Company Quick10K Filing
Quick10K
Biohitech Global
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.17 15 $32
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-09 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-09-05 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2019-08-14 Earnings, Exhibits
8-K 2019-07-17 Shareholder Vote
8-K 2019-06-28 Enter Agreement, Sale of Shares
8-K 2019-05-15 Earnings, Exhibits
8-K 2019-04-01 Earnings, Regulation FD, Exhibits
8-K 2019-04-01 Earnings, Exhibits
8-K 2018-12-14 M&A, Exhibits
8-K 2018-12-14 M&A, Sale of Shares, Exhibits
8-K 2018-11-28 Enter Agreement, Exhibits
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-08-15 Earnings, Exhibits
8-K 2018-06-20 Shareholder Vote
8-K 2018-05-16 Earnings, Exhibits
8-K 2018-04-02 Earnings, Exhibits
8-K 2018-03-30 Enter Agreement, Sale of Shares
8-K 2018-02-02 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-01-25 Enter Agreement, M&A, Sale of Shares, Exhibits
8-K 2017-12-28 Enter Agreement, Sale of Shares, Exhibits
SCI Service International 8,545
TAL TAL Education Group 6,854
LOPE Grand Canyon Education 6,080
LAUR Laureate Education 3,715
COE China Online Education Group 1,380
RGS Regis 632
EVH Evolent Health 548
UTI Universal Technical Institute 81
LOV Spark Networks Se 9
TEDU Tarena 0
BHTG 2019-06-30
Part I -Financial Information
Item 1.Financial Statements
Note 21 Includes Supplemental Cash Flow Information, Non-Cash Investing and Financing Activities and Changes in Operating Assets and Liabilities.
Note 1. Basis of Presentation and Going Concern
Note 2. Summary of Significant Accounting Policies
Note 3. Acquisition and Contribution Agreement
Note 4. Investments in Unconsolidated Entities
Note 5. Accounts Receivable, Net
Note 6. Inventory
Note 7. Equipment on Operating Leases, Net
Note 8. Equipment, Fixtures and Vehicles, Net
Note 9. Hebiot Facility
Note 10. Mbt Facility Development and License Costs
Note 11.	Intangibles Assets, Net
Note 12. Goodwill
Note 13. Risk Concentrations
Note 14. Line of Credit, Notes Payable, Advances, Promissory Note, Convertible Promissory Notes and Long-Term Debt
Note 15. Entsorga West Virginia, Llc Wveda Solid Waste Disposal Revenue Bonds
Note 16. Equity and Equity Transactions
Note 17. Equity Incentive Plans
Note 18. Commitments and Contingencies
Note 19. Leases
Note 20. Related Party Transactions
Note 21. Supplemental Consolidated Statement of Cash Flows Information
Note 22. Recent Accounting Standards
Note 23. Subsequent Events
Note 24. Condensed Consolidating Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 tv526736_ex31-1.htm
EX-31.2 tv526736_ex31-2.htm
EX-32.1 tv526736_ex32-1.htm
EX-32.2 tv526736_ex32-2.htm

Biohitech Global Earnings 2019-06-30

BHTG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526736_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: June 30, 2019

 

or

 

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

 

For the transition period from ________________ to ________________

 

Commission file number 001-36843

 

 

BIOHITECH GLOBAL, INC.

(Exact name of registrant as specified in its charter)

 

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

 

(845) 262-1081

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   x     No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨     No   x

 

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

 

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

 

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

 

Class   Outstanding as of August 9, 2019
Common Stock, $0.0001 par value per share   15,207,956 shares

 

 

   

 

  

BioHiTech Global, Inc. and Subsidiaries

 

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements. 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 39
     
Item 4. Controls and Procedures. 40
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 40
     
Item 1A. Risk Factors. 40
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 41
     
Item 3. Defaults Upon Senior Securities. 41
     
Item 4. Mine Safety Disclosures. 42
     
Item 5. Other Information. 42
     
Item 6. Exhibits. 42
     
SIGNATURES 43
   
INDEX TO EXHIBITS 44

  

   

 

  

PART I -FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
Revenue                    
HEBioT (related party)  $277,041    -   $277,041    - 
Rental, service and maintenance   448,937   $458,843    936,638   $899,336 
Equipment sales   75,234    199,638    75,234    265,488 
Management advisory and other fees (related party)   250,000    250,656    500,000    390,039 
Total revenue   1,051,212    909,137    1,788,913    1,554,863 
Operating expenses                    
HEBioT processing   493,546    -    493,546    - 
Rental, service and maintenance   128,311    228,515    331,514    465,411 
Equipment sales   38,726    108,846    38,726    149,421 
Selling, general and administrative   1,433,451    1,518,324    3,379,857    2,811,452 
Professional fees   272,873    169,154    652,829    456,016 
Depreciation and amortization   609,973    115,366    739,412    231,120 
Total operating expenses   2,976,880    2,140,205    5,635,884    4,113,420 
Loss from operations   (1,925,668)   (1,231,068)   (3,846,971)   (2,558,557)
Other expenses                    
Equity loss in affiliate   -    147,077    -    192,490 
Interest expense   962,004    611,801    1,301,868    1,166,077 
Interest expense incurred in warrant valuation and conversions   -    3,506,027    -    6,799,640 
Total other expenses   962,004    4,264,905    1,301,868    8,158,207 
Net loss   (2,887,672)   (5,495,973)   (5,148,839)   (10,716,764)
Net loss attributable to non-controlling interests   (819,031)   -    (1,130,732)   - 
Net loss attributable to Parent   (2,068,641)   (5,495,973)   (4,018,107)   (10,716,764)
Other comprehensive income                    
Foreign currency translation adjustment   3,944    57,362    5,197    23,920 
Comprehensive loss  $(2,064,697)  $(5,438,611)  $(4,012,910)  $(10,692,844)
                     
Net loss attributable to Parent  $(2,068,641)  $(5,495,973)  $(4,018,107)  $(10,716,764)
Less – preferred stock dividends   (164,308)   (144,137)   (292,227)   (235,176)
Net loss – common shareholders   (2,232,949)   (5,640,110)   (4,310,334)   (10,951,940)
Net loss per common share - basic and diluted  $(0.15)  $(0.40)  $(0.29)  $(0.87)
Weighted average number of common shares outstanding - basic and diluted   14,927,846    14,216,404    14,872,597    12,578,344 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 1 

 

  

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
Assets          
Current Assets          
Cash  $1,654,672   $2,410,709 
Restricted cash   2,148,163    4,195,148 
Accounts receivable, net (related party $282,535 as of June 30, 2019)   764,637    403,298 
Inventory   508,792    499,848 
Prepaid expenses and other current assets   240,743    66,425 
Total Current Assets   5,317,007    7,575,428 
Restricted cash   2,546,037    2,520,523 
Equipment on operating leases, net   1,632,489    1,748,887 
Equipment, fixtures and vehicles, net   39,205    49,028 
HEBioT facility, net   36,809,730    33,104,007 
Operating lease right of use assets   996,271    - 
Intangible assets, net   50,499    83,933 
Investment in unconsolidated affiliates   1,687,383    1,687,383 
MBT facility development and license costs   8,057,522    8,475,408 
Goodwill   58,000    58,000 
Other assets   13,500    13,500 
Total Assets  $57,207,643   $55,316,097 

 

Continued on following page.

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 2 

 

  

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets, continued:

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
Liabilities and Stockholders' Equity          
Current Liabilities:          
Line of credit, net of financing costs of $23,165 and $30,670 as of June 30, 2019 and December 31, 2018, respectively  $1,476,835   $1,469,330 
Advance from related party   210,000    - 
Accounts payable   5,091,228    1,310,998 
Accrued interest payable   1,122,230    959,927 
Accrued expenses and liabilities   985,275    3,354,124 
Deferred revenue   105,374    98,596 
Customer deposits   19,822    7,683 
Note Payable   100,000    - 
Current portion of WV EDA Senior Secured Bonds payable   1,390,000    - 
Long-term debt, current portion   7,111    9,165 
Total Current Liabilities   10,507,875    7,209,823 
Note payable   -    100,000 
Junior note due to related party, net of unamortized discounts of $107,560 and $118,266 as of June 30, 2019 and December 31, 2018, respectively   936,917    926,211 
Accrued interest (related party)   1,460,083    1,305,251 
WV EDA Senior Secured Bonds payable, net of financing costs of $1,902,288 and $1,914,098 as of June 30, 2019 and December 31, 2018, respectively   29,707,712    31,085,902 
Senior Secured Note, net of financing costs of $137,092 and $160,017 and unamortized discounts of $859,986 and $988,678, as of June 30, 2019 and December 31, 2018, respectively   4,002,922    3,851,305 
Non-current lease liabilities   1,012,808    - 
Long-term debt, net of current portion   10,310    12,806 
Total Liabilities   47,638,627    44,491,298 
Series A redeemable convertible preferred stock, 333,401 shares designated and issued, and 163,312 outstanding as of June 30, 2019 and December 31, 2018   816,553    816,553 
Commitments and Contingencies   -    - 
Stockholders' Equity          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 3,179,120 and 3,159,120  designated as of June 30, 2019 and December 31, 2018, 1,922,603 issued and 874,181 outstanding as of June 30, 2019 and 1,903,753 issued and 1,155,333 outstanding as of December 31, 2018:          
Series B Convertible preferred stock, 1,111,200 shares designated: 428,333 shares issued, no shares outstanding as of June 30, 2019 and December 31, 2018   -    - 
Series C Convertible preferred stock, 1,000,000 shares designated, 427,500 shares issued and outstanding as of June 30, 2019 and December 31, 2018   3,050,142    3,050,142 
Series D Convertible preferred stock, 20,000 shares designated: 18,850 shares issued and outstanding as of June 30, 2019 and no shares issued and outstanding as of December 31, 2018   1,520,262    - 
Series E Convertible preferred stock, 714,519 shares designated: 714,519 shares issued, 264,519 and 564,519 outstanding as of June 30, 2019 and December 31, 2018   698,330    1,490,330 
Common stock, $0.0001 par value, 50,000,000 shares authorized, 15,207,956 and 14,802,956 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   1,521    1,480 
Additional paid in capital   45,249,263    43,452,963 
Accumulated deficit   (48,649,236)   (44,594,385)
Accumulated other comprehensive income   10,218    5,021 
Stockholders’ equity attributable to Parent   1,880,500    3,405,551 
Stockholders’ equity attributable to non-controlling interests   6,871,963    6,602,695 
Total Stockholders’ Equity   8,752,463    10,008,246 
Total Liabilities and Stockholders’ Equity  $57,207,643   $55,316,097 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 3 

 

  

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   Six Months Ended
June 30,
 
   2019   2018 
Cash flows used in operating activities:          
Net loss  $(5,148,839)  $(10,716,764)
Adjustments to reconcile net loss to net cash used in operations:          
Depreciation and amortization   739,412    231,120 
Provision for bad debts   30,000    21,355 
Share based employee compensation   531,603    154,913 
Interest resulting from amortization of financing costs and discounts   221,078    911,456 
Equity loss in affiliate   -    192,490 
Interest resulting from warrants valued upon conversion of host debt instruments   -    6,424,970 
Loss resulting from abandonment of MBT site   346,654    - 
Changes in operating assets and liabilities   1,261,037    (969,679)
Net cash used in operating activities   (2,019,055)   (3,750,139)
           
Cash flows used in investing activities:          
Construction in-progress and purchases of equipment, fixtures and vehicles   (4,164,592)   (6,059)
MBT facility development costs incurred   (26,269)   (233,413)
MBT facility development costs refunded   66,000    - 
Net cash used in investing activities   (4,124,861)   (239,472)
           
Cash flows from financing activities:          
Proceeds from issuance of senior secured credit facility and common stock   -    5,000,000 
Repayment of line of credit facility   -    (2,463,736)
Proceeds from new line of credit facility   -    1,000,000 
Proceeds from the sale of Series D convertible preferred stock units   1,787,500    - 
Financing costs incurred   (43,941)   (237,187)
Repayments of long-term debt   (4,549)   (4,402)
Proceeds from the subscription of Series B convertible preferred stock and warrants   -    1,125,000 
Affiliate investment in subsidiary   1,400,000    - 
Redemption of Series A preferred stock   -    (317,000)
Advance from related party   210,000    - 
Net cash provided by financing activities   3,349,010    4,102,675 
Effect of exchange rate on cash   

17,398

    38,852 
Net change in cash (restricted and unrestricted)   (2,777,508)   151,916 
Cash - beginning of period (restricted and unrestricted)   9,126,380    901,112 
Cash - end of period (restricted and unrestricted)  $6,348,872   $1,053,028 

 

Note 21 includes supplemental cash flow information, non-cash investing and financing activities and changes in operating assets and liabilities.

