UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2020

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission file number 001-36843

 

BIOHITECH GLOBAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   46-2336496
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
80 Red Schoolhouse Road, Suite 101
Chestnut Ridge, New York
  10977
(Address of principal executive offices)   (Zip Code)

 

(845) 262-1081

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x     No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  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” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨ Accelerated filer  ¨
Non-accelerated filer  x Smaller reporting company  x
  Emerging growth company ¨

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading
Symbol(s)
  Name of each exchange on which
registered
Common Stock, $0.0001 par value per share   BHTG   NASDAQ Capital Market

 

The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class   Outstanding as of June 24, 2020
Common Stock, $0.0001 par value per share   17,437,288

 

EXPLANATORY NOTE

Reliance on SEC Relief from Filing Requirements

The Company is filing this Current Report on Form 10-Q in reliance upon the Order of the Commission dated March 25, 2020 (Release No. 34-88465) (the “Order”) permitting the delay of certain filings required under the Securities and Exchange Act of 1934, as amended. The Company filed its Current Report on Form 8-K on May 14, 2020, indicating its intent to rely upon the Order and that it required additional time to review and prepare certain information in its financial statements following delays resulting from the COVID-19 pandemic related challenges.

 

 

 

 

 

BioHiTech Global, Inc. and Subsidiaries

 

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION 1
     
Item 1. Condensed Consolidated Financial Statements. 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 27
     
Item 4. Controls and Procedures. 27
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 27
     
Item 1A. Risk Factors. 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 28
     
Item 3. Defaults Upon Senior Securities. 28
     
Item 4. Mine Safety Disclosures. 28
     
Item 5. Other Information. 28
     
Item 6. Exhibits. 28
     
SIGNATURES 29
   
INDEX TO EXHIBITS 30

 

i

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

    Three Months Ended
 March 31,
 
    2020     2019  
Revenue                
HEBioT (related entity)   $ 490,132     $ -  
Rental, service and maintenance     471,093       487,701  
Equipment sales     323,116       -  
Management advisory and other fees (related entity)     75,000       250,000  
Total revenue     1,359,341       737,701  
Operating expenses                
HEBioT processing (related entity)     812,427       -  
Rental, service and maintenance     260,835       203,203  
Equipment sales     146,404       -  
Selling, general and administrative     1,918,423       2,326,362  
Depreciation and amortization     615,202       129,439  
Total operating expenses     3,753,291       2,659,004  
Loss from operations     (2,393,950 )     (1,921,303 )
Other expenses                
Interest income     (12,267 )     -  
Interest expense     1,012,291       339,864  
Total other expenses     1,000,024       339,864  
Net loss     (3,393,974 )     (2,261,167 )
Net loss attributable to non-controlling interests     (822,677 )     (311,701 )
Net loss attributable to Parent     (2,571,297 )     (1,949,466 )
Other comprehensive income (loss)                
Foreign currency translation adjustment     (28,699 )     1,253  
Comprehensive loss   $ (2,599,996 )   $ (1,948,213 )
                 
Net loss attributable to Parent   $ (2,571,297 )   $ (1,949,466 )
Preferred stock dividends     (177,373 )     (127,919 )
Net loss attributable to common shareholders     (2,748,670 )     (2,077,385 )
Net loss per common share - basic and diluted   $ (0.16 )   $ (0.14 )
Weighted average number of common shares outstanding - basic and diluted     17,376,507       14,816,734  

 

See accompanying notes to unaudited interim condensed consolidated financial statements.

 

1

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

    March 31,
2020
    December 31,
2019
 
      (Unaudited)          
Assets                
Current Assets                
Cash   $ 1,934,846     $ 1,847,526  
Restricted cash     1,137,714       1,133,581  
Accounts receivable, net of allowance for doubtful accounts of $ 98,366 and $170,038 as of March 31, 2020 and December 31, 2019, respectively (related entity $1,860,171 and $1,370,867 as of March 31, 2020 and December 31, 2019, respectively)     2,485,691       2,155,921  
Inventory     366,482       467,784  
Prepaid expenses and other current assets     172,655       126,357  
Total Current Assets     6,097,388       5,731,169  
Restricted cash     2,563,978       2,555,845  
Equipment on operating leases, net     1,654,753       1,724,998  
HEBioT facility, equipment, fixtures and vehicles, net     36,979,350       37,421,333  
Operating lease right of use assets     918,585       945,047  
License and capitalized MBT facility development costs     8,042,938       8,049,929  
Goodwill     58,000       58,000  
Other assets     48,849       53,726  
Total Assets   $ 56,363,841     $ 56,540,047  

  

Continued on following page.

 

See accompanying notes to unaudited interim condensed consolidated financial statements.

 

2

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets, continued:

 

    March 31,
2020
    December 31,
2019
 
    (Unaudited)        
Liabilities and Stockholders' Equity                
Current Liabilities:                
Line of credit, net of financing costs of $18,644 and $20,152 as of March 31, 2020 and December 31, 2019, respectively   $ 1,481,356     $ 1,479,848  
Advances from related parties     1,410,000       210,000  
Accounts payable (related entity $2,654,592 and $2,531,034 as of March 31, 2020 and December 31, 2019, respectively     5,378,697       4,688,339  
Accrued interest payable     558,624       1,148,570  
Accrued expenses and liabilities     1,871,445       1,926,965  
Deferred revenue     98,008       89,736  
Customer deposits     6,792       44,792  
Note payable     100,000       100,000  
Senior Secured Note, net of financing costs of $101,007 and unamortized discounts of $657,415 as of March 31, 2020     4,241,578       -  
Current portion of WV EDA Senior Secured Bonds payable     2,860,000       1,390,000  
Current portion of long term debt     4,219       4,605  
Total Current Liabilities     18,010,719       11,082,855  
Junior note due to related party, net of unamortized discounts of 89,592 and $95,043 as of March 31, 2020 and December 31, 2019, respectively     954,885       949,434  
Accrued interest (related party)     1,567,311       1,510,193  
WV EDA Senior Secured Bonds payable, net of current portion, and financing costs of $1,747,267 and $1,792,574 as of March 31, 2020 and December 31, 2019, respectively     28,392,733       29,817,426  
Senior Secured Note, net of financing costs of $113,268 and unamortized discounts of $726,242 as of December 31, 2019     -       4,160,490  
Non-current lease liabilities     916,973       915,170  
Long-term debt, net of current portion     7,126       8,201  
Total Liabilities     49,849,747       48,443,769  
Series A redeemable convertible preferred stock, 333,401 shares designated and issued, and 145,312 outstanding as of March 31, 2020 and December 31, 2019     726,553       726,553  
Commitments and Contingencies                
Stockholders' Equity                
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 3,209,210 and 3,179,120 designated as of March 31, 2020 and December 31, 2019; 1,935,648  and 1,922,603 issued as of March 31, 2020 and December 31, 2019; 869,226 and 856,181 outstanding as of March 31, 2020 and December 31, 2019:                
Series B Convertible preferred stock, 1,111,200 shares designated: 428,333 shares issued, no shares outstanding as of March 31, 2020 and December 31, 2019     -       -  
Series C Convertible preferred stock, 1,000,000 shares designated, 427,500 shares issued and outstanding as of March 31, 2020 and December 31, 2019     3,050,142       3,050,142  
Series D Convertible preferred stock, 20,000 shares designated: 18,850 shares issued and outstanding as of March 31, 2020 and December 31, 2019     1,505,262       1,505,262  
Series E Convertible preferred stock, 714,519 shares designated: 714,519 shares issued, 264,519 outstanding as of March 31, 2020 and December 31, 2019     698,330       698,330  
Series F Convertible preferred stock, 30,090 shares designated, and 13,045 shares issued and outstanding as of March 31, 2020     1,444,614       -  
Common stock, $0.0001 par value, 50,000,000 shares authorized, 17,417,288 and 17,300,899 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively     1,741       1,730  
Additional paid in capital     49,953,089       49,597,059  
Accumulated deficit     (55,374,103 )     (52,785,242 )
Accumulated other comprehensive (loss)     (14,439 )     (43,138
Stockholders’ equity attributable to Parent     1,264,636       2,024,143  
Stockholders’ equity attributable to non-controlling interests     4,522,905       5,345,582  
Total Stockholders’ Equity     5,787,541       7,369,725  
Total Liabilities and Stockholders’ Equity   $ 56,363,841     $ 56,540,047  

