UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL
STATEMENTS
Note
1 – Business Organization
These
financial statements represent the financial statements of National Waste Management Holdings, Inc. (“NWMH”) and its
wholly owned operating subsidiaries, Sand/Land of Florida Enterprises, Inc. (“Sand/Land”), Waste Recovery Enterprises,
LLC (“WRE”) and Gateway Rolloff Services, LP (“Gateway”). NWMH, Sand/Land, WRE and Gateway are collectively
referred to herein as the “Company”.
Sand/Land
is a solid waste management company headquartered in Central Florida, currently operating a licensed Construction & Demolition
landfill. The Company’s primary operations are based near Tampa, Florida. The Company was founded in 1986 and principally
serves the following Florida counties: Citrus, Hernando, and Marion counties.
WRE
is a waste management company that offers trash collection services, roll-off services, data destruction and shredding services
and a full-service transfer station. The Company also offers wood grinding, demolition, and mulch and gravel services. The Company’s
primary operations are based near Binghamton, New York. The Company was founded in 1998 and principally serves the Northeastern
U.S. industrial and residential markets.
Gateway
offers commercial and residential dumpster service and roll-off boxes for construction and cleanup projects specializing in the
removal of debris, garbage, waste, hauling construction and demolition debris, focused on servicing general contractors, new home
builders, reconstruction, renovation, landscaping and home improvement professionals. The Company’s primary operations are
based near Tampa, FL.
The
Company, as a consolidated entity, is a full service solid waste management company headquartered near Tampa, Florida with operations
in Florida and New York.
Basis
of Presentation
The
interim financial statements are condensed and should be read in conjunction with the Company’s latest annual financial
statements filed with the Securities and Exchange Commission on April 17, 2017; interim disclosures generally do not repeat those
in the annual statements.
The
financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The Consolidated financial statements include the operations of
Sand/Land, WRE and Gateway, together, NWMH.
It
is Management’s opinion that all adjustments necessary for a fair presentation of the results for the interim periods have
been made and that all adjustments are of a normal recurring nature except for the purchase accounting related to the acquisition
of Burt’s Refuse on February 28, 2017. Purchase price accounting and disclosure is only necessary when acquisitions are
completed by the Company. See note 10, “Acquisitions” for the purchase price allocation and pro-forma income statement
presentation related to the acquisition.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could differ from those estimates.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies
Fair
Value of Financial Instruments
For
certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, advances payable
and notes payable, the carrying amounts approximate fair value due to their relatively short maturities and associated market
interest rates.
The Company adopted Accounting Standards
Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value,
and establishes a three-level valuation hierarchy for disclosures of fair value measurements that enhances disclosure requirements
for fair value measures. The three levels of valuation hierarchy are defined as follows:
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities
in active markets.
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
|
The
Company did not identify any non-recurring assets and liabilities that are required to be presented in the balance sheets at fair
value in accordance with ASC 815.
ASC 825-10, “Financial Instruments”
permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are reported in earnings.
The
carrying amounts reported in the consolidated balance sheets for receivables and current liabilities, long-term debt, capital
leases and Series B, 10% cumulative preferred stock each qualify as financial instruments and are a reasonable estimate of their
fair values because of the short period between the origination of such instruments and their expected realization or their current
market rates of interest or dividend yield. These fair value estimates are subjective in nature and involve uncertainties and
matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly
affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative
instruments in the management of foreign exchange, commodity price, or interest rate market risks.
Revenue
and Cost Recognition
The
Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the sales price is
fixed or determinable; (iii) collectability is reasonably assured; and (iv) goods have been shipped and/or services rendered.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Cash
and Cash Equivalents
For
purposes of reporting cash flows, the Company considers cash and cash equivalents to be all highly liquid deposits with maturities
of three months or less. Cash equivalents are carried at cost, which approximates market value.
The
Company maintains its cash and cash equivalents at various financial institutions where they are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $250,000. The balances of these accounts from time to time may exceed federally insured limits.
The Company has not experienced any losses in such accounts.
