5. NOTES PAYABLE AND CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

5. NOTES PAYABLE AND CONVERTIBLE NOTES

The Company had the following long-term debt:

	June 30, 2016 (UNAUDITED)			December 31, 2015 (UNAUDITED)
Goldman Sachs - Tranche A Term Loan - LIBOR Interest	$	40,000,000		$	40,000,000
Goldman Sachs - Revolver		2,150,000			-
Goldman Sachs - MDTL		-			-
Convertible Notes Payable		1,250,000			1,250,000
Capitalized lease - financing company, secured by equipment		31,962			37,096
Equipment loans		269,341			395,119
Notes payable to seller of Meridian, subordinated debt		1,475,000			1,475,000
Less: debt issuance cost/fees		(1,309,241	)		(1,416,697	)
Less: debt discount		(1,986,346	)		(2,152,603	)
Total debt		41,880,716			39,587,915
Less: current portion		(328,589	)		(417,119	)
Long term debt less current portion	$	41,552,127		$	39,170,796

Goldman Sachs Credit Agreement

On December 22, 2015, in connection with the closing of acquisitions of Christian Disposal, LLC and certain assets of Eagle Ridge Landfill, LLC, the Company was extended certain credit facilities by Goldman Sachs, consisting of $40,000,000 aggregate principal amount of Tranche A Term Loans, $10,000,000 aggregate principal amount of Multi- Draw Term Loans and up to $5,000,000 aggregate principal amount of Revolving Commitments. During the six months ended June 30, 2016, the Company borrowed $2,150,000 in relation to the Revolving Commitments. At June 30, 2016, the Company had at total outstanding balance of $42,150,000 consisting of the Tranche A Term Loan and draw of the Revolving Commitments. The loans are collateralized by the assets of the Company. The debt has a maturity date of December 22, 2020 with interest paid monthly at an annual rate of 9%. In addition, there is a commitment fee paid monthly on the Mutli-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 balance sheet. As of June 30, 2016 The Company was in violation of a covenant within its agreement with Goldman Sachs. On August 15, 2016, Goldman Sachs and the Company entered into the third amendment to the credit agreement whereby the covenant violation was waived, amended, and the Company is now in compliance.  The Company is in compliance with all covenants, associated with the amended credit agreement.

In addition, in connection with the credit agreement, the Company issued warrants to Goldman Sachs for the purchase of shares of the Company’s common stock equivalent to a 6.5% Percentage Interest 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, a derivative liability was recorded for the warrant.

The Company’s derivative warrant instrument related to Goldman Sachs has been measured at fair value at June 30, 2016, using the Black-Scholes model. The liability is revalued at each reporting period and changes in fair value are recognized currently 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 June 30, 2016 the balance of the debt discount is $1,986,346. The Company incurred $1,446,515 of issuance cost related to obtaining the notes. These costs are being amortized over the life of the notes. At June 30, 2016, the unamortized balance of the costs was $1,309,241.

The key inputs used in the June 30, 2016 and December 31, 2015 fair value calculations were as follows:

	June 30,
	2016
Purchase Price	$	450,000
Time to expiration		12/22/2023
Risk-free interest rate		1.32	%
Estimated volatility		60	%
Dividend		0	%
Stock price on June 30, 2016	$	1.50
Expected forfeiture rate		0	%

The change in the market value for the period ending June 30, 2016 is as follows:

Fair value of warrants @ December 31, 2015	$	2,820,000
Unrealized gain on derivative liability		(120,000	)
Fair value of warrants @ June 30, 2016	$	2,700,000

Convertible Notes Payable

In 2015, as part of the purchase price consideration of the Christian Disposal acquisition, the Company issued a convertible promissory note to seller in the amount of $1,250,000. The note bears interest at 8% and matures on December 31, 2020. The seller may convert all or any part of the outstanding and unpaid amount of this note into fully paid and non-assessable common stock in accordance with the agreement.

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 June 30, 2016 and December 31, 2015, the balance on these loans was $1,475,000 and $1,475,000, respectively.

The debt payable to Comerica at December 31, 2015 and the Equipment loans at December 31, 2015 were the debt of Here to Serve- Missouri Waste Division, LLC, a subsidiary of the Company.

Equipment Loans

During the year ended December 31, 2015, the Company entered into four long-term loan agreements in connection with the purchase of equipment with rates between 4% and 5%. In May of 2016 one of these equipment loans was paid in full. At June 30, 2016, the balance of the remaining three loans was $269,341.

Other Debts

Convertible notes due related parties

In 2015, approximately $225,000 of the issued promissory notes were converted into approximately 461,000 shares at the contractual conversion price. At June 30, 2016 the Company had $15,065 remaining in convertible notes to related parties, which includes $5,065 in put premiums and accrued interest and is included in current liabilities on the consolidated balance sheet.

Notes Payable, related party

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. 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 June 30, 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.

Total interest expense for the three and six months ended June 30, 2016 was $1,146,841 and $2,379,590, respectively. Amortization of debt discount was $84,089 and $165,838, respectively. Amortization of capitalized loan fees was $54,367 and $107,221, respectively.  Interest expense on debt was $1,008,385 and $2,106,531, respectively.