Company Quick10K Filing
Quick10K
Biohitech Global
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.62 15 $39
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 2019-04-01 Earnings, Regulation FD, Exhibits
8-K 2018-12-14 M&A, Sale of Shares, Exhibits
8-K 2018-12-14 M&A, 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
HLF Herbalife Nutrition 7,810
PSDO Presidio 1,220
SRNE Sorrento Therapeutics 496
INBK First Internet Bancorp 217
PROV Provident Financial 147
WEBK Wellesley Bancorp 83
APEN Apollo Endosurgery 77
ORNC Oranco 0
RSCF Reflect Scientific 0
WEB web.com 0
BHTG 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 17 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. Accounts Receivable, Net
Note 4. Inventory
Note 5. Equipment on Operating Leases, Net
Note 6. Equipment, Fixtures and Vehicles, Net
Note 7. Investments in Unconsolidated Entities
Note 8. Mbt Facility Development and License Costs
Note 9. Risk Concentrations
Note 10. Related Party Transactions
Note 11. Line of Credit, Notes Payable, Advances, Promissory Note, Convertible Promissory Notes and Long-Term Debt
Note 12. Revision of Stockholders' Equity in Financial Statements
Note 13. Equity Transactions
Note 14. Equity Incentive Plans
Note 15. Commitments and Contingencies
Note 16. Operating Leases
Note 17. Supplemental Consolidated Statement of Cash Flows Information
Note 18. Recent Accounting Pronouncements
Note 19. Subsequent Events
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 tv506418_ex31-1.htm
EX-31.2 tv506418_ex31-2.htm
EX-32.1 tv506418_ex32-1.htm
EX-32.2 tv506418_ex32-2.htm

Biohitech Global Earnings 2018-09-30

BHTG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv506418_10q.htm 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: September 30, 2018

 

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

 

Indicate 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 November 9, 2018
Common Stock, $0.0001 par value per share   14,652,956 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. 25
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 33
     
Item 4. Controls and Procedures. 33
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 34
     
Item 1A. Risk Factors. 34
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 34
     
Item 3. Defaults Upon Senior Securities. 34
     
Item 4. Mine Safety Disclosures. 34
     
Item 5. Other Information. 34
     
Item 6. Exhibits. 34
     
SIGNATURES 35
   
INDEX TO EXHIBITS 36

  

 

 

 

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 September 30,   Nine Months Ended September 30, 
   2018   2017   2018   2017 
Revenue                    
Rental, service and maintenance  $469,978   $415,402   $1,369,314   $1,140,751 
Equipment sales   282,246    240,945    547,735    655,493 
Management advisory and other fees   335,858    -    725,897    - 
Total revenue   1,088,082    656,347    2,642,946    1,796,244 
Cost of revenue                    
Rental, service and maintenance   336,842    348,862    912,061    880,559 
Equipment sales   155,651    151,998    355,154    391,152 
Total Cost of revenue   492,493    500,860    1,267,215    1.271,711 
Gross profit   595,589    155,487    1,375,731    524,533 
Operating expenses                    
Selling, general and administrative   1,744,570    1,901,486    5,024,406    5,441,513 
Depreciation and amortization   28,297    27,674    87,160    85,781 
Total operating expenses   1,772,867    1,929,160    5,111,566    5,527,294 
Loss from operations   (1,177,278)   (1,773,673)   (3,735,835)   (5,002,761)
Other expense (income)                    
Equity loss in affiliate   179,041    5,922    371,531    11,838 
Interest expense   593,041    527,896    1,878,596    1,198,327 
Interest expense incurred in warrant valuation and conversions   47,767    -    6,727,929    1,999 
Total other expense   819,849    533,818    8,978,056    1,212,164 
Net loss   (1,997,127)   (2,307,491)   (12,713,891)   (6,214,925)
                     
Other comprehensive (loss) income                    
Foreign currency translation adjustment   3,820    (15,891)   27,740    (44,395)
Comprehensive loss  $(1,993,307)  $(2,323,382)  $(12,686,151)  $(6,259,320)
                     
Net loss per common share - basic and diluted  $(0.15)  $(0.27)  $(0.99)  $(0.75)
Weighted average number of common shares outstanding - basic and diluted   14,575,375    8,397,191    13,257,303    8,316,943 

  

See accompanying notes to unaudited interim consolidated financial statements.

 

1

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

  

   September 30,   December 31, 
   2018   2017 
       (Revised) 
Assets          
Current Assets          
Cash  $384,403   $901,112 
Accounts receivable, net   339,741    274,405 
Inventory   794,650    332,101 
Prepaid expenses and other current assets   103,774    79,686 
Total Current Assets   1,622,568    1,587,304 
Equipment on operating leases, net   1,612,100    1,451,144 
Equipment, fixtures and vehicles, net   52,857    63,509 
Intangible assets, net   106,483    174,133 
Investment in unconsolidated affiliates   2,894,732    1,016,263 
MBT facility development and license costs   6,552,485    6,223,766 
Other assets   13,500    23,500 
Total Assets  $12,854,725   $10,539,619 
Liabilities and Stockholders' Equity (Deficit)          
Current Liabilities:          
Line of credit, net of financing costs of $22,618 as of September 30, 2018  $977,382   $1,000,000 
Accounts payable   1,281,978    1,287,740 
Accrued interest payable   116,851    29,431 
Accrued expenses   506,361    892,136 
Deferred revenue   97,767    84,686 
Customer deposits   22,560    39,498 
Long-term debt, current portion   9,091    8,874 
Total Current Liabilities   3,011,990    3,342,365 
Notes payable   100,000    375,000 
Line of credit   -    1,463,736 
Junior note due to related party, net of discounts of $123,573 as of September 30, 2018   920,904    4,500,000 
Advance from related party   -    544,777 
Accrued interest   1,229,807    1,860,591 
Convertible unsecured note   -    103,885 
Convertible subordinated secured notes   -    1,021,916 
Unsecured subordinated mandatorily convertible series notes   -    7,698,819 
Senior Secured Note Payable, net of financing costs of $171,152 and discounts of $1,051,190   3,777,658    - 
Long-term debt, net of current portion   15,125    21,971 
Total Liabilities   9,055,484    20,933,060 
Series A redeemable convertible preferred stock, 333,401 shares designated and issued, and 183,312 and 333,401 outstanding as of September 30, 2018 and December 31, 2017   817,421    623,283 
Commitments and Contingencies   -    - 
Stockholders' Equity (Deficit)          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 2,444,601 and 1,444,601 designated, 1,189,234 and 493,401 issued, and 610,812 and 493,401 outstanding as of September 30, 2018 and December 31, 2017, respectively:          
Series B Convertible preferred stock, 1,111,200 shares designated: 428,333 and 160,000 shares issued, and 0 and 160,000 outstanding as of September 30, 2018 and December 31, 2017, respectively   -    699,332 
Series C Convertible preferred stock, 1,000,000 shares designated, 427,500 shares issued and outstanding   3,050,142    - 
Common stock, $0.0001 par value, 50,000,000 shares authorized, 14,630,734 and 9,598,208 shares issued and outstanding as of September 30, 2018 and
December 31, 2017, respectively, at par
   1,463    960 
Additional paid in capital   42,452,342    17,752,990 
Accumulated deficit   (42,511,277)   (29,431,416)
Accumulated other comprehensive (loss)   (10,850)   (38,590)
Total Stockholders' Equity (Deficit)   2,981,820    (11,016,724)
Total Liabilities and Stockholders' Equity (Deficit)  $12,854,725   $10,539,619 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

2

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   Nine Months Ended September 30, 
   2018   2017 
Cash flows from operating activities:          
Net loss:  $(12,713,891)  $(6,214,925)
Adjustments to reconcile net loss to net cash used in operations:          
Depreciation and amortization   354,383    299,021 
Provision for bad debts   21,355    89,630 
Stock based employee compensation   485,244    375,508 
Fees paid in stock and warrants   -    871,531 
Interest resulting from amortization of financing costs and discounts   1,318,895    223,718 
Equity loss in affiliate   371,531    11,838 
Change in fair value of warrant liability   -    1,999 
Interest resulting from warrants valued upon conversion of host debt instruments   6,424,970    - 
Changes in operating assets and liabilities   (648,717)   505,650 
Net cash used in operations   (4,386,230)   (3,836,030)
           
Cash flow from investing activities:          
Sale of used machinery and equipment   -    13,530 
Investment in Entsorga West Virginia, LLC   -    (1,034,028)
MBT facility development costs incurred   (328,718)   (139,313)
Purchases of equipment, fixtures and vehicles   (8,944)   (6,057)
Net cash used in investing activities   (337,662)   (1,165,868)
           
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    - 

Exercise of employee stock options

   61,976    - 
Proceeds from convertible notes, including warrants and beneficial conversion features   -    2,459,000 
Deferred financing costs incurred   (237,187)   (23,000)
Repayments of long-term debt   (6,629)   (6,369)
Proceeds from the issuance of Series B convertible preferred stock and warrants   1,125,000    - 
Redemption of Series A preferred stock   (317,000)   - 
Related party:          
Net increases of advances   -    1,120,756 
Proceeds from promissory notes   -    786,973 
Proceeds from convertible notes   -    800,000 
Net cash provided by financing activities   4,162,424    5,137,360 
Effect of exchange rate on cash   44,759    18,880 
Net change in cash   (516,709)   154,342 
Cash - beginning of period   901,112    325,987 
Cash - end of period  $384,403   $480,329 

 

Note 17 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.

 

3

 

 

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

 

   Preferred Stock   Common Stock   Additional 
Paid in
   Accumulated
Comprehensive
   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Other Loss   Deficit   Total 
Balance at January 1, 2018
(Revised)
   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                       485,244              485,244 
Exercise of employee options             16,527    2    61,975              61,977 
Share-based professional services compensation             96,179    10    125,323              125,333 
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             96,320    9    433,436              433,445 
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                            27,740         27,740 
Preferred stock dividends                       299,012         (365,970)   (66,958)
Net loss                                 (12,713,891)   (12,713,891)
Balance at September 30, 2018   427,500   $3,050,142    14,630,734   $1,463   $42,452,342   $(10,850)  $(42,511,277)  $2,981,820 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

4

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

  

Note 1. Basis of Presentation and Going Concern

 

Nature of Operations - BioHiTech Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned subsidiaries, BioHiTech America, LLC, BioHiTech Europe Limited, BHT Financial, LLC, E.N.A. Renewables LLC (formerly Entsorga North America, LLC) and New Windsor Resource Recovery LLC, (collectively “subsidiaries”) offers its customers 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.

