6. NOTES PAYABLE AND CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

6. NOTES PAYABLE AND CONVERTIBLE NOTES

The Company issued two promissory notes to related parties during the year ended December 31, 2014. These notes totaled $125,000 and are generally convertible into common stock of the Company at discounts of 20 % to 25% of the lowest average trading prices for the stock during periods five to one day prior to the conversion date. These notes bears interest at 10% to 12%, are unsecured, and matures within one year of the date issued. The notes were issued to provide working capital for the Company.  These notes are considered a stock settled debt in accordance with ASC 480 since any future stock issued upon conversion will have a fixed monetary value.  Due to the conversion feature included in the notes, the Company has recorded a premium on the notes totaling $31,250 as of December 31, 2014.  This amount has been charged to interest expense by the Company.

In previous periods the Company issued two other notes to other related parties. These notes totaled $110,000 and are generally convertible into common stock of the Company at discounts of 20% to 25% of the lowest average trading prices for the stock during periods five to one day prior to the conversion date.  These notes bear interest at 10% to 12%, are unsecured, and mature within one year of the date issued. The notes were issued to provide working capital for the Company.   These notes are considered a stock settled debt in accordance with ASC 480 since any future stock issued upon conversion will have a fixed monetary value.  Due to the conversion feature included in the notes, the Company has recorded a premium on the notes totaling $35,833 as of December 31, 2014.  This amount has been charged to interest expense by the Company.

At June 30, 2015 the Company had $302,083 in convertible notes to related parties which includes $67,083 in put premiums.

At December 31, 2014 the Company had a short term, non-interest bearing note payable of $150,000 which was incurred in connection with the Membership Interest Purchase Agreement discussed above.  This note was paid in January, 2015.  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 which totaled $376,585.  The balance of these notes payable was $366,585 and $526,585 at June 30, 2015 and December 31, 2014, respectively.

Here To Serve – Missouri Waste Division, LLC, a subsidiary of the Company, had the following in long term debt:

	June 30, 2015			December 31, 2014
Debt payable to Comerica Bank, senior lender	$	8,029,762		$	8,708,333
Equipment loans		171,986			-
Notes payable to seller of Meridian, subordinated debt		1,475,000			1,475,000
Total debt		9,676,748			10,183,333
Less: current portion		(1,403,675	)		(1,357,143	)
Long term debt less current portion	$	8,273,073		$	8,826,190

At close on May 15, 2014, the notes payable to the sellers of Meridian were five-year term subordinated debt loans paying interest at 8%.  The Company’s Senior Secured Loan has an interest rate LIBOR plus 4.25% with a  two-year term based on a seven-year amortization schedule.  In addition, the Company has a working capital line of credit of $1,250,000 at 4.75% of which the Company has drawn down $919,022 and $1,085,160 as of June 30,

2015 and December 31, 2014, respectively.  There is CAPEX line of credit of $750,000, of which the Company has drawn down $570,333 and  $590,000 as of June 30, 2015 and December 31, 2014, respectively; again at 4.75% interest.  Finally, during the three months ending June 30, 2015, the Company entered into two long-term loan agreements in connection with the purchase of equipment with rates between 4% and 5%.  At June 30, 2015, the balance of these two loans was $171,986.

Derivative Liability

The Company sometimes borrows at variable rates and uses interest rate swaps as cash flow hedges of future interest payments, which have the economic effect of converting borrowings from floating rates to fixed rates.  The interest rate swaps allow the Company to raise long-term borrowings at floating rates and swap them into fixed rates that are lower than those available if it borrowed at fixed rates directly.  Under the interest rate swaps, the

Company agrees with other parties to exchange, at specified intervals, the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

At December 31, 2014, the Company has $5,414,634 of non-amortizing variable rate debt outstanding with interest payments due on a monthly basis.  The note accrues interest at the 1-month LIBOR plus 4.25%.  In order to hedge interest rate risk, the Company entered into an interest rate swap for a notional amount of $5,414,634 at fixed rate of 4.75%.  Under the swap agreement, the Company pays the fixed rate on the $5,414,634 notional amount on a monthly basis, and receives the 1-month LIBOR plus 4.25% on a monthly basis.  Payments are settled on a net basis, and the Company has effectively converted its variable-rate debt into fixed-rate debt with an effective interest rate of 4.75%.  As of June 30, 2015, the net settlement amount of the interest rate swap was $30,584.

Short-term Bridge Financing

During February, 2015, the Company entered into two short term financing arrangements with U.S. Capital Partners.  The Company receive gross proceeds of $750,000 with terms of repaying debt with equal payments over a period of 240 business days.  The detail of the payments and the respective balances are as follows:

	Short term			Short term
	Bridge Financing 1			Bridge Financing 2			Total
Original gross proceeds	$	250,000		$	500,000		$	750,000
Daily payment	$	1,344		$	2,688		$	4,032
Balance at June 30, 2015:
Gross payments due over life of loan	$	196,187		$	397,749		$	593,936
Less: Unamortized loan origination discount		(44,056	)		(89,296	)		(133,352	)
Net borrowing under short term bridge financing	$	152,131		$	308,453		$	460,584