UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
☐ 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
(State or Other Jurisdiction of
Incorporation or Organization)
80 Red Schoolhouse Rd. Chestnut Ridge, NY
(Address of Principal Executive Offices)
46-2336496
(I.R.S. Employer
Identification Number)
10977
(Zip Code)
(845) 262-1081
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value per share
Trading
Symbol(s)
BHTG
Name of each exchange on which
registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the
past 90 days. Yes ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
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 ☒
As of June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately $18.9 million based on the closing sales price of $1.78 on the Nasdaq Capital Market. All
executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of May 19, 2020 there were 17,437,288 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Definitive Proxy Statement relating to its 2019 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
TABLE OF CONTENTS
Page
PART I
Item 1.
Item 1A
Item 1B
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A
Item 8.
Item 9.
Item 9A
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Plan of Operation and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, Promoters and Corporate Governance.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
SIGNATURES
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PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward
looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,”
“probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language.
No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect
management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors
currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our
actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth
below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on
which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
BioHiTech Global, Inc. and Subsidiaries (the “Company” or “we” or “BioHiTech” or “Registrant”) refers to BioHiTech Global, Inc, and its subsidiaries as
a whole or to individual components thereof as applicable based upon the context in which the term is used.
ITEM I: BUSINESS
Our Business
The Company’s mission is to reduce the environmental impact of the waste management industry through the development and deployment of
cost-effective technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste, patented
processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary real-time data analytics tools to
reduce food waste generation. These unique proprietary solutions can enable certain businesses and municipalities of all sizes to lower disposal costs while
having a positive impact on the environment. When used individually or in combination, the Company’s solutions can reduce the carbon footprint
associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage.
Revolution Series™ Digesters
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its
line of Revolution Series Digesters, launched in the second half of 2017, have been described as self-contained, robotic biological digestive
systems that are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. The units range in size
depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological
process to convert food waste into a liquid that is safe to discharge down an ordinary drain. This process can result in a substantial reduction
in costs for customers including restaurants, grocery stores, and hotel/hospitality companies by eliminating the transportation and logistics
costs associated with food waste disposal. The process also reduces the greenhouse gases associated with food-waste transportation and
decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes
targeting small to mid-sized food waste generators with both sale and rental options that are often more economical than traditional disposal
methods. The Revolution Series Digesters are manufactured and assembled in the United States.
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated IoT technology platform to provide its
customers with transparency into their waste generation and operational practices. This patented process collects weight related data from the
digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency and validate corporate
sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its
rental agreements or sold through a separate annual software license. Prior to the launch of its Revolution Series Digesters, the Company
marketed earlier generations of its digesters under the Eco-Safe brand. These units were larger sized and typically marketed to mid- and
large-sized food waste generators, including the Federal Government. The Company continues to add new capacity sizes to its line of
Revolution Series Digesters to meet customer needs.
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HEBioT Resource Recovery Technology
The Company expanded its technology business in 2016 through the acquisition of certain development rights to a patented
Mechanical Biological Treatment (“MBT”) technology developed by a European engineering firm that relies upon High Efficiency
Biological Treatment (“HEBioT”) to process waste at the municipal or enterprise level. The technology results in a substantial reduction in
landfill usage by converting a significant portion of intake, including organic waste and non-recyclable plastics, into a United States EPA
recognized alternative fuel that can be used as a partial replacement for coal.
The Company also, through a series of transactions in 2017 and 2018, acquired a controlling interest in the Nation’s first municipal
waste processing facility utilizing the HEBioT technology located in Martinsburg, West Virginia (the “Martinsburg Facility”). The
Martinsburg Facility, which commenced operations in 2019, is capable of processing up to 110,000 tons of mixed municipal waste annually.
At full capacity, the Martinsburg Facility can achieve an annual savings of over 2.3 million cubic feet of landfill space and eliminate many of
the greenhouse gases associated with landfilling that waste. The Company plans to build additional HEBioT facilities in the coming years
and is currently in the permitting process to build a second facility in New York State.
The Company’s suite of products and services positions it as a leading provider of cost-effective, technology-based alternatives to traditional waste
disposal in the United States. The use of the Company’s technology solutions independently or in combination, can help its customers meet sustainability
goals by achieving a significant reduction in greenhouse gases associated with waste transportation and landfilling. In addition, the repurposing of
municipal waste into a cleaner burning, EPA recognized, renewable fuel can further reduce potentially harmful emissions associated with traditional means
of disposal. The overall reduction in carbon and other greenhouse gases that are linked to climate change that could be achieved through the utilization of
the Company’s technology can serve as a model for the future of waste disposal in the United States.
In addition to its technology business, the Company provides executive oversight services for a traditional waste management and recycling
company that is contracted to deliver municipal waste to the Company’s Martinsburg Facility.
Digester Technologies, Market, Customers and Competition
The Company leverages its existing technology, including our digester’s on-board patented weighing system, by collecting, accumulating and
providing empirical data that can aid in improving the efficiency of the upstream supply chain. By streaming data from the digesters, collecting information
from system users and integrating business application data, BioHiTech’s internet enabled system known as the BioHiTech CloudTM can provide necessary
data to aid customers in reshaping their purchasing decisions and positively affect employee behavior. In its simplest form, the BioHiTech Cloud quantifies
food waste in a fashion that has historically not been available. It enables users to understand food waste generation habits and to improve operational
efficiencies.
The BioHiTech Cloud data is used to help educate customers as to where, when and how waste is being created. Tracking and analyzing waste
based on creation time, food type, preparation stage, origin of waste or other key metrics may provide a clear picture of the food waste lifecycle. While our
digesters already provide significant economic savings and decreases in carbon footprint, the addition of the BioHiTech Cloud increases that impact by
helping the customer to more accurately manage inventory, preparation practices and staff efficiencies.
The Company believes that its combined offering of technology and its digesters provide customers with information that has not been readily
available to consumers in the past that has the potential for improved management and reduction of waste at the point of generation on a real-time basis.
BioHiTech believes its digester products remove organic waste from the overcrowded and costly landfills of the world and provide significant
benefits to both business organizations and the community including:
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Eliminating the transportation of organic waste,
Reducing carbon and methane emissions associated with landfilling and truck transportation,
Complying with municipal laws banning organic waste from landfills,
Contributing to corporate and regulatory targets for diverting waste from landfills,
Extending the lifespan of the country’s disposal facilities,
Reducing groundwater and soil contamination at landfills,
Reducing harmful greenhouse gases that contribute to global climate change, and
Recycling food waste into renewable resources (clean water, biogas, bio-solids).
Our solution is not based solely on the removal of waste, but also provides real time information and metrics to improve the efficiency of an
organization. Such information has not been readily available to consumers in the past. By providing a cloud-based dashboard and mobile application, the
BioHiTech Cloud gives real-time visibility to the status of the device itself and provides insight to the efficiencies of the operations of food preparation and
consumption of the user. Using leading edge cloud technologies, the systems allow for deep visibility into the process on an individual, regional, or national
level. BioHiTech currently has a provisional patent pending on this technology.
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The BioHiTech Cirrus™ application allows customers more immediate access to analytical data provided by the Eco-Safe Digester and more
efficient monitoring across a number of network connected devices. The mobile application is available to existing BioHiTech Cloud customers and is
available through the iTunes Store, as well as Google Play.
Target Markets
BioHiTech’s target market for its digesters includes any producers of consistent volumes of food waste.
In addition to the US domestic marketplace, the Company anticipates growth internationally with a primary focus on the United Kingdom,
Singapore, Mexico and Latin America.
As municipalities continue to enact ordinances prohibiting commercial food waste from being disposed of in landfills, the Company will focus its
efforts on targeting those businesses most affected by such ordinances. Many cities and states have already banned landfill disposal of food waste generated
by large, commercial food waste generators, with pending legislation in numerous others. The Company anticipates this trend to continue as sustainability
efforts advance.
Customers
Customers for BioHiTech’s digesters are primarily any consistent producers of food waste. Industries served include but are not limited to
healthcare, grocery, prisons, retail food services (including traditional restaurants and quick service restaurants), education, and full-service hospitality,
including casinos and the cruise industry. Volume of food waste, as well as traditional waste disposal costs, are the primary drivers of return on investment
for customers. BioHiTech also sells its products to governmental agencies including correctional facilities and hospitals, as well as large private sector
companies throughout the United States and abroad.
It is estimated that the addressable market for our digesters is over 200,000 locations worldwide.
Digester Marketing Strategy
The Company markets through two channels, “in-house” direct sales and “reseller” sales. Domestic and international resellers are granted a non-
exclusive license to sell and market products and services. All resellers are required to purchase all products and consumables directly from the Company.
In some cases, we also provide annual service to customers of our resellers at an additional charge.
As regulations continue to be passed regarding the disposal of food waste, we will leverage both our internal and external marketing sources to
communicate to and inform the target market of the increasing level of need for our products and services.
Since 2016, the Company has operated on a United States based manufacturing model. Each product goes through a rigorous quality control
process before it is delivered to the customer.
Competition
There are a small number of companies that distribute products utilizing a similar anerobic digestion methodology as our Revolution Digester, but
lack the technological depth of data collection, analytics and reporting. With our receiving our patent Network Connected Weight Tracking System for a
Food Waste Disposal Machine, there is a barrier to competitors providing similar technology to their customers. Further, we believe that these companies
do not have a competitive product to the Revolution Series of digesters based on price point, size, throughput, power and plumbing requirements and data
collection, analytics and reporting.
Most of these companies originated in Korea and continue to manufacture their products in Asia and India. We believe these companies may have
copied underlying technology of our original digester units. We are aware of one company that has claimed to be developing competitive data collection
and some level of web enablement but are unaware of the deployment and functionality of their technology offering. Of our competitors, our machine has
the smallest footprint, requires the least amount of water to operate and we believe is an industry leader in terms of installations and efficiency. Currently
we are not aware of any direct competitor with the ability to capture and deliver real time data.
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Alternative technologies or processes to digesters or similar equipment are:
Traditional Composting: Composting has been in existence for many years and has historically been the only option for
organics disposal. Composting:
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Relies heavily on truck collection and transportation.
Uses facilities that can be considered public nuisances.
Is very difficult to provide accurate metrics on waste volumes and generation.
Facilities are difficult to site and are often long distances from waste generation.
Is neither cost effective nor environmentally friendly.
Anaerobic Digestion: Anaerobic digesters are readily used throughout Europe. Anaerobic digestion (“AD”) is the
decomposition of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to generate electricity. AD is
generally accomplished on a large municipal or commercial scale and is not believed to be readily available as an “at the source”
solution. AD facilities are beginning to be sited in the United States and are thought of as a viable disposal option for organic waste.
While the technology is sound, AD facilities face various challenges in the United States. Management believes that AD facilities will
continue to be developed and will be a part of the total solution for organic waste disposal. Many private equity funds have made
investments in companies that own or are permitting AD facilities. The challenges to AD include:
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Capital intensity of sizeable plants;
Difficult to site with proximity to feedstock;
Need steady, homogenous waste source (pre-processing is necessary);
Relies on traditional collection and transportation of waste (significant costs);
Rely on “tip fee” to subsidize operating expenses; and
Difficult to provide data to consumers (similar to composting).
Patent and Trademarks
On May 22, 2018, the Company received its patent for the “Network Connected Weight Tracking System for a Food Waste Disposal Machine”,
which expires on July 23, 2036.
HEBioT Technologies, Market, Customers and Competition
The Company’s first HEBioT facility began commissioning operations in the first quarter of 2019. The deployment of this technology is consistent
with the Company’s vision of providing disruptive technologies to the traditional waste industry. With the ability to accept up to approximately 20 to 30%
of each plant’s capacity in the form of pure food waste, the Company adds an option of municipal level solutions in the food waste industry that was
previously unavailable.
The Company is also at varying levels of preliminary discussion regarding several other sites, including one located in Rensselaer, New York,
which it received its local permits for in 2018 and is presently awaiting New York State approvals.
Entsorga West Virginia Facility
Entsorga West Virginia, LLC (“EWV”), located in Martinsburg, WV, represents the first deployment of the Entsorga HEBioT technology in the
United States. The facility, which began commissioning operations in the first quarter of 2019 is designed to accept up to 110,000 tons per year of
municipal solid waste delivered from the surrounding areas. The facility consists of a 54,000 square foot industrial building located on approximately 12
acres of leased property. The facility, equipped with HEBioT technology, will be able to produce up to 50,000 tons per year of EPA recognized renewable
fuel.
Technology
The HEBioT technology converts mixed municipal and organic waste (typical residential trash collected) to a US Environmental Protection
Agency (the “US EPA”) recognized alternative fuel source. By utilizing a patented process that utilizes a combination of mechanical and biological
processes to accelerate the decomposition of the organic fraction of waste, the end product produced, known as solid recovered fuel (“SRF”) has a carbon
value nearly equivalent to traditional coal and can be used as a replacement and/or supplement to coal. After receipt and processing of waste at the facility,
approximately 80% of the incoming waste is reduced, recycled or converted into the approved alternative fuel, with the remaining 20% of the incoming
waste being disposed of via traditional methods.
The US EPA has issued a “comfort letter” stating that any fuel produced utilizing the HEBioT technology is deemed an engineered fuel and can be
marketed as a commodity rather than the fuel being marketed as RDF, refuse derived fuel, which has significant regulation and additional costs relating to
its consumption and use.
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In 2018, the Company entered into a transaction forming Refuel America, LLC (“Refuel”), a subsidiary of the Company, with Gold Medal Group,
LLC. This transaction consolidated HEBioT related assets of both entities, including interests in Entsorga West Virginia, LLC. The Company controls
Refuel and owns 60% of its membership interests. Gold Medal Group, LLC owns the remaining 40% of its membership interests. Refuel will continue new
and ongoing project development and marketing throughout 11 northeast U.S. states and the District of Columbia. This project development may consist of
construction, ownership and operation of actual facilities, such as the Entsorga West Virginia facility or possible sub-licenses to third parties to utilize the
technology. Refuel may realize revenues in various ways:
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Construction and operation of actual facilities, in which case Refuel would identify an opportunity to develop a plant, facilitate its
permitting and construction and ultimately operate the facility. In this case Refuel will realize all revenue and costs associated with the
development of the project and will pay to Apple Valley Waste Conversions, LLC (“AVWC”) a license fee, which in turn the Company
would receive its pro-rata share of the license fees paid to AVWC.
Licensing and development services to municipalities or various third party developers for projects that the Company provides consulting
and oversight on, in which case, receives one time or annual recurring license fees. In this case, along with the charged services, the
Company would receive its pro-rata share of the license fees paid to AVWC.
The Company owns a 31% interest in AVWC. Frank E. Celli, the Company’s CEO, also owns a 20.9% interest in AVWC. In March 2017, Mr.
Celli assigned his voting rights in AVWC so that, collectively, the Company would have voting control of over 51% of AVWC. AVWC currently holds the
exclusive license for the development throughout 11 northeast U.S. states and the District of Columbia of the technology known as High Efficiency
Biological Treatment (“HEBioT”), which is owned by Entsorgafin S.p.A., an Italian company. AVWC has licensed its exclusive development rights to the
Company.
The development license agreement between Entsorgafin (technology owner) and AVWC is perpetual in nature, with certain performance
standards relating to the volume of facilities developed during the initial five years of the agreement.
Marketing Strategy
The Company has focused our initial marketing efforts of our HEBioT technology within the 11 northeast states and the District of Columbia by
identifying potential opportunities based on various criteria including, disposal costs within a region, proximity to end users of alternative fuels, lack of
long-term disposal alternatives, and access to adequate feedstock.
Disposal Costs: We pursue opportunities where disposal costs within a certain radius of a prospective project are high enough to provide
adequate returns on capital. Since “tip fees” received by a facility represent the majority of a facility’s revenue, areas with tip fees in excess of $50
per ton are highly attractive markets. This is the case, in the majority of regions covered by the Company’s licensing rights.
Proximity to End Users: The second largest component of a facility’s revenue is realized through the sale of renewable fuel to be used
in conjunction with or as a substitute for coal. With cement kilns being the second largest user of coal in the United States and with the continual
regulatory pressure to reduce emissions associated with coal combustion, we target markets where there is reasonable access to cement
manufacturing facilities to maximize revenue and minimize transportation costs of the manufactured fuel. The HEBioT technology has received
an EPA comfort letter stating that all fuel manufactured from municipal solid waste in an Entsorga plant shall be categorized as an engineered fuel
and can be used in cement kilns to offset up to 30% of their total fuel consumption.
Lack of Long-Term Disposal: With landfill capacity in the northeast United States diminishing, and large quantities of solid waste being
exported from numerous states, many municipalities and/or private waste companies are in need of long-term disposal options. The HEBioT
technology can divert up to 80% of the incoming municipal solid waste from landfills resulting in a prolonged life expectancy or a 500% capacity
increase of existing landfills, as well as, new long-term cost-effective disposal options for the future.
Access to Adequate Feedstock: Based on the fixed cost nature of a HEBioT facility, to maximize its revenue and earnings it must be
operated near its design capacity. The Company focuses its marketing efforts on areas where population density provides adequate feedstock
supply within a reasonable radius of a proposed plant. The HEBioT facility’s proximity to feedstock will allow municipalities and haulers to
dispose of their waste (municipal solid waste or “MSW”) at an HEBioT facility without incurring significant logistical costs to do so.
We currently employ one full time executive focused on the marketing of the HEBioT technology. The executive has over 20 years of experience
in the solid waste and recycling facility management industry and has held multiple positions at some of the leading recycling companies. The executive’s
focus is on identifying opportunities where each of the aforementioned criteria apply, initial presentation of the Company and technology, evaluating
possible joint ventures, initiating early stage permitting, project development cost estimating and ultimate contract and project execution.
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We present the technology at industry trade shows and events, as well as make direct proposals to interested parties that have become familiar with
the HEBioT technology via public press releases, trade publications, the Company website and marketing materials, or industry referrals.
Competition
Competition in the Mechanical Biological Treatment (“MBT”) area is more diverse than with our digester products, as High Efficiency Biological
Treatment (“HEBioT”), which is just one of many forms of MBT, is a new technology to the United States. The U.S. waste industry significantly lags
Europe, which has over 300 MBT operational plants, in its achievements of improving environmental protection, diverting waste from landfills,
development and utilization of alternative energies, and other green initiatives. There is an increasing push to pursue alternative waste disposal options as
landfill capacity continues to dwindle and environmental consciousness continues to increase. In addition, the U.S. continues to pursue initiatives
mitigating reliance on foreign energy and the EPA is increasing mandates to reduce air pollutants and use of fossil fuels. There are also many large
corporations that have set zero waste targets that could utilize HEBioT as the one source to reduce landfill disposal of waste to under 20%.
Utilizing traditional waste management, more than half of the municipal solid waste generated in the United States is disposed of in landfills with
another 12% being directed to waste to energy facilities and balance being recycled or composted. This figure is compared to only 38% of MSW being
landfilled in the European Union resulting in the U.S. contributing significantly more greenhouse gas emissions from waste disposal than the European
Union. Recently in the U.S., regulators and corporate leaders have led an effort to lower greenhouse gas emissions by finding disposal alternatives to
landfills and exploring the deployment of “next generation” waste disposal technologies. The ongoing challenges to the evolution of these alternatives
include but are not limited to capital intensity requiring subsidies, emerging technology risk, access to feedstock, long term off-take partners and inability to
accept multiple waste streams.
Alternative technologies or processes to MBT are:
Anaerobic Digestion: Anaerobic digesters are readily used throughout Europe and deployed in the U.S. on a more limited basis.
Anaerobic digestion is the decomposition of organic waste in the absence of oxygen. The beneficial by-product is gas to be used to
generate electricity. AD is limited to accepting only the organic fraction of waste and not capable of processing mixed municipal waste.
Traditional Waste to Energy or Incineration Facilities: Incineration is a waste treatment process that involves the combustion of
organic substances contained in waste materials. Incineration and other high-temperature waste treatment systems are described as
"thermal treatment". Incineration of waste materials converts the waste into ash, flue gas, and heat. The ash is mostly formed by the
inorganic constituents of the waste and may take the form of solid lumps or particulates carried by the flue gas. The flue gases must be
cleaned of gaseous and particulate pollutants before they are dispersed into the atmosphere. In some cases, the heat generated by
incineration can be used to generate electric power. There have been very few of these facilities built in the U.S. in the past 20 years. The
challenges to Incineration include:
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Capital intensity of sizeable plants;
Difficult to site (NIMBYism);
Extreme capital intensity;
Expensive to operate;
High level of emissions
Gasification Facilities: Gasification is a process that converts organic or fossil fuel based carbonaceous materials into carbon monoxide,
hydrogen and carbon dioxide. This is achieved by reacting the material at high temperatures (>700 °C), without combustion, with a
controlled amount of oxygen and/or steam. The resulting gas mixture is called syngas (from synthesis gas or synthetic gas) or producer
gas and is itself a fuel. The power derived from gasification and combustion of the resultant gas is considered to be a source of renewable
energy if the gasified compounds were obtained from biomass. The challenges to gasification include but are not limited to:
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Early stage technology risk
Need for homogenous feedstock
Difficulty in siting (NIMBYism)
Pyrolysis: Pyrolysis is a thermochemical decomposition of organic material at elevated temperatures in the absence of oxygen (or any
halogen). It involves the simultaneous change of chemical composition and physical phase that is irreversible. Pyrolysis is a type of
thermolysis that is most commonly observed in organic materials exposed to high temperatures. Pyrolysis has been recently explored as
an option for municipal solid waste incineration but has not been deployed in the U.S. due to various challenges, including:
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Capital intensity
Significant early stage technology risk
Need for homogenous feedstock
Difficulty in siting (NIMBYism)
Landfilling: A landfill site (also known as a tip, dump, rubbish dump, garbage) is a site for the disposal of waste materials by burial and
is the oldest form of waste treatment (although the burial part is modern; historically, refuse was just left in piles or thrown into pits).
Historically, landfills have been the most common method of organized waste disposal and remain so in many places around the world
and currently represent approximately 70% of the disposal of municipal solid waste in the U.S. There has been a recent movement toward
diverting waste from landfills in the U.S. including the passing of various pieces of legislation in certain states banning certain materials
from being deposited in landfills. Landfilling continues to be faced with challenges such as;
Capital Intensity
Difficulty siting (NIMBYism)
Potential groundwater contamination
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· Methane gas emissions
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Poor use of natural resource
Post closure liabilities (future monitoring, etc.)
Other MBT Providers. The terms mechanical biological treatment or mechanical biological pre-treatment relate to a group of solid
waste treatment systems. These systems enable the recovery of materials contained within the mixed waste and facilitate the stabilization
of the biodegradable component of the material. There are currently over 300 operational MBT plants throughout Europe. Most of the
current plants produce Refuse Derived Fuel, which differs from the engineered solid recovered fuel produced by the Entsorga HEBioT
technology, which is deemed as an “engineered fuel” by the U.S. EPA. A2A is a company based in Italy that has historically deployed a
similar technology to that of Entsorga; however, A2A no longer makes it commercially available to merchant plant operators and does
not currently have any facilities located or planned for the U.S. market.