  

See accompanying notes to unaudited interim condensed consolidated financial statements.

 

3

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

    Three Months Ended
March 31,
 
    2020     2019  
Cash flows from operating activities:                
Net loss   $ (3,393,974 )   $ (2,261,167 )
Adjustments to reconcile net loss to net cash used in operations:                
Depreciation and amortization     615,202       129,439  
Amortization of operating lease right of use assets     26,462       24,565  
Provision for bad debts     31,119       15,000  
Share based employee compensation     280,205       297,749  
Interest resulting from amortization of financing costs and discounts     133,355       109,789  
Loss resulting from write-off of proposed MBT site     -       346,654  
Changes in operating assets and liabilities     (207,843 )     125,322  
Net cash used in operating activities     (2,515,474 )     (1,212,649 )
                 
Cash flow from investing activities:                
Purchases of construction in-progress, equipment, fixtures and vehicles     (20,849 )     (2,794,824 )
MBT facility development costs incurred     (24,509 )     (13,600 )
MBT facility development costs refunded     -       66,000  
Net cash used in investing activities     (45,358 )     (2,742,424 )
                 
Cash flows from financing activities:                
Proceeds from the sale of Series F convertible preferred stock units     1,495,450       -  
Proceeds from the sale of Series D convertible preferred stock units     -       750,000  
Deferred financing costs incurred     -       (43,941 )
Repayments of long-term debt     (1,460 )     (2,264 )
Related party advances     1,200,000       150,000  
Net cash provided by financing activities     2,693,990       853,795  
Effect of exchange rate on cash (restricted and unrestricted)     (33,572 )     19,851  
Net change in cash (restricted and unrestricted)     99,586       (3,081,427 )
Cash - beginning of period (restricted and unrestricted)     5,536,952       9,126,380  
Cash - end of period (restricted and unrestricted)   $ 5,636,538     $ 6,044,953  

 

Note 15 includes supplemental cash flow information, non-cash investing and financing activities and changes in operating assets and liabilities.

 

See accompanying notes to unaudited interim condensed consolidated financial statements.

 

4

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

Statement of Stockholders’ Equity Attributable to Parent for the Three Months Ended March 31, 2020:
    Preferred Stock     Common Stock     Additional 
Paid in
    Accumulated
Comprehensive
    Accumulated        
    Shares     Amount     Shares     Amount     Capital     Other Loss     Deficit     Total  
Balance at January 1, 2020     710,869     $ 5,253,734       17,300,899     $ 1,730     $ 49,597,059     $ (43,138 )   $ (52,785,242 )   $ 2,024,143  
Series F preferred stock issuance     13,045       1,444,614       -       -       50,836       -       -       1,495,450  
Share-based employee and director compensation     -       -       102,500       10       280,195       -       -       280,205  
Preferred stock dividends     -       -       13,889       1       24,999       -       (17,564 )     7,436  
Net loss     -       -       -       -       -       -       (2,571,297 )     (2,571,297 )
Foreign currency translation adjustment     -       -       -       -       -       28,699       -       28,699  
                                                                 
Balance at March 31, 2020     723,914     $ 6,698,348       17,417,288     $ 1,741     $ 49,953,089     $ (14,439 )   $ (55,374,103 )   $ 1,264,636  

 

Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Three Months Ended March 31, 2020:
    Non-Controlling     Accumulated        
    Equity Interest     Deficit     Total  
Balance at January 1, 2020   $ 8,079,585     $ (2,734,003 )   $ 5,345,582  
Net loss     -       (822,677 )     (822,677 )
                         
Balance at March 31, 2020   $ 8,079,585     $ (3,556,680 )   $ 4,522,905  

 

Statement of Stockholders’ Equity Attributable to Parent for the Three Months Ended March 31, 2019:
    Preferred Stock     Common Stock     Additional 
Paid in
    Accumulated
Comprehensive
    Accumulated        
    Shares     Amount     Shares     Amount     Capital     Other Loss     Deficit     Total  
Balance at January 1, 2019     992,019     $ 4,540,472       14,802,956     $ 1,480     $ 43,452,963     $ 5,021     $ (44,594,385 )   $ 3,405,551  
Series D preferred stock     7,500       750,000       -       -       -       -       -       750,000  
Share-based employee and director compensation     -       -       -       -       297,749       -       -       297,749  
Issuance of restricted stock     -       -       20,000       2       (2 )     -       -       -  
Preferred stock dividends     -       -       -       -       -       -       (18,372 )     (18,372 )
Net loss     -       -       -       -       -       -       (1,949,466 )     (1,949,466 )
Foreign currency translation adjustment     -       -       -       -       -       1,253       -       1,253  
                                                                 
Balance at March 31, 2019     999,519     $ 5,290,472       14,822,956     $ 1,482     $ 43,750,710     $ 6,274     $ (46,562,223 )   $ 2,486,715  

 

Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Three Months Ended March 31, 2019:
    Non-Controlling     Accumulated        
    Equity Interest     Deficit     Total  
Balance at January 1, 2019   $ 6,679,585     $ (76,890 )   $ 6,602,695  
Net loss     -       (311,701 )     (311,701 )
                         
Balance at March 31, 2019   $ 6,679,585     $ (388,591 )   $ 6,290,994  

 

See accompanying notes to unaudited interim condensed consolidated financial statements.

 

5

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

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 provides cost-effective and sustainable environmental management solutions.

 

Our cost-effective technology solutions include the patented processing of municipal solid waste into a valuable renewable fuel, biological disposal of food waste on-site, and proprietary real-time data analytics tools to reduce food waste generation. Our solutions enable businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, our solutions lower the carbon footprint associated with waste transportation and can reduce or virtually eliminate landfill usage.

 

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 near term and longer term impacts 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, liquidity and financial performance will depend on certain developments, including duration, spread and reemergence of the outbreak, its impact on our customers, supply chain partners and employees, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

 

As a result of COVID-19 the implementation of the Company’s contract with Carnival Corporation has been delayed and the operations of some customers in the restaurant and hospitality industries have been temporarily interrupted due to governmental actions. For certain existing restaurant and hospitality customers, the Company has provided a deferral of recurring rental payments for a short time and have modified the rental agreements to extend the term by the period deferred. These actions have placed a strain on the Company’s cash flows resulting in the Company executing on cost controls and cash preservation practices that have included reducing executive cash compensation, laying off non-essential employees, limiting expenses and disbursements, as well as extending vendor payments.