 

Basis of Presentation - The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. 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, 2017, which contains the audited financial statements and notes thereto, for the years ended December 31, 2017 and 2016 included within the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018. The financial information as of December 31, 2017 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, 2017. The interim results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 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 nine months ended September 30, 2018, the Company had a net loss of $12,713,891, incurred a consolidated loss from operations of $3,735,835 and used net cash in consolidated operating activities of $4,386,230. For the year ended December 31, 2017, the Company had a net loss of $8,350,527, incurred a consolidated loss from operations of $6,564,070 and used net cash in consolidated operating activities of $4,772,950. At September 30, 2018, consolidated stockholders’ equity amounted to $2,981,820 and the Company had a consolidated working capital deficit of $1,389,422. The Company does not yet have a history of financial stability. Historically the principal source of liquidity has been the issuance of debt and equity securities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

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

 

The Company is presently in the process of raising additional debt and capital 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 debt or capital to sustain operations or to pursue other strategic initiatives.

 

5

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

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, allowance for uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and useful lives, employee benefits, taxes and other provisions and contingencies.

 

Foreign Operations — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates. Income and expense items are translated at the average rates during the respective periods. Translation adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income (loss) while transaction gains and losses are recorded in net earnings (loss). Deferred taxes are not provided on cumulative foreign currency translation adjustments as the Company presently expects foreign earnings to be permanently reinvested.

 

The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”) within the normal course of its business in in the United Kingdom on merchandise and/or services it acquires. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, then the difference is remitted to the government, usually on a monthly basis. If the input VAT exceeds the output VAT, this creates a VAT receivable. The Company either requests a refund of this VAT receivable or applies the balance to expected future VAT payables.

 

Product and Services Revenue Recognition — The Company’s significant accounting policies are described in "Note 2: Summary of Significant Accounting Policies" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company’s significant accounting policy relating to revenue recognition reflects the impact of the adoption of ASC 606, defined below, implemented on January 1, 2018. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), 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.

 

Product sales are on terms which transfer title and risk of loss at a specified location, which may be the Company’s warehouse, a destination designated by the customer, port of loading or port of discharge, depending on the final destination of the goods. Other than standard product warranty provisions, the Company’s sales arrangements provide for no other post-shipment obligations.

 

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.

 

Management advisory fees are based upon the passage of time and do not have any measurable performance measures that would require the Company to recognize revenues and costs other than on a passage of time and as incurred basis.

 

The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in the Company’s unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the three and nine months ended September 30, 2018. Furthermore, the Company expects the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

6

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Fair Value Measurements — Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets held and used, long-lived assets held for sale, goodwill and other intangible assets. The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The three-tier value hierarchy, which prioritizes valuation methodologies based on the reliability of the inputs, is:

 

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

 

Investments in Unconsolidated Entities —The Company utilizes the equity method of accounting for investments in companies if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated equity basis investments.

 

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 majority of the deferred tax assets, which have a 100% valuation allowance, relate to net operating loss carryforwards, which may be subject to limitation under Internal Revenue Code section 382 should there be greater than a 50% ownership change as determined under the regulations.

 

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.” Dividend 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 options, convertible debt and warrants. These instruments have not been considered in the calculation of diluted loss per share as they are anti-dilutive for the reported periods.

 

Note 3. Accounts Receivable, net

 

Accounts receivable consists of the following:

 

   September 30,   December 31, 
   2018   2017 
Accounts receivable  $449,780   $408,693 
Less: allowance for doubtful accounts receivable   (110,039)   (134,288)
   $339,741   $274,405 

 

7

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Note 4. Inventory

 

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

 

   September 30,   December 31, 
   2018   2017 
Equipment  $297,788   $139,939 
Parts and assemblies   496,862    192,162 
   $794,650   $332,101 

 

Note 5. Equipment on Operating Leases, net

 

Equipment on operating leases consist of the following:

 

   September 30,   December 31, 
   2018   2017 
Leased equipment  $2,834,963   $2,558,423 
Less: accumulated depreciation   (1,222,863)   (1,107,279)
   $1,612,100   $1,451,144 

 

During the three months ended September 30, 2018 and 2017, depreciation expense included in cost of revenue, amounted to $94,967 and $69,312, respectively. During the nine months ended September 30, 2018 and 2017, depreciation expense included in cost of revenue, amounted to $267,229 and $213,268, respectively.

 

The Company is a lessor of Revolution and Eco Safe Series digester units under non-cancellable operating lease agreements expiring through September 2023. During the three months ended September 30, 2018 and 2017, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $299,537 and $224,828, respectively. During the nine months ended September 30, 2018 and 2017, revenue under the agreements amounted to $852,675 and $636,406, respectively. The minimum future estimated contractual payments to be received under these leases as of September 30, 2018 is as follows:

 

Year ending December 31,    
2018 (remaining)  $316,526 
2019   1,056,434 
2020   777,665 
2021   497,238 
2022 and thereafter   358,447 
Total minimum lease income as of September 30, 2018  $3,006,310 
      
Total minimum lease income as of December 31, 2017  $2,782,755 

 

Note 6. Equipment, Fixtures and Vehicles, net

 

Equipment, fixtures and vehicles consist of the following:

 

   September 30,   December 31, 
   2018   2017 
Computer software and hardware  $111,026   $102,195 
Furniture and fixtures   48,196    48,196 
Vehicles   50,319    71,918 
    209,541    222,309 
Less: accumulated depreciation and amortization   (156,684)   (158,800)
   $52,857   $63,509 

 

8

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

During the three months ended September 30, 2018 and 2017, depreciation expense amounted to $5,747 and $5,124, respectively. During the nine months ended September 30, 2018 and 2017, depreciation expense amounted to $19,510 and $15,422, respectively.

 

Note 7. Investments in Unconsolidated Entities

 

Entsorga West Virginia LLC - Effective January 1, 2017, subject to approval by the EWV bond trustee, which was granted on March 20, 2017, the Company executed several agreements to acquire up to approximately a 40% 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. The agreement provided for a required investment of $1,034,028, representing a 17.2% interest, with the remaining 23.1% being at the option of the Company. On March 21, 2017, the Company completed the required investment acquisition of $1,034,028 for a 17.2% interest, which is recognized utilizing the equity method of accounting due to its investment and its ability to control operations and activities of EWV.

 

Summarized financial information for EWV is as follows:

 

   June 30, 
Balance Sheet  2018(a) 
Current assets:     
Cash  $1,473,869 
Prepaid expenses   - 
Non-current assets:     
Restricted cash   3,781,482 
Facility under development and construction   28,485,460 
Total Assets  $33,740,811 
Current liabilities:     
Accrued expenses and other current liabilities  $- 
Accrued interest payable   591,608 
Current portion of bonds   4,516,140 
Non-current liabilities - Tax-exempt bonds, net of $1,464,618 of issuance costs   23,579,016 
Membership equity   5,054,047 
   $33,740,811 

 

Statement of Operations  Six Months
ended June 30,
2018
 
Revenue  $- 
Operating expenses   38,696 
Loss from operations   (38,696)
Interest expense   33,669 
Net loss  $(72,365)
Net loss attributable to BioHiTech Global, Inc. (17.2%)   (12,447)
Loss recognized by BioHiTech Global, Inc. during the nine months ended September 30, 2018  $(12,447)

 

(a.)The Company utilizes a three-month lag in reporting its share of equity income or loss in EWV.

 

EWV has financed the development and construction of the facility through $25,000,000 in Solid Waste Disposal Revenue Bonds issued by the West Virginia Economic Development Authority (the “Bonds”). In connection with the Bonds, each member has been required to pledge their membership interest in EWV to the Bond trustee as collateral of the Bonds. While each member has pledged their membership interests to the Bond Trustee, there is no obligation that each member provide additional investment in the future or support any losses incurred.

 

9

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Gold Medal Group, LLC – On January 25, 2018, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to acquire 9.2% of the outstanding membership units (the “Units”) of Gold Medal Group, LLC (“GM Group”), 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, par value $0.0001 per share (the “Common Stock”). The Purchase Agreement contains customary provisions, including representations, warranties, indemnities and “piggyback” registration rights, and closed upon the satisfaction of customary closing conditions.

 

Also, on January 25, 2018, the Company entered into a Letter Agreement (the “Option Agreement”) with GM Group. Pursuant to the Option Agreement, ENA may purchase up to 5,000,000 additional Units of GM Group at an aggregate purchase price of $5,000,000, provided that the Company’s Common Stock, if it is still publicly traded, is listed on a national exchange, which occurred on April 9, 2018 with the Company’s listing on The Nasdaq Capital Market.

 

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 or 10% of GM Group’s ordinary earnings before interest, taxes, depreciation and amortization. As a result of the investment and its ability to control operations and activities of GM Group, the Company is recognizing its investment utilizing the equity method of accounting.

 

On April 2, 2018 the co-investor with the Company in Gold Medal Group, Inc. funded a follow-on acquisition of a traditional waste management company that the Company did not participate in. This additional funding by the co-investor diluted the Company’s overall ownership interest to 3.1%. The acquired traditional waste management company will fall under the advisory services agreement between the Company and Gold Medal Holdings, Inc.

 

Summarized financial information for Gold Medal Group, Inc. is as follows:

 

   June 30, 
Balance Sheet  2018(a) 
Assets:     
Cash  $3,939,157 
Other current assets   14,346,692 
Plant property and equipment   34,753,018 
Intangible assets   95,569,449 
Total assets  $148,608,316 
Liabilities:     
Current liabilities   27,952,874 
Commercial debt   70,576,731 
Total liabilities   98,529,605 
Shareholders’ equity   50,078,711 
Total liabilities and shareholders’ equity  $148,608,316 

 

Statement of Operations  Period from
acquisition to
June 30,
2018
 
Revenue  $22,992,951 
Operating expenses   30,554,720 
Loss from operations   (7,561,769)
Interest expense   2,556,626 
Net loss  $(10,118,395)
Net loss attributable to BioHiTech Global, Inc. (3.1%)   (313,670)
Loss recognized by BioHiTech Global, Inc. during the nine months ended September 30, 2018  $(313,670)

 

(a.)The Company utilizes a three-month lag in reporting its share of equity income or loss in GM Group.