Management and Employees
As of December 31, 2019, the Company and its consolidated subsidiaries had 39 full time employees. We believe we enjoy good employee
relations. None of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.
Liquidity and Capital Resources
The Company currently generates revenues from rental and sales of its digesters and related goods and services, and revenues from the HEBioT
technologies. The Company's other known sources of capital are common and common and preferred stock offerings, proceeds from private placements,
issuance of notes payable, convertible notes payable, and investments, loans and advances from related and unrelated parties and cash from future
revenues.
We will require additional financing in order to execute our business expansion and development plans and we may require additional financing in
order to sustain substantial future business operations for an extended period of time. Subsequent to December 31, 2019 we initiated a private placement
offering for redeemable convertible preferred stock and warrants to acquire our common stock and had an initial closing of $1,500,000 on March 18, 2020
and an additional closing of $65,000 on April 6, 2020. We were funded $421,300 on May 13, 2020 through the Paycheck Protection Program and have
applied for an additional $200,000, which has not yet been approved. While the Company has a history of obtaining adequate capital and maintaining
liquidity, it is actively soliciting other forms of financing but do not have any firm commitments for additional financing. Should we not be able to obtain
financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible we may be unable to sustain
the necessary capital to pursue our strategic plan and may have to reduce the planned future growth and scope of our operations.
Potential Future Projects and Conflicts of Interest
Members of the Company’s management may serve in the future as an officer, director or investor in other entities. Neither BioHiTech nor any of
its shareholders would have any interest in these other companies’ projects. Management believes that it has sufficient resources to fully discharge its
responsibilities to the Company.
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We believe we are in compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure
compliance going forward. There are no regulatory notifications or actions pending.
Government Regulation
See footnote 20 of the Company’s consolidated financial statements filed herewith.
Related Party Transactions
Available Information
We will make available free of charge any of our filings as soon as reasonably practicable after we electronically file these materials with, or
otherwise furnish them to, the Securities and Exchange Commission (“SEC”). We are not including the information contained in our website as part of, or
incorporating it by reference into, this report on Form 10-K.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.
We maintain a website at http://www.biohitech.com/. Within our website’s “Investor” section, “SEC Filings” tab, all of our filings with the
Commission and all amendments to these reports are available as soon as reasonably practicable after filing.
Website
Our website address is www.biohitech.com.
Our Information
Our principal executive offices are located at 80 Red Schoolhouse Road, Suite 101, Chestnut Ridge, NY 10977 and our telephone number is (845)
262-1081. We can be contacted by email at info@biohitech.com.
ITEM 1A. RISK FACTORS
Our business, financial condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently
foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating
results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders may lose all or part
of their investment in the shares of our common stock.
This Form 10-K contains forward-looking statements that involve risks and uncertainties. These forward-looking statements can be identified by
the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or
“should,” “designed to,” “designed for,” or other variations or similar words or language. Actual results could differ materially from those discussed in the
forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Form 10-K.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED,
ESTIMATED, EXPECTED, INTENDED OR PLANNED
Risks Related to Pandemics
The recent COVID-19 coronavirus pandemic (“COVID-19”) may adversely affect our business, results of operations, financial condition, liquidity, and
cash flow.
While the full impact on our business from the recent outbreak of COVID-19 is unknown at this time and difficult to predict, various aspects of
our business have been impacted and could be adversely affected by it.
As of the date of this Annual Report, COVID-19 has been declared a pandemic by the World Health Organization, has been declared a National
Emergency by the United States Government and has resulted in all states being designated disaster zones. COVID-19 has caused significant volatility in
global markets, including the market price of our securities. The spread of COVID-19 has caused public health officials to recommend precautions to
mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, states and municipalities have enacted quarantining
and “shelter-in-place” regulations which severely limit the ability of people to move and travel, and require non-essential businesses and organizations to
close.
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It is unclear how such restrictions, which will contribute to a general slowdown in the global economy, will affect our business, results of
operations, financial condition and our future strategic plans.
The digester line of our business has historically been marketed to large organizations such as food distributors, convention centers, hotels,
restaurants, stadiums, municipalities and academic institutions. It is unclear how a prolonged outbreak with travel, commercial and other similar
restrictions, may adversely affect our business operations and the business operations of our customers and suppliers; a disruption for a prolonged period
will have a negative effect on our business operations.
Recent shelter-in-place and essential-only travel regulations have negatively impacted many of our customers. In addition, while our digesters are
manufactured in the United States, we still could experience significant supply chain disruptions due to interruptions in operations at any or all of our
suppliers’ facilities. If we experience significant delays in receiving our products we will experience delays in fulfilling orders and ultimately receiving
payment, which could result in loss of sales and a loss of customers, and adversely impact our financial condition and results of operations.
The HEBioT line of our business is classified as a public service in the state in which it is located and is expected to remain operating regardless
of restrictions that may be imposed on other businesses in its area. The facility relies upon other entities to pick up and deliver municipal solid waste, which
are also classified as public service entities, and is reliant upon customers in the cement kiln industry to purchase its solid recovered fuel. The inability to
receive MSW or sell it to its customers would adversely impact our financial condition and results of operations.
We have a history of operating losses and there can be no assurance that we can achieve or maintain profitability.
Risks Specific to Our Business
We have a history of operating losses and may not achieve or sustain profitability due to the competitive and evolving nature of the industries in
which we operate. Our failure to sustain profitability could adversely affect the Company’s business, including our ability to raise additional funds.
We may not be able to continue as a going concern.
For the year ended December 31, 2019, the Company had a consolidated net loss of $10,280,061, incurred a consolidated loss from operations of
$7,535,214 and used net cash in consolidated operating activities of $7,134,600. At December 31, 2019, consolidated total stockholders’ equity amounted
to $7,369,725, consolidated stockholders’ equity attributable to parent amounted to $2,024,143 and the Company had a consolidated working capital deficit
of $5,351,686. The Company does not yet have a history of financial profitability. Historically, the principal source of liquidity has been the issuance of
debt and equity securities. Presently, the Company does not have firm commitments to fully fund its future operational and strategic plans, although
subsequent to December 31, 2019 the Company raised $1,565,000 from the issuance of Series F Redeemable, Convertible Preferred Stock and warrants.
The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program and has applied for an additional $200,000, which has not
yet been approved. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is presently in the process of raising additional debt for general operations and to support its leasing activities. The Company may
also raise capital through its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange Commission (the
“Shelf Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized during September 2019 to raise net proceeds of
$3,035,557 through a confidentially marketed public offering of common shares. There is no assurance that the Company will be able to raise sufficient
capital or debt to sustain operations or to pursue other strategic initiatives or that such financing will be on terms that are favorable to the Company.
We face substantial competition in the waste services industry, and if we cannot successfully compete in the marketplace, our business, financial
condition and results of operations may be materially adversely affected.
The waste services industry is highly competitive, has undergone a period of consolidation and requires substantial labor and capital resources.
Some of the markets in which we compete are served by one or more of large, established companies, that are more well-known and better financed than
we are. Intense competition exists not only to provide services to customers, but also to develop new products and services and acquire other businesses
within each market. Some of our competitors have significantly greater financial and other resources than we do.
In our waste disposal markets, we also compete with operators of alternative disposal and recycling facilities. We also increasingly compete with
companies that seek to use waste as feedstock for alternative uses. Public entities may have financial advantages because of their ability to charge user fees
or similar charges, impose tax revenues, access tax-exempt financing and, in some cases, utilize government subsidies.
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If we are unable to successfully compete in the marketplace, our business and financial condition could be materially adversely affected.
The waste services industry is subject to extensive and rapidly-changing government regulation. Changes to one or more of these regulations could
cause a decrease in the demand for our products and services.
Stringent government regulations at the federal, state and local level in the U.S. have a substantial impact on the waste industry and compliance
with such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection, health, safety, land use,
zoning, transportation and related matters. Among other things, governmental regulations and enforcement actions may restrict operations within the waste
industry and may adversely affect our financial condition, results of operations and cash flows.
We believe the demand for our digester product is created directly in response to recent laws and regulation prohibiting certain large, commercial
food manufacturers, retailers and hospitality enterprises from discarding food wastes to landfills. Our digesters are just one solution for these businesses to
comply with these regulations and other regulations. If there was a change to or elimination of these regulations, the demand for our product would almost
certainly be greatly reduced and our income would, as a result, be adversely affected.
Currently, the microorganisms we employ in our digesters are approved for use to reduce food waste and to be poured into conventional sewer
systems. However, if it was determined that we could no longer use these microorganisms, there is no guarantee that we could develop a replacement
process to assure that we could continue to sell our products. Also, we would likely face claims from current customers were they unable to use our
digesters for food waste disposal.
We may also incur the costs of defending against environmental litigation brought by governmental agencies and private parties. We may be in the
future a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, or which seek to overturn or
prevent authorization of our products, all of which may result in us incurring significant liabilities.
We may be negatively impacted by landfills and certain long-term disposal trends.
In connection with the MBT line of business, there is competition from other landfills, including large, out-of-state landfills to secure municipal
solid waste (“MSW”) feedstock. Such facilities may legally drop prices to maintain market share forcing the Company to compete on price for feedstock
delivered by suppliers, which may cause a negative impact to the anticipated financial performance of the projects.
Waste policies may incentivize additional renewable energy plants to be built, in such an event, the MBT facilities would be competing with such
future renewable energy plants for feedstock. Furthermore, other zero waste policies, increased local recycling and reuse, augmented by composting and
other future waste policies intended to eliminate and/or reduce the waste may mean less MSW will be available for the Company’s MBT projects.
The recovered recycled materials market is volatile.
The Company’s MBT projects and its waste collections business anticipate a minimum return on recycled materials. Should conditions change
such that the minimum returns cannot be recovered, they may have a negative impact on the financial performance of the projects and businesses.
The market for solid recovered fuel (“SRF”) is not developed.
The Company’s MBT projects rely upon the ability to sell SRF to appropriate industrial users at economically reasonable prices. There is no
assurance that the Company will be able to contract on either a long-term or spot-market basis with such consumers.
We may engage in acquisitions in the future with the goal of complementing or expanding our business, including developing additional disposal
products and complementary services. However, we may be unable to complete these transactions and, if executed, these transactions may not improve
our business or may pose significant risks and could have a negative effect on our operations.
We may in the future, make acquisitions in order to acquire or develop additional disposal products and complementary services. In addition, from
time to time we may acquire businesses that are complementary to our core business strategy. We may not be able to identify suitable acquisition
candidates. If we identify suitable acquisition candidates, we may be unable to successfully negotiate acquisitions at a price or on terms and conditions
acceptable to us, including as a result of the limitations imposed by our debt obligations. Further, we may be unable to obtain the necessary regulatory
approval to complete potential acquisitions.
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Our ability to achieve the benefits of any potential future acquisition, including cost savings and operating efficiencies, depends in part on our
ability to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired businesses and other assets may
require significant management time and resources that would otherwise be available for the ongoing management of our existing operations. In addition,
to the extent any future acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more
difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect
our ability to integrate, or realize any anticipated benefits from, acquisitions include:
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unexpected losses of key employees or customer of the acquired company;
difficulties integrating the acquired company’s standards, processes, procedures and controls;
difficulties coordinating new product and process development;
difficulties hiring additional management and other critical personnel;
difficulties increasing the scope, geographic diversity and complexity of our operations;
difficulties consolidating facilities, transferring processes and know-how;
difficulties reducing costs of the acquired company’s business;
diversion of management’s attention from our management; and
adverse impacts on retaining existing business relationships with customers.
Our business and strategic plans may require funding.
Our current business and strategic plans require additional funding. Our ultimate success may depend on our ability to raise additional financing
and capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business plan from a much
different and much more restricted direction, attempting to secure additional funding sources to fund its growth, borrowing money from lenders or
elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will be able to obtain sufficient additional funds when
needed, or that such funds, if available, will be obtainable on terms satisfactory to us.
We expect that we will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or
difficult to obtain and can be expected to dilute current stockholders’ ownership interests.
Based upon present strategic investment plans, we expect that we will need to raise additional capital in the future. Such additional capital may not
be available on reasonable terms or at all. We may need to raise additional funds through borrowings or public or private debt or equity financings to meet
various objectives including, but not limited to:
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accomplish growth through enhanced sales and marketing efforts;
effect new products and services development;
complete business acquisitions; and
build additional MBT plants
Our limited operating history does not afford investors a sufficient history on which to base an investment decision.
We are currently expanding our businesses. Our operations are subject to all the risks inherent in the establishment of an expanding business
enterprise. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays that are frequently
encountered in expanding companies. There can be no assurance that at this time that we will operate profitably or will have adequate working capital to
meet our obligations as they become due.
Investors must consider the risks and difficulties frequently encountered by expanding companies, particularly in rapidly evolving markets. Such
risks include the following:
attaining customer loyalty;
developing and upgrading our product and service offerings;
implementing our advertising and marketing plan;
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increasing awareness of our brand names;
· meeting customer demand and standards;
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· maintaining our current strategic relationships and developing new strategic relationships;
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responding effectively to competitive pressures; and
attracting, retaining and motivating qualified personnel.
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We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not
successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected, and we
may not have the resources to continue or expand our business operations.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able
to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability
to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively
depends on our ability to retain and motivate existing employees. Due to our reliance upon its skilled professionals and laborers, the failure to attract,
integrate, motivate, and retain current and/or additional key employees could have a material adverse effect on our business, operating results and financial
condition.
If we fail to manage growth or to prepare for product scalability and integration effectively, it could have an adverse effect on our employee efficiency,
product quality, working capital levels and results of operations.
Any significant growth in the market for our products or our entry into new markets may require an expansion of our employee base for
managerial, operational, financial, and other purposes. During any period of growth, we may face problems related to our operational and financial systems
and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base.
Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and
motivate new employees.
Aside from increased difficulties in the management of human resources, we may need increased liquidity to finance the expansion of our existing
business, the development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue
improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial
inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that
demand and maintain the quality standards required by our existing and potential customers.
Our management team may not be able to successfully implement our business strategies.
If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our
sales and marketing activities, would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the
budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management
team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.
If we are unable to retain key executives and other key affiliates, our growth could be significantly inhibited, and our business harmed with a material
adverse effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key
personnel. Frank E. Celli, our Chief Executive Officer, Robert Joyce, our Chief Operating Officer and Brian C. Essman, our Chief Financial Officer,
perform key functions in the operation of our business. The loss of any of these could have a material adverse effect upon our business, financial condition,
and results of operations. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements and may incur
additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.
Our financial results may not meet the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely
on our revenue and/or financial projections as indicative of future results.
Fluctuations in operating results or the failure of operating results to meet the expectations investors may negatively impact the value of our
securities. Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in
operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections or comparisons of results of
operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be
below the expectations of investors. This could cause the market price of our securities to decline and negatively impact our ability to raise debt and capital.
Factors that may affect our operating results include:
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delays in sales resulting from potential customer sales cycles;
variations or inconsistencies in return on investment models and results;
changes in competition; and
changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption.
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Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control
over financial reporting was not effective as of December 31, 2019. If we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results or prevent fraud.
We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission or the SEC, as required by
Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report
on the effectiveness of such company’s internal control over financial reporting in its annual report. Effective internal control over financial reporting is
necessary for us to provide reliable financial reports, effectively prevent fraud and operate as a public company.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal
control over financial reporting was not effective as of December 31, 2019. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of our company's financial statements will not be prevented, or
detected and corrected on a timely basis. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures were not effective as of December 31, 2019 to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us
in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive
Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of our limited operations we have a
small number of employees which prohibits a segregation of duties. As we grow and expand our operations, we will engage additional employees and
experts as needed. However, there can be no assurance that our operations will expand.
Our failure to remediate the material weakness or our failure to discover and address any other material weaknesses or deficiencies may result in
inaccuracies in our financial statements, delay in the preparation of our financial statements, and the loss of investor confidence in the reliability of our
financial statements, which in turn could negatively influence the trading price of our Common Stock. Ineffective internal control over financial reporting
could also expose us to increased risk of fraud or misappropriations of corporate assets and subject us to potential delisting from the stock exchange on
which our Common Stock is listed, regulatory investigations or civil or criminal sanctions. As a result, our business, financial condition, results of
operations and prospects may be materially and adversely affected.
We are operating in a highly competitive market and we are unsure as to whether there will be any consumer demand for our services.
Some of our competitors are much larger and better capitalized than we are. It may be that our competitors will better address the same market
opportunities that we are addressing. These competitors, either alone or with collaborative partners, may succeed in developing business models that are
more effective or have greater market success than our own. The Company is especially susceptible to larger companies that invest more money in
marketing. Moreover, the market for our services is potentially large but highly competitive. There is little or no hard data that substantiates the demand for
our services or how this demand will be segmented over time.
There is no assurance that the Company will operate profitably or will generate positive cash flow.
The Company is continuing to develop and expand its lines of business, customer base and recurring revenues and it is anticipated that it may
continue to incur losses in the future as it carries on this process. In addition, the Company’s operating results in the future may be subject to significant
fluctuations due to many factors not within our control, such as the level of competition, regulatory changes and general economic conditions.
We may be unsuccessful in our efforts to use digital and other viral marketing to expand consumer awareness of our service.
If we are unable to maintain or increase the efficacy of our digital and other viral marketing strategy or if we otherwise decide to expand the reach
of our marketing through use of costlier marketing campaigns, we may experience an increase in marketing expenses that could have an adverse effect on
our results of operations. We cannot assure you that we will be successful in maintaining or expanding our customer base and failure to do so would
materially reduce our revenue and adversely affect our business, operating results and financial condition.
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We may be negatively impacted by permitting and construction risks.
In connection with the MBT line of business, the Company will have to maintain or acquire specialized permits and have regulatory approvals
from various state and local regulatory authorities for their operations or the construction of facilities. The failure of having such may delay or prevent the
construction or operation of the planned MBT facilities. In addition, there are significant risks related to the construction of a specialized facility. These
risks may delay, postpone or cause a negative impact to the anticipated financial performance of the projects.
General securities market uncertainties resulting from COVID-19.
Risks Related to Securities Markets and Investments in Our Securities
Since the outset of COVID-19 the US and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of
COVID-19 and the resulting reactions and outcomes of government, business and the general population. These uncertainties have resulted in declines in
all market sectors, increases in volumes due to flight to safety and governmental actions to support the markets. As a result, until COVID-19 has stabilized,
the markets may not be available to the Company for purposes of raising required capital. Should we not be able to obtain financing when required, in the
amounts necessary to execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to pursue
our strategic plan and may have to reduce the planned future growth and scope of our operations.
Our executive officers and certain stockholders possess significant voting power, and through this ownership, could influence our Company and our
corporate actions.
Our current executive officers, directors and their affiliates, hold approximately 27% of the voting power of the outstanding shares as of the date
of December 31, 2019. These officers, directors, affiliates and certain stockholders may have a controlling influence in determining the outcome of any
corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of
our assets, election of directors, and other significant corporate actions. As such, our executive officers have significant influence to prevent or cause a
change in control; therefore, without their consent we could be prevented from entering into transactions that could be beneficial to us. The interests of our
executive officers and certain shareholders may give rise to a conflict of interest with the Company and the Company’s stockholders. For additional details
concerning voting power please refer to the section below entitled “Description of Securities.”
Liquidity of our common stock has been limited.
On February 12, 2016 the Company uplisted from OTCBB (also known as OTC Pink) to the OTCQB. On April 9, 2018 the Company uplisted
from OTCQB to the Nasdaq Capital Market. The liquidity of our common stock has been mixed and there is no assurance that liquidity will continue or
that the trade prices of our securities could not be reduced due to excess sellers of our stock over buyers. Active trading markets generally result in lower
price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.
The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that
we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that
generate or influence sales volume, and that even if we came to the attention of such persons, they may tend to be risk-averse and would be reluctant to
follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.
As a consequence, there may be periods when trading activity in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume
of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or
more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of
which are beyond our control, including the following:
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the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;
limited “public float” with a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the
market price for our common stock;
additions or departures of key personnel;
loss of a strategic relationship;
variations in operating results from the expectations of securities analysts or investors;
announcements of new products or services by us or our competitors;
reductions in the market share of our products;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
investor perception of our industry or prospects;
insider selling or buying;
investors entering into short sale contracts;
regulatory developments affecting our industry;
changes in our industry;
competitive pricing pressures;
our ability to obtain working capital financing;
sales of our common stock;
our ability to execute our business plan;
operating results that fall below expectations;
revisions in securities analysts’ estimates or reductions in security analysts’ coverage; and
economic and other external factors.
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Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our
common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will
have on the prevailing market price.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to
achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general
conditions in the economy and the financial markets or other developments affecting the Company’s competitors or the Company itself.
A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our
ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations and strategic plans. Such
reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations,
including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we
will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the
future, we may not be able to have the resources to continue our normal operations.
Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.
The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our common
stock.
Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and
have a depressive effect on the price of the shares of our common stock.
Approximately 41% of the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable
state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their
shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions,
sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common
stock or the average weekly trading volume during the four calendar weeks prior to the sale. A sale under Rule 144 or under any other exemption from the
Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our
shares of common stock in any active market that may develop.
If we issue additional shares or derivative securities in the future, it will result in the dilution of our existing stockholders.
Our Certificate of Incorporation, as amended, authorizes the issuance of up to 50,000,000 shares of common stock, $0.0001 par value per share.
Our board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares, to provide additional
financing in the future.
We do not plan to declare or pay any dividends to our stockholders in the near future.
We have not declared any Common Stock dividends in the past, and we do not intend to distribute dividends in the near future. The declaration,
payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results
of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There
is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
17
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Securities Act of 1933 and as well as the governance rules of Nasdaq. These rules, regulations
and requirements are extensive. We may incur significant costs associated with our public company corporate governance and reporting requirements. This
may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and
results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director
and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive
officers.
Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported
results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of
transactions completed before the change is effective. New accounting standards and varying interpretations of accounting standards have occurred and
may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we
conduct business.
“Penny Stock” rules may make buying or selling our common stock difficult.
Trading in our common stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define a
penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-
dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written
suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common
stock.
ITEM 1B: UNRESOLVED STAFF COMMENTS.
None.
ITEM 2: PROPERTIES.
The Company does not own any physical location.
The Company currently leases its corporate headquarters and warehouse in Chestnut Ridge, NY. We believe that our current headquarters and
warehouse facility are sufficient in size for current and future operations. The current leases for the headquarters and warehouse expire in 2020 and each
contain a renewal option for an additional five-year period.
The United Kingdom operations are managed from employee based virtual offices in the UK.
The Entsorga Plant is located in Martinsburg, West Virginia has a 30-year initial term land lease with a municipal authority for industrial property
adjacent to its previously closed landfill site with four separate renewal periods of 5-years each.
18
ITEM 3: LEGAL PROCEEDINGS.
