NOTE 6 - NOTES PAYABLE AND CONVERTIBLE NOTES

The Company had the following long-term debt, excluding liabilities held for sale:

	December 31, 2017			December 31, 2016
Goldman Sachs - Tranche A Term Loan - LIBOR Interest on loan date plus 8%, 9.35% at December 31, 2017	$	7,083,257		$	3,749,628
Promissory note payable to a bank, unsecured, bearing interest at a variable rate, 4.25%, at December 31, 2017 with a floor of 5% due on demand		1,000,000			-
Promissory note payable to a bank, unsecured, bearing interest at 5.5%, due on demand		299,578			-
Promissory note payable to a bank, unsecured, bearing interest at a variable rate, 5%, at December 31, 2017 with a floor of 5.25% due in monthly installments of $12,300, maturing August 2022		622,259			-
Notes payable to seller of Meridian, subordinated debt		1,475,000			1,475,000

Total debt		10,480,094			4,649,047
Less: current portion		(8,502,387	)		-
Long term debt less current portion	$	1,977,707		$	5,224,628

Goldman Sachs Credit Agreement

On February 15, 2017, the Company closed an Amended and Restated Credit and Guaranty Agreement (as amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated April 28, 2017, the “Credit Agreement”). The Credit Agreement amended and restated the Credit and Guaranty Agreement entered into as of December 22, 2015 “Prior Credit Agreement”).

Pursuant to the Credit Agreement, certain credit facilities to the Companies, in an aggregate amount not to exceed $89,100,000, consisting of $65,500,000 aggregate principal amount of Tranche A Term Loans (the “Tranche A Term Loans”), $8,600,000 aggregate principal amount of Tranche B Term Loans (the “Tranche B Term Loans”), $10,000,000 aggregate principal amount of MDTL Term Loans (the “MDTL Term Loans”), and up to $5,000,000 aggregate principal amount of Revolving Commitments (the “Revolving Commitments”). In August of 2017 $6,000,000 was transferred from Tranche A to Tranche B. The proceeds of the Tranche A Term Loans made on the Closing Date were used to pay a portion of the purchase price for the acquisitions made in connection with the closing of the Prior Credit Agreement, to refinance existing indebtedness, to fund consolidated capital expenditures, and for other purposes permitted. The proceeds of the Tranche A Term Loans and Tranche B Term Loans made on the Restatement Date shall be applied by Companies to (i) partially fund the Restatement Date Acquisition, (ii) refinance existing indebtedness of the Companies, (iii) pay fees and expenses in connection with the transactions contemplated by the Credit Agreement, and (iv) for working capital and other general corporate purposes.

The proceeds of the Revolving Loans were used for working capital and general corporate purposes. The proceeds of the MDTL Term Loans may be used for Permitted Acquisitions (as defined in the Credit Agreement). The Loans are evidenced, respectively, by that certain Tranche A Term Loan Note, Tranche B Term Loan Note, MDTL Note and Revolving Loan Note, all issued on February 15, 2017 (collectively, the “Notes”). Payment obligations under the Loans are subject to certain prepayment premiums, in addition to acceleration upon the occurrence of events of default under the Credit Agreement.

At December 31, 2017, the Company had a total outstanding gross balance of approximately $79,150,000 consisting of the Tranche A Term Loan, Tranche B and draw of the Revolving Commitments, of which approximately $68.8 million is classified as liabilities held for sale as it relates to the discontinued operations (and subsequent to year end transferred with the sale of such operations) and approximately $7 million is classified as held for use. The loans are secured by liens on substantially all of the assets of the Company and its subsidiaries. Tranche A Term Loan, Tranche B and all revolving commitments have a maturity date of December 22, 2020 with interest paid monthly at an annual rate of approximately 9% (subject to variation base on changes in LIBOR or another underlying reference rate), on the Tranche A Term Loan and revolving commitments. Interest is accrued at an annual rate of 11% on the Tranche B loan. In addition, there is a commitment fee paid monthly on the Multi-Draw Term Loans and Revolving Commitments at an annual rate of 0.5%. The Company has adopted ASU 2015-03 and is showing loan fees net of long-term debt on the consolidated balance sheet.