 

10

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

The Company also entered into the Advisory Services Agreement (the “Advisory Agreement”) with Gold Medal Holdings, Inc. (“Holdings”). Pursuant to the Advisory Services Agreement, the Registrant will provide Holdings with advisory services relating to corporate development, strategic planning, operational and sales oversight and other general administrative and support services, as more particularly described within the Advisory Agreement. As consideration for providing these services, the Company, will be compensated with an annual advisory services fee equal to the greater of (i) $750,000 and (ii) 10% of Holdings’ annual ordinary earnings before interest, taxes, depreciation and amortization. The initial term of the Advisory Agreement is for one year. Fees relating to this contract are reported as revenue; related costs are included in operating expenses.

 

As a result of its investment in GM Group and the Advisory Agreement, the Company has determined that it has the ability to exercise significant influence, but not control, over operating and financial policies of the investee, accordingly, the investment is carried utilizing the equity method of accounting, which will be applied utilizing a three-month lag in reporting periods.

 

Note 8. MBT Facility Development and License Costs

 

MBT Facility Development Costs

 

On March 1, 2017, the Town Counsel of New Windsor, NY approved, the sale of 12 acres of property to the Company for the development of a Mechanical Biological Treatment (“MBT”) facility, for which the agreement was executed on April 10, 2017. The purchase price of the property is $1,092,000, subject to reduction for option payments made by the Company in the monthly amount of $3,500 for the first 12 months and $6,000 per month for the following 12 months, until the closing. The purchase of the property is contingent upon the Company obtaining: necessary permits to allow construction of a Mechanical Biological Treatment (“MBT”) facility; approvals from state and local authorities; financing for the construction of the MBT facility; contracts for offtake of solid recovered fuel; and the satisfaction of the Company’s due diligence investigation of the property. The contract also contains customary representations warranties and covenants of the parties for like transactions.

 

During 2018, the Company commenced initial development of a project in Rensselaer, NY. As of September 30, 2018, the Company is pursuing permits and other approvals required to continue development of the project.

 

The capitalized costs related project sites is as follows:

 

   Rensselaer, NY   New Windsor, NY 
   September 30,   September 30,   December 31, 
   2018   2018   2017 
Land acquisition  $-   $54,000   $48,000 
Legal   -    46,030    10,371 
Survey and engineering   124,975    308,280    146,195 
Total  $124,975   $408,310   $204,566 

 

License Costs - On November 1, 2017, BioHiTech Global, Inc. and its wholly-owned subsidiary E.N.A. Renewables LLC, 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 of $839,678. 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 in the Company’s project at the New Windsor, NY site or any other site and will be amortized once the facility is in operation.

 

11

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Note 9. 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 is as follows:

 

   United
States
   International   Total 
2018:               
Revenue, for the nine months ended September 30, 2018  $2,333,242   $309,704   $2,642,946 
Revenue, for the three months ended September 30, 2018   939,503    148,579    1,088,082 
Non-current tangible assets, as of September 30, 2018   1,402,320    276,137    1,678,457 
                
2017:               
Revenue, for the nine months ended September 30, 2017  $1,421,711   $374,533   $1,796,244 
Revenue, for the three months ended September 30, 2017   528,370    127,977    656,347 
Non-current tangible assets, as of December 31, 2017   1,349,461    188,692    1,538,153 

 

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. During the periods presented, 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 September 30, 2018, two customers represented at least 10% of revenues, accounting for 31.3% (Gold Medal Holdings, Inc., an unconsolidated affiliate) and 10.1% of revenues. During the three months ended September 30, 2017, two customers represented at least 10% of revenues, each accounting for 12% of revenues. During the nine months ended September 30, 2018, one customer represented at least 10% of revenues, 38.0% (Gold Medal Holdings, Inc., an unconsolidated affiliate) of revenues. During the nine months ended September 30, 2017, no customers accounted for at least 10% of revenues.

 

As of September 30, 2018, three customers represented at least 10% of accounts receivable, accounting for 15.4% (Gold Medal Holdings, Inc., an unconsolidated affiliate), 13.8% and 11.0% of accounts receivable. As of December 31, 2017, no customers represented at least 10% of accounts receivable.

 

Vendor concentration — During the three months ended September 30, 2018, one vendor represented at least 10% of costs of revenue, accounting for 16.2% (a 1.4% shareholder) of the combined cost of revenues and change in inventory. During the nine months ended September 30, 2018, two vendors represented at least 10% of costs of revenue, accounting for 28.7% (a 1.4% shareholder) and 12.1% of the combined cost of revenues and change in inventory. During the three months ended September 30, 2017, two vendors represented at least 10% of costs of revenue, accounting for 23% (a 1.9% shareholder) and 11% of the combined cost of revenues and change in inventory. During the nine months ended September 30, 2017, two vendors represented at least 10% of costs of revenue, accounting for 18% (a 1.9% shareholder) and 11% of the combined cost of revenues and change in inventory.

 

As of September 30, 2018, two vendors represented at least 10% of accounts payable, accounting for 20.3% (a 1.4% shareholder) and 19.5% accounts payable. As of December 31, 2017, three vendors represented at least 10% of accounts payable, accounting for 19% (BioHiTech International, Inc., a related party), 19% and 18% (a 1.4% shareholder) of accounts payable.

 

12

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Note 10. 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. 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.

 

      September 30,   December 31, 
      2018   2017 
Assets:             
Accounts receivable  (k, l and m)  $52,333   $- 
Intangible assets, net  (a)   106,483    174,133 
Liabilities:             
Accounts payable  (a)   111,411    298,942 
Accrued interest payable      46,796    9,536 
Long term accrued interest      1,229,807    1,545,146 
Notes payable      -    275,000 
Advance from related party  (b)   -    544,777 
Junior promissory note  (c)   1,044,477    - 
Promissory note - related parties  (d)   -    4,500,000 
Series A - Unsecured subordinated convertible notes  (e)   -    2,250,000 
Series B - Unsecured subordinated convertible notes  (f)   -    1,750,000 
Series C - Subordinated secured convertible notes  (g)   -    450,000 
Series D - Unsecured subordinated convertible notes  (h)   -    325,000 
Series V - Unsecured subordinated convertible notes  (i)   -    300,000 
Other:             
Line of credit guarantee  (j)   1,000,000    2,463,736 

 

The table below presents direct related party expenses or transactions for the periods indicated. Compensation and related costs for employees of the Company are excluded from the table below.

 

      Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
      2018   2017   2018   2017 
Management advisory fees  (k)  $270,833   $-   $597,717   $- 
Project fees  (l)   65,025    -    128,180    - 
Consulting revenue  (m)   24,535    18,526    68,821    53,180 
S, G & A - Rent expense  (n)   13,646    13,511    45,151    40,002 
Cost of revenues - Rent expense  (n)   11,138    11,027    33,413    32,646 
S, G & A - Consulting expense  (a)   50,000    50,000    150,000    150,000 
Interest expense      57,890    272,250    262,089    745,571 
Debt guarantee fees  (j)   31,250    -    52,083    - 
Cost of revenue, inventory or equipment on operating leases acquired  (a)   2,720    2,822    14,525    9,003 

 

(a)Distribution Agreement - BioHiTech has an exclusive license and distribution agreement (the “License Agreement”) with BioHiTech International, Inc. (“BHT-I”), 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.

 

13

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

(b)Advance from Related Party - The Company’s Chief Executive Officer (the “Officer”) has in the past advanced 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. On February 2, 2018 the advances were part of an exchange that resulted in the issuance of Series C preferred stock, warrants and a new junior promissory note, see (c) below.

 

(c)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.

 

(d)Promissory Note - Related Party –On June 25, 2014, the Company initially entered into a secured promissory note with the Company’s Chief Executive Officer in the aggregate amount of $1,000,000 (the “Promissory Note”). This note has been amended effective July 31, 2015, January 1, 2016 and February 1, 2017. The amended note, which had an outstanding balance of $4,500,000 as of December 31, 2017 and on the date of conversion, was converted into a series of the Company’s preferred stock on February 2, 2018

 

(e)Series A Unsecured Subordinated Convertible Notes and Warrants - In connection with the Company’s issuance of unsecured subordinated convertible notes and warrants in 2016, as further disclosed in Note 11, certain related parties participated in such offering. In accordance with the terms of the notes, all of the outstanding balances were converted into the Company’s common stock on February 10, 2018 at $2.75 per share.

 

(f)Series B Unsecured Subordinated Convertible Notes and Warrants - In connection with the Company’s issuance of unsecured subordinated convertible notes and warrants in 2016, as further disclosed in Note 11, certain related parties participated in such offering. As a result of the Company’s listing on Nasdaq, all of outstanding balances were converted into the Company’s common stock on April 9, 2018 at $2.75 per share.

 

(g)Series C – Subordinated secured convertible notes - In connection with the Company’s issuance of subordinated secured convertible notes and warrants in 2017, as further disclosed in Note 11, certain related parties participated in such offering. As a result of the Company’s listing on Nasdaq, all of outstanding balances were converted into the Company’s common stock on April 9, 2018 at $2.75 per share.

 

(h)Series D - Unsecured subordinated convertible notes - In connection with the Company’s issuance of unsecured subordinated convertible notes and warrants in 2016, as further disclosed in Note 11, certain related parties participated in such offering. As a result of the Company’s listing on Nasdaq, all of outstanding balances were converted into the Company’s common stock on April 9, 2018 at $2.75 per share.

 

(i)Series V Unsecured Subordinated Convertible Notes - In connection with the Company’s issuance of unsecured subordinated convertible notes in 2016, as further disclosed in Note 11, BioHiTech International, see note a, above, exchanged $300,000 in accounts payable by the Company for a $300,000 note. As a result of the Company’s listing on Nasdaq, all of outstanding balances were converted into the Company’s common stock on April 9, 2018 at $2.75 per share.

