Attached files
As
filed with the Securities and Exchange Commission on December
12,
2016
File
No. 333-213579
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT NO.
3 to
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
MERIDIAN
WASTE SOLUTIONS, INC.
(Exact name of
registrant as specified in its charter)
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New
York
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4950
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13-3832215
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(State or other
jurisdiction of incorporation)
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(Primary Standard
Industrial Classification Code
Number)
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(I.R.S.
Employer Identification
No.)
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12540
Broadwell Road, Suite 2104
Milton,
GA 30004
Tel:
(404) 539-1147
(Address and
telephone number of registrant’s principal
executive offices
and principal place of business)
Jeffrey
Cosman
12540
Broadwell Road, Suite 2104
Milton,
GA 30004
Tel:
(404) 539-1147
(Name, address and
telephone number of agent for service)
With copies
to:
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Joseph
M. Lucosky, Esq.
Scott
E. Linsky, Esq.
Lawrence
Metelitsa, Esq.
Lucosky
Brookman LLP
101
Wood Avenue South, 5th Floor
Woodbridge,
NJ 08830
Tel.
No.: (732) 395-4400
Fax
No.: (732) 395-4401
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Anthony
J. Marsico, Esq.
Greenberg
Traurig, LLP
200
Park Avenue
New
York, NY 10166
Tel.
No.: (212) 801-9200
Fax
No.: (212) 801-6400
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Approximate date of
commencement of proposed sale to the public: As soon as practicable after this Registration
Statement becomes effective.
If any of the
securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
⌧
If this Form is
filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ◻
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
◻
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
◻
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large
accelerated
filer,” “accelerated
filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated
filer
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◻
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Accelerated
filer
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◻
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Non-accelerated
filer
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◻
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Smaller reporting
company
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⌧
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Proposed Maximum
Aggregate Offering Price(1) |
Amount of
Registration Fee(1) |
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Units(2)
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$ 40,250,000(3)
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$ 4,664.98
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Common Stock, $0.025 par value,
included in the
units(4)
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(6)
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(6)
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Common Stock Purchase Warrants, included in the
units(5)
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(6)
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(6)
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Shares of Common Stock, $0.025 par value,
underlying the Common Stock Purchase Warrants included in the
units(4)(5)
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$ 50,312,500(3)
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$ 5,831.22
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Total
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$ 90,562,500
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$ 10,496.19(7)
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(1)
Estimated solely
for the purpose of computing the amount of the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as
amended (the “Securities
Act”).
(2)
Each unit consists
of one share of common stock, $0.025 par value per share, and one
warrant to purchase one share of common stock, $0.025 par value per
share.
(3)
Includes units and
shares of common stock the underwriters have the option to purchase
to cover over-allotments, if any.
(4)
Pursuant to Rule
416 under the Securities Act, the securities being registered
hereunder include such indeterminate number of additional shares of
common stock as may be issued after the date hereof as a result of
stock splits, stock dividends or similar
transactions.
(5)
The warrants are
exercisable at a per share price equal to 125% of the public
offering price.
(6)
Included in the
price of the units. No fee required pursuant to Rule 457(g) under
the Securities Act.
(7)
Fees in the amount
of $8,150.41 were previously paid. $2,345.78 is being paid
herewith.
The
registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration
statement filed with the U.S. Securities and Exchange Commission
(“SEC”) is effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED DECEMBER 12,
2016
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3,500,000
Units
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Meridian Waste Solutions, Inc.
We
are offering up to 3,500,000 units, each unit
consisting of one share of our common stock, $0.025 par value per
share, and one warrant to purchase one share of our common stock,
at a public offering price of $
per unit. The warrants included within
the units are exercisable immediately, have an exercise price of $
per share (125% of the public offering price of one unit) and
expire five years from the date of issuance.
The units will
not be issued or certificated. Purchasers will receive only shares
of common stock and warrants. The shares of common stock and
warrants may be transferred separately, immediately upon issuance.
The offering also includes the shares of
common stock issuable from time to time upon exercise of the
warrants.
In order to
obtain NASDAQ listing approval, we effected a 1-for-20 reverse
split of our common stock on November 3, 2016.
Our common stock is quoted on OTC
Markets Group Inc. OTCQB quotation system (the "OTCQB") under the
trading symbol “MRDN”. We have applied to have our common stock
and warrants listed on The Nasdaq Capital Market under the
symbols “MRDN” and “MRDNW,” respectively.
No assurance can be given that our application will be approved. On
December 9,
2016, the last reported sale price for our common stock on the
OTCQB was $10.00 per share after giving effect to the 1-for-20 reverse
stock split of our common stock. There is no established
public trading market for the warrants. No assurance can be given
that a trading market will develop for the warrants.
Quotes
for shares of our common stock on the OTCQB may not be indicative
of the market price on a national securities exchange, such as The
Nasdaq Capital Market.
Investing in our
securities involves a high degree of risk. See “Risk
Factors” beginning on page 13 of this prospectus for a
discussion of information that should be considered in connection
with an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per
Unit
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Total
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Public offering
price
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$
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$
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Underwriting discounts and
commissions(1)
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$
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$
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Proceeds to us, before
expenses
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$
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$
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(1)
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Does not include a non-accountable
expense allowance equal to 1% of the gross proceeds of this
offering payable to Joseph Gunnar & Co., LLC, the
representative of the underwriters. See “Underwriting”
for a description of compensation payable to the
underwriters.
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We
have granted a 45-day option to the representative of the
underwriters to purchase up to 525,000 units to be offered by us
solely to cover over-allotments, if any. If the underwriters
exercise their right to purchase additional units to cover
over-allotments, we estimate that we will receive gross proceeds of
$5,250,000 from the sale of 525,000 units being offered, at an
assumed public offering price of $10.00 per unit, and net proceeds
of $4,882,500 after deducting $367,500 for underwriting discounts
and commissions. The units issuable upon exercise of the
underwriter option are identical to those offered by this
prospectus and have been registered under the registration
statement of which this prospectus forms a
part.
The underwriters expect to deliver our
shares and warrants to purchasers in the offering against
payment on or
about ,
2016.
Joseph
Gunnar & Co.
Axiom Capital
Management, Inc.
The date of this prospectus
is
, 2016
TABLE
OF CONTENTS
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PAGE
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Prospectus
Summary
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1
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Risk
Factors
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13
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Special Note
Regarding Forward-Looking Statements
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27
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Use of
Proceeds
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28
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Market for Common
Equity and Related Stockholder Matters
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29
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Dilution
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31
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Management
Discussion and Analysis of Financial Condition and Results of
Operations
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32
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Description of
Business
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45
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Directors,
Executive Officers, Promoters and Control Persons
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55
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Executive
Compensation
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59
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Security Ownership
of Certain Beneficial Owners and Management
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63
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Description of
Capital Stock
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66
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Underwriting
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69
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Legal
Matters
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77
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Experts
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77
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Incorporation by
Reference
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77
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Where You Can Find
More Information
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77
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Disclosure of
Commission Position on Indemnification of Securities Act
Liabilities
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Index to Financial
Statements
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II-3
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You
should rely only on information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to
provide you with additional information or information different
from that contained in this prospectus. We are not making an offer
of these securities in any state or other jurisdiction where the
offer is not permitted. The information in this prospectus may only
be accurate as of the date on the front cover of this prospectus
regardless of time of delivery of this prospectus or any sale of
our securities.
No person is authorized in connection with this
prospectus to give any information or to make any representations
about us, the common stock hereby or any matter discussed in this
prospectus, other than the information and representations
contained in this prospectus. If any other information or
representation is given or made, such information or representation
may not be relied upon as having been authorized by us or the
underwriters. This prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy our common stock in any
circumstance under which the offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any distribution of our
common stock and warrants in accordance with this prospectus shall,
under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus.
PROSPECTUS
SUMMARY
This summary highlights selected information
appearing elsewhere in this prospectus. Because this is only a
summary, it does not contain all of the information you should
consider before investing in our securities. You should read this
prospectus carefully, especially the risks and other information
set forth under the heading “Risk Factors”;
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial
statements and related notes included elsewhere in this prospectus,
before making an investment decision. Our fiscal year end is
December 31 and our fiscal years ended December 31, 2014 and 2015
and our fiscal year ending December 31, 2016 are sometimes referred
to herein as fiscal years 2014, 2015 and 2016, respectively. Some
of the statements made in this prospectus discuss future events and
developments, including our future strategy and our ability to
generate revenue, income and cash flow. These forward-looking
statements involve risks and uncertainties which could cause actual
results to differ materially from those contemplated in these
forward-looking statements. See “Cautionary Note Regarding
Forward-Looking Statements”. Unless otherwise indicated or
the context requires otherwise, the words
“Meridian Waste Solutions,
Inc.,” “Company,” “we,”
“us” and “our” refer to Meridian Waste
Solutions, Inc. and its wholly owned
subsidiaries.
This prospectus assumes the over-allotment option of the
underwriters has not been exercised, unless otherwise
indicated.
Unless otherwise indicated, all share amounts and per share amounts
in this prospectus reflect the 1 for 20 reverse stock split of our
outstanding shares of common stock effected on November 3,
2016.
Overview
Meridian Waste
Solutions, Inc. (formerly Brooklyn Cheesecake & Desserts
Company, Inc. hereafter referred to as the “Company” or
“Meridian”) is an integrated provider of non-hazardous
solid waste collection, transfer and disposal services. We
currently have all of our operations in Missouri but are actively
looking to expand our presence across the Midwest, South and East
regions of the United States.
Corporate
Structure:
Customers
Meridian has two
municipal contracts, the first of which accounted for 26% and
27% and the second of which accounted for 18% and 19% of the
long term contracted revenue of Here to Serve Missouri Waste
Division, LLC (“HTS Waste”) for the years ended
December 31, 2015 and 2014 respectively.
1
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. In 2015, its 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 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. We load
the containers onto our vehicles and transport them with the waste
to either a landfill or a transfer station 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 and
may vary according to the customers’ underlying
projects.
Transfer and Disposal Services
Landfills are the
main depository for solid waste within our
marketplace. 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 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. Transfer stations are
generally owned by municipalities, with contracts to operate such
transfer stations awarded based on bids. 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.
2
Our
Operating Strengths
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Experienced Leadership
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We have a proven
and experienced senior management team. Our Chief
Executive Officer, Jeffrey S. Cosman, and President and COO
Walter H. Hall 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 experience in the 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.
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Vertically Integrated Operations
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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 this
internalization rate 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.
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Landfill and Transfer Station Assets
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We have one active
and strategically located landfill at the core of our integrated
operations which we believe provides us a significant competitive
advantage in Missouri, in that we do not need to use our
competitors’ landfills. Our landfill has substantial
remaining airspace.
The value of our
landfill 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
landfill, and provide competitive advantages in that we would not
need to use our competitors’ landfills. In our experience,
there has generally been a shift toward fewer, larger landfills,
resulting 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 a landfill, transfer stations and collection
services in place, we aim to provide vertically integrated
operations that cover the substantial geographic area surrounding
the landfill.
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Acquisition Integration and Municipal Contracts
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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. In the last six months since our
acquisition of Christian Disposal, LLC and assets of Eagle
Ridge Landfill, LLC, we have completed two tuck-in
acquisitions which we believe may improve our margins and cash
flow.
3
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, LLC and Eagle Ridge Landfill,
LLC enhanced our geographic footprint by providing us with
complementary operations throughout 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
We serve
approximately 65,000 residential, commercial and Construction &
Industrial (C&I) customers, with no single customer
representing more than 12% of revenue in 2015. Our municipal
customer relationships are generally supported by contracts ranging
from one to five years in initial duration with subsequent renewal
periods, and we have a regular renewal rate with such customers.
Our standard C&I 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.
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Customer Service
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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 customer satisfaction will ultimately
maximize customer loyalty and 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
regularly 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.
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Our
Growth Strategy
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Growth of Existing Markets
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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.
As we expand, we
plan to focus our business in the secondary markets where
competition from national service providers is limited. 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. 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.
4
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Acquisition and
Integration
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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.
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Pursue Additional Exclusive Municipal Contracts
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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.
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Invest in Strategic Infrastructure
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We will continue to
invest in our infrastructure to support growth and increase our
margins. 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.
Risks Related to Our Business
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WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY LAWS, WHICH
RESTRICT OUR OPERATIONS AND INCREASE OUR COSTS;
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WE MAY BECOME SUBJECT TO ENVIRONMENTAL CLEAN-UP COSTS OR LITIGATION
THAT COULD CURTAIL OUR BUSINESS OPERATIONS AND MATERIALLY DECREASE
OUR EARNINGS;
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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;
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THE COMPANY’S FAILURE TO COMPLY WITH THE OBLIGATIONS SET
FORTH IN THE AGREEMENTS ENTERED INTO WITH GOLDMAN SACHS SPECIALTY
LENDING GROUP, L.P. MAY RESULT IN THE FORECLOSURE OF THE
COMPANY’S OR ITS SUBSIDIARIES’ PLEDGED ASSETS AND OTHER
ADVERSE CONSEQUENCES;
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GOVERNMENTAL AUTHORITIES MAY ENACT CLIMATE CHANGE REGULATIONS THAT
COULD INCREASE OUR COSTS TO OPERATE;
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OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY LAWS
AND REGULATIONS, AS WELL AS CONTRACTUAL OBLIGATIONS THAT MAY RESULT
IN SIGNIFICANT LIABILITIES;
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OUR BUSINESS IS SUBJECT TO OPERATIONAL AND SAFETY RISKS, INCLUDING
THE RISK OF PERSONAL INJURY TO EMPLOYEES AND OTHERS;
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INCREASES IN THE COSTS OF FUEL MAY REDUCE OUR OPERATING
MARGINS;
|
|
●
|
INCREASES IN THE COSTS OF DISPOSAL MAY REDUCE OUR OPERATING
MARGINS;
|
|
●
|
INCREASES IN THE COSTS OF LABOR MAY REDUCE OUR OPERATING
MARGINS;
|
|
●
|
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;
|
|
●
|
EFFORTS BY LABOR UNIONS TO ORGANIZE OUR EMPLOYEES COULD DIVERT
MANAGEMENT ATTENTION AND INCREASE OUR OPERATING
EXPENSES;
|
5
|
●
|
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 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;
|
|
●
|
THE CONCENTRATION OF OUR STOCK OWNERSHIP IN OUR MANAGEMENT AND
CHIEF EXECUTIVE OFFICER MIGHT RESULT IN ACTIONS THAT WOULD BE
CONSIDERED ADVERSE BY OUR OTHER STOCKHOLDERS;
|
|
●
|
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; AND
|
|
●
|
WE NEED ADDITIONAL CAPITAL TO DEVELOP OUR BUSINESS.
We are subject to a
number of additional risks which you should be aware of before you
buy our securities in this Offering. These risks are discussed more
fully in the section entitled “Risk Factors” following
this prospectus summary.
|
RECENT
DEVELOPMENTS
Appointment of Chief Financial Officer;Employment
Agreement
Effective on November 29, 2016, the Board appointed Mr. Joseph
D’Arelli as the Chief Financial Officer of the Company.
Concurrently, in connection with such appointment, the Company
entered into an Executive Employment Agreement, with Mr.
D’Arelli, as amended on December 5, 2016 (the
“D’Arelli Employment Agreement”). The initial
term of the D’Arelli Employment Agreement is 24 months and
will automatically renew for twelve month periods, unless
otherwise terminated pursuant to the terms contained
therein. In addition, the
D’Arelli Employment Agreement provides that Mr.
D’Arelli may receive 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. The exercise
price for 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.
Amendments to Executive Employment Agreements
Jeffrey Cosman – Amendments to Employment
Agreement
On
November 29, 2016, the Company and Jeffrey Cosman, the
Company’s Chief Executive Officer, entered into that certain
Amendment to Employment Agreement (the “Cosman First Amendment”)
and on December 5, 2016, the Company and Mr. Cosman entered
into that certain Second Amendment to Employment Agreement (the
“Cosman Second
Amendment”), amending that certain Executive
Employment Agreement, dated as of March 11, 2016, by and between
Mr. Cosman and the Company (as amended, the “Cosman Employment Agreement”).
Pursuant to the Cosman First Amendment, the time period for which
Mr. Cosman would receive severance pay upon the termination of his
employment without cause was reduced from five (5) years to two (2)
years. The Cosman Second Amendment, provides that Mr. Cosman
may receive 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. The exercise price for 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.
Walter H. Hall, Jr. – Amendment to Employment
Agreement
On
December 5, 2016, the Company and Walter H. Hall, Jr., the
Company’s Chief Operating Officer, entered into that certain
Amendment to Employment Agreement (the “Hall
Amendment”) to that certain Executive Employment agreement,
dated as of March 11, 2016, by and between Mr. Hall and the Company
(the “Hall Employment Agreement”). The Hall Employment Agreement, as amended
by the Hall Second Amendment, provides that Mr. Hall may receive 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. The exercise price for 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.
2016 Bridge Financings
First 2016 Private Placement
In March 2016, the
Company launched a private placement offering (the “First
2016 Private Placement”) of the Company’s common stock,
par value $0.025 of up to $1,600,000, with certain accredited
investors in transactions exempt from registration with the SEC
under Regulation D and Section 4(a)(2) of the Securities Act. On
March 23, 2016, the Company completed its first closing of the
First 2016 Private Placement with accredited investors (the
“March 2016 Investors”) and issued an aggregate of
22,321 shares of common stock for aggregate gross proceeds to the
Company of $500,000. On April 1, 2016, the Company completed its
second closing of the First 2016 Private Placement with accredited
investors (the “April 2016 Investors”) and issued an
aggregate of 31,250 shares of common stock for aggregate gross
proceeds to the Company of $700,000. On April 8, 2016, the Company
completed its third closing of the First 2016 Private Placement
with an accredited investor (together with the March 2016 Investors
and the April 2016 Investors, the “First 2016 Private
Placement Investors”) and issued an aggregate of 17,857
shares of common stock for aggregate gross proceeds to the Company
of $400,000, resulting in a full subscription under the First 2016
Private Placement. Under the terms of the First 2016 Private
Placement, the Company granted the First 2016 Private Placement
Investors certain “true up” rights, pursuant to which
the Company agreed to issue additional shares of common stock to
the First 2016 Private Placement Investors in the event
that, prior to the first anniversary of the applicable subscription
agreement under the First 2016 Private Placement, such First 2016
Private Placement Investor sells all of its shares of common stock
purchased under such subscription agreement and receives less than
the full amount of the purchase price paid under such subscription
agreement (the “True Up Adjustment”). The Company has
subsequently entered into securities exchange agreements with all
of the First 2016 Private Placement Investors as described
below.
6
Second 2016 Private Placement
In June
2016, the Company launched a private placement offering (the
“Second 2016 Private Placement”) of up to $3,000,000 of
the Company’s restricted common stock and warrants to
purchase shares of common stock, with certain accredited investors
in transactions exempt from registration with the SEC under
Regulation D and Section 4(a)(2) of the Securities Act. On June 3,
2016, the Company completed its first closing of the Second 2016
Private Placement with accredited investors (the “June 2016
Investors”) and issued an aggregate of 16,346 shares of common stock and warrants
for aggregate gross proceeds to the Company of $425,000. Effective
June 13, 2016, the Company amended the terms of the Second
2016 Private Placement to reduce the per share subscription
price under the Second 2016 Private Placement, and entered into
amended subscription agreements with the June 2016 Investors to
reflect such reduced purchase price, resulting in an issuance to
the June 2016 Investors of an additional 2,627 aggregate shares of common stock,
together with replacement warrants. On June 13, 2016, the Company
completed its second closing of the Second 2016 Private Placement
with accredited investors (the “Additional June 2016
Investors”) and issued an aggregate of 5,580 shares of common stock and warrants
for aggregate gross proceeds to the Company of $125,000. On June
21, 2016, the Company completed its third closing of the Second
2016 Private Placement with an accredited investor (together with
the June 2016 Investors and the Additional June 2016 Investors, the
“Second 2016 Private Placement Investors”) and issued
an aggregate of 2,232 shares of
common stock and warrants for aggregate gross proceeds to the
Company of $50,000. The warrants issued by the Company to the
Second 2016 Private Placement Investors provided that, in the event
that, for the period beginning six months from the date of the
applicable subscription agreement under the Second 2016 Private
Placement, if one or more such Second 2016 Private Placement
Investors were to sell all shares of Common Stock purchased in the
Second 2016 Private Placement and fail to receive proceeds equal to
or in excess of the aggregate purchase price paid by such Second
2016 Private Placement Investors for such shares, such subscribers
could exercise the warrants issued under the Second 2016 Private
Placement, requiring the Company, at its election, to (i) issue to
such subscriber the number of shares of common stock equivalent to
the amount by which such purchase price exceeds such sale proceeds
valued at the average closing price for the common stock on the
primary trading market on the three (3) trading days preceding the
date of exercise or (ii) redeem such shortfall amount in cash (the
“Warrant Adjustment”).The Company has subsequently
entered into securities exchange agreements with all of the Second
2016 Private Placement Investors as described below.
Series C Offering
In July
2016, the Company launched a private placement offering (the
“Series C Offering”) of up to $4,000,000 of its newly
designated Series C Preferred Stock, par value $0.001 per share
(the “Series C Preferred Stock”) to certain accredited
investors in transactions exempt from registration with the SEC
under Regulation D and Section 4(a)(2) of the Securities Act.
Pursuant to the terms of its Series C Preferred Stock Certificate
of Designations (the “Series C Designations”), the
Company has authorized for issuance of 67,361 shares of Series C
Preferred Stock, having a stated value of equal to $100 per share
and a par value of $0.001 per share and providing for dividends at
a rate of 8% per annum. Shares of the Series C Preferred Stock are
convertible into shares of Common Stock at a price of $12.94 per share (reflecting adjustment to the
price of $22.40 per share, pursuant to the reverse stock split effected
November 3, 2016). In the event of a Qualified Offering, as
defined in the Series C Designations, the shares of Series C
Preferred Stock will be automatically converted at the lower of
$12.94 per share (reflecting
adjustment to the price of $22.40 per share, pursuant to the reverse stock split effected
November 3, 2016) 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 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. Assuming a public
offering price per unit of $10.00, the Series C Preferred Stock
would convert into 446,875 shares of common stock at a conversion
price of $8.00 per share at the closing of this
offering. The Series C Designations provide for
certain additional shortfall conversions, pursuant to which holders
of Series C Preferred Stock may, subject to certain conditions, be
issued additional shares of Common Stock by the Company. The Series
C Preferred Stock has voting rights on an “as
converted” to Common Stock basis. In no event shall a holder
of Series C Preferred Stock be entitled to make conversions that
would result in beneficial ownership by such holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock of the Company; provided, that the foregoing shall not apply
to any person exercising rights pursuant to the Amended and
Restated Warrant or any affiliate or transferee thereof and
provided further that such restrictions may be waived by the holder
upon not less than 61 days’ notice to the
Company.
From
July 20, 2016 through August 26, 2016, the Company completed
closings of the Series C Offering with certain accredited investors
and issued an aggregate of 12,750 shares of Series C Preferred
Stock for aggregate gross proceeds to the Company of
$1,275,000.
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.
Securities Exchange Agreements
Effective
August 26, 2016, the Company entered into securities exchange
agreements with all of the First 2016 Private Placement Investors
and all of the Second 2016 Private Placement Investors (together,
the “2016 Private Placement Investors”), pursuant to
which the 2016 Private Placement Investors agreed to exchange the
shares of Common Stock and warrants, as applicable, received
in the First 2016 Private Placement or the Second 2016 Private
Placement, as applicable, and all of the rights attached thereto
(including, in the case of the First 2016 Private Placement, the
True Up Adjustment and, in the case of the Second 2016 Private
Placement, the Warrant Adjustment), on a dollar for dollar basis,
for an aggregate of 23,000 shares of Series C Preferred Stock
(the “Series C Exchange”). Following the
Series C Exchange, the 2016 Private Placement Investors no longer
hold any rights under the First 2016 Private Placement or the
Second 2016 Private Placement, as applicable, and all Common Stock
and warrants, as applicable, issued thereunder have
been cancelled. The Company did not receive any cash proceeds
from the Series C Exchange.
Effective October 13, 2016, the Company entered into those certain
securities exchange agreements (the “Series B Exchange
Agreements”) by and between the Company and each holder of
the Company’s Series B Preferred Stock, par value $0.001 per
share (the “Series B Preferred”), (collectively, the
“Series B Holders” and each, individually, a
“Series B Holder”) to effect the exchange of all shares
of Series B Preferred for shares of Common Stock. Pursuant to
the Series B Exchange Agreements, the Company issued to the Series
B Holders an aggregate of 500,001 shares of Common Stock, with each
Series B Holder being issued 166,667 shares of Common Stock,
subject to and in accordance with the terms set forth in the Series
B Exchange Agreements in consideration for the cancellation of all
shares of Series B Preferred owned by the Series B Holders. Upon
cancellation of the Series B Preferred pursuant to the Series B
Exchange Agreements, there are no shares of Series B Preferred
issued and outstanding. The former Series B Holders have entered
into lock-up agreements restricting their ability to sell or
dispose of any shares of common stock issued pursuant to the Series
B Exchange Agreements for a period of 90 days from the effective
date of this offering.
7
Second Amendment to Credit and Guaranty Agreement with Goldman
Sachs Specialty Lending Group, L.P
Effective July 19,
2016, the Company, its subsidiaries party thereto, the lenders from
time to time party thereto and Goldman Sachs Specialty Lending
Group, L.P. (“GS”), as administrative agent for the
lenders (in such capacity, the “Administrative Agent”),
collateral agent, and lead arranger entered into that certain
Second Amendment to Credit and Guaranty Agreement (the
“Second Amendment”) to amend certain terms and
conditions of that certain Credit and Guaranty Agreement, dated as
of December 22, 2015 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") by
and among the Company, its subsidiaries party thereto, the lenders
from time to time party thereto (the “Lenders”) and GS,
as administrative agent, collateral agent and lead arranger (in
such capacity, the "Administrative Agent"). Under the Second
Amendment, the Lenders and Administrative Agent provided their
consent to the Company to create and issue the Series C Preferred
Stock in accordance with the Series C Offering and the Series C
Designations in an aggregate amount not to exceed $6,300,000. The
Second Amendment also provided for, among other things, a limited
waiver by the Lenders of certain events of default due to failures
of the Company and its affiliates to deliver certain financial
statements and related deliverables and to comply with certain
financial covenants under the Credit Agreement.
In connection with
the Second Amendment, effective July 19, 2016, the Company issued
that certain Amended and Restated Purchase Warrant for Common
Shares to GS (the “Amended and Restated Warrant”),
revised to reflect the authorization of the Series C Preferred
Stock and to address issuance of shares thereof, for the purchase
of shares of the Company’s common stock equivalent to a 6.5%
Percentage Interest (as such term is defined in the Amended and
Restated Warrant) at a purchase price equal to $449,563,
exercisable on or before December 22, 2023. The shares issuable
under the Amended and Restated Warrant may be “put” to
the Company for purchase upon the occurrence of certain events,
including payment of 75% or more of the obligations under the
Credit Agreement. The Amended and Restated Warrant grants certain
registration rights, including piggyback registration rights and
demand registration under Form S-3 (for and so long as the Company
is qualified). The Company entered into a Warrant
Cancellation and Stock Issuance Agreement with GS, dated as
of December 9, 2016, on the terms described
below.
Waiver and Amendment Letter regarding Credit and Guaranty Agreement
with Goldman Sachs Specialty Lending Group, L.P.
Effective August 16, 2016, the Company, its
subsidiaries party thereto, the Lenders party thereto, and the
Administrative Agent entered into that certain Waiver and Amendment
Letter (the “Third
Amendment”) to amend certain terms and conditions of the
Credit Agreement. Pursuant to the Third Amendment, Section
2.13(c)(iv) and Section 6.8(e) of the Credit Agreement were amended
to increase the maximum Consolidated Corporate Overhead and a
limited waiver by the Lenders of certain Defaults or Events of
Default due to the Company’s failure to meet requirements
relating to Consolidated Corporate Overhead was
granted.
Fourth Amendment to Credit and Guaranty Agreement with Goldman
Sachs Specialty Lending Group, L.P.
Effective November 11, 2016, the Company,
its subsidiaries party thereto, the Lenders party thereto, and the
Administrative Agent entered into that certain Fourth Amendment to
Credit and Guaranty Agreement (the
“Fourth Amendment”) to amend certain terms and
conditions of the Credit Agreement. Pursuant to the Fourth Amendment, (i) Section
2.13(c)(iv), Section 6.8(d), Section 6.8(e) and the definitions of
“Availability”, “Consolidated Corporate
Overhead”, and “Leverage Ratio” were amended and
(ii) a limited waiver was provided of certain Defaults or Events of
Default due to the Company’s failure to meet requirements
relating to the Leverage Ratio, the Consolidated Corporate Overhead
and Consolidated Growth Capital
Expenditures.
Warrant Cancellation and Stock Issuance Agreement
The Company
entered into a Warrant Cancellation and Stock Issuance
Agreement (the “Warrant Cancellation Agreement”),
dated as of December 9, 2016, with Goldman, Sachs
& Co. 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 Goldman, Sachs & Co. 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 this offering
and all shares underlying such warrants, pursuant to the terms and
conditions of the Warrant Cancellation Agreement. Pursuant to the
Warrant Cancellation Agreement, Goldman, Sachs & Co.
entered into a lock-up agreement, prohibiting the
offer for sale, issue, sale, contract for sale, pledge or other
disposition of any of our common stock or securities convertible
into common stock for a period of 180 days after the date of this
prospectus, and no registration statement for any of our common
stock owned by Goldman, Sachs & Co. can be filed
during such lock-up period. In connection with the Warrant
Cancellation Agreement, the Company and Goldman, Sachs & Co.
intend to enter into a Registration Rights Agreement, pursuant to
which Goldman, Sachs & Co. will be granted certain registration
rights with respect to the shares to be issued pursuant to the
Warrant Cancellation Agreement, with such registration rights
intended to be substantially similar to those provided in the
Amended and Restated Warrant, provided that such registration
rights will not be exercisable and will not permit the filing of
any registration statement during the lock-up period to which
Goldman, Sachs & Co. is subject. In the event the public
offering of which this prospectus is a part does not close prior to
December 31, 2016 or does not result in proceeds to the Company
sufficient to satisfy the definition of Qualified Offering, the
Warrant Cancellation Agreement will not become
effective and the Amended and Restated Warrant would remain in full
force and effect.
History and Our Corporate Information
The Company was
incorporated in the State of New York on November 12, 1993, under
the name CIP, Inc. On February 1, 1995, the Company filed a
Certificate of Amendment to its Certificate of Incorporation
changing its name to Desserts and Cafes, Inc. On August
17, 1996, the Company filed a Certificate of Amendment to its
Certificate of Incorporation changing its name to William Greenberg
Jr. Desserts and Cafes, Inc. On July 28, 1997, the Company filed a
Certificate of Amendment to its Certificate of Incorporation
changing its name to Creative Bakeries, Inc. On February 18, 2005,
the Company filed a Certificate of Amendment to its Certificate of
Incorporation changing its name to Brooklyn Cheesecake &
Desserts Company, Inc. On March 27, 2015, the Company filed a
Certificate of Amendment to its Certificate of Incorporation
changing its name to Meridian Waste Solutions, Inc. Our principal
executive office is located at 12540 Broadwell Road, Suite 2104
Milton, GA 30004, and our telephone number is (404) 539-1147. Our
Internet address is www.mwsinc.com. Our web
site and the information contained in, or accessible through, our
website will not be deemed to be incorporated by reference into
this prospectus and does not constitute part of this
prospectus.
The Company’s
common stock is currently quoted on the OTCQB under the symbol
“MRDN.” The Company’s common stock was
quoted on the OTC Markets effective February 23, 2005 under
the symbol “BCAK.” Effective March 22, 2006, the
Company changed its symbol to “BCKE.” Effective April
15, 2015, the Company changed its symbol to
“MRDN.”
8
THE
OFFERING
|
|
|
|
Securities
offered
|
3,500,000
units, each consisting of one share of common stock and one warrant
to purchase one share of common stock(1)
|
|
Offering
Price
|
$
per unit
|
|
Common
stock outstanding immediately before this offering
|
1,698,569
shares
|
|
Common
stock to be outstanding immediately after the offering
|
6,056,817
shares (9,556,817 shares if the warrants are exercised
in full). If the underwriters’ over-allotment option is
exercised in full, the total number of shares outstanding
immediately after this offering would be 6,581,817
(10,606,817 shares if the warrants are exercised in
full).
|
| Description of warrants |
The warrants
included within the units are exercisable immediately, have an
exercise price of $ per share (125% of the public offering price of
one unit) and expire five years from the date of
issuance.
|
|
Option
to purchase additional shares
|
We have granted the
underwriters an option for a period of 45 days to purchase up to an
additional 525,000 units, to cover over-allotments, if
any.
|
|
Use
of proceeds
|
We intend to use
the net proceeds of this offering for capital expenditures, tuck-in
acquisitions, repayment of indebtedness, and working capital. See
“Use of Proceeds.”
|
|
Risk
factors
|
Investing in our
securities is highly speculative and involves a high degree of
risk. You should carefully consider the information set forth in
the “Risk Factors” section beginning on page 13
before deciding to invest in our securities.
|
|
Trading
Symbol
|
Our common stock is
currently quoted on the OTCQB under the trading symbol
“MRDN”. We have
applied to the The Nasdaq Capital Market to list
our common stock under the symbol “MRDN” and our
warrants under the symbol “MRDNW.” No assurance can be given that our applications
will be approved. In order to obtain listing approval we effected a
1-for-20 reverse split of our common stock on November 3,
2016.
|
|
Lock-up
|
We and our
directors, officers and principal stockholders have agreed with the
underwriters not to offer for sale, issue, sell, contract to sell,
pledge or otherwise dispose of any of our common stock or
securities convertible into common stock for a period of 180 days
after the date of this prospectus, in the case of our directors and
officers, and 90 days after the date of this prospectus, in the
case of our principal stockholders. See “Underwriting”
section on page 68.
|
|
(1)
|
Based on an assumed
offering price of $10.00 per unit, which was the last reported sale
price of our common stock on December 9, 2016. The actual number of
units we will offer will be determined based on the actual public
offering price.
|
9
Unless we indicate
otherwise, all information in this prospectus:
●
reflects a
1-for-20 reverse stock split of our issued and outstanding shares
of common stock and warrants effected on November 3, 2016 and the
corresponding adjustment of all common stock prices per share and
warrant exercise prices per share;
●
is
based on 1,698,569 shares of common stock issued and outstanding as
of December 9, 2016;
●
assumes no
exercise by the underwriters of their option to purchase up to an
additional 525,000 units to cover
over-allotments;
●
excludes
212,654 shares of restricted common stock issued to Jeffrey Cosman
that vest on January 1, 2017;
●
excludes 104,314
shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $4.31 per share
as of September 30, 2016, which the Company anticipates will
be cancelled upon the consummation of the offering pursuant to the
Warrant Cancellation Agreement; and
●
assumes the
conversion of all outstanding Series C Preferred Stock in the
aggregate principal amount of approximately $3,575,000 for
446,875 shares of common stock at the
consummation of this offering.
10
SUMMARY
CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements of operations data
for the years ended December 31, 2015 and 2014 have been derived
from our audited consolidated financial statements included
elsewhere in this prospectus. The historical financial data
presented below is not necessarily indicative of our financial
results in future periods. You should read the summary consolidated
financial data in conjunction with those financial statements and
the accompanying notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Our consolidated financial statements are prepared and presented in
accordance with United States generally accepted accounting
principles, or U.S. GAAP. Our pro forma consolidated financial
statements have been prepared on a basis consistent with our
audited financial statements and include all adjustments,
consisting of normal and recurring adjustments that we consider
necessary for a fair presentation of the financial position and
results of operations as of and for such
periods.
SUMMARY
OPERATING DATA
|
|
Nine
Months Ended September 30, 2016
(unaudited)
|
Nine
Months Ended September 30, 2015
(unaudited)
|
December 31,
2015 (audited)
|
December 31,
2014 (audited)
|
|
Total
Revenues
|
$ 23,883,663
|
$ 9,733,330
|
$13,506,097
|
$12,202,076
|
|
Cost of
Sales
|
$ 16,751,439
|
$ 7,165,735
|
10,135,604
|
9,059,607
|
|
Gross
Profit
|
$ 7,132,224
|
$ 2,567,595
|
3,370,493
|
3,142,469
|
|
General
and administrative expenses
|
$ 5,130,079
|
$ 2,539,620
|
17,640,895
|
4,868,540
|
|
Other income
(expense) net
|
$ (1,751,101)
|
$ (414,005)
|
(3,586,991)
|
(130,457)
|
|
Interest income
(expense)
|
$ (3,603,807)
|
$ (865,934)
|
(1,374,497)
|
(532,147)
|
|
Net (Loss)
Income
|
$ (14,308,049)
|
$ (11,309,967)
|
(19,231,890)
|
(2,385,679)
|
|
Basic & Diluted
Net income (loss) per share:
|
$(11.91)
|
$(19.05)
|
$(26,58)
|
$(4.79)
|
|
Weighted Average
shares outstanding
|
$ 1,201,394
|
$ 593,638
|
723,429
|
498,171
|
11
The following table
presents consolidated balance sheets data as of December 31, 2015
on:
|
|
●
|
an actual
basis;
|
|
|
●
|
a pro forma basis,
giving effect to the sale by us of 3,500,000 units in
this offering at an assumed public offering price of
$10.00 per unit after deducting underwriting discounts
and commissions and estimated offering expenses
|
The pro forma as
adjusted information set forth below is illustrative only and will
be adjusted based on the actual public offering price and other
terms of this offering determined at pricing.
|
|
As of September 30, 2016
|
|
|
|
Actual
|
Pro Forma (1)
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
Cash and cash
equivalents
|
$1,247,756
|
$ 11,247,756
|
|
Working capital
(deficit)
|
(4,783,161)
|
5,216,839
|
|
Total
assets
|
50,221,906
|
60,221,906
|
|
Total
liabilities
|
52,903,052
|
27,903,052
|
|
Total
stockholders’ equity (deficit)
|
(5,326,094)
|
29,673,903
|
|
|
(1)
|
A $1.00 increase or
decrease in the assumed public offering price per unit would
increase or decrease our cash and cash equivalents, working
capital, total assets and total stockholders’ equity by
approximately $3,500,000, assuming the number
of units offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting the underwriting
discount and estimated offering expenses payable by
us.
|
12
RISK
FACTORS
An investment in our securities involves a high degree of risk.
Before deciding whether to invest in our securities, you should
consider carefully the risks described below. You should carefully
consider the risks described herein and the other information in
this prospectus before you decide to invest in our securities. Such
risks and uncertainties are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect us. If any of those risks
were to occur, our financial condition, operating results and
prospects, and the market price of our securities would likely
decline and you could lose all or part of your
investment.
Risks
Related to Our Business and Industry
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.
The Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, or 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.
13
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, equity
and debt financings 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 ITS CREDIT AGREEMENT MAY
RESULT IN THE FORECLOSURE OF THE COMPANY’S OR ITS
SUBSIDIARIES’ PLEDGED ASSETS AND OTHER ADVERSE
CONSEQUENCES.
