Form 10-Q RENOVARE ENVIRONMENTAL, For: Mar 31
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended:
or
For the transition period from ________________ to ________________
Commission file number
(Exact name of registrant as specified in its charter)
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(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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading |
| Name of each exchange on which |
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| OTC Pink |
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding as of June 28, 2022 |
Common Stock, $0.0001 par value per share |
Renovare Environmental, Inc. and Subsidiaries
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 | |
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Unregistered Sales of Equity Securities and Use of Proceeds. | 26 | |
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i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Renovare Environmental, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Revenue | ||||||
Equipment sales | $ | | $ | | ||
Rental, service and maintenance | | | ||||
MBT (Mechanical Biological Treatment) |
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Total revenue |
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Operating expenses |
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Equipment sales | | | ||||
Rental, service and maintenance |
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MBT processing |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Loss from operations |
| ( |
| ( | ||
Other expenses |
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Interest income |
| ( |
| ( | ||
Interest expense |
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Loss from unconsolidated entity |
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Total other expenses, net |
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Net loss |
| ( |
| ( | ||
Net loss attributable to non-controlling interests |
| — |
| ( | ||
Net loss attributable to Parent |
| ( |
| ( | ||
Other comprehensive income (loss) | ||||||
Foreign currency translation adjustment |
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| ( | ||
Comprehensive loss | $ | ( | $ | ( | ||
Net loss attributable to Parent | $ | ( | $ | ( | ||
Deemed dividend on down round features |
| ( |
| — | ||
Preferred stock dividends | ( | ( | ||||
Net loss attributable to common shareholders |
| ( | ( | |||
Net loss per common share - basic and diluted | ( | $ | ( | |||
Weighted average number of common shares outstanding - basic and diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
1
Renovare Environmental, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| March 31, |
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2022 | December 31, | |||||
(Unaudited) | 2021 | |||||
Assets | ||||||
Current Assets | ||||||
Cash | $ | | $ | | ||
Restricted cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Restricted cash |
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Equipment on operating leases, net |
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MBT facility, equipment, fixtures and vehicles, net |
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Operating lease right of use assets |
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Investment in unconsolidated entity |
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Other assets |
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Total Assets | $ | | $ | | ||
Liabilities and Stockholders’ (Deficit) Equity |
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Current Liabilities |
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Line of credit | $ | | $ | | ||
Advances from related parties |
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Accounts payable (related party $ | | | ||||
Accrued interest payable |
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Accrued expenses and liabilities |
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Deferred revenue | | | ||||
Customer deposits |
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Notes payable to EntsorgaFin S.p.A (related party) |
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Senior Secured Note |
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Nonrecourse WV EDA Senior Secured Bonds payable | | | ||||
Note Payable | | | ||||
Current portion of long term debt | | | ||||
Total Current Liabilities |
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Junior note due to related party, net of unamortized discounts of $ | | | ||||
Accrued interest (related party) | | | ||||
Non-current lease liabilities |
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Total Liabilities |
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Series A redeemable convertible preferred stock, |
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Commitments and Contingencies (Note 8) |
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Stockholders’ Deficit |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive (loss) |
| ( |
| ( | ||
Stockholders’ deficit attributable to Parent |
| ( |
| ( | ||
Stockholders’ equity attributable to non-controlling interests |
| — |
| — | ||
Total Stockholders’ Deficit |
| ( |
| ( | ||
Total Liabilities and Stockholders’ Deficit | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
2
Renovare Environmental, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operations: |
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Depreciation and amortization |
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Amortization of operating lease right of use assets | | | ||||
Provision for bad debts |
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Share based employee and vendor compensation | | | ||||
Interest resulting from amortization of financing costs and discounts |
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Loss from unconsolidated entity | | | ||||
Changes in operating assets and liabilities |
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| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flow from investing activities: |
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Purchases of facility, equipment, fixtures and vehicles |
| — |
| ( | ||
MBT facility development costs incurred |
| — |
| ( | ||
Net cash used in investing activities |
| — |
| ( | ||
Cash flows from financing activities: |
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Proceeds from the issuances of common stock | | | ||||
Payments of long-term debt |
| ( |
| ( | ||
Payment of senior secured note | ( | — | ||||
Related party advances (payments), net |
| ( |
| — | ||
Net cash provided by financing activities |
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Effect of exchange rate on cash (restricted and unrestricted) |
| — |
| ( | ||
Net change in cash (restricted and unrestricted) |
| ( |
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Cash - beginning of period (restricted and unrestricted) |
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Cash - end of period (restricted and unrestricted) | $ | | $ | | ||
Supplementary cash flow information (cash paid during the periods): | ||||||
Interest | $ | | $ | | ||
Income taxes | — | — | ||||
Supplementary Disclosure of Non-Cash Investing and Financing Activities: | ||||||
Transfer of inventory to leased equipment | $ | — | $ | | ||
Accrual of Series A preferred stock dividends | | | ||||
Payment of Series A preferred stock dividends in common stock | — | | ||||
Payment of preferred stock dividends in common stock | — | | ||||
Issuance of subsidiary membership interest in exchange for liabilities due non-controlling interest entity | — | | ||||
Exchange of subsidiary non-controlling interest in exchange for liabilities owed Company by non-controlling interest entity | — | | ||||
Reconciliation of Cash and Restricted Cash: | ||||||
Cash | $ | | $ | | ||
Restricted cash (current) | | | ||||
Restricted cash (non-current) | | | ||||
Total cash and restricted cash at the end of the period | $ | | $ | |||
See accompanying notes to unaudited condensed consolidated financial statements.
