotiations with the executive officers when
they joined us and reflect the scope of their anticipated responsibilities, the individual experience they bring, the board members’
experiences and knowledge in compensating similarly situated individuals at other companies, our then-current cash constraints,
and a general sense of internal pay equity among our executive officers.
The
board does not apply specific formulas in determining base salary increases. In determining base salaries for 2015 for our continuing
named executive officers, no adjustments were made to the base salaries of any of our named executive officers as the board determined,
in their independent judgment and without reliance on any survey data, that existing base salaries, taken together with other
elements of compensation, provided sufficient fixed compensation for retention purposes.
Employment
Contracts, Termination of Employment and Change in Control Arrangements
Jeffrey
Cosman - Employment Agreement, Director Agreement and Restricted Stock Agreement
On
March 11, 2016, the Company entered into an employment agreement with Mr. Cosman, which the parties amended as of
November 29, 2016 and as of December 5, 2016 (as amended, the “Cosman Employment Agreement”). Mr.
Cosman is currently the Chief Executive Officer and Chairman of the Board of Directors of the Company, and prior to the
execution and delivery of the Cosman Employment Agreement, the terms of Mr. Cosman’s employment were governed by that
certain previous employment agreement assumed by the Company in connection with the Company’s purchase of certain
membership interests owned by such previous employer on October 17, 2014. The Cosman Employment Agreement has an initial term
from March 11, 2016 through December 31, 2017, and the term will automatically renew for one (1) year periods unless
otherwise terminated in accordance with the terms therein. Mr. Cosman will receive a base salary of $525,000 and Mr.
Cosman’s compensation will increase by 5% on January 1 of each year. Mr. Cosman may also receive a cash bonus based on
the Company’s performance relative to its annual target performance, as well as an annual equity bonus in the form of
options, in accordance with the Company’s 2016 Equity and Incentive Plan (the “Plan”) and subject to the
restrictions contained therein,
in
an amount
equivalent to 6% of the value of all acquisitions by the Company or its subsidiaries of
substantially all the assets of existing businesses or of controlling interests in existing business entities during the
preceding year. The exercise price of such options shall be the closing price of the Company’s common
stock on the date of grant, or such higher price as may be
required pursuant to the Plan.
Upon
any termination of Mr. Cosman’s employment with the Company, except for a termination for Cause (as such term is defined
therein), Mr. Cosman shall be entitled to a severance payment equal to the greater of (i) two years’ worth of the then-existing
base salary and (ii) the last year’s bonus.
On
March 11, 2016, the Company entered into a director agreement with the Company’s Chairman of the Board and Chief Executive
Officer, Jeffrey Cosman, as amended by the First Amendment to Director Agreement entered into by the parties on April 13, 2016
(the “Cosman Director Agreement”).
On
March 11, 2016, the Company entered into a restricted stock agreement with Mr. Cosman (the “Cosman Restricted Stock Agreement”),
pursuant to which 212,654 shares of the Company's common stock, subject to certain restrictions set forth in the Cosman Restricted
Stock Agreement, were issued to Mr. Cosman pursuant to the Cosman Employment Agreement and the Plan.
Joseph
D'Arelli - Employment Agreement
On
November 29, 2016, the Company entered into an executive employment agreement with Mr. D'Arelli which the parties amended
as of December 5, 2016 (as amended, the “D'Arelli Employment Agreement”). Mr. D'Arelli previously served
as the Company's Corporate Controller. Under the D'Arelli Employment Agreement, Mr. D'Arelli shall serve as the Chief Financial
Officer of the Company for an initial term of twenty-four (24) months, with automatic renewal for one (1) year periods thereafter,
unless otherwise terminated pursuant to the terms contained therein. Mr. D'Arelli will receive a base salary of $300,000. Mr.
D'Arelli may also receive an annual bonus of up to $50,000, or such larger amount approved by the Board, as well as an annual
equity bonus (in the form of options, in accordance with the Plan and subject to the restrictions contained therein) in an
amount equivalent to 0.5% of the value of all acquisitions by the Company or its subsidiaries of substantially all the assets
of existing businesses or of controlling interests in existing business entities during the preceding year. The exercise
price of such options shall be the closing price of the Company’s common stock on the date of grant, or such higher price
as may be required pursuant to the Plan. Additionally, Mr. D'Arelli has received 15,000 restricted shares of the Company's
common stock in connection with his employment.
Walter
H. Hall, Jr. - Director Agreement and Employment Agreement
On
March 11, 2016, the Company entered into a director agreement with Mr. Walter H. Hall, Jr., as amended by the First Amendment
to Director Agreement entered into by the parties on April 13, 2016 (the “Hall Director Agreement”), concurrent with
Mr. Hall’s appointment to the Board of Directors of the Company (the “Board”) effective March 11, 2016 (the
“Effective Date”).
On
March 11, 2016, the Company entered into an executive employment agreement with Mr. Hall which the parties amended as of December
5, 2016 (as amended, the “Hall Employment Agreement”). Under the Hall Employment Agreement, Mr. Hall shall serve as
the President and Chief Operating Officer of the Company for an initial term of thirty-six (36) months, with automatic renewal
for one (1) year periods thereafter, unless otherwise terminated pursuant to the terms contained therein. Mr. Hall will receive
a base salary of $300,000 beginning upon the Company’s closing of acquisitions in the aggregate amount of $35,000,000 from
the date the Hall Employment Agreement is executed. Mr. Hall may also receive an annual bonus of up to $175,000, or such larger
amount approved by the Board, as well as an annual equity bonus (in the form of options, in accordance with the Plan and subject
to the restrictions contained therein) in an amount equivalent to 2% of the value of all acquisitions by the Company or its subsidiaries
of substantially all the assets of existing businesses or of controlling interests in existing business entities. Additionally,
Mr. Hall received 100,000 restricted shares of the Company’s common stock upon the execution of the Hall Employment Agreement.
The exercise price of such options shall be the closing price of the Company’s common stock on the date of grant, or such
higher price as may be required pursuant to the Plan.
Thomas
J. Cowee Director Agreement
On
November 1, 2016, the Company entered into a director agreement with Thomas J. Cowee (the “Cowee Director Agreement”).
Under the Cowee Director Agreement, Mr. Cowee shall serve as Director for an initial term to last until the next annual stockholders
meeting, unless otherwise ending pursuant to the terms contained therein. Mr. Cowee will receive a monthly cash stipend of
$1,500 for his service as a Director, which shall increase to $2,000 per month for as long as he serves as a chair of either the
Audit Committee, Compensation Committee or Nominating Committee. Mr. Cowee may also receive additional cash stipends for attending
meetings of the Board and committee meetings, whether in-person or telephonically. Additionally, Mr. Cowee was issued One Thousand
(1,000) shares of the Company's common stock upon the execution of the Cowee Director Agreement, and, upon the last day of each
fiscal quarter commencing in the quarter when the Cowee Director Agreement became effective, the number of shares of the Company's
common stock equivalent to $7,500, as determined based on the average closing price on the three trading days immediately preceding
the last day of such quarter. Mr. Cowee also received, upon execution of the Cowee Director Agreement, a non-qualified stock option
to purchase up to Three Thousand Seven Hundred Fifty (3,750) shares of the Company's common stock at an exercise price per share
equal to $20.00, which shall be exercisable for a period of five years and vest in equal amounts over a period of three years
at the rate of Three Hundred Thirteen (313) shares per fiscal quarter at the end of such quarter, commencing in the quarter in
which the Cowee Director Agreement became effective, and pro-rated for the number of days the Mr. Cowee serves on the Board during
the fiscal quarter.
Jackson
Davis Director Agreement and Non-Qualified Stock Options Agreement
On
November 1, 2016, the Company entered into a director agreement with Jackson Davis (the “Davis Director Agreement”).
Under the Davis Director Agreement, Mr. Davis shall serve as Director for an initial term to last until the next annual stockholders
meeting, unless otherwise ending pursuant to the terms contained therein. Mr. Davis will receive a monthly cash stipend of
$1,500 for his service as a Director, which shall increase to $2,000 per month for as long as he serves as a chair of either the
Audit Committee, Compensation Committee or Nominating Committee. Mr. Davis may also receive additional cash stipends for attending
meetings of the Board and committee meetings, whether in-person or telephonically. Additionally, Mr. Davis was issued One Thousand
(1,000) shares of the Company's common stock upon the execution of the Davis Director Agreement, and, upon the last day of each
fiscal quarter commencing in the quarter when the Davis Director Agreement became effective, the number of shares of the Company's
common stock equivalent to $7,500, as determined based on the average closing price on the three trading days immediately preceding
the last day of such quarter. Mr. Davis also received, upon execution of the Davis Director Agreement, a non-qualified stock option
to purchase up to Three Thousand Seven Hundred Fifty (3,750) shares of the Company's common stock at an exercise price per share
equal to $20.00, which shall be exercisable for a period of five years and vest in equal amounts over a period of three years
at the rate of Three Hundred Thirteen (313) shares per fiscal quarter at the end of such quarter, commencing in the quarter in
which the Davis Director Agreement became effective, and pro-rated for the number of days the Mr. Davis serves on the Board during
the fiscal quarter.
Joseph
Ardagna Director Agreement and Non-Qualified Stock Options Agreement
On
November, 2016, the Company entered into a director agreement with Joseph Ardagna (the “Ardagna Director Agreement”).
Under the Ardagna Director Agreement, Mr. Ardagna shall serve as Director for an initial term to last until the next annual stockholders
meeting, unless otherwise ending pursuant to the terms contained therein. Mr. Ardagna will receive a monthly cash stipend
of $1,500 for his service as a Director, which shall increase to $2,000 per month for as long as he serves as a chair of either
the Audit Committee, Compensation Committee or Nominating Committee. Mr. Ardagna may also receive additional cash stipends for
attending meetings of the Board and committee meetings, whether in-person or telephonically. Additionally, Mr. Ardagna was issued
One Thousand (1,000) shares of the Company's common stock upon the execution of the Ardagna Director Agreement, and, upon the
last day of each fiscal quarter commencing in the quarter when the Ardagna Director Agreement became effective, the number of
shares of the Company's common stock equivalent to $7,500, as determined based on the average closing price on the three trading
days immediately preceding the last day of such quarter. Mr. Ardagna also received, upon execution of the Ardagna Director Agreement,
a non-qualified stock option to purchase up to Three Thousand Seven Hundred Fifty (3,750) shares of the Company's common stock
at an exercise price per share equal to $20.00, which shall be exercisable for a period of five years and vest in equal amounts
over a period of three years at the rate of Three Hundred Thirteen (313) shares per fiscal quarter at the end of such quarter,
commencing in the quarter in which the Ardagna Director Agreement became effective, and pro-rated for the number of days the Mr.
Ardagna serves on the Board during the fiscal quarter.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth, as of April 13, 2017, certain information with respect to the beneficial ownership of our common
stock by each shareholder known by us to be the beneficial owner of more than 5% of our Common Stock and by each of our current
directors and executive officers. Each person has sole voting and investment power with respect to the shares of Common Stock,
except as otherwise indicated.
This
table is prepared based on information supplied to us by the listed security holders, any Schedules 13D or 13G and Forms 3 and
4, and other public documents filed with the SEC.
Under
the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner of a security if that person
has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which
includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security
of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission
rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.
Shares
of Common Stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options
are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed
to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table below.
Shareholder
|
|
Common Stock Owned Beneficially
|
|
|
Percent of Class (1)
|
|
|
Series A Preferred Stock Owned Beneficially
|
|
Percent of Class (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Cosman, Chief Executive Officer, Chairman
|
|
|
1,318,560
|
(3)
|
|
|
18.19
|
%
|
|
51
|
|
|
100
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton, GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph D'Arelli, Chief Financial Officer
|
|
|
15,000
|
|
|
|
*
|
%
|
|
|
|
|
0
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton. GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter H. Hall
|
|
|
100,350
|
|
|
|
1.45
|
%
|
|
|
|
|
0
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton, GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Ardagna
|
|
|
4,006
|
|
|
|
*
|
%
|
|
|
|
|
0
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton, GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackson Davis
|
|
|
4,006
|
|
|
|
*
|
%
|
|
|
|
|
0
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton, GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Cowee
|
|
|
4,006
|
|
|
|
*
|
%
|
|
|
|
|
0
|
%
|
12540 Broadwell Road, Suite 2104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton, GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group (5 persons)(3)
|
|
|
1,445,928
|
|
|
|
19.64
|
%
|
|
51
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% or greater shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Struve
|
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1,120,772
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(4)
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15.73
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%
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0
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0
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%
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175 W. Jackson Blvd., Suite 440
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Chicago, IL 60604
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The Goldman Sachs Group, Inc.
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421,326
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6.07
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%
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0
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0
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%
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200 West Street
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New York, NY 10282
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Total(3)(4)
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2,988,026
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40.22
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%
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51
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100
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%
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*
denoted less than 1%
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(1)
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Based
on a total of 6,944,244 shares of common stock outstanding as of April 13, 2017, except as otherwise indicated.