Pursuant
to the Credit Agreement, the Lenders have agreed to extend certain
credit facilities to the Company, in an aggregate amount not to
exceed $55,000,000, consisting of $40,000,000 aggregate principal
amount of Tranche A Term Loans (the “Tranche A Term
Loans”), $10,000,000 aggregate principal amount of Multi-Draw
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 and the MDTL Term Loans, the
“Loans”). As of September 30, 2016, we had an
outstanding principal balance of $42,150,000 under the Loans, which
is secured by a first position security interest in substantially
all of the Company’s assets in favor of 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 Credit Agreement, we
entered into several amendments to the Credit Agreement, including,
most recently, that certain Fourth Amendment to the Credit
Agreement, by and among the parties to the Credit Agreement, dated
as of November 11, 2016 (the “Fourth Amendment”). 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 we are unable to
raise significant capital, including in connection with the public
offering of which this prospectus is a part, we expect that the
lenders under the Credit Agreement will have the right to exercise
these remedies.
THE COMPANY’S FAILURE TO MAINTAIN CERTAIN LEVERAGE RATIOS SET
FORTH IN THE CREDIT AGREEMENT HAS HISTORICALLY RESULTED IN, AND MAY
CONTINUE TO RESULT IN, THE COMPANY BEING 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 to comply with the leverage
ratio under the Credit Agreement, the Company is currently able to
draw down additional funds under the Credit Agreement solely as the
result of the execution of the Fourth Amendment. In the future, the
Company will 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 has historically
not been able to, and may continue not to be able to, maintain the
leverage ratios set forth in the Credit Agreement. As a result, the
Company will not be able to draw down additional funds pursuant to
the Credit Agreement until such time as such leverage ratios comply
with the requirements of the Credit Agreement. As a result, 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 two municipal contracts that account for 26%
and 18% of our long term contracted revenues for the fiscal year
ended December 31, 2015. Because we depend on these customers for a
majority of our revenue, a loss of one of these customers could
materially adversely affect our business and financial condition.
If these principal customers cease using our services, our business
could be materially adversely affected.
14
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 has indicated his support of legislation aimed at
reducing greenhouse gases. The 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 the Organization of Petroleum Exporting Countries
(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.
15
CHANGES IN INTEREST RATES MAY AFFECT OUR
PROFITABILITY.
Potential future
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 2015, we
disposed of approximately 100% of the waste that we collect in
landfills operated by others, and, even with our recent
acquisition of a landfill, that rate may not decrease significantly
in the immediate 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 assets
from Eagle Ridge Landfill, LLC as part of its strategy to
internalize a majority of its volume. As of April 2016,
the Company has begun to move its volume away from third party
landfills. Going forward, the Company may not
internalize all of its volume in its own landfill, which may limit
the expected savings it anticipated from the acquisition of assets
of Eagle Ridge Landfill, LLC.
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 maintaining 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.
16
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 parties 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 were 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.
17
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 LACK OF ADEQUATE SEGREGATION OF DUTIES AND
ABSENCE OF AN AUDIT COMMITTEE AS A MATERIAL WEAKNESS IN OUR
INTERNAL CONTROLS, WHICH COULD CAUSE STOCKHOLDERS AND PROSPECTIVE
INVESTORS TO LOSE CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL
REPORTING.
We currently have
limited segregation of duties among our officers and
employees with respect to the preparation and review of financial
statements, which is a material weakness in internal controls.
If we fail to maintain an effective system of internal controls, we
may not be able to accurately report financial results or prevent
fraud. As a result, current and potential stockholders could lose
confidence in the Company's financial reporting that could harm the
trading price of our shares, if a trading market does
develop.
The company has
identified limited segregation as a material weakness in
the Company's internal controls. We intend to remedy this
material weakness by hiring additional employees and reallocating
duties among employees, including responsibilities for financial
reporting, as soon as we have available sufficient resources and
personnel. However, until such time, this material weakness will
continue to exist.
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
certain lenders and Goldman Sachs Specialty Lending Group, L.P., as
administrative agent. 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 you
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.
18
RISKS
RELATED TO OWNERSHIP OF OUR SECURITIES
YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF
THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND
BECAUSE OF OUR PREFERRED STOCK AND OUTSTANDING
WARRANTS.
In the future, we
expect to issue our authorized but previously unissued equity
securities in connection with future financing, 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 Company's Board of Directors (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.
There are currently
0 shares of Series B Preferred Stock
outstanding.
There are
currently 35,750 shares of Series C Preferred Stock
outstanding, which may be converted into an amount of shares of
common stock equal to the stated value of the Series C Preferred
Stock, as well as accrued but unpaid declared dividends on such
Series C Preferred Stock, divided by the conversion price of $12.94
per share (reflecting adjustment to the price of $22.40 per share,
pursuant to the reverse stock split effected November 3, 2016),
subject to further adjustments as set forth in the Series C
Designations. Upon a Qualified Offering, the shares of Series C
Preferred Stock will be automatically converted at a conversion
price equal to the lower of $12.94 per share (reflecting adjustment
to the price of $22.40 per share, pursuant to the reverse stock
split effected November 3, 2016) or the per share price that
reflects a 20% discount to the price of the common stock pursuant
to such Qualified Offering. Assuming a public
offering price per unit of $10.00, the Series C Preferred Stock
would convert into 446,875 shares of common stock at a conversion
price of $8.00 per share at the closing of this
offering. Additionally, the Series C Designations
provide for additional shortfall conversions, pursuant to which
holders of Series C Preferred Stock may, subject to certain
conditions, be issued additional shares of common stock by the
Company.
In connection with
the Credit Agreement, the Company issued in favor of Goldman, Sachs
& Co. a Purchase Warrant for Common Shares, dated December 22,
2015, which was subsequently amended and restated with the Amended
and Restated Warrant. Pursuant to that certain Warrant
Cancellation and Stock Issuance Agreement (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 Goldman, Sachs & Co. 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 this offering
and all shares underlying such warrants, pursuant to the terms and
conditions of the Warrant Cancellation Agreement. Pursuant to the
Warrant Cancellation Agreement, Goldman, Sachs & Co.
entered into a lock-up agreement, prohibiting the
offer for sale, issue, sale, contract for sale, pledge or other
disposition of any of our common stock or securities convertible
into common stock for a period of 180 days after the date of this
prospectus, and no registration statement for any of our common
stock owned by Goldman, Sachs & Co. can be filed
during such lock-up period. In connection with the Warrant
Cancellation Agreement, the Company and Goldman, Sachs & Co.
intend to enter into a Registration Rights Agreement, pursuant to
which Goldman, Sachs & Co. will be granted certain registration
rights with respect to the shares to be issued pursuant to the
Warrant Cancellation Agreement, with such registration rights
intended to be substantially similar to those provided in the
Amended and Restated Warrant provided that such registration rights
will not be exercisable and will not permit the filing of any
registration statement during the lock-up period to which Goldman,
Sachs & Co. is subject. In the event the public offering of
which this prospectus is a part does not close prior to December
31, 2016 or does not result in proceeds to the Company sufficient
to satisfy the definition of Qualified Offering, the Warrant
Cancellation Agreement will not become effective and
the Amended and Restated Warrant would remain in full force and
effect.
Under any of the
circumstances described above, future issuances or conversions may
depress the market price of our common stock, and may impair our
ability to raise additional capital in the financial markets at a
time and price favorable to us. The effect of this dilution may, in
turn, cause the price of our common stock to decrease further, both
because of the downward pressure on our stock price that may be
caused by a large number of sales of our shares into the public
market by Goldman, Sachs & Co. or our preferred holders, and
because our other existing stockholders may, in
response, decide to sell additional shares of our common stock,
further decreasing our stock price.
IN THE EVENT THAT THE
CURRENT OFFERING DOES NOT MEET THE DEFINITION OF “QUALIFIED
OFFERING” PURSUANT TO THE SERIES C DESIGNATIONS, YOU MAY
EXPERIENCE FURTHER DILUTION OF YOUR OWNERSHIP INTEREST AS A RESULT
OF ADDITIONAL SHORTFALL CONVERSIONS UNDER THE SERIES C
DESIGNATIONS.
19
The Series C
Designations provide for additional shortfall conversions, pursuant
to which holders of Series C Preferred Stock may, subject to
certain conditions, be issued additional shares of common stock by
the Company. Specifically, subject to certain conditions, from the
date that is six months from the date of the issuance of the Series
C Preferred Stock to a holder until the date that is
fifteen months from the date of such issuance, if such holder
has exercised its right to optional conversion and has sold all of
the shares of common stock issued upon such conversion, resulting
in proceeds to such holder that are less than the amount of the
purchase price paid to the Company by the holder for all such
shares of Series C Preferred Stock, the Company shall issue
additional shares to such holder to cover this shortfall amount, as
further set forth in the Series C Designations.
Although all
outstanding shares of Series C Preferred Stock will automatically
convert upon the closing of a Qualified Offering, in the event that
the current offering does not meet the definition of Qualified
Offering, by virtue of the aggregate offering price of the
securities hereunder or otherwise, the holders of Series C
Preferred Stock would be able to exercise their rights to
additional shortfall conversions, which would have a dilutive
effect on your stock ownership.
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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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; and
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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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20
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 49% 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.
THERE IS CURRENTLY ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON
STOCK AND NO PUBLIC MARKET FOR OUR WARRANTS. FAILURE TO DEVELOP OR
MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT THE VALUE OF OUR
SECURITIES AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL ANY
SHARES OF OUR COMPANY THAT YOU HOLD.
There
is currently only a limited public market for our common stock and
no market for our warrants and the public offering price of the
units may bear no relationship to the price at which our common
stock and warrants will trade after this offering. An active public
market for our common stock and/or warrants may not develop or be
sustained. Failure to develop or maintain an active trading market
could make it difficult for you to sell your shares or warrants
without depressing the market price for such securities or recover
any part of your investment in us. Even if an active market for our
common stock and warrants does develop, the market price of such
securities may be highly volatile. In addition to the uncertainties
relating to future operating performance and the profitability of
operations, factors such as variations in interim financial results
or various, as yet unpredictable, factors, many of which are beyond
our control, may have a negative effect on the market price of our
securities. Further, quotes for shares of our common stock on the
OTCQB may not be indicative of the market price on a national
securities exchange, such as The Nasdaq Capital
Market.
THERE CAN BE NO ASSURANCES THAT OUR SHARES AND/OR WARRANTS WILL BE
LISTED ON THE NASDAQ CAPITAL MARKET AND, IF THEY ARE, 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.
We have applied to
list the shares of our common stock on The Nasdaq Capital Market,
or Nasdaq; however, no assurance can be given that out application
will be approved. An approval of our listing application by Nasdaq
will be subject to, among other things, our fulfilling all of the
listing requirements of Nasdaq, which include, among other things,
a bid price of $4.00, $4 million in stockholders’ equity and
$15 million market value of publicly held shares. We currently do
not meet the objective listing criteria for listing on that
exchange and there can be no assurance as to when we will qualify
for such exchange or that we will ever qualify for such exchange.
In addition, Nasdaq has rules for continued listing, including,
without limitation, minimum market capitalization and other
requirements. Failure to maintain our listing, or de-listing 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.
21
WE ARE SUBJECT TO PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF
OUR COMMON STOCK MORE DIFFICULT TO SELL.
We are currently
subject to the SEC’s “penny stock” rules because
our shares of common stock sell below $5.00 per
share. Penny stocks generally are equity securities with
a price of less than $5.00 per share. The penny stock
rules require broker-dealers to deliver a standardized risk
disclosure document prepared by the SEC which provides information
about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer must also provide the
customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson, and
monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and
offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in
writing prior to completing the transaction and must be given to
the customer in writing before or with the customer’s
confirmation.
In addition, the
penny stock rules require that prior to a transaction the broker
dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the
transaction. The penny stock rules are burdensome and
may reduce purchases of any offerings and reduce the trading
activity for shares of our common stock. As long as our
shares of common stock are subject to the penny stock rules, the
holders of such shares of common stock may find it more difficult
to sell their securities.
Although we have
conducted a reverse stock split to increase the price per share of
our common stock such that it would not be subject to the
“penny stock” rules, and we have applied to list our
common stock and warrants on The Nasdaq Capital Markets, no
assurance can be given that the share price of our common stock
will improve following the reverse stock split, or that our common
stock will be ever be listed on The Nasdaq Capital Markets or any
other exchange, such that our stock will no longer be subject to
these rules.
A DTC “CHILL” ON THE ELECTRONIC CLEARING OF TRADES IN
OUR SECURITIES IN THE FUTURE MAY AFFECT THE LIQUIDITY OF OUR STOCK
AND OUR ABILITY TO RAISE CAPITAL.
Because our common
stock may, from time to time, be considered a “penny
stock,” there is a risk that the Depository Trust Company
(DTC) may place a “chill” on the electronic clearing of
trades in our securities. This may lead some brokerage firms to be
unwilling to accept certificates and/or electronic deposits of our
stock and other securities and also some may not accept trades in
our securities altogether. A future DTC chill would affect the
liquidity of our securities and make it difficult to purchase or
sell our securities in the open market. It may also have
an adverse effect on our ability to raise capital because investors
may be unable to easily resell our securities into the market. Our
inability to raise capital on terms acceptable to us, if at all,
could have a material and adverse effect on our business and
operations.
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.
22
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 Securities 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.
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. As a result of the
foregoing, the Board 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 ON OUR COMMON STOCK 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 on our common
stock 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 on our common stock, 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, holders of our Series B Preferred
Stock are entitled to dividends at a rate of 12% of their original
issue price per share per annum, which dividends are payable prior
and in preference to any payment of dividend on our common stock,
and holders of our Series C Preferred Stock are entitled to
dividends at a rate of 8% per annum. Because we do not pay
dividends on our common stock, we may have trouble raising
additional funds, which could affect our ability to expand our
business operations.
IF THE COMPANY WERE TO DISSOLVE OR WIND-UP, HOLDERS OF OUR COMMON
STOCK WOULD NOT RECEIVE A LIQUIDATION PREFERENCE.
If we were to
wind-up or dissolve the Company and liquidate and distribute our
assets, our common stockholders would share in our assets only
after we satisfy any amounts we owe to our creditors and preferred
equity holders. Our Series C Preferred Stock holders are
entitled to receive, in the event of any liquidation, dissolution
or winding up of the Company, immediately prior and in preference
to any distribution to the holders of the Company’s other
equity securities, a liquidation preference calculated based on
$22.40 per share of common stock plus all accrued and unpaid
dividends. If our liquidation or dissolution were attributable to
our inability to profitably operate our business, then it is likely
that we would have material liabilities at the time of liquidation
or dissolution. Accordingly, we may not have sufficient
assets available after the payment of our creditors and preferred
equity holders to enable you to receive any liquidation
distribution with respect to any common stock you
hold.
23
RISKS RELATED TO THE OFFERING
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK VALUE.
The public offering price per unit will be
substantially higher than the net tangible book value per share of
our outstanding shares of common stock. As a result, investors in
this offering will incur immediate dilution of $8.51
per share, based on the assumed public offering price of
$10.00 per unit. Investors in this offering will pay a
price per unit that substantially exceeds the book value of our
assets after subtracting our liabilities. See
“Dilution” for a more complete description of how the
value of your investment will be diluted upon the completion of
this offering.
OUR STOCK MAY BE THINLY TRADED.
Our
common stock has been thinly traded, meaning there has been a low
volume of buyers and sellers of the shares. We went public without
the typical initial public offering procedures which usually
include a large selling group of broker-dealers who may provide
market support after going public. Thus, we will be required to
undertake efforts to develop market recognition and support for our
shares of common stock in the public market. The price and trading
volume of our registered common stock cannot be assured. The
numbers of institutions or persons interested in purchasing our
registered common stock at or near ask prices at any given time may
be relatively small or non-existent. This situation may be
attributable to a number of factors, including the fact that we are
a small company which is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment
community that generate or influence sales volume. Even if we came
to the attention of such persons, they tend to be risk-averse and
would be reluctant to follow an unproven company such as ours or
purchase or recommend the purchase of our shares until such time as
we became more seasoned and viable. As a consequence, there may be
periods of several days, weeks or months when trading activity in
our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that
will generally support continuous sales without an adverse effect
on share price.
Although,
we have applied for listing of
our common stock and warrants on The Nasdaq Capital Market, no assurance can be
given that our application will be approved. We currently do not
meet the objective listing criteria for listing on that exchange
and there can be no assurance as to when we will qualify for such
exchanges or that we will ever qualify for such exchanges. We would
also need to meet the corporate governance and independent director
and audit committee standards of the the Nasdaq Capital
Market. We do not satisfy such standards at this
time.
YOU MAY NOT BE ABLE TO RESELL YOUR WARRANTS.
There
is no established trading market for the warrants being offered in
this offering, and an active market may not develop. As a result,
you may not be able to resell your warrants. If your warrants
cannot be resold, you will have to depend upon any appreciation in
the value of our common stock over the exercise price of the
warrants in order to realize a return on your investment in the
warrants.
INVESTORS WILL HAVE NO RIGHTS AS A COMMON STOCKHOLDER WITH RESPECT
TO THEIR WARRANTS UNTIL THEY EXERCISE THEIR WARRANTS AND ACQUIRE
OUR COMMON STOCK.
Until
you acquire shares of our common stock upon exercise of your
warrants, you will have no rights with respect to the shares of our
common stock underlying such warrants. Upon exercise of your
warrants, you will be entitled to exercise the rights of a common
stockholder only as to matters for which the record date occurs
after the exercise date.
The
warrants do not confer any rights of common stock ownership on
their holders, such as voting rights or the right to receive
dividends, but rather merely represent the right to acquire shares
of common stock at a fixed price for a limited period of
time. Specifically, commencing on the date of issuance,
holders of the warrants may exercise their right to acquire the
common stock and pay an exercise price of $ per
share, prior to five years from the date of issuance, after which
date any unexercised warrants will expire and have no further
value. Moreover, following this offering, the market
value of the warrants is uncertain and there can be no assurance
that the market value of the warrants will equal or exceed their
public offering price. There can be no assurance that
the market price of the common stock will ever equal or exceed the
exercise price of the warrants, and consequently, whether it will
ever be profitable for holders of the warrants to exercise the
warrants.
WE MAY NEED ADDITIONAL CAPITAL, AND THE SALE OF ADDITIONAL SHARES
OR EQUITY OR DEBT SECURITIES COULD RESULT IN ADDITIONAL DILUTION TO
OUR STOCKHOLDERS.
We
believe that our current cash and cash used in operations, together
with the net proceeds from this offering, will be sufficient to
meet our anticipated cash needs for the next twelve (12) months. We
may, however, require additional cash resources due to changed
business conditions or other future developments. If these
resources are insufficient to satisfy our cash requirements, we may
seek to sell additional equity or debt securities or obtain one or
more credit facilities. The sale of additional equity securities
could result in additional dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financing covenants
that would restrict our operations. It is uncertain whether
financing will be available in amounts or on terms acceptable to
us, if at all.
24
WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS
OFFERING AND MAY NOT USE THEM EFFECTIVELY.
Our
management will have broad discretion in the application of the net
proceeds, including for any of the purposes described in the
section of this prospectus entitled “Use of Proceeds.”
The failure by our management to apply these funds effectively
could harm our business.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK
FOLLOWING THIS OFFERING MAY ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK AND THE ISSUANCE OF ADDITIONAL SHARES WILL DILUTE
ALL OTHER STOCKHOLDERS.
Sales
of a substantial number of shares of our common stock in the public
market or otherwise following this offering, or the perception that
such sales could occur, could adversely affect the market price of
our common stock. After completion of this offering at an assumed
offering price of $10.00 per unit, our existing
stockholders will own approximately 28% of our common
stock assuming there is no exercise of the underwriters’
over-allotment option.
After
completion of this offering at an assumed offering price of
$10.00 per unit there will be 6,056,817
shares of our common stock outstanding (9,556,817 shares if
the warrants are exercised in full), assuming no exercise of the
underwriters' over-allotment option. In addition, our
certificate of incorporation, as amended, permits the issuance of
up to approximately 68,943,183 additional shares of
common stock after the completion of this offering. Thus, we have
the ability to issue substantial amounts of common stock in the
future, which would dilute the percentage ownership held by the
investors who purchase shares of our common stock in this
offering.
We and
our officers, directors and certain stockholders have agreed,
subject to customary exceptions, not to, without the prior written
consent of Joseph Gunnar & Co., LLC, the representative of the
underwriters, during the period ending 180 days from the date of
this offering in the case of our directors and officers and 90 days
from the date of this offering in the case of our stockholders who
beneficially own more than 5% of our common stock, directly or
indirectly, offer to sell, sell, pledge or otherwise transfer or
dispose of any of shares of our common stock, enter into any swap
or other derivatives transaction that transfers to another any of
the economic benefits or risks of ownership of shares of our common
stock, make any demand for or exercise any right or cause to be
filed a registration statement, including any amendments thereto,
with respect to the registration of any shares of common stock or
securities convertible into or exercisable or exchangeable for
common stock or any other securities of the Company or publicly
disclose the intention to do any of the foregoing.
After
the lock-up agreements with our principal stockholders pertaining
to this offering expire 90 days from the date of this offering
unless waived earlier by the representative, up to
1,757,803 of the shares that had been locked up will
be eligible for future sale in the public market. After the lock-up
agreements with our directors and officers pertaining to this
offering expire 180 days from the date of this offering unless
waived earlier by the managing underwriter, up to
618,930 of the shares (net of any shares
also restricted by lock-up agreements with our principal
stockholders) that had been locked up will be eligible for future
sale in the public market. Sales of a significant number of these
shares of common stock in the public market could reduce the market
price of the common stock.
RISKS RELATED TO OUR REVERSE STOCK SPLIT
25
WE HAVE EFFECTED A REVERSE STOCK SPLIT OF OUR OUTSTANDING
COMMON STOCK PRIOR TO THIS OFFERING; HOWEVER WE CANNOT
ASSURE YOU THAT WE WILL BE ABLE TO CONTINUE TO COMPLY WITH THE
MINIMUM BID PRICE REQUIREMENT OF THE NASDAQ
CAPITAL MARKET.
Even if
the reverse stock split achieves the requisite increase in the
market price of our common stock to be in compliance with the
minimum bid price of The Nasdaq
Capital Market, there can be no assurance that the market
price of our common stock following the reverse stock split will
remain at the level required for continuing compliance with that
requirement. It is not uncommon for the market price of a
company’s common stock to decline in the period following a
reverse stock split. If the market price of our common stock
declines following the effectuation of a reverse stock split, the
percentage decline may be greater than would occur in the absence
of a reverse stock split. In any event, other factors unrelated to
the number of shares of our common stock outstanding, such as
negative financial or operational results, could adversely affect
the market price of our common stock and jeopardize our ability to
meet or maintain The Nasdaq Capital
Market’s minimum bid price requirement. In addition to
specific listing and maintenance standards, The Nasdaq Capital Market has broad
discretionary authority over the initial and continued listing of
securities, which it could exercise with respect to the listing of
our common stock.
EVEN IF THE REVERSE STOCK SPLIT INCREASES THE MARKET PRICE OF OUR
COMMON STOCK, THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO
COMPLY WITH OTHER CONTINUED LISTING STANDARDS OF THE
NASDAQ
CAPITAL MARKET.
Even if
the market price of our common stock increases sufficiently so that
we comply with the minimum bid price requirement, we cannot assure
you that we will be able to comply with the other standards that we
are required to meet in order to maintain a listing of our common
stock on The Nasdaq Capital
Market. Our failure to meet these requirements may result in
our common stock being delisted from The Nasdaq Capital Market, irrespective of our
compliance with the minimum bid price requirement.
THE REVERSE STOCK SPLIT MAY DECREASE THE LIQUIDITY OF THE SHARES OF
OUR COMMON STOCK.
The
liquidity of the shares of our common stock may be affected
adversely by the reverse stock split given the reduced number of
shares outstanding following the reverse stock split, especially if
the market price of our common stock does not increase as a result
of the reverse stock split. In addition, the reverse stock split
has increased the number of
stockholders who own odd lots (less than 100 shares) of our common
stock, creating the potential for such stockholders to experience
an increase in the cost of selling their shares and greater
difficulty effecting such sales.
FOLLOWING THE REVERSE STOCK SPLIT, THE RESULTING MARKET PRICE OF
OUR COMMON STOCK MAY NOT ATTRACT NEW INVESTORS, INCLUDING
INSTITUTIONAL INVESTORS, AND MAY NOT SATISFY THE INVESTING
REQUIREMENTS OF THOSE INVESTORS. CONSEQUENTLY, THE TRADING
LIQUIDITY OF OUR COMMON STOCK MAY NOT IMPROVE.
Although
we believe that a higher market price of our common stock may help
generate greater or broader investor interest, there can be no
assurance that the reverse stock split will result in a share price
that will attract new investors, including institutional investors.
In addition, there can be no assurance that the market price of our
common stock will satisfy the investing requirements of those
investors. As a result, the trading liquidity of our common stock
may not necessarily improve.
26
The foregoing list
is not all-inclusive. There can be no assurance that we have
correctly identified and appropriately assessed all factors
affecting our business or that the publicly available and other
information with respect to these matters is complete and correct.
Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely
affect us. These developments could have material adverse effects
on our business, financial condition, results of operations and
liquidity. For these reasons, the reader is cautioned not to place
undue reliance on our forward-looking statements.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus
contains forward-looking statements. Forward-looking statements
present our current expectations or forecasts of future events. You
can identify these statements by the fact that they do not relate
strictly to historical or current facts. Forward-looking statements
involve risks and uncertainties and include statements regarding,
among other things, our projected revenue growth and profitability,
our growth strategies and opportunity, anticipated trends in our
market and our anticipated needs for working capital. They are
generally identifiable by use of the words “may,”
“will,” “should,” “anticipate,”
“estimate,” “plans,”
“potential,” “projects,”
“continuing,” “ongoing,”
“expects,” “management believes,” “we
believe,” “we intend” or the negative of these
words or other variations on these words or comparable terminology.
These statements may be found under the sections entitled
“Prospectus Summary,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business,” as well as in this prospectus generally. In
particular, these include statements relating to future actions,
prospective products, market acceptance, future performance or
results of current and anticipated products, sales efforts,
expenses, and the outcome of contingencies such as legal
proceedings and financial results.
Examples of
forward-looking statements in this prospectus include, but are not
limited to, our expectations regarding our business strategy,
business prospects, operating results, operating expenses, working
capital, liquidity and capital expenditure requirements. Important
assumptions relating to the forward-looking statements include,
among others, assumptions regarding demand for our products and
services, the cost, terms and availability of components, pricing
levels, the timing and cost of capital expenditures, competitive
conditions and general economic conditions. These statements are
based on our management’s expectations, beliefs and
assumptions concerning future events affecting us, which in turn
are based on currently available information. These assumptions
could prove inaccurate. Although we believe that the estimates and
projections reflected in the forward-looking statements are
reasonable, our expectations may prove to be
incorrect.
Important factors
that could cause actual results to differ materially from the
results and events anticipated or implied by such forward-looking
statements include, but are not limited to:
• increased
levels of competition;
• changes
in political, economic or regulatory conditions generally and in
the markets in which we operate;
• our
relationships with our key customers;
• adverse
conditions in the industries in which our customers
operate;
• our
ability to retain and attract senior management and other key
employees; or
• other
risks, including those described in the “Risk Factors”
discussion of this prospectus.
We operate in a
very competitive and rapidly changing environment. New risks emerge
from time to time. It is not possible for us to predict all of
those risks, nor can we assess the impact of all of those risks on
our business or the extent to which any factor may cause actual
results to differ materially from those contained in any
forward-looking statement. The forward-looking statements in this
prospectus are based on assumptions management believes are
reasonable. However, due to the uncertainties associated with
forward-looking statements, you should not place undue reliance on
any forward-looking statements. Further, forward-looking statements
speak only as of the date they are made, and unless required by
law, we expressly disclaim any obligation or undertaking to
publicly update any of them in light of new information, future
events, or otherwise.
27
USE
OF PROCEEDS
We estimate that
the net proceeds to us from the sale of the units that we are
offering will be approximately $32,550,000 (or
approximately $37,432,500 if the underwriters exercise in full
their overallotment option) based on an assumed public
offering price of $10.00 per unit, and
after deducting underwriting discounts and commissions and
estimated offering expenses that we must pay.
We currently expect
to use the net proceeds of this offering primarily for the
following purposes:
|
|
●
|
approximately
$5,000,000 for capital expenditures;
|
|
|
●
|
approximately
$5,000,0000 for tuck-in acquisitions;
|
|
|
●
|
approximately
$25,000,000 for the repayment of certain debt and other
obligations; and
|
|
|
●
|
the remainder for
working capital and other general corporate purposes.
|
The use of
approximately $25,000,000 of the proceeds for the repayment of debt
includes repayment of amounts outstanding under (i) the existing
Credit Agreement and (ii) the Convertible Promissory Note issued in
favor of Timothy Drury on December 22, 2015 having a principal
amount of $1,250,000 (the "Convertible Note"). Such debt under the
Credit Agreement 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 unused Multi-Draw Term Loan commitments and
Revolving Commitments at an annual rate of 0.5%. Under
the Convertible Note, beginning in the quarter ending December 31,
2016, unpaid principal balance and all accrued and unpaid
interest shall be paid in sixteen (16) equal quarterly installments
of principal and accrued interest with the final payment of
principal and interest, if not sooner paid, due on December 31,
2020, with interest on the outstanding unpaid principal balance
thereof at the rate of eight percent (8%) per annum compounded on
the last day of each calendar quarter from the date of the
Convertible Note.
The proceeds of the
indebtedness under the Credit Agreement were applied as
follows:
|
|
●
|
$13,008,108 for the
acquisition of Christian Disposal, LLC;
|
|
|
●
|
$9,163,487 for the purchase of
certain assets of Eagle Ridge Assets, LLC;
|
|
|
●
|
$11,417,179 for
repayment of indebtedness to Praesidian Capital Opportunity Fund
III, LP and Praesidian Capital Opportunity Fund III-A, LP
(collectively, “Praesidian”); and
|
|
|
●
|
approximately
$3,000,000 for capital expenditures.
|
The Convertible
Note was issued as partial consideration in the acquisition of
Christian Disposal, LLC.
We believe that the
expected net proceeds from this offering and our existing cash and
cash equivalents, together with interest thereon, will be
sufficient to fund our operations for at least the next twelve
months, although we cannot assure you that this will
occur.
The amount and
timing of our actual expenditures will depend on numerous factors,
including the status of our development efforts, sales and
marketing activities and the amount of cash generated or used by
our operations. We may find it necessary or advisable to use
portions of the proceeds for other purposes, and we will have broad
discretion and flexibility in the application of the net proceeds.
Pending these uses, the proceeds will be invested in short-term
bank deposits.
28
Market
and Other Information
The Company's
common stock is currently quoted on the OTCQB under the symbol
“MRDN.” The Company's common stock was
quoted on the OTC Markets effective February 23, 2005 under
the symbol “BCAK.” Effective March 22, 2006, the
Company changed its symbol to “BCKE.” Effective April
15, 2015, the Company changed its symbol to
“MRDN.”
We have applied to
The Nasdaq Capital Market to list our common stock under the symbol
“MRDN” and our warrants under the symbol
“MRDNW.”
Immediately
following the offering, we expect to have one class of common stock
outstanding and one class of preferred stock
outstanding.
As of December
9, 2016, there were approximately 46 registered
holders of record of our common stock, and the last reported sale
price of our common stock on the OTCQB was $10.00 per
share.
On November 3,
2016, the Company effected a 1-for-20 reverse split.
The following table
sets forth the high and low sales price of our common stock on the
OTCQB for the most recent fiscal quarter. These prices are based on
inter-dealer bid and asked prices, without markup, markdown,
commissions, or adjustments and may not represent actual
transactions. The share values
reflected below have been adjusted to give effect to the 1-for-20
reverse split which we implemented on November 3,
2016.
|
Period
|
High
|
Low
|
|
Fiscal
Year 2016:
|
|
|
|
First
Quarter
|
$36.00
|
$20.40
|
|
Second
Quarter
|
39.00
|
20.00
|
|
Third
Quarter
|
30.00
|
16.00
|
|
Fourth Quarter
(through December 9, 2016)
|
13.50
|
9.00
|
|
|
|
|
|
Fiscal
Year 2015:
|
|
|
|
First
Quarter
|
$36.00
|
$26.00
|
|
Second
Quarter
|
32.00
|
20.40
|
|
Third
Quarter
|
22.20
|
11.00
|
|
Fourth
Quarter
|
20.00
|
6.00
|
|
|
|
|
|
Fiscal
Year 2014:
|
|
|
|
First
Quarter
|
$12.00
|
$12.00
|
|
Second
Quarter
|
12.00
|
12.00
|
|
Third
Quarter
|
12.00
|
12.00
|
|
Fourth
Quarter
|
27.60
|
27.60
|
Dividend Policy
To date, we have
not paid any dividends on our common stock and do not anticipate
paying any such dividends in the foreseeable future. The
declaration and payment of dividends on the common stock is at the
discretion of our board of directors and will depend on, among
other things, our operating results, financial condition, capital
requirements, contractual restrictions or such other factors as our
board of directors may deem relevant. We currently expect to use
all available funds to finance the future development and expansion
of our business and do not anticipate paying dividends on our
common stock in the foreseeable future.
29
CAPITALIZATION
The following table
sets forth our consolidated cash and capitalization as of September
30, 2016. Such information is set forth on the following
basis:
●
actual
basis;
●
on a pro forma
basis to give effect to the assumed conversion of 35,750 shares of
Series C Preferred Stock into an aggregate of
446,875 shares of our common stock
(assuming a conversion price of $8.00 per share) at or
prior to completion of this offering;
●
on a pro forma
basis, giving effect to the events described above and the sale of
the 3,500,000 shares of common stock in this offering
at an assumed public offering price of $10.00 per
share after deducting underwriting discounts and commissions and
other estimated offering expenses.
The pro forma
information below is illustrative only and our capitalization
following the completion of this offering will be adjusted based on
the actual public offering price and other terms of this offering
determined at pricing. You should read this table together with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our audited and
unaudited consolidated financial statements and the related notes
appearing elsewhere in this prospectus.
|
|
As of September 30, 2016
|
||
|
|
Actual
|
Pro Forma
|
Pro Forma
As Adjusted
|
|
Cash and cash
equivalents
|
$1,247,756
|
$ 10,000,000
|
11,247,756
|
|
Total
indebtedness
|
52,903,052
|
(25,000,000)
|
27,903,052
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
Series B Preferred
stock, $0.001 par value: 71,120 shares authorized; 0 shares
outstanding and 0 shares outstanding pro
forma
|
71
|
—
|
—
|
|
Common Stock,
$0.025 par value; 75,000,000 shares authorized; 1,194,051
shares outstanding
and 6,056,817 outstanding pro forma
|
29,851
|
151,420
|
181,271
|
|
Additional paid-in
capital
|
36,955,896
|
34,848,580
|
71,805,016
|
|
Accumulated
deficit
|
(42,127,665)
|
—
|
(42,127,665)
|
|
Total
stockholders’ equity (deficit)
|
(5,326,097)
|
35,000,000
|
29,673,903
|
A
$1.00 increase or decrease in the assumed public offering price per
unit would increase or decrease our pro forma cash, additional
paid-in capital, total stockholders’ equity (deficit) and
total capitalization by approximately $3,500,000 assuming the
number of units offered by us, as set forth on the cover page of
this prospectus, remains the same and after deducting the
underwriting discount and estimated offering expenses payable by
us.
30
DILUTION
If you invest in
our securities, your investment will be diluted immediately to the
extent of the difference between the public offering price you pay
in this offering, assuming a value of $0.01 is
attributed to the warrants included in the units we are offering,
and the pro forma net tangible book value per share of common stock
immediately after this offering.
Net tangible book
value (deficit) represents the amount of our total tangible assets
reduced by our total liabilities. Tangible assets equal our total
assets less intangible assets. Pro forma net tangible book value
per share represents our pro forma net tangible book value divided
by the number of shares of common stock outstanding.
Net
tangible book value dilution per share represents the difference
between the amount per unit paid by the investors who purchased
units in this offering and the pro forma net tangible book value
per share of common stock immediately after completion of this
offering as of September 30, 2016, after giving effect
to:
●
the sale by us of
3,500,000 shares of common stock at an assumed public
offering price of $10.00 per share
included in the units we are offering by this prospectus and the
application of the estimated net proceeds to us in this offering as
described in “Use of
Proceeds”;
●
the issuance of
446,975 shares of common stock that will
be issued upon the automatic conversion of 35,750
shares of Series C Preferred Stock at the closing of the offering;
and
●
the estimated
underwriting discounts and commissions and offering expense payable
to us.
|
|
As of
September 30, 2016 |
Adjusted
|
|
Assumed public
offering price per unit
|
|
10.00
|
|
Net tangible book
value (deficit) per share as of September 30, 2016
|
$ (24.61)
|
|
|
Increase in net
tangible book value per share attributable to this
offering
|
26.10
|
|
|
As adjusted net
tangible book value per share after this offering
|
|
1.49
|
|
Dilution in net
tangible book value per share to new investors
|
|
8.51
|
The
following table summarizes as of September 30, 2016, on a pro forma
basis to reflect the same adjustments described above, the number
of shares of common stock purchased from us, the total
consideration paid and the average price per share paid
by:
●
the existing common
stockholders; and
●
the new investors
in this offering, assuming the sale of 3,500,000
shares of common stock offered hereby at an assumed public offering
price of $10.00 per share included in the units we are
offering by this prospectus
The
calculations are based upon total consideration given by new and
existing stockholders, before any deduction of estimated
underwriting discounts and commissions and offering
expenses.
|
|
Shares of Common Stock
Purchased
|
Total Consideration
|
Average Price
|
|
|
|
Number
|
Percent
|
Amount
|
Per Share
|
|
Existing Stockholders
|
1,698,569
|
33%
|
|
|
|
New
Investors
|
3,500,000
|
67%
|
35,000,000
|
$ 10.00
|
|
Total
|
5,198,569
|
100%
|
|
|
The information
above assumes that the underwriters do not exercise their
over-allotment option. If the underwriters’ overallotment
option is exercised, our pro forma net tangible book value
following the offering will be $1.49 per share, and
the dilution to new investors in the offering will be
$8.51 per share.
A
$1.00 increase or decrease in the assumed public offering price per
share would increase or decrease our pro forma as adjusted net
tangible book value per share after this offering by approximately
$0.10, and dilution per share to new investors by approximately
$0.10 for an increase of $1.00, or $(0.10) for a decrease of $1.00,
after deducting the underwriting discount and estimated offering
expenses payable by us.
31
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the
financial condition and results of our operations should be read in
conjunction with our consolidated financial statements and the
notes to those statements appearing elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements
reflecting our management's current expectations that involve
risks, uncertainties and assumptions. Our actual results and the
timing of events may differ materially from those described in or
implied by these forward-looking statements due to a number of
factors, including those discussed below and elsewhere in this
prospectus particularly on page 13 entitled “Risk
Factors”. The share and per
share numbers in the following discussion reflect the 1-for-20
reverse stock split that we effected on November 3,
2016.