On February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for the
Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia alleging breach
of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross claims against Lemartec’s
performance bond surety, Philadelphia Indemnity Insurance Company. The trial was scheduled to begin in August 2020. Subsequent to year end and prior
to the start of the trial, on March 12, 2020 the Company entered into a settlement agreement that detailed the full and final mutual release. The settlement
agreement provides that the Company pay Lemartec $775,000 in installments of $475,000 within 60 days of the execution of the settlement agreement and
$25,000 each month thereafter for 12 months. The Company’s consolidated financial statements as of December 31, 2019 reflects this liability given the
nature of the subsequent event.
It is management’s opinion that the resolution of this claim will not materially effect the Company’s future financial position, results of operations,
or cash flows.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the
date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect
on our business, results of operations, cash flows or financial position.
ITEM 4: MINE SAFETY DISCLOSURES.
Not applicable.
19
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
(a) Market Information
Our common stock first became quoted on the Over-the-Counter Bulletin Board, or “OTCBB” under the trading symbol “SWFR” on March 27,
2014. On September 16, 2015, our common stock began trading under the name BioHiTech Global, Inc. and under the trading symbol “BHTG”. On
February 12, 2016, the common stock was uplisted to the OTCQB Venture Marketplace. On April 9, 2018 the common stock was uplisted to the Nasdaq
Capital Market.
(b) Holders
The number of record holders of our common stock as of December 31, 2019, was approximately 55 based on information received from our
transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name with a brokerage firm
or other fiduciary.
(c) Dividends
We have not paid or declared any cash dividends on our common stock, and we do not anticipate paying dividends on our common stock for the
foreseeable future.
(d) Securities authorized for issuance under equity compensation plans
The information set forth under Item 5(d) is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within
120 days after the end of our fiscal year covered by this Form 10-K with respect to our 2019 Annual Meeting of Shareholders.
General
DESCRIPTION OF SECURITIES
The Company’s authorized capital stock consists of 60,000,000 shares of capital stock, par value $0.0001 per share, of which 50,000,000 shares
are common stock, par value $0.0001 per share and 10,000,000 shares are “blank check” preferred stock, par value $0.0001 per share.
Common Stock
Holders of Company’s common stock are entitled to one vote per share on each matter submitted to vote of the Company’s stockholders. Holders
of common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares
of Company’s common stock or other securities. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common
stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation,
dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock
entitles its holder to participate ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each
class of stock, if any, having preference over the common stock.
Preferred Stock
The Company is authorized to issue from time to time, in one or more series, 10,000,000 shares of “blank check” preferred stock, par value
$0.0001 per share, subject to any limitations prescribed by law, without further vote or action by the shareholders. Each such series of preferred stock shall
have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by
the Company’s board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and
preemptive rights. As of December 31, 2019, there were five series of preferred stock designated:
Designation
Series A Convertible Preferred Stock
Series B Convertible Preferred Stock
Series C Convertible Preferred Stock
Series D Convertible Preferred Stock
Series E Convertible Preferred Stock
Designated
Shares
Par
Value
Stated
Value
333,401 $
1,111,200
1,000,000
20,000
714,519
0.0001 $
0.0001 $
0.0001 $
0.0001 $
0.0001 $
Shares Outstanding
December 31, 2019 December 31, 2018
163,312
-
427,500
-
564,519
145,312
-
427,500
18,850
264,519
5.00
5.00
10.00
100.00
2.64
20
RECENT SALES OF UNREGISTERED SECURITIES
On April 23, 2019 the Company settled a legal matter. In connection with the settlement, the Registrant issued to the plaintiff 75,000 unregistered shares of
its common stock.
From May 10, 2019 through June 28, 2019, the Registrant entered into a series of Investor Subscription Agreements with 24 accredited investors
(the “Investors”), pursuant to which the Registrant agreed to sell and the Investors agreed to purchase in a private placement offering units (the “Units”) in
the aggregate offering amount of $1,885,000. Each Unit, which may be offered in fractions, amount of $100,000, is comprised of 1,000 Shares of the
Registrant’s Series D Convertible Preferred Stock (the “Series D Preferred Shares”) and warrants (the “Warrants”) to purchase a number of shares of the
Company’s common stock, $0.0001 par value per share (the “Common Stock”), up to such 50% of the number of shares of Common Stock issuable upon
conversion of the Series D Preferred Share at an exercise price of $3.50 per share of Common Stock.
Each share of Series D Preferred Shares has a stated value of $100.00 and is convertible into shares of Common Stock at the price of $3.50 per
share based on the stated value of the Series D Preferred being converted. The Series D Preferred Shares has usual dividends at the rate of 9% payable
annually in arrears in cash or, at the Company’s option, in Common Stock based upon the then in effect conversion price. The Series D Preferred Shares
also have an alternative dividend provision based upon the cash flow distributed to the parent from the Company’s next HEBioT facility, excluding the
Company’s plant in Martinsburg, West Virginia, (“the Next Facility”) based upon the Series D Preferred Shares proportional investment in the facility. The
Series D Preferred Shares also has an alternative conversion based upon a multiple of the annualized EBITDA of the Next Facility converted at the higher
of the conversion rate in effect or the market price of the Company’s common stock if higher.
The Units, the Series D Preferred Shares and the Warrants were offered and sold without registration under the Securities Act of 1933, as amended
(the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D
promulgated thereunder. The Units, the Series D Preferred Shares and the Warrants and the Common Stock issuable upon conversion of the Series D
Preferred Shares and the Warrants have not been registered under the Securities Act or any other applicable securities laws, and unless so registered, may
not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act.
The Registrant paid placement agent fees of $97,500 and $15,000 in cash to Network 1 Financial Securities, Inc. and ViewTrade Securities Inc.,
respectively.
On September 6, 2019, 18,000 shares of Series A Convertible Preferred Stock were converted for 50,000 shares of Common Stock.
From September 26, 2019 through March 10, 2020, in a series of transactions $225,000 of accrued dividends of Series A Convertible Preferred
Stock were paid for with 125,000 shares of Common Stock.
On March 9, 2020 the Registrant designated a new series of preferred stock and subsequently on March 18, 2020 had an initial closing of
$1,500,000 on 13,045 shares of the new series of preferred stock and 178,597 common stock warrants. This initial closing was followed by an additional
closing on April 6, 2020 of $65,000 on 566 shares of the new series of preferred stock and 7,750 common stock warrants. The newly designated series, the
Series F Redeemable, Convertible Preferred Stock (the Sr. F Preferred Stock) is comprised of 30,090 shares with a par value of $0.0001 per share and a
stated value per share of $115.00 that has a dividend rate of 9%. The Sr. F Preferred Stock is convertible by the holder at any time at a conversion rate of
$2.10, subject to certain antidilution adjustments and is redeemable by the Registrant after 24 months at its stated value, plus any outstanding accrued or
accumulated dividends for cash, or if the Registrant’s common stock is trading over $3.00 per share and has daily trading volume of over 50,000 shares, for
the Registrant’s common stock at the conversion rate in effect at the time. In connection with the offering of the Sr. F Preferred Stock, the Registrant also
issued warrants that expire in five years to acquire the Registrant’s common stock at $2.30 per share.
The Series F Shares are convertible into shares of Common Stock at a fixed conversion price of $2.10 per share of Common Stock subject to
certain anti-dilution adjustments (the “Conversion Price”) and redeemable by the Company twenty-four (24) months after issuance for cash, provided that
such cash payment is permissible under the Company’s existing indebtedness and obligations, or for shares of Common Stock at the Stated Value, plus any
outstanding accrued or accumulated dividends if the closing price of the Common Stock is over $3.00 per share and the average daily, trading volume is
over 50,000 shares. The Series F Shares will also accrue dividends at the rate of nine percent (9%) per annum, payable in semi-annual installments of cash,
provided such cash payment is permitted, or at the option of the Purchaser, in shares of Common Stock at the Conversion Price. In addition, the Series F
Shares, plus any accrued and unpaid dividends, may be converted at any time by the Investors into Common Stock at the Conversion Price.
21
All of the securities referred to, above, were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities
Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D promulgated thereunder.
All of the foregoing securities as well the Common Stock issuable upon conversion or exercise of such securities, have not been registered under the
Securities Act or any other applicable securities laws and are deemed restricted securities, and unless so registered, may not be offered or sold in the United
States except pursuant to an exemption from the registration requirements of the Securities Act.
The sale of securities did not involve a public offering; the Company made no solicitation in connection with the sale other than communications
with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the
investors either received or had access to adequate information about the Company in order to make an informed investment decision.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PARTIES
The following table presents information with respect to purchases made by or on behalf of the issuer or any “affiliated party” of shares or other
units of any class of the Company’s equity securities. The Company has no announced plans or programs to acquire its equity securities.
Total
Number
of Shares
Purchased
(a)
Average Price
per Share
(b)
Total
Number
of Shares
Purchased
as Part of
Publicly
Announced Plan
or Program
(c)
Maximum Number
of Shares that May
Yet be Purchased
Under the Plan or
Program
(d)
5,000 $
17,000
2,000
2,000
26,000 $
- $
1.69
1.79
1.64
1.81
1.76
-
-
-
-
-
-
-
-
-
-
-
-
-
Period
Year ended December 31, 2019:
Frank E. Celli
James Chambers
Harriet Hentges
Robert Joyce
Total
Year ended December 31, 2018:
None
ITEM 6: SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company
and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Readers should carefully review the risk
factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”, “we”, “our”, and “us” refer to BioHiTech Global, Inc., a Delaware corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements can be
identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,”
“may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. The forward-looking statements are based
on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion
under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from
results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume
no obligation to update them.
22
Company Overview
The Company’s mission is to reduce the environmental impact of the waste management industry through the development and deployment of
cost-effective technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste, patented
processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary real-time data analytics tools to
reduce food waste generation. These unique proprietary solutions can enable certain businesses and municipalities of all sizes to lower disposal costs while
having a positive impact on the environment. When used individually or in combination, the Company’s solutions can reduce the carbon footprint
associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage.
Revolution Series™ Digesters
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of
Revolution Series Digesters, launched in the second half of 2017, have been described as self-contained, robotic biological digestive systems that are as
easy to install as a standard dishwasher with no special electrical or plumbing requirements. The units range in size depending upon capacity, with the
smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that is
safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including restaurants, grocery stores, and
hotel/hospitality companies by eliminating the transportation and logistics costs associated with food waste disposal. The process also reduces the
greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its
Revolution Series Digesters in several sizes targeting small to mid-sized food waste generators with both sale and rental options that are often more
economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated IoT technology platform to provide its customers
with transparency into their waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-
time data that provides valuable information that when analyzed, can improve efficiency and validate corporate sustainability efforts. The Company
provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its rental agreements or sold through a separate annual
software license. Prior to the launch of its Revolution Series Digesters, the Company marketed earlier generations of its digesters under the Eco-Safe brand.
These units were larger sized and typically marketed to mid- and large-sized food waste generators, including the Federal Government. The Company
continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
HEBioT Resource Recovery Technology
The Company expanded its technology business in 2016 through the acquisition of certain development rights to a patented Mechanical Biological
Treatment (“MBT”) technology developed by a European engineering firm that relies upon High Efficiency Biological Treatment (“HEBioT”) to process
waste at the municipal or enterprise level. The technology results in a substantial reduction in landfill usage by converting a significant portion of intake,
including organic waste and non-recyclable plastics, into a United States EPA recognized alternative fuel that can be used as a partial replacement for coal.
The Company also, through a series of transactions in 2017 and 2018, acquired a controlling interest in the Nation’s first municipal waste
processing facility utilizing the HEBioT technology located in Martinsburg, West Virginia (the “Martinsburg Facility”). The Martinsburg Facility, which
commenced operations in 2019, is capable of processing up to 110,000 tons of mixed municipal waste annually. At full capacity, the Martinsburg Facility
can achieve an annual savings of over 2.3 million cubic feet of landfill space and eliminate many of the greenhouse gases associated with landfilling that
waste. The Company plans to build additional HEBioT facilities in the coming years and is currently in the permitting process to build a second facility in
New York State.
Combined Offering
The Company’s suite of products and services positions it as a leading provider of cost-effective, technology-based alternatives to traditional waste
disposal in the United States. The use of the Company’s technology solutions independently or in combination, can help its customers meet sustainability
goals by achieving a significant reduction in greenhouse gases associated with waste transportation and landfilling. In addition, the repurposing of
municipal waste into a cleaner burning, EPA recognized, renewable fuel can further reduce potentially harmful emissions associated with traditional means
of disposal. The overall reduction in carbon and other greenhouse gases that are linked to climate change that could be achieved through the utilization of
the Company’s technology can serve as a model for the future of waste disposal in the United States.
In addition to its technology business, the Company provides executive oversight services for a traditional waste management and recycling company that
is contracted to deliver municipal waste to the Company’s Martinsburg Facility.
23
Results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018
The following summarizes our operating results for the year ended December 31, 2019 and 2018. For comparison purposes the results of Entsorga
West Virginia, LLC have been separated, resulting in the remaining BioHiTech entities, which are presented as “Comparable Units”.
Year Ended December 31,
2019
Revenues
Operating expenses
Loss from operations
Non-operating expenses (income)
Net loss
Less net loss attributable to non-controlling interests
Net loss attributable to Parent
HEBioT Facility
$
$
4,219,448
11,754,662
(7,535,214)
2,744,847
(10,280,061)
(2,657,113)
(7,622,948)
Consolidated HEBiot Facility
$
Comparable
Units
3,108,377 $
7,490,880
(4,382,503)
688,621
(5,071,124)
(174,669)
(4,896,455)
2018
3,359,324
8,432,514
(5,073,190)
9,604,528
(14,677,718)
(36,890)
(14,640,828)
1,111,071 $
4,263,782
(3,152,711)
2,056,226
(5,208,937)
(2,482,444)
(2,726,493) $
The year ended December 31, 2019 include financial results from the Entsorga West Virginia HEBioT facility (“EWV”). EWV is not included in
the comparable 2018 period, as BioHiTech did not have a controlling interest and the facility was under construction and was not operational during that
time. During the year ended December 31, 2019, the EWV initiated operations that included continued modifications and adjustments to the facility and the
process, which contributed to a longer than anticipated commissioning process. During commissioning the facility increased incoming Municipal Solid
Waste (“MSW”) and Commercial & Industrial (“C&I”) volumes resulting revenues for the year ended December 31, 2019 of $1,111,071, which is
significantly less than its design capacity. During this commissioning period, revenues were primarily driven by fees associated with the receipt of inbound
waste materials (“Tip” fees). During this period, the facility continued to further refine the solid recovered fuel (“SRF”) and quality assurance practices and
as such the delivery of SRF and the associated revenues were not significant during this period. As a result of the protracted commissioning period,
additional disposal fees were incurred as compared to management’s expectations. In mid-December of 2019, the company’s primary SRF customer, a local
cement manufacturer (“Argos”), successfully completed the installation of its SRF feedline, allowing the company the ability to consistently accept SRF as
an alternative to bituminous coal. Despite the completion of the feedline in Mid-December 2019, the delivery of SRF was delayed until 2020 as Argos
experienced an operational shut down for routine scheduled maintenance and therefore could not accept any SRF during the month of December. The
shutdown ran through Mid-February of 2020 with the feedline operational in late February 2020. In addition to experiencing higher than anticipated
disposal costs during 2019, the EWV’s operating expenses, which amounted to $4,263,782 for the year ended December 31, 2019, were higher as
compared to revenues, as the expenses related to operating the facility at full capacity (i.e. full labor support as well as full utilities) without the benefit of
the operation achieving maximum inbound waste capacity and the sale of SRF. Consistent deliveries of SRF to Argos commenced toward the end of the
first quarter of 2020 and is anticipated to lead to a normalization of revenues and disposal costs as the facility operates at designed levels of activities.
Comparable Units
The following summarizes the revenues for the year ended December 31, 2019 and 2018.
Revenue
Rental, service and maintenance
Equipment sales
Management advisory and other fees (related entity)
Total revenue
Year Ended December 31,
2018
2019
$
$
1,946,597 $
186,780
975,000
3,108,377 $
1,801,435
547,737
1,010,152
3,359,324
24
Overall comparable unit revenue decreased by $250,947 (7.5%), driven by a $360,957 (65.9%) decrease in equipment sales resulting from our
strategic decision to not aggressively market the Revolution digesters to smaller deployment customers. Rental, service and maintenance increased by
$145,162 (8.1%) as a result of an increase of $309,080 (26.3%) in rental revenues, which accounts for 76.2% and 65.2%, respectively of rental, service and
maintenance for the years ended December 31, 2019 and 2018, offset by a decrease in billable service and parts that is the result of improved product
design and quality. Management advisory and other fees decreased by $35,152 (3.5%) as a result of a decrease in project related special projects.
The product contribution from rental, service and maintenance increased by $245,213 (26.7%) from 2018 to 2019 as a result of improved margin
rates of 59.7% in 2019, as compared to 50.9% in 2018. The product contribution from equipment sales decreased by $71,399 (49.2%) as a result of
decreased sales offset by improved margins of 39.5% and 26.5% in 2019 and 2018, respectively. These increased margins were the result of higher margins
on the Revolution digesters and the sale of used equipment that had lower cost basis.
The following summarizes selling, general and administrative expenses for the year ended December 31, 2019 and 2018:
Selling, general and administrative expenses
Personnel, excluding stock based compensation
Stock based compensation
Professional fees
Facility and office costs
Sales, marketing and other
Impairment on development site
Total selling, general and administrative expenses
Year Ended December 31,
2018
2019
$
$
3,005,045 $
1,083,789
751,523
392,298
518,507
346,654
6,097,816 $
3,789,417
813,734
859,892
378,758
835,522
-
6,677,323
Overall, selling, general and administrative expenses decreased by $579,507 (8.7%).
Personnel, excluding stock based compensation decreased by $784,372 (20.7%) as a result of decreased staffing that was initiated in late 2018 and
continued into the first half of 2019 based on business needs, as well as decreases initiated during the second half of 2019. Stock based compensation
increased by $270,054 (33.2%) as a result accelerating vesting of some personnel offset by forfeitures of unvested awards of separated employees.
Professional fees decreased by $108,369 (12.6%) primarily due to decreases of $258,957 (30.1%) in legal fees resulting from transactional and
patent work decreases, a decrease of $44,500 in strategy consulting resulting from the settlement of a legal dispute, and a $5,421 (16.7%) decrease in public
relations contract, offset by an increase of $135,073 (45.6%) in accounting fees resulting from the increase in our operations and tax research related to the
Section 382 evaluation of net operating loss carry forwards and an increase of $65,437 (66.7%) in general investor relations ahead of our September 2019
common stock offering as well as after in improving stock liquidity.
Facility and office costs increased by $13,540 (3.6%) primarily as a result of an increase in service fees.
Sales, marketing and other decreased by $317,015 (37.9%) primarily as a result of decreases in travel and entertainment of $102,980 (12.6%),
trade shows and other marketing of $28,274 (34.5%), regulatory costs, including those related to the 2018 uplisting to NASDAQ, of $63,004 (30.6%) and a
net improvement in foreign currency exchange of $145,913 to a net benefit in 2019 from a net loss in 2018 as a result of the swing in the USD – GBP
between the periods.
Impairment expenses of $346,654 were recognized in 2019 as the result of the abandonment of a HEBioT site prior to permitting.
25
Consolidated Company
Depreciation and amortization
Depreciation and amortization increased from the year ended December 31, 2018 to the year ended December 31, 2019 by $1,261,251 due
primarily to $1,233,769 of depreciation and amortization related to the HEBioT facility, which came online in 2019.
Other (income) expenses
The following summarizes other (income) expenses for the year ended December 31, 2019 and 2018:
Other (income) expenses
Gain on sale of affiliate investment
Equity loss in affiliate
Interest income
Interest expense
Expense incurred in warrant valuation and conversions
Total other (income) expenses
Year Ended December 31,
2019
2018
$
$
(562,617) $
-
(69,930)
3,377,394
-
2,744,847 $
-
601,927
-
2,582,896
6,424,970
9,609,793
Other net expenses decreased from the year ended December 31, 2018 compared to the year ended December 31, 2019 by $6,864,946 due to a
decrease of $6,424,970 in warrant valuation expense and a $1,164,544, increase in net gain on the sale of an affiliate investment, as compared to equity
losses in affiliates in 2018. Net interest expense increased by $724,568, which is the result of $2,050,961 of net interest related to the HEBioT facility offset
by $1,326,393 decrease in interest expense primarily as the result of conversions of debt to equity in February and April 2018 and from the completion of
discount amortizations of the Company’s Series A preferred stock in late 2018.
Income tax
For the years ended December 31, 2019 and 2018 there was no net provision for income tax due to the losses incurred and management’s
evaluation of the recovery of the tax asset resulting in net operating loss carryforward. As of December 31, 2019, the Company had net operating loss
carryforwards of approximately $28,572,000 and $14,325,000 for federal and state income tax purposes, respectively. For purposes of Internal Revenue
Code Section 382, the annual utilization of net operating loss carryovers are subject to limitation resulting from a more than 50% ownership change as
determined under the regulations, which occurred during the year ended December 31, 2019. The federal net operating losses of approximately
$14,200,000, generated in tax years beginning before January 1, 2018, will begin to expire in 2036 if not utilized. The balance of the net operating losses,
approximately $14,372,000 do not expire.
Liquidity and Capital Resources
The Company currently generates revenues from rental and sales of its digesters and related goods and services and revenues from the HEBioT
technologies and management fees charged to an affiliate. The Company's other known sources of capital are common and preferred stock offerings,
proceeds from private placements, issuance of notes payable, convertible notes payable, and investments, loans and advances from related and unrelated
parties and cash from future revenues.
The Company will require additional financing in order to execute our business expansion and development plans and we may require additional
financing in order to sustain substantial future business operations for an extended period of time. Subsequent to December 31, 2019, the Company
designated a new series of preferred stock and raised $1,565,000 on 13,611 shares of the new series of preferred stock and 186,347 common stock warrants
through April 6, 2020. The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program and has applied for an additional
$200,000, which has not yet been approved. While the Company has a history of obtaining adequate capital and maintaining liquidity, it is actively
soliciting other forms of financing but do not have any firm commitments for additional financing. Should we not be able to obtain financing when
required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary
capital to pursue our strategic plan and may have to reduce the planned future growth and scope of our operations.
26
For the year ended December 31, 2019, the Company had a consolidated net loss of $10,280,061, incurred a consolidated loss from operations of
$7,535,214 and used net cash in consolidated operating activities of $7,134,600. At December 31, 2019, consolidated total stockholders’ equity amounted
to $7,369,725, consolidated stockholders’ equity attributable to parent amounted to $2,024,143 and the Company had a consolidated working capital deficit
of $5,351,686. The Company does not yet have a history of financial profitability. Historically, the principal source of liquidity has been the issuance of
debt and equity securities. Presently, the Company does not have firm commitments to fully fund its future operational and strategic plans, although
subsequent to December 31, 2019 the Company raised $1,565,000 from the issuance of Series F Redeemable, Convertible Preferred Stock and warrants.