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(2)
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Based on a total of 51 shares of Series A Preferred outstanding as of April 13, 2017.
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(3)
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Includes 1,560 shares of the common stock of the Company issued to Rush the Puck, LLC, a limited liability company in which Mr. Cosman and his wife are the sole members. Includes 302,663 warrants to purchase common stock at an exercise price of $5.16 per share.
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(4)
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Includes 181,598 warrants to purchase common stock at an exercise price of $5.16 per share.
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There
are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which
may at a subsequent date result in a change in control of the Company.
Changes
in Control
We
are not aware of any arrangements that may result in changes in control as that term is defined by the provisions of Item 403(c)
of Regulation S-K.
Description
of Securities
General
Our authorized capital stock
consists of 75,000,000 shares of common stock, par value of $0.025 per share, and 5,000,000 shares of preferred stock, par
value of $0.001 per share. As of April 13, 2017 there were 6,944,244 shares of our common stock issued and outstanding held
by 87 holders of record. We currently have 51 shares of Series A Preferred Stock authorized of which 51 shares of Series A
Preferred Stock are issued and outstanding. There are currently no shares of Series B Preferred Stock and no shares of Series
C Preferred Stock issued and outstanding.
Common
Stock
Each
share of our common stock entitles its holder to one vote in the election of each director and on all other matters voted on generally
by our stockholders. No share of our common stock affords any cumulative voting rights. This means that the holders of a majority
of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to
do so.
Holders
of our common stock will be entitled to dividends in such amounts and at such times as our Board of Directors in its discretion
may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary
cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on
the common stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors after
taking into account various factors, including:
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general
business conditions;
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industry
practice;
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●
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our
financial condition and performance;
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our
future prospects;
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our
cash needs and capital investment plans;
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our
obligations to holders of any preferred stock we may issue;
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income
tax consequences; and
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the
restrictions New York and other applicable laws and our credit arrangements then impose.
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If
we liquidate or dissolve our business, the holders of our common stock will share ratably in all our assets that are available
for distribution to our stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred
stock, if any, receive their liquidation preferences in full.
Our
common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase
fund.
Preferred
Stock
The
Company has 5,000,000 authorized shares of preferred stock par value $0.001 per share, of which three classes have been designated.
The Series A Preferred Stock has 51 shares issued and outstanding; the Series B Preferred Stock has 0 shares issued and outstanding
and the Series C Preferred Stock has 0 shares issued and outstanding.
Each
share of the Series A preferred Stock has no conversion rights, is senior to any other class or series of capital stock of the
Company and special voting rights. Each one (1) share of Series A Preferred Stock shall have voting rights equal to (x) 0.019607
multiplied by the total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, Minus (z) the Numerator.
Our
Board has the authority, within the limitations and restrictions in our certificate of incorporation, to issue shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of any series, without further vote or action by the stockholders. The issuance
of shares of preferred stock may have the effect of delaying, deferring or preventing a change in our control without further
action by the stockholders. The issuance of shares of preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of our common stock, including voting rights, of the holders of our common stock. In some circumstances,
this issuance could have the effect of decreasing the market price of our common stock.
Undesignated
preferred stock may enable our Board to render more difficult or to discourage an attempt to obtain control of our company by
means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance
of shares of preferred stock may adversely affect the rights of our common stockholders. For example, any shares of preferred
stock issued may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of common stock. As a result, the issuance of shares of preferred stock, or the
issuance of rights to purchase shares of preferred stock, may discourage an unsolicited acquisition proposal or bids for our common
stock or may otherwise adversely affect the market price of our common stock or any existing preferred stock.
Warrants
The
Company has issued 3,112,871 warrants to purchase common stock, which are exercisable at $5.16 per share immediately upon issuance
and at any time up to the date that is five years from the date of issuance. The warrants will be exercisable, at the option of
each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number
of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below). Unless
otherwise specified in the warrant, the holder will not have the right to exercise any portion of the warrant if the holder (together
with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately
after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants.
The
exercise price and the number of shares of common stock purchasable upon the exercise of the warrants are subject to adjustment
upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our common
stock.
Subject
to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to us together
with the appropriate instruments of transfer.
The
warrants will be issued in registered form under a warrant agency agreement between Issuer Direct Corporation, as warrant agent,
and us.
If,
at any time while the warrants are outstanding, (1) we consolidate or merge with or into another corporation and we are not the
surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all
of our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or another individual or entity) is completed
pursuant to which holders of our shares of common stock are permitted to sell, tender or exchange their shares of common stock
for other securities, cash or property and has been accepted by the holders of 50% or more of our outstanding shares of common
stock, (4) we effect any reclassification or recapitalization of our shares of common stock or any compulsory share exchange pursuant
to which our shares of common stock are converted into or exchanged for other securities, cash or property, or (5) we consummate
a stock or share purchase agreement or other business combination with another person or entity whereby such other person or entity
acquires more than 50% of our outstanding shares of common stock, each a “Fundamental Transaction,” then upon any
subsequent exercise of the warrants, the holder thereof will have the right to receive the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise of the
warrant, and any additional consideration payable as part of the Fundamental Transaction.
Except
as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder
of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder
exercises the warrant.
Anti-Takeover
Provisions
Our
Articles of Incorporation and Bylaws contain provisions that may make it more difficult for a third party to acquire or may discourage
acquisition bids for us. Our Board of Directors may, without action of our stockholders, issue authorized but unissued common
stock and preferred stock. The issuance of additional shares to certain persons allied with our management could have the effect
of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking
to cause such removal. The existence of unissued preferred stock may enable the Board of Directors, without further action by
the stockholders, to issue such stock to persons friendly to current management or to issue such stock with terms that could render
more difficult or discourage an attempt to obtain control of us, thereby protecting the continuity of our management. Our shares
of preferred stock could therefore be issued quickly with terms that could delay, defer, or prevent a change in control of us,
or make removal of management more difficult.
Disclosure
of Commission Position on Indemnification for Securities Act Liabilities
The
Company’s Amended Articles of Incorporation provide for indemnification of directors and officers against certain liabilities.
Officers and directors of the Company are indemnified generally for any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, against expenses,
including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe
his conduct was unlawful.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors,
officers or controlling persons in the successful defense of any action, suit or proceedings) is asserted by such director, officer,
or controlling person in connection with any securities being registered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
Meridian Waste Solutions, Inc. 2016 Equity and Incentive Plan authorizes the issuance of up to 375,000 shares of common
stock, of which 227,700 have been issued, subject to restriction. The 2016 Equity and Incentive Plan has
been approved by our shareholders.
Item
13. Certain Relationships and Related Transactions, and Director Independence
None
of our officers, directors, proposed director nominees, beneficial owners of more than 10% of our shares of common stock, or any
relative or spouse of any of the foregoing persons, or any relative of such spouse who has the same house as such person or who
is a director or officer of any parent or subsidiary of our Company, has any direct or indirect material interest in any transaction
to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party.
In
December 2016, Walter H. Hall, Jr., the Company’s Chief Operating Officer, President, and member of the Board, advanced
$250,000 to the Company for certain operational expenses. On January 30, 2017, the Company returned such amount in full, together
with interest of $20,000. Such transaction was ratified and approved unanimously by the Board, including by a majority of the
directors who were not interested in such transaction.
In the
event a related party transaction is proposed, such transaction will be presented to our board of directors for consideration
and approval. Any such transaction will require approval by a majority of the disinterested directors and such transactions will
be on terms no less favorable than those available to disinterested third parties. The Company does not believe that the provisions
of Item 404(c) of Regulation S-K apply to our chief executive officer, Mr. Cosman, as a control person of the Company because
the Company is not a shell company and Mr. Cosman is not part of a group, consisting of two or more persons that agree to act
together for the purpose of acquiring, holding, voting or disposing of equity securities of a shell company.
Item
14. Principal Accounting Fees and Services
The
following table shows the fees that we paid or accrued for the audit and other services provided by our present and former accountants
during 2016 and 2015.
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Fiscal 2016
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Fiscal 2015
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Audit Fees
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$
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215,000
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$
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68,500
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Audit-Related Fees
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125,000
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-
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Tax Fees
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-
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-
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All Other Fees
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-
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-
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Total
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$
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340,000
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$
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68,500
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Audit
Fees — This category includes the audit of our annual financial statements, review of financial statements included in our
Form 10-Q Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements
for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of,
the audit or the review of interim financial statements.
Audit-Related Fees — This category
consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit
or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed
under this category include consultation regarding our correspondence with the SEC and acquisition audits
Tax
Fees — This category consists of professional services rendered by our independent auditors for tax compliance and tax advice.
The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All
Other Fees — This category consists of fees for other miscellaneous items.
Our
Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure,
the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval
by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member
is disclosed to the entire Board at the next meeting. The audit fees paid to the auditors with respect to fiscal years 2015
and 2014 were pre-approved by the entire Board of Directors.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE
1 - NATURE OF OPERATIONS AND ORGANIZATION
The
Company
is a regional, vertically integrated solid waste services company that provides
collection, transfer, disposal and landfill services.
The Company is primarily in the business of residential and commercial
waste disposal and hauling and has contracts with various cities and municipalities. The majority of the Company’s customers
are located in the St. Louis metropolitan and surrounding areas.
Meridian Waste Solutions, Inc. (the “Company”
or “Meridian”) is currently operating under four separate Limited Liability Companies:
(1) Here To Serve Missouri Waste Division, LLC (“HTSMWD”),
a Missouri Limited Liability Company;
(2) Here To Serve Georgia Waste Division, LLC (“HTSGWD”),
a Georgia Limited Liability Company;
(3) Meridian Land Company, LLC (“MLC”),
a Georgia Limited Liability Company;
(4) Christian Disposal, LLC and subsidiary (“CD”),
a Missouri Limited Liability Company.
In 2014, HTSMWD purchased the assets of a large solid
waste disposal company in the St. Louis, Missouri market. This acquisition is considered the platform company for future acquisitions
in the solid waste disposal industry. HTSGWD was created to facilitate expansion in this industry throughout the Southeast.
Reverse
Stock Split
On
November 2, 2016, the Company effected a reverse stock split of the Company’s common stock whereby each 20 shares of common
stock was replaced with one share of common stock. The par value and the number of authorized shares of the common stock were
not adjusted. All common share and per share amounts for all periods presented in these financial statements have been adjusted
retroactively to reflect the reverse stock split. The quantity of common stock equivalents and the conversion and exercise ratios
were adjusted for the effect of the reverse stock split.
Basis
of Consolidation
The
consolidated financial statements for the year ended December 31, 2016 include the operations of the Company and its
wholly-owned subsidiaries, Here To Serve Missouri Waste Division, LLC, Meridian Land Company, LLC, Here to Serve Technology,
LLC, Here To Serve Georgia Waste Division, LLC, Brooklyn Cheesecake & Dessert Acquisition Corp, Meridian Waste Missouri,
LLC and Christian Disposal, LLC. The following two subsidiaries of the Company, Here To Serve Georgia Waste Division, LLC and
Here to Serve Technology, LLC ("HTST"), had no operations during the period. The consolidated financial statements
for the year-ended December 31, 2015 include the operations of the Company and its wholly-owned subsidiaries, Here To Serve
Missouri Waste Division, LLC, Here To Serve Georgia Waste Division, LLC, Brooklyn Cheesecake & Acquisition Corp., and
Here to Serve Technology, LLC.
All
significant intercompany accounts and transactions have been eliminated in consolidation.
Liquidity and Capital Resources
We have experienced recurring operating losses in recent
years. Because of these losses, the Company had negative working capital of approximately $8,800,000. In addition, as of December
31, 2016, the Company was in violation of covenants within its credit agreement with Goldman, Sachs
& Co. The lenders and agents and the Company and its affiliates entered into a waiver and amendment letter on April 11, 2017
whereby the covenant violations at December 31, 2016 were waived.
During 2016, the Company was able to obtain additional
financial capital through the following transactions: (1) $2.2 million raised through the sale of common stock; (2) $1.2 million
raised through the sale of Series C Preferred Stock; and (3) $3.2 million raised through the issuance of debt. During 2016, we
implemented several measures to reduce our cash outflow for operations. These measures including absorbing recently acquired businesses
into our corporate structure and becoming a more vertically integrated entity. The Company was able to generate positive cash flow
from operating activities of approximately $70,000 for the year-ended December 31, 2016. In addition, as of December 31, 2016,
the Company had approximately $800,000 in cash to cover its short term cash requirements. Further, the Company has approximately
$12,000,000 of borrowing capacity on its multi-draw term loans and revolving commitments. See note 5, under the heading Goldman
Sachs Credit Agreement. This borrowing capacity is available for working capital and general corporate purposes.
