Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨
No x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 28, 2019 (the last business
day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common stock held
by non-affiliates of the registrant was approximately $18.9 million based on the closing sales price of $1.78 on the Nasdaq Capital
Market. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation,
to be “affiliates” of the registrant.
As of May 19, 2020 there were 17,437,288 shares of the
registrant’s common stock outstanding.
Portions of the registrant’s Definitive
Proxy Statement relating to its 2019 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission are
incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The information in this report contains
forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In
particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“intends”, “plans”, “could,” “possibly,” “probably,” anticipates,”
“projects,” “expects,” “may,” “will,” or “should,” “designed
to,” “designed for,” or other variations or similar words or language. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
Although these forward-looking statements
reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to
us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result,
our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not
unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations
regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless required by law.
BioHiTech Global, Inc. and Subsidiaries (the “Company”
or “we” or “BioHiTech” or “Registrant”) refers to BioHiTech Global, Inc, and its subsidiaries
as a whole or to individual components thereof as applicable based upon the context in which the term is used.
ITEM I: BUSINESS
Our Business
The Company’s
mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective
technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste,
patented processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary
real-time data analytics tools to reduce food waste generation. These unique proprietary solutions can enable certain businesses
and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually
or in combination, the Company’s solutions can reduce the carbon footprint associated with waste transportation, repurpose
non-recyclable plastics, and significantly reduce landfill usage.
Revolution Series™ Digesters
The Company currently
markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution
Series Digesters, launched in the second half of 2017, have been described as self-contained, robotic biological digestive systems
that are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. The units range in size
depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize
a biological process to convert food waste into a liquid that is safe to discharge down an ordinary drain. This process can result
in a substantial reduction in costs for customers including restaurants, grocery stores, and hotel/hospitality companies by eliminating
the transportation and logistics costs associated with food waste disposal. The process also reduces the greenhouse gases associated
with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution
Series Digesters in several sizes targeting small to mid-sized food waste generators with both sale and rental options that are
often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the
United States.
In an effort to
expand the capabilities of its digesters, the Company developed a sophisticated IoT technology platform to provide its customers
with transparency into their waste generation and operational practices. This patented process collects weight related data from
the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency and validate
corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model
that is either bundled in its rental agreements or sold through a separate annual software license. Prior to the launch of its
Revolution Series Digesters, the Company marketed earlier generations of its digesters under the Eco-Safe brand. These units were
larger sized and typically marketed to mid- and large-sized food waste generators, including the Federal Government. The Company
continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
HEBioT Resource Recovery Technology
The Company expanded
its technology business in 2016 through the acquisition of certain development rights to a patented Mechanical Biological Treatment
(“MBT”) technology developed by a European engineering firm that relies upon High Efficiency Biological Treatment (“HEBioT”)
to process waste at the municipal or enterprise level. The technology results in a substantial reduction in landfill usage by converting
a significant portion of intake, including organic waste and non-recyclable plastics, into a United States EPA recognized alternative
fuel that can be used as a partial replacement for coal.
The Company also,
through a series of transactions in 2017 and 2018, acquired a controlling interest in the Nation’s first municipal waste
processing facility utilizing the HEBioT technology located in Martinsburg, West Virginia (the “Martinsburg Facility”).
The Martinsburg Facility, which commenced operations in 2019, is capable of processing up to 110,000 tons of mixed municipal waste
annually. At full capacity, the Martinsburg Facility can achieve an annual savings of over 2.3 million cubic feet of landfill space
and eliminate many of the greenhouse gases associated with landfilling that waste. The Company plans to build additional HEBioT
facilities in the coming years and is currently in the permitting process to build a second facility in New York State.
The Company’s
suite of products and services positions it as a leading provider of cost-effective, technology-based alternatives to traditional
waste disposal in the United States. The use of the Company’s technology solutions independently or in combination, can help
its customers meet sustainability goals by achieving a significant reduction in greenhouse gases associated with waste transportation
and landfilling. In addition, the repurposing of municipal waste into a cleaner burning, EPA recognized, renewable fuel can further
reduce potentially harmful emissions associated with traditional means of disposal. The overall reduction in carbon and other greenhouse
gases that are linked to climate change that could be achieved through the utilization of the Company’s technology can serve
as a model for the future of waste disposal in the United States.
In addition to its technology business,
the Company provides executive oversight services for a traditional waste management and recycling company that is contracted to
deliver municipal waste to the Company’s Martinsburg Facility.
Digester Technologies, Market, Customers
and Competition
The Company leverages
its existing technology, including our digester’s on-board patented weighing system, by collecting, accumulating and providing
empirical data that can aid in improving the efficiency of the upstream supply chain. By streaming data from the digesters, collecting
information from system users and integrating business application data, BioHiTech’s internet enabled system known as the
BioHiTech CloudTM can provide necessary data to aid customers in reshaping their purchasing decisions and positively
affect employee behavior. In its simplest form, the BioHiTech Cloud quantifies food waste in a fashion that has historically not
been available. It enables users to understand food waste generation habits and to improve operational efficiencies.
The BioHiTech Cloud
data is used to help educate customers as to where, when and how waste is being created. Tracking and analyzing waste based on
creation time, food type, preparation stage, origin of waste or other key metrics may provide a clear picture of the food waste
lifecycle. While our digesters already provide significant economic savings and decreases in carbon footprint, the addition of
the BioHiTech Cloud increases that impact by helping the customer to more accurately manage inventory, preparation practices and
staff efficiencies.
The Company believes
that its combined offering of technology and its digesters provide customers with information that has not been readily available
to consumers in the past that has the potential for improved management and reduction of waste at the point of generation on a
real-time basis.
BioHiTech believes
its digester products remove organic waste from the overcrowded and costly landfills of the world and provide significant benefits
to both business organizations and the community including:
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Eliminating the transportation of organic waste,
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Reducing carbon and methane emissions associated with landfilling and truck transportation,
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Complying with municipal laws banning organic waste from landfills,
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Contributing to corporate and regulatory targets for diverting waste from landfills,
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Extending the lifespan of the country’s disposal facilities,
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Reducing groundwater and soil contamination at landfills,
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Reducing harmful greenhouse gases that contribute to global climate change, and
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Recycling food waste into renewable resources (clean water, biogas, bio-solids).
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Our solution is not
based solely on the removal of waste, but also provides real time information and metrics to improve the efficiency of an organization.
Such information has not been readily available to consumers in the past. By providing a cloud-based dashboard and mobile application,
the BioHiTech Cloud gives real-time visibility to the status of the device itself and provides insight to the efficiencies of the
operations of food preparation and consumption of the user. Using leading edge cloud technologies, the systems allow for deep visibility
into the process on an individual, regional, or national level. BioHiTech currently has a provisional patent pending on this technology.
The BioHiTech Cirrus™
application allows customers more immediate access to analytical data provided by the Eco-Safe Digester and more efficient
monitoring across a number of network connected devices. The mobile application is available to existing BioHiTech Cloud customers
and is available through the iTunes Store, as well as Google Play.
Target Markets
BioHiTech’s target
market for its digesters includes any producers of consistent volumes of food waste.
In addition to the
US domestic marketplace, the Company anticipates growth internationally with a primary focus on the United Kingdom, Singapore,
Mexico and Latin America.
As municipalities continue
to enact ordinances prohibiting commercial food waste from being disposed of in landfills, the Company will focus its efforts on
targeting those businesses most affected by such ordinances. Many cities and states have already banned landfill disposal of food
waste generated by large, commercial food waste generators, with pending legislation in numerous others. The Company anticipates
this trend to continue as sustainability efforts advance.
Customers
Customers for BioHiTech’s
digesters are primarily any consistent producers of food waste. Industries served include but are not limited to healthcare, grocery,
prisons, retail food services (including traditional restaurants and quick service restaurants), education, and full-service hospitality,
including casinos and the cruise industry. Volume of food waste, as well as traditional waste disposal costs, are the primary drivers
of return on investment for customers. BioHiTech also sells its products to governmental agencies including correctional facilities
and hospitals, as well as large private sector companies throughout the United States and abroad.
It is estimated that
the addressable market for our digesters is over 200,000 locations worldwide.
Digester
Marketing Strategy
The Company markets
through two channels, “in-house” direct sales and “reseller” sales. Domestic and international resellers
are granted a non-exclusive license to sell and market products and services. All resellers are required to purchase all products
and consumables directly from the Company. In some cases, we also provide annual service to customers of our resellers at an additional
charge.
As regulations continue
to be passed regarding the disposal of food waste, we will leverage both our internal and external marketing sources to communicate
to and inform the target market of the increasing level of need for our products and services.
Since 2016, the Company
has operated on a United States based manufacturing model. Each product goes through a rigorous quality control process before
it is delivered to the customer.
Competition
There are a small number
of companies that distribute products utilizing a similar anerobic digestion methodology as our Revolution Digester, but lack the
technological depth of data collection, analytics and reporting. With our receiving our patent Network Connected Weight Tracking
System for a Food Waste Disposal Machine, there is a barrier to competitors providing similar technology to their customers.
Further, we believe that these companies do not have a competitive product to the Revolution Series of digesters based on price
point, size, throughput, power and plumbing requirements and data collection, analytics and reporting.
Most of these companies
originated in Korea and continue to manufacture their products in Asia and India. We believe these companies may have copied underlying
technology of our original digester units. We are aware of one company that has claimed to be developing competitive data collection
and some level of web enablement but are unaware of the deployment and functionality of their technology offering. Of our competitors,
our machine has the smallest footprint, requires the least amount of water to operate and we believe is an industry leader in
terms of installations and efficiency. Currently we are not aware of any direct competitor with the ability to capture and deliver
real time data.
Alternative
technologies or processes to digesters or similar equipment are:
Traditional
Composting: Composting has been in existence for many years and has historically been the only option for organics disposal.
Composting:
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Relies heavily on truck collection and transportation.
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Uses facilities that can be considered public nuisances.
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Is very difficult to provide accurate metrics on waste volumes and generation.
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Facilities are difficult to site and are often long distances from waste generation.
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Is neither cost effective nor environmentally friendly.
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Anaerobic
Digestion: Anaerobic digesters are readily used throughout Europe. Anaerobic digestion (“AD”) is the decomposition
of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to generate electricity. AD is generally
accomplished on a large municipal or commercial scale and is not believed to be readily available as an “at the source”
solution. AD facilities are beginning to be sited in the United States and are thought of as a viable disposal option for organic
waste. While the technology is sound, AD facilities face various challenges in the United States. Management believes that AD facilities
will continue to be developed and will be a part of the total solution for organic waste disposal. Many private equity funds have
made investments in companies that own or are permitting AD facilities. The challenges to AD include:
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Capital intensity of sizeable plants;
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Difficult to site with proximity to feedstock;
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Need steady, homogenous waste source (pre-processing is necessary);
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Relies on traditional collection and transportation of waste (significant costs);
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Rely on “tip fee” to subsidize operating expenses; and
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Difficult to provide data to consumers (similar to composting).
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Patent and
Trademarks
On May 22, 2018, the
Company received its patent for the “Network Connected Weight Tracking System for a Food Waste Disposal Machine”, which
expires on July 23, 2036.
HEBioT Technologies, Market, Customers
and Competition
The Company’s
first HEBioT facility began commissioning operations in the first quarter of 2019. The deployment of this technology is consistent
with the Company’s vision of providing disruptive technologies to the traditional waste industry. With the ability to accept
up to approximately 20 to 30% of each plant’s capacity in the form of pure food waste, the Company adds an option of municipal
level solutions in the food waste industry that was previously unavailable.
The Company is also
at varying levels of preliminary discussion regarding several other sites, including one located in Rensselaer, New York, which
it received its local permits for in 2018 and is presently awaiting New York State approvals.
Entsorga
West Virginia Facility
Entsorga West Virginia,
LLC (“EWV”), located in Martinsburg, WV, represents the first deployment of the Entsorga HEBioT technology in the United
States. The facility, which began commissioning operations in the first quarter of 2019 is designed to accept up to 110,000
tons per year of municipal solid waste delivered from the surrounding areas. The facility consists of a 54,000 square foot industrial
building located on approximately 12 acres of leased property. The facility, equipped with HEBioT technology, will be able
to produce up to 50,000 tons per year of EPA recognized renewable fuel.
Technology
The HEBioT technology
converts mixed municipal and organic waste (typical residential trash collected) to a US Environmental Protection Agency (the “US
EPA”) recognized alternative fuel source. By utilizing a patented process that utilizes a combination of mechanical and biological
processes to accelerate the decomposition of the organic fraction of waste, the end product produced, known as solid recovered
fuel (“SRF”) has a carbon value nearly equivalent to traditional coal and can be used as a replacement and/or supplement
to coal. After receipt and processing of waste at the facility, approximately 80% of the incoming waste is reduced, recycled or
converted into the approved alternative fuel, with the remaining 20% of the incoming waste being disposed of via traditional methods.
The US EPA has issued
a “comfort letter” stating that any fuel produced utilizing the HEBioT technology is deemed an engineered fuel and
can be marketed as a commodity rather than the fuel being marketed as RDF, refuse derived fuel, which has significant regulation
and additional costs relating to its consumption and use.
In 2018, the Company
entered into a transaction forming Refuel America, LLC (“Refuel”), a subsidiary of the Company, with Gold Medal Group,
LLC. This transaction consolidated HEBioT related assets of both entities, including interests in Entsorga West Virginia, LLC.
The Company controls Refuel and owns 60% of its membership interests. Gold Medal Group, LLC owns the remaining 40% of its membership
interests. Refuel will continue new and ongoing project development and marketing throughout 11 northeast U.S. states and the District
of Columbia. This project development may consist of construction, ownership and operation of actual facilities, such as the Entsorga
West Virginia facility or possible sub-licenses to third parties to utilize the technology. Refuel may realize revenues in various
ways:
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Construction and operation of actual facilities, in which case Refuel would identify an opportunity to develop a plant, facilitate its permitting and construction and ultimately operate the facility. In this case Refuel will realize all revenue and costs associated with the development of the project and will pay to Apple Valley Waste Conversions, LLC (“AVWC”) a license fee, which in turn the Company would receive its pro-rata share of the license fees paid to AVWC.
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Licensing and development services to municipalities or various third party developers for projects that the Company provides consulting and oversight on, in which case, receives one time or annual recurring license fees. In this case, along with the charged services, the Company would receive its pro-rata share of the license fees paid to AVWC.
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The Company owns a
31% interest in AVWC. Frank E. Celli, the Company’s CEO, also owns a 20.9% interest in AVWC. In March 2017, Mr. Celli assigned
his voting rights in AVWC so that, collectively, the Company would have voting control of over 51% of AVWC. AVWC currently holds
the exclusive license for the development throughout 11 northeast U.S. states and the District of Columbia of the technology known
as High Efficiency Biological Treatment (“HEBioT”), which is owned by Entsorgafin S.p.A., an Italian company.
AVWC has licensed its exclusive development rights to the Company.
The development license
agreement between Entsorgafin (technology owner) and AVWC is perpetual in nature, with certain performance standards relating to
the volume of facilities developed during the initial five years of the agreement.
Marketing Strategy
The Company has focused
our initial marketing efforts of our HEBioT technology within the 11 northeast states and the District of Columbia by identifying
potential opportunities based on various criteria including, disposal costs within a region, proximity to end users of alternative
fuels, lack of long-term disposal alternatives, and access to adequate feedstock.
Disposal
Costs: We pursue opportunities where disposal costs within a certain radius of a prospective project are high enough to provide
adequate returns on capital. Since “tip fees” received by a facility represent the majority of a facility’s revenue,
areas with tip fees in excess of $50 per ton are highly attractive markets. This is the case, in the majority of regions covered
by the Company’s licensing rights.
Proximity
to End Users: The second largest component of a facility’s revenue is realized through the sale of renewable fuel to
be used in conjunction with or as a substitute for coal. With cement kilns being the second largest user of coal in the United
States and with the continual regulatory pressure to reduce emissions associated with coal combustion, we target markets where
there is reasonable access to cement manufacturing facilities to maximize revenue and minimize transportation costs of the manufactured
fuel. The HEBioT technology has received an EPA comfort letter stating that all fuel manufactured from municipal solid waste in
an Entsorga plant shall be categorized as an engineered fuel and can be used in cement kilns to offset up to 30% of their total
fuel consumption.
Lack of
Long-Term Disposal: With landfill capacity in the northeast United States diminishing, and large quantities of solid waste
being exported from numerous states, many municipalities and/or private waste companies are in need of long-term disposal options.
The HEBioT technology can divert up to 80% of the incoming municipal solid waste from landfills resulting in a prolonged life expectancy
or a 500% capacity increase of existing landfills, as well as, new long-term cost-effective disposal options for the future.
Access
to Adequate Feedstock: Based on the fixed cost nature of a HEBioT facility, to maximize its revenue and earnings it must be
operated near its design capacity. The Company focuses its marketing efforts on areas where population density provides adequate
feedstock supply within a reasonable radius of a proposed plant. The HEBioT facility’s proximity to feedstock will allow
municipalities and haulers to dispose of their waste (municipal solid waste or “MSW”) at an HEBioT facility without
incurring significant logistical costs to do so.
We currently employ
one full time executive focused on the marketing of the HEBioT technology. The executive has over 20 years of experience in the
solid waste and recycling facility management industry and has held multiple positions at some of the leading recycling companies.
The executive’s focus is on identifying opportunities where each of the aforementioned criteria apply, initial presentation
of the Company and technology, evaluating possible joint ventures, initiating early stage permitting, project development cost
estimating and ultimate contract and project execution.
We present the technology
at industry trade shows and events, as well as make direct proposals to interested parties that have become familiar with the HEBioT
technology via public press releases, trade publications, the Company website and marketing materials, or industry referrals.
Competition
Competition in the
Mechanical Biological Treatment (“MBT”) area is more diverse than with our digester products, as High Efficiency Biological
Treatment (“HEBioT”), which is just one of many forms of MBT, is a new technology to the United States. The U.S. waste
industry significantly lags Europe, which has over 300 MBT operational plants, in its achievements of improving environmental protection,
diverting waste from landfills, development and utilization of alternative energies, and other green initiatives. There is an increasing
push to pursue alternative waste disposal options as landfill capacity continues to dwindle and environmental consciousness continues
to increase. In addition, the U.S. continues to pursue initiatives mitigating reliance on foreign energy and the EPA is increasing
mandates to reduce air pollutants and use of fossil fuels. There are also many large corporations that have set zero waste targets
that could utilize HEBioT as the one source to reduce landfill disposal of waste to under 20%.
Utilizing
traditional waste management, more than half of the municipal solid waste generated in the United States is disposed of in landfills
with another 12% being directed to waste to energy facilities and balance being recycled or composted. This figure is compared
to only 38% of MSW being landfilled in the European Union resulting in the U.S. contributing significantly more greenhouse gas
emissions from waste disposal than the European Union. Recently in the U.S., regulators and corporate leaders have led an effort
to lower greenhouse gas emissions by finding disposal alternatives to landfills and exploring the deployment of “next generation”
waste disposal technologies. The ongoing challenges to the evolution of these alternatives include but are not limited to capital
intensity requiring subsidies, emerging technology risk, access to feedstock, long term off-take partners and inability to accept
multiple waste streams.
Alternative
technologies or processes to MBT are:
Anaerobic
Digestion: Anaerobic digesters are readily used throughout Europe and deployed in the U.S. on a more limited basis. Anaerobic
digestion is the decomposition of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to generate
electricity. AD is limited to accepting only the organic fraction of waste and not capable of processing mixed municipal waste.
Traditional Waste to Energy
or Incineration Facilities: Incineration is a waste treatment process that involves the combustion of organic substances contained
in waste materials. Incineration and other high-temperature waste
treatment systems are described as "thermal treatment". Incineration of waste materials converts the waste into ash,
flue gas, and heat. The ash is mostly formed by the inorganic constituents of the waste and may take the form of solid lumps or
particulates carried by the flue gas. The flue gases must be cleaned of gaseous and particulate pollutants before they are dispersed
into the atmosphere. In some cases, the heat generated by incineration can be used to generate electric power. There have been
very few of these facilities built in the U.S. in the past 20 years. The challenges to Incineration include:
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Capital intensity of sizeable plants;
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Difficult to site (NIMBYism);
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Extreme capital intensity;
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Expensive to operate;
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High level of emissions
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Gasification Facilities: Gasification
is a process that converts organic or fossil fuel based carbonaceous
materials into carbon monoxide, hydrogen and carbon dioxide. This is achieved by reacting the material at high temperatures (>700
°C), without combustion, with a controlled amount of oxygen and/or
steam. The resulting gas mixture is called syngas (from synthesis gas or synthetic gas) or producer gas and is itself a fuel. The
power derived from gasification and combustion of the resultant gas is considered to be a source of renewable energy if the gasified
compounds were obtained from biomass. The challenges to gasification include but are not limited to:
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Early stage technology risk
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Need for homogenous feedstock
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Difficulty in siting (NIMBYism)
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Pyrolysis: Pyrolysis
is a thermochemical decomposition of organic material at elevated temperatures in the absence of oxygen (or any halogen). It involves
the simultaneous change of chemical composition and physical phase that is irreversible. Pyrolysis is a type of thermolysis that
is most commonly observed in organic materials exposed to high temperatures. Pyrolysis has been recently explored as an option
for municipal solid waste incineration but has not been deployed in the U.S. due to various challenges, including:
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Capital intensity
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Significant early stage technology risk
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Need for homogenous feedstock
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Difficulty in siting (NIMBYism)
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Landfilling: A landfill
site (also known as a tip, dump, rubbish dump, garbage) is a site for the disposal of waste materials by burial and is the oldest
form of waste treatment (although the burial part is modern; historically, refuse was just left in piles or thrown into pits).