Executive
Overview
General Overview of Our Business
The platform
operation of the Company is our subsidiary Here To Serve Missouri
Waste Division, LLC (“HTS Waste”). HTS Waste
is in the business of collection of non-hazardous solid
waste. Our revenue is generated primarily by collection
services provided to residential customers. The
following table reflects the total revenue of Meridian Waste
Services, LLC (“Predecessor”) for the years ending
December 31, 2013, the combined revenues for HTS Waste and the
Predecessor for the year ended December 31, 2014, and for the year
ended December 31, 2015 (dollars in thousands):
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|||||||||||||||
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
||||||
|
|
|
$
|
|
|
increase
|
|
|
$
|
|
|
increase
|
|
|
$
|
|
|
Increase
|
|
||||||
|
Revenue
|
|
|
13,506
|
|
|
|
11
|
%
|
|
|
12,202
|
|
|
|
8
|
%
|
|
|
11,350
|
|
|
|
11
|
%
|
As our revenues
continue to grow in this existing market, we plan to increase the
rate of this growth by expanding the collection business into the
commercial arena as well as increasing our presence in the
“roll-off” business. Roll-off service is the
hauling and disposal of large waste containers (typically between
10 and 40 cubic yards) that are loaded on to and off of the
collection vehicle.
The following
discussion and analysis should be read in conjunction with the
financial statements, the related notes thereto and the pro forma
financials included in this registration statement on
Form S-1.
Results of Operations
Three Months Ended September 30, 2016 and September 30,
2015
Summary
of Statements of Operations for the Three Months Ended September
30, 2016 and 2015:
|
|
Three Months
Ended
|
|
|
|
September 30,
2016
|
September 30,
2015
|
|
Revenue
|
$8,389,326
|
$3,382,221
|
|
Gross
profit
|
$2,423,766
|
$879,342
|
|
Operating
expenses
|
$5,513,566
|
$2,272,039
|
|
Other expenses,
net
|
$501,149
|
$37,367
|
|
Net
loss
|
$3,753,949
|
$1,430,064
|
|
Basic net loss per
share
|
$2.96
|
$2.22
|
32
Revenue
The Company’s
revenue for the three months ended September 30, 2016 was
$8,389,326, a 148% increase over the three months ended September
30, 2015 of $3,382,221. This increase is due to the continued
growth of HTS Waste and the acquisitions of Christian Disposal and
Eagle Ridge. Christian Disposal revenue for the three months ended
September 30, 2016 was approximately $3,600,000 and Eagle Ridge
revenue for the same period was approximately
$1,000,000.
Gross
Profit
Gross profit
percentage for the three months ended September 30, 2016 is 29%.
This is an increase of approximately 3% from the three months ended
September 30, 2015. The increase is due to efficiencies of
operations. The Company is utilizing the synergies of its recent
acquisitions, such as creating density in some of its routes, which
creates cost savings. In addition, there was a decrease in landfill
costs as the company began internalizing its waste.
Operating
Expenses
Operating expenses
were $5,513,566, or 66% of revenue, for the three months ended
September 30, 2016 as compared to $2,272,039, or 67% of revenue,
for the three months ended September 30, 2015. The high level of
operating expenses in both periods is due to recurring costs of
operations, including professional fees, compensation and general
and administrative expenses, including insurance and rental expense
and certain other incremental items relating to the acquisitions in
December 2015, primarily including payments to third party
professionals for accounting and valuation services. The increase
in operating expenses from the three months ended September 30,
2016 as compared to the three months ended September 30, 2015, is
primarily attributable to increased compensation and related
expense and the acquisition of Christian Disposal and Eagle Ridge
in December of 2015.
Other expenses
Other expense for
the three months ended September 30, 2016, was $501,149, as
compared to $37,367 for the three months ended September 30, 2015.
The change is attributable to an approximate increase in interest
expense of $770,000 and increase in unrealized gain on change in
fair value of derivative liability of $386,000. The increase in the
interest expense was due primarily to our increase in debt of
approximately $30,000,000.
Net Loss
Net loss for three
months ended September 30, 2016, was $3,753,949 or loss per share
of $2.96, as compared to $1,430,064 or loss per share of $2.22, for
the three months ended September 30, 2015.
Results of Operations
Summary
of Statements of Operations for the Nine Months Ended September 30,
2016 and 2015:
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
September
30,
|
|
|
2016
|
2015
|
|
Revenue
|
$23,883,663
|
$9,733,330
|
|
Gross
profit
|
$7,132,224
|
$2,567,595
|
|
Operating
expenses
|
$19,544,172
|
$13,463,557
|
|
Other expenses,
net
|
$1,751,101
|
$414,005
|
|
Net
loss
|
$14,308,049
|
$11,309,967
|
|
Basic net loss per
share
|
$11.91
|
$19.05
|
33
Revenue
The Company's
revenue for the nine months ended September 30, 2016 was
$23,883,663, a 145% increase over the nine months ended September
30, 2015 of $9,733,330. This increase is due to the continued
growth of HTS Waste and the
acquisitions of Christian Disposal and Eagle
Ridge.
Gross
Profit
Gross profit
percentage for the nine months ended September 30, 2016 is 30%.
This is an increase of approximately 4% from the nine months ended
September 30, 2015. The increase is due to efficiencies of
operations. The Company is utilizing the synergies of its recent
acquisitions, such as creating density in some of its routes, which
creates cost savings. In addition, there was a decrease in landfill
costs as the Company began internalizing its waste.
Operating
Expenses
Operating expenses
were $19,544,172, or 82% of revenue, for the nine months ended
September 30, 2016, as compared to $13,463,557, or 138% of revenue,
for the nine months ended September 30, 2015. The high level of
operating expenses in both periods is due to recurring costs of
operations, including professional fees, compensation and general
and administrative expenses, including insurance and rental expense
and certain other incremental items relating to the acquisitions in
December 2015, primarily including payments to third party
professionals for accounting and valuation services. The 56%
decrease in operating expenses as a percent of revenue is primarily
attributable to significant stock based compensation issued to
certain employees and vendors during the three months ended June
30, 2015. For the nine months ended September 30, 2016 stock-based
compensation was 39% of total revenue, as compared to 78% for the
nine months ended September 30, 2015.
Other expenses
Other expense for
the nine months ended September 30, 2016, was $1,751,101, as
compared to $414,005 for the nine months ended September 30, 2015.
The change is attributable to an approximate increase in interest
expense of $2,700,000 and increase in gain on contingent liability
of $1,000,000. Lastly, there was an increase in unrealized gain on
change in fair value of derivative liability of $500,000 for the
nine months ended September 30, 2016 as compared to the nine months
ended September 30, 2015.
Net Loss
Net loss for nine
months ended September 30, 2016, was $14,308,049 or loss per share
of $11.91, as compared to $11,309,967 or loss per share of $19.05,
for the nine months ended September 30, 2015.
Results of Operations
Fiscal Year 2015 Compared to Fiscal Year 2014
Summary
of Statements of Operations for the Years Ended December 31, 2015
and 2014:
|
|
Year
Ended
|
|
|
|
December 31,
2015
|
December 31,
2014
|
|
Revenue
|
$13,506,097
|
$12,202,076
|
|
Gross
profit
|
$3,370,493
|
$3,142,469
|
|
Operating
expenses
|
$17,640,895
|
$4,868,540
|
|
Other
expenses
|
$4,961,488
|
$659,608
|
|
Net
loss
|
$19,231,890
|
$2,385,679
|
|
Basic net loss per
share
|
$26.60
|
$5.40
|
34
Revenue
The Company's
revenue for the year ended December 31, 2015 was $13,506,000, an
11% increase over the annualized 2014 revenue of
$12,202,000. This increase is due to the continued
growth of HTS Waste, the acquisitions of Christian Disposal and
Eagle Ridge, and the expansion into other service product
lines.
Gross
Profit
Gross profit
percentage for the year ending December 31, 2015 is
25%. This is consistent with the seven and one-half
months ending December 31, 2014 and relatively consistent with the
gross profit percentage of the Predecessor, MWS. The
small amount of decrease from the Predecessor is due to an increase
in depreciation expense included in cost of sales and an increase
in disposal cost. The increase in depreciation expense
is due to the application of “push-down” accounting
adjusting the value of depreciable property to fair value on May
15, 2014 and the addition of new equipment.
Operating
Expenses
Selling, general
and administrative expenses were $17,641,000, or 131% of revenue,
for the year ended December 31, 2015. This is a significant
increase over the level of selling, general and administrative
expenses for the seven and one-half months ending December 31, 2014
and that of the Predecessor. This is largely due to significant
incentive packages awarded to certain employees and vendors and
certain other one-time expenses in connection with the acquisitions
and reorganization of the Company. In addition, as discussed above,
the increase is related to the use of “push-down”
accounting related to the business combinations which occurred in
May 2014 and December 2015.
Liquidity and Capital Resources
The following table
summarizes total current assets, liabilities and working capital at
September 30, 2016, compared to December 31, 2015:
|
|
September
30,
2016 |
December
31,
2015
|
Increase/Decrease
|
|
Current
Assets
|
$5,938,358
|
$4,917,587
|
$1,020,771
|
|
Current
Liabilities
|
$10,721,519
|
$10,788,838
|
$67,319
|
|
Working capital
(Deficit)
|
$(4,783,161)
|
$(5,871,251)
|
$(1,088,090)
|
The change in
working capital (deficit) is due primarily to the following changes
to current assets and current liabilities. The increase in
short term investments of approximately $2,000,000 offset by
a decrease in cash of approximately $1,500,000. Accounts Receivable
and other assets increased by approximately $500,000. Contingent
liability decreased by $1,000,000 offset by an increase of
approximately $900,000 in accounts payable and accrued
expenses.
Short-term
investments increased due to the Company needing to collateralize a
letter of credit for a performance bond. Cash decreased primarily
because of the acquisition of equipment. Accounts receivable
increased due to increased sales. The contingent liability decrease
is the result of the loss of a potential renewal as part of the
Christian Disposal acquisition. Accounts payable and accrued
expenses increased as a result of increased sales.
At September 30,
2016, we had a working capital deficit of $4,783,161, as compared
to a working capital deficit of $5,871,251, at December 31, 2015, a
decrease of $1,088,090. This lack of liquidity is mitigated by the
Company's ability to generate positive cash flow from operating
activities. In the nine months ended September 30, 2016, cash
generated from operating activities, was approximately $600,000. In
addition, as of September 30, 2016, the Company had approximately
$1,200,000 in cash and cash equivalents and $1,953,000 in
short-term investments to cover its short term cash requirements.
Further, the Company has approximately $12,850,000 of borrowing
capacity on its multidraw term loans and revolving
commitments with Goldman Sachs Specialty Lending Group, L.P. as
discussed below.
35
The Company
purchased approximately $5 million of equipment while increasing
long term debt by approximately $2,400,000 during the nine months
ended September 30, 2016. The increase in debt was due to the
Company borrowing on its revolving credit facility with Goldman
Sachs Specialty Lending Group, L.P. as discussed below. Liquidity
is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations, and
otherwise operate on an ongoing basis.
As of September 30,
2016, and at certain times thereafter, the Company was in violation
of covenants within its credit agreement with Goldman Sachs
Specialty Lending Group, L.P. The lenders party thereto, Goldman
Sachs Specialty Lending Group, L.P., as administrative agent, and
the Company and its affiliates entered into a waiver and amendment
letter on November 11, 2016, whereby certain covenant violations
were waived and the Company is now in compliance. The Company is
currently in compliance with all covenants under the Credit
Agreement. Should the Company have violations in the future that
are not waived, it could materially affect the Company's operations
and ability to fund future operations.
Our primary uses of
cash have been for working capital purposes to support our
operations and our efforts to become a reporting company with the
SEC. All funds received have been expended in the furtherance of
growing our business operations, establishing our brand and making
sure our work is completed with efficiency and of the highest
quality. The following trends are reasonably likely to result in a
material decrease in our liquidity over the near to long
term:
o
An increase in
working capital requirements to finance additional marketing
efforts,
o
Increases in
advertising, public relations and sales promotions for existing
customers and to attract new customers as the company expands,
and
o
The cost of being a
public company.
We are not aware of
any known trends or any known demands, commitments or events that
will result in our liquidity increasing or decreasing in any
material way. We are not aware of any matters that would have an
impact on future operations.
During the 3 months
ending September 30, 2015, the Company eliminated its Credit
Facility with Comerica Bank (see Debt Restructuring with Praesidian
Capital Opportunity Fund III, LP below). In December 2015, the
Company subsequently refinanced its debt with Praesidian in
connection with the acquisitions of Christian Disposal and Eagle
Ridge (see Goldman Sachs Credit Agreement below).
We believe that our
cash requirements over the next 12 months will be approximately
$1,000,000. In order to fund future growth and expansion through
acquisitions and capital expenditures, the Company may be required
to raise capital through the sale of its securities. We expect
cash, short-term investments, cash flow from operations and
access to capital markets to continue to be sufficient to fund our
operations.
In order to fund
future expansion through acquisitions and capital expenditures, the
Company may raise additional capital through the sale of its
securities on the public market.
Debt Restructuring with Praesidian Capital Opportunity Fund III,
LP
On August 6, 2015,
the Company entered into a financing agreement with Praesidian
Capital Opportunity Fund III, LP whereby the Comerica facilities
described below and other short term bridge financing were paid.
Total proceeds from this financing were used to eliminate this
debt.
36
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,
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 three months
ended March 31, 2016, the Company borrowed $2,150,000 in relation
to the Revolving Commitments. At June 30, 2016, the Company had a
total outstanding balance of $42,900,000 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 unused Multi-Draw Term Loan commitments and
Revolving Commitments at an annual rate of 0.5%.
The proceeds of the
loans were used to partially fund the acquisitions referenced above
and refinance existing debt with Praesidian, among other things.
The Company re-paid 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 46,592 shares of
the Company's common stock and to Fund III-A for the purchase of
18,060 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, 57,653 shares of
common stock and issued to Praesidian Capital Opportunity Fund
III-A, LP, 22,348 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.
In addition, in
connection with the credit agreement, the Company issued warrants
to Goldman, Sachs & Co. for the purchase of shares of the
Company's common stock equivalent to a 6.5% Percentage Interest 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. The Company anticipates that such warrants
will be cancelled upon the consummation of the offering pursuant to
that certain Warrant Cancellation Agreement. See discussion
of warrants in "Description of Capital Stock" below.
The
parties to the Credit Agreement have entered into certain
amendments to the Credit Agreement, described in the Recent
Developments section herein, which provided, among other things,
limited waivers by the lenders of certain failures of the Company
and its affiliates to deliver certain financial statements and
related deliverables and to comply with certain financial covenants
under the Credit Agreement, and which amended the terms of the
Credit Agreement to address such
failures.
2016 Bridge Financings
First 2016 Private Placement
In March 2016, the
Company launched a private placement offering (the “First
2016 Private Placement”) of the Company's common stock, par
value $0.025 of up to $1,600,000, with certain accredited investors
in transactions exempt from registration with the SEC under
Regulation D and Section 4(a)(2) of the Securities Act. On March
23, 2016, the Company completed its first closing of the First 2016
Private Placement with accredited investors (the “March 2016
Investors”) and issued an aggregate of 22,321 shares of
Common Stock for aggregate gross proceeds to the Company of
$500,000. On April 1, 2016, the Company completed its second
closing of the First 2016 Private Placement with accredited
investors (together, the “April 2016 Investors”) and
issued an aggregate of 31,250 shares of Common Stock for aggregate
gross proceeds to the Company of $700,000. On April 8, 2016, the
Company completed its third closing of the First 2016 Private
Placement with an accredited investor (together with the March 2016
Investors and the April 2016 Investors, the “First 2016
Private Placement Investors”) and issued an aggregate of
17,857 shares of Common Stock for aggregate gross proceeds to the
Company of $400,000, resulting in a full subscription under the
First 2016 Private Placement. Under the terms of the First 2016
Private Placement, the Company granted the First 2016 Private
Placement Investors certain “true up” rights, pursuant
to which the Company agreed to issue additional shares of Common
Stock to the First 2016 Private Placement Investors in
the event that, prior to the first anniversary of the applicable
subscription agreement under the First 2016 Private Placement, such
First 2016 Private Placement Investor sells all of its shares of
Common Stock purchased under such subscription agreement and
receives less than the full amount of the purchase price paid under
such subscription agreement (the “True Up Adjustment”).
The Company has subsequently entered into securities exchange
agreements with all of the First 2016 Private Placement Investors
as described
below.
Second 2016 Private
Placement
In June 2016, the
Company launched a private placement offering (the “Second
2016 Private Placement”) of up to $3,000,000 of the Company's
restricted Common Stock and warrants to purchase shares of Common
Stock, with certain accredited investors in transactions exempt
from registration with the SEC under Regulation D and Section
4(a)(2) of the Securities Act. On June 3, 2016, the Company
completed its first closing of the Second 2016 Private Placement
with accredited investors (the “June 2016 Investors”)
and issued an aggregate of 16,346 shares of Common Stock and
warrants for aggregate gross proceeds to the Company of $425,000.
Effective June 13, 2016, the Company amended the terms of the
Second 2016 Private Placement to reduce the per share
subscription price under the Second 2016 Private Placement, and
entered into amended subscription agreements with the June 2016
Investors to reflect such reduced purchase price, resulting in an
issuance to the June 2016 Investors of an additional 2,627
aggregate shares of Common Stock, together with replacement
warrants. On June 13, 2016, the Company completed its second
closing of the Second 2016 Private Placement with accredited
investors (the “Additional June 2016 Investors”) and
issued an aggregate of 5,580 shares of Common Stock and warrants
for aggregate gross proceeds to the Company of $125,000. On June
21, 2016, the Company completed its third closing of the Second
2016 Private Placement with an accredited investor (together with
the June 2016 Investors and the Additional June 2016 Investors, the
“Second 2016 Private Placement Investors”) and issued
an aggregate of 2,232 shares of Common Stock and warrants for
aggregate gross proceeds to the Company of $50,000. The warrants
issued by the Company to the Second 2016 Private Placement
Investors provided that, in the event that, for the period
beginning six months from the date of the applicable subscription
agreement under the Second 2016 Private Placement, if one or more
such Second 2016 Private Placement Investors were to sell all
shares of Common Stock purchased in the Second 2016 Private
Placement and fail to receive proceeds equal to or in excess of the
aggregate purchase price paid by such Second 2016 Private Placement
Investors for such shares, such subscribers could exercise the
warrants issued under the Second 2016 Private Placement, requiring
the Company, at its election, to (i) issue to such subscriber the
number of shares of Common Stock equivalent to the amount by which
such purchase price exceeds such sale proceeds valued at the
average closing price for the Common Stock on the primary trading
market on the three (3) trading days preceding the date of exercise
or (ii) redeem such shortfall amount in cash (the “Warrant
Adjustment”).The Company has subsequently entered into
securities exchange agreements with all of the Second 2016 Private
Placement Investors as described below.
37
Series C Offering
In July 2016, the
Company launched a private placement offering (the “Series C
Offering”) of up to $4,000,000 of its newly designated Series
C Preferred Stock, par value $0.001 per share (the “Series C
Preferred Stock”) to certain accredited investors in
transactions exempt from registration with the SEC under Regulation
D and Section 4(a)(2) of the Securities Act. Pursuant to the terms
of its Series C Preferred Stock Certificate of Designations (the
“Series C Designations”), the Company has authorized
for issuance 67,361 shares of Series C Preferred Stock, having a
stated value of equal to $100 per share and a par value of $0.001
per share and providing for dividends at a rate of 8% per annum.
Shares of the Series C Preferred Stock are convertible into shares
of Common Stock at a price of $12.94
per share (reflecting adjustment to the price of $22.40 per
share, pursuant
to the reverse stock split effected November 3, 2016). In
the event of a Qualified Offering, as defined in the Series C
Designations, the shares of Series C Preferred Stock will be
automatically converted at the lower of $12.94
per share (reflecting adjustment to the price of $22.40 per
share, pursuant
to the reverse stock split effected November 3, 2016), 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 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.
Assuming a public offering price per unit of $10.00, the Series C Preferred Stock would convert into 446,875 shares of common stock at a
conversion price of $8.00 per share at the closing of this offering.
The Series C Designations provide for certain additional shortfall
conversions, pursuant to which holders of Series C Preferred Stock
may, subject to certain conditions, be issued additional shares of
Common Stock by the Company. The Series C Preferred Stock has
voting rights on an “as converted” to Common Stock
basis. In no event shall a holder of Series C Preferred
Stock be entitled to make conversions that would result in
beneficial ownership by such holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company;
provided, that the foregoing shall not apply to any person
exercising rights pursuant to the Amended and Restated Warrant or
any affiliate or transferee thereof and provided further that such
restrictions may be waived by the holder upon not less than 61
days' notice to the Company.
From July 20, 2016
through August 26, 2016, the Company completed closings of the
Series C Offering with certain accredited investors and issued an
aggregate of 12,750 shares of Series C Preferred Stock for
aggregate gross proceeds to the Company of $1,275,000.
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.
Securities Exchange Agreements
Effective August
26, 2016, the Company entered into securities exchange agreements
with all of the First 2016 Private Placement Investors and all of
the Second 2016 Private Placement Investors (together, the
“2016 Private Placement Investors”), pursuant to which
the 2016 Private Placement Investors agreed to exchange the shares
of Common Stock and warrants, as applicable, received in the
First 2016 Private Placement or the Second 2016 Private Placement,
as applicable, and all of the rights attached thereto (including,
in the case of the First 2016 Private Placement, the True Up
Adjustment and, in the case of the Second 2016 Private Placement,
the Warrant Adjustment), on a dollar for dollar basis, for an
aggregate of 23,000 shares of Series C Preferred Stock (the
“Series C Exchange”). Following the Series C
Exchange, the 2016 Private Placement Investors no longer hold any
rights under the First 2016 Private Placement or the Second 2016
Private Placement, as applicable, and all Common Stock and
warrants, as applicable, issued thereunder have
been cancelled. The Company did not receive any cash proceeds
from the Series C Exchange.
Effective October 13, 2016, the
Company entered into those certain securities exchange agreements
(the “Series B
Exchange Agreements”) by and between the
Company and each holder of the Company's Series B Preferred Stock,
par value $0.001 per share (the “Series B Preferred”), (collectively, the
“Series B
Holders”
and each, individually, a “Series B Holder”) to effect the exchange
of all shares of Series B Preferred for shares of Common
Stock. Pursuant to the Series B Exchange
Agreements, the Company issued to the Series B Holders an aggregate
of 500,001 shares of Common Stock, with each Series B Holder being
issued 166,667 shares of Common Stock, subject to and in accordance
with the terms set forth in the Series B Exchange Agreements in
consideration for the cancellation of all shares of Series B
Preferred owned by the Series B Holders. Upon cancellation of the
Series B Preferred pursuant to the Series B Exchange Agreements,
there are no shares of Series B Preferred issued and
outstanding.The former Series B Holders have entered into
lock-up agreements, restricting their ability to sell or dispose of
any shares of common stock issued puruant to the Series B Exchange
Agreements for a period of 90 days from the effective date of this
offering.
Inflation and 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.
Critical Accounting Policies
Basis of
Consolidation
The consolidated
financial statements for the six months ended June 30, 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 and Christian Disposal, LLC. The
following two subsidiaries of the Company, Here To Serve Georgia
Waste Division, LLC and Here to Serve Technology, LLC, a Georgia
Limited Liability Company had no operations during the
period.
38
All significant
intercompany accounts and transactions have been eliminated in
consolidation.
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.
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, 2015
and 2014 the Company had approximately $2,326,000 and $660,000 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. We review the adequacy and adjust our allowance
for doubtful accounts on an ongoing basis, using historical payment
trends and the age of the receivables and knowledge of our
individual customers. However, if the financial condition of our
customers were to deteriorate, additional allowances may be
required.
Revenue
Recognition
The Company follows
the guidance of ASC 605 for revenue recognition. In general, the
Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable
and collectability is reasonably assured.
We generally
provide services under contracts with municipalities or individual
customers. Municipal and commercial contracts are generally
long-term and often have renewal options. Advance billings are
recorded as deferred revenue, and revenue is recognized over the
period services are provided. We recognize revenue when all four of
the following criteria are met:
|
●
|
Persuasive evidence
of an arrangement exists such as a service agreement with a
municipality, a hauling customer or a disposal
customer;
|
|
●
|
Services have been
performed such as the collection and hauling of waste;
|
|
●
|
The price of the
services provided to the customer is fixed or determinable;
and
|
|
●
|
Collectability is
reasonably assured.
|
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. Assets not subject to amortization
are tested for impairment at least annually.
Goodwill
39
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 as
discussed in the Intangible Assets section above, we assess our
goodwill for impairment at least annually.
Landfill
Accounting
Capitalized landfill
costs
Cost basis of
landfill assets — We capitalize various costs that we incur
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.
|
|
●
|
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.
|
40
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, 2015 we inflated these costs in current dollars
until the expected time of payment using an inflation rate of 2.5%.
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, 2015 is approximately 8.5%.
41
We record the
estimated fair value of final capping, closure and post-closure
liabilities for our landfills 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. 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.
|
●
|
Remaining permitted
airspace — Our engineers, 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.
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.
42
After determining
the costs and remaining permitted and expansion capacity at 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.
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 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. For less complex
derivative instruments, such as freestanding warrants, the Company
generally uses 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 value, 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 financial quarter result in the application of
non-cash derivative gain.
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.
Stock-Based
Compensation
Stock-based
compensation is accounted for at fair value in accordance with ASC
Topic 718. To date, the Company has not adopted a stock option plan
and has not granted any stock options.
Stock-based
compensation is accounted for based on the requirements of the
Share-Based Payment Topic of 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). The ASC also require 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.
43
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. During the six months
ended June 30, 2016 the Company has warrants outstanding with an
estimated fair value of $2,700,000. In addition, the Company issued
restricted shares during the six months ended, June 30, 2016 with
an estimated value of approximately $6,300,000.
Off-Balance Sheet
Arrangements
There were no
off-balance sheet arrangements during the fiscal years ended
December 31, 2015 and 2014, or the fiscal quarters ended June 30,
2016 or March 31, 2016, that have
or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to our interests.
44
DESCRIPTION
OF BUSINESS
History
Meridian Waste
Solutions, Inc. (formerly known as Brooklyn Cheesecake &
Desserts Company, 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 shall
assume certain assumed liabilities (the “Initial
Consideration”).
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 230,000 shares of
the Company’s common stock for a purchase price of
$11,500. 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 will be 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 will be cancelled; and (iii) 71,120 shares
of Here to Serve’s Class B Preferred Stock valued at
$7,121,000 will be cancelled (the “Additional
Consideration”).
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.
Overview
Meridian Waste
Solutions, Inc. is an integrated provider of non-hazardous solid
waste collection, transfer and disposal services. We currently have
all of our operations in Missouri but are aggressively looking to
expand our presence across the Midwest, South and East regions of
the United States.
45
Corporate
Structure
Here to Serve – Missouri Waste Division, LLC d/b/a Meridian
Waste
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 2015 revenue was from collection, utilizing over 60
collection vehicles.
Here To Serve 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 Company expects that the
Additional Purchase Price will not become due, as it presently
appears that an extension will not be granted in connection with
the relevant contract.
Christian Disposal,
along with its subsidiary, FWCD, LLC, 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 the O’Fallon, Missouri and St. Peters, Missouri
and own one transfer station, in Winfield,
Missouri. Approximately 100% of Christian Disposal and
FWCD’s 2015 revenue 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.
46
Meridian Land Company, LLC (Assets of Eagle Ridge Landfill &
Hauling)
Effective December
22, 2015, Meridian Land Company, LLC, 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, LLC 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, LLC, 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.
Customers
Meridian has two
municipal contracts, the first of which accounted for 26% and
27%, and the second of which accounted for 18% and 19%,
respectively, of HTS Waste’s long-term contracted revenue for
the years ended December 31, 2015 and 2014 respectively.
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. In 2015, its 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. We load
the containers onto our vehicles and transport them with the waste
to either a landfill or a transfer station 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.
47
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 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. Transfer stations are
generally owned by municipalities, with contracts to operate such
transfer stations awarded based on bids. 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 Chief
Executive Officer, Jeffrey S. Cosman, and President and
COO 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 this
internalization rate 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.
48
|
Landfill and Transfer Station Assets
|
We have one active
and strategically located landfill at the core of our integrated
operations which we believe provides us a significant competitive
advantage in Missouri, in that we do not need to use our
competitors’ landfills. Our landfill has substantial
remaining airspace.
The value of our
landfill 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
landfill, 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 a landfill, 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. In the last six months since our
acquisition of Christian Disposal and the Eagle Ridge Landfill we
have completed two tuck-in acquisitions which we believe will
improve our margins and improve cash flow.
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 throughout 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
|
We serve
approximately 65,000 residential, commercial and Construction and
Industrial customers, with no single customer representing more
than 12% of revenue in 2015. Our municipal customer relationships
are generally supported by contracts ranging from three to seven
years in initial duration with subsequent renewal periods, and we
have a historical renewal rate of 100% with such customers. Our
standard C&I 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.
49
|
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.
As we expand, we
plan to focus our business in the secondary markets where
competition from national service providers is limited. 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 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
50
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 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:
|
●
|
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
|
|
●
|
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.
|
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. 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
51
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 bond for our
landfill is 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.
52
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.
53
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.
54
Employees
As of
December 9, 2016, 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 $2,600 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. It is our belief that such space is
adequate for our immediate office needs. 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 and equipment is comprised of land, a landfill, buildings,
vehicles and equipment in the State of Missouri. In addition, we
lease real property and own a landfill. 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.
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. Except as described below, no current 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
current 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 current 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.
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.
In addition, there
are no material proceedings to which any affiliate of our Company,
or any owner of record or beneficially of more than five percent of
any class of voting securities of our Company, 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. We are
not currently involved in any litigation that we believe could have
a material adverse effect on our financial condition or results of
operations.
However, from time
to time, we may become involved in various lawsuits and legal
proceedings that 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.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
The following table
and text sets forth the names and ages of all our directors and
executive officers and our key management personnel as of November
29, 2016. 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
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Jeffrey Cosman
(1)
|
|
45
|
|
Chief Executive
Officer, Chairman of the Board of Directors
|
|
|
|
|
|
|
|
Joseph D'Arelli
(2)
|
|
47
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
Walter H. Hall
(3)
|
|
58
|
|
President, Chief
Operating Officer, Director
|
|
|
|
|
|
|
|
Thomas J. Cowee
(4)
|
|
59
|
|
Director, Audit
Committee Chair
|
|
|
|
|
|
|
|
Jackson Davis
(5)
|
|
44
|
|
Director,
Nominating Committee Chair
|
|
|
|
|
|
|
|
Joseph Ardagna
(6)
|
|
55
|
|
Director,
Compensation Committee Chair
|
(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.
(2)
Joseph D'Arelli was appointed Chief
Financial Officer on November 29, 2016.
(3)
Walter H. Hall was appointed
President, Chief Operating Officer, and a member of the Board of
Directors on March 11, 2016.
(4)
Thomas J. Cowee was appointed as a
member of the Board of Directors and Audit Committee Chair on
November 1, 2016.
(5)
Jackson Davis was appointed as a
member of the Board of Directors and Nominating Committee Chair
on November 1,
2016.
(6)
Joseph Ardagna was appointed as a
member of the Board of Directors and Compensation Committee Chair
on November 1, 2016.
55
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 45, 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. 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 59, Director, Audit Committee
Chair
Thomas J. Cowee,
age 59, has 37 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 44, Director, Nominating Committee
Chair
Jackson Davis, age
44, 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.
56
Board
Composition and Director Independence
As of the date of
this prospectus, our board of directors consists of five members:
Mr. Jeffrey Cosman, Mr. Walter Hall, Mr. Thomas J. Cowee, Mr.
Jackson Davis and Mr. Joe Ardagna. The directors will serve until
our next annual meeting and until their successors are duly elected
and qualified.
The Company defines
“independent” as that term is defined in Rule
5605(a)(2) of the Nasdaq listing standards. In making the
determination of whether a member of the board is independent, our
board considers, among other things, transactions and relationships
between each director and his immediate family and the Company,
including those reported under the caption “Related Party
Transactions”. The purpose of this review is to determine
whether any such relationships or transactions are material and,
therefore, inconsistent with a determination that the directors are
independent. On the basis of such review and its understanding of
such relationships and transactions, our board affirmatively
determined that Mr. Cowee, Mr. Davis and Mr. Ardagna are qualified
as independent.
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;
57
●
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.
58
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.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following
Summary Compensation Table sets forth all compensation earned, in
all capacities, during the fiscal years ended December 31, 2015 and
2014 by each of the executive officers.
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Stock
Awards ($)
|
|
|
Total
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Jeffrey Cosman (1)
(2)
|
|
2015
|
|
$
|
500,000
|
|
|
$
|
7,216,180
|
(3)
|
|
$
|
7,716,180
|
|
|
Chief Executive
Officer, Director
|
|
2014
|
|
$
|
574,017
|
|
|
$
|
0
|
|
|
$
|
574,017
|
|
|
Anthony Merante
(1)
|
|
2015
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
former Chief
Executive Officer, former Chief Financial Officer, former
Director
|
|
2014
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Walter H. Hall,
Jr.
|
|
2015
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
President, Chief
Operating Officer, Director (4)
|
|
2014
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Joseph
D'Arelli
|
|
2015
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Chief Financial
Officer (5)
|
|
2014
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
(1)
|
Anthony Merante,
former Director, Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and Corporate Secretary resigned from
all positions effective as of October 31, 2014.
|
|
(2)
|
Effective October
31, 2014, Jeffrey S. Cosman was appointed Chief Executive
Officer of the Company and Director. All of Mr. Cosman’s
salary was accrued for 2014; $187,500 of Mr. Cosman’s salary
was accrued for 2015.
|
|
(3)
|
Mr. Cosman received
279,543 shares of Common Stock, having a grant date fair market
value of $1.29 per share.
|
|
(4)
|
Mr. Hall was
appointed President, Chief Operating Officer and Director on March
11, 2016.
|
|
(5)
|
Mr. D'Arelli was
appointed Chief Financial Officer on November 29,
2016.
|
59
Option
Grants
We did not grant
any options to any of our executive officers during the years ended
December 31, 2015 and 2014.
Compensation
of Directors
At this time, our
directors do not receive a fee for physical attendance at each
meeting of the Board of Directors or a committee
thereof.
Securities
Authorized for Issuance under Equity Compensation Plan
Effective March 10, 2016, the Board
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 $0.025 per share, of the Company through the grant of
non-qualified 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.
Equity
Compensation Plan Information
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
compensation plans (excluding securities reflected in column
(a))
(b)
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
|||
|
Equity compensation
plans approved by security holders
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved by security holders
|
|
|
212,654
|
|
|
|
0
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
212,654
|
|
|
|
0
|
|
|
|
375,000
|
|
Compensation-Setting
Process
During 2015, our
board of directors was responsible for overseeing our executive
compensation program, establishing our executive compensation
philosophy, and determining specific executive compensation,
including cash and equity. Upon effectiveness of the registration
statement of which this prospectus forms a part, we intend to
establish our Compensation Committee, which will consist of three
independent directors. Unless otherwise stated, the discussion and
analysis below is based on decisions by the board of
directors.
During 2015, our
board of directors considered one or more of the following factors
when setting executive compensation, as further explained in the
discussions of each compensation element below:
60
●
the experiences and
individual knowledge of the members of our board of directors
regarding executive compensation, as we believe this approach helps
us to compete in hiring and retaining the best possible talent
while at the same time maintaining a reasonable and responsible
cost structure;
●
corporate and/or
individual performance, as we believe this encourages our executive
officers to focus on achieving our business
objectives;
●
the
executive’s existing equity award and stock holdings;
and
●
internal pay equity
of the compensation paid to one executive officer as compared to
another — that is, that the compensation paid to each
executive should reflect the importance of his or her role to the
company as compared to the roles of the other executive officers,
while at the same time providing a certain amount of parity to
promote teamwork.
With our transition
to being a company listed on Nasdaq, our compensation program
following this offering may, over time, vary significantly from our
historical practices. For example, we expect that following this
offering, in setting executive compensation, the new compensation
committee may review and consider, in addition to the items above,
factors such as the achievement of predefined milestones, tax
deductibility of compensation, the total compensation that may
become payable to executive officers in various hypothetical
scenarios, the performance of our common stock and compensation
levels at public peer companies.
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, 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.
61
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”). Since Mr. D'Arelli
previously served as the Company's Comptroller. 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 meeting, 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-six (3,756) 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 meeting, 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-six (3,756) 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 meeting, whether
in-person or telephonically. Additionally, Mr. Ardagna was issued
One Thousand (10,000) 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-six (3,756) 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.
62
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth, as of December 9, 2016, 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(3)
|
500,580
|
29.47%
|
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
|
5.91%
|
|
0%
|
|
12540
Broadwell Road, Suite 2104
|
|
|
|
|
|
Milton,
GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Ardagna
|
1,000
|
*%
|
|
0%
|
|
12540
Broadwell Road, Suite 2104
|
|
|
|
|
|
Milton,
GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
Jackson
Davis
|
1,000
|
*%
|
|
0%
|
|
12540
Broadwell Road, Suite 2104
|
|
|
|
|
|
Milton,
GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Cowee
|
1,000
|
*%
|
|
0%
|
|
12540
Broadwell Road, Suite 2104
|
|
|
|
|
|
Milton,
GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group (5
persons)(3)
|
618,930(5)
|
36.44%
|
51
|
100%
|
|
|
|
|
|
|
|
5%
or greater shareholders
|
|
|
|
|
|
|
|
|
|
|
|
CC2G
Holdings, LLC
|
200,306
|
11.79%
|
0
|
0%
|
|
651
Sunbridge Drive
|
|
|
|
|
|
Chesterfield,
MO 63017
|
|
|
|
|
|
|
|
|
|
|
|
The
Reich Family Trust
|
200,306
|
11.79%
|
0
|
0%
|
|
4721
Butler Crossing Court
|
|
|
|
|
|
Saint
Louis MO 63128
|
|
|
|
|
|
|
|
|
|
|
|
Charles
E. Barcom
|
203,866
|
12.00%
|
0
|
0%
|
|
1920
Briarfield Drive
|
|
|
|
|
|
Lake
St. Louis, MO 63367
|
|
|
|
|
|
|
|
|
|
|
|
Timothy Drury(4)
|
87,500
|
5.15%
|
0
|
0%
|
|
15 Squires Lane
|
|
|
|
|
|
St. Louis, Mssouri
63131
|
|
|
|
|
|
|
|
|
|
|
|
The
Goldman Sachs Group, Inc.(5)
|
143,726
|
7.80%
|
0
|
0%
|
|
200
West Street
|
|
|
|
|
|
New
York, NY 10282
|
|
|
|
|
|
|
1,454,634
|
78.96%
|
51
|
100
|
* denoted less than 1%
63
______________
(1)
Based
on a total of 1,698,569 shares of common stock outstanding as of
December 9, 2016, except as otherwise
indicated.
(2)
Based
on a total of 51 shares of Series A Preferred outstanding as of
December 9, 2016.
(3)
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 is the sole member. This amount does not
include 212,654 shares of restricted stock issued to Mr. Cosman,
which has not yet vested.
(4)
Does
not include 140,306 shares of common stock issuable pursuant to
that certain Convertible Promissory Note made by the Company on
December 22, 2015 assuming conversion on November 29, 2016. Such
shares may not be converted if such conversion will result in the
holder owning greater than 4.99% of the Company’s common
stock after such conversion.
(5)
Assumes
full exercise of Amended and Restated Purchase Warrant for Common
Shares dated July 19, 2016, calculated on a fully-diluted basis,
assuming outstanding shares of Series C Preferred
Stock.
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.
64
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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 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 the
Company.
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 its 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.
