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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
For the quarterly period ended: June 30, 2015
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File No. 000-13984
 
MERIDIAN WASTE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
 
New York
 
133832215
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification No.)
 
12540 Broadwell Road, Suite 1203
Milton, GA 30004
(Address of principal executive offices)
 
678-871-7457
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
o
 
Accelerated filer
o
         
Non-accelerated filer
o
 
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
As of August 14, 2015, there were 15,827,811 shares outstanding of the registrant’s common stock.
 


 
 
 
 
 
TABLE OF CONTENTS
 
   
PART I – FINANCIAL INFORMATION
   
         
Item 1.
 
Financial Statements
  3
         
   
Consolidated Balance Sheets
  3
         
   
Consolidated Statements of Operations (unaudited)
  4
         
   
Consolidated Statements of Cash Flows (unaudited)
  5
         
   
Notes to the Consolidated Financial Statements (unaudited)
  6
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  23
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
  28
         
Item 4.
 
Controls and Procedures
  28
         
   
PART II – OTHER INFORMATION
   
         
Item 1.
 
Legal Proceedings
  29
         
Item 1A.
 
Risk Factors
  29
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
  29
         
Item 3.
 
Defaults Upon Senior Securities
  29
         
Item 4.
 
Mine Safety Disclosures
  29
         
Item 5.
 
Other Information
  29
         
Item 6.
 
Exhibits
  29
         
Signatures
  30
  
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
Meridian Waste Solutions, Inc.
Consolodated Balance Sheet
 
   
June 30,
       
   
2015
   
December 31,
 
   
(UNAUDITED)
   
2014
 
ASSETS
           
Current Assets
           
Cash
  $ 333,363     $ 438,907  
Accounts receivable, trade, net
    622,368       588,479  
Employee advance
    10,736       37  
Prepaid expenses
    118,857       221,999  
Other current assets
    27,877       41,815  
Total Current Assets
    1,113,201       1,291,237  
                 
Property and Equipment, net of accumulated
               
depreciation of $1,763,650 and $956,315 respectively
    7,572,562       7,654,765  
                 
Other Assets
               
Investment in related party affiliate
    434,532       -  
Capitalized software
    -       434,532  
Customer list, net of accumulated
               
amortization of $3,268,405 and $1,867,660 respectively
    10,739,047       12,139,792  
Deposits
    8,303       8,303  
Loan fees, net of accumulated
               
amortization of $19,683 and $11,247 respectively
    30,930       39,365  
Non-compete, net of accumulated
               
amortization of $35,000 and $20,000 respectively
    115,000       130,000  
Website, net of accumlated
               
amortization of $1,625 and $232 respectively
    12,295       13,688  
Total Other Assets
    11,340,107       12,765,680  
                 
TOTAL ASSETS
  $ 20,025,870     $ 21,711,682  
                 
LIABILITIES & SHAREHOLDERS' EQUITY
               
Liabilities
               
Current Liabilities
               
Accounts payable
  $ 840,066     $ 449,840  
Accrued expenses
    244,811       67,365  
Notes payable
    366,585       526,585  
Deferred compensation
    1,069,000       729,000  
Deferred revenue
    2,019,332       1,929,882  
Convertible notes due related parties, includes put premiums
    302,083       302,083  
Short term bridge financing, net of original issue disount
    460,584       -  
Operating line of credit and capital expenditure line of credit
    1,489,355       1,675,160  
Current portion - long term debt
    1,403,675       1,357,143  
Total Current Liabilities
    8,195,491       7,037,058  
                 
Derivative liability - interest rate swap
    30,584       40,958  
Long-term notes payable
               
Less:  current portion - long term debt
    8,273,072       8,826,190  
                 
Total Liabilities
    16,499,147       15,904,206  
                 
Shareholders' Equity
               
Preferred Series A stock, par value $.001, 51 shares authorized, issued and outstanding
    -       -  
Preferred Series B stock, par value $.001, 71,210 shares authorized, issued and outstanding
    71       71  
Common stock, par value $.025, 75,000,000 shares authorized, 15,827,811 and 9,963,418 shares issued and outstanding, respectively
    395,695       249,085  
Treasury stock, at cost (230,000 shares)
    (224,250 )     (224,250 )
Additional paid in capital
    21,822,836       14,370,296  
Accumulated deficit
    (18,467,629 )     (8,587,726 )
Total Shareholders' Equity
    3,526,723       5,807,476  
                 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY
  $ 20,025,870     $ 21,711,682  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
3

 
 
Meridian Waste Solutions, Inc.
Consolidated Statements of Operations
 
   
Three Months Ended
    Six Months Ended  
   
June 30,
2015
   
June 30,
2014
   
June 30,
2015
   
June 30,
2014
 
     (UNAUDITED)       (UNAUDITED)       (UNAUDITED)       (UNAUDITED)  
                         
Revenue
                       
Software sales
  $ -     $ 4,133     $ -     $ 4,133  
Services
    3,315,290       3,085,752       6,351,109       5,908,705  
Total Revenue
    3,315,290       3,089,885       6,351,109       5,912,838  
                                 
Cost of Sales/Services
                               
Cost of Sales/Services
    2,051,415       1,934,392       3,884,473       3,666,844  
Depreciation
    396,807       335,452       778,383       716,199  
Total Cost of Sales/Services
    2,448,222       2,269,844       4,662,856       4,383,043  
                                 
Gross Profit
    867,068       820,041       1,688,253       1,529,795  
                                 
Expenses
                               
Bad debt expense
    -       2,335       2,738       2,335  
Compensation and related expense
    6,350,937       207,361       8,380,405       392,393  
Depreciation and amortization
    728,913       480,182       1,454,525       487,877  
Selling, general and administrative
    767,673       882,800       1,353,850       1,131,426  
Total Expenses
    7,847,523       1,572,678       11,191,518       2,014,031  
                                 