Historically, landfills have been the most common method of organized waste disposal and remain so in many places around the world
and currently represent approximately 70% of the disposal of municipal solid waste in the U.S. There has been a recent movement
toward diverting waste from landfills in the U.S. including the passing of various pieces of legislation in certain states banning
certain materials from being deposited in landfills. Landfilling continues to be faced with challenges such as;
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Capital Intensity
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Difficulty siting (NIMBYism)
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Potential groundwater contamination
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Methane gas emissions
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Poor use of natural resource
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Post closure liabilities (future monitoring, etc.)
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Other MBT Providers. The
terms mechanical biological treatment or mechanical biological pre-treatment relate to a group of solid waste treatment systems.
These systems enable the recovery of materials contained within the mixed waste and facilitate the stabilization of the biodegradable
component of the material. There are currently over 300 operational MBT plants throughout Europe. Most of the current plants produce
Refuse Derived Fuel, which differs from the engineered solid recovered fuel produced by the Entsorga HEBioT technology, which is
deemed as an “engineered fuel” by the U.S. EPA. A2A is a company based in Italy that has historically deployed a similar
technology to that of Entsorga; however, A2A no longer makes it commercially available to merchant plant operators and does not
currently have any facilities located or planned for the U.S. market.
Management and Employees
As of December 31,
2019, the Company and its consolidated subsidiaries had 39 full time employees. We believe we enjoy good employee relations. None
of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.
Liquidity and Capital Resources
The Company currently
generates revenues from rental and sales of its digesters and related goods and services, and revenues from the HEBioT technologies.
The Company's other known sources of capital are common and common and preferred stock offerings, proceeds from private placements,
issuance of notes payable, convertible notes payable, and investments, loans and advances from related and unrelated parties and
cash from future revenues.
We will require additional financing in order to execute our
business expansion and development plans and we may require additional financing in order to sustain substantial future business
operations for an extended period of time. Subsequent to December 31, 2019 we initiated a private placement offering for redeemable
convertible preferred stock and warrants to acquire our common stock and had an initial closing of $1,500,000 on March 18, 2020
and an additional closing of $65,000 on April 6, 2020. We were funded $421,300 on May 13, 2020 through the Paycheck Protection
Program and have applied for an additional $200,000, which has not yet been approved. While the Company has a history of obtaining
adequate capital and maintaining liquidity, it is actively soliciting other forms of financing but do not have any firm commitments
for additional financing. Should we not be able to obtain financing when required, in the amounts necessary to execute on our plans
in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to pursue our strategic
plan and may have to reduce the planned future growth and scope of our operations.
Potential Future Projects and Conflicts
of Interest
Members of the Company’s
management may serve in the future as an officer, director or investor in other entities. Neither BioHiTech nor any of its shareholders
would have any interest in these other companies’ projects. Management believes that it has sufficient resources to fully
discharge its responsibilities to the Company.
Government Regulation
We believe we are in
compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure compliance
going forward. There are no regulatory notifications or actions pending.
Related Party Transactions
See footnote 20 of
the Company’s consolidated financial statements filed herewith.
Available Information
We will make available
free of charge any of our filings as soon as reasonably practicable after we electronically file these materials with, or otherwise
furnish them to, the Securities and Exchange Commission (“SEC”). We are not including the information contained in
our website as part of, or incorporating it by reference into, this report on Form 10-K.
The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
We maintain a website
at http://www.biohitech.com/. Within our website’s “Investor” section, “SEC Filings” tab,
all of our filings with the Commission and all amendments to these reports are available as soon as reasonably practicable after
filing.
Website
Our website address
is www.biohitech.com.
Our Information
Our principal executive
offices are located at 80 Red Schoolhouse Road, Suite 101, Chestnut Ridge, NY 10977 and our telephone number is (845) 262-1081.
We can be contacted by email at info@biohitech.com.
ITEM 1A. RISK FACTORS
Our business, financial
condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently
foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial
condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could
decline, and our stockholders may lose all or part of their investment in the shares of our common stock.
This Form 10-K contains
forward-looking statements that involve risks and uncertainties. These forward-looking statements can be identified by the use
of words such as “believes,” “estimates,” “intends”, “plans”, “could,”
“possibly,” “probably,” anticipates,” “projects,” “expects,” “may,”
“will,” or “should,” “designed to,” “designed for,” or other variations or similar
words or language. Actual results could differ materially from those discussed in the forward-looking statements as a result of
certain factors, including those set forth below and elsewhere in this Form 10-K.
SHOULD ONE OR MORE OF THE FOREGOING
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
Risks Related to Pandemics
The recent
COVID-19 coronavirus pandemic (“COVID-19”) may adversely affect our business, results of operations, financial condition,
liquidity, and cash flow.
While
the full impact on our business from the recent outbreak of COVID-19 is unknown at this time and difficult to predict, various
aspects of our business have been impacted and could be adversely affected by it.
As
of the date of this Annual Report, COVID-19 has been declared a pandemic by the World Health Organization, has been declared a
National Emergency by the United States Government and has resulted in all states being designated disaster zones. COVID-19 has
caused significant volatility in global markets, including the market price of our securities. The spread of COVID-19 has caused
public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating
in large numbers. In addition, states and municipalities have enacted quarantining and “shelter-in-place” regulations
which severely limit the ability of people to move and travel, and require non-essential businesses and organizations to close.
It
is unclear how such restrictions, which will contribute to a general slowdown in the global economy, will affect our business,
results of operations, financial condition and our future strategic plans.
The
digester line of our business has historically been marketed to large organizations such as food distributors, convention centers,
hotels, restaurants, stadiums, municipalities and academic institutions. It is unclear how a prolonged outbreak with travel, commercial
and other similar restrictions, may adversely affect our business operations and the business operations of our customers and
suppliers; a disruption for a prolonged period will have a negative effect on our business operations.
Recent
shelter-in-place and essential-only travel regulations have negatively impacted many of our customers. In addition, while our digesters
are manufactured in the United States, we still could experience significant supply chain disruptions due to interruptions in operations
at any or all of our suppliers’ facilities. If we experience significant delays in receiving our products we will experience
delays in fulfilling orders and ultimately receiving payment, which could result in loss of sales and a loss of customers, and
adversely impact our financial condition and results of operations.
The
HEBioT line of our business is classified as a public service in the state in which it is located and is expected to remain operating
regardless of restrictions that may be imposed on other businesses in its area. The facility relies upon other entities to pick
up and deliver municipal solid waste, which are also classified as public service entities, and is reliant upon customers in the
cement kiln industry to purchase its solid recovered fuel. The inability to receive MSW or sell it to its customers would adversely
impact our financial condition and results of operations.
Risks Specific to Our Business
We have a history of operating losses
and there can be no assurance that we can achieve or maintain profitability.
We have a history of
operating losses and may not achieve or sustain profitability due to the competitive and evolving nature of the industries in which
we operate. Our failure to sustain profitability could adversely affect the Company’s business, including our ability to
raise additional funds.
We may not be able to continue as
a going concern.
For the year ended December 31, 2019, the Company had a
consolidated net loss of $10,280,061, incurred a consolidated loss from operations of $7,535,214 and used net cash in consolidated
operating activities of $7,134,600. At December 31, 2019, consolidated total stockholders’ equity amounted to $7,369,725,
consolidated stockholders’ equity attributable to parent amounted to $2,024,143 and the Company had a consolidated working
capital deficit of $5,351,686. The Company does not yet have a history of financial profitability. Historically, the principal
source of liquidity has been the issuance of debt and equity securities. Presently, the Company does not have firm commitments
to fully fund its future operational and strategic plans, although subsequent to December 31, 2019 the Company raised $1,565,000
from the issuance of Series F Redeemable, Convertible Preferred Stock and warrants. The Company was funded $421,300 on May
13, 2020 through the Paycheck Protection Program and has applied for an additional $200,000, which has not yet been approved. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is presently
in the process of raising additional debt for general operations and to support its leasing activities. The Company may also raise
capital through its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange
Commission (the “Shelf Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized
during September 2019 to raise net proceeds of $3,035,557 through a confidentially marketed public offering of common shares.
There is no assurance that the Company will be able to raise sufficient capital or debt to sustain operations or to pursue other
strategic initiatives or that such financing will be on terms that are favorable to the Company.
We face substantial competition in
the waste services industry, and if we cannot successfully compete in the marketplace, our business, financial condition and results
of operations may be materially adversely affected.
The waste services
industry is highly competitive, has undergone a period of consolidation and requires substantial labor and capital resources. Some
of the markets in which we compete are served by one or more of large, established companies, that are more well-known and better
financed than we are. Intense competition exists not only to provide services to customers, but also to develop new products and
services and acquire other businesses within each market. Some of our competitors have significantly greater financial and other
resources than we do.
In our waste disposal
markets, we also compete with operators of alternative disposal and recycling facilities. We also increasingly compete with companies
that seek to use waste as feedstock for alternative uses. Public entities may have financial advantages because of their ability
to charge user fees or similar charges, impose tax revenues, access tax-exempt financing and, in some cases, utilize government
subsidies.
If we are unable to
successfully compete in the marketplace, our business and financial condition could be materially adversely affected.
The waste services industry is subject
to extensive and rapidly-changing government regulation. Changes to one or more of these regulations could cause a decrease in
the demand for our products and services.
Stringent government
regulations at the federal, state and local level in the U.S. have a substantial impact on the waste industry and compliance with
such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection,
health, safety, land use, zoning, transportation and related matters. Among other things, governmental regulations and enforcement
actions may restrict operations within the waste industry and may adversely affect our financial condition, results of operations
and cash flows.
We believe the demand
for our digester product is created directly in response to recent laws and regulation prohibiting certain large, commercial food
manufacturers, retailers and hospitality enterprises from discarding food wastes to landfills. Our digesters are just one solution
for these businesses to comply with these regulations and other regulations. If there was a change to or elimination of these regulations,
the demand for our product would almost certainly be greatly reduced and our income would, as a result, be adversely affected.
Currently, the microorganisms
we employ in our digesters are approved for use to reduce food waste and to be poured into conventional sewer systems. However,
if it was determined that we could no longer use these microorganisms, there is no guarantee that we could develop a replacement
process to assure that we could continue to sell our products. Also, we would likely face claims from current customers were they
unable to use our digesters for food waste disposal.
We may also incur the
costs of defending against environmental litigation brought by governmental agencies and private parties. We may be in the future
a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, or which seek
to overturn or prevent authorization of our products, all of which may result in us incurring significant liabilities.
We may be
negatively impacted by landfills and certain long-term disposal trends.
In
connection with the MBT line of business, there is competition from other landfills, including large, out-of-state landfills to
secure municipal solid waste (“MSW”) feedstock. Such facilities may legally drop prices to maintain market share forcing
the Company to compete on price for feedstock delivered by suppliers, which may cause a negative impact to the anticipated financial
performance of the projects.
Waste
policies may incentivize additional renewable energy plants to be built, in such an event, the MBT facilities would be competing
with such future renewable energy plants for feedstock. Furthermore, other zero waste policies, increased local recycling and reuse,
augmented by composting and other future waste policies intended to eliminate and/or reduce the waste may mean less MSW will be
available for the Company’s MBT projects.
The recovered
recycled materials market is volatile.
The
Company’s MBT projects and its waste collections business anticipate a minimum return on recycled materials. Should conditions
change such that the minimum returns cannot be recovered, they may have a negative impact on the financial performance of the projects
and businesses.
The market
for solid recovered fuel (“SRF”) is not developed.
The
Company’s MBT projects rely upon the ability to sell SRF to appropriate industrial users at economically reasonable prices.
There is no assurance that the Company will be able to contract on either a long-term or spot-market basis with such consumers.
We may engage in acquisitions in
the future with the goal of complementing or expanding our business, including developing additional disposal products and complementary
services. However, we may be unable to complete these transactions and, if executed, these transactions may not improve our business
or may pose significant risks and could have a negative effect on our operations.
We may in the future,
make acquisitions in order to acquire or develop additional disposal products and complementary services. In addition, from time
to time we may acquire businesses that are complementary to our core business strategy. We may not be able to identify suitable
acquisition candidates. If we identify suitable acquisition candidates, we may be unable to successfully negotiate acquisitions
at a price or on terms and conditions acceptable to us, including as a result of the limitations imposed by our debt obligations.
Further, we may be unable to obtain the necessary regulatory approval to complete potential acquisitions.
Our ability to achieve
the benefits of any potential future acquisition, including cost savings and operating efficiencies, depends in part on our ability
to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired businesses
and other assets may require significant management time and resources that would otherwise be available for the ongoing management
of our existing operations. In addition, to the extent any future acquisitions are completed, we may be unsuccessful in integrating
acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that
could have a material adverse impact on future profitability. Some of the risks that may affect our ability to integrate, or realize
any anticipated benefits from, acquisitions include:
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unexpected losses of key employees or customer of the acquired company;
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difficulties integrating the acquired company’s standards, processes, procedures and controls;
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difficulties coordinating new product and process development;
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difficulties hiring additional management and other critical personnel;
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difficulties increasing the scope, geographic diversity and complexity of our operations;
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difficulties consolidating facilities, transferring processes and know-how;
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difficulties reducing costs of the acquired company’s business;
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diversion of management’s attention from our management; and
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adverse impacts on retaining existing business relationships with customers.
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Our business and strategic plans
may require funding.
Our current business
and strategic plans require additional funding. Our ultimate success may depend on our ability to raise additional financing and
capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business
plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth,
borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will
be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory
to us.
We expect that we will need to raise
additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain
and can be expected to dilute current stockholders’ ownership interests.
Based upon present
strategic investment plans, we expect that we will need to raise additional capital in the future. Such additional capital may
not be available on reasonable terms or at all. We may need to raise additional funds through borrowings or public or private debt
or equity financings to meet various objectives including, but not limited to:
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accomplish growth through enhanced sales and marketing efforts;
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effect new products and services development;
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complete business acquisitions; and
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build additional MBT plants
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Our limited operating history does
not afford investors a sufficient history on which to base an investment decision.
We are currently expanding
our businesses. Our operations are subject to all the risks inherent in the establishment of an expanding business enterprise.
The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays that are
frequently encountered in expanding companies. There can be no assurance that at this time that we will operate profitably or will
have adequate working capital to meet our obligations as they become due.
Investors must consider
the risks and difficulties frequently encountered by expanding companies, particularly in rapidly evolving markets. Such risks
include the following:
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increasing awareness of our brand names;
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meeting customer demand and standards;
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attaining customer loyalty;
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developing and upgrading our product and service offerings;
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implementing our advertising and marketing plan;
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maintaining our current strategic relationships and developing new strategic relationships;
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responding effectively to competitive pressures; and
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attracting, retaining and motivating qualified personnel.
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We cannot be certain
that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely
affected, and we may not have the resources to continue or expand our business operations.
We rely on highly skilled personnel
and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able to grow effectively.
Our performance is
largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability
to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability
to compete effectively depends on our ability to retain and motivate existing employees. Due to our reliance upon its skilled professionals
and laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material
adverse effect on our business, operating results and financial condition.
If we fail to manage growth or to
prepare for product scalability and integration effectively, it could have an adverse effect on our employee efficiency, product
quality, working capital levels and results of operations.
Any significant growth
in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational,
financial, and other purposes. During any period of growth, we may face problems related to our operational and financial systems
and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and
manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management
to identify, recruit, maintain, integrate, and motivate new employees.
Aside from increased
difficulties in the management of human resources, we may need increased liquidity to finance the expansion of our existing business,
the development of new products, and the hiring of additional employees. For effective growth management, we will be required to
continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may
lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors
that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and
potential customers.
Our management team may not be able
to successfully implement our business strategies.
If our management team
is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and
marketing activities, would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing
the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members
of our management team or we may lose key members of our management team, and we may not be able to attract new management talent
with sufficient skill and experience.
If we are unable to retain key executives
and other key affiliates, our growth could be significantly inhibited, and our business harmed with a material adverse effect on
our business, financial condition and results of operations.
Our success is, to
a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel.
Frank E. Celli, our Chief Executive Officer, Robert Joyce, our Chief Operating Officer and Brian C. Essman, our Chief Financial
Officer, perform key functions in the operation of our business. The loss of any of these could have a material adverse effect
upon our business, financial condition, and results of operations. If we lose the services of any senior management, we may not
be able to locate suitable or qualified replacements and may incur additional expenses to recruit and train new personnel, which
could severely disrupt our business and prospects.
Our financial results may not meet
the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely on our revenue
and/or financial projections as indicative of future results.
Fluctuations in operating
results or the failure of operating results to meet the expectations investors may negatively impact the value of our securities.
Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations
in operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections
or comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is
possible that in future periods results of operations may be below the expectations of investors. This could cause the market price
of our securities to decline and negatively impact our ability to raise debt and capital. Factors that may affect our operating
results include:
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delays in sales resulting from potential customer sales cycles;
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variations or inconsistencies in return on investment models and results;
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changes in competition; and
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changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption.
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Our management conducted an evaluation
of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting
was not effective as of December 31, 2019. If we fail to maintain an effective system of internal control over financial reporting,
we may not be able to accurately report our financial results or prevent fraud.
We are subject to reporting
obligations under the U.S. securities laws. The Securities and Exchange Commission or the SEC, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report
on the effectiveness of such company’s internal control over financial reporting in its annual report. Effective internal
control over financial reporting is necessary for us to provide reliable financial reports, effectively prevent fraud and operate
as a public company.
Our management conducted
an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over
financial reporting was not effective as of December 31, 2019. A material weakness is a deficiency, or a combination of deficiencies,
in internal control such that there is a reasonable possibility that a material misstatement of our company's financial statements
will not be prevented, or detected and corrected on a timely basis. Based on their evaluation, our Principal Executive Officer
and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2019
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our
Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of our limited operations we have a small number of employees which prohibits a segregation of duties. As we grow and expand
our operations, we will engage additional employees and experts as needed. However, there can be no assurance that our operations
will expand.
Our failure to remediate
the material weakness or our failure to discover and address any other material weaknesses or deficiencies may result in inaccuracies
in our financial statements, delay in the preparation of our financial statements, and the loss of investor confidence in the reliability
of our financial statements, which in turn could negatively influence the trading price of our Common Stock. Ineffective internal
control over financial reporting could also expose us to increased risk of fraud or misappropriations of corporate assets and subject
us to potential delisting from the stock exchange on which our Common Stock is listed, regulatory investigations or civil or criminal
sanctions. As a result, our business, financial condition, results of operations and prospects may be materially and adversely
affected.
We are operating in a highly competitive
market and we are unsure as to whether there will be any consumer demand for our services.
Some of our competitors
are much larger and better capitalized than we are. It may be that our competitors will better address the same market opportunities
that we are addressing. These competitors, either alone or with collaborative partners, may succeed in developing business models
that are more effective or have greater market success than our own. The Company is especially susceptible to larger companies
that invest more money in marketing. Moreover, the market for our services is potentially large but highly competitive. There is
little or no hard data that substantiates the demand for our services or how this demand will be segmented over time.
There is
no assurance that the Company will operate profitably or will generate positive cash flow.
The
Company is continuing to develop and expand its lines of business, customer base and recurring revenues and it is anticipated that
it may continue to incur losses in the future as it carries on this process. In addition, the Company’s operating results
in the future may be subject to significant fluctuations due to many factors not within our control, such as the level of competition,
regulatory changes and general economic conditions.
We may be
unsuccessful in our efforts to use digital and other viral marketing to expand consumer awareness of our service.
If
we are unable to maintain or increase the efficacy of our digital and other viral marketing strategy or if we otherwise decide
to expand the reach of our marketing through use of costlier marketing campaigns, we may experience an increase in marketing expenses
that could have an adverse effect on our results of operations. We cannot assure you that we will be successful in maintaining
or expanding our customer base and failure to do so would materially reduce our revenue and adversely affect our business, operating
results and financial condition.
We may be
negatively impacted by permitting and construction risks.
In
connection with the MBT line of business, the Company will have to maintain or acquire specialized permits and have regulatory
approvals from various state and local regulatory authorities for their operations or the construction of facilities. The failure
of having such may delay or prevent the construction or operation of the planned MBT facilities. In addition, there are significant
risks related to the construction of a specialized facility. These risks may delay, postpone or cause a negative impact to the
anticipated financial performance of the projects.
Risks Related to Securities Markets
and Investments in Our Securities
General securities market uncertainties resulting from
COVID-19.
Since the outset of
COVID-19 the US and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of COVID-19
and the resulting reactions and outcomes of government, business and the general population. These uncertainties have resulted
in declines in all market sectors, increases in volumes due to flight to safety and governmental actions to support the markets.
As a result, until COVID-19 has stabilized, the markets may not be available to the Company for purposes of raising required capital.
Should we not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms
which are economically feasible we may be unable to sustain the necessary capital to pursue our strategic plan and may have to
reduce the planned future growth and scope of our operations.
Our executive officers and certain
stockholders possess significant voting power, and through this ownership, could influence our Company and our corporate actions.
Our current executive
officers, directors and their affiliates, hold approximately 27% of the voting power of the outstanding shares as of the date of
December 31, 2019. These officers, directors, affiliates and certain stockholders may have a controlling influence in determining
the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such,
our executive officers have significant influence to prevent or cause a change in control; therefore, without their consent we
could be prevented from entering into transactions that could be beneficial to us. The interests of our executive officers
and certain shareholders may give rise to a conflict of interest with the Company and the Company’s stockholders. For additional
details concerning voting power please refer to the section below entitled “Description of Securities.”
Liquidity of our common stock has
been limited.
On February 12, 2016
the Company uplisted from OTCBB (also known as OTC Pink) to the OTCQB. On April 9, 2018 the Company uplisted from OTCQB to the
Nasdaq Capital Market. The liquidity of our common stock has been mixed and there is no assurance that liquidity will continue
or that the trade prices of our securities could not be reduced due to excess sellers of our stock over buyers. Active trading
markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading
market reduces the liquidity of the shares traded.
The trading volume
of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that
we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if we came to the attention of such persons, they may tend to
be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares
until such time as we became more seasoned and viable. As a consequence, there may be periods when trading activity in our shares
is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or more active
public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.
Our stock price may be volatile.