 

Basis of Presentation - The accompanying unaudited condensed 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”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, and the elimination of intercompany accounts and transactions which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2019, which contains the audited financial statements and notes thereto, for the years ended December 31, 2019 and 2018 included within the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 22, 2020. The financial information as of December 31, 2019 presented hereto is derived from the audited consolidated financial statements presented in the Company’s audited consolidated financial statements for the year ended December 31, 2019. The interim results for the three months ended March 31, 2020 is not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.

 

As of March 31, 2020 and December 31, 2019, 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%, 88.7% and 78.2% as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively). As each of these subsidiaries operate as environmental-based service companies, we did not deem segment reporting necessary.

 

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 three months March 31, 2020, the Company had a consolidated net loss of $3,393,974, incurred a consolidated loss from operations of $2,393,950 and used net cash in consolidated operating activities of $2,515,474. At March 31, 2020, consolidated total stockholders’ equity amounted to $5,787,541, consolidated stockholders’ equity attributable to parent amounted to $1,264,636 and the Company had a consolidated working capital deficit of $11,913,331. While the Company had not met certain of its senior secured note’s financial covenants as of March 31, 2020 (Note 6), subsequent to that date the Company has favorably renegotiated those covenants and has received a waiver for such non-compliance through June 30, 2020 as it continues to negotiate further extension of that waiver. Despite its current compliance under the waiver, until such time as the Company regains compliance or receives a waiver of such covenants for a year beyond the balance sheet date, under current GAAP accounting rules the senior secured notes amounting to $4,241,578 have been classified as current debt. The Company does not yet have a history of financial profitability. The Company does not have firm commitments to fund its future operational and strategic plans although it is presently in the process of raising additional debt for general operations and to support its leasing activities. The Company has used its Shelf Registration on Form S-3 during September 2019 to raise net proceeds of $3,035,557 through a confidentially marketed public offering of common shares, has raised $1,495,450 through a private convertible preferred stock offering in March 2020 and subsequent to March 31, 2020 one of the Company’s subsidiaries was funded $421,300 on May 13, 2020 through the Paycheck Protection Program.. 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

  

6

 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

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.

 

Note 2. Summary of Significant Accounting Policies

 

The condensed consolidated financial statements have been prepared by the Company without audit in accordance with the rules and regulations of the SEC and should be read in conjunction with our audited financial statements for the year ended December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

 

Recent Accounting Pronouncements:

 

The Company has not implemented any recent accounting pronouncements during the three months ended March 31, 2020.

 

The Company has not 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.

 

There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to the Company.

 

Note 3. Equipment on Operating Leases, net

 

Equipment on operating leases consist of the following:

 

    March 31,     December 31,  
    2020     2019  
Leased equipment   $ 3,175,933     $ 3,138,951  
Less: accumulated depreciation     (1,521,180 )     (1,413,953 )
Total Equipment on Operating Leases, net   $ 1,654,753     $ 1,724,998  

 

The Company is a lessor of digester units under non-cancellable operating lease agreements expiring through September 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.

 

7

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

During the three months ended March 31, 2020 and 2019, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $386,254 and $341,665, respectively. During the three months ended March 31, 2020 and 2019, depreciation expense included in rental, service and maintenance expense, amounted to $115,866 and $101,502, respectively.

 

The minimum future estimated contractual payments to be received under these leases as of March 31, 2020 is as follows:

 

Year ending December 31,      
2020, remaining period   $ 1,024,508  
2021     990,315  
2022     719,049  
2023     457,898  
2024 and thereafter     181,725  
    $ 3,373,495  

 

Note 4. HEBioT facility, equipment, fixtures and vehicles, net

 

HEBioT facility, equipment, fixtures and vehicles, net consist of the following:

 

    March 31,
2020
    December 31,
2019
 
HEBioT facility   $ 31,142,974     $ 31,142,974  
HEBioT equipment     7,407,096       7,388,896  
Computer software and hardware     115,076       112,629  
Furniture and fixtures     48,196       48,196  
Vehicles     50,319       50,319  
      38,763,661       38,743,014  
Less: accumulated depreciation and amortization     (1,784,311 )     (1,321,681 )
Total HEBioT facility, equipment, fixtures and vehicles, net   $ 36,979,350     $ 37,421,333  

 

Note 5. MBT Facility Development and License Costs

 

MBT Facility Development and License Costs consist of the following:

 

    March 31,
2020
    December 31,
2019
 
MBT Projects                
Survey and engineering     259,738       235,229  
                 
Technology Licenses                
Future site     6,019,200       6,019,200  
Martinsburg, West Virginia, net of $126,000 and $94,500 of amortization as of March 31, 2020 and December 31, 2019     1,764,000       1,795,500  
Total Technology Licenses     7,783,200       7,814,700  
Total MBT Facility Development and License Costs   $ 8,042,938     $ 8,049,929  

 

MBT Facility Development Costs - During 2018, the Company commenced initial development of a project in Rensselaer, NY. As of March 31, 2020, 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.

 

Technology License Agreement – Future Facility - 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 2018 acquisition accounting applied to Entsorga West Virginia acquisition, the License Agreement was valued at $1,890,000. During the three months ending March 31, 2020 amounted to $31,500. Amortization of the License Agreement commenced with the facility becoming operational on March 31, 2019 and there was no amortization for the three months ended Mach 31, 2019.

 

8

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Note 6. Line of Credit, Promissory Notes Payable, Notes Payable, Advances, and Long-Term Debts

 

Line of Credit, Promissory Notes Payable, Notes Payable, Advances, and Long-Term Debts consist of the following:

 

    March 31, 2020     December 31, 2019  
    Total     Related
Party
    Total     Related
Party
 
Line of credit   $ 1,481,356     $ -     $ 1,479,848     $ -  
Senior secured promissory note     4,241,578       -       4,160,490       -  
Junior promissory note     954,885       954,885       949,434       949,434  
Note payable     100,000       -       100,000       -  
Advances from related parties (See Note 14 Related Parties)     1,410,000       1,410,000       210,000       210,000  
Long term debt - current and long-term portion     11,345       -       12,806       -  

 

Line of Credit — The Credit Agreement and Note with Comerica does not have any financial covenants, carries interest at the rate of 3%, plus either the Comerica prime rate or a LIBOR-based rate, (5.58% and 5.71% as of March 31, 2020 and December 31, 2019, 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 BHT Financial, LLC and is personally guaranteed by the Company’s Chief Executive Officer, Frank E. Celli and James D. Chambers, a director.

