Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 30, 2020, the aggregate market
value of the common stock held by non-affiliates of the registrant was approximately $34.9 million based on the closing sales price
of $2.51 on the Nasdaq Capital Market. All executive officers and directors of the registrant have been deemed, solely for the
purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of April 13, 2021 there were 28,057,379 shares of the registrant’s
common stock outstanding.
Portions of the registrant’s Definitive
Proxy Statement relating to its 2020 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission are
incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The information in this report contains
forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In
particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“intends”, “plans”, “could,” “possibly,” “probably,” anticipates,”
“projects,” “expects,” “may,” “will,” or “should,” “designed
to,” “designed for,” or other variations or similar words or language. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
Although these forward-looking statements
reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to
us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result,
our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not
unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations
regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless required by law.
BioHiTech Global, Inc. and Subsidiaries
(the “Company” or “we” or “BioHiTech” or “Registrant”) refers to BioHiTech Global,
Inc. and its subsidiaries as a whole or to individual components thereof as applicable based upon the context in which the term
is used.
ITEM I: BUSINESS
Our Business
The Company’s
mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective
technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste,
patented processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary
real-time data analytics tools to reduce food waste generation. These 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,
we believe that 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 we believe 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 Internet of Things (“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 and as a result of current uncertainties, the implementation of the sales and services
under this contract had been delayed. The contract remains in force and purchase orders, sales and services under this contract
have resumed in the second half of 2020.
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 estimated 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.
Combined Offering
The Company’s
suite of products and services positions it as a 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 a distribution agreement with Altapure, LLC, a technology developer and manufacturer of ultrasonic based disinfecting
products, to distribute its patented line of environmentally-friendly, automated and touchless high-level disinfection sub-micron aerosol
system that we believe provides a safe process and rapid kill of spores, viruses, and vegetative bacteria. The Company commenced live
product demonstrations in June 2020 and recognized its first sale in October 2020.
Digester Technologies, Market, Customers
and Competition
The Company leverages
its existing technology, including our digester’s on-board patented weighing system, by collecting, accumulating and providing
empirical data that can aid in improving the efficiency of the upstream supply chain. By streaming data from the digesters, collecting
information from system users and integrating business application data, BioHiTech’s internet enabled system known as the
BioHiTech CloudTM can provide necessary data to aid customers in reshaping their purchasing decisions and positively
affect employee behavior. In its simplest form, the BioHiTech Cloud quantifies food waste in a fashion that has historically not
been available. It enables users to understand food waste generation habits and to improve operational efficiencies.
The BioHiTech
Cloud data is used to help educate customers as to where, when and how waste is being created. Tracking and analyzing waste
based on creation time, food type, preparation stage, origin of waste or other key metrics may provide a clear picture of the
food waste lifecycle. While our digesters already provide significant economic savings and decreases in carbon footprint, the
addition of the BioHiTech Cloud increases that impact by helping the customer to more accurately manage inventory,
preparation practices and staff efficiencies.
The Company believes
that its combined offering of technology and its digesters provide customers with information that has not been readily available
to consumers in the past that has the potential for improved management and reduction of waste at the point of generation on a
real-time basis.
BioHiTech believes
its digester products remove organic waste from the overcrowded and costly landfills of the world and provide significant benefits
to both business organizations and the community including:
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Eliminating the transportation of organic waste,
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Reducing carbon and methane emissions associated with landfilling and truck transportation,
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Complying with municipal laws banning organic waste from landfills,
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Contributing to corporate and regulatory targets for diverting waste from landfills,
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Extending the lifespan of the country’s disposal facilities,
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Reducing groundwater and soil contamination at landfills,
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Reducing harmful greenhouse gases that contribute to global climate change, and
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Recycling food waste into renewable resources (clean water, biogas, bio-solids).
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Our solution is not
based solely on the removal of waste, but also provides real time information and metrics to improve the efficiency of an organization.
Such information has not been readily available to consumers in the past. By providing a cloud-based dashboard and mobile application,
the BioHiTech Cloud gives real-time visibility to the status of the device itself and provides insight to the efficiencies of the
operations of food preparation and consumption of the user. Using leading edge cloud technologies, the systems allow for deep visibility
into the process on an individual, regional, or national level. BioHiTech currently has a provisional patent pending on this technology.
The BioHiTech Cirrus™
application allows customers more immediate access to analytical data provided by the Eco-Safe Digester and more efficient
monitoring across a number of network connected devices. The mobile application is available to existing BioHiTech Cloud customers
and is available through the iTunes Store, as well as Google Play.
Target Markets
BioHiTech’s target
market for its digesters includes any producers of consistent volumes of food waste.
In addition to the
US domestic marketplace, the Company anticipates growth internationally with a primary focus on the United Kingdom, Singapore,
Mexico and Latin America.
As municipalities continue
to enact ordinances prohibiting commercial food waste from being disposed of in landfills, the Company will focus its efforts on
targeting those businesses most affected by such ordinances. Many cities and states have already banned landfill disposal of food
waste generated by large, commercial food waste generators, with pending legislation in numerous others. The Company anticipates
this trend to continue as sustainability efforts advance.
Customers
Customers for BioHiTech’s
digesters are primarily any consistent producers of food waste. Industries served include but are not limited to healthcare, grocery,
prisons, retail food services (including traditional restaurants and quick service restaurants), education, and full-service hospitality,
including casinos and the cruise industry. Volume of food waste, as well as traditional waste disposal costs, are the primary drivers
of return on investment for customers. BioHiTech also sells its products to governmental agencies including correctional facilities
and hospitals, as well as large private sector companies throughout the United States and abroad.
It is estimated that
the addressable market for our digesters is over 200,000 locations worldwide.
Digester
Marketing Strategy
The Company markets
through two channels, “reseller” and “in-house” direct sales. Domestic and international resellers are
granted a non-exclusive license to sell and market products and services. All resellers are required to purchase all products and
consumables directly from the Company. In some cases, we also provide annual service to customers of our resellers at an additional
charge.
As regulations continue
to be passed regarding the disposal of food waste, we will leverage both our internal and external marketing sources to communicate
to and inform the target market of the increasing level of need for our products and services.
Since 2016, the Company
has operated on a United States based manufacturing model. Each product goes through a rigorous quality control process before
it is delivered to the customer.
Competition
There are a small number of
companies that distribute products utilizing a similar aerobic digestion methodology as our Revolution Digester, but lack the technological
depth of data collection, analytics and reporting. With our receiving our patent Network Connected Weight Tracking System for a Food
Waste Disposal Machine, there is a barrier to competitors providing similar technology to their customers. Further, we believe that
these companies do not have a competitive product to the Revolution Series of digesters based on price point, size, throughput, power
and plumbing requirements and data collection, analytics and reporting.
Most of these companies
originated in Korea and continue to manufacture their products in Asia and India. We believe these companies may have copied underlying
technology of our original digester units. We are aware of one company that has claimed to be developing competitive data collection
and some level of web enablement but are unaware of the deployment and functionality of their technology offering. Of our competitors,
our machine has the smallest footprint, requires the least amount of water to operate and we believe is an industry leader in terms
of installations and efficiency. Currently we are not aware of any direct competitor with the ability to capture and deliver real
time data.
Alternative
technologies or processes to digesters or similar equipment are:
Traditional
Composting: Composting has been in existence for many years and has historically been the only option for organics disposal.
Composting:
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Relies heavily on truck collection and transportation.
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Uses facilities that can be considered public nuisances.
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Is very difficult to provide accurate metrics on waste volumes and generation.
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Facilities are difficult to site and are often long distances from waste generation.
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Is neither cost effective nor environmentally friendly.
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Anaerobic
Digestion: Anaerobic digesters are readily used throughout Europe. Anaerobic digestion (“AD”) is the decomposition
of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to generate electricity. AD is generally
accomplished on a large municipal or commercial scale and is not believed to be readily available as an “at the source”
solution. AD facilities are beginning to be sited in the United States and are thought of as a viable disposal option for organic
waste. While the technology is sound, AD facilities face various challenges in the United States. Management believes that AD facilities
will continue to be developed and will be a part of the total solution for organic waste disposal. Many private equity funds have
made investments in companies that own or are permitting AD facilities. The challenges to AD include:
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Capital intensity of sizeable plants;
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Difficult to site with proximity to feedstock;
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Need steady, homogenous waste source (pre-processing is necessary);
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Relies on traditional collection and transportation of waste (significant costs);
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Rely on “tip fee” to subsidize operating expenses; and
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Difficult to provide data to consumers (similar to composting).
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Patent and
Trademarks
On May 22, 2018, the
Company received its patent for the “Network Connected Weight Tracking System for a Food Waste Disposal Machine”, which
expires on July 23, 2036.
HEBioT Technologies, Market, Customers
and Competition
The Company’s
first HEBioT facility began commissioning operations in the first quarter of 2019. The deployment of this technology is consistent
with the Company’s vision of providing disruptive technologies to the traditional waste industry. With the ability to accept
up to approximately 20 to 30% of each plant’s capacity in the form of pure food waste, the Company adds an option of municipal
level solutions in the food waste industry that was previously unavailable.
The Company is also
at varying levels of preliminary discussion regarding several other sites, including one located in Rensselaer, New York, which
it received its local permits for in 2018 and is presently awaiting New York State approvals.
Entsorga
West Virginia Facility
Entsorga West Virginia,
LLC (“EWV”), located in Martinsburg, WV, represents the first deployment of the Entsorga HEBioT technology in the United
States. The facility, which began commissioning operations in the first quarter of 2019 is designed to accept up to 110,000
tons per year of municipal solid waste delivered from the surrounding areas. The facility consists of a 54,000 square foot industrial
building located on approximately 12 acres of leased property. The facility, equipped with HEBioT technology, will be able
to produce up to 50,000 tons per year of EPA recognized renewable fuel.
Technology
The HEBioT technology
converts mixed municipal and organic waste (typical residential trash collected) to a US Environmental Protection Agency (the “US
EPA”) recognized alternative fuel source. By utilizing a patented process that utilizes a combination of mechanical and biological
processes to accelerate the decomposition of the organic fraction of waste, the end product produced, known as solid recovered
fuel (“SRF”) has a carbon value nearly equivalent to traditional coal and can be used as a replacement and/or supplement
to coal. After receipt and processing of waste at the facility, approximately 80% of the incoming waste is reduced, recycled or
converted into the approved alternative fuel, with the remaining 20% of the incoming waste being disposed of via traditional methods.
The US EPA has issued
a “comfort letter” stating that any fuel produced utilizing the HEBioT technology is deemed an engineered fuel and
can be marketed as a commodity rather than the fuel being marketed as RDF, refuse derived fuel, which has significant regulation
and additional costs relating to its consumption and use.
In 2018, the Company
entered into a transaction forming Refuel America, LLC (“Refuel”), a subsidiary of the Company, with Gold Medal Group,
LLC. This transaction consolidated HEBioT related assets of both entities, including interests in Entsorga West Virginia, LLC.
The Company controls Refuel and owns 60% of its membership interests. Gold Medal Group, LLC owns the remaining 40% of its membership
interests. Refuel will continue new and ongoing project development and marketing throughout 11 northeast U.S. states and the District
of Columbia. This project development may consist of construction, ownership and operation of actual facilities, such as the Entsorga
West Virginia facility or possible sub-licenses to third parties to utilize the technology. Refuel may realize revenues in various
ways:
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Construction and operation of actual facilities, in which case Refuel would identify an opportunity to develop a plant, facilitate its permitting and construction and ultimately operate the facility. In this case Refuel will realize all revenue and costs associated with the development of the project and will pay to Apple Valley Waste Conversions, LLC (“AVWC”) a license fee, which in turn the Company would receive its pro-rata share of the license fees paid to AVWC.
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Licensing and development services to municipalities or various third party developers for projects that the Company provides consulting and oversight on, in which case, receives one time or annual recurring license fees. In this case, along with the charged services, the Company would receive its pro-rata share of the license fees paid to AVWC.
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The
Company owns a 31% interest in AVWC. Frank E. Celli, the Company’s Chairman of the Board, also owns a 20.9% interest in AVWC. In
March 2017, Mr. Celli assigned his voting rights in AVWC to the Company so that, collectively, the Company would have voting control of
over 51% of AVWC. AVWC currently holds the exclusive license for the development throughout 11 northeast U.S. states and the District
of Columbia of the technology known as High Efficiency Biological Treatment (“HEBioT”), which is owned by Entsorgafin S.p.A.,
an Italian company. AVWC has licensed its exclusive development rights to the Company.
The development license
agreement between Entsorgafin (technology owner) and AVWC is perpetual in nature, with certain performance standards relating to
the volume of facilities developed during the initial five years of the agreement.
Marketing Strategy
The Company has focused
our initial marketing efforts of our HEBioT technology within the 11 northeast states and the District of Columbia by identifying
potential opportunities based on various criteria including, disposal costs within a region, proximity to end users of alternative
fuels, lack of long-term disposal alternatives, and access to adequate feedstock.
Disposal
Costs: We pursue opportunities where disposal costs within a certain radius of a prospective project are high enough to provide
adequate returns on capital. Since “tip fees” received by a facility represent the majority of a facility’s revenue,
areas with tip fees in excess of $50 per ton are highly attractive markets. This is the case, in the majority of regions covered
by the Company’s licensing rights.
Proximity
to End Users: The second largest component of a facility’s revenue is realized through the sale of renewable fuel
to be used in conjunction with or as a substitute for coal. With cement kilns being the second largest user of coal in the
United States and with the continual regulatory pressure to reduce emissions associated with coal combustion, we target
markets where there is reasonable access to cement manufacturing facilities to maximize revenue and minimize transportation
costs of the manufactured fuel. The HEBioT technology has received an EPA comfort letter stating that all fuel manufactured
from municipal solid waste in an Entsorga plant shall be categorized as an engineered fuel and can be used in cement kilns to
offset up to 30% of their total fuel consumption.
Lack of
Long-Term Disposal: With landfill capacity in the northeast United States diminishing, and large quantities of solid waste
being exported from numerous states, many municipalities and/or private waste companies are in need of long-term disposal options.
The HEBioT technology can divert up to 80% of the incoming municipal solid waste from landfills resulting in a prolonged life expectancy
or a 500% capacity increase of existing landfills, as well as new long-term cost-effective disposal options for the future.
Access
to Adequate Feedstock: Based on the fixed cost nature of a HEBioT facility, to maximize its revenue and earnings it must be
operated near its design capacity. The Company focuses its marketing efforts on areas where population density provides adequate
feedstock supply within a reasonable radius of a proposed plant. The HEBioT facility’s proximity to feedstock will allow
municipalities and haulers to dispose of their waste (municipal solid waste or “MSW”) at an HEBioT facility without
incurring significant logistical costs to do so.
We currently employ
one full time executive focused on the marketing of the HEBioT technology. The executive has over 20 years of experience in the
solid waste and recycling facility management industry and has held multiple positions at some of the leading recycling companies.
The executive’s focus is on identifying opportunities where each of the aforementioned criteria apply, initial presentation
of the Company and technology, evaluating possible joint ventures, initiating early stage permitting, project development cost
estimating and ultimate contract and project execution.
We present the technology
at industry trade shows and events, as well as make direct proposals to interested parties that have become familiar with the HEBioT
technology via public press releases, trade publications, the Company website and marketing materials, or industry referrals.
Competition
Competition in the
Mechanical Biological Treatment (“MBT”) area is more diverse than with our digester products, as High Efficiency Biological
Treatment (“HEBioT”), which is just one of many forms of MBT, is a new technology to the United States. The U.S. waste
industry significantly lags Europe, which has over 300 MBT operational plants, in its achievements of improving environmental protection,
diverting waste from landfills, development and utilization of alternative energies, and other green initiatives. There is an increasing
push to pursue alternative waste disposal options as landfill capacity continues to dwindle and environmental consciousness continues
to increase. In addition, the U.S. continues to pursue initiatives mitigating reliance on foreign energy and the EPA is increasing
mandates to reduce air pollutants and use of fossil fuels. There are also many large corporations that have set zero waste targets
that could utilize HEBioT as the one source to reduce landfill disposal of waste to under 20%.
Utilizing
traditional waste management, more than half of the municipal solid waste generated in the United States is disposed of in landfills
with another 12% being directed to waste to energy facilities and balance being recycled or composted. This figure is compared
to only 38% of MSW being landfilled in the European Union resulting in the U.S. contributing significantly more greenhouse gas
emissions from waste disposal than the European Union. Recently in the U.S., regulators and corporate leaders have led an effort
to lower greenhouse gas emissions by finding disposal alternatives to landfills and exploring the deployment of “next generation”
waste disposal technologies. The ongoing challenges to the evolution of these alternatives include but are not limited to capital
intensity requiring subsidies, emerging technology risk, access to feedstock, long term off-take partners and inability to accept
multiple waste streams.
Alternative
technologies or processes to MBT are:
Anaerobic
Digestion: Anaerobic digesters are readily used throughout Europe and deployed in the U.S. on a more limited basis. Anaerobic
digestion is the decomposition of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to generate
electricity. AD is limited to accepting only the organic fraction of waste and not capable of processing mixed municipal waste.
Traditional Waste to
Energy or Incineration Facilities: Incineration is a waste treatment process that involves the combustion of organic
substances contained in waste materials. Incineration and other
high-temperature waste treatment systems are described as "thermal treatment". Incineration of waste materials
converts the waste into ash, flue gas, and heat. The ash is mostly formed by the inorganic constituents of the waste and may
take the form of solid lumps or particulates carried by the flue gas. The flue gases must be cleaned of gaseous and
particulate pollutants before they are dispersed into the atmosphere. In some cases, the heat generated by incineration can
be used to generate electric power. There have been very few of these facilities built in the U.S. in the past 20 years. The
challenges to Incineration include:
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Capital intensity of sizeable plants;
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Difficult to site (NIMBYism);
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Extreme capital intensity;
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Expensive to operate;
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High level of emissions
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Gasification Facilities: Gasification
is a process that converts organic or fossil fuel based carbonaceous
materials into carbon monoxide, hydrogen and carbon dioxide. This is achieved by reacting the material at high temperatures (>700
°C), without combustion, with a controlled amount of oxygen and/or
steam. The resulting gas mixture is called syngas (from synthesis gas or synthetic gas) or producer gas and is itself a fuel. The
power derived from gasification and combustion of the resultant gas is considered to be a source of renewable energy if the gasified
compounds were obtained from biomass. The challenges to gasification include but are not limited to:
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Early stage technology risk
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Need for homogenous feedstock
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Difficulty in siting (NIMBYism)
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Pyrolysis: Pyrolysis
is a thermochemical decomposition of organic material at elevated temperatures in the absence of oxygen (or any halogen). It involves
the simultaneous change of chemical composition and physical phase that is irreversible. Pyrolysis is a type of thermolysis that
is most commonly observed in organic materials exposed to high temperatures. Pyrolysis has been recently explored as an option
for municipal solid waste incineration but has not been deployed in the U.S. due to various challenges, including:
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Capital intensity
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Significant early stage technology risk
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Need for homogenous feedstock
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Difficulty in siting (NIMBYism)
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Landfilling: A landfill
site (also known as a tip, dump, rubbish dump, garbage) is a site for the disposal of waste materials by burial and is the oldest
form of waste treatment (although the burial part is modern; historically, refuse was just left in piles or thrown into pits).
