RENOVARE ENVIRONMENTAL, INC. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended: June 30, 2019

or

For the transition period from ________________ to ________________

Commission file number 001-36843

BIOHITECH GLOBAL, INC.

(Exact name of registrant as specified in its charter)

(845) 262-1081

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

BioHiTech Global, Inc. and Subsidiaries

TABLE OF CONTENTS

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

See accompanying notes to unaudited interim consolidated financial statements.

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

Continued on following page.

See accompanying notes to unaudited interim consolidated financial statements.

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets, continued:

See accompanying notes to unaudited interim consolidated financial statements.

BioHiTech Global, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

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

See accompanying notes to unaudited interim consolidated financial statements.

BioHiTech Global, Inc. and Subsidiaries

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

Continued on following page.

See accompanying notes to unaudited interim consolidated financial statements.

BioHiTech Global, Inc. and Subsidiaries

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

See accompanying notes to unaudited interim consolidated financial statements.

Note 1. Basis of Presentation and Going Concern

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

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

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

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

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

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

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

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

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

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

Note 2. Summary of Significant Accounting Policies

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

Foreign Operations — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates. Income and expense items are translated at the average rates during the respective periods. Translation adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income (loss) while transaction gains and losses are recorded in net earnings (loss).

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

Product and Services Revenue Recognition — The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers, which require that we:

1. Identify the contract with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price of the contract;

4. Allocate the transaction price to the performance obligations in the contract;

5. Recognize revenue when the performance obligations are met or delivered.

When revenue is earned based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products.

When revenue is earned based on receipt of disposal waste, the Company’s performance obligations are satisfied at the point in time when disposal waste products are received from the customer, which is when the Company has title and control. Therefore, the Company’s contracts have a single performance obligation (receipt of disposal waste).

When revenue is earned on services, such as management advisory fees and digester maintenance and repair services fees are recognized over the period the services are performed based on service milestones.

The Company records taxes collected from customers and remitted to governmental authorities on a net basis. 

Lease Revenue Recognition — Rental, service and maintenance revenues relating to the Company’s rental agreements involve providing use of the Company’s digesters at customer locations, access to our software as a service and preventative maintenance over the term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs and obligations underlying the agreements.

The Company selected the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue from the rental of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease includes any of the following provisions which would indicate sales type lease treatment: 

Restricted Cash — Includes Restricted cash that is restricted as to its use, as it is held by a trustee in accordance with the West Virginia Economic Development Authority bond agreement. These amounts are held by the Company’s trustee in various bank accounts segregated for specific uses related to the construction and operation of the resource recovery facility. Amounts required to meet current operations of the Company have been classified as current in the accompanying consolidated balance sheets.

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

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

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

Deferred Financing Costs — Deferred financing costs relating to issued debt are included as a reduction to the applicable debt and amortized as interest expense over the term of the related debt instruments.

Income Taxes — Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates the future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning and strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more than likely” criteria.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Loss per Share — The Company computes basic loss per share using the weighted-average number of shares of common stock outstanding and diluted loss per share, while the diluted loss per share also includes the effects of dilutive instruments using the “treasury method.” Dividends attributable to preferred stock, whether declared or accrued, are deducted from income attributable to common shareholders for purposes of earnings per share.

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

Note 3. Acquisition and Contribution Agreement

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

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

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

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

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

Note 4. Investments in Unconsolidated Entities

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

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

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

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

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

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

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

Note 5. Accounts Receivable, net

Accounts receivable consists of the following:

Note 6. Inventory

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

Note 7. Equipment on Operating Leases, net

Equipment on operating leases consist of the following:

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

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

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

Note 8. Equipment, Fixtures and Vehicles, net

Equipment, fixtures and vehicles consist of the following:

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

Note 9. HEBioT Facility

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

Note 10. MBT Facility Development and License Costs

MBT Facility Development and License Costs consist of the following:

MBT Facility Development Costs

New Windsor, New York

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

Rensselaer, New York

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

HEBioT Technology Licenses

Technology License Agreement – Future Facility

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

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

Technology License Agreement – Martinsburg, West Virginia

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

Note 11. Intangibles Assets, net

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

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

Note 12. Goodwill

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

Note 13. Risk Concentrations

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

Credit risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.

The Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institutions. At times, the Company’s cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) in the USA and the Financial Conduct Authority (“FCA”) in the UK insurance limits. Through June 30, 2019, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

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

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

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

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

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

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

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

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

As of June 30, 2019, the $1,500,000 balance outstanding is presented net of $30,445 in issuance costs associated with the financing, net of $7,280 in amortization. As December 31, 2018, the $1,500,000 balance outstanding is presented net of $34,945 in issuance costs associated with the financing, net of $4,275 in amortization, respectively, calculated on the effective interest method, which is included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.