 

Michaelson Senior Secured Term Promissory Financing — Company and several of the Company’s wholly-owned subsidiaries have a Note Purchase and Security Agreement with Michaelson Capital Special Finance Fund II, L.P. (“ MCSFF ”) for 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 March 31, 2020. While the Company had not met certain of its senior secured note’s financial covenants as of March 31, 2020, subsequent to that date the Company has favorably renegotiated those covenants and has received a waiver for such non-compliance through June 30, 2020 as it continues to negotiate further extension of that waiver. Despite its current compliance under the waiver, until such time as the Company regains compliance or receives a waiver of such covenants for a year beyond the balance sheet date, under current GAAP accounting rules the senior secured notes amounting to $4,241,578 have been classified as current debt. As of December 31, 2019 those certain financial covenants were not met and a waiver of such was granted by MCSFF through January 1, 2021 with the condition that the parties negotiate new financial covenants, which were concluded subsequent to March 31, 2020. As of December 31, 2019, the Note has been classified based on the contractual repayment schedule. For purposes of the following maturity schedule, as the Company believes that it will achieve compliance with the revised financial covenants and MCSFF has a history of waiving non-compliance with financial covenants, the maturities have been presented based upon the contractual repayment terms in effect as of March 31, 2020. The Note is contractually scheduled to be repaid in eight, equal, quarterly installments of $625,000 commencing on May 15, 2021 and ending February 2, 2023 (the “Maturity Date”).

 

Note Payable — As of March 31, 2020 and December 31, 2019, 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.

 

Contractual Maturities of Senior Secured, Junior Promissory, Notes Payable and Long Term Debt — As of March 31, 2020, 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 (Remaining)   $ 3,144     $ 100,000     $ 103,144  
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   $ 11,345     $ 6,144,477     $ 6,155,822  

 

Note 7. Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds

 

During 2016, Entsorga West Virginia LLC (the “Borrower”) was issued $25,000,000 in Non-Recourse 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.

 

9

 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

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 March 31, 2020 and December 31, 2019 is $33,000,000, which is presented net of unamortized debt issuance costs amounting to $2,207,759 as of March 31, 2020 and December 31, 2019, less associated amortization of $460,492 and $415,185 as of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and 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.

 

The future sinking fund payments by the Borrower as of March 31, 2020 are as follow:

 

Year Ending December 31,   2016 Issue
2026 Series
    2016 Issue
2036 Series
    2018 Issue
2036 Series
    Total  
2020 (remaining)   $ 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 for the benefit of the WVEDA Bond trustee that is collateralized by the Company’s cash.

 

Note 8. 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 March 31, 2020 and December 31, 2018, 17,417,288 and 17,300,899 shares of common stock have been issued; and 3,209,210 and 3,179,120 shares, respectively, of preferred stock have been designated in five series of shares, which have a total of $1,192,619 in accumulated, but undeclared preferential dividends as of March 31, 2020, as follows:

 

    Designated     Par     Stated     Shares Outstanding  
Designation   Shares     Value     Value     March 31, 2020     December 31, 2019  
Series A Convertible Preferred Stock     333,401     $ 0.0001     $ 5.00       145,312       145,312  
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       18,850  
Series E Convertible Preferred Stock     714,519       0.0001     $ 2.64       264,519       264,519  
Series F Convertible Preferred Stock     30,090       0.0001     $ 115.00       13,045       -  

 

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.

 

10

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Series F Convertible Preferred Stock — 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 and are presented net of $50,836 in warrant valuations and $4,550 in issuance costs. 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 178,597 warrants that expire in five years to acquire the Company’s common stock at $2.30 per share.

 

Warrants — In connection with the issuance of convertible debt, preferred and common stock and in connection with services provided, the Company has the 4,852,858 warrants to acquire the Company’s common stock outstanding as of March 31, 2020, 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 $3.75     $ 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     234,927       $2.25 to $2.30     $ 2.29  

 

The following table summarizes the outstanding warrant activity for the three months ended March 31, 2020:

 

Outstanding, January 1, 2020     4,674,261  
Issued as a result of Series F Convertible Preferred Stock offering     178,597  
Exercised     -  
Expired     -  
Outstanding, March 31, 2020     4,852,858  

 

Note 9. 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.

 

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.

 

Effective January 30, 2020, the Company granted nonqualified options for 155,450 shares and 269,060 restricted stock units. The options granted had a fair value of $162,959 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.44%, expected dividend yield of 0%, expected volatility of 49.24% and expected term in years of from 1.00 to 2.92 years. The restricted stock units had a value of $538,120 based on the market value on the date of the grants and a weighted average vesting period of 0.75 years.

 

11

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Compensation expense related to stock options and restricted stock for the three months ended March 31, was:

 

    2020     2019  
Stock options   $ 48,460     $ 58,388  
Restricted stock     231,745       239,361  
Total   $ 280,205     $ 297,749  

 

Compensation expense related to stock options and restricted stock for the three months ended March 31, are reflected in the following captions within operating expenses in the condensed consolidated statements of operations and comprehensive loss:

 

    2020     2019  
Rental, service and maintenance   $ 3,317     $ 5,755  
Selling, general and administrative     276,888       291,994  
Total   $ 280,205     $ 297,749  

 

The following summarizes the Company’s stock option activity for the three months ended March 31, 2020:

 

   

Number of

Options

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Life

(in Years)

   

Aggregate

Intrinsic Value

 
Outstanding – January 1, 2020     363,826     $             3.71       7.34                    -  
Granted     155,450       2.00       -       -  
Exercised     -       -       -       -  
Forfeited, Canceled or Expired     -       -       -       -  
Outstanding – March 31, 2020     519,276     $ 3.20       7.91       -  
Exercisable – March 31, 2020     241,651     $ 3.67       6.59       -  

 

The following summarizes the Company’s restricted stock unit activity for the three months ended March 31, 2020:

 

Balance, January 1, 2020     291,730  
Grants     269,060  
Forfeited     -  
Vested     -  
Balance, March 31, 2020     560,790  

 

Note 10. Revenue

 

The Company recognizes revenue as services are performed or products are delivered and generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment.  We record amounts collected from customers for sales tax on a net basis.

 

Disaggregation of Revenue — The disaggregation of revenue for the three months ended March 31, is as follows:

 

    2020     2019  
Revenue Type:                
Rental of digesters   $ 386,254     $ 341,665  
Services     601,433       372,975  
Product sales     371,654       23,061  
Total Revenue   $ 1,359,341     $ 737,701  

 

12

 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Note 11. 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  
2020:                        
Revenue, for the three months ended March 31, 2020   $ 1,225,910     $ 133,431     $ 1,359,341  
Non-current tangible assets, as of March 31, 2020     38,330,741       316,862       38,647,603  
                         
2019:                        
Revenue, for the three months ended March 31, 2019   $ 641,646     $ 96,055     $ 737,701  
Non-current tangible assets, as of December 31, 2019     38,803,333       355,825       39,159,658  

 

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 March 31, 2020, 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 three months ended March 31, 2020, one customer represented at least 10% of revenues, accounting for 35.9% (Gold Medal Group, LLC, an affiliated entity, “GMG”) of revenues. During the three months ended March 31, 2019, one customer represented at least 10% of revenues, accounting for 34.6% (GMG).

 

As of March 31, 2020 one customer represented at least 10% of accounts receivable, accounting for 74.8% (GMG) of accounts receivable. As of December 31, 2019 one customer represented at least 10% of accounts receivable, accounting for 58.9% (GMG) of accounts receivable.

 

Vendor concentration — During the three months ended March 31, 2020, one vendor represented at least 10% of costs of revenue, accounting for 24.5% (GMG). During the three months ended March 31, 2019, no vendors represented at least 10% of the combined cost of revenues.

 

As of March 31, 2020, excluding construction payables and other professional fees, one vendor represented at least 10% of accounts payable accounting for 45.5% (GMG) of accounts payable. As of December 31, 2019, one vendor represented at least 10% of accounts payable accounting for 54.4% (GMG) 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 14. Related Party Transactions.