 

(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 new line of credit entered into on February 2, 2018, 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)Management Advisory Fees - The Company provides management advisory services to Gold Medal Holdings, Inc., an entity that the Company accounts for as an equity investment effective February 2018.

 

(l)Project Fees – In addition to Management Advisory Fees, the Company also has provided to Gold Medal Holdings, Inc. non-management advisory services related to projects relating to technology and operations.

 

(m)Consulting Revenue - The Company provides environmental and project consulting to Entsorga West Virginia LLC, an entity that the Company accounts for as an equity investment effective March 2017.

 

14

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

(n)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 September 30, 2018 under these operating leases are:

 

Year ending December 31,    
2018 (Remaining)  $24,784 
2019   100,003 
2020   41,926 
Total  $166,713 

 

Note 11. 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:

 

   September 30, 2018   December 31, 2017 
   Total   Related
Party
   Total   Related
Party
 
Line of credit  $977,382   $-   $2,463,736   $- 
Unsecured subordinated convertible notes:                    
Series A   -    -    3,393,116    2,250,000 
Series B   -    -    1,885,955    1,750,000 
Series D   -    -    1,994,748    325,000 
Series V   -    -    425,000    300,000 
Series C – Subordinated secured convertible notes   -    -    1,021,916    450,000 
Convertible note   -    -    103,885    - 
Senior secured promissory note   3,777,658    -    -    - 
Junior note payable   920,904    920,904    -    - 
Promissory note - related party   -    -    4,500,000    4,500,000 
Notes payable   100,000    -    375,000    275,000 
Advances   -    -    544,777    544,777 
Long term debt - other, current and long-term portion   24,216    -    30,845    - 

 

Line of Credit — In a series of transactions, on February 2, 2018, in connection with its $5,000,000 gross proceeds financing with Michaelson Capital Special Finance Fund II, L.P., the Company utilized a portion of the proceeds to pay off, in-full, and close out an existing line of credit with Comerica Bank (“Comerica”) that was payable and secured by the assets of the Company’s subsidiary, BioHiTech America, LLC. Also, in connection with and in accordance with the MCSFF financing, 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 Note line does not have any financial covenants, carries interest at the rate of 3%, plus either the Comerica prime rate or a LIBOR-based rate, (6.11% as of September 30, 2018) 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 September 30, 2018, the $1,000,000 balance outstanding is presented net of $26,000 in gross costs associated with the financing, net of $3,382 in amortization calculated on the effective interest method, which is included in interest expense.

 

15

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

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 Five Million Dollars ($5,000,000) (the “Note”). The Note is not convertible and accrues interest at the rate of 10.25% per annum. The Note is to be repaid in eight, equal, quarterly installments of Six Hundred Twenty Five Thousand Dollars ($625,000) commencing on March 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. 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. The Purchase Agreement contains customary provisions, including representations, warranties, indemnities and “piggyback” registration rights, and closed upon the satisfaction of customary closing conditions. As of September 30, 2018, the carrying balance of the note is comprised of $5,000,000 face, less $1,212,121 allocated to the common stock issued, less associated amortization of $160,931 on the stock discount, less deferred financing costs of $211,187, less $40,035 of associated deferred financing cost amortization. All amortization is computed on the interest method and included in interest expense.

 

Series A Unsecured Subordinated Convertible Promissory Notes — During 2016, the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell and the Investors agreed to purchase in a private placement offering (the “Private Placement”) units (the “Units”) in the aggregate offering amount of $3,400,000, of which $2,250,000 was with related parties.

 

In accordance with the terms of the notes, on the maturity date of February 10, 2018, the entire $3,400,000 in notes were converted into shares of the Company’s common stock at a price per share of $2.75. At the time of issuance, the warrants did not meet the definition of a derivative and therefore the warrants were not recorded as a derivative liability. As a result of the mandatory conversion the number of warrant shares and exercise price became fixed. The warrants for 1,236,369 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices of $4.90 on the dates of the debt conversion, an exercise price of $3.30, a standard deviation (volatility) of 40.79%, a risk-free interest rate of 3.07% with a term equal to the remaining term of the initial 5-year warrants. The model includes subjective input assumptions that can materially affect the fair value estimates. The total value of the warrants amounted to $2,812,989, which has been recognized as other interest expense and as additional paid in capital. In addition to the 1,236,369 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $523,788 in accrued interest on the notes with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 104,889 shares of common stock.

 

Series B Unsecured Subordinated Convertible Promissory Notes — During 2017 and 2016, the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors (the “Investors”), who were also shareholders of the Company, pursuant to which the Company agreed to sell and the Investors agreed to purchase in a private placement offering (the “Private Placement”) units (the “Units”) in the aggregate offering amount of $650,000 and $1,250,000, respectively.

 

In accordance with the terms of the notes, upon the Company’s uplisting to Nasdaq on April 9, 2018, the entire $1,900,000 in notes were converted into shares of the Company’s common stock at a price per share of $2.75. At the time of issuance, the warrants did not meet the definition of a derivative and therefore the warrants were not recorded as a derivative liability. As a result of the mandatory conversion the number of warrant shares and exercise price became fixed. The warrants for 690,914 shares of common stock were valued utilizing the Monte Carlo modelling technique utilizing stock prices of $4.55 on the dates of the debt conversion, an exercise price of $3.30, a standard deviation (volatility) of 49.2 to 51.2%, a risk-free interest rate of 2.6% with a term equal to the remaining term of the initial 5-year warrants. The model includes subjective input assumptions that can materially affect the fair value estimates. The total value of the warrants amounted to $1,611,133, which has been recognized as other interest expense and as additional paid in capital. In addition to the 690,914 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $199,383 in accrued interest on the notes with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 46,372 shares of common stock. In connection with the conversion, the Company expensed the remaining $10,214 unamortized deferred financing costs as interest expense.

 

16

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Series D Subordinated Convertible Promissory Notes — During the third quarter of 2017, the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with accredited investors (the “Investors”), pursuant to which the Company agreed to sell and the Investors agreed to purchase units (the “Units”) in the aggregate offering amount of $2,000,000. Units aggregating $325,000 were with related parties.

 

In accordance with the terms of the notes, upon the Company’s uplisting to Nasdaq on April 9, 2018, the outstanding $1,800,000 in notes were converted into shares of the Company’s common stock at a price per share of $2.75. At the time of issuance, the warrants did not meet the definition of a derivative and therefore the warrants were not recorded as a derivative liability. As a result of the mandatory conversion the number of warrant shares and exercise price became fixed. The warrants for 654,553 shares of common stock were valued utilizing the Monte Carlo modelling technique utilizing stock prices of $4.55 on the dates of the debt conversion, an exercise price of $3.30, a standard deviation (volatility) of 47.5 to 48.0%, a risk-free interest rate of 2.6% with a term equal to the remaining term of the initial 5-year warrants. The model includes subjective input assumptions that can materially affect the fair value estimates. The total value of the warrants amounted to $1,520,224, which has been recognized as other interest expense and as additional paid in capital. In addition to the 654,553 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $105,289 in accrued interest on the notes with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 24,493 shares of common stock.

 

Series V Subordinated Convertible Promissory Notes — During 2016, the Company entered into a series of convertible promissory notes. In accordance with the terms of the notes, upon the Company’s uplisting to Nasdaq on April 9, 2018, the outstanding $425,000 in notes were converted into shares of the Company’s common stock at a price per share of $2.75. In addition to the 154,546 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $51,017 in accrued interest on the notes with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 11,868 shares of common stock.

 

Series C – Subordinated secured convertible notes — From May 24, 2017 through August 11, 2017, the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell, and the Investors agreed to purchase units (the “Units”) in the aggregate offering amount of $1,250,000.

 

On February 2, 2018, in connection with and as a condition precedent to the closing of the MCSFF Financing, all of the holders of the Company’s Series C agreed to amend the Series C notes to change the maturity date from May 24, 2018 to May 24, 2019. The Series C notes were also amended to provide for a mandatory conversion of the outstanding and unpaid principal amount of the Series C notes upon the Company’s listing on the Nasdaq stock market or the NYSE American into shares of the Company’s common stock. In consideration for the amendment, the Registrant issued the Holders additional warrants (the “Warrants”) to purchase a number of shares of Common Stock equal to 10% of the number of shares such Series C Note is convertible into at an exercise price of $4.50 per share of Common Stock and expiring in five (5) years. The warrants for 45,459 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices of $4.95, an exercise price of $4.50, a standard deviation (volatility) of 40.5%, a risk-free interest rate of 2.95% with a term of 5 years. The resulting $96,446 value has been recognized as other interest expense and as additional paid in capital.

 

In accordance with the terms of the amended notes, upon the Company’s uplisting to Nasdaq on April 9, 2018, the outstanding $1,250,000 in notes were converted into shares of the Company’s common stock at a price per share of $2.75. In addition to the 454,549 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $36,223 in accrued interest on the notes with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 8,428 shares of common stock. In connection with the conversion, the Company expensed the remaining $133,539 unamortized discounts as interest expense.

 

17

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Convertible Note — Effective March 31, 2017 the Company entered into a Securities Purchase Agreement, a Convertible Note with a maximum funding amount of $550,000 and Warrants with Vista Capital Investments LLC (“Vista”), of which $220,000 was funded. The funding which would have matured on October 31, 2017 was converted prior to maturity. During the first quarter of 2018, the funding maturing on January 26, 2018 was converted prior to maturity.

 

During the third quarter of 2017, the holder exercised 24,750 warrants in a cashless exercise, resulting in the issuance of 14,093 shares of common stock.

 

As of September 30, 2018, the holder has warrants outstanding that provide for the acquisition of up to 24,750 shares of common stock at $4.00 per share and expire in five years from the date of issuance (June 26, 2022).

 

Notes Payable — During the year ended December 31, 2015, the Company entered into two unsecured promissory notes that have been amended during 2016 and 2017, which do not contain any financial covenants. As of December 31, 2017, the notes each had a remaining balance outstanding of $100,000 and $275,000 with interest at the rate of 10.0% and each mature on January 1, 2020.