Accounts
Receivable, Bad Debts and Allowance for Doubtful Accounts
An
allowance for doubtful accounts is provided for as a percentage of trade accounts receivable based on historical loss experience.
As of March 31, 2017 and December 31, 2016, the consolidated allowance for doubtful accounts was $20,000. Consolidated bad debt
expense recognized for the three months ended March 31, 2017 and 2016 was $245 and $335, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are
capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss thereon is recognized as other income or expenses.
Depreciation
is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term
of the related lease, including renewal periods, if shorter. Estimated useful lives are as follows:
Transportation equipment
|
|
|
5 years
|
|
Office and machinery equipment
|
|
|
5-7 years
|
|
Roll off containers
|
|
|
5-7 years
|
|
Improvements
|
|
|
5-7 years
|
|
Buildings
|
|
|
39.5 years
|
|
Landfill Airspace
|
|
|
39.5 years
|
|
The
Company reviews property, plant, equipment and all amortizable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability is based on estimated undiscounted
cash flows. Measurement of the impairment loss, if any, is based on the difference between the carrying value and fair value.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Impairment
of Long-Lived Assets and Amortizable Intangible Assets
The Company follows ASC 360-10, “Property,
Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period
for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived
assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less the cost to sell.
Goodwill
Goodwill
consists of the excess of cost over identifiable net tangible and intangible assets of company’s acquired. In accordance
with ASC 350, “Intangibles-Goodwill and Other”, the carrying amount of goodwill and intangible assets is to be reviewed
at least annually for impairment, and losses in value, if any, will be charged to operations in the period of impairment. Goodwill
was determined to not be impaired as of March 31, 2017. The test for impairment was done in accordance with guidance in Accounting
Standards Update (“ASU”) 2011-8 for the year ended December 31, 2016; no qualitative factors occurred during the three
months ended March 31, 2017 that led the Company to believe goodwill was impaired during that period. ASU 2011-8 permits an entity
to evaluate qualitative factors to assess whether impairment is more likely than not to have occurred.
The
Company acquired two related entities during 2015, WRE and Gateway, assigning $1,265,406 and $1,006,897 of Goodwill to the purchase
prices of those entities, respectively. The Company acquired one related entity and one non-related entity during 2016, assigning
$36,053 and $9,609 of goodwill to the purchase prices of those entities, respectively.
Total
Goodwill at March 31, 2017 and December 31, 2016 was $2,317,965. See Note 10, “Acquisitions” for the purchase price
allocations of the businesses acquired during three months ended March 31, 2017 and December 31, 2016.
Reconciliation of Goodwill:
|
|
|
|
Total goodwill at December 31, 2015
|
|
|
2,272,303
|
|
Goodwill assigned to the acquisition of Sivart on May 11, 2016
|
|
|
36,053
|
|
Goodwill assigned to the acquisition of Northeast Data on December 31, 2016
|
|
|
9,609
|
|
Total goodwill at March 31, 2017 and December 31, 2016
|
|
$
|
2,317,965
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Amortizable
Intangible Assets
The
Company has certain intangible assets resulting from business combinations and acquisitions that are recorded at cost. Intangible
assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives.
Intangible assets with finite lives are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
If the estimated undiscounted future cash flows related to the asset are less than the carrying value, the Company recognizes a
loss equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted
future cash flows of the asset. See note 10, “Acquisitions” for details related to the purchase price allocation of
identified definite lived amortizable intangible assets, including customer lists, licenses, permits, and non-compete agreements.
The Company has a customer list that was bought from a related party in 2011, a website built in 2015 and engineering costs as
part of a 10-year permit renewal with the Department of Environmental Protection. The Company purchased two related entities during
2015, one related business and one unrelated business in 2016, assigning a portion of the purchase prices to amortizable intangible
assets, primarily customer lists. See note 4, “Amortizable Intangible Assets” and Note 10, “Acquisitions”.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Consolidated advertising expenses for the three months ended March 31, 2017
and 2016 were $3,832 and $2,800, respectively.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The Company reviews the tax positions taken or expected to be taken on tax returns to
determine whether and to what extent a benefit can be recognized in our consolidated financial statements. To the extent interest
and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts are accrued and classified
as a component of income tax expense. For the three months ended March 31, 2017 and 2016, we did not recognize any accrued interest
or penalties.