 

Note 12. Commitments and Contingencies

 

During the three months ended March 31, 2020 the Company was involved in the following legal matters.

 

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. 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.

 

13

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

It is management’s opinion that the resolution of this known claim will not materially affect 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 13. Leases

 

Effective January 1, 2019, the Company implemented Accounting Standards Codification 842, Leases. 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 14) 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 $121,510 is included in accrued expenses and liabilities. Total lease costs under operating leases amounted to $55,356 and $67,532 for the three months ended March 31, 2020 and 2019, respectively. Maturities of lease liabilities under these leases, which have a weighted average remaining term of 25.6 years, as of March 31, 2020 is:

 

Year Ending December 31,      
2020 (remaining)   $ 95,521  
2021     109,000  
2022     113,000  
2023     113,000  
2024 and thereafter     2,980,750  
Total lease payments     3,411,271  
Less imputed interest     (2,372,788 )
Present value of lease liabilities   $ 1,038,483  

 

The Company operating cash flows for operating leases amounting to $51,406 and $46,034 for the three months ended March 31, 2020 and 2019, respectively.

 

Note 14. 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 a result of its 40% interest in Refuel America, LLC (“Refuel”), a consolidated entity of the Company.

 

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 AVW’s 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 Non-Recourse Solid Waste Disposal Revenue Bonds, EWV and AWV had entered into several agreements relating to business services, solid waste delivery and disposal.

 

14

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

The table below presents the face amount of direct related party assets and liabilities and other transactions or conditions as of or during the periods indicated.

 

        March 31,
2020
    December 31,
2019
 
Assets:                    
Accounts receivable   (a) (b)   $

1,860,171

    $ 1,370,867  
Intangible assets, net, included in other assets   (c)     35,349       40,399  
Liabilities:                    
Accounts payable   (c) (d) (e) (f)     2,654,592       2,531,034  
Accrued interest payable         101,907       46,796  
Long term accrued interest   (g)     1,567,311       1,510,193  
Advance from related party   (h)     1,410,000       210,000  
Junior promissory note   (g)     954,885       949,434  
Other:                    
Line of credit guarantee   (i)     1,481,356       1,479,848  

 

The table below presents direct related party expenses or transactions for the three months ended March 31,2020 and 2019. Compensation and related costs for employees of the Company are excluded from the table below.

 

        2020     2019  
Management advisory and other fees   (a)   $ 75,000     $ 250,000  
HEBioT revenue   (b)     406,958       -  
Operating expenses - HEBioT   (d)     298,803       -  
Operating expenses – Selling, general and administrative   (e)     25,156       24,537  
Operating expenses - Selling, general and administrative   (c) (f)     110,650       18,750  
Interest expense         97,948       63,628  
Debt guarantee fees   (i)     16,875       16,875  

 

Summary notes:

 

a - Management Advisory Fees   f - Business Services Fees  
b - HEBioT Disposal Revenues   g - Junior Promissory Note  
c - Distribution Agreement   h - Advances from Related Parties  
d - Disposal costs   i - Line of Credit  
e - Facility Lease        

 

Advances from Related Parties - 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. During the three months ended March 31,2020 the Officer advanced $1,000,000 to the Company. There are no financial covenants related to this advance and there are no formal commitments to extend any further advances. In addition, during the three months ended March 31, 2020 another officer advanced $200,000 to the Company.

 

15

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Note 15. Supplemental Consolidated Statement of Cash Flows Information 

 

Changes in non-cash operating assets and liabilities, as well as other supplemental cash flow disclosures for the three months ended March 31, are as follows.

 

    2020     2019  
Changes in operating assets and liabilities:                
Accounts receivable   $ (324,890 )   $ 48,266  
Inventory     31,981       76,930  
Prepaid expenses and other assets     (25,989 )     (36,508 )
Accounts payable     672,061       3,088,732  
Accrued interest payable     (525,392 )     (399,764 )
Accrued expenses     (9,591 )     (2,668,827 )
Deferred revenue     11,977       12,142  
Customer deposits     (38,000 )     4,351  
Net change in operating assets and liabilities   $ (207,843 )   $ 125,322  
                 
Supplementary cash flow information:                
Cash paid during the periods for:                
Interest   $ 1,387,402     $ 1,082,526  
Income taxes     -       -  

 

    2020     2019  
Supplementary Disclosure of Non-Cash Investing and Financing Activities:                
Transfer of inventory to leased equipment   $ 67,604     $ 6,884  
Accrual of Series A preferred stock dividends     17,564       18,372  
Payment of Series A preferred stock dividends in common stock     25,000       -  
                 
Reconciliation of Cash and Restricted Cash:                
Cash   $ 1,934,846     $ 1,374,564  
Restricted cash (current)     1,137,714       2,137,456  
Restricted cash (non-current)     2,563,978       2,532,933  
Total cash and restricted cash at the end of the period   $ 5,636,538     $ 6,044,953  

 

Note 16. 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.

 

16

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

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.

 

The Company has applied for funds under the Paycheck Protection Program in May 2020 for one 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. The application amounting to $421,300 was approved 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.

  

On April 6, 2020 the Company closed on an additional $65,000 on 566 shares of the Series F of preferred stock and 7,750 common stock warrants.

 

Effective April 1, 2020 the Company and GMG mutually agreed to reduce the scope and its annual fee related to the management agreement in place from $300,000 to $100,000 per year.

 

Note 17. 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 pages present the Company’s consolidating balance sheet as of March 31, 2020 and December 31, 2019 and its condensed consolidating statements of operations and cash flows for the three months ended March 31, 2020 and 2019, for Entsorga West Virginia LLC and the Parent consolidated with 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. The following condensed consolidating financial information should be read in conjunction with the Company's consolidated financial statements.

 

17

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Condensed Consolidating Balance Sheet as of March 31, 2020

 

   

Parent

and other

Subsidiaries

   

Entsorga

West

Virginia LLC

    Eliminations     Consolidated  
Assets                                
Cash   $ 1,917,803     $ 17,043     $ -     $ 1,934,846  
Restricted cash     -       1,137,714       -       1,137,714  
Other current assets     1,640,754       1,507,533       (123,459 )     3,024,828  
Current assets     3,558,557       2,662,290       (123,459 )     6,097,388  
Restricted cash     -       2,563,978       -       2,563,978  
HEBioT facility and other fixed assets     1,682,271       36,951,832       -       38,634,103  
Operating lease right of use assets     24,325       894,260       -       918,585  
MBT facility development and license costs     6,278,938       1,764,000       -       8,042,938  
Investment in subsidiaries and intercompany accounts     13,069,738       (2,450,776 )     (10,618,962 )     -  
Goodwill     -       58,000       -       58,000  
Other assets     48,849       -       -       48,849  
Total assets   $ 24,662,678     $ 42,443,584     $ (10,742,421 )   $ 56,363,841  
                                 