Historically, landfills have been the most common method of organized waste disposal and remain so in many places around the world
and currently represent approximately 70% of the disposal of municipal solid waste in the U.S. There has been a recent movement
toward diverting waste from landfills in the U.S. including the passing of various pieces of legislation in certain states banning
certain materials from being deposited in landfills. Landfilling continues to be faced with challenges such as;
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Capital Intensity
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Difficulty siting (NIMBYism)
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Potential groundwater contamination
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Methane gas emissions
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Poor use of natural resource
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Post closure liabilities (future monitoring, etc.)
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Other MBT Providers. The
terms mechanical biological treatment or mechanical biological pre-treatment relate to a group of solid waste treatment systems.
These systems enable the recovery of materials contained within the mixed waste and facilitate the stabilization of the biodegradable
component of the material. There are currently over 300 operational MBT plants throughout Europe. Most of the current plants produce
Refuse Derived Fuel, which differs from the engineered solid recovered fuel produced by the Entsorga HEBioT technology, which is
deemed as an “engineered fuel” by the U.S. EPA. A2A is a company based in Italy that has historically deployed a similar
technology to that of Entsorga; however, A2A no longer makes it commercially available to merchant plant operators and does not
currently have any facilities located or planned for the U.S. market.
Employees and Human Capital Resources
As of December 31,
2020, the Company and its consolidated subsidiaries had 42 full time employees. We believe we enjoy good employee relations. None
of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.
We recognize that attracting,
motivating and retaining talent is vital to our continued success. We aim to create an equitable, inclusive and empowering environment
in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce
to support our current and future business goals.
Our human capital resources
objectives include identifying, recruiting, retaining, and incentivizing our existing and new employees. We maintain an equity incentive
plan, the principal purposes of which are to attract, retain and reward executives and personnel through the granting of equity-based
compensation awards. To attract and retain talented employees, our goal is to make our company a safe and rewarding workplace, with opportunities
for our employees to grow and develop in their careers, supported by competitive compensation, benefits and health and wellness programs,
and by programs that build connections between our employees.
Liquidity and Capital Resources
The Company currently
generates revenues from sales and rentals of its digesters and related goods and services, and revenues from the HEBioT technologies.
The Company's other known sources of capital are common and common and preferred stock offerings, proceeds from private placements,
issuance of notes payable, convertible notes payable, and investments, loans and advances from related and unrelated parties and
cash from future revenues.
We will require
additional financing in order to execute our business expansion and development plans and we may require additional financing in
order to sustain substantial future business operations for an extended period of time. Subsequent to December 31, 2020, the Company
entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc., which provides for up to $25,000,000 in sales of
the Company’s common stock subject to limitations under the S-3 Registration Statement to which the shares may be sold and the
related prospectus supplement, which may be amended, that limits the amount raised to $11,150,000, of which the Company has raised
$7,211,729 in gross proceeds through the sale of 3,416,663 shares of common stock through March 22, 2021. While the Company has a
history of obtaining adequate capital and maintaining liquidity, it is actively soliciting other forms of financing but do not have
any firm commitments for additional financing. Should we not be able to obtain financing when required, in the amounts necessary to
execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to
pursue our strategic plan and may have to reduce the planned future growth and scope of our operations.
Potential Future Projects and Conflicts
of Interest
Members of the Company’s
management may serve in the future as an officer, director or investor in other entities. Neither BioHiTech nor any of its shareholders
would have any interest in these other companies’ projects. Management believes that it has sufficient resources to fully
discharge its responsibilities to the Company.
Government Regulation
We believe we are in
compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure compliance
going forward. There are no regulatory notifications or actions pending.
Related Party Transactions
See footnote 20 of
the Company’s consolidated financial statements filed herewith.
Available Information
We will make available
free of charge any of our filings as soon as reasonably practicable after we electronically file these materials with, or otherwise
furnish them to, the Securities and Exchange Commission (“SEC”). We are not including the information contained in
our website as part of, or incorporating it by reference into, this report on Form 10-K.
The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
We maintain a website
at http://www.biohitech.com/. Within our website’s “Investor” section, “SEC Filings” tab,
all of our filings with the Commission and all amendments to these reports are available as soon as reasonably practicable after
filing.
Website
Our website address
is www.biohitech.com.
Our Information
Our principal executive
offices are located at 80 Red Schoolhouse Road, Suite 101, Chestnut Ridge, NY 10977 and our telephone number is (845) 262-1081.
We can be contacted by email at info@biohitech.com.
ITEM 1A. RISK FACTORS
Our business, financial
condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently
foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial
condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could
decline, and our stockholders may lose all or part of their investment in the shares of our common stock.
This Form 10-K contains
forward-looking statements that involve risks and uncertainties. These forward-looking statements can be identified by the use
of words such as “believes,” “estimates,” “intends”, “plans”, “could,”
“possibly,” “probably,” anticipates,” “projects,” “expects,” “may,”
“will,” or “should,” “designed to,” “designed for,” or other variations or similar
words or language. Actual results could differ materially from those discussed in the forward-looking statements as a result of
certain factors, including those set forth below and elsewhere in this Form 10-K.
SHOULD ONE OR MORE OF THE FOREGOING
RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED
Risks Related to Pandemics
The COVID-19 coronavirus pandemic
(“COVID-19”) may adversely affect our business, results of operations, financial condition, liquidity, and cash flow.
While the full
impact on our business from the outbreak of COVID-19 is unknown at this time and difficult to predict, various aspects of our business
have been impacted and could be adversely affected by it.
As of the date
of this Form 10-K, COVID-19 continues to be a declared a pandemic by the World Health Organization, and the original form and more recent
variants continue to impact, at varying levels many geographies worldwide. COVID-19 caused significant volatility in global markets, including
the market price of our securities. The spread of COVID-19 caused public health officials to recommend precautions to mitigate the spread
of the virus, especially as to travel and congregating in large numbers. While in the United States the vaccine is being deployed and
some restrictions are being lessened, should positivity and hospitalization rates increase some of these lessened restrictions may be
reversed. If the pandemic persists throughout fiscal 2021 or worsens, it could negatively impact our business operations. We continue
to closely monitor the impact of the COVID-19 pandemic on all facets of our business including the impact on our employees, customers,
suppliers, vendors, business partners and supply chain.
It is unclear
how such restrictions, which will contribute to a general slowdown in the global economy, will affect our business, results of
operations, financial condition and our future strategic plans.
The digester line of
our business has historically been marketed to large organizations such as food distributors, convention centers, hotels, restaurants,
stadiums, municipalities and academic institutions. It is unclear how a prolonged outbreak with travel, commercial and other similar
restrictions, may adversely affect our business operations and the business operations of our customers and suppliers; a disruption
for a prolonged period will have a negative effect on our business operations.
Shelter-in-place and
essential-only travel regulations have negatively impacted many of our customers. In addition, while our digesters are manufactured
in the United States, we still could experience significant supply chain disruptions due to interruptions in operations at any
or all of our suppliers’ facilities. If we experience significant delays in receiving our products we will experience delays
in fulfilling orders and ultimately receiving payment, which could result in loss of sales and a loss of customers, and adversely
impact our financial condition and results of operations.
The HEBioT line of
our business is classified as a public service in the state in which it is located and is expected to remain operating regardless
of restrictions that may be imposed on other businesses in its area. The facility relies upon other entities to pick up and deliver
municipal solid waste, which are also classified as public service entities, and is reliant upon customers in the cement kiln industry
to purchase its solid recovered fuel. The inability to receive municipal solid waste (“MSW”) or sell it to its customers
would adversely impact our financial condition and results of operations.
Risks Specific to Our Business
We have a history of operating losses
and there can be no assurance that we can achieve or maintain profitability.
We have a history of
operating losses and may not achieve or sustain profitability due to the competitive and evolving nature of the industries in which
we operate. Our failure to sustain profitability could adversely affect the Company’s business, including our ability to
raise additional funds.
We may not be able to continue as
a going concern.
For the year ended
December 31, 2020, the Company had a consolidated net loss of $15,741,839, incurred a consolidated loss from operations of
$11,676,179 and used net cash in consolidated operating activities of $8,758,207. As of December 31, 2020, consolidated total
stockholders’ equity amounted to $3,454,624, consolidated stockholders’ equity attributable to parent amounted to
$2,313,958, and the Company had a consolidated working capital deficit of $11,607,510. While the Company had not met certain of its
senior secured note’s financial covenants as of December 31, 2020, the Company had favorably renegotiated those covenants
during 2020 and has received a waiver for such non-compliance through December 31, 2020. 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 note amounting to $4,494,424 has been classified as current debt. The
Company does not yet have a history of financial profitability. In March and April of 2020 the Company raised $1,560,450 through a
private convertible preferred stock offering and on May 13, 2020 one of the Company’s subsidiaries was funded $421,300 through
the Paycheck Protection Program. On July 27, 2020 the Company used its Shelf Registration on Form S-3 to raise gross proceeds of
$8,235,500 through an underwritten public offering of 4,550,000 common shares at $1.81 per share. On August 11, 2020 the underwriter
provided notice that they would be exercising their over-allotment provision of the Underwriting Agreement to purchase an additional
682,500 shares of the Company’s common stock at $1.81 per share for a gross purchase price of $1,235,325. The net proceeds to
the Company of the July 27, 2020 and August 11, 2020 offerings, after underwriter’s commission and other costs amounted to
$8,437,480. Subsequent to December 31, 2020, the Company entered into an At Market Issuance Sales Agreement with B. Riley
Securities, Inc., which provides for up to $25,000,000 in sales of the Company’s common stock subject to limitations under the
S-3 Registration Statement to which the shares may be sold and the related prospectus supplement, which may be amended, that limits
the amount raised to $11,150,000, of which the Company has raised $7,211,729 in gross proceeds from the sale of 3,416,663 shares of
common stock through March 22, 2021. There is no assurance that the Company will continue 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.
Historically, lenders
to the Company with financial covenants have waived certain non-compliance and while they have consistently provided waivers, there
is no assurance that such lenders will continue to waive non-compliance in the future.
We face substantial competition in
the waste services industry, and if we cannot successfully compete in the marketplace, our business, financial condition and results
of operations may be materially adversely affected.
The waste services
industry is highly competitive, has undergone a period of consolidation and requires substantial labor and capital resources. Some
of the markets in which we compete are served by one or more of large, established companies, that are more well-known and better
financed than we are. Intense competition exists not only to provide services to customers, but also to develop new products and
services and acquire other businesses within each market. Some of our competitors have significantly greater financial and other
resources than we do.
In our waste disposal
markets, we also compete with operators of alternative disposal and recycling facilities. We also increasingly compete with companies
that seek to use waste as feedstock for alternative uses. Public entities may have financial advantages because of their ability
to charge user fees or similar charges, impose tax revenues, access tax-exempt financing and, in some cases, utilize government
subsidies.
If we are unable to successfully
compete in the marketplace, our business and financial condition could be materially adversely affected.
The waste services
industry is subject to extensive and rapidly-changing government regulation. Changes to one or more of these regulations could
cause a decrease in the demand for our products and services.
Stringent government
regulations at the federal, state and local level in the U.S. have a substantial impact on the waste industry and compliance with
such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection,
health, safety, land use, zoning, transportation and related matters. Among other things, governmental regulations and enforcement
actions may restrict operations within the waste industry and may adversely affect our financial condition, results of operations
and cash flows.
We believe the demand
for our digester product is created directly in response to recent laws and regulation prohibiting certain large, commercial food
manufacturers, retailers and hospitality enterprises from discarding food wastes to landfills. Our digesters are just one solution
for these businesses to comply with these regulations and other regulations. If there was a change to or elimination of these regulations,
the demand for our product would almost certainly be greatly reduced and our income would, as a result, be adversely affected.
Currently, the microorganisms
we employ in our digesters are approved for use to reduce food waste and to be poured into conventional sewer systems. However,
if it was determined that we could no longer use these microorganisms, there is no guarantee that we could develop a replacement
process to assure that we could continue to sell our products. Also, we would likely face claims from current customers were they
unable to use our digesters for food waste disposal.
We may also incur the
costs of defending against environmental litigation brought by governmental agencies and private parties. We may be in the future
a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, or which seek
to overturn or prevent authorization of our products, all of which may result in us incurring significant liabilities.
We may be negatively impacted by
landfills and certain long-term disposal trends.
In connection with
the MBT line of business, there is competition from other landfills, including large, out-of-state landfills to secure municipal
solid waste (“MSW”) feedstock. Such facilities may legally drop prices to maintain market share forcing the Company
to compete on price for feedstock delivered by suppliers, which may cause a negative impact to the anticipated financial performance
of the projects and may result in an impairment of such projects.
Waste policies may
incentivize additional renewable energy plants to be built, in such an event, the MBT facilities would be competing with such future
renewable energy plants for feedstock. Furthermore, other zero waste policies, increased local recycling and reuse, augmented by
composting and other future waste policies intended to eliminate and/or reduce the waste may mean less MSW will be available for
the Company’s MBT projects.
The recovered recycled materials
market is volatile.
The Company’s
MBT projects and its waste collections business anticipate a minimum return on recycled materials. Should conditions change such
that the minimum returns cannot be recovered, they may have a negative impact on the financial performance of the projects and
businesses.
The market for solid recovered fuel
(“SRF”) is not developed.
The Company’s
MBT projects rely upon the ability to sell SRF to appropriate industrial users at economically reasonable prices. There is no assurance
that the Company will be able to contract on either a long-term or spot-market basis with such consumers.
We may engage in acquisitions
in the future with the goal of complementing or expanding our business, including developing additional disposal products and complementary
services. However, we may be unable to complete these transactions and, if executed, these transactions may not improve our business
or may pose significant risks and could have a negative effect on our operations.
We may in the future,
make acquisitions in order to acquire or develop additional disposal products and complementary services. In addition, from time
to time we may acquire businesses that are complementary to our core business strategy. We may not be able to identify suitable
acquisition candidates. If we identify suitable acquisition candidates, we may be unable to successfully negotiate acquisitions
at a price or on terms and conditions acceptable to us, including as a result of the limitations imposed by our debt obligations.
Further, we may be unable to obtain the necessary regulatory approval to complete potential acquisitions.
Our ability to achieve
the benefits of any potential future acquisition, including cost savings and operating efficiencies, depends in part on our ability
to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired businesses
and other assets may require significant management time and resources that would otherwise be available for the ongoing management
of our existing operations. In addition, to the extent any future acquisitions are completed, we may be unsuccessful in integrating
acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that
could have a material adverse impact on future profitability. Some of the risks that may affect our ability to integrate, or realize
any anticipated benefits from, acquisitions include:
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unexpected losses of key employees or customer of the acquired company;
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difficulties integrating the acquired company’s standards, processes, procedures and controls;
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difficulties coordinating new product and process development;
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difficulties hiring additional management and other critical personnel;
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difficulties increasing the scope, geographic diversity and complexity of our operations;
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difficulties consolidating facilities, transferring processes and know-how;
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difficulties reducing costs of the acquired company’s business;
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diversion of management’s attention from our management; and
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adverse impacts on retaining existing business relationships with customers.
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Our business and strategic plans
may require funding.
Our current business
and strategic plans require additional funding. Our ultimate success may depend on our ability to raise additional financing and
capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business
plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth,
borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will
be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory
to us.
We expect that
we will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly
or difficult to obtain and can be expected to dilute current stockholders’ ownership interests.
Based upon present
strategic investment plans, we expect that we will need to raise additional capital in the future. Such additional capital may
not be available on reasonable terms or at all. We may need to raise additional funds through borrowings or public or private debt
or equity financings to meet various objectives including, but not limited to:
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accomplish growth through enhanced sales and marketing efforts;
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effect new products and services development;
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complete business acquisitions; and
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build additional MBT plants
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Our limited operating history does
not afford investors a sufficient history on which to base an investment decision.
We are currently expanding
our businesses. Our operations are subject to all the risks inherent in the establishment of an expanding business enterprise.
The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays that are
frequently encountered in expanding companies. There can be no assurance that at this time that we will operate profitably or will
have adequate working capital to meet our obligations as they become due.
Investors must consider
the risks and difficulties frequently encountered by expanding companies, particularly in rapidly evolving markets. Such risks
include the following:
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increasing awareness of our brand names;
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meeting customer demand and standards;
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attaining customer loyalty;
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developing and upgrading our product and service offerings;
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implementing our advertising and marketing plan;
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maintaining our current strategic relationships and developing new strategic relationships;
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responding effectively to competitive pressures; and
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attracting, retaining and motivating qualified personnel.
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We cannot be certain
that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely
affected, and we may not have the resources to continue or expand our business operations.
We rely on highly skilled personnel
and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able to grow effectively.
Our performance is
largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability
to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability
to compete effectively depends on our ability to retain and motivate existing employees. Due to our reliance upon its skilled professionals
and laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material
adverse effect on our business, operating results and financial condition.
If we fail to manage growth or to
prepare for product scalability and integration effectively, it could have an adverse effect on our employee efficiency, product
quality, working capital levels and results of operations.
Any significant growth
in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational,
financial, and other purposes. During any period of growth, we may face problems related to our operational and financial systems
and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and
manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management
to identify, recruit, maintain, integrate, and motivate new employees.
Aside from increased
difficulties in the management of human resources, we may need increased liquidity to finance the expansion of our existing business,
the development of new products, and the hiring of additional employees. For effective growth management, we will be required to
continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may
lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors
that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and
potential customers.
Our management team may not be able
to successfully implement our business strategies.
If our management
team is unable to execute on its business strategies, then our development, including the establishment of revenues and our
sales and marketing activities, would be materially and adversely affected. In addition, we may encounter difficulties in
effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek
to augment or replace members of our management team or we may lose key members of our management team, and we may not be
able to attract new management talent with sufficient skill and experience.
If we are unable to retain key executives
and other key affiliates, our growth could be significantly inhibited, and our business harmed with a material adverse effect on
our business, financial condition and results of operations.
Our success
is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key
personnel. Anthony Fuller, our Chief Executive Officer, Robert Joyce, our Chief Operating Officer and Brian C. Essman, our Chief Financial
Officer, perform key functions in the operation of our business. The loss of any of these could have a material adverse effect upon our
business, financial condition, and results of operations. If we lose the services of any senior management, we may not be able to locate
suitable or qualified replacements and may incur additional expenses to recruit and train new personnel, which could severely disrupt
our business and prospects.
Our financial results may not meet
the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely on our revenue
and/or financial projections as indicative of future results.
Fluctuations in operating
results or the failure of operating results to meet the expectations investors may negatively impact the value of our securities.
Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations
in operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections
or comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is
possible that in future periods results of operations may be below the expectations of investors. This could cause the market price
of our securities to decline and negatively impact our ability to raise debt and capital. Factors that may affect our operating
results include:
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delays in sales resulting from potential customer sales cycles;
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variations or inconsistencies in return on investment models and results;
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changes in competition; and
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changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption.
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Our management conducted an evaluation
of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting
was not effective as of December 31, 2020. If we fail to maintain an effective system of internal control over financial reporting,
we may not be able to accurately report our financial results or prevent fraud.
We are subject to reporting
obligations under the U.S. securities laws. The Securities and Exchange Commission or the SEC, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report
on the effectiveness of such company’s internal control over financial reporting in its annual report. Effective internal
control over financial reporting is necessary for us to provide reliable financial reports, effectively prevent fraud and operate
as a public company.
Our management conducted
an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over
financial reporting was not effective as of December 31, 2020. A material weakness is a deficiency, or a combination of deficiencies,
in internal control such that there is a reasonable possibility that a material misstatement of our company's financial statements
will not be prevented, or detected and corrected on a timely basis. Based on their evaluations, our Principal Executive Officer
and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2020
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our
Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of our limited operations we have a small number of employees which prohibits a segregation of duties. As we grow and expand
our operations, we will engage additional employees and experts as needed. However, there can be no assurance that our operations
will expand.