Any future
transactions or loans between us and our officers, directors,
principal stockholders or affiliates will be on terms no less
favorable to us than could be obtained from an unaffiliated third
party, and will be approved by a majority of disinterested
directors.
65
DESCRIPTION
OF CAPITAL STOCK
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 December 9, 2016
there were 1,698,569 shares of our common stock issued and
outstanding held by 42 holders of record. We currently have (i) 51
shares of Series A Preferred Stock authorized of which 51 shares of
Series A Preferred Stock are issued and outstanding; (ii) 71,120
shares of Series B Preferred Stock authorized of which 0 shares of
Series B Preferred Stock are issued and outstanding; (iii) 67,361
shares of Series C Preferred Stock authorized of which 35,750
shares of Series C Preferred Stock are issued and outstanding; and
(iv) 4,861,468 shares of undesignated “blank check”
preferred stock.
Units
Each unit consists of one share of common stock, $0.025 par value
per share, and one warrant to purchase one share of our common
stock, each as described further below. The units will not
be issued or certificated. Purchasers will receive only shares of
common stock and warrants. The common stock and warrants may be
transferred separately immediately upon
issuance.
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 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:
|
|
●
|
general business
conditions;
|
|
|
|
|
|
|
●
|
industry
practice;
|
|
|
|
|
|
|
●
|
our financial
condition and performance;
|
|
|
|
|
|
|
●
|
our future
prospects;
|
|
|
|
|
|
|
●
|
our cash needs and
capital investment plans;
|
|
|
|
|
|
|
●
|
our obligations to
holders of any preferred stock we may issue;
|
|
|
|
|
|
|
●
|
income tax
consequences; and
|
|
|
|
|
|
|
●
|
the restrictions
New York and other applicable laws and our credit arrangements may
impose, from time to time.
|
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.
Warrants
Offered Hereby
The following summary of certain terms and provisions of the
warrants offered hereby is not complete and is subject to, and
qualified in its entirety by, the provisions of the form of the
warrant, which is filed as an exhibit to the registration statement
of which this prospectus is a part of. Prospective investors should
carefully review the terms and provisions set forth in the form of
warrant.
66
Exercisability. The warrants
are exercisable 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.
Cashless Exercise. In the
event that a registration statement covering shares of common stock
underlying the warrants, or an exemption from registration, is not
available for the resale of such shares of common stock underlying
the warrants, the holder may, in its sole discretion, exercise the
warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to us upon such exercise in
payment of the aggregate exercise price, elect instead to receive
upon such exercise the net number of shares of common stock
determined according to the formula set forth in the warrant. In no
event shall we be required to make any cash payments or net cash
settlement to the registered holder in lieu of issuance of common
stock underlying the warrants.
Certain Adjustments. 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.
Transferability. 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.
Warrant Agent and Exchange Listing. The
warrants will be issued in registered form under a warrant agency
agreement between Issuer Direct Corporation, as warrant agent, and
us.
Fundamental
Transactions. 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.
Rights as a
Stockholder. 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.
Governing Law. The warrants
and the warrant agency agreement are governed by New
York law.
Preferred
Stock
67
General
The Company has
5,000,000 authorized shares of preferred stock par value $0.001 per
share, which have three classes. 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 12,750 shares issued and outstanding.
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. 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.
Series A Preferred Stock
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.
The Company and
the holder(s) of the Series A Preferred Stock intend to reach
agreement providing for the cancelation of the Series A Preferred
Stock at such time that the holder(s) no longer have in place any
personal guaranties on the Company's liabilities, provided that
such disposition of the Series A Preferred Stock by the holder(s)
thereof would not result in an event of default under any material
contract of the Company. There can be no assurances, however, that
any such agreement with respect to the terms of the Series A
Preferred Stock will occur.
Series B Preferred Stock
Holders of the
Series B Preferred Stock shall be entitled to receive when and if
declared by the Board of Directors cumulative dividends at a 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” set forth in the Series B
Preferred Stock Certificate of Designations, which is equal to the
Original Issue Price divided 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
applicable notice of conversion. In no event shall a holder of
Series B Preferred Stock be entitled to make conversions that would
result in beneficial ownership by such holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock of the
Company. The Series B Preferred Stock may be redeemed at the
Company’s option, in whole or in part, at any time and from
time to time, at a redemption price per share equal to $100 per
share, plus any accrued and unpaid dividends on the shares to be
redeemed; provided, however, that if there are any accrued yearly
dividends on the Series B Preferred Stock which have not been paid
or declared and a sum sufficient for the payment thereof set apart,
the Company may not redeem any shares of Series B Preferred Stock
unless all then outstanding shares of such stock are so
redeemed.
There are currently
no shares of Series B Preferred Stock
outstanding.
Series C Preferred Stock
Holders of the
Series C Preferred Stock shall be entitled to receive dividends out
of any assets legally available at a rate of eight percent (8%) per
share per annum, payable quarterly. In the event of any
liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of
the Series C Preferred Stock shall be entitled to receive,
immediately prior and in preference to any distribution to the
holders of the Company's other equity securities, including the
Common Stock, Series A Preferred Stock, and Series B Preferred
Stock, a liquidation preference equal to $22.40 per share plus all
accrued and unpaid dividends of the Series C Preferred Stock. Each
share of Series B Preferred Stock may be converted at the option of
the holder into an amount of shares of Common Stock equal to the
stated value of the Series C Preferred Stock, as well as accrued
but unpaid declared dividends on such Series C Preferred Stock,
divided by the conversion price of $12.94
per share (reflecting adjustment to the price of $22.40 per share,
pursuant to the reverse stock split effected November 3, 2016),
subject to further adjustments as set forth in the Series C
Designations. Upon a Qualified Offering, the shares of Series C
Preferred Stock will be automatically converted at a conversion
price equal to the lower of $12.94 per share (reflecting adjustment to the
price of $22.40 per share, subject to adjustment,
pursuant to the reverse stock split
effected November 3, 2016), or the per share price that
reflects a 20% discount to the price of the Common Stock pursuant
to such Qualified Offering. Assuming a public
offering price per unit of $10.00, the Series C Preferred Stock
would convert into 446,875 shares of common stock at a conversion
price of $8.00 per share at the closing of this
offering. Additionally, the Series C Designations
provide for additional shortfall conversions, pursuant to which
holders of Series C Preferred Stock may, subject to certain
conditions, be issued additional shares of Common Stock by the
Company. In no event shall a holder of Series C Preferred
Stock be entitled to make conversions that would result in
beneficial ownership by such holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company;
provided, that the foregoing shall not apply to any person
exercising rights pursuant to the Amended and Restated Warrant or
any affiliate or transferee thereof and provided further that such
restrictions may be waived by the holder upon not less than 61
days' notice to the
Company.
Goldman, Sachs & Co. Warrant; Warrant
Cancellation and Stock Issuance Agreement
The Company has
outstanding the Amended and Restated Warrant issued to Goldman,
Sachs & Co. for the purchase of (i) shares of the Company's
common stock equivalent to a 6.5% of the total number of
outstanding shares of the Company's common stock on a fully-diluted
basis and (ii) shares of the Company's Series C Preferred Stock
equivalent to a 6.5% of the total number of outstanding shares of
the Company's Series C Preferred Stock, exercisable on or before
December 22, 2023.
Pursuant to that
certain Warrant Cancellation and Stock Issuance Agreement, upon the
closing of the offering of which this Prospectus is a part, the
Amended and Restated Warrant will be cancelled and the
Company will issue to Goldman, Sachs & Co.
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 this Offering and all shares underlying
such warrants, pursuant to the terms and conditions of the Warrant
Cancellation and Stock Issuance Agreement. In connection with
such proposed Warrant Cancellation and Stock Issuance Agreement,
the Company and Goldman, Sachs & Co. will enter into that
certain Registration Rights Agreement, pursuant to which Goldman,
Sachs & Co. will be granted certain registration rights with
respect to the shares to be issued pursuant to the Warrant
Cancellation and Stock Issuance Agreement. Pursuant to the Warrant Cancellation
Agreement, Goldman, Sachs & Co. entered into a
lock-up agreement, prohibiting the offer for sale, issue, sale,
contract for sale, pledge or other disposition of any of our common
stock or securities convertible into common stock for a period of
180 days after the date of this prospectus, and no registration
statement for any of our common stock owned by Goldman, Sachs &
Co. can be filed during such lock-up period (the
“Lock-up Period”).
It is anticipated
that the rights granted to Goldman, Sachs & Co. pursuant to the
Registration Rights Agreement, to be delivered in connection with
the Warrant Cancellation and Stock Issuance Agreement, will
include:
●
demand
registration rights, providing that the holder may demand that the
Company file registration statements, including a shelf
registration statement (if the Company is eligible at such time to
utilize a shelf registration for such shares) at any
time;
●
piggyback
registration rights, providing that the holder be given notice of a
proposed registration of Equity Securities in connection with an
underwritten public offering of such Equity Securities and upon
request of holder, the Company shall cause such shares to be
registered;
●
preemptive rights
to participate pro rata in raises of senior capital (including
Equity Securities, indebtedness, debt securities other than shares
of Common Stock (or Equity Securities convertible or exercisable or
exchangeable (directly or indirectly) for Common Stock) or first
lien indebtedness for borrowed money;
●
information rights
and the right to appoint a non-voting observer to the Company's
Board of Directors; and
●
indemnification
rights;
provided, however,
that such rights will not be exercisable during the Lock-up
Period.
Options
There are no
options currently outstanding.
68
UNDERWRITING
Joseph Gunnar &
Co., LLC is acting as representative of the underwriters of this
offering. We have entered into an underwriting agreement
dated ,
2016 with the representative. Subject to the terms and conditions
of the underwriting agreement, we have agreed to sell to each
underwriter named below, and each underwriter named below has
severally agreed to purchase from us, at the public offering price
less the underwriting discounts set forth on the cover page of this
prospectus, the number of units listed next to its name in the
following table:
|
Underwriters
|
|
Number
of Units
|
|
Joseph Gunnar &
Co., LLC
|
|
|
|
Axiom Capital
Management, Inc.
|
|
|
|
Total
|
|
|
The underwriters
are committed to purchase all units offered by us other than those
covered by the over-allotment option described below, if any are
purchased. The obligations of the underwriters may be terminated
upon the occurrence of certain events specified in the underwriting
agreement. Furthermore, pursuant to the underwriting agreement, the
underwriters’ obligations are subject to customary
conditions, representations and warranties contained in the
underwriting agreement, such as receipt by the underwriters of
officers’ certificates and legal opinions.
The underwriters
are offering the units subject to prior sale, when, as and if
issued to and accepted by them, subject to approval of legal
matters by their counsel, and other conditions. The underwriters
reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
The underwriters
propose to offer the units offered by us to the public at the
public offering price set forth on the cover of the prospectus.
After the units are released for sale to the public, the
underwriters may change the offering price and other selling terms
at various times.
Over-Allotment
Option
We have granted the
underwriters an over-allotment option. This option, which is
exercisable for up to 45 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 525,000
additional units from us to cover over-allotments, if any. If the
underwriters exercise all or part of this option, they will
purchase shares and warrants included in the units covered by the
option at the public offering price per share or warrant that
appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to
the public will be $5,250,000 and the total net proceeds, before
expenses, to us will be $4,882,500.
Discount
The following table
shows the public offering price, underwriting discounts and
proceeds, before expenses, to us. The information assumes either no
exercise or full exercise by the underwriters of their
over-allotment option.
|
|
|
|
|
|
|
||||||
|
|
Total
|
||||||||||
|
|
Per
Unit
|
|
Without
Over-Allotment
|
|
With
Over-Allotment
|
||||||
|
Public offering
price
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Underwriting
discount
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Proceeds, before
other expenses, to us
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Non-accountable
expense allowance (1%)(1)
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(1)
We have agreed to
pay a non-accountable expense allowance to the underwriters equal
to 1% of the gross proceeds received in this offering; provided,
however, the expense allowance of 1% is not payable with respect to
the securities sold upon exercise of the
underwriters’ over-allotment option.
69
We are required to
pay an expense deposit of $50,000 to the representative for
out-of-pocket-accountable expenses, which will be applied against
accountable expenses (in compliance with FINRA Rule 5110(f)(2)(c))
that will be paid by us to the underwriters in connection with this
offering. The underwriting agreement, however, provides that in the
event the offering is terminated, the $50,000 expense deposit paid
to the representative will be returned to the extent such
out-of-pocket accountable expenses are not actually incurred in
accordance with FINRA Rule 5110(f)(2)(C). In addition, we have
agreed to pay to the representative a non-accountable expense
allowance equal to 1% of the aggregate gross proceeds of this
offering; provided, however, the expense allowance of 1% is not
payable with respect to the shares of common stock and warrants
sold upon exercise of the underwriters over-allotment option. We
have also agreed to reimburse the representative for fees and
expenses of legal counsel to the representative in an amount not to
exceed $75,000, fees and expenses related to the use of book
building, prospectus tracking and compliance software for the
offering in the amount of $29,500, up to $15,000 for background
checks of our officers and directors, up to $2,500 for the costs
associated with bound volumes of the public offering materials as
well as commemorative mementos, and out-of-pocket fees and expenses
of the representative for marketing and roadshows for the offering
not to exceed $20,000.
We estimate that
the total expenses of the offering payable by us, excluding the
total underwriting discount and non-accountable expense
allowance, will be approximately
$614,140.
Discretionary
Accounts
The underwriters do
not intend to confirm sales of the securities offered hereby to any
accounts over which they have discretionary authority.
Lock-Up
Agreements
Pursuant to certain
“lock-up” agreements, we, our executive officers and
directors, and certain of our stockholders, have agreed not to,
without the prior written consent of the representative, offer,
sell, assign, transfer, pledge, contract to sell, or otherwise
dispose of or announce the intention to otherwise dispose of, or
enter into any swap, hedge or similar agreement or arrangement that
transfers, in whole or in part, the economic risk of ownership of,
directly or indirectly, engage in any short selling of any common
stock or securities convertible into or exchangeable or exercisable
for any common stock, whether currently owned or subsequently
acquired, for a period of 180 days from the date of this
prospectus, in the case of our directors and officers, and 90 days
from the date of this prospectus, in the case of our principal
stockholders.
70
Right
of First Refusal
Subject to certain
conditions, we have granted the representative of the underwriters
in the offering, for a period of 24 months after the effective date
of this prospectus, a right of first refusal to act as sole and
exclusive investment banker, book-runner, financial advisor,
underwriter and/or placement agent, at the representative’s
sole and exclusive discretion, for each and every future public or
private equity or debt offering, including all equity linked
financings during such 24 month period, on terms customary to the
representative.
Indemnification
We have agreed to
indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make for these
liabilities.
Electronic
Offer, Sale and Distribution of Shares
A prospectus in
electronic format may be made available on the websites maintained
by one or more underwriters or selling group members, if any,
participating in this offering and one or more of the underwriters
participating in this offering may distribute prospectuses
electronically. The representative may agree to allocate a number
of shares and warrants to underwriters and selling group members
for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters and selling
group members that will make internet distributions on the same
basis as other allocations. Other than the prospectus in electronic
format, the information on the underwriters’ websites is not
part of, nor incorporated by reference into, this prospectus or the
registration statement of which this prospectus forms a part, has
not been approved or endorsed by us or any underwriter in its
capacity as underwriter, and should not be relied upon by
investors.
Stabilization
In connection with
this offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate-covering
transactions, penalty bids and purchases to cover positions created
by short sales.
●
Stabilizing
transactions permit bids to purchase securities so long as the
stabilizing bids do not exceed a specified maximum, and are engaged
in for the purpose of preventing or retarding a decline in the
market price of the securities while the offering is in
progress.
●
Over-allotment
transactions involve sales by the underwriters of securities in
excess of the number of securities that underwriters are obligated
to purchase. This creates a syndicate short position which may be
either a covered short position or a naked short position. In a
covered short position, the number of securities over-allotted by
the underwriters is not greater than the number of securities that
they may purchase in the over-allotment option. In a naked short
position, the number of securities involved is greater than the
number of securities in the over-allotment option. The underwriters
may close out any short position by exercising their over-allotment
option and/or purchasing securities in the open
market.
●
Syndicate covering
transactions involve purchases of securities in the open market
after the distribution has been completed in order to cover
syndicate short positions. In determining the source of securities
to close out the short position, the underwriters will consider,
among other things, the price of securities available for purchase
in the open market as compared with the price at which they may
purchase securities through exercise of the over-allotment option.
If the underwriters sell more securities than could be covered by
exercise of the over-allotment option and, therefore, have a naked
short position, the position can be closed out only by buying
securities in the open market. A naked short position is more
likely to be created if the underwriters are concerned that after
pricing there could be downward pressure on the price of the
securities in the open market that could adversely affect investors
who purchase in the offering.
71
●
Penalty bids permit
the representative to reclaim a selling concession from a syndicate
member when the securities originally sold by that syndicate member
are purchased in stabilizing or syndicate covering transactions to
cover syndicate short positions.
These stabilizing
transactions, syndicate covering transactions and penalty bids may
have the effect of raising or maintaining the market price of our
securities or preventing or retarding a decline in the market price
of our securities. As a result, the price of our securities in the
open market may be higher than it would otherwise be in the absence
of these transactions. Neither we nor the underwriters make any
representation or prediction as to the effect that the transactions
described above may have on the price of our securities. These
transactions may be effected on the The Nasdaq Capital Market, in
the over-the-counter market or otherwise and, if commenced, may be
discontinued at any time.
Passive
Market Making
In connection with
this offering, underwriters and selling group members may engage in
passive market making transactions in our common stock on the The
Nasdaq Capital Market or on the OTCQB in accordance with Rule 103
of Regulation M under the Exchange Act, during a period before the
commencement of offers or sales of the securities and extending
through the completion of the distribution. A passive market maker
must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids
are lowered below the passive market maker’s bid, then that
bid must then be lowered when specified purchase limits are
exceeded.
Other
Relationships
From time to time,
certain of the underwriters and their affiliates have provided, and
may provide in the future, various advisory, investment and
commercial banking and other services to us in the ordinary course
of business, for which they have received and may continue to
receive customary fees and commissions. However, except as
disclosed in this prospectus, we have no present arrangements with
any of the underwriters for any further services.
Offer
Restrictions Outside the United States
Other than in the
United States, no action has been taken by us or the underwriters
that would permit a public offering of the securities offered by
this prospectus in any jurisdiction where action for that purpose
is required. The securities offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisements in connection with
the offer and sale of any such securities be distributed or
published in any jurisdiction, except under circumstances that will
result in compliance with the applicable rules and regulations of
that jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of this
prospectus. This prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any securities offered by this
prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
Australia
This prospectus is
not a disclosure document under Chapter 6D of the Australian
Corporations Act, has not been lodged with the Australian
Securities and Investments Commission and does not purport to
include the information required of a disclosure document under
Chapter 6D of the Australian Corporations Act. Accordingly, (i) the
offer of the securities under this prospectus is only made to
persons to whom it is lawful to offer the securities without
disclosure under Chapter 6D of the Australian Corporations Act
under one or more exemptions set out in section 708 of the
Australian Corporations Act, (ii) this prospectus is made available
in Australia only to those persons as set forth in clause (i)
above, and (iii) the offeree must be sent a notice stating in
substance that by accepting this offer, the offeree represents that
the offeree is such a person as set forth in clause (i) above, and,
unless permitted under the Australian Corporations Act, agrees not
to sell or offer for sale within Australia any of the securities
sold to the offeree within 12 months after its transfer to the
offeree under this prospectus.
72
China
The information in
this document does not constitute a public offer of the securities,
whether by way of sale or subscription, in the People’s
Republic of China (excluding, for purposes of this paragraph, Hong
Kong Special Administrative Region, Macau Special Administrative
Region and Taiwan). The securities may not be offered or sold
directly or indirectly in the PRC to legal or natural persons other
than directly to “qualified domestic institutional
investors.”
European
Economic Area — Belgium, Germany, Luxembourg and
Netherlands
The information in
this document has been prepared on the basis that all offers of
common stock and warrants will be made pursuant to an exemption
under the Directive 2003/71/EC (“Prospectus
Directive”), as implemented in Member States of the European
Economic Area (each, a “Relevant Member State”), from
the requirement to produce a prospectus for offers of
securities.
An offer to the
public of common stock and warrants has not been made, and may not
be made, in a Relevant Member State except pursuant to one of the
following exemptions under the Prospectus Directive as implemented
in that Relevant Member State:
(a)
to legal entities
that are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities;
(b)
to any legal entity
that has two or more of (i) an average of at least 250 employees
during its last fiscal year; (ii) a total balance sheet of more
than €43,000,000 (as shown on its last annual unconsolidated
or consolidated financial statements) and (iii) an annual net
turnover of more than €50,000,000 (as shown on its last
annual unconsolidated or consolidated financial
statements);
(c)
to fewer than 100
natural or legal persons (other than qualified investors within the
meaning of Article 2(1)(e) of the Prospectus Directive) subject to
obtaining the prior consent of the Company or any underwriter for
any such offer; or
(d)
in any other
circumstances falling within Article 3(2) of the Prospectus
Directive, provided that no such offer of common stock and warrants
shall result in a requirement for the publication by the Company of
a prospectus pursuant to Article 3 of the Prospectus
Directive.
France
This document is
not being distributed in the context of a public offering of
financial securities (offre au
public de titres financiers) in France within the meaning of
Article L.411-1 of the French Monetary and Financial Code
(Code monétaire et
financier) and Articles 211-1 et seq. of the General
Regulation of the French Autorité des marchés financiers
(“AMF”). The common stock and warrants have not been
offered or sold and will not be offered or sold, directly or
indirectly, to the public in France.
This document and
any other offering material relating to the common stock and
warrants have not been, and will not be, submitted to the AMF for
approval in France and, accordingly, may not be distributed or
caused to distributed, directly or indirectly, to the public in
France.
Such offers, sales
and distributions have been and shall only be made in France to (i)
qualified investors (investisseurs
qualifiés) acting for their own account, as defined in
and in accordance with Articles L.411-2-II-2° and D.411-1 to
D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and
Financial Code and any implementing regulation and/or (ii) a
restricted number of non-qualified investors (cercle restreint d’investisseurs non-
qualifiés) acting for their own account, as defined in
and in accordance with Articles L.411-2-II-2° and D.411-4,
D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial
Code and any implementing regulation.
Pursuant to Article
211-3 of the General Regulation of the AMF, investors in France are
informed that the common stock and warrants cannot be distributed
(directly or indirectly) to the public by the investors otherwise
than in accordance with Articles L.411-1, L.411-2, L.412-1 and
L.621-8 to L.621-8-3 of the French Monetary and Financial
Code.
73
Ireland
The information in
this document does not constitute a prospectus under any Irish laws
or regulations and this document has not been filed with or
approved by any Irish regulatory authority as the information has
not been prepared in the context of a public offering of securities
in Ireland within the meaning of the Irish Prospectus (Directive
2003/71/EC) Regulations 2005 (the “Prospectus
Regulations”). The common stock and warrants have not been
offered or sold, and will not be offered, sold or delivered
directly or indirectly in Ireland by way of a public offering,
except to (i) qualified investors as defined in Regulation 2(l) of
the Prospectus Regulations and (ii) fewer than 100 natural or legal
persons who are not qualified investors.
Israel
The common stock
and warrants offered by this prospectus have not been approved or
disapproved by the Israeli Securities Authority (ISA), nor have
such common stock and warrants been registered for sale in Israel.
The common stock and warrants may not be offered or sold, directly
or indirectly, to the public in Israel, absent the publication of a
prospectus. The ISA has not issued permits, approvals or licenses
in connection with the offering or publishing the prospectus; nor
has it authenticated the details included herein, confirmed their
reliability or completeness, or rendered an opinion as to the
quality of the common stock and warrants being offered. Any resale
in Israel, directly or indirectly, to the public of the common
stock and warrants offered by this prospectus is subject to
restrictions on transferability and must be effected only in
compliance with the Israeli securities laws and
regulations.
Italy
The offering of the
securities in the Republic of Italy has not been authorized by the
Italian Securities and Exchange Commission (Commissione Nazionale per le Societá la
Borsa, “CONSOB”) pursuant to the Italian
securities legislation and, accordingly, no offering material
relating to the common stock and warrants may be distributed in
Italy and such securities may not be offered or sold in Italy in a
public offer within the meaning of Article 1.1(t) of Legislative
Decree No. 58 of 24 February 1998 (“Decree No. 58”),
other than:
●
to Italian
qualified investors, as defined in Article 100 of Decree no. 58 by
reference to Article 34-ter of CONSOB Regulation no. 11971 of 14
May 1999 (“Regulation no. 1197l”) as amended
(“Qualified Investors”); and
●
in other
circumstances that are exempt from the rules on public offer
pursuant to Article 100 of Decree No. 58 and Article 34-ter of
Regulation No. 11971 as amended.
Any offer, sale or
delivery of the common stock and warrants or distribution of any
offer document relating to the common stock and warrants in Italy
(excluding placements where a Qualified Investor solicits an offer
from the issuer) under the paragraphs above must be:
●
made by investment
firms, banks or financial intermediaries permitted to conduct such
activities in Italy in accordance with Legislative Decree No. 385
of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation
No. 16190 of 29 October 2007 and any other applicable laws;
and
●
in compliance with
all relevant Italian securities, tax and exchange controls and any
other applicable laws.
Any subsequent
distribution of the securities in Italy must be made in compliance
with the public offer and prospectus requirement rules provided
under Decree No. 58 and the Regulation No. 11971 as amended, unless
an exception from those rules applies. Failure to comply with such
rules may result in the sale of such common stock and warrants
being declared null and void and in the liability of the entity
transferring the common stock and warrants for any damages suffered
by the investors.
74
Japan
The common stock
and warrants have not been and will not be registered under Article
4, paragraph 1 of the Financial Instruments and Exchange Law of
Japan (Law No. 25 of 1948), as amended (the “FIEL”)
pursuant to an exemption from the registration requirements
applicable to a private placement of securities to Qualified
Institutional Investors (as defined in and in accordance with
Article 2, paragraph 3 of the FIEL and the regulations promulgated
thereunder). Accordingly, the common stock and warrants may not be
offered or sold, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan other than Qualified
Institutional Investors. Any Qualified Institutional Investor who
acquires common stock and warrants may not resell them to any
person in Japan that is not a Qualified Institutional Investor, and
acquisition by any such person of common stock and warrants is
conditional upon the execution of an agreement to that
effect.
Portugal
This document is
not being distributed in the context of a public offer of financial
securities (oferta pública de
valores mobiliários) in Portugal, within the meaning of
Article 109 of the Portuguese Securities Code (Código dos Valores
Mobiliários). The common stock and warrants have not
been offered or sold and will not be offered or sold, directly or
indirectly, to the public in Portugal. This document and any other
offering material relating to the common stock and warrants have
not been, and will not be, submitted to the Portuguese Securities
Market Commission (Comissão
do Mercado de Valores Mobiliários) for approval in
Portugal and, accordingly, may not be distributed or caused to
distributed, directly or indirectly, to the public in Portugal,
other than under circumstances that are deemed not to qualify as a
public offer under the Portuguese Securities Code. Such offers,
sales and distributions of common stock and warrants in Portugal
are limited to persons who are “qualified investors”
(as defined in the Portuguese Securities Code). Only such investors
may receive this document and they may not distribute it or the
information contained in it to any other person.
Sweden
This document has
not been, and will not be, registered with or approved by
Finansinspektionen (the
Swedish Financial Supervisory Authority). Accordingly, this
document may not be made available, nor may the common stock and
warrants be offered for sale in Sweden, other than under
circumstances that are deemed not to require a prospectus under the
Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument).
Any offering of securities in Sweden is limited to persons who are
“qualified investors” (as defined in the Financial
Instruments Trading Act). Only such investors may receive this
document and they may not distribute it or the information
contained in it to any other person.
Switzerland
The common stock
and warrants may not be publicly offered in Switzerland and will
not be listed on the SIX Swiss Exchange (“SIX”) or on
any other stock exchange or regulated trading facility in
Switzerland. This document has been prepared without regard to the
disclosure standards for issuance prospectuses under art. 652a or
art. 1156 of the Swiss Code of Obligations or the disclosure
standards for listing prospectuses under art. 27 ff. of the SIX
Listing Rules or the listing rules of any other stock exchange or
regulated trading facility in Switzerland. Neither this document
nor any other offering material relating to the securities may be
publicly distributed or otherwise made publicly available in
Switzerland.
Neither this
document nor any other offering material relating to the common
stock and warrants have been or will be filed with or approved by
any Swiss regulatory authority. In particular, this document will
not be filed with, and the offer of common stock and warrants will
not be supervised by, the Swiss Financial Market Supervisory
Authority (FINMA).
This document is
personal to the recipient only and not for general circulation in
Switzerland.
United
Arab Emirates
Neither this
document nor the common stock and warrants have been approved,
disapproved or passed on in any way by the Central Bank of the
United Arab Emirates or any other governmental authority in the
United Arab Emirates, nor have we received authorization or
licensing from the Central Bank of the United Arab Emirates or any
other governmental authority in the United Arab Emirates to market
or sell the common stock and warrants within the United Arab
Emirates. This document does not constitute and may not be used for
the purpose of an offer or invitation. No services relating to the
common stock and warrants, including the receipt of applications
and/or the allotment or redemption of such shares, may be rendered
within the United Arab Emirates by us.
75
No offer or
invitation to subscribe for common stock and warrants is valid or
permitted in the Dubai International Financial Centre.
United
Kingdom
Neither the
information in this document nor any other document relating to the
offer has been delivered for approval to the Financial Services
Authority in the United Kingdom and no prospectus (within the
meaning of section 85 of the Financial Services and Markets Act
2000, as amended (“FSMA”)) has been published or is
intended to be published in respect of the common stock and
warrants. This document is issued on a confidential basis to
“qualified investors” (within the meaning of section
86(7) of FSMA) in the United Kingdom, and the common stock and
warrants may not be offered or sold in the United Kingdom by means
of this document, any accompanying letter or any other document,
except in circumstances which do not require the publication of a
prospectus pursuant to section 86(1) FSMA. This document should not
be distributed, published or reproduced, in whole or in part, nor
may its contents be disclosed by recipients to any other person in
the United Kingdom.
Any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of FSMA) received in connection with the issue or sale
of the common stock and warrants has only been
communicated or caused to be communicated and will only be
communicated or caused to be communicated in the United Kingdom in
circumstances in which section 21(1) of FSMA does not apply to the
Company.
In the United
Kingdom, this document is being distributed only to, and is
directed at, persons (i) who have professional experience in
matters relating to investments falling within Article 19(5)
(investment professionals) of the Financial Services and Markets
Act 2000 (Financial Promotions) Order 2005 (“FPO”),
(ii) who fall within the categories of persons referred to in
Article 49(2)(a) to (d) (high net worth companies, unincorporated
associations, etc.) of the FPO or (iii) to whom it may otherwise be
lawfully communicated (together “relevant persons”).
The investments to which this document relates are available only
to, and any invitation, offer or agreement to purchase will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any of
its contents.
76
Transfer
Agent
Our stock transfer
agent is Issuer Direct Corporation, 500 Perimeter Park Drive,
Morrisville, NC 27560.
LEGAL
MATTERS
The validity of the
securities offered hereby has been passed upon for us by Lucosky
Brookman LLP. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Greenberg
Traurig, LLP, New York, New York.
EXPERTS
The financial
statements of the Company included in this prospectus and in the
registration statement have been audited by D’Arelli
Pruzansky, P.A. Certified Public Accountants, to the extent and for
the period set forth in their report appearing elsewhere herein and
in the registration statement, and are included in reliance upon
such report given upon the authority of said firm as experts in
auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed with
the SEC a registration statement on Form S-1 under the Securities
Act with respect to the shares offered hereby. This prospectus,
which constitutes a part of the registration statement, does not
contain all of the information in the registration statement and
the exhibits of the registration statement. For further information
with respect to us and the securities being offered under this
prospectus, we refer you to the registration statement, including
the exhibits and schedules thereto.
You may read and
copy the registration statement of which this prospectus is a part
at the SEC’s Public Reference Room, which is located at 100 F
Street, N.E., Washington, D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more
information about the operation of the SEC’s Public Reference
Room. In addition, the SEC maintains an Internet web site, which is
located at www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC. You may access the registration statement of which this
prospectus is a part at the SEC’s Internet web site. We are
subject to the information reporting requirements of the Exchange
Act, and we will file reports, proxy statements and other
information with the SEC.
INCORPORATION
BY REFERENCE
We incorporate by
reference all documents subsequently filed by us with the SEC
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934 until all of the securities that may be
offered by this prospectus are sold. We are not, however,
incorporating by reference any documents or portions thereof,
whether specifically listed above or filed in the future, that are
not deemed “filed” with the SEC. Any statements
contained in this prospectus, in an amendment hereto or in a
document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any subsequently
filed document that is also incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
We will provide
without charge to each person to whom this prospectus is delivered,
including any beneficial owner, upon written or oral request of
such person, a copy of any or all of the documents that have been
or that may be incorporated by reference in this prospectus.
Exhibits to the filings will not be sent, however, unless those
exhibits have been specifically incorporated by reference in this
prospectus.
You can obtain any
of the filings incorporated by reference into this prospectus
through us or from the SEC through the SEC’s website at
http://www.sec.gov. We will
provide, without charge, to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the reports
and documents referred to above which have been or may be
incorporated by reference into this prospectus. You should direct
requests for those documents to:
Meridian Waste
Solutions, Inc.
12540 Broadwell
Road, Suite 2104
Milton, GA
30004
Our reports and
documents incorporated by reference into this prospectus may also
be found in the “Investors Relations” section of our
website at http://www.mwsinc.com. Our website and
the information contained in it or connected to it shall not be
deemed to be incorporated into this prospectus or any registration
statement of which it forms a part.