 

On March 23, 2018, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Frank J. Celli, the father of the Company’s Chief Executive Officer, whereby Celli exchanged $275,000 in a note receivable, above, for $275,000 of the Registrant’s Series C Convertible Preferred Stock, par value $0.0001 (the Series C Preferred Stock”). The Series C Preferred Stock has a stated value of $10.00 per share and is convertible, at the holder’s option, into the Registrant’s common stock, par $0.0001, at a conversion price of $4.75 per share. The Series C Preferred Stock is non-redeemable, has voting rights together with the common stock, par $0.0001, at the rate of 4 votes to 1 and accrues dividends at 10.25% of the stated value outstanding. In connection with this transaction, the Registrant also issued Celli warrants to purchase 28,948 shares of Common Stock, exercisable at $5.50 per share which expire in five (5) years. The warrants for 28,948 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices of $4.05, an exercise price of $5.50, a standard deviation (volatility) of 41.8%, a risk-free interest rate of 2.9% with a term of 5 years. The resulting $36,128 value has been recognized as additional paid in capital.

 

As of September 30, 2018, an unsecured note of $100,000 with an unrelated party remains outstanding. The note provides for interest at 10.0% 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 Non-Current Promissory Note, Long Term Debt and Unsecured Subordinated Convertible Notes — as of September 30, 2018, excluding discounts and deferred finance costs, which are being amortized as interest expense, are as follow:

 

Year Ending December 31,  Amortizing   Non-
Amortizing
   Total 
2018 (Remaining)  $2,247   $1,000,000   $1,002,247 
2019   9,165    -    9,165 
2020   4,604    100,000    104,604 
2021   4,380    2,500,000    2,504,380 
2022 and thereafter   3,820    3,544,477    3,548,297 
Total  $24,216   $7,144,477   $7,168,693 

 

Interest Expense — All interest on the Company’s various debts are recognized as interest expense in the accompanying consolidated financial statements.

 

18

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Note 12. Revision of Stockholders’ Equity in Financial Statements

 

During the preparation of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, the Company determined that it had incorrectly recorded beneficial conversion features associated with the Company’s Series A Redeemable Convertible Preferred Stock (the “Sr. A Preferred Stock”) as of December 31, 2017. The error resulted in an understatement of additional paid in capital and over statement of the Sr. A Preferred Stock. The Company assessed the materiality of the misstatement in accordance with Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that the misstatement was not material to the Company’s consolidated financial position for the prior periods and that amendments of previously filed reports were not required. However, the Company determined that the impact of the corrections would be too significant to record in the first quarter of fiscal 2018. As such, the revision for the correction is reflected in the balance sheet as of December 31, 2017 within the financial information in this Quarterly Report on Form 10-Q. Disclosure of the revised amounts will also be reflected in future filings containing the applicable periods.

 

The effect of the revision on line items within the Company’s condensed consolidated balance sheet as of December 31, 2017 was as follows:

 

   As Previously
Reported
   Adjustment   As Revised 
Series A redeemable convertible preferred stock  $1,095,577   $(472,294)  $623,283 
Additional paid in capital   17,280,696    472,294    17,752,990 
Total Stockholders’ (Deficit)   (11,489,018)   472,294    (11,016,724)

 

The error did not have a material impact on the Company’s results of operations or cash flows in the prior period and, accordingly, no revision was made thereto.

 

Note 13. Equity Transactions

 

The Company has had the following equity related transactions during the nine months ended September 30, 2018:

 

Series A Redeemable Convertible Preferred Stock — Due to the existence of redemption features, the stock is accounted for as temporary equity (similar accounting treatment to debt). As of December 31, 2017, the Series A Preferred Stock reflect: stated amount of $1,666,999, net of original issue discount of $166,699, bifurcated warrants of $403,630, bifurcated beneficial conversion feature of $535,630, net of amortization of discounts of $86,658. In addition, as of December 31, 2017, the Series A Preferred Stock is presented net of deferred issuance costs of $30,000, net of amortization of $5,586, respectively. Amortization of discounts and deferred issuance costs are reflected as interest expense.

 

On March 30, 2018, the Company and holders of the Series A Convertible Preferred Stock (“Series A Preferred”) amended and restated to provide the holders with the option to redeem their shares anytime following the first anniversary if the Company consummates an equity financing in an amount equal to the stated value of the Series A Preferred, plus any and all accrued dividends. The holder’s option to redeem the Series A Preferred after January 1, 2019 was removed. In addition, the dividend on the Series A Preferred was amended to nine percent (9%), the first dividend payment date was amended to June 30, 2018 and the conversion price, by the terms of the Certificate of Designation, was set at $4.50 per share of the Company’s common stock. In addition, the Company agreed to issue the holders, within 5 business days after the first day of trading of the Company’s common stock on an Eligible Market, warrants to purchase up to 180,000 shares of Common Stock at an exercise price of $5.00 per share and expiring in four (4) years on a pro-rata basis to the holders of record of the Series A Preferred Shares at the time of such issuance. The warrants for 180,000 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices of $4.05, an exercise price of $5.00, a standard deviation (volatility) of 41.8%, a risk-free interest rate of 2.9% with a term of 4 years. The resulting $246,319 value has been recognized as other interest expense and additional paid in capital.

 

In connection with the amendment, the holder subsequently redeemed $317,000 in stated value shares at stated value, which resulted in the Company reflecting an additional interest expense of $157,455 to write off unamortized discounts and costs relating to the shares redeemed.

 

19

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

During June of 2018, the holder converted 40,000 shares with an aggregate stated value of $200,000 of stated value for 44,444 shares of common stock. In connection with the conversion the Company reflecting an additional interest expense of $73,461 to write off unamortized discounts and costs relating to the shares converted.

 

During August of 2018, the holder converted 46,689 shares with an aggregate stated value of $233,445 of stated value for 51,876 shares of common stock. In connection with the conversion the Company reflecting an additional interest expense of $47,767 to write off unamortized discounts and costs relating to the shares converted.

 

As of September 30, 2018, the net Series A Preferred Stock balance of $817,421 is comprised of 183,312 shares with a stated value of $916,560 less unamortized discounts of $99,139, which are being amortized as interest utilizing the interest method.

 

Series B Convertible Preferred Stock — From January 1, 2018 through March 31, 2018 the Company entered into a series of Purchase Agreements with certain accredited Investors, pursuant to which the Company agreed to sell and the Investors agreed to purchase, in the Offering, an aggregate of 268,333 shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Shares”) at the price of $5.00 per Series B Preferred Share and warrants (the “Warrants”) that are exercisable for five years to purchase 149,074 shares of common stock, par value $0.0001 per share (the “Common Stock”) at an exercise price of $5.00 per share, for an aggregate offering amount of $1,341,665.

 

The warrants issued in 2018 for 149,074 shares of common stock were valued utilizing the Monte Carlo modelling technique utilizing stock prices of $4.05 to $4.31 on the dates of the grants, an exercise price of $5.00, a standard deviation (volatility) of from 41.1 to 41.8%, a risk-free interest rate of 2.91% to 3.14% based on the date of issue, with a term of 5 years. The model includes subjective input assumptions that can materially affect the fair value estimates. Conversion options are recorded as instrument discounts and are not being amortized due to the mandatory conversion features.

 

Due to the lack of redemption features and the presence of mandatory conversion features, the Series B Preferred stock has been presented as a component of shareholders’ equity.

 

In accordance with the terms of the stock, upon the Company’s uplisting to Nasdaq on April 9, 2018, all 428,333 outstanding shares were converted into shares of the Company’s common stock at a price per share of $4.50 In addition to the 475,935 shares of common stock issued in the conversion, under the agreements, the Company exercised its rights to pay all $17,733 in accumulated dividends on the preferred shares with shares of common stock based on the market price of the shares on the day prior to the conversion, which resulted in the issuance of 4,132 shares of common stock.

 

Series C Convertible Preferred Stock — The Series C Preferred Stock has a stated value of $10.00 per share and is convertible, at the holder’s option, into the Registrant’s common stock, par $0.0001, at a conversion price of $4.75 per share. The Series C Preferred Stock is non-redeemable, has voting rights together with the common stock, par $0.0001, at the rate of 4 votes to 1 and accrues dividends at 10.25% of the stated value outstanding. As of September 30, 2018, the Series C Preferred Stock is comprised of $4,275,000 face value, less $556,283 warrant valuation and beneficial conversion features of $668,575 reflected in additional paid in capital.

 

On February 2, 2018, in connection with and as a condition precedent to the closing of the MCSFF Note, the Company entered into a Securities Exchange and Note Purchase Agreement (the “Exchange Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged $4,500,000 in a note receivable and $544,777 in advances made to the Company for $4,000,000 of the Company’s Series C Preferred Stock and a junior promissory note (the “Junior Note”). The Junior Note, which is subordinated to the MCSFF Note, is not convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024. In connection with this transaction, the Registrant also issued Celli warrants to purchase 421,053 shares of Common Stock, exercisable at $5.50 per share which expire in five (5) years. The warrants for 421,053 shares of common stock were valued utilizing the Black Scholes modelling technique utilizing stock price of $4.95, an exercise price of $5.50, a standard deviation (volatility) of 40.48%, a risk-free interest rate of 2.95% based on the date of issue, with a term of 5 year.

 

On March 23, 2018, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Frank J. Celli, the father of the Company’s Chief Executive Officer, whereby Frank J. Celli exchanged $275,000 in a note receivable from the Company for $275,000 of the Company’s Series C Preferred Stock. In connection with this transaction, the Registrant also issued Frank J. Celli warrants to purchase 28,948 shares of Common Stock, exercisable at $5.50 per share which expire in five (5) years. The warrants for 28,948 shares of common stock were valued utilizing the Black Scholes modelling technique utilizing stock price of $4.05, an exercise price of $5.50, a standard deviation (volatility) of 41.77%, a risk-free interest rate of 2.91% based on the date of issue, with a term of 5 year.

 

20

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Maxim Warrants — In connection with the issuance of the Series A Units described in Note 11, the Company agreed to issue warrants to Maxim Group LLC, the placement agent, that are exercisable into 10% of the total number of shares of common stock that the notes are convertible under the notes at an exercise price of $3.75 per share. The warrants expire 5 years from the date of issuance of the underlying notes, which was February 10, 2016.

