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NWMH > SEC Filings for NWMH > Form 10-K on 30-Mar-2016All Recent SEC Filings

Show all filings for NATIONAL WASTE MANAGEMENT HOLDINGS, INC.

Form 10-K for NATIONAL WASTE MANAGEMENT HOLDINGS, INC.


30-Mar-2016

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward- looking statements are reasonable, actual results could differ materially from those projected or assumed in any or our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

? Our results are vulnerable to economic conditions;

? Our ability to raise adequate working capital;

? Loss of customers or sales weakness;

? Inability to achieve sales levels or other operating results;

? The unavailability of funds for capital expenditures;

? Operational inefficiencies;

? Increased competitive pressures from existing competitors and new entrants;

? Competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions;

? We may incur charges related to capitalized expenditures of landfill development projects, which would decrease our earnings;

? Pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements;

? We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity;

? Our accruals for our landfill site closure and post-closure costs may be inadequate;

? Liabilities for environmental damage may adversely affect our financial condition, business and earnings;

? Our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones;

? Extensive and evolving environmental, health and safety laws and regulations may restrict our operations and growth and increase our costs;

? Extensive regulations that govern the design, operation and closure of landfills may restrict our landfill operations or increase our costs of operating landfills; and

? Alternatives to landfill disposal may cause our revenues and operating results to decline.

These risks and uncertainties, as well as others, are discussed in greater detail in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or SEC, including our most recent Annual Report on Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.

GENERAL

Overview

We are a landfill service that provides landfill services, roll-off dumpster service, and mulch products. We service the counties of Citrus, Hernando, and Marion in Florida. We average annual disposals of approximately 200,000 cubic yards of construction debris and manage our 54 acre landfill facility. We started operations with one roll-off truck and now operate thirteen rolloff trucks and approximately 800 containers (subsequent to the WRE and Gateway Acquisitions). We have maintained a contract with Citrus County Solid Waste Management landfill to back-up their roll-off trucks since 2000. On October 15, 2015 and December 1, 2015, we acquired WRE and Gateway as described above (Item 1, Business) and in Note 10 to the financial statements, Acquisitions. These acquisitions added a large roll-off business for C&D to operations as well as full service Waste Company in Upstate NY, offering residential and commercial trash collection, a transfer station and C&D services.

Results of Operations

Comparison of the Results of Operations for the Years Ended December 31, 2015 and 2014

Revenues for the years ended December 31, 2015 and 2014 were $2,499,842, and $1,668,354, respectively, an increase of $831,488 or approximately 50%. The increase in sales is primarily attributable to increased sales to a related party accounting for $674,320 and $523,250 of total sales for the year ended December 31, 2015 and 2014 (27% and 31% of total sales, respectively), an increase of 29% of sales to this related party year over year. Increased sales are also attributable to a better economy year over year and stronger customer base. We acquired WRE and Gateway during the years ended December 31, 2015. The revenues for these entities for the period from the acquisition date (10-15 and 12-1) to December 31, 2015 are included in our consolidated operations. Revenues fro these entities were $446,918 (18% of total) and $194,597 (8% of total) for the 75 days and 31 days ended December 31, 2015, respectively, accounting for a total additional revenue of $641,515, representing 38% of the increase year over year.

Cost of goods sold for the years ended December 31, 2015 and 2014 were $1,319,169 and $934,251 respectively, an increase of $384,918 or 41%. The increase is primarily due to an increase in sales as discussed above and the inclusion of WRE and Gateway acquisitions in our operations for 75 days and 31 days ended December 31, 2015, respectively. WRE and Gateway represented $260,803 and $143,779, or 20% and 11% of consolidated cost of sales for the years ended December 31, 2015 and 2014, accounting for a total of $404,609 or 105% of the increase in cost of sales year over year. The reason the total is over 100% is due to cost of sales for Sand/land, the previous sole operating subsidiary of the Company have reduced cost of sales year over year of approximately 2% or $20,000. This was due to fuel costs being lower during the year ended December 31, 2015 as compared to 2014.

