NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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”.
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. 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, 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
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.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 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.
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 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 December 31, 2016 and 2015, the allowance for doubtful accounts was approximately $20,000. Consolidated
bad debt expense recognized for the years ended December 31, 2016 and 2015 was $46,073 and ($32,682), respectively. The negative
bad debt expense balance at December 31, 2015 was due to the allowance being overstated at December 31, 2015 and requiring adjustment.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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. Through December 31, 2016, the Company had one impairment charge to
earnings related to the WRE customer list (see Note 4, Amortizable Intangible Assets) due to four of the
significant customers originally included in the customer list valuation for WRE having significantly lower revenues in 2016.
Total impairment charges for the WRE customer list for the year ended December 31, 2016 was $159,977; this total is included
in other expense (impairment charge) on our consolidated statement of earnings for the year ended December 31, 2016. This
also resulted in a decrease of the associated deferred tax asset of $16,235.
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 December 31, 2016. The test for impairment was done in accordance with guidance
in Accounting Standards Update (ASU) 2011-8 for the year ended December 31, 2016. 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 December 31, 2016 and 2015 was $2,317,965 and $2,272,303, respectively. See Note 10, “Acquisitions” for
the purchase price allocation of the businesses acquired.
Reconciliation of Goodwill:
|
|
|
|
Balance of goodwill at December 31, 2014
|
|
|
$
|
-
|
|
Goodwill assigned to the acquisition of WRE on October 15, 2015
|
|
|
1,265,406
|
|
Goodwill assigned to the acquisition of Gateway on December 1, 2015
|
|
|
1,006,897
|
|
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 December 31, 2016
|
|
$
|
2,317,965
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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, 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, 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 years ended December 31, 2016 and
2015 were $6,405 and $2,674, 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 years ended December 31, 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 December 31, 2016, the following tax years are subject to examination:
|
Jurisdiction
|
|
|
Open Years for Filed Returns
|
|
Federal
|
|
|
December 31, 2013 – 2016
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 “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 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.
Restatement
As
discussed in Note 11 to the financial statements, the 2015 financial statements have been restated to correct an error.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
3 – Property, Plant and Equipment
Property,
plant and equipment and related accumulated depreciation consist of the following at December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Machinery and equipment
|
|
|
2,563,838
|
|
|
|
2,467,328
|
|
Transportation equipment
|
|
|
2,380,394
|
|
|
|
2,238,398
|
|
Containers
|
|
|
1,944,969
|
|
|
|
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
|
|
Leasehold improvements
|
|
|
15,781
|
|
|
|
-
|
|
Office furniture and equipment
|
|
|
6,304
|
|
|
|
5,771
|
|
Total Property, plant and equipment
|
|
|
9,107,474
|
|
|
|
8,450,689
|
|
Less: accumulated depreciation
|
|
|
(4,166,189
|
)
|
|
|
(3,409,409
|
)
|
Property, plant and equipment, net
|
|
$
|
4,941,285
|
|
|
$
|
5,041,280
|
|
Depreciation
expense for the years ended December 31, 2016 and 2015 was $764,314 and $251,008, respectively.
Note
4 – Amortizable Intangible Assets
Intangible
assets consist of the following at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
2016
|
|
|
2015
|
|
|
Period
|
|
Customer list
|
|
$
|
1,468,608
|
|
|
$
|
1,413,872
|
|
|
|
5 years
|
|
Website costs
|
|
|
5,954
|
|
|
|
7,954
|
|
|
|
3 years
|
|
Licenses and permits
|
|
|
66,318
|
|
|
|
66,318
|
|
|
|
10 years
|
|
Non-compete agreements
|
|
|
20,000
|
|
|
|
-
|
|
|
|
5 years
|
|
Less accumulated amortization
|
|
|
(376,621
|
)
|
|
|
(74,791
|
)
|
|
|
|
|
Intangible assets, net
|
|
$
|
1,184,259
|
|
|
$
|
1,413,353
|
|
|
|
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
4 – Amortizable Intangible Assets (Continued)
The
estimated aggregate amortization expenses for each of following five years and thereafter, ended December 31, are as follows:
Year Ending
|
|
|
|
|
2017
|
|
|
$
|
278,510
|
|
2018
|
|
|
|
277,517
|
|
2019
|
|
|
|
276,525
|
|
2020
|
|
|
|
276,525
|
|
2021
|
|
|
|
39,968
|
|
Thereafter
|
|
|
|
35,214
|
|
Total
|
|
|
$
|
1,184,259
|
|
Amortization
expense for the years ended December 31, 2016 and 2015 was $301,829 and $20,303, respectively.