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 4 

 

  

BioHiTech Global, Inc. and Subsidiaries

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

 

Statement of Stockholders’ Equity Attributable to Parent for the Six Months Ended June 30, 2019:
   Preferred Stock   Common Stock   Additional 
Paid in
   Accumulated
Comprehensive
   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Other Loss   Deficit   Total 
Balance at January 1, 2019   992,019   $4,540,472    14,802,956   $1,480   $43,452,963   $5,021   $(44,594,385)  $3,405,551 
Series D preferred stock issuance   18,850    1,520,262    -    -    267,238    -    -    1,787,500 
Series E preferred stock conversion   (300,000)   (792,000)   300,000    30    791,970    -    -    - 
Share-based employee and director compensation   -    -    -    -    531,603    -    -    531,603 
Issuance of restricted stock   -    -    105,000    11    205,489    -    -    205,500 
Preferred stock dividends   -    -    -    -    -    -    (36,744)   (36,744)
Net loss   -    -    -    -    -    -    (4,018,107)   (4,018,107)
Foreign currency translation adjustment   -    -    -    -    -    5,197    -    5,197 
                                         
Balance at June 30, 2019   710,869   $5,268,734    15,207,956   $1,521   $45,249,263   $10,218   $(48,649,236)  $1,880,500 

 

Statement of Stockholders’ Equity Attributable to Parent for the Three Months Ended June 30, 2019:
   Preferred Stock   Common Stock   Additional 
Paid in
   Accumulated
Comprehensive
   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Other Loss   Deficit   Total 
Balance at April 1, 2019   999,519   $5,290,472    14,822,956   $1,482   $43,750,710   $6,274   $(46,562,223)  $2,486,715 
Series D preferred stock issuance   11,350    770,262    -    -    267,238    -    -    1,037,500 
Series E preferred stock conversion   (300,000)   (792,000)   300,000    30    791,970    -    -    - 
Share-based employee and director compensation   -    -    -    -    233,854    -    -    233,854 
Issuance of restricted stock   -    -    85,000    9    205,491    -    -    205,500 
Preferred stock dividends   -    -    -    -    -    -    (18,372)   (18,372)
Net loss   -    -    -    -    -    -    (2,068,641)   (2,068,641)
Foreign currency translation adjustment   -    -    -    -    -    3,944    -    3,944 
                                         
Balance at June 30, 2019   710,869   $5,268,734    15,207,956   $1,521   $45,249,263   $10,218   $(48,649,236)  $1,880,500 

   

Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Six Months Ended June 30, 2019:
   Non-
Controlling
   Accumulated     
   Equity Interest   Deficit   Total 
Balance at January 1, 2019  $6,679,585   $(76,890)  $6,602,695 
Investment by non-controlling interest   1,400,000    -    1,400,000 
Net loss   -    (1,130,732)   (1,130,732)
                
Balance at June 30, 2019  $8,079,585   $(1,207,622)  $6,871,963 

 

Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Three Months Ended June 30, 2019:
   Non-
Controlling
   Accumulated     
   Equity Interest   Deficit   Total 
Balance at April 1, 2019  $6,679,585   $(388,591)  $6,290,994 
Investment by non-controlling interest   1,400,000    -    1,400,000 
Net loss   -    (819,031)   (819,031)
                
Balance at June 30, 2019  $8,079,585   $(1,207,622)  $6,871,963 

 

Continued on following page.

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 5 

 

  

BioHiTech Global, Inc. and Subsidiaries

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

 

Statement of Stockholders’ Equity Attributable to Parent for the Six Months Ended June 30, 2018:
   Preferred Stock   Common Stock   Additional 
Paid in
   Accumulated
Comprehensive
   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Other Loss   Deficit   Total 
Balance at January 1, 2018   160,000   $699,332    9,598,208   $960   $17,752,990   $(38,590)  $(29,431,416)  $(11,016,724)
Issuance of Series B preferred stock   268,333    1,068,039    -    -    273,626    -    -    1,341,665 
Issuance of Series C preferred stock   427,500    3,050,142    -    -    1,360,681    -    -    4,410,823 
Common stock issued for acquisition of Gold Medal Group   -    -    500,000    50    2,249,950    -    -    2,250,000 
Share-based employee and director compensation   -    -    -    -    154,913    -    -    154,913 
Share-based professional services compensation   -    -    65,000    7    (7)   -    -    - 
Conversion of debt into common stock   -    -    3,304,140    330    9,090,045    -    -    9,090,375 
Interest on converted debt in common stock   -    -    196,050    20    915,680    -    -    915,700 
Conversion of Series B preferred stock into common stock   (428,333)   (1,767,371)   480,067    48    1,767,323    -    -    - 
Conversion of Series A preferred stock into common stock   -    -    44,444    4    199,996    -    -    200,000 
Common stock issued in connection with debt financings   -    -    320,000    32    1,212,089    -    -    1,212,121 
Warrants valued in connection with debt conversions and amendments   -    -    23,243    2    6,424,968    -    -    6,424,970 
Foreign currency translation adjustment   -    -    -    -    -     23,920    -    23,920 
Preferred stock dividends   -    -    -    -    190,969    -    (235,176)   (44,207)
Net loss   -    -    -    -    -     -    (10,716,764)   (10,716,764)
Balance at June 30, 2018   427,500   $3,050,142    14,531,152   $1,453   $41,593,223   $(14,670)  $(40,383,356)  $4,246,792 

 

Statement of Stockholders’ Equity Attributable to Parent for the Three Months Ended June 30, 2018:
   Preferred Stock   Common Stock   Additional 
Paid in
   Accumulated
Comprehensive
   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Other Loss   Deficit   Total 
Balance at April 1, 2018   855,833   $4,817,513    11,925,917   $1,192   $30,538,811   $(72,032)  $(34,743,246)  $542,238 
Share-based employee and director compensation   -    -    -    -    77,273    -    -    77,273 
Share-based professional services compensation   -    -    35,000    4    (4)   -    -    - 
Conversion of debt into common stock   -    -    1,954,563    195    5,374,806    -    -    5,375,001 
Interest on converted debt in common stock   -    -    91,161    10    391,902    -    -    391,912 
Conversion of Series B preferred stock into common stock   (428,333)   (1,767,371)   480,067    48    1,767,323    -    -    - 
Conversion of Series A preferred stock into common stock   -    -    44,444    4    199,996    -    -    200,000 
Warrants valued in connection with debt conversions and amendments   -    -    -    -    3,131,357    -    -    3,131,357 
Foreign currency translation adjustment   -    -    -    -    -    57,362    -    57,362 
Preferred stock dividends   -    -    -    -    111,759    -    (144,137)   (32,378)
Net loss   -    -    -    -    -    -    (5,495,973)   (5,495,973)
Balance at June 30, 2018   427,500   $3,050,142    14,531,152   $1,453   $41,593,223   $(14,670)  $(40,383,356)  $4,246,792 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

 6 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

  

Note 1. Basis of Presentation and Going Concern

 

Nature of Operations - BioHiTech Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned and its controlled subsidiaries offers cost-effective and technologically innovative advancements integrating technological, biological and mechanical engineering solutions for the control, reduction and / or reuse of organic and municipal waste.

 

As of June 30, 2019 and December 31, 2018, the Company’s active wholly-owned subsidiaries were BioHiTech America, LLC, BioHiTech Europe Limited, BHT Financial, LLC and E.N.A. Renewables LLC, and its controlled subsidiary was Refuel America LLC (60%) and its wholly-owned subsidiaries Apple Valley Waste Technologies Buyer, Inc., Apple Valley Waste Technologies, LLC, New Windsor Resource Recovery LLC and Rensselaer Resource Recovery LLC and its controlled subsidiary Entsorga West Virginia LLC (86.1%).

 

As of June 30, 2018, the Company’s active wholly-owned subsidiaries were BioHiTech America, LLC, BioHiTech Europe Limited, BHT Financial, LLC and E.N.A. Renewables LLC, and New Windsor Resource Recovery LLC.

 

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

 

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2018, which contains the audited financial statements and notes thereto, for the years ended December 31, 2018 and 2017 included within the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019. The financial information as of December 31, 2018 presented hereto is derived from the audited consolidated financial statements presented in the Company’s audited consolidated financial statements for the year ended December 31, 2018. The interim results for the three and six months ended June 30, 2019 is not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.

 

Reclassifications to certain prior period amounts have been made to conform to current period presentation. These reclassifications have no effect on previously reported net loss.

 

Going Concern and Liquidity - For the six months June 30, 2019, the Company had a consolidated net loss of $5,148,839, incurred a consolidated loss from operations of $3,846,971 and used net cash in consolidated operating activities of $2,019,055. At June 30, 2019, consolidated total stockholders’ equity amounted to $8,752,463, consolidated stockholders’ equity attributable to parent amounted to $1,880,500 and the Company had a consolidated working capital deficit of $5,190,868. The Company does not yet have a history of financial profitability. Historically the principal source of liquidity has been the issuance of debt and equity securities. Presently, the Company does not have firm commitments to fund its present operational and strategic plans. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

 7 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s further implementation of the Company’s on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of the on-going and strategic plans may require modification.

 

The Company is presently in the process of raising additional capital and debt for general operations and for investment in several strategic initiatives, as well as commercial debt to support its leasing activities. There is no assurance that the Company will be able to raise sufficient capital or debt to sustain operations or to pursue other strategic initiatives or that such financing will be on terms that are favorable to the Company.

 

Subsequent to June 30, 2019, on July 3, 2019 the Company sold its minority investment in Gold Medal Group, LLC for cash amounting to $2,250,000.

 

Note 2. Summary of Significant Accounting Policies

 

Use of Estimates — The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Estimates are used when accounting for items and matters including, but not limited to, valuation of deferred tax assets, share based compensation, allowance for uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and useful lives and other provisions and contingencies.

 

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).

 

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.

 

 8 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

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. 

 

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.

 

HEBioT Facility — High Efficiency Biological Treatment (“HEBioT”) facility was under construction through March 31, 2019 and includes all costs incurred to bring an asset to the condition and location necessary for its intended use, with some continuing finalizations and adjustments. Included in the capitalized costs are construction, legal, leasehold improvements, and interest. Since April 1, 2019, these costs have been depreciated over their estimated blended useful life of 20 years on a straight-line basis.

 

 9 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

MBT Facility Development Costs — The Company defers costs relating to on-going Mechanical Biological Treatment (“MBT”) facility development costs commencing upon the Company’s determination that the project will be completed. These site specific costs generally include external costs generally relating to legal, engineering and other costs relating to the acquisitions of land, permits and licenses. Upon commencement of construction, to the extent that costs relate to the facility, they are transferred to the construction in progress.

 

Investments in Unconsolidated Entities —The Company has utilized the equity method of accounting for investments in companies if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated equity basis investments. In circumstances where the Company does not have the ability to exercise significant influence or control over the operating and financial policies of the investee, the investment is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost.

 

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.

 

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.

 

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, are deducted from income attributable to common shareholders for purposes of earnings per share.

 

The Company’s potential dilutive instruments include convertible preferred stock, options, convertible debt and warrants. These instruments have not been considered in the calculation of diluted loss per share as they are anti-dilutive for the reported periods.

 

Note 3. Acquisition and Contribution Agreement

 

On November 28, 2018, Company entered into a definitive agreement (the “MIPS”) with Entsorga USA, Inc. (“EUSA”) whereby EUSA agreed to sell, transfer and convey to BioHiTech 2,687 membership units of Entsorga West Virginia, LLC (“EWV”) (the “Membership units”) in consideration of 714,519 shares of BioHiTech’s newly created Series E convertible preferred stock (the “Sr. E CPS). At the time, EWV was a facility under construction that is intended to utilize HEBioT technology to divert municipal solid waste from landfills and to create an EPA recognized alternative commodity fuel, which has since commenced operations.