3
Renovare Environmental, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited)
Statement of Stockholders’ Deficit Attributable to Parent for the Three Months Ended March 31, 2022: | ||||||||||||||||||||||
| Preferred Stock |
| Common Stock |
| Additional | Accumulated | ||||||||||||||||
| Shares |
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| Shares |
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| Paid in |
| Comprehensive |
| Accumulated |
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Outstanding | Amount | Outstanding | Amount | Capital | Other Loss | Deficit | Total | |||||||||||||||
Balance at January 1, 2022 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
Common stock sold in private placement, net of offering costs | — |
| — | |
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| — |
| — |
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Common stock issued to vendor for services rendered | — | — | | | | — | — | | ||||||||||||||
Sr. C preferred stock conversion |
| ( |
| ( | |
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| — |
| — |
| — | |||||||
Sr. A preferred stock dividend accrual | — | — | — | — | — | — | ( | ( | ||||||||||||||
Deemed dividend resulting from down round adjustment in warrant exercise and preferred stock conversion pricing | — | — |
| — |
| — |
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| — |
| ( |
| — | ||||||||
Share-based employee and director compensation | — | — | — | — | | — | — | | ||||||||||||||
Net loss | — | — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||||
Foreign currency translation adjustment |
| — | — |
| — | — | — | | — | | ||||||||||||
Balance at March 31, 2022 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||||
Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Three Months Ended March 31, 2022: | |||||||||
Non- Controlling | Accumulated | ||||||||
| Equity Interest |
| Deficit |
| Total | ||||
Balance at January 1, 2022 | $ | | $ | ( | $ | — | |||
Net loss |
| — |
| — |
| — | |||
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Balance at March 31, 2022 | $ | | $ | ( | $ | — | |||
Statement of Stockholders’ Equity Attributable to Parent for the Three Months Ended March 31, 2021: | ||||||||||||||||||||||
Additional | ||||||||||||||||||||||
Preferred Stock | Common Stock | Paid in | Accumulated | |||||||||||||||||||
Shares | Shares | Comprehensive | Accumulated | |||||||||||||||||||
| Outstanding |
| Amount |
| Outstanding |
| Amount |
| Capital |
| Other Loss |
| Deficit |
| Total | |||||||
Balance at January 1, 2021 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Common stock sold, net of offering costs | — |
| — | |
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| — |
| — |
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Common stock issued to employee under restricted stock units and vendor for services rendered |
| — | — | | | | — | — | | |||||||||||||
Warrants exercised | — | — | | | ( | — | — | — | ||||||||||||||
Sr. A redeemable preferred stock conversion, dividend payments and accrual (Sr. A preferred is not included in equity preferred shares) | — | — | | | | — | ( | | ||||||||||||||
Sr. C preferred stock dividend payment |
| — |
| — | | |
| | — | ( |
| — | ||||||||||
Sr. D preferred stock conversion and dividend payments | ( | ( |
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| — |
| ( |
| — | ||||||||
Sr. F preferred dividend payments | — | — | | | | — | ( | — | ||||||||||||||
Share-based employee and director compensation | — | — |
| — |
| — |
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| — |
| — |
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Net loss | — | — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||||
Foreign currency translation adjustment | — | — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Balance at March 31, 2021 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Statement of Stockholders’ Equity Attributable to Non-Controlling Interests in Consolidated Subsidiaries for the Three Months Ended March 31, 2021: | |||||||||
Non-Controlling | Accumulated | ||||||||
Equity Interest | Deficit | Total | |||||||
Balance at January 1, 2021 |
| $ | |
| $ | ( |
| $ | |
Membership units issued to non-controlling member | | — | | ||||||
Membership units assigned to BioHiTech by non-controlling member |
| ( |
| — |
| ( | |||
Net loss |
| — |
| ( |
| ( | |||
Balance at March 31, 2021 | $ | | $ | ( | $ | | |||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 1. Basis of Presentation and Going Concern
Nature of Operations - Renovare Environmental, Inc., formerly known as BioHiTech Global, Inc. (the “Company” or “Renovare”) through its wholly-owned and controlled subsidiaries, provides cost-effective and sustainable environmental management solutions.