Further, in 2017, the Company raised additional capital
with the January 30, 2017 equity offering that raised approximately $11 million dollars. See note 15, Subsequent Events. Also in
2017, the Company completed a significant $42 million acquisition of a waste management business in Virginia that is expected to
be accretive to operating cash flows in 2017.
The Company has prepared its business plan for the
ensuing twelve months, and believes it has sufficient resources to operate for the ensuing 12 month period. The Company’s
objectives in preparing this plan include (1) expanding the geographical footprint of the entity and focusing on integrating the
various business units into the Company to maximize synergies and operational savings; (2) aggressively renegotiating contracts
to increase revenue; and (3) aggressively seeking additional contracts in Missouri and surrounding areas. The Company has already
been successful in increasing rates on several recently negotiated contracts and acquiring additional contracts in the St. Louis
area, both of which are accretive to net income and operating cash flow.
The Company believes that because of (1) the additional
financial capital realized in 2016 and 2017, as described above, and (ii) the actions it has already implemented to reduce operating
costs and grow revenue, the Company has sufficient financial resources to operate for the ensuing 12 months.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At
December 31, 2016 and 2015 the Company had no cash equivalents. Short-term investments consist of investments that have a remaining
maturity of less than one year as of the date of the balance sheet.
Short-term
Investments
Management
determines the appropriate classification of short-term investments at the time of purchase and evaluates such designation as
of each balance sheet date. All short-term investments to date have been classified as held-to-maturity and carried at amortized
cost, which approximates fair market value, on our Consolidated Balance Sheet. Our short-term investments’ contractual maturities
occur before March 31, 2017. The short-term investment of $1,953,969 is currently restricted as this amount is collateralizing
a letter of credit needed for our performance bond.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, short term investments, accounts receivable, account
payable, accrued expenses, derivative liabilities and notes payable. The carrying amount of these financial instruments approximates
fair value due to length of maturity of these instruments.
Derivative
Instruments
The
Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that
contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification
topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations
of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the
balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly
and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized
as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based
on available market data using appropriate valuation models, considering of the rights and obligations of each instrument.
The Company estimates fair values of derivative financial
instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair
values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market
risks that it embodies and the expected means of settlement. The Company uses a Monte Carlo simulation put option Black-Scholes
Merton model. For less complex derivative instruments, such as freestanding warrants, the Company generally use the Black Scholes
model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility,
estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative
financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over
the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques
(such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since
derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will
reflect the volatility in these estimates and assumption changes. Under the terms of this accounting standard, increases in the
trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application
of non-cash derivative loss. Conversely, decreases in the trading price of the Company’s common stock and decreases in trading
fair value during a given year result in the application of non-cash derivative gain.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
See
Notes 5 and 6 under the heading "Derivative Liabilities" for a description and valuation of the Company's derivative
instruments.
Impairment
of long-lived assets
The
Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. During the year-ended December 31, 2016, the Company experienced
impairment expense of its customer lists, see note 4. No other impairments were noted during the year-ended December 31, 2016,
and December 31, 2015.
Income
Taxes
The Company accounts for income taxes
pursuant to the provisions of Accounting Standards Codification (‘ASC”) 740-10, “Accounting for Income Taxes,”
which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability
approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and liabilities. Developing our provision for income taxes
requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination
of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.
In assessing the extent to which net deferred tax assets may be realized, we consider whether it is more-likely-than-not that some
portion or all of the net deferred tax assets may not be realized. The ultimate realization of net deferred tax assets is dependent
on the generation of future taxable income during the periods in which those temporary differences become deductible. Due to historical
losses, and the losses that we projected at the time of determination, we were required under the more-likely-than-not accounting
standard to record a valuation allowance against the net deferred tax assets because we anticipated that we may not be able to
realize the benefits of the net operating loss carryforwards and other deductible differences.. Estimates may change as new events
occur, estimates of future taxable income during the carryforward period are reduced or increased, additional information becomes
available or operating environments change, which may result in a full or partial reversal of the valuation allowance. We will
continue to assess the adequacy of the valuation allowance on a quarterly basis.
The
Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns
are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions.
Tax
positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more
than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain
tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination.
As such, the Company has not recorded a liability for uncertain tax benefits.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As
of December 31, 2016, tax years ended December 31, 2015, 2014, and 2013 are still potentially subject to audit by the taxing authorities.
Use
of Estimates
Management
estimates and judgments are an integral part of consolidated financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). We believe that the critical accounting policies described in this
section address the more significant estimates required of management when preparing our consolidated financial statements in
accordance with GAAP.
We
consider an accounting estimate critical if changes in the estimate may have a material impact on our financial condition or results
of operations. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however,
actual results could differ from the original estimates, requiring adjustment to these balances in future periods.
Accounts
Receivable
Accounts
receivable are recorded at management’s estimate of net realizable value. At December 31, 2016 and December 31, 2015 the
Company had approximately $3,000,000 and $2,300,000 of gross trade receivables, respectively.
Our
reported balance of accounts receivable, net of the allowance for doubtful accounts, represents our estimate of the amount
that ultimately will be realized in cash. For the year ended December 31, 2015 we reviewed the adequacy and adjusted our
allowance for doubtful accounts on a specific identification ongoing basis, using historical payment trends and the age of
the receivables and knowledge of our individual customers. For the year ended December 31, 2016 we also include a general
reserve component determined based off of receivable agings. If the financial condition of our customers were to deteriorate,
additional allowances may be required. The result of this change in estimate resulted in an increase compared to the year
ended December 31, 2015 to the allowance for doubtful accounts by approximately $500,000 in the year ended December 31, 2016,
or $0.39 per share (basic and diluted) for the year ended December 31, 2016. At December 31, 2016 and December 31, 2015 the
Company had approximately $500,000 and $6,000 recorded for the allowance for doubtful accounts, respectively.
Property,
plant and equipment
The
cost of property, plant, and equipment is depreciated over the estimated useful lives (ranging from 5 -39 years) of the related
assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over
the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are
expensed when incurred and major repairs will be capitalized and expensed if it benefits future periods.
Intangible
Assets
Intangible
assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. The Company has intangible assets related to its purchase of Meridian Waste Services, LLC, Christian
Disposal LLC and Eagle Ridge Landfill, LLC.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment
in Related Party
The
Company has an investment in a privately held corporation in the mobile apps industry. As the Company exercises significant influence
on this entity, this investment is recorded using the equity method of accounting. The Company monitors this investment for impairment
and makes appropriate reductions in the carrying value if the Company determines that an impairment charge is required based primarily
on the financial condition and near-term prospect of this entity.
Goodwill
Goodwill
is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill,
but we assess our goodwill for impairment at least annually. Our assessment date was November 30, 2016 and qualitative considerations
indicated no impairment.
Website
Development Costs
The Company accounts for website development costs
in accordance with “ASC” 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning
stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific
criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.
Landfill
Accounting
Capitalized
landfill costs
Cost
basis of landfill assets — The Company capitalizes various costs that are incurred to make a landfill ready to accept waste.
These costs generally include expenditures for land (including the landfill footprint and required landfill buffer property);
permitting; excavation; liner material and installation; landfill leachate collection systems; landfill gas collection systems;
environmental monitoring equipment for groundwater and landfill gas; and directly related engineering, capitalized interest, on-site
road construction and other capital infrastructure costs. The cost basis of our landfill assets also includes asset retirement
costs, which represent estimates of future costs associated with landfill final capping, closure and post-closure activities.
These costs are discussed below.
Final
capping, closure and post-closure costs — Following is a description of our asset retirement activities and our related
accounting:
●
|
Final
capping — Involves the installation of flexible membrane liners and geosynthetic clay liners, drainage and compacted
soil layers and topsoil over areas of a landfill where total airspace capacity has been consumed. Final capping asset retirement
obligations are recorded on a units-of-consumption basis as airspace is consumed related to the specific final capping event
with a corresponding increase in the landfill asset. The final capping is accounted for as a discrete obligation and recorded
as an asset and a liability based on estimates of the discounted cash flows and capacity associated with the final capping.
|
●
|
Closure
— Includes the construction of the final portion of methane gas collection systems (when required), demobilization and
routine maintenance costs. These are costs incurred after the site ceases to accept waste, but before the landfill is certified
as closed by the applicable state regulatory agency. These costs are recorded as an asset retirement obligation as airspace
is consumed over the life of the landfill with a corresponding increase in the landfill asset. Closure obligations are recorded
over the life of the landfill based on estimates of the discounted cash flows associated with performing closure activities.
|
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
●
|
Post-closure
— Involves the maintenance and monitoring of a landfill site that has been certified closed by the applicable regulatory
agency. Generally, we are required to maintain and monitor landfill sites for a 30-year period. These maintenance and monitoring
costs are recorded as an asset retirement obligation as airspace is consumed over the life of the landfill with a corresponding
increase in the landfill asset. Post-closure obligations are recorded over the life of the landfill based on estimates of
the discounted cash flows associated with performing post-closure activities.
|
We
develop our estimates of these obligations using input from our operations personnel, engineers and accountants. Our estimates
are based on our interpretation of current requirements and proposed regulatory changes and are intended to approximate fair value.
Absent quoted market prices, the estimate of fair value is based on the best available information, including the results of present
value techniques. In many cases, we contract with third parties to fulfill our obligations for final capping, closure and post
closure. We use historical experience, professional engineering judgment and quoted and actual prices paid for similar work to
determine the fair value of these obligations. We are required to recognize these obligations at market prices whether we plan
to contract with third parties or perform the work ourselves. In those instances where we perform the work with internal resources,
the incremental profit margin realized is recognized as a component of operating income when the work is performed.
Once we have determined the final capping, closure
and post-closure costs, we inflate those costs to the expected time of payment and discount those expected future costs back to
present value. During the year ended December 31, 2016 we inflated these costs in current dollars until the expected time of payment
using an inflation rate of 1.78%. We discounted these costs to present value using the credit-adjusted, risk-free rate effective
at the time an obligation is incurred, consistent with the expected cash flow approach. Any changes in expectations that result
in an upward revision to the estimated cash flows are treated as a new liability and discounted at the current rate while downward
revisions are discounted at the historical weighted average rate of the recorded obligation. As a result, the credit adjusted,
risk-free discount rate used to calculate the present value of an obligation is specific to each individual asset retirement obligation.
The weighted average rate applicable to our long-term asset retirement obligations at December 31, 2016 is approximately 9%.
We
record the estimated fair value of final capping, closure and post-closure liabilities for our landfill based on the capacity
consumed through the current period. The fair value of final capping obligations is developed based on our estimates of the airspace
consumed to date for the final capping. The fair value of closure and post-closure obligations is developed based on our estimates
of the airspace consumed to date for the entire landfill and the expected timing of each closure and post-closure activity. Because
these obligations are measured at estimated fair value using present value techniques, changes in the estimated cost or timing
of future final capping, closure and post-closure activities could result in a material change in these liabilities, related assets
and results of operations. We assess the appropriateness of the estimates used to develop our recorded balances annually, or more
often if significant facts change.
Changes
in inflation rates or the estimated costs, timing or extent of future final capping, closure and post-closure activities typically
result in both (i) a current adjustment to the recorded liability and landfill asset and (ii) a change in liability and asset
amounts to be recorded prospectively over either the remaining capacity of the related discrete final capping or the remaining
permitted and expansion airspace (as defined below) of the landfill.
Any
changes related to the capitalized and future cost of the landfill assets are then recognized in accordance with our amortization
policy, which would generally result in amortization expense being recognized prospectively over the remaining capacity of the
final capping or the remaining permitted and expansion airspace of the landfill, as appropriate.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Changes
in such estimates associated with airspace that has been fully utilized result in an adjustment to the recorded liability and
landfill assets with an immediate corresponding adjustment to landfill airspace amortization expense.
Interest
accretion on final capping, closure and post-closure liabilities is recorded using the effective interest method and
is recorded as final capping, closure and post-closure expense, which is included in “operating” expenses within
our Consolidated Statements of Operations. Due to the downward revision of the asset retirement obligation at the end of the
year the net effect was nill to the Consolidated Statement of Operations. The downward revision was due to several factors,
but primarily due to the increase in the useful life of our landfill because of the advancement of our landfill expansion.
Amortization
of Landfill Assets - The amortizable basis of a landfill includes (i) amounts previously expended and capitalized; (ii) capitalized
landfill final capping, closure and post-closure costs, (iii) projections of future purchase and development costs required to
develop the landfill site to its remaining permitted and expansion capacity and (iv) projected asset retirement costs related
to landfill final capping, closure and post-closure activities.
Amortization
is recorded on a units-of-consumption basis, applying expense as a rate per ton. The rate per ton is calculated by dividing each
component of the amortizable basis of a landfill by the number of tons needed to fill the corresponding asset’s airspace.