Impairment
loss for the years ended December 31, 2016 and 2015 was $159,977 and $0, 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. Total impairment charges for the WRE customer list for the year ended December 31, 2016 was $159,977; this total is included
in other expense (impairment charge) on the consolidated statement of operations for the year ended December 31, 2016. This also
resulted in a decrease of the associated deferred tax asset of $16,235.
Reconciliation
of Amortizable Intangible Assets:
Reconciliation of amortizable Intangibles
|
|
Customer Lists
|
|
|
Permits
|
|
|
Non
Compete
|
|
|
Website
|
|
|
Total
|
|
Balance at December 31, 2014, net
|
|
$
|
36,325
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
36,325
|
|
Corporate website
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,954
|
|
|
|
7,954
|
|
Acquisition of WRE on October 15, 2015
|
|
|
639,433
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
689,433
|
|
Acquisition of Gateway on December 1, 2015
|
|
|
683,626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
683,626
|
|
Landfill permits acquired
|
|
|
16,318
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,318
|
|
Amortization expense
|
|
|
(18,495
|
)
|
|
|
(816
|
)
|
|
|
-
|
|
|
|
(992
|
)
|
|
|
(20,303
|
)
|
Balance at December 31, 2015, net
|
|
$
|
1,357,207
|
|
|
$
|
49,184
|
|
|
$
|
-
|
|
|
|
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, 2015, net
|
|
$
|
1,118,396
|
|
|
$
|
44,219
|
|
|
$
|
18,667
|
|
|
|
2,977
|
|
|
$
|
1,184,259
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 $324,950 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 December 31, 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 years ended December 31, 2016 and 2015, approximately
12% and 36% of the Company’s revenues were generated from a related party, respectively. As of December 31, 2016 and 2015,
16% and 16% of consolidated accounts receivable were due from a related party, respectively.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 December 31, 2016 through December 28, 2020
|
|
$
|
476,340
|
|
|
$
|
604,005
|
|
Less current maturities of long-term debt
|
|
|
(155,889
|
)
|
|
|
(184,932
|
)
|
Long-term debt, net of current portion
|
|
$
|
320,451
|
|
|
$
|
419,073
|
|
The
aggregate annual maturities of non-related party long-term debt are as follows:
Period Ended December 31:
|
|
|
|
|
2017
|
|
|
|
155,889
|
|
2018
|
|
|
|
146,047
|
|
2019
|
|
|
|
148,666
|
|
2020
|
|
|
|
25,738
|
|
Total
|
|
|
$
|
476,340
|
|
Related
Party Shareholder Loan
The
Company had a note due to a 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 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. The balance of the note as of December 31, 2016 and
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 December 31, 2016 and December 31, 2015, respectively. Total related
party preferred stock accrued dividends at December 31, 2016 and 2015 were $200,000 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.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 December 31:
|
|
2016
|
|
|
2015
|
|
Capital lease to purchase equipment
|
|
$
|
99,279
|
|
|
$
|
128,060
|
|
Less current portion of capital lease obligations:
|
|
|
(29,753
|
)
|
|
|
(25,131
|
)
|
Long-term capital lease obligations, net of current portion
|
|
$
|
69,526
|
|
|
$
|
102,929
|
|
Future
minimum lease payments under the lease as of December 31, 2016 are as follows:
Period Ending December 31:
|
|
|
|
|
2017
|
|
|
|
29,753
|
|
2018
|
|
|
|
35,224
|
|
2019
|
|
|
|
34,302
|
|
Total
capital lease obligation
|
|
|
$
|
99,279
|
|
The
following is a summary of leased assets included in machinery and equipment as of December 31:
|
|
2016
|
|
|
2015
|
|
Leased Equipment
|
|
$
|
179,620
|
|
|
$
|
179,620
|
|
Less accumulated depreciation
|
|
|
(71,848
|
)
|
|
|
(35,924
|
)
|
Net leased assets
|
|
$
|
107,772
|
|
|
$
|
143,696
|
|
Note
8 – Related Party Transactions
Related
Party Sales and Accounts Receivable
The
Company generates a 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 years
ended December 31, 2016 and 2015 were $729,050 and $890,542 or 12% and 36% of total consolidated revenue, respectively. Total