Our failure to remediate
the material weakness or our failure to discover and address any other material weaknesses or deficiencies may result in inaccuracies
in our financial statements, delay in the preparation of our financial statements, and the loss of investor confidence in the reliability
of our financial statements, which in turn could negatively influence the trading price of our Common Stock. Ineffective internal
control over financial reporting could also expose us to increased risk of fraud or misappropriations of corporate assets and subject
us to potential delisting from the stock exchange on which our Common Stock is listed, regulatory investigations or civil or criminal
sanctions. As a result, our business, financial condition, results of operations and prospects may be materially and adversely
affected.
We are operating in a highly competitive
market and we are unsure as to whether there will be any consumer demand for our services.
Some of our competitors
are much larger and better capitalized than we are. It may be that our competitors will better address the same market opportunities
that we are addressing. These competitors, either alone or with collaborative partners, may succeed in developing business models
that are more effective or have greater market success than our own. The Company is especially susceptible to larger companies
that invest more money in marketing. Moreover, the market for our services is potentially large but highly competitive. There is
little or no hard data that substantiates the demand for our services or how this demand will be segmented over time.
There is no assurance that the Company
will operate profitably or will generate positive cash flow.
The Company is continuing
to develop and expand its lines of business, customer base and recurring revenues and it is anticipated that it may continue to
incur losses in the future as it carries on this process. In addition, the Company’s operating results in the future may
be subject to significant fluctuations due to many factors not within our control, such as the level of competition, regulatory
changes and general economic conditions.
We may be unsuccessful in our efforts
to use digital and other viral marketing to expand consumer awareness of our service.
If we are unable to
maintain or increase the efficacy of our digital and other viral marketing strategy or if we otherwise decide to expand the reach
of our marketing through use of costlier marketing campaigns, we may experience an increase in marketing expenses that could have
an adverse effect on our results of operations. We cannot assure you that we will be successful in maintaining or expanding our
customer base and failure to do so would materially reduce our revenue and adversely affect our business, operating results and
financial condition.
We may be negatively impacted by
permitting and construction risks.
In connection with
the MBT line of business, the Company will have to maintain or acquire specialized permits and have regulatory approvals from various
state and local regulatory authorities for their operations or the construction of facilities. This permitting process may involve
initial denials of permits that are appealed. The failure of having such may delay, or prevent the construction or operation of
the planned MBT facilities, which would also impair the capitalized MBT facility development and license costs associated with
such projects. In addition, there are significant risks related to the construction of a specialized facility. These risks may
delay, postpone or cause a negative impact to the anticipated financial performance of the projects.
Risks Related to Securities Markets
and Investments in Our Securities
General securities market uncertainties
resulting from COVID-19.
At the outset of COVID-19 the U.S. and worldwide national securities
markets underwent unprecedented stress due to the uncertainties of COVID-19 and the resulting reactions and outcomes of government, business
and the general population. These uncertainties resulted in declines in market sectors, increases in volumes due to flight to safety and
governmental actions to support the markets. While in the United States the vaccine is being deployed and some restrictions are being
lessened, should positivity and hospitalization rates increase some of these lessened restrictions may be reversed and could cause disruption
in the capital markets. Should we not be able to obtain financing when required, in the amounts necessary to execute on our plans in full,
or on terms which are economically feasible we may be unable to sustain the necessary capital to pursue our strategic plan and may have
to reduce the planned future growth and scope of our operations.
Our executive officers and certain
stockholders possess significant voting power, and through this ownership, could influence our Company and our corporate actions.
Our current executive
officers, directors and their affiliates, hold approximately 17% of the voting power of the outstanding common shares as of the
date of December 31, 2020. These officers, directors, affiliates and certain stockholders may have a controlling influence in determining
the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such,
our executive officers have significant influence to prevent or cause a change in control; therefore, without their consent we
could be prevented from entering into transactions that could be beneficial to us. The interests of our executive officers and
certain shareholders may give rise to a conflict of interest with the Company and the Company’s stockholders. For additional
details concerning voting power please refer to the section below entitled “Description of Securities.”
Liquidity of our common stock has
been limited.
On April 9, 2018
the Company uplisted from OTCQB to the Nasdaq Capital Market. The liquidity of our Common Stock has been mixed and there is
no assurance that liquidity will continue or that the trade prices of our securities could not be reduced due to excess
sellers of our stock over buyers. Active trading markets generally result in lower price volatility and more efficient
execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.
The trading volume
of our Common Stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that
we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if we came to the attention of such persons, they may tend to
be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares
of Common Stock until such time as we became more seasoned and viable. As a consequence, there may be periods when trading activity
in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally
support continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or more active public
trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.
Our stock price may be volatile.
The market price of
our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which
are beyond our control, including the following:
|
·
|
the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;
|
|
·
|
limited “public float” with a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
|
|
·
|
additions or departures of key personnel;
|
|
·
|
loss of a strategic relationship;
|
|
·
|
variations in operating results from the expectations of securities analysts or investors;
|
|
·
|
announcements of new products or services by us or our competitors;
|
|
·
|
reductions in the market share of our products;
|
|
·
|
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
|
|
·
|
investor perception of our industry or prospects;
|
|
·
|
insider selling or buying;
|
|
·
|
investors entering into short sale contracts;
|
|
·
|
regulatory developments affecting our industry;
|
|
·
|
changes in our industry;
|
|
·
|
competitive pricing pressures;
|
|
·
|
our ability to obtain working capital financing;
|
|
·
|
sales of our common stock;
|
|
·
|
our ability to execute our business plan;
|
|
·
|
operating results that fall below expectations;
|
|
·
|
revisions in securities analysts’ estimates or reductions in security analysts’ coverage; and
|
|
·
|
economic and other external factors.
|
Many of these factors
are beyond our control and may decrease the market price of our Common Stock, regardless of our operating performance. We cannot
make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including
as to whether our Common Stock will sustain current market prices, or as to what effect that the sale of shares or the availability
of common stock for sale at any time will have on the prevailing market price.
In addition, the securities
markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance
of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our common stock is subject to price
volatility unrelated to our operations.
The market price of
our Common Stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve
our planned growth, quarterly operating results of other companies in the same industry, trading volume in our Common Stock, changes
in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors
or the Company itself.
A decline in the price of our common
stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline
in the price of our Common Stock could result in a reduction in the liquidity of our Common Stock and a reduction in our ability
to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations and
strategic plans. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect
on our business plan and operations, including our ability to develop new services and continue our current operations. If our
Common Stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from
operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to
have the resources to continue our normal operations.
Concentrated ownership of our Common
Stock creates a risk of sudden changes in our Common Stock price.
The sale by any shareholder
of a significant portion of their holdings could have a material adverse effect on the market price of our Common Stock.
Sales of our
currently issued and outstanding Common Stock may become freely tradable pursuant to Rule 144 and may dilute the market for your
shares and have a depressive effect on the price of the shares of our common stock.
Approximately 30% of
the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be
resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence
that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of Common Stock.
Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions,
sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s
outstanding shares of Common Stock or the average weekly trading volume during the four calendar weeks prior to the sale. A sale
under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our
shares of Common Stock, may have a depressive effect upon the price of our shares of common stock in any active market that may
develop.
If we issue additional shares or
derivative securities in the future, it may result in the dilution of our existing stockholders.
Our Certificate of
Incorporation, as amended, authorizes the issuance of up to 50,000,000 shares of Common Stock, $0.0001 par value per share. Our
board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares,
to provide additional financing in the future.
We do not plan to declare or pay
any dividends to our stockholders in the near future.
We have not declared
any Common Stock dividends in the past, and we do not intend to distribute cash dividends in the near future. The declaration,
payment and amount of any future Common Stock dividends will be made at the discretion of the board of directors and will depend
upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and
other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends
are paid, there is no assurance with respect to the amount of any such dividend.
The requirements of being a public
company may strain our resources and distract management.
As a public company,
we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Securities Act of 1933 and as well as the governance
rules of Nasdaq. These rules, regulations and requirements are extensive. We may incur significant costs associated with our public
company corporate governance and reporting requirements. This may divert management’s attention from other business concerns,
which could have a material adverse effect on our business, financial condition and results of operations. We also expect that
these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on
our board of directors or as executive officers.
Future changes
in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported
results of operations.
A change in accounting
standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions
completed before the change is effective. New accounting standards and varying interpretations of accounting standards have occurred
and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported
financial results or the way we conduct business.
“Penny Stock” rules may
make buying or selling our Common Stock difficult.
Trading in our Common
Stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define
a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These
rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors,
must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written
agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the
penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in our Common Stock, which could severely limit the market
price and liquidity of our Common Stock.
ITEM 1B: UNRESOLVED STAFF COMMENTS.
None.
ITEM 2: PROPERTIES.
The Company does not
own any physical location.
The Company currently
leases its corporate headquarters and warehouse in Chestnut Ridge, NY. We believe that our current headquarters and warehouse facility
are sufficient in size for current and future operations. The current leases for the headquarters and warehouse expire in 2025.
The United Kingdom
operations are managed from employee based virtual offices in the UK.
The Entsorga Plant
is located in Martinsburg, West Virginia has a 30-year initial term land lease with a municipal authority for industrial property
adjacent to its previously closed landfill site with four separate renewal periods of 5-years each.
ITEM 3: LEGAL PROCEEDINGS.
On February 7,
2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for
the Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg,
West Virginia alleging breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages
against Lemartec and cross claims against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. The
trial was scheduled to begin in August 2020. Subsequent to year end and prior to the start of the trial, on March 12,
2020 the Company entered into a settlement agreement that detailed the full and final mutual release. The settlement agreement
provides that the Company pay Lemartec $775,000 in installments of $475,000 within 60 days of the execution of the settlement agreement
and $25,000 each month thereafter for 12 months.
It is management’s
opinion that the resolution of these matters 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.
ITEM 4: MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT’S
COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock
first became quoted on the Over-the-Counter Bulletin Board, or “OTCBB” under the trading symbol
“SWFR” on March 27, 2014. On September 16, 2015, our common stock began trading under the name BioHiTech Global,
Inc. and under the trading symbol “BHTG”. On February 12, 2016, the common stock was uplisted to the OTCQB
Venture Marketplace. On April 9, 2018 the common stock was uplisted to the Nasdaq Capital Market.
The number of record
holders of our common stock as of December 31, 2020, was approximately 56 based on information received from our transfer agent.
This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee”
name with a brokerage firm or other fiduciary.
We have not paid or
declared any cash dividends on our common stock, and we do not anticipate paying dividends on our common stock for the foreseeable
future. During the year ended December 31, 2020 the Company paid $14,388 in preferred stock dividends in connection with the conversion
of the underlying shares into shares of common stock.
|
(d)
|
Securities authorized for issuance under equity compensation plans
|
The information set
forth under Item 5(d) is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2021 Annual Meeting of Shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with obtaining
consent from the Company’s senior lender, Michaelson Capital Special Finance Fund II, L.P., allowing for the increase of the line
of credit from Comerica Bank, on November 7, 2018, we issued MCSFF warrants to acquire 100,000 shares of the Company’s common stock
at an exercise price of $5.00 per share.
From June 13, 2018 to October
12, 2018, in a series of transactions 106,689 shares of Series A Convertible Preferred Stock were converted for 118,542 shares of Common
Stock.
From May 10, 2019 through
June 28, 2019, the Company sold units (the “Units”) in the aggregate offering amount of $1,885,000, comprised of 1,000 Shares
of the Company’s Series D Convertible Preferred Stock (the “Series D Preferred Shares”) and warrants (the “Warrants”)
to purchase a number of shares of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), up to
such 50% of the number of shares of Common Stock issuable upon conversion of the Series D Preferred Shares at an exercise price of $3.50
per share of Common Stock. Each share of Series D Preferred Shares has a stated value of $100.00 and is convertible into shares of Common
Stock at the price of $3.50 per share based on the stated value of the Series D Preferred being converted. The Series D Preferred Shares
has usual dividends at the rate of 9% payable annually in arrears in cash or, at the Company’s option, in Common Stock based upon
the then in effect conversion price. The Series D Preferred Shares also have an alternative dividend provision based upon the cash flow
distributed to the parent from the Company’s next HEBioT facility, excluding the Company’s plant in Martinsburg, West Virginia,
(“the Next Facility”) based upon the Series D Preferred Shares proportional investment in the facility. The Series D Preferred
Shares also has an alternative conversion based upon a multiple of the annualized EBITDA of the Next Facility converted at the higher
of the conversion rate in effect or the market price of the Company’s common stock if higher. The Company paid placement agent fees
of $97,500 and $15,000 in cash to Network 1 Financial Securities, Inc. and ViewTrade Securities Inc., respectively.
On September 6, 2019, 18,000
shares of the Company’s Series A Convertible Preferred Stock were converted for 50,000 shares of Common Stock.
From September 26, 2019 through
March 10, 2020, in a series of transactions $225,000 of accrued dividends of Series A Convertible Preferred Stock were paid for with 125,000
shares of Common Stock.
Between March 9, 2020 and
April 6, 2020, the Company sold $1,565,000 of the Series F Redeemable, Convertible Preferred Stock (the “Series F Shares”)
and warrants to purchase 186,347 shares of Common Stock. The Series F Shares are 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 Registrant’s common stock at the conversion rate in effect at the time.
In connection with the offering of the Series 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 will also accumulate 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.
On January 8, 2021, the Company
issued 75,000 restricted Common Stock shares to a vendor at the market rate during the course of the service period in accordance with
the fee agreement between the vendor and the Company for services rendered.
On January 25, 2021,
one holder of the Company’s Series D preferred stock converted their shares and was paid the conversion shares and related
accumulated dividends, totaling 22,375 Common Stock shares at $1.80 per share.
On February 10, 2021,
seven holders of the Company’s Series A and Series D preferred stock converted their shares and were paid the conversion
shares, totaling 527,780 Common Stock shares at $1.80 per share.
On February 11, 2021,
one warrant holder exercised their warrant and received 102,249 Common Stock shares in accordance with the warrant agreement.
On February 12, 2021,
one warrant holder exercised their warrant and received 46,222 Common Stock shares in accordance with the warrant agreement.
On February 16, 2021,
three holders of the Company’s Series D preferred stock converted their shares and were paid the conversion shares, totaling
97,223 Common Stock shares at $1.80 per share.
On February 19, 2021,
the Company paid accumulated dividends to thirty-eight holders of the Company’s Series A, C, D and F preferred stock shares.
260,669 shares of the Company’s Common Stock shares were issued at a price range of $1.80 to $1.81 in accordance with the
underlying certificates of designation.
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 6: SELECTED FINANCIAL DATA
We are a smaller reporting
company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
ITEM 7: MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following
discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the
notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition
and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Readers should
carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report,
the terms “Company”, “we”, “our”, and “us” refer to BioHiTech Global, Inc., a Delaware
corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report contains forward-looking
statements within the meaning of the federal securities laws. These forward-looking statements can be identified by the use of
words such as “believes,” “estimates,” “intends”, “plans”, “could,”
“possibly,” “probably,” anticipates,” “projects,” “expects,” “may,”
“will,” or “should,” “designed to,” “designed for,” or other variations or similar
words or language. The forward-looking statements are based on the current expectations of the Company and are subject to certain
risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results
anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us,
and we assume no obligation to update them.
Company Overview
The Company’s
mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective
technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste,
patented processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary
real-time data analytics tools to reduce food waste generation. These 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,
we believe that 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 we believe 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 Internet of Things (“IoT”) technology platform
to provide its customers with transparency into their waste generation and operational practices. This patented process collects
weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve
efficiency and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software
as a Service”) model that is either bundled in its rental agreements or sold through a separate annual software license.
Prior to the launch of its Revolution Series Digesters, the Company marketed earlier generations of its digesters under the Eco-Safe
brand. These units were larger sized and typically marketed to mid- and large-sized food waste generators, including the Federal
Government. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
HEBioT Resource Recovery Technology
The Company expanded
its technology business in 2016 through the acquisition of certain development rights to a patented Mechanical Biological Treatment
(“MBT”) technology developed by a European engineering firm that relies upon High Efficiency Biological Treatment (“HEBioT”)
to process waste at the municipal or enterprise level. The technology results in a substantial reduction in landfill usage by converting
a significant portion of intake, including organic waste and non-recyclable plastics, into a United States EPA recognized alternative
fuel that can be used as a partial replacement for coal. The Company 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 estimated 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.
Combined Offering
The Company’s
suite of products and services positions it as a 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 a distribution agreement with Altapure, LLC, a technology developer and manufacturer of ultrasonic based disinfecting
products, to distribute its patented line of environmentally-friendly, automated and touchless high-level disinfection sub-micron aerosol
system that we believe provides a safe process and rapid kill of spores, viruses, and vegetative bacteria. The Company commenced live
product demonstrations in June 2020 and recognized its first sale in October 2020.
