UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

or

 

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

 

For the transition period from _____to_____.

 

Commission File Number 000-54307

 

National Waste Management Holdings, Inc.

(Exact name of small business issuer as specified in its charter)

 

FLORIDA   27-2037711
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

5920 N. Florida Avenue

Hernando, FL 34442

(Address of principal executive offices)

 

(352) 489-6912

(Company’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

 

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

The Company has 67,644,049 shares outstanding as of November 14, 2016.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
  PART I — Financial Information  
Item 1. Consolidated Financial Statements (unaudited) 1-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23-26
Item 3. Quantitative  and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
     
  PART II — Other Information  
Item 1. Legal Proceedings 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Mine Safety Disclosures 28
Item 5. Other Information 28
Item 6. Exhibits 28
  Signatures 29

 

 

 

 

PART I – FINANCIAL INFORMATION

 

NATIONAL WASTE MANAGEMENT HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

 

Index to Consolidated Financial Statements

 

  PAGE
   
Unaudited Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 2
   
Unaudited Consolidated Statements of Operations for the Nine Months and Three Months Ended September 30, 2016 and 2015 3
   
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 4
   
Unaudited Consolidated Notes to the Financial Statements 5-22

 

 1 

 

 

NATIONAL WASTE MANAGEMENT HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2016 AND DECEMBER 31, 2015

 

  2016   2015 
Assets        
         
Current assets:        
Cash and cash equivalents  $451,752   $344,365 
Accounts receivable, net    647,710    570,347 
Prepaids and other current assets   88,783    38,362 
Due from related party    54,473    54,473 
           
Total current assets   1,242,718    1,007,547 
           
Property and equipment, net   4,794,190    5,041,280 
           
Other assets:          
Goodwill   2,215,236    2,179,183 
Intangible assets, net    1,275,813    1,413,353 
Secured letter of credit    324,950    324,950 
Deferred tax asset    7,082    53,662 
Other deposits    13,698    8,750 
           
Total other assets   3,836,779    3,979,898 
           
Total assets  $9,873,687   $10,028,725 
Liabilities and Stockholder's Equity (Deficit)          
Current liabilities:           
Accounts payable and accrued expenses  $514,152   $261,199 
Current portion of long term debt   140,061    184,932 
Current portion of capital lease obligations   28,523    25,131 
Due to related party    128,996    742,441 
Short term related party acquisition notes   -    350,000 
Accrued preferred stock dividends   150,000    - 
          
Total current liabilities   961,732    1,563,703 
           
Long-term liabilities:           
Long term debt, net of current portion   313,274    419,073 
Capital lease obligations, net of current portion   81,091    102,929 
Environmental remediation obligation   424,596    424,596 
Loan from shareholder    -    2,017,301 
Long term deferred tax liability   70,221    70,221 
           
Total liabilities  $1,850,914   $4,597,823 
           
Commitments and contingencies (see note 5)          
           
Stockholders' equity (deficit):          
Common stock, no par value; 250,000,000 shares authorized, 67,631,549 and 62,880,483 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively  $-   $- 
Series A Preferred stock, no par value; 10,000,000 shares authorized, 1 share and 0 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively   -    - 
Series B Preferred stock, no par value; 10,000,000 shares authorized, 10,000 shares and 0 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively   2,000,000    - 
Additional paid-in capital   6,630,964    2,456,136 
Common stock subscribed   (24,909)   3,150,000 
Retained earnings (deficit)   (583,282)   (175,234)
           
Total stockholders' equity   8,022,773    5,430,902 
           
Total liabilities and stockholders' equity  $9,873,687   $10,028,725 

 

See the notes to the consolidated financial statements

 2 

 

 

NATIONAL WASTE MANAGEMENT HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

   Nine Months Ended September 30, 2016   Nine Months Ended September 30, 2015   Three Months Ended September 30, 2016   Three Months Ended September 30, 2015 
                 
Revenues  $4,889,453   $1,349,824   $1,771,819   $479,698 
                     
Cost of revenues   2,509,432    661,622    612,057    216,083 
                     
Gross profit   2,380,021    688,202    1,159,762    263,615 
                     
Selling, general and administrative expenses   2,288,794    380,775    1,121,928    147,475 
                     
Income from operations   91,227    307,427    37,834    116,140 
                     
Other income (expenses):                    
Interest expense   (50,239)   (23,705)   (14,467)   (4,085)
Write off of landfill deposits   (72,473)   -    -    - 
Write off of other deposits   (18,500)   -    -    - 
Gain (loss) on disposition of assets   (12,345)   -    (12,345)   - 
Other expenses   -    (4,807)   -    - 
Total other income (expenses)   (153,557)   (28,512)   (26,812)   (4,085)
                     
Income (loss) before income taxes   (62,330)   278,915    11,022    112,055 
                     
Income tax expense (benefit)   195,719    94,045    221,952    30,301 
                     
Net income (loss)  $(258,049)  $184,870   $(210,930)  $81,754 
                     
Net income (loss) per common share:                    
Basic  $(0.004)  $0.003   $(0.003)  $0.001 
Diluted  $(0.004)  $0.003   $(0.003)  $0.001 
                     
Weighted average number of shares outstanding:                    
Basic   66,541,662    60,126,602    67,244,947    60,269,156 
Diluted   66,541,662    60,126,602    67,244,947    60,269,156 

 

See the notes to the consolidated financial statements

 

 3 

 

 