Other Income (Expenses):
                               
Gain (loss) on disposal of asset
    6,250       -       6,250       -  
Miscellaneous income (loss)
    16,926       1,836       18,023       3,274  
Unrealized gain on interest rate swap
    7,303       -       10,374       -  
Interest expense
    (221,209 )     (194,667 )     (411,285 )     (232,580 )
Total Other Expenses
    (190,730 )     (192,831 )     (376,638 )     (229,306 )
                                 
Net Income (Loss) before income taxes
    (7,171,185 )     (945,468 )     (9,879,903 )     (713,542 )
                                 
Income tax expense
    -       -       -       -  
                                 
Net Loss
  $ (7,171,185 )   $ (945,468 )   $ (9,879,903 )   $ (713,542 )
                                 
Basic Net Loss Per Share
  $ (0.56 )   $ (0.10 )   $ (0.83 )   $ (0.08 )
                                 
Weighted Average Number of Shares Outstanding
                         
(Basic and Diluted)
    12,883,855       9,054,134       11,872,759       9,054,134  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
4

 
 
Meridian Waste Solutions, Inc.
Statements of Cash Flows
 
    Six Months Ended  
   
June 30,
2015
   
June 30,
2014
 
   
(UNAUDITED)
   
(UNAUDITED)
 
OPERATING ACTIVITIES
           
Net loss from operations
  $ (9,879,903 )   $ (713,542 )
Adjustment to reconcile net loss to net cash used in operating activities:
         
Depreciation and Amortization
    2,232,907       1,203,562  
Stock issued to vendors for services
    242,970       -  
Stock issued to employees as incentive compensation
    7,356,180       -  
(Gain)Loss on disposal of equipment
    (6,250 )     -  
Changes in working capital items:
               
Accounts receivable
    (33,890 )     (64,249 )
Deposits
    -       (20,000 )
Employee advance/other receivables
    (10,699 )     653  
Loan Fees
    -       (50,613 )
Prepaid expenses
    117,080       45,103  
Accounts payable and accrued expenses
    567,672       146,926  
Increase in deferred compensation
    340,000       -  
Deferred revenue
    89,450       84,816  
Derivative liability
    (10,374 )     -  
Other current liabilities
    (485,220 )     63,605  
Cash flow from operating activities
    519,923       696,261  
                 
INVESTING ACTIVITIES
               
Proceeds from sale of equipment
    6,250       -  
Note payable issued for acquisition
    -       (150,000 )
Purchased capitalized software
    -       (90,395 )
Cash paid for acquisition
    -       (11,000,000 )
Equipment acquired through acquisition of subsidiary
    -       1,908,998  
Purchased equipment
    (725,131 )     -  
Cash flow from investing activities
    (718,881 )     (9,331,397 )
                 
FINANCING ACTIVITIES
               
Net proceeds from issuance of debt
    -       7,689,146  
Principle payments on notes payable
    (656,586 )     (211,544 )
Proceeds from short term bridge financing
    750,000       -  
Cash flow from financing activities
    93,414       7,477,602  
                 
Net change in cash
    (105,544 )     (1,157,534 )
Beginning cash
    438,907       1,471,131  
Ending Cash
  $ 333,363     $ 313,597  
                 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 404,691     $ 2,000  
                 
Supplemental Non-Cash Investing and Financing Information:
         
Disposition  of capitalized software in exchange for equal value of equity in acquiring entity
  $ 434,532     $ -  
Preferred stock issued in connection with acquisition of subsidiary
  $ -     $ 7,121,000  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
5

 
 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
 
NOTE 1 – NATURE OF OPERATIONS AND ORGANIZATION

Nature of Operations

Meridian Waste Solutions, Inc. (formerly Brooklyn Cheesecake and Desserts Company, Inc.) (the “Company”) is currently operating under  two separate Limited Liability Companies; Here To Serve Missouri Waste Division, LLC (“HTSMWD”), a Missouri Limited Liability Company and Here To Serve Georgia Waste Division, LLC (“HTSGWD”), a Georgia Limited Liability Company.

In 2014, HTSMWD purchased the assets of a large solid waste disposal company in the St. Louis, MO market. See Explanation of Change in Accounting Basis below.  This acquisition is considered the platform company for future acquisitions in the solid waste disposal industry.  HTSGWD was created to facilitate expansion in this industry throughout the Southeast.  The Company is primarily in the business of residential and commercial waste hauling and has contracts with various cities and municipalities.  The majority of the Company’s customers are located in the St. Louis metropolitan area.
 
Organization

Spinoff of Here to Serve Technology, LLC
On January 7, 2015, in an effort to give investors a more concentrated presence in the waste industry the Company sold the capitalized software assets of Here to Serve Technology, LLC (HTST) to Mobile Science Technologies, Inc., a Georgia corporation (MSTI), a related party due to being owned by some of the shareholders of the Company. No gain or loss was recognized on this transaction as the Company received equity equal to book value ($434,532) of the capitalized software in the exchange.  This represents approximately 15% of the equity of MSTI and is reflected in the accompanying balance sheet as “investment”.  This investment is accounted for using the cost basis method (see Investment in Note 2 below).  Also see Note 12 – Related Party, below.