77
INDEX
TO FINANCIAL STATEMENTS
September
30, 2016
(unaudited)
|
|
|
PAGE
|
|
|
|
Balance
Sheets
|
|
|
F-2
|
|
|
Statements of
Operations
|
|
|
F-3
|
|
|
Statements of Cash
Flows
|
|
|
F-5
|
|
|
Notes to Financial
Statements
|
|
|
F-6 to
F-24
|
|
December
31, 2015
(Audited)
|
|
|
PAGE
|
|
|
|
|
|
|
|
|
|
Report of
Independent Registered Public Accoutant Consolidated Financial
Statements
|
|
|
F-25
|
|
|
Consolidated
Balance Sheets
|
|
|
F-26
|
|
|
Consolidated
Statements of Operations
|
|
|
F-27
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
|
|
|
F-28
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
F-29
|
|
|
Notes to the
Consolidated Financial Statements
|
|
|
F-30 to
F-64
|
|
December
31, 2014
(Audited)
|
|
|
PAGE
|
|
|
|
Reports of
Independent Registered Public Accountant
|
|
|
F-65
|
|
|
Consolidated
Balance Sheets
|
|
|
F-67
|
|
|
Consolidated
Statements of Operations
|
|
|
F-68
|
|
|
Consolidated
Statements of Changes in Shareholders' Equity
(Deficit)
|
|
|
F-69
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
F-70
|
|
|
Notes to the
Consolidated Financial Statements
|
|
|
F-71 to
F-85
|
|
F-1
MERIDIAN WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2016 AND DECEMBER 31, 2015
|
Assets
|
September
30, 2016
(UNAUDITED)
|
December
31, 2015
(UNAUDITED)
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
$ 1,247,756
|
$ 2,729,795
|
|
Short-term investments
- Restricted
|
1,952,805
|
-
|
|
Accounts receivable,
net of allowance
|
2,197,701
|
1,707,818
|
|
Prepaid
expenses
|
444,176
|
427,615
|
|
Other current
assets
|
95,920
|
52,359
|
|
|
|
|
|
Total current
assets
|
5,938,358
|
4,917,587
|
|
|
|
|
|
Property, plant and
equipment, at cost net of accumulated
depreciation
|
16,931,444
|
14,433,740
|
|
|
|
|
|
Assets held for
sale
|
395,000
|
-
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Investment in related
party affiliate
|
362,080
|
364,185
|
|
Deposits
|
11,454
|
10,954
|
|
Goodwill
|
7,234,420
|
7,479,642
|
|
Landfill assets, net of
accumulated amortization
|
3,526,506
|
3,393,476
|
|
Customer list, net of
accumulated amortization
|
15,673,879
|
19,500,362
|
|
Non-compete, net of
accumulated amortization
|
124,949
|
155,699
|
|
Website, net of
accumulated amortization
|
23,816
|
10,904
|
|
|
|
|
|
Total other
assets
|
26,957,104
|
30,915,222
|
|
|
|
|
|
Total
assets
|
$ 50,221,906
|
$ 50,266,549
|
|
|
|
|
|
Liabilities
and Shareholders' (Deficit) Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$ 2,588,904
|
$ 1,988,050
|
|
Accrued
expenses
|
598,859
|
280,069
|
|
Notes payable, related
party
|
359,891
|
359,891
|
|
Deferred
compensation
|
778,044
|
996,380
|
|
Deferred
revenue
|
3,394,204
|
2,912,264
|
|
Convertible notes due
related parties, includes put premiums
|
11,850
|
15,065
|
|
Contingent
liability
|
-
|
1,000,000
|
|
Derivative
liabilities
|
2,650,589
|
2,820,000
|
|
Current portion -
long-term debt
|
339,178
|
417,119
|
|
|
|
|
|
Total current
liabilities
|
10,721,519
|
10,788,838
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
Asset retirement
obligation
|
337,930
|
200,252
|
|
Deferred tax
liability
|
145,000
|
-
|
|
Long-term debt, net of
current
|
41,698,603
|
39,170,796
|
|
|
|
|
|
Total long-term
liabilities
|
42,181,533
|
39,371,048
|
|
|
|
|
|
Total
liabilities
|
52,903,052
|
50,159,886
|
|
|
|
|
|
Preferred Series C
stock redeemable, cumulative, stated value $100 per share, par
value $.001, 67,361 shares authorized, 35,750 and 0 shares issued
and outstanding, respectively
|
2,644,951
|
-
|
|
|
|
|
|
Shareholders' (deficit)
equity:
|
|
|
|
Preferred Series A
stock, par value $.001, 51 shares authorized, issued and
outstanding
|
-
|
-
|
|
Preferred Series B
stock, par value $.001, 71,210 shares authorized, issued and
outstanding
|
71
|
71
|
|
Common stock, par value
$.025, 75,000,000 shares authorized, 1,194,051 and 1,051,933 shares
issued and 1,182,551 and 1,040,433 shares outstanding,
respectively
|
29,851
|
26,298
|
|
Treasury stock, at
cost, 11,500 shares
|
(224,250)
|
(224,250)
|
|
Additional paid in
capital
|
36,995,896
|
28,124,160
|
|
Accumulated
deficit
|
(42,127,665)
|
(27,819,616)
|
|
|
|
|
|
Total shareholders'
(deficit) equity
|
(5,326,097)
|
106,663
|
|
|
|
|
|
Total liabilities and
shareholders' (deficit) equity
|
$ 50,221,906
|
$ 50,266,549
|
See notes to
condensed consolidated financial
statements
F-2
MERIDIAN WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30,
2015
|
|
Nine
months ended
|
|
|
|
SEPTEMBER
30, 2016 (UNAUDITED)
|
SEPTEMBER
30, 2015 (UNAUDITED)
|
|
Revenue
|
|
|
|
Services
|
$ 23,883,663
|
$ 9,733,330
|
|
|
|
|
|
Cost
of sales and services
|
|
|
|
Cost
of sales and services
|
14,288,853
|
5,989,174
|
|
Depreciation
|
2,462,586
|
1,176,561
|
|
|
|
|
|
Total
cost of sales and services
|
16,751,439
|
7,165,735
|
|
|
|
|
|
Gross
Profit
|
7,132,224
|
2,567,595
|
|
|
|
|
|
Expenses
|
|
|
|
Bad
debt expense
|
168,508
|
2,738
|
|
Compensation
and related expense
|
10,113,985
|
8,706,809
|
|
Depreciation
and amortization
|
2,876,333
|
2,214,390
|
|
Impairment
expense
|
1,255,267
|
-
|
|
Selling,
general and administrative
|
5,130,079
|
2,539,620
|
|
|
|
|
|
Total
expenses
|
19,544,172
|
13,463,557
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Miscellaneous
income (loss)
|
(9,090)
|
20,635
|
|
Gain
on disposal of assets
|
3,053
|
43,433
|
|
Unrealized
gain on interest rate swap
|
-
|
40,958
|
|
Unrealized
gain on change in fair value of derivative liability
|
853,031
|
346,963
|
|
Loss
from proportionate share of equity method investment
|
(2,105)
|
-
|
|
Unrealized
gain on investment
|
547
|
-
|
|
Gain
on contingent liability
|
1,000,000
|
-
|
|
Interest
income
|
7,270
|
-
|
|
Interest
expense
|
(3,603,807)
|
(865,994)
|
|
|
|
|
|
Total
other expenses
|
(1,751,101)
|
(414,005)
|
|
|
|
|
|
Loss
before income taxes
|
(14,163,049)
|
(11,309,967)
|
|
|
|
|
|
Provision
for income taxes
|
(145,000)
|
-
|
|
|
|
|
|
Net
loss
|
$ (14,308,049)
|
$ (11,309,967)
|
|
|
|
|
|
Basic
net loss per share
|
$ (11.91)
|
$ (19.05)
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
(Basic
and Diluted)
|
1,201,394
|
593,638
|
See notes to condensed consolidated financial statements
F-3
MERIDIAN WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30,
2015
|
|
Three
months ended
|
|
|
|
SEPTEMBER
30, 2016 (UNAUDITED)
|
SEPTEMBER
30, 2015 (UNAUDITED)
|
|
Revenue
|
|
|
|
Services
|
$ 8,389,326
|
$ 3,382,221
|
|
|
|
|
|
Cost
of sales and services
|
|
|
|
Cost
of sales and services
|
5,070,322
|
2,104,701
|
|
Depreciation
|
895,238
|
398,178
|
|
|
|
|
|
Total
cost of sales and services
|
5,965,560
|
2,502,879
|
|
|
|
|
|
Gross
Profit
|
2,423,766
|
879,342
|
|
|
|
|
|
Expenses
|
|
|
|
Bad
debt expense
|
112,950
|
-
|
|
Compensation
and related expense
|
3,117,396
|
326,404
|
|
Depreciation
and amortization
|
937,841
|
759,865
|
|
Selling,
general and administrative
|
1,345,379
|
1,185,770
|
|
|
|
|
|
Total
expenses
|
5,513,566
|
2,272,039
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Miscellaneous
income (loss)
|
(11,354)
|
2,612
|
|
Gain
on disposal of assets
|
-
|
37,183
|
|
Unrealized
gain on interest rate swap
|
-
|
30,584
|
|
Unrealized
gain on change in fair value of derivative liability
|
733,031
|
346,963
|
|
Unrealized
gain on investment
|
547
|
-
|
|
Interest
income
|
844
|
-
|
|
Interest
expense
|
(1,224,217)
|
(454,709)
|
|
|
|
|
|
Total
other expenses
|
(501,149)
|
(37,367)
|
|
|
|
|
|
Loss
before income taxes
|
(3,590,949)
|
(1,430,064)
|
|
|
|
|
|
Provision
for income taxes
|
(145,000)
|
-
|
|
|
|
|
|
Net
loss
|
$ (3,735,949)
|
$ (1,430,064)
|
|
|
|
|
|
Basic
net loss per share
|
$ (2.96)
|
$ (2.22)
|
|
|
|
|
|
(Basic
and Diluted)
|
1,261,085
|
644,193
|
See notes to
condensed consolidated financial statements
F-4
MERIDIAN WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30,
2015
|
|
Nine
months ended
|
|
|
|
SEPTEMBER
30, 2016 (UNAUDITED)
|
SEPTEMBER
30, 2015 (UNAUDITED)
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net
loss
|
$(14,308,049)
|
$(11,309,967)
|
|
Adjustments to
reconcile net loss to net cash (used in)
provided
|
|
|
|
from operating
activities:
|
|
|
|
Depreciation and
amortization
|
5,338,919
|
3,363,230
|
|
Interest accretion on
landfill liabilities
|
125,809
|
-
|
|
Amortization of
capitalized loan fees & debt discount
|
416,128
|
27,720
|
|
Unrealized gain on swap
agreement
|
-
|
(40,958)
|
|
Unrealized (gain) loss
on derivatives
|
(853,031)
|
(346,963)
|
|
Stock issued to vendors
for services
|
778,985
|
242,970
|
|
Stock issued to
employees as incentive compensation
|
8,071,045
|
7,356,180
|
|
Impairment
expense
|
1,255,267
|
-
|
|
Gain on contigent
liability
|
(1,000,000)
|
-
|
|
Loss from proportionate
share of equity investment
|
2,105
|
-
|
|
Loss on disposal of
equipment
|
3,053
|
(43,433)
|
|
|
|
|
|
Changes in working
capital items net of acquisitions:
|
|
|
|
Accounts receivable,
net of allowance
|
(489,884)
|
(722)
|
|
Prepaid expenses and
other current assets
|
(60,122)
|
177,483
|
|
Deposits
|
(500)
|
-
|
|
Accounts payable and
accrued expenses
|
916,432
|
469,319
|
|
Deferred
compensation
|
(218,336)
|
381,167
|
|
Deferred
revenue
|
481,940
|
87,567
|
|
Deferred tax
liability
|
145,000
|
-
|
|
Other current
liabilities
|
-
|
11,807
|
|
Net cash provided from
operating activities
|
604,761
|
375,400
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Landfill
additions
|
(350,699)
|
-
|
|
Acquisition of
property, plant and equipment
|
(5,397,521)
|
(1,022,968)
|
|
Purchases of short-term
investments
|
(1,952,805)
|
-
|
|
True up related to
acquisition
|
245,222
|
-
|
|
Proceeds from sale of
property, plant and equipment
|
46,975
|
85,987
|
|
Net cash used in
investing activities
|
(7,408,828)
|
(936,981)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Draw on revolver
loan
|
2,150,000
|
12,258,645
|
|
Proceeds from issuance
of common stock, net of placement fees of
$143,750
|
2,156,250
|
-
|
|
Proceeds from issuance
of Series C Preferred Stock, net of placement fees of
$79,688
|
1,195,312
|
-
|
|
Principal payments on
notes payable
|
(179,534)
|
(11,567,429)
|
|
Net cash provided from
financing activities
|
5,322,028
|
691,216
|
|
|
|
|
|
Net change in
cash
|
(1,482,039)
|
129,635
|
|
|
|
|
|
Beginning
cash
|
2,729,795
|
438,907
|
|
|
|
|
|
Ending
cash
|
$1,247,756
|
$568,542
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash paid for
interest
|
$3,050,001
|
$404,691
|
|
|
|
|
|
Supplemental
Non-Cash Investing and Financing Information:
|
|
|
|
|
|
|
|
Retirement of common
stock and related top off provision through the issuance
of
|
|
|
|
Preferred Stock C (and
related derivative
liability)
|
$2,673,480
|
$-
|
|
Disposition of
capitalized software in exchange for equal value of equity in
acquiring entity
|
$-
|
$434,532
|
|
Common shares issued to
placement agent
|
$58,250
|
$-
|
See notes to condensed consolidated financial
statements
F-5
NOTE
1 - NATURE OF OPERATIONS AND ORGANIZATION
Basis of Presentation
The
accompanying condensed consolidated financial statements of
Meridian Waste Solutions, Inc. and its subsidiaries (collectively
called the "Company") included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (“SEC"). The unaudited
condensed consolidated financial statements do not include all of
the information and footnotes required by US GAAP for complete
financial statements. The unaudited condensed consolidated
financial statements should be read in conjunction with the annual
consolidated financial statements and notes for the year ended
December 31, 2015 included in our Annual Report on Form 10K
for the Company as filed with the SEC. The consolidated balance
sheet at December 31, 2015 contained herein was derived from
audited financial statements, but does not include all disclosures
included in the Form 10-K for Meridian Waste Solutions, Inc., and
applicable under accounting principles generally accepted in the
United States of America. Certain information and footnote
disclosures normally included in our annual financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America, but not required for
interim reporting purposes, have been omitted or
condensed.
In
the opinion of management, all adjustments (consisting of normal
recurring items) necessary for a fair presentation of the unaudited
condensed financial statements as of September 30, 2016, and the
results of operations and cash flows for the three and nine months
ended September 30, 2016 have been made. The results of operations
for the three and nine months ended September 30, 2016 are not
necessarily indicative of the results to be expected for a full
year.
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
condensed consolidated financial statements for the nine months
ended September 30, 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"), a Georgia Limited
Liability Company had no operations during the period. The
condensed consolidated financial statements for the nine months
ended September 30, 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, a Georgia Limited Liability Company.
All
significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
On
January 7, 2015, in an effort to give investors a more concentrated
presence in the waste industry the Company sold the assets of HTST
to Mobile Science Technologies, Inc., a Georgia corporation (MSTI),
a related party due to being owned and managed by some of the
shareholders of the Company. On this date HTST ceased operations
and became a dormant Limited Liability Company (“LLC”).
Currently, Meridian is formalizing plans to dissolve HTST, in which
this LLC will cease to exist.
In
2014, HTSMWD purchased the assets of a large solid waste disposal
company in the St. Louis, MO 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.
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.
F-6
NOTE
1 - NATURE OF OPERATIONS AND ORGANIZATION (CONTINUED)
Liquidity and Capital Resources
As
of September 30, 2016, the Company had negative working capital of
$4,783,161. This lack of liquidity is mitigated by the
Company’s ability to generate positive cash flow from
operating activities. In the nine months ended September 30, 2016,
cash generated from operating activities, was approximately
$600,000. In addition, as of September 30, 2016, the Company had
approximately $1,200,000 in cash to cover its short term cash
requirements. Further, the Company has approximately $12,850,000 of
borrowing capacity on its multi-draw term loans and revolving
commitments. See
note 5, under the heading Goldman Sachs Credit
Agreement.
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
September 30, 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 $1,952,805 is
currently restricted as this amount is collateralizing a letter of
credit needed for our performance bond. The letter of credit
expires in February of 2017, and the cash is restricted until
then.
F-7
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and notes payable. The carrying amount
of these financial instruments approximates fair value due either
to length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these consolidated
financial statements.
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 financial quarter result in the
application of non-cash derivative gain.
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 nine months ended September 30, 2016, the Company
experienced impairment expense of its customer lists, see note 4.
No other impairments were noted during the nine months ended
September 30, 2016, and September 30, 2015.
Income Taxes
The
Company accounts for income taxes pursuant to the provisions of 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 bases of assets and liabilities. A
valuation allowance is provided to offset any net deferred tax
assets for which management believes it is more likely than not
that the net deferred asset will not be realized. The Company does
have deferred tax liabilities related to its intangible assets,
which were $145,000 as of September 30, 2016.
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.
F-8
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
As
of September 30, 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.
Reclassification
Certain
reclassifications have been made to previously reported amounts to
conform to 2016 amounts. The reclassifications had no impact on
previously reported results of operations or stockholders’
deficit. The changes were as a result of loan fees being shown net
of long term debt, which was retrospectively applied, $1,416,697 of
net loans were reclassified in the December 31, 2015 balance sheet
to be shown net against long-term debt. This is a result of the
Company's adoption of ASU 2015-03.
Accounts Receivable
Accounts
receivable are recorded at management’s estimate of net
realizable value. At September 30, 2016 and December 31, 2015 the
Company had approximately $2,368,000 and $2,326,000 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. We review the adequacy and
adjust our allowance for doubtful accounts on an ongoing basis,
using historical payment trends and the age of the receivables and
knowledge of our individual customers. However, if the financial
condition of our customers were to deteriorate, additional
allowances may be required. At September 30, 2016 and December 31,
2015 the Company had approximately $170,000 and $618,000 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 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. Intangible assets not subject to
amortization are tested for impairment at least annually. The
Company has intangible assets related to its purchase of Meridian
Waste Services, LLC, Christian Disposal LLC and Eagle Ridge
Landfill, LLC.
F-9
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in Related Party Affiliate
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 as
discussed in the impairment of long lived assets section above, we
assess our goodwill for impairment at least annually.
Website Development Costs
The
Company accounts for website development costs in accordance with
Accounting Standards Codification 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 — We capitalize various costs that
we incur 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.
●
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.
F-10
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 nine months ended September 30, 2016 we inflated these costs in
current dollars until the expected time of payment using an
inflation rate of 2.5%. Accretion expense was approximately
$126,000 for the nine months ended September 30, 2016. 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
September 30, 2016 is approximately 8.5%.
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. 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
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:
F-11
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-12
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For
the nine months ended September 30, 2016 the Company operations
related to its landfill assets and liability are presented in the
tables below:
|
|
Nine
Months Ended
September
30, 2016
(UNAUDITED)
|
Year
Ended
December
31, 2015
(UNAUDITED)
|
|
|
|
|
|
Landfill Assets
|
|
|
|
|
|
|
|
Beginning
Balance
|
$ 3,393,476
|
$ 3,396,519
|
|
Capital
Additions
|
350,699
|
-
|
|
Amortization
of landfill assets
|
(229,538)
|
(3,043)
|
|
Asset
retirement adjustments
|
11,869
|
-
|
|
|
$ 3,526,506
|
$ 3,393,476
|
|
|
|
|
|
Landfill Asset Retirement Obligation
|
|
|
|
|
|
|
|
Beginning
Balance
|
$ 200,252
|
$ 196,519
|
|
Obligations
incurred and capitalized
|
11,869
|
-
|
|
Obligations
settled
|
-
|
-
|
|
Interest
accretion
|
125,809
|
3,733
|
|
Revisions
in estimates and interest rate assumption
|
-
|
-
|
|
|
$ 337,930
|
$ 200,252
|
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 July, August and September for services that will
be provided during October, November and December.
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.
F-13
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For
the nine months ended September 30, 2016, the Company had one
contract that accounted for approximately 11% of the Company's
revenue. For the nine months ended September 30, 2015, the Company
had two contracts that accounted for approximately 49% of the
Company's revenue, collectively.
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 September 30, 2016 the Company had one
convertible note outstanding that is convertible into common
shares. Additionally, the Company issued stock warrants for 104,314
common shares. These are not presented in the consensed
consolidated statement of operations since the Company incurred a
loss and the effect of these shares is
anti-dilutive.
At
September 30, 2016, and December 31, 2015 the Company had a series
of convertible notes and warrants outstanding that could be
converted into approximately, 175,023 and 127,428 common shares,
respectively. These are not presented in the condensed consolidated
statements of operations since the Company incurred a loss and the
effect of these shares is anti- dilutive.
For
the nine months ended September 30, 2016, the Company had 70,709 of
weighted-average common shares relating to the convertible debt,
under the if-converted method, however, these shares are not
dilutive because the Company recorded a loss during the fiscal
year.
Stock-Based Compensation
Stock-based
compensation is accounted for at fair value in accordance with ASC
Topic 718.
Stock-based
compensation is accounted for based on the requirements of the
Share-Based Payment Topic of 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). The ASC also require 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 $8,850,030 and
$7,599,150 during the nine months ended September 30, 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 amendments are
effective for public companies for annual periods beginning after
December 15, 2016, and interim periods within those annual periods.
For private companies, the amendments are effective for annual
periods beginning after December 15, 2017, and interim periods
within annual periods beginning after December 15, 2018. Early
adoption is permitted for any interim or annual
period.
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.
F-14
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Effective for
Public business entities for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years
(i.e., January 1, 2019, for a calendar year entity). Nonpublic
business entities should apply the amendments for fiscal years
beginning after December 15, 2019 (i.e., January 1, 2020, for a
calendar year entity), and interim periods within fiscal years
beginning after December 15, 2020. Early application is permitted
for all public business entities and all nonpublic business
entities upon issuance. 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.
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.
Effective for
public business entities for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods
within those annual periods. For all other entities, the amendments
are effective for financial statements issued for annual periods
beginning after December 15, 2017, and interim periods within
annual periods beginning after December 15, 2018. The amendments
may be applied prospectively to all deferred tax liabilities and
assets or retrospectively to all periods presented.
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.
Effective for
annual periods ending after December 15, 2016, and interim periods
within annual periods beginning after December 15, 2016. Early
application is permitted for annual or interim reporting periods
for which the financial statements have not previously been
issued.
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.
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.
The Company is
currently assessing the potential impact of the above recent
accounting pronouncements.
NOTE
3 – PROPERTY, PLANT AND EQUIPMENT
The
following is a summary of property, plant, and equipment—at
cost, less accumulated depreciation:
|
|
September
30, 2016
(UNAUDITED)
|
December 31, 2015
(UNAUDITED)
|
|
Land
|
$ 1,590,000
|
$ 1,690,000
|
|
Buildings
& Building Improvements
|
397,156
|
692,156
|
|
Furniture
& office equipment
|
386,382
|
258,702
|
|
Containers
|
6,799,566
|
4,453,386
|
|
Trucks,
Machinery, & Equipment
|
12,844,481
|
9,948,686
|
|
|
|
|
|
Total
cost
|
22,017,585
|
17,042,930
|
|
|
|
|
|
Less
accumulated depreciation
|
(5,086,141)
|
(2,609,190)
|
|
|
|
|
|
Net
property and Equipment
|
$ 16,931,444
|
$ 14,433,740
|
As of September 30,
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 nine months ended September 30, 2016.
Depreciation expense for the nine months ended September 30, 2016 and 2015
was $2,505,329 and $1,224,871, respectively.
F-15
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION
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.
Eagle Ridge Landfill, LLC and Eagle Ridge Hauling
Business
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.
In
the nine months ended September 30, 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 $232,581, amounted to $2,833,590 and $2,138,359 for the
nine months ended September 30, 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. The Company also wrote off through
miscellaneous income the $1,000,000 contingent liability that was
recorded in connection with the loss of the potential
renewal.
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES
The Company had the
following long-term debt:
|
|
September
30, 2016
(UNAUDITED)
|
December 31, 2015
(UNAUDITED)
|
|
|
|
|
|
Goldman
Sachs - Tranche A Term Loan - LIBOR Interest
|
$ 40,000,000
|
$ 40,000,000
|
|
Goldman
Sachs – Revolver
|
2,150,000
|
-
|
|
Goldman
Sachs – MDTL
|
-
|
-
|
|
Convertible
Notes Payable
|
1,250,000
|
1,250,000
|
|
Capitalized
lease - financing company, secured by equipment
|
15,898
|
37,096
|
|
Equipment
loans
|
300,053
|
395,119
|
|
Notes
payable to seller of Meridian, subordinated debt
|
1,475,000
|
1,475,000
|
|
Less: debt issuance
cost/fees
|
(1,253,319)
|
(1,416,697)
|
|
Less:
debt discount
|
(1,899,851)
|
(2,152,603)
|
|
Total debt
|
42,037,781
|
39,587,915
|
|
Less:
current portion
|
(339,178)
|
(417,119)
|
|
Long term debt less current portion
|
$ 41,698,603
|
$ 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
nine months ended September 30, 2016, the Company borrowed
$2,150,000 in relation to the Revolving Commitments. At September
30, 2016, the Company had a total outstanding balance of
$42,150,000 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 September 30, 2016 and at certain times
thereafter, the Company was in violation of covanants 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 November 11, 2016 whereby the covenant
violations were waived. The next measurement date of all covenants
is December 31, 2016. Should the Company have violations in the
future that are not waived, it could materially effect the
Company's operations and ability to fund future
operations.
F-16
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
In
addition, in connection with the credit agreement, the Company
issued warrants to Goldman, Sachs &
Co. for the purchase of shares of the Company’s common stock
equivalent to a 6.5% Percentage Interest 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. Due to the put
feature contained in the agreement, a derivative liability was
recorded for the warrant.
The Company’s
derivative warrant instrument related to Goldman,
Sachs &
Co. has been measured at fair value at September 30, 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 September 30, 2016 the balance of
the debt discount is $1,899,851. 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 September 30, 2016, the unamortized balance of the
costs was $1,253,319.
The key inputs used
in the September 30, 2016 and December 31, 2015 fair value
calculations were as follows:
|
|
September
30,
|
|
|
2016
|
|
Purchase
Price
|
$ 450,000
|
|
Time
to expiration
|
12/22/2023
|
|
Risk-free
interest rate
|
1.43%
|
|
Estimated
volatility
|
60%
|
|
Dividend
|
0%
|
|
Stock
price on September 30, 2016
|
$ 0.88
|
|
Expected
forfeiture rate
|
0%
|
The change in the
market value for the period ending September 30, 2016 is as
follows:
|
Fair
value of warrants @ December 31, 2015
|
$ 2,820,000
|
|
|
|
|
Unrealized
gain on derivative liability
|
(1,280,000)
|
|
|
|
|
Fair
value of warrants @ September 30, 2016
|
$ 1,540,000
|
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 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.
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
September 30, 2016 and December 31, 2015, the balance on these
loans was $1,475,000 and $1,475,000, respectively.
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 September 30, 2016, the
balance of the remaining three loans was $300,054.
F-17
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
Other Debts
Convertible notes due related parties
In
2015, approximately $225,000 of the issued promissory notes were
converted into approximately 461,000 shares at the contractual
conversion price. At September 30, 2016 the Company had $11,850
remaining in convertible notes with an annual interest rate of 6%
to related parties, which includes $1,850 in accrued interest and
is included in current liabilities on the consolidated balance
sheet. The note is no longer convertible as of September 30, 2016
as maturity date has passed. The Company and management have agreed
that principal and all accrued interest will be paid back to the
related party in the fourth quarter of 2016.
Notes Payable, related party
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 discussed above.
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 September 30, 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.
Total interest
expense for the three and nine months ended September 30, 2016 was
$1,224,217 and $3,603,807, respectively. Amortization of debt
discount was $86,913 and $252,751, respectively. Amortization of
capitalized loan fees was $56,156 and $163,377, respectively.
Interest expense on debt was $1,081,148 and $3,187,679,
respectively.
NOTE
6- SHAREHOLDERS’ EQUITY
Common Stock
The
Company has authorized 75,000,000 shares of $0.025 par value common
stock. At September 30, 2016 and December 31, 2015 there were
1,194,051 and 1,051,933 shares issued and outstanding.
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 September 30,
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 71,210 and
71,210 shares issued and outstanding and series C has 35,750 and 0
shares issued and outstanding, as of September 30, 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.
At
September 30, 2016 and December 31, 2015, the Company’s
Series B Preferred Stock dividends in arrears on the 12% cumulative
preferred stock were approximately $1,673,000 ($23.50 per share)
and $1,033,000 ($14.50 per share), respectively.
F-18
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
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 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
Condensed Consolidated Balance Sheet.
Third Quarter
Series C Offering
During the three
months ended September 30, 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
three months ended September 30, 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. 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 September 30, 2016
were $930,000 and $1.1 million, respectively. The key assumptions
used in the model at inception and at September 30, 2016 are as
follows:
|
|
|
Inception
|
|
9/30/2016
|
|
|
|
|
|
|
|
Stock
Price
|
|
$0.00
- $3.00
|
|
$0.00
- $1.76
|
|
Exercise
Price
|
|
$1.12
|
|
$1.12
|
|
Term
|
|
.5
years
|
|
0.3
to 0.42 years
|
|
Risk
Free Interest Rate
|
|
.39%
- .47%
|
|
0.29%
|
|
Volatility
|
|
60%
|
|
60%
|
|
Dividend
Rate
|
|
0%
|
|
0%
|
F-19
NOTE
6- SHAREHOLDERS’ EQUITY (CONTINUED)
The roll forward of
the Shortfall Provision derivative liability is as
follows
|
Balance
– June 30, 2016
|
$ -
|
|
Issuances
of Series C
|
930,048
|
|
Fair
Value Adjustment
|
180,541
|
|
Balance
– September 30, 2016
|
$ 1,110,589
|
Common Stock Transactions
During
the nine months ended September 30, 2016 and the year ended
December 31, 2015, the Company issued, 244,788 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 244,788 shares issued for the nine months ended
September 30, 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
115,000 of these shares to officers and employees as incentive
compensation resulting in compensation expense of
$3,550,000;
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 has issued and outstanding warrants of 104,314 common
shares, as adjusted, with the current exercise price of $4.31, as
adjusted, expiring December 31, 2023.
There were no
outstanding warrants at September 30, 2015. A summary of the status
of the Company's outstanding stock warrants for the period ended
September 30, 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.
|
20,636
|
$ 4.31
|
-
|
-
|
|
Forfeited
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Outstanding,
September 30, 2016
|
104,314
|
$ 4.31
|
$ 449,518
|
|
|
Warrants
exercisable at September 30, 2016
|
104,314
|
|
|
|
F-20
NOTE
7 - 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
September 30, 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:
|
|
|
Fair
Value Measurements at Reporting Date Using
|
||
|
|
December 31,
2015
(UNAUDITED)
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
|
|
|
|
|
Derivative
liability
|
$2,820,000
|
$-
|
$-
|
$2,820,000
|
|
|
|
|
|
|
|
Stock
settled debt
|
12,500
|
10,000
|
-
|
2,500
|
|
|
|
|
|
|
|
|
$2,832,500
|
$10,000
|
$-
|
$2,822,500
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
||
|
|
|
Quoted
Prices in
|
Significant
Other
|
Significant
|
|
|
|
Active
Markets for
|
Observable
|
Unobservable
|
|
|
September
30, 2016
|
Identical
Assets
|
Inputs
|
Inputs
|
|
|
(UNAUDITED)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
Derivative
liability – stock warrants
|
$ 1,540,000
|
-
|
-
|
$ 1,540,000
|
|
Derivative
liability – Series C Preferred Stock
|
1,110,589
|
-
|
-
|
1,110,589
|
|
|
$ 2,650,589
|
-
|
-
|
$ 2,650,589
|
F-21
NOTE 8 -
LEASES
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
September 30, 2016 are as
follows:
|
2016
|
$ 154,941
|
|
2017
|
530,551
|
|
2018
|
250,497
|
|
2019
|
178,303
|
|
2020
|
138,700
|
|
Thereafter
|
151,200
|
|
Total
|
$ 1,404,192
|
The Company has also entered into various other
leases on a month to month basis for machinery and equipment. Rent
expense amounted to $409,007 and $222,869 for the nine months ended September 30,
2016 and 2015,
respectively.
NOTE
9 - 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 nine months ended
September 30, 2016, the Company had
approximately $141,000 of expenses related to this performance bond
and for the nine months ended September 30, 2015, the Company was not required to obtain a
performance bond.
Note
10 - 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
11 - RELATED PARTY TRANSACTIONS
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.
F-22
NOTE
11 - RELATED PARTY TRANSACTIONS (CONTINUED)
Following
is a summary of financial position and results of operations of
MSTI:
|
Summary
of Statements of Financial Condition
|
Nine
Months Ended
|
|
|
September
30, 2016
|
|
Assets
|
|
|
Current
assets
|
$ 3,609
|
|
Noncurrent
assets
|
2,877,313
|
|
Total
assets
|
2,880,922
|
|
|
|
|
Liabilities and
Equity
|
|
|
Current
liabilities
|
236,562
|
|
Noncurrent
liabilities
|
-
|
|
Equity
|
2,644,360
|
|
Total
liabilities and equity
|
$ 2,880,922
|
|
|
|
|
Summary
of Statements of Operations
|
|
|
|
|
|
Revenues
|
$ 177
|
|
Expense
|
16,410
|
|
Net
loss
|
$ (16,233)
|
The Company recorded losses from its investment in
MSTI, accounted for under the equity method, of approximately
$2,100 for the nine months ended September 30,
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
12 – 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
7,500,000 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
continuous employment and the Company reaches certain performance
goals. As of September 30, 2016, the Company has recognized
approximately $4,500,000 in compensation expense of a potential
total expense of $6,592,000. The total expense of $6,592,265 is
being expensed ratably from the original agreement date of March
11, 2016 to the end date of January 1, 2017.
F-23
NOTE
13 – SUBSEQUENT EVENTS
Series B Securities Exchange Agreements
Effective October 13, 2016, the
Company entered into those certain securities exchange agreements
(the “Series
B Exchange Agreements”) by and between the
Company and each holder of the Company’s Series B Preferred
Stock, par value $0.001 per share (the “Series
B Preferred”), (collectively, the
“Series B Holders”
and each, individually, a “Series B Holder”)
to effect the exchange of all shares of Series B Preferred for
shares of Common Stock. Pursuant to the Series B Exchange
Agreements, the Company agreed to issue to the Series B Holders a
total of 500,001 shares of Common Stock, with each Series B Holder
being issued 166,667 shares of Common Stock, subject to and in
accordance with the terms set forth in the Series B Exchange
Agreements in consideration for the cancellation of all shares of
Series B Preferred owned by the Series B Holders. Upon cancellation
of the Series B Preferred pursuant to the Series B Exchange
Agreements, there are no shares of Series B Preferred issued and
outstanding.
F-24
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Shareholders
Meridian Waste
Solutions, Inc.
We have audited the
accompanying consolidated balance sheets of Meridian Waste
Solutions, Inc. and Subsidiaries as of December 31, 2015 and 2014
and the related consolidated statements of operations, changes in
shareholders’ equity, and cash flows for the year ended
December 31, 2015 and for the Period from January 1, 2014 to May
15, 2014 (the “Predecessor Company”) and from the
Period from Acquisition May 16, 2014 to December 31, 2014 (the
“Successor Company”). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly we express
no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Meridian Waste Solutions, Inc. and Subsidiaries at December 31,
2015 and 2014 and the results of their operations and their cash
flows for the year ended December 31, 2015 and for the Period from
January 1, 2014 to May 15, 2014 (the “Predecessor
Company”) and from the Period from Acquisition May 16, 2014
to December 31, 2014 (the “Successor Company”), in
conformity with accounting principles generally accepted in the
United States of America.
|
|
|
/s/ D’Arelli
Pruzansky, P.A.
|
|
|
|
|
Certified Public Accountants
|
|
|
|
|
|
|
Coconut Creek,
Florida
April 13,
2016
F-25
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2015 AND 2014
|
Assets
|
|
2015
|
|
|
2014
|
|
||
|
Current
assets:
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
Cash
|
|
$
|
2,729,795
|
|
|
$
|
438,907
|
|
|
Accounts
receivable, net of allowance
|
|
|
1,707,818
|
|
|
|
588,479
|
|
|
Prepaid
expenses
|
|
|
427,615
|
|
|
|
221,999
|
|
|
Other current
assets
|
|
|
52,359
|
|
|
|
41,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
4,917,587
|
|
|
|
1,291,237
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, at cost net of accumulated depreciation
|
|
|
14,433,740
|
|
|
|
7,654,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in
related party affiliate
|
|
|
364,185
|
|
|
|
-
|
|
|
Deposits
|
|
|
10,954
|
|
|
|
8,303
|
|
|
Capitalized
software
|
|
|
-
|
|
|
|
434,532
|
|
|
Loan fees, net of
accumulated amortization
|
|
|
1,416,697
|
|
|
|
39,365
|
|
|
Goodwill
|
|
|
7,479,642
|
|
|
|
-
|
|
|
Landfill assets,
net of accumulated amortization
|
|
|
3,393,476
|
|
|
|
-
|
|
|
Customer list, net
of accumulated amortization
|
|
|
19,500,362
|
|
|
|
12,139,792
|
|
|
Non-compete, net of
accumulated amortization
|
|
|
155,699
|
|
|
|
130,000
|
|
|
Website, net of
accumulated amortization
|
|
|
10,904
|
|
|
|
13,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
assets
|
|
|
32,331,919
|
|
|
|
12,765,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
51,683,246
|
|
|
$
|
21,711,682
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,988,050
|
|
|
$
|
449,840
|
|
|
Accrued
expenses
|
|
|
280,069
|
|
|
|
67,365
|
|
|
Notes payable,
related party
|
|
|
359,891
|
|
|
|
526,585
|
|
|
Deferred
compensation
|
|
|
996,380
|
|
|
|
729,000
|
|
|
Deferred
revenue
|
|
|
2,912,264
|
|
|
|
1,929,882
|
|
|
Convertible notes
due related parties, includes put premiums
|
|
|
15,065
|
|
|
|
302,083
|
|
|
Operating line of
credit and capital expenditure line of credit
|
|
|
-
|
|
|
|
1,675,160
|
|
|
Contingent
liability
|
|
|
1,000,000
|
|
|
|
-
|
|
|
Derivative
liability - stock warrants
|
|
|
2,820,000
|
|
|
|
-
|
|
|
Current portion -
long term debt
|
|
|
417,119
|
|
|
|
1,357,143
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
10,788,838
|
|
|
|
7,037,058
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative
liability - interest rate swap
|
|
|
-
|
|
|
|
40,958
|
|
|
Asset retirement
obligation
|
|
|
200,252
|
|
|
|
-
|
|
|
Long term debt, net
of current
|
|
|
40,587,493
|
|
|
|
8,826,190
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term
liabilities
|
|
|
40,787,745
|
|
|
|
8,867,148
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
51,576,583
|
|
|
|
15,904,206
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
Preferred Series A
stock, par value $.001, 51 shares authorized, issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Preferred Series B
stock, par value $.001, 71,210 shares authorized, issued and
outstanding
|
|
|
71
|
|
|
|
71
|
|
|
Common stock, par
value $.025, 75,000,000 shares authorized, 21,038,650 and 9,963,618
share issued and outstanding, respectively
|
|
|
525,966
|
|
|
|
249,085
|
|
|
Treasury stock, at
cost
|
|
|
(224,250
|
)
|
|
|
(224,250
|
)
|
|
Additional paid in
capital
|
|
|
27,624,492
|
|
|
|
14,370,296
|
|
|
Accumulated
deficit
|
|
|
(27,819,616
|
)
|
|
|
(8,587,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders'
equity
|
|
|
106,663
|
|
|
|
5,807,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
51,683,246
|
|
|
$
|
21,711,682
|
|
F-26
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
|
Successor
|
Predecessor
|
|
|
Year Ended
December 31, 2015
|
Period from
Acquisition May 16, 2014 to December 31, 2014
|
Period from
January 1, 2014 to May 15, 2014
|
|
Revenue
|
|
|
|
|
Software
sales
|
$-
|
$1,864
|
$-
|
|
Services
|
13,506,097
|
7,951,607
|
4,248,605
|
|
|
|
|
|
|
Total
revenue
|
13,506,097
|
7,953,471
|
4,248,605
|
|
|
|
|
|
|
Cost of sales and
services
|
|
|
|
|
Cost of sales and
services
|
8,521,379
|
5,019,286
|
2,603,280
|
|
Depreciation
|
1,614,225
|
932,526
|
504,515
|
|
|
|
|
|
|
Total cost of sales
and services
|
10,135,604
|
5,951,812
|
3,107,795
|
|
|
|
|
|
|
Gross
Profit
|
3,370,493
|
2,001,659
|
1,140,810
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Bad debt
expense
|
37,467
|
98,381
|
-
|
|
Compensation and
related expense
|
9,107,497
|
751,398
|
213,391
|
|
Depreciation and
amortization
|
2,940,724
|
1,932,459
|
5,748
|
|
Selling, general
and administrative
|
5,555,207
|
1,397,570
|
469,593
|
|
|
|
|
|
|
Total
expenses
|
17,640,895
|
4,179,808
|
688,732
|
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
|
Miscellaneous
income
|
27,623
|
1,331
|
2,996
|
|
Loss on disposal of
assets
|
(21,851)
|
(20,830)
|
-
|
|
Unrealized gain
(loss) on interest rate swap
|
40,958
|
(40,958)
|
-
|
|
Unrealized loss on
change in fair value of derivative liability
|
(1,664,213)
|
-
|
-
|
|
Loss on
extinguishment of debt
|
(1,899,161)
|
-
|
-
|
|
Loss from
proportionate share of equity investment
|
(70,347)
|
-
|
-
|
|
Recapitalization
expense
|
-
|
(70,000)
|
-
|
|
Interest
expense
|
(1,374,497)
|
(348,136)
|
(184,011)
|
|
|
|
|
|
|
Total other income
(expenses)
|
(4,961,488)
|
(478,593)
|
(181,015)
|
|
|
|
|
|
|
Net (loss)
income
|
$(19,231,890)
|
$(2,656,742)
|
$271,063
|
|
|
|
|
|
|
Basic net loss per
share
|
$(1.33)
|
$(0.27)
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
(Basic and
Diluted)
|
14,468,576
|
9,963,418
|
|
F-27
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
Common Shares
|
Common Stock, Par
|
Preferred Series A Shares
|
Preferred Series A Stock, Par
|
Preferred Series B Shares
|
Preferred Series B Stock, Par
|
Treasury Stock
|
Additional Paid in Capital
|
Members' Equity
|
Accumulated Deficit
|
Total
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2013
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$-
|
$-
|
$1,539,738
|
|
$1,539,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, from January 1
to
|
|
|
|
|
|
|
|
|
|
|
|
|
May 15, 2014
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
271,063
|
-
|
271,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' distributions,
from
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to May 15,
2014
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(585,000)
|
-
|
(585,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 15,
2014
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,225,801
|
-
|
1,225,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 16,
2014
|
9,054,134
|
$226,353
|
51
|
$-
|
71,210
|
$71
|
$-
|
$12,992,347
|
|
$(5,930,984)
|
$7,287,787.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
of
|
|
|
|
|
|
|
|
|
|
|
|
|
the Company
|
1,139,284
|
28,482
|
-
|
-
|
-
|
-
|
-
|
(28,482)
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock
purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
as part of
recapitalization
|
(230,000)
|
(5,750)
|
-
|
-
|
-
|
-
|
(224,250)
|
-
|
|
-
|
(230,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion
of related party debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,406,431
|
|
-
|
1,406,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(2,656,742)
|
(2,656,742)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2014
|
9,963,418
|
$249,085
|
51
|
$-
|
71,210
|
$71
|
$(224,250)
|
$14,370,296
|
|
$(8,587,726)
|
$5,807,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock exchanged for
services
|
1,573,550
|
$39,339
|
-
|
$-
|
-
|
$-
|
$-
|
$791,631
|
|
$-
|
$830,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
compensation
|
5,690,843
|
142,271
|
-
|
-
|
-
|
-
|
-
|
7,213,909
|
|
-
|
7,356,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion
of related party debt
|
460,839
|
11,521
|
-
|
-
|
-
|
-
|
-
|
307,406
|
|
-
|
318,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection
with Membership Purchase
|
1,750,000
|
43,750
|
-
|
-
|
-
|
-
|
-
|
2,581,250
|
|
-
|
2,625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection
with cancellation of Praesidian warrants
|
1,600,000
|
40,000
|
-
|
-
|
-
|
-
|
-
|
2,360,000
|
|
-
|
2,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(19,231,890)
|
(19,231,890)
|
|
Balance December
31, 2015
|
21,038,650
|
$525,966
|
51
|
$-
|
71,210
|
$71
|
$(224,250)
|
$27,624,492
|
$-
|
$(27,819,616)
|
$106,663
|
F-28
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|||
|
|
|
Year Ended
December 31, 2015
|
|
|
Period from
Acquisition May 16, 2014 to December 31, 2014
|
|
|
Period from
January 1, 2014 to May 15, 2014
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|||
|
Net (loss)
income
|
|
$
|
(19,231,890
|
)
|
|
$
|
(2,656,742
|
)
|
|
$
|
271,063
|
|
|
Adjustments to
reconcile net income to net cash (used in) provided
|
|
|
|
|
|
|
|
|
|
|||
|
from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
4,554,949
|
|
|
|
2,864,985
|
|
|
|
510,263
|
|
|
Unrealized gain on
swap agreement
|
|
|
(40,958
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Unrealized loss on
derivatives
|
|
|
1,664,213
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock issued to
vendors for services
|
|
|
830,970
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock issued to
employees as incentive compensation
|
|
|
7,356,180
|
|
|
|
-
|
|
|
|
-
|
|
|
Loss on
extinguishment of debt
|
|
|
1,899,161
|
|
|
|
-
|
|
|
|
-
|
|
|
Loss from
proportionate share of equity investment
|
|
|
70,347
|
|
|
|
-
|
|
|
|
-
|
|
|
Loss on disposal of
equipment
|
|
|
21,851
|
|
|
|
20,830
|
|
|
|
-
|
|
|
Changes in working
capital items net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net of allowance
|
|
|
325,322
|
|
|
|
43,843
|
|
|
|
(153,443
|
)
|
|
Prepaid expenses
and other current assets
|
|
|
(71,247
|
)
|
|
|
(140,307
|
)
|
|
|
66,176
|
|
|
Due to Here to
Serve Holding Corp.
|
|
|
-
|
|
|
|
376,585
|
|
|
|
-
|
|
|
Deposits
|
|
|
(2,651
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Accounts payable
and accrued expenses
|
|
|
642,797
|
|
|
|
431,328
|
|
|
|
133,219
|
|
|
Deferred
compensation
|
|
|
267,380
|
|
|
|
243,000
|
|
|
|
-
|
|
|
Deferred
revenue
|
|
|
(112,361
|
)
|
|
|
51,778
|
|
|
|
(32,360
|
)
|
|
Derivative
liability
|
|
|
-
|
|
|
|
40,958
|
|
|
|
-
|
|
|
Other current
liabilities
|
|
|
-
|
|
|
|
932,135
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)
provided from operating activities
|
|
|
(1,825,937
|
)
|
|
|
2,208,392
|
|
|
|
794,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash portion paid
for acquisition
|
|
|
(22,667,862
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Purchased
capitalized software
|
|
|
-
|
|
|
|
(60,512
|
)
|
|
|
-
|
|
|
Acquisition of
property, plant and equipment
|
|
|
(1,280,011
|
)
|
|
|
(1,407,251
|
)
|
|
|
(170,886
|
)
|
|
Purchased
software
|
|
|
-
|
|
|
|
(13,920
|
)
|
|
|
-
|
|
|
Proceeds from sale
of property, plant and equipment
|
|
|
79,737
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
|
(23,868,136
|
)
|
|
|
(1,481,682
|
)
|
|
|
(170,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayments)
borrowings on notes due related parties
|
|
|
(134,785
|
)
|
|
|
123,333
|
|
|
|
-
|
|
|
Member
distributions
|
|
|
-
|
|
|
|
-
|
|
|
|
(585,000
|
)
|
|
Proceeds from
loans
|
|
|
52,207,716
|
|
|
|
-
|
|
|
|
-
|
|
|
Payments for
purchase of treasury stock
|
|
|
-
|
|
|
|
(230,000
|
)
|
|
|
-
|
|
|
Increase in
capitalized loan fees
|
|
|
(1,395,903
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Principle payments
on notes payable
|
|
|
(21,016,907
|
)
|
|
|
(791,667
|
)
|
|
|
(449,499
|
)
|
|
(Repayments on)
proceeds from line of credit
|
|
|
(1,675,160
|
)
|
|
|
590,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
from (used in) financing activities
|
|
|
27,984,961
|
|
|
|
(308,334
|
)
|
|
|
(1,034,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
|
|
2,290,888
|
|
|
|
418,376
|
|
|
|
(410,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
cash
|
|
|
438,907
|
|
|
|
20,531
|
|
|
|
1,461,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
cash
|
|
$
|
2,729,795
|
|
|
$
|
438,907
|
|
|
$
|
1,050,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
1,374,497
|
|
|
$
|
348,136
|
|
|
$
|
52,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-Cash Investing and Financing
Information:
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock as
consideration in acquisition
|
|
$
|
2,625,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Stock for
cancellation of warrants
|
|
$
|
2,400,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Stock in exchange
for forgiveness of debt
|
|
$
|
318,927
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Contingent
liability in conjunction with acquisition
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Debt forgiveness by
related party in connection with recapitalization
|
|
$
|
-
|
|
|
$
|
1,406,431
|
|
|
$
|
-
|
|
|
Convertible
promissory note issued for acquisition
|
|
$
|
1,250,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
F-29
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
Note 1 - NATURE OF OPERATIONS AND
ORGANIZATION
Meridian Waste
Solutions, Inc. (formerly Brooklyn Cheesecake and Desserts Company,
Inc.) (the “Company” or “Meridian”) is
currently operating under five 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) Here to Serve
Technology, LLC (“HTST”), a Georgia Limited Liability
Company; and
(5) Christian
Disposal, LLC and subsidiary (“CD”), a Missouri Limited
Liability Company.