 

 10 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

On December 14, 2018, the EUSA transaction was consummated. The 714,519 shares of Sr. E CPS were valued at $1,886,630 based on the underlying common shares which the Sr. E CPS is convertible into. The total acquisition price of $2,863,583 is comprised of the aforementioned transaction, plus $976,953 of previously held equity in EWV.

 

Upon consummation of the MIPS agreement BioHiTech owned a total of 4,410.4 membership units of EWV, comprised of the 2,687 units resulting from the MIPS agreement and 1,723.4 units previously acquired by BioHiTech during 2017. The 4,410.4 membership units represented 44.1% of the total membership units issued by EWV, which combined with BioHiTech’s control of EWV’s board, management and having the largest ownership block of EUSA, with the next largest block, which represents 34.1%, an entity over which BioHiTech has controlling financial interest, results in the investment being recognized in the Company’s financial statements on a consolidated basis. 

 

Following the consummation of the MIPS, on December 14, 2018, BioHiTech entered into a Contribution and Transaction Agreement (“CTA”) with Gold Medal Group, LLC (“GMG”) and a newly formed subsidiary Refuel America, LLC (“Refuel”) of the Company whereby GMG contributed $3,500,000 in cash and its 34.1% ownership interest in EVW (owned by GMG’s wholly owned subsidiary Apple Valley Waste Technologies, LLC) into Refuel and BioHiTech contributed it’s 44.1% interest in EWV, a technology license for a future HEBioT facility that BioHiTech carried at a value of $6,019,200 and $316,207 in capitalized costs relating to two separate HEBioT facility on-going projects. In exchange for the assets contributed, BioHiTech and GMG acquired 60% and 40%, respectively, of the membership units of Refuel, which approximate the carrying value of each of the BioHiTech and GMG assets contributed. As a result of there being a continuation in proportional ownership of the significant assets and the affiliate nature BioHiTech and GMG through a non-controlling interest of GMG being owned by BioHiTech and there being a management agreement between GMG’s largest subsidiary, Gold Medal Holdings, LLC (“GMH”) whereby BioHiTech provides executive management of GMH with control over the strategic and operational activities of GMH, the CTA transaction has been accounted for without separate acquisition accounting applied to the CTA elements.

 

The following presents unaudited pro forma information as if the acquisition had occurred as of January 1, 2018. The pro forma results do not include any anticipated cost synergies or other effects of the integration of the acquired company. Pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of future operating results of the combined company.

 

   For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
 
   2019   2018   2019   2018 
Pro forma revenue  $1,051,212   $909,137   $1,788,913   $1,554,863 
Pro forma net loss   (2,887,672)   (5,526,158)   (5,148,839)   (10,782,942)
Proforma earnings per share – basic and diluted   (0.15)   (0.38)   (0.29)   (0.83)

  

Note 4. Investments in Unconsolidated Entities

 

Entsorga West Virginia LLC - Effective March 21, 2017, the Company acquired a 17.2% interest in Entsorga West Virginia LLC EWV from the original investors at their original purchase price of $60,000 for each 1% of interest in EWV ($1,034,028). From March 21, 2017 through December 14, 2018 the Company recognized the investment utilizing the equity method of accounting due to its investment and its ability to influence operations and activities of EWV. On December 14, 2018, the Company consummated an additional acquisition of 2,687 membership units that resulted in the Company gaining control of EWV. From December 14, 2018, EWV is consolidated in the accompanying condensed consolidated financial statements.

 

During the three and six months ended June 30, 2018, the Company had recognized losses through equity method accounting of $6,191.

 

 11 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Gold Medal Group, LLC – On January 25, 2018, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to acquire 9.2% of the outstanding membership units (the “Units”) of GMG, which is the owner of a traditional waste management entity. Pursuant to the Purchase Agreement, the Company acquired the Units from two unrelated parties in consideration $2,250,000 paid through the issuance of 500,000 shares of the Company’s common stock.

 

Additionally, on January 25, 2018, the Company entered into an Advisory Services Agreement (the “ASA”). Under the ASA, the Company provides services relating to corporate development, strategic planning, operational and sales oversight and other general administrative and support services in exchange for fees annually amounting to the greater of $750,000, which was subsequently changed to $1,000,000, or 10% of GMG’s ordinary earnings before interest, taxes, depreciation and amortization. As a result of the investment and its ability to influence operations and activities of GMG, the Company initially recognized its investment utilizing the equity method of accounting on a three-month lag in reporting periods.

 

During 2018, the Company’s investment in GMG was diluted from 9.2% to 2.9% due to additional GMG acquisitions and investments, including the CTA with the Company. As a result of the reduction in the ownership level and accordingly, a reduction in influence, effective December 14, 2018 the Company changed its prospective accounting for GMG from the equity method to the measurement alternative to measure this equity investment as such equity investment without readily determinable fair values. At the time of the change, the net carrying amount of the investment was $1,687,383.

 

During the three and six months ended June 30, 2018, the Company had recognized losses through equity method accounting of $140,886 and $186,299, respectively.

 

Subsequent to June 30, 2019, on July 3, 2019 the Company sold its investment in Gold Medal Group, LLC for cash amounting to $2,250,000. (See Note 23)

 

Note 5. Accounts Receivable, net

 

Accounts receivable consists of the following:

 

   June 30,   December 31, 
   2019   2018 
Accounts receivable  $904,676   $513,336 
Less: allowance for doubtful accounts receivable   (140,039)   (110,038)
   $764,637   $403,298 

 

Note 6. Inventory

 

Inventory, comprised of finished goods and parts or assemblies, consist of the following:

 

   June 30,   December 31, 
   2019   2018 
Equipment  $192,796   $169,540 
Parts and assemblies   315,996    330,308 
   $508,792   $499,848 

  

 12 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Note 7. Equipment on Operating Leases, net

 

Equipment on operating leases consist of the following:

 

   June 30,   December 31, 
   2019   2018 
Leased equipment  $2,987,774   $3,054,097 
Less: accumulated depreciation   (1,355,285)   (1,305,210)
   $1,632,489   $1,748,887 

 

During the three months ended June 30, 2019 and 2018, depreciation expense on leased equipment amounted to $103,764 and $87,218, respectively. During the six months ended June 30, 2019 and 2018, depreciation expense on leased equipment amounted to $205,266 and $172,262, respectively.

 

The Company is a lessor of digester units under non-cancellable operating lease agreements expiring through May 2025. These leases generally have terms of three to five years and do not contain stated extension periods or options for the lessee to purchase the underlying assets. At the end of the leases, the lessee may enter into a new lease or return the asset, which would be available to the Company for releasing. During the three months ended June 30, 2019 and 2018, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $350,187 and $265,540, respectively. During the six months ended June 30, 2019 and 2018, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $691,852 and $553,168, respectively. 

 

The minimum future estimated contractual payments to be received under these leases as of June 30, 2019 is as follows:

 

Year ending December 31,    
2019 (remaining)  $693,321 
2020   1,121,519 
2021   806,930 
2022   533,109 
2023 and thereafter   257,725 
Total minimum future lease income as of June 30, 2019  $3,412,604 

 

Note 8. Equipment, Fixtures and Vehicles, net

 

Equipment, fixtures and vehicles consist of the following:

 

   June 30,   December 31, 
   2019   2018 
Computer software and hardware  $112,490   $112,500 
Furniture and fixtures   48,196    48,196 
Vehicles   50,319    50,319 
    211,005    211,015 
Less: accumulated depreciation and amortization   (171,800)   (161,987)
   $39,205   $49,028 

 

During the three months ended June 30, 2019 and 2018, depreciation expense amounted to $4,857 and $5,598, respectively. During the six months ended June 30, 2019 and 2018, depreciation expense amounted to $10,243 and $13,764, respectively.

 

 13 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Note 9. HEBioT Facility

 

The Company’s HEBioT facility in Martinsburg, West Virginia accepted its first test loads of solid municipal waste on March 29, 2019 to commence commissioning and equipment calibration. The Company capitalizes all costs incurred to bring an asset to the condition and location necessary for its intended use. Included in the capitalized costs are construction, specialized equipment, legal, leasehold improvements, and interest. Capitalized interest relates to the State of West Virginia Revenue Bonds and amounted to $618,706 for the three months ended March 31, 2019. The facility, while continuing commissioning and some continuing construction, was placed in service on April 1, 2019. Interest is no longer being capitalized after April 1, 2019 and depreciation amounted to $490,469 for the three months ended June 30, 2019 based on an estimated lives ranging from 10 to 35 years.

  

Note 10. MBT Facility Development and License Costs

 

MBT Facility Development and License Costs consist of the following:

 

   June 30,   December 31, 
   2019   2018 
MBT Projects          
New Windsor, New York:          
Land acquisition  $-   $66,000 
Legal   -    46,030 
Survey and engineering   -    300,624 
    -    412,654 
Rensselaer, New York:          
Survey and engineering   179,822    153,554 
Total MBT projects   179,822    566,208 
           
Technology Licenses          
Future site   6,019,200    6,019,200 
Martinsburg, West Virginia, net of $31,500 of amortization as of June 30, 2019   1,858,500    1,890,000 
Total Technology Licenses   7,877,700    7,909,200 
Total MBT Facility Development and License Costs  $8,057,522   $8,475,408 

 

MBT Facility Development Costs

 

New Windsor, New York

As of December 31, 2018, the Company was pursuing local and state permits, and other approvals required to continue development of the project. During the three months ended March 31, 2019, the Company elected to rescind an agreement for the purchase of real property with the Town of New Windsor in exchange for a return of the $66,000 paid by the Company under the rescinded contract and to relocate the project. While the Company is presently investigating several other sites for the project, as a result of abandoning the initial site, the Company has reflected an impairment expense of $346,654 relating to the site during the three months ended March 31, 2019 in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

Rensselaer, New York

During 2018, the Company commenced initial development of a project in Rensselaer, NY. As of June 30, 2019, the Company has received local permits and has filed the required state permit applications, which are undergoing review by the New York State Department of Environmental Conservation.

 

 14 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

HEBioT Technology Licenses

 

Technology License Agreement – Future Facility

On November 1, 2017, the Company entered into a Technology License Agreement (the “License Agreement”) with Entsorgafin S.p.A. (“Entsorga”) whereby the Company acquired a license for the design, development construction, installation and operation of a High Efficiency Biological Treatment (“HEBioT”) renewable waste facility with a capacity of 165,000 tons per year. The patented HEBioT technology converts mixed municipal and organic waste to a US Environmental Protection Agency recognized alternative fuel source.

 

The royalty payment for the license amounted to $6,019,200, which was comprised of 1,035,905 shares of the Company’s common stock, par value $0.0001 per share and cash payments in an amount up to $839,678 for Entsorga’s withholding taxes in the Unites States and Italy. The Company also entered into a Registration Rights Agreement with Entsorga whereby the Company granted Entsorga certain piggy-back and demand registration rights with respect to the Shares. This Technology License Agreement can be utilized at a future project and will be amortized once the facility is in operation.

 

Technology License Agreement – Martinsburg, West Virginia

In connection with the acquisition accounting applied to Entsorga West Virginia acquisition consummated on December 14, 2018, the facility License Agreement was valued at $1,890,000. During the three and six months ending June 30, 2019 amortization expense amounted to $31,500 based on an estimated fifteen year life.

 

Note 11. Intangibles Assets, net

 

Intangible assets consist of distribution and intellectual property agreements relating to the Eco-Safe digester line, as follows:

 

  

Useful

Lives

(Years)

 

Remaining

Weighted

Average

Life (Years)

 

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

 
June 30, 2019  10  0.6  $902,000   $(851,501)  $50,499 
December 31, 2018  10  0.9   902,000    (818,067)   83,933 

  

During the each of the three months ended June 30, 2019 and 2018, amortization expense, included in depreciation and amortization of operating expenses, amounted to $10,883 and $22,550, respectively. During the each of the six months ended June 30, 2019 and 2018, amortization expense, included in depreciation and amortization of operating expenses, amounted to $33,434 and $45,100, respectively. Future amortization amounts to $10,099 during the remainder of 2019 and $20,200 in each of the years ending December 31, 2020 and 2021.

 

Note 12. Goodwill

 

As of June 30, 2019 and December 31, 2018, the Company has goodwill of $58,000 resulting from the Entsorga West Virginia, LLC acquisition on December 14, 2018. Impairment testing is performed annually at the end of the calendar year. It is not anticipated that this goodwill will be tax deductible.