●
|
Remaining
permitted airspace — Our management team, in consultation with third-party engineering consultants and surveyors, are
responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined
by an annual survey, which is used to compare the existing landfill topography to the expected final landfill topography.
|
●
|
Expansion
airspace — We also include currently unpermitted expansion airspace in our estimate of remaining permitted and expansion
airspace in certain circumstances. First, to include airspace associated with an expansion effort, we must generally expect
the initial expansion permit application to be submitted within one year and the final expansion permit to be received within
five years. Second, we must believe that obtaining the expansion permit is likely, considering the following criteria:
|
o
|
Personnel
are actively working on the expansion of an existing landfill, including efforts to obtain land use and local, state or provincial
approvals;
|
o
|
We
have a legal right to use or obtain land to be included in the expansion plan;
|
o
|
There
are no significant known technical, legal, community, business, or political restrictions or similar issues that could negatively
affect the success of such expansion; and
|
o
|
Financial
analysis has been completed based on conceptual design, and the results demonstrate that the expansion meets the Company’s
criteria for investment.
|
For
unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort
must meet all of the criteria listed above. These criteria are evaluated by our field-based engineers, accountants, managers and
others to identify potential obstacles to obtaining the permits. Once the unpermitted airspace is included, our policy provides
that airspace may continue to be included in remaining permitted and expansion airspace even if certain of these criteria are
no longer met as long as we continue to believe we will ultimately obtain the permit, based on the facts and circumstances of
a specific landfill.
When
we include the expansion airspace in our calculations of remaining permitted and expansion airspace, we also include the projected
costs for development, as well as the projected asset retirement costs related to the final capping, closure and post-closure
of the expansion in the amortization basis of the landfill.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Once
the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor (“AUF”)
is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using the measured
density obtained from previous annual surveys and is then adjusted to account for future settlement. The amount of settlement
that is forecasted will take into account several site-specific factors including current and projected mix of waste type, initial
and projected waste density, estimated number of years of life remaining, depth of underlying waste, anticipated access to moisture
through precipitation or recirculation of landfill leachate, and operating practices. In addition, the initial selection of the
AUF is subject to a subsequent multi-level review by our engineering group, and the AUF used is reviewed on a periodic basis and
revised as necessary. Our historical experience generally indicates that the impact of settlement at a landfill is greater later
in the life of the landfill when the waste placed at the landfill approaches its highest point under the permit requirements.
After
determining the costs and remaining permitted and expansion capacity at each of our landfill, we determine the per ton rates that
will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons.
We calculate per ton amortization rates for the landfill for assets associated with each final capping, for assets related to
closure and post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton
are updated annually, or more often, as significant facts change.
It
is possible that actual results, including the amount of costs incurred, the timing of final capping, closure and post-closure
activities, our airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different
from our estimates and assumptions. To the extent that such estimates, or related assumptions, prove to be significantly different
than actual results, lower profitability may be experienced due to higher amortization rates or higher expenses; or higher profitability
may result if the opposite occurs. Most significantly, if it is determined that expansion capacity should no longer be considered
in calculating the recoverability of a landfill asset, we may be required to recognize an asset impairment or incur significantly
higher amortization expense. If at any time management makes the decision to abandon the expansion effort, the capitalized costs
related to the expansion effort are expensed immediately.
For
the year ended December 31, 2016 the Company operations related to its landfill assets and liability are presented in the tables
below:
|
|
Year
Ended December 31,
2016
|
|
|
Year
Ended
December 31,
2015
|
|
|
|
|
|
|
|
|
Landfill
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
3,393,476
|
|
|
$
|
3,396,519
|
|
Capital
Additions
|
|
|
417,548
|
|
|
|
-
|
|
Amortization
of landfill assets
|
|
|
(337,254
|
)
|
|
|
(3,043
|
)
|
Asset
retirement adjustments
|
|
|
(194,953
|
)
|
|
|
-
|
|
Total
Landfill Assets
|
|
$
|
3,278,817
|
|
|
$
|
3,393,476
|
|
|
|
|
|
|
|
|
|
|
Landfill
Asset Retirement Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
200,252
|
|
|
$
|
196,519
|
|
Obligations
incurred and capitalized
|
|
|
-
|
|
|
|
-
|
|
Obligations
settled
|
|
|
-
|
|
|
|
-
|
|
Interest
accretion
|
|
|
-
|
|
|
|
3,733
|
|
Revisions
in estimates and interest rate assumption
|
|
|
(194,953
|
)
|
|
|
-
|
|
Total Landfill Liabilities
|
|
$
|
5,299
|
|
|
$
|
200,252
|
|
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of arrangement exists, services have been provided, the seller’s price
to the buyer is fixed or determinable, and collection is reasonably assured. The majority of the Company’s revenues are
generated from the fees charged for waste collection, transfer, disposal and recycling. The fees charged for our services are
generally defined in service agreements and vary based on contract-specific terms such as frequency of service, weight, volume
and the general market factors influencing a region’s rate. For example, revenue typically is recognized as waste is collected,
or tons are received at our landfills and transfer stations.
Deferred
Revenue
The
Company records deferred revenue for customers that were billed in advance of services. The balance in deferred revenue represents
amounts billed in October, November and December for services that will be provided during January, February and March.
Cost
of Services
Cost
of services include all employment costs associated with waste collection, transfer and disposal, damage claims, landfill costs,
personal property taxes associated with collection vehicles and other direct cost of the collection and disposal process.
Concentrations
The
Company maintains its cash and cash equivalents in bank deposit accounts, which could, at times, exceed federally insured limits.
The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be
at risk if the bank experiences financial difficulties. The Company places its cash with high credit quality financial institutions.
The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
Financial
instruments which also potentially subject the Company to concentrations of credit risk consist principally of trade accounts
receivable; however, concentrations of credit risk with respect to trade accounts receivables are limited due to generally short
payment terms.
For the year ended December 31, 2016, the Company
had one contract that accounted for approximately 11% of the Company's revenue. During the year ended December 31, 2015, the Company
had two contracts that accounted for approximately 44% of the Company’s revenues, with one of such contracts accounting for
approximately 26% and the other such contract accounting for approximately 18% of the Company’s revenues.
Basic
Income (Loss) Per Share
Basic
income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted
average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net
income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The
diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive
debt or equity. At December 31, 2016 the Company had one convertible note outstanding that is convertible into common shares.
Additionally, the Company issued stock warrants and stock options for 148,777 and 12,250 common shares, respectively. These are
not presented in the consolidated statement of operations since the Company incurred a loss and the effect of these shares is
anti-dilutive.
For
the year ended December 31, 2016, the Company had 151,359 of weighted-average common shares relating to the convertible note,
under the if-converted method, however, these shares are not dilutive because the Company recorded a loss during the fiscal year.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At
December 31, 2016, and December 31, 2015 the Company had a series of convertible notes, warrants and stock options outstanding
that could be converted into approximately, 600,000 and 130,000 common shares, respectively. These are not presented in the consolidated
statements of operations since the Company incurred a loss and the effect of these shares is anti- dilutive.
Stock-Based
Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 (“ASC 718”) which
requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange
for an award of equity instruments over the period the employee or director is required to perform the services in exchange for
the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services
received in exchange for an award based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date.
The
Company recorded stock based compensation expense of approximately $6,400,000 and $7,400,000 during the year ended December 31,
2016 and 2015, respectively, which is included in compensation and related expense on the statement of operations.
Recent
Accounting Pronouncements
ASU
2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting.” Several aspects of the accounting for share-based payment award transactions are simplified, including:
(a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the
statement of cash flows.
The amended guidance is effective for the Company on January 1, 2017. The adoption of this
amended guidance will not have a material impact on our consolidated financial statements.
ASU
2016-02 “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize
the following for all leases (with the exception of short-term leases) at the commencement date:
-A
lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis;
and
-A
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset
for the lease term.
Under
the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The amended guidance is effective for the Company on January 1, 2019, with early adoption permitted.
We are assessing the provisions of the amended guidance and evaluating the timing and impact on our consolidated financial
statement and disclosures.
Lessees
(for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases
that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition
approach.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASU
2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The amendments in ASU
2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and
noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and
liabilities as noncurrent.
Although effective for public business entities for financial statements issued for annual
periods beginning after December 15, 2017, the standard allows early adoption and the Company has elected to do so. See Note
7 for additional information on deferred taxes.
ASU
2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern.” The amendments in ASU 2014-15 are intended to define management’s
responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern
and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting
organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting
is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.
Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the
organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance
to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and
content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This standard became
effective for all annual periods ending after December 15, 2016 and thus is effective and adopted for these financial statements.
Statement
of Cash Flows -
In August 2016, the FASB issued amended authoritative guidance associated with the classification of
certain cash receipts and cash payments on the statement of cash flows. The amended guidance addresses specific cash flow
issues with the objective of reducing existing diversity in practice. The amended guidance is effective for the Company on
January 1, 2018, with early adoption permitted. While we are still evaluating the impact of the amended guidance, we
currently do not expect it to have a material impact on our consolidated financial statements.
Revenue
Recognition
- In May 2014, the FASB issued amended authoritative guidance associated with revenue recognition. The amended
guidance requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally,
the amendments will require enhanced qualitative and quantitative disclosures regarding customer contracts. The amended guidance
associated with revenue recognition is effective for the Company on January 1, 2018. The amended guidance may be applied retrospectively
for all periods presented or retrospectively with the cumulative effect of initially applying the amended guidance recognized
at the date of initial adoption.
Based
on our work to date to assess the impact of this standard, we believe we have identified all material contract types and costs that
may be impacted by this amended guidance. We expect to quantify and disclose the expected impact, if any, of adopting
this amended guidance in the third quarter Form 10-Q. While we are still evaluating the impact of the amended guidance,
we currently do not expect it to have a material impact on operating revenues.
Debt
Issuance Costs
— In April 2015, and as subsequently amended, the Financial Accounting Standards Board (“FASB”)
issued amended authoritative guidance associated with debt issuance costs which were previously presented as assets related to
recognized debt liabilities. The amended guidance requires that debt issuance costs, other than those costs related to line of
credit arrangements, be presented on the balance sheet as a direct deduction from the related debt liability, which is similar
to the presentation for debt discounts and premiums. This guidance was effective for the Company on January 1, 2016. The Company’s
adoption of this guidance was applied retrospectively.
NOTE
3 – PROPERTY, PLANT AND EQUIPMENT
The
following is a summary of property, plant, and equipment—at cost, less accumulated depreciation:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Land
|
|
$
|
1,550,000
|
|
|
$
|
1,690,000
|
|
Buildings & Building Improvements
|
|
|
777,822
|
|
|
|
692,156
|
|
Furniture & office equipment
|
|
|
406,419
|
|
|
|
258,702
|
|
Containers
|
|
|
5,969,677
|
|
|
|
4,453,386
|
|
Trucks, Machinery, & Equipment
|
|
|
14,190,871
|
|
|
|
9,948,686
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
22,894,789
|
|
|
|
17,042,930
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(6,097,774
|
)
|
|
|
(2,609,190
|
)
|
|
|
|
|
|
|
|
|
|
Net, property plant and equipment
|
|
$
|
16,797,015
|
|
|
$
|
14,433,740
|
|
As
of December 31, 2016, the Company has $395,000 of land and building which are held for sale and not included in amounts noted
above. These held for sale assets were not depreciated during the year ended December 31, 2016. Depreciation expense for the years
ended December 31, 2016 and 2015 was $3,529,621 and $1,224,871, respectively.
NOTE
4 - INTANGIBLE ASSETS
In the year ended December 31, 2016, customer lists
include the intangible assets related to customer relationships acquired through the acquisition of Christian Disposal and Eagle
Ridge with a cost basis of $10,180,000. The customer list intangible assets are amortized over their useful life which ranged from
5 to 20 years. Amortization expense, excluding amortization of landfill assets of $337,254 and $3,043, amounted to $3,735,799 and
$2,869,385 for the years ended December 31, 2016 and 2015 respectively. In June of 2016 the Company recorded $1,255,269 of impairment
expense against the customer relationships due to the non-renewal of a Christian operating agreement. In addition, the contingent
liability related to the Christian acquisition settled with no payment required and accordingly the $1,000,000 contingent liability
recorded related was written off and recognized as other income.