Results of operations for the year ended
December 31, 2020
compared to the year ended December 31,
2019
|
|
Year ended December 31,
|
|
|
|
Digester and Corporate
|
|
|
HEBioT
|
|
|
Total
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEBioT
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,878,107
|
|
|
$
|
1,111,071
|
|
|
$
|
767,036
|
|
|
$
|
1,878,107
|
|
|
$
|
1,111,071
|
|
|
$
|
767,036
|
|
Rental, services and maintenance
|
|
$
|
1,607,519
|
|
|
$
|
1,946,597
|
|
|
$
|
(339,078
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,607,519
|
|
|
|
1,946,597
|
|
|
|
(339,078
|
)
|
Equipment sales
|
|
|
2,268,647
|
|
|
|
186,780
|
|
|
|
2,081,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,268,647
|
|
|
|
186,780
|
|
|
|
2,081,867
|
|
Management and advisory fees and other
|
|
|
124,380
|
|
|
|
975,000
|
|
|
|
(850,620
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,380
|
|
|
|
975,000
|
|
|
|
(850,620
|
)
|
Total Revenue
|
|
|
4,000,546
|
|
|
|
3,108,377
|
|
|
|
892,169
|
|
|
|
1,878,107
|
|
|
|
1,111,071
|
|
|
|
767,036
|
|
|
|
5,878,653
|
|
|
|
4,219,448
|
|
|
|
1,659,205
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEBioT
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,571,314
|
|
|
|
2,064,139
|
|
|
|
1,507,175
|
|
|
|
3,571,314
|
|
|
|
2,064,139
|
|
|
|
1,507,175
|
|
Rental, services and maintenance
|
|
|
856,751
|
|
|
|
784,291
|
|
|
|
72,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
856,751
|
|
|
|
784,291
|
|
|
|
72,460
|
|
Equipment sales
|
|
|
1,224,185
|
|
|
|
113,063
|
|
|
|
1,111,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,224,185
|
|
|
|
113,063
|
|
|
|
1,111,122
|
|
Selling,
general and administrative
|
|
|
6,387,587
|
|
|
|
6,097,817
|
|
|
|
289,770
|
|
|
|
2,232,542
|
|
|
|
965,874
|
|
|
|
1,266,668
|
|
|
|
8,620,129
|
|
|
|
7,063,691
|
|
|
|
1,556,438
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
975,420
|
|
|
|
-
|
|
|
|
975,420
|
|
|
|
975,420
|
|
|
|
-
|
|
|
|
975,420
|
|
Depreciation and amortization
|
|
|
496,645
|
|
|
|
495,709
|
|
|
|
936
|
|
|
|
1,810,388
|
|
|
|
1,233,769
|
|
|
|
576,619
|
|
|
|
2,307,033
|
|
|
|
1,729,478
|
|
|
|
577,555
|
|
Total operating expenses
|
|
|
8,965,168
|
|
|
|
7,490,880
|
|
|
|
1,474,288
|
|
|
|
8,589,664
|
|
|
|
4,263,782
|
|
|
|
4,325,882
|
|
|
|
17,554,832
|
|
|
|
11,754,662
|
|
|
|
5,800,170
|
|
Loss from operations
|
|
|
(4,964,622
|
)
|
|
|
(4,382,503
|
)
|
|
|
(582,119
|
)
|
|
|
(6,711,557
|
)
|
|
|
(3,152,711
|
)
|
|
|
(3,558,846
|
)
|
|
|
(11,676,179
|
)
|
|
|
(7,535,214
|
)
|
|
|
(4,140,965
|
)
|
Other expenses, net
|
|
|
1,439,865
|
|
|
|
688,621
|
|
|
|
751,244
|
|
|
|
2,625,795
|
|
|
|
2,056,226
|
|
|
|
569,569
|
|
|
|
4,065,660
|
|
|
|
2,744,847
|
|
|
|
1,320,813
|
|
Net loss
|
|
$
|
(6,404,487
|
)
|
|
$
|
(5,071,124
|
)
|
|
$
|
(1,333,363
|
)
|
|
$
|
(9,337,352
|
)
|
|
$
|
(5,208,937
|
)
|
|
$
|
(4,128,415
|
)
|
|
$
|
(15,741,839
|
)
|
|
$
|
(10,280,061
|
)
|
|
$
|
(5,461,778
|
)
|
Digester and Corporate
2020 was a challenging year
that was impacted by COVID-19. As the Company’s digester business has had significant revenues from restaurants, hospitality and
other commercial food waste generators that were impacted by governmental restrictions that are now beginning to be lifted, our historical
business was a challenge. Early in 2020, the Company announced a digester sales contract with Carnival Cruise Lines that was originally
anticipated to commence in the second quarter of 2020, but due to the shutdown of the cruise industry, sales only commenced at the end
of the third quarter of 2020 and have expanded forward from there. Total equipment sales in the third quarter of 2020 amounted to $293,876,
while the sales in the fourth quarter of 2020 increased to $1,651,655, 5.6 times the third quarter amount and greater than each year’s
annual equipment sales since the Company went public in 2015. Overall, the contribution from digester sales, rental, service and maintenance
amounted to $1,795,230 for the year ended December 31, 2020, a $559,207 (45.2%) increase from 2019. This increase in contribution was
offset by the $850,620 decrease in management fees as Gold Medal and the Company wound down the agreement.
Selling, general and administrative
expenses increased to $6,387,587, a $289,770 (4.8%) increase for the year ended December 31, 2020 as compared to 2019. The composition
of the selling, general and administrative expenses are as follows for the years ending December 31:
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Staffing
|
|
$
|
2,610,090
|
|
|
$
|
3,005,045
|
|
|
$
|
(394,955
|
)
|
Stock based Compensation
|
|
|
1,475,961
|
|
|
|
1,083,789
|
|
|
|
392,172
|
|
Professional fees
|
|
|
1,104,062
|
|
|
|
751,523
|
|
|
|
352,539
|
|
Other expenses
|
|
|
459,653
|
|
|
|
392,298
|
|
|
|
67,355
|
|
Other costs
|
|
|
737,821
|
|
|
|
865,162
|
|
|
|
(127,341
|
)
|
Total selling, general and administrative
|
|
$
|
6,387,587
|
|
|
$
|
6,097,817
|
|
|
$
|
289,770
|
|
Staffing expenses decreased to $4,086,052 for the year ended December
31, 2020 and was comprised of $1,475,961 in stock based compensation for the year ended December 31, 2020, as compared to $1,083,789 for
the year ended December 31, 2019. The non-stock based compensation, which also included severance of $225,631 related to re-aligning the
corporate staff, decreased for the year ended December 31, 2020 by $394,955 from 2019.
Professional fees are comprised of the following
for the years ending December 31:
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Accounting
|
|
$
|
387,359
|
|
|
$
|
431,636
|
|
|
$
|
(44,277
|
)
|
Investor relations & banking
|
|
|
334,225
|
|
|
|
163,506
|
|
|
|
170,719
|
|
Legal
|
|
|
245,661
|
|
|
|
173,866
|
|
|
|
71,795
|
|
Marketing
|
|
|
136,817
|
|
|
|
(17,485
|
)
|
|
|
154,302
|
|
Total Professional fees
|
|
$
|
1,104,062
|
|
|
$
|
751,523
|
|
|
$
|
352,539
|
|
Accounting fees decreased
during the year ended December 31, 2020 by $44,277 (10.3%) as compared to the year ended December 31, 2019 as the result of a reduction
in special tax services and reduced complex transactions. Investor relations and banking increased by $170,719 (104.4%) as compared to
the year ended December 31, 2019 due to costs associated with the Altapure distributorship transaction and other investment banking activities.
Legal fees increased by $71,795 (41.3%) during the year ended December 31, 2020 due to capital raising, acquisition, HEBioT siting and
personnel related activities. Marketing fees increased during the year ended December 31, 2020 by $154,302 as compared to the year ended
December 31, 2019 due to an increase in digital optimization of various social media platforms, as well as due to 2019 including a $44,500
reduction in marketing professional fees due to a favorable resolution to a litigation matter that had been expensed to marketing professional
fees prior to 2019.
The loss from operations increased
to $4,964,622, a $582,119 (13.3%) increase primarily to the $850,620 decrease in management fee revenue offset by the $559,207 increase
in contribution from the digester business, decreased by the $289,770 increase in selling general and administrative expenses.
HEBioT Facility
The HEBioT business was also
impacted by COVID-19, but in ways different from the digester business. On the intake side of the business, the creation, transportation
and disposal of municipal solid waste continued, although the primary offtake SRF customer was negatively impacted by the demand for its
product – cement. This resulted in that customer reducing production and closing the facility off and on during the year. This in-turn
resulted in the HEBioT plant not being able to receive incoming municipal waste as there was not adequate secondary sources to deliver
the SRF to. In addition to the customer driven pressures the facility was recovering early in the year from a fire that had halted full
production for an extended period and as a result of turning the plant over to production prior to its commissioning being completed 100%,
there were mechanical and technological failures that also contributed to unplanned down time. The unplanned down times and closures resulted
in an interruption of the normal supply chain deliveries of municipal solid waste. In the second half of 2020, the Company replaced its
contracted management team with another team, who spend much of the second half of 2020 re-commissioning the plant, developing improved
maintenance protocols and improved fire watch procedures to minimize the potential for recurring maintenance and fire related interruptions.
While the plant was generally operational, sometimes at low levels, for much of 2020, the growth in revenues of $767,036 (69.0%) to $1,878,107,
which is well below its operational capacity and as much of the facility is a relatively fixed cost base, combined with: added maintenance
and repair costs relating to the re-commissioning and fire recovery, an impairment charge of $917,420 resulting from claims relating to
the facility, a goodwill impairment charge of $58,000, and a $1,266,668 increase in selling, general and administrative expenses resulting
from increased activities, an increase in insurance costs and a state imposed waste generation tax, and a one-time settlement amounting
to $646,196 with one of its non-controlling investors relating to previous claimed charges and services, the plant sustained an operational
loss of $6,711,557, an increase of over 100%. Net loss was further increased due to a $569,569 increase in other expenses, net, primarily
driven by an increase in interest expense related to having a full year of interest in 2020, while only nine months in 2019 as the plant
was not commissioned until March 31, 2019 and interest prior to commissioning was capitalized.
Consolidated
Total revenue increased by
39.3% ($1,659,205) for the year ended December 31, 2020 due to a $2,081,867 increase in equipment sales that were primarily driven by
digester sales to Carnival Cruise Lines and a $767,036 increase in HEBioT revenues offset by a $339,078 decrease in rental, services and
maintenance that was impacted by COVID-19 and a $850,620 decrease in management fees and other resulting from the wind-down of the executive
services provided to Gold Medal Group.
Total operating expenses before
depreciation and amortization increased by 52.1% ($5,222,615), which were driven by $975,420 impairment expenses relating to the HEBioT
facility and its goodwill and a $646,196 settlement related to HEBioT expenses relating to services previously provided by a non-controlling
investor, and increase in HEBioT direct costs of $1,507,175 resulting from a full year of operations and high maintenance and repairs,
an increase of $910,242 in selling, general and administrative, excluding the $646,196 settlement, ($289,770 from Digester and Corporate
and $620,472 from HEBioT) and an increase in equipment sales costs of $1,111,122 related to the increase in equipment sales that also
resulted in an increase in the contribution margin from 39% in 2019 to 46% in 2020. Depreciation and amortization increased by $577,555
primarily due to the HEBioT facility operating for a full year in 2020, as compared to 9 months in 2019.
The loss from operations increased
by 55.0% ($4,140,965) due to a 13.3% increase at Digester and Corporate and a 112.9% increase at the HEBioT facility.
Other expenses, net
increased 48.1% primarily due to the 2019 amounts including an offsetting gain of $562,617 on the sale of an affiliate and a $569,569
increase at the HEBioT plant due primarily to interest for a full year in 2020, as compared to 9 months in 2019, as the plant was under
construction through March 31, 2019.
For the years ended December
31, 2020 and 2019 there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery
of the tax asset resulting in net operating loss carryforward. As of December 31, 2020 and 2019, the Company had net operating loss carryforwards
of approximately $39,889,000 and $30,385,000, respectively, available to reduce future federal taxes. The federal net operating losses
of approximately $14,266,000, generated in tax years beginning before January 1, 2018, will begin to expire in 2036 if not utilized. The
balance of the net operating losses, approximately $25,623,000, do not expire, and is subject to an 80% taxable income annual limitation.
In addition, as of December 31, 2020 and 2019, the Company had NOL carryforwards of approximately $28,417,000 and $20,105,000 available
to reduce state taxable income that expire through 2040.
Pursuant to Section 382 of
the Internal Revenue Code, or IRC, annual use of the Company’s net operating losses (NOL) carryforwards may be limited or eliminated
in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Thus these carryforwards could be subject
to certain limitations in the event that there is a change in control of the company pursuant to IRC 382, though the Company has not performed
a study to determine if the loss carryforwards are subject to these limitations. If additional changes in ownership occur after year end,
NOL carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule
with a corresponding reduction in the valuation reserve.
Net loss increased by 53.1%
(26.3% at Digester and Corporate and 79.3% at HEBioT).
Liquidity and Capital Resources
The Company currently generates
revenues from sales and rentals of its digesters and related goods and services, and revenues from the HEBioT technologies. The Company's
other known sources of capital are common and common and preferred stock offerings, proceeds from private placements, issuance of notes
payable, convertible notes payable, and investments, loans and advances from related and unrelated parties and cash from future revenues.
We will require
additional financing in order to execute our business expansion and development plans and we may require additional financing in
order to sustain substantial future business operations for an extended period of time. Subsequent to December 31, 2020, the Company
entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc., which provides for up to $25,000,000 in sales of
the Company’s common stock subject to limitations under the S-3 Registration Statement to which the shares may be sold and the
related prospectus supplement, which may be amended, that limits the amount raised to $11,150,000, of which the Company has raised
$7,211,729 in gross proceeds from the sales of 3,416,663 shares of common stock through March 22, 2021. While the Company has a
history of obtaining adequate capital and maintaining liquidity, it is actively soliciting other forms of financing but do not have
any firm commitments for additional financing. Should we not be able to obtain financing when required, in the amounts necessary to
execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to
pursue our strategic plan and may have to reduce the planned future growth and scope of our operations.
Cash
As of December 31, 2020 and
December 31, 2019, the Company had unrestricted cash balances of $2,403,859 and $1,847,526, respectively.
Borrowings and Debt
The table below presents borrowings
as of December 31, 2020 at net carrying amount and at face amount as due at their future maturities.
|
|
(Carrying Amount)
|
|
|
Face Amount Due in:
|
|
|
|
December 31,
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025 and
thereafter
|
|
|
Total
|
|
Line of credit
|
|
$
|
1,498,975
|
|
|
$
|
1,500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
Advance from related party
|
|
|
935,000
|
|
|
|
935,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
935,000
|
|
Notes payable
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Junior note
|
|
|
971,426
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,044,477
|
|
|
|
-
|
|
|
|
1,044,477
|
|
Senior note payable
|
|
|
4,494,424
|
|
|
|
1,875,000
|
|
|
|
2,500,000
|
|
|
|
625,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
West Virginia EDA Bond
|
|
|
31,336,359
|
|
|
|
2,860,000
|
|
|
|
1.175,000
|
|
|
|
1,265,000
|
|
|
|
1,360,000
|
|
|
|
26,340,000
|
|
|
|
33,000,000
|
|
Payroll Protection Program Loan
|
|
|
421,300
|
|
|
|
327,678
|
|
|
|
93,622
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
421,300
|
|
Vehicle loans
|
|
|
8,200
|
|
|
|
4,380
|
|
|
|
3,820
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,200
|
|
Total
|
|
$
|
39,765,684
|
|
|
$
|
7,502,058
|
|
|
$
|
3,872,442
|
|
|
$
|
1,890,000
|
|
|
$
|
2,404,477
|
|
|
$
|
26,340,000
|
|
|
$
|
42,008,977
|
|
Cash Flows
Cash
flows used in operating activities — We used $8,758,207 of cash in operating activities during the year ended December
31, 2020, an increase of $1,623,607 over $7,134,600 of cash used in operating activities during the year ended December 31, 2019. Our
net loss for the year ended December 31, 2020 of $15,741,839 was reduced by $5,869,787 of non-cash operating income and expenses resulting
in $9,872,052 of operational cash usage before changes in operational assets and liabilities, as compared to operational cash usage before
changes in operating assets and liabilities of $7,005,821 for the year ended December 31, 2019. This increase in in usage before changes
in operational assets and liabilities was primarily driven by the increased net loss in 2020.
Cash flows used in investing
activities — We used $1,016,650 of cash in investing activities during the year ended December 31, 2020, a decrease of $1,862,735
from $2,879,385 of cash used in investing activities during the year ended December 31, 2020. The decrease in usage is primarily due to
a $4,887,626 decrease in capex spending offset by a $650,000 investment in East Short Port Ventures in 2020, as compared to proceeds of
$2,250,000 from the sale of an investment in 2019.
Cash flows from financing
activities — Cash flows from financing activities amounted to $11,139,625 during the year ended December 31, 2020, an increase
of $4,792,884 from $6,346,741of cash flows from investing activities during the year ended December 31, 2019. This increase was primarily
due to an increase in cash flows from the issuance of common stock shares of $5,401,923 offset by a $1,400,000 decrease in investments
in subsidiaries by non-controlling interests, supplemented by a $421,300 Payroll Protection Program loan and an increase of advances from
related party of $515,000 in 2020.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates
— The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results
could differ from these estimates. Estimates are used when accounting for items and matters including, but not limited to, valuation
of deferred tax assets, share based compensation, allowance for uncollectible accounts receivable, obsolete, slow moving and excess
inventory, asset valuations, including intangibles, and useful lives and other provisions and contingencies.
Product and Services
Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC 606, Revenue
from Contracts with Customers, which require that we: 1.Identify the contract with a customer; 2. Identify the performance obligations
in the contract; 3. Determine the transaction price of the contract; 4. Allocate the transaction price to the performance obligations
in the contract, and; 5. Recognize revenue when the performance obligations are met or delivered.
When revenue is earned
based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s
performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer
has title and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The
Company primarily receives fixed consideration for sales of products. When revenue is earned on services, such as management advisory
fees and digester maintenance and repair services fees are recognized over the period the services are performed based on service
milestones.
Lease Revenue
Recognition — Rental, service and maintenance revenues relating to the Company’s rental agreements involve
providing use of the Company’s digesters at customer locations, access to our software as a service and preventative maintenance
over the term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs
and obligations underlying the agreements.
The Company selected
the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue from the rental
of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered
into in connection with its digester units qualify as operating leases, for which the Company is the operating lessor. In order
to determine lease classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease
includes any provisions which would indicate sales type lease treatment.
Long-Lived Assets
— The Company assesses its long-lived assets, including definite-lived intangible assets, plant, property and
equipment, which are held and used in our operations for impairment if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The amortization method and estimated period of useful life of definite-lived intangible
assets are reviewed annually, or more frequently if events or changes in circumstances. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets.
The amount of impairment is the excess of the carrying amount over the fair value of such assets.
Income Taxes
— Deferred income taxes are determined based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits
are based on changes to the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax
regulations of the jurisdictions in which it operates, estimates the future taxable income and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax planning and strategies vary, adjustments to the carrying
value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets
based on the “more than likely” criteria.
Financial Instruments,
Convertible Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the existence
of embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial
instrument is required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common
stock purchase warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance
sheet as equity, assets or liabilities based upon the nature of the instruments.
Stock-Based Compensation
— The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation.”
ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured
on the grant date for stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value”
awards such as restricted stock and performance shares, and is estimated using an option-pricing model with traditional inputs
for “appreciation” awards such as stock options and stock appreciation rights.
Recently Issued Accounting Standards
The Company has not implemented any recent
accounting pronouncements during the year ended December 31, 2020.
The Company has not implemented the following
accounting standards:
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.
In March 2020, the FASB issued ASU No.
2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting
for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank
Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective
upon issuance for all entities through December 31, 2022. The Company is currently evaluating the effect the updated standard will
have on its financial position, results of operations or financial statement disclosure.
In August 2020, the FASB issued
ASU No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own
Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible
instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives
because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts
that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as of January 1, 2022 (Early adoption
is permitted effective January 1, 2021). The Company is currently evaluating the effect the updated standard will have on its financial
position, results of operations or financial statement disclosure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting
company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required
by Item 8 appears after the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls
and Procedures
Pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with
the participation of the Company’s management, including the Company’s Chief Executive Officer (the Company’s
principal executive officer) and Chief Financial Officer (the Company’s principal financial and accounting officer), of the
effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that
information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report
on Internal Control Over Financial Reporting
The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our
internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding
the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. The framework used
by management in making that assessment was the criteria set forth in the document entitled “Internal Control - Integrated
Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment,
our management has determined that as of December 31, 2020, the Company’s internal control over financial reporting was not
effective for the purposes for which it is intended and determined there to be a material weakness.
A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
Because of our limited operations,
we have a small number of employees which prohibits a segregation of duties, which results in a material weakness over disclosure controls
and procedures, as well as internal control over financial reporting. During 2020 the Company did not have access to sufficient resources
within the accounting function, which restricted the Company’s ability to gather, analyze and properly review information related
to financial reporting in a timely manner. We expect to add additional resources as we grow and expand our overall operations. However,
there can be no assurance that our operations will expand.
Changes in Internal Controls Over
Financial Reporting
There have not been
any changes in our internal control over financial reporting during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
Note 22 includes supplemental cash flow information,
non-cash investing and financing activities and changes in operating assets and liabilities.
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 1. Basis of Presentation and Going
Concern
Nature of Operations - BioHiTech
Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned and 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 and more recently in the United States intermittent increases in cases reported, as well as those from new strains of
the virus. Vaccines developed for the initial strain of the virus have been released and are being distributed. The Company continues
to monitor the near term and longer term impacts of COVID-19 and the related business and travel restrictions and other changes
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 nature of the pandemic,
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.