The market price of
our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which
are beyond our control, including the following:
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the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;
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limited “public float” with a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
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additions or departures of key personnel;
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loss of a strategic relationship;
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variations in operating results from the expectations of securities analysts or investors;
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announcements of new products or services by us or our competitors;
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reductions in the market share of our products;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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investor perception of our industry or prospects;
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insider selling or buying;
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investors entering into short sale contracts;
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regulatory developments affecting our industry;
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changes in our industry;
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competitive pricing pressures;
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our ability to obtain working capital financing;
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sales of our common stock;
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our ability to execute our business plan;
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operating results that fall below expectations;
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revisions in securities analysts’ estimates or reductions in security analysts’ coverage; and
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economic and other external factors.
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Many of these factors
are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot
make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including
as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability
of common stock for sale at any time will have on the prevailing market price.
In addition, the securities
markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance
of particular companies. These market fluctuations may also materially and adversely affect the market price of our
common stock.
Our common stock is subject to price
volatility unrelated to our operations.
The market price of
our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve
our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes
in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors
or the Company itself.
A decline in the price of our common
stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline
in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability
to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations
and strategic plans. Such reductions may force us to reallocate funds from other planned uses and may have a significant
negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If
our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from
operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not
be able to have the resources to continue our normal operations.
Concentrated ownership of our common
stock creates a risk of sudden changes in our common stock price.
The sale by any shareholder
of a significant portion of their holdings could have a material adverse effect on the market price of our common stock.
Sales of our currently issued and
outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive
effect on the price of the shares of our common stock.
Approximately 41% of
the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares
may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence
that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under
Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell
every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding
shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale. A sale
under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our
shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may
develop.
If we issue additional shares or
derivative securities in the future, it will result in the dilution of our existing stockholders.
Our Certificate of
Incorporation, as amended, authorizes the issuance of up to 50,000,000 shares of common stock, $0.0001 par value per share. Our
board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares,
to provide additional financing in the future.
We do not plan to declare or pay
any dividends to our stockholders in the near future.
We have not declared
any Common Stock dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment
and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things,
the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board
of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid,
there is no assurance with respect to the amount of any such dividend.
The requirements of being a public
company may strain our resources and distract management.
As a public company,
we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Securities Act of 1933 and as well as the governance
rules of Nasdaq. These rules, regulations and requirements are extensive. We may incur significant costs associated with our public
company corporate governance and reporting requirements. This may divert management’s attention from other business
concerns, which could have a material adverse effect on our business, financial condition and results of operations. We
also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director
and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as executive officers.
Future changes in financial accounting
standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting
standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions
completed before the change is effective. New accounting standards and varying interpretations of accounting standards
have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely
affect our reported financial results or the way we conduct business.
“Penny Stock” rules may make buying or selling
our common stock difficult.
Trading in our common
stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define
a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These
rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors,
must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written
agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the
penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market
price and liquidity of our common stock.
ITEM 1B: UNRESOLVED STAFF COMMENTS.
None.
ITEM 2: PROPERTIES.
The Company does not
own any physical location.
The Company currently
leases its corporate headquarters and warehouse in Chestnut Ridge, NY. We believe that our current headquarters and warehouse facility
are sufficient in size for current and future operations. The current leases for the headquarters and warehouse expire in 2020
and each contain a renewal option for an additional five-year period.
The United Kingdom
operations are managed from employee based virtual offices in the UK.
The Entsorga Plant
is located in Martinsburg, West Virginia has a 30-year initial term land lease with a municipal authority for industrial property
adjacent to its previously closed landfill site with four separate renewal periods of 5-years each.
ITEM 3: LEGAL PROCEEDINGS.
On February 7,
2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for
the Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg,
West Virginia alleging breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages
against Lemartec and cross claims against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. The
trial was scheduled to begin in August 2020. Subsequent to year end and prior to the start of the trial, on March 12,
2020 the Company entered into a settlement agreement that detailed the full and final mutual release. The settlement agreement
provides that the Company pay Lemartec $775,000 in installments of $475,000 within 60 days of the execution of the settlement agreement
and $25,000 each month thereafter for 12 months. The Company’s consolidated financial statements as of December 31,
2019 reflects this liability given the nature of the subsequent event.
It is management’s
opinion that the resolution of this claim will not materially effect the Company’s future financial position, results of
operations, or cash flows.
From time to time,
we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the
date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely,
would have a material effect on our business, results of operations, cash flows or financial position.
ITEM 4: MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT’S
COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock first
became quoted on the Over-the-Counter Bulletin Board, or “OTCBB” under the trading symbol “SWFR” on March
27, 2014. On September 16, 2015, our common stock began trading under the name BioHiTech Global, Inc. and under the trading symbol
“BHTG”. On February 12, 2016, the common stock was uplisted to the OTCQB Venture Marketplace. On April 9, 2018 the
common stock was uplisted to the Nasdaq Capital Market.
The number of record
holders of our common stock as of December 31, 2019, was approximately 55 based on information received from our transfer agent.
This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee”
name with a brokerage firm or other fiduciary.
We have not paid or
declared any cash dividends on our common stock, and we do not anticipate paying dividends on our common stock for the foreseeable
future.
|
(d)
|
Securities authorized for issuance under equity compensation plans
|
The information set
forth under Item 5(d) is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2019 Annual Meeting of Shareholders.
DESCRIPTION OF SECURITIES
General
The Company’s
authorized capital stock consists of 60,000,000 shares of capital stock, par value $0.0001 per share, of which 50,000,000 shares
are common stock, par value $0.0001 per share and 10,000,000 shares are “blank check” preferred stock, par value $0.0001
per share.
Common Stock
Holders of Company’s
common stock are entitled to one vote per share on each matter submitted to vote of the Company’s stockholders. Holders of
common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire
additional shares of Company’s common stock or other securities. Subject to preferences that may be applicable to any then-outstanding
preferred stock, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion,
declares from legally available funds. In the event of liquidation, dissolution or winding up, subject to preferences
that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock entitles its holder to participate
ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each class
of stock, if any, having preference over the common stock.
Preferred Stock
The Company is authorized
to issue from time to time, in one or more series, 10,000,000 shares of “blank check” preferred stock, par value $0.0001
per share, subject to any limitations prescribed by law, without further vote or action by the shareholders. Each such series
of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or
relative rights or privileges as shall be determined by the Company’s board of directors, which may include, among others,
dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. As of December 31, 2019, there
were five series of preferred stock designated:
|
|
Designated
|
|
|
Par
|
|
|
Stated
|
|
|
Shares Outstanding
|
|
Designation
|
|
Shares
|
|
|
Value
|
|
|
Value
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Series A Convertible Preferred Stock
|
|
|
333,401
|
|
|
$
|
0.0001
|
|
|
$
|
5.00
|
|
|
|
145,312
|
|
|
|
163,312
|
|
Series B Convertible Preferred Stock
|
|
|
1,111,200
|
|
|
|
0.0001
|
|
|
$
|
5.00
|
|
|
|
-
|
|
|
|
-
|
|
Series C Convertible Preferred Stock
|
|
|
1,000,000
|
|
|
|
0.0001
|
|
|
$
|
10.00
|
|
|
|
427,500
|
|
|
|
427,500
|
|
Series D Convertible Preferred Stock
|
|
|
20,000
|
|
|
|
0.0001
|
|
|
$
|
100.00
|
|
|
|
18,850
|
|
|
|
-
|
|
Series E Convertible Preferred Stock
|
|
|
714,519
|
|
|
|
0.0001
|
|
|
$
|
2.64
|
|
|
|
264,519
|
|
|
|
564,519
|
|
RECENT SALES OF UNREGISTERED SECURITIES
On April 23, 2019 the Company settled a legal matter. In connection
with the settlement, the Registrant issued to the plaintiff 75,000 unregistered shares of its common stock.
From May 10, 2019 through
June 28, 2019, the Registrant entered into a series of Investor Subscription Agreements with 24 accredited investors (the “Investors”),
pursuant to which the Registrant agreed to sell and the Investors agreed to purchase in a private placement offering units (the
“Units”) in the aggregate offering amount of $1,885,000. Each Unit, which may be offered in fractions, amount of $100,000,
is comprised of 1,000 Shares of the Registrant’s Series D Convertible Preferred Stock (the “Series D Preferred Shares”)
and warrants (the “Warrants”) to purchase a number of shares of the Company’s common stock, $0.0001 par value
per share (the “Common Stock”), up to such 50% of the number of shares of Common Stock issuable upon conversion of
the Series D Preferred Share at an exercise price of $3.50 per share of Common Stock.
Each share of Series
D Preferred Shares has a stated value of $100.00 and is convertible into shares of Common Stock at the price of $3.50 per share
based on the stated value of the Series D Preferred being converted. The Series D Preferred Shares has usual dividends at the rate
of 9% payable annually in arrears in cash or, at the Company’s option, in Common Stock based upon the then in effect conversion
price. The Series D Preferred Shares also have an alternative dividend provision based upon the cash flow distributed to the parent
from the Company’s next HEBioT facility, excluding the Company’s plant in Martinsburg, West Virginia, (“the Next
Facility”) based upon the Series D Preferred Shares proportional investment in the facility. The Series D Preferred Shares
also has an alternative conversion based upon a multiple of the annualized EBITDA of the Next Facility converted at the higher
of the conversion rate in effect or the market price of the Company’s common stock if higher.
The Units, the Series
D Preferred Shares and the Warrants were offered and sold without registration under the Securities Act of 1933, as amended (the
“Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule
506(b) of Regulation D promulgated thereunder. The Units, the Series D Preferred Shares and the Warrants and the Common Stock issuable
upon conversion of the Series D Preferred Shares and the Warrants have not been registered under the Securities Act or any other
applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption
from the registration requirements of the Securities Act.
The Registrant paid
placement agent fees of $97,500 and $15,000 in cash to Network 1 Financial Securities, Inc. and ViewTrade Securities Inc., respectively.
On September 6, 2019, 18,000 shares of Series A Convertible
Preferred Stock were converted for 50,000 shares of Common Stock.
From September 26,
2019 through March 10, 2020, in a series of transactions $225,000 of accrued dividends of Series A Convertible Preferred Stock
were paid for with 125,000 shares of Common Stock.
On March 9, 2020
the Registrant designated a new series of preferred stock and subsequently on March 18, 2020 had an initial closing of $1,500,000
on 13,045 shares of the new series of preferred stock and 178,597 common stock warrants. This initial closing was followed by an
additional closing on April 6, 2020 of $65,000 on 566 shares of the new series of preferred stock and 7,750 common stock warrants.
The newly designated series, the Series F Redeemable, Convertible Preferred Stock (the Sr. F Preferred Stock) is comprised
of 30,090 shares with a par value of $0.0001 per share and a stated value per share of $115.00 that has a dividend rate of 9%.
The Sr. F Preferred Stock is convertible by the holder at any time at a conversion rate of $2.10, subject to certain antidilution
adjustments and is redeemable by the Registrant after 24 months at its stated value, plus any outstanding accrued or accumulated
dividends for cash, or if the Registrant’s common stock is trading over $3.00 per share and has daily trading volume of over
50,000 shares, for the Registrant’s common stock at the conversion rate in effect at the time. In connection with the offering
of the Sr. F Preferred Stock, the Registrant also issued warrants that expire in five years to acquire the Registrant’s common
stock at $2.30 per share.
The Series F Shares
are convertible into shares of Common Stock at a fixed conversion price of $2.10 per share of Common Stock subject to certain anti-dilution
adjustments (the “Conversion Price”) and redeemable by the Company twenty-four (24) months after issuance for cash,
provided that such cash payment is permissible under the Company’s existing indebtedness and obligations, or for shares of
Common Stock at the Stated Value, plus any outstanding accrued or accumulated dividends if the closing price of the Common Stock
is over $3.00 per share and the average daily, trading volume is over 50,000 shares. The Series F Shares will also accrue dividends
at the rate of nine percent (9%) per annum, payable in semi-annual installments of cash, provided such cash payment is permitted,
or at the option of the Purchaser, in shares of Common Stock at the Conversion Price. In addition, the Series F Shares, plus any
accrued and unpaid dividends, may be converted at any time by the Investors into Common Stock at the Conversion Price.
All of the securities
referred to, above, were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities
Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation
D promulgated thereunder. All of the foregoing securities as well the Common Stock issuable upon conversion or exercise of such
securities, have not been registered under the Securities Act or any other applicable securities laws and are deemed restricted
securities, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the
registration requirements of the Securities Act.
The sale of securities
did not involve a public offering; the Company made no solicitation in connection with the sale other than communications with
the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication;
and the investors either received or had access to adequate information about the Company in order to make an informed investment
decision.
PURCHASES OF EQUITY SECURITIES BY THE
ISSUER AND AFFILIATED PARTIES
The following table
presents information with respect to purchases made by or on behalf of the issuer or any “affiliated party” of shares
or other units of any class of the Company’s equity securities. The Company has no announced plans or programs to acquire
its equity securities.
Period
|
|
Total
Number
of Shares
Purchased
|
|
|
Average Price
per Share
|
|
|
Total
Number
of Shares
Purchased
as Part of
Publicly
Announced Plan
or Program
|
|
|
Maximum Number
of Shares that May
Yet be Purchased
Under the Plan or
Program
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank E. Celli
|
|
|
5,000
|
|
|
$
|
1.69
|
|
|
|
-
|
|
|
|
-
|
|
James Chambers
|
|
|
17,000
|
|
|
|
1.79
|
|
|
|
-
|
|
|
|
-
|
|
Harriet Hentges
|
|
|
2,000
|
|
|
|
1.64
|
|
|
|
-
|
|
|
|
-
|
|
Robert Joyce
|
|
|
2,000
|
|
|
|
1.81
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
26,000
|
|
|
$
|
1.76
|
|
|
|
-
|
|
|
|
-
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
ITEM 6: SELECTED FINANCIAL DATA
We are a smaller reporting
company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
ITEM 7: MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion
should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes
thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition
and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Readers
should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report,
the terms “Company”, “we”, “our”, and “us” refer to BioHiTech Global, Inc., a Delaware
corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report contains forward-looking
statements within the meaning of the federal securities laws. These forward-looking statements can be identified by the use of
words such as “believes,” “estimates,” “intends”, “plans”, “could,”
“possibly,” “probably,” anticipates,” “projects,” “expects,” “may,”
“will,” or “should,” “designed to,” “designed for,” or other variations or similar
words or language. The forward-looking statements are based on the current expectations of the Company and are subject to certain
risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results
anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us,
and we assume no obligation to update them.
Company Overview
The Company’s
mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective
technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste,
patented processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary
real-time data analytics tools to reduce food waste generation. These unique proprietary solutions can enable certain businesses
and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually
or in combination, the Company’s solutions can reduce the carbon footprint associated with waste transportation, repurpose
non-recyclable plastics, and significantly reduce landfill usage.
Revolution Series™ Digesters
The Company currently
markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution
Series Digesters, launched in the second half of 2017, have been described as self-contained, robotic biological digestive systems
that are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. The units range in size
depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize
a biological process to convert food waste into a liquid that is safe to discharge down an ordinary drain. This process can result
in a substantial reduction in costs for customers including restaurants, grocery stores, and hotel/hospitality companies by eliminating
the transportation and logistics costs associated with food waste disposal. The process also reduces the greenhouse gases associated
with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution
Series Digesters in several sizes targeting small to mid-sized food waste generators with both sale and rental options that are
often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the
United States.
In an effort to expand
the capabilities of its digesters, the Company developed a sophisticated IoT technology platform to provide its customers with
transparency into their waste generation and operational practices. This patented process collects weight related data from the
digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency and validate
corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model
that is either bundled in its rental agreements or sold through a separate annual software license. Prior to the launch of its
Revolution Series Digesters, the Company marketed earlier generations of its digesters under the Eco-Safe brand. These units were
larger sized and typically marketed to mid- and large-sized food waste generators, including the Federal Government. The Company
continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
HEBioT Resource Recovery Technology
The Company expanded
its technology business in 2016 through the acquisition of certain development rights to a patented Mechanical Biological Treatment
(“MBT”) technology developed by a European engineering firm that relies upon High Efficiency Biological Treatment (“HEBioT”)
to process waste at the municipal or enterprise level. The technology results in a substantial reduction in landfill usage by converting
a significant portion of intake, including organic waste and non-recyclable plastics, into a United States EPA recognized alternative
fuel that can be used as a partial replacement for coal.
The Company also, through
a series of transactions in 2017 and 2018, acquired a controlling interest in the Nation’s first municipal waste processing
facility utilizing the HEBioT technology located in Martinsburg, West Virginia (the “Martinsburg Facility”). The Martinsburg
Facility, which commenced operations in 2019, is capable of processing up to 110,000 tons of mixed municipal waste annually. At
full capacity, the Martinsburg Facility can achieve an annual savings of over 2.3 million cubic feet of landfill space and eliminate
many of the greenhouse gases associated with landfilling that waste. The Company plans to build additional HEBioT facilities in
the coming years and is currently in the permitting process to build a second facility in New York State.
Combined Offering
The Company’s
suite of products and services positions it as a leading provider of cost-effective, technology-based alternatives to traditional
waste disposal in the United States. The use of the Company’s technology solutions independently or in combination, can help
its customers meet sustainability goals by achieving a significant reduction in greenhouse gases associated with waste transportation
and landfilling. In addition, the repurposing of municipal waste into a cleaner burning, EPA recognized, renewable fuel can further
reduce potentially harmful emissions associated with traditional means of disposal. The overall reduction in carbon and other greenhouse
gases that are linked to climate change that could be achieved through the utilization of the Company’s technology can serve
as a model for the future of waste disposal in the United States.
In addition to its technology business, the Company provides
executive oversight services for a traditional waste management and recycling company that is contracted to deliver municipal waste
to the Company’s Martinsburg Facility.
Results of operations for the year ended
December 31, 2019
compared to the year ended December 31,
2018
The following summarizes our operating results for the
year ended December 31, 2019 and 2018. For comparison purposes the results of Entsorga West Virginia, LLC have been separated,
resulting in the remaining BioHiTech entities, which are presented as “Comparable Units”.
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
|
|
|
|
Consolidated
|
|
|
HEBiot Facility
|
|
|
Comparable Units
|
|
|
2018
|
|
Revenues
|
|
$
|
4,219,448
|
|
|
$
|
1,111,071
|
|
|
$
|
3,108,377
|
|
|
$
|
3,359,324
|
|
Operating expenses
|
|
|
11,754,662
|
|
|
|
4,263,782
|
|
|
|
7,490,880
|
|
|
|
8,432,514
|
|
Loss from operations
|
|
|
(7,535,214
|
)
|
|
|
(3,152,711
|
)
|
|
|
(4,382,503
|
)
|
|
|
(5,073,190
|
)
|
Non-operating expenses (income)
|
|
|
2,744,847
|
|
|
|
2,056,226
|
|
|
|
688,621
|
|
|
|
9,604,528
|
|
Net loss
|
|
|
(10,280,061
|
)
|
|
|
(5,208,937
|
)
|
|
|
(5,071,124
|
)
|
|
|
(14,677,718
|
)
|
Less net loss attributable to non-controlling interests
|
|
|
(2,657,113
|
)
|
|
|
(2,482,444
|
)
|
|
|
(174,669
|
)
|
|
|
(36,890
|
)
|
Net loss attributable to Parent
|
|
$
|
(7,622,948
|
)
|
|
|
(2,726,493
|
)
|
|
$
|
(4,896,455
|
)
|
|
|
(14,640,828
|
)
|
HEBioT Facility
The year ended December 31, 2019 include
financial results from the Entsorga West Virginia HEBioT facility (“EWV”). EWV is not included in the comparable 2018
period, as BioHiTech did not have a controlling interest and the facility was under construction and was not operational during
that time. During the year ended December 31, 2019, the EWV initiated operations that included continued modifications and adjustments
to the facility and the process, which contributed to a longer than anticipated commissioning process. During commissioning the
facility increased incoming Municipal Solid Waste (“MSW”) and Commercial & Industrial (“C&I”) volumes
resulting revenues for the year ended December 31, 2019 of $1,111,071, which is significantly less than its design capacity. During
this commissioning period, revenues were primarily driven by fees associated with the receipt of inbound waste materials (“Tip”
fees). During this period, the facility continued to further refine the solid recovered fuel (“SRF”) and quality assurance
practices and as such the delivery of SRF and the associated revenues were not significant during this period. As a result of the
protracted commissioning period, additional disposal fees were incurred as compared to management’s expectations. In mid-December
of 2019, the company’s primary SRF customer, a local cement manufacturer (“Argos”), successfully completed the
installation of its SRF feedline, allowing the company the ability to consistently accept SRF as an alternative to bituminous coal.
Despite the completion of the feedline in Mid-December 2019, the delivery of SRF was delayed until 2020 as Argos experienced an
operational shut down for routine scheduled maintenance and therefore could not accept any SRF during the month of December. The
shutdown ran through Mid-February of 2020 with the feedline operational in late February 2020. In addition to experiencing higher
than anticipated disposal costs during 2019, the EWV’s operating expenses, which amounted to $4,263,782 for the year ended
December 31, 2019, were higher as compared to revenues, as the expenses related to operating the facility at full capacity (i.e.
full labor support as well as full utilities) without the benefit of the operation achieving maximum inbound waste capacity and
the sale of SRF. Consistent deliveries of SRF to Argos commenced toward the end of the first quarter of 2020 and is anticipated
to lead to a normalization of revenues and disposal costs as the facility operates at designed levels of activities.
Comparable Units
The following summarizes
the revenues for the year ended December 31, 2019 and 2018.