The
following tables set forth the intangible assets, both acquired and developed, including accumulated amortization as
of December 31, 2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
9.8 years
|
|
$
|
24,187,452
|
|
|
$
|
9,633,823
|
|
|
$
|
14,553,629
|
|
Non-compete agreement
|
|
3.2 years
|
|
|
206,000
|
|
|
|
91,320
|
|
|
|
114,680
|
|
Website
|
|
4.0 years
|
|
|
44,619
|
|
|
|
5,800
|
|
|
|
38,819
|
|
|
|
|
|
$
|
24,438,071
|
|
|
$
|
9,730,943
|
|
|
$
|
14,707,128
|
|
NOTE
4 – INTANGIBLE ASSETS (CONTINUED)
|
|
December 31, 2015
|
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
13.7 years
|
|
$
|
24,187,452
|
|
|
$
|
4,687,090
|
|
|
$
|
19,500,362
|
|
Non-compete agreement
|
|
4.2 years
|
|
|
206,000
|
|
|
|
50,301
|
|
|
|
155,699
|
|
Website
|
|
3.9 years
|
|
|
13,920
|
|
|
|
3,016
|
|
|
|
10,904
|
|
|
|
|
|
$
|
24,407,372
|
|
|
$
|
4,740,407
|
|
|
$
|
19,666,965
|
|
The
following table sets forth the future amortization of the Company’s intangible assets at December 31, 2016:
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
Customer list
|
|
$
|
3,367,159
|
|
|
$
|
3,367,159
|
|
|
$
|
2,361,496
|
|
|
$
|
853,001
|
|
|
$
|
853,001
|
|
|
$
|
3,751,813
|
|
|
$
|
14,553,629
|
|
Non-compete agreement
|
|
|
40,337
|
|
|
|
40,337
|
|
|
|
22,836
|
|
|
|
11,170
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,680
|
|
Website
|
|
|
8,846
|
|
|
|
8,846
|
|
|
|
8,847
|
|
|
|
6,140
|
|
|
|
6,140
|
|
|
|
-
|
|
|
|
38,819
|
|
Total
|
|
$
|
3,416,342
|
|
|
$
|
3,416,342
|
|
|
$
|
2,393,179
|
|
|
$
|
870,311
|
|
|
$
|
859,141
|
|
|
$
|
3,751,813
|
|
|
$
|
14,707,128
|
|
NOTE
5 - NOTES PAYABLE AND CONVERTIBLE NOTES
The
Company had the following long-term debt:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Goldman Sachs - Tranche A Term Loan - LIBOR Interest
|
|
$
|
40,000,000
|
|
|
$
|
40,000,000
|
|
Goldman Sachs – Revolver
|
|
|
3,195,000
|
|
|
|
-
|
|
Convertible Notes Payable
|
|
|
1,250,000
|
|
|
|
1,250,000
|
|
Capitalized lease - financing company, secured by equipment
|
|
|
12,566
|
|
|
|
37,096
|
|
Equipment loans
|
|
|
270,225
|
|
|
|
395,119
|
|
Notes payable to seller of Meridian, subordinated debt
|
|
|
1,475,000
|
|
|
|
1,475,000
|
|
Less: debt issuance cost/fees
|
|
|
(1,195,797
|
)
|
|
|
(1,416,697
|
)
|
Less: debt discount
|
|
|
(1,810,881
|
)
|
|
|
(2,152,603
|
)
|
Total debt
|
|
|
43,196,113
|
|
|
|
39,587,915
|
|
Less: current portion
|
|
|
(1,385,380
|
)
|
|
|
(417,119
|
)
|
Long term debt less current portion
|
|
$
|
41,810,733
|
|
|
$
|
39,170,796
|
|
Goldman
Sachs Credit Agreement
On
December 22, 2015, in connection with the closing of acquisitions of Christian Disposal, LLC and certain assets of Eagle Ridge
Landfill, LLC, the Company was extended certain credit facilities by certain lenders under a credit agreement among the Company,
certain of its affiliates, the lenders party thereto and Goldman Sachs Specialty Lending Group, L.P., as administrative agent,
collateral agent and lead arranger, consisting of $40,000,000 aggregate principal amount of Tranche A Term Loans, $10,000,000
aggregate principal amount of commitments to make Multi-Draw Term Loans and up to $5,000,000 aggregate principal amount of Revolving
Commitments. During the year ended December 31, 2016, the Company borrowed $3,195,000 in relation to the Revolving Commitments.
NOTE
5 - NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
The proceeds of the loans were used to partially
fund the acquisitions referenced above and refinance existing debt with Praesidian in the year ended December 31, 2015,
among other things. The funds to pay off the Praesidian notes were distributed as follows:
Aggregate outstanding principal balance of the Notes
|
|
$
|
10,845,043
|
|
Aggregate accrued but unpaid interest on the Notes
|
|
|
82,844
|
|
Prepayment Premium1
|
|
|
325,351
|
|
Accrued PIK
|
|
|
9,941
|
|
Tax Liability
|
|
|
150,000
|
|
Accrued but unpaid fees and expenses
|
|
|
4,000
|
|
Payoff Amount
|
|
$
|
11,417,179
|
|
In
2015 the Company repaid in full and terminated its agreements with Praesidian which effected the cancellation of certain warrants
that the Company issued to Fund III for the purchase of 931,826 shares of the Company’s common stock and to Fund III-A for
the purchase of 361,196 shares of the Company’s common stock. In consideration for the cancellation of the Praesidian Warrants,
the Company issued to Praesidian Capital Opportunity Fund III, LP, 1,153,052 shares of common stock and issued to Praesidian Capital
Opportunity Fund III-A, LP, 446,948 shares of common stock. Due to the early termination of the notes and cancellation of the
warrants, the Company recorded a loss on extinguishment of debt of $1,899,161 in the year ended December 31, 2015.
At
December 31, 2016, the Company had a total outstanding balance of $43,196,000 consisting of the Tranche A Term Loan and draw
of the Revolving Commitments. The loans are secured by liens on substantially all of the assets of the Company and its
subsidiaries. The debt has a maturity date of December 22, 2020 with interest paid monthly at an annual rate of approximately
9% (subject to variation based on changes in LIBOR or another underlying reference rate). In addition, there is a commitment
fee paid monthly on the Multi-Draw Term Loans and Revolving Commitments at an annual rate of 0.5%. The Company has adopted
ASU 2015-03 and is showing loan fees net of long-term debt on the balance sheet. As of December 31, 2016 and at certain times
thereafter, the Company was in violation of covenants within its credit agreement with Goldman, Sachs & Co. The lenders
and agents and the Company and its affiliates entered into a waiver and amendment letter on April 11, 2017, as of
December 31, 2016 whereby the covenant violations as of December 31, 2016 were waived. The next measurement date of all
covenants is as of March 31, 2017, we are in the process of preparing our submission to our lender.
In
addition, in connection with the credit agreement, the Company issued warrants to Goldman, Sachs & Co. for the purchase of
shares of the Company equal to 6.5% of the total common stock outstanding and common stock equivalents at a purchase price equal
to $449,553, exercisable on or before December 22, 2023. The warrants grant the holder certain other rights, including registration
rights, preemptive rights for certain capital raises, board observation rights and indemnification. See note 15 “subsequent
events”. Due to the put feature contained in the agreement, the warrant is recorded as a derivative liability.
The
Company’s derivative warrant instrument related to Goldman, Sachs & Co. has been measured at fair value at December
31, 2016, using the Black-Scholes model. The liability is revalued at each reporting period and changes in fair value are recognized
currently in the consolidated statement of operations. Upon the initial recording of the derivative warrant at fair value the
instrument was bifurcated and the Company recorded a debt discount of $2,160,000. This debt discount is being amortized as interest
expense using the effective interest rate method over the life of the note, which is 5 years. At December 31, 2016 the balance
of the debt discount is $1,810,881. The Company incurred $1,446,515 of issuance cost related to obtaining the notes. These costs
are being amortized over the life of the notes using the effective interest rate method. At December 31, 2016, the unamortized
balance of the costs was $1,195,797.
NOTE
5 - NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
The
key inputs used in the December 31, 2016 and December 31, 2015 fair value calculations were as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Purchase Price
|
|
$
|
450,000
|
|
|
$
|
450,000
|
|
Time to expiration
|
|
|
12/22/2023
|
|
|
|
12/22/2023
|
|
Risk-free interest rate
|
|
|
1.42
|
%
|
|
|
2.15
|
%
|
Estimated volatility
|
|
|
60
|
%
|
|
|
45
|
%
|
Dividend
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock price
|
|
$
|
10.34
|
|
|
$
|
38.00
|
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
change in the market value for the period ending December 31, 2016 is as follows:
Fair value of warrants @ December 31, 2015
|
|
$
|
2,820,000
|
|
|
|
|
|
|
Unrealized gain on derivative liability
|
|
|
1,570,000
|
|
|
|
|
|
|
Fair value of warrants @ December 31, 2016
|
|
$
|
1,250,000
|
|
The
change in the market value for the period ending December 31, 2015 is as follows:
Fair value of warrants @ December 31, 2014
|
|
$
|
-
|
|
|
|
|
|
|
Issuance of Praesdian warrants @ August 6, 2015
|
|
|
904,427
|
|
|
|
|
|
|
Unrealized loss on derivative liability
|
|
|
1,004,213
|
|
|
|
|
|
|
Cancellation of Praesidian warrants @ December 22, 2015
|
|
|
(1,908,640
|
)
|
|
|
|
|
|
Issuance of Goldman warrants @ December 22, 2015
|
|
|
2,160,000
|
|
|
|
|
|
|
Unrealized loss on derivative liability
|
|
|
660,000
|
|
|
|
|
|
|
Fair value of warrants @ December 31, 2015
|
|
$
|
2,820,000
|
|
Derivative
Liability – Interest Rate Swap
The
Company sometimes borrows at variable rates and uses interest rate swaps as cash flow hedges of future interest payments, which
have the economic effect of converting borrowings from floating rates to fixed rates. The interest rate swaps allow the Company
to raise long-term borrowings at floating rates and swap them into fixed rates that are lower than those available if it borrowed
at fixed rates directly. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals,
the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional
principal amounts.
NOTE
5 - NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
In
order to hedge interest rate risk, the Company entered into an interest rate swap for a notional amount of $5,414,634 at fixed
rate of 4.75%. Under the swap agreement, the Company pays the fixed rate on the $5,414,634 notional amount on a monthly basis,
and receives the 1-month LIBOR plus 4.25% on a monthly basis. Payments are settled on a net basis, and the Company has effectively
converted its variable-rate debt into fixed-rate debt with an effective interest rate of 4.75%. As discussed above,
the debts to Comerica were paid off from the funding received from Praesidian. The net settlement amount of the interest rate
swap as of December 31, 2015 and December 31, 2014 was $0 and $40,958, respectively.
Convertible
Notes Payable
In
2015, as part of the purchase price consideration of the Christian Disposal acquisition, the Company issued a convertible promissory
note to the seller in the amount of $1,250,000. The note bears interest at 8% and matures on December 31, 2020. The seller may
convert all or any part of the outstanding and unpaid amount of this note into fully paid and non-assessable common stock in accordance
with the agreement. The conversion price shall equal the volume weighted average prices of the Company’s common stock in
the 10 trading days immediately prior to the date upon which the note is converted. See note 15 “subsequent events.”
Subordinated
Debt
In
connection with the acquisition with Meridian Waste Services, LLC on May 15, 2014, notes payable to the sellers of Meridian issued
five-year term subordinated debt loans paying interest at 8%. At December 31, 2016 and December 31, 2015, the balance on these
loans was $1,475,000 and $1,475,000, respectively. In 2016 these notes were extended an additional 5 years.
The
debt payable to Comerica at December 31, 2015 and the Equipment loans at December 31, 2015 were the debt of Here to Serve- Missouri
Waste Division, LLC, a subsidiary of the Company.
Equipment
Loans
During
the year ended December 31, 2015, the Company entered into four long-term loan agreements in connection with the purchase of
equipment with rates between 4% and 5%. In May of 2016 one of these equipment loans was paid in full. At December 31, 2016,
the balance of the remaining three loans was $270,225.
Other
Debts
Convertible
notes due related parties
In
2015, approximately $225,000 of the issued promissory notes were converted into approximately 23,042 shares at the
contractual conversion price. In November of 2016 the Company paid the $11,850 remaining in convertible notes to related
parties, which included $1,850 in accrued interest.
Notes
Payable, related parties
At
December 31, 2014 the Company had a short term, non-interest bearing note payable of $150,000 which was incurred in connection
with the Membership Interest Purchase Agreement. The Company also had a loan from Here to Serve Holding Corp. due to expenses
paid by Here to Serve on behalf of the Company prior to the recapitalization. This loan totaled $376,585 bringing total notes
payable to $526,585. In 2015, the short term, non-interest bearing note was paid off, and at December 31, 2016, the Company’s
loan from Here to Serve Holding Corp. was $359,891, and is included in current liabilities on the consolidated balance sheet.
Also included in current liabilities on the consolidated balance sheet is a short-term loan received from an officer of the Company
in December 2016 of $250,000. This loan was paid back, by the Company, in full, including interest of $20,000 on January 30, 2017.