The
Company files income tax returns in the United States and Florida, which are subject to examination by the tax authorities in
these jurisdictions, generally for three years after the filing date.
Management
has evaluated tax positions in accordance with FASB ASC 740, Income Taxes, and has not identified any tax positions that require
disclosure.
As
of March 31, 2017, the following tax years are subject to examination:
Jurisdiction
|
|
Open
Three months for Filed Returns
|
Federal
|
|
December
31, 2013 – 2016
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
2 – Significant Accounting Policies (Continued)
Environmental
Remediation Liability
The
Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably
estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion
of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt is deemed probable.
Selling, General and Administrative
Expenses
Business operating costs, including expenses
generated from administration and purchasing functions, are recorded in “Selling, general and administrative expenses”
in the Consolidated Statements of Operations. Business operating costs include items such as wages, benefits, utilities, supplies,
repairs and maintenance, advertising costs and credits, rent, insurance, depreciation not related to equipment used in operations,
amortization of intangible assets, leasehold amortization and costs for outside provided services.
Stock
Issued to Non-Employees for Services Rendered
The Company accounts for stock issued
to non-employees in accordance with the provisions of ASC 505-50, “Equity Based Payments to Non-Employees.” ASC 505-50
states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance
commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).
Earnings
Per-Share
Earnings
per share are based on the weighted-average number of common shares outstanding at each reporting period.
Reclassifications
Certain
reclassifications have been made in prior year balances to conform to the current year presentation. Such reclassifications had
no effect on net income or retained earnings as previously reported.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
3 – Property and Equipment
Property,
plant and equipment and related accumulated depreciation consist of the following at March 31, 2017 and December
31, 2016:
|
|
2017
|
|
|
2016
|
|
Machinery and equipment
|
|
$
|
2,558,563
|
|
|
$
|
2,563,838
|
|
Transportation equipment
|
|
|
2,524,563
|
|
|
|
2,380,394
|
|
Containers
|
|
|
2,028,714
|
|
|
|
1,944,969
|
|
Airspace
|
|
|
865,076
|
|
|
|
865,076
|
|
Buildings
|
|
|
515,595
|
|
|
|
515,595
|
|
Improvements
|
|
|
338,799
|
|
|
|
338,799
|
|
Land
|
|
|
225,000
|
|
|
|
225,000
|
|
Leased equipment
|
|
|
179,620
|
|
|
|
179,620
|
|
Landfill area
|
|
|
72,098
|
|
|
|
72,098
|
|
Leasehold improvements
|
|
|
15,781
|
|
|
|
15,781
|
|
Office furniture and equipment
|
|
|
6,304
|
|
|
|
6,304
|
|
Total Property, plant and equipment
|
|
|
9,330,113
|
|
|
|
9,107,474
|
|
Less: accumulated depreciation
|
|
|
(4,322,527
|
)
|
|
|
(4,166,189
|
)
|
Property, plant and equipment, net
|
|
$
|
5,007,586
|
|
|
$
|
4,941,285
|
|
Depreciation
expense for the three months ended March 31, 2017 and 2016 was $203,427 and $185,554, respectively.