Our cost-effective technology solutions include biological disposal of food waste on-site, proprietary real-time data analytics tools to reduce food waste generation, and patented processing of municipal solid waste into a valuable renewable fuel. Our solutions enable businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, our solutions lower the carbon footprint associated with waste transportation and can reduce or virtually eliminate landfill usage.
During the first quarter of 2022 the Company commenced an operational and strategic review of Entsorga West Virginia LLC (“EWV”) and its facility based MBT operations in Martinsburg, West Virginia (the “Facility”) that resulted in a decision to pause production operations to allow for reducing losses and cash requirements from the Facility. This pause has continued into the second quarter of 2022.
Since March 2020, when the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, as well as those from new strains of the virus, the Company has monitored the near term and longer term impacts of COVID-19 and any related business and travel restrictions and other changes intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. Due to the nature of the pandemic, while presently the level of the pandemic is low, the magnitude and duration of the pandemic and its impact on the Company’s operations, liquidity and financial performance may depend on certain developments, including duration, spread and reemergence of the outbreak, its impact on our customers, supply chain partners and employees, and the range of governmental and community reactions to the pandemic.
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, and the elimination of intercompany accounts and transactions 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, 2021, which contains the audited financial statements and notes thereto, for the years ended December 31, 2021 and 2020 included within the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022. The financial information as of December 31, 2021 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, 2021. The interim results for the three months ended March 31, 2022 is not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.
As of March 31, 2022 and December 31, 2021, the Company’s active wholly-owned subsidiaries were BioHiTech America, LLC, BioHiTech Europe Limited, BHT Financial, LLC, BRT HoldCo Inc. (formed in 2022) and BHT Renewables LLC (formerly E.N.A. Renewables LLC), and its controlled subsidiary was Refuel America LLC (
5
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Going Concern and Liquidity - For the three months ended March 31, 2022, the Company had a consolidated net loss of $
The accompanying condensed 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 condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s further implementation of the Company’s on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of the on-going and strategic plans may require modification.
Note 2. Summary of Significant Accounting Policies
The condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the SEC on a consistent basis with and should be read in conjunction with our audited financial statements for the year ended December 31, 2021. Certain information has been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.
Recent Accounting Standards—
The Company has implemented the following accounting standards during the three months ended March 31, 2022.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective for the Company for the interim and annual periods of 2022. The implementation of Reference Rate Reform (Topic 848) by the Company did not have an impact as none of its instruments included LIBOR rate references.
The Company has not implemented the following accounting standards:
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning after December 15, 2022. 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.
6
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. As the Company is under SEC rules is classified as a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2023.
There have been no other recent accounting standards or changes in accounting standards that have been issued but not yet adopted that are of significance, or potential significance, to the Company.
Loss per Share - The Company’s potential dilutive instruments include convertible preferred stock, options, convertible debt and warrants. For the three months ended March 31, 2022 and 2021, as the exercise price of the Company’s outstanding options and warrants was greater than the market price of our common shares those instruments were not dilutive. The following have excluded from the calculation of diluted loss per share as they are anti-dilutive for the three months ended March 31:
| 2022 |
| 2021 | |
Restricted stock units | | | ||
Convertible preferred shares | | | ||
Total |
| |
| |
Note 3. Equipment on Operating Leases, net
Equipment on operating leases consist of the following:
| March 31, |
| December 31, | |||
2022 | 2021 | |||||
Leased equipment | $ | |
| $ | | |
Less: accumulated depreciation |
| ( |
| ( | ||
Total Equipment on Operating Leases, net | $ | |
| $ | | |
The Company is a lessor of digester units under non-cancellable operating lease agreements expiring through January 2026.