Recapitalization

On October 17, 2014 Here to Serve Missouri Waste Division, LLC, (HTSMWD) a Missouri Limited Liability Company, which is the historical business, entered into a Share Exchange Agreement with the Company and the sole member of HTSMWD whereby the Company agreed to acquire the membership interest of HTSMWD, HTST and HTSGWD in exchange for 9,054,134 shares of the Company’s common stock.  This transaction was closed on October 17, 2014 and HTSMWD became wholly-owned by the Company.  The Company is deemed to have issued 1,139,284 shares of common stock which represents the outstanding common shares of the Company just prior to the closing of the transaction.

 
6

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
 
NOTE 1 – NATURE OF OPERATIONS AND ORGANIZATION (CONTINUED)

At closing, the Company issued 9,054,134 shares of its common stock to the sole member of HTSMWD and the shareholders of the sole member who obtained approximately 90% control and management control of the Company.  The transaction was accounted for as a reverse acquisition and recapitalization of HTSMWD whereby HTSMWD is considered the acquirer for accounting purposes.  The consolidated financial statements after the acquisition include the balance sheets of both companies and HTST and HTSGWD at historical cost, the historical results of HTSMWD, HTST and HTSGWD.  All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization (see Explanation of Membership Interest Purchase Agreement below).

Explanation of Membership Interest Purchase Agreement

On October 17, 2014, (the “Execution Date”), Meridian Waste Solutions, Inc. entered into that certain Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among Here to Serve Holding Corp., a Delaware corporation, as seller (“Here to Serve”), the Company, as parent, Brooklyn Cheesecake & Dessert Acquisition Corp., a wholly-owned subsidiary of the Company, as buyer (the “Acquisition Corp.”), the Chief Executive Officer of the Company (the “Company Executive”), the majority shareholder of the Company (the “Company Majority Shareholder”) and certain shareholders of Seller (the “Seller Shareholders”), pursuant to which the Acquisition Corp shall acquire from Here to Serve all of Here to Serve’s right, title and interest in and to (i) 100% of the membership interests of Here to Serve – Missouri Waste Division, LLC d/b/a Meridian Waste, a Missouri limited liability company (“HTS Waste”); (ii) 100% of the membership interests of Here to Serve Technology, LLC, a Georgia limited liability company (“HTS Tech”); and (iii) 100% of the membership interests of Here to Serve – Georgia Waste Division, LLC, a Georgia limited liability company (“HTS Waste Georgia”, and together with HTS Waste and HTS Tech, collectively, the “Membership Interests”).  As consideration for the Membership Interests, (i) the Company shall issue to Here to Serve 9,054,134 shares of the Company’s common stock, (the “Common Stock”); (ii) the Company shall issue to the holder of Class A Preferred Stock of Here to Serve (“Here to Serve’s Class A Preferred Stock”) 51 shares of the Company’s to-be-designated Class A Preferred Stock (the “Class A Preferred Stock”), which Class A Preferred Stock shall have the rights and preferences as described in the Purchase Agreement.  See Note 6 below; (iii) the Company shall issue to the holder of Class B Preferred Stock of Here to Serve (Here to Serve’s Class B Preferred Stock”) an aggregate of 71,120 shares of the Company’s to-be-designated Class B Preferred Stock (the “Class B Preferred Stock”), (the Common Stock, the Class A Preferred Stock and the Class B Preferred Stock are referred to as the “Purchase Price Shares;”), and (iv) the Company shall assume certain assumed liabilities (the “Initial Consideration”).

As further consideration, at the closing of the transaction contemplated under the Purchase Agreement, (i) in satisfaction of all accounts payable and shareholder loans, Here to Serve will pay to Company Majority Shareholder $70,000 and (ii) the Company purchased from the
 
 
7

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 1 – NATURE OF OPERATIONS AND ORGANIZATION (CONTINUED)

then Company Majority Shareholder 230,000 shares of the Company’s common stock for a purchase price of $230,000.  Pursuant to the Purchase Agreement, to the extent Purchase Price Shares are issued to individual shareholders of Here to Serve at or upon closing of the Purchase Agreement: (i) shares of common stock of Here to Serve held by the individuals will be cancelled (ii) 1,000,000 shares of Here to Serve’s Class A Preferred Stock will be cancelled; and (iii) 71,120 shares of Here to Serve’s Class B Preferred Stock will be cancelled (the “Additional Consideration”).

On October 17, 2014, the directors and majority shareholders of the Company approved the Purchase Agreement and the transactions contemplated under the Purchase Agreement. The directors of Here to Serve and the Here to Serve Shareholders approved the Purchase Agreement and the transactions contemplated thereunder.  This closing of the Purchase
Agreement results in a change of control of the Company and the Company changed its business plan to that of HTSMWD.

Explanation of Change in Accounting Basis

The merger of Here to Serve Holding Corp. (Here to Serve), a Delaware Corporation, and Meridian Waste Services, LLC became effective May 15, 2014.  The merger was accounted for by Here to Serve using business combination accounting.  Under this method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value.  By the application of “push-down” accounting, our assets, liabilities and equity were accordingly adjusted to fair value on May 15, 2014.  Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions.

At the time of merger Here to Serve was a company with nominal operations whereas Meridian Waste Services, LLC consisted of the active and carry-forward business.  Accordingly Meridian Waste Services, LLC is deemed to be the predecessor entity and as such is presented as the comparable financial statements.  As such our financial statements are presented in two distinct periods to indicate the application of two different basis of accounting.  The Statement of Operations and Statement Cash Flows for the periods ending June 30, 2014 represent the results of operation of Meridian Waste Services, LLC, the predecessor and are presented for comparison purposes.

Also, see Note 4 – Acquisition below.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and
 
 
8

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Article 8-03 of Regulation S-X.  Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements.  The unaudited consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on April 15, 2015.