NOTE
5 - NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
Future
minimum payments on notes, excluding related party notes at December 31, 2016 are as follows:
2017
|
|
$
|
1,423,000
|
|
2018
|
|
|
2,587,000
|
|
2019
|
|
|
3,010,000
|
|
2020
|
|
|
37,706,000
|
|
2021
|
|
|
1,000
|
|
Thereafter
|
|
|
1,475,000
|
|
Total
|
|
$
|
46,202,000
|
|
Total
interest expense for the years ended December 31, 2016 and 2015 was approximately $4,700,000 and $1,400,000, respectively. Amortization
of debt discount was approximately $300,000 and $0, respectively. Amortization of capitalized loan fees was approximately $200,000
and $0, respectively. Interest expense on debt was approximately $4,200,000 and $1,400,000, respectively.
NOTE
6- SHAREHOLDERS’ EQUITY
Common
Stock
The
Company has authorized 75,000,000 shares of $0.025 par value common stock. At December 31, 2016 and December 31, 2015 there were
1,712,471 and 1,051,933 shares issued.
Treasury
Stock
During
2014, the Company’s Board of Directors authorized a stock repurchase of 11,500 shares of its common stock for approximately
$230,000 at an average price of $20.00 per share. At December 31, 2016 and December 31, 2015 the Company holds 11,500 shares of
its common stock in its treasury.
Preferred
Stock
The
Company has authorized 5,000,000 shares of Preferred Stock, for which three classes have been designated to date. Series A has
51 and 51 shares issued and outstanding, Series B has 0 and 71,210 shares issued and outstanding and series C has 35,750 and 0
shares issued and outstanding, as of December 31, 2016 and December 31, 2015, respectively.
Each
share of Series A Preferred Stock has no conversion rights, is senior to any other class or series of capital stock of the Company
and has special voting rights. Each one (1) share of Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied
by the total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, minus (z) the Numerator.
Holders
of Series B Preferred Stock shall be entitled to receive when and if declared by the Board of Directors cumulative dividends at
the rate of twelve percent (12%) of the Original Issue Price. In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive, immediately prior
and in preference to any distribution to holders of the Company’s common stock, an amount per share equal to the sum of
$100.00 and any accrued and unpaid dividends of the Series B Preferred Stock. Each share of Series B Preferred Stock may be converted
at the option of the holder into the Company’s Common stock. The shares shall be converted using the “Conversion Formula”:
divide the Original Issue Price by 75% of the average closing bid price of the Common Stock for the five (5) consecutive trading
days ending on the trading day of the receipt by the Company of the notice of conversion.
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
Series
B Securities Exchange Agreements
Effective
October 13, 2016, the Company entered into certain securities exchange agreements to effect the exchange of all shares of Series
B Preferred for 500,000 shares of Common Stock. Pursuant to the Series B Exchange Agreements, the Company agreed to issue
to the Series B Holders a total of 500,000 shares of Common Stock. There are no shares of Series B Preferred issued and outstanding
at December 31, 2016.
At
December 31, 2016 and December 31, 2015, the Company’s Series B Preferred Stock dividends in arrears on the 12% cumulative
preferred stock were approximately $0 and $1,033,000 ($14.50 per share), respectively.
Series
C
The
Company has authorized for issuance up to 67,361 shares of Series C Preferred Stock (“Series C”). Each share of Series
C: (a) has a stated value of equal to $100 per share; (b) has a par value of $0.001 per share; (c) accrues fixed rate dividends
at a rate of eight percent per annum; (d) are convertible at the option of the holder into 89.28 shares of common Stock (conversion
price of $22.40 per share based off stated value of $100); (e) votes on an ‘as converted’ basis; (f) has liquidation
(including deemed liquidations related to certain fundamental transactions) privileges of $22.40 per share. The Series C will
expire 15 months after issuance.
Further,
in the event of a Qualified Offering, the shares of Series C Preferred Stock will be automatically converted at the lower of $22.40
per share or the per share price that reflects a 20% discount to the price of the Common Stock pursuant to such Qualified Offering.
A "Qualified Offering" is defined as an underwritten offering by the Company pursuant to which (1) the Company receives
aggregate gross proceeds of at least $20,000,000 in consideration of the purchase of shares of Common Stock or (2) (a) the Company
receives aggregate gross proceeds of at least $15,000,000, amended to reflect gross proceeds of at least $12,000,000, in consideration
of the purchase of shares of Common Stock and (b) the Common Stock becomes listed on The Nasdaq Capital Market, the New York Stock
Exchange, or the NYSE MKT.
In
addition, if after six months from the date of the issuance until the expiration date, the holder converts a Series C security
to common stock and sells such common stock for total proceeds that do not equal or exceed such holder’s purchase price,
the Company is obligated to issue additional shares of common stock in an amount sufficient such that, when sold and the net proceeds
are added to the net proceeds of the initial sale, the holder shall have received funds equal to that of the holder’s initial
purchase price (“Shortfall Provision”).
The
Company evaluated the Series C in accordance with ASC 815 – Derivatives and Hedging, to discern whether any feature(s) required
bifurcation and derivative accounting. The Company noted the Shortfall Provision has variable settlement based upon an item (initial
purchase price) that is not an input into a fixed for fixed price model, thus such provision is not considered indexed to the
Company’s stock. Accordingly, the Shortfall Provision was bifurcated and accounted for as a derivative liability. In addition,
given the Series C has deemed liquidation privileges that could require redemption outside the control of the issuer, the Series
C is classified within the mezzanine section of the Consolidated Balance Sheet.
Third
Quarter Series C Offering
During the year ended December 31, 2016, the Company
sold 12,750 shares of Series C for gross proceeds of $1.275 million. These proceeds were allocated between the Shortfall Provision
derivative liability ($310,000) and the host Series C instrument ($965,000). After such allocation, the Company noted that the
Series C had a beneficial conversion feature of $265,000 which was recognized as a deemed dividend.
Also during the year ended December 31, 2016, the Company
issued 23,000 shares of Series C to repurchase the 2,053,573 shares of common stock and related short fall provision derivative
issued in June 2016.
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
Given
the transaction was predominantly the repurchase of common stock that was immediately retired, the Company accounted for this
as a treasury stock transaction. The Series C was recorded at a fair value of $2.3 million ($620,000 of which was allocated to
the Shortfall Provision), the top off provision (which was $246,000 at the time of exchange) was written off, and a beneficial
conversion feature of $373,000 was recognized immediately as a deemed dividend.
Derivative
Footnote
As
noted above, the common stock issuance during June 2016 included a top off provision that was extinguished in August 2016. Such
provision was valued using an intrinsic measurement and such value was $246,000 at the time of extinguishment.
In
addition, the Series C included a Shortfall Provision that required bifurcation and to be accounted for as a derivative liability.
The fair value of the Shortfall Provision was calculated using a Monte Carlo simulated put option Black Scholes Merton Model.
The cumulative fair values at respective date of issuances and December 31, 2016 were approximately $930,000 and $2,100,000, respectively.
The key assumptions used in the model at inception and at December 31, 2016 are as follows:
|
|
Inception
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
0.00 - $60.00
|
|
|
$
|
0.00 - $15.51
|
|
Exercise Price
|
|
$
|
1.12
|
|
|
$
|
22.40
|
|
Term
|
|
|
.5
years
|
|
|
|
0.8 to 0.91 years
|
|
Risk Free Interest Rate
|
|
|
.39% - .47
|
%
|
|
|
0.85
|
%
|
Volatility
|
|
|
60
|
%
|
|
|
60
|
%
|
Dividend Rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The roll forward of the Shortfall Provision derivative
liability is as follows:
Balance – December 31, 2015
|
|
$
|
-
|
|
Issuances of Series C
|
|
|
930,048
|
|
Fair Value Adjustment
|
|
|
1,163,575
|
|
Balance – December 31, 2016
|
|
$
|
2,093,623
|
|
Balance – Warrant liability (see notes 5)
|
|
|
1,250,000
|
|
Total Derivative Liabilities
|
|
$
|
3,343,623
|
|
Common
Stock Transactions
During
the year ended December 31, 2016 and the year ended December 31, 2015, the Company issued, 263,217 and 553,762 shares of common
stock, respectively. The fair values of the shares of common stock were based on the quoted trading price on the date of issuance.
Of the 263,217 shares issued for the year ended December 31, 2016, the Company:
1.
|
Issued
25,859 of these shares were issued to vendors for services rendered generating a professional fees expense of $778,985;
|
2.
|
Issued
130,525 of these shares to officers and employees as incentive compensation resulting in compensation expense of $3,673,499;
|
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
3.
|
Issued
102,679 shares of common stock as part of a private placement offering to accredited investors for aggregate gross proceeds
to the Company of $2,342,500. The Company capitalized certain issuance costs associated with this offering of approximately
$264,000, including the fair value of approximately 1,800 common shares issued to the placement agent. These common shares
include a top-off provision. Specifically, if a subscriber were to sell the common shares within a 1 year period from the
subscription agreement and such sales proceeds do not equal the investment amount of the subscriber, a warrant will vest.
The Company accounted for this top-off provision as a separate liability with a fair value of 0 at June 30, 2016. In August
of 2016 these 102,679 common shares were exchanged on a dollar for dollar basis for 23,000 shares of preferred stock, series
C. This exchange was recorded as a capital transaction. The 102,679 common shares were retired in August of 2016.
|
The
Company also issued 500,000 shares of common stock in exchange for preferred stock.
Of
the 553,762 shares issued for year ending December 31, 2015, the Company:
1.
|
Issued
78,678 of these shares were issued to vendors for services generating a professional fees expense of $830,970;
|
2.
|
Issued
284,542 of these shares to officers and employees as incentive compensation resulting in compensation expense of $7,356,180;
|
3.
|
Issued
23,042 shares of common stock, due to the conversion of related party debt. Per the convertible note agreement,
the shares were converted at 75% of the closing bid price on the date of conversion. The value of the debt and
accrued interest converted was $318,927;
|
4.
|
Issued
87,500 shares as part of the acquisition of Christian Disposal LLC, these shares were record as part of the purchased price
consideration as noted above. These share were valued at market as of the date of the acquisition; and,
|
5.
|
Issued
80,000 shares of common stock, due to the cancellation of Praesidian warrants. As part of this extinguishment of debt the
Company recorded a loss of approximately, $1.8 million.
|
The
Company has issued and outstanding warrants of 148,777 common shares, as adjusted, with the current exercise price of $3.02, as
adjusted, expiring December 31, 2023.
A
summary of the status of the Company's outstanding stock warrants for the year ended December 31, 2016 is as follows:
|
|
Number of Shares
|
|
|
Average Exercise Price
|
|
|
If
exercised
|
|
|
Expiration
Date
|
|
Outstanding - December 31, 2015
|
|
|
83,678
|
|
|
|
-
|
|
|
$
|
449,518
|
|
|
|
|
|
Granted - Goldman, Sachs & Co.
|
|
|
65,099
|
|
|
$
|
3.02
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2016
|
|
|
148,777
|
|
|
$
|
3.02
|
|
|
$
|
449,518
|
|
|
|
-
|
|
Warrants exercisable at December 31, 2016
|
|
|
148,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
The
Company had issued and outstanding warrants of 83,678 common shares at December 31, 2015, as adjusted, with the current exercise
price of $5.37, as adjusted, expiring December 31, 2023.
A
summary of the status of the Company’s outstanding common stock warrants as of December 31, 2015, with changes during the
year ended on those dates are as follows:
|
|
Number
of
Shares
|
|
|
Average Exercise Price
|
|
|
If
Exercised
|
|
|
Expiration
Date
|
Outstanding, December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted - Praesidian
|
|
|
64,651
|
|
|
$
|
0.50
|
|
|
$
|
32,326
|
|
|
-
|
Forfeited/Cancellation - Praesidian
|
|
|
(64,651
|
)
|
|
$
|
0.50
|
|
|
|
(32,326
|
)
|
|
-
|
Granted - Goldman Sachs
|
|
|
83,678
|
|
|
$
|
5.37
|
|
|
|
449,518
|
|
|
December 31, 2023
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Outstanding, December 31, 2015
|
|
|
83,678
|
|
|
$
|
-
|
|
|
$
|
449,518
|
|
|
-
|
Warrants exercisable at December 31, 2015
|
|
|
83,678
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
A
summary of the Company’s stock options as of and for the years ended December 31, 2016 and 2015 are as follows:
|
|
Number of Shares Underlying Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Fair Value
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Aggregate Intrinsic
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
12,250
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
4.84
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
12,250
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
4.84
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at December 31, 2016
|
|
|
681
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
4.84
|
|
|
|
-
|
|
(1)
|
The
aggregate intrinsic value is based on the $10.34 closing price as of December 31, 2016
for the Company’s Common Stock.
|
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
The
following information applies to options outstanding at December 31, 2016:
Options Outstanding
|
|
Options Exercisable
|
|
Exercise Price
|
|
Number of Shares Underlying Options
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Number Exercisable
|
|
|
Exercise Price
|
|
$12.00
|
|
|
1,000
|
|
|
|
4.84
|
|
|
|
56
|
|
|
$
|
12.00
|
|
$20.00
|
|
|
11,250
|
|
|
|
4.84
|
|
|
|
625
|
|
|
$
|
20.00
|
|
|
|
|
12,250
|
|
|
|
|
|
|
|
681
|
|
|
|
|
|
At
December 31, 2016 there was $55,250 of unrecognized compensation cost related to stock options, with expense expected to be
recognized ratably over the next 3 years.