NATIONAL WASTE MANAGEMENT HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

   Nine Months   Nine Months 
   Ended September 30,   Ended September 30, 
   2016   2015 
Cash flow from operating activities:        
Net income (loss)  $(258,049)  $184,870 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization expenses   793,394    122,064 
Non-cash professional expenses   99,624    146,682 
Non cash write off of acquisition deposits   50,000    - 
Loss (gain) on disposition of assets   12,345    - 
Non-cash salaries and wages   11,850    - 
Bad debt expense   -    (81,761)
Non-cash interest expense   -    5,533 
(Increase) decrease in assets:          
Accounts receivable, net   (77,363)   (29,786)
Other current assets   (50,421)   (6,325)
Deposits   (4,948)   8,662 
(Decrease) increase in liabilities:          
Accounts payable and accrued expenses   237,653    46,125 
Related party accrued interest   -    94,045 
Deferred tax assets and liabilities, net   46,580    - 
Net cash provided by operating activities  $860,665   $490,109 
           
Cash flows from investing activities:          
Acquisition of business   (230,000)   - 
Purchases of property and equipment   (252,162)   (35,594)
Cash proceeds from sale of assets   23,000    - 
Purchases of intangible assets   -    (24,272)
Net cash used in investing activities  $(459,162)  $(59,866)
           
Cash flows from financing activities:          
Payments on long term debt   (150,670)   - 
Payments on short term acquisition note   (100,000)   - 
Payments on related party payables   (25,000)   - 
Payments on capital lease obligation   (18,446)   (15,581)
Payments on loan from shareholder   -    (51,790)
Net cash provided by (used in) financing activities  $(294,116)  $(67,371)
           
Net increase (decrease) in cash  $107,387   $362,872 
Cash, beginning of period   344,365    108,642 
Cash, end of period  $451,752   $471,514 
           
Supplemental disclosure of cash flow information:          
Cash paid during the year for interest  $50,239   $19,988 
Cash paid during the year for income taxes  $-   $- 
           
Supplemental schedule of non-cash activities:          
Issuances of shares subscribed  $3,150,000   $- 
Short term acquisition note paid on behalf of Company by a related party  $250,000   $- 
Settlement of amounts due to related party for restricted common stock  $704,983   $- 
Conversion of shareholder debt to 10% cumulative preferred stock  $2,000,000   $- 
Conversion of shareholder debt to non-interest bearing accrued short term payable (remaining difference from Prefeerred Conversion of Shareholder Debt)  $17,301   $- 
Preferred stock dividends accrued, not paid  $150,000   $- 
Issuance of shares for professional services  $-   $6,200 
Issuances of shares subscribed for deposit on landfill  $-   $225,000 
Issuances of shares subscribed for professional services  $-   $146,682 

 

See the notes to the consolidated financial statements

 4 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 1 – Business Organization

 

These financial statements represent the financial statements of National Waste Management Holdings, Inc. (“NWMH”) and its wholly owned operating subsidiaries, Sand/Land of Florida Enterprises, Inc. (“Sand/Land”), Waste Recovery Enterprises, LLC (“WRE”) and Gateway Rolloff Services, LP (“Gateway”). NWMH, Sand/Land, WRE and Gateway are collectively referred to herein as the “Company”. The Company changed its name from Kopjaggers, Inc. to National Waste Management Holdings, Inc. effective October 31, 2014.

 

On June 16, 2014, pursuant to a share exchange agreement, NWMH merged with Sand/Land, a Florida corporation formed as a S-Corporation under the laws of the State of Florida on August 15, 1986, in which the existing stockholders of Sand/Land exchanged all of their issued and outstanding shares of common stock for 9,490,000 shares of common stock of NWMH (the “Reverse Merger”). After the consummation of the Reverse Merger, stockholders of Sand/Land owned 47.45% of NWMH’s outstanding common stock.

 

As a result of the Reverse Merger, Sand/Land became a wholly owned subsidiary of NWMH. For accounting purposes, the Reverse Merger was treated as a reverse acquisition with Sand/Land as the acquirer and NWMH as the acquired party.

 

WRE and Gateway were related party acquisitions. They were acquired on October 15, 2015 and December 1, 2015, respectively. See Notes 8 and 10, “Related Party Transactions” and “Acquisitions”, respectively.

 

Sand/Land is a solid waste management company headquartered in Central Florida, currently operating a licensed Construction & Demolition landfill. The Company’s primary operations are based near Tampa, Florida.

 

WRE is a waste management company that offers trash collection services, roll-off services and a full-service transfer station. The Company also offers wood grinding, demolition, mulch and gravel services. The Company’s primary operations are based near Binghamton, New York. The Company was founded in 1998 and principally serves the northeastern U.S. industrial and residential markets.

 

Gateway offers commercial and residential dumpster service and roll-off boxes for construction and 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, Florida.

 

The Company, as a consolidated entity, is a full service solid waste management company headquartered near Tampa, Florida with operations in Florida and New York.

 

Basis of Presentation

 

The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Consolidated financial statements include the operations of Sand/Land, WRE and Gateway, together, NWMH.

 

 5 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 2 – Significant Accounting Policies (Continued)

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

For certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, advances payable and notes payable, the carrying amounts approximate fair value due to their relatively short maturities and associated market interest rates.

 

The Company adopted ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
     
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
   
  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company did not identify any non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC 815.

 

In February 2007, the FASB issued ASC 825-10 “Financial Instruments.” ASC 825-10 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.

 

The carrying amounts of current assets and current liabilities approximate fair value due to the short maturity of these items. The carrying amounts of long-term debt, capital leases and preferred stock approximate fair value due to the interest rates and dividend yields associated with such instruments. 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.

 

 6 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 2 – Significant Accounting Policies (Continued)

 

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.

 

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 September 30, 2016 and December 31, 2015, the allowance for doubtful accounts was approximately $20,000 and $20,000, respectively. Consolidated bad debt expense recognized for the nine months ended September 30, 2016 and 2015 was $4,021 and ($81,761), respectively. The negative bad debt expense balance at September 30, 2015 was due to the allowance being overstated at September 30, 2015 and requiring adjustment. Consolidated bad debt expense for the three months ended September 30, 2016 and 2015 was $408 and $762, respectively.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized as other 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 

 

 7 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 2 – Significant Accounting Policies (Continued)

 

Property, Plant and Equipment (Continued)

 

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.