The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program and has applied for an additional $200,000, which has not
yet been approved. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on management’s further implementation of the Company’s on-going and strategic
plans, which include continuing to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of
the on-going and strategic plans may require modification.
The Company is presently in the process of raising additional debt for general operations and to support its leasing activities. The Company may
also raise capital through its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange Commission (the
“Shelf Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized during September 2019 to raise net proceeds of
$3,035,557 through a confidentially marketed public offering of common shares. There is no assurance that the Company will be able to raise sufficient
capital or debt to sustain operations or to pursue other strategic initiatives or that such financing will be on terms that are favorable to the Company.
Cash
As of December 31, 2019 and December 31, 2018, the Company had unrestricted cash balances of $1,847,526 and $2,410,709, respectively.
Borrowings and Debt
The table below presents borrowings as of December 31, 2019 at net carrying amount and at face amount as due at their future maturities.
Due in:
December 31,
2019
$
$
1,479,848
210,000
100,000
949,434
4,160,490
31,207,426
12,806
38,120,004
$
$
2020
2021
2022
2023
2024 and
thereafter
1,500,000
210,000
100,000
-
-
1,390,000
4,605
3,204,605
$
$
-
-
-
-
1,875,000
1,470,000
4,380
3,349,380
$
$
-
-
-
-
2,500,000
1.175,000
3,821
3,678,821
$
$
-
-
-
-
625,000
1,265,000
-
1,890,000
$
$
-
-
-
1,044,477
-
27,700,000
-
28,744,477
$
$
Total
1,500,000
210,000
100,000
1,044,477
5,000,000
33,000,000
12,806
40,867,283
Line of credit
Advance from related party
Notes payable
Junior note
Senior note payable
West Virginia EDA Bond
Vehicle loans
Total
Cash Flows
Cash Flows from Operating Activities
We used $7,134,600 of cash in operating activities during the year ended December 31, 2019, an increase of $1,090,456 over $ 6,044,144 of cash
used in operating activities during the year ended December 31, 2018. Our net loss during the year ended December 31, 2019 of $10,280,061 was reduced
by $3,274,240 of non-cash income and expenses resulting in $7,005,821 of operational cash usage before changes in operational assets and liabilities, as
compared to operational cash usage before changes in operational assets and liabilities of $4,846,910 for the year ended December 31, 2018. This
$2,158,911 increase in usage before changes in operational assets and liabilities was primarily driven by an increase of $3,721,990 at EWV offset by an
improvement of $1,563,079 at the Comparable units.
27
Cash Flows from Investing Activities
Net Cash used in investing activities amounted to $2,879,385 for the year ended December 31, 2019, which was principally comprised of
$5,111,209 of facility investments at the HEBioT plant, offset by the sale proceeds of $2,250,000 from the sale of our investment in affiliate. Net Cash used
in investing activities amounted to $691,216 for the year ended December 31, 2018, before recognizing the $6,773,384 in cash provided by the control
acquisition of Entsorga West Virginia, LLC
Cash Flows from Financing Activities
Cash provided by financing activities amounted to $6,346,741 for the year ended December 31, 2019, compared to $8,151,235 for the year ended
December 31, 2018, a decrease of $1,804,494. During the year ended December 31, 2018, we received $4,808,057 of proceeds from the issuance of
common and preferred stock. In 2019 and 2018, we also had non-controlling member contributions to a consolidated subsidiary of $1,400,000 and
$3,500,000, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates — The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Estimates are used when accounting for items and matters including, but not limited to, valuation of deferred tax assets, share based compensation,
allowance for uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and useful lives and
other provisions and contingencies.
Product and Services Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC 606, Revenue
from Contracts with Customers, which require that we: 1.Identify the contract with a customer; 2. Identify the performance obligations in the contract; 3.
Determine the transaction price of the contract; 4. Allocate the transaction price to the performance obligations in the contract, and; 5. Recognize revenue
when the performance obligations are met or delivered.
When revenue is earned based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the
Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and
control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed
consideration for sales of products. When revenue is earned on services, such as management advisory fees and digester maintenance and repair services
fees are recognized over the period the services are performed based on service milestones.
Lease Revenue Recognition — Rental, service and maintenance revenues relating to the Company’s rental agreements involve providing use of
the Company’s digesters at customer locations, access to our software as a service and preventative maintenance over the term. The agreements generally
provide for flat monthly payments that the Company believes are consistent with our costs and obligations underlying the agreements.
The Company selected the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue
from the rental of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in
connection with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease classification as
operating, the Company evaluates the terms of the rental agreement to determine if the lease includes any provisions which would indicate sales type lease
treatment.
Long-Lived Assets — The Company assesses potential impairments to its long-lived assets if events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are reviewed annually for impairment, or more frequently if events or
changes in circumstances indicate that the carrying value may not be recoverable. An impaired asset is written down to its estimated fair value based upon
the most recent information available. Estimated fair market value is generally measured by discounting estimated future cash flows.
Income Taxes — Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to the asset or
liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates the
future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning and strategies vary,
adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets
based on the “more than likely” criteria.
Financial Instruments, Convertible Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the
existence of embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial instrument is required
to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common stock purchase warrants and other freestanding
derivative financial instruments and classifies them on the consolidated balance sheet as equity, assets or liabilities based upon the nature of the
instruments.
28
Stock-Based Compensation — The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock
Compensation.” ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured on the grant date for
stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value” awards such as restricted stock and performance shares, and is
estimated using an option-pricing model with traditional inputs for “appreciation” awards such as stock options and stock appreciation rights.
Recently Issued Accounting Standards
During the year ended December 31, 2019, the Company adopted the following recent accounting standards:
In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases), which has subsequently been amended by ASU
No. 2018-11, Leases in July 2018. Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a
lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents
the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or
less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating
leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. ASU 2018-11 provides that under certain instances lessors may not be required to separate the components of the
contracts. As a lessor of digester equipment under operating leases, the new guidance did not have a material impact on the financial statements. As a lessee
under operating leases the adoption did not have a material impact on our financial statements, resulting in an increase of 2% to each of our total assets and
total liabilities on our balance sheet, and had an immaterial impact to retained earnings as of the beginning of 2019.
In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842, Codification Improvements), which removed the requirement for an entity to
disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial
statement line item, or per share amount. For lessors, the new leasing standard requires leases to be classified as sales-type, direct financing or operating
leases. These criteria focus on the transfer of control of the underlying asset. This standard and related updates were effective for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-01 on January 2019.
See Note 19 for disclosures related to this amended guidance.
The Company has not yet implemented the following accounting standard:
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be
recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit
losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15,
2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is adopted. The Company has not yet adopted this update and is currently evaluating the effect this new standard will have on
its financial condition and results of operations.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 appears after the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation,
with the participation of the Company’s management, including the Company’s Chief Executive Officer (the Company’s principal executive officer) and
Chief Financial Officer (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective to
ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the
preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. The framework
used by management in making that assessment was the criteria set forth in the document entitled “Internal Control - Integrated Framework (2013)” issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of
December 31, 2019, the Company’s internal control over financial reporting was not effective for the purposes for which it is intended and determined
there to be a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
30
Because of our limited operations we have a small number of employees which prohibits a segregation of duties, which results in a material
weakness over disclosure controls and procedures, as well as internal control over financial reporting. As we grow and expand our operations, we will
engage additional employees and experts as needed. However, there can be no assurance that our operations will expand.
Changes in Internal Controls Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
As reported above, on February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District
Court for the Northern District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia
alleging breach of contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross claims
against Lemartec’s performance bond surety, Philadelphia Indemnity Insurance Company. Trial was last expected to begin in August 2020. Subsequent to
year end, on March 12, 2020 the Company entered into a settlement agreement and full and final mutual release with Lemartec that provides that the
Company pay Lemartec $775,000 in installments of $475,000 upon entering into the agreement and $25,000 each month thereafter for 12 months. The
effect of this settlement has been reflected in the Company’s consolidated financial statements as of December 31, 2019.
31
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information set forth under Item 10 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the Securities and
Exchange Commission (“SEC”) within 120 days after the end of our fiscal year covered by this Form 10-K with respect to our 2019 Annual Meeting of
Shareholders.
Code of Conduct and Ethics
We have adopted Codes of Business Conduct and Ethics that applies to our employees, including our principal executive officer, principal
financial officer and persons performing similar functions, and our directors. Our codes of ethics and business conduct can be found posted in the investor
relations sections on our website at http://investors.biohitechglobal.com/corporate-governance. None of the websites referenced in this Annual Report on or
the information contained therein is incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under Item 11 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2020 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information set forth under Item 12 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2020 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under Item 13 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2020 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information set forth under Item 14 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC within 120
days after the end of our fiscal year covered by this Form 10-K with respect to our 2020 Annual Meeting of Shareholders.
PART IV
Description
ITEM 15. EXHIBITS
Number
2.1
3.1
3.2
3.3
3.4
Agreement of Merger and Plan of Reorganization between Swift Start Corp., BioHiTech Global, Inc. and Bio Hi Tech America, LLC,
dated August 6, 2015 (previously filed as Exhibit 2.1 of the Current Report on Form 8-K filed on August 11, 2015 and incorporated herein
by reference).
Amended and Restated Certificate of Incorporation of BioHiTech Global, Inc., dated August 6, 2015 (previously filed as Exhibit 3.1 of the
Current Report on Form 8-K filed on August 11, 2015 and incorporated herein by reference).
Certificate of Amendment to Certificate of Incorporation of BioHiTech Global, Inc., dated June 12, 2017 (previously filed as Exhibit 3.1
of the Current Report on Form 8-K filed on June 15, 2017 and incorporated herein by reference).
Bylaws (previously filed as Exhibit 3.2 of the Registration Statement on Form S-1 filed on November 7, 2013 and incorporated herein by
reference).
Certificate of Formation of Bio Hi Tech America, LLC (previously filed as Exhibit 3.3 of the Current Report on Form 8-K filed on August
11, 2015 and incorporated herein by reference).
32
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Second Amended and Restated Operating Agreement of Bio Hi Tech America, LLC (previously filed as Exhibit 3.4 of the Current Report
on Form 8-K filed on August 11, 2015 and incorporated herein by reference).
2015 Equity Incentive Plan (previously filed as Exhibit 4.1 of the Annual Report on Form 10-K filed on March 29, 2016 and incorporated
herein by reference).
2017 Executive Equity Incentive Plan (previously filed as Appendix A to the Proxy Statement filed on May 15, 2017 and incorporated
herein by reference).
Specimen stock certificate for common stock (previously filed as Exhibit 4.1 to the Registration Statement on Form S-8 filed on June 11,
2018 and incorporated herein by reference).
Certificate of Designation of Series A Convertible Preferred Stock (previously filed as Exhibit 4.1 of the Current Report on Form 8-K
filed on November 3, 2017 and incorporated herein by reference).
Certificate of Designation of Series B Convertible Preferred Stock (previously filed as Exhibit 4.1 of the Current Report on Form 8-K
filed on January 4, 2018 and incorporated herein by reference).
Certificate of Designation of Series C Convertible Preferred Stock (previously filed as Exhibit 10.4 of the Current Report on Form 8-K
filed on February 6, 2018 and incorporated herein by reference).
Certificate of Designation of Series E Convertible Preferred Stock (previously filed as Exhibit 4.1 of the Current Report on Form 8-K
filed on December 18, 2018 and incorporated herein by reference).
Certificate of Designation of Series D Convertible Preferred Stock (previously filed as Exhibit 4.8 of the Quarterly Report on Form 10-Q
filed on May 15, 2019 and incorporated herein by reference).
Certificate of Amendment of Certificate of Designation of Series D Convertible Preferred Stock (previously filed as Exhibit 4.9 of the
Quarterly Report on Form 10-Q filed on May 15, 2019 and incorporated herein by reference).
Certificate of Designation of Series F Redeemable, Convertible Preferred Stock of BioHiTech Global, Inc. (previously filed as Exhibit 4.1
on the Current Report on Form 8-K filed March 18, 2020 and incorporated herein by reference).
Form of Securities Purchase Agreement (previously filed as Exhibit 10.1 of the Current Report on Form 8-K filed on April 4, 2017 and
incorporated herein by reference).
Form of Convertible Note (previously filed as Exhibit 4.1 of the Current Report on Form 8-K filed on August 2, 2016 and incorporated
herein by reference).
Form of Convertible Promissory Note (previously filed on Exhibit 10.1 of the Current Report on Form 8-K filed on October 6, 2016 and
incorporated herein by reference).
Form of Warrant (previously filed on Exhibit 10.1 of the Current Report on Form 8-K filed on October 6, 2016 and incorporated herein by
reference).
Form of Convertible Promissory Note (previously filed as Exhibit 10.2 of the Current Report on Form 8-K filed on April 4, 2017 and
incorporated herein by reference).
Form of Warrant (previously filed as Exhibit 10.3 of the Current Report on Form 8-K filed on April 4, 2017 and incorporated herein by
reference).
Form of Convertible Promissory Note (previously filed as Exhibit 10.2 of the Current Report on Form 8-K filed on May 26, 2017 and
incorporated herein by reference).
Form of Warrant (previously filed as Exhibit 10.3 of the Current Report on Form 8-K filed on May 26, 2017 and incorporated herein by
reference).
Form of Convertible Promissory Note (previously filed as Exhibit 10.2 of the Current Report on Form 8-K filed on July 12, 2017 and
incorporated herein by reference).
Form of Warrant (previously filed as Exhibit 10.3 of the Current Report on Form 8-K filed on July 12, 2017 and incorporated herein by
reference).
Technology License Agreement between BioHiTech Global, Inc., E.N.A. Renewables LLC and Entsorgafin S.P.A., dated November 1,
2017 (previously filed as Exhibit 10.1 of the Current Report on Form 8-K filed on November 2, 2017 and incorporated herein by
reference).
33
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Registration Rights Agreement between BioHiTech Global, Inc., E.N.A. Renewables LLC and Entsorgafin S.p.A., dated November 1,
2017 (previously filed as Exhibit 10.2 of the Current Report on Form 8-K filed on November 2, 2017 and incorporated herein by
reference).
Form of Warrant (previously filed as Exhibit 4.2 of the Current Report on Form 8-K filed on January 4, 2018 and incorporated herein by
reference).
Membership Interest Purchase Agreement for Gold Medal Group, LLC, dated January 25, 2018 (previously filed as Exhibit 10.1 of the
Current Report on Form 8-K filed on January 30, 2018 and incorporated herein by reference).
Note Purchase and Security Agreement between the Company and Michaelson Capital Special Finance Fund II, L.P., dated February 2,
2018 (previously filed as Exhibit 10.1 of the Current Report on Form 8-K filed on February 6, 2018 and incorporated herein by reference).
Senior Secured Term Note in favor of Michaelson Capital Special Finance Fund II, L.P., dated February 2, 2018 (previously filed as
Exhibit 10.2 of the Current Report on Form 8-K filed on February 6, 2018 and incorporated herein by reference).
Securities Exchange and Note Purchase Agreement between the Company and Frank E. Celli, dated February 2, 2018 (previously filed as
Exhibit 10.3 of the Current Report on Form 8-K filed on February 6, 2018 and incorporated herein by reference).
Junior Promissory Note in favor of Frank E. Celli, dated February 2, 2018 (previously filed as Exhibit 10.5 of the Current Report on Form
8-K filed on February 6, 2018 and incorporated herein by reference).
Credit Agreement between Comerica Bank and BHT Financial, LLC, dated February 2, 2018 (previously filed as Exhibit 10.1 of the
Current Report on Form 8-K filed on February 8, 2018 and incorporated herein by reference).
Master Revolving Note in favor of Comerica Bank, dated February 2, 2018 (previously filed as Exhibit 10.2 of the Current Report on
Form 8-K filed on February 8, 2018 and incorporated herein by reference).
First Amendment to Original Issue Discount Convertible Promissory Note between the Company and holders of the Series C Original
Issue Discount Convertible Promissory Notes, dated February 2, 2018 (previously filed as Exhibit 10.3 of the Current Report on Form 8-K
filed on February 8, 2018 and incorporated herein by reference).
Common Stock Purchase Warrant in favor of the holders of the Series C Original Issue Discount Convertible Promissory Notes dated
February 2, 2018 (previously filed as Exhibit 10.4 of the Current Report on Form 8-K filed on February 8, 2018 and incorporated herein
by reference).
Membership Interest Purchase and Sale Agreement between the Company, Entsorga USA, Inc. and Entsorga West Virginia LLC, dated
November 28, 2018 (previously filed as Exhibit 99.1 on the Current Report on Form 8-K filed on December 4, 2018 and incorporated
herein by reference).
Contribution and Transaction Agreement among Refuel America, LLC, Gold Medal Group, LLC, the Company and E.N.A. Renewables,
LLC, dated December 14, 2018 (previously filed as Exhibit 99.4 on the Current Report on Form 8-K filed on December 20, 2018 and
incorporated herein by reference).
Form of Investor Subscription Agreement Series D Convertible Preferred Stock (previously filed as Exhibit 10.25 on the Quarterly Report
on Form 10-Q filed on May 15, 2019 and incorporated herein by reference).
Form of Common Stock Warrant Issued with Series D Convertible Preferred Stock (previously filed as Exhibit 10.26 on Quarterly Report
on Form 10-Q filed on May 15, 2019 and incorporated herein by reference).
34
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
14.1
Form of Securities Purchase Agreement dated September 5, 2019 between BioHiTech Global, Inc. and certain purchasers (previously filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 6, 2019 and incorporated herein by reference).
Placement Agent Agreement dated September 5, 2019 by and between BioHiTech Global, Inc. and Spartan Capital Securities, LLC
(previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 6, 2019 and incorporated herein by
reference).
Form of Placement Agent Warrant (previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 6,
2019 and incorporated herein by reference).
Product and Service Supply Agreement between BioHiTech America LLC and Carnival Corporation, Carnival plc and specified operating
companies dated December 18, 2019. (Certain portions of this Exhibit have been omitted) (previously filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed January 30, 2020and incorporated herein by reference).
Form of Securities Purchase Agreement of the Registrant’s Series F Redeemable, Convertible Preferred Stock and Warrants (previously
filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 18, 2020 and incorporated herein by reference).
Form of Common Stock Purchase Warrant to be issued together with the Registrant’s Series F Redeemable, Convertible Preferred Stock
and Warrants (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 18, 2020 and incorporated
herein by reference).
Loan Agreement under the SBA Paycheck Protection Program dated May 12, 2020 of BioHiTech America, LLC and Comerica Bank
(previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 14, 2020 and incorporated herein by reference).
Note under the SBA Paycheck Protection Program dated May 12, 2020 of BioHiTech America, LLC and Comerica Bank (previously filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 14, 2020 and incorporated herein by reference).
Code of Business Conduct and Ethics (previously filed as Exhibit 14.1 on the Annual Report on Form 10-K filed on March 29, 2017 and
incorporated herein by reference).
21.1
List of Subsidiaries.*
23.1
Consent of Marcum LLP, Independent Registered Public Accounting Firm
31.1
31.2
32.1
32.2
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.*
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.*
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.*
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.*
101.INS
XBRL Instance Document.*
101.SCH
XBRL Schema Document.*
101.CAL
XBRL Calculation Linkbase Document.*
101.DEF
XBRL Definition Linkbase Document.*
101.LAB
XBRL Label Linkbase Document.*
101.PRE
XBRL Presentation Linkbase Document.*
*
Furnished herewith.
35
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
SIGNATURES
on its behalf by the undersigned, thereunto duly authorized.
Dated: May 22, 2020
BIOHITECH GLOBAL, INC.
By:
By:
/s/ Frank E. Celli
Name: Frank E. Celli
Title: Chairman Chief Executive Officer
(Principal Executive Officer)
/s/ Brian C. Essman
Name: Brian C. Essman
Title: Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
May 22, 2020
May 22, 2020
May 22, 2020
May 22, 2020
May 22, 2020
May 22, 2020
May 22, 2020
/s/ Frank E. Celli
Name: Frank E. Celli
Title: Chairman, Chief Executive Officer
(Principal Executive Officer)
/s/ Brian C. Essman
Name: Brian C. Essman
Title: Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ James D. Chambers
Name: James D. Chambers
Title: Director
/s/ Anthony Fuller
Name: Anthony Fuller
Title: Director
/s/ Robert A. Graham
Name: Robert A. Graham
Title: Director
/s/ Harriet Hentges
Name: Harriet Hentges
Title: Director
/s/ Douglas M. VanOort
Name: Douglas M. VanOort
Title: Director
36
BioHiTech Global, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Page
2
3
5
6
7
35
1
BioHiTech Global, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
Revenue
Rental, service and maintenance
Equipment sales
HEBioT (related entity)
Management advisory and other fees (related entity)
Total revenue
Operating expenses
HEBioT processing (related entity)
Rental, service and maintenance
Equipment sales
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Loss from operations
Other (income) expenses
Gain on sale of affiliate investment
Equity loss in affiliate
Interest income
Interest expense
Expense incurred in warrant valuation and conversions
Total other (income) expenses
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to Parent
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
Net loss attributable to Parent
Preferred stock dividends
Deemed dividend on down round feature
Net loss attributable to common shareholders
Net loss per common share - basic and diluted
Weighted average number of common shares outstanding - basic and diluted
See accompanying notes to consolidated financial statements.
$
Year Ended
December 31,
2019
2018
1,946,597 $
186,780
1,111,071
975,000
4,219,448
2,064,139
784,291
113,063
7,063,691
1,729,478
11,754,662
(7,535,214)
(562,617)
-
(69,930)
3,377,394
-
2,744,847
(10,280,061)
(2,657,113)
(7,622,948)
1,801,435
547,737
-
1,010,152
3,359,324
-
884,342
402,621
6,741,561
468,227
8,496,751
(5,137,427)
-
601,927
-
2,582,896
6,424,970
9,609,793
(14,747,220)
(76,890)
(14,670,330)
$
$
$
(48,159)
(7,671,107) $
43,611
(14,626,719)
(7,622,948) $
(721,987)
(405,324)
(8,750,259)
(0.56) $
15,668,679
(14,670,330)
(492,639)
-
(15,162,969)
(1.11)
13,616,268
2
BioHiTech Global, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
Current Assets
Cash
Restricted cash
Accounts receivable, net (related entity $1,370,867 and $168,588 as of December 31, 2019 and 2018, respectively)
Inventory
Prepaid expenses and other current assets
$
Total Current Assets
Restricted cash
Equipment on operating leases, net
HEBioT facility, equipment, fixtures and vehicles, net
HEBioT facility under construction, net
Operating lease right of use assets
Investment in unconsolidated affiliates
MBT facility development and license costs
Goodwill
Other assets
Total Assets
Continued on following page.
See accompanying notes to consolidated financial statements.