 

 15 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Note 13. Risk Concentrations

 

The Company operates as a single segment on a worldwide basis through its subsidiaries, resellers and independent sales agents. Gross revenues and net non-current tangible assets on a domestic and international basis are as follows:

 

  

United

States

   International   Total 
2019:               
Revenue, for the six months ended June 30, 2019  $1,546,278   $242,635   $1,788,913 
Revenue, for the three months ended June 30, 2019   904,632    146,580    1,051,212 
Non-current tangible assets, as of June 30, 2019   40,598,755    428,706    41,027,461 
                
2018:               
Revenue, for the six months ended June 30, 2018  $1,393,739   $161,124   $1,554,863 
Revenue, for the three months ended June 30, 2018   821,355    87,782    909,137 
Non-current tangible assets, as of December 31, 2018   37,151,501    284,444    37,435,945 

 

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 June 30, 2019, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Major customers — During the three months ended June 30, 2019, one customer represented at least 10% of revenues, accounting for 50.6% (Gold Medal Group, LLC, an unconsolidated affiliate “GMG”) of revenues. During the three months ended June 30, 2018, one customer represented at least 10% of revenues, accounting for 28.4% (GMG) of revenues. During the six months ended June 30, 2019, one customer represented at least 10% of revenues, 28.6% (GMG) of revenues. During the six months ended June 30, 2018, one customer represented at least 10% of revenues, 25.8% (GMG) of revenues. 

 

As of June 30, 2019, one customer represented at least 10% of accounts receivable, accounting for 37.0% (GMG) of accounts receivable. As of June 30, 2018, one customer represented at least 10% of accounts receivable, accounting for 27.3% (GMG) of accounts receivable.

 

Vendor concentration — During the three months ended June 30, 2019, one vendor represented at least 10% of costs of revenue, accounting for 24.5% (GMG). During the six months ended June 30, 2019, one vendor represented at least 10% of costs of revenue, accounting for 18.8% (GMG). During the three months ended June 30, 2018, two vendors represented at least 10% of costs of revenue, accounting for 31.6% (a 1.4% shareholder) and 18.8% of costs of revenues. During the six months ended June 30, 2018, two vendors represented at least 10% of costs of revenue, accounting for 30.4% (a 1.4% shareholder) and 16.2% of costs of revenue.

 

As of June 30, 2019, excluding construction payables and other professional fees, one vendor represented at least 10% of accounts payable accounting for 19.1% (GMG) of accounts payable. As of December 31, 2018, one vendor represented at least 10% of accounts payable, accounting for 12.0% (a 1.4% shareholder) of accounts payable. 

 

Affiliate relationship — GMG owns a 40% interest in Refuel America, LLC, a consolidated subsidiary of the Company. GMG’s subsidiaries, which are not consolidated in the Company’s financial statements have several business relationships with the Company and its subsidiaries that result in revenues and expenses noted above. See Note 20. Related Party Transactions.

 

 16 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Note 14. Line of Credit, Notes Payable, Advances, Promissory Note, Convertible Promissory Notes and Long-Term Debt

 

Notes, lines, advances and long-term debts are comprised of the following:

 

   June 30, 2019   December 31, 2018 
   Total  

Related

Party

   Total  

Related

Party

 
Line of credit  $1,476,835   $-   $1,469,330   $- 
Senior secured promissory note   4,002,922    -    3,851,305    - 
Junior promissory note   936,917    936,917    926,211    926,211 
Note payable   100,000    -    100,000    - 
Advance from related party   210,000    210,000    -    - 
Long term debt - current and long-term portion   17,421    -    21,971    - 

 

Line of Credit — On February 2, 2018, the Company’s subsidiary, BHT Financial, LLC (“BHTF”) entered into a new Credit Agreement (the “Credit Agreement”) and a Master Revolving Note (the “Note”) with Comerica that provides for a facility of up to $1,000,000, secured by the assets of BHTF. The Credit Agreement and Note were amended on November 9, 2018 to increase the facility to $1,500,000. The Note does not have any financial covenants, carries interest at the rate of 3%, plus either the Comerica prime rate or a LIBOR-based rate, (6.44% and 6.00% as of June 30, 2019 and 2018, respectively) and matures on January 1, 2020. The line of credit is secured by the assets of BHTF and is personally guaranteed by the Company’s Chief Executive Officer, Frank E. Celli and James C. Chambers, a director.

 

As of June 30, 2019, the $1,500,000 balance outstanding is presented net of $30,445 in issuance costs associated with the financing, net of $7,280 in amortization. As December 31, 2018, the $1,500,000 balance outstanding is presented net of $34,945 in issuance costs associated with the financing, net of $4,275 in amortization, respectively, 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 June 30, 2019 and December 31, 2018 and a waiver of such was granted by MCSFF. The Note is to be repaid in eight, equal, quarterly installments of $625,000 commencing on May 15, 2021 and ending February 2, 2023 (the “Maturity Date”). Additionally, the Note is secured by a general security interest in all of the Company’s assets as well all of the assets of the Company’s subsidiaries, excluding those of Entsorga West Virginia LLC which is subject to superior security interests relating to the Entsorga West Virginia LLC WVEDA bonds. Further, the Company’s Chief Executive Officer, guaranteed a portion of the Registrant’s obligations to MCSFF. In connection with the issuance of the Note, the Company issued MCSFF 320,000 shares of the Registrant’s common stock, par value $0.0001 per share. As of June 30, 2019 and December 31, 2018, the carrying balance of the Note is comprised of $5,000,000 face value, less $1,212,121 allocated to the common stock issued based upon the market value on the date issued, less associated amortization of $352,135 and $223,443, respectively, on the stock discount, less deferred financing costs of $211,187, less $74,095 and $51,170, respectively, of associated deferred financing cost amortization. All amortization is computed on the effective interest method and included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.

 

 17 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Junior Promissory Note – On February 2, 2018, the Company entered into a Securities Exchange and Note Purchase Agreement (the “Exchange Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged $4,500,000 in a note receivable from the Company and $544,777 in advances made to the Company for $4,000,000 of the Registrant’s Series C Convertible Preferred Stock, par value $0.0001 (the “Series C Preferred Stock”) and a junior promissory note (the “Junior Note”) amounting to $1,044,477, which is carried net of discounts amounting to $135,823, less associated amortization of $28,263 and $17,557 as of June 30, 2019 and December 31, 2018, respectively. The Junior Note, which is subordinated to the senior secured note, is not convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024.

 

Note Payable — As of June 30, 2019 and December 31, 2018, the note, with interest at 10%, had a remaining balance outstanding of $100,000 and matures on January 1, 2020.

 

Long Term Debt — Represents two loans collateralized by vehicles with interest ranging from 1.9% to 4.99%, each with amortizing principal payment requirements through 2020 and 2022, respectively.

 

Maturities of Senior Secured, Junior Promissory, Notes Payable and Long Term Debt— as of June 30, 2019, excluding discounts and deferred finance costs, which are being amortized as interest expense, are as follow:

 

Year Ending December 31,  Amortizing  

Non-

Amortizing

   Total 
2019 (remaining)  $4,615   $-   $4,615 
2020   4,605    100,000    104,605 
2021   4,380    1,875,000    1,879,380 
2022   3,821    2,500,000    2,503,821 
2023 and thereafter   -    1,669,477    1,669,477 
Total  $17,421   $6,144,477   $6,161,898 

 

Note 15. Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds

 

During 2016, Entsorga West Virginia LLC (the “Borrower”) was issued $25,000,000 in Solid Waste Revenue Bonds from the West Virginia Economic Development Authority (the “WVEDA Bonds”). The WVEDA Bonds were issued in two series with one for $7,535,000 bearing interest at 6.75% per annum with a maturity date of February 1, 2026 and the second for $17,465,000 bearing interest at 7.25% per annum with a maturity of February 1, 2036. Both series were issued at par. The 2026 series was payable with interest-only payments through February 1, 2019 then annual payments of principal and semi-annual payments of interest through maturity. The 2036 series is payable with interest-only payments through February 1, 2019 then annual payments of principal and semi-annual payments of interest through maturity. Repayment of principal is by way of sinking fund.

 

During 2018, the 2016 Indenture Trust and Loan Agreement were amended and restated effective November 1, 2018. These amendments provided for a third series of bonds amounting to $8,000,000 bearing interest at 8.75% per annum with a maturity date of February 1, 2036, with special event triggered pre-payment requirements. This series was issued at par. The 2036 series is payable with interest-only payments through February 1, 2020 then annual payments of principal and semi-annual payments of interest through maturity. Repayment is by way of sinking fund.

 

The outstanding balance of the WVEDA Bonds as of June 30, 2019 and December 31, 2018 is $33,000,000, which is presented net of unamortized debt issuance costs amounting to $2,189,549 and $2,145,608, less associated amortization of $287,261 and $231,510, respectively, which includes amortization prior to the Company’s control acquisition in 2018.

 

 18 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

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 that will become effective two quarters following the completion of the facility or two quarters following March 31, 2019, whichever is earlier.

 

The future sinking fund payments by the Borrower as of June 30, 2019 are as follow:

 

  

2016 Issue

2026 Series

  

2016 Issue

2036 Series

  

2018 Issue

2036 Series

   Total 
2019 (remaining)  $-   $-   $-   $- 
2020   1,160,000    -    230,000    1,390,000 
2021   1,215,000    -    255,000    1,470,000 
2022   900,000    -    275,000    1,175,000 
2023 and thereafter   4,260,000    17,465,000    7,240,000    28,965,000 
Total  $7,535,000   $17,465,000   $8,000,000   $33,000,000 

 

In connection with the November 1, 2018 amendment and restatement of the WVEDA Bonds, Comerica Bank issued a standby letter of credit in the amount of $1,250,000 (the “SbyLoC”) for the benefit of the WVEDA Bond trustee that is collateralized by the Company’s cash. The SbyLoC expires on December 31, 2019 and is drawable should the Company have an unfavorable result in the complaint file by Lemartec Corporation further disclosed in Note 18.

 

Note 16. 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 June 30, 2019 and December 31, 2018, 15,207,956 and 14,802,956 shares of common stock have been issued; and 3,179,120 and 3,159,120 shares, respectively, of preferred stock have been designated in five series of shares, which have a total of $812,528 in accumulated, but undeclared preferential dividends as of June 30, 2019, as follows:

 

   Authorized   Par   Stated   Shares Outstanding 
Designation  Shares   Value   Value   June 30, 2019   December 31, 2018 
Series A Convertible Preferred Stock   333,401   $0.0001   $5.00    163,312    163,312 
Series B Convertible Preferred Stock   1,111,200    0.0001   $5.00    -    - 
Series C Convertible Preferred Stock   1,000,000    0.0001   $10.00    427,500    427,500 
Series D Convertible Preferred Stock   20,000    0.0001   $100.00    18,850    - 
Series E Convertible Preferred Stock   714,519    0.0001   $2.64    264,519    564,519 

  

Under the terms of the Company’s senior lender agreements, the Company is restricted from paying dividends in cash, but is allowed to pay dividends in common stock. The Company, since its merger in 2015, has not paid any cash or stock dividends on common stock.

 

The consolidated financial statements include less than 100% owned and controlled subsidiaries and include equity attributable to non-controlling interests that take the form of the underlying legal structures of the less than 100% owned subsidiaries. Entsorga West Virginia LLC through its limited liability agreement and the agreements related to its WVEDA Bonds have restrictions on distributions to and loans to owners while the WVEDA Bonds are outstanding.

 

 19 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

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 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 the six months ended June 30, 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 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.

 

Warrants – In connection with the issuance of convertible debt and preferred stock and in connection with services provided, the Company has the 4,587,681 warrants to acquire the Company’s common stock outstanding as of June 30, 2019, as follows:

 

Expiring During the Year
Ending December 31,
  Warrant Shares     Exercise Price
per Share
2020     22,860     $3.50
2021     2,035,228     $3.30 to $5.00
2022     1,066,231     $3.30 to $5.00
2023     1,077,417     $3.75 to $5.50
2024     385,945     $3.50

 

The following table summarizes the outstanding warrant activity through June 30, 2019:

 

Outstanding, January 1, 2019   4,201,736 
Issued   385,945 
Exercised   - 
Expired   - 
Outstanding, June 30, 2019   4,587,681 

  

 20 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Note 17. Equity Incentive Plans

 

The Company has two equity incentive plans:

 

2015 Equity Incentive Plan — During 2015, the Company established the BioHiTech Global, Inc. 2015 Equity Incentive Plan, which is available to eligible employees, directors, consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive stock options, nonqualified stock options, reload options, stock appreciation rights, and restricted stock representing up to 750,000 shares. The Plan is administered by the Compensation Committee of the Board of Directors.