General and administrative cost for the years ended December 31, 2015 and 2014 were $940,454 and $485,403, an increase of $455,051, or 94%. The largest driver of this increase related to the acquisition of WRE and Gateway. The other driver for this increase was due to professional fees incurred related to being an early stage public company, including professional fees and building a company governance infrastructure. We also incurred acquisition related costs, including due diligence, legal and professional fees. A large portion of our general and administrative costs were non-cash expenses paid by a related entity on behalf of the Company. Total non-cash costs incurred by the Company during the year ended December 31, 2015 were $384,511, or 41% of total general and administrative costs. Total Sand/Land general and administrative costs increased from $485,403 during 2014 to $768,840 in 2015, an increase of $283,437 or 58%. As mentioned above, this increase was due to the professional fees incurred related to being an early stage public company and building the required infrastructure for accretive growth.

Income from operations for the years ended December 31, 2015 and 2014 were $240,219 and $248,700, a decrease of 3%. This decrease is due to increased professional fees in 2015 as compared to 2014. As described above in the general and administrative expenses year over year comparison, a large portion of these professional fees were non-cash expenses.

Interest expense was $29,970 and $10,610 for the years ended December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we incurred related party interest expense of $6,100 and $10,610, respectively. The decrease is due to the Shareholder loan being paid down during 2015. In December 2014, the Company entered into a capital lease to purchase equipment and incurred interest expense of $19,763 during the year ended December 31, 2015. The Company also acquired equipment debt as part of the acquisition of WRE. Total interest expense incurred for the period from October 15, 2015 through December 31, 2015 in WRE was $4,107.

Other expenses, net increased to $330,670 as compared to the prior year net expenses of $10,610. The prior year amount related 100% to the interest on the shareholder loan. In 2015, the Company's interest expense increased as discussed above due to an equipment capital lease and acquisition of WRE. The Company incurred a $300,000 one time charge off of deposits on an acquisition that was not completed by the Contract date. The deposits were non-refundable and have been included in other expenses. In 2016, we expect to have an additional $50,000 write off for deposits made in 2016. The deposits were non-cash expenses as they were paid for by a related entity on behalf of the Company. These costs were settled during the year for stock at $1 per share. Total loss of the Company related to these deposits is equivalent to 300,000 shares of restricted common stock, with an additional 50,000 shares to be issued in 2016.

Net income (loss) for the years ended December 31, 2015 and 2014 respectively were $(62,408) and $157,139, respectively. The loss in 2015 is due to the one time non cash write off of landfill acquisition deposits as described in the other income/expense comparison above. Without this one time charge off, not tax adjusted, the Company would have had net income of approximately $237,592, an increase from prior year. The Company acquired Gateway and WRE during the year. WRE had two and a half month included in operations, resulting in net income of $67,000 and Gateway only had one month of operations included, with a net loss of $6,000. December is an offseason month for Gateway, driving the loss. We expect both of these subsidiaries to add significant growth to our earnings during 2016 and all of our subsidiaries to be profitable in 2016.

Liquidity and Capital Resources

As of December 31, 2015 we had cash of $344,365 and a working capital deficit of $556,156 as compared to cash of $108,642 and working capital of $131,328 as of December 31, 2014. The reason for the working capital deficit at December 31, 2015 is due to professional fees and acquisition costs that were settled in stock shortly after year end. The total current liabilities to be settled in stock at $1 per share subsequent to year end, is $157,829 of professional fees and deposits made on the landfill acquisition as discussed above, $450,000 for the acquisition of Gateway (cash portion of purchase price paid for on behalf of the Company by third party), and $250,000 for the acquisition note paid to the second 50% owner of the Company (WRE, counterparty of the acquisition that wasn't the Chairman). Total working capital to be settled in restricted common stock at $1 per share included in due to related party on our balance sheet at December 31, 2015 was $607,829. The short term acquisition note is included in acquisition notes at December 31, 2015, and represents $250,000 of the total $350,000 balance at December 31, 2015. None of these described liabilities affected our cash. Adjusted working capital after adding back these non cash payments is $301,673 at December 31, 2015. The increase is due to the increase in cash from operations year over year.

We are dependent on our revenues for cash flow, as we have minimized cash flow requirements through equity or debt financing. However, as we intend to expand operations, it is likely that we will require cash flow from financing in the future which could affect our ability to become cash flow positive.