$
December 31,
2019
2018
1,847,526 $
1,133,581
2,155,921
467,784
126,357
5,731,169
2,555,845
1,724,998
37,421,333
-
945,047
-
8,049,929
58,000
53,726
56,540,047 $
2,410,709
4,195,148
403,298
499,848
66,425
7,575,428
2,520,523
1,748,887
49,028
33,104,007
-
1,687,383
8,475,408
58,000
97,433
55,316,097
3
BioHiTech Global, Inc. and Subsidiaries
Consolidated Balance Sheets, continued:
$
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit, net of financing costs of $20,152 and $30,670 as of December 31, 2019 and 2018, respectively
Advance from related party
Accounts payable (related entity $2,531,034 and $160,761 as of December 31, 2019 and 2018, respectively)
Accrued interest payable
Accrued expenses and liabilities
Deferred revenue
Customer deposits
Note payable
Current portion of WV EDA Senior Secured Bonds payable
Current portion of long term debt
Total Current Liabilities
Note payable
Junior note due to related party, net of unamortized discounts of $95,043 and $118,266 as of December 31, 2019
and 2018, respectively
Accrued interest (related party)
WV EDA Senior Secured Bonds payable, net of financing costs of $1,792,574 and $1,914,098 as of December 31,
2019 and 2018, respectively
Senior Secured Note, net of financing costs of $113,268 and $160,017 and unamortized discounts of $726,242 and
$988,678, as of December 31, 2019 and 2018, respectively
Non-current lease liabilities
Long-term debt, net of current portion
Total Liabilities
Series A redeemable convertible preferred stock, 333,401 shares designated and issued, and 145,312 and 163,312
outstanding as of December 31, 2019 and 2018, respectively, net of current portion
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 3,179,120 and 3,159,120 designated as of
December 31, 2019 and 2018, 1,922,603 issued and 856,181 outstanding as of December 31, 2019 and 1,922,603
issued and 1,155,331 outstanding as of December 31, 2018:
Series B Convertible preferred stock, 1,111,200 shares designated: 428,333 shares issued, no shares outstanding
as of December 31, 2019 and 2018
Series C Convertible preferred stock, 1,000,000 shares designated, 427,500 shares issued and outstanding as of
December 31, 2019 and 2018
Series D Convertible preferred stock, 20,000 shares designated: 18,850 shares issued and outstanding as of
December 31, 2019 and no shares issued and outstanding as of December 31, 2018
Series E Convertible preferred stock, 714,519 shares designated: 714,519 shares issued, 264,519 and 564,519
outstanding as of December 31, 2019 and 2018, respectively
Common stock, $0.0001 par value, 50,000,000 shares authorized, 17,300,899 and 14,802,956 shares issued and
outstanding as of December 31, 2019 and 2018, respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Stockholders’ equity attributable to Parent
Stockholders’ equity attributable to non-controlling interests
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements.
December 31,
2019
2018
1,479,848 $
210,000
4,688,339
1,148,570
1,926,965
89,736
44,792
100,000
1,390,000
4,605
11,082,855
-
1,469,330
-
1,310,998
959,927
3,354,124
98,596
7,683
-
-
9,165
7,209,823
100,000
949,434
1,510,193
926,211
1,305,251
29,817,426
31,085,902
4,160,490
915,170
8,201
48,443,769
3,851,305
-
12,806
44,491,298
726,553
816,553
-
-
3,050,142
3,050,142
1,505,262
-
698,330
1,490,330
1,730
49,597,059
(52,785,242)
(43,138)
2,024,143
5,345,582
7,369,725
56,540,047 $
1,480
43,452,963
(44,594,385)
5,021
3,405,551
6,602,695
10,008,246
55,316,097
$
4
BioHiTech Global, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows used in operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization
Provision for bad debts
Share based employee compensation
Fees paid in stock and warrants
Interest resulting from amortization of financing costs and discounts
Gain on sale of affiliate investment
Equity loss in affiliate
Interest resulting from warrants valued upon conversion of host debt instruments
Warrants modification
Loss resulting from abandonment of MBT site
Changes in operating assets and liabilities
Net cash used in operating activities
Cash flows used in investing activities:
Construction in-progress and purchases of equipment, fixtures and vehicles
Cash acquired from control acquisition of Entsorga West Virginia, LLC
Proceeds from sale of investment in affiliate
MBT facility development costs incurred
MBT facility development costs refunded
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from common stock issuance, net of offering costs
Proceeds from issuance of senior secured credit facility and common stock
Repayment of line of credit facility
Proceeds from new line of credit facility
Exercise of employee stock options
Proceeds from the sale of Series D convertible preferred stock units
Payment of financing costs
Repayments of long-term debt
Proceeds from issuance of preferred stock and warrants
Investment in subsidiary by non-controlling interest
Redemption of Series A preferred stock
Advance from related party, net
Net cash provided by financing activities
Effect of exchange rate on cash
Net change in cash (restricted and unrestricted)
Cash - beginning of period (restricted and unrestricted)
Cash - end of period (restricted and unrestricted)
Year Ended
December 31,
2019
2018
$
(10,280,061) $
(14,747,220)
1,729,478
89,897
1,099,567
-
522,101
(562,617)
-
-
49,160
346,654
(128,779)
(7,134,600)
(5,111,209)
-
2,250,000
(84,176)
66,000
(2,879,385)
3,035,557
-
-
-
-
1,772,500
(62,151)
(9,165)
-
1,400,000
-
210,000
6,346,741
77,816
(3,589,428)
9,126,380
5,536,952 $
$
468,228
25,477
836,372
45,461
1,497,875
-
601,927
6,424,970
-
-
(1,197,234)
(6,044,144)
(329,575)
6,773,384
-
(361,641)
-
6,082,168
-
5,000,000
(2,463,736)
1,500,000
61,977
-
(246,131)
(8,875)
1,125,000
3,500,000
(317,000)
-
8,151,235
36,009
8,225,268
901,112
9,126,380
Note 22 includes supplemental cash flow information, non-cash investing and financing activities and changes in operating assets and liabilities.
See accompanying notes to consolidated financial statements.
5
BioHiTech Global, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Statement of Stockholders’ Equity Attributable to Parent for the Years Ended December 31, 2019 and 2018:
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Balance, January 1, 2018
Issuance of Series B preferred stock
Issuance of Series C preferred stock
Issuance of Series E preferred stock
Common stock issued for acquisition
of Gold Medal Group
Share-based employee and director
compensation
Exercise of employee options
Share-based professional services
compensation
Conversion of debt into common stock
Interest on converted debt in common
stock
Conversion of Series B preferred stock
into common stock
Conversion of Series A preferred stock
into common stock
Conversion of Series E preferred stock
into common stock
Common stock issued in connection
with debt financings
Warrants valued in connection with
debt conversions and amendments
Foreign currency translation
adjustment
Preferred stock dividends
Net loss
Balance at December 31, 2018
Issuance of registered common shares,
net of offering costs
Series D preferred stock issuance
Series E preferred stock conversion
Share-based employee and director
compensation
Issuance of restricted stock
Series A preferred stock conversion
into common shares
Warrant modification
Deemed dividend on down round
feature
Preferred stock dividends
Net loss
Foreign currency translation
adjustment
$
160,000
268,333
427,500
714,519
699,332
1,068,039
3,050,142
1,886,330
-
-
-
-
-
-
-
-
-
-
-
-
$
9,598,208
-
-
-
500,000
-
16,527
96,179
3,304,140
196,050
(428,333)
(1,767,371)
480,067
-
-
118,542
(150,000)
(396,000)
150,000
-
-
-
-
-
992,019
-
18,850
(300,000)
-
-
-
-
-
4,540,472
-
1,505,262
(792,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
320,000
23,243
-
-
-
14,802,956
1,877,666
-
300,000
84,166
75,000
50,000
-
-
111,111
-
-
960
-
-
-
50
-
2
10
330
20
48
11
15
32
2
-
-
-
1,480
188
-
30
8
8
5
-
-
11
-
-
$
Additional
Paid in
Capital
17,752,990
273,626
1,360,681
-
2,249,950
836,372
61,975
170,784
9,090,045
915,680
1,767,323
533,434
395,985
1,212,089
6,424,968
-
407,061
-
43,452,963
3,035,369
267,238
791,970
1,099,559
205,492
89,995
49,160
405,324
199,989
-
Accumulated
Comprehensive
Other Loss
$
Accumulated
Deficit
Total
(38,590) $ (29,431,416) $ (11,016,724)
1,341,665
4,410,823
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(492,639)
(14,670,330)
(44,594,385)
-
-
-
-
-
-
-
1,886,330
2,250,000
836,372
61,977
170,794
9,090,375
915,700
-
533,445
-
1,212,121
6,424,970
43,611
(85,578)
(14,670,330)
3,405,551
3,035,557
1,772,500
-
1,099,567
205,500
90,000
49,160
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43,611
-
-
5,021
-
-
-
-
-
-
-
-
-
-
(405,324)
(162,585)
(7,622,948)
-
37,415
(7,622,948)
-
(48,159)
-
(48,159)
Balance at December 31, 2019
710,869
$
5,253,734
17,300,899
$
1,730
$
49,597,059
$
(43,138) $ (52,785,242) $
2,024,143
Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Years Ended December 31, 2019
and 2018:
Balance, January 1, 2018
Equity interest of non-controlling equity holders of Entsorga West Virginia, LLC and Refuel
America LLC and subsidiaries through December 13, 2018
Net loss from December 14, 2018 to December 31, 2018
Balance at December 31, 2018
Investment by non-controlling interest
Net loss
Non-
Controlling
Equity Interest
$
- $
Accumulated
Deficit
Total
- $
-
6,679,585
-
6,679,585
1,400,000
-
-
(76,890)
(76,890)
-
(2,657,113)
6,679,585
(76,890)
6,602,695
1,400,000
(2,657,113)
Balance at December 31, 2019
$
8,079,585 $
(2,734,003) $
5,345,582
See accompanying notes to consolidated financial statements.
6
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 1. Basis of Presentation and Going Concern
Nature of Operations - BioHiTech Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned and its controlled subsidiaries offers cost-
effective and technologically innovative advancements integrating technological, biological and mechanical engineering solutions for the control, reduction
and / or reuse of organic and municipal waste.
As of December 31, 2019 and 2018, the Company’s active wholly-owned subsidiaries were BioHiTech America, LLC, BioHiTech Europe Limited, BHT
Financial, LLC and E.N.A. Renewables LLC, and its controlled subsidiary was Refuel America LLC (60%) and its wholly-owned subsidiaries Apple
Valley Waste Technologies Buyer, Inc., Apple Valley Waste Technologies, LLC, New Windsor Resource Recovery LLC and Rensselaer Resource Recovery
LLC and its controlled subsidiary Entsorga West Virginia LLC (88.7% and 78.2% as of December 31, 2019 and 2018, respectively).
Basis of Presentation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and controlled
subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All
intercompany transactions have been eliminated in consolidation. Under Financial Accounting Standards Board Accounting Standards Codification
(“ASC”) 280, segment reporting, the Company reports as a single segment company. Reclassifications to certain prior period amounts have been made to
conform to current period presentation. These reclassifications have no effect on previously reported net loss.
Going Concern and Liquidity - For the year ended December 31, 2019, the Company had a consolidated net loss of $10,280,061, incurred a consolidated
loss from operations of $7,535,214 and used net cash in consolidated operating activities of $7,134,600. At December 31, 2019, consolidated total
stockholders’ equity amounted to $7,369,725, consolidated stockholders’ equity attributable to parent amounted to $2,024,143 and the Company had a
consolidated working capital deficit of $5,351,686. The Company does not yet have a history of financial profitability. Historically, the principal source of
liquidity has been the issuance of debt and equity securities. Presently, the Company does not have firm commitments to fully fund its future operational
and strategic plans, although subsequent to December 31, 2019 the Company raised $1,565,000 from the issuance of Series F Redeemable, Convertible
Preferred Stock and warrants. The Company was funded $421,300 on May 13, 2020 through the Paycheck Protection Program (See Note 24) and has
applied for an additional $200,000, which has not yet been approved. These factors raise substantial doubt about the Company’s ability to continue as a
going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on management’s further implementation of the Company’s on-going and strategic
plans, which include continuing to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of
the on-going and strategic plans may require modification.
The Company is presently in the process of raising additional debt for general operations and to support its leasing activities. The Company may also raise
capital through its Registration Statement on Form S-3 declared effective on July 11, 2018, by the Securities and Exchange Commission (the “Shelf
Registration”) for investment in several strategic initiatives. The Shelf Registration was utilized during September 2019 to raise net proceeds of $3,035,557
through a confidentially marketed public offering of common shares. There is no assurance that the Company will be able to raise sufficient capital or debt
to sustain operations or to pursue other strategic initiatives or that such financing will be on terms that are favorable to the Company.
Note 2. Summary of Significant Accounting Policies
Use of Estimates — The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management’s estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Estimates are
used when accounting for items and matters including, but not limited to, valuation of deferred tax assets, share based compensation, allowance for
uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and useful lives and other provisions
and contingencies.
7
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Foreign Operations — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates existing at the
respective balance sheet dates. Income and expense items are translated at the average rates during the respective periods. Translation adjustments resulting
from fluctuations in exchange rates are recorded as a separate component of other comprehensive income (loss) while transaction gains and losses are
recorded in net earnings (loss). Deferred taxes are not provided on cumulative foreign currency translation adjustments as the Company presently expects
foreign earnings to be permanently reinvested.
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”) within the normal course of its business in in the United Kingdom on
merchandise and/or services it acquires. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise
and/or services it sells. If the output VAT exceeds the input VAT, then the difference is remitted to the government, usually on a monthly basis. If the input
VAT exceeds the output VAT, this creates a VAT receivable. The Company either requests a refund of this VAT receivable or applies the balance to expected
future VAT payables.
Product and Services Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from
Contracts with Customers, which require that we:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price of the contract;
4. Allocate the transaction price to the performance obligations in the contract;
5. Recognize revenue when the performance obligations are met or delivered.
When revenue is earned based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s
performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control.
Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for
sales of products.
When revenue is earned based on receipt of disposal waste, the Company’s performance obligations are satisfied at the point in time when disposal waste
products are received from the customer, which is when the Company has title and control. Therefore, the Company’s contracts have a single performance
obligation (receipt of disposal waste).
When revenue is earned on services, such as management advisory fees and digester maintenance and repair services fees are recognized over the period
the services are performed based on service milestones.
The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue and costs recognized in the Company’s consolidated
financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption
date or for the year ended December 31, 2018. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the
impact was immaterial.
The Company records taxes collected from customers and remitted to governmental authorities on a net basis.
Lease Revenue Recognition — Rental, service and maintenance revenues relating to the Company’s rental agreements involve providing use of the
Company’s digesters at customer locations, access to our software as a service and preventative maintenance over the term. The agreements generally
provide for flat monthly payments that the Company believes are consistent with our costs and obligations underlying the agreements.
8
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
The Company selected the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue from the
rental of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection
with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease classification as operating, the
Company evaluates the terms of the rental agreement to determine if the lease includes any of the following provisions which would indicate sales type
lease treatment:
·
·
·
·
·
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term,
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise,
The Lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near
the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease,
The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease
payments equals or exceeds substantially all of the fair value of the underlying asset or
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
Restricted Cash — Includes Restricted cash that is restricted as to its use, as it is held by a trustee in accordance with the West Virginia Economic
Development Authority bond agreement. These amounts are held by the Company’s trustee in various bank accounts segregated for specific uses related to
the construction and operation of the resource recovery facility. Amounts required to meet current operations of the Company have been classified as
current in the accompanying consolidated balance sheets.
Buildings, Equipment, Fixtures and Vehicles, Including Equipment Leased to Others — Buildings, equipment, fixtures and vehicles, including
equipment leased to others, is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the related assets, as follows:
HEBioT facility
HEBiot equipment
Equipment leased to others
Computer software and hardware
Vehicles
Furniture and fixtures
Years
30
15
5 - 7
3 - 5
5
7 - 15
The Company’s High Efficiency Biological Treatment (“HEBioT”) facility located in West Virginia was under construction through March 31, 2019.
Included in the capitalized costs are construction, legal, leasehold improvements, and interest.
MBT Facility Development Costs — The Company defers costs relating to on-going Mechanical Biological Treatment (“MBT”) facility development costs
commencing upon the Company’s determination that the project will be completed. These site specific costs generally include external costs generally
relating to legal, engineering and other costs relating to the acquisitions of land, permits and licenses. Upon commencement of construction, to the extent
that costs relate to the facility, they are transferred to the construction in progress.
Investments in Unconsolidated Entities —The Company has utilized the equity method of accounting for investments in companies if the investment
provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate
share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated equity basis investments. In
circumstances where the Company does not have the ability to exercise significant influence or control over the operating and financial policies of the
investee, the investment is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost.
9
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Long-Lived Assets — The Company assesses potential impairments to its long-lived assets if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Indefinite-lived intangible assets are reviewed annually for impairment, or more frequently if events or changes
in circumstances indicate that the carrying value may not be recoverable. An impaired asset is written down to its estimated fair value based upon the most
recent information available. Estimated fair market value is generally measured by discounting estimated future cash flows.
Goodwill — The Company records as goodwill the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree,
and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the net identifiable assets acquired. The
Company does not amortize goodwill; however, annually, or whenever there is an indication that goodwill may be impaired, qualitative factors are
evaluated to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company’s test of
goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost
factors, and entity specific events, as well as overall financial performance. Annual goodwill impairment analysis may include, but is not limited to the
discounted cash flow method.
Shipping Costs — Shipping and handling charges are recorded gross in both the revenue and in cost of revenue and amounted to $96,481 and $100,059 for
the years ended December 31, 2019 and 2018, respectively.
Advertising — The Company expenses advertising costs as incurred. Advertising expense amounted to $56,742 and $81,901 for the years ended
December 31, 2019 and 2018, respectively.
Research and Development — All research and development costs incurred by the Company are expensed as incurred.
Deferred Financing Costs — Deferred financing costs relating to issued debt are included as a reduction to the applicable debt and amortized as interest
expense over the term of the related debt instruments.
Financial Instruments, Convertible Instruments, Warrants and Derivatives — The Company reviews its convertible instruments for the existence of
embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial instrument is required to be
recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common stock purchase warrants and other freestanding
derivative financial instruments and classifies them on the consolidated balance sheet as equity, assets or liabilities based upon the nature of the
instruments.
Comprehensive Income (Loss) — Comprehensive income (loss) for the Company consists of net earnings (loss) and foreign currency translation.
10
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Income Taxes — Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax
bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to the asset or liabilities
from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates the future
taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning and strategies vary,
adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets
based on the “more than likely” criteria.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Stock-Based Compensation — The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock
Compensation.” ASC 718 requires generally that all equity awards be accounted for at their “fair value.” This fair value is measured on the grant date for
stock-settled awards. Fair value is equal to the underlying value of the stock for “full-value” awards such as restricted stock and performance shares, and is
estimated using an option-pricing model with traditional inputs for “appreciation” awards such as stock options and stock appreciation rights.
Costs equal to these fair values are recognized as expense ratably over the requisite service period based on the number of awards that are expected to vest,
or in the period of the grant for awards that vest immediately and have no future service condition. For awards that vest over time, cumulative adjustments
in later periods are recorded to the extent actual forfeitures differ from the Company’s initial estimates; previously recognized compensation cost is
reversed if the service or performance conditions are not satisfied and the award is forfeited. The expense resulting from share-based payments is recorded
in the accompanying consolidated statements of operations based upon the classification of the underlying employees or service providers with a
corresponding increase to additional paid in capital.
Subsequent modifications to outstanding awards result in incremental cost if the fair value is increased as a result of the modification. Thus, a value-for-
value stock option repricing or exchange of awards in conjunction with an equity restructuring does not result in additional compensation cost.
Loss per Share — The Company computes basic loss per share using the weighted-average number of shares of common stock outstanding and diluted
loss per share, while the diluted loss per share also includes the effects of dilutive instruments using the “treasury method.” Dividends attributable to
preferred stock, whether declared or accrued, and deemed dividends on down round feature are deducted from income attributable to common shareholders
for purposes of earnings per share.
The Company’s potential dilutive instruments include convertible preferred stock, options, convertible debt and warrants. These instruments have not been
considered in the calculation of diluted loss per share as they are anti-dilutive for the reported periods.
Note 3. Acquisition and Contribution Agreement
On November 28, 2018, Company entered into a definitive agreement (the “MIPS”) with Entsorga USA, Inc. (“EUSA”) whereby EUSA agreed to sell,
transfer and convey to BioHiTech 2,687 membership units of Entsorga West Virginia, LLC (“EWV”) (the “Membership units”) in consideration of 714,519
shares of BioHiTech’s newly created Series E convertible preferred stock (the “Sr. E CPS). At the time, EWV was a facility under construction that is
intended to utilize HEBioT technology to divert municipal solid waste from landfills and to create an EPA recognized alternative commodity fuel, which
has since commenced operations. On December 14, 2018, the EUSA transaction was consummated. The 714,519 shares of Sr. E CPS were valued at
$1,886,630 based on the underlying common shares which the Sr. E CPS is convertible into. The total acquisition price of $2,863,583 is comprised of the
aforementioned transaction, plus $976,953 of previously held equity in EWV.
11
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Upon consummation of the MIPS agreement BioHiTech owned a total of 4,410.4 membership units of EWV, comprised of the 2,687 units resulting from
the MIPS agreement and 1,723.4 units previously acquired by BioHiTech during 2017. The 4,410.4 membership units represented 44.1% of the total
membership units issued by EWV, which combined with BioHiTech’s control of EWV’s board, management and having the largest ownership block of
EUSA, with the next largest block, which represents 34.1%, an entity over which BioHiTech has controlling financial interest, results in the investment
being recognized in the Company’s financial statements on a consolidated basis. The estimated fair values of the assets acquired, and the liabilities assumed
at the acquisition date are:
Restricted cash
HEBioT facility under construction
MBT license
Total identified assets acquired
Account payable
Accrued liabilities
Long-term debt
Total liabilities assumed
Identifiable net assets acquired
Goodwill
Net assets acquired
Less non-controlling interest
Net identifiable assets acquired by Company
December 14,
2018
6,773,384
32,784,920
1,890,000
41,448,304
65,943
4,311,591
31,085,902
35,463,436
5,984,868
58,000
6,042,868
(3,179,285)
2,863,583
$
$
The following presents unaudited pro forma information as if the acquisition had occurred as of January 1, 2018. The pro forma results do not include any
anticipated cost synergies or other effects of the integration of the acquired company. Pro forma amounts are not necessarily indicative of the results that
actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of future operating results of the combined
company.