On January 7, 2015,
in an effort to give investors a more concentrated presence in the
waste industry the Company sold the assets of HTST to Mobile
Science Technologies, Inc., a Georgia corporation (MSTI), a related
party due to being owned and managed by some of the shareholders of
the Company. On this date HTST ceased operations and became a
dormant Limited Liability Company (“LLC”). Currently,
Meridian is formalizing plans to dissolve HTST, in which this LLC
will cease to exist.
In 2014, HTSMWD
purchased the assets of a large solid waste disposal company in the
St. Louis, MO 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.
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.
Acquisition of Christian Disposal, LLC
and Eagle Ridge Landfill, LLC
On December 22,
2015, Meridian Waste Solutions, Inc. and subsidiaries (the
“Company”) completed its acquisition of Christian
Disposal LLC, and subsidiary (“Christian Purchase
Agreement”). Pursuant to the Christian Purchase Agreement,
the Company acquired 100% of the membership interests of Christian
Disposal, which is integrated into the operations of the Company;
refer to intangible assets and acquisition footnote
below.
Simultaneous with
the closing thereof, Christian Disposal LLC, and subsidiary,
entered into a Lease Agreement, in which, the Company leased 4551
Commerce Avenue, High Ridge, Missouri, for a five-year term at a
monthly rent of $6,500. Additionally, the Company entered into an
employment agreement with an executive employee for a term of five
years.
Concurrently, the
Company completed an asset purchase agreement with WCA Waste
Corporation (the “Eagle Purchase Agreement”). The
Company acquired all of the assets of Eagle Ridge Landfill, LLC
(“ERL”), its rights and properties related to such
business of ERL, which includes certain assets and operations of
the Eagle Ridge Hauling Business (“ERH”) and certain
debts, which is now operating under Meridian Land Company, LLC.
Refer to intangible assets and acquisition footnote
below.
F-30
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
Note 1 - NATURE OF
OPERATIONS AND ORGANIZATION (CONTINUED)
Recapitalization
On October 17, 2014
Here to Serve Missouri Waste Division, LLC, (HTSMWD) a Missouri
Limited Liability Company, which is the historical business,
entered into a Share Exchange Agreement with the Company and the
sole member of HTSMWD whereby the Company agreed to acquire the
membership interest of HTSMWD, HTST and HTSGWD in exchange for
9,054,134 shares of the Company’s common stock. This
transaction was closed on October 17, 2014 and HTSMWD became
wholly-owned by the Company. The Company is deemed to have issued
1,139,284 shares of common stock which represents the outstanding
common shares of the Company just prior to the closing of the
transaction.
At closing, the
Company issued 9,054,134 shares of its common stock to the sole
member of HTSMWD and the shareholders of the sole member who
obtained approximately 90% control and management control of the
Company. The transaction was accounted for as a reverse acquisition
and recapitalization of HTSMWD, HTST and HTSGWD whereby HTSMWD is
considered the acquirer for accounting purposes. The consolidated
financial statements after the acquisition include the balance
sheets of both companies and HTST and HTSGWD at historical cost,
the historical results of HTSMWD, HTST and HTSGWD. All share and
per share information in the accompanying consolidated financial
statements and footnotes has been retroactively restated to reflect
the recapitalization (see Explanation of Membership Interest
Purchase Agreement below).
Acquisition of Here to Serve Holding
Corporation
On October 17,
2014, (the “Execution Date”), Meridian Waste Solutions,
Inc. 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 Seller (the “Seller
Shareholders”), pursuant to which the Acquisition Corp shall
acquire 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:
i.
the Company shall
issue to Here to Serve 9,054,134 shares of the Company’s
common stock, (the “Common Stock”);
ii.
the Company shall
issue 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 to-be-designated Class A Preferred
Stock (the “Class A Preferred Stock”), which Class A
Preferred Stock shall have the rights and preferences as described
in the Purchase Agreement.
iii.
the Company shall
issue 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 to-be-designated Class B
Preferred Stock (the “Class B Preferred Stock”), (the
Common Stock, the Class A Preferred Stock and the Class B Preferred
Stock are referred to as the “Purchase Price Shares;”),
and
F-31
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
Note 1 - NATURE OF
OPERATIONS AND ORGANIZATION (CONTINUED)
iv.
the Company shall
assume certain assumed liabilities (the “Initial
Consideration”).
As further
consideration, at the closing of the transaction contemplated under
the Purchase Agreement:
a.
in satisfaction of
all accounts payable and shareholder loans, Here to Serve will pay
to Company Majority Shareholder $70,000 and
b.
the Company
purchased from the then Company Majority Shareholder 230,000 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:
a.
shares of common
stock of Here to Serve held by the individuals will be
cancelled
b.
1,000,000 shares of
Here to Serve’s Class A Preferred Stock will be cancelled;
and
c.
71,120 shares of
Here to Serve’s Class B Preferred Stock will be cancelled
(the “Additional Consideration”).
On October 17,
2014, the directors and majority shareholders of the Company
approved the Purchase Agreement and the transactions contemplated
under the Purchase Agreement. The directors of Here to Serve and
the Here to Serve Shareholders approved the Purchase Agreement and
the transactions contemplated thereunder. This closing of the
Purchase Agreement results in a change of control of the Company
and the Company changed its business plan to that of
HTSMWD.
Change in Reporting
Entity
The merger of Here
to Serve Holding Corp. (Here to Serve), a Delaware Corporation, and
Meridian Waste Services, LLC became effective May 15, 2014. The
merger 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. By the
application of “pushdown” accounting, our assets,
liabilities and equity were accordingly adjusted to fair value on
May 15, 2014. Determining the fair value of certain assets and
liabilities assumed is judgmental in nature and often involves the
use of significant estimates and assumptions.
At the time of
merger Here to Serve was a company with nominal operations whereas
Meridian Waste Services, LLC consisted of the active and
carry-forward business. Accordingly Meridian Waste Services, LLC is
deemed to be the predecessor entity and as such is presented as the
comparable financial statements. As such our financial statements
are presented in two distinct periods to indicate the application
of two different basis of accounting. Periods prior to May 15, 2014
are identified herein as “Predecessor,” while periods
subsequent to the Here to Serve merger are identified as
“Successor.” As a result of the change in basis of
accounting from historical cost to reflect the Here to
Serve’s purchase cost, the financial statements for
Predecessor periods are not comparable to those of Successor
periods.
F-32
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
The Company uses
the accrual basis of accounting and accounting principles generally
accepted in the United States of America (“GAAP”
accounting).
Basis of
Consolidation
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, Meridian Land Company,
LLC, Here to Serve Technology, 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, a Georgia
Limited Liability Company had no operations during the
period.
The consolidated
financial statements for the year ended December 31, 2014 include
the operations of the Company and its wholly-owned subsidiaries,
Here To Serve Missouri Waste Division, LLC and Here To Serve
Technology, LLC. The following subsidiary of the Company, Here To
Serve Georgia Waste Division, LLC had no operations during the
period.
All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash
Equivalents
The Company
considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Fair Value of Financial
Instruments
The Company’s
financial instruments consist of cash and cash equivalents,
accounts receivable, account payable, accrued expenses, and notes
payable. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or
interest rates that approximate prevailing market rates unless
otherwise disclosed in these consolidated financial
statements.
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 all of
the rights and obligations of each instrument.
F-33
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 expense. Conversely, decreases in the trading price of
the Company’s common stock and decreases in trading fair
value during a given financial quarter result in the application of
non-cash derivative income.
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 ending December 31, 2015, the Company experienced no losses
due to impairment.
Income Taxes
The Company
accounts for income taxes pursuant to the provisions of 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 bases of assets and liabilities. A
valuation allowance is provided to offset any net deferred tax
assets for which management believes it is more likely than not
that the net deferred asset will not be realized.
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.
F-34
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company
analyzes its tax positions by utilizing ASC 740-10-25 Definition of
Settlement, which provides guidance on how an entity should
determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits and
provides that a tax position can be effectively settled upon the
completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit,
even if the tax position is not considered more likely than not to
be sustained based solely on the basis of its technical merits and
the statute of limitations remains open. As of December 31, 2015,
tax years ended December 31, 2014, 2013, 2012 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, 2015 and 2014 the Company had approximately
$2,326,000 and $660,000 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. We review the adequacy and adjust our
allowance for doubtful accounts on an ongoing basis, using
historical payment trends and the age of the receivables and
knowledge of our individual customers. However, if the financial
condition of our customers were to deteriorate, additional
allowances may be required. At December 31, 2015 and 2014 the
Company had approximately $618,000 and $71,000 recorded for the
allowance for doubtful accounts, respectively.
Advertising costs
Advertising costs,
except for costs associated with direct-response advertising, are
charged to operations when incurred. The costs of direct-response
advertising are capitalized and amortized over the period during
which future benefits are expected to be received. The Company did
not capitalize any advertising for the years ended December 31,
2015 and 2014, respectively. Advertising expenses were
approximately $79,000 and $65,000 for the years ended December 31,
2015 and 2014, respectively.
F-35
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and
equipment
The cost of
property, plant, and equipment is depreciated over the estimated
useful lives 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. Assets not subject to amortization
are tested for impairment at least annually. The Company has
intangible assets related to its purchase of Meridian
Waste
Services, LLC,
Christian Disposal LLC and Eagle Ridge Landfill, LLC, which are
further discussed in the notes below.
During 2015 and
2014, the Company assessed its intangible assets, based on
estimated future cash flows and concluded that the carrying amount
of its intangible assets did not exceed its fair
value.
Investment in Related Party
Affiliate
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 as
discussed in the impairment of long lived assets section above, we
assess our goodwill for impairment at least annually.
Capitalized
Software
The Company
acquired a software product that is under further development. This
asset was being amortized over a three to five year period using
the straight-line method of depreciation for book purposes
beginning when the software is completed.
F-36
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalized Software -
Continued
The Company
capitalizes internal software development costs subsequent to
establishing technological feasibility of a software application in
accordance with guidelines established by “ASC
985-20-25” Accounting for the costs of Computer Software to
Be Sold, Leased or Otherwise Marketed, requiring certain software
development costs to be capitalized upon the establishment of
technological feasibility. The establishment of technological
feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgement by management with
respect to certain external factors such as anticipated future
revenue, estimated economic life and changes in software and
hardware technologies. Amortization of the capitalized software
development costs begins when the product is available for general
release to customers. Capitalized costs are amortized over the
remaining estimated economic life of the product. For the year
ended December 31, 2014, the Company has capitalized costs
associated with the development of several mobile science
technology products and mobile apps that has not been placed into
service. In 2015, the Company sold the software to a related party.
Refer to the related party note below for further
discussion.
Website Development
Costs
The Company
accounts for website development costs in accordance with
Accounting Standards Codification 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 — We capitalize various costs that we incur
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.
F-37
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
·
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.
·
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, 2015 we inflated these costs in current dollars
until the expected time of payment using an inflation rate of 2.5%.
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, 2015 is approximately 8.5%.
We record the
estimated fair value of final capping, closure and post-closure
liabilities for our landfills 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.
F-38
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
·
Remaining permitted
airspace — Our engineers, 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.
F-39
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
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.
F-40
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the year ended
December 31, 2015 the Company operations related to its landfill
assets and liability are presented in the tables
below:
|
Landfill Assets
|
|
Year
Ended December 31, 2015
|
|
|
|
January 1, 2015,
Beginning Balance
|
|
$
|
-
|
|
|
Capital additions
(Landfill acquired on December 22, 2015)
|
|
|
3,396,519
|
|
|
Amortization of
landfill assets
|
|
|
(3,043
|
)
|
|
Asset retirement
adjustments
|
|
|
-
|
|
|
December 31, 2015,
Ending Balance
|
|
$
|
3,393,476
|
|
|
|
|
|
|
|
|
Landfill Liability
|
|
|
|
|
|
January 1, 2015,
Beginning Balance
|
|
$
|
-
|
|
|
Obligations
incurred and capitalized (Landfill acquired on December 22,
2015)
|
|
|
196,519
|
|
|
Obligations
settled
|
|
|
-
|
|
|
Interest
accretion
|
|
|
3,733
|
|
|
Revisions in
estimates and interest rate assumption
|
|
|
-
|
|
|
Acquisition,
divestures and other adjustments
|
|
|
-
|
|
|
December 31, 2015,
Ending Balance
|
|
$
|
200,252
|
|
Revenue
Recognition
The Company
recognizes revenue when there is persuasive evidence that services
have been provided and a 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.
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.
F-41
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The Company has two
contracts that account for a large portion of the Company’s
revenue. During the year ended December 31, 2015, these contracts
accounted for approximately 44% of the Company’s revenues and
less than 5% of the Company’s accounts receivable balance at
December 31, 2015. During the year ended December 31, 2014, the
Company had two customers that accounted for approximately 46% of
the Company’s revenues and approximately 53% of the
Company’s accounts receivable balance at December 31, 2014.
The Company did not have any other customers that represented a
significant portion of the Company’s revenue or account
receivables for the fiscal years ended December 31, 2015 and 2014,
respectively.
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, 2015 the Company had two convertible notes outstanding
that is not convertible into common stock until June 2016.
Additionally, the Company issued stock warrants for 1,673,559
common shares.
For the year ended
December 31, 2015, the Company had 1,673,559 of weighted-average
common shares relating to the convertible debt, under the
if-converted method, however, these shares are not dilutive because
the Company recorded a loss during the fiscal year.
At December 31,
2015, and 2014 the Company had a series of convertible notes and
warrants outstanding that could be converted into approximately,
2,548,559 and 291,047 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.
F-42
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation
Stock-based
compensation is accounted for at fair value in accordance with ASC
Topic 718. To date, the Company has not adopted a stock option plan
and has not granted any stock options.
Stock-based
compensation is accounted for based on the requirements of the
Share-Based Payment Topic of 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). The ASC also require 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 $7,356,000 and
$339,000 during the years ended December 31, 2015 and 2014,
respectively.
Recent Accounting
Pronouncements
The Company does
not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash
flow.
NOTE 3 –
PROPERTY, PLANT AND EQUIPMENT
The following is a
summary of property, plant, and equipment—at cost, less
accumulated depreciation:
|
|
|
2015
|
|
|
2014
|
|
||
|
Land
|
|
$
|
1,690,000
|
|
|
$
|
-
|
|
|
Building &
Improvements
|
|
|
692,156
|
|
|
|
-
|
|
|
Furniture &
Office Equipment
|
|
|
258,702
|
|
|
|
240,102
|
|
|
Containers
|
|
|
4,453,386
|
|
|
|
2,847,205
|
|
|
Truck, Machinery
& Equipment
|
|
|
9,948,686
|
|
|
|
5,523,773
|
|
|
Total
Cost
|
|
|
17,042,930
|
|
|
|
8,611,080
|
|
|
Less accumulated
depreciation
|
|
|
(2,609,190
|
)
|
|
|
(956,315
|
)
|
|
Net property, plant
and Equipment
|
|
$
|
14,433,740
|
|
|
$
|
7,654,765
|
|
As of December 31,
2015 the Company has $395,000 of land and building which are held
for sale and included in amounts noted above. These held for sale
assets were not depreciated during the year ending December 31,
2015. Depreciation expense for the years ended December 31, 2015
and 2014 was $1,683,000 and $965,000, respectively.
F-43
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 3 –
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
During 2015 and
2014, the Company assessed these long-term assets, based on
estimated future cash flows and concluded that the carrying amount
of its long-term assets did not exceed its fair value, therefore
the Company did not record any impairment loss on these
assets.
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION
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. By the application of “push-down” accounting,
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 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.
F-44
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION (CONTINUED)
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.
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. By the application of
“push-down” accounting, 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.
F-45
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION (CONTINUED)
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, 2014:
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|||
|
|
|
Year
Ended December 31, 2015
|
|
|
Period
from Acquisition May 16, 2014 to December 31, 2014
|
|
|
Period
from January 1, 2014 to May 15, 2014
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
Revenue
|
|
$
|
28,861,001
|
|
|
$
|
17,872,328
|
|
|
$
|
10,199,328
|
|
|
Net (loss)
income
|
|
|
(17,763,377
|
)
|
|
|
(1,581,195
|
)
|
|
|
916,391
|
|
|
Basic net loss per
share
|
|
$
|
(1.23
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
-
|
|
Meridian Waste Services, LLC
Acquisition
In 2014, the
Company, in order to establish a presence in the solid waste
disposal industry, entered into an asset purchase agreement by and
among the Company, HTSMWD, Meridian Waste Services, LLC
(“MWS”) and the members of MWS, pursuant to which
HTSMWD acquired certain assets and liabilities of MWS, in
exchange for $11,115,000 cash, 13,191,667 shares of Class A Common
Stock of HTSHC and 71,210 shares of Series B Cumulative Convertible
Preferred Stock of HTSHC.
F-46
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION (CONTINUED)
The acquisition was
accounted for by the Company using the 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. By the application of “push-down” accounting,
our assets, liabilities and equity were accordingly adjusted to
fair value on May 15, 2014. 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 purchase of MWS
included the acquisition of assets of $22,175,706 and liabilities
of $2,075,956. The aggregate purchase price consisted of the
following:
|
Cash
consideration
|
|
$
|
11,000,000
|
|
|
Estimated value of
common stock issued to sellers
|
|
|
1,978,750
|
|
|
Estimated value of
preferred stock issued to sellers
|
|
|
7,121,000
|
|
|
Total
|
|
$
|
20,099,750
|
|
The following table
summarizes the estimated fair value of MWS assets acquired and
liabilities assumed at the date of acquisition:
|
Accounts
receivable
|
|
$
|
632,322
|
|
|
Prepaid
expenses
|
|
|
123,544
|
|
|
Deposits
|
|
|
8,303
|
|
|
Containers
|
|
|
2,710,671
|
|
|
Furniture and
equipment
|
|
|
299,450
|
|
|
Trucks
|
|
|
4,243,964
|
|
|
Customer
lists
|
|
|
14,007,452
|
|
|
Non-compete
agreement
|
|
|
150,000
|
|
|
Accounts payable
and accrued expenses
|
|
|
(54,387
|
)
|
|
Notes
payable
|
|
|
(143,464
|
)
|
|
Deferred
revenue
|
|
|
(1,878,105
|
)
|
|
Total
|
|
$
|
20,099,750
|
|
F-47
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION (CONTINUED)
The following
tables set forth the intangible assets, both acquired and
developed, including accumulated amortization for the years ended
December 31, 2015 and December 31, 2014:
|
|
December
31, 2015
|
|
|||||||||||
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|||
|
|
Useful
Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Customer
lists
|
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
|
|
|
|
December
31, 2014
|
|
|||||||||||
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|||
|
|
Useful
Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Capitalized
software
|
5.0
years
|
|
$
|
434,532
|
|
|
$
|
-
|
|
|
$
|
434,532
|
|
|
Customer
list
|
4.5
years
|
|
|
14,007,452
|
|
|
|
1,867,660
|
|
|
|
12,139,792
|
|
|
Loan
fees
|
4.5
years
|
|
|
50,613
|
|
|
|
11,248
|
|
|
|
39,365
|
|
|
Non compete
agreement
|
4.5
years
|
|
|
150,000
|
|
|
|
20,000
|
|
|
|
130,000
|
|
|
Website
|
4.9
years
|
|
|
13,920
|
|
|
|
232
|
|
|
|
13,688
|
|
|
|
|
|
$
|
14,656,517
|
|
|
$
|
1,899,140
|
|
|
$
|
12,757,377
|
|
F-48
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 4 - INTANGIBLE
ASSETS AND ACQUISITION (CONTINUED)
In the year ended
December 31, 2015, 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 $3,043,
amounted to $2,869,385 and $1,899,140 for the period ending
December 31, 2015 and 2014 respectively.
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES
The Company had the
following long-term debt:
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
||
|
|
|
|
|
|
|
|
||
|
Debt payable to
Comerica Bank, senior debt
|
|
$
|
-
|
|
|
$
|
8,708,333
|
|
|
Debt payable to
Praesidian Capital Opportunity Fund III, senior lender
|
|
|
-
|
|
|
|
-
|
|
|
Debt payable to
Praesidian Capital Opportunity Fund III-A, senior
lender
|
|
|
-
|
|
|
|
-
|
|
|
Goldman Sachs -
Tranche A Term Loan - LIBOR Interest
|
|
|
40,000,000
|
|
|
|
-
|
|
|
Goldman Sachs -
Revolver
|
|
|
-
|
|
|
|
-
|
|
|
Goldman Sachs -
MDTL
|
|
|
-
|
|
|
|
-
|
|
|
Convertible Notes
Payable
|
|
|
1,250,000
|
|
|
|
-
|
|
|
Capitalized lease -
financing company, secured by equipment,
|
|
|
37,097
|
|
|
|
|
|
|
Equipment
loans
|
|
|
395,118
|
|
|
|
-
|
|
|
Notes payable to
seller of Meridian, subordinated debt
|
|
|
1,475,000
|
|
|
|
1,475,000
|
|
|
Less: debt
discount
|
|
|
(2,152,603
|
)
|
|
|
-
|
|
|
Total
debt
|
|
|
41,004,611
|
|
|
|
10,183,333
|
|
|
Less: current
portion
|
|
|
(417,119
|
)
|
|
|
(1,357,143
|
)
|
|
Long
term debt less current portion
|
|
$
|
40,587,493
|
|
|
$
|
8,826,190
|
|
Convertible Notes
Payable
The Company issued
two promissory notes to related parties during the year ended
December 31, 2014. These notes totaled $125,000 and are generally
convertible into common stock of the Company at discounts of 20% to
25% of the lowest average trading prices for the stock during
periods five to one day prior to the conversion date. These notes
bear interest at 10% to 12%, are unsecured, and mature within one
year of the date issued. The notes were issued to provide working
capital for the Company. These notes are considered a stock settled
debt in accordance with ASC 480 since any future stock issued upon
conversion will have a fixed monetary value. Due to the conversion
feature included in the notes, the Company has recorded a premium
on the notes totaling $31,250 as of December 31, 2014. This amount
has been charged to interest expense by the Company.
In 2015, as part of
the purchase price consideration of the Christian Disposal
acquisition, the Company issued a convertible promissory note to
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.
F-49
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
In previous periods
the Company issued two other notes to other related parties. These
notes totaled $110,000 and are generally convertible into common
stock of the Company at discounts of 20% to 25% of the lowest
average trading prices for the stock during periods five to one day
prior to the conversion date. These notes bear interest at 10% to
12%, are unsecured, and mature within one year of the date issued.
The notes were issued to provide working capital for the Company.
These notes are considered a stock settled debt in accordance with
ASC 480 since any future stock issued upon conversion will have a
fixed monetary value. Due to the conversion feature included in the
notes, the Company has recorded a premium on the notes totaling
$35,833 as of December 31, 2014. This amount has been charged to
interest expense by the Company.
In 2015,
approximately $225,000 of the issued promissory notes were
converted into approximately 461,000 shares at the contractual
conversion price. At December 31, 2015 the Company had $12,500
remaining in convertible notes to related parties, which includes
$2,500 in put premiums.
Notes Payable
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 discussed above. 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, 2015, the Company’s
loan from Here to Serve Holding Corp. was $359,891.
Praesidian Notes
Payable
On August 6, 2015,
the Company refinanced its long-term debt payable to Comerica Bank.
Proceeds from notes issued by the Company to Praesidian Capital
Opportunity Fund III, LP and Praesidian Capital Opportunity Fund
III-A, LP (together referred to as Praesidian) were $10,845,000.
These funds were distributed as follows:
|
Payoff of short
term bridge financing
|
|
$
|
432,938
|
|
|
Payoff of lines of
credit with Commerica Bank
|
|
|
1,745,799
|
|
|
Payoff of senior
debt to Comerica Bank
|
|
|
7,953,433
|
|
|
Refinancing
fees
|
|
|
712,830
|
|
|
|
|
$
|
10,845,000
|
|
The Company’s
Senior Secured Loan with Comerica Bank had an interest rate of
LIBOR plus 4.25% with a two-year term based on a seven-year
amortization schedule. In addition, the Company had a working
capital line of credit with Comerica Bank of $1,250,000 at 4.75% of
which the Company had drawn down $1,185,081 and $1,085,160 as of
August 6, 2015 and December 31, 2014, respectively. There was CAPEX
line of credit of $750,000, of which the Company had drawn down
$560,718 and $590,000 as of August 6, 2015 and December 31, 2014,
respectively; again at 4.75% interest. As noted above, these debts
were paid off from the proceeds received from
Praesidian.
The debt to
Praesidian had a maturity date of August 6, 2020 with interest paid
monthly at an annual rate of 14%. In addition to the 14% interest
rate, the Company issued to Praesidian warrants to purchase
1,293,022 shares of Common Stock of the Company.
F-50
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
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. 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
underlyingreference 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.
The proceeds of the
loans were used to partially fund the acquisitions referenced above
and refinance existing debt with Praesidian, among other things.
The funds to payoff 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
|
|
The Company re-paid
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.
In addition, in
connection with the credit agreement, the Company issued warrants
to Goldman, Sachs & Co. for the purchase of shares of the
Company’s common stock equivalent to a 6.5% Percentage
Interest 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 discussion of warrants below.
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, 2015
and December 31, 2014, the balance on these loans was $1,475,000
and $1,475,000, respectively.
The debt payable to
Comerica at December 31, 2014 and the Equipment loans at December
31, 2015 were the debt of Here to Serve- Missouri Waste Division,
LLC, a subsidiary of the Company.
F-51
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
Equipment Loans
Finally, 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%. At December 31, 2015, the
balance of these four loans was $425,149.
Derivative Liability -
Warrants
As indicated above,
the Company issued warrants to Praesidian and Goldman, Sachs
& Co. to purchase shares of common stock. Due to the put
features contained in the agreements, derivative liabilities were
recorded for the warrants.
The Company’s
derivative warrant instruments related to Praesidian have been
measured at fair value at the date of cancellation, December 22,
2015, using the Black-Scholes model. The Back-Scholes model
requires six basic data inputs: the exercise or strike price, time
to expiration, the risk free interest rate, the current stock
price, the estimated volatility of the stock price in the future
and the dividend rate. The key inputs used in the December 22, 2015
fair value calculations were as follows:
|
|
|
December
22, 2015
|
|
|
|
Current exercise
price
|
|
$
|
0.025
|
|
|
Time to
expiration
|
|
8/6/2016
|
|
|
|
Risk-free interest
rate
|
|
|
0.33
|
%
|
|
Estimated
volatility
|
|
|
230
|
%
|
|
Dividend
|
|
|
0
|
%
|
|
Stock price on
December 22, 2015
|
|
$
|
1.50
|
|
|
Expected forfeiture
rate
|
|
|
0
|
%
|
The Company’s
derivative warrant instruments related to Goldman, Sachs &
Co. have been measured at fair value at the date of issuance
December 22, 2015 and December 31, 2015, 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.
F-52
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
The key inputs used
in the December 22, and December 31, 2015 fair value calculations
were as follows:
|
|
|
December
22, 2015
|
|
|
|
Purchase
Price
|
|
$
|
450,000
|
|
|
Time to
expiration
|
|
12/22/2023
|
|
|
|
Risk-free interest
rate
|
|
|
2.11
|
%
|
|
Estimated
volatility
|
|
|
45
|
%
|
|
Dividend
|
|
|
0
|
%
|
|
Stock price on
December 22, 2015
|
|
$
|
1.50
|
|
|
Expected forfeiture
rate
|
|
|
0
|
%
|
|
|
|
December
31, 2015
|
|
|
|
Purchase
Price
|
|
$
|
450,000
|
|
|
Time to
expiration
|
|
12/22/2023
|
|
|
|
Risk-free interest
rate
|
|
|
2.15
|
%
|
|
Estimated
volatility
|
|
|
45
|
%
|
|
Dividend
|
|
|
0
|
%
|
|
Stock price on
December 31, 2015
|
|
$
|
1.90
|
|
|
Expected forfeiture
rate
|
|
|
0
|
%
|
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.
F-53
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 5 - NOTES
PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
At December 31,
2014, the Company had $5,414,634 of non-amortizing variable rate
debt outstanding with interest payments due on a monthly basis. The
note accrues interest at the 1-month LIBOR plus 4.25%. 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.
NOTE 6-
SHAREHOLDERS’ EQUITY
Common Stock
The Company has
authorized 75,000,000 shares of $0.025 par common stock. At
December 31, 2015 and 2014 there were 21,038,650 and 9,963,418
shares issued and outstanding.
Treasury Stock
During 2014, the
Company’s Board of Directors authorized a stock repurchase of
230,000 shares of its common stock for approximately $230,000 at an
average price of $1.00 per share. As of December 31, 2015 and 2014
the Company holds 230,000 shares of its common stock in its
treasury.
Preferred Stock
The Company has
authorized 5,000,000 shares of Preferred Stock, for which two
classes have been designated to date. Series A has 51 shares issued
and outstanding and Series B has 71,210 shares issued and
outstanding as of December 31, 2015 and 2014,
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 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.
At December 31,
2015 and 2014, the Company’s Series B Preferred Stock
dividends in arrears on the 12% cumulative preferred stock were
approximately $1,033,000 ($14.50 per share) and $2.50 ($2.50 per
share), respectively.
F-54
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 6-
SHAREHOLDERS’ EQUITY (CONTINUED)
Common Stock
Transactions
During the years
ended December 31, 2015 and 2014, the Company issued, 11,075,232
and 9,054,134 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 11.1 million shares issued
for year ending December 31, 2015, the Company:
1.
Issued 1,573,550 of
these shares were issued to vendors for services generating a
professional fees expense of $830,970;
2.
Issued 5,690,843 of
these shares to officers and employees as incentive compensation
resulting in compensation expense of
$7,356,180;
3.
Issued 460,839
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 1,750,000
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 1,600,000
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.
For fiscal year
ended December 31, 2014, the Company acquired the membership
interest of HTSMWD, HTST and HTSGWD in exchange for 9,054,134
shares of the Company’s common stock. This transaction was
closed on October 17, 2014 and HTSMWD became wholly-owned by the
Company. The Company is deemed to have issued 1,139,284 shares of
common stock which represents the outstanding common shares of the
Company just prior to the closing of the transaction.
The Company has
issued and outstanding warrants of 1,673,559 common shares, as
adjusted, with the current exercise price of $0.269, as adjusted,
expiring December 31, 2023. A summary of the status of the
Company’s outstanding common stock warrants as of December
31, 2015 and 2014, with changes during the years ending on those
dates are as follows:
F-55
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 6-
SHAREHOLDERS’ EQUITY (CONTINUED)
|
|
|
Number
of
Shares
|
|
|
Average
Exercise Price
|
|
|
If
Exercised
|
|
|
Expiration
Date
|
|
||||
|
Outstanding,
January 1, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding,
December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted -
Praesidian
|
|
|
1,293,022
|
|
|
$
|
0.025
|
|
|
$
|
32,326
|
|
|
|
-
|
|
|
Forfeited/Cancellation
- Praesidian
|
|
|
(1,293,022
|
)
|
|
$
|
0.025
|
|
|
|
(32,326
|
)
|
|
|
-
|
|
|
Granted - Goldman
Sachs
|
|
|
1,673,559
|
|
|
$
|
0.269
|
|
|
|
449,518
|
|
|
December 31,
2023
|
|
|
|
Forfeited/Cancellation
- Goldman Sachs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding,
December 31, 2015
|
|
|
1,673,559
|
|
|
$
|
-
|
|
|
$
|
449,518
|
|
|
|
-
|
|
|
Warrants
exercisable at December 31, 2015
|
|
|
1,673,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The Company had a
net operating loss carry forward of approximately $12.3 million at
December 31, 2015 and had no Federal or State income tax
obligations. The Company had no significant tax effects resulting
from the temporary differences that give rise to deferred tax
assets and deferred tax liabilities for the years ended December
31, 2015 and 2014 other than net operating losses.
The Company’s
loss carry forward of approximately $12.3 may offset future taxable
income through tax year 2035. However, in accordance with IRC
Section 382, the availability and utilization of the 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 34% as follows for the
periods ended December 31, 2015 and 2014:
F-56
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 7 - INCOME
TAXES (CONTINUED)
|
|
|
Years
Ended December 31,
|
|
|||||
|
|
|
2015
|
|
|
2014
|
|
||
|
Computed "expected"
benefit
|
|
$
|
(6,538,843
|
)
|
|
$
|
(773,000
|
)
|
|
Effect of state
income taxes, net of federal benefit
|
|
|
(769,276
|
)
|
|
|
(136,000
|
)
|
|
Effect of change in
tax rates
|
|
|
-
|
|
|
|
(280,760
|
)
|
|
Pre-acquisition
losses
|
|
|
-
|
|
|
|
640,000
|
|
|
Stock based compensation and other permanent
differences
|
|
|
4,577,831
|
|
|
|
-
|
|
|
Increase in
valution allowance
|
|
|
2,730,288
|
|
|
|
549,760
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2015 and 2014 were as
follows:
|
|
|
Years
Ended December 31,
|
|
|||||
|
|
|
2015
|
|
|
2014
|
|
||
|
Net operating loss
carry forward
|
|
$
|
4,686,288
|
|
|
$
|
1,956,000
|
|
|
Less: Valuation
allowance
|
|
|
(4,686,288
|
)
|
|
|
(1,956,000
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The valuation
allowance was increased by approximately $2,730,288 and $550,000
during the years ended December 31, 2015 and 2014.
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.