 

As a result of the maturity of the Series A unsecured subordinated convertible promissory notes on February 10, 2018, the contingency that had prevented the valuation of the warrants has been resolved, resulting in warrants to purchase 10,909 shares of common stock that have been valued at $25,133, which has been expensed as other interest during the first quarter of 2018 and credited to additional paid in capital

 

Barksdale Warrants — In connection with an Offering of BHTA in October 2013 of Class B Common Interests BHTA agreed to issue Barksdale Global Holdings, LLC (“Barksdale”) warrants to purchase a number of Class B Common Interests of BHTA, as now converted into Common Stock of the Company. The warrants were subsequently issued on June 30, 2015, whereby Barksdale was issued a warrant to purchase up to $140,000 of BHTA’s Class B Common Interests on or before the expiration date of June 30, 2020. The warrant is exercisable during the period commencing upon the consummation of the Company’s next successive equity raise in which the Company receives gross proceeds of a minimum of $5,000,000 (“Qualified Financing”). If the Company does not consummate a Qualified Financing prior to the expiration date, the warrant shall never be exercisable.

 

Series Debt and Series Preferred Stock Offerings — In connection with the various series debt and preferred stock offerings, warrants issued have been disclosed as part of the description of the debt and preferred stock offerings.

 

2014 and 2015 Debt Offerings — In connection with prior debt offerings that have been converted into equity, warrants expiring between May and July of 2020 representing an $80,000 purchase equity interest remain outstanding. The warrants allow the holders to acquire up to $80,000 of the Company’s common stock at a price of 120% of the closing price of the Company’s first issuance of equity in one, or a series of related transactions, through which the Company receives gross process of $5,000,000 or more from one or more financial institutions or “accredited investors”. Should the Company not consummate such an issuance of equity by the expiration of the warrants, the warrants shall never be exercisable.

 

Note 14. 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 units was:

 

   Three months ended September 30,   Nine months ended September 30, 
   2018   2017   2018   2017 
Stock options  $68,264   $29,221   $115,530   $76,218 
Restricted stock units   262,064    115,306    369,714    299,290 
   $330,328   $144,527   $485,244   $375,508 

 

21

 

 

BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

The Company’s stock option activity for the nine months ended September 30, 2018 was:

 

   Total
Number of
Options
   Number of
Exercisable
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual 
Life
(in Years)
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2017   312,709    153,681   $3.75    8.17    53,161 
Granted or vested   297,790    79,721    3.68           
Exercised   (16,527)   (16,527)   3.75           
Forfeited, expired or canceled   (27,640)   (11,666)   3.75           
Outstanding at September 30, 2018   566,332    205,209   $3.71    8.59   $- 

 

During the third quarter of 2018, exercises of employee stock options totaled 16,527 shares at $3.75 per share, resulting in proceeds of $61,977.

 

The Company’s restricted stock unit activity for the nine months ended September 30, 2018 was:

 

   Number of 
Shares
 
Unvested balance at December 31, 2017   159,588 
Granted   714,263 
Vested   - 
Forfeited or Canceled   (91,112)
Unvested balance at September 30, 2018   782,739 

 

Note 15. Commitments and Contingencies

 

From time to time, the Company is involved in legal matters arising in the ordinary course of business, including matters that relate to items for which the Company has accrued their contractual obligations, but are disputing payment for. The Company has one such matter relating to a consulting services agreement with Tusk Ventures LLC, in which they 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 and while the Company has accrued all contractual amounts, it intends to defend the action vigorously. The Company and legal counsel believe this matter does not present a material risk to the Company. While the Company believes that these such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.

 

Note 16. Operating Leases

 

The Company rents its headquarters and attached warehousing space from a related party (see Note 10) and their research and development office from an unrelated party under operating leases. The research and development office lease commenced in October 2015 and will expire in 2018, subject to one renewal option for an additional one-year period. The total future minimum lease payments under these leases as of September 30, 2018 is:

 

Year Ending December 31,    
2018 (Remaining)  $24,784 
2019   100,003 
2020   41,926 
Total  $166,713 

 

Total rent expense under all operating leases amounted to $37,874 and $39,921 for the three months ended September 30, 2018 and 2017, and $108,182 and $105,702 for the nine months ended September 30, 2018 and 2017, respectively.

 

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BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

Note 17. 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:

 

   Nine Months Ended September 30, 
   2018   2017 
Changes in operating assets and liabilities:          
Accounts and note receivable  $(90,884)  $(182,297)
Inventory   (905,043)   (78,634)
Prepaid expenses and other assets   (14,216)   (88,924)
Accounts payable   336,315    (138,665)
Accrued interest payable   377,709    876,342 
Accrued expenses   (350,867)   26,041 
Deferred revenue   15,206    42,496 
Customer deposits   (16,937)   49,291 
Net change in operating assets and liabilities  $(648,717)  $505,650 
           
Supplementary cash flow information:          
Cash paid during the year for:          
Interest  $378,431   $84,784 
Income taxes   -    - 
           
Supplementary Disclosure of Non-Cash Investing and Financing Activities:          
Transfer of inventory to leased equipment  $437,223   $449,951 
Common stock issued in settlement of accrued interest   915,700    - 
Common stock issued in acquisition of Gold Medal Group, LLC   2,250,000    - 
Conversion of notes into common stock   9,090,375    - 
Conversion of Series B preferred stock into common stock   1,767,371    - 
In-Kind payments by investors for common and preferred stock   

341,998

    140,000 
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 dividend   66,958    - 
Conversion of Series A preferred stock into common stock   433,445    - 
Conversion of advances from related party to promissory notes   -    1,789,006 

 

Note 18. Recent Accounting Pronouncements

 

During the nine months ended September 30, 2018, the Company implemented the following recent accounting standards:

 

Revenue from Contracts with Customers — In April 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing” (Topic 606). The amendments clarify two aspects of ASU No. 2014-09, “Revenue from Contracts with Customers,” by providing (1) guidance for identifying performance obligations and (2) licensing implementation guidance. Public business entities should apply the guidance similar to Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.  This standard has an effective date of January 1, 2018, and the Company used the modified retrospective implementation method, whereby a cumulative effect adjustment would have been recorded to retained earnings as of the date of initial application, if needed. In the initial implementation, the Company evaluated the terms, conditions and performance obligations under our existing contracts with customers and determined that a cumulative adjustment to retained earnings was not necessary, and that the new standard has not had a material impact on its financial condition, results of operations or cash flows.

 

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BioHiTech Global, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017

 

The Company has not yet implemented 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. The Company will evaluate the effects, if any, that adoption of these ASUs will have on its consolidated financial position or results of operations.

 

Note 19. 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 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 November 9, 2018 the Company’s line of credit lender, Comerica Bank, amended its existing line of credit to increase the available credit from $1,000,000 to $1,500,000. All other terms of the credit facility remanded unchanged.

 

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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 2, 2018.

 

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

 

On August 6, 2015, BioHiTech Global, Inc. (the “Company”) entered into and consummated an Agreement of Merger and Plan of Reorganization with Swift Start Corp. and a wholly-owned subsidiary of the Company and Bio Hi Tech America, LLC (“BHTA”), a Delaware limited liability company. Pursuant to the terms of the Merger Agreement, they were merged in a reverse business combination with BHTA surviving as a wholly-owned subsidiary of the Company.

 

The Company’s vision since its inception has been to disrupt the waste management industry in North America through the development and utilization of our own practices and proprietary technologies, as well as successful practices and technologies acquired from other worldwide areas, to create the next level of a commercially viable, fully integrated, sustainable waste management company. The Company offers a suite of technologies and services that can be utilized separately or in tandem. The Company provides cost-effective technologies for on-site food waste reduction and elimination as well as proprietary technology for the processing of solid waste from municipalities and large organizations through a mechanical and biological process that recovers certain recyclables, reduces weight and produces an E.P.A. recognized alternative fuel commodity, with significantly less materials destined for landfill. The Company also intends to provide traditional waste collection services in certain markets.

 

The Company’s initial focus was primarily on its Digester business. During 2014 and 2015 the Company expanded its Eco-Safe Digester offering for mid- to large-level food waste generators through the development of technologies that transformed the digester market from just food waste diversion to one that provides information that can allow customers to reduce and eliminate or minimize their food waste through improved supply chain management and other efficiencies.

 

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During 2016 and 2017, the Company initiated development of its Revolution Series of Digesters, a technologically advanced digester targeting smaller food waste generators, that is smaller in size, easy to install, and offered at a lower price point. The Revolution Series of Digesters became commercially available in the second half of 2017.

 

During 2016, the Company expanded from its technology-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 a United States EPA recognized alternative commodity fuel.

 

During 2017, the Company initiated strategic activities relating to traditional waste management and recycling service.

 

On January 25, 2018, the Company made its initial investment in a traditional waste management and recycling company (Gold Medal Holdings, Inc.), with primary operations in the Southern New Jersey and Eastern Pennsylvania markets that have subsequently been expanded, through acquisitions by Gold Medal, to Maryland, Delaware and West Virginia. As part of the acquisition, the Company entered into management agreement that provides fees for advisory services to Gold Medal.

 

The combination of traditional waste and recycling collection, on-site digester and the facility based HEBioT technology results 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. This cost-effective solution can result in less than 20% of each customer’s waste being directed to landfills, hence resulting in a near-zero footprint.

 

Results of operations for the three months ended September 30, 2018

compared to the three months ended September 30, 2017

 

Revenue by Type

 

The following table breaks down our revenue by type: 

 

   Three Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $469,978    43.2%  $415,402    63.3%
Equipment sales   282,246    25.9%   240,945    36.7%
Management advisory fees   335,858    30.9%   -    -%
   $1,088,082    100.0%  $656,347    100.0%

 

Total revenue increased by $431,735, or 65.8%, from the three months ended September 30, 2017 to the three months ended September 30, 2018. The increase in Revenues was a result of a $54,576, or 13.1% increase in rental, service and maintenance revenue, a $41,301, or 17.1% increase in equipment sales and a $335,858 increase in management advisory and consulting fees, which are new in 2018. The increase in rental, service and maintenance is primarily the result of a larger overall number of deployed units that has led to a 27.9% increase in our total rental revenues, which accounted for 61.2% of the category for the three months ended September 30, 2018, as compared to 54.1% for the three months ended September 30, 2017 and 115.1% of the overall category increase. The total number of digester units under lease as of September 30, 2018 was 158, as compared to 106 digester units deployed as of September 30, 2017, an increase of 49.1%.