The amounts borrowed pursuant to the Loans are secured by a first position security interest in substantially all of the Company’s and subsidiaries assets.

In February 2017, the Company incurred an additional $1,057,950 of debt issuance costs related to the amendment and restatement of these notes. These costs are being amortized over the life of the notes using the effective interest rate method. At December 31, 2017 and December 31, 2016, the gross unamortized balance of the debt discount and issuance costs was $3,233,158 ($2,977,805 related to liabilities held for sale and $255,353 related to debt held for use) and $3,006,678 ($2,769,213 related to liabilities held for sale and $237,465 related to debt held for use), respectively.

As of December 31, 2017 and at certain times thereafter, the Company was in violation of covenants within its credit agreement with Goldman, Sachs & Co. Such covenant failures included, maintaining certain leverage and EBITDA ratios, exceeding maximum corporate overhead, exceeding maximum growth capital expenditures, and maintaining certain liquidity. As part of the agreement to sell the waste assets to Warren Equity Partners Fund II, $75.8 million of our indebtedness to Goldman Sachs & Co. will be satisfied with approximately $7 million remaining with the Company. Also, upon the closing of this agreement, the Company will execute a new amended and restated credit agreement with Goldman Sachs & Co., which will amend, restate and supersede all covenants in the prior agreement. As this transaction has not yet closed all debt owing to Goldman Sachs and Co. has been reclassed to current on the consolidated balance sheet.

In addition, in connection with the prior credit agreement, the Company issued warrants to Goldman, Sachs & Co. (“GS”) for the purchase of shares of the Company equal to 6.5% of the total common stock outstanding and common stock equivalents at a purchase price equal to $449,553, exercisable on or before December 22, 2023. The warrants grant the holder certain other rights, including registration rights, preemptive rights for certain capital raises, board observation rights and indemnification.

Due to the put feature contained in the agreement, the warrant was recorded as a derivative liability at December 31, 2016.

In January of 2017, the Company entered into an Amended and Restated Warrant Cancellation and Stock Issuance Agreement (the “Warrant Cancellation Agreement”). Pursuant to the Warrant Cancellation Agreement, upon the closing of a “Qualified Offering” as defined in the Warrant Cancellation Agreement, the Amended and Restated Warrant was cancelled and the Company issued to GS restricted shares of common stock in the amount equal to a 6.5% ownership interest in the Company calculated on a fully-diluted basis, which includes the shares of common stock issued pursuant to this offering, but excludes all warrants issued pursuant to such Qualified Offering and all shares underlying such warrants, pursuant to the terms and conditions of the Warrant Cancellation Agreement. A “Qualified Offering” is defined as an underwritten offering by the Company pursuant to which (1) the Company receives aggregate gross proceeds of at least $10,000,000 and (2) the Common Stock becomes listed on The Nasdaq Capital Market, or the New York Stock Exchange. As a result the Company issued GS 421,326 shares of common stock, with a fair value of $1,243,000 on January 30, 2017 for the warrant cancellation. The warrant liability fair value and carrying value at January 30, 2017 was $960,000 accordingly a loss on extinguishment of liability of $283,000 was recognized with approximately $261,000 of the loss classified within loss on discontinued operations and the remaining $22,000 presented within gain on extinguishment of debt in the consolidated statements of operations. Pursuant to the Warrant Cancellation Agreement, GS entered into a lock-up agreement, prohibiting the offer for sale, issue, sale, contract for sale, pledge or other disposition of any of the Company’s common stock or securities convertible into common stock for a period of 180 days after the date of the Qualified Offering, and no registration statement for any of our common stock owned by GS can be filed during such lock-up period.