Revenue
Net loss attributable to Parent
Proforma earnings per share – basic and diluted
$
(Unaudited)
2019
4,219,448 $
(7,622,948)
(0.56)
2018
3,359,324
(15,062,634)
(1.13)
Following the consummation of the MIPS, on December 14, 2018, BioHiTech entered into a Contribution and Transaction Agreement (“CTA”) with Gold
Medal Group, LLC (“GMG”) and a newly formed subsidiary Refuel America, LLC (“Refuel”) of the Company whereby GMG contributed $3,500,000 in
cash and its 34.1% ownership interest in EVW (owned by GMG’s wholly owned subsidiary Apple Valley Waste Technologies, LLC) into Refuel and
BioHiTech contributed it’s 44.1% interest in EWV, a technology license for a future HEBioT facility that BioHiTech carried at a value of $6,019,200 and
$316,207 in capitalized costs relating to two separate HEBioT facility on-going projects. In exchange for the assets contributed, BioHiTech and GMG
acquired 60% and 40%, respectively, of the membership units of Refuel, which approximate the carrying value of each of the BioHiTech and GMG assets
contributed. As a result of there being a continuation in proportional ownership of the significant assets and the affiliate nature BioHiTech and GMG
through a non-controlling interest of GMG being owned by BioHiTech and there being a management agreement between GMG’s largest subsidiary, Gold
Medal Holdings, LLC (“GMH”) whereby BioHiTech provides executive management of GMH with control over the strategic and operational activities of
GMH, the CTA transaction has been accounted for without separate acquisition accounting applied to the CTA elements.
12
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 4. Investments in Unconsolidated Entities
Entsorga West Virginia LLC - Effective March 21, 2017, the Company acquired a 17.2% interest in Entsorga West Virginia LLC EWV from the original
investors at their original purchase price of $60,000 for each 1% of interest in EWV ($1,034,028). From March 21, 2017 through December 14, 2018 the
Company recognized the investment utilizing the equity method of accounting due to its investment and its ability to influence operations and activities of
EWV. On December 14, 2018, the Company consummated an additional acquisition of 2,687 membership units that resulted in the Company gaining
control of EWV. As December 14, 2018, EWV is consolidated in the accompanying statement of operations and comprehensive loss.
Through December 14, 2018, the Company had recognized losses through equity accounting of $193,102 for the year ended December 31, 2018, resulting
in a carrying balance amounting to $823,161 as of December 14, 2018. As a result of the acquisition of additional membership units and change in control,
this previously held equity investment was valued at fair value amounting to $976,953 with the corresponding gain of $153,792 reflected as in equity loss
in affiliate in the accompanying consolidated statement of operations and comprehensive loss.
Gold Medal Group, LLC – On January 25, 2018, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to
acquire 9.2% of the outstanding membership units (the “Units”) of Gold Medal Group, LLC (“GMG”), which is the owner of a traditional waste
management entity. Pursuant to the Purchase Agreement, the Company acquired the Units from two unrelated parties in consideration $2,250,000 paid
through the issuance of 500,000 shares of the Company’s common stock.
During 2018, the Company’s investment in GMG was diluted from 9.2% to 2.9% due to additional GMG acquisitions and investments, including the CTA
with the Company. As a result of the reduction in the ownership level and accordingly, a reduction in influence, effective December 14, 2018 the Company
changed its prospective accounting for GMG from the equity method to the cost method.
During the year ended December 31, 2018, the initial $2,250,000 investment in GMG was reduced by $562,617 in losses recognized prior to the change to
cost basis accounting.
As of December 31, 2019, the Company had no investments in unconsolidated investments as a result of its July 3, 3019 sale of its investment in Gold
Medal Group, LLC (“GMG”), which was comprised of 2,250,000 GMG Investment Preferred Units and 2,250,000 Class A Common Units, to Gold Medal
Equity, LLC (“GME”), the parent entity to GMG for total compensation of $2,250,000. As of July 3, 2019 these investments were carried by the Company
with an adjusted cost of $1,687,383 resulting in a gain of $562,617 on July 3, 2019, which was recorded as gain on sale of affiliate investment in the
accompanying consolidated statements of operations and comprehensive loss.
Note 5. Accounts Receivable, net
Accounts receivable consists of the following as of December 31:
Accounts receivable
Less: allowance for doubtful accounts receivable
Allowance for doubtful accounts activities are as follows for the years ended December 31:
Balance at beginning of year
Provision for doubtful accounts
Amounts written off
Balance at end of year
$
$
$
$
2019
2,325,959 $
(170,038)
2,155,921 $
2018
513,336
(110,038)
403,298
2019
2018
(110,038) $
(103,499)
43,499
(170,038) $
(134,288)
(25,477)
49,727
(110,038)
13
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 6. Inventory
Inventory, comprised of finished goods and parts or assemblies, consist of the following as of December 31:
Equipment
Parts and assemblies
Note 7. Equipment on Operating Leases, net
Equipment on operating leases consist of the following as of December 31:
Leased equipment
Less: accumulated depreciation
2019
2018
119,996 $
347,788
467,784 $
169,540
330,308
499,848
2019
3,138,951 $
(1,413,953)
1,724,998 $
2018
3,054,097
(1,305,210)
1,748,887
$
$
$
$
During the year ended December 31, 2019 and 2018, depreciation expense on equipment on operating lease, amounted to $431,833 and $353,189,
respectively.
The Company is a lessor of digester units under non-cancellable operating lease agreements expiring through June 2025. These leases generally have terms
of three to five years and do not contain stated extension periods or options for the lessee to purchase the underlying assets. At the end of the leases, the
lessee may enter into a new lease or return the asset, which would be available to the Company for releasing. During the year ended December 31, 2019
and 2018, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $1,483,852 and $1,174,772,
respectively.
The minimum future estimated contractual payments to be received under these leases as of December 31, 2019 is as follows:
Year ending December 31,
2020
2021
2022
2023
2024 and thereafter
Note 8. HEBioT Facility, Equipment, Fixtures and Vehicles, net
HEBioT facility, equipment, fixtures and vehicles consist of the following as of December 31:
HEBioT facility
HEBioT equipment
Computer software and hardware
Furniture and fixtures
Vehicles
Less: accumulated depreciation and amortization
$
$
1,357,645
984,500
684,095
446,460
127,209
3,599,909
2019
31,142,974 $
7,388,896
112,629
48,196
50,319
38,743,014
(1,321,681)
37,421,333 $
$
$
2018
-
-
112,500
48,196
50,319
211,015
(161,987)
49,028
14
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
During the year ended December 31, 2019, depreciation expense relating to the HEBioT facility and equipment amounted to $1,139,269. During the years
ended December 31, 2019 and 2018, depreciation expense relating to computers software and hardware, furniture and fixtures and vehicles amounted to
$20,343 and $24,838, respectively.
The Company’s HEBioT facility in Martinsburg, West Virginia accepted its first test loads of solid municipal waste on March 29, 2019 to commence
commissioning and equipment calibration. The Company capitalizes all costs incurred to bring an asset to the condition and location necessary for its
intended use. Included in the capitalized costs are construction, specialized equipment, legal, leasehold improvements, and interest. Capitalized interest
relates to the State of West Virginia Revenue Bonds and amounted to $618,706 for the year ended December 31, 2019. The facility, while continuing
commissioning, was placed in service on April 1, 2019.
Note 9. MBT Facility Development and License Costs
MBT Facility Development and License Costs consist of the following as of December 31:
MBT Projects
New Windsor, New York:
Land acquisition
Legal
Survey and engineering
Rensselaer, New York:
Survey and engineering
Total MBT projects
Technology Licenses
Future site
Martinsburg, West Virginia, net of $94,500 of amortization as of December 31, 2019
Total Technology Licenses
Total MBT Facility Development and License Costs
MBT Facility Development Costs
New Windsor, New York
2019
2018
$
$
- $
-
-
-
235,229
235,229
6,019,200
1,795,500
7,814,700
8,049,929 $
66,000
46,030
300,624
412,654
153,554
566,208
6,019,200
1,890,000
7,909,200
8,475,408
As of December 31, 2018, the Company was pursuing local and state permits, and other approvals required to continue development of the project. On
February 28, 2019, the Company elected to rescind an agreement for the purchase of real property with the Town of New Windsor in exchange for a return
of the $66,000 paid by the Company under the rescinded contract and to relocate the project. While the Company is presently investigating several other
sites for the project, as a result of abandoning the initial site, the Company has reflected an impairment expense of $346,654 relating to the site during
2019 in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.
Rensselaer, New York
During 2018, the Company commenced initial development of a project in Rensselaer, NY. As of December 31, 2019, the Company has received local
permits and has filed the required state permit applications, which are undergoing review by the New York State Department of Environmental
Conservation.
HEBioT Technology Licenses
Technology License Agreement – Future Facility
On November 1, 2017, the Company entered into a Technology License Agreement (the “License Agreement”) with Entsorgafin S.p.A. (“Entsorga”)
whereby the Company acquired a license for the design, development construction, installation and operation of a High Efficiency Biological Treatment
(“HEBioT”) renewable waste facility with a capacity of 165,000 tons per year. The patented HEBioT technology converts mixed municipal and organic
waste to a US Environmental Protection Agency recognized alternative fuel source.
15
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
The royalty payment for the license amounted to $6,019,200. This Technology License Agreement can be utilized at a future project and will be amortized
once the facility is in operation.
Technology License Agreement – Martinsburg, West Virginia
In connection with the acquisition accounting applied to Entsorga West Virginia acquisition consummated on December 14, 2018, the facility License
Agreement was valued at $1,890,000. During the year ended December 31, 2019 amortization expense amounted to $94,500, based on an estimated fifteen
year life.
Note 10. Intangibles Assets, net
Other assets, as of December 31, 2019 and 2018, include net digester distribution agreements amounting to $40,399 and $83,933, respectively. During the
years ended December 31, 2019 and 2018, amortization expense, included in depreciation and amortization of operating expenses, amounted to $43,533
and $90,200, respectively. The agreements expire in 2021.
Note 11. Goodwill
As of December 31, 2019 and 2018, the Company has goodwill of $58,000 resulting from the Entsorga West Virginia, LLC acquisition on December 14,
2018.
Note 12. Risk Concentrations
The Company operates as a single segment on a worldwide basis through its subsidiaries, resellers and independent sales agents. Gross revenues and net
non-current tangible assets on a domestic and international basis are as follows:
2019:
Revenue, for the year ended December 31, 2019
Non-current tangible assets, as of December 31, 2019
2018:
Revenue, for the year ended December 31, 2018
Non-current tangible assets, as of December 31, 2018
United
States
International
Total
3,751,676 $
38,803,333
467,772 $
355,825
4,219,448
39,159,658
2,952,038 $
34,630,978
407,286 $
284,444
3,359,324
34,915,422
$
$
Credit risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.
The Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institutions. At times, the
Company’s cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) in the USA and the Financial
Conduct Authority (“FCA”) in the UK insurance limits. Through December 31, 2019, the Company had not experienced losses on these accounts and
management believes the Company is not exposed to significant risks on such accounts.
Major customers — During the year ended December 31, 2019, one customer represented at least 10% of revenues, accounting for 48.2% (Gold Medal
Group, LLC, an affiliated entity, “GMG”) of revenues. During the year ended December 31, 2018, one customer represented at least 10% of revenues,
accounting for 30.7% (GMG) of revenues.
As of December 31, 2019 one customer represented at least 10% of accounts receivable, accounting for 58.9% (GMG) of accounts receivable. As of
December 31, 2018, one customer represented at least 10% of accounts receivable, accounting for 32.8% (GMG) of accounts receivable.
16
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Vendor concentration — During the year ended December 31, 2019, one vendor represented at least 10% of costs of revenue, accounting for 23.1%
(GMG) of costs of revenue. During the year ended December 31, 2018, two vendors represented at least 10% of costs of revenue, accounting for 25.1% (a
1.4% shareholder) and 11.0% costs of revenue.
As of December 31, 2019, one vendor represented at least 10% of accounts payable accounting for 54.4% (GMG) of accounts payable. As of December 31,
2018, one vendor represented at least 10% of accounts payable, accounting for 12.0% (a 1.4% shareholder) of accounts payable.
Affiliate relationship — GMG owns a 40% interest in Refuel America, LLC, a consolidated subsidiary of the Company. GMG’s subsidiaries, which are not
consolidated in the Company’s financial statements have several business relationships with the Company and its subsidiaries that result in revenues and
expenses noted above. See Note 20. Related Party Transactions.
Note 13. Line of Credit, Notes Payable, Advances, Promissory Note and Long-Term Debt
Notes, lines, advances and long-term debts are comprised of the following as of December 31:
Line of credit
Senior secured promissory note
Junior promissory note
Note payable
Advance from related party
Long term debt - current and long-term portion
$
2019
Total
1,479,848 $
4,160,490
949,434
100,000
210,000
12,806
Related
Party
- $
-
949,434
-
210,000
-
2018
Total
1,469,330 $
3,851,305
926,211
100,000
-
21,971
Related
Party
-
-
926,211
-
-
-
Line of Credit — On February 2, 2018, the Company’s subsidiary, BHT Financial, LLC (“BHTF”) entered into a new Credit Agreement (the “Credit
Agreement”) and a Master Revolving Note (the “Note”) with Comerica that provides for a facility of up to $1,000,000, secured by the assets of BHTF. The
Credit Agreement and Note were amended on November 9, 2018 to increase the facility to $1,500,000. The Note does not have any financial covenants,
carries interest at the rate of 3%, plus either the Comerica prime rate or a LIBOR-based rate, (5.71% and 6.52% as of December 31, 2019 and
December 31, 2018, respectively) and matured on January 1, 2020, which was subsequently extended to March 31, 2020 and remains outstanding as of the
date of this filing. The Company expects to obtain an amended agreement through the remainder of 2020. The line of credit is secured by the assets of
BHTF and is personally guaranteed by the Company’s Chief Executive Officer, Frank E. Celli and James C. Chambers, a director.
As of December 31, 2019, the $1,500,000 balance outstanding is presented net of $34,948 in issuance costs associated with the financing, net of $14,796 in
amortization. As December 31, 2018, the $1,500,000 balance outstanding is presented net of $34,948 in issuance costs associated with the financing, net of
$4,278 in amortization. Amortization is calculated on the effective interest method, which is included in interest expense in the accompanying consolidated
statements of operations and comprehensive loss.
Michaelson Senior Secured Term Promissory Financing – On February 2, 2018, the Company and several of the Company’s wholly-owned subsidiaries
entered into and consummated a Note Purchase and Security Agreement (the “Purchase Agreement”) with Michaelson Capital Special Finance Fund II,
L.P. (“ MCSFF ”) to issue a senior secured term promissory note in the principal amount of $5,000,000 (the “Note”). The Note is not convertible and
accrues interest at the rate of 10.25% per annum. The Note provides for certain financial covenants that were not met as of December 31, 2019 and
December 31, 2018 and a waiver of such was granted by MCSFF. The Note is to be repaid in eight, equal, quarterly installments of $625,000 commencing
on May 15, 2021 and ending February 2, 2023 (the “Maturity Date”). Additionally, the Note is secured by a general security interest in all of the
Company’s assets as well all of the assets of the Company’s subsidiaries, excluding those of Entsorga West Virginia LLC which is subject to superior
security interests relating to the Entsorga West Virginia LLC WVEDA bonds. Further, the Company’s Chief Executive Officer, guaranteed a portion of the
Registrant’s obligations to MCSFF. In connection with the issuance of the Note, the Company issued MCSFF 320,000 shares of the Registrant’s common
stock, par value $0.0001 per share. As of December 31, 2019 and 2018, the carrying balance of the Note is comprised of $5,000,000 face value, less
$1,212,121 allocated to the common stock issued based upon the market value on the date issued, less associated amortization of $485,878 and $223,443,
respectively, on the stock discount, less deferred financing costs of $211,187, less $97,920 and $51,170, respectively, of associated deferred financing cost
amortization. All amortization is computed on the effective interest method and included in interest expense in the accompanying consolidated statements
of operations and comprehensive loss.
17
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Junior Promissory Note – On February 2, 2018, the Company entered into a Securities Exchange and Note Purchase Agreement (the “Exchange
Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged $4,500,000 in a note receivable from the Company and
$544,777 in advances made to the Company for $4,000,000 of the Registrant’s Series C Convertible Preferred Stock, par value $0.0001 (the “Series C
Preferred Stock”) and a junior promissory note (the “Junior Note”) amounting to $1,044,477, which is carried net of discounts amounting to $135,823, less
associated amortization of $40,780 and $17,557 as of December 31, 2019 and 2018, respectively. The Junior Note, which is subordinated to the senior
secured note, is not convertible, accrues interest at the rate of 10.25% per annum and matures on February 2, 2024.
Note Payable — As of December 31, 2019 and 2018, the note, with interest at 10%, had a remaining balance outstanding of $100,000 and matured on
January 1, 2020 and remains outstanding as of the date of this filing. The Company expects to amend the agreement to extend the maturity date through the
remainder of 2020.
Long Term Debt — Represents two loans collateralized by vehicles with interest ranging from 1.9% to 4.99%, each with amortizing principal payment
requirements through 2020 and 2022, respectively.
Maturities of Senior Secured, Junior Promissory, Notes Payable and Long Term Debt— as of December 31, 2019, excluding discounts and deferred
finance costs, which are being amortized as interest expense, are as follow:
Year Ending December 31,
Amortizing
Amortizing
Total
Non-
2020
2021
2022
2023
2024 and thereafter
Total
$
$
4,605 $
4,380
3,821
-
-
12,806 $
100,000 $
1,875,000
2,500,000
625,000
1,044,477
6,144,477 $
104,605
1,879,380
2,503,821
625,000
1,044,477
6,157,283
Note 14. Entsorga West Virginia, LLC WVEDA Solid Waste Disposal Revenue Bonds
During 2016, Entsorga West Virginia LLC (the “Borrower”) was issued $25,000,000 in Solid Waste Revenue Bonds from the West Virginia Economic
Development Authority (the “WVEDA Bonds”). The WVEDA Bonds were issued in two series with one for $7,535,000 bearing interest at 6.75% per
annum with a maturity date of February 1, 2026 and the second for $17,465,000 bearing interest at 7.25% per annum with a maturity of February 1, 2036.
Both series were issued at par. The 2026 series was payable with interest-only payments through February 1, 2019 then annual payments of principal and
semi-annual payments of interest through maturity. The 2036 series is payable with interest-only payments through February 1, 2019 then annual payments
of principal and semi-annual payments of interest through maturity. Repayment of principal is by way of sinking fund.
During 2018, the 2016 Indenture Trust and Loan Agreement were amended and restated effective November 1, 2018. These amendments provided for a
third series of bonds amounting to $8,000,000 bearing interest at 8.75% per annum with a maturity date of February 1, 2036, with special event triggered
pre-payment requirements. This series was issued at par. The 2036 series is payable with interest-only payments through February 1, 2020 then annual
payments of principal and semi-annual payments of interest through maturity. Repayment is by way of sinking fund.
The outstanding balance of the WVEDA Bonds as of December 31, 2019 and 2018 is $33,000,000, which is presented net of unamortized debt issuance
costs amounting to $2,207,759 and $2,145,608, less associated amortization of $415,185 and $231,510, respectively, which includes amortization prior to
the Company’s control acquisition in 2018. Amortization is calculated on the effective interest method, which is included in interest expense in the
accompanying consolidated statements of operations and comprehensive loss.
The loan agreement and indenture of trust place restrictions on the Borrower and its members regarding additional encumbrances on the property,
disposition of the property, and limitations on equity distributions. The loan agreement also provides for financial covenants, which became effective on
September 30, 2019. As of December 31, 2019 the Company was not in compliance with all of the financial covenants and subsequently was in default on
a principal repayment due in February 2020 and has entered into a forbearance agreement with the bond trustee that provides they will not accelerate the
repayment of the bonds due to the defaults through April 2, 2021.
18
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
The future sinking fund payments by the Borrower as of December 31, 2019 are as follow:
Year Ending December 31,
2020
2021
2022
2023
2024 and thereafter
Total
2016 Issue
2026 Series
2016 Issue
2036 Series
2018 Issue
2036 Series
$
$
1,160,000 $
1,215,000
900,000
965,000
3,295,000
7,535,000 $
- $
-
-
-
17,465,000
17,465,000 $
230,000 $
255,000
275,000
300,000
6,940,000
8,000,000 $
Total
1,390,000
1,470,000
1,175,000
1,265,000
27,700,000
33,000,000
In connection with the November 1, 2018 amendment and restatement of the WVEDA Bonds, Comerica Bank issued a standby letter of credit in the
amount of $1,250,000 (the “SbyLoC”) for the benefit of the WVEDA Bond trustee that is collateralized by the Company’s cash.
Note 15. Equity and Equity Transactions
The Company has 50,000,000 shares of its $0.0001 par common stock and 10,000,000 shares of blank check preferred stock authorized by its shareholders.
As of December 31, 2019 and December 31, 2018, 17,300,899 and 14,802,956 shares of common stock have been issued; and 3,179,120 and 3,159,120
shares, respectively, of preferred stock have been designated in five series of shares, which have a total of $1,042,287 in accumulated, but undeclared
preferential dividends as of December 31, 2019, as follows:
Designation
Series A Convertible Preferred Stock
Series B Convertible Preferred Stock
Series C Convertible Preferred Stock
Series D Convertible Preferred Stock
Series E Convertible Preferred Stock
Designated
Shares
Par
Value
Stated
Value
333,401 $
1,111,200
1,000,000
20,000
714,519
0.0001 $
0.0001
0.0001
0.0001
0.0001
Shares Outstanding
December 31, 2019 December 31, 2018
163,312
-
427,500
-
564,519
145,312
-
427,500
18,850
264,519
5.00
5.00
10.00
100.00
2.64
Under the terms of the Company’s senior lender agreements, the Company is restricted from paying dividends in cash, but is allowed to pay dividends in
common stock. The Company, since its merger in 2015, has not paid any cash or stock dividends on common stock.
The consolidated financial statements include less than 100% owned and controlled subsidiaries and include equity attributable to non-controlling interests
that take the form of the underlying legal structures of the less than 100% owned subsidiaries. Entsorga West Virginia LLC through its limited liability
agreement and the agreements related to its WVEDA Bonds have restrictions on distributions to and loans to owners while the WVEDA Bonds are
outstanding.
On September 9, 2019 the Company issued 1,877,666 registered shares of its $0.0001 par common stock through its Registration Statement on Form S-3
declared effective on July 11, 2018, by the Securities and Exchange Commission. The shares were offered through a confidentially marketed public
offering and were sold at a per share price of $1.80 per share. The gross proceeds of the offering amounted to $3,379,799, which net of placement fees of
$195,461, legal fees of $135,359, regulatory filing fees of $8,000 and $5,422 of other costs resulted in net proceeds to the Company of $3,035,557. In
connection with the placement agent fees, the Company issued warrants for 56,330 shares, exercisable between March 11, 2020 and September 10, 2019 at
an exercise price of $2.25 per warrant share.
19
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Series A Redeemable Convertible Preferred Stock — Due to the existence of redemption features, the stock is accounted for as temporary equity (similar
accounting treatment to debt). Amortization of discounts and deferred issuance costs are reflected as interest expense in the accompanying consolidated
statements of operations and comprehensive loss.