Basis of Presentation - The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiaries
and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
All intercompany transactions have been eliminated in consolidation. Under Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) 280, segment reporting, the Company reports as a single segment company.
As of December 31, 2020 and 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%). As each of these subsidiaries operate as environmental-based
service companies, we did not deem segment reporting necessary.
Going Concern and Liquidity -
For the year ended December 31, 2020, the Company had a consolidated net loss of $15,741,839, incurred a consolidated loss from
operations of $11,676,179 and used net cash in consolidated operating activities of $8,758,207. As of December 31, 2020,
consolidated total stockholders’ equity amounted to $3,454,624, consolidated stockholders’ equity attributable to parent
amounted to $2,313,958, and the Company had a consolidated working capital deficit of $11,607,510. While the Company had not met
certain of its senior secured note’s financial covenants as of December 31, 2020, the Company had favorably renegotiated those
covenants during 2020 and has received a waiver for such non-compliance through December 31, 2020. 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 note amounting to $4,494,424 has been classified as
current debt. The Company does not yet have a history of financial profitability. In March and April of 2020 the Company raised
$1,560,450 through a private convertible preferred stock offering and on May 13, 2020 one of the Company’s subsidiaries was
funded $421,300 through the Paycheck Protection Program. On July 27, 2020 the Company used its Shelf Registration on Form S-3 to
raise gross proceeds of $8,235,500 through an underwritten public offering of 4,550,000 common shares at $1.81 per share. On August
11, 2020 the underwriter provided notice that they would be exercising their over-allotment provision of the Underwriting Agreement
to purchase an additional 682,500 shares of the Company’s common stock at $1.81 per share for a gross purchase price of
$1,235,325. The net proceeds to the Company of the July 27, 2020 and August 11, 2020 offerings, after underwriter’s commission
and other costs amounted to $8,437,480. Subsequent to December 31, 2020, the Company entered into an At Market Issuance Sales
Agreement with B. Riley Securities, Inc., which provides for up to $25,000,000 in sales of the Company’s common stock subject
to limitations under the S-3 Registration Statement to which the shares may be sold and the related prospectus supplement, which may
be amended, that limits the amount raised to $11,150,000, of which the Company has raised $7,211,729 in gross proceeds from the sale
of 3,416,663 shares of common stock through March 22, 2021. There is no assurance that the Company will
continue 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.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 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
Recent Accounting Pronouncements
— The Company has not implemented any recent accounting pronouncements during the year ended December 31, 2020.
The Company has not implemented the following
accounting standards:
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.
In March 2020, the FASB issued ASU No.
2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting
for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank
Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective
upon issuance for all entities through December 31, 2022. The Company is currently evaluating the effect the updated standard will
have on its financial position, results of operations or financial statement disclosure.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
In August 2020, the FASB issued ASU No.
2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own
Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible
instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for
as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments
and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as of
January 1, 2022 (Early adoption is permitted effective January 1, 2021). The Company is currently evaluating the effect the updated
standard will have on its financial position, results of operations or financial statement disclosure.
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.
Use of Estimates —
The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results
could differ from these estimates. Estimates are used when accounting for items and matters including, but not limited to, valuation
of deferred tax assets, share based compensation, allowance for uncollectible accounts receivable, obsolete, slow moving and excess
inventory, asset valuations, including intangibles, and useful lives and other provisions and contingencies.
Foreign Operations —
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates existing at the
respective balance sheet dates. Income and expense items are translated at the average rates during the respective periods. Translation
adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income (loss)
while transaction gains and losses are recorded in net earnings (loss). Deferred taxes are not provided on cumulative foreign currency
translation adjustments as the Company presently expects foreign earnings to be permanently reinvested.
The Company pays Value Added Tax (“VAT”)
or similar taxes (“input VAT”) within the normal course of its business in in the United Kingdom on merchandise and/or
services it acquires. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for
merchandise and/or services it sells. If the output VAT exceeds the input VAT, then the difference is remitted to the government,
usually on a monthly basis. If the input VAT exceeds the output VAT, this creates a VAT receivable. The Company either requests
a refund of this VAT receivable or applies the balance to expected future VAT payables.
Product
and Services Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC
606, Revenue from Contracts with Customers, which require that we:
1. Identify the contract with a customer;
2. Identify the performance obligations
in the contract;
3. Determine the transaction price of the
contract;
4. Allocate the transaction price to the
performance obligations in the contract;
5. Recognize revenue when the performance
obligations are met or delivered.
When revenue is earned based on product
sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s performance
obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title
and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily
receives fixed consideration for sales of products.
When revenue is earned based on receipt
of disposal waste, the Company’s performance obligations are satisfied at the point in time when disposal waste products
are received from the customer, which is when the Company has title and control. Therefore, the Company’s contracts have
a single performance obligation (receipt of disposal waste).
When revenue is earned on services, such
as management advisory fees and digester maintenance and repair services fees are recognized over the period the services are performed
based on service milestones.
The Company records taxes collected from
customers and remitted to governmental authorities on a net basis.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Lease Revenue Recognition
— Rental, service and maintenance revenues relating to the Company’s rental agreements involve providing use of
the Company’s digesters at customer locations, access to our software as a service and preventative maintenance over the
term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs and obligations
underlying the agreements.
The Company selected the practical expedient
not to separate non-lease components from lease components. The Company recognizes revenue from the rental of the digester units
ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection
with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease
classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease includes any of
the following provisions which would indicate sales type lease treatment:
|
·
|
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term,
|
|
·
|
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise,
|
|
·
|
The Lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease,
|
|
·
|
The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or
|
|
·
|
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
|
Restricted Cash — Includes
Restricted cash that is restricted as to its use, as it is held by a trustee in accordance with the West Virginia Economic Development
Authority bond agreement. These amounts are held by the Company’s trustee in various bank accounts segregated for specific
uses related to the construction and operation of the resource recovery facility. Amounts required to meet current operations of
the Company have been classified as current in the accompanying consolidated balance sheets.
Buildings, Equipment, Fixtures and
Vehicles, Including Equipment Leased to Others — Buildings, equipment, fixtures and vehicles, including equipment
leased to others, is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets, as follows:
|
|
Years
|
|
HEBioT facility
|
|
|
30
|
|
HEBiot equipment
|
|
|
15
|
|
Equipment leased to others
|
|
|
5 - 7
|
|
Computer software and hardware
|
|
|
3 - 5
|
|
Vehicles
|
|
|
5
|
|
Furniture and fixtures
|
|
|
7 - 15
|
|
The Company’s High Efficiency Biological
Treatment (“HEBioT”) facility located in West Virginia was under construction through March 31, 2019. Included
in the capitalized costs are construction, legal, leasehold improvements, and interest.
MBT Facility Development Costs —
The Company defers costs relating to on-going Mechanical Biological Treatment (“MBT”) facility development costs commencing
upon the Company’s determination that the project will be completed. These site specific costs generally include external
costs generally relating to legal, engineering and other costs relating to the acquisitions of land, permits and licenses. Upon
commencement of construction, to the extent that costs relate to the facility, they are transferred to the construction in progress.
Investments in Unconsolidated Entities
—The Company utilizes the equity method of accounting for investments in companies if the investment provides the
ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s
proportionate share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated
equity basis investments. In circumstances where the Company does not have the ability to exercise significant influence or control
over the operating and financial policies of the investee, the investment is carried at cost, less impairment, adjusted for subsequent
changes to estimated fair value up to the original cost.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Long-Lived Assets —
The Company assesses its long-lived assets, including definite-lived intangible assets, plant, property and equipment, which are held
and used in our operations for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The amortization method and estimated period of useful life of definite-lived intangible assets are reviewed annually,
or more frequently if events or changes in circumstances. We recognize impairment when the estimated undiscounted cash flow generated
by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the
fair value of such assets.
Goodwill — The Company
records as goodwill the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree,
and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the
net identifiable assets acquired. The Company does not amortize goodwill; however, annually, or whenever there is an indication
that goodwill may be impaired, qualitative factors are evaluated to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying amount. The Company’s test of goodwill impairment includes assessing
qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and
entity specific events, as well as overall financial performance. Annual goodwill impairment analysis may include, but is not limited
to, the discounted cash flow method.
Shipping Costs — Shipping
and handling charges are recorded gross in both the revenue and in cost of revenue and amounted to $94,152 and $96,481 for the
years ended December 31, 2020 and 2019, respectively.
Advertising — The Company
expenses advertising costs as incurred. Advertising expense amounted to $178,529 and $56,742 for the years ended December 31,
2020 and 2019, respectively.
Research and Development —
All research and development costs incurred by the Company are expensed as incurred.
Deferred Financing Costs —
Deferred financing costs relating to issued debt are included as a reduction to the applicable debt and amortized as interest expense
over the term of the related debt instruments.
Financial Instruments, Convertible
Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the existence of embedded
conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial instrument is
required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common stock purchase
warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance sheet as equity,
assets or liabilities based upon the nature of the instruments.
Comprehensive Income (Loss) —
Comprehensive income (loss) for the Company consists of net earnings (loss) and foreign currency translation.
Income Taxes — Deferred
income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases
of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to
the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions
in which it operates, estimates the future taxable income and available tax planning strategies. If tax regulations, operating
results or the ability to implement tax planning and strategies vary, adjustments to the carrying value of deferred tax assets
and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more than
likely” criteria.
The Company recognizes the financial statement
benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements
is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.
Stock-Based Compensation —
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation.”
ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured
on the grant date for stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value”
awards such as restricted stock and performance shares, which is estimated using an option-pricing model with traditional inputs
for “appreciation” awards such as stock options and stock appreciation rights.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Costs equal to these fair values are recognized
as expense ratably over the requisite service period based on the number of awards that are expected to vest, or in the period
of the grant for awards that vest immediately and have no future service condition. For awards that vest over time, cumulative
adjustments in later periods are recorded to the extent actual forfeitures differ from the Company’s initial estimates; previously
recognized compensation cost is reversed if the service or performance conditions are not satisfied and the award is forfeited.
The expense resulting from share-based payments is recorded in the accompanying consolidated statements of operations based upon
the classification of the underlying employees or service providers with a corresponding increase to additional paid in capital.
Subsequent modifications to outstanding
awards result in incremental cost if the fair value is increased as a result of the modification. Thus, a value-for-value stock
option repricing or exchange of awards in conjunction with an equity restructuring does not result in additional compensation cost.
Loss per Share — The
Company computes basic loss per share using the weighted-average number of shares of common stock outstanding and diluted loss
per share, while the diluted loss per share also includes the effects of dilutive instruments using the “treasury method.”
Dividends attributable to preferred stock, whether declared or accrued, and deemed dividends on down round feature are deducted
from income attributable to common shareholders for purposes of earnings per share.
The Company’s potential dilutive
instruments include convertible preferred stock, options, convertible debt and warrants. These instruments have not been considered
in the calculation of diluted loss per share as they are anti-dilutive for the reported periods.
Note 3. Accounts Receivable, net
Accounts receivable consists of the following
as of December 31:
|
|
2020
|
|
|
2019
|
|
Accounts receivable
|
|
$
|
1,725,506
|
|
|
$
|
2,325,959
|
|
Less: allowance for doubtful accounts receivable
|
|
|
(151,459
|
)
|
|
|
(170,038
|
)
|
|
|
$
|
1,574,047
|
|
|
$
|
2,155,921
|
|
Allowance for doubtful accounts activities
are as follows for the years ended December 31:
|
|
2020
|
|
|
2019
|
|
Balance at beginning of year
|
|
$
|
(170,038
|
)
|
|
$
|
(110,038
|
)
|
Provision for doubtful accounts
|
|
|
(146,916
|
)
|
|
|
(103,499
|
)
|
Amounts written off
|
|
|
165,495
|
|
|
|
43,499
|
|
Balance at end of year
|
|
$
|
(151,459
|
)
|
|
$
|
(170,038
|
)
|
Note 4. Inventory
Inventory, comprised of finished goods
and parts or assemblies, consist of the following as of December 31:
|
|
2020
|
|
|
2019
|
|
Equipment
|
|
$
|
175,278
|
|
|
$
|
119,996
|
|
Parts and assemblies
|
|
|
519,832
|
|
|
|
347,788
|
|
|
|
$
|
695,110
|
|
|
$
|
467,784
|
|
Note 5. Equipment on Operating Leases,
net
Equipment on operating leases consist of the following
as of December 31:
|
|
2020
|
|
|
2019
|
|
Leased equipment
|
|
$
|
3,066,359
|
|
|
$
|
3,138,951
|
|
Less: accumulated depreciation
|
|
|
(1,754,604
|
)
|
|
|
(1,413,953
|
)
|
Total Equipment on Operating Leases, net
|
|
$
|
1,311,755
|
|
|
$
|
1,724,998
|
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
The Company is a lessor of digester units
under non-cancellable operating lease agreements expiring through January 2026. These leases generally have terms of three to five
years and do not contain stated extension periods or options for the lessee to purchase the underlying assets. At the end of the
leases, the lessee may enter into a new lease or return the asset, which would be available to the Company for releasing.
During the years ended December 31, 2020
and 2019, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $1,353,263 and
$1,483,852, respectively. During the years ended December 31, 2020 and 2019, depreciation expense amounted to $462,033 and $431,833,
respectively.
The minimum future estimated contractual
payments to be received under these leases as of December 31, 2020 is as follows:
2021
|
|
|
$
|
1,129,748
|
|
2022
|
|
|
|
832,699
|
|
2023
|
|
|
|
515,375
|
|
2024
|
|
|
|
226,663
|
|
2025 and thereafter
|
|
|
|
41,582
|
|
|
|
|
$
|
2,746,067
|
|
Note 6. HEBioT facility, equipment,
fixtures and vehicles, net
HEBioT facility, equipment, fixtures and vehicles,
net consist of the following as of December 31:
|
|
2020
|
|
|
2019
|
|
HEBioT facility
|
|
$
|
31,172,856
|
|
|
$
|
31,142,974
|
|
HEBioT equipment
|
|
|
7,579,059
|
|
|
|
7,388,896
|
|
Computer software and hardware
|
|
|
115,374
|
|
|
|
112,629
|
|
Furniture and fixtures
|
|
|
48,196
|
|
|
|
48,196
|
|
Vehicles
|
|
|
50,319
|
|
|
|
50,319
|
|
|
|
|
38,965,804
|
|
|
|
38,743,014
|
|
Less: accumulated depreciation and amortization
|
|
|
(3,019,579
|
)
|
|
|
(1,321,681
|
)
|
Total HEBioT facility, equipment, fixtures and vehicles, net
|
|
$
|
35,946,225
|
|
|
$
|
37,421,333
|
|
Note 7. MBT Facility Development and
License Costs
MBT Facility Development and License Costs consist
of the following as of December 31:
|
|
2020
|
|
|
2019
|
|
MBT Projects
|
|
|
|
|
|
|
|
|
Rensselaer, NY - Survey, engineering and legal
|
|
$
|
383,771
|
|
|
$
|
235,229
|
|
|
|
|
|
|
|
|
|
|
Technology Licenses
|
|
|
|
|
|
|
|
|
Future site
|
|
|
6,019,200
|
|
|
|
6,019,200
|
|
Martinsburg, West Virginia, net of $220,500 and $94,500 of amortization as of December 31, 2020 and 2019
|
|
|
1,669,500
|
|
|
|
1,795,500
|
|
Total Technology Licenses
|
|
|
7,688,700
|
|
|
|
7,814,700
|
|
Total MBT Facility Development and License Costs
|
|
$
|
8,072,471
|
|
|
$
|
8,049,929
|
|
MBT Facility Development Costs -
During 2018, the Company commenced initial development of a project in Rensselaer, NY. During 2020, the Company has received
local permits and has filed the required state permit applications, which are underwent review by the New York State Department
of Environmental Conservation (“NYSDEC”). On August 10, 2020 the NYSDEC, by letter, informed the Company that the application
had been initially denied. The Company disagrees with this decision, and as is part of the process, has exercised its right to
appeal the NYSDEC findings.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
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 years ending December 31, 2020 and 2019 amortization amounted
to $126,000 and $94,500, respectively. 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 March 31, 2019.
Note 8. Investment in East Shore Port
Ventures LLC
On October 19, 2020, the Company entered
into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to purchase 49% of newly-issued membership
interests (the “Interests”) of East Shore Port Ventures, LLC, a New York limited liability company (“East Shore”).
Pursuant to the Purchase Agreement, the Company purchased the Interests in consideration for $650,000 to East Shore and warrants
(the “Warrants”) to purchase an aggregate of 100,000 shares of the Company’s common stock, par value $0.0001
per share issued to East Shore’s existing members. The five-year warrants were valued at $61,302 utilizing the Black Scholes
Model utilizing a risk free rate of 0.32%, volatility of 55.17% and a dividend rate of 0%. The value of the warrants has been included
in the carrying cost of the investment.
Note 9. Intangibles Assets, net
Other assets, as of December 31, 2020
and 2019, include net digester distribution agreements amounting to $20,199 and $40,399, respectively. During the years ended December 31,
2020 and 2019, amortization expense, included in depreciation and amortization of operating expenses, amounted to $21,225 and $43,533,
respectively. The agreements expire in 2021.
Note 10. Goodwill
As of December 31, 2019, the Company has
goodwill of $58,000 resulting from the Entsorga West Virginia, LLC acquisition on December 14, 2018. During the year ended December
31, 2020, the $58,000 goodwill was determined to be impaired and written down to zero.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 11. 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:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Total
|
|
|
Related
Party
|
|
|
Total
|
|
|
Related
Party
|
|
Line of credit demand note
|
|
$
|
1,498,975
|
|
|
$
|
-
|
|
|
$
|
1,479,848
|
|
|
$
|
-
|
|
Senior secured promissory note
|
|
|
4,494,424
|
|
|
|
-
|
|
|
|
4,160,490
|
|
|
|
-
|
|
Junior promissory note
|
|
|
971,426
|
|
|
|
971,426
|
|
|
|
949,434
|
|
|
|
949,434
|
|
Note payable under Payroll Protection Program
|
|
|
421,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note payable
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
Advances from related parties (See Note 20 Related Parties)
|
|
|
935,000
|
|
|
|
935,000
|
|
|
|
210,000
|
|
|
|
210,000
|
|
Long term debt - current and long-term portion
|
|
|
8,200
|
|
|
|
-
|
|
|
|
12,806
|
|
|
|
-
|
|
Line
of Credit Demand Note — On February 2, 2018, the Company’s subsidiary, BHT Financial, LLC (“BHTF”)
entered into a new Credit Agreement (the “Credit Agreement”) and a Master Revolving Note (the “Note”) with Comerica
that provides for a facility of up to $1,000,000, secured by the assets of BHTF. The Credit Agreement and Note were amended on November
9, 2018 to increase the facility to $1,500,000. The Note does not have any financial covenants, carries interest at the rate of 3%, plus
either the Comerica prime rate or a LIBOR-based rate, (5.0% and 5.71% as of December 31, 2020 and December 31, 2019, respectively) and
initially matured on January 1, 2020, which was subsequently extended to March 31, 2020 and June 30, 2020. The note was amended into
a Master revolving note due on June 30, 2020, which is due on demand. The line of credit is secured by the assets of BHTF and is personally
guaranteed by the Frank E. Celli, Chairman of the Board and James C. Chambers, a director.
As of December 31, 2020, the $1,500,000
balance outstanding is presented net of $2,050 in issuance costs associated with the financing, net of $1,025 in amortization.