related party accounts receivable as of December 31, 2016 and 2015 related to these sales were approximately $93,450 and $91,250,
respectively, or 16% and 16% of total net accounts receivable, respectively.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 years ended December
31, 2016 and 2015, were $131,223 and $11,043 respectively. Total related party accounts payable of the consolidated entity as
of December 31, 2016 and December 31, 2015, related to these expenses were approximately $16,000 and $17,000, respectively.
Related
Party Shareholder Loan
The
Company had a note due the majority 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 Series B, 10% cumulative preferred
stock and the note was cancelled. The total converted debt was $2,000,000. The balance of the note as of December 31, 2016 and
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 December 31, 2016 and December 31, 2015, respectively. Total related
party accrued dividends at December 31, 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
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 each acquired entity.
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.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
8 – Related Party Transactions (Continued)
Related
Party Acquisitions (Continued)
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 restricted
common stock consideration 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).
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, and
equipment and financing requirements, among other matters. Total related party consulting expenses incurred and paid to the Chairman
for the years ended December 31, 2016 and 2015 were $146,000 and $0, respectively.
Related
Party Receivable
The Company has a consolidated workers’
compensation policy with a related entity transfer station. The Company loaned this Company $8,400 for equipment purchase needs
in 2014. The receivable carries 0% interest. The balance of the related party receivable was $8,400 at December 31, 2016 and 2015.
The Company also engaged an appraiser for the Sandland Landfill and the transfer station as a single transaction, which Sandland
paid for on behalf of both entities and is due from the related party at December 31, 2016. The related party receivable for the
workers compensation payments at December 31, 2016 and 2015 were $2,279 and $0, respectively. The combined appraisal cost for
the Entity during fiscal year ended December 31, 2016 was $12,150. Of this total, $6,075 of the total is due from the related
party transfer station for their portion of the appraisal cost. Total due from the related Entity related to the equipment advance,
workers compensation consolidated policy and half of the appraisal costs at December 31, 2016 was $16,754.
Related Party 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 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 year ended December 31, 2016 and 2015, $200,000 and $0 of dividends were accrued, respectively, but
not paid to the holder. These dividends are included in accrued liabilities on the Company’s consolidated balance sheets
as of December 31, 2016 and 2015 and included in earnings as interest expense.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
9 – Stockholders’ Deficit
Shares
issued to Strategic Capital Markets for Expenses, Deposits and Acquisitions paid for on Behalf of the Company
During
the years ended December 31, 2016 and 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 year ended December
31, 2016 were $112,154, including approximately $62,000 in professional fees and $50,000 for a non-refundable deposit on a landfill
that was written off in February of 2016 due to the acquisition not closing. The $112,154 incurred by Strategic during the year
ended December 31, 2016 were converted to the Company’s restricted common stock at $0.50 per share, or 224,308 restricted
common shares as of December 31, 2016. No expenses were paid on behalf of the Company by this related entity between April 1,
2016 and December 31, 2016.