On March 30, 2018, the Company and holders of the Series A Convertible Preferred Stock (“Series A Preferred”) amended and restated to provide the
holders with the option to redeem their shares anytime following the first anniversary if the Company consummates an equity financing in an amount equal
to the stated value of the Series A Preferred, plus any and all accrued dividends. In addition, the dividend on the Series A Preferred was amended to nine
percent (9%), the first dividend payment date was amended to June 30, 2018 and the conversion price, by the terms of the Certificate of Designation, was
set at $4.50 per share of the Company’s common stock. In addition, the Company agreed to issue the holders, within 5 business days after the first day of
trading of the Company’s common stock on an Eligible Market, warrants to purchase up to 180,000 shares of Common Stock at an exercise price of $5.00
per share and expiring in four (4) years on a pro-rata basis to the holders of record of the Series A Preferred Shares at the time of such issuance. The
warrants for 180,000 shares of common stock were valued utilizing the Black-Scholes modelling technique utilizing stock prices of $4.05, an exercise price
of $5.00, a standard deviation (volatility) of 41.8%, a risk-free interest rate of 2.9% with a term of 4 years. The resulting $246,319 value has been
recognized as other interest expense and additional paid in capital.
In connection with the amendment, the Company redeemed $317,000 in stated value shares at stated value, which resulted in the Company reflecting an
additional interest expense of $157,455 to write off unamortized discounts and costs relating to the shares redeemed.
During June of 2018, the holder converted 40,000 shares with an aggregate stated value of $200,000 of stated value for 44,444 shares of common stock. In
connection with the conversion the Company reflecting an additional interest expense of $73,461 to adjust unamortized discounts and costs relating to the
shares converted.
During August of 2018, the holder converted 46,689 shares with an aggregate stated value of $233,445 of stated value for 51,876 shares of common stock.
In connection with the conversion the Company reflecting an additional interest expense of $47,767 to adjust unamortized discounts and costs relating to
the shares converted.
During October of 2018, the holder converted 20,000 shares with an aggregate stated value of $100,000 of stated value for 22,222 shares of common stock.
As of December 31, 2018, the net Series A Preferred Stock balance of $816,553 is comprised of 163,312 shares at stated value. The original issue discount
of $166,699, bifurcated warrants of $403,630, bifurcated beneficial conversion feature of $535,630 and deferred issuance costs of $30,000 have been fully
amortized through December 31, 2018. Interest expense resulting from the amortization amounted to $1,043,715 during the year ended December 31, 2018
and is reflected in the accompanying consolidated statements of operations and comprehensive loss as interest expense.
On September 9, 2019 the holder of Series A Preferred Stock converted 18,000 shares of Series A preferred stock for 50,000 shares of the Company’s
$0.0001 par common stock.
On September 26, 2019, November 4, 2019, November 14, 2019, December 2, 2019 and December 16, 2019 the Company paid $50,000, $50,000,
$50,000, $35,000 and $15,000 of Series A preferred stock accrued dividend through the issuance of 27,778, 27,778, 27,778, 19,444 and 8,333 shares of the
Company’s $0.0001 par common stock, respectively.
As of December 31, 2019 the outstanding shares of Series A Preferred Stock amounted to 145,312 with a stated value of $726,553 and the accrued
dividends amounted to $56,886.
Series C Convertible Preferred Stock — The Series C Preferred Stock has a stated value of $10.00 per share and is convertible, at the holder’s option, into
the Registrant’s common stock, par $0.0001, at an initial conversion price of $4.75 per share. The Series C Preferred Stock is non-redeemable, has voting
rights together with the common stock, par $0.0001, at the rate of 4 votes to 1 and accrues dividends at 10.25% of the stated value outstanding. As of
December 31, 2019 and 2018, the Series C Preferred Stock is comprised of $4,275,000 face value, less $556,283 warrant valuation and beneficial
conversion features of $668,575 reflected in additional paid in capital.
20
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
On February 2, 2018, in connection with and as a condition precedent to the closing of the MCSFF Note, the Company entered into a Securities Exchange
and Note Purchase Agreement (the “Exchange Agreement”) with Frank E. Celli, the Company’s Chief Executive Officer, whereby Celli exchanged
$4,500,000 in a note receivable and $544,777 in advances made to the Company for $4,000,000 of the Company’s Series C Preferred Stock and a junior
promissory note (the “Junior Note”). The Junior Note, which is subordinated to the MCSFF Note, is not convertible, accrues interest at the rate of 10.25%
per annum and matures on February 2, 2024. In connection with this transaction, the Registrant also issued Celli warrants to purchase 421,053 shares of
Common Stock, initially exercisable at $5.50 per share which expire in five (5) years. The warrants for 421,053 shares of common stock were valued
utilizing the Black Scholes modelling technique utilizing stock price of $4.95, an exercise price of $5.50, a standard deviation (volatility) of 40.48%, a risk-
free interest rate of 2.95% based on the date of issue, with a term of 5 years.
On March 23, 2018, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Frank J. Celli, the father of the
Company’s Chief Executive Officer, whereby Frank J. Celli exchanged $275,000 in a note receivable from the Company for $275,000 of the Company’s
Series C Preferred Stock. In connection with this transaction, the Registrant also issued Frank J. Celli warrants to purchase 28,948 shares of Common
Stock, initially exercisable at $5.50 per share which expire in five (5) years. The warrants for 28,948 shares of common stock were valued utilizing the
Black Scholes modelling technique utilizing stock price of $4.05, an exercise price of $5.50, a standard deviation (volatility) of 41.77%, a risk-free interest
rate of 2.91% based on the date of issue, with a term of 5 years.
Series D Convertible Preferred Stock — On February 11, 2019 the Company filed a Certificate of Designation for 20,000 shares of Series D Convertible
Preferred Stock that was amended on May 1, 2019 (“Sr. D CPS”). The Sr. D CPS is initially convertible into shares of the Company’s common stock at the
price of $3.50 per share based on the Sr. D CPS’s stated value being converted. Each share of the Sr. D CPS has a stated value of $100 and has dividends at
the rate of 9% payable annually in arrears in cash or at the Company’s option, in common stock based upon the then in effect conversion price. The Sr. D
CPS also has an alternative dividend provision based upon the cash flow distributed to the parent from the Company’s next HEBioT facility, excluding the
plant in Martinsburg, West Virginia, (the “Next Facility”) based upon the Sr. D CPS proportional investment in the facility. The Sr. D CPS also has an
alternative conversion based upon a multiple the annualized EBITDA of the Next Facility converted at the higher of the conversion rate in effect or the
market price of the Company’s common stock if higher.
During 2019, the Company received subscriptions and investments totaling $1,885,000, which were issued 18,850 shares of Sr D CPS. In addition to the
Sr. D CPS, each holder received warrants to acquire 50% of the shares that the Sr. D CPS is convertible into with an initial exercise price of $3.50 per share
and an expiration on the fifth year anniversary. A total of 269,296 five-year warrants with an exercise price of $3.50 were issued to the Sr. D CPS holders
that were valued utilizing the Black-Scholes modelling technique utilizing stock prices ranging from $1.88 to $2.70, a standard deviation (volatility)
ranging from 44.55% to 46.38% and a risk-free rate interest rate ranging from 1.74% to 2.56% based on the date of the investment. The model includes
subjective input assumptions that can materially affect the fair value estimates. The allocated fair value of the warrants amounting to $190,299 has been
reflected in additional paid in capital. In connection with the offering and issuance of the Sr D CPS, the holder of the Series A convertible preferred stock
was issued 116,651 warrants in the form issued to the Sr D CPS holders. These warrants, which were reflected as a cost of issuing the Sr D CPS, were
valued utilizing the Black-Scholes modelling technique utilizing a stock price of $2.25, a standard deviation (volatility) of 46.23% and a risk-free interest
rate of 1.89% on the date of issuance.
Series E Convertible Preferred Stock — On December 14, 2018, the Company consummated a transaction with Entsorga USA, Inc. whereby EUSA
agreed to sell, transfer and convey to the Registrant Two Thousand Six Hundred Seventy-Six and 60/100 (2,676.60) common membership units of EWV in
consideration for 714,519 newly issued shares of stock of the Company’s newly created Series E Preferred Stock, par value $0.0001, (the “Series E
Shares”) convertible into 714,539 shares (the “Conversion Shares”) of the Registrant’s common stock, par value $0.0001 per share (the “Common Stock”).
The Series E Shares with a stated value of $2.64 per share is convertible into shares of the Registrant’s common stock, par value $0.0001 per share and
does not earn any dividends and has no special voting rights. The Series E Shares are convertible at the rate of one share of common stock for each Series E
Share converted, subject to adjustment for stock splits and reclassifications. Immediately following the issuance of the Series E Shares, 150,000 Series E
Shares were converted into 150,000 shares of common stock. During the year ended December 31, 2019, an additional 300,000 Series E Shares were
converted into 300,000 common shares resulting in 264,419 Series E Shares outstanding as of December 31, 2019.
21
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Warrants — In connection with the issuance of convertible debt, preferred and common stock and in connection with services provided, the Company has
the 4,674,261 warrants to acquire the Company’s common stock outstanding as of December 31, 2019, as follows:
Expiring During the Year
Ending December 31,
2020
2021
2022
2023
2024
2025
Warrant
Shares
22,860
1,768,516
1,699,861
740,749
385,945
56,330
Exercise Price
per Share
$3.50
$1.80 to $3.30
$1.80 to $5.00
$1.80
$1.80
$2.25
$
$
$
$
$
$
Weighted
Average
Exercises
Price
per Share
3.50
3.25
2.60
1.80
1.80
2.25
The following table summarizes the outstanding warrant activity for the year ended December 31, 2019:
Outstanding, January 1, 2019
Issued
Issued as a result of common stock offering at $1.80 per share
Exercised
Expired
Outstanding, December 31, 2019
4,201,736
442,275
30,250
-
-
4,674,261
In connection with the confidentially marketed public offering that closed on September 9, 2019 at a price per common share of $1.80, 70 warrants
representing the right to acquire 1,992,325 shares with down-deal exercise price features were re-priced to an exercise price of $1.80. In connection with
the modification the value of the warrants was recalculated based upon the value immediately prior to the modification and immediately after the
modification. In connection therewith the Company utilized Black Scholes valuation models utilizing volatility of 50.56% and a risk free rate of 1.51%
together with the contractual remaining terms of each warrant. This revaluation increased the value of the warrants by $405,324, which has been reflected
as an increase in accumulated deficit and additional paid in capital. In accordance with Accounting Standards Update No. 2017-11, this increased valuation
is not charged to the consolidated statement of operations and comprehensive loss however, it is included as an adjustment to net loss attributable to parent
in arriving at net loss per common share – basic and diluted.
Also in connection with the confidentially marketed public offering that closed on September 9, 2019, the holder of the Series A preferred stock had the
option to require that the Company redeem shares of Series A preferred stock up to an amount representing 50% of the offering. In connection therewith,
the holder agreed to not require the redemption in exchange for an extension of one year to the warrants originally issued in connection with the Series A
preferred stock; all other contractual terms of the Series A preferred stock remained unchanged. Utilizing the same Black Scholes valuation model variables
as utilized in connection with the down deal, above, the change in valuation amounted to $49,160. As the redemption features remained unchanged, the
Series A preferred stock continues to be accounted for as temporary equity, which require that the modification be charged to the consolidated statement of
operations and comprehensive loss.
Note 16. Equity Incentive Plans
The Company has two equity incentive plans:
2015 Equity Incentive Plan — During 2015, the Company established the BioHiTech Global, Inc. 2015 Equity Incentive Plan, which is available to
eligible employees, directors, consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive stock options,
nonqualified stock options, reload options, stock appreciation rights, and restricted stock representing up to 750,000 shares. The Plan is administered by the
Compensation Committee of the Board of Directors.
22
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
2017 Executive Incentive Plan — During 2017, the shareholders approved the 2017 Executive Incentive Plan, which is available to eligible employees,
directors, consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive stock options, nonqualified stock options,
reload options, stock appreciation rights, and restricted stock representing up to 1,000,000 shares. The Plan is administered by the Compensation
Committee of the Board of Directors.
The shares underlying the plans, which total 1,750,000, have been registered by the Company under a Form S-8 Registration Statement declared effective
July 7, 2018 by the Securities and Exchange Commission.
Compensation expense related to stock options and restricted stock for the years ended December 31, was:
Stock options
Restricted stock units
The following summarizes the Company’s stock option activity for the year ended December 31, 2019:
2019
2018
$
$
138,673 $
960,894
1,099,567 $
164,906
671,466
836,372
Outstanding – January 1, 2019
Granted
Exercised
Forfeited, Canceled or Expired
Outstanding – December 31, 2019
Exercisable – December 31, 2019
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(in Years)
3.71
-
-
3.71
3.71
3.73
7.80
-
-
-
7.34
6.73
Number of
Options
482,082
-
-
(118,256)
363,826
233,475
Aggregate
Intrinsic Value
-
-
-
-
-
-
23
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Total unrecognized compensation expense related to the unvested options at December 31, 2019 and 2018 amounts to $159,657 and $462,297, which the
weighted average period that the expense is expected to be recognized is 1.77 and 2.44 years, respectively.
On June 7, 2018 the Company granted 297,790 non-qualified stock options with an exercise price of $3.68 per share with a total value of $595,563 based
upon using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term in years
There were no grants of non-qualified stock options during 2019.
2.81%
0.00%
53.35%
6.36
Restricted Stock Units – There were no grants of restricted stock units (“RSU”) during 2019. During 2018, the Company granted or modified 768,572
RSUs to certain employees generally vesting over a three-year period, subject to continued service on each applicable vesting date. The RSUs have no
voting or dividend rights. The unamortized cost of the modified RSUs at the time of modification is being amortized over the modified vesting periods. The
fair value of the common stock on the date of the grant ranged from $3.50 to $4.05 per share based upon the quoted closing price of the Company’s
common stock on the grant date. The aggregate grant date fair value of the award amounted to $2,472,246 which will be recognized as compensation
expense over the vesting period. As of December 31, 2019 and 2018, the aggregate intrinsic value of the unvested RSUs, determined by multiplying the
anticipated number of RSUs that will vest by the closing market price of the underlying common stock, was $495,941 and $1,203,240, respectively.
Total unrecognized compensation expense related to the unvested RSUs at December 31, 2019 and 2018 amounts to $766,555 and $1,884,479,
respectively, and is expected to be recognized over a weighted average period of 1.43 and 2.34 years, respectively.
The following summarizes the Company’s RSU activity for the years ended December 31, 2019 and 2018:
Unvested balance at January 1, 2018
Granted
Vested
Forfeited or Canceled
Unvested balance at December 31, 2018
Granted or modified
Vested
Forfeited or Canceled
Unvested balance at December 31, 2019
Note 17. Income Taxes
The components of income tax expense (benefit) from operations for the year ended December 31, was:
US Federal:
Deferred
State and local:
Deferred
Non-US:
Deferred
Change in valuation allowance
Income tax provision
Number of
Shares
171,112
768,572
(114,997)
(81,946)
742,741
-
(410,891)
(40,120)
291,730
2019
2018
$
1,664,794 $
1,992,255
256,238
(618,573)
7,693
(1,928,725)
- $
58,880
(1,432,562)
-
$
24
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
The reconciliation of differences between the Federal statutory tax rate and the Company’s effective income tax rate for the year ended December 31, was:
U. S. Federal Statutory rate
Non-U.S. losses
Impact of US statutory tax rate change
Impact of US statutory tax rate change on valuation allowance
Local taxes, net of benefit
Nondeductible expenses
Other
Change in valuation allowance
Effective income tax rate
The Company’s net deferred tax assets and valuation allowance as of December 31, was:
Deferred tax assets:
Net operating losses - Federal
Net operating losses - State
Net operating losses - Non-US
Stock-based compensation
Accrued expenses
Interest
Lease liability
Other, net
Deferred tax liabilities:
Property and equipment - Federal
Right of use asset
Net deferred tax assets
Valuation allowance
Net deferred tax assets
2019
2018
(21.0)%
-
-
-
(2.5)
5.9
(1.2)
(18.8)
18.8
-%
(21.0)%
0.1
-
-
4.2
9.6
(2.6)
(9.7)
9.7
-%
2019
2018
6,000,170 $
1,055,936
185,556
649,907
536,348
-
212,177
242,793
8,882,887
3,984,049
802,934
177,864
434,487
441,756
524,677
-
88,157
6,453,924
(366,413)
(220,169)
(586,582)
8,296,305
(8,296,305)
- $
(86,344)
-
(86,344)
6,367,580
(6,367,580)
-
$
$
For the years ended December 31, 2019 and 2018 there was no net provision for income tax due to the losses incurred and management’s evaluation of the
recovery of the tax asset resulting in net operating loss carryforward. As of December 31, 2019, the Company had net operating loss carryforwards of
approximately $28,572,000 and $14,325,000 for federal and state income tax purposes, respectively.
For purposes of Internal Revenue Code Section 382, the annual utilization of net operating loss carryovers are subject to limitation resulting from a more
than 50% ownership change as determined under the regulations, which occurred during the year ended December 31, 2019.
The federal net operating losses of approximately $14,200,000, generated in tax years beginning before January 1, 2018, will begin to expire in 2036 if not
utilized. The balance of the net operating losses, approximately $14,372,000 do not expire.
25
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 18. Commitments and Contingencies
During the year ended December 31, 2019 the Company was involved in the following legal matters.
The Company had accrued their contractual obligations but disputed payment for a consulting services agreement with Tusk Ventures LLC (“Tusk”), in
which Tusk claim that it is owed $250,000 pursuant to an agreement. This matter was filed in the Supreme Court of the State of New York, New York
County in April 2017. This matter was settled on April 23, 2019. In connection with the settlement, the Company issued to the plaintiff 75,000 shares of its
common stock.
On February 7, 2018, Lemartec Corporation (“Lemartec”) filed a complaint against the Company in the United States District Court for the Northern
District of West Virginia arising out of the construction of the Company’s resource recovery facility in Martinsburg, West Virginia alleging breach of
contract and unjust enrichment. The Company has filed its answer and counterclaims for damages against Lemartec and cross claims against Lemartec’s
performance bond surety, Philadelphia Indemnity Insurance Company. The trial was scheduled to begin in August 2020. Subsequent to year end and prior
to the start of the trial, on March 12, 2020 the Company entered into a settlement agreement that detailed the full and final mutual release. The settlement
agreement provides that the Company pay Lemartec $775,000 in installments of $475,000 within 60 days of the execution of the settlement agreement and
$25,000 each month thereafter for 12 months. The Company’s consolidated financial statements as of December 31, 2019 reflects this liability given the
nature of the subsequent event.
It is management’s opinion that the resolution of these known claims will not materially effect the Company’s future financial position, results of
operations, or cash flows.
From time to time, the Company may be involved in other legal matters arising in the ordinary course of business. While the Company believes that such
matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be,
involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations
Note 19. Leases
Effective January 1, 2019, the Company implemented Accounting Standards Codification 842, Leases. The guidance requires lessees to recognize most
leases on the balance sheet but does not change the presentation of expenses on the income statement. The two permitted transition methods under the
guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the
cumulative effect adjustment approach, which requires prospective application at the adoption date.
The Company utilized the optional transition method to assess the impact of this guidance on the Company’s financial statements and related disclosures,
including the increase in the assets and liabilities on our balance sheet from lessee perspective. The Company completed a comprehensive review of its
leases that were impacted by the new guidance.
As part of the adoption, the Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the
Company’s prior conclusions about lease identification, lease classification and initial direct costs, therefore the Company did not restate prior comparative
periods.
The Company rents its headquarters and attached warehousing space from a related party (see Note 16) and has a land lease relating to the Martinsburg,
WV HEBioT facility under operating leases. The HEBioT facility land lease has an initial term of 30 years, plus four 5-year extensions. For purposes of
our determination of lease liabilities, extensions were not included. As the leases do not provide an implicit rate, the Company used incremental borrowing
rates in determining the present value of lease payments. For the HEBioT facility land lease a rate of 11% was utilized and a rate of 10.25% was used on
the other leases. The current portion of the lease liabilities of $146,926 is included in accrued expenses and liabilities. Total lease costs under operating
leases amounted to $221,423 and $155,060 for the years ended December 31, 2019 and 2018. Maturities of lease liabilities under these leases, which have a
weighted average remaining term of 25.3 years, as of December 30, 2019 is:
Year Ending December 31,
2020
2021
2022
2023
2024 and thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
$
$
146,926
109,000
113,000
113,000
2,980,750
3,462,676
(2,401,682)
1,060,994
26
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
During the year ended December 31, 2019, the Company recognized operating lease right of use assets in exchange for lease liabilities amounting to
$1,045,755 and had operating cash flows for operating leases amounting to $195,003 for the year then ended.
Note 20. Related Party Transactions
Related parties include Directors, Senior Management Officers, and shareholders, plus their immediate family, who own a 5% or greater ownership interest
at the time of a transaction. Related parties also include GMG and its subsidiaries.
As of December 31, 2019, GMG is controlled by several private equity funds managed by Kinderhook Industries. The Company initially invested in GMG
on January 25, 2018. On July 3, 2019 the Company sold its ownership interests in GMG to an entity controlled by Kinderhook Industries. As discussed in
Note 3, on December 14, 2018 the Company formed a new consolidated subsidiary, Refuel America, LLC (“Refuel”) into which the Company contributed
specified assets, including its ownership interest in Entsorga West Virginia, LLC (“EWV”) and other HEBioT development assets. In exchange for a 40%,
but non-controlling interest in Refuel, GMG contributed its ownership interests in EWV and $3,500,000 in cash. During the year ended December 31,
2019, GMG made an additional capital contribution into Refuel. In connection with GMG’s additional investment, the Company made an additional
$2,100,000 investment in Refuel.
During 2018 GMG acquired as regional waste management entity, Apple Valley Waste (“AVW”), with operations located in West Virginia, Maryland and
Pennsylvania. As part of this acquisition, GMG also acquired its interests in EWV that were contributed to Refuel. Prior to GMG’s acquisition of AVW and
the Company’s investments and control acquisition of EWV, in order for EWV to receive the proceeds from the Entsorga West Virginia, LLC WVEDA
Solid Waste Disposal Revenue Bonds (Note 14), EWV and AWV had entered into several agreements.
Business Services Agreement – On February 2, 2016, EWV and AVW entered into an agreement that whereby AVW provides solicitation, logistics
management, human resources, accounting and financial management, and other general administrative and support services. This agreement has a ten-year
term with automatic renewals for five-year periods, subject to prior notice of non-renewal. The agreement provides for a fee of $72,000 annually during
construction and $367,600 annually upon commencement of operations. External costs incurred on behalf of EWV that are paid by AVW are rebilled at
cost to EWV.
Solid Waste Delivery / Disposal Agreements – On November 30, 2015 EWV and several AVW subsidiaries (the “Subsidiaries”) entered into agreements
that provide that the Subsidiaries will deliver a minimum tonnage of municipal solid waste (52,000 tons) and that EWV will accept up to 66,250 tons of
municipal solid waste. The contracts with minimum delivery tonnage have disposal fees (tipping fees) with a weighted average price of $56.37 per ton,
subject to change annually. The contracts also provide that if the Subsidiaries fail to deliver the minimum tonnage, they will pay a fee of $20 for each
shortfall ton. The contracts also provide that if EWV refuses to accept tonnage presented for disposal within the minimum tonnage that EWV will pay the
Subsidiaries a fee of $20 per each refused ton. Each of the agreements has a ten-year term with automatic renewals for five-year periods, subject to prior
notice of non-renewal.