 

2017 Executive Incentive Plan — At the Annual Shareholders Meeting on June 7, 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.

 

Compensation expense related to stock options and restricted stock was:

 

   Three months ended June 30,   Six months ended June 30, 
   2019   2018   2019   2018 
Stock options  $14,363   $33,494   $72,751   $47,266 
Restricted stock   219,492    43,779    458,852    107,647 
Total  $233,855   $77,273   $531,603   $154,913 

 

Compensation expense related to stock options and restricted stock was reflected in the following captions within operating expenses in the condensed consolidated statements of operations and comprehensive loss:

 

   Three months ended June 30,   Six months ended June 30, 
   2019   2018   2019   2018 
Rental, service and maintenance  $3,317   $4,957   $9,072   $8,669 
Selling, general and administrative   230,538    72,316    522,531    146,244 
Total  $233,855   $77,273   $531,603   $154,913 

 

There were no grants of options or restricted stock during the three and six months ended June 30, 2019.

 

Unvested restricted stock activity was:

 

Balance, January 1, 2019   742,741 
Grants   - 
Forfeited   (16,786)
Vested   (258,389)
Balance, June 30, 2019   467,566 

 

Note 18. Commitments and Contingencies

 

From time to time, the Company is involved in legal matters arising in the ordinary course of business, during the six months ended June 30, 2019 the Company was involved in the following matters.

 

The Company had accrued their contractual obligations but disputed payment for a consulting services agreement with Tusk Ventures LLC (“Tusk”), in which Tusk claim that it is owed $250,000 pursuant to an agreement. This matter was filed in the Supreme Court of the State of New York, New York County in April 2017. This matter was settled on April 23, 2019. In connection with the settlement, the Company issued to the plaintiff 75,000 shares of its common stock. 

 

 21 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

On February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for the Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia alleging breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross claims against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. Trial is expected to begin in August 2020 and the Company intends to vigorously defend the complaint.

 

It is management’s opinion that the resolution of these known claims will not materially effect the Company’s financial position, results of operations, or cash flows. There can be no assurance, however, that unforeseen circumstances will not result in significant costs. While the Company believes that these such matters are currently not a risk material to the Company’s financial position, there can be no assurance that these or other matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.

 

Note 19. Leases

 

Effective January 1, 2019, the Company implemented Accounting Standards Codification 842, Leases. The guidance requires lessees to recognize most leases on the balance sheet but does not change the manner in which expenses are recorded in the income statement. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.

 

The Company utilized the optional transition method to assess the impact of this guidance on the Company’s financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet from lessee perspective. The Company completed a comprehensive review of its leases that were impacted by the new guidance.

 

As part of the adoption, the Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs, therefore the Company did not restate prior comparative periods.

 

The Company rents its headquarters and attached warehousing space from a related party (see Note 20) and has a land lease relating to the Martinsburg, WV HEBioT facility under operating leases. The HEBioT facility land lease has an initial term of 30 years, plus four 5-year extensions. For purposes of our determination of lease liabilities, extensions were not included. As the leases do not provide an implicit rate, the Company used incremental borrowing rates in determining the present value of lease payments. For the HEBioT facility land lease a rate of 11% was utilized and a rate of 10.25% was used on the other leases. The current portion of the lease liabilities of $192,681 is included in accrued expenses and liabilities. Total lease costs under operating leases amounted to $61,881 and $37,208 for the three months, and $129,413 and $70,309 for the six months ended June 30, 2019 and 2018, respectively. Maturities of lease liabilities under these leases, which have a weighted average remaining term of 24.8 years, as of June 30, 2019 is:

 

Year Ending December 31,    
2019 (remaining)  $102,812 
2020   146,926 
2021   109,000 
2022   113,000 
2023 and thereafter   

3,093,750

 
Total lease payments   

3,565,488

 
Less imputed interest   (2,359,999)
Present value of lease liabilities  $1,205,489 

 

 22 

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

During the six months ended June 30, 2019, the Company recognized operating lease right of use assets in exchange for lease liabilities amounting to $1,045,755 and had operating cash flows for operating leases amounting to $46,044 and $118,809 for the three and six months ended June 30, 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 of June 30, 2019, GMG is controlled by several private equity funds managed by Kinderhook Industries. As discussed in Note 4, the Company initially invested in GMG on January 25, 2018. As discussed in Note 23, on July 3, 2019 the Company sold its ownership interests in GMG to an entity controlled by Kinderhook Industries. As discussed in Note 3, on December 14, 2018 the Company formed a new consolidated subsidiary, Refuel America, LLC (“Refuel”) into which the Company contributed specified assets, including its ownership interest in Entsorga West Virginia, LLC (“EWV”) and other HEBioT development assets. In exchange for a 40%, but non-controlling interest in Refuel, GMG contributed its ownership interests in EWV and $3,500,000 in cash.

 

During 2018 GMG acquired as regional waste management entity, Apple Valley Waste (“AVW”), with operations located in West Virginia, Maryland and Pennsylvania. As part of this acquisition, GMG also acquired its interests in EWV that were contributed to Refuel. Prior to GMG’s acquisition of AVW and the Company’s investments and control acquisition of EWV, in order for EWV to receive the proceeds from the Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds (Note 15), EWV and AWV had entered into several agreements.

 

Business Services Agreement – On February 2, 2016, EWV and AVW entered into an agreement that whereby AVW provides solicitation, logistics management, human resources, accounting and financial management, and other general administrative and support services. This agreement has a ten-year term with automatic renewals for five-year periods, subject to prior notice of non-renewal. The agreement provides for a fee of $72,000 annually during construction and $367,600 annually upon commencement of operations. External costs incurred on behalf of EWV that are paid by AVW are rebilled at cost to EWV.

 

Solid Waste Delivery / Disposal Agreements – On November 30, 2015 EWV and several AVW subsidiaries (the “Subsidiaries”) entered into agreements that provide that the Subsidiaries will deliver a minimum tonnage of municipal solid waste (52,000 tons) and that EWV will accept up to 66,250 tons of municipal solid waste. The contracts with minimum delivery tonnage have disposal fees (tipping fees) with a weighted average price of $56.37 per ton, subject to change annually. The contracts also provide that if the Subsidiaries fail to deliver the minimum tonnage, they will pay a fee of $20 for each shortfall ton. The contracts also provide that if EWV refuses to accept tonnage presented for disposal within the minimum tonnage that EWV will pay the Subsidiaries a fee of $20 per each refused ton. Each of the agreements has a ten-year term with automatic renewals for five-year periods, subject to prior notice of non-renewal.

 

The 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.

 

      June 30,   December 31, 
      2019   2018 
Assets:             
Accounts receivable  (a) (b) (c)  $

282,535

   $168,588 
Intangible assets, net  (d)   50,499    83,933 
Liabilities:             
Accounts payable  (d) (e) (f) (g)   1,209,242    160,761 
Accrued interest payable      46,796    46,796 
Long term accrued interest  (h)   1,460,083    1,305,251 
Advance from related party  (i)   210,000    - 
Junior promissory note  (h)   936,917    926,211 
Other:             
Line of credit guarantee  (j)   1,476,835    1,469,330 

 

 23 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

The table below presents direct related party expenses or transactions for the three and six months ended June 30, 2019 and 2018. Compensation and related costs for employees of the Company are excluded from the table below.

 

      Three months ended June 30,   Six months ended June 30, 
      2019   2018   2019   2018 
Management advisory and other fees  (a) (b)  $250,000   $

250,656

   $500,000   $390,039 
HEBioT revenue  (c)   275,142    -    275,142    - 
Rental, services and maintenance revenue  (k)   -    14,361    -    44,286 
Operating expenses - HEBioT  (e)   144,025    -    144,025    - 
Operating expenses - Rental, services and maintenance  (f)   11,041    13,445    22,033    22,273 
Operating expenses - Selling, general and administrative  (d) (f) (g)   124,229    50,000    174,524    131,505 
Interest expense      59,767    59,957    118,087    204,199 
Debt guarantee fees  (j)   16,875    4,167    33,750    20,833 
Cost of revenue, inventory or equipment on operating leases acquired  (d)   -    6,099    -    11,805 

 

(a)Management Advisory Fees - The Company provides management advisory services to Gold Medal Holdings, Inc., a subsidiary of GMG.

 

(b)Project Fees – In addition to Management Advisory Fees, the Company also has provided to GMG subsidiaries non-management advisory services related to projects relating to technology and operations.

 

(c)HEBioT Disposal Revenues – Entsorga West Virginia, LLC has a series of agreements with GMG subsidiaries entities that provide for specified fees for each ton of municipal waste delivered to the HEBioT facility.

   

(d)Distribution Agreement - BioHiTech has an exclusive license and distribution agreement (the “License Agreement”) with BioHiTech International, Inc., a company owned by James Koh, a BioHiTech shareholder and other unrelated parties. The License Agreement provides distribution rights to the Eco-Safe Digester through December 31, 2023 (unless extended by mutual agreement) and for annual payments to Mr. Koh in the amount of $200,000 for the term of the License Agreement and a 2.5% additional commission on all sales closed by Mr. Koh. Effective October 17, 2018, the agreement was amended to reduce the annual payments to $75,000 and to remove several international locations that the Company does not actively market.

 

(e)Disposal costs – A GMG subsidiary has provided logistics and disposal of non-recovered municipal solid waste to the HEBioT facility.

 

(f)Facility Lease - The Company leases its corporate headquarters and warehouse space from BioHiTech Realty LLC, a company owned by two stockholders of the Company, one of whom is the Chief Executive Officer. The lease expires in 2020, with a renewal option for an additional five-year period. Minimum lease payments as of June 30, 2019 under these operating leases total $96,075, with $54,149 due in 2019 and $41,926 due in 2020.

 

(g)Business Services Fees – A GMG subsidiary provides certain general management and administrative support to the HEBioT facility.

 

 24 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

(h)Junior Promissory Note - On February 2, 2018, the Company entered into a Securities Exchange and Note Purchase Agreement (the “Exchange Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged $4,500,000 in a note receivable from the Company and $544,777 in advances made to the Company for $4,000,000 of the Registrant’s Series C Convertible Preferred Stock, par value $0.0001 (the Series C Preferred Stock”) and a junior promissory note (the “Junior Note”). 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.

 

(i)Advance from Related Party - The Company’s Chief Executive Officer (the “Officer”) on occasion  advances the Company funds for operating and capital purposes. The advances bear interest at 13% and are unsecured and due on demand. There are no financial covenants related to this advance and there are no formal commitments to extend any further advances.

 

(j)Line of Credit - Under the terms of the line of credit, several related parties have personally guaranteed the line and are contingently liable should the Company not meet its obligations under the line. In connection with the line of credit, the Chief Executive Officer and a Director have provided a guarantee of the line of credit in exchange for a fee representing 4.5% of the debt.

 

(k)Consulting Revenue - The Company provided environmental and project consulting to Entsorga West Virginia LLC, an entity that the Company accounted for as an equity investment from March 2017 through December 14, 2018, the date of its control acquisition.

 

Note 21. 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.