Operating activities provided cash of $706,560 and $301,839 during the years ended December 31, 2015 and 2014, respectively. The increase was due to higher consolidated net income after adding back the non-cash charges incurred for professional fees and deposit write-off. The Company's year over year revenues have increased significantly due to a better economy, better utilization of resources and the acquisitions of WRE and Gateway. Financing activities provided
(used) cash of $76,101 and $(212,113) for the years ended December 31, 2015 and 2014, respectively. Financing activities provided positive cash in 2015 due to us taking out a loan to purchase equipment. Investing activities used cash of $546,938 and $38,531 for the years ended December 31, 2015 and 2014, respectively. The increase is primarily due to the purchase of equipment to assist in the bandwidth and growth of the Company.

Historical annual operating trends may not be indicative of future performance because of changes in operations, revenue streams and continued sales growth.

We have yet to determine precisely how we will structure future acquisitions and how we intend to pay for them. We may require additional financing, but we are uncertain as to whether we will finance acquisitions or use equity as purchasing currency. In either case, our acquisitions may have a negative effect on stockholder equity.

Future Financings

We are currently in discussions with a third party to provide financing for additional potential acquisitions. This loan has not been finalized as of December 31, 2015 or the date of the filling.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Recently Adopted Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 amends guidance on reporting discontinued operations only if the disposal of a component of an entity or group of components of an entity represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. It also allows companies to have significant continuing involvement and continuing cash flows with the discontinued operations. Additional disclosures are also required for discontinued operations and individually material disposal transactions that do not meet the definition of a discontinued operation. The standard should be applied prospectively for all disposals of components of an entity and for all businesses that, on acquisition, are classified as held for sale that occurred within annual periods beginning on or after December 15, 2014, including interim periods within that reporting period. Adoption of the ASU did not have an impact on the Company's 2015 Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The standard was initially effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued a one-year deferral of the effective date of this new guidance resulting in it now being effective for the Company beginning in fiscal year 2018. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40)(Topic 718): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern and to provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15, 2016, and for interim periods and annual periods thereafter. Early adoption is permitted. Adoption of the new ASU will not have an impact on the Company's Consolidated Financial Statements.

In February 2015, the FASB issued ASU No. 2015-02, "Consolidations (Topic 810):
Amendments to the Consolidation Analysis" ("ASU 2015-02"), which amends current consolidation guidance including changes to both the variable and voting interest models used by companies to evaluate whether an entity should be consolidated. The requirements from ASU 2015-02 are effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

In May 2015, the FASB issued ASU No. 2015-09, "Revenue from Contracts with Customers" ("ASU 2015-09"), which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. ASU 2015-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard is effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that any effect on earnings due to depreciation, amortization or other income effects, due to a change to the provisional amounts be recorded in the current period's financial statements as if the accounting had been completed at the acquisition date. The portion of the amount recorded in the current-period earnings, which would have been recorded in the previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date, must be presented separately on the face of the income statement or disclosed in the notes to the financial statements by line item. The amendment is effective for the fiscal year beginning after December 15, 2015. The amendments are to be applied prospectively to any adjustments occurring after the effective date. Adoption of this ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted ASU 2015-17 for the fiscal year ended December 31, 2015 and applied it retrospectively.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for the rights and obligations created by their leases with lease terms more than 12 months. Current guidance only requires capital leases to be recognized on the balance sheet. However, the ASU 2016-02 now requires that both capital and operating leases be recognized on the balance sheet. The effect on cash flows will strictly depend on whether the lease is classified as an operating lease or capital lease. The ASU 2016-02 will require disclosures to aid investors and other financial statement users to better understand the amount, timing and uncertainty of the cash flows arising from leases. These disclosures are to include qualitative and quantitative information about the amounts recorded in the financial statements. This update remains unchanged for lessors. However, new guidance contains targeted improvements to align, where necessary, the lessor's accounting with the lessee's accounting standards. ASU 2016-02 will become effective for annual periods beginning after December 15, 2018 and for interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption of the ASU on its Consolidated Financial Statements.

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