 

Impairment of Long-Lived Assets and Amortizable Intangible Assets

 

The Company follows ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Through September 30, 2016, the Company has not experienced impairment losses on its long-lived assets or intangible assets.

 

Goodwill

 

Goodwill consists of the excess of cost over identifiable net tangible and intangible assets of companies acquired. In accordance with the Accounting Standards Codification (“ASC”) 350, “Intangibles-Goodwill and Other,” the carrying amount of goodwill and intangible assets is to be reviewed at least annually for impairment, and losses in value, if any, will be charged to operations in the period of impairment. Goodwill was determined to not be impaired as of September 30, 2016. The test for impairment was done in accordance with guidance in Accounting Standards Update (ASU) 2011-8 for the year ended December 31, 2015. ASU 2011-8 permits an entity to evaluate qualitative factors to assess whether impairment is more likely than not to have occurred.

 

The Company acquired two related entities during 2015, WRE and Gateway, assigning $1,238,173 and $941,010 of Goodwill to the purchase prices of those entities, respectively. During the nine months ended September 30, 2016, the Company acquired a company for $230,000 and assigned $36,053 to goodwill based on the acquisition purchase price allocation. Total Goodwill at September 30, 2016 and December 31, 2015 was $2,215,236 and $2,179,183, respectively. See Note 10, “Acquisitions” for the purchase price allocation of the business.

 

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.

 

 8 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 2 – Significant Accounting Policies (Continued)

 

Intangible Assets (Continued)

 

Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash flows of the asset. See note 10, “Acquisitions” for details related to the purchase price allocation of identified definite lived amortizable intangible assets, including customer lists, licenses, permits, non-compete agreements and trademarks. The Company has a customer list that was bought from a related party in 2011, a website built in 2015 and engineering costs as part of a 10-year permit renewal with the Department of Environmental Protection. The Company purchased two related entities during 2015 and one unrelated business in 2016, assigning a portion of the purchase price to amortizable intangible assets, primarily customer lists to the purchases accordingly. See note 4, “Intangible Assets” and Note 10, “Acquisitions.”

 

Advertising Costs

 

The Company expenses all advertising costs as incurred. Consolidated advertising expenses for the nine months ended September 30, 2016 and 2015 were $6,405 and $2,674, respectively. The consolidated advertising expenses for the three months ended September 30, 2016 and 2015 were $3,605 and $2,302, respectively.

 

Income Taxes

 

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company reviews the tax positions taken or expected to be taken on tax returns to determine whether and to what extent a benefit can be recognized in our consolidated financial statements. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts are accrued and classified as a component of income tax expense. For the nine and three months ended September 30, 2016 and 2015, we did not recognize any accrued interest or penalties.

 

The Company files income tax returns in the United States and Florida, which are subject to examination by the tax authorities in these jurisdictions, generally for three years after the filing date.

 

Management has evaluated tax positions in accordance with FASB ASC 740, Income Taxes, and has not identified any tax positions that require disclosure.

 

As of September 30, 2016, the following tax years are subject to examination:

 

Jurisdiction  Open Years for Filed Returns
Federal  December 31, 2013 – 2015

 

 9 

 

 

National Waste Management Holdings, Inc.

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.

 

Operating, General and Administrative Expenses

 

Business operating costs including expenses generated from administration and purchasing functions, are recorded in “Operating, general and administrative expenses” in the Consolidated Statements of Operations. Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, depreciation not related to equipment used in operations, amortization of intangible assets, leasehold amortization and costs for outside provided services.

 

Stock Issued to Non-Employees for Services Rendered

 

The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

 

Earnings Per-Share

 

Earnings per share are based on the weighted-average number of common shares outstanding at each reporting period.

 

Reclassifications

 

Certain reclassifications have been made in prior year balances to conform to the current year presentation. Such reclassifications had no effect on net income or retained earnings as previously reported.

 

 10 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 3 – Property, Plant and Equipment

 

Property, plant and equipment and related accumulated depreciation consist of the following at September 30, 2016 and December 31, 2015:

 

   2016   2015 
Machinery and equipment   2,483,381    2,467,328 
Transportation equipment   2,297,580    2,238,398 
Containers   1,783,254    1,552,974 
Airspace   865,076    865,076 
Buildings   515,595    505,625 
Improvements   338,799    338,799 
Land   225,000    225,000 
Leased equipment   179,620    179,620 
Landfill area   72,098    72,098 
Office furniture and equipment   4,186    5,771 
Total Property, plant and equipment   8,764,589    8,450,689 
Less: accumulated depreciation   (3,970,399)   (3,409,409)
Property, plant and equipment, net  $4,794,190   $5,041,280 

 

Depreciation expense for the nine months ended September 30, 2016 and 2015 was $375,992 and $71,198, respectively. Depreciation expense for the three months ended September 30, 2016 and 2015 was $190,438 and $39,736, respectively.

 

Note 4 – Amortizable Intangible Assets

 

Intangible assets consist of the following at September 30, 2016 and December 31, 2015:

 

           Amortization 
   2016   2015   Period 
Customer list  $1,493,419   $1,413,872    5 years 
Website costs   5,954    7,954    3 years 
Licenses and permits   66,318    66,318    10 years 
Non-compete agreement   10,000    -    5 years 
Less accumulated amortization   (299,878)   (74,791)     
Intangible assets, net  $1,275,813   $1,413,353      

 

 11 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 4 – Amortizable Intangible Assets (Continued)

 

The estimated aggregate amortization expenses for the three remaining months ended December 31, 2016 and for each of following four years and thereafter ended December 31, are as follows:

 

Period Ended September 30, 2016    
2016 (remaining)   78,036 
2017   289,471 
2018   288,479 
2019   287,486 
2020   287,486 
Thereafter   44,855 
Total   1,275,813 

 

Amortization expense for the nine months ended September 30, 2016 and 2015 was $225,087 and $14,692, respectively. Amortization expense for the three months ended September 30, 2016 and 2015 was $76,908 and $5,611, respectively.