Michaelson Senior Secured Term Promissory Financing – On February 2, 2018, the Company and several of the Company’s wholly-owned subsidiaries entered into and consummated a Note Purchase and Security Agreement (the “Purchase Agreement”) with Michaelson Capital Special Finance Fund II, L.P. (“ MCSFF ”) to issue a senior secured term promissory note in the principal amount of $5,000,000 (the “Note”). The Note is not convertible and accrues interest at the rate of 10.25% per annum. The Note provides for certain financial covenants that were not met as of June 30, 2019 and December 31, 2018 and a waiver of such was granted by MCSFF. The Note is to be repaid in eight, equal, quarterly installments of $625,000 commencing on May 15, 2021 and ending February 2, 2023 (the “Maturity Date”). Additionally, the Note is secured by a general security interest in all of the Company’s assets as well all of the assets of the Company’s subsidiaries, excluding those of Entsorga West Virginia LLC which is subject to superior security interests relating to the Entsorga West Virginia LLC WVEDA bonds. Further, the Company’s Chief Executive Officer, guaranteed a portion of the Registrant’s obligations to MCSFF. In connection with the issuance of the Note, the Company issued MCSFF 320,000 shares of the Registrant’s common stock, par value $0.0001 per share. As of June 30, 2019 and December 31, 2018, the carrying balance of the Note is comprised of $5,000,000 face value, less $1,212,121 allocated to the common stock issued based upon the market value on the date issued, less associated amortization of $352,135 and $223,443, respectively, on the stock discount, less deferred financing costs of $211,187, less $74,095 and $51,170, respectively, of associated deferred financing cost amortization. All amortization is computed on the effective interest method and included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.

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

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

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

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

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

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

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

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

The loan agreement and Indenture of trust place restrictions on the Borrower and its members regarding additional encumbrances on the property, disposition of the property, and limitations on equity distributions. The loan agreement also provides for financial covenants that will become effective two quarters following the completion of the facility or two quarters following March 31, 2019, whichever is earlier.

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

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

Note 16. Equity and Equity Transactions

The Company has 50,000,000 shares of its $0.0001 par common stock and 10,000,000 shares of blank check preferred stock authorized by its shareholders. As of June 30, 2019 and December 31, 2018, 15,207,956 and 14,802,956 shares of common stock have been issued; and 3,179,120 and 3,159,120 shares, respectively, of preferred stock have been designated in five series of shares, which have a total of $812,528 in accumulated, but undeclared preferential dividends as of June 30, 2019, as follows:

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.

Series D Convertible Preferred Stock – On February 11, 2019 the Company filed a Certificate of Designation for 20,000 shares of Series D Convertible Preferred Stock that was amended on May 1, 2019 (“Sr. D CPS”). The Sr. D CPS is convertible into shares of the Company’s common stock at the price of $3.50 per share based on the Sr. D CPS’s stated value being converted. Each share of the Sr. D CPS has a stated value of $100 and has dividends at the rate of 9% payable annually in arrears in cash or at the Company’s option, in common stock based upon the then in effect conversion price. The Sr. D CPS also has an alternative dividend provision based upon the cash flow distributed to the parent from the Company’s next HEBioT facility, excluding the plant in Martinsburg, West Virginia, (the “Next Facility”) based upon the Sr. D CPS proportional investment in the facility. The Sr. D CPS also has an alternative conversion based upon a multiple the annualized EBITDA of the Next Facility converted at the higher of the conversion rate in effect or the market price of the Company’s common stock if higher.

During the six months ended June 30, 2019, the Company received subscriptions and investments totaling $1,885,000, which were issued 18,850 shares of Sr D CPS.  In addition to the Sr. D CPS, each holder received warrants to acquire 50% of the shares that the Sr. D CPS is convertible into with an exercise price of $3.50 per share and an expiration on the fifth year anniversary. A total of 269,296 five-year warrants with an exercise price of $3.50 were issued to the Sr. D CPS holders that were valued utilizing the Black-Scholes modelling technique utilizing stock prices ranging from $1.88 to $2.70, a standard deviation (volatility) ranging from 44.55% to 46.38% and a risk-free rate interest rate ranging from 1.74% to 2.56% based on the date of the investment. The model includes subjective input assumptions that can materially affect the fair value estimates. The allocated fair value of the warrants amounting to $190,299 has been reflected in additional paid in capital. In connection with the offering and issuance of the Sr D CPS, the holder of the Series A convertible preferred stock was issued 116,651 warrants in the form issued to the Sr D CPS holders. These warrants, which were reflected as a cost of issuing the Sr D CPS, were valued utilizing the Black-Scholes modelling technique utilizing a stock price of $2.25, a standard deviation (volatility) of 46.23% and a risk-free interest rate of 1.89% on the date of issuance.

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