In the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of June 30, 2015, and the results of operations and cash flows for the three and six months ending June 30, 2015 are not necessarily indicative of the results to be expected for a full year.

Basis of Consolidation

The consolidated financial statements for the six months ending June 30, 2015 include the operations of the Company and its wholly-owned subsidiary Here to Serve Missouri Waste Division, LLC.  The consolidated financial statements for the year ended December 31, 2014 include the operations of the Company and its wholly-owned subsidiaries, Here To Serve Missouri Waste Division, LLC and Here To Serve Technology, LLC (See Note 1 above for information related to the spinoff of Here To Serve Technology, LLC.  The other subsidiary of the Company, Here To Serve Georgia Waste Division, LLC had no operations during the period.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, other liabilities, accrued interest, notes payable, and an amount due to a related party. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
 
 
9

 
 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of long-lived assets

The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.  The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset.  The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.  During the six months ending June 30, 2015, the Company experienced no losses due to impairment.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
 
The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
 
The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively
 
 
10

 
 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2014, tax years ended December 31, 2013, 2012, 2011 are still potentially subject to audit by the taxing authorities.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable

At June 30, 2015 the Company had $675,402 of gross trade receivables.    At December 31, 2014, the Company had $659,646 of gross trade receivables.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts equal to the estimated collection losses that will be incurred in collection of receivables related to residential customers and commercial project invoices.  The estimated losses are based on managements’ evaluation of outstanding accounts receivable at the end of the accounting period.  At June 30, 2015, an allowance of $53,033 was recorded.  At December 31, 2014, the Company had an allowance of $71,167.

Intangible Assets

Intangible assets consist of assets acquired and costs incurred in connection with the development of the Company’s capitalized software. See note below.  The Company also has intangible assets related to the purchase of Meridian Waste Services, LLC.  See Note 4 below.  These intangibles assets are amortized over periods between 3 and 5 years.

Investment

The Company has an investment in a privately held corporation in the mobile apps industry.  As the Company does not exercise significant influence on this entity, this investment is recorded using the cost method of accounting.  The Company monitors this investment for impairment and makes appropriate reductions in the carrying value if the Company

 
11

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

determines that an impairment charge is required based primarily on the financial condition and near-term prospect of this entity.

Capitalized Software

The Company acquired a software product that is under further development. This asset will be amortized over a three to five year period using the straight-line method of depreciation for book purposes beginning when the software is completed.

The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility.  The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgement by management with respect to certain external factors such as anticipated future revenue, estimated economic life and changes in software and hardware technologies.  Amortization of the capitalized software development costs begins when the product is available for general release to customers.  Capitalized costs are amortized over the remaining estimated economic life of the product.  For the year ended December 31, 2014, the Company has capitalized costs associated with the development of several mobile science technology products and mobile apps that has not been placed into service.  The assets were disposed of in the Spinoff discussed in Note 1 above.  Also, see Note 12 – Related Party, below.

Website Development Costs

The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”.  Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.

Revenue Recognition

The Company recognizes revenue when there is persuasive evidence of that an arrangement exists, the revenue is fixed or determinable, the products are fully delivered or services have been provided and collection is reasonably assured.  The majority of the Company’s revenues are generated from the fees charged for waste collection, transfer, disposal and recycling.  The fees charged for our services are generally defined in service agreements and vary based on contract-specific terms such as frequency of service, weight, volume and the general market factors influencing a region’s rate.
 
 
12

 
 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred Revenue

The Company’s Missouri Waste Division bills one month in advance for the following three months.  The balance in deferred revenue represents amounts billed in April, May and June for services that will be provided during July, August and September.

Cost of Services

Cost of services include all employment costs associated with waste collection, transfer and disposal, damage claims, landfill costs, personal property taxes associated with collection vehicles and other direct costs of the collection and disposal process.

Concentration of Credit Risks

The Company maintains its cash and cash equivalents in bank deposit accounts, which could, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be at risk if the bank experiences financial difficulties.  The Company places its cash with high credit quality financial institutions.  The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.

Financial instruments which also potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms.

The Company’s subsidiary, HTSMWD has two municipal contracts that account for a significant portion of the Company’s long-term contracted revenue.   One contract accounted for 28% and 26% and the other accounted for 18% and 19% of HTS Waste’s long-term contracted revenue for the three months ended June 30, 2015 and 2014 respectively.  One contract accounted for 30% and 29% and the other accounted for 19% and 20% of HTS Waste’s long-term contracted revenue for the six months ended June 30, 2015 and 2014 respectively.
 
Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. A diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. At

 
13

 
 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

June 30, 2015 the Company had a series of convertible notes outstanding that could be converted into approximately 265,661 common shares. These are not presented in the statement of operations since the company incurred a loss and the effect of these shares is anti- dilutive.

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options.

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period).  The ASC also require measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.”  The expense is recognized over the service period of the award.  Until the measurement date is reached, the total amount of compensation expense remains uncertain.  The Company initially records compensation expense based on the fair value of the award at the reporting date.

The Company recorded stock based compensation expense of $7,599,150 and $0 during the six months ended June 30, 2015 and 2014, respectively.

Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

NOTE 3 – OTHER CURRENT ASSETS

Other current assets are refundable deposits owned by HTSMWD.

 
14

 

MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment, including purchased and developed software is recorded at cost. The Company has depreciated or amortized these assets using the straight-line method over the useful lives of the asset. The useful lives are estimated to be between 2 and 7 years.