NOTE
7 - INCOME TAXES
The
Company accounts for income taxes in accordance with Accounting Standards Codification (ASC-740) “Accounting for Income
Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of
assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
As
of December 31, 2016, and December 31, 2015, we have NOL carryforwards of approximately $22,960,000 and $12,300,000, respectively,
which, if unused, will expire in years 2034 through 2036. However, in accordance with IRC Section 382, the availability and utilization
of these losses may be severely limited since the business combination that occurred on October 17, 2014 triggered the IRC Section
382 limitations.
Prior
to October 17, 2014, the date of the reverse acquisition transaction discussed in Note 1 above, the operating entities were owned
by unrelated third party partners/members, and as limited liability companies, the operating companies’ losses for the period
January 1, 2014 to October 17, 2014 flowed through to such partners/members. Therefore, as there were no tax allocation arrangements
with the previous partners/members, the Company has not recorded in these financials statements any current or deferred income
tax expense, income tax liabilities or deferred tax assets/liabilities relating to such pre-acquisition activity (losses).
The
table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate of 35% as
follows for the periods ended December 31, 2016 and 2015:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computed "expected" benefit
|
|
$
|
(6,124,646
|
)
|
|
$
|
(6,538,843
|
)
|
Effect of state income taxes, net of federal benefit
|
|
|
(874,949
|
)
|
|
|
(769,276
|
)
|
Return to provision adjustments
|
|
|
(4,217,660
|
)
|
|
|
-
|
|
Stock compensation and other permanent difference
|
|
|
183,117
|
|
|
|
4,577,831
|
|
Increase in valuation allowance
|
|
|
11,227,620
|
|
|
|
2,730,288
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
$
|
193,482
|
|
|
$
|
-
|
|
NOTE
7 - INCOME TAXES (CONTINUED)
The
net deferred income tax asset was comprised of the following:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Noncurrent deferred income taxes:
|
|
|
|
|
|
|
Gross assets
|
|
$
|
18,793,653
|
|
|
$
|
4,686,288
|
|
Gross liabilities
|
|
|
(18,987,135
|
)
|
|
|
(4,686,288
|
)
|
Net deferred income tax liability
|
|
$
|
(193,482
|
)
|
|
$
|
-
|
|
Deferred
tax assets and liabilities are provided for significant income and expense items recognized in different year for tax and financial
reporting purposes. The Components of the net deferred tax assets for the years ended December 31, 2016 and 2015 were as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Depreciation and Amortization
|
|
$
|
(43,498
|
)
|
|
$
|
-
|
|
Reserve for Doubtful Accounts
|
|
|
202,739
|
|
|
|
-
|
|
Other
|
|
|
1,348
|
|
|
|
-
|
|
Stock Compensation
|
|
|
5,830,565
|
|
|
|
-
|
|
Acquisition Related Costs
|
|
|
910,588
|
|
|
|
-
|
|
Unrealized Gain
|
|
|
(364,000
|
)
|
|
|
-
|
|
Net Operating Loss
|
|
|
9,182,684
|
|
|
|
4,686,288
|
|
Less: Valuation allowance
|
|
|
(15,913,908
|
)
|
|
|
(4,686,288
|
)
|
Net deferred income tax liability
|
|
$
|
(193,482
|
)
|
|
$
|
-
|
|
NOTE
8 - FAIR VALUE MEASUREMENT
ASC
Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy.
Also, ASC Topic 820 provides clarification that in circumstances, in which a quoted price in an active market for the identical
liabilities is not available, a reporting entity is required to measure fair value using one or more of the techniques provided
for in this update.
The
standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value, which are the following:
Level
1
- Quoted prices in active markets for identical assets and liabilities.
Level
2
- Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the asset or liabilities.
Level
3
- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
Our
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The
following table sets forth the liabilities at December 31, 2016 and 2015, which is recorded on the balance sheet at fair value
on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of
input that is significant to the fair value measurement:
NOTE
8 - FAIR VALUE MEASUREMENT (CONTINUED)
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
December 31,
2015
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivative liability
|
|
$
|
2,820,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,820,000
|
|
Contingent liability
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
Stock settled debt
|
|
|
12,500
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,832,500
|
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
3,822,500
|
|
The roll forward of the Contingent liability is as follows:
Balance December 31, 2015
|
|
$
|
1,000,000
|
|
Fair value adjustment
|
|
|
(1,000,000
|
)
|
Balance December 31, 2016
|
|
|
0
|
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
December 31, 2016
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivative liability – stock warrants
|
|
$
|
1,250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,250,000
|
|
Derivative liability – Series C Preferred Stock
|
|
|
2,093,623
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,093,623
|
|
|
|
$
|
3,343,623
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,343,623
|
|
From time to time, certain assets may be recorded at fair value
on a non-recurring basis. These non-recurring fair value adjustments typically are the result of impairment determina
tions.
The following tables present the carrying value of such assets measured at fair value on a non-recurring basis, and gains and
losses recognized during the period. The carrying values in this table represent only these assets marked to fair value during
the year ended December 31, 2016.
|
|
Carrying
value as of December 31, 2016
|
|
|
Fair
value adjustments for the year ended December 31,
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
|
2016
|
|
Customer
lists
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,255,269
|
)
|
NOTE
9 – LEASES AND DEFINED CONTRIBUTION PLAN
The
Company’s has entered into non-cancellable leases for its office, warehouse facilities and some equipment. These lease agreements
commence on various dates from September 1, 2010 to December 2015 and all expires on or before December, 2023. Future minimum
lease payments at December 31, 2016 are as follows:
2017
|
|
$
|
531,000
|
|
2018
|
|
|
250,000
|
|
2019
|
|
|
178,000
|
|
2020
|
|
|
139,000
|
|
2021
|
|
|
67,000
|
|
Thereafter
|
|
|
84,000
|
|
Total
|
|
$
|
1,249,000
|
|
The
Company has also entered into various other leases on a month to month basis for machinery and equipment. Rent expense amounted
to approximately $664,000 and $320,000 for the year ended December 31, 2016 and 2015, respectively.
NOTE
9 – LEASES AND DEFINED CONTRIBUTION PLAN (CONTINUED)
DEFINED
CONTRIBUTION 401(k) PLAN
The
Company implemented a 401(k) plan in October of 2016. Eligible employees contribute to the 401(k) plan. Employees become eligible
after attaining age 21 and after 3 months of employment with the Company. The employee may become a participant of the 401(k)
plan on the first day of the month following the completion of the eligibility requirements. Effective October 2016 the Company
implemented a discretionary employer match to the plan (the “Contribution”). The Contributions are subject to a vesting
schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first. The Company
made contributions of $0 and $0 for the years ended December 31, 2016 and 2015, respectively.
NOTE
10 - BONDING
In
connection with normal business activities of a company in the solid waste disposal industry, Meridian may be required to acquire
a performance bond. As part of the Company’s December 22, 2015 acquisitions of Christian Disposal, LLC and Eagle Ridge Landfill,
LLC, Meridian acquired a performance bond in the approximate amount of $7,400,000 with annual expenses of $221,000. For the year
ended December 31, 2016, the Company had approximately $196,000 of expenses related to this performance bond and for the year
ended December 31, 2015, the Company was not required to obtain a performance bond.
Note
11 - LITIGATION
The
Company is involved in various lawsuits related to the operations of its subsidiaries which arise in the normal course of business.
Management believes that it has adequate insurance coverage and/or has appropriately accrued for the settlement of these claims.
If applicable, claims that exceed amounts accrued and/or that are covered by insurance, management believes they are without merit
and intends to vigorously defend and resolve with no material impact on financial condition.
NOTE
12 - RELATED PARTY TRANSACTIONS
Accrued
expenses
Included
in accrued expenses on the consolidated balance sheet is approximately $1,280,000 of accrued bonus to the Company’s CEO.
Sale
of Capitalized Software
On
January 7, 2015, in an effort to give investors a more concentrated presence in the waste industry the Company sold the capitalized
software assets of Here to Serve Technology, LLC (HTST) to Mobile Science Technologies, Inc., a Georgia corporation (MSTI), a
related party due to being owned by some of the shareholders of the Company. No gain or loss was recognized on this transaction
as the Company received equity equal to book value ($434,532) of the capitalized software in the exchange.
This
represents approximately 15% of the equity of MSTI and is reflected in the accompanying balance sheet as “investment in
related party affiliate”. The Company's investment of 15% of the common stock of MSTI is accounted for under the equity
method because the company exercises significant influence over its operating and financial activities. Significant influence
is exercised because both Companies have a Board Member in common.
Accordingly,
the investment in MSTI is carried at cost, adjusted for the Company's proportionate share of earnings or losses.
The
following presents unaudited summary financial information for MSTI. Such summary financial information has been provided herein
based upon the individual significance of this unconsolidated equity method investment to the consolidated financial information
of the Company.
NOTE
12 - RELATED PARTY TRANSACTIONS (CONTINUED)
Following
is a summary of financial position and results of operations of MSTI:
Summary of Statements of Financial Condition
|
|
Year Ended
December 31, 2016
|
|
Assets
|
|
|
|
Current assets
|
|
$
|
1,656
|
|
Noncurrent assets
|
|
|
2,877,313
|
|
Total assets
|
|
|
2,878,969
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
Current liabilities
|
|
|
241,189
|
|
Noncurrent liabilities
|
|
|
-
|
|
Equity
|
|
|
2,637,780
|
|
Total liabilities and equity
|
|
$
|
2,878,969
|
|
|
|
|
|
|
Summary of Statements of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
849
|
|
Expense
|
|
|
23,661
|
|
Net loss
|
|
$
|
(22,812
|
)
|
The
Company recorded losses from its investment in MSTI, accounted for under the equity method, of approximately $3,400 for the year
ended December 31, 2016. The charge reflected the Company’s share of MSTI losses recorded in that period. While the Company
has ongoing agreements with MSTI relating to the use of MSTI's software technology, the Company has no obligation to otherwise
support the activities of MSTI.
NOTE
13 – EQUITY AND INCENTIVE PLANS
Effective
March 10, 2016, the Board of Directors (the “Board”) of the Company approved, authorized and adopted the 2016 Equity
and Incentive Plan (the “ Plan”) and certain forms of ancillary agreements to be used in connection with the issuance
of stock and/or options pursuant to the Plan (the “Plan Agreements”). The Plan provides for the issuance of up to
375,000 shares of common stock, par value $.025 per share (the “Common Stock”), of the Company through the grant of
nonqualified options (the “Non-qualified options”), incentive options (the “Incentive Options” and together
with the Non-qualified Options, the “Options”) and restricted stock (the “Restricted Stock”) to directors,
officers, consultants, attorneys, advisors and employees.
On
March 11, 2016, the Company entered into a restricted stock agreement with Mr. Jeff Cosman, CEO, (the “Cosman Restricted
Stock Agreement”), pursuant to which 212,654 shares of the Company’s common stock, subject to certain restrictions set forth
in the Cosman Restricted Stock Agreement, were issued to Mr. Cosman pursuant to the Cosman Employment Agreement and the Plan.
The entire 212,654 shares fully cliff vests on January 1, 2017 if he remains continuously employed and the Company achieves
$10 million in EBITDA for fiscal 2016 (“Performance Condition”). The Company recognized approximately $4.5 million
in compensation expense related to this award through September 30, 2016. On November 11, 2016, the award was modified to
remove the Performance Condition and on such date the Performance Condition vesting condition was deemed improbable of occurring.
As such, in accordance with ASC 718, the original award is deemed forfeited and the $4.5 million of previously recognized
compensation expense was recaptured in the fourth quarter. In addition, the fair value of the new award, deemed to be $2,764,502
based upon the stock price on November 11, 2016 was recognized ratably from November 11, 2016 to the end date of January 1,
2017. Thus total expense recognized for the year ended December 31, 2016 was $2,764,502.
The
restricted stock roll forward is as follows:
|
|
Shares
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Restricted
Stock balance, January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
425,308
|
(1)
|
|
$
|
22.00
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(212,658
|
)
|
|
$
|
31.00
|
|
|
|
|
|
|
|
|
|
|
Unvested,
December 31, 2016
|
|
|
212,650
|
|
|
$
|
13.00
|
|
(1) Includes initial issuance of 212,654 shares on March 11, 2016 that were ultimately forfeited and the re-issued for accounting purposes 212,654 shares on November 11, 2016
Unrecognized
compensation cost at December 31, 2016 is nil. All unvested restricted stock vested on January 1, 2017
NOTE
14 - ACQUISITIONS
Christian
Disposal Acquisition
On
December 22, 2015, the Company, in order to expand into new markets and maximize the rate of waste internalization, acquired
100% of the membership interests of Christian Disposal LLC pursuant to that certain Amended and Restated Membership Interest Purchase
Agreement, dated October 16, 2015, as amended by that certain First Amendment thereto, dated December 4, 2015.