During the three months ended March 31, 2022 and 2021, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $
The minimum future estimated contractual payments to be received under these leases as of March 31, 2022 is as follows:
Year ending December 31, |
|
| |
2022, remaining | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
$ | |
7
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 4. MBT facility, equipment, fixtures and vehicles, net
MBT facility, equipment, fixtures and vehicles, net consist of the following:
| March 31, |
| December 31, | |||
| 2022 |
| 2021 | |||
MBT facility |
| $ | |
| $ | |
MBT equipment |
| |
| | ||
Computer software and hardware |
| |
| | ||
Furniture and fixtures |
| |
| | ||
Vehicles |
| |
| | ||
| |
| | |||
Less: accumulated depreciation and amortization |
| ( |
| ( | ||
Total MBT facility, equipment, fixtures and vehicles, net |
| $ | |
| $ | |
During the three months ended March 31, 2022 and 2021, depreciation expense amounted to $
Note 5. Line of Credit, Promissory Notes Payable, Notes Payable, Advances, Bonds and Long-Term Debts
Line of Credit, Promissory Notes Payable, Notes Payable, Advances, Bonds and Long-Term Debts consist of the following:
March 31, 2022 | December 31, 2021 | |||||||||||
Non- | Non- | |||||||||||
| Current |
| Current |
| Current |
| Current | |||||
Demand note, line of credit | $ | | $ | — | $ | | $ | — | ||||
Advance from related party (See Note 11 Related Parties) |
| |
| — |
| |
| — | ||||
Senior secured note |
| |
| — |
| |
| — | ||||
Junior note due to related party |
| — |
| |
| — |
| | ||||
EntsorgaFin S.p.A notes payable | | — | | — | ||||||||
Note payable |
| |
| — |
| |
| — | ||||
Nonrecourse WV EDA senior secured bonds |
| |
| — |
| |
| — | ||||
Long term debts, remaining balances |
| |
| — |
| |
| — | ||||
Total Notes, Bonds, Debts and Borrowings | $ | | $ | | $ | | $ | | ||||
Michaelson Senior Secured Term Promissory Financing - On February 17, 2022 the Company and MCSFF entered into a forbearance agreement that provided that the quarterly repayment due on February 15, 2022 of $
EntsorgaFin S.p.A Notes Payable - On May 19, 2021 the Company’s subsidiary EWV executed a series of notes related to the settlement of a previously recognized claim (See Note 8 Commitments and Contingencies) with EntsorgaFin S.p.A (“EFin”), the parent company of Entsorga USA, Inc., a non-controlling member of the Company’s EWV subsidiary. The series of notes are comprised of
8
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Entsorga West Virginia, LLC Nonrecourse WVEDA Solid Waste Disposal Revenue Bonds - The loan agreement and indenture of trust, which are collateralized by the assets and membership interests of EWV, place restrictions on the EWV 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 March 31, 2022 and December 31, 2021 the Company was not in compliance with all of the financial and other covenants and was in default on principal repayments due in through February 2021. The Company has entered into a series forbearance agreements and amendments, most recently on November 15, 2021 with the bond trustee that provided, they will not accelerate the repayment of the bonds due to the defaults through October 1, 2022. During December 2021 EWV failed to make payments under the forbearance agreement and as described in Notes 1 and 8, during the first quarter of 2022, the Company commenced a review of its facility collateralizing the WVEDA Bonds that resulted in a decision to pause production operations. As a result of the forbearance default, as of March 31, 2022 and December 31, 2021, the Company has recognized the entire amount of the WVEDA Bonds as a current liability and accelerated the recognition of the unamortized deferred costs as interest expenses as of December 31, 2021.
Contractual Maturities, as adjusted for non-compliance with terms or covenants, of Demand Note, Promissory Notes Payable, Notes Payable, Advances, Bonds and Long-Term Debts as of March 31, 2022, excluding discounts and deferred finance costs, are as follow:
2022, | 2026 and | |||||||||||||||||
| remaining |
| 2023 |
| 2024 |
| 2025 |
| thereafter |
| Total | |||||||
Demand note, line of credit |
| $ | | $ | | $ | | $ | | $ | | $ | | |||||
Advance from related party |
| | | |
| |
| |
| | ||||||||
Senior secured note |
| | | |
| |
| |
| | ||||||||
Junior note due to related party |
| — | | |
| |
| |
| | ||||||||
EntsorgaFin S.p.A notes payable | | | | | | | ||||||||||||
Note Payable |
| | | |
| |
| |
| | ||||||||
Nonrecourse WVEDA senior secured bonds |
| | | | | | | |||||||||||
Long term debts, remaining balances |
| | | | | | | |||||||||||
Total Maturities by Year | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Note 6. Equity and Equity Transactions
The Company has
Outstanding | Carrying Amount | |||||||||||||||||||
Stated | Conversion | March 31, | December 31, | March 31, | December 31, | |||||||||||||||
|
| Designated |
| Issued |
| Value |
| Rate |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Series A Convertible* |
| | | $ | | $ | | | | $ | | $ | | |||||||
Series B Convertible |
| | |
| | n.a. | | |
| |
| | ||||||||
Series C Convertible |
| | |
| | | | |
| |
| | ||||||||
Series D Convertible |
| | |
| | | | |
| |
| | ||||||||
Series E Convertible |
| | |
| | | — | — |
| |
| | ||||||||
Series F Convertible |
| | |
| | | | |
| |
| | ||||||||
Total preferred stock | | | | | $ | | $ | | ||||||||||||
Excluding Series A* | | | | | $ | | $ | | ||||||||||||
*The Series A convertible shares are redeemable and are presented as temporary equity in the condensed consolidated balance sheets.
9
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
On January 25, 2022, the Company completed a private placement with several investors, wherein a total of
The Company engaged EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) as the Company’s placement agent for the Offering pursuant to a Placement Agency Agreement (the “PAA”) dated as of January 21, 2022. Pursuant to the PAA, the Company agreed to pay EF Hutton a cash placement fee equal to
The proceeds to the Company were:
Gross proceeds |
| $ | |
Less: |
| ||
Agents’ fees |
| | |
Legal fees |
| | |
Filing and other fees |
| | |
Net proceeds to the Company | $ | |
As a result of the issuance of common stock shares at $
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.