Property and equipment consisted of the following:
 
   
June 30,
2015
   
December 31,
2014
 
Furniture & office equipment   $ 249,947     $ 240,102  
Containers     3,274,407       2,847,205  
Trucks     5,811,858       5,523,773  
Total Property and Equipment     9,336,212       8,611,080  
Less: Accumulated Depreciation     (1,763,650 )     (956,315 )
Net Property and Equipment   $ 7,572,562     $ 7,654,765  
 
Depreciation Expense for June 30, 2015 and 2014 was $807,335 and $729,349, respectively.

NOTE 5 – INTANGIBLE ASSETS AND ACQUISITION

On May 15, 2014, the Company, in order to establish a presence in the solid waste disposal industry, entered into an asset purchase agreement by and among the Company, HTSMWD, Meridian Waste Services, LLC (“MWS”) and the members of MWS, pursuant to which HTSMWD acquired certain assets and liabilities of MWS, in exchange for $11,000,000 cash, 13,191,667 shares of Class A Common Stock of HTSHC and 71,210 shares of Series B Cumulative Convertible Preferred Stock of HTSHC.

The merger was accounted for by Here to Serve using business combination accounting.  Under this method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value.  By the application of “push-down” accounting, our assets, liabilities and equity were accordingly adjusted to fair value on May 15, 2014.  Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions.

The purchase of MWS included the acquisition of assets of $22,175,706 and liabilities of $2,075,956.  The aggregate purchase price consisted of the following:
 
Cash   $ 11,000,000  
Estimated value of common stock issued to sellers     1,978,750  
Estimated value of preferred stock issued to sellers     7,121,000  
    $ 20,099,750  
 
 
 
15

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 5 – INTANGIBLE ASSETS AND ACQUISITION (CONTINUED)

The following table summarizes the estimated fair value of MWS assets acquired and liabilities assumed at the date of acquisition:
 
Accounts receivable   $ 632,322  
Prepaid expenses     123,544  
Deposits     8,303  
Containers     2,710,671  
Furniture and equipment     299,450  
Trucks     4,243,964  
Customer lists     14,007,452  
Non-compete agreement     150,000  
Accounts payable and accrued expenses     (54,387 )
Notes payable     (143,464 )
Deferred revenue     (1,878,105 )
    $ 20,099,750  
 
Intangible Assets

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization:
 
    June 30, 2015  
 
Remaining
       
Accumulated
   
Net Carrying
 
 
Useful Life
 
Cost
   
Amortization
   
Value
 
                     
Customer list
4.25 years
  $ 14,007,452     $ 3,268,405     $ 10,739,047  
                           
Loan fees
4.25 years
    50,613       19,683       30,930  
                           
Non compete agreement
4.25 years
    150,000       35,000       115,000  
                           
Website
2.65 years
    13,920       1,625       12,295  
                           
      $ 14,221,985     $ 3,324,713     $ 10,897,272  
 
Amortization expense amounted to $1,425,573 and $474,727 for the six months ending June 30, 2015 and 2014, respectively
 
NOTE 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
 
 
16

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
 
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)

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
 
 
17

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
 
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)

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:

 
18

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015

NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)

   
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  
 
NOTE 7 – STOCK HOLDERS’ EQUITY

The Company has 75,000,000 shares of common stock authorized with a par value of $0.025 and 71,261 shares of Preferred stock with a par value of $0.001.  There were 15,827,811 and 9,963,418 common shares outstanding as of June 30, 2015 and December 31, 2014, respectively.  There were 71,261 of Preferred shares outstanding at June 30, 2015 and December 31, 2014.  There are two classes of Preferred stock, Series A and Series B.

There are 51 shares of Series A Preferred stock issued and outstanding as of June 30, 2015 and December 31, 2014.   Series A stock has no conversion rights, is senior to any other class or series of capital stock of the Company and special voting rights.  Each one (1) share of Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y)  0.49, Minus (z) the Numerator.

There are 71,210 shares of Series B Preferred Stock issued and outstanding as of June 30, 2015 and December 31, 2014.  Holders of Series B Preferred stock shall be entitled to receive when, as and if declared by the Board of Directors cumulative dividends at the rate of twelve percent (12%) of the Original Issue Price.  The maximum potential dividend through June 30, 2015 would be $961,335.  In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series B Preferred stock shall be entitled to receive, immediately prior and in preference to any distribution to holders of the Company’s common stock, an amount per share equal to the sum of $100.00 and any accrued and unpaid dividends of the Series B Preferred Stock.  Each share of Series B Preferred Stock may be converted at the option of the holder into the Company’s Common stock.  The shares shall be converted using the “Conversion Formula”: divide the Original Issue Price by 75% of the average closing bid price of the Common Stock for the five (5) consecutive trading days ending on the trading day of the receipt by the Company of the notice of conversion.
 
 
19

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015

NOTE 7 – STOCK HOLDERS’ EQUITY (CONTINUED)

During the six months ending June 30, 2015, 5,864,393 shares of common stock were issued.  These shares were valued at $1.40 and $1.27 per share dependent upon the date of issuance.  The fair value of the shares of common stock were based on the quoted trading price on the date of issuance.  173,550 of these shares were issued to vendors for services generating a professional fees expense of $242,970.  5,690,843 of these shares were issued to officers and employees as incentive compensation resulting in compensation expense of $7,356,180.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company has leased office space at 12540 Broadwell Rd., Suite 1203 Milton, GA 30004.
 
NOTE 9 – FAIR VALUE MEASUREMENT

The Company has adopted new guidance under ASC Topic 820, effective January 1, 2009. New authoritative accounting guidance (ASC Topic 820-10-15) under ASC Topic 820, Fair Value Measurement and Disclosures, delayed the effective date of ASC Topic 820-10 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until 2009.
ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Further new authoritative accounting guidance (ASU No. 2009-05) under ASC Topic 820, provides clarification that in circumstances in which a quoted price in an active market for the
identical liabilities is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update.

The standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
 
 
20

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015

NOTE 9 – FAIR VALUE MEASUREMENT (CONTINUED)

The following table sets forth the liabilities at June 30, 2015, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:
 
    Fair Value Measurements at Reporting Date Using  
       
         
Quoted Prices in
Active Markets for Identical Assets
   
Significant Other
Observable
Inputs
   
Significant
Unobservable
Inputs
 
Description
 
June 30, 2015
   
(Level 1)
   
(Level 2)
   
(level 3)
 
                         
Interest rate swap
  $ 30,584     $ -     $ -     $ 30,584  
                                 
Stock settled debt
    302,083       235,000       -       67,083  
    $ 332,667     $ 235,000     $ -     $ 97,667  
 
NOTE 10 – LEASES

The Company’s subsidiary Here to Serve Missouri Waste Division, LLC leases its office and warehouse facilities.  The lease agreement commenced September 1, 2010 and expires
August 30, 2017.  This lease was assigned to the Company when the subsidiary purchased Meridian Waste Services, LLC on May 16, 2014.  Future minimum lease payments at June 30, 2015 are as follows:
 
2015   $ 131,798  
2016     278,415  
2017     260,255  
Thereafter     -  
Total   $ 670,468  
Rent expense amounted to $160,184 and $153,819 for the six months ended June 30, 2015 and 2014, respectively.

NOTE 11 – BONDING

In connection with its normal activities, the Company may be required to acquire a Performance bond on contracts with customers.  There were not any performance bonds required for the three months ended June 30, 2015.
 
 
21

 
MERIDIAN WASTE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
Note 12 – RELATED PARTY

As discussed in Note 1 above as Spinoff of Here to Serve Technology, LLC, the Company sold certain of its assets of Mobile Science Technologies, Inc. (MSTI), which is a related party.  MSTI is related in that it has common shareholders with the Company.  Related to this spinoff, there were certain consulting/professional expenses incurred by the Company after the spin-off due to commitments made prior to the spinoff.  These expenses ($427,570) were recorded as professional fees included in Selling, general and administrative as they are not recoverable from the affiliate.
 
NOTE 13 – SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2015 through the date these financial statements were issued and has determined that the following would be included as subsequent events.

Refinance of Debt

On August 6, 2015, the Company refinanced its senior debt obligations along with the refinance of other short term credit facilities including the working capital line of credit, the capital expenditure line of credit and the short term bridge financing.  The total proceeds from this refinance was $13,670,000 bearing interest at 14%.  The loan payments are interest only with a balloon payment for the outstanding principal in five years.  These funds include $2,825,000 to be used in future acquisitions.
 
 
 
 
 
 
 
22

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC contain or may contain forward-looking statements and information that are (collectively, the “Filings”) based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
 
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
 
PLAN OF OPERATION
 
The platform operation of the Company is our subsidiary Here To Serve Missouri Waste Division, LLC (“HTS Waste”).  HTS Waste is in the business of collection of non-hazardous solid waste.  Our revenue is generated primarily by collection services provided to residential customers, as well as commercial and temporary roll-off customers. The Company's agreement with Praesidian Capital, has allowed the Company to focus on pursuing waste solutions opportunities in the Midwest, in order to differentiate itself from its larger competitors. With respect to our platform operation in St. Louis, the Company is focused on building in and around this initial marketplace. We are continuing to evaluate our infrastructure needs, placing importance on revenue and cash-flow growth.  The Company is specifically focused on bidding on municipal contracts in the St. Louis market, as well as acquisitions throughout the Midwest to drive this plan.   The Company plans to remain vigilant in understanding the many solutions in the waste industry and adapting to the changing landscape in order to maximize the returns of its capital in the marketplace. The Company has executed its first step with its agreement with Praesidian Capital to build the capital structure needed to execute its forward strategy.

Overview
 
We intend for this discussion to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our consolidated financial statements. This discussion should be read in conjunction with our consolidated financial statements (unaudited) and accompanying notes for the six months ended June 30, 2015.
 
 
 
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Executive Overview
 
General Overview of Our Business
 
The platform operation of the Company is our subsidiary Here To Serve Missouri Waste Division, LLC (“HTS Waste”).  HTS Waste is in the business of collection of non-hazardous solid waste.  Our revenue is generated primarily by collection services provided to residential and commercial customers.  The following table reflects the  total revenue of Company for the three months ending June 30, 2015, annualized and the  years ending December 31, 2014 and 2013 (dollars in thousands):
 
    Annualized                          
    thru June 30, 2015   2014     2013  
         
%
         
%
         
%
 
         
increase
         
increase
         
increase
 
Revenues
  $ 13,120       7.5 %   $ 12,200       7.5 %   $ 11,350       11.0 %
 
As our revenues continue to grow in this existing market, we plan to increase the rate of this growth by expanding our presence in the commercial arena while to continue to grow our presence in the “roll-off” business.  Roll-off service is the hauling and disposal of large waste containers (typically between 10 and 40 cubic yards) that are loaded on to and off of the collection vehicle.
 
 
 
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Management expects continued growth through additional mergers and acquisitions.  The following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto.
 
Results of Operations
 
Revenue
 
The Company’s revenues continue to grow as indicated in the table above.  Revenue for the three months ending June 30, 2015 was $3.3 million, an increase over the same period for the prior year consistent with the growth reflected above. This growth is attributed to the expansion in existing product lines as well as the growth of the commercial and roll-off lines of business.
 