As of December 31, 2019, the $1,500,000 balance outstanding is presented net of $34,948 in issuance costs associated with
the financing, net of $14,796 in amortization. Amortization is calculated on the effective interest method, which is included in
interest expense in the accompanying consolidated statements of operations and comprehensive loss.
Michaelson Senior Secured Term Promissory
Financing – On February 2, 2018, the Company and several of the Company’s wholly-owned subsidiaries entered
into and consummated a Note Purchase and Security Agreement (the “Purchase Agreement”) with Michaelson Capital Special
Finance Fund II, L.P. (“ MCSFF ”) to issue a senior secured term promissory note in the principal amount of $5,000,000
(the “Note”). The Note is not convertible and accrues interest at the rate of 10.25% per annum. The Note provides for
certain financial covenants that were not met as of December 31, 2020 and December 31, 2019 and a waiver of such was granted
by MCSFF. The Note is to be repaid in eight, equal, quarterly installments of $625,000 commencing on May 15, 2021 and ending
February 2, 2023 (the “Maturity Date”). Additionally, the Note is secured by a general security interest in all
of the Company’s assets as well all of the assets of the Company’s subsidiaries, excluding those of Entsorga West Virginia
LLC which is subject to superior security interests relating to the Entsorga West Virginia LLC WVEDA bonds. Further, the Company’s
Chief Executive Officer, guaranteed a portion of the Registrant’s obligations to MCSFF. In connection with the issuance of
the Note, the Company issued MCSFF 320,000 shares of the Registrant’s common stock, par value $0.0001 per share. As of December 31,
2020 and 2019, the carrying balance of the Note is comprised of $5,000,000 face value, less $1,212,121 allocated to the common
stock issued based upon the market value on the date issued, less associated amortization of $769,322 and $485,878, respectively,
on the stock discount, less deferred financing costs of $211,187, less $148,410 and $97,920, respectively, of associated deferred
financing cost amortization. All amortization is computed on the effective interest method and included in interest expense in
the accompanying consolidated statements of operations and comprehensive loss.
Note Payable under Payroll Protection
Program — On May 13, 2020 BioHiTech America, LLC, a subsidiary of the Company, was funded $421,300 under the Payroll
Protection Program (“PPP”) through Comerica Bank. The PPP was established as part of the Coronavirus Aid, Relief and
Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP Loan
is non-collateralized and has no guarantees, has a two-year term and bears interest at an annual interest rate of 1%. Monthly principal
and interest payments are deferred for six months, and the maturity date is May 13, 2022. Under the terms of the CARES Act, PPP
loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness
will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of
mortgage interest, rent, and utilities. However, no assurance is provided that forgiveness for any portion of the PPP Loan will
be obtained.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Junior
Promissory Note – On February 2, 2018, the Company entered into a Securities Exchange and Note Purchase Agreement
(the “Exchange Agreement”) with Frank E. Celli, the Company’s Chairman of the Board, whereby Celli exchanged $4,500,000
in a note receivable from the Company and $544,777 in advances made to the Company for $4,000,000 of the Registrant’s Series C
Convertible Preferred Stock, par value $0.0001 (the “Series C Preferred Stock”) and a junior promissory note (the “Junior
Note”) amounting to $1,044,477, which is carried net of discounts amounting to $135,823, less associated amortization of $62,772
and $40,780 as of December 31, 2020 and 2019, respectively. The Junior Note, which is subordinated to the senior secured note, is not
convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024.
Note Payable — As of
December 31, 2020 and 2019, the $100,000 note, which was amended on July 27, 2020 to extend its maturity to January 1, 2022,
carries interest at 10%.
Long Term Debt — As
of December 31, 2020, the loan is collateralized by a service truck with interest of 4.99% with amortizing principal payment requirements
through 2022, respectively. As of December 31, 2019, long term debt was comprised of two loan, with one having matured in 2020.
Contractual Maturities of Line of
Credit, Promissory Notes Payable, Notes Payable, Advances, and Long-Term Debts — As of December 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
|
|
2021
|
|
|
$
|
332,058
|
|
|
$
|
4,310,000
|
|
|
$
|
4,642,058
|
|
2022
|
|
|
|
97,442
|
|
|
|
2,600,000
|
|
|
|
2,697,442
|
|
2023
|
|
|
|
-
|
|
|
|
625,000
|
|
|
|
625,000
|
|
2024
|
|
|
|
-
|
|
|
|
1,044,477
|
|
|
|
1,044,477
|
|
2025 and thereafter
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
$
|
429,500
|
|
|
$
|
8,579,477
|
|
|
$
|
9,008,977
|
|
Note 12. 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.
During 2018, the 2016 Indenture Trust and
Loan Agreement were amended and restated effective November 1, 2018. These amendments provided for a third series of bonds
amounting to $8,000,000 bearing interest at 8.75% per annum with a maturity date of February 1, 2036, with special event triggered
pre-payment requirements. This series was issued at par. The 2036 series is payable with interest-only payments through February 1,
2020 then annual payments of principal and semi-annual payments of interest through maturity. Repayment is by way of sinking fund.
The outstanding balance of the WVEDA Bonds
as of December 31, 2020 and 2019 is $33,000,000, which is presented net of unamortized debt issuance costs amounting to $2,207,759
as of December 31, 2020 and 2019, less associated amortization of $544,118 and $415,185 as of December 31, 2020 and 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 December 31, 2020 and 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 2021 and 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 1, 2022.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
The future sinking fund payments by the Borrower as of December
31, 2020 are as follow:
Year Ending December 31,
|
|
2016 Issue
2026 Series
|
|
|
2016 Issue
2036 Series
|
|
|
2018 Issue
2036 Series
|
|
|
Total
|
|
2021
|
|
$
|
2,375,000
|
|
|
$
|
-
|
|
|
$
|
485,000
|
|
|
$
|
2,860,000
|
|
2022
|
|
|
900,000
|
|
|
|
-
|
|
|
|
275,000
|
|
|
|
1,175,000
|
|
2023
|
|
|
965,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
1,265,000
|
|
2024
|
|
|
1,030,000
|
|
|
|
-
|
|
|
|
330,000
|
|
|
|
1,360,000
|
|
2025 and thereafter
|
|
|
2,265,000
|
|
|
|
17,465,000
|
|
|
|
6,610,000
|
|
|
|
26,340,000
|
|
Total
|
|
$
|
7,535,000
|
|
|
$
|
17,465,000
|
|
|
$
|
8,000,000
|
|
|
$
|
33,000,000
|
|
Note 13. Equity and Equity Transactions
The Company has 50,000,000 shares of its
$0.0001 par common stock and 10,000,000 shares of blank check preferred stock authorized by its shareholders. As of December 31,
2020 and 2019, 23,354,130 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 $1,668,373 in accumulated, but undeclared
preferential dividends as of December 31, 2020, as follows:
|
|
Designated
|
|
|
Par
|
|
|
Stated
|
|
|
Shares Outstanding
|
|
Designation
|
|
Shares
|
|
|
Value
|
|
|
Value
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Series A Convertible Preferred Stock
|
|
|
333,401
|
|
|
$
|
0.0001
|
|
|
$
|
5.00
|
|
|
|
125,312
|
|
|
|
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
|
|
|
|
17,350
|
|
|
|
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
|
|
|
|
13,611
|
|
|
|
-
|
|
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.
Common Stock Underwritten Offering
— On July 27, 2020, BioHiTech Global, Inc. entered into an underwriting agreement (the “Underwriting Agreement”)
with Maxim Group LLC (“Maxim”), as representative of certain underwriters (the “Underwriters”). Pursuant
to the terms and conditions of the Underwriting Agreement, The Company agreed to issue and sell 4,550,000 shares of our common
stock, par value $0.0001 per share (the “Underwritten Shares”), at a price to the public of $1.81 per share. Pursuant
to the Underwriting Agreement, the Company also granted the underwriter an option to purchase up to an additional 682,500 shares
of the Company’s common stock (together with the Underwritten Shares, the “Shares”) within 45 days after the
date of the Underwriting Agreement to cover over-allotments, if any.
The offering was consummated on July 29,
2020. The Underwriters received underwriting commissions of 9% for $741,195, plus reimbursement of counsel fees in the amount of
$65,000. Maxim acted as the lead book-running manager for the offering and Spartan Capital Securities, LLC acted as co-book-runner
for the offering. In addition, the Company agreed to issue warrants to purchase 318,666 shares of our Common Stock to the Underwriters
(the “Underwriters’ Warrants”), as a portion of the underwriting compensation payable to the underwriters in
connection with this offering. The Underwriters’ Warrants are exercisable for a period commencing 180 days following the
closing of the offering and ending on the fifth anniversary of the closing date at an exercise price equal to $1.991 per share,
or 110% of the offering price of the common stock. The Company agreed to grant the Underwriters piggy-back registration rights
for five (5) years in the event we file certain registration statements for the registration of other shares of Common Stock.
On August 11, 2020 the underwriter provided
notice that they would be exercising their over-allotment provision of the Underwriting Agreement to purchase an additional 682,500
shares of the Company’s common stock at $1.81 per share for a gross purchase price of $1,235,325. The net proceeds to the
Company, after underwriter’s commission and before other costs amount $1,124,146. This transaction was consummated on August
13, 2020.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
The net proceeds to the Company from the
offering were:
Gross proceeds at $1.81 per share
|
|
$
|
9,470,825
|
|
Less:
|
|
|
|
|
Underwriters’ fees
|
|
|
(852,374
|
)
|
Legal fees
|
|
|
(139,033
|
)
|
Accounting fees
|
|
|
(30,900
|
)
|
Filing and other fees
|
|
|
(11,038
|
)
|
Net proceeds to the Company
|
|
$
|
8,437,480
|
|
Other Common Stock Activity —
Other than conversions of preferred stock and preferred stock dividends and the drawdown of vested restricted stock units and the
exercise of warrants during the year ended December 31, 2020, the Company issued 141,259 shares of common stock, at market, to
vendors and creditors in place of cash payments as part of its cash conservation practices resulting from the COVID-19 outbreak.
Series A Redeemable Convertible Preferred
Stock — Due to the existence of redemption features, the stock is accounted for as temporary equity (accounting treatment
similar to debt). Amortization of discounts and deferred issuance costs have been reflected as interest expense in the accompanying
consolidated statements of operations and comprehensive loss.
On March 30, 2018, the Company and
holders of the Series A Convertible Preferred Stock (“Series A Preferred”) amended and restated to provide
the holders with the option to redeem their shares anytime following the first anniversary if the Company consummates an equity
financing in an amount equal to the stated value of the Series A Preferred, plus any and all accrued dividends. In addition,
the dividend on the Series A Preferred was amended to nine percent (9%), the first dividend payment date was amended to June 30,
2018 and the conversion price, by the terms of the Certificate of Designation, was set at $4.50 per share of the Company’s
common stock. As of December 31, 2020 the reset conversion rate was $1.80 per share of the Company’s common stock. In addition,
the Company agreed to issue the holders, within 5 business days after the first day of trading of the Company’s common stock
on an Eligible Market, warrants to purchase up to 180,000 shares of Common Stock at an exercise price of $5.00 per share and expiring
in four (4) years on a pro-rata basis to the holders of record of the Series A Preferred Shares at the time of such issuance.
The warrants for 180,000 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices
of $4.05, an exercise price of $5.00, a standard deviation (volatility) of 41.8%, a risk-free interest rate of 2.9% with a term
of 4 years. The resulting $246,319 value has been recognized as other interest expense and additional paid in capital.
In connection with the amendment in 2018,
the Company redeemed $317,000 in stated value shares at stated value, which resulted in the Company reflecting an additional interest
expense of $157,455 to write off unamortized discounts and costs relating to the shares redeemed.
On September 9, 2019 the holder of
Series A Preferred Stock converted 18,000 shares of Series A preferred stock for 50,000 shares of the Company’s
$0.0001 par common stock.
On September 26, 2019, November 4,
2019, November 14, 2019, December 2, 2019 and December 16, 2019 the Company paid $50,000, $50,000, $50,000, $35,000
and $15,000 of Series A preferred stock accrued dividend through the issuance of 27,778, 27,778, 27,778, 19,444 and 8,333
shares of the Company’s $0.0001 par common stock, respectively.
As of December 31, 2019 the outstanding
shares of Series A Preferred Stock amounted to 145,312 with a stated value of $726,553 and the accrued dividends amounted
to $56,886.
On July 30, 2020 a Series A Redeemable
Convertible Preferred Stock (“Sr. A PS”) holder converted, in accordance with the terms of the Sr. A PS, 20,000 shares
of Sr. A PS into 55,556 shares of the Company’s common stock. In connection with the conversion, the holder was also paid
accrued dividends on the Sr. A PS through the conversion date amounting to $7,350 through the issuance of 4,083 shares of the Company’s
common stock.
As of December 31, 2020 the outstanding
shares of Series A Preferred Stock amounted to 125,312 with a stated value of $626,553 and the accrued dividends amounted
to $86,149.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Series C Convertible Preferred
Stock — The Series C Preferred Stock has a stated value of $10.00 per share and is convertible, at the holder’s
option, into the Registrant’s common stock, par $0.0001, at an initial conversion price of $4.75 per share. As of December
31, 2020 the reset conversion rate was $1.80 per share of the Company’s common stock. The Series C Preferred Stock is
non-redeemable, has voting rights together with the common stock, par $0.0001, at the rate of 4 votes to 1 and accrues dividends
at 10.25% of the stated value outstanding. As of December 31, 2020 and 2019, the Series C Preferred Stock is comprised
of $4,275,000 face value, less $556,283 warrant valuation and beneficial conversion features of $668,575 reflected in additional
paid in capital.
On February 2, 2018, in connection with and as
a condition precedent to the closing of the MCSFF Note, the Company entered into a Securities Exchange and Note Purchase Agreement (the
“Exchange Agreement”) with Frank E. Celli, the Company’s Chairman of the Board, whereby Celli exchanged $4,500,000
in a note receivable and $544,777 in advances made to the Company for $4,000,000 of the Company’s Series C Preferred Stock and
a junior promissory note (the “Junior Note”). The Junior Note, which is subordinated to the MCSFF Note, is not convertible,
accrues interest at the rate of 10.25% per annum and matures on February 2, 2024. In connection with this transaction, the Registrant
also issued Celli warrants to purchase 421,053 shares of Common Stock, initially exercisable at $5.50 per share which expire in five
(5) years. The warrants for 421,053 shares of common stock were valued utilizing the Black Scholes modelling technique utilizing stock
price of $4.95, an exercise price of $5.50, a standard deviation (volatility) of 40.48%, a risk-free interest rate of 2.95% based on
the date of issue, with a term of 5 years.
On March 23, 2018, the Company entered into a
Securities Exchange Agreement (the “Exchange Agreement”) with Frank J. Celli, the father of the Company’s Chairman
of the Board, whereby Frank J. Celli exchanged $275,000 in a note receivable from the Company for $275,000 of the Company’s Series
C Preferred Stock. In connection with this transaction, the Registrant also issued Frank J. Celli warrants to purchase 28,948 shares
of Common Stock, initially exercisable at $5.50 per share which expire in five (5) years. The warrants for 28,948 shares of common stock
were valued utilizing the Black Scholes modelling technique utilizing stock price of $4.05, an exercise price of $5.50, a standard deviation
(volatility) of 41.77%, a risk-free interest rate of 2.91% based on the date of issue, with a term of 5 years.
Series D Convertible Preferred Stock
— On February 11, 2019 the Company filed a Certificate of Designation for 20,000 shares of Series D Convertible
Preferred Stock that was amended on May 1, 2019 (“Sr. D CPS”). The Sr. D CPS is initially convertible into shares
of the Company’s common stock at the price of $3.50 per share based on the Sr. D CPS’s stated value being converted.
Each share of the Sr. D CPS has a stated value of $100 and has dividends at the rate of 9% payable annually in arrears in cash
or at the Company’s option, in common stock based upon the then in effect conversion price. The Sr. D CPS also has an alternative
dividend provision based upon the cash flow distributed to the parent from the Company’s next HEBioT facility, excluding
the plant in Martinsburg, West Virginia, (the “Next Facility”) based upon the Sr. D CPS proportional investment in
the facility. The Sr. D CPS also has an alternative conversion based upon a multiple the annualized EBITDA of the Next Facility
converted at the higher of the conversion rate in effect or the market price of the Company’s common stock if higher.
During 2019, the Company received subscriptions
and investments totaling $1,885,000, which were issued 18,850 shares of Sr D CPS. In addition to the Sr. D CPS, each holder
received warrants to acquire 50% of the shares that the Sr. D CPS is convertible into with an initial exercise price of $3.50 per
share and an expiration on the fifth year anniversary. A total of 269,296 five-year warrants with an exercise price of $3.50 were
issued to the Sr. D CPS holders that were valued utilizing the Black-Scholes modelling technique utilizing stock prices ranging
from $1.88 to $2.70, a standard deviation (volatility) ranging from 44.55% to 46.38% and a risk-free rate interest rate ranging
from 1.74% to 2.56% based on the date of the investment. The model includes subjective input assumptions that can materially affect
the fair value estimates. The allocated fair value of the warrants amounting to $190,299 has been reflected in additional paid
in capital. In connection with the offering and issuance of the Sr D CPS, the holder of the Series A convertible preferred
stock was issued 116,651 warrants in the form issued to the Sr D CPS holders. These warrants, which were reflected as a cost of
issuing the Sr D CPS, were valued utilizing the Black-Scholes modelling technique utilizing a stock price of $2.25, a standard
deviation (volatility) of 46.23% and a risk-free interest rate of 1.89% on the date of issuance.
On July 13, 2020, a Series D Convertible
Preferred Stock (“Sr. D PS”) holder converted, in accordance with the terms of the Sr. D PS, 1,500 shares of Sr D PS
into 83,334 shares of the Company’s common stock. In connection with the conversion, the holder was also paid accumulated
dividends on the Sr. D PS through the conversion date amounting to $14,388 through the issuance of 7,994 shares of the Company’s
common stock.
In July 2020, two separate holders of the
Sr D PS requested, in accordance with the terms of the Sr D PS, that accumulated dividends amounting to $17,840 be paid in 9,912
shares of the Company’s common stock, which was issued on July 21, 2020.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Series E Convertible Preferred
Stock — On December 14, 2018, the Company consummated a transaction with Entsorga USA, Inc (“EUSA”).
whereby EUSA agreed to sell, transfer and convey to the Registrant Two Thousand Six Hundred Seventy-Six and 60/100 (2,676.60) common
membership units of Entsorga West Virginia LLC in consideration for 714,519 newly issued shares of stock of the Company’s
newly created Series E Preferred Stock, par value $0.0001, (the “Series E Shares”) convertible into 714,539
shares (the “Conversion Shares”) of the Registrant’s common stock, par value $0.0001 per share (the “Common
Stock”).
The Series E Shares with a stated
value of $2.64 per share is convertible into shares of the Registrant’s common stock, par value $0.0001 per share and does
not earn any dividends and has no special voting rights. The Series E Shares are convertible at the rate of one share of common
stock for each Series E Share converted, subject to adjustment for stock splits and reclassifications. Immediately following
the issuance of the Series E Shares, 150,000 Series E Shares were converted into 150,000 shares of common stock. During
the year ended December 31, 2019, an additional 300,000 Series E Shares were converted into 300,000 common shares resulting
in 264,419 Series E Shares outstanding as of December 31, 2019 and 2020.
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 five-year common stock
warrants at $2.30 per share and are presented net of $50,836 in warrant valuations and $4,550 in issuance costs. On April 6, 2020
had an additional closing of $65,000 on 566 shares of the new series of preferred stock and 7,750 five-year common stock warrants
at $2.30 per share and are presented net of $2,205 in warrant valuations. 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 as of the issuance of the Sr. F Preferred Stock, $1.81 as of July 27, 2020 as
the result of the common stock offering, 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.