Other Common and Prefered Share Activity during the three months ended March 31, 2022 were:
On February 10, 2022, the Company issued
On March 15, 2022, the Company issued
On March 21, 2022, the Company issued
10
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Warrants – In connection with the issuance of convertible debt, preferred and common stock and in connection with services provided, the Company has issued warrants to acquire
Weighted Average | |||||||
Expiring During the Year | Warrant | Exercise Price | Exercises Price | ||||
Ending December 31, |
| Shares |
| per Share |
| per Share | |
2022 |
| | $ | $ | | ||
2023 |
| | $ | $ | | ||
2024 |
| | $ | $ | | ||
2025 |
| | $ | $ | | ||
2026 |
| — | — | — | |||
2027 | | $ | $ | | |||
The following table summarizes the outstanding warrant activity for the three months ended March 31, 2022:
Outstanding, January 1, 2022 |
| |
Issued | | |
Exercised | — | |
Expired |
| ( |
Outstanding, March 31, 2022 |
| |
Equity Incentive Plans — The Company has two shareholder approved equity incentive plans. There were no grants or awards during the three months ended March 31, 2022. The following provides the compensation expense by award type in the condensed consolidated statements of operations and comprehensive loss:
Three months ended March, | ||||||
| 2022 |
| 2021 | |||
Stock options | $ | | $ | | ||
Restricted stock |
| — |
| | ||
Total | $ | | $ | | ||
Note 7. Leases
The Company did not enter into or modify any existing leases during the three months ended March 31, 2022. The current portion of the lease liabilities of $
Year Ending December 31, |
| ||
2022, remaining | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
Total lease payments |
| | |
Less imputed interest |
| ( | |
Present value of lease liabilities | $ | |
Total lease costs under operating leases amounted to $
11
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 8. Commitments and Contingencies
During the three months ended March 31, 2022, the Company commenced an operational and strategic review of EWV and its facility based MBT operations in Martinsburg, West Virginia that resulted in a decision to pause production operations to allow for reducing losses and cash requirements from the Facility. This pause has continued into the second quarter of 2022.
In connection with the pause of operations at the Facility, EWV provided a notice of the pause to the West Virginia Department of Environmental Protection (“WVDEP”) which provides the license to operate the facility. While there has been no communications from the WVDEP, under their authority, they may take actions that could include suspending or withdrawing the Facility’s license to operate and other actions to protect the environment. In addition, the Facility’s landlord, Berkeley County Solid Waste Authority (“BCSWA”) has been apprised of the Facility’s pause of operations and on March 24, 2022 BCSWA, by letter, provided a notice of monetary and non-monetary default and reserved their rights under the lease, which include, but are not limited to terminating the lease and requiring EWV perform obligations under the lease. In addition, EWV and the Facility is collateral to a nonrecourse WV EDA senior secured series of bonds (the “Bonds”). While the Bond trustee has not provided a forbearance agreement in connection with the issuance of March 31, 2922 and December 31, 2021 financial statements, they have not taken any actions resulting from our default under the most recent forbearance agreement. Under the terms of the Bonds, the Trustee may declare a default and take actions to secure or foreclose on their collateral, which includes the Facility, other assets and the membership interests in EWV.
During September 2020, the Company’s Entsorga West Virginia subsidiary received notice that EFin, affiliate of a minority owner of EWV, who also provided intellectual property, equipment and engineering services relating to the set-up and initial operation of the Facility, was claiming it was owed $
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 9. Revenue
The Company recognizes revenue as services are performed or products are delivered and generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment. We record amounts collected from customers for sales tax on a net basis.
12
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Disaggregation of Revenue — The disaggregation of revenue is as follows:
Three months ended March 31, | ||||||
| 2022 |
| 2021 | |||
Revenue Type: |
|
|
|
|
|
|
Revenue recognized over time: | ||||||
Rental of digesters | $ | | $ | | ||
Revenue recognized at a point in time: | ||||||
Services |
| |
| | ||
Product sales |
| |
| | ||
Total | $ | | $ | | ||
Note 10. Risk Concentrations
The Company operates as a single segment on a worldwide basis through its subsidiaries, resellers and independent sales agents. Gross revenues and net non-current tangible assets on a domestic and international basis are as follows:
| United |
|
| ||||||
States | International | Total | |||||||
2022: | |||||||||
Revenue, for the three months ended March 31, 2022 | | | | ||||||
Non-current tangible assets, as of March 31, 2022 |
| |
| |
| | |||
|
|
| |||||||
2021: |
|
|
|
|
| ||||
Revenue, for the three months ended March 31, 2021 | $ | | $ | | $ | | |||
Non-current tangible assets, as of December 31, 2021 |
| |
| |
| | |||
Major customers — During the three months ended March 31, 2022,
As of March 31, 2021,
Vendor concentration —During the three months ended March 31, 2022,
As of March 31, 2022 and December 31, 2021,
Affiliate relationship — GMG owns a
13
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 11. Related Party Transactions
Related parties include Directors, Senior Management Officers, and shareholders, plus their immediate family, who own a
The tables below presents the face amount of direct related party assets and liabilities and other transactions or conditions as of or during the periods indicated.