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
Rental, service and maintenance
|
|
$
|
1,946,597
|
|
|
$
|
1,801,435
|
|
Equipment sales
|
|
|
186,780
|
|
|
|
547,737
|
|
Management advisory and other fees (related entity)
|
|
|
975,000
|
|
|
|
1,010,152
|
|
Total revenue
|
|
$
|
3,108,377
|
|
|
$
|
3,359,324
|
|
Overall comparable
unit revenue decreased by $250,947 (7.5%), driven by a $360,957 (65.9%) decrease in equipment sales resulting from our strategic
decision to not aggressively market the Revolution digesters to smaller deployment customers. Rental, service and maintenance increased
by $145,162 (8.1%) as a result of an increase of $309,080 (26.3%) in rental revenues, which accounts for 76.2% and 65.2%, respectively
of rental, service and maintenance for the years ended December 31, 2019 and 2018, offset by a decrease in billable service and
parts that is the result of improved product design and quality. Management advisory and other fees decreased by $35,152 (3.5%)
as a result of a decrease in project related special projects.
The product contribution
from rental, service and maintenance increased by $245,213 (26.7%) from 2018 to 2019 as a result of improved margin rates of 59.7%
in 2019, as compared to 50.9% in 2018. The product contribution from equipment sales decreased by $71,399 (49.2%) as a result
of decreased sales offset by improved margins of 39.5% and 26.5% in 2019 and 2018, respectively. These increased margins were
the result of higher margins on the Revolution digesters and the sale of used equipment that had lower cost basis.
The following summarizes
selling, general and administrative expenses for the year ended December 31, 2019 and 2018:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
Personnel, excluding stock based compensation
|
|
$
|
3,005,045
|
|
|
$
|
3,789,417
|
|
Stock based compensation
|
|
|
1,083,789
|
|
|
|
813,734
|
|
Professional fees
|
|
|
751,523
|
|
|
|
859,892
|
|
Facility and office costs
|
|
|
392,298
|
|
|
|
378,758
|
|
Sales, marketing and other
|
|
|
518,507
|
|
|
|
835,522
|
|
Impairment on development site
|
|
|
346,654
|
|
|
|
-
|
|
Total selling, general and administrative expenses
|
|
$
|
6,097,816
|
|
|
$
|
6,677,323
|
|
Overall, selling, general
and administrative expenses decreased by $579,507 (8.7%).
Personnel, excluding
stock based compensation decreased by $784,372 (20.7%) as a result of decreased staffing that was initiated in late 2018 and continued
into the first half of 2019 based on business needs, as well as decreases initiated during the second half of 2019. Stock based
compensation increased by $270,054 (33.2%) as a result accelerating vesting of some personnel offset by forfeitures of unvested
awards of separated employees.
Professional fees decreased
by $108,369 (12.6%) primarily due to decreases of $258,957 (30.1%) in legal fees resulting from transactional and patent work decreases,
a decrease of $44,500 in strategy consulting resulting from the settlement of a legal dispute, and a $5,421 (16.7%) decrease in
public relations contract, offset by an increase of $135,073 (45.6%) in accounting fees resulting from the increase in our operations
and tax research related to the Section 382 evaluation of net operating loss carry forwards and an increase of $65,437 (66.7%)
in general investor relations ahead of our September 2019 common stock offering as well as after in improving stock liquidity.
Facility and office
costs increased by $13,540 (3.6%) primarily as a result of an increase in service fees.
Sales, marketing and
other decreased by $317,015 (37.9%) primarily as a result of decreases in travel and entertainment of $102,980 (12.6%), trade shows
and other marketing of $28,274 (34.5%), regulatory costs, including those related to the 2018 uplisting to NASDAQ, of $63,004 (30.6%)
and a net improvement in foreign currency exchange of $145,913 to a net benefit in 2019 from a net loss in 2018 as a result of
the swing in the USD – GBP between the periods.
Impairment expenses
of $346,654 were recognized in 2019 as the result of the abandonment of a HEBioT site prior to permitting.
Consolidated Company
Depreciation and
amortization
Depreciation and amortization
increased from the year ended December 31, 2018 to the year ended December 31, 2019 by $1,261,251 due primarily to $1,233,769 of
depreciation and amortization related to the HEBioT facility, which came online in 2019.
Other (income)
expenses
The following summarizes other (income) expenses for the year
ended December 31, 2019 and 2018:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
Gain on sale of affiliate investment
|
|
$
|
(562,617
|
)
|
|
$
|
-
|
|
Equity loss in affiliate
|
|
|
-
|
|
|
|
601,927
|
|
Interest income
|
|
|
(69,930
|
)
|
|
|
-
|
|
Interest expense
|
|
|
3,377,394
|
|
|
|
2,582,896
|
|
Expense incurred in warrant valuation and conversions
|
|
|
-
|
|
|
|
6,424,970
|
|
Total other (income) expenses
|
|
$
|
2,744,847
|
|
|
$
|
9,609,793
|
|
Other net expenses
decreased from the year ended December 31, 2018 compared to the year ended December 31, 2019 by $6,864,946 due to a decrease of
$6,424,970 in warrant valuation expense and a $1,164,544, increase in net gain on the sale of an affiliate investment, as compared
to equity losses in affiliates in 2018. Net interest expense increased by $724,568, which is the result of $2,050,961 of net interest
related to the HEBioT facility offset by $1,326,393 decrease in interest expense primarily as the result of conversions of debt
to equity in February and April 2018 and from the completion of discount amortizations of the Company’s Series A preferred
stock in late 2018.
Income tax
For the years ended December 31, 2019 and
2018 there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery of
the tax asset resulting in net operating loss carryforward. As of December 31, 2019, the Company had net operating loss carryforwards
of approximately $28,572,000 and $14,325,000 for federal and state income tax purposes, respectively. For purposes of Internal
Revenue Code Section 382, the annual utilization of net operating loss carryovers are subject to limitation resulting from a more
than 50% ownership change as determined under the regulations, which occurred during the year ended December 31, 2019. The federal
net operating losses of approximately $14,200,000, generated in tax years beginning before January 1, 2018, will begin to expire
in 2036 if not utilized. The balance of the net operating losses, approximately $14,372,000 do not expire.
Liquidity
and Capital Resources
The Company currently
generates revenues from rental and sales of its digesters and related goods and services and revenues from the HEBioT technologies
and management fees charged to an affiliate. The Company's other known sources of capital are common and preferred stock offerings,
proceeds from private placements, issuance of notes payable, convertible notes payable, and investments, loans and advances from
related and unrelated parties and cash from future revenues.
The Company will require additional financing in order to execute
our business expansion and development plans and we may require additional financing in order to sustain substantial future business
operations for an extended period of time. Subsequent to December 31, 2019, the Company designated a new series of preferred stock
and raised $1,565,000 on 13,611 shares of the new series of preferred stock and 186,347 common stock warrants through April 6,
2020. The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program and has applied for an additional
$200,000, which has not yet been approved. While the Company has a history of obtaining adequate capital and maintaining liquidity,
it is actively soliciting other forms of financing but do not have any firm commitments for additional financing. Should we not
be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically
feasible we may be unable to sustain the necessary capital to pursue our strategic plan and may have to reduce the planned future
growth and scope of our operations.
For the year ended December 31, 2019, the Company had a
consolidated net loss of $10,280,061, incurred a consolidated loss from operations of $7,535,214 and used net cash in consolidated
operating activities of $7,134,600. At December 31, 2019, consolidated total stockholders’ equity amounted to $7,369,725,
consolidated stockholders’ equity attributable to parent amounted to $2,024,143 and the Company had a consolidated working
capital deficit of $5,351,686. The Company does not yet have a history of financial profitability. Historically, the principal
source of liquidity has been the issuance of debt and equity securities. Presently, the Company does not have firm commitments
to fully fund its future operational and strategic plans, although subsequent to December 31, 2019 the Company raised $1,565,000
from the issuance of Series F Redeemable, Convertible Preferred Stock and warrants. The Company was funded $421,300 on May
13, 2020 through the Paycheck Protection Program and has applied for an additional $200,000, which has not yet been approved. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating
to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable
to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s further
implementation of the Company’s on-going and strategic plans, which include continuing to raise funds through equity and/or
debt raises. Should the Company be unable to raise adequate funds, certain aspects of the on-going and strategic plans may require
modification.
The Company is presently
in the process of raising additional debt for general operations and to support its leasing activities. The Company may also raise
capital through its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange
Commission (the “Shelf Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized
during September 2019 to raise net proceeds of $3,035,557 through a confidentially marketed public offering of common shares.
There is no assurance that the Company will be able to raise sufficient capital or debt to sustain operations or to pursue other
strategic initiatives or that such financing will be on terms that are favorable to the Company.
Cash
As of December 31,
2019 and December 31, 2018, the Company had unrestricted cash balances of $1,847,526 and $2,410,709, respectively.
Borrowings and Debt
The table below presents
borrowings as of December 31, 2019 at net carrying amount and at face amount as due at their future maturities.
|
|
|
|
|
Due
in:
|
|
|
|
December
31,
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
and
thereafter
|
|
|
Total
|
|
Line of credit
|
|
$
|
1,479,848
|
|
|
$
|
1,500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
Advance from related party
|
|
|
210,000
|
|
|
|
210,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210,000
|
|
Notes
payable
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Junior
note
|
|
|
949,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,044,477
|
|
|
|
1,044,477
|
|
Senior
note payable
|
|
|
4,160,490
|
|
|
|
-
|
|
|
|
1,875,000
|
|
|
|
2,500,000
|
|
|
|
625,000
|
|
|
|
-
|
|
|
|
5,000,000
|
|
West
Virginia EDA Bond
|
|
|
31,207,426
|
|
|
|
1,390,000
|
|
|
|
1,470,000
|
|
|
|
1.175,000
|
|
|
|
1,265,000
|
|
|
|
27,700,000
|
|
|
|
33,000,000
|
|
Vehicle
loans
|
|
|
12,806
|
|
|
|
4,605
|
|
|
|
4,380
|
|
|
|
3,821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,806
|
|
Total
|
|
$
|
38,120,004
|
|
|
$
|
3,204,605
|
|
|
$
|
3,349,380
|
|
|
$
|
3,678,821
|
|
|
$
|
1,890,000
|
|
|
$
|
28,744,477
|
|
|
$
|
40,867,283
|
|
Cash Flows
Cash Flows from
Operating Activities
We used $7,134,600
of cash in operating activities during the year ended December 31, 2019, an increase of $1,090,456 over $ 6,044,144 of cash used
in operating activities during the year ended December 31, 2018. Our net loss during the year ended December 31, 2019 of $10,280,061
was reduced by $3,274,240 of non-cash income and expenses resulting in $7,005,821 of operational cash usage before changes in
operational assets and liabilities, as compared to operational cash usage before changes in operational assets and liabilities
of $4,846,910 for the year ended December 31, 2018. This $2,158,911 increase in usage before changes in operational assets and
liabilities was primarily driven by an increase of $3,721,990 at EWV offset by an improvement of $1,563,079 at the Comparable
units.
Cash Flows from
Investing Activities
Net Cash used in investing
activities amounted to $2,879,385 for the year ended December 31, 2019, which was principally comprised of $5,111,209 of facility
investments at the HEBioT plant, offset by the sale proceeds of $2,250,000 from the sale of our investment in affiliate. Net Cash
used in investing activities amounted to $691,216 for the year ended December 31, 2018, before recognizing the $6,773,384 in cash
provided by the control acquisition of Entsorga West Virginia, LLC
Cash Flows from
Financing Activities
Cash provided by financing
activities amounted to $6,346,741 for the year ended December 31, 2019, compared to $8,151,235 for the year ended December 31,
2018, a decrease of $1,804,494. During the year ended December 31, 2018, we received $4,808,057 of proceeds from the issuance of
common and preferred stock. In 2019 and 2018, we also had non-controlling member contributions to a consolidated subsidiary of
$1,400,000 and $3,500,000, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates
— The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s
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 revenue and expenses during the reporting periods. Actual results
could differ from these estimates. Estimates are used when accounting for items and matters including, but not limited to, valuation
of deferred tax assets, share based compensation, allowance for uncollectible accounts receivable, obsolete, slow moving and excess
inventory, asset valuations, including intangibles, and useful lives and other provisions and contingencies.
Product and Services
Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC 606, Revenue
from Contracts with Customers, which require that we: 1.Identify the contract with a customer; 2. Identify the performance obligations
in the contract; 3. Determine the transaction price of the contract; 4. Allocate the transaction price to the performance obligations
in the contract, and; 5. Recognize revenue when the performance obligations are met or delivered.
When revenue is earned based on product
sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s performance
obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title
and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily
receives fixed consideration for sales of products. When revenue is earned on services, such as management advisory fees and digester
maintenance and repair services fees are recognized over the period the services are performed based on service milestones.
Lease Revenue
Recognition — Rental, service and maintenance revenues relating to the Company’s rental agreements involve
providing use of the Company’s digesters at customer locations, access to our software as a service and preventative maintenance
over the term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs
and obligations underlying the agreements.
The Company selected
the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue from the rental
of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered
into in connection with its digester units qualify as operating leases, for which the Company is the operating lessor. In order
to determine lease classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease
includes any provisions which would indicate sales type lease treatment.
Long-Lived Assets
— The Company assesses potential impairments to its long-lived assets if events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are reviewed annually for impairment,
or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. An impaired asset
is written down to its estimated fair value based upon the most recent information available. Estimated fair market value is generally
measured by discounting estimated future cash flows.
Income Taxes
— Deferred income taxes are determined based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits
are based on changes to the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax
regulations of the jurisdictions in which it operates, estimates the future taxable income and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax planning and strategies vary, adjustments to the carrying
value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets
based on the “more than likely” criteria.
Financial Instruments,
Convertible Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the existence
of embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial
instrument is required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common
stock purchase warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance
sheet as equity, assets or liabilities based upon the nature of the instruments.
Stock-Based Compensation
— The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation.”
ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured
on the grant date for stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value”
awards such as restricted stock and performance shares, and is estimated using an option-pricing model with traditional inputs
for “appreciation” awards such as stock options and stock appreciation rights.
Recently Issued Accounting Standards
During the year ended
December 31, 2019, the Company adopted the following recent accounting standards:
In February 2016,
the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases), which has subsequently been amended by ASU
No. 2018-11, Leases in July 2018. Under the new guidance, at the commencement date, lessees will be required to
recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted
basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is
largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and
operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for leases that expired before the
earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2018-11
provides that under certain instances lessors may not be required to separate the components of the contracts. As a lessor of digester
equipment under operating leases, the new guidance did not have a material impact on the financial statements. As a lessee under
operating leases the adoption did not have a material impact on our financial statements, resulting in an increase of 2% to each
of our total assets and total liabilities on our balance sheet, and had an immaterial impact to retained earnings as of the beginning
of 2019.
In March 2019,
the FASB issued ASU 2019-01, Leases (Topic 842, Codification Improvements), which removed the requirement for an entity
to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any
other affected financial statement line item, or per share amount. For lessors, the new leasing standard requires leases to be
classified as sales-type, direct financing or operating leases. These criteria focus on the transfer of control of the underlying
asset. This standard and related updates were effective for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-01 on January 2019. See Note 19 for disclosures
related to this amended guidance.
The Company has not
yet implemented the following accounting standard:
In June 2016,
the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance
to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected
losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for
interim and annual period beginning December 15, 2020. Entities are required to apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.
The Company has not yet adopted this update and is currently evaluating the effect this new standard will have on its financial
condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting
company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required
by Item 8 appears after the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls
and Procedures
Pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with
the participation of the Company’s management, including the Company’s Chief Executive Officer (the Company’s
principal executive officer) and Chief Financial Officer (the Company’s principal financial and accounting officer), of the
effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that
information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report
on Internal Control Over Financial Reporting
The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our
internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding
the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. The framework used
by management in making that assessment was the criteria set forth in the document entitled “Internal Control - Integrated
Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment,
our management has determined that as of December 31, 2019, the Company’s internal control over financial reporting was not
effective for the purposes for which it is intended and determined there to be a material weakness.
A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
Because of our
limited operations we have a small number of employees which prohibits a segregation of duties, which results in a material
weakness over disclosure controls and procedures, as well as internal control over financial reporting. As we grow and expand
our operations, we will engage additional employees and experts as needed. However, there can be no assurance that our
operations will expand.
Changes in Internal Controls Over
Financial Reporting
There have not been
any changes in our internal control over financial reporting during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
As reported above,
on February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States
District Court for the Northern District of West Virginia arising out of the construction of the Company’s resource recovery
facility in Martinsburg, West Virginia alleging breach of contract and unjust enrichment. The Company has filed its answer and
counterclaims for damages against Lemartec and cross claims against Lemartec’s performance bond surety, Philadelphia Indemnity
Insurance Company. Trial was last expected to begin in August 2020. Subsequent to year end, on March 12, 2020 the Company
entered into a settlement agreement and full and final mutual release with Lemartec that provides that the Company pay Lemartec
$775,000 in installments of $475,000 upon entering into the agreement and $25,000 each month thereafter for 12 months. The effect
of this settlement has been reflected in the Company’s consolidated financial statements as of December 31, 2019.
Note 22 includes supplemental cash flow information, non-cash
investing and financing activities and changes in operating assets and liabilities.
Note 1. Basis of Presentation and Going
Concern
Nature of Operations - BioHiTech
Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned and its controlled subsidiaries
offers cost-effective and technologically innovative advancements integrating technological, biological and mechanical engineering
solutions for the control, reduction and / or reuse of organic and municipal waste.
As of December 31, 2019 and 2018,
the Company’s active wholly-owned subsidiaries were BioHiTech America, LLC, BioHiTech Europe Limited, BHT Financial, LLC
and E.N.A. Renewables LLC, and its controlled subsidiary was Refuel America LLC (60%) and its wholly-owned subsidiaries Apple Valley
Waste Technologies Buyer, Inc., Apple Valley Waste Technologies, LLC, New Windsor Resource Recovery LLC and Rensselaer Resource
Recovery LLC and its controlled subsidiary Entsorga West Virginia LLC (88.7% and 78.2% as of December 31, 2019 and 2018, respectively).
Basis of Presentation - The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiaries
and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
All intercompany transactions have been eliminated in consolidation. Under Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) 280, segment reporting, the Company reports as a single segment company. Reclassifications to
certain prior period amounts have been made to conform to current period presentation. These reclassifications have no effect on
previously reported net loss.
Going Concern and Liquidity
- For the year ended December 31, 2019, the Company had a consolidated net loss of $10,280,061, incurred a consolidated loss
from operations of $7,535,214 and used net cash in consolidated operating activities of $7,134,600. At December 31, 2019,
consolidated total stockholders’ equity amounted to $7,369,725, consolidated stockholders’ equity attributable to
parent amounted to $2,024,143 and the Company had a consolidated working capital deficit of $5,351,686. The Company does not yet
have a history of financial profitability. Historically, the principal source of liquidity has been the issuance of debt and equity
securities. Presently, the Company does not have firm commitments to fully fund its future operational and strategic plans, although
subsequent to December 31, 2019 the Company raised $1,565,000 from the issuance of Series F Redeemable, Convertible
Preferred Stock and warrants. The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program (See Note
24) and has applied for an additional $200,000, which has not yet been approved. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on management’s further implementation
of the Company’s on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises.
Should the Company be unable to raise adequate funds, certain aspects of the on-going and strategic plans may require modification.
The Company is presently in the process
of raising additional debt for general operations and to support its leasing activities. The Company may also raise capital through
its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange Commission
(the “Shelf Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized during
September 2019 to raise net proceeds of $3,035,557 through a confidentially marketed public offering of common shares. There
is no assurance that the Company will be able to raise sufficient capital or debt to sustain operations or to pursue other strategic
initiatives or that such financing will be on terms that are favorable to the Company.
Note 2. Summary of Significant Accounting
Policies
Use of Estimates
— The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of
management’s 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 revenue and expenses
during the reporting periods. Actual results could differ from these estimates. Estimates are used when accounting for items
and matters including, but not limited to, valuation of deferred tax assets, share based compensation, allowance for
uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and
useful lives and other provisions and contingencies.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Foreign Operations —
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates existing at the
respective balance sheet dates. Income and expense items are translated at the average rates during the respective periods. Translation
adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income (loss)
while transaction gains and losses are recorded in net earnings (loss). Deferred taxes are not provided on cumulative foreign currency
translation adjustments as the Company presently expects foreign earnings to be permanently reinvested.
The Company pays Value Added Tax (“VAT”)
or similar taxes (“input VAT”) within the normal course of its business in in the United Kingdom on merchandise and/or
services it acquires. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for
merchandise and/or services it sells. If the output VAT exceeds the input VAT, then the difference is remitted to the government,
usually on a monthly basis. If the input VAT exceeds the output VAT, this creates a VAT receivable. The Company either requests
a refund of this VAT receivable or applies the balance to expected future VAT payables.
Product
and Services Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC
606, Revenue from Contracts with Customers, which require that we:
1. Identify the contract with a customer;
2. Identify the performance obligations
in the contract;
3. Determine the transaction price of
the contract;
4. Allocate the transaction price to the
performance obligations in the contract;
5. Recognize revenue when the performance
obligations are met or delivered.
When revenue is earned based on product
sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s performance
obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title
and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily
receives fixed consideration for sales of products.
When revenue is earned based on receipt
of disposal waste, the Company’s performance obligations are satisfied at the point in time when disposal waste products
are received from the customer, which is when the Company has title and control. Therefore, the Company’s contracts have
a single performance obligation (receipt of disposal waste).
When revenue is earned on services, such
as management advisory fees and digester maintenance and repair services fees are recognized over the period the services are performed
based on service milestones.
The adoption of Topic 606 did not have
a material impact on the timing or amounts of revenue and costs recognized in the Company’s consolidated financial statements
and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption
date or for the year ended December 31, 2018. The Company did not recognize any cumulative-effect adjustment to retained earnings
upon adoption as the impact was immaterial.
The Company records taxes collected from
customers and remitted to governmental authorities on a net basis.