Warrants — In connection
with the issuance of convertible debt, preferred and common stock and in connection with services provided, the Company has warrants
to acquire 4,776,361 shares of the Company’s common stock outstanding as of December 31, 2020, as follows:
Expiring During the Year
Ending December 31,
|
|
Warrant
Shares
|
|
|
Exercise Price
per Share
|
|
|
Weighted Average
Exercises Price
per Share
|
|
2021
|
|
|
1,701,827
|
|
|
|
$3.30 - $3.75
|
|
|
$
|
3.30
|
|
2022
|
|
|
1,253,149
|
|
|
|
$1.80 - $5.00
|
|
|
$
|
2.89
|
|
2023
|
|
|
740,749
|
|
|
|
$1.80
|
|
|
$
|
1.80
|
|
2024
|
|
|
269,293
|
|
|
|
$1.80
|
|
|
$
|
1.80
|
|
2025
|
|
|
711,343
|
|
|
|
$1.31 - $2.25
|
|
|
$
|
1.85
|
|
The following table summarizes the outstanding
warrant activity for the year ended December 31, 2020:
Outstanding, January 1, 2020
|
|
|
4,674,261
|
|
Issued as a result of Series F Convertible Preferred Stock offering
|
|
|
186,347
|
|
Issued to common stock offering underwriters
|
|
|
318,666
|
|
Issued to professional services providers
|
|
|
150,000
|
|
Issued in East Shore investment
|
|
|
100,000
|
|
Exercised
|
|
|
(630,053
|
)
|
Expired
|
|
|
(22,860
|
)
|
Outstanding, December 31, 2020
|
|
|
4,776,361
|
|
On June 30, 2020, one holder of 630,053
warrants with an exercise price of $1.80 per share exercised in a cashless exercise all of their warrants in exchange for 372,304
shares of the Company’s common stock.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
On July 13, 2020 the Company issued a total
of 150,000 warrants to several professional service providers. The warrants have an exercise price of $1.80 per share and expire
in five years. The warrants were valued utilizing the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 0.3%, expected dividend yield of 0%, expected volatility of 55.6% and term of 5 years
On July 27, 2020 as a result of the underwritten
offering of common stock at $1.81 per share, the warrant exercise price of the warrants issued in connection with the Sr. F Preferred
Stock was reduced from $2.30 to $1.81. As a result of the down deal feature the revaluation of the warrants, which amounted to
$21,738, has been reflected as a deemed dividend.
In connection with the confidentially marketed
public offering that closed on September 9, 2019 at a price per common share of $1.80, 70 warrants representing the right
to acquire 1,992,325 shares with down-deal exercise price features were re-priced to an exercise price of $1.80. In connection
with the modification the value of the warrants was recalculated based upon the value immediately prior to the modification and
immediately after the modification. In connection therewith the Company utilized Black Scholes valuation models utilizing volatility
of 50.56% and a risk free rate of 1.51% together with the contractual remaining terms of each warrant. This revaluation increased
the value of the warrants by $405,324, which has been reflected as an increase in accumulated deficit and additional paid in capital.
In accordance with Accounting Standards Update No. 2017-11, this increased valuation is not charged to the consolidated statement
of operations and comprehensive loss however, it is included as an adjustment to net loss attributable to parent in arriving at
net loss per common share – basic and diluted.
Also in connection with the confidentially
marketed public offering that closed on September 9, 2019, the holder of the Series A preferred stock had the option
to require that the Company redeem shares of Series A preferred stock up to an amount representing 50% of the offering. In
connection therewith, the holder agreed to not require the redemption in exchange for an extension of one year to the warrants
originally issued in connection with the Series A preferred stock; all other contractual terms of the Series A preferred
stock remained unchanged. Utilizing the same Black Scholes valuation model variables as utilized in connection with the down deal,
above, the change in valuation amounted to $49,160. As the redemption features remained unchanged, the Series A preferred
stock continues to be accounted for as temporary equity, which require that the modification be charged to the consolidated statement
of operations and comprehensive loss.
Note 14. Equity Incentive Plans
The Company has two shareholder approved
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. On July 23, 2020 the shareholders of
the Company approved a 500,000 increase in the plan’s shares, increasing the plan’s shares to 1,250,000.
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. On July 23, 2020 the shareholders of the Company approved
a 500,000 increase in the plan’s shares, increasing the plan’s shares to 1,500,000.
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.
Effective September 19, 2020, the Company
granted 136,145 restricted stock units under the Interim Executive Plan. The restricted stock units had a value of $174,266 based
on the market value on the date of the grants and immediately vested.
Effective December 28, 2020, the Company
granted 10,000 restricted stock units with a value of $11,700 based on the market value on the date of the grants that vested on
the date of the grant.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Compensation expense related to stock options
and restricted stock for the years ended December 31, was:
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
$
|
227,499
|
|
|
$
|
138,673
|
|
Restricted stock units
|
|
|
1,254,169
|
|
|
|
960,894
|
|
|
|
$
|
1,481,668
|
|
|
$
|
1,099,567
|
|
The following summarizes the Company’s
stock option activity for the years ended December 31, 2020 and 2019:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding, January 1, 2019
|
|
|
482,082
|
|
|
$
|
3.7
|
|
|
|
7.8
|
|
|
|
-
|
|
Forfeited, Canceled or Expired
|
|
|
(118,256
|
)
|
|
|
3.7
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2019
|
|
|
363,826
|
|
|
|
3.7
|
|
|
|
7.3
|
|
|
|
-
|
|
Granted
|
|
|
155,450
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited, Canceled or Expired
|
|
|
(59,250
|
)
|
|
|
3.6
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2020
|
|
|
460,026
|
|
|
|
3.2
|
|
|
|
6.4
|
|
|
|
-
|
|
Exercisable, December 31, 2020
|
|
|
401,671
|
|
|
|
3.2
|
|
|
|
4.2
|
|
|
|
-
|
|
Total unrecognized compensation expense related
to the unvested options as of December 31, 2020 and 2019 amount to $71,365 and $159,657. The December 31, 2020 weighted average period
that the expense is expected to be recognized is 1.62 years.
The following summarizes the Company’s
restricted stock unit activity for the years ended December 31, 2020 and 2019:
|
|
Number of
Shares
|
|
Unvested balance. January 1, 2019
|
|
|
742,741
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
(410,891
|
)
|
Forfeited or Canceled
|
|
|
(40,120
|
)
|
Unvested balance, December 31, 2019
|
|
|
291,730
|
|
Granted or modified
|
|
|
415,205
|
|
Vested
|
|
|
(438,233
|
)
|
Forfeited or Canceled
|
|
|
-
|
|
Unvested balance, December 31, 2020
|
|
|
268,702
|
|
As of December 31, 2020, 899,222 restricted
stock units have been vested but not yet drawn down by the grantees.
Interim Executive Plan —
During the second quarter of 2020, the Company established a payroll cash deferment program in order to improve cash resources
during the COVID-19 pandemic. Under the program, certain executives reduced their cash compensation and would be provided restricted
common stock units under the shareholder approved plans as the shares were available or may be issued restricted common stock shares
or cash. The shares under the individual agreements were based on a cash amount of deferral each month divided by the lower of
the average or last trading day common share price. Under the program that has been concluded, all of the participants elected
to receive restricted stock units resulting in 136,145 restricted stock units being issued at a cost of $174,266 that has been
reflected as restricted stock compensation expense above.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 15. 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 is as follows:
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue Type:
|
|
|
|
|
|
|
|
|
Revenue recognized over time:
|
|
|
|
|
|
|
|
|
Rental of digesters
|
|
$
|
1,353,263
|
|
|
$
|
1,483,852
|
|
Revenue recognized at a point in time:
|
|
|
|
|
|
|
|
|
Services
|
|
|
1,843,929
|
|
|
|
2,452,828
|
|
Product sales
|
|
|
2,681,461
|
|
|
|
282,768
|
|
Total
|
|
$
|
5,878,653
|
|
|
$
|
4,219,448
|
|
Note 16. Income Taxes
The components of income tax (expense) benefit from operations for
the year ended December 31, is as follows:
|
|
2020
|
|
|
2019
|
|
US Federal:
|
|
|
|
|
|
|
|
|
Deferred
|
|
$
|
2,244,247
|
|
|
$
|
1,664,794
|
|
State and local:
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
474,777
|
|
|
|
256,238
|
|
Non-US:
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
(12,153
|
)
|
|
|
7,693
|
|
Change in valuation allowance
|
|
|
(2,706,871
|
)
|
|
|
(1,928,725
|
)
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The reconciliation of differences between the Federal statutory tax
rate and the Company’s effective income tax rate for the year ended December 31, is as follows:
|
|
2020
|
|
|
2019
|
|
U. S. Federal Statutory rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Local taxes, net of benefit
|
|
|
(3.0
|
)
|
|
|
(2.5
|
)
|
Nondeductible expenses
|
|
|
5.6
|
|
|
|
5.9
|
|
Other
|
|
|
1.1
|
|
|
|
(1.2
|
)
|
|
|
|
(17.3
|
)
|
|
|
(18.8
|
)
|
Change in valuation allowance
|
|
|
17.3
|
|
|
|
18.8
|
|
Effective income tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
The Company’s net deferred tax assets and valuation allowance
as of December 31, is as follows:
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses - Federal
|
|
$
|
8,376,603
|
|
|
$
|
6,000,170
|
|
Net operating losses - State
|
|
|
1,594,854
|
|
|
|
1,055,936
|
|
Net operating losses - Non-US
|
|
|
173,403
|
|
|
|
185,556
|
|
Stock-based compensation
|
|
|
950,655
|
|
|
|
649,907
|
|
Accrued expenses
|
|
|
717,401
|
|
|
|
536,348
|
|
Lease liability
|
|
|
199,386
|
|
|
|
212,177
|
|
Other, net
|
|
|
78,966
|
|
|
|
242,793
|
|
|
|
|
12,091,268
|
|
|
|
8,882,887
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment - Federal
|
|
|
(869,625
|
)
|
|
|
(366,413
|
)
|
Right of use asset
|
|
|
(218,468
|
)
|
|
|
(220,169
|
)
|
|
|
|
(1,088,093
|
)
|
|
|
(586,582
|
)
|
Net deferred tax assets
|
|
|
11,003,175
|
|
|
|
8,296,305
|
|
Valuation allowance
|
|
|
(11,003,175
|
)
|
|
|
(8,296,305
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
For the years ended December 31, 2020 and 2019
there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery of the tax asset
resulting in net operating loss carryforward. As of December 31, 2020 and 2019, the Company had net operating loss carryforwards of approximately
$39,889,000 and $30,385,000, respectively, available to reduce future federal taxes. The federal net operating losses of approximately
$14,266,000, generated in tax years beginning before January 1, 2018, will begin to expire in 2036 if not utilized. The balance of the
net operating losses, approximately $25,623,000, do not expire, and is subject to an 80% taxable income annual limitation.
In addition, as of December 31, 2020 and 2019,
the Company had NOL carryforwards of approximately $28,417,000 and $20,105,000 available to reduce state taxable income that expire through
2040.
Pursuant to Section 382 of the Internal
Revenue Code, or IRC, annual use of the Company’s net operating losses (NOL) carryforwards may be limited or eliminated in the
event a cumulative change in ownership of more than 50% occurs within a three-year period. Thus these carryforwards could be subject
to certain limitations in the event that there is a change in control of the company pursuant to IRC 382, though the Company has not
performed a study to determine if the loss carryforwards are subject to these limitations. If additional changes in ownership occur
after year end, NOL carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the
deferred tax asset schedule with a corresponding reduction in the valuation reserve.
On March 27, 2020, the United States enacted the
Coronavirus Aid, Relief and Economic Security Act (Cares Act). The Cares Act is an emergency economic stimulus package that includes spending
and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The Company is
electing to take the available relief under the Cares Act to defer payment of certain payroll taxes.
Note 17. 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 year ended December 31, 2020
|
|
$
|
5,505,212
|
|
|
$
|
373,441
|
|
|
$
|
5,878,653
|
|
Non-current tangible assets, as of December 31, 2020
|
|
|
36,972,067
|
|
|
|
294,413
|
|
|
|
37,266,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, for the year ended December 31, 2019
|
|
$
|
3,751,676
|
|
|
$
|
467,772
|
|
|
$
|
4,219,448
|
|
Non-current tangible assets, as of December 31, 2019
|
|
|
38,803,833
|
|
|
|
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 December 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.
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Major customers — During the
year ended December 31, 2020, two customers represented at least 10% of revenues, accounting for 32.4% and 23.8% (Gold Medal Group, LLC,
an affiliated entity, “GMG” or “Gold Medal”) of revenues. During the year ended December 31, 2019, one customer
represented at least 10% of revenues, accounting for 48.2% (Gold Medal Group, LLC, an affiliated entity, “GMG”) of revenues.
As of December 31, 2020, two customers
represented at least 10% of accounts receivable, accounting for 50.6% and 11.7% (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 year ended December 31, 2020, one vendor represented at least 10% of costs of revenue,
accounting for 19.2% (GMG). During the year ended December 31, 2019, one vendor represented at least 10% of costs of revenue, accounting
for 23.1% (GMG) of costs of revenue.
As of December 31, 2020, excluding
construction payables and other professional fees, no vendors represented at least 10% 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 20. Related Party Transactions.
Note 18. Commitments and Contingencies
During the year ended December 31, 2020
the Company was involved in the following legal matters.
During September 2020, the Company’s
Entsorga West Virginia subsidiary received notice that an affiliate of a minority owner of the facility, who also provided intellectual
property, equipment and engineering services relating to the set-up and initial operation of the facility, was claiming it was
owed $917,420 related to services contracted as part of the facility’s construction and initial start-up and operation. The
Company incurred offsetting costs and expenses greater than the claim correcting or replacing the services that were contracted
but that were either not performed or performed correctly. No action has been commenced related to this claim and the Company disputes
the claim and intends to defend this matter vigorously.
As a result of this claim and the related
costs incurred by the Company to cure the deficiencies in the services that were contracted, the Company has reflected an impairment
charge amounting to $917,420 during the year ended December 31, 2020.
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, 2020 and 2019 reflects the remaining liability of this matter.
It is management’s opinion that the
resolution of these matters 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
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 19. Leases
The Company rented its headquarters and attached
warehousing space from a related party through May 31, 2020 (see Note 20), effective June 1, 2020 the property housing the Company’s
headquarters and attached warehousing space was sold to an unrelated party, 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% has been used on the other leases. The current portion of the lease liabilities of $183,903 is included in accrued
expenses and liabilities. Total lease costs under operating leases amounted to $224,970 and $221,423 for the years ended December 31,
2020 and 2019, respectively. Maturities of lease liabilities under these leases, which have a weighted average remaining term of 19.8
years, as of December 31, 2020 is:
Year Ending December 31,
|
|
|
|
2021
|
|
$
|
212,026
|
|
2022
|
|
|
217,571
|
|
2023
|
|
|
219,140
|
|
2024
|
|
|
220,732
|
|
2025 and thereafter
|
|
|
2,912,917
|
|
Total lease payments
|
|
|
3,782,386
|
|
Less imputed interest
|
|
|
(2,381,622
|
)
|
Present value of lease liabilities
|
|
$
|
1,400,764
|
|
During the year ended December 31, 2020,
the Company recognized operating lease right of use assets in exchange for lease liabilities amounting to $412,647 and had operating
cash flows of $192,620 and $195,003 for years ended December 31, 2020 and 2019, respectively.
Note 20. Related Party Transactions
Related parties include Directors, Senior
Management Officers, and shareholders, plus their immediate family, who own a 5% or greater ownership interest at the time of a
transaction. Related parties also include GMG and its subsidiaries as 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.
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.
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(a) (b)
|
|
$
|
206,352
|
|
|
$
|
1,370,867
|
|
Intangible assets, net, included in other assets
|
|
(c)
|
|
|
20,199
|
|
|
|
40,399
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
(c) (d) (e) (f)
|
|
|
294,040
|
|
|
|
2,531,034
|
|
Accrued interest payable
|
|
|
|
|
196,033
|
|
|
|
46,796
|
|
Accrued liabilities
|
|
(j)
|
|
|
917,420
|
|
|
|
-
|
|
Long term accrued interest
|
|
(g)
|
|
|
1,807,857
|
|
|
|
1,510,193
|
|
Advance from related party
|
|
(h)
|
|
|
935,000
|
|
|
|
210,000
|
|
Junior promissory note
|
|
(g)
|
|
|
971,426
|
|
|
|
949,434
|
|
Liabilities to non-controlling interests to be settled in subsidiary membership units
|
|
(k)
|
|
|
1,585,812
|
|
|
|
-
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Line of credit guarantee
|
|
(i)
|
|
|
1,498,975
|
|
|
|
1,479,848
|
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
The table below presents direct related
party expenses or transactions for the years ended December 31, 2020 and 2019. Compensation and related costs for employees of
the Company are excluded from the table below.
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
Management advisory and other fees
|
|
(a)
|
|
$
|
125,000
|
|
|
$
|
975,000
|
|
HEBioT revenue
|
|
(b)
|
|
|
1,275,982
|
|
|
|
1,056,875
|
|
Operating expenses - HEBioT
|
|
(d)
|
|
|
1,083,382
|
|
|
|
683,647
|
|
Operating expenses – Selling, general and administrative
|
|
(e)
|
|
|
41,514
|
|
|
|
137,145
|
|
Operating expenses - Selling, general and administrative
|
|
(c) (f)
|
|
|
381,532
|
|
|
|
368,700
|
|
Interest expense
|
|
|
|
|
395,981
|
|
|
|
242,357
|
|
Debt guarantee fees
|
|
(i)
|
|
|
67,500
|
|
|
|
67,500
|
|
(a)
|
Management
Advisory Fees - The Company has provided management advisory services to Gold Medal
Holdings, Inc., a subsidiary of GMG.
|
(b)
|
HEBioT
Disposal Revenues – Entsorga West Virginia, LLC has a series of agreements
with GMG subsidiaries entities that provide for specified fees for each ton of municipal
waste delivered to the HEBioT facility.
|
(c)
|
Distribution
Agreement - BioHiTech has an exclusive license and distribution agreement (the “License
Agreement”) with BioHiTech International, Inc., a company owned by James Koh, a BioHiTech
shareholder and other unrelated parties. The License Agreement provides distribution rights
to the Eco-Safe Digester through December 31, 2023 (unless extended by mutual agreement)
and for annual payments to Mr. Koh in the amount of $200,000 for the term of the License
Agreement. Effective October 17, 2018, the agreement was amended to reduce the annual payments
to $75,000 and to remove several international locations that the Company does not actively
market.
|
(d)
|
Disposal
costs – A GMG subsidiary has provided logistics and disposal of non-recovered
municipal solid waste to the HEBioT facility.
|
(e)
|
Facility
Lease - The Company leased its corporate headquarters and warehouse space from BioHiTech
Realty LLC, a company owned by two stockholders of the Company, one of whom was the Chief
Executive Officer. The lease expired in 2020. Subsequently, the property that is leased by
the Company was acquired by a nonrelated party.
|
(f)
|
Business
Services Fees – A GMG subsidiary provides certain general management and administrative
support to the HEBioT facility.
|
(g)
|
Junior
Promissory Note – See Note 11.
|
(h)
|
Advance
from Related Party - The Company’s Chairman of the Board (the “Officer”)
on occasion advances the Company funds for operating and capital purposes. The advances bear
interest at 13% and are unsecured and due on demand. There are no financial covenants related
to this advance and there are no formal commitments to extend any further advances. In addition,
during the year ended December 31, 2020 another officer advanced $200,000 to the Company
which was repaid during 2020.
|
(i)
|
Line of Credit - Under the terms of the line of credit, several related parties have personally guaranteed the line and are contingently liable should the Company not meet its obligations under the line. In connection with the line of credit, the Chief Executive Officer and a Director have provided a guarantee of the line of credit in exchange for a fee representing 4.5% of the debt.
|
(j)
|
Claims by Related Party - During
September 2020, the Company’s Entsorga West Virginia subsidiary received notice that a minority owner of the facility, who
also provided intellectual property, equipment and engineering services relating to the set-up and initial operation of the facility,
was claiming $917,420 related to services contracted as part of the facility’s construction and initial start-up and operation.