 

Management advisory fees reflect an agreement with Gold Medal Holdings, Inc., which the Company co-invested with Kinderhook Industries on January 25, 2018. The agreement provides that the Company will provide “C” level and other management services and environmental and safety related oversight, which the Company has utilized existing its existing management team to provide. The agreement provides for an annual fee of 10% of Gold Medal’s adjusted EBITDA with a minimum annual fee of $750,000. In addition to the management advisory services, the Company has also provided other project-based services. During the three months ended September 30, 2018 total fees were comprised of $270,833 of management fees and $65,025 of project based fees.

 

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Cost of Revenue

 

The following table breaks down our cost of revenue by type:

 

   Three Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $336,842    68.4%  $348,862    69.7%
Equipment sales   155,651    31.6%   151,998    30.3%
   $492,493    100.0%  $500,860    100.0%

 

Cost of revenue mainly consists the cost of acquiring digester units that are sold, and depreciation, warehousing, installation, maintenance, parts and shipping costs, as well as related salary and employee costs related to rental units. Total costs of revenue decreased by $8,367, or 1.7%, from the three months ended September 30, 2017 to the three months ended September 30, 2018, primarily due an increase in gross margin from both our rental, service and maintenance services and from our equipment sales.

  

Rental, service and maintenance costs of revenue decreased by $12,020, or 3.4% (as compared to a 13.1% increase in rental, service and maintenance revenue) from the three months ended September 30, 2017 to the three months ended September 30, 2018. Included in the total costs were:

 

   Three Months Ended September 30, 
   2018   2017 
Labor related costs  $77,371    23.0%  $65,365    18.7%
Depreciation   94,967    28.2%   69,312    19.9%
Contracted services   64,980    19.3%   142,816    40.9%
Parts and maintenance supplies   99,524    29.5%   71,369    20.5%
   $336,842    100.0%  $348,862    100.0%

 

Labor related costs increased by $12,006, or 18.4%, from the three months ended September 30, 2017 to the three months ended September 30, 2018 primarily due to increased staffing to support the number of units in service and to reduce contracted services. Depreciation increased 37.0% from the three months ended September 30, 2017 to the three months ended September 30, 2018, due to the increase in the number of units leased. Contracted services decreased by $77,836, or 54.5%, from the three months ended September 30, 2017 to the three months ended September 30, 2018 primarily due to: reduced routine maintenance on-site visits required by the Revolution line, which was first delivered in late 2017, changes in staffing and in the nature of services required by our national based contracts that require contractor utilization for areas not covered by the Company’s in-house staff. Parts and maintenance supplies increased by $28,155 or 39.4%, the increase in units under lease and to the aging of some of the Eco-Safe line of digesters offset in part by the favorable serviceability of the new Revolution Series of digesters.

 

Equipment sales cost of revenue increased by $3,653, or 2.4%, from the three months ended September 30, 2017 to the three months ended September 30, 2018 due to improved margins on individual sales as the Company focuses it deployments on rental transactions.

 

Gross Profit and Margin

 

The following table breaks down our gross profit by type:

 

   Three Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $133,136    22.3%  $66,540    42.8%
Equipment sales   126,595    21.3%   88,947    57.2%
Management advisory fees   335,858    56.4%   -    -%
   $595,589    100.0%  $155,487    100.0%

 

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The following table breaks down our gross margin by type: 

 

    Three Months Ended September 30,  
    2018     2017  
Rental, service and maintenance     28.3 %     16.0 %
Equipment sales     44.9 %     36.9 %

  

Rental, service and maintenance gross margin improved from 16.0% for the three months ended September 30, 2017 to 28.3% for the three months ended September 30, 2018. This improvement was the result of changes better utilization of staff and the change in the portfolio mix to Revolution Series digesters that have less scheduled maintenance.

 

Equipment sales gross margin increased from 36.9% for the three months ended September 30, 2017 to 44.9% for the three months ended September 30, 2018. This increased rate was primarily driven by an increase in direct sales.

 

Management advisory fees margin was 100% as the Company is providing the services with its existing management team as part of our holistic management of the Company towards its strategic goal of significant reduction in waste in landfills. As the Company has not incurred any additional variable costs associated with the services, nor has the management of the Company been negatively impacted by these additional services, the Company does not allocate any costs to these services.

 

Operating expenses

 

The following table breaks down our operating expenses by type:

 

   Three Months Ended  September 30, 
   2018   2017 
Selling, general and administrative  $1,744,570    98.4%  $1,901,486    98.6%
Depreciation and amortization   28,297    1.6%   27,674    1.4%
Total  $1,772,867    100.0%  $1,929,160    100.0%

  

Selling, general and administrative expenses decreased by $156,916, or 8.3%, from three months ended September 30, 2017 to the three months ended September 30, 2018. The following table breaks down the major categories of selling, general and administrative expenses:

 

   Three Months Ended September 30, 
   2018   2017 
Personnel  $1,273,107    73.0%  $1,045,789    55.0%
Professional fees   204,588    11.7%   604,226    31.8%
Facility and office costs   91,608    5.3%   98,385    5.2%
Sales and marketing   117,710    6.7%   93,990    4.9%
Other   57,557    3.3%   59,096    3.1%
Total  $1,744,570    100.0%  $1,901,486    100.0%

  

Personnel, the largest component of selling, general and administrative expenses increased by $227,318, or 21.7% from the three months ended September 30, 2017 to the three months ended September 30, 2018. 79.7% of the total increase was the result of stock-based compensation, the remaining 20.3% of the increase was the result of increases in base compensation, taxes and fringe, which increased by 5.1% between the periods.

 

Professional fees decreased by $399,638, or 66.1% from three months ended September 30, 2017 to the three months ended September 30, 2018. The following table breaks down the major categories of professional fees:

 

   Three Months Ended September 30, 
   2018   2017 
Legal  $76,008    37.2%  $103,862    17.2%
Investment banking, investor relations and market consulting   64,262    31.4%   465,558    77.1%
Audit and accounting services   48,756    23.8%   25,440    4.2%
Marketing and communications   15,562    7.6%   9,366    1.5%
Total  $204,588    100.0%  $604,226    100.0%

 

Professional fees expense decreased primarily due to a decrease of $401,296 in investor relations offset in-part by increases in other professional fees.

 

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Income tax

 

For the three months ended September 30, 2018 and 2017 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.

 

The Tax Cuts & Jobs Act (“TCJA”) was enacted in December 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35% to 21%. The result of the TCJA was to reduce gross deferred tax assets and the corresponding valuation allowance resulting in no net changes in financial position or in the overall tax provision.

 

Results of operations for the nine months ended September 30, 2018

compared to the nine months ended September 30, 2017

 

Revenue by Type

 

The following table breaks down our revenue by type: 

 

   Nine Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $1,369,314    51.8%  $1,140,751    63.5%
Equipment sales   547,735    20.7%   655,493    36.5%
Management advisory fees   725,897    27.5%   -    -%
   $2,642,946    100.0%  $1,796,244    100.0%

 

Total revenue increased by $846,702 or 47.1%, from the nine months ended September 30, 2017 to the nine months ended September 30, 2018. The increase in Revenues was a result of a $228,563, or 20.0% increase in rental, service and maintenance revenue and a $725,897 increase in management advisory fees, which were new in 2018, offset in-part by a $107,758, or 16.4% decrease in equipment sales. The increase in rental, service and maintenance is primarily the result of a larger overall number of deployed units that has led to a 34.0% increase in our total rental revenues, which accounted for 62.3% of the category for the nine months ended September 30, 2018, as compared to 55.8% for the nine months ended September 30, 2017 and 94.6% of the overall category increase. This increase in rental, service and maintenance revenues was offset by a decrease of $107,758 in revenue derived from equipment sales reflecting the Company’s continued focus on the rental market and, to a lesser extent, a decrease reseller activity in certain international markets. The total number of digester units under lease as of September 30, 2018 was 158, as compared to 106 digester units deployed as of September 30, 2017, an increase of 49.1%.

 

Management advisory fees reflect an agreement with Gold Medal Holdings, Inc., which the Company co-invested with Kinderhook Industries on January 25, 2018. The agreement provides that the Company will provide “C” level and other management services and environmental and safety related oversight, which the Company has utilized existing its existing management team to provide. The agreement provides for an annual fee of 10% of Gold Medal’s adjusted EBITDA with a minimum annual fee of $750,000. In addition to the management advisory services, the Company has also provided other project-based services. During the nine months ended September 30, 2018 total fees were comprised of $597,717 of management fees and $128,180 of project based fees.

 

Cost of Revenue

 

The following table breaks down our cost of revenue by type:

 

   Nine Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $912,061    72.0%  $880,559    69.2%
Equipment sales   355,154    28.0%   391,152    30.8%
   $1,267,215    100.0%  $1,271,711    100.0%

 

Cost of revenue mainly consists the cost of acquiring digester units that are sold, and depreciation, warehousing, installation, maintenance, parts and shipping costs, as well as related salary and employee costs related to rental units. Total costs of revenue decreased by $4,496, or 0.4%, from the nine months ended September 30, 2017 to the nine months ended September 30, 2018, primarily due an increase in gross margin from our rental, service and maintenance services. 

 

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Rental, service and maintenance costs of revenue increased by $31,502, or 3.6% (as compared to a 20.0% increase in rental, service and maintenance revenue) from the nine months ended September 30, 2017 to the nine months ended September 30, 2018. Included in the total costs were:

  

   Nine Months Ended September 30, 
   2018   2017 
Labor related costs  $228,524    25.1%  $188,583    21.4%
Depreciation   267,229    29.3%   213,268    24.2%
Contracted services   159,562    17.5%   221,664    25.2%
Parts and maintenance supplies   256,746    28.1%   257,044    29.2%
   $912,061    100.0%  $880,559    100.0%

 

Labor related costs increased by $39,941, or 21.2%, from the nine months ended September 30, 2017 to the nine months ended September 30, 2018 primarily due to increased staffing to support the number of units in service. Depreciation increased 25.3% from the nine months ended September 30, 2017 to the nine months ended September 30, 2018, due to the increase in the number of units leased. Contracted services decreased by $62,102, or 28.0%, from the nine months ended September 30, 2017 to the nine months ended September 30, 2018 primarily due to the ability of in-house staff being able to service a larger portion of the digesters and due to reduced scheduled maintenance intervals of the Revolution Series (two per year), as compared to the Eco Safe Series (four per year).