Gross Profit
 
Gross profit percentage for the six months ending June 30, 2015 is 27%.  This is a slight increase over the percentage for the six months ending June 30, 2014.  The small increase is significant in that it shows management’s ability to improve efficiencies of operations and the increased margins associated with the new product lines.  The amount of increase would be larger if not for an increase in depreciation expense included in cost of sales and an increase in disposal cost.  The increase in depreciation expense is due to the application of “push-down” accounting adjusting the value of depreciable property to fair value on May 15, 2014 and the addition of new equipment.  Gross profit percentage for the 3 months ending June 30, 2015 reflects the same slight increase.
 
Operating Expenses
 
Total expenses were $11,191,518 for the six months ending June 30, 2015.  This significant increase over the level of selling, general and administrative expenses of like period of the prior year is again related to the use of “push-down” accounting related to the business combination that occurred in May of 2014.  Also there were significant incentive packages awarded to certain employees and vendors in connection with the reorganization.  The significate incentive package was awarded during the 3 months ending June 30, 2015.
 
Segment Information
 
Not applicable.
 
 
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Liquidity and Capital Resources
 
As of June 30, 2015, the Company had negative working capital of $7,082,290.  This lack of liquidity is mitigated by the Company’s ability to generate cash from operating activities.  Cash generated from operating activities was $519,923 for the six months ending June 30, 2015.  Although the Company experienced a net use of cash for the period, the Company purchased over $725,000 of new equipment while raising long term debt by $90,000.
 
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis.
 
Our primary uses of cash have been for working capital purposes to support our operations and our efforts to become a reporting company with the SEC. All funds received have been expended in the furtherance of growing our business operations, establishing our brand and making sure our work is completed with efficiency and of the highest quality. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:
 
 
An increase in working capital requirements to finance additional marketing efforts,
 
 
Increases in advertising, public relations and sales promotions for existing customers and to attract new customers as the company expands, and
 
 
The cost of being a public company.
 
We are not aware of any known trends or any known demands, commitments or events that will result in our liquidity increasing or decreasing in any material way. We are not aware of any matters that would have an impact on future operations.
 
Our net revenues have been sufficient to fund our operating expenses. At June 30, 2015, we had a cash balance of $333,363.  Since inception, we have not raised any capital from the sale of common stock to fund our operating expenses. The Company continues to use its Credit Facility with Comerica Bank for working capital expenditures. We currently have no material commitments for capital expenditures and believe that our cash requirements over the next 12 months will be approximately $1,000,000. In order to fund future growth and expansion through acquisitions and capital expenditures, the company may be required to raise capital through the sale of its securities.
 
In order to fund future and expansion through acquisitions and capital expenditures, the Company may be required to raise capital through the sale of its securities on the public market.
 
Note and Warrant Purchase Agreement and Security Agreement with Praesidian Capital Opportunity Fund II, LP

Effective August 6, 2015, the Company closed a Note and Warrant Purchase Agreement and Security Agreement (the “Note Purchase Agreement”) by and among the Company, HTS Waste Division, LLC (“Missouri Waste”), Here to Serve - Georgia Waste Division, LLC (“Georgia Waste”),  Meridian Land Company, LLC (“Meridian Land”, and together with HTS Waste, Georgia Waste and each other person joined thereto as an issuer from time to time, collectively, the “Issuers”), certain other subsidiaries of the Company, the purchasers from time to time party thereto (collectively, the “Purchasers”) and Praesidian Capital Opportunity Fund III, LP, a Delaware limited partnership (“Fund III”) as agent for the Purchasers (in such capacity, together with its permitted successors and assigns, the “Agent”).  Pursuant to the Note Purchase Agreement, the Issuers agreed to sell to the Purchasers, and the Purchasers agreed to purchase from the Issuers, term notes in the aggregate principal amount of up to $13,670,000 bearing interest at 14.00% per annum, comprised of a cash component of 12.5% and a paid-in-kind component of 1.5%, upon the terms and conditions set forth in the Note Purchase Agreement.  An initial amount of $10,845,000 was funded by the Purchasers to the Company at the closing of the Note Purchase Agreement in the form of four term notes (the “Notes”).  Additionally, upon request by the Company made in accordance with the Note Purchase Agreement, prior to August 19, 2015 or such later date as the parties to the Note Purchase Agreement shall agree, the Purchasers shall issue an additional note in the amount of $2,825,000 (the “Delayed Draw Note”). The amounts borrowed pursuant to the Notes are secured by a first position security interest in substantially all of the Company’s assets in favor of Agent, in accordance with the Note Purchase Agreement.

In connection with the Note Purchase Agreement, on August 6, 2015, the Company issued that certain Warrant to Fund III for the purchase of 931,826 shares of the Company’s common stock and that certain Warrant to Praesidian Capital Opportunity Fund III-a, LP for the purchase of 361,196 shares of the Company’s common stock (each, a “Warrant” and, collectively, the “Warrants”).  Pursuant to the terms and conditions of the Warrants, the exercise price for the shares of the Company’s common stock issuable thereunder (the “Warrant Shares”) is $0.025 per share and the number of Warrant Shares is subject to adjustment for diluting issuances as set forth in the Warrants. The Warrant provides for cashless exercise under which the holder will receive from the Company an amount of Warrant Shares equal to (A) the amount of Warrant Shares as to which the Warrant is being exercised minus (B) the amount of Warrant Shares having a value, based on the Market Price (as defined in the Warrant) on the trading day immediately prior to the date of such exercise, equal to the exercise amount, The expiration date for the Warrants is August 6, 2023. The Warrant Shares may be “put” to the Company for purchase or “called” by the Company for sale upon the occurrence of certain events, including the termination of the Note Purchase Agreement.  The Warrants grant certain registration rights, including piggyback registration rights and registration under Form S-3, for and so long as the Company is qualified.