Total
expenses incurred for these services during the year ended December 31, 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.
Shares
issued to Strategic Capital Markets for Expenses, Deposits and Acquisitions paid for on Behalf of the Company (Continued)
At
December 31, 2015, the Company had an amount payable due Strategic of $592,829 which was settled for 592,829 shares of the Company’s
restricted common stock ($1 per share conversion) during 2016.
Shares
granted to independent board of director member for services:
During
the year ended December 31, 2016, the Company granted two independent members of the Board of Directors a total of 71,429 shares
of the Company’s restricted common stock valued at $8,588 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. 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. As of December 31, 2016 and 2015, the Company had two and zero independent directors who received
quarterly restricted common stock incentive awards as discussed above.
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 is
expected to be returned to the Company during the fourth quarter of 2016.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
9 – Stockholders’ Deficit (Continued)
Shares
Subscribed, Issued During the Three Months Ended March 31, 2016:
As
discussed in Note 10, the Company acquired two related party entities; as part of the consideration for the purchase, the Company
granted the Shareholder a total of 3,150,000 restricted common shares of the Company’s restricted common stock as part of
the acquisition. As of December 31, 2015, the shares were not issued, and thus were included in common stock subscribed on our
consolidated balance sheet. During the three months ended March 31, 2016 all 3,150,000 shares were issued and transferred from
common stock subscribed to additional paid in capital.
Shares
subscribed during the three months ended June 30, 2016:
During
the three months ended June 30, 2016, the Company settled amounts due to a related entity for expenses paid on behalf of the Company
by the related entity and for payment of the short-term acquisition note paid on behalf of the Company by the related entity as
part of the WRE acquisition, totaling $250,000. The $250,000 acquisition note with WRE was settled for $1 per share of the Company’s
stock for a total of 250,000 subscribed shares of the Company’s restricted common stock. The Company settled $112,154 of
expenses paid by the third party for expenses incurred by the Company during the period from January 1, 2016 through March 31,
2016, primarily for professional fees for $0.50 per share subscribed, or 224,308 subscribed shares of the Company’s restricted
common stock. The Company also incurred professional fees with a vendor that were settled for 100,000 shares of the Company’s
common stock, valued at $13,150 by the share price on the date of Grant, May 11, 2016, multiplied by the shares granted (see above,
Shares issued to consultant for professional fees).
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 December 31, 2016, the Company issued shares of the Company’s restricted common stock to the Board
of Directors as discussed above.
Related Party Preferred Stock
During
May 2015, the Company amended the Articles of Incorporation to authorize 5 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 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 year ended December 31, 2016 and
2015, $200,000 and $0 of dividends were accrued, respectively, but not paid to the holder. These dividends are included in accrued
liabilities on the Company’s consolidated balance sheets as of December 31, 2016 and 2015 and included in earnings as interest
expense.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
10 – Acquisitions
Related
Party Acquisitions - Fiscal Year Ended December 31, 2016
Northeast
Data Destruction and Recycling, LLC (Northeast Data)
On
December 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 consolidated with 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
|
|
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
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions – Fiscal Year Ended December 31, 2015
Waste
Recovery Enterprises, LLC (RESTATED):
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
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions - Fiscal Year Ended December 31, 2015 (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 allocation was restated to include deferred tax assets and liabilities
not originally accounted for in the Company’s allocation. The offset to tax assets and liabilities was goodwill. There was
no effect to earnings for any period presented related to this purchase price allocation restatement. See Note 11, “Financial
Statement Restatement – Fiscal Year ended December 31, 2015”. Total deferred tax assets recognized as part of the
restatement, shown below were $301,461 and total deferred tax liabilities recognized as part of the restatement and shown below
is $398,789. The net difference of $97,328 increased goodwill. The purchase price of $3,000,000 was allocated as follows (restated):
Assets
|
|
(Restated)
|
|
Cash
|
|
$
|
29,625
|
|
Accounts receivable
|
|
|
102,801
|
|
Other current assets
|
|
|
54,598
|
|
Due from related party
|
|
|
45,953
|
|
Total current assets
|
|
|
232,977
|
|
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
|
|
Deferred tax assets (restatement)
|
|
|
301,461
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer relationships
|
|
|
639,433
|
|
Licenses and permits
|
|
|
50,000
|
|
Goodwill
|
|
|
1,265,406
|
|
Total goodwill and intangible assets
|
|
|
1,954,839
|
|
Total assets
|
|
|
5,260,607
|
|
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
|
)
|
Deferred tax liabilities
|
|
|
(398,789
|
)
|
Total liabilities
|
|
|
(2,260,607
|
)
|
Total consideration for acquisition
|
|
$
|
3,000,000
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions - Fiscal Year Ended December 31, 2015 (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. Gateway’s primary operations are based
near Tampa, FL.