 

Note 5 – Commitments and Contingencies

 

General

 

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies held by the Company may reduce the cash outflows with respect to an adverse outcome of certain of these litigation matters.

 

Landfill Related Environmental Remediation

 

The Company currently operates a fully licensed landfill under approval by the Florida Department of Environmental Protection. As such, the company has set up a reserve allowance of $424,596 against estimated future closing costs. As of December 31, 2013, the Florida Department of Environmental Protection has approved the secured letter of credit cash reserve of $324,950 set aside by the Company at September 30, 2016 and December 31, 2015, 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 nine months ended September 30, 2016 and 2015, approximately 11% and 34% of the Company’s revenues were generated from a related party, respectively. During the three months ended September 30, 2016 and 2015, approximately 10% and 37% of the Company’s revenues were generated from a related party, respectively. As of September 30, 2016 and December 31, 2015, 16% and 16% of consolidated accounts receivable were due from a related party, respectively.

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 6 – Long-Term Debt

 

Detail of non-related party long term debt:

 

   2016   2015 
Notes payable to various banks, to finance various equipment purchases, payable in monthly installments of between $646 and $10,107, with interest rates ranging from 2.39% to 9.63%, maturing from September 30, 2016 through December 28,2020  $453,335   $604,005 
Less current maturities of long-term debt   (140,061)   (184,932)
Long-term debt, net of current portion  $313,274   $419,073 

 

The aggregate annual maturities of non-related party long-term debt are as follows:

 

Period Ended September 30:    
2016 (Remaining)  $36,060 
2017   140,035 
2018   126,212 
2019   127,907 
2020   23,121 
Total  $435,335 

 

Related Party Shareholder Loan

 

The Company had a note due to the largest shareholder of the Company as of December 31, 2015. This note was unsecured, had a maturity date of December 31, 2016 and carried a 1% interest rate. On approximately January 1, 2016, the Note was converted to 10% cumulative preferred stock and the Note was cancelled. The total converted debt was $2,000,000. The balance of the note as of September 30, 2016 and December 31, 2015 was $0 and $2,017,301, respectively. The residual balance of $17,301 that was not converted, was reclassified to a short term, unsecured, non-interest bearing related party payable, included with due to related party on our consolidated balance sheet. Total related party preferred stock was $2,000,000 and $0 as of September 30, 2016 and December 31, 2015, respectively. Total related party accrued dividends at September 30, 2016 and December 31, 2015 were $150,000 and $0, respectively.

 

On October 15, 2015, the Company acquired a related entity that was 50% owned by the largest shareholder of the Company. As part of that acquisition, the Company acquired a shareholder note owed to the same majority shareholder of the Company. The balance of the note, including accrued interest on the acquisition date was $1,512,753. As discussed above, $1,500,000 of this total was converted to Preferred Stock on approximately January 1, 2016.

 

 13 

 

 

National Waste Management Holdings, Inc.

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 our capital lease obligation as of September 30 and December 31:

 

   2016   2015 
Capital lease to purchase equipment  $109,614   $128,060 
Less current portion of capital lease obligations:   (28,523)   (25,131)
Long-term capital lease obligations, net of current portion  $81,091   $102,929 

 

Future minimum lease payments under the lease as of September 30, 2016 are as follows:

 

Period Ending September 30:    
2016 (Remaining)   6,685 
2017   29,753 
2018   35,224 
2019   37,952 
Total capital lease obligation  $109,614 

 

The following is a summary of leased assets included in machinery and equipment as of September 30 and December 31:

 

   2016   2015 
Leased Equipment  $179,620   $179,620 
Less accumulated depreciation   (62,867)   (35,924)
Net leased assets  $116,753   $143,696 

 

Note 8 – Related Party Transactions

 

Related Party Sales and Accounts Receivable

 

The Company generates a significant portion of their revenue from a related entity transfer station, owned by the majority shareholder of the Company. This related entity uses the Company’s landfill (Sand/Land) as its primary source of disposal for construction and demolition debris. Sand/Land also trucks the disposal costs from the Company’s site, either directly or through a third party and bills the Company accordingly for trucking services. Total revenue generated from the related entity during the nine months ended September 30, 2016 and 2015 were $551,845 and $456,019 or 11% and 34% of total consolidated revenue, respectively. Total revenues generated from the related entity during the three months ended September 30, 2016 and 2015 were $179,955 and $177,570 or 10% and 37% of total consolidated revenue, respectively. Total related party accounts receivable as of September 30, 2016 and December 31, 2015 related to these sales were approximately $104,000 and $111,425, respectively, or 16% and 16% of total net accounts receivable, respectively.

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 8 – Related Party Transactions (Continued)

 

Related Party Disposal Costs and Accounts Payable

 

On December 1, 2015, the Company acquired Gateway, a related entity that was previously owned 50% by the largest shareholder of the Company. See note 10, “Acquisitions” for details. Gateway disposes a large portion of their construction and debris collected in the related entities transfer station. Total expenses incurred from the related entity during the nine months ended September 30, 2016 and 2015, were $98,957 and $0, respectively. Total expenses incurred from the related entity during the three months ended September 30, 2016 and 2015, were $24,044 and $0, respectively. Total related party accounts payable of the consolidated entity as of September 30, 2016 and December 31, 2015, related to these expenses were approximately $17,000 and $17,000, respectively.

 

Related Party Shareholder Loan

 

The Company had a note due the largest shareholder of the Company. This note was unsecured, had a maturity date of December 31, 2016 and carried a 1% interest rate. On approximately January 1, 2016, the Note was converted to 10% cumulative preferred stock and the note was cancelled. The total converted debt was $2,000,000. The balance of the note as of September 30, 2016 and December 31, 2015 was $0 and $2,017,301, respectively. The residual balance of $17,301 that was not converted, was reclassified to a short term, unsecured, non-interest bearing short term payable, included with due to related party on our consolidated balance sheet. Total related party preferred stock was $2,000,000 and $0 as of September 30, 2016 and December 31, 2015, respectively. Total related party accrued dividends at September 30, 2016 and December 31, 2015 were $150,000 and $0, respectively.