F-57
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 8 - FAIR VALUE
MEASUREMENT (CONTINUED)
The following table
sets forth the liabilities at December 31, 2015 and 2014, 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:
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
||||||||||
|
|
|
December
31, 2015
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Other
Observable
Inputs
(Level
3)
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Derivative
liability
|
|
$
|
2,820,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock settled debt
premium
|
|
|
12,500
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,832,500
|
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
2,822,500
|
|
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
||||||||||
|
|
|
December
31, 2014
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Other
Observable
Inputs
(Level
3)
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest Rate
Swap
|
|
$
|
40,958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
40,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock settled
debt
|
|
|
308,083
|
|
|
|
235,000
|
|
|
|
-
|
|
|
|
67,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
349,041
|
|
|
$
|
235,000
|
|
|
$
|
-
|
|
|
$
|
108,041
|
|
F-58
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 9 -
LEASES
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, 2020. Future minimum lease payments
at December 31, 2015 are as follows:
|
2016
|
|
$
|
442,408
|
|
|
2017
|
|
|
448,408
|
|
|
2018
|
|
|
164,493
|
|
|
2019
|
|
|
111,103
|
|
|
2020
|
|
|
71,500
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
1,237,912
|
|
The Company has
also entered into various other leases on a month to month basis
for machinery and equipment. Rent expense amounted to $320,154 and
$177,801 for the year ended December 31, 2015 and 2014,
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 fiscal year ended December
31, 2015, the Company had approximately $6,000 of expenses related
to this performance bond and for fiscal year ended December 31,
2014, the Company was not required to obtain a performance
bond.
NOTE 11 -
EMPLOYMENT CONTRACT
Pursuant to the
Christian Disposal, LLC and subsidiary purchase, the company has
entered into an employment contract with its Area Vice President of
Business Development and Marketing through 2020 that provides for a
minimum annual salary, cash and stock option bonuses. At December
31, 2015, the total commitment, excluding incentives, was
approximately $1,500,000.
Note 12 -
LITIGATION
The Company is
involved in various lawsuits related to the operations of its
subsidiaries. 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.
F-59
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 13 –
RELATED PARTY TRANSACTIONS
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.
F-60
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 13 –
RELATED PARTY TRANSACTIONS (CONTINUED)
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
investment to the consolidated financial information of the
Company.
Following is a
summary of financial position and results of operations of
MSTI:
|
Summary of Statements of Financial Condition
|
|
2015
|
|
|
|
|
|
(UNAUDITED)
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
$
|
4,481
|
|
|
Noncurrent
assets
|
|
|
2,869,553
|
|
|
Total
assets
|
|
$
|
2,874,034
|
|
|
|
|
|
|
|
|
Liabilities and
Equity
|
|
|||
|
Current
liabilities
|
|
$
|
213,264
|
|
|
Noncurrent
liabilities
|
|
|
-
|
|
|
Equity
|
|
|
2,660,770
|
|
|
Total liabilities
and equity
|
|
$
|
2,874,034
|
|
|
|
|
|
|
|
|
Summary of Statements of Operations
|
|
|||
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,364
|
|
|
Expense
|
|
|
470,342
|
|
|
Net
loss
|
|
$
|
(468,978
|
)
|
The Company
recorded losses from its investment in MSTI, accounted for under
the equity method, of approximately $70,000 during fiscal year
ended 2015. The charge reflected the Company’s share of MSTI
losses recorded in that period, as well as the write-down of the
investment and the write-off of certain receivables. 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. As of December 31, 2015,
the Company has $133,000 in prepaid expenses related to
MSTI.
NOTE 14 -
SUBSEQUENT EVENTS
EQUITY AND INCENTIVE
PLAN
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
7,500,000 shares of common stock, par value $.025 per share (the
“Common Stock”), of the Company through the grant of
non-qualified 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.
F-61
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 14 -
SUBSEQUENT EVENTS (CONTINUED)
The Plan shall be
administered by a committee consisting of two or more independent,
non-employee and outside directors (the “Committee”).
In the absence of such a Committee, the Board shall administer the
Plan. The Plan is currently being administered by the
Board.
Options are subject
to the following conditions:
(i)
The Committee
determines the strike price of Incentive Options at the time the
Incentive Options are granted. The assigned strike price must be no
less than 100% of the Fair Market Value (as defined in the Plan) of
the Company’s Common Stock. In the event that the recipient
is a Ten Percent Owner (as defined in the Plan), the strike price
must be no less than 110% of the Fair Market Value of the
Company.
(ii)
The strike price of
each Non-qualified Option will be at least 100% of the Fair Market
Value of such share of the Company’s Common Stock on the date
the Non-qualified Option is granted, unless the Committee, in its
sole and absolute discretion, elects to set the strike price of
such Non-qualified Option below Fair Market
Value.
(iii)
The Committee fixes
the term of Options, provided that Options may not be exercisable
more than ten years from the date the Option is granted, and
provided further that Incentive Options granted to a Ten Percent
Owner may not be exercisable more than five years from the date the
Incentive Option is granted.
(iv)
The Committee may
designate the vesting period of Options. In the event that the
Committee does not designate a vesting period for Options, the
Options will vest in equal amounts on each fiscal quarter of the
Company through the five (5) year anniversary of the date on which
the Options were granted. The vesting period accelerates upon the
consummation of a Sale Event (as defined in the
Plan).
(v)
Options are not
transferable and Options are exercisable only by the Options’
recipient, except upon the recipient’s
death.
(vi)
Incentive Options
may not be issued in an amount or manner where the amount of
Incentive Options exercisable in one year entitles the holder to
Common Stock of the Company with an aggregate Fair Market value of
greater than $100,000.
Awards of
Restricted Stock are subject to the following
conditions:
(i)
The Committee
grants Restricted Stock Options and determines the restrictions on
each Restricted Stock Award (as defined in the Plan). Upon the
grant of a Restricted Stock Award and the payment of any applicable
purchase price, grantee is considered the record owner of the
Restricted Stock and entitled to vote the Restricted Stock if such
Restricted Stock is entitled to voting rights.
(ii)
Restricted Stock
may not be delivered to the grantee until the Restricted Stock has
vested.
(iii)
Restricted Stock
may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of except as provided in the Plan or in the
Award Agreement (as defined in the Plan).
F-62
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
NOTE 14 -
SUBSEQUENT EVENTS (CONTINUED)
Jeffrey Cosman -
Employment Agreement, Director Agreement and Restricted Stock
Agreement
On March 11, 2016,
the Company entered into an employment agreement with Mr. Cosman
(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, 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
restricted common stock, in accordance with the Company’s
2016 Equity and Incentive Plan (the “Plan”) and subject
to the restrictions contained therein, 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 and equity or
debt financings during the preceding year. Upon any termination of
Mr. Cosman’s employment with the Company, except for a
termination for Cause, Mr. Cosman shall be entitled to a severance
payment equal to the greater of (i) five 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 4,253,074 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.
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”).
F-63
MERIDIAN
WASTE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
AND 2014
On March 11, 2016,
the Company entered into an executive employment agreement with Mr.
Hall (the “Hall Employment Agreement”). Mr. Hall will
have the title of President and Chief Operating Officer. The Hall
Employment Agreement has an initial term of thirty-six (36) months
and the term will automatically renew for one (1) year periods,
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 restricted common stock, in
accordance with the Plan and subject to the restrictions contained
therein) 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 and equity or debt financings during the
preceding year. Additionally, Mr. Hall received two million
(2,000,000) restricted shares of the Company’s common stock
upon the execution of the Hall Employment Agreement
EQUITY SUBSCRIPTION
AGREEMENT
On April 8, 2016,
the Company completed the final closing (the “the
Closing”) of a private placement offering to accredited
investors (the “Offering”) of up to $1,600,000 of the
Company’s restricted common stock, par value $0.025 per
share.
In connection with
the Closing, the Company entered into definitive subscription
agreements (the “Subscription Agreements”) with five
(5) accredited investors (the “Investors”) and issued
an aggregate of 1,428,573 shares of Common Stock for aggregate
gross proceeds to the Company of $1,600,000.
The Subscription
Agreements provide that the Company shall issue additional shares
of Common Stock in the event that, prior to the first anniversary
of the Subscription Agreement, such Investor sells all of the
Common Stock purchased under the Subscription Agreement and
receives less than the full amount of the purchase price paid under
the Subscription Agreement, and the Subscription Agreements contain
typical representations and warranties.
F-64
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of
Directors and Shareholders
Meridian Waste
Solutions, Inc.
We have audited the
accompanying balance sheet of Meridian Waste Services, LLC (the
“Predecessor Company”) as of December 31, 2013 and the
related statements of operations, changes in members’ equity,
and cash flows for the period from January 1, 2014 to May 15, 2014
and for the year ended December 31, 2013. These financial
statements are the responsibility of the Predecessor Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly we express
no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the
financial statements referred to above present fairly, in all
material respects, the financial position of Predecessor Company as
of December 31, 2013 and the results of their operations and their
cash flows for the period from January 1, 2014 to May 15, 2014 and
for the year ended December 31, 2013 in conformity with accounting
principles generally accepted in the United States of
America.
|
|
|
|
|
|
|
|
|
|
|
|
|
s/ D’Arelli
Pruzansky, P.A.
|
|
|
|
|
Certified Public
Accountants
|
|
|
|
|
|
|
Boca Raton,
Florida
April 13,
2015
F-65
Report of Independent Registered
Public Accounting Firm
To The Board of
Directors and Shareholders
Meridian Waste
Solutions, Inc.
We have audited the
accompanying consolidated balance sheets of Meridian Waste
Solutions, Inc. and Subsidiaries (formerly Brooklyn Cheesecake and
Desserts Company, Inc.) (the “Successor Company”) as of
December 31, 2014, and the related consolidated statements of
operations, changes in stockholders' deficit, and cash flows for
the period from May 16, 2014 to December 31, 2014. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our
audit.
We conducted our
audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the
Successor’s Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Successor
Company as of December 31, 2014, and the results of its operations
and cash flows for the period from May 16, 2014 to December 31,
2014, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in
Note 1 to the consolidated financial statements, in connection with
the acquisition of Meridian Waste Services, LLC by Here to Serve
Holding Corp. a new basis of accounting was established as of May
15, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
s/ D’Arelli
Pruzansky, P.A.
|
|
|
|
|
Certified Public
Accountants
|
|
|
|
|
|
|
Boca Raton,
Florida
April 13,
2015
F-66
Meridian
Waste Solutions, Inc.
Balance
Sheet
|
|
|
Successor
|
|
|
Predecessor
|
|
||
|
|
|
|
|
|
|
|
||
|
|
|
December
31,
|
|
|
December
31,
|
|
||
|
|
|
2014
|
|
|
2013
|
|
||
|
ASSETS
|
|
|
|
|
|
|
||
|
Current
Assets
|
|
|
|
|
|
|
||
|
Cash
|
|
$
|
438,907
|
|
|
$
|
1,461,372
|
|
|
Accounts
receivable, trade, net
|
|
|
588,479
|
|
|
|
440,570
|
|
|
Employee
advance
|
|
|
37
|
|
|
|
2,000
|
|
|
Prepaid
expenses
|
|
|
221,999
|
|
|
|
75,000
|
|
|
Other current
assets
|
|
|
41,815
|
|
|
|
189,521
|
|
|
Total Current
Assets
|
|
|
1,291,237
|
|
|
|
2,168,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment, net of accumulated
|
|
|
|
|
|
|
|
|
|
depreciation of
$956,315 and $7,780,233 respectively
|
|
|
7,654,765
|
|
|
|
4,810,603
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
Loan to
member
|
|
|
|
|
|
|
50,000
|
|
|
Capitalized
software
|
|
|
434,532
|
|
|
|
-
|
|
|
Customer list, net
of accumulated
|
|
|
|
|
|
|
|
|
|
amortization of
$1,867,660
|
|
|
12,139,792
|
|
|
|
-
|
|
|
Deposits
|
|
|
8,303
|
|
|
|
8,303
|
|
|
Loan fees, net of
accumulated
|
|
|
|
|
|
|
|
|
|
amortization of
$11,247
|
|
|
39,365
|
|
|
|
-
|
|
|
Non-compete, net of
accumulated
|
|
|
|
|
|
|
|
|
|
amortization of
$20,000
|
|
|
130,000
|
|
|
|
-
|
|
|
Website, net of
accumlated amortization of $232
|
|
|
13,688
|
|
|
|
|
|
|
Total Other
Assets
|
|
|
12,765,680
|
|
|
|
58,303
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
21,711,682
|
|
|
$
|
7,037,369
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
449,840
|
|
|
$
|
239,739
|
|
|
Accrued
expenses
|
|
|
67,365
|
|
|
|
94,620
|
|
|
Notes
payable
|
|
|
526,585
|
|
|
|
-
|
|
|
Deferred
compensation
|
|
|
729,000
|
|
|
|
-
|
|
|
Deferred
revenue
|
|
|
1,929,882
|
|
|
|
1,910,465
|
|
|
Convertible notes
due related parties, includes put premiums
|
|
|
302,083
|
|
|
|
-
|
|
|
Operating line of
credit and capital expenditure line of credit
|
|
|
1,675,160
|
|
|
|
50,000
|
|
|
Current portion -
long term debt
|
|
|
1,357,143
|
|
|
|
1,211,299
|
|
|
Total Current
Liabilities
|
|
|
7,037,058
|
|
|
|
3,506,123
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability - interest rate swap
|
|
|
40,958
|
|
|
|
|
|
|
Long-term notes
payable
|
|
|
|
|
|
|
|
|
|
Less: current
portion - long term debt
|
|
|
8,826,190
|
|
|
|
1,991,508
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
15,904,206
|
|
|
|
5,497,631
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Members'
equity
|
|
|
-
|
|
|
|
1,539,738
|
|
|
Preferred Series A
stock, par value $.001, 51 shares authorized, issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Preferred Series B
stock, par value $.001, 71,210 shares authorized, issued and
outstanding
|
|
|
71
|
|
|
|
-
|
|
|
Common stock, par
value $.025, 75,000,000 shares authorized, 9,963,418 shares issued
and outstanding
|
|
|
249,085
|
|
|
|
-
|
|
|
Treasury stock, at
cost (230,000 shares)
|
|
|
(224,250
|
)
|
|
|
|
|
|
Additional paid in
capital
|
|
|
14,370,296
|
|
|
|
-
|
|
|
Accumulated
deficit
|
|
|
(8,587,726
|
)
|
|
|
-
|
|
|
Total Shareholders'
Equity
|
|
|
5,807,476
|
|
|
|
1,539,738
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES & SHAREHOLDERS' EQUITY
|
|
$
|
21,711,682
|
|
|
$
|
7,037,369
|
|
See accompanying footnotes to financial
statements
F-67
Meridian
Waste Solutions, Inc.
Statement
of Operations
|
|
|
Successor
|
|
|
Predecessor
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Period
from
|
|
|
Period
from
|
|
|
|
|
|||
|
|
|
Acquisition
|
|
|
January
1,
|
|
|
|
|
|||
|
|
|
May
16, 2014 to
|
|
|
2014
|
|
|
Year
Ended
|
|
|||
|
|
|
December
31,
|
|
|
to
May 15,
|
|
|
December
31,
|
|
|||
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|||
|
Income
|
|
|
|
|
|
|
|
|
|
|||
|
Revenue
|
|
|
|
|
|
|
|
|
|
|||
|
Software
sales
|
|
$
|
1,864
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Services
|
|
|
7,951,607
|
|
|
|
4,248,605
|
|
|
|
11,349,872
|
|
|
Total
Revenue
|
|
|
7,953,471
|
|
|
|
4,248,605
|
|
|
|
11,349,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales/Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales/Services
|
|
|
5,019,286
|
|
|
|
2,603,280
|
|
|
|
6,968,847
|
|
|
Depreciation
|
|
|
932,526
|
|
|
|
504,515
|
|
|
|
1,411,440
|
|
|
Total Cost of
Sales/Services
|
|
|
5,951,812
|
|
|
|
3,107,795
|
|
|
|
8,380,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
2,001,659
|
|
|
|
1,140,810
|
|
|
|
2,969,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debt
expense
|
|
|
98,381
|
|
|
|
-
|
|
|
|
42,508
|
|
|
Compensation and
related expense
|
|
|
751,398
|
|
|
|
213,391
|
|
|
|
703,688
|
|
|
Depreciation and
amortization
|
|
|
1,932,459
|
|
|
|
5,748
|
|
|
|
13,537
|
|
|
Selling, general
and administrative
|
|
|
1,397,570
|
|
|
|
469,593
|
|
|
|
826,888
|
|
|
Total
Expenses
|
|
|
4,179,808
|
|
|
|
688,732
|
|
|
|
1,586,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
(Expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
income (loss)
|
|
|
1,331
|
|
|
|
2,996
|
|
|
|
6,995
|
|
|
Interest
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gain (loss) on
disposal of assets
|
|
|
(20,830
|
)
|
|
|
-
|
|
|
|
(6,250
|
)
|
|
Unrealized (loss)
on interest rate swap
|
|
|
(40,958
|
)
|
|
|
-
|
|
|
|
|
|
|
Loss on bad
loans
|
|
|
|
|
|
|
-
|
|
|
|
(403
|
)
|
|
Recapitalization
expense
|
|
|
(70,000
|
)
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(348,136
|
)
|
|
|
(184,011
|
)
|
|
|
(146,659
|
)
|
|
Total Other
Expenses
|
|
|
(478,593
|
)
|
|
|
(181,015
|
)
|
|
|
(146,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
before income taxes
|
|
|
(2,656,742
|
)
|
|
|
271,063
|
|
|
|
1,236,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
|
$
|
(2,656,742
|
)
|
|
$
|
271,063
|
|
|
$
|
1,236,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Loss Per
Share
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Number of Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and
Diluted)
|
|
|
9,963,418
|
|
|
|
|
|
|
|
|
|
See accompanying footnotes to financial
statements
F-68
Meridian
Waste Solutions, Inc.
Statement
of Changes in Shareholders' Equity (Deficit)
For
The Year Ended December 31, 2014
|
|
Common
Shares
|
Common Stock,
Par
|
Preferred Series
A Shares
|
Preferred Series
A Stock, Par
|
Preferred Series
B Shares
|
Preferred Series
B Stock, Par
|
Treasury
Stock
|
Additional Paid
in Capital
|
Members'
Equity
|
Accumulated
Deficit
|
Total
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2012
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$1,278,091
|
$-
|
$1,278,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,236,647
|
-
|
1,236,647
|
|
Members'
distributions
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(975,000)
|
-
|
(975,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2013
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,539,738
|
-
|
1,539,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, January 1, 2014 - May
15, 2014
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
271,063
|
-
|
271,063
|
|
Members' distributions, January 1,
2014 - May 15, 2014
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(585,000)
|
-
|
(585,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 15,
2014
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$1,225,801
|
$-
|
$1,225,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 16,
2014
|
9,054,134
|
$226,353
|
51
|
$-
|
71,210
|
$71
|
$-
|
$12,992,347
|
|
$(5,930,984)
|
$7,287,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of the
Company
|
1,139,284
|
28,482
|
-
|
-
|
-
|
-
|
-
|
(28,482)
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased as part of
recapitalization
|
(230,000)
|
(5,750)
|
-
|
-
|
-
|
-
|
(224,250)
|
-
|
|
-
|
(230,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributed by related party
through foregiveness of debt in connection with
recapitalization
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,406,431
|
|
-
|
1,406,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(2,656,742)
|
(2,656,741)
|
|
Balance December 31,
2014
|
9,963,418
|
$249,085
|
51
|
$-
|
71,210
|
$71
|
$(224,250)
|
$14,370,296
|
|
$(8,587,726)
|
$5,807,476
|
See accompanying footnotes to financial
statements
F-69
Meridian
Waste Solutions, Inc.
Statement
of Cash Flows
|
|
|
Successor
|
|
|
Predecessor
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Period
from
|
|
|
Period
from
|
|
|
|
|
|||
|
|
|
Acquisition
|
|
|
January
1,
|
|
|
|
|
|||
|
|
|
May
16, 2014 to
|
|
|
2014
|
|
|
Year
Ended
|
|
|||
|
|
|
December
31,
|
|
|
to
May 15,
|
|
|
December
31,
|
|
|||
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|||
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|||
|
Net income (loss)
from operations
|
|
$
|
(2,656,742
|
)
|
|
$
|
271,063
|
|
|
$
|
1,236,647
|
|
|
Adjustment to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation &
Amortization
|
|
|
2,864,985
|
|
|
|
510,263
|
|
|
|
1,424,979
|
|
|
(Gain) Loss on sale
of asset
|
|
|
20,830
|
|
|
|
-
|
|
|
|
6,250
|
|
|
Changes in working
capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
43,843
|
|
|
|
(153,443
|
)
|
|
|
(96,609
|
)
|
|
Employee
advance/other receivables
|
|
|
(38
|
)
|
|
|
200
|
|
|
|
(126,798
|
)
|
|
Prepaid
expenses
|
|
|
(140,270
|
)
|
|
|
65,976
|
|
|
|
(72,240
|
)
|
|
Due to Here to
Serve Holding Corp.
|
|
|
376,585
|
|
|
|
-
|
|
|
|
-
|
|
|
Accounts payable
& accrued expenses
|
|
|
431,328
|
|
|
|
133,219
|
|
|
|
103,102
|
|
|
Increase in
deferred compensation
|
|
|
243,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Deferred
revenue
|
|
|
51,778
|
|
|
|
(32,360
|
)
|
|
|
165,887
|
|
|
Derivative
liability
|
|
|
40,958
|
|
|
|
-
|
|
|
|
-
|
|
|
Other current
liabilities
|
|
|
932,135
|
|
|
|
-
|
|
|
|
25,000
|
|
|
Cash flow from
operating activities
|
|
|
2,208,392
|
|
|
|
794,918
|
|
|
|
2,666,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale
of fixed assets
|
|
|
-
|
|
|
|
-
|
|
|
|
12,415
|
|
|
Purchased
capitalized software
|
|
|
(60,512
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Purchased
equipment
|
|
|
(1,407,251
|
)
|
|
|
(170,886
|
)
|
|
|
(2,058,359
|
)
|
|
Purchased
software
|
|
|
(13,920
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Cash flow from
investing activities
|
|
|
(1,481,682
|
)
|
|
|
(170,886
|
)
|
|
|
(2,045,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes
due related parties
|
|
|
123,333
|
|
|
|
-
|
|
|
|
-
|
|
|
Member
distributions
|
|
|
|
|
|
|
(585,000
|
)
|
|
|
(975,000
|
)
|
|
Loan from
member
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
Payments for
purchase of treasury stock
|
|
|
(230,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Principle payments
on notes payable
|
|
|
(791,667
|
)
|
|
|
(449,499
|
)
|
|
|
(1,208,210
|
)
|
|
Proceeds from CAPEX
line of credti
|
|
|
590,000
|
|
|
|
-
|
|
|
|
1,352,752
|
|
|
Cash flow from
financing activities
|
|
|
(308,334
|
)
|
|
|
(1,034,499
|
)
|
|
|
(805,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
|
|
418,376
|
|
|
|
(410,467
|
)
|
|
|
(185,184
|
)
|
|
Beginning
cash
|
|
|
20,531
|
|
|
|
1,461,372
|
|
|
|
1,646,556
|
|
|
Ending
Cash
|
|
$
|
438,907
|
|
|
$
|
1,050,905
|
|
|
$
|
1,461,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
348,136
|
|
|
$
|
52,559
|
|
|
$
|
146,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Non-Cash Investing and Financing Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt foregiveness
by related party in connection with recapitalization
|
|
$
|
1,406,431
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See accompanying footnotes to financial
statements
F-70
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
1 – NATURE OF OPERATIONS AND ORGANIZATION
Nature of Operations
Meridian Waste
Solutions, Inc. (formerly Brooklyn Cheesecake and Desserts Company,
Inc.) (the “Company”) is currently operating under
three separate Limited Liability Companies; Here To Serve Missouri
Waste Division, LLC (“HTSMWD”), a Missouri Limited
Liability Company, Here To Serve Technology Division, LLC
(“HTST), a Georgia Limited Liability Company and Here To
Serve Georgia Waste Division, LLC (“HTSGWD”), a Georgia
Limited Liability Company.
In 2014, HTSMWD
purchased the assets of a large solid waste disposal company in the
St. Louis, MO market. See Explanation of Change in Accounting
Basis below. 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. The Company is primarily in the
business of residential and commercial waste hauling and has
contracts with various cities and municipalities. The majority of
the Company’s customers are located in the St. Louis
metropolitan area.
Through
acquisitions and restructuring, HTST has repositioned the
Company’s presence in the software development industry. By
acquiring products developed for the mobile app market and by
shifting the focus of future development, HTST is anticipating
significant expansion into this growing business
segment.
Organization
Recapitalization
On October 17, 2014
Here to Serve Missouri Waste Division, LLC, (HTSMWD) a Missouri
Limited Liability Company, which is the historical business,
entered into a Share Exchange Agreement with the Company and the
sole member of HTSMWD whereby the Company agreed to acquire the
membership interest of HTSMWD, HTST and HTSGWD in exchange for
9,054,134 shares of the Company’s common stock. This
transaction was closed on October 17, 2014 and HTSMWD became
wholly-owned by the Company. The Company is deemed to have issued
1,139,284 shares of common stock which represents the outstanding
common shares of the Company just prior to the closing of the
transaction.
At closing, the
Company issued 9,054,134 shares of its common stock to the sole
member of HTSMWD and the shareholders of the sole member who
obtained approximately 90% control and management control of the
Company. The transaction was accounted for as a reverse acquisition
and recapitalization of HTSMWD, HTST and HTSGWD whereby HTSMWD is
considered the acquirer for accounting purposes. The consolidated
financial statements after the acquisition include the
balance
F-71
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
1 – NATURE OF OPERATIONS AND ORGANIZATION
(CONTINUED)
sheets of both
companies and HTST and HTSGWD at historical cost, the historical
results of HTSMWD, HTST and HTSGWD. All share and per share
information in the accompanying consolidated financial statements
and footnotes has been retroactively restated to reflect the
recapitalization (see Explanation
of Membership Interest Purchase Agreement
below).
Explanation of Membership
Interest Purchase Agreement
On October 17,
2014, (the “Execution Date”), Meridian Waste Solutions,
Inc. 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 Seller (the “Seller
Shareholders”), pursuant to which the Acquisition Corp shall
acquire 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, (i) the Company shall issue to Here to Serve
9,054,134 shares of the Company’s common stock, (the
“Common Stock”); (ii) the Company shall issue 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 to-be-designated Class A Preferred Stock (the
“Class A Preferred Stock”), which Class A Preferred
Stock shall have the rights and preferences as described in the
Purchase Agreement. See Note 6 below; (iii) the Company shall issue
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 to-be-designated Class B
Preferred Stock (the “Class B Preferred Stock”), (the
Common Stock, the Class A Preferred Stock and the Class B Preferred
Stock are referred to as the “Purchase Price Shares;”),
and (iv) the Company shall assume certain assumed liabilities (the
“Initial Consideration”).
As further
consideration, at the closing of the transaction contemplated under
the Purchase Agreement, (i) in satisfaction of all accounts payable
and shareholder loans, Here to Serve will pay to Company Majority
Shareholder $70,000 and (ii) the Company purchased from the then
Company Majority Shareholder 230,000 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 will be
F-72
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
1 – NATURE OF OPERATIONS AND ORGANIZATION
(CONTINUED)
cancelled (ii)
1,000,000 shares of Here to Serve’s Class A Preferred Stock
will be cancelled; and (iii) 71,120 shares of Here to Serve’s
Class B Preferred Stock will be cancelled (the “Additional
Consideration”).
On October 17,
2014, the directors and majority shareholders of the Company
approved the Purchase Agreement and the transactions contemplated
under the Purchase Agreement. The directors of Here to Serve and
the Here to Serve Shareholders approved the Purchase Agreement and
the transactions contemplated thereunder. This closing of the
Purchase
Agreement results
in a change of control of the Company and the Company changed its
business plan to that of HTSMWD.
Explanation of Change in
Accounting Basis
The merger of Here
to Serve Holding Corp. (Here to Serve), a Delaware Corporation, and
Meridian Waste Services, LLC became effective May 15, 2014. The
merger was accounted for by Here to Serve 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. By the
application of “push-down” accounting, our assets,
liabilities and equity were accordingly adjusted to fair value on
May 15, 2014. Determining the fair value of certain assets and
liabilities assumed is judgmental in nature and often involves the
use of significant estimates and assumptions.
At the time of
merger Here to Serve was a company with nominal operations whereas
Meridian Waste Services, LLC consisted of the active and
carry-forward business. Accordingly Meridian Waste Services, LLC is
deemed to be the predecessor entity and as such is presented as the
comparable financial statements. As such our financial statements
are presented in two distinct periods to indicate the application
of two different basis of accounting. Periods prior to May 15, 2014
are identified herein as “Predecessor,” while periods
subsequent to the Here to Serve merger are identified as
“Successor.” As a result of the change in basis of
accounting from historical cost to reflect the Here to
Serve’s purchase cost, the financial statements for
Predecessor periods are not comparable to those of Successor
periods.
Also, see Note 4
– Acquisition below.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
The Company uses
the accrual basis of accounting and accounting principles generally
accepted in the United States of America (“GAAP”
accounting).
F-73
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Basis of
Consolidation
The consolidated
financial statements for the year ended December 31, 2014 include
the operations of the Company and its wholly-owned subsidiaries,
Here To Serve Missouri Waste Division, LLC and Here To Serve
Technology, LLC. The third subsidiary of the Company, Here To Serve
Georgia Waste Division, LLC had no operations during the
period.
All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain accounts
and financial statement captions in the prior periods have been
reclassified to conform to the current period consolidated
financial statements.
Cash and Cash
Equivalents
The Company
considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Fair Value of Financial
Instruments
The Company’s
financial instruments consist of cash and cash equivalents,
accounts payable, other liabilities, accrued interest, notes
payable, and an amount due to a related party. The carrying amount
of these financial instruments approximates fair value due either
to length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these consolidated
financial statements.
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 ending December 31, 2014, the Company experienced no losses
due to impairment.
F-74
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes
The Company
accounts for income taxes pursuant to the provisions of 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 bases of assets and liabilities. A
valuation allowance is provided to offset any net deferred tax
assets for which management believes it is more likely than not
that the net deferred asset will not be realized.
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.
The Company has
adopted ASC 740-10-25 Definition
of Settlement, which provides guidance on how an entity
should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits and
provides that a tax position can be effectively settled upon the
completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit,
even if the tax position is not considered more likely than not to
be sustained based solely on the basis of its technical merits and
the statute of limitations remains open. As of December 31, 2014,
tax years ended December 31, 2013, 2012, 2011 are still potentially
subject to audit by the taxing authorities.
F-75
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Use of Estimates
The preparation of
consolidated financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date the consolidated financial statements and
the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Accounts
Receivable
At December 31,
2014 the Company had $659,646 of gross trade receivables. Here to
Serve – Missouri Waste Division, LLC, primarily owns these
trade receivables. At December 31, 2013, Meridian Waste Services,
LLC, Predecessor had $483,078 of gross trade
receivables.
Allowance for Doubtful
Accounts
The Company
provides an allowance for doubtful accounts equal to the estimated
collection losses that will be incurred in collection of
receivables related to residential customers and commercial project
invoices. The estimated losses are based on managements’
evaluation of outstanding accounts receivable at the end of the
accounting period. At December 31, 2014, an allowance of $71,167
was recorded. At December 31, 2013, Meridian Waste Services, LLC,
Predecessor had an allowance of $42,509.
Intangible Assets
Intangible assets
consist of assets acquired and costs incurred in connection with
the development of the Company’s capitalized software. See
note below. The Company also has intangible assets related to the
purchase of Meridian Waste Services, LLC. See Note 4 below. These
intangibles are amortized over periods between 3 and 5
years.
Capitalized
Software
The company
acquired a software product that is under further development. This
asset will be amortized over a three to five year period using the
straight-line method of depreciation for book purposes beginning
when the software is completed.
The company
capitalizes internal software development costs subsequent to
establishing technological feasibility of a software application in
accordance with guidelines established by “ASC
985-20-25” Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed, requiring certain software
development costs to be capitalized upon the establishment of
technological feasibility. The establishment of technological
feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgement by management with
respect to certain external factors such as anticipated future
revenue, estimated economic life and changes in software and
hardware technologies. Amortization of the capitalized software
development costs begins when the product is available for general
release to customers. Capitalized costs are amortized over the
remaining estimated economic life of the product. For the year
ended December 31, 2014, the Company has capitalized costs
associated with the development of several mobile science
technology products and mobile apps that has not been placed into
service.
F-76
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Website Development
Costs
The Company
accounts for website development costs in accordance with
Accounting Standards Codification 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.
Revenue
Recognition
The Company
recognizes revenue when there is persuasive evidence of that an
arrangement exists, the revenue is fixed or determinable, the
products are fully delivered or services have been provided 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.
Deferred
Revenue
The Company’s
Missouri Waste Division bills one month in advance for the
following three months. 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.
Concentration of Credit
Risks
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 is limited due to generally short
payment terms.
The Company’s
subsidiary, HTSMWD has two municipal contracts that account for a
large portion of the Company’s long-term contracted revenue.
One contract accounted for 27% and 32% and the other accounted for
19% and 21% of HTS Waste’s long-term contracted revenue for
the years ended December 31, 2014 and 2013
respectively.
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. A diluted earnings per share is
calculated by dividing the Company’s net income 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, 2014 the Company had a series of convertible notes outstanding
that could be converted into approximately 291,047 common shares.
These are not presented in the statement 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 at fair value in accordance with ASC
Topic 718. To date, the Company has not adopted a stock option plan
and has not granted any stock options.
Stock-based
compensation is accounted for based on the requirements of the
Share-Based Payment Topic of ASC 718 which requires recognition in
the consolidated financial
F-77
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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). The ASC also require
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 $338,860 and $0 during the
years ended December 31, 2014 and 2013, respectively.
Recent Accounting
Pronouncements
The Company does
not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash
flow.
NOTE
3 – PROPERTY AND EQUIPMENT
Property and
equipment, including purchased and developed software is recorded
at cost. The Company has depreciated or amortized these assets
using the straight-line method over the useful lives of the asset.
The useful lives are estimated to be between 2 and 7
years.
Property and
equipment consisted of the following:
|
|
|
Successor
|
|
|
Predecessor
|
|
||
|
|
|
Dec.
31, 2014
|
|
|
Dec.
31, 2013
|
|
||
|
Furniture &
office equipment
|
|
$
|
240,102
|
|
|
$
|
134,780
|
|
|
Containers
|
|
|
2,847,205
|
|
|
|
3,568,631
|
|
|
Trucks
|
|
|
5,523,773
|
|
|
|
8,887,425
|
|
|
Total
Property and Equipment
|
|
|
8,611,080
|
|
|
|
12,590,836
|
|
|
Less: Accumulated
Depreciation
|
|
|
(956,315
|
)
|
|
|
7,780,233
|
|
|
Net Property and Equipment
|
|
$
|
7,654,765
|
|
|
$
|
4,810,603
|
|
Depreciation
Expense for December 31, 2014 and 2013 was $965,846 and $1,424,979,
respectively.
F-78
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
4 – INTANGIBLE ASSETS AND ACQUISITION
On May 15, 2014,
the Company, in order to establish a presence in the solid waste
disposal industry, entered into an asset purchase agreement by and
among the Company, HTSMWD, Meridian Waste Services, LLC
(“MWS”) and the members of MWS, pursuant to which
HTSMWD acquired certain assets and liabilities of MWS, in exchange
for $11,115,000 cash, 13,191,667 shares of Class A Common Stock of
HTSHC and 71,210 shares of Series B Cumulative Convertible
Preferred Stock of HTSHC.
The merger was
accounted for by Here to Serve 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. By the
application of “push-down” accounting, our assets,
liabilities and equity were accordingly adjusted to fair value on
May 15, 2014. 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 purchase of MWS
included the acquisition of assets of $22,290,706 and liabilities
of $2,075,956. The aggregate purchase price consisted of the
following:
|
Cash
|
|
$
|
11,115,000
|
|
|
Estimated value of
common stock issued to sellers
|
|
|
1,978,750
|
|
|
Estimated value of
preferred stock issued to sellers
|
|
|
7,121,000
|
|
|
|
|
$
|
20,214,750
|
|
The following table
summarizes the estimated fair value of MWS assets acquired and
liabilities assumed at the date of acquisition:
|
Accounts
receivable
|
|
$
|
632,322
|
|
|
Prepaid
expenses
|
|
|
123,544
|
|
|
Deposits
|
|
|
8,303
|
|
|
Containers
|
|
|
2,710,671
|
|
|
Furniture and
equipment
|
|
|
414,450
|
|
|
Trucks
|
|
|
4,243,964
|
|
|
Customer
lists
|
|
|
14,007,452
|
|
|
Non-compete
agreement
|
|
|
150,000
|
|
|
Accounts payable
and accrued expenses
|
|
|
(54,387
|
)
|
|
Notes
payable
|
|
|
(143,464
|
)
|
|
Deferred
revenue
|
|
|
(1,878,105
|
)
|
|
|
|
$
|
20,214,750
|
|
Intangible
Assets
The following table
sets forth the intangible assets, both acquired and developed,
including accumulated amortization:
F-79
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
4 – INTANGIBLE ASSETS AND ACQUISITION
(CONTINUED)
|
|
December
31, 2014
|
|
|||||||||||
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|||
|
|
Useful
Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Capitalized
software
|
5.0
years
|
|
$
|
434,532
|
|
|
$
|
-
|
|
|
$
|
434,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
list
|
4.5
years
|
|
|
14,007,452
|
|
|
|
1,867,660
|
|
|
|
12,139,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
fees
|
4.5
years
|
|
|
50,613
|
|
|
|
11,248
|
|
|
|
39,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non compete
agreement
|
4.5
years
|
|
|
150,000
|
|
|
|
20,000
|
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Website
|
2.9
years
|
|
|
13,920
|
|
|
|
232
|
|
|
|
13,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,656,517
|
|
|
$
|
1,899,140
|
|
|
$
|
12,757,377
|
|
Amortization
expense amounted to $1,899,140 for the period ending December 31,
2014. There was no amortization expense for the periods ending May
15, 2014 and December 31, 2013.
NOTE
5 – NOTES PAYABLE AND CONVERTIBLE NOTES
The Company issued
two promissory notes to related parties during the year ended
December 31, 2014. These notes totaled $125,000 and are generally
convertible into common stock of the Company at discounts of 20 %
to 25% of the lowest average trading prices for the stock during
periods five to one day prior to the conversion date. These notes
bears interest at 10% to 12%, are unsecured, and matures within one
year of the date issued. The notes were issued to provide working
capital for the Company. These notes are considered a stock settled
debt in accordance with ASC 480 since any future stock issued upon
conversion will have a fixed monetary value. Due to the conversion
feature included in the notes, the Company has recorded a premium
on the notes totaling $31,250 as of December 31, 2014. This amount
has been charged to interest expense by the Company.
In previous periods
the Company issued two other notes to other related parties. These
notes totaled $110,000 and are generally convertible into common
stock of the Company at discounts of 20% to 25% of the lowest
average trading prices for the stock during periods five to one day
prior to the conversion date. These notes bear interest at 10% to
12%, are unsecured, and mature within one year of the date issued.
The notes were issued to provide working capital for the Company.
These notes are considered a stock settled debt in accordance with
ASC 480 since any future stock issued upon conversion will have a
fixed monetary value. Due to the conversion feature included in the
notes, the Company has
F-80
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
5 – NOTES PAYABLE AND CONVERTIBLE NOTES
(CONTINUED)
recorded a premium
on the notes totaling $35,833 as of December 31, 2014. This amount
has been charged to interest expense by the Company.