Lease Revenue Recognition
— Rental, service and maintenance revenues relating to the Company’s rental agreements involve providing use of
the Company’s digesters at customer locations, access to our software as a service and preventative maintenance over the
term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs and obligations
underlying the agreements.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
The Company selected the practical expedient
not to separate non-lease components from lease components. The Company recognizes revenue from the rental of the digester units
ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection
with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease
classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease includes any of
the following provisions which would indicate sales type lease treatment:
|
·
|
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term,
|
|
·
|
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise,
|
|
·
|
The Lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease,
|
|
·
|
The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or
|
|
·
|
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
|
Restricted Cash — Includes
Restricted cash that is restricted as to its use, as it is held by a trustee in accordance with the West Virginia Economic Development
Authority bond agreement. These amounts are held by the Company’s trustee in various bank accounts segregated for specific
uses related to the construction and operation of the resource recovery facility. Amounts required to meet current operations of
the Company have been classified as current in the accompanying consolidated balance sheets.
Buildings, Equipment, Fixtures and
Vehicles, Including Equipment Leased to Others — Buildings, equipment, fixtures and vehicles, including equipment leased
to others, is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets, as follows:
|
|
Years
|
|
HEBioT facility
|
|
|
30
|
|
HEBiot equipment
|
|
|
15
|
|
Equipment leased to others
|
|
|
5 - 7
|
|
Computer software and hardware
|
|
|
3 - 5
|
|
Vehicles
|
|
|
5
|
|
Furniture and fixtures
|
|
|
7 - 15
|
|
The Company’s High Efficiency Biological
Treatment (“HEBioT”) facility located in West Virginia was under construction through March 31, 2019. Included
in the capitalized costs are construction, legal, leasehold improvements, and interest.
MBT Facility Development Costs —
The Company defers costs relating to on-going Mechanical Biological Treatment (“MBT”) facility development costs commencing
upon the Company’s determination that the project will be completed. These site specific costs generally include external
costs generally relating to legal, engineering and other costs relating to the acquisitions of land, permits and licenses. Upon
commencement of construction, to the extent that costs relate to the facility, they are transferred to the construction in progress.
Investments in Unconsolidated Entities
—The Company has utilized the equity method of accounting for investments in companies if the investment provides
the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s
proportionate share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated
equity basis investments. In circumstances where the Company does not have the ability to exercise significant influence or control
over the operating and financial policies of the investee, the investment is carried at cost, less impairment, adjusted for subsequent
changes to estimated fair value up to the original cost.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Long-Lived Assets —
The Company assesses potential impairments to its long-lived assets if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Indefinite-lived intangible assets are reviewed annually for impairment, or more frequently
if events or changes in circumstances indicate that the carrying value may not be recoverable. An impaired asset is written down
to its estimated fair value based upon the most recent information available. Estimated fair market value is generally measured
by discounting estimated future cash flows.
Goodwill — The Company
records as goodwill the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree,
and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the
net identifiable assets acquired. The Company does not amortize goodwill; however, annually, or whenever there is an indication
that goodwill may be impaired, qualitative factors are evaluated to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying amount. The Company’s test of goodwill impairment includes assessing
qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and
entity specific events, as well as overall financial performance. Annual goodwill impairment analysis may include, but is not limited
to the discounted cash flow method.
Shipping Costs — Shipping
and handling charges are recorded gross in both the revenue and in cost of revenue and amounted to $96,481 and $100,059 for the
years ended December 31, 2019 and 2018, respectively.
Advertising — The Company
expenses advertising costs as incurred. Advertising expense amounted to $56,742 and $81,901 for the years ended December 31,
2019 and 2018, respectively.
Research and Development —
All research and development costs incurred by the Company are expensed as incurred.
Deferred Financing Costs —
Deferred financing costs relating to issued debt are included as a reduction to the applicable debt and amortized as interest expense
over the term of the related debt instruments.
Financial Instruments, Convertible
Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the existence of embedded
conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial instrument is
required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common stock purchase
warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance sheet as equity,
assets or liabilities based upon the nature of the instruments.
Comprehensive Income (Loss) —
Comprehensive income (loss) for the Company consists of net earnings (loss) and foreign currency translation.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Income Taxes — Deferred
income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases
of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to
the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions
in which it operates, estimates the future taxable income and available tax planning strategies. If tax regulations, operating
results or the ability to implement tax planning and strategies vary, adjustments to the carrying value of deferred tax assets
and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more than
likely” criteria.
The Company recognizes the financial statement
benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements
is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.
Stock-Based Compensation —
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation.”
ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured
on the grant date for stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value”
awards such as restricted stock and performance shares, and is estimated using an option-pricing model with traditional inputs
for “appreciation” awards such as stock options and stock appreciation rights.
Costs equal to these fair values are recognized
as expense ratably over the requisite service period based on the number of awards that are expected to vest, or in the period
of the grant for awards that vest immediately and have no future service condition. For awards that vest over time, cumulative
adjustments in later periods are recorded to the extent actual forfeitures differ from the Company’s initial estimates; previously
recognized compensation cost is reversed if the service or performance conditions are not satisfied and the award is forfeited.
The expense resulting from share-based payments is recorded in the accompanying consolidated statements of operations based upon
the classification of the underlying employees or service providers with a corresponding increase to additional paid in capital.
Subsequent modifications to outstanding
awards result in incremental cost if the fair value is increased as a result of the modification. Thus, a value-for-value stock
option repricing or exchange of awards in conjunction with an equity restructuring does not result in additional compensation cost.
Loss per Share — The
Company computes basic loss per share using the weighted-average number of shares of common stock outstanding and diluted loss
per share, while the diluted loss per share also includes the effects of dilutive instruments using the “treasury method.”
Dividends attributable to preferred stock, whether declared or accrued, and deemed dividends on down round feature are deducted
from income attributable to common shareholders for purposes of earnings per share.
The Company’s potential dilutive
instruments include convertible preferred stock, options, convertible debt and warrants. These instruments have not been considered
in the calculation of diluted loss per share as they are anti-dilutive for the reported periods.
Note 3. Acquisition and Contribution
Agreement
On November 28, 2018, Company
entered into a definitive agreement (the “MIPS”) with Entsorga USA, Inc. (“EUSA”) whereby EUSA
agreed to sell, transfer and convey to BioHiTech 2,687 membership units of Entsorga West Virginia, LLC (“EWV”)
(the “Membership units”) in consideration of 714,519 shares of BioHiTech’s newly created Series E
convertible preferred stock (the “Sr. E CPS). At the time, EWV was a facility under construction that is intended to
utilize HEBioT technology to divert municipal solid waste from landfills and to create an EPA recognized alternative
commodity fuel, which has since commenced operations. On December 14, 2018, the EUSA transaction
was consummated. The 714,519 shares of Sr. E CPS were valued at $1,886,630 based on the underlying common shares which the Sr.
E CPS is convertible into. The total acquisition price of $2,863,583 is comprised of the aforementioned transaction, plus $976,953
of previously held equity in EWV.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Upon consummation of the MIPS agreement
BioHiTech owned a total of 4,410.4 membership units of EWV, comprised of the 2,687 units resulting from the MIPS agreement and
1,723.4 units previously acquired by BioHiTech during 2017. The 4,410.4 membership units represented 44.1% of the total membership
units issued by EWV, which combined with BioHiTech’s control of EWV’s board, management and having the largest ownership
block of EUSA, with the next largest block, which represents 34.1%, an entity over which BioHiTech has controlling financial interest,
results in the investment being recognized in the Company’s financial statements on a consolidated basis. The estimated
fair values of the assets acquired, and the liabilities assumed at the acquisition date are:
|
|
December 14,
|
|
|
|
2018
|
|
Restricted cash
|
|
$
|
6,773,384
|
|
HEBioT facility under construction
|
|
|
32,784,920
|
|
MBT license
|
|
|
1,890,000
|
|
Total identified assets acquired
|
|
|
41,448,304
|
|
|
|
|
|
|
Account payable
|
|
|
65,943
|
|
Accrued liabilities
|
|
|
4,311,591
|
|
Long-term debt
|
|
|
31,085,902
|
|
Total liabilities assumed
|
|
|
35,463,436
|
|
Identifiable net assets acquired
|
|
|
5,984,868
|
|
Goodwill
|
|
|
58,000
|
|
Net assets acquired
|
|
|
6,042,868
|
|
Less non-controlling interest
|
|
|
(3,179,285
|
)
|
Net identifiable assets acquired by Company
|
|
$
|
2,863,583
|
|
The following presents unaudited pro forma
information as if the acquisition had occurred as of January 1, 2018. The pro forma results do not include any anticipated
cost synergies or other effects of the integration of the acquired company. Pro forma amounts are not necessarily indicative of
the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of
future operating results of the combined company.
|
|
(Unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
4,219,448
|
|
|
$
|
3,359,324
|
|
Net loss attributable to Parent
|
|
|
(7,622,948
|
)
|
|
|
(15,062,634
|
)
|
Proforma earnings per share – basic and diluted
|
|
|
(0.56
|
)
|
|
|
(1.13
|
)
|
Following the consummation of the MIPS,
on December 14, 2018, BioHiTech entered into a Contribution and Transaction Agreement (“CTA”) with Gold Medal
Group, LLC (“GMG”) and a newly formed subsidiary Refuel America, LLC (“Refuel”) of the Company whereby
GMG contributed $3,500,000 in cash and its 34.1% ownership interest in EVW (owned by GMG’s wholly owned subsidiary Apple
Valley Waste Technologies, LLC) into Refuel and BioHiTech contributed it’s 44.1% interest in EWV, a technology license for
a future HEBioT facility that BioHiTech carried at a value of $6,019,200 and $316,207 in capitalized costs relating to two separate
HEBioT facility on-going projects. In exchange for the assets contributed, BioHiTech and GMG acquired 60% and 40%, respectively,
of the membership units of Refuel, which approximate the carrying value of each of the BioHiTech and GMG assets contributed. As
a result of there being a continuation in proportional ownership of the significant assets and the affiliate nature BioHiTech and
GMG through a non-controlling interest of GMG being owned by BioHiTech and there being a management agreement between GMG’s
largest subsidiary, Gold Medal Holdings, LLC (“GMH”) whereby BioHiTech provides executive management of GMH with control
over the strategic and operational activities of GMH, the CTA transaction has been accounted for without separate acquisition accounting
applied to the CTA elements.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 4. Investments in Unconsolidated
Entities
Entsorga West Virginia LLC -
Effective March 21, 2017, the Company acquired a 17.2% interest in Entsorga West Virginia LLC EWV from the original investors
at their original purchase price of $60,000 for each 1% of interest in EWV ($1,034,028). From March 21, 2017 through December 14,
2018 the Company recognized the investment utilizing the equity method of accounting due to its investment and its ability to influence
operations and activities of EWV. On December 14, 2018, the Company consummated an additional acquisition of 2,687 membership
units that resulted in the Company gaining control of EWV. As December 14, 2018, EWV is consolidated in the accompanying statement
of operations and comprehensive loss.
Through December 14, 2018, the Company
had recognized losses through equity accounting of $193,102 for the year ended December 31, 2018, resulting in a carrying
balance amounting to $823,161 as of December 14, 2018. As a result of the acquisition of additional membership units and change
in control, this previously held equity investment was valued at fair value amounting to $976,953 with the corresponding gain of
$153,792 reflected as in equity loss in affiliate in the accompanying consolidated statement of operations and comprehensive loss.
Gold Medal Group, LLC –
On January 25, 2018, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”)
to acquire 9.2% of the outstanding membership units (the “Units”) of Gold Medal Group, LLC (“GMG”), which
is the owner of a traditional waste management entity. Pursuant to the Purchase Agreement, the Company acquired the Units from
two unrelated parties in consideration $2,250,000 paid through the issuance of 500,000 shares of the Company’s common stock.
During 2018, the Company’s investment
in GMG was diluted from 9.2% to 2.9% due to additional GMG acquisitions and investments, including the CTA with the Company. As
a result of the reduction in the ownership level and accordingly, a reduction in influence, effective December 14, 2018 the
Company changed its prospective accounting for GMG from the equity method to the cost method.
During the year ended December 31,
2018, the initial $2,250,000 investment in GMG was reduced by $562,617 in losses recognized prior to the change to cost basis accounting.
As of December 31, 2019, the Company
had no investments in unconsolidated investments as a result of its July 3, 3019 sale of its investment in Gold Medal Group,
LLC (“GMG”), which was comprised of 2,250,000 GMG Investment Preferred Units and 2,250,000 Class A Common Units,
to Gold Medal Equity, LLC (“GME”), the parent entity to GMG for total compensation of $2,250,000. As of July 3,
2019 these investments were carried by the Company with an adjusted cost of $1,687,383 resulting in a gain of $562,617 on July 3,
2019, which was recorded as gain on sale of affiliate investment in the accompanying consolidated statements of operations
and comprehensive loss.
Note 5. Accounts Receivable, net
Accounts receivable consists of the following
as of December 31:
|
|
2019
|
|
|
2018
|
|
Accounts receivable
|
|
$
|
2,325,959
|
|
|
$
|
513,336
|
|
Less: allowance for doubtful accounts receivable
|
|
|
(170,038
|
)
|
|
|
(110,038
|
)
|
|
|
$
|
2,155,921
|
|
|
$
|
403,298
|
|
Allowance for doubtful accounts activities
are as follows for the years ended December 31:
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
(110,038
|
)
|
|
$
|
(134,288
|
)
|
Provision for doubtful accounts
|
|
|
(103,499
|
)
|
|
|
(25,477
|
)
|
Amounts written off
|
|
|
43,499
|
|
|
|
49,727
|
|
Balance at end of year
|
|
$
|
(170,038
|
)
|
|
$
|
(110,038
|
)
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 6. Inventory
Inventory, comprised of finished goods
and parts or assemblies, consist of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
Equipment
|
|
$
|
119,996
|
|
|
$
|
169,540
|
|
Parts and assemblies
|
|
|
347,788
|
|
|
|
330,308
|
|
|
|
$
|
467,784
|
|
|
$
|
499,848
|
|
Note 7. Equipment on Operating Leases,
net
Equipment on operating leases consist of
the following as of December 31:
|
|
2019
|
|
|
2018
|
|
Leased equipment
|
|
$
|
3,138,951
|
|
|
$
|
3,054,097
|
|
Less: accumulated depreciation
|
|
|
(1,413,953
|
)
|
|
|
(1,305,210
|
)
|
|
|
$
|
1,724,998
|
|
|
$
|
1,748,887
|
|
During the year ended December 31,
2019 and 2018, depreciation expense on equipment on operating lease, amounted to $431,833 and $353,189, respectively.
The Company is a lessor of digester units
under non-cancellable operating lease agreements expiring through June 2025. These leases generally have terms of three to five
years and do not contain stated extension periods or options for the lessee to purchase the underlying assets. At the end of the
leases, the lessee may enter into a new lease or return the asset, which would be available to the Company for releasing. During
the year ended December 31, 2019 and 2018, revenue under the agreements, which is included in rental, service and maintenance
revenue, amounted to $1,483,852 and $1,174,772, respectively.
The minimum future estimated contractual
payments to be received under these leases as of December 31, 2019 is as follows:
Year ending December 31,
|
|
|
|
2020
|
|
$
|
1,357,645
|
|
2021
|
|
|
984,500
|
|
2022
|
|
|
684,095
|
|
2023
|
|
|
446,460
|
|
2024 and thereafter
|
|
|
127,209
|
|
|
|
$
|
3,599,909
|
|
Note 8. HEBioT Facility, Equipment,
Fixtures and Vehicles, net
HEBioT facility, equipment, fixtures
and vehicles consist of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
HEBioT facility
|
|
$
|
31,142,974
|
|
|
$
|
-
|
|
HEBioT equipment
|
|
|
7,388,896
|
|
|
|
-
|
|
Computer software and hardware
|
|
|
112,629
|
|
|
|
112,500
|
|
Furniture and fixtures
|
|
|
48,196
|
|
|
|
48,196
|
|
Vehicles
|
|
|
50,319
|
|
|
|
50,319
|
|
|
|
|
38,743,014
|
|
|
|
211,015
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,321,681
|
)
|
|
|
(161,987
|
)
|
|
|
$
|
37,421,333
|
|
|
$
|
49,028
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
During the year ended December 31,
2019, depreciation expense relating to the HEBioT facility and equipment amounted to $1,139,269. During the years ended December 31,
2019 and 2018, depreciation expense relating to computers software and hardware, furniture and fixtures and vehicles amounted to
$20,343 and $24,838, respectively.
The Company’s HEBioT facility in
Martinsburg, West Virginia accepted its first test loads of solid municipal waste on March 29, 2019 to commence commissioning
and equipment calibration. The Company capitalizes all costs incurred to bring an asset to the condition and location necessary
for its intended use. Included in the capitalized costs are construction, specialized equipment, legal, leasehold improvements,
and interest. Capitalized interest relates to the State of West Virginia Revenue Bonds and amounted to $618,706 for the year ended
December 31, 2019. The facility, while continuing commissioning, was placed in service on April 1, 2019.
Note 9. MBT Facility Development and
License Costs
MBT Facility Development and License Costs
consist of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
MBT Projects
|
|
|
|
|
|
|
|
|
New Windsor, New York:
|
|
|
|
|
|
|
|
|
Land acquisition
|
|
$
|
-
|
|
|
$
|
66,000
|
|
Legal
|
|
|
-
|
|
|
|
46,030
|
|
Survey and engineering
|
|
|
-
|
|
|
|
300,624
|
|
|
|
|
-
|
|
|
|
412,654
|
|
Rensselaer, New York:
|
|
|
|
|
|
|
|
|
Survey and engineering
|
|
|
235,229
|
|
|
|
153,554
|
|
Total MBT projects
|
|
|
235,229
|
|
|
|
566,208
|
|
Technology Licenses
|
|
|
|
|
|
|
|
|
Future site
|
|
|
6,019,200
|
|
|
|
6,019,200
|
|
Martinsburg, West Virginia, net of $94,500 of amortization as of December 31, 2019
|
|
|
1,795,500
|
|
|
|
1,890,000
|
|
Total Technology Licenses
|
|
|
7,814,700
|
|
|
|
7,909,200
|
|
Total MBT Facility Development and License Costs
|
|
$
|
8,049,929
|
|
|
$
|
8,475,408
|
|
MBT Facility Development Costs
New Windsor, New York
As of December 31, 2018, the Company
was pursuing local and state permits, and other approvals required to continue development of the project. On February 28, 2019, the Company elected to rescind an agreement for the purchase of real property with the Town of
New Windsor in exchange for a return of the $66,000 paid by the Company under the rescinded contract and to relocate the project.
While the Company is presently investigating several other sites for the project, as a result of abandoning the initial site, the
Company has reflected an impairment expense of $346,654 relating to the site during 2019 in selling, general and administrative
expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.
Rensselaer, New York
During 2018, the Company commenced initial
development of a project in Rensselaer, NY. As of December 31, 2019, the Company has received local permits and has filed
the required state permit applications, which are undergoing review by the New York State Department of Environmental Conservation.
HEBioT Technology Licenses
Technology License Agreement –
Future Facility
On November 1, 2017, the Company entered
into a Technology License Agreement (the “License Agreement”) with Entsorgafin S.p.A. (“Entsorga”) whereby
the Company acquired a license for the design, development construction, installation and operation of a High Efficiency Biological
Treatment (“HEBioT”) renewable waste facility with a capacity of 165,000 tons per year. The patented HEBioT technology
converts mixed municipal and organic waste to a US Environmental Protection Agency recognized alternative fuel source.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
The royalty payment for the license amounted
to $6,019,200. This Technology License Agreement can be utilized at a future project and will be amortized once the facility is
in operation.
Technology License Agreement –
Martinsburg, West Virginia
In connection with the acquisition accounting
applied to Entsorga West Virginia acquisition consummated on December 14, 2018, the facility License Agreement was valued
at $1,890,000. During the year ended December 31, 2019 amortization expense amounted to $94,500, based on an estimated fifteen
year life.
Note 10. Intangibles Assets,
net
Other assets, as of December 31, 2019
and 2018, include net digester distribution agreements amounting to $40,399 and $83,933, respectively. During the years
ended December 31, 2019 and 2018, amortization expense, included in depreciation and amortization of operating expenses, amounted
to $43,533 and $90,200, respectively. The agreements expire in 2021.
Note 11. Goodwill
As of December 31, 2019 and 2018,
the Company has goodwill of $58,000 resulting from the Entsorga West Virginia, LLC acquisition on December 14, 2018.
Note 12. Risk Concentrations
The Company operates as a single segment
on a worldwide basis through its subsidiaries, resellers and independent sales agents. Gross revenues and net non-current tangible
assets on a domestic and international basis are as follows:
|
|
United
States
|
|
|
International
|
|
|
Total
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, for the year ended December 31, 2019
|
|
$
|
3,751,676
|
|
|
$
|
467,772
|
|
|
$
|
4,219,448
|
|
Non-current tangible assets, as of December 31, 2019
|
|
|
38,803,333
|
|
|
|
355,825
|
|
|
|
39,159,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, for the year ended December 31, 2018
|
|
$
|
2,952,038
|
|
|
$
|
407,286
|
|
|
$
|
3,359,324
|
|
Non-current tangible assets, as of December 31, 2018
|
|
|
34,630,978
|
|
|
|
284,444
|
|
|
|
34,915,422
|
|
Credit risk — Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.
The Company minimizes credit risk associated
with cash by periodically evaluating the credit quality of its primary financial institutions. At times, the Company’s cash
may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) in the USA and
the Financial Conduct Authority (“FCA”) in the UK insurance limits. Through December 31, 2019, the Company had
not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Major customers —
During the year ended December 31, 2019, one customer represented at least 10% of revenues, accounting for 48.2% (Gold Medal
Group, LLC, an affiliated entity, “GMG”) of revenues. During the year ended December 31, 2018, one customer represented
at least 10% of revenues, accounting for 30.7% (GMG) of revenues.