|
| March 31, |
| December 31, | ||||
2022 | 2021 | |||||||
Assets: |
| |||||||
Accounts receivable |
| (a) | $ | | $ | | ||
Liabilities: |
|
|
|
| ||||
Accounts payable |
| (b) (c) (d) |
| |
| | ||
Accrued interest payable |
| (f) |
| |
| | ||
Long term accrued interest |
| (e) |
| |
| | ||
Advance from related party |
| (f) |
| |
| | ||
Junior promissory note |
| (e) |
| |
| | ||
EntsorgaFin S.p.A Notes Payable | (h) | | | |||||
Other: |
|
|
|
| ||||
Line of credit guarantee |
| (g) |
| |
| | ||
The table below presents direct related party expenses or transactions for the three months ended March 31, 2022 and 2021. Compensation and related costs for employees of the Company are excluded from the table below.
|
| 2022 |
| 2021 | ||||
MBT revenue |
| (b) |
| |
| | ||
Operating expenses - MBT |
| (c) |
| |
| | ||
Operating expenses - Selling, general and administrative |
| (b) (d) |
| |
| | ||
Interest expense |
|
| |
| | |||
Debt guarantee fees | (g) | |
| | ||||
Interest expense – EntsorgaFin |
| (h) |
| | | |||
Summary notes:
a - | MBT Disposal Revenues |
| e - | Junior Promissory Note |
b - | Distribution Agreement | f - | Advances from Related Parties | |
c - | Disposal costs | g - | Line of Credit | |
d - | Business Services Fees | h - | Claims by Related Party settled in Notes Payable – Note 5. Notes, Bonds, Debts and Borrowings. |
14
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 12. 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.
Harp Letter of Intent — On June 17, 2022, the Company signed a non-binding letter of intent (the “letter”) to enter into a merger agreement with Biorenewable Technologies, Inc. dba Harp Renewables and its affiliate, Harp Electric Engineering (collectively “Harp”) with the anticipated issuance of the Company’s common stock such that Harp will have an
The February 28, 2022 purchase agreements provided that the Company would acquire all of the issued and outstanding equity of Harp for a purchase price of $
Nasdaq Stock Market Hearing Panel Decision — On June 15, 2022, the Company received formal notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Nasdaq Hearings Panel (the “Panel”) has determined to delist the Company’s securities from Nasdaq based upon the Company’s non-compliance with the filing requirements set forth in Nasdaq Listing Rule 5550(a)(2) and (b)(1). As a result of the Panel’s decision, Nasdaq suspended trading in the Company’s securities effective at the open of business on June 17, 2022, and indicated that it intends to file a Form 25 NSE Notification of Delisting with the Securities and Exchange Commission (the “SEC”) once all applicable appeal and review periods have expired in order to effect the formal delisting of the Company’s securities from Nasdaq.
The Company’s shares began trading on the OTC Markets’ “OTC Pink Market” tier under the symbol “RENO.” There may be a very limited market in which the Company’s shares are traded, the Company’s stockholders may find it difficult to sell their shares of the Company and the trading price of the Company’s securities, if any, may be adversely affected. The Company has filed its application with OTC Markets for listing on OTCQB.
June 2, 2022 Private Placement — On June 2, 2022, the Company completed a private placement with several investors, wherein the Company sold units comprised of senior subordinated notes with a total face amount of $ (the “Notes”),
In connection with the Offering, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with investors containing customary representations and warranties. The Company and investors also entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company will be required to file a resale registration statement (the “Registration Statement”) with the SEC to register for resale the Shares and the shares of Common Stock issuable upon exercise of the Purchaser Warrants and Representative Warrants, promptly following the Closing Date but in no event later than 30 calendar days after the effective date of the Registration Rights Agreement, and to have such Registration Statement declared effective by the Effectiveness Date (as defined in the Registration Rights Agreement). The Company will be obligated to pay certain liquidated damages to the investors if the Company fails to file the Registration Statement when required, fails to file or cause the Registration Statement to be declared effective by the SEC when required, or fails to maintain the effectiveness of the Registration Statement pursuant to the terms of the Registration Rights Agreement.
15
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
The Offering was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the Purchasers represented that it is an accredited investor within the meaning of Rule 501(a) of Regulation D, and was acquiring the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by the Company or its representatives.