Liabilities and stockholders’ equity                                
Line of credit   $ 1,481,356     $ -     $ -     $ 1,481,356  
Current portion of Debts and Bonds     4,241,578       2,860,000       -       7,101,578  
Other current liabilities     3,790,497       5,637,288       -       9,427,785  
Current liabilities     9,513,431       8,497,288       -       18,010,719  
Notes payable and other debts     962,011       -       -       962,011  
Accrued interest     1,567,311       -       -       1,567,311  
Non-current lease liabilities     -       916,973       -       916,973  
WV EDA bonds     -       28,392,733       -       28,392,733  
Total liabilities     12,042,753       37,806,994       -       49,849,747  
Redeemable preferred stock     726,553       -       -       726,553  
Stockholder’s equity:                                
Attributable to parent     1,264,636       -       -       1,264,636  
Attributable to non-controlling interests     10,628,736       4,636,590       (10,742,421 )     4,522,905  
Stockholders’ equity     11,893,372       4,636,590       (10,742,421 )     5,787,541  
Total liabilities and stockholders’ equity   $ 24,662,678     $ 42,443,584     $ (10,742,421 )   $ 56,363,841  

  

Condensed Consolidating Statement of Operations for the three months ended March 31, 2020

 

   

Parent

and other

Subsidiaries

   

Entsorga

West

Virginia LLC

    Eliminations     Consolidated  
Revenue   $ 869,209     $ 490,132     $                  -     $ 1,359,341  
Operating expenses                                
HEBioT     -       812,427       -       812,427  
Rental, service and maintenance expense     260,835       -       -       260,835  
Equipment     146,404       -       -       146,404  
Selling, general and administrative     1,668,780       249,643       -       1,918,423  
Depreciation and amortization     124,733       490,469       -       615,202  
Total operating expenses     2,200,752       1,552,539       -       3,753,291  
Loss from operations     (1,331,543 )     (1,062,407 )     -       (2,393,950 )
Other (income) expenses, net     348,228       651,796       -       1,000,024  
Net loss   $ (1,679,771 )   $ (1,714,203 )   $ -     $ (3,393,974 )

 

18

 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2020

 

   

Parent

and other

Subsidiaries

   

Entsorga

West

Virginia LLC

    Eliminations     Consolidated  
Cash flows used in operating activities:                                
Net loss   $ (1,679,771 )   $ (1,714,203 )   $     $ (3,393,974 )
Non-cash adjustments to reconcile net loss to net cash used in operations     550,567       535,776               1,086,343  
Changes in operating assets and liabilities     (1,433,781 )     1,225,938             (207,843 )
Net cash used in operations     (2,562,985 )     47,511               (2,515,474 )
                                 
Cash flow used in investing activities:                                
Purchases of construction in-progress, equipment, fixtures and vehicles     (2,649 )     (18,200 )             (20,849 )
Other investing activities     (24,509 )     -               (24,509 )
Net cash used in investing activities     (27,158 )     (18,200 )             (45,358 )
                                 
Cash flows from financing activities:                                
Issuances of debt and equity     2,695,450       -               2,695,450  
Repayments of debt     (1,460 )     -               (1,460 )
Net cash provided by financing activities     2,693,990       -               2,693,990  
Effect of exchange rate on cash     (33,572 )     -               (33,572 )
Cash – beginning of period (restricted and unrestricted)     1,847,526       3,689,426               5,536,952  
Cash – end of period (restricted and unrestricted)   $ 1,917,803     $ 3,718,735     $                $ 5,636,538  

 

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  

 

19

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Months Ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019

 

Condensed Consolidating Statement of Operations for the three months ended March 31, 2019

 

    Parent
and other
Subsidiaries
    Entsorga
West
Virginia LLC
    Eliminations     Consolidated  
Revenue   $ 737,701     $ -      $       $ 737,701  
Operating expenses                                
Rental, service and maintenance expense     203,203       -       -       203,203  
Selling, general and administrative     2,057,247       269,115       -       2,326,362  
Depreciation and amortization     129,439       -       -       129,439  
Total operating expenses     2,389,889       269,115       -       2,659,004  
Loss from operations     (1,652,188 )     (269,115 )     -       (1,921,303 )
Other expenses     311,989       27,875       -       339,864  
Net loss   $ (1,964,177 )   $ (296,990 )   $                 -     $ (2,261,167 )

 

Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2019

 

    Parent
and other
Subsidiaries
    Entsorga
West
Virginia LLC
    Eliminations     Consolidated  
Cash flows from operating activities:                                
Net loss   $ (1,964,177 )   $ (296,990 )   $ -     $ (2,261,167 )
Adjustments to reconcile net loss to net cash used in operations     892,106       31,090       -       923,196  
Changes in operating assets and liabilities     63,732       61,590       -       125,322  
Net cash used in operations     (1,008,339 )     (204,310 )     -       (1,212,649 )
                                 
Cash flow from investing activities:                                
Construction in process and acquisitions of property and equipment     188       (2,795,012 )     -       (2,794,824 )
Capital contribution to Entsorga West Virginia, LLC     (1,000,000 )     -       1,000,000       -  
Other investing activities     52,400       -       -       52,400  
Net cash used in investing activities     (947,412 )     (2,795,012 )     1,000,000       (2,742,424 )
                                 
Cash flows from financing activities:                                
Issuances of debt and equity     900,000       1,000,000       (1,000,000 )     900,000  
Repayments of debt     (2,264 )     -       -       (2,264 )
Deferred financing costs incurred     -       (43,941 )     -       (43,941 )
Net cash provided by financing activities     897,736       956,059       (1,000,000 )     853,795  
Effect of exchange rate on cash     19,851       -       -       19,851  
Cash – beginning of period (restricted and unrestricted)     2,410,708       6,715,672       -       9,126,380  
Cash – end of period (restricted and unrestricted)   $ 1,372,544     $ 4,672,409     $ -     $ 6,044,953  

 

20

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on May 22, 2020.

 

Cautionary Note Regarding 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.

 

Impact of COVID-19

 

The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world. Due to the timing of initial and evolving governmental orders and guidelines impacting the Company’s financial operations in New York, and West Virginia, as well as other contributors to the process of financial statement preparation in other U.S. states, relating to social distancing, stay in place orders, travel and other restrictions on business, necessary and immediate access of personnel, records and information have been adversely effected as set forth throughout this report.

 

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 may 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 have been described as self-contained, robotic digestive systems that are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. 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, cruise lines 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.

 

On January 30, 2020 the Company announced a purchase contract to provide its Revolution Series of Digesters to Carnival Corporation that the Company estimated with a value of $14 million over a two-year period. Leading up to that contract, the Company had been scaling its core infrastructure in anticipation of the fulfillment of that contract. As a result of COVID-19, Carnival Corporation has temporarily ceased ocean-going operations in North America through September 30, 2020, and as a result of current uncertainties, the implementation of the sales and services under this contract has been delayed. The contract remains in force and the Company anticipates that sales and services under this contract will resume as the uncertainties surrounding COVID-19 are resolved in the coming months.

 

  21  

 

 

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 is currently exploring additional uses for its Solid recovered fuel (“SRF”) such as fuel for cogeneration and as a feedstock for bio-plastics.

 

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.  

 

New Product Offering

 

In addition to the Company’s products focused on reducing the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions, as a result of symmetry with our customers and prospects and a new demand for post COVID environmental technologies, on May 12, 2020, the Company entered into an agreement with Altapure, LLC (“Altapure”). Altapure is a technology developer and manufacturer of ultrasonic based disinfecting products, to distribute its patented line of environmentally-friendly, high-level disinfecting products, including its newest product, the AP-4™, an enhanced, automated and touchless high-level disinfection sub-micron aerosol system providing a safe process and rapid kill of spores, viruses, and vegetative bacteria, such as but not limited to: COVID-19, Acinetobacter baumannii, Pseudomonas aeruginosa, VRE, MRSA, Bacillus atrophaeus, Geobacillus stearothermophilus, Polio virus, C. auris and Clostridium difficile (C. difficile); and commenced live product demonstrations in June 2020.