See
the table below summarizing the purchase price paid to the related party owner and the second, 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
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
10 – Acquisitions (Continued)
Related
Party Acquisitions - Fiscal Year Ended December 31, 2015 (Continued)
Gateway
Rolloff Services, LP (Continued)
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 allocation was restated to include deferred tax assets and liabilities
not originally accounted for in the Company’s allocation. The offset to tax assets and liabilities was goodwill. There was
no effect to earnings for any period presented related to this purchase price allocation restatement. See note 11, “Financial
Statement Restatement – Fiscal Year ended December 31, 2015” for a table reconciling the balances prior to and after
the restatement. Total deferred tax assets recognized as part of the restatement, shown below were $252,420 and total deferred
tax liabilities recognized as part of the restatement and shown below is $318,017. The net difference of $65,597 increased goodwill.
The purchase price of $2,950,000 was allocated as follows (restated):
Assets
|
|
(Restated)
|
|
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
|
|
Deferred tax assets (restated)
|
|
|
252,420
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer relationships
|
|
|
683,626
|
|
Goodwill (restated)
|
|
|
1,006,897
|
|
Total goodwill and intangible assets
|
|
|
1,690,523
|
|
Total assets
|
|
|
3,405,958
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(111,651
|
)
|
Due to related party
|
|
|
(26,000
|
)
|
Total current liabilities
|
|
|
(137,651
|
)
|
Deferred tax liability
|
|
|
(318,307
|
)
|
Total liabilities
|
|
|
(455,958
|
)
|
Total consideration for acquisition
|
|
$
|
2,950,000
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
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 not
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 subsequent to May 11, 2016 are included in the accompanying consolidated financial statements. The acquisition has been
accounted for using the purchase method of accounting. The purchase price of $230,000 was allocated as follows:
Assets
|
|
|
|
Property and Equipment
|
|
$
|
104,400
|
|
Goodwill and intangible assets
|
|
|
|
|
Customer list
|
|
|
79,547
|
|
5 year, 100 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 December 31, 2016, the third party had made 2 payments of $25,000, totaling $50,000 and the Company
made one payment of $22,473. The Company has written off a total of $72,473 of these non-cash deposits and cash deposits during
the nine months ended December 31, 2016 due to the Company not closing on the landfill by February 26, 2016. The expense was included
in other expenses as a onetime write off.
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
11 – Financial Statement Restatement –Year ended December 31, 2015
The
Financial Statements for the year ended December 31, 2015 have been restated due to errors noted in the financial statements,
including the following:
a) The Company overstated the environmental remediation liability for the closure costs associated with the Company’s Landfill in
Hernando County at December 31, 2014 and 2015. The adjustment did not affect earnings; the offset was the Company’s retained earnings.