Preferred Stock Conversion — On April 5, 2022, the Company issued
16
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Note 13. Condensed Consolidating Financial Information
The following pages present the Company’s condensed consolidating balance sheet as of March 31, 2022, the condensed consolidating statements of operations and condensed consolidating cash flows for the three months ended March 31, 2022 and 2021 of Entsorga West Virginia LLC and the Parent consolidated with other Company subsidiaries not subject to the nonrecourse WVEDA Solid Waste Disposal Revenue Bond restrictions and the elimination entries necessary to present the Company’s financial statements on a consolidated basis. The following condensed consolidating financial information should be read in conjunction with the Company’s consolidated financial statements.
Condensed Consolidating Balance Sheet as of March 31, 2022
| Parent |
| Entsorga |
|
| |||||||
and other | West | |||||||||||
Subsidiaries | Virginia LLC | Eliminations | Consolidated | |||||||||
Assets |
|
|
|
|
|
|
|
| ||||
Cash | $ | | $ | | $ | — |
| $ | | |||
Restricted cash |
| — |
| |
| — |
|
| | |||
Other current assets |
| |
| |
| ( |
| | ||||
Current assets |
| |
| |
| ( |
| | ||||
Restricted cash |
| — |
| |
| — |
|
| | |||
MBT facility and other fixed assets |
| |
| |
| — |
|
| | |||
Operating lease right of use assets |
| |
| |
| — |
|
| | |||
Investment in subsidiaries and intercompany accounts |
| |
| — |
| — |
| | ||||
Other assets |
| |
| |
| — |
|
| | |||
Total assets | $ | | $ | | $ | ( | $ | | ||||
| ||||||||||||
Liabilities and stockholders’ equity |
|
|
|
|
| |||||||
Line of credit | $ | | $ | — | $ | — |
| $ | | |||
Current portion of Debts and 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 |
| |
| — |
| — |
|
| | |||
Stockholders’ (deficit) equity: |
|
|
|
|
| |||||||
Attributable to parent |
| ( |
| ( |
| — |
| ( | ||||
Attributable to non-controlling interests |
| — |
| — |
| — |
| — | ||||
Stockholders’ (deficit) equity |
| ( |
| ( |
| — |
| ( | ||||
Total liabilities and stockholders’ (deficit) equity | $ | | $ | | $ | ( | $ | | ||||
17
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Condensed Consolidating Statement of Operations for the three months ended March 31, 2022
| Parent |
| Entsorga |
|
| |||||||
and other | West | |||||||||||
Subsidiaries | Virginia LLC | Eliminations | Consolidated | |||||||||
Revenue | $ | |
| $ | |
| $ | — |
| $ | | |
Operating expenses |
|
|
|
|
|
| ||||||
MBT | — | | — | | ||||||||
Rental, service and maintenance |
| |
|
| — |
|
| — |
| | ||
Equipment | | — | — | | ||||||||
Selling, general and administrative |
| |
|
| |
|
| — |
| | ||
Impairment | — | — | — | — | ||||||||
Depreciation and amortization |
| |
|
| |
|
| — |
| | ||
Total operating expenses |
| |
|
| |
|
| — |
| | ||
Loss from operations | ( | ( | — |
| ( | |||||||
Other (income) expenses, net | |
| |
| — |
| | |||||
Net loss | $ | ( | $ | ( | $ | — | $ | |||||
Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2022
| Parent |
| Entsorga |
|
| |||||||
and other | West | |||||||||||
Subsidiaries | Virginia LLC | Eliminations | Consolidated | |||||||||
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: |
|
|
|
|
|
|
|
| ||||
Purchases of equipment, fixtures and vehicles |
| — |
| — |
| — |
|
| — | |||
Other investing activities |
| — |
| — |
| — |
| — | ||||
Net cash used in investing activities |
| — |
| — |
| — |
| — | ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
| ||||
Issuances of debt and equity |
| |
| — |
| — |
| | ||||
Repayments of debt |
| ( |
| — |
| — |
| ( | ||||
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) | $ | | $ | | $ | — | $ | | ||||
18
Renovare Environmental, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021
Condensed Consolidating Statement of Operations for the three months ended March 31, 2021
| Parent |
| Entsorga |
|
| |||||||
and other | West | |||||||||||
Subsidiaries | Virginia LLC | Eliminations | Consolidated | |||||||||
Revenue | $ | |
| $ | |
| $ | |
| $ | | |
Operating expenses |
|
|
|
|
|
|
|
|
| |||
Equipment |
| |
| |
| | | |||||
Rental, service and maintenance expense |
| |
|
| |
|
| |
| | ||
MBT |
| |
| |
| | | |||||
Selling, general and administrative |
| |
|
| |
|
| |
| | ||
Depreciation and amortization |
| |
|
| |
|
| |
| | ||
Total operating expenses |
| |
|
| |
|
| |
| | ||
Loss from operations | ( | ( | |
| ( | |||||||
Other (income) expenses, net | |
| |
| |
| | |||||
Net loss | $ | ( | $ | ( | $ | | $ | ( | ||||
Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2021
| Parent |
| Entsorga |
|
|
| ||||||
and other | West |
| ||||||||||
Subsidiaries | Virginia LLC | Eliminations | Consolidated | |||||||||
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: |
|
|
|
|
|
|
|
| ||||
Purchases (sales) of facility, equipment, fixtures and vehicles |
| |
| ( |
| |
| ( | ||||
Other investing activities |
| ( |
| |
| |
| ( | ||||
Net cash used in investing activities |
| ( |
| ( |
| |
| ( | ||||
|
|
|
| |||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
| |||||
Issuances of debt and equity |
| |
| |
| |
| | ||||
Repayments of debt |
| ( |
| |
| |
| ( | ||||
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) |
| $ | |
| $ | |
| $ | |
| $ | |
19
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on April 15, 2022.