 

On October 15, 2015, the Company acquired a related entity that was 50% owned by the largest shareholder of the Company. As part of that acquisition, the Company acquired a shareholder note owed to the same majority shareholder of the Company. The balance of the note, including accrued interest on the acquisition date was $1,512,753. As discussed above, $1,500,000 of this total was converted to preferred stock on approximately January 1, 2016.

 

Related Party Acquisitions

 

On October 15, 2015 and December 1, 2015, the Company closed on the Acquisition of WRE and Gateway, respectively. Each of these acquired entities was owned 50% by the majority shareholder of the Company prior to the acquisitions. In each acquisition, a second owner owned 50% of the acquired entity.

 

WRE was acquired for a $250,000 owner financed note that was paid in January of 2016 by a related entity on behalf of the Company and 2,750,000 shares of the Company’s restricted common stock. Gateway was acquired for $450,000 in cash and a total of 2,400,000 shares of the Company’s restricted common stock. The majority shareholder of the Company received only common stock consideration consisting of 1,500,000 and 1,650,000 shares of the Company’s restricted common stock, for a total of 3,150,000 restricted common shares of the Company. The 3,150,000 shares of the Company’s restricted common stock were not issued as of December 31, 2015, and thus were presented on the balance sheet as common stock subscribed in the equity section of the balance sheet through December 31, 2015. The shares were issued during 2016 and have been reclassified to additional paid in capital, valued at $1 per share, equivalent with the settlement with Strategic Capital Market (“Strategic”), the financier of the cash portion of the acquisitions as described below in the stockholders’ deficit footnote (Note 9).

 

 15 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 8 – Related Party Transactions (Continued)

 

Related Party Acquisitions (Continued)

 

See note 10, “Acquisitions” for further information related to the acquisitions and the purchase price allocation for each 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, equipment and financing requirements, among other matters. Total related party consulting expenses incurred and paid to the Chairman for the nine months ended September 30, 2016 and 2015 were $104,000 and $0, respectively. Total related party consulting expenses incurred and paid to the Chairman for the three months ended September 30, 2016 and 2015 were $39,000 and $0, respectively.

 

Note 9 – Stockholders’ Deficit

 

Shares issued to Strategic Capital Markets for Expenses, Deposits and Acquisitions paid for on Behalf of the Company

 

During the nine months ended September 30, 2016 and the year ended December 31, 2015, Strategic , a previous financier of the Company, paid for expenditures of the Company as well as deposits on a landfill acquisition on behalf of the Company. These expenditures primarily related to professional fees incurred for compliance related to being a public company. Total expenses incurred for these services for the nine months ended September 30, 2016 were $112,154, including approximately $62,000 in professional fees and $50,000 for a non-refundable deposit on a landfill that was written off in February of 2016 due to the acquisition not closing. The $112,154 incurred by Strategic during the nine months ended September 30, 2016 were converted to the Company’s restricted common stock at $0.50 per share, or 224,308 restricted common shares as of September 30, 2016. No expenses were paid on behalf of the Company by this related entity between April 1, 2016 and September 30, 2016.

 

Total expenses incurred for these services during the nine months ended September 30, 2015 were $360,778, including approximately $135,778 in professional fees and $225,000 for a non-refundable deposit on a landfill that was written off in February of 2016 due to the acquisition not closing. Strategic also incurred costs to build the Company’s investor relations website of $7,594, $2,000 of which was discounted in the final billing in 2016, reducing the website cost to $5,595.

 

At December 31, 2015, the Company had an amount payable due to Strategic of $592,829, which was settled for 592,829 shares of the Company’s restricted common stock ($1 per share conversion) during 2016.

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 9 – Stockholders’ Deficit (Continued)

 

Shares granted to independent board of director member for services:

 

During the nine months ended September 30, 2016, the Company granted two-independent members of the board of directors a total of 46,429 shares of the Company’s restricted common stock valued at $6,786 based on the trailing 10 day moving average of the Company’s share price at the end of each quarter where shares were earned by the Board Members. As of September 30, 2016, a total of 12,500 restricted common shares valued at $1,392 had not been issued and are included in common stock subscribed (receivable) in the equity section of the Company’s consolidated balance sheet. These shares were issued during October 2016. The Company will grant 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 nine months ended September 30, 2016. The granted shares were valued based on the value of the stock on the date of grant, May 10, 2016, of $0.13. The total value of the shares issued was approximately $53,000, 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 is expected to be returned to the Company during the fourth quarter of 2016.

 

Shares Subscribed, Issued During the Three Months Ended March 31, 2016:

 

As discussed in note 10, the Company acquired two related party entities; as part of the Consideration for the purchase, the Company granted the Shareholder a total of 3,150,000 restricted common shares of the Company’s restricted common stock as part of the acquisition. As of December 31, 2015, the shares were not issued, and thus were included in common stock subscribed on our consolidated balance sheet. During the three months ended March 31, 2016 all 3,150,000 shares were issued and transferred from common stock subscribed to additional paid in capital.

 

Shares subscribed during the three months ended June 30, 2016:

 

During the three months ended September 30, 2016, the Company settled amounts due to a related entity for expenses paid on behalf of the Company by the related entity and for payment of the short-term acquisition note paid on behalf of the Company by the related entity as part of the WRE acquisition, totaling $250,000. The $250,000 acquisition note with WRE was settled for $1 per share of the Company’s stock for a total of 250,000 subscribed shares of the Company’s restricted common stock. The Company settled $112,154 of expenses paid by the third party for expenses incurred by the Company during the period from January 1, 2016 through March 31, 2016, primarily for professional fees for $0.50 per share subscribed, or 224,308 subscribed shares of the Company’s restricted common stock. The Company also incurred professional fees with a vendor that were settled for 100,000 shares of the Company’s common stock, valued at $13,150 by the share price on the date of Grant, May 11, 2016, multiplied by the shares granted (see above, Shares issued to consultant for professional fees).