 

   Six Months Ended June 30, 
   2019   2018 
Changes in operating assets and liabilities:          
Accounts receivable  $(557,238)  $(144,413)
Inventory   (93,088)   (724,217)
Prepaid expenses and other assets   28,943    (48,461)
Accounts payable   4,009,255    39,023 
Accrued interest payable   280,391    297,645 
Accrued expenses   (2,425,948)   (388,822)
Deferred revenue   6,583    31,929 
Customer deposits   12,139    (32,363)
Net change in operating assets and liabilities  $1,261,037   $(969,679)
           
Supplementary cash flow information:          
Cash paid during the periods for:          
Interest  $1,235,366   $234,065 
Income taxes   -    - 

 

 25 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

   Six Months Ended June 30, 
   2019   2018 
Supplementary Disclosure of Non-Cash Investing and Financing Activities:          
Transfer of inventory to leased equipment  $95,398   $343,539 
Common stock issued in settlement of accounts payable   205,500    - 
Common stock issued in settlement of accrued interest   -    915,700 
Common stock issued in acquisition of Gold Medal Group, LLC   -    2,250,000 
Conversion of notes into common stock   -    9,090,375 
Conversion of Series B preferred stock into common stock   -    1,767,371 
In-Kind payments by investors for common and preferred stock   -    216,665 
Conversion of Series A preferred stock into common stock   -    200,000 
Exchange of related party notes payable and advances for Series C preferred stock, warrants and notes payable   -    5,319,777 
Accrual of Series A preferred stock dividends   36,744    44,207 
           
Reconciliation of Cash and Restricted Cash:          
Cash  $1,654,672   $1,053,028 
Restricted cash (short term)   2,148,163    - 
Restricted cash (non-current)   2,546,037    - 
Total cash and restricted cash at the end of the period  $6,348,872   $1,053,028 

 

Note 22. Recent Accounting Standards

 

During the six months ended June 30, 2019, the Company adopted the following recent accounting standards:

 

Leases — In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases), which has subsequently been amended by ASU No. 2018-11, Leases in July 2018. Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2018-11 provides that under certain instances lessors may not be required to separate the components of the contracts. As a lessor of digester equipment under operating leases, the new guidance did not have a material impact on the financial statements. As a lessee under operating leases the adoption did not have a material impact on our financial statements, resulting in an increase of 2% to each of our total assets and total liabilities on our balance sheet, and had an immaterial impact to retained earnings as of the beginning of 2019. See Note 19.

 

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842, Codification Improvements), which removed the requirement for an entity to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial statement line item, or per share amount. For lessors, the new leasing standard requires leases to be classified as sales-type, direct financing or operating leases. These criteria focus on the transfer of control of the underlying asset. This standard and related updates were effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-01 on January 2019. See Note 19 for disclosures related to this amended guidance.

 

 26 

 

  

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

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.

 

On July 3, 2019 the Company entered into a purchase and sale agreement with Gold Medal Equity, LLC (“GME”), the parent entity to GMG to sell the Company’s 2,250,000 GMG Investment Preferred Units and 2,250,000 Class A Common Units of GMG to GME for total compensation of $2,250,000. As of June 30, 2019, these investments were carried by the Company with an adjusted cost of $1,687,383 resulting in a gain of $562,617 on July 3, 2019.

 

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 consolidating balance sheet as of June 30, 2019 and December 31, 2018 and its condensed consolidating statement of operations for the three and six months ended June 30, 2019, and cash flows for the six months ended June 30, 2019, for Entsorga West Virginia LLC and the Parent and other Company subsidiaries not subject to the WVEDA Solid Waste Disposal Revenue Bond restrictions and the elimination entries necessary to present the Company’s financial statements on a consolidated basis. These following condensed consolidating financial information should be read in conjunction with the Company's consolidated financial statements.

 

 27 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Condensed Consolidating Balance Sheet as of June 30, 2019

 

  

Parent

and other

Subsidiaries

  

Entsorga

West

Virginia LLC

   Eliminations   Consolidated 
Assets                    
Cash  $1,585,397   $69,275   $-   $1,654,672 
Restricted cash   -    2,148,163    -    2,148,163 
Other current assets   1,113,968    432,642    (32,438)   1,514,172 
Current assets   2,699,365    2,650,080    (32,438)   5,317,007 
Restricted cash   -    2,546,037    -    2,546,037 
HEBioT facility   -    36,809,730    -    36,809,730 
Other fixed assets   1,671,694    -    -    1,671,694 
Operating lease right of use assets   93,619    902,652    -    996,271 
MBT facility development and license costs   8,057,522    -    -    8,057,522 
Intangible assets, net and investment in subsidiaries   9,078,073    1,858,500    (9,198,691)   1,737,882 
Goodwill   -    58,000    -    58,000 
Other assets   13,500    -    -    13,500 
Total assets  $21,613,773   $44,824,999   $(9,231,129)  $57,207,643 
                     
Liabilities and stockholders’ equity                    
Line of credit  $1,476,835   $-   $-   $1,476,835 

Current portion of WV EDA Bonds

   

-

    

1,390,000

    

-

    

1,390,000

 
Other current liabilities   2,396,146    5,277,332    (32,438)   7,641,040 
Current liabilities   3,872,981    

6,667,332

    (32,438)   

10,507,875

 
Notes payable and other debts   4,950,149    -    -    4,950,149 
Accrued interest   1,460,083    -    -    1,460,083 
Non-current lease liabilities   -    1,012,808    -    1,012,808 
WV EDA bonds   -    

29,707,712

    -    

29,707,712

 
Total liabilities   10,283,213    37,387,852    (32,438)   47,638,627 
Redeemable preferred stock   816,553    -    -    816,553 
Stockholder’s equity:                    
Attributable to parent   1,880,500    -    -    1,880,500 
Attributable to non-controlling interests   8,633,507    7,437,147    (9,198,691)   6,871,963 
Stockholders’ equity   10,514,007    7,437,147    (9,198,691)   8,752,463 
Total liabilities and stockholders’ equity  $21,613,773   $44,824,999   $(9,231,129)  $57,207,643 

 

Condensed Consolidating Statement of Operations for the three months ended June 30, 2019

 

  

Parent

and other

Subsidiaries

  

Entsorga

West

Virginia LLC

   Eliminations   Consolidated 
Revenue  $774,171   $277,041   $-   $1,051,212 
Operating expenses                    
HEBioT   -    493,546    -    493,546 
Rental, service and maintenance expense   128,311    -    -    128,311 
Equipment sales   38,726    -    -    38,726 
Selling, general and administrative   1,420,649    285,675    -    1,706,324 
Depreciation and amortization   119,504    490,469    -    609,973 
Total operating expenses   1,707,190    1,269,690    -    2,976,880 
Loss from operations   (933,019)   (992,649)   -    (1,925,668)
Other expenses, net   142,699    732,943    86,362    962,004 
Net loss  $(1,075,718)  $(1,725,592)  $(86,362)  $(2,887,672)

 

 28 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Condensed Consolidating Statement of Operations for the six months ended June 30, 2019

 

  

Parent

and other

Subsidiaries

  

Entsorga

West

Virginia LLC

   Eliminations   Consolidated 
Revenue  $1,511,872   $277,041   $-   $1,788,913 
Operating expenses             -      
HEBioT   -    493,546    -    493,546 
Rental, service and maintenance expense   331,514    -    -    331,514 
Equipment sales   38,726    -    -    38,726 
Selling, general and administrative   3,477,896    554,790    -    4,032,686 
Depreciation and amortization   248,943    490,469    -    739,412 
Total operating expenses   4,097,079    1,538,805    -    5,635,884 
Loss from operations   (2,585,207)   (1,261,764)   -    (3,846,971)
Other expenses   454,686    760,820    86,362    1,301,868 
Net loss  $(3,039,893)  $(2,022,584)  $(86,362)  $(5,148,839)

 

Condensed Consolidating Statement of Cash Flows for the six months ended June 30, 2019

 

   

Parent

and other

Subsidiaries

   

Entsorga

West

Virginia LLC

    Eliminations     Consolidated  
Cash flows used in operating activities:                                
Net loss   $ (3,039,893 )   $ (2,022,584 )   $ (86,362   $ (5,148,839 )
Adjustments to reconcile net loss to net cash used in operations     1,232,948       549,437       86,362       1,868,747  
Changes in operating assets and liabilities     17,817       1,243,220       -       1,261,037  
Net cash used in operations     (1,789,128 )     (229,927 )     -       (2,019,055 )
                                 
Cash flow used in investing activities:                                
Construction in process and acquisitions of property and equipment     -       (4,164,691 )     -       (4,164,691 )
Capital contribution to Entsorga West Virginia, LLC     (2,486,362 )     -       2,486,362       -  
Other investing activities     39,830       -       -       39,830  
Net cash used in investing activities     (2,446,532 )     (4,164,691 )     2,486,362       (4,124,861 )
                                 
Cash flows from financing activities:                                
Issuances of debt and equity     3,397,500       2,486,362       (2,486,362 )     3,397,500  
Repayments of debt     (4,549 )     -       -       (4,549 )
Deferred financing costs incurred     -       (43,941 )     -       (43,941 )
Net cash provided by financing activities     3,392,951       2,442,421       (2,486,362 )     3,349,010  
Effect of exchange rate on cash     17,398       -       -       17,398  
Cash – beginning of period (restricted and unrestricted)     2,410,708       6,715,672       -       9,126,380  
Cash – end of period (restricted and unrestricted)   $ 1,585,397     $ 4,763,475     $ -     $ 6,348,872  

 

 29 

 

   

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018

 

Condensed Consolidating Balance Sheet as of December 31, 2018

 

  

Parent

and other

Subsidiaries

  

Entsorga

West

Virginia LLC

   Eliminations   Consolidated 
Assets                    
Cash  $2,410,709   $-   $-   $2,410,709 
Restricted cash   -    4,195,148    -    4,195,148 
Other current assets   969,571    -    -    969,571 
Current assets   3,380,280    4,195,148    -    7,575,428 
Restricted cash   -    2,520,523    -    2,520,523 
HEBioT facility under construction   -    33,104,007    -    33,104,007 
Other fixed assets   1,797,915    -    -    1,797,915 
MBT facility development and license costs   6,585,408    1,890,000    -    8,475,408 
Intangible assets, net and investment in subsidiaries   7,626,268    -    (5,854,952)   1,771,316 
Goodwill   -    58,000    -    58,000 
Other assets   13,500    -    -    13,500 
Total assets  $19,403,371   $41,767,678   $(5,854,952)  $55,316,097 
                     
Liabilities and stockholders’ equity                    
Line of credit  $1,469,330   $-   $-   $1,469,330 
Other current liabilities   2,032,083    3,708,410    -    5,740,493 
Current liabilities   3,501,413    3,708,410    -    7,209,823 
Notes payable and other debts   4,890,322    -    -    4,890,322 
Accrued interest   1,305,251    -    -    1,305,251 
WV EDA bonds   -    31,085,902    -    31,085,902 
Total liabilities   9,696,986    34,794,312    -    44,491,298 
Redeemable preferred stock   816,553    -    -    816,553 
Stockholder’s equity                    
Attributable to parent   3,405,551    5,854,952    (5,854,952)   3,405,551 
Attributable to non-controlling interests   5,484,281    1,118,414    -    6,602,695 
Stockholders’ equity   8,889,832    6,973,366    (5,854,952)   10,008,246 
Total liabilities and stockholders’ equity  $19,403,371   $41,767,678   $(5,854,952)  $55,316,097 

 

 30 

 

 

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

 

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on April 1, 2019.

 

Cautionary Note Regarding Forward-Looking Statements

 

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

 

Overview

 

The Company was incorporated on March 20, 2013 under the laws of the state of Delaware as Swift Start Corp. On August 6, 2015, Swift Start Corp. entered into and consummated an Agreement of Merger and Plan of Reorganization with BioHiTech Global, Inc. and Bio Hi Tech America, LLC, after which it adopted the business plan of Bio Hi Tech, America, LLC, and changed its name to BioHiTech Global, Inc.

 

The Company’s primary objective has been to disrupt the traditional waste management industry in North America through the development, deployment and utilization of its own proprietary technologies and processes, as well as proven technologies it has acquired from other worldwide areas, to provide the market commercially viable, fully integrated, sustainable waste management disposal options to replace less environmentally sound historical options. The Company offers two proprietary products and services that can be utilized separately or in tandem. The Company provides on-site, data driven cost-effective products for food waste reduction and elimination, as well as automated facilities capable of converting municipal solid waste delivered by municipalities and large organizations by utilizing a mechanical and biological process that reduces moisture content, recovers certain recyclables and ultimately produces an E.P.A. recognized alternative fuel commodity to be used as a supplement to traditional fossil fuels. Each of the Company’s products result in significantly less waste ultimately transported to landfills.

 

Immediately after the merger, the Company’s initial focus was primarily on its on-going food waste disposal Digester business and related technologies.

 

During 2016 and 2017, the Company expanded from its digester single product line by starting strategic initiatives in Mechanical Biological Treatment (“MBT”) facilities that rely upon High Efficiency Biological Treatment (“HEBioT”) to process waste at the municipal or enterprise level converting a significant portion of intake into an United States EPA recognized alternative commodity fuel.