The Company incurred offsetting costs and expenses greater than the claim correcting or replacing the services that were contracted
but that were either not performed or performed correctly and intends to defend this matter vigorously.
As a result of this claim and the related
costs incurred by the Company to cure the deficiencies in the services that were contracted, the Company has reflected an impairment
charge amounting to $917,420 during the year ended December 31, 2020.
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
(k)
|
Liabilities to non-controlling interests to be settled in subsidiary membership units - See Subsequent Events Footnote 23.
|
Note 21. Employee 401(k) Savings Plan
The Company has a defined contribution
retirement savings plan qualified under Section 401(k) of the Internal Revenue Code. Under the plan, employees may contribute
a percentage of eligible compensation on both a before-tax and after-tax basis. The Company may match a percentage of employee’s
before-tax contributions, but is not required to do so, as the annual matching contributions are discretionary. During the years
ended December 31, 2020 and 2019 the Company made contributions of $4,007 and $9,339, respectively, to the plan.
Note 22. Supplemental Consolidated Statement of Cash Flows
Information
Changes in non-cash operating assets and
liabilities, as well as other supplemental cash flow disclosures, are as follows.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
584,485
|
|
|
$
|
(2,049,366
|
)
|
Inventory
|
|
|
(268,599
|
)
|
|
|
(342,447
|
)
|
Prepaid expenses and other assets
|
|
|
(24,905
|
)
|
|
|
4,083
|
|
Accounts payable
|
|
|
(736,969
|
)
|
|
|
3,265,920
|
|
Accrued interest payable
|
|
|
398,843
|
|
|
|
431,001
|
|
Accrued expenses
|
|
|
(644,193
|
)
|
|
|
(1,463,398
|
)
|
Deferred revenue
|
|
|
47,250
|
|
|
|
(11,681
|
)
|
Customer deposits
|
|
|
1,757,933
|
|
|
|
37,109
|
|
Net change in operating assets and liabilities
|
|
$
|
1,113,845
|
|
|
$
|
(128,779
|
)
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,001,498
|
|
|
$
|
2,775,715
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
2020
|
|
|
2019
|
|
Supplementary Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Transfer of inventory to leased equipment
|
|
$
|
42,110
|
|
|
$
|
393,795
|
|
Accrual of Series A preferred stock dividends
|
|
|
61,511
|
|
|
|
162,584
|
|
Conversion of preferred stock into common
|
|
|
139,566
|
|
|
|
90,000
|
|
Payment of preferred stock dividends in common stock
|
|
|
42,840
|
|
|
|
200,000
|
|
Acquisition of right of use leased asset and creation of lease liability
|
|
|
412,647
|
|
|
|
-
|
|
Common stock issued in settlement of accounts payable
|
|
|
-
|
|
|
|
205,500
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Cash and Restricted Cash:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,403,859
|
|
|
$
|
1,847,526
|
|
Restricted cash (current)
|
|
|
1,884,691
|
|
|
|
1,133,581
|
|
Restricted cash (non-current)
|
|
|
2,607,945
|
|
|
|
2,555,845
|
|
Total cash and restricted cash at the end of the period
|
|
$
|
6,896,495
|
|
|
$
|
5,536,952
|
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 23. 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.
At Market Issuance Sales Agreement
On February 19, 2021, the Company entered into
an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Sales Agent”),
pursuant to which the Company may offer and sell, from time to time, through or to the Sales Agent, shares of the Company’s common
stock, par value $0.0001 per share (the “Placement Shares”), having an aggregate offering price of up to $25 million (the
“ATM Offering”). Sales pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agent,
and the Company cannot provide any assurances that it will issue any Shares pursuant to the Sales Agreement.
The issuance and sale, if any,
of up to $11,150,000 of the Placement Shares by the Company under the Sales Agreement will be made pursuant to the Company’s effective
“shelf” registration statement on Form S-3 (Registration Statement No. 333-225999) (the “Registration Statement”),
the base prospectus contained therein, and a prospectus supplement relating to the ATM offering, dated February 19, 2021 (the “Prospectus
Supplement”). The Company will be required to file one or more additional prospectus supplements to sell additional Placement Shares
beyond the amount registered pursuant to the Prospectus Supplement.
Through the date of this report,
the Company has sold 3,416,663 shares of its common stock under the Sales Agreement at an average price per share of $2.11 resulting
in net proceeds of $6,995,340 before Company incurred costs related to the offering.
Subsidiary Membership Unit issuance and Contribution
Agreement
Effective March 19, 2021, the
Company and its Refuel America LLC subsidiaries concluded an agreement with Apple Valley Waste Services, Inc. and its parent company
Gold Medal Holdings, Inc. and Gold Medal Group, LLC (the Company’s co-investor in Refuel America, LLC) whereby, leading up to the
effective date, during 2020 EWV offset its accounts receivable amounting to $1,487,835 due from the AVWS entities against $1,487,835
in EWV accounts payable to AVWS entities and AVWS entities offset its accounts receivable amounting to $1,487,835 due from the EWV against
$1,487,835 in AVWS entities accounts payable to EWV. Following the offsetting, EWV continued to owe AVWS $1,918,947, which the parties
agreed to convert into 3,198.24 convertible preferred units of EWV, which were issued as of the effective date. In connection with this
transaction AVWS made claims for amounts owed in excess of what had been recognized by EWV and in connection with this settlement agreement,
EWV recognized an expense of $646,196.
AVWS exchanged the EWV convertible
preferred units for 1,918,947 each of preferred and class A units of Refuel, of which AVWS assigned 333,135.33 each of preferred and
class A units of Refuel in settlement of a debt owed to the Company amounting to $333,135.
As of December 31, 2020, the$1,585,812
net non-controlling ownership interest resulting from this transaction is reflected in the Company’s financial statements as a
non-current liability – Liabilities to non-controlling interests to be settled in subsidiary membership interests.
Preferred
Stock Conversions
On January 25, 2021, one holder of the
Company’s Series D preferred stock converted their shares and was paid the conversion shares and related accumulated
dividends, totaling 22,375 Common Stock shares at $1.80 per share.
On February
10, 2021, seven holders of the Company’s Series A and Series D preferred stock converted their shares and were paid the conversion
shares, totaling 527,780 Common Stock shares at $1.80 per share.
On February
16, 2021, three holders of the Company’s Series D preferred stock converted their shares and were paid the conversion shares, totaling
97,223 Common Stock shares at $1.80 per share.
Preferred Stock Dividends
On February
19, 2021, the Company paid accumulated dividends to thirty-eight holders of the Company’s Series A, C, D and F preferred stock
shares. 260,669 shares of the Company’s Common Stock shares were issued at a price range of $1.80 to $1.81 in accordance with the
underlying certificates of designation.
Warrant
Exercises
On February
11, 2021, one warrant holder exercised their warrant and received 102,249 Common Stock shares in accordance with the warrant agreement.
On February
12, 2021, one warrant holder exercised their warrant and received 46,222 Common Stock shares in accordance with the warrant agreement.
Other
Common Stock Issuances
On January 8, 2021 the Company issued 72,000 restricted
Common Stock shares to a vendor at the market rate during the course of the service period in accordance with the fee agreement between
the vendor and the Company for services rendered.
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Note 24. 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
condensed consolidating balance sheet as of December 31, 2020 and 2019, the condensed consolidating statements of operations
for the years ended December 31, 2020 and 2019, and condensed consolidating cash flows for the years ended December 31,
2020 and 2019 of 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.
Condensed Consolidating Balance Sheet
as of December 31, 2020
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,379,927
|
|
|
$
|
23,932
|
|
|
$
|
-
|
|
|
$
|
2,403,859
|
|
Restricted cash
|
|
|
-
|
|
|
|
1,884,691
|
|
|
|
-
|
|
|
|
1,884,691
|
|
Other current assets
|
|
|
10,083,207
|
|
|
|
451,797
|
|
|
|
(8,081,573
|
)
|
|
|
2,453,431
|
|
Current assets
|
|
|
12,463,134
|
|
|
|
2,360,420
|
|
|
|
(8,081,573
|
)
|
|
|
6,741,981
|
|
Restricted cash
|
|
|
-
|
|
|
|
2,607,945
|
|
|
|
-
|
|
|
|
2,607,945
|
|
HEBioT facility and other fixed assets
|
|
|
1,329,721
|
|
|
|
35,928,259
|
|
|
|
-
|
|
|
|
37,257,980
|
|
Operating lease right of use assets
|
|
|
380,082
|
|
|
|
885,965
|
|
|
|
-
|
|
|
|
1,266,047
|
|
MBT facility development and license costs
|
|
|
6,402,971
|
|
|
|
1,669,500
|
|
|
|
-
|
|
|
|
8,072,471
|
|
Investment in subsidiaries and intercompany accounts
|
|
|
11,206,805
|
|
|
|
-
|
|
|
|
(10,495,503
|
)
|
|
|
711,302
|
|
Other assets
|
|
|
28,699
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,699
|
|
Total assets
|
|
$
|
31,811,412
|
|
|
$
|
43,452,089
|
|
|
$
|
(18,577,076
|
)
|
|
$
|
56,686,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
1,498,975
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,498,975
|
|
Current portion of Debts and Bonds
|
|
|
4,826,482
|
|
|
|
2,860,000
|
|
|
|
-
|
|
|
|
7,686,482
|
|
Other current liabilities
|
|
|
5,008,949
|
|
|
|
12,236,658
|
|
|
|
(8,081,573
|
)
|
|
|
9,164,034
|
|
Current liabilities
|
|
|
11,334,406
|
|
|
|
15,096,658
|
|
|
|
(8,081,573
|
)
|
|
|
18,349,491
|
|
Notes payable and other debts
|
|
|
1,168,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,168,868
|
|
Accrued interest
|
|
|
1,807,857
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,807,857
|
|
Non-current lease liabilities
|
|
|
270,228
|
|
|
|
946,633
|
|
|
|
-
|
|
|
|
1,216,861
|
|
WV EDA bonds
|
|
|
-
|
|
|
|
28,476,359
|
|
|
|
-
|
|
|
|
28,476,359
|
|
Liabilities to non-controlling interests to be settled in subsidiary membership units
|
|
|
(333,136
|
)
|
|
|
1,918,948
|
|
|
|
-
|
|
|
|
1,585,812
|
|
Total liabilities
|
|
|
14,248,223
|
|
|
|
46,438,598
|
|
|
|
(8,081,573
|
)
|
|
|
52,605,248
|
|
Redeemable preferred stock
|
|
|
626,553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
626,553
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to parent
|
|
|
15,772,770
|
|
|
|
(2,986,509
|
)
|
|
|
(10,472,303
|
)
|
|
|
2,313,958
|
|
Attributable to non-controlling interests
|
|
|
1,163,866
|
|
|
|
-
|
|
|
|
(23,200
|
)
|
|
|
1,140,666
|
|
Stockholders’ equity
|
|
|
16,936,636
|
|
|
|
(2,986,509
|
)
|
|
|
(10,495,503
|
)
|
|
|
3,454,624
|
|
Total liabilities and stockholders’ equity
|
|
$
|
31,811,412
|
|
|
$
|
43,452,089
|
|
|
$
|
(18,577,076
|
)
|
|
$
|
56,686,425
|
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Condensed Consolidating Statement of
Operations for the Year Ended December 31, 2020
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
4,000,546
|
|
|
$
|
1,878,107
|
|
|
$
|
-
|
|
|
$
|
5,878,653
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEBioT
|
|
|
-
|
|
|
|
3,571,314
|
|
|
|
-
|
|
|
|
3,571,314
|
|
Rental, service and maintenance
|
|
|
856,751
|
|
|
|
-
|
|
|
|
-
|
|
|
|
856,751
|
|
Equipment
|
|
|
1,224,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,224,185
|
|
Selling, general and administrative
|
|
|
6,387,587
|
|
|
|
2,232,542
|
|
|
|
-
|
|
|
|
8,620,129
|
|
Impairment
|
|
|
-
|
|
|
|
975,420
|
|
|
|
-
|
|
|
|
975,420
|
|
Depreciation and amortization
|
|
|
496,645
|
|
|
|
1,810,388
|
|
|
|
-
|
|
|
|
2,307,033
|
|
Total operating expenses
|
|
|
8,965,168
|
|
|
|
8,589,664
|
|
|
|
-
|
|
|
|
17,554,832
|
|
Loss from operations
|
|
|
(4,964,622
|
)
|
|
|
(6,711,557
|
)
|
|
|
-
|
|
|
|
(11,676,179
|
)
|
Other (income) expenses, net
|
|
|
1,439,865
|
|
|
|
2,625,795
|
|
|
|
-
|
|
|
|
4,065,660
|
|
Net loss
|
|
$
|
(6,404,487
|
)
|
|
$
|
(9,337,352
|
)
|
|
$
|
-
|
|
|
$
|
(15,741,839
|
)
|
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2020
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,404,487)
|
|
|
$
|
(9,337,352
|
)
|
|
$
|
-
|
|
|
$
|
(15,741,839
|
)
|
Non-cash adjustments to reconcile net loss to net cash used in operations
|
|
|
2,917,090
|
|
|
|
2,952,697
|
|
|
|
-
|
|
|
|
5,869,787
|
|
Changes in operating assets and liabilities
|
|
|
(6,317,997)
|
|
|
|
7,431,842
|
|
|
|
-
|
|
|
|
1,113,845
|
|
Net cash used in operations
|
|
|
(9,805,394)
|
|
|
|
1,047,187
|
|
|
|
-
|
|
|
|
(8,758,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction of HEBioT facility and acquisitions of equipment
|
|
|
(3,538
|
)
|
|
|
(220,045)
|
|
|
|
-
|
|
|
|
(223,583
|
)
|
Investment in unconsolidated affiliate
|
|
|
(650,000)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(650,000
|
)
|
Other investing activities
|
|
|
(143,067)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(143,067
|
)
|
Net cash used in investing activities
|
|
|
(796,605)
|
|
|
|
(220,045)
|
|
|
|
-
|
|
|
|
(1,016,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of debt and equity
|
|
|
11,144,230
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,144,230
|
|
Repayments of debt
|
|
|
(4,605)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,605
|
)
|
Net cash provided by financing activities
|
|
|
11,139,625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,139,625
|
|
Effect of exchange rate on cash
|
|
|
(5,225)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,225
|
)
|
Cash – beginning of period (restricted and unrestricted)
|
|
|
1,847,526
|
|
|
|
3,689,426
|
|
|
|
-
|
|
|
|
5,536,952
|
|
Cash – end of period (restricted and unrestricted)
|
|
$
|
2,379,927
|
|
|
$
|
4,516,568
|
|
|
$
|
-
|
|
|
$
|
6,896,495
|
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
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
|
|
Stockholders’ 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
|
|
Condensed Consolidating Statement of
Operations for the year ended December 31, 2019
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
3,108,377
|
|
|
$
|
1,111,071
|
|
|
$
|
-
|
|
|
$
|
4,219,448
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEBioT
|
|
|
-
|
|
|
|
2,064,139
|
|
|
|
-
|
|
|
|
2,064,139
|
|
Rental, service and maintenance
|
|
|
784,291
|
|
|
|
-
|
|
|
|
-
|
|
|
|
784,291
|
|
Equipment sales
|
|
|
113,063
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113,063
|
|
Selling, general and administrative
|
|
|
6,097,817
|
|
|
|
965,874
|
|
|
|
-
|
|
|
|
7,063,691
|
|
Depreciation and amortization
|
|
|
495,709
|
|
|
|
1,233,769
|
|
|
|
-
|
|
|
|
1,729,478
|
|
Total operating expenses
|
|
|
7,490,880
|
|
|
|
4,263,782
|
|
|
|
-
|
|
|
|
11,754,662
|
|
Loss from operations
|
|
|
(4,382,503
|
)
|
|
|
(3,152,711
|
)
|
|
|
-
|
|
|
|
(7,535,214
|
)
|
Other expenses, net
|
|
|
688,621
|
|
|
|
2,056,226
|
|
|
|
-
|
|
|
|
2,744,847
|
|
Net loss
|
|
$
|
(5,071,124
|
)
|
|
$
|
(5,208,937
|
)
|
|
$
|
-
|
|
|
$
|
(10,280,061
|
)
|
BioHiTech Global, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2020 and 2019
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2019
|
|
Parent
and other
Subsidiaries
|
|
|
Entsorga
West
Virginia
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,071,124
|
)
|
|
$
|
(5,208,937
|
)
|
|
$
|
-
|
|
|
$
|
(10,280,061
|
)
|
Non-cash adjustments to reconcile net loss to net cash used in operations
|
|
|
1,856,795
|
|
|
|
1,417,445
|
|
|
|
-
|
|
|
|
3,274,240
|
|
Changes in operating assets and liabilities
|
|
|
(1,447,676
|
)
|
|
|
1,318,897
|
|
|
|
-
|
|
|
|
(128,779
|
)
|
Net cash used in operations
|
|
|
(4,662,005
|
)
|
|
|
(2,472,595
|
)
|
|
|
-
|
|
|
|
(7,134,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction of HEBioT facility and acquisitions of equipment
|
|
|
(33,346
|
)
|
|
|
(5,077,863
|
)
|
|
|
-
|
|
|
|
(5,111,209
|
)
|
Capital contribution to Entsorga West Virginia, LLC
|
|
|
(4,586,362
|
)
|
|
|
-
|
|
|
|
4,586,362
|
|
|
|
-
|
|
Other investing activities
|
|
|
2,231,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,231,824
|
|
Net cash used in investing activities
|
|
|
(2,387,884
|
)
|
|
|
(5,077,863
|
)
|
|
|
4,586,362
|
|
|
|
(2,879,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of debt and equity
|
|
|
6,418,057
|
|
|
|
4,586,362
|
|
|
|
(4,586,362
|
)
|
|
|
6,418,057
|
|
Repayments of debt
|
|
|
(9,165
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,165
|
)
|
Deferred financing costs incurred
|
|
|
-
|
|
|
|
(62,151
|
)
|
|
|
-
|
|
|
|
(62,151
|
)
|
Net cash provided by financing activities
|
|
|
6,408,892
|
|
|
|
4,524,211
|
|
|
|
(4,586,362
|
)
|
|
|
6,346,741
|
|
Effect of exchange rate on cash
|
|
|
77,816
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,816
|
|
Cash – beginning of period (restricted and unrestricted)
|
|
|
2,410,708
|
|
|
|
6,715,672
|
|
|
|
-
|
|
|
|
9,126,380
|
|
Cash – end of period (restricted and unrestricted)
|
|
$
|
1,847,527
|
|
|
$
|
3,689,425
|
|
|
$
|
-
|
|
|
$
|
5,536,952
|
|