Note
4 – Amortizable Intangible Assets
Intangible
assets consist of the following at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
2017
|
|
|
2016
|
|
|
Period
|
|
Customer list
|
|
$
|
1,681,560
|
|
|
$
|
1,468,608
|
|
|
|
5 Years
|
|
Website costs
|
|
|
5,954
|
|
|
|
5,954
|
|
|
|
3 Years
|
|
Licenses and permits
|
|
|
66,318
|
|
|
|
66,318
|
|
|
|
10 Years
|
|
Non-compete agreements
|
|
|
28,519
|
|
|
|
20,000
|
|
|
|
5 Years
|
|
Less accumulated amortization
|
|
|
(449,939
|
)
|
|
|
(376,621
|
)
|
|
|
|
|
Intangible assets, net
|
|
$
|
1,332,412
|
|
|
$
|
1,184,259
|
|
|
|
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
4 – Amortizable Intangible Assets (Continued)
The
estimated aggregate amortization expense for each of following five years and thereafter as of March 31, 2017 is as follows:
Year Ending
|
|
|
|
2017 (Remaining)
|
|
$
|
242,103
|
|
2018
|
|
|
321,812
|
|
2019
|
|
|
320,819
|
|
2020
|
|
|
320,819
|
|
2021
|
|
|
84,263
|
|
Thereafter
|
|
|
42,596
|
|
Total
|
|
$
|
1,332,412
|
|
Amortization
expense for the three months ended March 31, 2017 and 2016 was $73,318 and $72,597, respectively.
Impairment
expense for the three months ended March 31, 2017 and 2016 and the year ended December 31, 2016 was $0, $0 and $159,977, respectively.
The 2016 impairment charge was due to four of the significant customers originally included in the customer list valuation for
WRE having significantly lower revenues in 2016.
Reconciliation
of Amortizable Intangible Assets:
Reconciliation of amortizable Intangibles
|
|
Customer
Lists
|
|
|
Permits
|
|
|
Non
Compete
|
|
|
Website
|
|
|
Total
|
|
Balance at December 31, 2015, net
|
|
$
|
1,340,889
|
|
|
$
|
65,502
|
|
|
$
|
-
|
|
|
|
6,962
|
|
|
$
|
1,413,353
|
|
Acquisition of Sivart on May 11, 2016
|
|
|
79,547
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
89,547
|
|
Acquisition of Northeast on December 31, 2016
|
|
|
135,165
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
145,165
|
|
Website discount from vendor
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Amortization expense
|
|
|
(293,546
|
)
|
|
|
(4,965
|
)
|
|
|
(1,333
|
)
|
|
|
(1,985
|
)
|
|
|
(301,829
|
)
|
Impairment charge for WRE Customer list
|
|
|
(159,977
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159,977
|
)
|
Balance at December 31, 2016, net
|
|
$
|
1,102,078
|
|
|
$
|
60,537
|
|
|
$
|
18,667
|
|
|
|
2,977
|
|
|
$
|
1,184,259
|
|
Acquisition of Burt’s Refuse on February 28, 2017
|
|
|
212,953
|
|
|
|
-
|
|
|
|
8,518
|
|
|
|
-
|
|
|
|
221,471
|
|
Amortization expense
|
|
|
(70,439
|
)
|
|
|
(1,241
|
)
|
|
|
(1,142
|
)
|
|
|
(496
|
)
|
|
|
(73,318
|
)
|
Balance at March 31, 2017, net
|
|
$
|
1,244,592
|
|
|
$
|
59,296
|
|
|
$
|
26,043
|
|
|
|
2,481
|
|
|
$
|
1,332,412
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
5 – Commitments and Contingencies
General
During
the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation,
it evaluates the merits of the case in accordance with ASC 450, Contingencies. The Company evaluates its exposure to the
matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an
unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies
held by the Company may reduce the cash outflows with respect to an adverse outcome of certain of these litigation matters.
Landfill
Related Environmental Remediation
The
Company currently operates a fully licensed landfill under approval by the Florida Department of Environmental Protection. As
such, the company has set up a reserve allowance of $324,950 against estimated future closing costs. As of December 31, 2016,
the Florida Department of Environmental Protection has approved the secured letter of credit cash reserve of $324,950 set aside
by the Company at March 31, 2017 and December 31, 2016, respectively, to be in compliance with the financial assurance requirements
for long term care cost of the facility. It is reasonably possible that the recorded estimate of the obligation may change in
the near term.