 

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During 2018, the Company completed a step transaction that allowed the Company to control the first HEBioT facility under construction in the United States. This facility commenced commissioning during the first quarter of 2019 and commenced commercial operation in the second quarter of 2019. Upon commencement of operations, the HEBioT and digester businesses each represent an operating segment, which are aggregated into one reportable segment.

 

The combination of on-site digester and HEBioT technology solutions result in a unique offering that provides a turn-key solution for customers seeking to achieve zero waste. The Company envisions use of its digesters for disposal of food waste at certain retail customer’s locations, with regional disposal services being directed to the Company’s HEBioT facilities. The digester’s technology can reduce 100% of a customer’s food waste at the source of generation with the HEBioT process converting a majority of a customer’s remaining waste stream into an alternative fuel product. The integrated process represents a cost effective solution that can result in less than 20% of each customer’s waste being directed to landfills, hence resulting in a near-zero footprint. Operation of the Company’s first HEBioT facility commenced on April 1, 2019 in Martinsburg, WV.

  

Results of operations for the three months ended June 30, 2019

compared to the three months ended June 30, 2018

 

The following summarizes our operating results for the three months ended June 30, 2019 and 2018:

 

   Three Months Ended June 30, 
   2019   2018 
Revenues  $1,051,212    100%  $909,137    100%
Operating expenses   2,976,880    283    2,140,205    235 
Loss from operations   (1,925,668)   (183)   (1,231,068)   (135)
Non-operating expenses   962,004    92    4,264,905    469 
Net loss   (2,887,672)   (275)   (5,495,973)   (604)
Less net loss attributable to non-controlling interests   819,031    78    -    - 
Net loss attributable to Parent  $(2,068,641)   (197)%  $(5,495,973)   (604)%

 

During the second quarter, the Martinsburg HEBioT facility continued through commissioning and initiated acceptance of municipal solid waste (“MSW”) for further refinement of the facilities processes. During this period tipping fees amounting to $277,041were charged for the MSW. As the facility was not yet ready to deliver solid recovered fuel (“SRF”) during the commissioning process while testing was underway, the plant incurred expenses related to operating the plant, as well as additional disposal fees associated with the SRF. HEBioT process expenses amounted to $493,546 for the quarter, resulting in a negative contribution, before selling, general and administrative and depreciation and amortization of $216,505. The facility achieved the desired fuel specifications and commenced selling and delivering SRF in July, which will result in a reduction of future disposal expenses. During the quarter, the facility also incurred $285,675 in selling general and administrative expenses, as well as $490,469 in depreciation and amortization resulting in a loss from operations of $992,649. Comparing the operations that existed during 2018 to the same operations in 2019, the loss from operations decreased by $298,049 (24.2%) from $1,231,068 to $933,019.

 

The following summarizes revenues for the three months ended June 30, 2019 and 2018:

 

   Three Months Ended June 30, 
   2019   2018 
Revenue:                    
HEBioT  $277,041    26%  $-    -%
Rental, service and maintenance   448,937    43    458,843    50 
Equipment sales   75,234    7    199,638    22 
Management advisory and other fees   250,000    24    250,656    28 
Total revenue  $1,051,212    100%  $909,137    100%

 

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Revenue

 

HEBioT revenue represents MSW tip fees earned during the commissioning this quarter. The facility is designed to convert the MSW into SRF, which is classified by the US Environmental Protection Agency as an alternative commodity fuel. The Company’s first sale of SRF occurred in late July 2019.

 

Rental, service and maintenance revenue decreased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $9,906, or 2.1% primarily due to a reduction in environmental consulting. Digester rental revenue increased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $84,677, or 31.9% primarily due to the larger overall number of units deployed. As of June 30, 2019, the Company has 199 units under lease, as compared to 151 as of June 30, 2018. This increase of 48 units is primarily related to the Revolution Series of digesters that have lower customer costs. Offsetting the increase in rental revenue were decreases in non-rental maintenance and parts services due to greater reliability of the Company’s newest generation of products. The Company continues to replace older generation, higher revenue generating products with lower cost, more reliable Revolution digester products.

 

The Company focuses its digester sales efforts on rental of its units. During the three months ended March 31, 2019 there were no sales of digester units, although during the three months ended June 30, 2019 the Company had several sales to customers that prefer to buy over rent.

 

The management fees relate to services provided to Gold Medal Group, LLC and subsidiaries (“GMG”), a related party, for executive management and other special projects.

 

Operating expenses

 

The following table breaks down our operating expenses by type for the three months ended June 30, 2019 and 2018:

 

   Three Months Ended June 30, 
   2019   2018 
HEBioT processing  $493,546    17%  $-    -%
Rental, service and maintenance   128,311    4    228,515    11 
Equipment sales   38,726    1    108,846    5 
Selling, general and administrative expenses                    
Personnel related:                    
Salaries and non-stock compensation   792,257    26    983,055    46 
Stock based compensation   230,538    8    72,316    3 
Total personnel related   1,022,795    34    1,055,371    49 
Professional fees:                    
Legal   167,010    6    65,840    3 
Accounting   97,484    3    75,789    4 
Investor relations and investment banking   46,000    1    22,000    1 
Marketing   (37,621)   (1)   5,525    - 
Total professional fees   272,873    9    169,154    8 
Marketing   39,427    1    96,586    4 
Office operations   201,490    7    98,310    5 
Other   169,739    6    268,057    13 
Total Selling, general and administrative   1,706,324    57    1,687,478    79 
Depreciation and amortization   609,973    21    115,366    5 
Total operating expenses  $2,976,880    100%  $2,140,205    100%

  

HEBioT processing expenses

 

HEBioT processing expenses, which have first been incurred during the three months ended June 30, 2019 mainly consists of the labor, disposal costs, utilities and state fees, as well as repairs, maintenance and supplies.

 

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Rental, service and maintenance expenses

 

Rental, service and maintenance expenses mainly consists of the cost of warehousing, installation, maintenance, parts and shipping costs, as well as related salary and employee costs related to rental units. Rental, service and maintenance expense decreased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $100,204, or 43.9%, primarily due to improved economies of scale resulting from the increase in the number of units under rental, lower recurring maintenance costs associated with the Revolution Series of digesters as well as lower levels of non-rental service and parts revenues (and resulting expenses). The contribution before depreciation from rental, service and maintenance activities increased by $90,298, or 39.2% from $230,328 for the three months ended June 30, 2018 to $320,626 for the three months ended June 30, 2019, resulting in a contribution margin on related sales of 71.4% for the three months ended June 30, 2019, as compared to 50.2% for the three months ended June 30, 2018. 

 

Equipment sales expense

 

While the Company’s focus is on utilizing the rental method of deployment there was $75,234 in sales of digesters during the three months ended June 30, 2019. Equipment sales profit decreased as a result of reduced sales which generated a gross profit of $36,508 for the three months ended June 30, 2019 and a margin of 48.5%, as compared to $90,792 and 45.5% for the three months ended June 30, 2018. The Company does anticipate that equipment sales will occur in the future based upon customer requirements.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $18,846, or 1.1%. Included in these expenses are $285,676 in new expenses related to the HEBioT facility. Excluding the new HEBioT related expenses, selling general and administrative expenses decreased by $266,830 or 15.8% from the three months ended June 30, 2018 to the three months ended June 30, 2019.

 

Personnel related expenses decreased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $32,576, or 3.1% in total. Stock based compensation (a non-cash expense) increased by $158,222 as a result of grants made in the second half of 2018. Base salaries and payroll decreased by $190,798, or 19.4% due to staff reductions in late 2018, offset by increases of $16,993 in additional base salaries and payroll related to the HEBioT facility.

  

Professional fees increased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $103,719, or 61.3% in total. Combined legal and accounting increased by $122,864, 86.8% primarily driven by $103,257 of fees relating to litigation and expanded accounting services related to the HEBioT facility. Marketing fees were negative due to a favorable litigation outcome of $44,500 unrelated to the HEBioT facility.

 

Marketing and office operations on a combined basis increased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $46,021, or 23.6%. This increase includes marketing and office operations of $71,754 relating to the HEBioT facility.

 

Other expenses decreased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $98,318 primarily as a result of a reduction in foreign currency expense of $79,387 and in other historical fees and costs. 

 

Other expenses

 

The following table breaks down our other expenses by type for the three months ended June 30, 2019 and 2018:

 

   Three Months Ended June 30, 
   2019   2018 
Equity loss in affiliate  $-    -%  $147,077    4%
Interest expense, net   962,004    100    611,801    14 
Interest expense incurred in warrant valuation and conversions   -    -    3,506,027    82 
Total other expense  $962,004    100%  $4,264,905    100%

 

 34 

 

 

Other expenses decreased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $3,302,901 due to no equity losses in affiliates or warrant valuation and conversion interest, offset by a $350,203 increase in interest expense, which is the result of $646,581 of interest related to the HEBioT facility offset by a $296,378 decrease in interest, which is primarily the result of conversions of debt to equity in April 2018 resulting from the Company’s uplisting to NASDAQ.

 

Depreciation and amortization

 

Depreciation and amortization increased from the three months ended June 30, 2018 to the three months ended June 30, 2019 by $494,607 due primarily to $490,469 of depreciation and amortization related to the HEBioT facility.

 

Income tax

 

For the three months ended June 30, 2019 and 2018 there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery of the tax asset resulting in net operating loss carry-forward.

 

Results of operations for the six months ended June 30, 2019

compared to the six months ended June 30, 2018

 

The following summarizes our operating results for the six months ended June 30, 2019 and 2018:

 

   Six Months Ended June 30, 
   2019   2018 
Revenues  $1,788,913    100%  $1,554,863    100%
Operating expenses   5,635,884    315    4,113,420    265 
Loss from operations   (3,846,971)   (215)   (2,558,557)   (165)
Non-operating expenses   1,301,868    73    8,158,207    524 
Net loss   (5,148,839)   (288)   (10,716,764)   (689)
Less net loss attributable to non-controlling interests   1,130,732    63    -      
Net loss attributable to Parent  $(4,018,107)   (225)%  $(10,716,764)   (689)%

 

The six months ended June 30, 2019 include the HEBioT facility, which continued through commissioning and initiated accepting MSW for further refinement of the facilities processes during the second quarter. The HEBioT facility is not included in the comparable 2018 period. During the six months ended June 30, 2019 tipping fees amounting to $277,041were charged for the MSW. As the facility was not yet ready to deliver SRF during the commissioning process the plant incurred expenses related to operating the plant, as well as additional disposal fees associated with the SRF. In total HEBioT process expenses amounted to $493,546 for the six months ended June 30, 2019, resulting in a negative contribution, before selling, general and administrative and depreciation and amortization of $216,505. The facility commenced selling SRF during July, which will result in a reduction of future disposal expenses and provide an additional revenue source. During the six months ended June 30, 2019, the facility also incurred $554,790 in selling, general and general expenses, as well as $490,469 in depreciation and amortization resulting in a loss from operations of $1,261,764. Comparing the operations that existed during 2018 to the same operations in 2019, the loss from operations increased by $26,650 (1.0%) from $2,558,557 to $2,585,207.

 

The following summarizes revenues for the six months ended June 30, 2019 and 2018:

 

   Six Months Ended June 30, 
   2019   2018 
Revenue:                    
HEBioT processing  $277,041    16%  $-    -%
Rental, service and maintenance   936,638    52    899,336    58 
Equipment sales   75,234    4    265,488    17 
Management advisory and other fees   500,000    28    390,039    25 
Total revenue  $1,788,913    100%  $1,554,863    100%

 

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Revenue

 

HEBioT revenue represents MSW tip fees earned during the commissioning during the second quarter. The facility is designed to convert the MSW into SRF, which is classified by the US Environmental Protection Agency as an alternative commodity fuel. The Company’s first sale of SRF occurred in late July 2019.

 

Rental, service and maintenance revenue increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $37,302, or 4.1% primarily due to a reduction in environmental consulting. Digester rental revenue increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $138,713, or 25% primarily due to the larger overall number of units deployed. Offsetting the increase in rental revenue were decreases in non-rental maintenance and parts services associated with greater reliability of the digester products.