As of December 31, 2019 one customer
represented at least 10% of accounts receivable, accounting for 58.9% (GMG) of accounts receivable. As of December 31, 2018,
one customer represented at least 10% of accounts receivable, accounting for 32.8% (GMG) of accounts receivable.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Vendor
concentration — During the year ended December 31, 2019, one vendor represented at least 10% of costs
of revenue, accounting for 23.1% (GMG) of costs of revenue. During the year ended December 31, 2018, two vendors represented
at least 10% of costs of revenue, accounting for 25.1% (a 1.4% shareholder) and 11.0% costs of revenue.
As of December 31, 2019, one vendor
represented at least 10% of accounts payable accounting for 54.4% (GMG) of accounts payable. As of December 31, 2018, one
vendor represented at least 10% of accounts payable, accounting for 12.0% (a 1.4% shareholder) of accounts payable.
Affiliate relationship —
GMG owns a 40% interest in Refuel America, LLC, a consolidated subsidiary of the Company. GMG’s subsidiaries, which are not
consolidated in the Company’s financial statements have several business relationships with the Company and its subsidiaries
that result in revenues and expenses noted above. See Note 20. Related Party Transactions.
Note 13. Line of Credit, Notes Payable,
Advances, Promissory Note and Long-Term Debt
Notes, lines, advances and long-term debts
are comprised of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
|
|
Total
|
|
|
Related
Party
|
|
|
Total
|
|
|
Related
Party
|
|
Line of credit
|
|
$
|
1,479,848
|
|
|
$
|
-
|
|
|
$
|
1,469,330
|
|
|
$
|
-
|
|
Senior secured promissory note
|
|
|
4,160,490
|
|
|
|
-
|
|
|
|
3,851,305
|
|
|
|
-
|
|
Junior promissory note
|
|
|
949,434
|
|
|
|
949,434
|
|
|
|
926,211
|
|
|
|
926,211
|
|
Note payable
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
Advance from related party
|
|
|
210,000
|
|
|
|
210,000
|
|
|
|
-
|
|
|
|
-
|
|
Long term debt - current and long-term portion
|
|
|
12,806
|
|
|
|
-
|
|
|
|
21,971
|
|
|
|
-
|
|
Line of Credit — On
February 2, 2018, the Company’s subsidiary, BHT Financial, LLC (“BHTF”) entered into a new Credit Agreement
(the “Credit Agreement”) and a Master Revolving Note (the “Note”) with Comerica that provides for a facility
of up to $1,000,000, secured by the assets of BHTF. The Credit Agreement and Note were amended on November 9, 2018 to increase
the facility to $1,500,000. The Note does not have any financial covenants, carries interest at the rate of 3%, plus either the
Comerica prime rate or a LIBOR-based rate, (5.71% and 6.52% as of December 31, 2019 and December 31, 2018, respectively) and
matured on January 1, 2020, which was subsequently extended to March 31, 2020 and remains outstanding as of the date of this
filing. The Company expects to obtain an amended agreement through the remainder of 2020. The line of credit is secured by the
assets of BHTF and is personally guaranteed by the Company’s Chief Executive Officer, Frank E. Celli and James C. Chambers,
a director.
As of December 31, 2019, the $1,500,000
balance outstanding is presented net of $34,948 in issuance costs associated with the financing, net of $14,796 in amortization.
As December 31, 2018, the $1,500,000 balance outstanding is presented net of $34,948 in issuance costs associated with the
financing, net of $4,278 in amortization. Amortization is calculated on the effective interest method, which is included in interest
expense in the accompanying consolidated statements of operations and comprehensive loss.
Michaelson
Senior Secured Term Promissory Financing – On February 2, 2018, the Company and several of the Company’s
wholly-owned subsidiaries entered into and consummated a Note Purchase and Security Agreement (the “Purchase Agreement”)
with Michaelson Capital Special Finance Fund II, L.P. (“ MCSFF ”) to issue a senior secured term promissory note in
the principal amount of $5,000,000 (the “Note”). The Note is not convertible and accrues interest at the rate of 10.25%
per annum. The Note provides for certain financial covenants that were not met as of December 31, 2019 and December 31, 2018
and a waiver of such was granted by MCSFF. The Note is to be repaid in eight, equal, quarterly installments of $625,000 commencing
on May 15, 2021 and ending February 2, 2023 (the “Maturity Date”). Additionally, the Note is secured by
a general security interest in all of the Company’s assets as well all of the assets of the Company’s subsidiaries,
excluding those of Entsorga West Virginia LLC which is subject to superior security interests relating to the Entsorga West Virginia
LLC WVEDA bonds. Further, the Company’s Chief Executive Officer, guaranteed a portion of the Registrant’s obligations
to MCSFF. In connection with the issuance of the Note, the Company issued MCSFF 320,000 shares of the Registrant’s common
stock, par value $0.0001 per share. As of December 31, 2019 and 2018, the carrying balance of the Note is comprised of $5,000,000
face value, less $1,212,121 allocated to the common stock issued based upon the market value on the date issued, less associated
amortization of $485,878 and $223,443, respectively, on the stock discount, less deferred financing costs of $211,187, less $97,920
and $51,170, respectively, of associated deferred financing cost amortization. All amortization is computed on the effective interest
method and included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Junior Promissory Note –
On February 2, 2018, the Company entered into a Securities Exchange and Note Purchase Agreement (the “Exchange Agreement”)
with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged $4,500,000 in a note receivable from
the Company and $544,777 in advances made to the Company for $4,000,000 of the Registrant’s Series C Convertible Preferred
Stock, par value $0.0001 (the “Series C Preferred Stock”) and a junior promissory note (the “Junior Note”)
amounting to $1,044,477, which is carried net of discounts amounting to $135,823, less associated amortization of $40,780 and $17,557
as of December 31, 2019 and 2018, respectively. The Junior Note, which is subordinated to the senior secured note, is not
convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024.
Note Payable — As of
December 31, 2019 and 2018, the note, with interest at 10%, had a remaining balance outstanding of $100,000 and matured on
January 1, 2020 and remains outstanding as of the date of this filing. The Company expects to amend the agreement to extend
the maturity date through the remainder of 2020.
Long Term Debt — Represents
two loans collateralized by vehicles with interest ranging from 1.9% to 4.99%, each with amortizing principal payment requirements
through 2020 and 2022, respectively.
Maturities of Senior Secured, Junior
Promissory, Notes Payable and Long Term Debt— as of December 31, 2019, excluding discounts and deferred finance
costs, which are being amortized as interest expense, are as follow:
Year Ending December 31,
|
|
Amortizing
|
|
|
Non-
Amortizing
|
|
|
Total
|
|
2020
|
|
$
|
4,605
|
|
|
$
|
100,000
|
|
|
$
|
104,605
|
|
2021
|
|
|
4,380
|
|
|
|
1,875,000
|
|
|
|
1,879,380
|
|
2022
|
|
|
3,821
|
|
|
|
2,500,000
|
|
|
|
2,503,821
|
|
2023
|
|
|
-
|
|
|
|
625,000
|
|
|
|
625,000
|
|
2024 and thereafter
|
|
|
-
|
|
|
|
1,044,477
|
|
|
|
1,044,477
|
|
Total
|
|
$
|
12,806
|
|
|
$
|
6,144,477
|
|
|
$
|
6,157,283
|
|
Note 14. Entsorga West Virginia, LLC WVEDA Solid Waste Disposal
Revenue Bonds
During 2016, Entsorga West Virginia LLC
(the “Borrower”) was issued $25,000,000 in Solid Waste Revenue Bonds from the West Virginia Economic Development Authority
(the “WVEDA Bonds”). The WVEDA Bonds were issued in two series with one for $7,535,000 bearing interest at 6.75% per
annum with a maturity date of February 1, 2026 and the second for $17,465,000 bearing interest at 7.25% per annum with a maturity
of February 1, 2036. Both series were issued at par. The 2026 series was payable with interest-only payments through February 1,
2019 then annual payments of principal and semi-annual payments of interest through maturity. The 2036 series is payable with interest-only
payments through February 1, 2019 then annual payments of principal and semi-annual payments of interest through maturity.
Repayment of principal is by way of sinking fund.
During 2018, the 2016 Indenture Trust and
Loan Agreement were amended and restated effective November 1, 2018. These amendments provided for a third series of bonds
amounting to $8,000,000 bearing interest at 8.75% per annum with a maturity date of February 1, 2036, with special event triggered
pre-payment requirements. This series was issued at par. The 2036 series is payable with interest-only payments through February 1,
2020 then annual payments of principal and semi-annual payments of interest through maturity. Repayment is by way of sinking fund.
The outstanding balance of the WVEDA Bonds
as of December 31, 2019 and 2018 is $33,000,000, which is presented net of unamortized debt issuance costs amounting to $2,207,759
and $2,145,608, less associated amortization of $415,185 and $231,510, respectively, which includes amortization prior to the Company’s
control acquisition in 2018. Amortization is calculated on the effective interest method, which is included in interest expense
in the accompanying consolidated statements of operations and comprehensive loss.
The loan agreement and indenture of trust
place restrictions on the Borrower and its members regarding additional encumbrances on the property, disposition of the property,
and limitations on equity distributions. The loan agreement also provides for financial covenants, which became effective on September 30,
2019. As of December 31, 2019 the Company was not in compliance with all of the financial covenants and subsequently was in
default on a principal repayment due in February 2020 and has entered into a forbearance agreement with the bond trustee that provides
they will not accelerate the repayment of the bonds due to the defaults through April 2, 2021.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
The future sinking fund payments by the Borrower as of December 31,
2019 are as follow:
Year Ending December 31,
|
|
2016 Issue
2026 Series
|
|
|
2016 Issue
2036 Series
|
|
|
2018 Issue
2036 Series
|
|
|
Total
|
|
2020
|
|
$
|
1,160,000
|
|
|
$
|
-
|
|
|
$
|
230,000
|
|
|
$
|
1,390,000
|
|
2021
|
|
|
1,215,000
|
|
|
|
-
|
|
|
|
255,000
|
|
|
|
1,470,000
|
|
2022
|
|
|
900,000
|
|
|
|
-
|
|
|
|
275,000
|
|
|
|
1,175,000
|
|
2023
|
|
|
965,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
1,265,000
|
|
2024 and thereafter
|
|
|
3,295,000
|
|
|
|
17,465,000
|
|
|
|
6,940,000
|
|
|
|
27,700,000
|
|
Total
|
|
$
|
7,535,000
|
|
|
$
|
17,465,000
|
|
|
$
|
8,000,000
|
|
|
$
|
33,000,000
|
|
In connection with the November 1,
2018 amendment and restatement of the WVEDA Bonds, Comerica Bank issued a standby letter of credit in the amount of $1,250,000
(the “SbyLoC”) for the benefit of the WVEDA Bond trustee that is collateralized by the Company’s cash.
Note 15. Equity and Equity Transactions
The Company has 50,000,000 shares of its
$0.0001 par common stock and 10,000,000 shares of blank check preferred stock authorized by its shareholders. As of December 31,
2019 and December 31, 2018, 17,300,899 and 14,802,956 shares of common stock have been issued; and 3,179,120 and 3,159,120
shares, respectively, of preferred stock have been designated in five series of shares, which have a total of $1,042,287 in accumulated,
but undeclared preferential dividends as of December 31, 2019, as follows:
|
|
Designated
|
|
|
Par
|
|
|
Stated
|
|
|
Shares Outstanding
|
|
Designation
|
|
Shares
|
|
|
Value
|
|
|
Value
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Series A Convertible Preferred Stock
|
|
|
333,401
|
|
|
$
|
0.0001
|
|
|
$
|
5.00
|
|
|
|
145,312
|
|
|
|
163,312
|
|
Series B Convertible Preferred Stock
|
|
|
1,111,200
|
|
|
|
0.0001
|
|
|
|
5.00
|
|
|
|
-
|
|
|
|
-
|
|
Series C Convertible Preferred Stock
|
|
|
1,000,000
|
|
|
|
0.0001
|
|
|
|
10.00
|
|
|
|
427,500
|
|
|
|
427,500
|
|
Series D Convertible Preferred Stock
|
|
|
20,000
|
|
|
|
0.0001
|
|
|
|
100.00
|
|
|
|
18,850
|
|
|
|
-
|
|
Series E Convertible Preferred Stock
|
|
|
714,519
|
|
|
|
0.0001
|
|
|
|
2.64
|
|
|
|
264,519
|
|
|
|
564,519
|
|
Under the terms of the Company’s
senior lender agreements, the Company is restricted from paying dividends in cash, but is allowed to pay dividends in common stock.
The Company, since its merger in 2015, has not paid any cash or stock dividends on common stock.
The consolidated financial statements include
less than 100% owned and controlled subsidiaries and include equity attributable to non-controlling interests that take the form
of the underlying legal structures of the less than 100% owned subsidiaries. Entsorga West Virginia LLC through its limited liability
agreement and the agreements related to its WVEDA Bonds have restrictions on distributions to and loans to owners while the WVEDA
Bonds are outstanding.
On September 9, 2019 the Company issued
1,877,666 registered shares of its $0.0001 par common stock through its Registration Statement on Form S-3 declared effective
on July 11, 2018, by the Securities and Exchange Commission. The shares were offered through a confidentially marketed public
offering and were sold at a per share price of $1.80 per share. The gross proceeds of the offering amounted to $3,379,799, which
net of placement fees of $195,461, legal fees of $135,359, regulatory filing fees of $8,000 and $5,422 of other costs resulted
in net proceeds to the Company of $3,035,557. In connection with the placement agent fees, the Company issued warrants for 56,330
shares, exercisable between March 11, 2020 and September 10, 2019 at an exercise price of $2.25 per warrant share.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Series A Redeemable Convertible
Preferred Stock — Due to the existence of redemption features, the stock is accounted for as temporary equity (similar
accounting treatment to debt). Amortization of discounts and deferred issuance costs are reflected as interest expense in the accompanying
consolidated statements of operations and comprehensive loss.
On March 30, 2018, the Company and
holders of the Series A Convertible Preferred Stock (“Series A Preferred”) amended and restated to provide
the holders with the option to redeem their shares anytime following the first anniversary if the Company consummates an equity
financing in an amount equal to the stated value of the Series A Preferred, plus any and all accrued dividends. In addition,
the dividend on the Series A Preferred was amended to nine percent (9%), the first dividend payment date was amended to June 30,
2018 and the conversion price, by the terms of the Certificate of Designation, was set at $4.50 per share of the Company’s
common stock. In addition, the Company agreed to issue the holders, within 5 business days after the first day of trading of the
Company’s common stock on an Eligible Market, warrants to purchase up to 180,000 shares of Common Stock at an exercise price
of $5.00 per share and expiring in four (4) years on a pro-rata basis to the holders of record of the Series A Preferred
Shares at the time of such issuance. The warrants for 180,000 shares of common stock were valued utilizing the Black-Scholes modelling
technique utilizing stock prices of $4.05, an exercise price of $5.00, a standard deviation (volatility) of 41.8%, a risk-free
interest rate of 2.9% with a term of 4 years. The resulting $246,319 value has been recognized as other interest expense and additional
paid in capital.
In connection with the amendment, the Company
redeemed $317,000 in stated value shares at stated value, which resulted in the Company reflecting an additional interest expense
of $157,455 to write off unamortized discounts and costs relating to the shares redeemed.
During June of 2018, the holder converted
40,000 shares with an aggregate stated value of $200,000 of stated value for 44,444 shares of common stock. In connection with
the conversion the Company reflecting an additional interest expense of $73,461 to adjust unamortized discounts and costs relating
to the shares converted.
During August of 2018, the holder
converted 46,689 shares with an aggregate stated value of $233,445 of stated value for 51,876 shares of common stock. In connection
with the conversion the Company reflecting an additional interest expense of $47,767 to adjust unamortized discounts and costs
relating to the shares converted.
During October of 2018, the holder
converted 20,000 shares with an aggregate stated value of $100,000 of stated value for 22,222 shares of common stock.
As of December 31, 2018, the net Series A
Preferred Stock balance of $816,553 is comprised of 163,312 shares at stated value. The original issue discount of $166,699, bifurcated
warrants of $403,630, bifurcated beneficial conversion feature of $535,630 and deferred issuance costs of $30,000 have been fully
amortized through December 31, 2018. Interest expense resulting from the amortization amounted to $1,043,715 during the year
ended December 31, 2018 and is reflected in the accompanying consolidated statements of operations and comprehensive loss
as interest expense.
On September 9, 2019 the holder of
Series A Preferred Stock converted 18,000 shares of Series A preferred stock for 50,000 shares of the Company’s
$0.0001 par common stock.
On September 26, 2019, November 4,
2019, November 14, 2019, December 2, 2019 and December 16, 2019 the Company paid $50,000, $50,000, $50,000, $35,000
and $15,000 of Series A preferred stock accrued dividend through the issuance of 27,778, 27,778, 27,778, 19,444 and 8,333
shares of the Company’s $0.0001 par common stock, respectively.
As of December 31, 2019 the outstanding
shares of Series A Preferred Stock amounted to 145,312 with a stated value of $726,553 and the accrued dividends amounted
to $56,886.
Series C Convertible
Preferred Stock — The Series C Preferred Stock has a stated value of $10.00 per share and is convertible,
at the holder’s option, into the Registrant’s common stock, par $0.0001, at an initial conversion price of $4.75
per share. The Series C Preferred Stock is non-redeemable, has voting rights together with the common stock, par
$0.0001, at the rate of 4 votes to 1 and accrues dividends at 10.25% of the stated value outstanding. As of December 31,
2019 and 2018, the Series C Preferred Stock is comprised of $4,275,000 face value, less $556,283 warrant valuation and
beneficial conversion features of $668,575 reflected in additional paid in capital.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
On February 2, 2018, in connection
with and as a condition precedent to the closing of the MCSFF Note, the Company entered into a Securities Exchange and Note Purchase
Agreement (the “Exchange Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli
exchanged $4,500,000 in a note receivable and $544,777 in advances made to the Company for $4,000,000 of the Company’s Series C
Preferred Stock and a junior promissory note (the “Junior Note”). The Junior Note, which is subordinated to the MCSFF
Note, is not convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024. In connection
with this transaction, the Registrant also issued Celli warrants to purchase 421,053 shares of Common Stock, initially exercisable
at $5.50 per share which expire in five (5) years. The warrants for 421,053 shares of common stock were valued utilizing the
Black Scholes modelling technique utilizing stock price of $4.95, an exercise price of $5.50, a standard deviation (volatility)
of 40.48%, a risk-free interest rate of 2.95% based on the date of issue, with a term of 5 years.
On March 23, 2018, the Company entered
into a Securities Exchange Agreement (the “Exchange Agreement”) with Frank J. Celli, the father of the Company’s
Chief Executive Officer, whereby Frank J. Celli exchanged $275,000 in a note receivable from the Company for $275,000 of the Company’s
Series C Preferred Stock. In connection with this transaction, the Registrant also issued Frank J. Celli warrants to purchase
28,948 shares of Common Stock, initially exercisable at $5.50 per share which expire in five (5) years. The warrants for 28,948
shares of common stock were valued utilizing the Black Scholes modelling technique utilizing stock price of $4.05, an exercise
price of $5.50, a standard deviation (volatility) of 41.77%, a risk-free interest rate of 2.91% based on the date of issue, with
a term of 5 years.
Series D Convertible Preferred
Stock — On February 11, 2019 the Company filed a Certificate of Designation for 20,000 shares of Series D
Convertible Preferred Stock that was amended on May 1, 2019 (“Sr. D CPS”). The Sr. D CPS is initially convertible
into shares of the Company’s common stock at the price of $3.50 per share based on the Sr. D CPS’s stated value being
converted. Each share of the Sr. D CPS has a stated value of $100 and has dividends at the rate of 9% payable annually in arrears
in cash or at the Company’s option, in common stock based upon the then in effect conversion price. The Sr. D CPS also has
an alternative dividend provision based upon the cash flow distributed to the parent from the Company’s next HEBioT facility,
excluding the plant in Martinsburg, West Virginia, (the “Next Facility”) based upon the Sr. D CPS proportional investment
in the facility. The Sr. D CPS also has an alternative conversion based upon a multiple the annualized EBITDA of the Next Facility
converted at the higher of the conversion rate in effect or the market price of the Company’s common stock if higher.
During 2019, the Company received subscriptions
and investments totaling $1,885,000, which were issued 18,850 shares of Sr D CPS. In addition to the Sr. D CPS, each holder
received warrants to acquire 50% of the shares that the Sr. D CPS is convertible into with an initial exercise price of $3.50 per
share and an expiration on the fifth year anniversary. A total of 269,296 five-year warrants with an exercise price of $3.50 were
issued to the Sr. D CPS holders that were valued utilizing the Black-Scholes modelling technique utilizing stock prices ranging
from $1.88 to $2.70, a standard deviation (volatility) ranging from 44.55% to 46.38% and a risk-free rate interest rate ranging
from 1.74% to 2.56% based on the date of the investment. The model includes subjective input assumptions that can materially affect
the fair value estimates. The allocated fair value of the warrants amounting to $190,299 has been reflected in additional paid
in capital. In connection with the offering and issuance of the Sr D CPS, the holder of the Series A convertible preferred
stock was issued 116,651 warrants in the form issued to the Sr D CPS holders. These warrants, which were reflected as a cost of
issuing the Sr D CPS, were valued utilizing the Black-Scholes modelling technique utilizing a stock price of $2.25, a standard
deviation (volatility) of 46.23% and a risk-free interest rate of 1.89% on the date of issuance.
Series E Convertible Preferred
Stock — On December 14, 2018, the Company consummated a transaction with Entsorga USA, Inc. whereby EUSA
agreed to sell, transfer and convey to the Registrant Two Thousand Six Hundred Seventy-Six and 60/100 (2,676.60) common membership
units of EWV in consideration for 714,519 newly issued shares of stock of the Company’s newly created Series E Preferred
Stock, par value $0.0001, (the “Series E Shares”) convertible into 714,539 shares (the “Conversion Shares”)
of the Registrant’s common stock, par value $0.0001 per share (the “Common Stock”).