Concentrations
of Revenues and Receivables
As
discussed in Note 8, “Related Party Transactions,” during the three months ended March 31, 2017 and 2016, approximately
10% and 12% of the Company’s revenues were generated from a related party, respectively. As of March 31, 2017 and December
31, 2016, 7% and 16% of consolidated accounts receivable were due from a related party, respectively.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
6 – Long-Term Debt
Detail
of non-related party long term debt:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Notes payable to various banks, to finance various equipment purchases, payable in monthly installments of between $1,187 and $10,107, with interest rates ranging from 2.39% to 9.63%, maturing from December 30, 2017 through November 2022
|
|
$
|
778,731
|
|
|
$
|
476,340
|
|
Less current maturities of long-term debt
|
|
|
(213,988
|
)
|
|
|
(155,889
|
)
|
Long-term debt, net of current portion
|
|
$
|
564,743
|
|
|
$
|
320,451
|
|
The
aggregate annual maturities of non-related party long-term debt are as follows:
Period Ended December 31:
|
|
|
|
2017 (
Remaining
)
|
|
|
165,269
|
|
2018
|
|
|
206,996
|
|
2019
|
|
|
213,369
|
|
2020
|
|
|
93,795
|
|
2021
|
|
|
73,522
|
|
Thereafter
|
|
|
25,780
|
|
Total
|
|
$
|
778,731
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
7 – Capital Leases
During
2014, the Company purchased equipment under a capital lease obligation. The lease is payable in 60 monthly payments of $3,750,
beginning December 20, 2014, maturing December 20, 2019. The capital lease is collateralized by the equipment purchased. The capital
lease is personally guaranteed by the Chairman and CEO of the Company.
Following
is a breakdown of the capital lease obligation as of March 31, 2017 and December 31, 2016:
|
|
March
31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Capital
lease to purchase equipment
|
|
$
|
92,305
|
|
|
$
|
99,279
|
|
Less
current portion of capital lease obligations:
|
|
|
(31,035
|
)
|
|
|
(29,753
|
)
|
Long-term
capital lease obligations, net of current portion
|
|
$
|
61,270
|
|
|
$
|
69,526
|
|
Minimum
future lease payments under the capital leases as of March 31, 2017 are as follows:
Period Ending December 31:
|
|
|
|
2017
(Remaining)
|
|
$
|
33,752
|
|
2018
|
|
|
45,003
|
|
2019
|
|
|
37,604
|
|
Total minimum lease
payments
|
|
$
|
116,359
|
|
Less
amount representing interest expense
|
|
|
(24,045
|
)
|
Present
value of minimum lease payments
|
|
$
|
92,305
|
|
Less
current portion of minimum lease payments
|
|
|
(31,035
|
)
|
Long-term
capital lease obligations at March 31, 2017
|
|
$
|
61,270
|
|
The
following is a summary of leased assets included in machinery and equipment as of March 31, 2017 and December 31, 2016:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Leased Equipment
|
|
$
|
179,620
|
|
|
$
|
179,620
|
|
Less accumulated depreciation
|
|
|
(80,829
|
)
|
|
|
(71,848
|
)
|
Net leased assets
|
|
$
|
98,791
|
|
|
$
|
107,772
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
8 – Related Party Transactions
Related
Party Sales and Accounts Receivable
The
Company generates a portion of its revenue from a related entity transfer station, owned by the majority shareholder of the Company.
This related entity uses the Company’s landfill (Sand/Land) as its primary source of disposal for construction and demolition
debris. Sand/Land also trucks the disposal costs from the Company’s site, either directly or through a third party and bills
the Company accordingly for trucking services. Total revenue generated from the related entity during the three months ended March
31, 2017 and 2016 were $167,618 and $181,535 or 10% and 12% of total consolidated revenue, respectively. Total related party accounts
receivable as of March 31, 2017 and December 31, 2016 related to these sales were $50,780 and $93,450, respectively, or 7% and
16% of total net accounts receivable, respectively.
Gateway
disposes a portion of its construction and debris collected in the related entities transfer station. Total expenses incurred
from the related entity during the three months ended March 31, 2017 and 2016, were $36,183 and $34,779 respectively. Total related
party accounts payable due to the related entity as of March 31, 2017 and December 31, 2016 were approximately $24,000 and $21,000,
respectively.