 

The Company’s focus is on the rental of its digester units. During the six months ended June 30, 2019 the Company had several sales to customers that prefer to buy over rent.

 

The management fees relate to services provided to GMG for executive management and other special projects. The $109,961 increase from the six months ended June 30, 2018 to the six months ended June 30, 2019 is due to an increase in the fee to $1,000,000 per year.

 

Operating expenses

 

The following table breaks down our operating expenses by type for the six months ended June 30, 2019 and 2018:

 

   Six Months Ended June 30, 
   2019   2018 
HEBioT  $493,546    9%  $-    -%
Rental, service and maintenance   331,514    6    465,411    11 
Equipment sales   38,726    1    149,421    4 
Selling, general and administrative expenses                    
Personnel related:                    
Salaries and non-stock compensation   1,740,229    

31

    1,966,577    48 
Stock based compensation   522,531    9

    146,244    3 
Total personnel related   2,262,760    40    2,112,821    51 
Professional fees:                    
Legal   318,329    6    173,104    4 
Accounting   271,756    5    218,409    5 
Investor relations and investment banking   100,075    2    57,990    2 
Marketing   (37,331)   

(1

)   6,513    - 
Total professional fees   652,829    12    456,016    11 
Marketing   81,883    1    199,564    5 
Office operations   365,673    6    209,999    5 
Other   669,541    12    289,068    7 
Total Selling, general and administrative   4,032,686    71    3,267,468    79 
Depreciation and amortization   739,412    13    231,120    6 
Total operating expenses  $5,635,884    100%  $4,113,420    100%

 

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Rental, service and maintenance expenses

 

Rental, service and maintenance expenses mainly consists of the cost of warehousing, installation, maintenance, parts and shipping costs, as well as related salary and employee costs related to rental units. Rental, service and maintenance expense decreased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $133,897, or 28.8%, primarily due to improved economies of scale resulting from the increase in the number of units under rental, lower maintenance costs associated with the Revolution Series of digesters as well as lower levels of non-rental service and parts revenues (and resulting expenses. The contribution before depreciation from rental, service and maintenance activities increased by $171,199, or 39.2% from $433,925 for the six months ended June 30, 2018 to $605,124 for the six months ended June 30, 2019, resulting in a contribution margin on related sales of 64.6% for the six months ended June 30, 2019, as compared to 48.3% for the three months ended June 30, 2018. 

 

Equipment sales expense

 

While the Company’s focus is on utilizing the rental method of deployment there was $75,234 in sales of digesters during the six months ended June 30, 2019. Equipment sales profit decreased as a result of reduced sales which generated a gross profit of $36,508 for the three months ended June 30, 2019 and a margin of 48.5%, as compared to $116,067 and 43.7% for the six months ended June 30, 2018. The Company does anticipate that equipment sales will occur in the future based upon customer requirements.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $765,218, or 23.4%. Included in these expenses are $554,790 in new expenses related to the HEBioT facility. Excluding the new HEBioT related expenses, selling general and administrative expenses increased by $210,428 or 6.4% from the six months ended June 30, 2018 to the six months ended June 30, 2019.

 

Personnel related expenses increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $149,939, or 7.1% in total. Stock based compensation (a non-cash expense) increased by $376,287 as a result of grants made in the second half of 2018. Base salaries and payroll decreased by $226,348, or 11.5% due to staff reductions in late 2018, offset by increases of $51,273 in additional base salaries and payroll related to the HEBioT facility.

  

Professional fees increased from the six months ending June 30, 2018 to the six months ending June 30, 2019 by $196,813, or 43.2% in total. Combined legal and accounting increased by $198,572, 50.7% primarily driven by $221,697 of fees relating to litigation and expanded accounting services related to the HEBioT facility. Marketing fees were negative due to a favorable litigation outcome of $44,500 unrelated to the HEBioT facility.

 

Marketing and office operations on a combined basis increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $37,995, or 9.3%. This net increase includes marketing and office operations of $161,050 relating to the HEBioT facility.

 

Other expenses increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $380,473 primarily as a result of a write-off of costs associated with a MBT site, which amounted to $346,654, and $120,771 in fees and costs related to the HEBioT facility, offset in part by a reduction in other fees and costs that include those relating to the Company’s NASDAQ uplisting in 2018.

 

Other (income) expense

 

   Six Months Ended June 30, 
   2019   2018 
Equity loss in affiliate  $-    -%  $192,490    3%
Interest expense, net   1,301,868    100    1,166,077    14 
Interest expense incurred in warrant valuation and conversions   -    -    6,799,640    83 
Total other expense  $1,301,868    100%  $8,158,207    100%

 

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Other expenses decreased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $6,856,339 due to no equity losses in affiliates or warrant valuation and conversion interest, offset by a $135,791 increase in interest expense, which is the result of $646,581 of interest related to the HEBioT facility offset by $510,790 decrease in interest as the result of conversions of debt to equity in February and April 2018 resulting from the maturity of the Company’s Series A convertible debt and conversions related to the uplisting to NASDAQ, respectively.

 

Depreciation and amortization

 

Depreciation and amortization increased from the six months ended June 30, 2018 to the six months ended June 30, 2019 by $508,292 due primarily to $490,469 of depreciation and amortization related to the HEBioT facility.

 

Income tax

 

For the six months ended June 30, 2019 and 2018 there was no net provision for income tax due to the losses incurred and management’s evaluation of the recovery of the tax asset resulting in net operating loss carry-forward.

 

Liquidity and Capital Resources

 

For the six months June 30, 2019, the Company had a consolidated net loss of $5,148,839, incurred a consolidated loss from operations of $3,846,971 and used net cash in consolidated operating activities of $2,019,055. At June 30, 2019, consolidated total stockholders’ equity amounted to $8,752,463, consolidated stockholders’ equity attributable to parent amounted to $1,880,500 and the Company had a consolidated working capital deficit of $5,190,868. The Company does not yet have a history of financial profitability. Historically the principal source of liquidity has been the issuance of debt and equity securities. Presently, the Company does not have firm commitments to fund its present operational and strategic plans. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is presently in the process of raising additional capital and debt for general operations and for investment in several strategic initiatives, as well as commercial debt to support its leasing activities. There is no assurance that the Company will be able to raise sufficient capital or debt to sustain operations or to pursue other strategic initiatives or that such financing will be on terms that are favorable to the Company.

 

Subsequent to June 30, 2019, on July 3, 2019 the Company sold its minority investment in GMG for cash amounting to $2,250,000.

 

Cash

 

As of June 30, 2019 and December 31, 2018, the Company had unrestricted cash balances of $1,654,672 and $2,410,709, respectively.

 

Borrowings and Debt

 

Maturities of Senior Secured, Junior Promissory, Notes Payable and Long Term Debt — as of June 30, 2019, excluding discounts and deferred finance costs, which are being amortized as interest expense, are as follow:

  

Year Ending December 31,   Amortizing    

Non-

Amortizing

    Total  
2019 (remaining)   $ 4,615     $       $ 4,615  
2020     4,605       100,000       104,605  
2021     4,380       1,875,000       1,879,380  
2022     3,821       2,500,000       2,503,821  
2023 and thereafter             1,669,477       1,669,477  
Total   $ 17,421     $ 6,144,477     $ 6,161,898  

 

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Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds — as of June 30, the future sinking fund payments by the Company are as follow:

 

  

2016 Issue

2026 Series

  

2016 Issue

2036 Series

  

2018 Issue

2036 Series

   Total 
2019 (remaining)  $-   $   $   $ 
2020   1,160,000         230,000    1,390,000 
2021   1,215,000         255,000    1,470,000 
2022   900,000         275,000    1,175,000 
2023 and thereafter   4,260,000    17,465,000    7,240,000    28,965,000 
Total  $7,535,000   $17,465,000   $8,000,000   $33,000,000 

 

Cash Flows

 

Cash Flows from Operating Activities

 

We used $2,019,055 of cash in operating activities during the six months ended June 30, 2019 as compared to a use of $3,750,139 during the six months ended June 30, 2018. Our net loss during the six months ended June 30, 2019 of $5,148,839 was reduced by non-cash expenses of $1,868,747. The net loss of 10,716,764 for the six months ended June 30, 2018 was reduced by $7,936,304 in non-cash interest expenses.

 

Cash Flows from Investing Activities

 

Net Cash used in investing activities for the six months ended June 30, 2019 amounted to $4,124,861 and is primarily the result of the HEBioT facility construction.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities for the six months ended June 30, 2019 amounted to $3,349,010 and is primarily the result proceeds of $1,787,500 from the Series D convertible preferred stock offering and a $1,400,000 investment in Refuel America, LLC by GMG, a related party and non-controlling member of Refuel. During the comparable 2018 period, the Company completed a series of financings that resulted in cash provided by financing activities of $4,102,675.

 

Off Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements during the three or six months ended June 30, 2019.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

 

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Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that material weaknesses existed and that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Because of our limited operations we have a small number of employees which prohibits a segregation of duties. As we grow and expand our operations, we will engage additional employees and experts as needed. However, there can be no assurance that our operations will expand.

 

Changes in Internal Controls Over Financial Reporting

 

There have not been any significant changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, the Company is involved in legal matters arising in the ordinary course of business, during the six months ended June 30, 2019 the Company was involved in the following matters.

 

The Company had accrued their contractual obligations but disputed payment for a consulting services agreement with Tusk Ventures LLC (“Tusk”), in which Tusk claim that it is owed $250,000 pursuant to an agreement. This matter was filed in the Supreme Court of the State of New York, New York County in April 2017. This matter was settled on April 23, 2019. In connection with the settlement, the Company issued to the plaintiff 75,000 shares of its common stock. 

 

On February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for the Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia alleging breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross claims against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. Trial is expected to begin in August 2020 and the Company intends to vigorously defend the complaint.

 

It is management’s opinion that the resolution of these known claims will not materially effect the Company’s financial position, results of operations, or cash flows. There can be no assurance, however, that unforeseen circumstances will not result in significant costs. While the Company believes that these such matters are currently not a risk material to the Company’s financial position, there can be no assurance that these or other 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.

 

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

 

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

 

Commencing on May 10, 2019, BioHiTech Global, Inc. (the “Registrant”) entered into a series of Investor Subscription Agreements with certain accredited investors (the “Investors”), pursuant to which the Registrant agreed to sell and the Investors agreed to purchase in a private placement offering units (the “Units”) in the aggregate offering amount of $1,885,000. On June 28, 2019, the Registrant closed the offering for $1,885,000 in Units. The Registrant received gross proceeds of $1,885,000 from the sale of Units on June 28, 2019 and on May 10, 2019, from twenty four (24) investors. Each Unit, which may be offered in fractions, amount of $100,000, is comprised of 1,000 Shares of the Registrant’s Series D Convertible Preferred Stock (the “Series D Preferred Shares”) and warrants (the “Warrants”) to purchase a number of shares of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), up to such 50% of the number of shares of Common Stock issuable upon conversion of the Series D Preferred Share at an exercise price of $3.50 per share of Common Stock. Each share of Series D Preferred Shares have 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 issued 75,000 of its common stock in connection with a legal matter for which the Company had accrued their contractual obligations but disputed payment for a consulting services agreement with Tusk Ventures LLC (“Tusk”), in which Tusk claimed that it was owed $250,000 pursuant to an agreement. This matter was filed in the Supreme Court of the State of New York, New York County in April 2017. This matter was settled on April 23, 2019. In connection with the settlement, the Company issued to the plaintiff 75,000 shares of its common stock. 

 

All of the securities set forth above were issued by the Company pursuant to exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Purchase Agreements and the Agreement contain representations to support the Company’s reasonable belief that the investors had access to information concerning the Company’s operations and financial condition, the investors acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the investors are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors” (as defined by Rule 501 under the Securities Act). In addition, the sale of securities did not involve a public offering; the Company made no solicitation in connection with the sale other than communications with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the investors either received or had access to adequate information about the Company in order to make an informed investment decision.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

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Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

Not Applicable.

 

Item 6. Exhibits.

 

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

   

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SIGNATURES

 

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

 

    BioHiTech Global, Inc.
     
August 14, 2019 By: /s/ Frank E. Celli
  Name:  Frank E. Celli
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Brian C. Essman
  Name: Brian C. Essman
  Title: Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)

 

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INDEX TO EXHIBITS

 

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

 

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

 

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

 

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