The Series E Shares with a
stated value of $2.64 per share is convertible into shares of the Registrant’s common stock, par value $0.0001 per
share and does not earn any dividends and has no special voting rights. The Series E Shares are convertible at the rate
of one share of common stock for each Series E Share converted, subject to adjustment for stock splits and
reclassifications. Immediately following the issuance of the Series E Shares, 150,000 Series E Shares were
converted into 150,000 shares of common stock. During the year ended December 31, 2019, an additional 300,000
Series E Shares were converted into 300,000 common shares resulting in 264,419 Series E Shares outstanding as of
December 31, 2019.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Warrants — In connection
with the issuance of convertible debt, preferred and common stock and in connection with services provided, the Company has the
4,674,261 warrants to acquire the Company’s common stock outstanding as of December 31, 2019, as follows:
Expiring During the Year
Ending December 31,
|
|
Warrant
Shares
|
|
|
Exercise Price
per Share
|
|
|
Weighted
Average
Exercises
Price
per Share
|
|
2020
|
|
|
22,860
|
|
|
|
$3.50
|
|
|
$
|
3.50
|
|
2021
|
|
|
1,768,516
|
|
|
|
$1.80 to $3.30
|
|
|
$
|
3.25
|
|
2022
|
|
|
1,699,861
|
|
|
|
$1.80 to $5.00
|
|
|
$
|
2.60
|
|
2023
|
|
|
740,749
|
|
|
|
$1.80
|
|
|
$
|
1.80
|
|
2024
|
|
|
385,945
|
|
|
|
$1.80
|
|
|
$
|
1.80
|
|
2025
|
|
|
56,330
|
|
|
|
$2.25
|
|
|
$
|
2.25
|
|
The following table summarizes the outstanding
warrant activity for the year ended December 31, 2019:
Outstanding, January 1, 2019
|
|
|
4,201,736
|
|
Issued
|
|
|
442,275
|
|
Issued as a result of common stock offering at $1.80 per share
|
|
|
30,250
|
|
Exercised
|
|
|
-
|
|
Expired
|
|
|
-
|
|
Outstanding, December 31, 2019
|
|
|
4,674,261
|
|
In connection with the confidentially marketed
public offering that closed on September 9, 2019 at a price per common share of $1.80, 70 warrants representing the right
to acquire 1,992,325 shares with down-deal exercise price features were re-priced to an exercise price of $1.80. In connection
with the modification the value of the warrants was recalculated based upon the value immediately prior to the modification and
immediately after the modification. In connection therewith the Company utilized Black Scholes valuation models utilizing volatility
of 50.56% and a risk free rate of 1.51% together with the contractual remaining terms of each warrant. This revaluation increased
the value of the warrants by $405,324, which has been reflected as an increase in accumulated deficit and additional paid in capital.
In accordance with Accounting Standards Update No. 2017-11, this increased valuation is not charged to the consolidated statement
of operations and comprehensive loss however, it is included as an adjustment to net loss attributable to parent in arriving at
net loss per common share – basic and diluted.
Also in connection with the confidentially
marketed public offering that closed on September 9, 2019, the holder of the Series A preferred stock had the option
to require that the Company redeem shares of Series A preferred stock up to an amount representing 50% of the offering. In
connection therewith, the holder agreed to not require the redemption in exchange for an extension of one year to the warrants
originally issued in connection with the Series A preferred stock; all other contractual terms of the Series A preferred
stock remained unchanged. Utilizing the same Black Scholes valuation model variables as utilized in connection with the down deal,
above, the change in valuation amounted to $49,160. As the redemption features remained unchanged, the Series A preferred
stock continues to be accounted for as temporary equity, which require that the modification be charged to the consolidated statement
of operations and comprehensive loss.
Note 16. Equity Incentive Plans
The Company has two equity incentive plans:
2015 Equity Incentive Plan —
During 2015, the Company established the BioHiTech Global, Inc. 2015 Equity Incentive Plan, which is available to eligible
employees, directors, consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive
stock options, nonqualified stock options, reload options, stock appreciation rights, and restricted stock representing up to 750,000
shares. The Plan is administered by the Compensation Committee of the Board of Directors.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
2017 Executive Incentive Plan —
During 2017, the shareholders approved the 2017 Executive Incentive Plan, which is available to eligible employees, directors,
consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive stock options, nonqualified
stock options, reload options, stock appreciation rights, and restricted stock representing up to 1,000,000 shares. The Plan is
administered by the Compensation Committee of the Board of Directors.
The shares underlying the plans, which
total 1,750,000, have been registered by the Company under a Form S-8 Registration Statement declared effective July 7,
2018 by the Securities and Exchange Commission.
Compensation expense related to stock options
and restricted stock for the years ended December 31, was:
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
$
|
138,673
|
|
|
$
|
164,906
|
|
Restricted stock units
|
|
|
960,894
|
|
|
|
671,466
|
|
|
|
$
|
1,099,567
|
|
|
$
|
836,372
|
|
The following summarizes the Company’s
stock option activity for the year ended December 31, 2019:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding – January 1, 2019
|
|
|
482,082
|
|
|
|
3.71
|
|
|
|
7.80
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited, Canceled or Expired
|
|
|
(118,256
|
)
|
|
|
3.71
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding – December 31, 2019
|
|
|
363,826
|
|
|
|
3.71
|
|
|
|
7.34
|
|
|
|
-
|
|
Exercisable – December 31, 2019
|
|
|
233,475
|
|
|
|
3.73
|
|
|
|
6.73
|
|
|
|
-
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Total unrecognized compensation expense
related to the unvested options at December 31, 2019 and 2018 amounts to $159,657 and $462,297, which the weighted average
period that the expense is expected to be recognized is 1.77 and 2.44 years, respectively.
On June 7, 2018 the Company granted
297,790 non-qualified stock options with an exercise price of $3.68 per share with a total value of $595,563 based upon using the
Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate
|
|
|
2.81
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
53.35
|
%
|
Expected term in years
|
|
|
6.36
|
|
There were no grants of non-qualified stock
options during 2019.
Restricted Stock Units –
There were no grants of restricted stock units (“RSU”) during 2019. During 2018, the Company granted or modified 768,572
RSUs to certain employees generally vesting over a three-year period, subject to continued service on each applicable vesting
date. The RSUs have no voting or dividend rights. The unamortized cost of the modified RSUs at the time of modification is being
amortized over the modified vesting periods. The fair value of the common stock on the date of the grant ranged from $3.50 to
$4.05 per share based upon the quoted closing price of the Company’s common stock on the grant date. The aggregate grant
date fair value of the award amounted to $2,472,246 which will be recognized as compensation expense over the vesting period.
As of December 31, 2019 and 2018, the aggregate intrinsic value of the unvested RSUs, determined by multiplying the anticipated
number of RSUs that will vest by the closing market price of the underlying common stock, was $495,941 and $1,203,240, respectively.
Total unrecognized compensation expense
related to the unvested RSUs at December 31, 2019 and 2018 amounts to $766,555 and $1,884,479, respectively, and is expected
to be recognized over a weighted average period of 1.43 and 2.34 years, respectively.
The following summarizes the Company’s RSU activity for
the years ended December 31, 2019 and 2018:
|
|
Number of
Shares
|
|
Unvested balance at January 1, 2018
|
|
|
171,112
|
|
Granted
|
|
|
768,572
|
|
Vested
|
|
|
(114,997
|
)
|
Forfeited or Canceled
|
|
|
(81,946
|
)
|
Unvested balance at December 31, 2018
|
|
|
742,741
|
|
Granted or modified
|
|
|
-
|
|
Vested
|
|
|
(410,891
|
)
|
Forfeited or Canceled
|
|
|
(40,120
|
)
|
Unvested balance at December 31, 2019
|
|
|
291,730
|
|
Note 17. Income Taxes
The components of income tax expense (benefit)
from operations for the year ended December 31, was:
|
|
2019
|
|
|
2018
|
|
US Federal:
|
|
|
|
|
|
|
|
|
Deferred
|
|
$
|
1,664,794
|
|
|
$
|
1,992,255
|
|
State and local:
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
256,238
|
|
|
|
(618,573
|
)
|
Non-US:
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
7,693
|
|
|
|
58,880
|
|
Change in valuation allowance
|
|
|
(1,928,725
|
)
|
|
|
(1,432,562
|
)
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
The reconciliation of differences between
the Federal statutory tax rate and the Company’s effective income tax rate for the year ended December 31, was:
|
|
2019
|
|
|
2018
|
|
U. S. Federal Statutory rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Non-U.S. losses
|
|
|
-
|
|
|
|
0.1
|
|
Impact of US statutory tax rate change
|
|
|
-
|
|
|
|
-
|
|
Impact of US statutory tax rate change on valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Local taxes, net of benefit
|
|
|
(2.5
|
)
|
|
|
4.2
|
|
Nondeductible expenses
|
|
|
5.9
|
|
|
|
9.6
|
|
Other
|
|
|
(1.2
|
)
|
|
|
(2.6
|
)
|
|
|
|
(18.8
|
)
|
|
|
(9.7
|
)
|
Change in valuation allowance
|
|
|
18.8
|
|
|
|
9.7
|
|
Effective income tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The Company’s net deferred tax assets
and valuation allowance as of December 31, was:
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses - Federal
|
|
$
|
6,000,170
|
|
|
$
|
3,984,049
|
|
Net operating losses - State
|
|
|
1,055,936
|
|
|
|
802,934
|
|
Net operating losses - Non-US
|
|
|
185,556
|
|
|
|
177,864
|
|
Stock-based compensation
|
|
|
649,907
|
|
|
|
434,487
|
|
Accrued expenses
|
|
|
536,348
|
|
|
|
441,756
|
|
Interest
|
|
|
-
|
|
|
|
524,677
|
|
Lease liability
|
|
|
212,177
|
|
|
|
-
|
|
Other, net
|
|
|
242,793
|
|
|
|
88,157
|
|
|
|
|
8,882,887
|
|
|
|
6,453,924
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment - Federal
|
|
|
(366,413
|
)
|
|
|
(86,344
|
)
|
Right of use asset
|
|
|
(220,169
|
)
|
|
|
-
|
|
|
|
|
(586,582
|
)
|
|
|
(86,344
|
)
|
Net deferred tax assets
|
|
|
8,296,305
|
|
|
|
6,367,580
|
|
Valuation allowance
|
|
|
(8,296,305
|
)
|
|
|
(6,367,580
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
For the years ended December 31, 2019 and
2018 there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery of
the tax asset resulting in net operating loss carryforward. As of December 31, 2019, the Company had net operating loss carryforwards
of approximately $28,572,000 and $14,325,000 for federal and state income tax purposes, respectively.
For purposes of Internal Revenue Code Section
382, the annual utilization of net operating loss carryovers are subject to limitation resulting from a more than 50% ownership
change as determined under the regulations, which occurred during the year ended December 31, 2019.
The federal net operating losses of approximately
$14,200,000, generated in tax years beginning before January 1, 2018, will begin to expire in 2036 if not utilized. The balance
of the net operating losses, approximately $14,372,000 do not expire.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 18. Commitments and Contingencies
During the year ended December 31,
2019 the Company was involved in the following legal matters.
The Company had accrued their contractual
obligations but disputed payment for a consulting services agreement with Tusk Ventures LLC (“Tusk”), in which Tusk
claim that it is owed $250,000 pursuant to an agreement. This matter was filed in the Supreme Court of the State of New York, New
York County in April 2017. This matter was settled on April 23, 2019. In connection with the settlement, the Company
issued to the plaintiff 75,000 shares of its common stock.
On February 7, 2018, Lemartec Corporation
(“Lemartec”) filed a complaint against the Company in the United States District Court for the Northern District of
West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia alleging
breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross
claims against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. The trial was scheduled to begin
in August 2020. Subsequent to year end and prior to the start of the trial, on March 12, 2020 the Company entered into
a settlement agreement that detailed the full and final mutual release. The settlement agreement provides that the Company pay
Lemartec $775,000 in installments of $475,000 within 60 days of the execution of the settlement agreement and $25,000 each month
thereafter for 12 months. The Company’s consolidated financial statements as of December 31, 2019 reflects this liability
given the nature of the subsequent event.
It is management’s opinion that the
resolution of these known claims will not materially effect the Company’s future financial position, results of operations,
or cash flows.
From time to time, the Company may be involved
in other legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not
material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could
be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations
Note 19. Leases
Effective January 1, 2019, the Company
implemented Accounting Standards Codification 842, Leases. The guidance requires lessees to recognize most leases on the balance
sheet but does not change the presentation of expenses on the income statement. The two permitted transition methods
under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative
periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.
The Company utilized the optional transition
method to assess the impact of this guidance on the Company’s financial statements and related disclosures, including the
increase in the assets and liabilities on our balance sheet from lessee perspective. The Company completed a comprehensive review
of its leases that were impacted by the new guidance.
As part of the adoption, the Company elected
the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s
prior conclusions about lease identification, lease classification and initial direct costs, therefore the Company did not restate
prior comparative periods.
The Company rents its headquarters and
attached warehousing space from a related party (see Note 16) and has a land lease relating to the Martinsburg, WV HEBioT facility
under operating leases. The HEBioT facility land lease has an initial term of 30 years, plus four 5-year extensions. For purposes
of our determination of lease liabilities, extensions were not included. As the leases do not provide an implicit rate, the Company
used incremental borrowing rates in determining the present value of lease payments. For the HEBioT facility land lease a rate
of 11% was utilized and a rate of 10.25% was used on the other leases. The current portion of the lease liabilities of $146,926
is included in accrued expenses and liabilities. Total lease costs under operating leases amounted to $221,423 and $155,060 for
the years ended December 31, 2019 and 2018. Maturities of lease liabilities under these leases, which have a weighted average
remaining term of 25.3 years, as of December 30, 2019 is:
Year Ending December 31,
|
|
|
|
2020
|
|
$
|
146,926
|
|
2021
|
|
|
109,000
|
|
2022
|
|
|
113,000
|
|
2023
|
|
|
113,000
|
|
2024 and thereafter
|
|
|
2,980,750
|
|
Total lease payments
|
|
|
3,462,676
|
|
Less imputed interest
|
|
|
(2,401,682
|
)
|
Present value of lease liabilities
|
|
$
|
1,060,994
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
During the year ended December 31,
2019, the Company recognized operating lease right of use assets in exchange for lease liabilities amounting to $1,045,755 and
had operating cash flows for operating leases amounting to $195,003 for the year then ended.
Note 20. Related Party Transactions
Related parties include Directors, Senior
Management Officers, and shareholders, plus their immediate family, who own a 5% or greater ownership interest at the time of a
transaction. Related parties also include GMG and its subsidiaries.
As of December 31, 2019, GMG is controlled
by several private equity funds managed by Kinderhook Industries. The Company initially invested in GMG on January 25, 2018.
On July 3, 2019 the Company sold its ownership interests in GMG to an entity controlled by Kinderhook Industries. As discussed
in Note 3, on December 14, 2018 the Company formed a new consolidated subsidiary, Refuel America, LLC (“Refuel”)
into which the Company contributed specified assets, including its ownership interest in Entsorga West Virginia, LLC (“EWV”)
and other HEBioT development assets. In exchange for a 40%, but non-controlling interest in Refuel, GMG contributed its ownership
interests in EWV and $3,500,000 in cash. During the year ended December 31, 2019, GMG made an additional capital contribution
into Refuel. In connection with GMG’s additional investment, the Company made an additional $2,100,000 investment in Refuel.
During 2018 GMG acquired as regional waste
management entity, Apple Valley Waste (“AVW”), with operations located in West Virginia, Maryland and Pennsylvania.
As part of this acquisition, GMG also acquired its interests in EWV that were contributed to Refuel. Prior to GMG’s acquisition
of AVW and the Company’s investments and control acquisition of EWV, in order for EWV to receive the proceeds from the Entsorga
West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds (Note 14), EWV and AWV had entered into several agreements.
Business Services Agreement –
On February 2, 2016, EWV and AVW entered into an agreement that whereby AVW provides solicitation, logistics management, human
resources, accounting and financial management, and other general administrative and support services. This agreement has a ten-year
term with automatic renewals for five-year periods, subject to prior notice of non-renewal. The agreement provides for a fee of
$72,000 annually during construction and $367,600 annually upon commencement of operations. External costs incurred on behalf of
EWV that are paid by AVW are rebilled at cost to EWV.
Solid Waste Delivery / Disposal Agreements
– On November 30, 2015 EWV and several AVW subsidiaries (the “Subsidiaries”) entered into agreements
that provide that the Subsidiaries will deliver a minimum tonnage of municipal solid waste (52,000 tons) and that EWV will accept
up to 66,250 tons of municipal solid waste. The contracts with minimum delivery tonnage have disposal fees (tipping fees) with
a weighted average price of $56.37 per ton, subject to change annually. The contracts also provide that if the Subsidiaries fail
to deliver the minimum tonnage, they will pay a fee of $20 for each shortfall ton. The contracts also provide that if EWV refuses
to accept tonnage presented for disposal within the minimum tonnage that EWV will pay the Subsidiaries a fee of $20 per each refused
ton. Each of the agreements has a ten-year term with automatic renewals for five-year periods, subject to prior notice of non-renewal.
The face amount of direct related party
assets and liabilities and other transactions or conditions as of or for the year ended December 31, was:
|
|
|
|
2019
|
|
|
2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(a) (b) (c)
|
|
$
|
1,370,867
|
|
|
$
|
168,588
|
|
Intangible assets, net, included in other assets
|
|
(d)
|
|
|
40,399
|
|
|
|
83,933
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
(d) (e) (f) (g)
|
|
|
2,531,034
|
|
|
|
160,761
|
|
Accrued interest payable
|
|
|
|
|
46,796
|
|
|
|
46,796
|
|
Long term accrued interest
|
|
(h)
|
|
|
1,510,193
|
|
|
|
1,305,251
|
|
Advance from related party
|
|
(i)
|
|
|
210,000
|
|
|
|
-
|
|
Junior promissory note
|
|
(h)
|
|
|
949,434
|
|
|
|
926,211
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Line of credit guarantee
|
|
(j)
|
|
|
1,479,848
|
|
|
|
1,469,330
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
The table below presents direct related
party expenses or transactions for the year ended December 31, 2019. Compensation and related costs for employees of the Company
are excluded from the table below.
|
|
|
|
2019
|
|
|
2018
|
|
Management advisory and other fees
|
|
(a) (b)
|
|
$
|
975,000
|
|
|
$
|
1,072,947
|
|
HEBioT revenue
|
|
(c)
|
|
|
1,056,875
|
|
|
|
-
|
|
Operating expenses - HEBioT
|
|
(e)
|
|
|
683,647
|
|
|
|
-
|
|
Operating expenses – Rental Expenses
|
|
(f)
|
|
|
137,145
|
|
|
|
98,148
|
|
Operating expenses - Selling, general and administrative
|
|
(d) (g)
|
|
|
368,700
|
|
|
|
179,166
|
|
Interest expense
|
|
(h)
|
|
|
242,357
|
|
|
|
271,498
|
|
Debt guarantee fees
|
|
(j)
|
|
|
67,500
|
|
|
|
56,250
|
|
Cost of revenue, digester inventory or equipment on operating leases acquired
|
|
|
|
|
-
|
|
|
|
15,704
|
|
(a)
|
Management Advisory Fees - The Company provides management advisory services to Gold Medal Holdings, Inc., a subsidiary of GMG.
|
(b)
|
Project Fees – In addition to Management Advisory Fees, the Company also has provided to GMG subsidiaries non-management advisory services related to projects relating to technology and operations.
|
(c)
|
HEBioT Disposal Revenues – Entsorga West Virginia, LLC has a series of agreements with GMG subsidiaries entities that provide for specified fees for each ton of municipal waste delivered to the HEBioT facility.
|
(d)
|
Distribution Agreement - BioHiTech has an exclusive license and distribution agreement (the “License Agreement”) with BioHiTech International, Inc., a company owned by James Koh, a BioHiTech shareholder and other unrelated parties. The License Agreement provides distribution rights to the Eco-Safe Digester through December 31, 2023 (unless extended by mutual agreement) and for annual payments to Mr. Koh in the amount of $200,000 for the term of the License Agreement. Effective October 17, 2018, the agreement was amended to reduce the annual payments to $75,000 and to remove several international locations that the Company does not actively market.
|
(e)
|
Disposal costs – A GMG subsidiary has provided logistics and disposal of non-recovered municipal solid waste to the HEBioT facility.
|
(f)
|
Facility Lease - The Company leases its corporate headquarters and warehouse space from BioHiTech Realty LLC, a company owned by two stockholders of the Company, one of whom is the Chief Executive Officer. The lease expires in 2020, with a renewal option for an additional five-year period. Minimum lease payments as of December 31, 2019 under these operating leases total $41,926, which are due in 2020.
|
(g)
|
Business Services Fees – A GMG subsidiary provides certain general management and administrative support to the HEBioT facility.
|
(h)
|
Junior Promissory Note – See Note 13.
|
(i)
|
Advance from Related Party - The Company’s Chief Executive Officer (the “Officer”) on occasion advances the Company funds for operating and capital purposes. The advances bear interest at 13% and are unsecured and due on demand. There are no financial covenants related to this advance and there are no formal commitments to extend any further advances.
|
(j)
|
Line of Credit - Under the terms of the line of credit, several related parties have personally guaranteed the line and are contingently liable should the Company not meet its obligations under the line. In connection with the line of credit, the Chief Executive Officer and a Director have provided a guarantee of the line of credit in exchange for a fee representing 4.5% of the debt.
|
(k)
|
Consulting Revenue - The Company provided environmental and project consulting to Entsorga West Virginia LLC, an entity that the Company accounted for as an equity investment from March 2017 through December 14, 2018, the date of its control acquisition.
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 21. Employee
401(k) Savings Plan
Effective January 1, 2016, the Company
established a defined contribution retirement savings plan qualified under Section 401(k) of the Internal Revenue Code.