The liability was revalued at each reporting period and changes in fair value were recognized in the consolidated statement of operations. Upon the initial recording of the derivative warrant at fair value the instrument was bifurcated and the Company recorded a debt discount of $2,160,000. This debt discount is being amortized as interest expense using the effective interest rate method over the life of the note, which is 5 years. At December 31, 2017 and December 31, 2016 the balance of the debt discount is $1,428,805 and $1,810,881, respectively.

The key inputs used in the September 30, 2016, December 31, 2016 and January 30, 2017 fair value calculations were as follows:

	January 30, 2017			December 31, 2016			September 30, 2016
Purchase Price	$	450,000		$	450,000		$	450,000
Time to expiration		12/22/2023			12/22/2023			12/23/2023
Risk-free interest rate		1.41	%		1.42	%		1.43	%
Estimated volatility		60	%		60	%		60	%
Dividend		0	%		0	%		0	%
Stock price	$	2.95		$	10.34		$	17.60
Expected forfeiture rate		0	%		0	%		0	%

The change in the market value for the period ending December 31, 2017 is as follows:

Fair value of warrants @ December 31, 2016	$	1,250,000

Unrealized gain on derivative liability		(290,000	)

Extinguishment of warrant liability		(960,000	)

Fair value of warrants @ December 31, 2017	$	-

In relation to the gain on derivative liability, approximately $267,000 of the gain is included in the loss from discontinued operations with the remaining $23,000 being presented within unrealized gain (loss) on change in fair value of derivative liability.

The change in the market value for the period ending December 31, 2016 was as follows:

Fair value of warrants @ December 31, 2015	$	2,820,000

Unrealized gain on derivative liability		(1,570,000	)

Fair value of warrants @ December 31, 2016	$	1,250,000

In relation to the unrealized gain on derivative liability, approximately $1,446,000 of the gain is included in the loss from discontinued operations with the remaining $124,000 being presented within unrealized gain (loss) on change in fair value of derivative liability.

Subordinated debt

In connection with the acquisition with Meridian Waste Services, LLC on May 15, 2014, notes payable to the sellers of Meridian issued five-year term subordinated debt loans paying interest at 8%. At December 31, 2017 and December 31, 2016, the balance on these loans was $1,475,000 and $1,475,000, respectively. In 2015 the term of these notes were extended an additional 5 years.

Other debts

Convertible notes due related parties

In November of 2016 the Company paid the $11,850 remaining in convertible notes to related parties, which included $1,850 in accrued interest.

Notes Payable, related parties

At December 31, 2014 the Company had a short term, non-interest bearing note payable of $150,000 which was incurred in connection with the Membership Interest Purchase Agreement. The Company also had a loan from Here to Serve Holding Corp. due to expenses paid by Here to Serve on behalf of the Company prior to the recapitalization. This loan totaled $376,585 bringing total notes payable to $526,585. In 2015, the short term, non-interest bearing note was paid off, and at December 31, 2016, the Company’s loan from Here to Serve Holding Corp. was $359,891, and is included in current liabilities on the consolidated balance sheet. Also included in liabilities held for sale on the consolidated balance sheet is a short-term loan received from an officer of the Company in December 2016 of $250,000. This loan was paid back, by the Company, in full, including interest of $20,000 on January 30, 2017. In February of 2017 the Company paid back $3,000 and in August of 2017 the Company paid back $350,000 to Here to Serve Holding Corp, which reduced the loan to $6,891, and is included in current liabilities on the consolidated balance sheet.

Total interest expense in continuing operations for the years ended December 31, 2017 and 2016 was approximately $567,000 and $425,000, respectively, including the amortization of debt discounts of approximately $67,000 and $40,000, respectively.

Future minimum payments on notes, excluding related party notes at December 31, 2017 are as follows:

2018	$	1,419,000
2019		126,000
2020		133,000
2021		6,136,000
2022		1,559,000
Thereafter		-
Total	$	9,373,000