 

  22  

 

 

Results of operations for the three months ended March 31, 2020

compared to the three months ended March 31, 2019

 

Overview

 

    Three Months Ended March 31,  
    2020     2019  
             
Revenue   $ 1,359,341     $ 737,701  
Operating expenses     3,753,291       2,659,004  
Loss from operations     (2,393,950 )     (1,921,303 )
Other expenses     1,000,024       339,864  
Net loss   $ (3,393,974 )   $ (2,261,167 )

 

Revenue increased $621,640 (84.3%) due to the HEBioT facility coming on-line in the second quarter of 2019 and an increase in digester equipment sales, which is the result of a strategic focus on sales as compared to rentals. These increases were offset by decreases in rental, service and maintenance resulting from lower service and maintenance revenue and management advisory fees as the Company reduces the level of support provided under the agreement in order to maintain adequate focus on the Company’s core services.

 

Operating expenses increased by $1,094,287 (41.2%) due to HEBioT facility costs, including depreciation, as well as increased costs associated with digester equipment sales resulting from the increase in sales and rental, service and maintenance due to increased staffing prior to the onset of COVID-19 as the Company scaled its core infrastructure in anticipation of executing a contract with Carnival Corporation, which was announced on January 30, 2020. The increases were offset by a decrease in selling, general and administrative expenses primarily due to a first quarter 2019 write-off of a HEBioT site that was discontinued in favor of a larger more suitable site.

 

The loss from operations increased by $472,647 (24.6%) as a result of increased operating expenses increasing greater than the increase in revenues.

 

Other expenses increased by $660,160 (194.2%) primarily due to interest related to the non-recourse municipal bond financing the HEBioT facility which was under construction in the first quarter of 2019.

 

Net loss increased by $1,132,807 (50.1%) due to the increase in operating loss and the increase in other expenses.

 

Revenue and Related Expenses

 

    Three Months Ended March 31,  
    2020     2019  
                 
Revenue                
HEBioT (related entity)   $ 490,132     $ -  
Rental, service and maintenance     471,093       487,701  
Equipment sales     323,116       -  
Management advisory and other fees (related entity)     75,000       250,000  
Total revenue     1,359,341       737,701  
Operating expenses                
HEBioT processing (related entity)     812,427       -  
Rental, service and maintenance     260,835       203,203  
Equipment sales     146,404       -  
Total related expenses     1,216,666       203,203  
Contribution     142,675       534,498  
Contribution margins                
HEBioT (related entity)     (65.7 )%     - %
Rental, service and maintenance     44.6       58.3  
Equipment sales     54.7       -  

 

HEBioT – The HEBioT facility commenced operations in the second quarter of 2019. During the first quarter of 2020 the facility was ramping up in-take volumes of waste, however the primary customer for the facility’s solid recovered fuel (“SRF”) had not yet completed its construction of their fuel intake system that would allow for the delivery of SRF. Toward the end of the first quarter in 2020 the customer was finalizing safety and building inspections that would allow for acceptance of the SRF. During the first quarter of 2020, the operating costs of the facility exceeded revenues due to the operating of the facility and higher disposal costs related to excess SRF that was not able to be delivered to the Company’s secondary SRF customer. 

 

  23  

 

 

Rental, service and maintenance  – Rental revenue increased by $44,590 (13.1%) to $386,254 in the first quarter of 2020, as compared to $341,664 in the first quarter of 2019. This increase was the result of an increase in the number of rental units. Service and maintenance revenue decreased by $61,198 (41.9%) to $84,838 in the first quarter of 2020, as compared to $146,036 in the first quarter of 2019. This decrease continues the trend of lower maintenance and service levels due to the newer Revolution Series of digesters. Rental, service and maintenance expenses increased by $57,632 (28.4%) primarily due to a staffing increase in preparation for the execution on the contract with Carnival Cruise Lines, which as a result of COVID-19 was delayed. Staffing costs increased by $46,406 (78.7%) to $105,371 in the first quarter of 2020, as compared to $58,965 in the first quarter of 2019. All other expenses increased by $11,226 (7.8%) to $155,464 in the first quarter of 2020, as compared to $144,238 in the first quarter of 2019 primarily due to an increase in consumables offset by third party repair expenses.

 

Equipment sales – Equipment sales revenue increased by $323,116 (100.0%) as compared to no sales in the first quarter of 2019. Sales expense, like wise increased by $146,404 (100.0%) as compared to no sales in the first quarter of 2019. The contribution margin of 54.7% is in-line with historical rates. The Company began a shift in its deployment model to be more heavily weighted to sales versus rentals in the first quarter of 2020 and believes this trend will continue.

 

Management advisory and other fees – In order to maintain adequate focus on the Company’s core services as demand continues to grow for the Company’s products, it has reduced the level of support provided under the Management Advisory agreement. As a result, management advisory and other fees decreased by $175,000 (70.0%) to $75,000 in the first quarter of 2020, as compared to $250,000 in the first quarter of 2019. Effective April 1, 2020, the fee was further reduced to $100,000 per year. As the services are provided by the executive management of the Company, no incremental expenses are incurred or allocated as expenses of the services.

  

Selling, General and Administrative Expenses

 

    Three Months Ended
 March 31,
 
    2020     2019  
             
Staffing   $ 1,078,535     $ 1,195,508  
Professional fees     268,395       379,956  
Other costs     176,663       435,382  
Other expenses     394,830       315,516  
Total selling , general and administrative expenses   $ 1,918,423     $ 2,326,362  

 

Staffing – Staffing expense decreased by $116,973 (9.8%) to $1,078,535 in the first quarter of 2020, as compared to $1,195,508 in the first quarter of 2019. This decrease was the result of a decrease in general staffing of $108,663 (14.2%), a decrease in stock based compensation of $15,105 (5.2%) offset in-part by an increase in employee fringe and taxes of $6,795 (4.9%).

 

Professional fees – Professional fees decreased by $111,561 (29.4%) to $268,395 in the first quarter of 2020, as compared to $379,956 in the first quarter of 2019. This decrease was the result of a decrease in legal expenses of $73,634 (47.4%) to $81,684 in the first quarter of 2020, as compared to $155,318 in the first quarter of 2019; a decrease in accounting expenses of $63,961 (37.6%) to $106,312 in the first quarter of 2020, as compared to $170,273 in the first quarter of 2019; a decrease in investment banking expenses of $21,275 (39.3%) to $32,800 in the first quarter of 2020, as compared to $54,075 in the first quarter of 2019; offset by an increase in public relations and marketing expenses of $47,309 to $47,599 in the first quarter of 2020, as compared to $290 in the first quarter of 2019. The decrease in legal and accounting was the result of a lower volume of acquisitions in 2020 than at the start of 2019 and the decrease in investment banking expenses was a shift to public relations and marketing.