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 9 – Stockholders’ Deficit (Continued)

 

Shares subscribed during the three months ended September 30, 2016:

 

During the three months ended September 30, 2016, the Company issued 474,308 of restricted common stock to Strategic that were subscribed during the three months ended June 30, 2016 (See above, shares subscribed during the three months ended June 30, 2016). During the three months ended September 30, 2016, the Company issued shares of the Company’s restricted common stock to the Board of Directors as discussed above. As of September 30, 2016, 12,500 shares of the Company’s restricted common stock valued at $1,392 were granted but not issued.

 

Preferred Stock

 

During May 2015, the Company amended the Articles of Incorporation to authorize 10,000,000 shares of the Company’s Series A preferred stock, no par value per share. On 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..

 

On approximately January 1, 2016, the Company’s Board of Directors approved 10,000,000 shares of 10%, cumulative preferred stock and $2,000,000 of Shareholder debt was converted into 10,000 shares of this class of preferred stock. During the nine and three months ended September 30, 2016, $150,000 and $50,000 of dividends were accrued, respectively, but not paid to the holder. These dividends are included in accrued liabilities on the Company’s consolidated balance sheet as of September 30, 2016. Total accrued preferred stock dividends as of September 30, 2016 and December 31, 2015 were $150,000 and $0, respectively.

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 10 – Acquisitions

 

Related Party Acquisitions

 

Waste Recovery Enterprises, LLC

 

On October 15, 2015, the Company acquired WRE, an entity that was 50% owned by the majority shareholder of the Company. WRE offers residential trash pickup, commercial or residential dumpster service and roll-off boxes for construction and clean-up projects. The Company has a transfer station that accepts construction and demolition debris, household trash, furniture and appliances. The Company also offers wood grinding, demolition, and mulch and gravel services. The Company’s primary operations are based near Binghamton, New York.

 

See the table below summarizing the purchase price paid to the related party owner and the second, non-related party entity:

 

Party  Cash   Owner Financed Short Term Note   Restricted
Common Shares
   Value Assigned to
Shares ($1/share)
   Total Purchase
Price
 
Majority Shareholder – 50% owner  $-   $-    1,500,000   $1,500,000   $1,500,000 
Non-related entity - 50% owner   -    250,000    1,250,000    1,250,000    1,500,000 
Total  $-   $250,000    2,750,000   $2,750,000   $3,000,000 

 

 19 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 10 – Acquisitions (Continued)

 

Related Party Acquisitions (Continued)

 

Waste Recovery Enterprises, LLC (Continued)

 

Operations on and after October 15, 2015 are included in the accompanying consolidated financial statements. The acquisition has been accounted for using the purchase method of accounting. The purchase price of $3,000,000 was allocated as follows:

 

Assets    
Cash  $29,625 
Accounts receivable   32,706 
Other current assets   54,598 
Due from related party   30,097 
Total current assets   162,882 
Property and Equipment     
Transportation equipment   1,116,682 
Machinery and Equipment   756,800 
Buildings   493,225 
Land   225,000 
Containers   160,400 
Leasehold improvements   17,154 
Furniture and fixtures   2,069 
Total property and equipment   2,771,330 
Goodwill and intangible assets     
Customer relationships   639,433 
Licenses and permits   50,000 
Goodwill   1,238,173 
Total goodwill and intangible assets   1,927,607 
Total assets   4,861,819 
Liabilities     
Accounts payable and accrued liabilities   (64,179)
Due to related entity   (30,000)
Total current liabilities   (94,179)
Related party debt   (1,512,754)
Long term debt   (254,886)
Total liabilities   1,861,819 
Total consideration for acquisition  $3,000,000 

 

 20 

 

 

National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 10 – Acquisitions (Continued)

 

Related Party Acquisitions (Continued)

 

Gateway Rolloff Services, LP

 

On December 1, 2015, the Company acquired Gateway, an entity that was 50% owned by the majority shareholder of the Company. Gateway offers commercial and residential dumpster service and roll-off boxes for construction and clean-up projects specializing in the removal of debris, garbage, waste, hauling construction and demolition debris, focused on servicing general contractors, new home builders, reconstruction, renovation, landscaping and home improvement professionals. The Company’s primary operations are based near Tampa, FL.

 

See the table below summarizing the purchase price paid to the related party owner and the 2nd, non-related party entity.

 

Party  Cash Paid on Behalf of Strategic   Restricted Common Shares   Owner financed short term note   Value Assigned to Shares ($1/share)   Total Purchase Price 
Majority Shareholder – 50% owner  $-    1,650,000    -   $1,650,000   $1,650,000 
Non-related entity - 50% owner   450,000    750,000    100,000    750,000    1,300,000 
Total  $450,000    2,400,000   $100,000   $2,400,000   $2,950,000 

 

Operations after November 30, 2015 are included in the accompanying consolidated financial statements. The acquisition has been accounted for using the purchase method of accounting. The purchase price of $2,950,000 was allocated as follows:

 

Assets    
Cash  $24,912 
Accounts receivable   238,753 
Total current assets   263,665 
Property and Equipment     
Transportation equipment   417,350 
Containers   782,000 
Total property and equipment   1,199,350 
Goodwill and intangible assets     
Customer relationships   683,626 
Goodwill   941,010 
Total goodwill and intangible assets   1,624,636 
Total assets   3,087,651 
Liabilities     
Accounts payable and accrued liabilities   (111,651)
Due to related party   (26,000)
Total current liabilities   (137,651)
Total consideration for acquisition  $2,950,000 

 

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National Waste Management Holdings, Inc.