At December 31,
2014 the Company had $302,083 in convertible notes to related
parties which includes $67,083 in put premiums.
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 discussed above. 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.
At December 31,
2014, Here To Serve – Missouri Waste Division, LLC, a
subsidiary of the Company, had $10,183,333 in Debt, of which
$1,357,143 is current and $8,826,190 is long term. $1,475,000 were
notes Payable to the Sellers of Meridian as subordinated debt and
$8,708,333 in Long Term Debt payable to Comerica Bank, the
Company’s Senior Lender. At close, the notes payable to the
sellers were five-year term subordinated debt loans paying interest
at 8%. The Company’s Senior Secured Loan has an interest rate
LIBOR plus 4.25% with a two-year term based on a seven-year
amortization schedule. In addition, the Company has a working
capital line of credit of $1,250,000 at 4.75% of which the Company
has drawn down $1,085,160 as of December 31, 2014. Finally, there
is CAPEX line of credit of $750,000, of which the Company has drawn
down $590,000 as of December 31, 2014; again at 4.75%
interest.
The Company
sometimes borrow 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.
At December 31,
2014, the Company has $5,634,146 of non-amortizing variable rate
debt outstanding with interest payments due on a monthly basis. The
note accrues interest at the 1-month LIBOR plus 4.25%. In order to
hedge interest rate risk, the Company entered into an interest rate
swap for a notional amount of $5,634,146 at fixed rate of 4.75%.
Under the swap agreement, the Company pays the fixed rate on the
$5,634,146 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 of December 31, 2013, the net settlement amount
of the interest rate swap was $40,958.
F-81
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
5 – NOTES PAYABLE AND CONVERTIBLE NOTES
(CONTINUED)
At December 31,
2013, Meridian Waste Services, LLC (Predecessor) had $3,202,807 in
Debt, of which $1,211,299 was current and $1,991,508 was long term.
This debt was comprised of various notes with maturity dates
between one and three years and bearing interest between 4% and 6%.
All of this Predecessor debt was paid as a result of the
acquisition described in Note 1 above.
NOTE
6 – STOCK HOLDERS’ EQUITY
The Company has
75,000,000 shares of common stock authorized with a par value of
$0.025 and 71,261 shares of Preferred stock with a par value of
$0.001. As of December 31, 2014 there are 9,963,418 common shares
outstanding and 71,261 of Preferred shares outstanding. There are
two classes of Preferred stock, Series A and Series B.
There are 51 shares
of Series A Preferred stock issued and outstanding as of December
31, 2014. Series A 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.
There are 71,210
shares of Series B Preferred Stock issued and outstanding as of
December 31, 2014. Holders of Series B Preferred stock shall be
entitled to receive when, as 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
7 – COMMITMENTS AND CONTINGENCIES
The Company has
leased office space at 12540 Broadwell Rd., Suite 1203 Milton, GA
30004.
NOTE
8 – INCOME TAXES
The Company
accounts for income taxes in accordance with Statement of Financial
Accounting Standards (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
F-82
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
8 – INCOME TAXES (CONTINUED)
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.
The Company had a
net operating loss carry forward of approximately $4.9 million at
December 31, 2014 and had no Federal or State income tax
obligations. The Company had no significant tax effects resulting
from the temporary differences that give rise to deferred tax
assets and deferred tax liabilities for the year ended December 31,
2014 other than net operating losses.
The Company’s
loss carry forward of approximately $4.9 million may offset future
taxable income through tax year 2034. However, in accordance with
IRC Section 382, the availability and utilization of the 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 34% as follows for the
periods ended December 31, 2014 and 2013:
|
|
|
Years
Ended December 31,
|
|
|||||
|
|
|
2014
|
|
|
2013
|
|
||
|
Computed "expected"
benefit
|
|
$
|
(773,000
|
)
|
|
$
|
(3,490
|
)
|
|
Effect of state
income taxes, net of federal benefit
|
|
|
(136,000
|
)
|
|
|
-
|
|
|
Effect of change in
tax rates
|
|
|
(280,760
|
)
|
|
|
-
|
|
|
Pre-acquisition
losses
|
|
|
640,000
|
|
|
|
-
|
|
|
Increase in
valution allowance
|
|
|
549,760
|
|
|
|
3,490
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2014 and 2013 were as
follows:
|
|
|
2014
|
|
|
2013
|
|
||
|
Net operating loss
carry forward
|
|
$
|
1,956,000
|
|
|
$
|
1,406,240
|
|
|
Less: Valuation
allowance
|
|
|
(1,956,000
|
)
|
|
|
(1,406,240
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
F-83
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
8 – INCOME TAXES (CONTINUED)
The valuation
allowance was increased by $549,760 during the year ended December
31, 2014.
NOTE
9 – FAIR VALUE MEASUREMENT
The Company has
adopted new guidance under ASC Topic 820, effective January 1,
2009. New authoritative accounting guidance (ASC Topic 820-10-15)
under ASC Topic 820, Fair Value Measurement and Disclosures,
delayed the effective date of ASC Topic 820-10 for all
non-financial
assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements
on a recurring basis, until 2009.
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. Further new authoritative accounting guidance (ASU No.
2009-05) under 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, 2014, 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:
F-84
MERIDIAN WASTE
SOLUTIONS, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2014
NOTE
9 – FAIR VALUE MEASUREMENT (CONTINUED)
|
|
|
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|||||||
|
|
|
|
|
|
Quoted
Prices in
|
|
|
Significant
Other
|
|
|
Significant
|
|
||||
|
|
|
|
|
|
Active
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
||||
|
|
|
|
|
|
Identical
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
||||
|
Description
|
|
12/31/2014
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest rate
swap
|
|
$
|
40,958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
40,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock settled
debt
|
|
|
308,083
|
|
|
|
235,000
|
|
|
|
-
|
|
|
|
67,083
|
|
|
Total
|
|
$
|
349,041
|
|
|
$
|
235,000
|
|
|
$
|
-
|
|
|
$
|
108,041
|
|
NOTE
10 – LEASES
The Company’s
subsidiary Here to Serve Missouri Waste Division, LLC leases its
office and warehouse facilities. The lease agreement commenced
September 1, 2010 and expires August 30, 2017.
This lease was assigned to the Company when the subsidiary
purchased Meridian Waste Services, LLC on May 16, 2014. Future
minimum lease payments at December 31, 2014 are as
follows:
|
2015
|
|
$
|
271,915
|
|
|
2016
|
|
|
277,915
|
|
|
2017
|
|
|
283,915
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
833,745
|
|
Rent expense
amounted to $177,801 for the year ended December 31,
2014.
NOTE
11 – BONDING
In connection with
its normal activities, the Company may be required to acquire a
Performance bond on contracts with customers. There were not any
performance bonds required for the year ended December 31,
2014.
NOTE
12 – SUBSEQUENT EVENTS
In accordance with
ASC 855-10, the Company has analyzed its operations subsequent to
December 31, 2014 through the date these financial statements were
issued and has determined that the following would be included as
subsequent events.
Spinoff of Here to Serve
Technology, LLC
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 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.
It is management’s expectations that the spinoff will benefit
investors by strengthening the Company by becoming more streamlined
in the waste industry and maintaining the financial growth
potential of the investment in MSTI.
Issuance of Common
Stock
During January,
2015, the Company issued 1,164,393 shares of common stock. These
shares were issued to employees, employees of subsidiaries and
outside vendors for services. The value of these shares was
determined to be $1,630,150 using the securities closing price
($1.40) on January 2, 2015.
F-85
3,500,000
Units
_______________________
PROSPECTUS
_______________________
Joseph
Gunnar & Co.
Axiom
Capital Management, Inc.
2016
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The following table
sets forth the costs and expenses, other than underwriting
discounts and commissions, to be paid by the Registrant in
connection with the issuance and distribution of the common stock
and warrants being registered. All amounts other than the SEC
registration fees and FINRA fees are estimates.
|
SEC Registration
Fees
|
|
$
|
10,496
|
|
|
FINRA
Fees
|
|
|
12,641
|
|
|
NASDAQ Listing
Fee
|
|
|
50,000
|
*
|
|
Printing and
Engraving Expenses
|
|
|
20,000
|
*
|
|
Legal Fees and
Expenses
|
|
|
500,000
|
*
|
|
Accounting Fees and
Expenses
|
|
|
10,000
|
*
|
|
Transfer Agent
Fees
|
|
|
10,000
|
*
|
|
Miscellaneous
|
|
|
1,000
|
*
|
|
Total
|
|
$
|
614,140
|
*
|
____________
* Estimated
expenses not presently known.
Item
14. Indemnification of Directors and Officers
New
York Law
The NYBCL permits a
corporation to indemnify its current and former directors
and officers against expenses, judgments, fines and
amounts paid in connection with a legal proceeding. To be
indemnified, the person must have acted in good faith and in a
manner the person reasonably believed to be in, and not opposed to,
the best interests of the corporation. With respect to any criminal
action or proceeding, the person must not have had reasonable cause
to believe the conduct was unlawful.
Our Charter and
By-laws provide that, to the fullest extent permitted by the NYBCL,
we will indemnify our present and future directors
and officers against all expenses actually and reasonably
incurred by them as a result of their being threatened with or
otherwise involved in any action, suit or proceeding (other than an
action commenced on our own behalf) by virtue of the fact that they
are or were one of our officers or
directors.
Our by-laws also
provide that we may purchase and maintain insurance to indemnify us
for any obligation we incur as a result of the indemnification
of directors and officers, or to indemnify directors
and officers, pursuant to our by-laws and in accordance with
the NYBCL.
In addition to the
provisions of our Charter and By-laws providing
for indemnification of directors and officers, we
have entered into an employment agreement with Jeffrey Cosman, our
Chief Executive Officer, which provides for us to indemnify
Mr. Cosman against all expenses actually and reasonably incurred by
him as a result of his being threatened with or otherwise involved
in any action, suit or proceeding by virtue of the fact that he is
or was one of our officers.
Insofar as
indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors or persons
controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
Item
15. Recent Sales of Unregistered Securities
During the last
three completed fiscal years and to date in the current fiscal
year, we sold the following unregistered securities:
II-1
On October 31,
2014, the Company issued 9,054,134 shares of restricted Common
Stock to Here to Serve Holding Corp. as consideration for the
Company’s purchase of certain limited liability company
pursuant to that certain Membership Interest Purchase
Agreement.
On January 2, 2015,
the Board issued 20,000 shares of restricted Common Stock to two
employees (10,000 shares each) as payment of a bonus.
On January 2, 2015,
the Board issued 100,000 shares of restricted Common Stock in
consideration of legal services.
On January 2, 2015,
the Board issued 100,000 shares of restricted Common Stock to a
consultant in consideration of accounting services.
On January 2, 2015,
the Board issued 53,550 shares of restricted Common Stock to an
employee as payment of accrued salary and bonus earned in
connection with providing information technology
services.
On January 2, 2015,
the Board issued 890,843 shares of restricted Common Stock to an
officer as payment of compensation.
On January 27,
2015, the Board issued 200,833 shares of Common Stock pursuant to
the conversion under a convertible note.
On May 28, 2015,
the Board issued 4,700,000 shares of restricted Common Stock to an
officer as repayment of funds previously advanced and other
consideration.
On October 2, 2015,
the Board issued 1,000,000 shares of restricted Common Stock in
consideration of investment banking and advisory
services.
On October 2, 2015,
the Board issued 250,000 shares of restricted Common Stock in
consideration of legal services.
On October 2, 2015,
the Board issued 150,000 shares of restricted Common Stock to an
employee as payment of accrued salary and bonus earned in
connection with providing information technology
services.
On October 13,
2015, the Board issued 260,006 shares of Common Stock pursuant to
the conversion under a convertible note.
On December 22,
2015, the Board issued 1,750,000 shares of Common Stock to the
Seller of Christian Disposal, LLC as consideration pursuant to the
Christian Purchase Agreement.
On December 22,
2015, the Board issued a Purchase Warrant for Common Stock to
Goldman, Sachs & Co. in connection with the Credit
Agreement.
On December 29,
2015, the Board issued 1,600,000 shares of Common Stock as
consideration pursuant to Warrant Cancellation and Stock Issuance
Agreement.
On March 7, 2016,
the Board issued 500,000 shares of restricted Common Stock in
consideration of legal services.
On March 11, 2016,
the Board issued 2,000,000 shares of restricted Common Stock to an
officer of the Company, pursuant to the terms of an employment
agreement entered into with such officer as of such
date.
From March 23, 2016
through April 8, 2016, the Board issued an aggregate of 1,428,573
shares of restricted Common Stock pursuant to subscriptions by five
accredited investors under a private placement offering of such
shares at the price of $1.12 per share.
II-2
From
March 23, 2016 through April 8, 2016, the Board issued an aggregate
of 25,000 shares of restricted Common Stock to the Company’s
placement agent and/or its designees, pursuant to subscriptions
under a private placement offering during such period.
From June
3, 2016 through June 29, 2016, the Board issued an aggregate
of 625,000 shares of restricted Common Stock, together with
common stock purchase warrants, pursuant to subscriptions
by seven accredited investors under a private placement
offering of such shares at the price of $1.12 per
share.
From June
3, 2016 through June 29, 2016, the Board issued an aggregate
of 10,937 shares of restricted Common Stock to the
Company’s placement agent and/or its designees, pursuant to
subscription under a private placement offering during such
period.
On July
5, 2016, the Company issued 300,000 shares of restricted Common
Stock to an employee.
From
July 20, 2016 through August 22, 2016, the Board issued an
aggregate of 12,750 shares of Series C Preferred Stock, pursuant to
subscriptions by four accredited investors under a private
placement offering of such shares at the price of $100 per
share.
From
July 20, 2016 through August 22, 2016, the Board issued an
aggregate of 19,922 shares of restricted Common Stock to the
Company’s placement agent and/or its designees, pursuant to
subscriptions under a private placement offering during such
period.
On August 11, 2016, the Board issued 15,000 restricted shares of
the Company’s common stock to an employee pursuant to an
employment agreement.
Effective August 26, 2016, the Board issued an aggregate of 23,000
shares of Series C Preferred Stock to nine accredited investors in
consideration of cancelation of an aggregate of 102,679 shares of
Common Stock, pursuant to a Securities Exchange Agreement with each
such investor.
Effective October 13, 2016, the Board issued an aggregate of
500,000 shares of Common Stock to three stockholders in
consideration of cancelation of all 71,120 shares of Series B
Preferred Stock issued and outstanding, pursuant to a Securities
Exchange Agreement with each such stockholder.
The
securities issued pursuant to the above offerings were not
registered under the Securities Act of 1933, as amended (the
“Securities Act”), but qualified for exemption under
Section 4(a)(2) of the Securities Act and/or Regulation D. The
securities were exempt from registration under Section 4(a)(2) of
the Securities Act because the issuance of such securities by the
Company did not involve a “public offering,” as defined
in Section 4(a)(2) of the Securities Act, due to the insubstantial
number of persons involved in the transaction, size of the
offering, manner of the offering and number of securities offered.
The Company did not undertake an offering in which it sold a high
number of securities to a high number of investors. In addition,
these shareholders had the necessary investment intent as required
by Section 4(a)(2) of the Securities Act since they agreed to, and
received, share certificates bearing a legend stating that such
securities are restricted pursuant to Rule 144 of the Securities
Act. This restriction ensures that these securities would not be
immediately redistributed into the market and therefore not be part
of a “public offering.” Based on an analysis of the
above factors, the Company has met the requirements to qualify for
exemption under Section 4(a)(2) of the Securities Act.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
The following
Exhibits are filed as part of this report.
|
Exhibit No.
|
|
Description
|
|
1.1
|
|
Form of
Underwriting Agreement (incorporated herein by reference to
Exhibit 1.1 to Meridian Waste Solutions, Inc. Amendment No. 2 to
the Registration Statement on Form S-1 filed with the SEC on
December 5, 2016)
|
|
|
|
|
|
2.1
|
|
Purchase Agreement
dated October 17, 2014 (incorporated herein by reference to Exhibit
10.1 to the Brooklyn Cheesecake & Desserts Company, Inc.
Current Report on Form 8-K filed with the SEC on October 22,
2014)
|
|
|
|
|
|
3.1
|
|
Restated
Certificate of Incorporation of Brooklyn Cheesecake & Deserts
Company, Inc. (incorporated herein by reference to Exhibit 3.1 to
the Brooklyn Cheesecake & Desserts Company, Inc. Current Report
on Form 8-K filed with the SEC on December 15, 2014)
|
|
|
|
|
|
3.2
|
|
Certificate of
Incorporation of Brooklyn Cheesecake & Dessert Acquisition
Corp. (incorporated herein by reference to Exhibit 3.12 to the
Brooklyn Cheesecake & Desserts Company, Inc. Current Report on
Form 8-K filed with the SEC on December 15, 2014)
|
|
|
|
|
|
3.3
|
|
Certificate of
Amendment of the Certificate of Incorporation of Brooklyn
Cheesecake and Desserts Company, Inc. (incorporated herein by
reference to Exhibit 3.1 to the Brooklyn Cheesecake & Desserts
Company, Inc. Annual Report on Form 10-K filed with the SEC on
April 15, 2015)
|
|
|
|
|
|
3.4
|
|
Amended and
Restated By-laws of Brooklyn Cheesecake & Deserts Company, Inc.
(incorporated herein by reference to Exhibit 3.2 to the Brooklyn
Cheesecake & Desserts Company, Inc. Current Report on Form 8-K
filed with the SEC on December 15, 2014)
|
|
|
|
|
|
3.5
|
|
By-Laws of Brooklyn
Cheesecake & Dessert Acquisition Corp. (incorporated herein by
reference to Exhibit 3.21 to the Brooklyn Cheesecake & Desserts
Company, Inc. Current Report on Form 8-K filed with the SEC on
December 15, 2014)
|
II-3
|
3.6
|
|
Certificate of
Amendment to Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on July 25,
2016)
|
|
|
|
|
|
4.1
|
|
First Amendment to
Credit and Guaranty Agreement, dated as of March 9, 2016, entered
into by and among Here to Serve – Missouri Waste Division,
LLC, Here to Serve – Georgia Waste Division, LLC, Brooklyn
Cheesecake & Desserts Acquisition Corp., Meridian Land Company,
LLC, Christian Disposal, LLC, and FWCD, LLC, Meridian Waste
Solutions, Inc. (“Holdings”) and certain subsidiaries
of Holdings, as Guarantors, the Lenders party hereto from time to
time and Goldman Sachs Specialty Lending Group, L.P., as
Administrative Agent, Collateral Agent, and Lead Arranger
(incorporated herein by reference to Exhibit 4.1 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on March 15, 2016)
|
|
|
|
|
|
4.2
|
|
Credit and Guaranty
Agreement, dated as of December 22, 2015, entered into by and among
Here to Serve – Missouri Waste Division, LLC, Here to Serve
– Georgia Waste Division, LLC, Brooklyn Cheesecake &
Desserts Acquisition Corp., Meridian Land Company, LLC, Christian
Disposal, LLC, and FWCD, LLC, Meridian Waste Solutions, Inc.
(“Holdings”) and certain subsidiaries of Holdings, 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 (incorporated herein by
reference to Exhibit 4.1 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on December 29,
2015)
|
|
|
|
|
|
4.3
|
|
Tranche A Term Loan
Note, issued in favor of Goldman Sachs Specialty Lending Holdings,
Inc., in the principal amount of $40,000,000, dated December 22,
2015 (incorporated herein by reference to Exhibit 4.2 to the
Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on December 29, 2015)
|
|
|
|
|
|
4.4
|
|
MDTL Note, issued
in favor of Goldman Sachs Specialty Lending Holdings, Inc., in the
principal amount of $10,000,000, dated December 22, 2015
(incorporated herein by reference to Exhibit 4.3 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on December 29, 2015)
|
|
|
|
|
|
4.5
|
|
Revolving Loan
Note, issued in favor of Goldman Sachs Specialty Lending Holdings,
Inc., in the principal amount of $5,000,000, dated December 22,
2015 (incorporated herein by reference to Exhibit 4.4 to the
Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on December 29, 2015)
|
|
|
|
|
|
4.6
|
|
Purchase Warrant
for Common Shares issued in favor of Goldman, Sachs & Co.,
dated December 22, 2015 (incorporated herein by reference to
Exhibit 4.5 to the Meridian Waste Solutions, Inc. Current Report on
Form 8-K filed with the SEC on December 29, 2015)
|
|
|
|
|
|
4.7
|
|
Pledge and Security
Agreement between the grantors party thereto and Goldman Sachs
Specialty Lending Group, L.P., dated December 22, 2015
(incorporated herein by reference to Exhibit 4.6 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on December 29, 2015)
|
|
|
|
|
|
4.8
|
|
Note and Warrant
Purchase Agreement and Security Agreement, by and among Meridian
Waste Solutions, Inc., Here to Serve - Missouri Waste Division,
LLC, Here to Serve - Georgia Waste Division, LLC, Meridian Land
Company, LLC, certain subsidiaries of the Company, the purchasers
from time to time party thereto and Praesidian Capital Opportunity
Fund III, LP, dated August 6, 2015 (incorporated herein by
reference to Exhibit 4.1 to the Meridian Waste Solutions, Inc.
Quarterly Report on Form 10-Q filed with the SEC on November 16,
2015)
|
II-4
|
4.9
|
|
Note A, issued in
favor of Praesidiant Capital Opportunity Fund III, LP, in the
principal amount of $2,644,812.57, dated August 6, 2015
(incorporated herein by reference to Exhibit 4.2 to the Meridian
Waste Solutions, Inc. Quarterly Report on Form 10-Q filed with the
SEC on November 16, 2015)
|
|
|
|
|
|
4.10
|
|
Note A, issued in
favor of Praesidian Capital Opportunity Fund III-a, LP, in the
principal amount of $1,025,187.43, dated August 6,
2015 (incorporated herein by reference to Exhibit 4.3 to the
Meridian Waste Solutions, Inc. Quarterly Report on Form 10-Q filed
with the SEC on November 16, 2015)
|
|
|
|
|
|
4.11
|
|
Note B, issued in
favor of Praesidian Capital Opportunity Fund III, LP, in the
principal amount of $5,170,716.68, dated August 6, 2015
(incorporated herein by reference to Exhibit 4.4 to the Meridian
Waste Solutions, Inc. Quarterly Report on Form 10-Q filed with the
SEC on November 16, 2015)
|
|
|
|
|
|
4.12
|
|
Note B, issued in
favor of Praesidian Capital Opportunity Fund III-a, LP, in the
principal amount of $2,004,283.32, dated August 6,
2015 (incorporated herein by reference to Exhibit 4.5 to the
Meridian Waste Solutions, Inc. Quarterly Report on Form 10-Q filed
with the SEC on November 16, 2015)
|
|
|
|
|
|
4.13
|
|
Warrant issued in
favor of Praesidian Capital Opportunity Fund III, LP, dated August
6, 2015 (incorporated herein by reference to Exhibit 4.6 to
the Meridian Waste Solutions, Inc. Quarterly Report on Form 10-Q
filed with the SEC on November 16, 2015)
|
|
|
|
|
|
4.14
|
|
Warrant issued in
favor of Praesidian Capital Opportunity Fund III-a, LP, dated
August 6, 2015 (incorporated herein by reference to Exhibit
4.7 to the Meridian Waste Solutions, Inc. Quarterly Report on Form
10-Q filed with the SEC on November 16, 2015)
|
|
|
|
|
|
4.15
|
|
Warrant
Cancellation and Stock Issuance Agreement made and entered into as
of December 22, 2015, by and among Praesidian Capital Opportunity
Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, and
Meridian Waste Solutions, Inc. (incorporated herein by
reference to Exhibit 4.15 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on December 29,
2015)
|
|
|
|
|
|
4.16
|
|
Convertible
Promissory Note, issued in favor of Timothy Drury, in the principal
amount of $1,250,000, dated December 22, 2015 (incorporated herein
by reference to Exhibit 4.16 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on December 29,
2015)
|
|
|
|
|
|
4.17
|
|
Form of Warrant
(incorporated herein by reference to Exhibit 10.2 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on June 9, 2016)
|
|
|
|
|
|
4.18
|
|
Second Amendment to
Credit and Guaranty Agreement, dated as of July 19, 2016, entered
into by and among Here to Serve – Missouri Waste Division,
LLC, Here to Serve – Georgia Waste Division, LLC, Brooklyn
Cheesecake & Desserts Acquisition Corp., Meridian Land Company,
LLC, Christian Disposal, LLC, and FWCD, LLC, Meridian Waste
Solutions, Inc. (“Holdings”) and certain subsidiaries
of Holdings, as Guarantors, the Lenders party hereto from time to
time and Goldman Sachs Specialty Lending Group, L.P., as
Administrative Agent, Collateral Agent, and Lead Arranger
(incorporated herein by reference to Exhibit 4.1 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on July 25, 2016)
|
|
|
|
|
|
4.19
|
|
Amended and
Restated Purchase Warrant for Common Shares issued in favor of
Goldman, Sachs & Co., dated July 19, 2016 (incorporated herein
by reference to Exhibit 4.2 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on July 25,
2016)
|
|
|
|
|
|
4.20
|
|
Form of Warrant
Agency Agreement by and between Meridian Waste Solutions, Inc. and
Issuer Direct Corporation and Form of Warrant Certificate
(incorporated herein by reference to Exhibit 4.20 to Meridian Waste
Solutions, Inc. Amendment No. 1 to the Registration Statement on
Form S-1 filed with the SEC on November 18,
2016)
|
|
|
|
|
|
4.21
|
|
Waiver and Amendment Letter,
dated as of August 16, 2016, entered into by and among Here to
Serve –
Missouri Waste
Division, LLC, Here to Serve –
Georgia Waste
Division, LLC, Brooklyn Cheesecake & Desserts Acquisition
Corp., Meridian Land Company, LLC, Christian Disposal, LLC, and
FWCD, LLC, Meridian Waste Solutions, Inc. (“Holdings”)
and Goldman Sachs Specialty Lending Group, L.P., as administrative
agent for the Lenders, Collateral Agent, and Lead Arranger
(incorporated herein
by reference to Exhibit 4.4 to the Meridian Waste Solutions, Inc.
Quarterly Report on Form 10-Q filed with the SEC on November 15,
2016)
|
|
|
|
|
|
4.22
|
|
Fourth Amendment to Credit and Guaranty Agreement, dated as of November 11, 2016, entered into by and among Here to Serve –Missouri Waste Division, LLC, Here to Serve – Georgia Waste Division, LLC, Brooklyn Cheesecake & Desserts Acquisition Corp., Meridian Land Company, LLC, Christian Disposal, LLC, and FWCD, LLC, Meridian Waste Solutions, Inc. (“Holdings”) and certain subsidiaries of Holdings, the Lenders party thereto from time to time and Goldman Sachs Specialty Lending Group, L.P., as administrative agent for the Lenders, Collateral Agent, and Lead Arranger (incorporated herein by reference to Exhibit 4.5 to the Meridian Waste Solutions, Inc. Quarterly Report on Form 10-Q filed with the SEC on November 15, 2016) |
|
|
|
|
|
4.23
|
|
Form
of Warrant Cancellation and Stock Issuance Agreement by and
between Meridian Waste Solutions, Inc. and Goldman, Sachs &
Co. (incorporated
herein by reference to Exhibit 4.23 Meridian Waste Solutions, Inc.
Amendment No.1 to the Registration Statement on Form S-1 filed with
the SEC on November 18, 2016)
|
|
|
|
|
|
4.24*
|
|
Warrant
Cancellation and Stock Issuance Agreement, dated as of December 9,
2016, by and between Meridian Waste Solutions, Inc. and Goldman,
Sachs & Co.
|
|
5.1*
|
|
Opinion of Lucosky
Brookman LLP
|
|
|
|
|
|
10.1
|
|
Employment
Agreement by and between Here to Serve Holding Corp. and Jeffrey S.
Cosman dated January 1, 2014 (incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on November 5, 2014)
|
|
|
|
|
|
10.2
|
|
2004 Stock
Incentive Plan (incorporated herein by reference to Appendix B of
the Definitive 14A filed with the SEC on July 15,
2004)
|
II-5
|
10.3
|
|
Credit Agreement
(incorporated herein by reference to Exhibit 10.1 to the Brooklyn
Cheesecake & Desserts Company, Inc. Current Report on Form 8-K
filed with the SEC on February 17, 2015)
|
|
|
|
|
|
10.4
|
|
Solid Waste
Municipal Contract by and between the City of Wildwood, Missouri,
and Meridian Waste Services LLC (incorporated herein by reference
to Exhibit 10.4 to the Brooklyn Cheesecake & Desserts Company,
Inc. Current Report on Form 8-K filed with the SEC on February 17,
2015)
|
|
|
|
|
|
10.5
|
|
Solid Waste
Municipal Contract by and between the City of Florissant, Missouri,
and Meridian Waste Services LLC (incorporated herein by reference
to Exhibit 10.5 to the Brooklyn Cheesecake & Desserts Company,
Inc. Current Report on Form 8-K filed with the SEC on February 17,
2015)
|
|
|
|
|
|
10.6
|
|
Form of
Subscription Agreement (incorporated herein by reference to Exhibit
10.1 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on March 29, 2016)
|
|
|
|
|
|
10.7
|
|
Employment
Agreement, dated March 11, 2016, by and between the Company and
Jeffrey Cosman (incorporated herein by reference to Exhibit 10.1 to
the Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on March 17, 2016)
|
|
|
|
|
|
10.8
|
|
Form of Director
Agreement (incorporated herein by reference to Exhibit 10.2 to the
Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on March 17, 2016)
|
|
|
|
|
|
10.9
|
|
Executive
Employment Agreement, dated March 11, 2016, by and between the
Company and Walter Hall (incorporated herein by reference to
Exhibit 10.3 to the Meridian Waste Solutions, Inc. Current Report
on Form 8-K filed with the SEC on March 17, 2016)
|
|
|
|
|
|
10.10
|
|
Meridian Waste
Solutions, Inc, 2016 Equity and Incentive Plan (incorporated herein
by reference to Exhibit 10.1 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on March 16,
2016)
|
|
|
|
|
|
10.11
|
|
Form of Restricted
Stock Agreement (incorporated herein by reference to Exhibit 10.2
to the Meridian Waste Solutions, Inc. Current Report on Form 8-K
filed with the SEC on March 16, 2016)
|
|
|
|
|
|
10.12
|
|
Form of
Nonqualified Stock Option Agreement (Non-Employee) (incorporated
herein by reference to Exhibit 10.3 to the Meridian Waste
Solutions, Inc. Current Report on Form 8-K filed with the SEC on
March 16, 2016)
|
|
|
|
|
|
10.13
|
|
Form of
Nonqualified Stock Option Agreement (Employee) (incorporated herein
by reference to Exhibit 10.4 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on March 16,
2016)
|
|
|
|
|
|
10.14
|
|
Form of Incentive
Stock Option Agreement (incorporated herein by reference to Exhibit
10.5 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on March 16, 2016)
|
|
|
|
|
|
10.15
|
|
Amended and
Restated Membership Interest Purchase Agreement made and entered
into as of October 16, 2015, by and among Timothy M. Drury;
Christian Disposal LLC; FWCD, LLC; Meridian Waste Solutions, Inc.;
Here to Serve Missouri Waste Division, LLC; and Here to Serve
Georgia Waste Division, LLC(incorporated herein by reference to
Exhibit 10.1 to the Meridian Waste Solutions, Inc. Current Report
on Form 8-K filed with the SEC on October 22, 2015)
|
|
10.16
|
|
First Amendment to
Amended and Restated Membership Interest Purchase Agreement by and
among Timothy M. Drury; Christian Disposal LLC; FWCD, LLC; Meridian
Waste Solutions, Inc.; Here to Serve Missouri Waste Division, LLC;
and Here to Serve Georgia Waste Division, LLC, dated December 4,
2015 (incorporated herein by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed with the Commission on December 9,
2015)
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II-6
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10.17
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Lease Agreement,
dated December 22, 2015, by and between 4551 Commerce Holdings LLC
and Christian Disposal, LLC (incorporated herein by reference to
Exhibit 10.3 to the Meridian Waste Solutions, Inc. Current Report
on Form 8-K filed with the SEC on December 29, 2015)
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10.18
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Employment
Agreement, dated December 22, 2015, by and among Christian
Disposal, LLC, Meridian Waste Solutions, Inc. and Patrick
McLaughlin (incorporated herein by reference to Exhibit 10.4 to the
Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on December 29, 2015)
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10.19
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Asset Purchase
Agreement made and entered into as of November 13, 2015, by and
between Meridian Land Company, LLC and Eagle Ridge Landfill, LLC
(incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the Commission on November 18,
2015)
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10.20
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First Amendment to
Asset Purchase Agreement by and among Meridian Land Company, LLC,
Eagle Ridge Landfill, LLC, Meridian Waste Solutions, Inc., and WCA
Waste Corporation, dated December 18, 2015 (incorporated
herein by reference to Exhibit 10.6 to the Meridian Waste
Solutions, Inc. Current Report on Form 8-K filed with the SEC on
December 29, 2015)
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10.21
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Membership Interest
Purchase Agreement, dated as of February 12, 2015 (incorporated
herein by reference to Exhibit 10.2 to the Meridian Waste
Solutions, Inc. Current Report on Form 8-K filed with the SEC on
March 2, 2015)
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10.22
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Form of Business
Loan and Security Agreement, dated February 17, 2015, as amended
(incorporated herein by reference to Exhibit 10.1 to the Meridian
Waste Solutions, Inc. Current Report on Form 8-K filed with the SEC
on March 2, 2015)
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10.23
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Form of Business
Loan and Security Agreement, dated February 19, 2015, as
amended (incorporated herein by reference to Exhibit 10.2 to
the Meridian Waste Solutions, Inc. Current Report on Form 8-K filed
with the SEC on March 2, 2015)
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10.24
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Pledge Agreement by
and among Meridian Waste Solutions, Inc., the pledgors party
thereto and Praesidian Capital Opportunity Fund III, LP, dated
August 6, 2015 (incorporated herein by reference to Exhibit 10.1 to
the Meridian Waste Solutions, Inc. Quarterly Report on Form 10-Q
filed with the SEC on November 16, 2015)
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10.25
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Form of First
Amendment to Director Agreement dated April 13, 2016 (incorporated
herein by reference to Exhibit 10.27 to the Meridian Waste
Solutions, Inc. Annual Report on Form 10-K filed with the SEC on
April 14, 2016)
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10.26
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Form of
Subscription Agreement (incorporated herein by reference to Exhibit
10.1 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on March 29, 2016)
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10.27
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Form of
Subscription Agreement (incorporated herein by reference to Exhibit
10.1 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on June 9, 2016)
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10.28
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Form of First
Amendment to Subscription Agreement (incorporated herein by
reference to Exhibit 10.2 to the Meridian Waste Solutions, Inc.
Current Report on Form 8-K filed with the SEC on June 17,
2016)
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10.29
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Form of
Subscription Agreement (incorporated herein by reference to Exhibit
10.3 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on June 17, 2016)
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10.30
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Form of Securities
Purchase Agreement (incorporated herein by reference to Exhibit
10.1 to the Meridian Waste Solutions, Inc. Current Report on Form
8-K filed with the SEC on July 25, 2016)
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10.31
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Form
of Securities Exchange Agreement (incorporated herein by reference
to Exhibit 10.1 to the Meridian Waste Solutions, Inc. Current
Report on Form 8-K filed with the SEC on October 18,
2016)
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10.32
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Form
of Securities Exchange Agreement (incorporated herein by reference
to Exhibit 10.2 to the Meridian Waste Solutions, Inc. Current
Report on Form 8-K filed with the SEC on September 1,
2016)
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10.33
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Form
of Securities Exchange Agreement (incorporated herein by reference
to Exhibit 10.3 to the Meridian Waste Solutions, Inc. Current
Report on Form 8-K filed with the SEC on September 1,
2016)
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| 10.34 |
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Amendment to
Executive Employment Agreement, dated November 29, 2016, by and
between the Company and Jeffrey Cosman (incorporated by reference
to the Company’s Current Report on Form 8-K filed with the
SEC on December 1, 2016)
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| 10.35 |
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Executive
Employment Agreement, dated November 29, 2016, by and between the
Company and Joseph D’Arelli (incorporated by reference to the
Company’s Current Report on Form 8-K filed with the SEC on
December 1, 2016)
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| 10.36 |
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Second Amendment to
Executive Employment Agreement, dated December 5, 2016, by and
between the Company and Jeffrey Cosman (incorporated by reference
to the Company’s Current Report on Form 8-K filed with the
SEC on December 5, 2016)
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| 10.37 |
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Amendment to
Executive Employment Agreement, dated December 5, 2016, by and
between the Company and Walter H. Hall, Jr. (incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the SEC on December 5, 2016)
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| 10.38 |
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Amendment to
Executive Employment Agreement, dated December 5, 2016, by and
between the Company and Joseph D’Arelli (incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the SEC on December 5, 2016)
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II-7
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Consent of
D’Arelli Pruzansky, P.A
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24.1*
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Consent of Lucosky
Brookman LLP (reference is made to Exhibit 5.1)
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*Filed herewith
(b)
Financial statement schedules.
All schedules have
been omitted because either they are not required, are not
applicable or the information is otherwise set forth in the
financial statements and related notes thereto.
Item
17. Undertakings
(1)
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)
To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement;
(iii)
To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2)
That
for the purpose of determining any liability under the Securities
Act of 1933 each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3)
To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4)
[Intentionally
Omitted]
(5)
For the
purpose of determining liability under the Securities Act of 1933
to any purchaser, each prospectus filed pursuant to Rule 424(b) as
part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6)
That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant
undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
II-8
(i)
Any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule
424;
(ii)
Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any
other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(6)
The undersigned
Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in
such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each
purchaser.
(7)
Insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant 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 the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(i)
The undersigned
Registrant hereby undertakes that it will:
(1)
for determining any
liability under the Securities Act, treat the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act as part of this
registration statement as of the time the SEC declared it
effective.
(ii)
for determining any
liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-9
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Milton,
State of Georgia, on December 12, 2016.
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MERIDIAN WASTE SOLUTIONS, INC.
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By:
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/s/
Jeffrey Cosman
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Name:
Jeffrey Cosman
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Title: Chief Executive Officer
(Principal
Executive Officer) |
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By:
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/s/
Joseph D'Arelli
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Name: Joseph D'Arelli
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Title: Chief Financial Officer |
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(Principal Financial Officer) |
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(Principal Accounting Officer) |
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POWER OF ATTORNEY:
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose
signature appears below constitutes and appoints Jeffrey S. Cosman,
his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by
the Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act, and
all post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done or by virtue
hereof.
Pursuant to the
requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities and on the dates indicated:
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Signature
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Title
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Date
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/s/ Jeffrey Cosman
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Chief Executive Officer, Chairman
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December 12, 2016
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Jeffrey Cosman
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/s/ Joseph D'Arelli
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Chief Financial Officer
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December 12,
2016
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Joseph D'Arelli
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/s/ Walter H. Hall, Jr.
|
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President, Chief Operating Officer, Director
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December 12, 2016
|
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Walter H. Hall, Jr.
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/s/ Thomas Cowee
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Director
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December 12,
2016
|
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Thomas Cowee
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/s/ Jackson Davis, Jr.
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Director
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December 12,
2016
|
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Jackson Davis, Jr.
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/s/ Joseph Ardagna
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Director
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December 12, 2016
|
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Joseph Ardagna
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II-10