 

Other costs – Other costs decreased by $258,719 (59.4%) to $176,663 in the first quarter of 2020, as compared to $435,382 in the first quarter of 2019. This decrease was the result of a non-recurring loss on the write-off of a HEBioT facility site amounting to $346,654 in the first quarter of 2019 that was discontinued in favor of a larger more suitable site, a decrease in equipment research & development of $7,120 (32.6%) offset primarily by increases of $77,124 (220.7%) in foreign currency fluctuations in the UK that are not hedged to $112,066 in the first quarter of 2020, as compared to $34,942 in the first quarter of 2019 and an increase of $16,154 (107.7%) in bad debt expense to $31,154 in the first quarter of 2020, as compared to $15,000 in the first quarter of 2019 relating to increased credit risks resulting from COVID-19.

 

Other expenses – Other expenses, which include marketing and other fees and services increased by $79,314 (25.1%) to $394,830 in the first quarter of 2020, as compared to $315,516 in the first quarter of 2019. This increase was primarily due to an increase of $73,900 (410.6%) in the contracted business services administration fee charged by Gold Medal to Entsorga West Virginia to $91,900 in the first quarter of 2020, as compared to $18,000 in the first quarter of 2019. The increase in fee is the result of a step-up in the monthly fee from when the facility was under construction to when it became operational.

  

  24  

 

 

Depreciation and Amortization

 

Depreciation and amortization increased by $485,763 (375.3%) to $615,202 in the first quarter of 2020, as compared to $129,439 in the first quarter of 2019. This increase was primarily the result of the HEBioT facility becoming operational in the second quarter of 2019, as no depreciation and amortization was expensed while the facility was under construction. For the first quarter of 2020, depreciation and amortization related to the HEBioT facility was $490,469.

 

Other Expenses

 

Other expenses during the first quarter of 2020 and 2019 were comprised of interest income and expense. Other expense increased by $660,160 (194.2%) to $1,000,024 in the first quarter of 2020, as compared to $339,864 in the first quarter of 2019. This increase was primarily the result of the HEBioT facility becoming operational with interest being expensed, rather than capitalized into the facility. HEbioT related interest increased by $623,921 to $651,796 in the first quarter of 2020, as compared to $27,875 in the first quarter of 2019.

 

Liquidity and Capital Resources

 

For the three months March 31, 2020, the Company had a consolidated net loss of $3,393,974, incurred a consolidated loss from operations of $2,393,950 and used net cash in consolidated operating activities of $2,515,474. At March 31, 2020, consolidated total stockholders’ equity amounted to $5,787,541, consolidated stockholders’ equity attributable to parent amounted to $1,264,636 and the Company had a consolidated working capital deficit of $11,913,331. While the Company had not met certain of its senior secured note’s financial covenants as of March 31, 2020, subsequent to that date the Company has favorably renegotiated those covenants and has received a waiver for such non-compliance through June 30, 2020 as it continues to negotiate further extension of that waiver. Despite its current compliance under the waiver, until such time as the Company regains compliance or receives a waiver of such covenants for a year beyond the balance sheet date, under current GAAP accounting rules the senior secured notes amounting to $4,241,578 have been classified as current debt. The Company does not yet have a history of financial profitability. The Company does not have firm commitments to fund its future operational and strategic plans although it is presently in the process of raising additional debt for general operations and to support its leasing activities. The Company has used its Shelf Registration on Form S-3 during September 2019 to raise net proceeds of $3,035,557 through a confidentially marketed public offering of common shares, has raised $1,495,450 through a private convertible preferred stock offering in March 2020 and subsequent to March 31, 2020 one of the Company’s subsidiaries was funded $421,300 on May 13, 2020 through the Paycheck Protection Program.. 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

Impact of COVID-19 on Liquidity and Capital Resources

 

As a result of COVID-19 the implementation of the Company’s contract with Carnival Corporation has been delayed and the operations of some customers in the restaurant and hospitality industries have been temporarily interrupted due to governmental actions. For certain existing restaurant and hospitality customers, the Company has provided a deferral of recurring rental payments for a short time and have modified the rental agreements to extend the term by the period deferred. These actions have placed a strain on the Company’s cash flows resulting in the Company executing on cost controls and cash preservation practices that have included reducing executive cash compensation, laying off non-essential employees, limiting expenses and disbursements, as well as extending vendor payments.

 

Cash

 

As of March 31, 2020 and December 31, 2019, the Company had unrestricted cash balances of $1,934,846 and $1,847,526, respectively.

    

Borrowings and Debt

 

Contractual Maturities of Senior Secured, Junior Promissory, Notes Payable and Long Term Debt — As of March 31, 2020, 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 (Remaining)   $ 3,144     $ 100,000     $ 103,144  
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   $ 11,345     $ 6,144,477     $ 6,155,822  

  

  25  

 

 

Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds — as of March 31, 2020 the future sinking fund payments by the Company are as follow:

 

Year Ending December 31,   2016 Issue
2026 Series
    2016 Issue
2036 Series
    2018 Issue
2036 Series
    Total  
2020 (remaining)   $ 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       7,240,000       27,700,000  
Total   $ 7,535,000     $ 17,465,000     $ 8,000,000     $ 33,000,000  

  

Cash Flows

 

Cash Flows from Operating Activities

 

We used $2,515,474 of cash in operating activities during the three months ended March 31, 2020 as compared to a use of $1,212,649 during the three months ended March 31, 2019. Our net loss during the three months ended March 31, 2020 of $3,393,974 was reduced by non-cash expenses of $1,086,343.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities for the three months ended March 31, 2020 amounted to $45,358, as compared to $2,742,424 in net cash used in investing activities for the three months ended March 31, 2019, which was primarily related to the construction of the HEBiot facility.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities for the three months ended March 31, 2020 amounted to $2,693,990 and is primarily the result proceeds of $1,495,450 from a preferred stock issuance and advances amounting to $1,200,000 from related parties. During the comparable 2019 period, the Company received proceeds of $750,000 from a preferred stock issuance and $150,000 in advances from a related party.

 

Off Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements during the three months ended March 31, 2020.

 

  26  

 

 

Item 3. 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 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).

 

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that a material weakness existed and 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.

 

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.

 

Changes in Internal Controls Over Financial Reporting

 

There have not been any significant 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.

  

 

PART II - OTHER INFORMATION

 

Item 1. 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 affect 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.

 

  27  

 

 

Item 1A. Risk Factors.

 

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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

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.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

Not Applicable.

 

Item 6. Exhibits.

 

See the exhibits listed in the accompanying “Index to Exhibits.”

 

  28  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    BioHiTech Global, Inc.
     
June 29, 2020 By: /s/ Frank E. Celli
  Name:  Frank E. Celli
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Brian C. Essman
  Name: Brian C. Essman
  Title: Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)

  

 

  29  

 

 

INDEX TO EXHIBITS

 

Exhibit       Incorporated by Reference   Filed or
Furnished
No.   Exhibit Description   Form   Date   Number   Herewith
31.1   Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended               Filed
31.2   Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended               Filed
32.1   Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               Furnished*
32.2   Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               Furnished*
101.INS   XBRL Instance Document               Filed
101.SCH   XBRL Taxonomy Extension Schema Document               Filed
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document               Filed
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document               Filed
101.LAB   XBRL Taxonomy Extension Label Linkbase Document               Filed
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document               Filed

 

* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-X.

 

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to our Corporate Secretary at 80 Red Schoolhouse Road, Chestnut Ridge, New York 10977.

  

  30  

 

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