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

 

Note 10 – Acquisitions (Continued)

 

Related Party Acquisitions (Continued)

 

Gateway Rolloff Services, LP (Continued)

 

The Majority shareholder received a total of 3,150,000 shares of the Company’s restricted common stock. The shares were note issued as of December 31, 2015 and were included on the balance sheet as common stock subscribed. The shares were issued during the three months ended March 31, 2016.

 

The $450,000 paid in cash by Strategic for the acquisition of Gateway was settled in restricted common stock after December 31, 2015 at $1 per share, for a total of 450,000 shares of the Company’s restricted common stock.

 

Acquisition of Business – Unrelated Entity

 

On May 11, 2016, the Company purchased a business in Upstate New York, incorporating it into WRE’s operations. The business was purchased for $230,000.

 

Operations on and after May 11, 2016 are included in the accompanying consolidated financial statements. The acquisition has been accounted for using the purchase method of accounting. The purchase price of $230,000 was allocated as follows:

 

Assets    
Property and Equipment  $104,400 
Goodwill and intangible assets     
Customer list   79,547 
5 year, 100 miles non-compete agreement   10,000 
Goodwill   36,053 
Total goodwill and intangible assets   125,600 
Total purchase price  $230,000 

 

Landfill Acquisition – Unrelated Entity

 

On January 25, 2015, Sand/Land of Florida Enterprises, Inc., a Florida corporation and a wholly-owned subsidiary of NWMH, entered into a commercial property purchase agreement (the “Agreement”) with Nova Resources, LLC (“Nova”), a Florida limited liability company, to acquire a certain commercial and industrial construction and demolition landfill in the County of Citrus, Homosassa, Florida for $2,500,000, on an “as is” basis.

 

The Contract required monthly non-refundable payments towards the purchase price, with a final closing to be no later than February 26, 2016. The Company had a third party making the deposit payments as discussed in Note 9, “Stockholders’ Deficit”. During the nine months ended September 30, 2016, the third party had made two payments of $25,000, totaling $50,000 and the Company made one payment of $22,473. The Company has written off a total of $72,473 of these non-cash deposits and cash deposits during the nine months ended September 30, 2016 due to the Company not closing on the landfill by February 26, 2016. The expense was included in other expenses as a one-time write off.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

 

Although we believe that the expectations reflected in any of our forward- looking statements are reasonable, actual results could differ materially from those projected or assumed in any or our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

Our results are vulnerable to economic conditions;

 

Our ability to raise adequate working capital;

 

Loss of customers or sales weakness;

 

Inability to achieve sales levels or other operating results;

 

The unavailability of funds for capital expenditures;

 

Operational inefficiencies;

 

Increased competitive pressures from existing competitors and new entrants;

 

Competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions;

 

We may incur charges related to capitalized expenditures of landfill development projects, which would decrease our earnings;

 

Pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements;

 

We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity;

 

Our accruals for our landfill site closure and post-closure costs may be inadequate;

 

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Liabilities for environmental damage may adversely affect our financial condition, business and earnings;

 

Our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones;

 

Extensive and evolving environmental, health and safety laws and regulations may restrict our operations and growth and increase our costs;

 

Extensive regulations that govern the design, operation and closure of landfills may restrict our landfill operations or increase our costs of operating landfills; and

 

Alternatives to landfill disposal may cause our revenues and operating results to decline.

 

These risks, as well as others, are discussed in greater detail in our last Annual Report on Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements to reflect events or circumstances that may change.

 

GENERAL

 

Overview

 

We are a vertically integrated waste management company offering landfill, transfer station, garbage collection and container services for both commercial entities and residential customers in Central Florida and Upstate New York. We service the counties of Citrus, Hernando, and Marion in Florida and Upstate New York. We average annual disposals of approximately 200,000 cubic yards of construction debris and manage our 54-acre landfill facility. We started operations with one roll-off truck and now operate 13 roll-off trucks and approximately 800 containers (after the WRE and Gateway Acquisitions). Since the year 2000, we have maintained a contract with Citrus County Solid Waste Management landfill to back-up its roll-off trucks. On October 15, 2015 and December 1, 2015, we acquired WRE and Gateway, respectively, as described above (Item 1, Business) and in Note 10 to the financial statements, “Acquisitions.” These acquisitions added a large roll-off business for construction and demotion (“C&D”) to operations as well as full-service waste company in Upstate NY, offering residential and commercial trash collection, a transfer station and C&D services.

 

Trends and Uncertainties

 

Whether there will be a decline in the construction and building industries;
   
Whether scrap and recycling prices will decline;
   
Whether the price of fuel will increase to the level that it will have a material negative impact on our results of operations; and
   
Whether our clients and/or future prospective clients internally develop a means by which to dispose of their waste, which would negatively impact our results of operations.

 

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Results of Operations

 

Comparison for the nine months ended September 30, 2016 and 2015

 

Sales for the nine months ended September 30, 2016 and 2015 were $4,889,453 and $1,349,824, respectively, an increase of $3,539,629 or approximately 262% of consolidated revenue. The $3,539,629 increase is due to the acquisitions of WRE and Gateway during the fourth quarter of 2015 and the execution of our business model, increasing our customer base and expanded sales to current customers.

 

Cost of revenues for the nine months ended September 30, 2016 and 2015 were $2,509,432 and $661,622, respectively, an increase of $1,847,810 or approximately 279%. This $1,847,810 increase is due to the acquisitions of WRE and Gateway during the fourth quarter of 2015.

 

General and administrative costs for the nine months ended September 30, 2016 and 2015 were $2,288,794 and $380,775, respectively, reflecting an increase of $1,908,019 or approximately 501%. This $1,908,019 increase is due to the WRE and Gateway acquisitions during the fourth quarter of 2015.