Related
Party Shareholder Loan
The
Company had a note due the largest shareholder of the Company. This note was unsecured, had a maturity date of December 31, 2016
and carried a 1% interest rate. On January 1, 2016, the Note was converted to Series B, 10% cumulative preferred stock and the
note was cancelled. The total converted debt was $2,000,000. Total related party Series B preferred stock outstanding at March
31, 2017 and December 31, 2016 was $2,000,000. Total related party accrued dividends at March 31, 2017 and December 31, 2016 were
$250,000 and $200,000 respectively.
Related
Party Acquisitions
On
December 31, 2016, the Company closed on the acquisition of Northeast Data Destruction and Recycling, LLC (“Northeast Data”).
This acquired entity was owned 50% by the majority shareholder of the Company prior to the acquisition. A second, non-related
party owner owned the second 50% of the acquired entity. Northeast was acquired for $100,000 in cash and 1,425,000 shares of the
Company’s restricted common stock. The majority shareholder of the Company received only restricted common stock consideration
of 1,025,000 shares and the second Member of the acquired LLC received 400,000 shares of the Company’s restricted common
stock and $100,000 cash. The restricted common stock was valued at $0.077 per share, equivalent with the closing price of the
quoted market price of NWMH on December 30, 2016, the last trading business day of 2016. Total consideration paid for the acquisition
was $209,725, including the $100,000 cash payment and $109,725 in restricted common stock. See note 10, “Acquisitions”
for further information related to the acquisitions and the purchase price allocation for acquired entity.
Related
Party Consulting Agreement
The
Chairman of the Board is a consultant for the Company and meets with each subsidiary general manager on a regular basis, consulting
on matters such as acquisitions and integration, growth plan objectives, operating effectiveness, organization structure, and
equipment and financing requirements, among other matters. Total related party consulting expenses incurred and paid to the Chairman
for the three months ended March 31, 2017 and 2016 was $33,000 and $23,000, respectively.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL
STATEMENTS
Note
8 – Related Party Transactions (Continued)
Related
Party Consolidated Workers Compensation Policy and Receivables Due from Related Party Transfer Station for Advances and Expenses
Paid on Behalf of the Transfer Station
The
Company has a consolidated workers compensation policy with a related entity transfer station company (the “Transfer Station”).
The related party receivable for the workers compensation payments at March 31, 2017 and December 31, 2016 were $4,985 and $2,279,
respectively. The Company loaned the Transfer Station $8,400 for equipment purchase needs in 2014. The receivable carries 0% interest.
The balance of the related party receivable was $8,400 at March 31, 2017 and December 31, 2016. The Company engaged an appraiser
for the Transfer Station, which Sandland paid for on behalf of the Transfer Station; $6,075 is due from the related party at March
31, 2017 for the appraisal. Total due from the Related Entity related to the equipment advance, workers compensation consolidated
policy and the appraisal costs at March 31, 2017 and December 31, 2016 were $19,460 and $16,754, respectively.
Note
9 – Stockholders’ Deficit
Shares
issued to Strategic for Expenses, Deposits and Acquisitions paid for on Behalf of the Company:
At
December 31, 2015, the Company had an amount payable due to Strategic Capital Markets, LLC, a previous Financier of the Company
who paid public company professional fees on behalf of the Company and assisted in financing acquisitions. The amount due the
Company as of December 31, 2015 was $592,829 which was settled for 592,829 shares of the Company’s restricted common stock
($1 per share conversion) during the three months ended March 31, 2016.
Shares
granted to independent board of director members for services:
During the three months ended March 31,
2017, the Company granted two-independent members of the Board of Directors a total of 25,000 shares of the Company’s restricted
common stock valued at $2,421. Currently, the Company grants each independent director 12,500 shares of the Company’s common
stock quarterly, valued based on the 10-day moving average of the stock price at the end of the related quarter.