The
acquisition was accounted for by the Company using acquisition method under business combination accounting. Under this
method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the
acquisition date based on the fair value. Our assets, liabilities and equity were accordingly adjusted to fair value on
December 22, 2015. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often
involves the use of significant estimates and assumptions.
The goodwill is deductible for tax purposes.
The
purchase of Christian Disposal, LLC included the acquisition of assets of $20,035,847 and liabilities of $2,152,738. The aggregate
purchase price consisted of the following:
Cash consideration
|
|
$
|
13,008,109
|
|
Restricted stock consideration
|
|
|
2,625,000
|
|
Convertible Promissory Note
|
|
|
1,250,000
|
|
Contingent additional purchase price
|
|
|
1,000,000
|
|
Total
|
|
$
|
17,883,109
|
|
As
noted in the table above, the purchase price could be increased by a maximum amount of $2,000,000 depending upon the extension
of certain contracts to which Christian Disposal, LLC is a party. At December 31, 2015, the fair value of the additional purchase
price was determined to be $1,000,000. Also, the Company issued 1,750,000 restricted shares of common stock as consideration which
was valued at market at the date of the closing.
The
following table summarizes the estimated fair value of Christian Disposal LLC, and subsidiary, assets acquired and liabilities
assumed at the date of acquisition:
Cash
|
|
$
|
197,173
|
|
Accounts receivable
|
|
|
974,538
|
|
Prepaid expense
|
|
|
84,196
|
|
Other current assets
|
|
|
53,810
|
|
Customer lists intangible assets
|
|
|
8,180,000
|
|
Non-competition agreement intangible asset
|
|
|
56,000
|
|
Goodwill
|
|
|
5,849,332
|
|
Property, plant, and equipment
|
|
|
4,640,798
|
|
Account payable
|
|
|
(1,001,721
|
)
|
Deferred revenue
|
|
|
(1,007,525
|
)
|
Accrued expenses
|
|
|
(106,396
|
)
|
Capital lease
|
|
|
(37,096
|
)
|
Total
|
|
$
|
17,883,109
|
|
Eagle
Ridge Landfill, LLC and Hauling Acquisition
On
December 22, 2015, the Company, in order to expand into new markets and maximize the rate of waste internalization, consummated
the closing of the certain Asset Purchase Agreement dated November 13, 2015, by and between the Company and Eagle Ridge Landfill,
LLC, as amended by the certain Amendment to Asset Purchase Agreement, dated December 18, 2015, to which the Company and WCA Waste
Corporation are also party. Pursuant to the Eagle Ridge Purchase Agreement, Meridian Land acquired a landfill located in Pike
County, Missouri and certain assets, rights, and properties related to such business of Eagle Ridge, including certain debts.
NOTE
14 – ACQUISITIONS (CONTINUED)
The
acquisition was accounted for by the Company using business combination accounting. Under this method, the purchase price paid
by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value. Our assets, liabilities and equity were accordingly adjusted to fair
value on December 22, 2015. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often
involves the use of significant estimates and assumptions.
The goodwill is deductible for tax purposes.
The
purchase of Eagle Ridge Landfill, LLC and certain assets included the acquisition of assets of $9,947,224 and liabilities of $283,737.
The aggregate purchase price consisted of a cash consideration of $9,663,487.
The
following table summarizes the estimated fair value of Eagle Ridge Landfill LLC., assets acquired and liabilities assumed at the
date of acquisition:
Cash
|
|
$
|
470
|
|
Accounts receivable
|
|
|
272,480
|
|
Prepaid expense
|
|
|
6,870
|
|
Customer lists intangible assets
|
|
|
2,000,000
|
|
Landfill permit (including ARO)
|
|
|
3,396,519
|
|
Goodwill
|
|
|
1,630,310
|
|
Land
|
|
|
1,550,000
|
|
Property, Plant, and Equipment
|
|
|
1,090,575
|
|
Deferred revenue
|
|
|
(87,218
|
)
|
Asset retirement obligation – permits
|
|
|
(196,519
|
)
|
Total
|
|
$
|
9,663,487
|
|
The
following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of Christian Disposal
and Eagle Ridge occurred at January 1, 2015:
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
Total Revenue
|
|
$
|
28,861,001
|
|
Net Loss
|
|
|
(17,763,377
|
)
|
Basic net loss per share
|
|
$
|
(24.60
|
)
|
NOTE
15 - SUBSEQUENT EVENTS
Amended
and Restated Warrant Cancellation and Stock Issuance Agreement
Effective
January 9, 2017, the Company entered into that certain Amended and Restated Warrant Cancellation and Stock Issuance Agreement
(the “
Warrant Cancellation Agreement
”) with Goldman, Sachs & Co. (“
GS
”). Pursuant to
the Warrant Cancellation Agreement, upon the closing of a “Qualified Offering” as defined in the Warrant Cancellation
Agreement, the Amended and Restated Warrant will be cancelled and the Company will issue to GS restricted shares of common stock
in the amount equal to a 6.5% ownership interest in the Company calculated on a fully-diluted basis, which includes the shares
of common stock issued pursuant to this offering, but excludes all warrants issued pursuant to such Qualified Offering and all
shares underlying such warrants, pursuant to the terms and conditions of the Warrant Cancellation Agreement. As a result the Company
issued GS 421,326 shares of common stock for the warrant cancellation. Pursuant to the Warrant Cancellation Agreement, GS entered
into a lock-up agreement, prohibiting the offer for sale, issue, sale, contract for sale, pledge or other disposition of any of
the Company’s common stock or securities convertible into common stock for a period of 180 days after the date of the Qualified
Offering, and no registration statement for any of our common stock owned by GS can be filed during such lock-up period
Underwriting
Agreement
On
January 24, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Joseph Gunnar
& Co., LLC, as representative of the several underwriters listed therein (the “Underwriters”), with respect to
the issuance and sale in an underwritten public offering (the “Offering”) by the Company of an aggregate 3,000,000
shares of the Company’s common stock, par value $0.025 per share (“Shares”) and warrants to purchase up to an
aggregate of 3,000,000 shares of common stock (the “Warrants”), at a combined public offering price of $4.13 per unit
comprised of one Share and one Warrant. Each warrant is exercisable for five years from issuance and has an exercise price equal
to $5.16.
NOTE
15 - SUBSEQUENT EVENTS (CONTINUED)
Pursuant
to the Underwriting Agreement, the Company granted the Underwriters a 45-day option to purchase up to an additional 450,000 Shares
and/or 450,000 Warrants. Axiom Capital Management, Inc. acted as a co-manager for the offering.
The
Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing,
indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act of 1933, as
amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement
and related “lock-up” agreements, the Company, each director and executive officer of the Company, and the Company’s
principal stockholders have agreed, subject to certain exceptions, not to sell, transfer or otherwise dispose of securities
of the Company for a period of 180 days after the date of the Underwriting Agreement, in the case of the Company and its directors
and officers, and 90 days after the date of the Underwriting Agreement, in the case of the Company’s principal stockholders,
subject to extensions in certain circumstances.
The
Offering closed on January 30, 2017, upon satisfaction of customary closing conditions.
The
Company received approximately $11,000,000 in net proceeds from the Offering after deducting the underwriting discount and other
estimated offering expenses payable by the Company. The Company expects to use the net proceeds of the Offering for capital expenditures,
potential acquisitions, repayment of certain debt obligations, working capital, and other general corporate purposes.
Preferred
Series C conversion
In
February of 2017 all 35,750 shares of Preferred Series C was converted into 1,082,022 shares of common stock. The shares were
converted according to the terms in the original agreement which was the lower of $22.40 or at a 20% discount to the public offering
price per unit of $4.13 or $3.30.
All
holders of the Company's Series C Preferred Stock have entered into lock-up agreements restricting their ability to sell or dispose
of any shares of common stock issued upon conversion of the Series C Preferred Stock for a period of 90 days from the effective
date of this offering.
Convertible
Note Payable
In
February of 2017 the convertible promissory note issued to the seller of Christian Disposal was paid in full, including all accrued
interest.
Amended
and Restated Credit and Guaranty Agreement
On
February 15, 2017 (the “
Restatement Date
”), the Company closed an Amended and Restated Credit and Guaranty
Agreement (the “
Credit Agreement
”) by and among the Company and all subsidiaries, (the “
Companies
”),
and certain subsidiaries of the Company, as Guarantors, the Lenders party thereto from time to time and Goldman Sachs Specialty
Lending Group, L.P., as Administrative Agent, Collateral Agent, and Lead Arranger. The Credit Agreement amended and restated the
Credit and Guaranty Agreement entered into as of December 22, 2015 (the “
Closing Date
”) by and among the Company,
certain of the Companies, and certain subsidiaries of the Company, as Guarantors, the Lenders party thereto from time to time
and Goldman Sachs Specialty Lending Group, L.P., as Administrative Agent, Collateral Agent, and Lead Arranger (as amended prior
to the Restatement Date, the “
Prior Credit Agreement
”).
NOTE
15 – SUBSEQUENT EVENTS – (CONTINUED)
Pursuant
to the Credit Agreement, the Lenders thereunder have agreed to extend certain credit facilities to the Companies, in an aggregate
amount not to exceed $89,100,000, consisting of $65,500,000 aggregate principal amount of Tranche A Term Loans (the “
Tranche
A Term Loans
”), $8,600,000 aggregate principal amount of Tranche B Term Loans (the “
Tranche B Term Loans
”),
$10,000,000 aggregate principal amount of MDTL Term Loans (the “
MDTL Term Loans
”), and up to $5,000,000 aggregate
principal amount of Revolving Commitments (the “
Revolving Commitments
”, the Revolving Commitments together
with the Tranche A Term Loans, Tranche B Term Loans and the MDTL Term Loans, the “
Loans
”). The principal amount
of the Tranche A Term Loans in the Credit Agreement is $25,500,000 greater than the principal amount provided in the Prior Credit
Agreement; the Tranche B Term Loans were not contemplated in the Prior Credit Agreement; and the principal amount of the MDTL
Term Loans and Revolving Credit Agreements in the Credit Agreement are the same as provided in the Prior Credit Agreement. The
proceeds of the Tranche A Term Loans made on the Closing Date were used to pay a portion of the purchase price for the acquisitions
made in connection with the closing of the Prior Credit Agreement, to refinance existing indebtedness, to fund consolidated capital
expenditures, and for other purposes permitted under Section 2.5 of the Prior Credit Agreement. The proceeds of the Tranche A
Term Loans and Tranche B Term Loans made on the Restatement Date shall be applied by Companies to (i) partially fund the Restatement
Date Acquisition (as defined below), (ii) refinance existing indebtedness of the Companies, (iii) pay fees and expenses in connection
with the transactions contemplated by the Credit Agreement, and (iv) for working capital and other general corporate purposes.
The
“
Restatement Date Acquisition
” means the acquisition of all membership interests of CFS, CFS Disposal and RWG5,
as contemplated in the Purchase Agreement (defined below).
The
proceeds of the Revolving Loans will be used for working capital and general corporate purposes. The proceeds of the MDTL Term
Loans may be used for Permitted Acquisitions (as defined in the Credit Agreement). The Loans are evidenced, respectively, by that
certain Tranche A Term Loan Note, Tranche B Term Loan Note, MDTL Note and Revolving Loan Note, all issued on February 15, 2017
(collectively, the “
Notes
”). Payment obligations under the Loans are subject to certain prepayment premiums,
in addition to acceleration upon the occurrence of events of default under the Credit Agreement.
The
amounts borrowed pursuant to the Loans are secured by a first position security interest in substantially all of the Company’s
and the Companies’ assets in favor of Agent, in accordance with that certain Amended and Restated Pledge and Security Agreement
dated as of February 15, 2017 (the “
Pledge and Security Agreement
”).
As
of December 31, 2016 and at certain times thereafter, the Company was in violation of covenants within its credit
agreement with Goldman Sachs & Co. The lenders and agents and the Company and its affiliates entered into a waiver and
amendment letter dated April 11, 2017, whereby the
covenant violations as of December 31, 2016
were waived. The next measurement date of all covenants is as of March 31, 2017, we are in the process of preparing our
submission to our lender.
The
CFS Group Acquisition
On
February 15, 2017, the Company, in order to expand into new markets outside of the state of Missouri, acquired 100% of the
membership interests of The CFS Group, LLC, The CFS Group Disposal & Recycling Services, LLC and RWG5, LLC (collectively,
“The CFS Group”) pursuant to that certain Membership Interest Purchase Agreement, dated February 15, 2017.
The purchase price was approximately
$42,000,000, which consisted of approximately $37,500,000 in cash, $1,300,000 of restricted common stock and approximately $3,000,000
of working capital.
F-38