5. NOTES PAYABLE AND CONVERTIBLE NOTES

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

5. NOTES PAYABLE AND CONVERTIBLE NOTES

The Company had the following long-term debt:

	September 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		15,898			37,096
Equipment loans		300,053			395,119
Notes payable to seller of Meridian, subordinated debt		1,475,000			1,475,000
Less: debt issuance cost/fees		(1,253,319	)		(1,416,697	)
Less: debt discount		(1,899,851	)		(2,152,603	)
Total debt		42,037,781			39,587,915
Less: current portion		(339,178	)		(417,119	)
Long term debt less current portion	$	41,698,603		$	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 certain lenders under a credit agreement among the Company, certain of its affiliates, the lenders party thereto and Goldman Sachs Specialty Lending Group, L.P., as administrative agent, collateral agent and lead arranger, consisting of $40,000,000 aggregate principal amount of Tranche A Term Loans, $10,000,000 aggregate principal amount of commitments to make MultiDraw Term Loans and up to $5,000,000 aggregate principal amount of Revolving Commitments. During the nine months ended September 30, 2016, the Company borrowed $2,150,000 in relation to the Revolving Commitments. At September 30, 2016, the Company had a total outstanding balance of $42,150,000 consisting of the Tranche A Term Loan and draw of the Revolving Commitments. The loans are secured by liens on substantially all of the assets of the Company and its subsidiaries. The debt has a maturity date of December 22, 2020 with interest paid monthly at an annual rate of approximately 9% (subject to variation based on changes in LIBOR or another underlying reference rate). In addition, there is a commitment fee paid monthly on the MultiDraw 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 longterm debt on the balance sheet. As of September 30, 2016 and at certain times thereafter, the Company was in violation of covenants within its credit agreement with Goldman, Sachs & Co.. The lenders and agents and the Company and its affiliates entered into a waiver and amendment letter on November 11, 2016 whereby the covenant violations were waived. The next measured date of all covenants is December 31, 2016. Should the Company have violations in the future that are not waived, it could materially effect the Company’s operations and ability to fund future operations.

In addition, in connection with the credit agreement, the Company issued warrants to Goldman, Sachs & Co. 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 & Co. has been measured at fair value at September 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 September 30, 2016 the balance of the debt discount is $1,899,851. 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 using the effective interest rate method. At September 30, 2016, the unamortized balance of the costs was $1,253,319.

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

	September 30,
	2016
Purchase Price	$	450,000
Time to expiration	12/22/2023
Risk-free interest rate		1.43	%
Estimated volatility		60	%
Dividend		0	%
Stock price on September 30, 2016	$	0.88
Expected forfeiture rate		0	%

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

Fair value of warrants @ December 31, 2015	$	2,820,000
Unrealized gain on derivative liability		(1,280,000	)
Fair value of warrants @ September 30, 2016	$	1,540,000

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 September 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 September 30, 2016, the balance of the remaining three loans was $300,054.

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 September 30, 2016 the Company had $11,850 remaining in convertible notes with an annual interest rate of 6% to related parties, which includes $1,850 in accrued interest and is included in current liabilities on the consolidated balance sheet. The note is no longer convertible as of September 30, 2016 as maturity date has passed. The Company and management have agreed that principal and all accrued interest will be paid back to the related party in the fourth quarter of 2016.

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 September 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 nine months ended September 30, 2016 was $1,224,217 and $3,603,807, respectively. Amortization of debt discount was $86,913 and $252,751, respectively. Amortization of capitalized loan fees was $56,156 and $163,377, respectively. Interest expense on debt was $1,081,148 and $3,187,679, respectively.