The face amount of direct related party assets and liabilities and other transactions or conditions as of or for the year ended December 31, was:
2019
2018
Assets:
Accounts receivable
Intangible assets, net, included in other assets
Liabilities:
Accounts payable
Accrued interest payable
Long term accrued interest
Advance from related party
Junior promissory note
Other:
Line of credit guarantee
(a) (b) (c)
(d)
$
1,370,867 $
40,399
(d) (e) (f) (g)
(h)
(i)
(h)
(j)
2,531,034
46,796
1,510,193
210,000
949,434
168,588
83,933
160,761
46,796
1,305,251
-
926,211
1,479,848
1,469,330
27
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
The table below presents direct related party expenses or transactions for the year ended December 31, 2019. Compensation and related costs for
employees of the Company are excluded from the table below.
Management advisory and other fees
HEBioT revenue
Operating expenses - HEBioT
Operating expenses – Rental Expenses
Operating expenses - Selling, general and administrative
Interest expense
Debt guarantee fees
Cost of revenue, digester inventory or equipment on operating leases acquired
2019
2018
$
(a) (b)
(c)
(e)
(f)
(d) (g)
(h)
(j)
975,000 $
1,056,875
683,647
137,145
368,700
242,357
67,500
-
1,072,947
-
-
98,148
179,166
271,498
56,250
15,704
(a) Management Advisory Fees - The Company provides management advisory services to Gold Medal Holdings, Inc., a subsidiary of GMG.
(b) Project Fees – In addition to Management Advisory Fees, the Company also has provided to GMG subsidiaries non-management advisory services
related to projects relating to technology and operations.
(c) HEBioT Disposal Revenues – Entsorga West Virginia, LLC has a series of agreements with GMG subsidiaries entities that provide for specified fees
for each ton of municipal waste delivered to the HEBioT facility.
(d) Distribution Agreement - BioHiTech has an exclusive license and distribution agreement (the “License Agreement”) with BioHiTech
International, Inc., a company owned by James Koh, a BioHiTech shareholder and other unrelated parties. The License Agreement provides
distribution rights to the Eco-Safe Digester through December 31, 2023 (unless extended by mutual agreement) and for annual payments to Mr. Koh in
the amount of $200,000 for the term of the License Agreement. Effective October 17, 2018, the agreement was amended to reduce the annual
payments to $75,000 and to remove several international locations that the Company does not actively market.
(e) Disposal costs – A GMG subsidiary has provided logistics and disposal of non-recovered municipal solid waste to the HEBioT facility.
(f) Facility Lease - The Company leases its corporate headquarters and warehouse space from BioHiTech Realty LLC, a company owned by two
stockholders of the Company, one of whom is the Chief Executive Officer. The lease expires in 2020, with a renewal option for an additional five-year
period. Minimum lease payments as of December 31, 2019 under these operating leases total $41,926, which are due in 2020.
(g) Business Services Fees – A GMG subsidiary provides certain general management and administrative support to the HEBioT facility.
(h) Junior Promissory Note – See Note 13.
(i) Advance from Related Party - The Company’s Chief Executive Officer (the “Officer”) on occasion advances the Company funds for operating and
capital purposes. The advances bear interest at 13% and are unsecured and due on demand. There are no financial covenants related to this advance
and there are no formal commitments to extend any further advances.
(j) Line of Credit - Under the terms of the line of credit, several related parties have personally guaranteed the line and are contingently liable should the
Company not meet its obligations under the line. In connection with the line of credit, the Chief Executive Officer and a Director have provided a
guarantee of the line of credit in exchange for a fee representing 4.5% of the debt.
(k) Consulting Revenue - The Company provided environmental and project consulting to Entsorga West Virginia LLC, an entity that the Company
accounted for as an equity investment from March 2017 through December 14, 2018, the date of its control acquisition.
28
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 21. Employee 401(k) Savings Plan
Effective January 1, 2016, the Company established a defined contribution retirement savings plan qualified under Section 401(k) of the Internal Revenue
Code. Under the plan, employees may contribute a percentage of eligible compensation on both a before-tax and after-tax basis. The Company may match
a percentage of employee’s before-tax contributions, but is not required to do so, as the annual matching contributions are discretionary. No contributions
have been made to the plan by the Company during the year ended December 31, 2018. During the year ended December 31, 2019 the Company made
contributions of $9,339 to the plan.
Note 22. Supplemental Consolidated Statement of Cash Flows Information
Changes in non-cash operating assets and liabilities, as well as other supplemental cash flow disclosures, are as follows for the years ended December 31:
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued interest payable
Accrued expenses
Deferred revenue
Customer deposits
Net change in operating assets and liabilities
Supplementary cash flow information:
Cash paid during the periods for:
Interest
Income taxes
Supplementary Disclosure of Non-Cash Investing and Financing Activities:
Transfer of inventory to leased equipment
Control acquisition of Entsorga West Virginia, LLC with common stock (Note 3)
Common stock issued in settlement of accrued interest
Common stock issued in acquisition of Gold Medal Group, LLC
Conversion of notes into common stock
Conversion of Series B preferred stock into common stock
In-Kind payments by investors for common and preferred stock
Exchange of related party notes payable and advances for Series C preferred stock, warrants and notes payable
Accrual of Series A preferred stock dividends
Payment of Series A preferred stock dividends in common stock
Conversion of Series A preferred stock into common stock
Common stock issued in settlement of accounts payable
Reconciliation of Cash and Restricted Cash:
Cash
Restricted cash (short term)
Restricted cash (non-current)
Total cash and restricted cash at the end of the period
$
$
$
$
2019
2018
(2,049,366) $
(342,447)
4,083
3,265,920
431,001
(1,463,398)
(11,681)
37,109
(128,779) $
(160,694)
(842,944)
23,019
333,633
446,710
(982,369)
17,225
(31,814)
(1,197,234)
2,775,715 $
-
484,259
-
2019
2018
393,795 $
-
-
-
-
-
-
-
162,584
200,000
90,000
205,500
666,251
1,886,330
915,700
2,250,000
9,090,375
1,767,371
341,998
5,319,777
85,578
-
533,445
-
$
$
1,847,526 $
1,133,581
2,555,845
5,536,952 $
2,410,709
4,195,148
2,520,523
9,126,380
29
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 23. Recent Accounting Standards
During the year ended December 31, 2019, the Company adopted the following recent accounting standards:
In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases), which has subsequently been amended by ASU No. 2018-
11, Leases in July 2018. Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee‘s
obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or
less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating
leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. ASU 2018-11 provides that under certain instances lessors may not be required to separate the components of the
contracts. As a lessor of digester equipment under operating leases, the new guidance did not have a material impact on the financial statements. As a lessee
under operating leases the adoption did not have a material impact on our financial statements, resulting in an increase of 2% to each of our total assets and
total liabilities on our balance sheet, and had an immaterial impact to retained earnings as of the beginning of 2019. See Note 19.
In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842, Codification Improvements), which removed the requirement for an entity to disclose in
the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial statement line
item, or per share amount. For lessors, the new leasing standard requires leases to be classified as sales-type, direct financing or operating leases. These
criteria focus on the transfer of control of the underlying asset. This standard and related updates were effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-01 on January 2019. See
Note 15 for disclosures related to this amended guidance.
The Company has not yet implemented the following accounting standard:
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded
for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on
certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15, 2020. Entities
are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in
which the guidance is adopted. The Company has not yet adopted this update and is currently evaluating the effect this new standard will have on its
financial condition and results of operations.
Note 24. Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements are available
to be issued. Any material events that occur between the balance sheet date and the date that the financial statements were available for issuance are
disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this
review, except as disclosed within the footnotes or as discussed below, the Company did not identify any recognized or non-recognized subsequent events
that would have required adjustment or disclosure in the financial statements.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread
throughout the United States and globally. The Company is monitoring the outbreak of COVID-19 and the related business and travel restrictions and
changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends,
customer payments, and the industry in general, in addition to the impact on its employees. Due to the rapid development and fluidity of this situation, the
magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there
could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance of this annual report on Form 10-K, the impact
could not be determined.
In mid-March, the Company began migrating to a work-from-home model in compliance with local guidance and as party of an overall cost reduction
program, reduced certain staff, primarily related to field services to reduce operating costs.
The Company has applied for funds under the Paycheck Protection Program in May 2020 for two of its subsidiaries. The application for these funds
requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of
the Company. This certification further requires the Company to take into account its current business activity and its ability to access other sources of
liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. One of the two applications has been
approved, amounting to $421,300 and was funded on May 13, 2020. The forgiveness of the loan attendant to these funds, is dependent on the Company
qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. The other application in the amount $200,000 has not
yet been approved.
On January 30, 2020 the Chief Executive Officer and another officer advanced $1,050,000 and $200,000 to the Company, which the Company repaid
$275,000 and $200,000 on April 27, 2020, respectively.
On March 9, 2020 the Company designated a new series of preferred stock and subsequently on March 18, 2020 had an initial closing of $1,500,000 on
13,045 shares of the new series of preferred stock and 178,597 common stock warrants. This initial closing was followed by an additional closing on April
6, 2020 of $65,000 on 566 shares of the new series of preferred stock and 7,750 common stock warrants. The newly designated series, the Series F
Redeemable, Convertible Preferred Stock (the Sr. F Preferred Stock) is comprised of 30,090 shares with a par value of $0.0001 per share and a stated value
per share of $115.00 that has a dividend rate of 9%. The Sr. F Preferred Stock is convertible by the holder at any time at a conversion rate of $2.10, subject
to certain antidilution adjustments and is redeemable by the Company after 24 months at its stated value, plus any outstanding accrued or accumulated
dividends for cash, or if the Company’s common stock is trading over $3.00 per share and has daily trading volume of over 50,000 shares, for the
Company’s common stock at the conversion rate in effect at the time. In connection with the offering of the Sr. F Preferred Stock, the Company also issued
warrants that expire in five years to acquire the Company’s common stock at $2.30 per share.
30
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Note 25. Condensed Consolidating Financial Information
The WVEDA Solid Waste Disposal Revenue Bond obligations of Entsorga West Virginia LLC are not guaranteed by its members, including the Company,
however the membership interests of Entsorga West Virginia LLC are pledged, and the debt agreements provide restrictions prohibiting distributions to the
members, including equity distributions or providing loans or advances to the members.
The following presents the Company’s consolidating balance sheet as of December 31, 2019 and 2018 and its condensed consolidating statement of
operations and cash flows for the years ended December 31, 2019 and 2018, for Entsorga West Virginia LLC and the Parent and other Company
subsidiaries not subject to the WVEDA Solid Waste Disposal Revenue Bond restrictions and the elimination entries necessary to present the Company’s
financial statements on a consolidated basis. These following condensed consolidating financial information should be read in conjunction with the
Company's consolidated financial statements.
Condensed Consolidating Balance Sheet as of December 31, 2019
Parent
and other
Subsidiaries
Entsorga
West
Virginia
LLC
Eliminations Consolidated
Assets
Cash
Restricted cash
Other current assets
Current assets
Restricted cash
HEBioT facility and other fixed assets
Operating lease right of use assets
MBT facility development and license costs
Investment in subsidiaries
Goodwill
Other assets
Total assets
Liabilities and stockholders’ equity
Line of credit
Current portion of WV EDA Bonds
Other current liabilities
Current liabilities
Notes payable and other debts
Accrued interest
Non-current lease liabilities
WV EDA bonds
Total liabilities
Redeemable preferred stock
Stockholder’s equity:
Attributable to parent
Attributable to non-controlling interests
Stockholders’ equity
Total liabilities and stockholders’ equity
$
1,847,526 $
-
1,697,910
3,545,436
-
- $
1,133,581
1,116,821
2,250,402
2,555,845
1,753,730 37,392,601
897,026
1,795,500
1,847,526
- $
1,133,581
-
2,750,062
(64,669)
5,731,169
(64,669)
-
2,555,845
- 39,146,331
945,047
-
8,049,929
-
- (10,864,783)
-
58,000
-
58,000
53,726
-
-
$ 22,520,125 $ 44,949,374 $ (10,929,452) $ 56,540,047
48,021
6,254,429
10,864,783
-
53,726
$
- $
1,479,848 $
1,390,000
-
6,475,985
2,387,916
7,865,985
3,867,764
-
5,118,125
-
1,510,193
-
915,170
- 29,817,426
10,496,082 38,598,581
-
726,553
1,479,848
- $
1,390,000
-
8,213,007
(650,894)
(650,894) 11,082,855
5,118,125
-
1,510,193
-
-
915,170
- 29,817,426
(650,894) 48,443,769
726,553
-
2,024,143
9,273,347
11,297,490
2,024,143
5,345,582
7,369,725
$ 22,520,125 $ 44,949,374 $ (10,929,452) $ 56,540,047
-
6,350,793 (10,278,558)
6,350,793 (10,278,558)
-
31
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Condensed Consolidating Statement of Operations for the year ended December 31, 2019
Revenue
Operating expenses
HEBioT
Rental, service and maintenance expense
Equipment sales
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Loss from operations
Other (income) expenses, net
Net loss
Parent
and other
Subsidiaries
$
3,108,377 $
Entsorga
West
Virginia
LLC
1,111,071 $
Eliminations Consolidated
4,219,448
- $
-
784,291
113,063
6,097,817
495,709
7,490,880
(4,382,503)
688,621
2,064,139
-
-
965,874
1,233,769
4,263,782
(3,152,711)
2,056,226
$ (5,071,124) $ (5,208,937) $
2,064,139
-
784,291
-
113,063
-
7,063,691
-
1,729,478
-
- 11,754,662
(7,535,214)
-
-
2,744,847
- $ (10,280,061)
Condensed Consolidating Statement of Cash Flows for the year ended December 31, 2019
Cash flows used in operating activities:
Net loss
Non-cash adjustments to reconcile net loss to net cash used in operations
Changes in operating assets and liabilities
Net cash used in operations
Cash flow used in investing activities:
Construction of HEBioT facility and acquisitions of equipment
Capital contribution to Entsorga West Virginia, LLC
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Issuances of debt and equity
Repayments of debt
Deferred financing costs incurred
Net cash provided by financing activities
Effect of exchange rate on cash
Cash – beginning of period (restricted and unrestricted)
Cash – end of period (restricted and unrestricted)
Parent
and other
Subsidiaries
Entsorga
West
Virginia
LLC
Eliminations Consolidated
$ (5,071,124) $ (5,208,937) $
1,417,445
1,318,897
(2,472,595)
1,856,795
(1,447,676)
(4,662,005)
- $ (10,280,061)
3,274,240
-
(128,779)
-
(7,134,600)
-
(33,346)
(4,586,362)
2,231,824
(2,387,884)
(5,077,863)
-
-
(5,077,863)
-
4,586,362
-
4,586,362
(5,111,209)
-
2,231,824
(2,879,385)
6,418,057
(9,165)
-
6,408,892
77,816
2,410,708
1,847,527 $
4,586,362
-
(62,151)
4,524,211
-
6,715,672
3,689,425 $
(4,586,362)
-
-
(4,586,362)
-
-
- $
6,418,057
(9,165)
(62,151)
6,346,741
77,816
9,126,380
5,536,952
$
32
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Condensed Consolidating Balance Sheet as of December 31, 2018
Assets
Cash
Restricted cash
Other current assets
Current assets
Restricted cash
HEBioT facility under construction
Other fixed assets
MBT facility development and license costs
Intangible assets, net and investment in subsidiaries
Goodwill
Other assets
Total assets
Liabilities and stockholders’ equity
Line of credit
Other current liabilities
Current liabilities
Notes payable and other debts
Accrued interest
WV EDA bonds
Total liabilities
Redeemable preferred stock
Stockholder’s equity
Attributable to parent
Attributable to non-controlling interests
Stockholders’ equity
Total liabilities and stockholders’ equity
Parent
and other
Subsidiaries
Entsorga
West
Virginia
LLC
Eliminations Consolidated
$
$
$
$
2,410,709 $
-
969,571
3,380,280
-
-
1,797,915
6,585,408
7,626,268
-
13,500
19,403,371 $
1,469,330 $
2,032,083
3,501,413
4,890,322
1,305,251
-
9,696,986
816,553
3,405,551
5,484,281
8,889,832
19,403,371 $
- $
4,195,148
-
4,195,148
2,520,523
33,104,007
-
1,890,000
-
58,000
-
41,767,678 $
- $
3,708,410
3,708,410
-
-
31,085,902
34,794,312
-
5,854,952
1,118,414
6,973,366
41,767,678 $
- $
-
-
-
-
-
-
-
(5,854,952)
-
-
(5,854,952) $
- $
-
-
-
-
-
-
-
(5,854,952)
-
(5,854,952)
(5,854,952) $
2,410,709
4,195,148
969,571
7,575,428
2,520,523
33,104,007
1,797,915
8,475,408
1,771,316
58,000
13,500
55,316,097
1,469,330
5,740,493
7,209,823
4,890,322
1,305,251
31,085,902
44,491,298
816,553
3,405,551
6,602,695
10,008,246
55,316,097
Condensed Consolidating Statement of Operations for the Year Ended December 31, 2018
Revenue
Cost of revenue
Gross profit
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Loss from operations
Other expenses
Net loss
Parent
and other
Subsidiaries
$
$
3,359,324 $
1,640,152
1,719,172
6,677,324
115,038
6,792,362
(5,073,190)
9,604,528
(14,677,718) $
Entsorga
West
Virginia
LLC
Eliminations Consolidated
3,359,324
- $
1,640,152
-
1,719,172
-
6,741,561
64,237
115,038
-
6,856,599
64,237
(5,137,427)
(64,237)
9,609,793
5,265
(14,747,220)
(69,502) $
- $
-
-
-
-
-
-
-
- $
33
BioHiTech Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Years Ended December 31, 2019 and 2018
Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2018
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operations
Changes in operating assets and liabilities
Net cash used in operations
Cash flow from investing activities:
Cash acquired from control acquisition of Entsorga West Virginia, LLC
Capital contribution to Entsorga West Virginia, LLC
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Issuances of debt and preferred stock, net of costs incurred
Repayments of debt
Capital contribution to Entsorga West Virginia, LLC
Cash investment in Refuel America, LLC by non-controlling interest
Other
Net cash provided by financing activities
Effect of exchange rate on cash
Cash – beginning of period
Cash – end of period (restricted and unrestricted)
Parent
and other
Subsidiaries
Entsorga
West
Virginia
LLC
Eliminations Consolidated
$
(14,677,718) $
9,900,310
(528,110)
(5,305,518)
(69,502) $
-
(669,124)
(738,626)
- $
-
-
-
(14,747,220)
9,900,310
(1,197,234)
(6,044,144)
-
(1,000,000)
(372,130)
(1,372,130)
6,773,384
-
(319,086)
6,454,298
-
1,000,000
-
1,000,000
6,773,384
-
(691,216)
6,082,168
7,378,869
(2,472,611)
-
3,500,000
(255,023)
8,151,235
36,009
901,112
2,410,708 $
-
-
1,000,000
-
-
1,000,000
-
-
6,715,672 $
-
-
(1,000,000)
-
-
(1,000,000)
-
-
- $
7,378,869
(2,472,611)
-
3,500,000
(255,023)
8,151,235
36,009
901,112
9,126,380
$
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
BioHiTech Global, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BioHiTech Global, Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and
2018, the related consolidated statements of operations and comprehensive loss, cash flows and changes in stockholders’ equity for each of the two years in
the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United
States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its
obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Adoption of New Accounting Standards- ASU No. 2016-02
As discussed in Note 19 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption
of ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019 using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2014.
Melville, NY
May 22, 2020
35
Subsidiaries – December 31, 2019
Subsidiaries of BioHiTech Global, Inc.:
Bio Hi Tech America, LLC (Delaware limited liability company)
BioHiTech Europe Limited (A private company limited by shares registered in England and Wales)
E.N.A Renewables LLC (Delaware limited liability company)
BHT Financial LLC (Delaware limited liability company)
Apple Valley Waste Conversions, LLC (Delaware limited liability company)
Refuel America, LLC (Delaware limited liability company)
Subsidiaries of Refuel America LLC:
Apple Valley Waste Technologies Buyer, Inc. (Delaware Corporation)
Apple Valley Waste Technologies LLC (Delaware limited liability company)
Entsorga West Virginia LLC (Delaware limited liability company)
New Windsor Resource Recovery LLC (Delaware limited liability company)
Rensselaer Resource Recovery LLC (Delaware limited liability company)
Exhibit 21.1
Ownership
100%
100%
100%
100%
31%
60%
100%
100%
88%
100%
50%
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements of BioHiTech Global, Inc. on Form S-3 (File Nos. 333-225999 and 333-
229093) and Form S-8 (File No. 333-225555) of our report, which includes an explanatory paragraph as to the Company’s ability to continue as a going
concern, dated May 22, 2020, with respect to our audits of the consolidated financial statements of BioHiTech Global, Inc. and Subsidiaries as of December
31, 2019 and 2018 and for the years then ended, which report is included in this Annual Report on Form 10-K of BioHiTech Global, Inc. for the year ended
December 31, 2019.
Our report on the consolidated financial statements refers to a change in the method of accounting for leases in 2019 due to the adoption of ASU No. 2016-
02, Leases (Topic 842), as amended, effective January 1, 2019 using the modified retrospective approach.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
Melville, NY
May 22, 2020
Exhibit 31.1
I, Frank E. Celli, certify that:
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of BioHiTech Global, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal over financial reporting;
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 22, 2020
/s/ Frank E. Celli
Name: Frank E. Celli
Title: Chairman, Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Brian C. Essman, certify that:
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of BioHiTech Global, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal over financial reporting;
5.
The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 22, 2020
/s/ Brian C. Essman
Name: Brian C. Essman
Title: Chief Financial Officer and Treasurer
(Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K (the “Report”) of BioHiTech Global, Inc. (the “Company”) for the fiscal year ended December 31,
2019, the undersigned Frank E. Celli, the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: May 22, 2020
/s/ Frank E. Celli
Name: Frank E. Celli
Title: Chairman, Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to BioHiTech Global, Inc. and will be retained by BioHiTech Global,
Inc. and furnished to the Securities and Exchange Commission upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K (the “Report”) of BioHiTech Global, Inc. (the “Company”) for the fiscal year ended December 31,
2019, the undersigned Brian C. Essman, the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: May 22, 2020
/s/ Brian C. Essman
Name: Brian C. Essman
Title: Chief Financial Officer and Treasurer
(Principal Accounting Officer)
A signed original of this written statement required by Section 906 has been provided to BioHiTech Global, Inc. and will be retained by BioHiTech Global,
Inc. and furnished to the Securities and Exchange Commission upon request.