Shares
issued to consultant for professional fees:
The
Company entered into an agreement with a consulting firm for investor relation services throughout a 12-month period, from May
10, 2016 through May 9, 2017. A total of 400,000 restricted common shares were granted and distributed to that firm during the
year ended December 31, 2016. The granted shares were valued based on the value of the stock on the date of grant, May 10, 2016
of $0.13. The total value of the shares issued was approximately $53,000, amortized monthly over the term of the contract. The
Company subsequently cancelled this contract and settled with the vendor to return 200,000 shares of the restricted common stock
issued. Total expenses incurred for this contract were $26,300 and restricted common stock valued at approximately $26,300 was
returned and common shares outstanding were reversed by 200,000 during the three months ended March 31, 2017.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
9 – Stockholders’ Deficit (Continued)
Shares
subscribed during the three months ended June 30, 2016:
During
the three months ended March 31, 2016, the Company incurred amounts due to a related entity for expenses paid on behalf of the
Company by the related entity and for payment of the short-term acquisition note paid on behalf of the Company by the related
entity as part of the WRE acquisition, totaling $250,000 during January 2016. The $250,000 acquisition note with WRE was settled
for $1 per share of the Company’s stock for a total of 250,000 subscribed shares of the Company’s restricted common
stock. The Company settled $112,154 of expenses paid by the third party for expenses incurred by the Company during the period
from January 1, 2016 through March 31, 2016, primarily for professional fees for $0.50 per share subscribed, or 224,308 subscribed
shares of the Company’s restricted common stock. All shares subscribed due to Strategic as of March 31, 2016 were issued
during the three months ended June 30, 2016.
Preferred
Stock
Related
Party Series A Preferred Stock, No Par Value:
During
May 2015, the Company amended the Articles of Incorporation to authorize 10,000,000 shares of the Company’s Series A preferred
stock, no par value per share. On September 17, 2015, the Company issued one share of Series A Preferred Stock, no par value,
to the Company’s Chairman of the Board. As a holder of the outstanding shares of Series A Preferred Stock, the Chairman
is entitled to voting power equivalent to the number of votes equal to the total number of the Company’s common stock outstanding
as of the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company and
entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Company.
Related
Party Series B, 10% Cumulative Preferred Stock, No Par Value:
On
January 1, 2016, the Company’s Board of Directors approved 10,000,000 shares of Series B, 10%, cumulative preferred stock
and $2,000,000 of Shareholder debt was converted into 10,000 shares of the Series B, 10% cumulative preferred stock. During the
three months and year ended March 31, 2017 and December 31, 2016, $50,000 and $200,000 of dividends were accrued, respectively,
but not paid to the holder. Total related party accrued dividends at March 31, 2017 and December 31, 2016 were $250,000 and $200,000,
respectively.
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
Note
10 – Acquisitions
Acquisition
of Business – Unrelated Entity – Three Months Ended March 31, 2017
On
February 28, 2017, the Company purchased a garbage hauler and roll-off business, servicing both commercial and residential customers
in Upstate New York, incorporating it into WRE’s operations. The business was purchased for $420,000.
Operations
subsequent to February 28, 2017 are included in the accompanying consolidated financial statements. The purchase price of $420,000
included a $270,000, 5 year, 6% owner financed note, collateralized by a portion of the equipment acquired and a $150,000 cash
payment. The acquisition has been accounted for using the purchase method of accounting; the $420,000 purchase was allocated as
follows:
Assets
|
|
|
|
Property and Equipment
|
|
|
|
|
Transportation equipment
|
|
$
|
95,000
|
|
Containers
|
|
|
83,745
|
|
Total property and equipment
|
|
|
178,745
|
|
Amortizable intangible assets
|
|
|
|
|
Customer list
|
|
|
212,953
|
|
5 year non-compete agreement
|
|
|
8,518
|
|
Total amortizable intangible assets
|
|
|
221,471
|
|
Deferred tax assets
|
|
|
19,784
|
|
Total purchase price
|
|
$
|
420,000
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL
STATEMENTS
Note 10 – Acquisitions (Continued)
Acquisition
of Business – Unrelated Entity - 2016
On
May 11, 2016, the Company purchased a business in Upstate New York, incorporating it into WRE’s operations. The business
was purchased for $230,000.