See the table below, reconciling the restated balances to the previously reported amounts.
b) The Company acquired Waste Recovery Enterprises, LLC on October 15, 2015. The Company included the sales for WRE for the period
from October 1, 2015 through December 31, 2015 rather than from October 15, 2015 through December 31, 2015, the period for which
we owned the Company. The adjustment resulted in a change to the purchase price allocation, increasing amounts allocated to the
accounts receivable by $70,995, reducing goodwill by this amount, and reducing sales as well as retained earnings for WRE.
c) The Company acquired (Ca) Waste Recovery Enterprises, LLC on October 15, 2015 and (Cb) Gateway Rolloff Services, LP on December
1, 2015. The acquisitions have been accounted for using the purchase price method of accounting, but did not include an allocation
in the purchase price for the deferred tax assets and liabilities affecting the acquisition. The Company has restated the purchase
price allocations for the effects of the deferred tax assets and deferred tax liabilities in the restated financial statements.
The offset of the deferred tax assets and liabilities was goodwill, thus earnings were not affected and there was no change to
amortization expense for the periods reported. See the table below, reconciling the restated balances to the previously reported
amounts and Note 10 - Acquisitions, reconciling the previously reported purchase price allocation to the adjusted allocation on
the acquisition dates.
Restatement (a):
|
|
|
|
Environmental Remediation Liability Restatement
|
|
|
|
|
|
2015
|
|
Previously stated environmental remediation liability
|
|
$
|
424,596
|
|
Restatement
|
|
|
(99,646
|
)
|
Restated environmental remediation liability
|
|
$
|
324,950
|
|
See
consolidated retained earnings reconciliation below “Retained Earnings Restatement” for the effect the adjustment had
on beginning balance retained earnings
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
11 – Financial Statement Restatement – Fiscal Year ended December 31, 2015 (Continued)
Restatement (b):
|
|
|
|
Revenue Restatement
|
|
|
|
|
|
2015
|
|
Previously stated revenue
|
|
$
|
2,499,842
|
|
Restatement
|
|
|
(70,095
|
)
|
Restated revenue
|
|
$
|
2,429,747
|
|
|
|
|
|
|
Gross Profit Restatement
|
|
|
|
|
|
|
|
2015
|
|
Previously stated gross profit
|
|
$
|
1,180,673
|
|
Restatement
|
|
|
(70,095
|
)
|
Restated gross profit
|
|
$
|
1,110,578
|
|
|
|
|
|
|
Income from Operations Restatement
|
|
|
|
|
|
|
|
2015
|
|
Previously stated income from operations
|
|
$
|
240,219
|
|
Restatement
|
|
|
(70,095
|
)
|
Restated income from operations
|
|
$
|
170,124
|
|
|
|
|
|
|
Net Income (loss) Restatement
|
|
|
|
|
|
|
|
2015
|
|
Previously stated net loss
|
|
$
|
(62,408
|
)
|
Restatement
|
|
|
(70,095
|
)
|
Restated net loss
|
|
$
|
(132,503
|
)
|
|
|
|
|
|
Restatement (c):
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset Restatement:
|
|
|
|
|
|
|
|
2015
|
|
Previously stated deferred tax asset
|
|
$
|
53,662
|
|
Restatement:
|
|
|
|
|
Gateway
|
|
|
252,420
|
|
WRE
|
|
|
301,461
|
|
Total Restatement:
|
|
|
553,881
|
|
Restated deferred tax asset
|
|
$
|
607,543
|
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
11 – Financial Statement Restatement – Fiscal Year ended December 31, 2015 (Continued)
|
|
Deferred