For a more detailed description of the above transactions please refer to the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 12, 2015.

The securities underlying the Warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”). These securities qualified for exemption under Section 4(a)(2) of the Securities Act since the issuance of securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(a)(2) of the Securities Act as they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.
 
Credit Agreement with Comerica Bank
 
On April 30, 2014, the Here to Serve – Missouri Waste Division LLC, a subsidiary of the Company, entered into a 24 month senior secured revolving credit facility (the “Credit Facility”) with Comerica Bank, as lender (the “Credit Agreement”). Borrowings under the Credit Facility will be used for working capital purposes.
 
The Credit Agreement provides for an initial commitment of $1,250,000, Borrowings under the Credit Facility will bear interest in an amount not to exceed 25% per annum or the highest applicable usury ceiling, whichever is less. The Credit Facility is secured by a lien on all assets of Missouri Waste Division LLC.
 
In addition to representations and warranties, affirmative, restrictive and financial covenants, and events of default (applicable to the Company and its subsidiaries) which are customary for credit facilities of this type, the Credit Agreement provides that the Company must not permit its financial condition to materially differ in any material negative way (as compared to its current financial condition) and must meet specified revenue targets as set forth in the Credit Facility. The Credit Facility is cross-defaulted with the Company’s other outstanding indebtedness and provides that a Material Adverse Effect (as defined in the Credit Agreement), a Change of Control (as defined in the Credit Agreement), a judgment for an amount in excess of $50,000 or an adverse change in the Company’s financial condition, as determined by the lender acting in good faith, are all events of default.
 
As consideration for the entry into the Credit Agreement, the Company agreed to pay certain fees to the lender, including a non-refundable commitment fee equal to $115,000.
 
Subsequent Refinance
 
On August 6, 2015, the Company entered into a financing agreement with Praesidian Capital whereby the Comerica facilities described above and other short term bridge financing were paid.  Total proceeds from this financing were used to eliminate this deb along with providing $2,825,000 to fund future acquisitions.  The strategic partnership formed with Praesidian creates the opportunity for the company to cash flow operations along with additional invested capital to fund future acquisitions.  The results of these actions creates a larger company with significant cash flows that will allow the company to obtain favorable rates on future senior credit facilities.
 
Inflation and Seasonality
 
Based on our industry and our historic trends, we expect our operations to vary seasonally.  Typically, revenue will be highest in the second and third calendar quarters and lowest in the first and fourth calendar quarters.  These seasonal variations result in fluctuations in waste volumes due to weather conditions and general economic activity.  We also expect that our operating expenses may be higher during the winter months due to periodic adverse weather conditions that can slow the collection of waste, resulting in higher labor and operational costs.  
 
 
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Critical Accounting Policies
 
Revenue Recognition
 
The Company follows the guidance of ASC 605 (formerly the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104) for revenue recognition.  In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable and collectability is reasonably assured.
 
We generally provide services under contracts with municipalities or individual customers. Municipal and commercial contracts are generally long-term and often have renewal options. Advance billings are recorded as deferred revenue, and revenue is recognized over the period services are provided. We recognize revenue when all four of the following criteria are met:
 
Persuasive evidence of an arrangement exists such as a service agreement with a municipality, a hauling customer or a disposal customer;

Services have been performed such as the collection and hauling of waste;

The price of the services provided to the customer is fixed or determinable; and

Collectability is reasonably assured.
 
Use of Estimates 
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
 
The Company’s significant estimates and assumptions include the fair value of stock based compensation; the carrying value, recoverability and impairment, if any, of long-lived assets. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
 
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
 
Property and Equipment 
 
Property and equipment is stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets, varying from 3 to 5 years or, when applicable, the life of the lease, whichever is shorter.
 
Fair Value of Financial Instruments
 
We follow paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of our financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (“U.S. GAAP”), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
 
 
 
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Recent Accounting Pronouncements
 
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
 
Off-Balance Sheet Arrangements
 
There were no off-balance sheet arrangements during the six month period ended June 30, 2015 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
We do not hold any derivative instruments and do not engage in any hedging activities.
 
Item 4. Controls and Procedures.
 
(a) Evaluation of Disclosure Controls and Procedures.
 
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
 
(b) Changes in Internal Control over Financial Reporting.
 
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
Item 1A. Risk Factors.
 
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2014, filed with the SEC on April 15, 2015.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
Other than as disclosed below, during the quarter ended June 30, 2015, the Company has not issued any securities which were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
 
On May 28, 2015, 4,700,000 shares of the Company's common stock was issued to an officer of the Company as compensation for services rendered at a price of $1.27 per share.
 
These shares of common stock were not registered under the Securities Act of 1933, as amended (the “Securities Act”). These securities qualified for exemption under Section 4(a)(2) of the Securities Act since the issuance of securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(a)(2) of the Securities Act as they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.
 
Item 3. Defaults Upon Senior Securities.
 
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.
 
Not applicable.
 
Item 6. Exhibits.
 
Exhibit No.
 
Description
     
31.1
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
31.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
32.1
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101.INS
 
XBRL Instance Document**
101.SCH
 
XBRL Taxonomy Extension Schema Document**
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document**
 
*
 
Filed herewith
     
**
 
In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith not “filed”.
 
 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
MERIDIAN WASTE SOLUTIONS, INC.
     
Date: August 14, 2015
By:
/s/ Jeffrey Cosman
 
Name:
Jeffrey Cosman
 
Title:
Chief Executive Officer
   
(Principal Executive Officer)
   
(Principal Financial Officer)
   
(Principal Accounting Officer)
 
30