 

Equipment sales cost of revenue decreased by $35,998, or 9.2%, from the nine months ended September 30, 2017 to the nine months ended September 30, 2018 due to an overall 16.4% decrease in equipment sales resulting from the Company’s emphasis on rental units.

 

Gross Profit and Margin

 

The following table breaks down our gross profit by type:

 

   Nine Months Ended September 30, 
   2018   2017 
Rental, service and maintenance  $457,253    33.2%  $260,192    49.6%
Equipment sales   192,581    14.0%   264,341    50.4%
Management advisory fees   725,897    52.8%   -    -%
   $1,375,731    100.0%  $524,533    100.0%

 

The following table breaks down our gross margin by type: 

 

   Nine Months Ended September 30, 
   2018   2017 
Rental, service and maintenance   33.3%   22.8%
Equipment sales   35.2%   40.3%

 

Rental, service and maintenance gross margin improved from 22.8% for the nine months ended September 30, 2017 to 33.3% for the nine months ended September 30, 2018. This improvement was the result of changes in demand and improved utilization of fixed costs and semi-fixed costs.

 

Equipment sales gross margin decreased from 40.3% for the nine months ended September 30, 2017 to 35.2% for the nine months ended September 30, 2018. This decreased rate was primarily driven by an increase in the proportion of sales to resellers and of used units, which were the result of existing customers at lease-end upgrading to new leases on newer versions of our digesters, sold lower margins.

 

Management advisory fees margin was 100% as the Company is providing the services with its existing management team as part of our holistic management of the Company towards its strategic goal of significant reduction in waste in landfills. As the Company has not incurred any additional variable costs associated with the services, nor has the management of the Company been negatively impacted by these additional services, the Company does not allocate any costs to these services.

 

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Operating expenses

 

The following table breaks down our operating expenses by type:

 

   Nine Months Ended September 30, 
   2018   2017 
Selling, general and administrative  $5,024,406    98.3%  $5,441,513    98.4%
Depreciation and amortization   87,160    1.7%   85,781    1.6%
Total  $5,111,566    100.0%  $5,527,294    100.0%

 

Total operating expenses decreased by $415,728, or 7.5% from nine months ended September 30, 2017 to the nine months ended September 30, 2018, primarily due to decreased professional fees.

 

Selling, general and administrative expenses increased by $417,107, or 7.7%, from nine months ended September 30, 2017 to the nine months ended September 30, 2018. The following table breaks down the major categories of selling, general and administrative expenses:

 

   Nine Months Ended September 30, 
   2018   2017 
Personnel  $3,385,929    67.4%  $3,103,432    57.0%
Professional fees   660,604    13.1%   1,618,076    29.8%
Facility and office costs   301,607    6.0%   271,859    5.0%
Sales and marketing   442,856    8.8%   337,955    6.2%
Other   233,410    4.7%   110,191    2.0%
Total  $5,024,406    100.0%  $5,441,513    100.0%

 

Personnel, the largest component of selling, general and administrative expenses increased by $282,497, or 9.1% from the nine months ended September 30, 2017 to the nine months ended September 30, 2018. 38.4% of the total increase was the result of stock-based compensation, the remaining 61.6% of the increase was the result of increases in base compensation, taxes and fringe, which increased by 6.6% between the periods. Other expenses, which increased by $123,219, or 111.8% from the nine months ended September 30, 2017 to the nine months ended September 30, 2018, was primarily driven by a $116,677 increase in foreign currency exchange expense due to unhedged positions between the head office and the UK operations.

 

Professional fees decreased by $957,472, or 59.2% from nine months ended September 30, 2017 to the nine months ended September 30, 2018. The following table breaks down the major categories of professional fees:

 

   Nine Months Ended September 30, 
   2018   2017 
Legal  $249,112    37.7%  $175,557    10.9%
Marketing and communications   22,075    3.3%   71,697    4.4%
Investment banking, investor relations and market consulting   122,252    18.5%   1,193,224    73.7%
Audit and accounting services   267,165    40.5%   177,598    11.0%
Total  $660,604    100.0%  $1,618,076    100.0%

 

Professional fees expense decreased primarily due to a decrease of $1,070,971 in investor relations and market consulting offset in-part by a $163,122 increase in legal and audit and accounting that were driven by the level and complexity of the transactions occurring during the first half of 2018.

 

Other (expense) income

 

Other expense increased by $7,765,892 for the nine months ended September 30, 2018 over the nine months ended September 30, 2017. This increase is primarily driven by $6,727,929 in interest expense driven by the valuation of warrants associated with the conversion of the Series A, B and D convertible notes, which were issued with 100% warrant coverage based upon the number and pricing of shares that the notes converted into and by other conversions. At the time of issuing the notes and warrants the conversion price and thus, the number and exercise price of warrants was not known at the time of raising debt, accordingly the warrants were valued upon conversion. The interest arising from this valuation is not a cash expense as it results in a corresponding increase in additional paid in capital. Interest expense increased by $680,269, or 56.8% for the nine months ended September 30, 2018 over the nine months ended September 30, 2017 due to increased borrowing. Other expense also increased due to an increase of $359,693 in the equity losses, primarily driven by our recent investment in Gold Medal Group, Inc. A large amount of these initial losses recorded were related to acquisition and other related expenses.

 

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Income tax

 

For the nine months ended September 30, 2018 and 2017 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.

 

The Tax Cuts & Jobs Act (“TCJA”) was enacted in December 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35% to 21%. The result of the TCJA was to reduce gross deferred tax assets and the corresponding valuation allowance resulting in no net changes in financial position or in the overall tax provision.

 

Liquidity and Capital Resources

 

For the nine months ended September 30, 2018, the Company had a net loss of $12,713,891, incurred a consolidated loss from operations of $3,735,835 and used net cash in consolidated operating activities of $4,386,230. For the year ended December 31, 2017, the Company had a net loss of $8,350,527, incurred a consolidated loss from operations of $6,564,070 and used net cash in consolidated operating activities of $4,772,950. At September 30, 2018 consolidated stockholders’ equity amounted to $2,981,820 and the Company had a consolidated working capital deficit of $1,389,422. At December 31, 2017, consolidated stockholders’ deficit amounted to $11,016,724 and the Company had a consolidated working capital deficit of $1,755,061. The Company does not yet have a history of financial stability driven by operational profits. Historically, the principal source of liquidity has been the issuance of debt and equity securities. These factors raised substantial doubt about the Company’s ability to continue as a going concern.

 

Cash

 

As of September 30, 2018 and December 31, 2017, the Company had cash balances of $384,403 and $901,112, respectively.

 

Borrowings and Debt

 

The table below presents borrowings at face amount due at maturity, debts and advances as of September 30, 2018, along with their stated maturities.

 

Year Ending December 31,  Amortizing   Non-
Amortizing
   Total 
2018 (Remaining)  $2,247   $1,000,000   $1,002,247 
2019   9,165    -    9,165 
2020   4,604    100,000    104,604 
2021   4,380    2,500,000    2,504,380 
2022 and thereafter   3,820    3,544,477    3,548,297 
Total  $24,216   $7,144,477   $7,168,693 

 

Cash Flows

 

Cash Flows from Operating Activities

 

We used $4,386,230 of cash in operating activities during the nine months ended September 30, 2018 as compared to a use of $3,836,030 during the nine months ended September 30, 2017. Our net loss during the nine months ended September 30, 2018 of $12,713,891 was reduced by $6,424,970 of interest resulting from the valuation of warrants upon their corresponding debt’s conversion to common stock, $354,383 of depreciation and amortization, $485,244 from stock-based employee compensation as well as by $1,318,895 of interest resulting from amortization of financing costs and discounts and $371,531 in equity losses from affiliates. Changes in operating assets and liabilities used $648,717 of cash during the nine months ended September 30, 2018 as compared to a source of $505,650 for the nine months ended September 30, 2017. Our net loss during the nine months ended September 30, 2017 of $6,214,925 was impacted by $299,021 of depreciation and amortization, $375,508 from stock-based employee compensation, $871,531 in fees paid in stock and amortization of financing costs and discounts amounting to $ 223,718.

 

Cash Flows from Investing Activities

 

Net Cash used in investing activities amounted to $337,662 for the nine months ended September 30, 2018, compared to net cash used by investing activities of $1,165,868 for the nine months ended September 30, 2017. During both periods, the majority of investments were in various MBT related assets.

 

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Cash Flows from Financing Activities

 

Cash provided by financing activities amounted to $4,162,424 for the nine months ended September 30, 2018, compared to $5,137,360 for the nine months ended September 30, 2017, a change of $974,936. During the nine months ended September 30, 2018, we received $7,125,000 in proceeds from the issuance of notes, line of credit and preferred stock and repaid $2,470,365 of debts and redeemed $317,000 of our Series A preferred stock, while during the nine months ended September 30, 2017, we received $5,166,729 from advances and the issuance of notes and repaid $6,369 in debts.

 

Off Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements during the nine months ended September 30, 2018.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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

 

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.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On or about April 21, 2017, the Company was served with a Summons and Complaint in an action captioned Tusk Ventures LLC v. BioHiTech Global, Inc., in the Supreme Court of the State of New York, New York County. The Plaintiff alleges that it is owed $250,000 pursuant to a Consulting Services Agreement. While the Company has accrued all contractual amounts, it intends to defend the action vigorously.

 

From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

 

Item 1A. Risk Factors.

 

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

 

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

 

On August 20, 2018, the Company issued 31,179 shares of the Company’s $0.0001 par common stock as payment for services rendered at an effective price per share of $4.02.

 

During August of 2018, 46,689 shares of Series A Convertible Preferred Stock were converted for 51,876 shares of Common Stock.

 

The Company did not engage a placement agent and no compensation was paid in connection with the above issuances.

 

The Company relied on the 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.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

None.

  

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.
     
November 14, 2018 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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