Tax Liability Restatement:
|
|
|
|
2015
|
|
Previously
stated deferred tax liabilities
|
|
$
|
70,221
|
|
Restatement:
|
|
|
|
|
Gateway
|
|
|
318,307
|
|
WRE
|
|
|
398,789
|
|
Total
Restatement:
|
|
|
717,096
|
|
Restated
deferred tax asset
|
|
$
|
787,317
|
|
|
|
|
|
|
Retained
Earnings Restatement
|
|
|
|
|
|
|
|
2015
|
|
Previously
stated accumulated deficit
|
|
$
|
(175,234
|
)
|
Restatement
(a) - Environmental Remediation Adjustment
|
|
|
99,646
|
|
Restatement
(b) - WRE Sales Adjustment
|
|
|
(70,095
|
)
|
Restated
accumulated deficit
|
|
$
|
(145,683
|
)
|
|
|
|
|
|
Goodwill
Restatement
|
|
|
|
|
|
|
|
2015
|
|
Previously
stated accumulated deficit
|
|
$
|
2,179,183
|
|
Restatement
(b) - WRE Sales Adjustment
|
|
|
(70,095
|
)
|
Restatement
(ca) - WRE Goodwill Adjustment (due to tax allocation)
|
|
|
97,328
|
|
Restatement
(cb) - Gateway Goodwill Adjustment (due to tax allocation)
|
|
|
65,887
|
|
Restated
accumulated deficit
|
|
$
|
2,272,303
|
|
|
|
|
|
|
Net
income (loss) per common share restatement:
|
|
|
|
|
|
|
2015
|
|
Previously
stated net income per common share
|
|
$
|
(0.001
|
)
|
Restatement
(b) - WRE Sales Adjustment
|
|
|
(0.001
|
)
|
Restated
net income per common share
|
|
$
|
(0.002
|
)
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
12 – Income Taxes
For
the years ended December 31, 2016 and 2015, the Company recognized income tax expense (benefit) of $68,346 and $(32,150), respectively.
Income
tax provisions for the years ended December 31,:
|
|
2016
|
|
|
2015
|
|
Current tax expense (benefit)
|
|
|
|
|
|
|
Federal
|
|
$
|
37,544
|
|
|
$
|
-
|
|
State
|
|
|
3,517
|
|
|
|
-
|
|
|
|
|
41,061
|
|
|
|
-
|
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
27,285
|
|
|
|
(32,150
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
27,285
|
|
|
|
(32,150
|
)
|
Total expense (benefit)
|
|
$
|
68,346
|
|
|
$
|
(32,150
|
)
|
The
components of the deferred tax assets, net of deferred tax liabilities for each period are:
|
|
|
|
|
(Restated)
|
|
|
|
2016
|
|
|
2015
|
|
Property and equipment
|
|
$
|
(694,476
|
)
|
|
$
|
(787,317
|
)
|
Intangible assets
|
|
|
438,444
|
|
|
|
553,881
|
|
Expenses paid by third party still outstanding by Company
|
|
|
-
|
|
|
|
53,662
|
|
Total net deferred tax assets
|
|
$
|
(256,032
|
)
|
|
$
|
(179,774
|
)
|
The
reconciliations of the results of applying the Company’s effective statutory federal income tax rate of 34% for the years ended
December 31, 2016 and 2015 to the Company’s income before taxes and the Company’s provision for income taxes are as follows:
|
|
2016
|
|
|
2015
|
|
Federal income taxes
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State income taxes
|
|
|
3.63
|
%
|
|
|
3.63
|
%
|
Effective tax rate
|
|
|
37.63
|
%
|
|
|
37.63
|
%
|
NATIONAL
WASTE MANAGEMENT HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Restated)
Note
13 – Subsequent events
Subsequent
to year end, the Company acquired Burts Refuse LLC for $420,000. The purchase price included a cash payment of $150,000 and a
$270,000, 5 year, 6% owner financed with monthly payments of $5,220 commencing March 28
th
, 2017 maturing on January
28, 2022. This note is secured by a portion of the equipment acquired and may be paid off in full early without penalty. The purchase
price allocation was not complete as of the date of the filing and thus is not included below.