Under the plan, employees may contribute a percentage of eligible compensation on both a before-tax and after-tax basis. The Company
may match a percentage of employee’s before-tax contributions, but is not required to do so, as the annual matching contributions
are discretionary. No contributions have been made to the plan by the Company during the year ended December 31, 2018. During
the year ended December 31, 2019 the Company made contributions of $9,339 to the plan.
Note
22. Supplemental Consolidated Statement of Cash Flows Information
Changes in non-cash operating assets and
liabilities, as well as other supplemental cash flow disclosures, are as follows for the years ended December 31:
|
|
2019
|
|
|
2018
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(2,049,366
|
)
|
|
$
|
(160,694
|
)
|
Inventory
|
|
|
(342,447
|
)
|
|
|
(842,944
|
)
|
Prepaid expenses and other assets
|
|
|
4,083
|
|
|
|
23,019
|
|
Accounts payable
|
|
|
3,265,920
|
|
|
|
333,633
|
|
Accrued interest payable
|
|
|
431,001
|
|
|
|
446,710
|
|
Accrued expenses
|
|
|
(1,463,398
|
)
|
|
|
(982,369
|
)
|
Deferred revenue
|
|
|
(11,681
|
)
|
|
|
17,225
|
|
Customer deposits
|
|
|
37,109
|
|
|
|
(31,814
|
)
|
Net change in operating assets and liabilities
|
|
$
|
(128,779
|
)
|
|
$
|
(1,197,234
|
)
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,775,715
|
|
|
$
|
484,259
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
2019
|
|
|
2018
|
|
Supplementary Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Transfer of inventory to leased equipment
|
|
$
|
393,795
|
|
|
$
|
666,251
|
|
Control acquisition of Entsorga West Virginia, LLC with common stock (Note 3)
|
|
|
-
|
|
|
|
1,886,330
|
|
Common stock issued in settlement of accrued interest
|
|
|
-
|
|
|
|
915,700
|
|
Common stock issued in acquisition of Gold Medal Group, LLC
|
|
|
-
|
|
|
|
2,250,000
|
|
Conversion of notes into common stock
|
|
|
-
|
|
|
|
9,090,375
|
|
Conversion of Series B preferred stock into common stock
|
|
|
-
|
|
|
|
1,767,371
|
|
In-Kind payments by investors for common and preferred stock
|
|
|
-
|
|
|
|
341,998
|
|
Exchange of related party notes payable and advances for Series C preferred stock, warrants and notes payable
|
|
|
-
|
|
|
|
5,319,777
|
|
Accrual of Series A preferred stock dividends
|
|
|
162,584
|
|
|
|
85,578
|
|
Payment of Series A preferred stock dividends in common stock
|
|
|
200,000
|
|
|
|
-
|
|
Conversion of Series A preferred stock into common stock
|
|
|
90,000
|
|
|
|
533,445
|
|
Common stock issued in settlement of accounts payable
|
|
|
205,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Cash and Restricted Cash:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,847,526
|
|
|
$
|
2,410,709
|
|
Restricted cash (short term)
|
|
|
1,133,581
|
|
|
|
4,195,148
|
|
Restricted cash (non-current)
|
|
|
2,555,845
|
|
|
|
2,520,523
|
|
Total cash and restricted cash at the end of the period
|
|
$
|
5,536,952
|
|
|
$
|
9,126,380
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 23. Recent Accounting Standards
During the year ended December 31,
2019, the Company adopted the following recent accounting standards:
In February 2016, the FASB issued
new lease accounting guidance (ASU No. 2016-02, Leases), which has subsequently been amended by ASU No. 2018-11,
Leases in July 2018. Under the new guidance, at the commencement date, lessees will be required to recognize a lease
liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset
for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely
unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and
operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for leases that expired before the
earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2018-11
provides that under certain instances lessors may not be required to separate the components of the contracts. As a lessor of digester
equipment under operating leases, the new guidance did not have a material impact on the financial statements. As a lessee under
operating leases the adoption did not have a material impact on our financial statements, resulting in an increase of 2% to each
of our total assets and total liabilities on our balance sheet, and had an immaterial impact to retained earnings as of the beginning
of 2019. See Note 19.
In March 2019, the FASB issued ASU
2019-01, Leases (Topic 842, Codification Improvements), which removed the requirement for an entity to disclose in the interim
periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial
statement line item, or per share amount. For lessors, the new leasing standard requires leases to be classified as sales-type,
direct financing or operating leases. These criteria focus on the transfer of control of the underlying asset. This standard and
related updates were effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption is permitted. The Company adopted ASU 2019-01 on January 2019. See Note 15 for disclosures related to
this amended guidance.
The Company has not yet implemented the
following accounting standard:
In June 2016, the FASB issued ASU
2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all
expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate
credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period
beginning December 15, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has not yet
adopted this update and is currently evaluating the effect this new standard will have on its financial condition and results of
operations.
Note 24. Subsequent Events
The Company evaluates subsequent events
and transactions that occur after the balance sheet date up to the date that the financial statements are available to be issued.
Any material events that occur between the balance sheet date and the date that the financial statements were available for issuance
are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance
sheet date. Based upon this review, except as disclosed within the footnotes or as discussed below, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
In March 2020, the World Health Organization
declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States and
globally. The Company is monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior
intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing
trends, customer payments, and the industry in general, in addition to the impact on its employees. Due to the rapid development
and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and
liquidity is uncertain as of the date of this report. While there could ultimately be a material impact on operations and liquidity
of the Company, at the time of issuance of this annual report on Form 10-K, the impact could not be determined.
In mid-March, the Company began migrating
to a work-from-home model in compliance with local guidance and as party of an overall cost reduction program, reduced certain
staff, primarily related to field services to reduce operating costs.
The Company has applied for funds under the Paycheck Protection
Program in May 2020 for two of its subsidiaries. The application for these funds requires the Company to, in good faith, certify
that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification
further requires the Company to take into account its current business activity and its ability to access other sources of liquidity
sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. One of the two applications
has been approved, amounting to $421,300 and was funded on May 13, 2020. The forgiveness of the loan attendant to these funds,
is dependent on the Company qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.
The other application in the amount $200,000 has not yet been approved.
On January 30, 2020 the Chief Executive
Officer and another officer advanced $1,050,000 and $200,000 to the Company, which the Company repaid $275,000 and $200,000 on
April 27, 2020, respectively.
On March 9, 2020 the Company designated
a new series of preferred stock and subsequently on March 18, 2020 had an initial closing of $1,500,000 on 13,045 shares of
the new series of preferred stock and 178,597 common stock warrants. This initial closing was followed by an additional closing
on April 6, 2020 of $65,000 on 566 shares of the new series of preferred stock and 7,750 common stock warrants. The newly designated
series, the Series F Redeemable, Convertible Preferred Stock (the Sr. F Preferred Stock) is comprised of 30,090 shares with
a par value of $0.0001 per share and a stated value per share of $115.00 that has a dividend rate of 9%. The Sr. F Preferred Stock
is convertible by the holder at any time at a conversion rate of $2.10, subject to certain antidilution adjustments and is redeemable
by the Company after 24 months at its stated value, plus any outstanding accrued or accumulated dividends for cash, or if the Company’s
common stock is trading over $3.00 per share and has daily trading volume of over 50,000 shares, for the Company’s common
stock at the conversion rate in effect at the time. In connection with the offering of the Sr. F Preferred Stock, the Company also
issued warrants that expire in five years to acquire the Company’s common stock at $2.30 per share.
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Note 25. Condensed Consolidating Financial Information
The WVEDA Solid Waste Disposal Revenue
Bond obligations of Entsorga West Virginia LLC are not guaranteed by its members, including the Company, however the membership
interests of Entsorga West Virginia LLC are pledged, and the debt agreements provide restrictions prohibiting distributions to
the members, including equity distributions or providing loans or advances to the members.
The following presents the Company’s
consolidating balance sheet as of December 31, 2019 and 2018 and its condensed consolidating statement of operations and cash
flows for the years ended December 31, 2019 and 2018, for Entsorga West Virginia LLC and the Parent and other Company subsidiaries
not subject to the WVEDA Solid Waste Disposal Revenue Bond restrictions and the elimination entries necessary to present the Company’s
financial statements on a consolidated basis. These following condensed consolidating financial information should be read in conjunction
with the Company's consolidated financial statements.
Condensed Consolidating Balance Sheet
as of December 31, 2019
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,847,526
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,847,526
|
|
Restricted cash
|
|
|
-
|
|
|
|
1,133,581
|
|
|
|
-
|
|
|
|
1,133,581
|
|
Other current assets
|
|
|
1,697,910
|
|
|
|
1,116,821
|
|
|
|
(64,669
|
)
|
|
|
2,750,062
|
|
Current assets
|
|
|
3,545,436
|
|
|
|
2,250,402
|
|
|
|
(64,669
|
)
|
|
|
5,731,169
|
|
Restricted cash
|
|
|
-
|
|
|
|
2,555,845
|
|
|
|
-
|
|
|
|
2,555,845
|
|
HEBioT facility and other fixed assets
|
|
|
1,753,730
|
|
|
|
37,392,601
|
|
|
|
-
|
|
|
|
39,146,331
|
|
Operating lease right of use assets
|
|
|
48,021
|
|
|
|
897,026
|
|
|
|
-
|
|
|
|
945,047
|
|
MBT facility development and license costs
|
|
|
6,254,429
|
|
|
|
1,795,500
|
|
|
|
-
|
|
|
|
8,049,929
|
|
Investment in subsidiaries
|
|
|
10,864,783
|
|
|
|
-
|
|
|
|
(10,864,783
|
)
|
|
|
-
|
|
Goodwill
|
|
|
-
|
|
|
|
58,000
|
|
|
|
-
|
|
|
|
58,000
|
|
Other assets
|
|
|
53,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,726
|
|
Total assets
|
|
$
|
22,520,125
|
|
|
$
|
44,949,374
|
|
|
$
|
(10,929,452
|
)
|
|
$
|
56,540,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
1,479,848
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,479,848
|
|
Current portion of WV EDA Bonds
|
|
|
-
|
|
|
|
1,390,000
|
|
|
|
-
|
|
|
|
1,390,000
|
|
Other current liabilities
|
|
|
2,387,916
|
|
|
|
6,475,985
|
|
|
|
(650,894
|
)
|
|
|
8,213,007
|
|
Current liabilities
|
|
|
3,867,764
|
|
|
|
7,865,985
|
|
|
|
(650,894
|
)
|
|
|
11,082,855
|
|
Notes payable and other debts
|
|
|
5,118,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,118,125
|
|
Accrued interest
|
|
|
1,510,193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,510,193
|
|
Non-current lease liabilities
|
|
|
-
|
|
|
|
915,170
|
|
|
|
-
|
|
|
|
915,170
|
|
WV EDA bonds
|
|
|
-
|
|
|
|
29,817,426
|
|
|
|
-
|
|
|
|
29,817,426
|
|
Total liabilities
|
|
|
10,496,082
|
|
|
|
38,598,581
|
|
|
|
(650,894
|
)
|
|
|
48,443,769
|
|
Redeemable preferred stock
|
|
|
726,553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
726,553
|
|
Stockholder’s equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to parent
|
|
|
2,024,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024,143
|
|
Attributable to non-controlling interests
|
|
|
9,273,347
|
|
|
|
6,350,793
|
|
|
|
(10,278,558
|
)
|
|
|
5,345,582
|
|
Stockholders’ equity
|
|
|
11,297,490
|
|
|
|
6,350,793
|
|
|
|
(10,278,558
|
)
|
|
|
7,369,725
|
|
Total liabilities and stockholders’ equity
|
|
$
|
22,520,125
|
|
|
$
|
44,949,374
|
|
|
$
|
(10,929,452
|
)
|
|
$
|
56,540,047
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Condensed Consolidating Statement of
Operations for the year ended December 31, 2019
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
3,108,377
|
|
|
$
|
1,111,071
|
|
|
$
|
-
|
|
|
$
|
4,219,448
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEBioT
|
|
|
-
|
|
|
|
2,064,139
|
|
|
|
-
|
|
|
|
2,064,139
|
|
Rental, service and maintenance expense
|
|
|
784,291
|
|
|
|
-
|
|
|
|
-
|
|
|
|
784,291
|
|
Equipment sales
|
|
|
113,063
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113,063
|
|
Selling, general and administrative
|
|
|
6,097,817
|
|
|
|
965,874
|
|
|
|
-
|
|
|
|
7,063,691
|
|
Depreciation and amortization
|
|
|
495,709
|
|
|
|
1,233,769
|
|
|
|
-
|
|
|
|
1,729,478
|
|
Total operating expenses
|
|
|
7,490,880
|
|
|
|
4,263,782
|
|
|
|
-
|
|
|
|
11,754,662
|
|
Loss from operations
|
|
|
(4,382,503
|
)
|
|
|
(3,152,711
|
)
|
|
|
-
|
|
|
|
(7,535,214
|
)
|
Other (income) expenses, net
|
|
|
688,621
|
|
|
|
2,056,226
|
|
|
|
-
|
|
|
|
2,744,847
|
|
Net loss
|
|
$
|
(5,071,124
|
)
|
|
$
|
(5,208,937
|
)
|
|
$
|
-
|
|
|
$
|
(10,280,061
|
)
|
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2019
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,071,124
|
)
|
|
$
|
(5,208,937
|
)
|
|
$
|
-
|
|
|
$
|
(10,280,061
|
)
|
Non-cash adjustments to reconcile net loss to net cash used in operations
|
|
|
1,856,795
|
|
|
|
1,417,445
|
|
|
|
-
|
|
|
|
3,274,240
|
|
Changes in operating assets and liabilities
|
|
|
(1,447,676
|
)
|
|
|
1,318,897
|
|
|
|
-
|
|
|
|
(128,779
|
)
|
Net cash used in operations
|
|
|
(4,662,005
|
)
|
|
|
(2,472,595
|
)
|
|
|
-
|
|
|
|
(7,134,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction of HEBioT facility and acquisitions of equipment
|
|
|
(33,346
|
)
|
|
|
(5,077,863
|
)
|
|
|
-
|
|
|
|
(5,111,209
|
)
|
Capital contribution to Entsorga West Virginia, LLC
|
|
|
(4,586,362
|
)
|
|
|
-
|
|
|
|
4,586,362
|
|
|
|
-
|
|
Other investing activities
|
|
|
2,231,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,231,824
|
|
Net cash used in investing activities
|
|
|
(2,387,884
|
)
|
|
|
(5,077,863
|
)
|
|
|
4,586,362
|
|
|
|
(2,879,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of debt and equity
|
|
|
6,418,057
|
|
|
|
4,586,362
|
|
|
|
(4,586,362
|
)
|
|
|
6,418,057
|
|
Repayments of debt
|
|
|
(9,165
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,165
|
)
|
Deferred financing costs incurred
|
|
|
-
|
|
|
|
(62,151
|
)
|
|
|
-
|
|
|
|
(62,151
|
)
|
Net cash provided by financing activities
|
|
|
6,408,892
|
|
|
|
4,524,211
|
|
|
|
(4,586,362
|
)
|
|
|
6,346,741
|
|
Effect of exchange rate on cash
|
|
|
77,816
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,816
|
|
Cash – beginning of period (restricted and unrestricted)
|
|
|
2,410,708
|
|
|
|
6,715,672
|
|
|
|
-
|
|
|
|
9,126,380
|
|
Cash – end of period (restricted and unrestricted)
|
|
$
|
1,847,527
|
|
|
$
|
3,689,425
|
|
|
$
|
-
|
|
|
$
|
5,536,952
|
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Condensed Consolidating Balance Sheet
as of December 31, 2018
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,410,709
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,410,709
|
|
Restricted cash
|
|
|
-
|
|
|
|
4,195,148
|
|
|
|
-
|
|
|
|
4,195,148
|
|
Other current assets
|
|
|
969,571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
969,571
|
|
Current assets
|
|
|
3,380,280
|
|
|
|
4,195,148
|
|
|
|
-
|
|
|
|
7,575,428
|
|
Restricted cash
|
|
|
-
|
|
|
|
2,520,523
|
|
|
|
-
|
|
|
|
2,520,523
|
|
HEBioT facility under construction
|
|
|
-
|
|
|
|
33,104,007
|
|
|
|
-
|
|
|
|
33,104,007
|
|
Other fixed assets
|
|
|
1,797,915
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,797,915
|
|
MBT facility development and license costs
|
|
|
6,585,408
|
|
|
|
1,890,000
|
|
|
|
-
|
|
|
|
8,475,408
|
|
Intangible assets, net and investment in subsidiaries
|
|
|
7,626,268
|
|
|
|
-
|
|
|
|
(5,854,952
|
)
|
|
|
1,771,316
|
|
Goodwill
|
|
|
-
|
|
|
|
58,000
|
|
|
|
-
|
|
|
|
58,000
|
|
Other assets
|
|
|
13,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,500
|
|
Total assets
|
|
$
|
19,403,371
|
|
|
$
|
41,767,678
|
|
|
$
|
(5,854,952
|
)
|
|
$
|
55,316,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
1,469,330
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,469,330
|
|
Other current liabilities
|
|
|
2,032,083
|
|
|
|
3,708,410
|
|
|
|
-
|
|
|
|
5,740,493
|
|
Current liabilities
|
|
|
3,501,413
|
|
|
|
3,708,410
|
|
|
|
-
|
|
|
|
7,209,823
|
|
Notes payable and other debts
|
|
|
4,890,322
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,890,322
|
|
Accrued interest
|
|
|
1,305,251
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,305,251
|
|
WV EDA bonds
|
|
|
-
|
|
|
|
31,085,902
|
|
|
|
-
|
|
|
|
31,085,902
|
|
Total liabilities
|
|
|
9,696,986
|
|
|
|
34,794,312
|
|
|
|
-
|
|
|
|
44,491,298
|
|
Redeemable preferred stock
|
|
|
816,553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
816,553
|
|
Stockholder’s equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to parent
|
|
|
3,405,551
|
|
|
|
5,854,952
|
|
|
|
(5,854,952
|
)
|
|
|
3,405,551
|
|
Attributable to non-controlling interests
|
|
|
5,484,281
|
|
|
|
1,118,414
|
|
|
|
-
|
|
|
|
6,602,695
|
|
Stockholders’ equity
|
|
|
8,889,832
|
|
|
|
6,973,366
|
|
|
|
(5,854,952
|
)
|
|
|
10,008,246
|
|
Total liabilities and stockholders’ equity
|
|
$
|
19,403,371
|
|
|
$
|
41,767,678
|
|
|
$
|
(5,854,952
|
)
|
|
$
|
55,316,097
|
|
Condensed Consolidating Statement of
Operations for the Year Ended December 31, 2018
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
3,359,324
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,359,324
|
|
Cost of revenue
|
|
|
1,640,152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,640,152
|
|
Gross profit
|
|
|
1,719,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,719,172
|
|
Selling, general and administrative
|
|
|
6,677,324
|
|
|
|
64,237
|
|
|
|
-
|
|
|
|
6,741,561
|
|
Depreciation and amortization
|
|
|
115,038
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115,038
|
|
Total operating expenses
|
|
|
6,792,362
|
|
|
|
64,237
|
|
|
|
-
|
|
|
|
6,856,599
|
|
Loss from operations
|
|
|
(5,073,190
|
)
|
|
|
(64,237
|
)
|
|
|
-
|
|
|
|
(5,137,427
|
)
|
Other expenses
|
|
|
9,604,528
|
|
|
|
5,265
|
|
|
|
-
|
|
|
|
9,609,793
|
|
Net loss
|
|
$
|
(14,677,718
|
)
|
|
$
|
(69,502
|
)
|
|
$
|
-
|
|
|
$
|
(14,747,220
|
)
|
BioHiTech Global, Inc. and Subsidiaries
|
Notes to Consolidated Financial Statements
|
As of and for the Years Ended December 31, 2019 and 2018
|
Condensed Consolidating Statement of
Cash Flows for the Year Ended December 31, 2018
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,677,718
|
)
|
|
$
|
(69,502
|
)
|
|
$
|
-
|
|
|
$
|
(14,747,220
|
)
|
Adjustments to reconcile net loss to net cash used in operations
|
|
|
9,900,310
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,900,310
|
|
Changes in operating assets and liabilities
|
|
|
(528,110
|
)
|
|
|
(669,124
|
)
|
|
|
-
|
|
|
|
(1,197,234
|
)
|
Net cash used in operations
|
|
|
(5,305,518
|
)
|
|
|
(738,626
|
)
|
|
|
-
|
|
|
|
(6,044,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash acquired from control acquisition of Entsorga West Virginia, LLC
|
|
|
-
|
|
|
|
6,773,384
|
|
|
|
-
|
|
|
|
6,773,384
|
|
Capital contribution to Entsorga West Virginia, LLC
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
-
|
|
Other investing activities
|
|
|
(372,130
|
)
|
|
|
(319,086
|
)
|
|
|
-
|
|
|
|
(691,216
|
)
|
Net cash used in investing activities
|
|
|
(1,372,130
|
)
|
|
|
6,454,298
|
|
|
|
1,000,000
|
|
|
|
6,082,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of debt and preferred stock, net of costs incurred
|
|
|
7,378,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,378,869
|
|
Repayments of debt
|
|
|
(2,472,611
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,472,611
|
)
|
Capital contribution to Entsorga West Virginia, LLC
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
Cash investment in Refuel America, LLC by non-controlling interest
|
|
|
3,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,500,000
|
|
Other
|
|
|
(255,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(255,023
|
)
|
Net cash provided by financing activities
|
|
|
8,151,235
|
|
|
|
1,000,000
|
|
|
|
(1,000,000
|
)
|
|
|
8,151,235
|
|
Effect of exchange rate on cash
|
|
|
36,009
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,009
|
|
Cash – beginning of period
|
|
|
901,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
901,112
|
|
Cash – end of period (restricted and unrestricted)
|
|
$
|
2,410,708
|
|
|
$
|
6,715,672
|
|
|
$
|
-
|
|
|
$
|
9,126,380
|
|