Assets
|
|
|
|
Property and Equipment
|
|
$
|
104,400
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer list
|
|
|
79,547
|
|
5 year, 100 miles non-compete agreement
|
|
|
10,000
|
|
Goodwill
|
|
|
36,053
|
|
Total goodwill and intangible assets
|
|
|
125,600
|
|
Total purchase price
|
|
$
|
230,000
|
|
Related
Party Acquisitions - Fiscal Year Ended December 31, 2016
Northeast
Data Destruction and Recycling, LLC (Northeast Data)
On
March 31, 2016, the Company acquired Northeast Data, an entity that was 50% owned by the majority shareholder of the Company.
Northeast Data offers document shredding and destruction, hard-drive shredding, and cardboard recycling services. The Company’s
primary operations are in Kingston, NY. The operations of this acquisition were tucked in to WRE operations and extend the service
offerings of WRE to Kingston, NY. WRE will also begin to offer document and hard-drive destruction services in the Kingston area.
See
the table below summarizing the purchase price paid to the related party owner and the second, non-related party entity:
Party
|
|
Cash
|
|
|
Restricted
Common Shares
|
|
|
Value
Assigned to Shares ($0.077/share)
|
|
|
Total
Purchase Price
|
|
Majority Shareholder – 50% owner
|
|
$
|
-
|
|
|
|
1,025,000
|
|
|
$
|
78,925
|
|
|
$
|
78,925
|
|
Non-related entity - 50% owner
|
|
|
100,000
|
|
|
|
400,000
|
|
|
|
30,800
|
|
|
|
130,800
|
|
Total
|
|
$
|
100,000
|
|
|
|
1,425,000
|
|
|
$
|
109,725
|
|
|
$
|
209,725
|
|
NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
UNAUDITED CONSOLIDATED NOTES TO THE
FINANCIAL STATEMENTS
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions - Fiscal Year Ended December 31, 2016 (Continued)
Northeast
Data Destruction and Recycling, LLC (Northeast Data)
(Continued)
Operations
on and after December 31, 2016 are included in the accompanying consolidated financial statements. The acquisition has been accounted
for using the purchase method of accounting. The purchase price of $209,725 was allocated as follows:
Property and Equipment
|
|
|
|
Transportation equipment
|
|
$
|
42,000
|
|
Machinery and Equipment
|
|
|
64,500
|
|
Containers
|
|
|
32,000
|
|
Total property and equipment
|
|
|
138,500
|
|
Deferred tax Assets
|
|
|
14,360
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer relationships
|
|
|
135,165
|
|
Non-compete agreement
|
|
|
10,000
|
|
Goodwill
|
|
$
|
9,609
|
|
Total goodwill and intangible assets
|
|
|
154,774
|
|
|
|
|
|
|
Assumed Debt
|
|
|
(59,057
|
)
|
Deferred tax liability
|
|
|
(38,852
|
)
|
Total consideration for acquisition
|
|
$
|
209,725
|
|
The following pro-forma financial results
reflect the historical operating results of acquired entities from the period from January 1, 2016 presenting the three months
ended March 31, 2017. No adjustments have been made for synergies that may result from the acquisition. These combined results
are not necessarily indicative of the results that may have been achieved had the companies been combined as of such dates or
periods, or of the Company’s future operations.
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Revenues
|
|
$
|
1,766,453
|
|
|
$
|
1,762,702
|
|
Net
income (loss) from continuing operations
|
|
|
(161,423
|
)
|
|
|
72,344
|
|
Net
income (loss)
|
|
|
(142,676
|
)
|
|
|
(12,876
|
)
|
Net
income (loss) attributable to common shareholders
|
|
|
(192,676
|
)
|
|
|
(62,876
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share – basic and diluted
|
|
$
|
(0.002
|
)
|
|
$
|
(0.001
|
)
|
Weighted
average shares outstanding – basic and diluted
|
|
|
69,060,716
|
|
|
|
65,568,229
|
|