 

Interest expense was $50,239 and $23,705 for the nine months ended September 30, 2016 and 2015, respectively. The increase is attributable to our acquisition of WRE, and the associated equipment financing and related equipment acquired as well as an equipment financing during December 2015, which increased our long term-debt.

 

Other income and (expenses), net, were $(153,557) and $(28,512) for the nine months ended September 30, 2016 and 2015, respectively, an increase in the net expense of $125,045 or 439%. This $125,045 increase is due to the increase in interest expense discussed above, and one time write off of deposits of $90,973.

 

Net income (loss) for the nine months ended September 30, 2016 and 2015 was $(258,049) and $184,870, respectively. The decrease of $442,919 was highly attributable to the non-cash depreciation and amortization charges to earnings of $793,394 during the nine months ended September 30, 2016 as compared to depreciation and amortization charges of $122,064 to earnings during the nine months ended September 30, 2015. The large increase in depreciation and amortization was due to the acquisitions and purchase price allocations of Gateway and WRE during 2015, which increased quarterly depreciation and amortization significantly. When adding back this large charge, both periods show positive cash flows. We also incurred one time charges for losses on deposits, including $50,000 of non-cash deposits paid for on our behalf by a related entity and later settled for 2 shares per one dollar of expenses incurred with that entity.

 

Comparison for the three months ended September 30, 2016 and 2015

 

Sales for the three months ended September 30, 2016 and 2015 were $1,771,819 and $479,698, respectively, an increase of $1,292,121 or approximately 269% of consolidated revenue. This $1,292,121 increase is due to the WRE and Gateway acquisitions during the fourth quarter of 2015 and the execution of our business model, increasing our customer base and expanded sales to current customers.

 

Cost of revenues for the three months ended September 30, 2016 and 2015 were $612,057 and $216,083 respectively, an increase of $395,974 or approximately 183%. This $395,974 increase is due to the acquisitions of WRE and Gateway during the fourth quarter of 2015.

 

General and administrative costs for the three months ended September 30, 2016 and 2015 were $1,121,928 and $147,475, respectively, an increase of $974,453 or approximately 661%. This $974,453 increase is due to the acquisitions of WRE and Gateway during the fourth quarter of 2015.

 

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Interest expense was $14,467 and $4,085 for the three months ended September 30, 2016 and 2015, respectively. The increase is attributable to our acquisition of WRE and the associated equipment financing and related equipment.

 

Other income and (expenses), net, was $(26,812) and $(4,085) for the three months ended September 30, 2016 and 2015, respectively, an increase in the net expense of $22,727. The increase is due to the increase in interest expense discussed above, and a one-time charge for a write off on a deposit of $18,500.

 

Net income (loss) for the three months ended September 30, 2016 and 2015 was $(210,649) and $81,754 respectively. The $292,403 decrease is primarily attributable to the increased charges to depreciation and amortization expense after the acquisitions of WRE and Gateway. See note above discussing change in net income for the nine months ended September 30, 2016.

 

Liquidity and Capital Resources

 

Our primary sources of cash are cash flows from operations. We intend to use excess cash on hand and cash from operating activities, together with borrowings, to fund purchases of equipment, working capital, acquisitions and debt repayments. As of September 30, 2016, we had cash and cash equivalents of $451,752 and working capital of $281,267 as compared to cash of $344,365 and negative working capital of $556,150 at December 31, 2015. The primary reason for the negative working capital at December 31, 2015 as compared to positive working capital at September 30, 2016 was due to the conversion of a large portion of related party payables to restricted common stock, mostly at $1 per share, though approximately $112,000 of expenses paid for on behalf of the Company by a related entity were converted at $0.50 per share.

 

Cash Flows for the Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2015

 

Cash flows from operating activities for the nine months ended September 30, 2016 provided cash of $860,665 compared to $490,109 for the nine months ended September 30, 2015, an increase of $370,556 or 76%. This $370,556 increase was primarily due to increased sales due to the WRE and Gateway acquisitions during the fourth quarter of 2015, execution of our business plan and increased customers, expenses incurred where stock was issued to settle professional fee liabilities rather than cash, and the timing of payments on payables, accrued expenses and taxes. Our cash flows used in investing activities were $459,162 and $59,866 for the nine months ended September 30, 2016 and 2015, respectively, an increase of $399,296 or 667%, primarily due to the acquisition of a business for $230,000 during the second quarter of 2016 (three months ended June 30, 2016). Our cash flows used in financing activities were $294,116 and $67,371 for the nine months ended September 30, 2016 and 2015, respectively, an increase of $226,745 or 337%. The $226,745 increase is due to servicing the equipment financing debt in our fourth quarter acquisition of WRE and the servicing of debt for a new grinder purchased in December of 2015, as well as the payment of $75,000 on the short-term acquisition note with Gateway as part of the acquisition of that company.

 

Off-Balance sheet arrangements

 

None.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable

 

Item 4. Controls and Procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016.

 

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PART II — OTHER INFORMATION

 

Item 1 - Legal Proceedings.

 

We know of no material pending legal proceedings to which our company or our subsidiary is a party or of which any of our properties, or the properties of our subsidiary, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

 

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or our subsidiary or has a material interest adverse to our company or our subsidiary.

 

Item 1A – Risk Factors

 

As a smaller reporting company, we are not required to provide risk factors.

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures.

 

None

 

ITEM 5. OTHER INFORMATION

 

None.

 

Item 6. Exhibits.

 

EXHIBIT INDEX

 

Exhibit

Number

  Description
31.1   Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+   Certifications of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+   Certifications of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document.

 

+ In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

 

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SIGNATURES

 

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

 

Date: November 14, 2016 NATIONAL WASTE MANAGEMENT HOLDINGS, INC.
   
  /s/ Louis Paveglio
  Name: Louis Paveglio
  Chief Executive Officer
  (Principal Executive Officer)
   
  /s/ Dali Kranzthor
  Name: Dali Kranzthor
  Chief Financial Officer
  (Principal Financial Officer)

 

 

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