Cautionary Note Regarding Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors” in our Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on April 15, 2022. 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.
The COVID-19 coronavirus pandemic (“COVID-19”) may adversely affect our business, results of operations, financial condition, liquidity, and cash flow.
Since March 2020, when the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, as well as those from new strains of the virus, the Company has monitored the near term and longer term impacts of COVID-19 and any related business and travel restrictions and other changes intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. Due to the nature of the pandemic, while presently the level of the pandemic is low, the magnitude and duration of the pandemic and its impact on the Company’s operations, liquidity and financial performance may depend on certain developments, including duration, spread and reemergence of the outbreak, its impact on our customers, supply chain partners and employees, and the range of governmental and community reactions to the pandemic.
It is unclear how such restrictions, which may contribute to a general slowdown in the global economy, may 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 cruise lines, food distributors, convention centers, hotels, restaurants, stadiums, municipalities and academic institutions. Should there be a resurgence of a pandemic, 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.
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Shelter-in-place and essential-only travel regulations negatively impacted many of our customers. In addition, while our digesters are manufactured in the United States, we still risk supply chain disruptions due to interruptions in operations at any or all of our suppliers’ facilities and the logistics related to the production and delivery of our products. 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.
Company Overview
The Company’s mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions. The Company’s suite of technologies includes on-site biological processing equipment for food waste, patented processing facilities for the conversion of municipal solid waste into an E.P.A. recognized renewable fuel, and proprietary real-time data analytics tools to reduce food waste generation. These proprietary solutions may enable certain businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, we believe that the Company’s solutions can reduce the carbon footprint associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage.
Revolution Series™ Digesters
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters have been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including cruise lines, restaurants, retail stores, hospitals, hotel/hospitality companies and governmental units 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 generation sites that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things (“IoT”) technology platform to provide its customers with transparency into their internal and supply chain 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. The Company continues to add new capacity sizes and features to its line of Revolution Series Digesters to meet customer needs.
Resource Recovery Technology
The Company has offered Mechanical Biological Treatment (“MBT”) technology to process waste at the municipal or enterprise level. The technology results in a substantial reduction in landfill usage by converting a significant portion of intake, including organic waste and non-recyclable plastics, into a United States EPA recognized alternative fuel that can be used as a partial replacement for coal. The Company is currently exploring additional uses for its Solid Recovered Fuel (“SRF”) such as gasification, fuel for cogeneration and as a feedstock for bio-plastics.
The Company also, through a series of transactions in 2017 and 2018, acquired a controlling interest in the Nation’s first municipal waste processing facility utilizing the technology located in Martinsburg, West Virginia (the “Martinsburg Facility”). The Martinsburg Facility, which commenced operations in 2019, was designed to process up to 110,000 tons of mixed municipal waste annually. At full capacity, the Martinsburg Facility is designed to achieve an estimated annual savings of over 2.3 million cubic feet of landfill space and eliminate many of the greenhouse gases associated with landfilling that waste. During the first quarter of 2022, the Company commenced an operational and strategic review of Entsorga West Virginia LLC and its Martinsburg Facility that resulted in a decision to pause production operations to allow for reducing losses and cash requirements from the Facility. This pause has continued into the second quarter of 2022.
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Combined Offering
The Company’s suite of products and services positions it as a provider of cost-effective, technology-based alternatives to traditional waste disposal in the United States. The use of the Company’s technology solutions independently or in combination, can help its customers meet sustainability goals by achieving a significant reduction in greenhouse gases associated with waste transportation and landfilling. In addition, the repurposing of municipal waste into a cleaner burning, EPA recognized, renewable fuel can further reduce potentially harmful emissions associated with traditional means of disposal. The overall reduction in carbon and other greenhouse gases that are linked to climate change that could be achieved through the utilization of the Company’s technology can serve as a model for the future of waste disposal in the United States.
Results of operations for the three months ended March 31, 2022
compared to the three months ended March 31, 2021
Overview
For the three months ended March 31, 2022, total revenue amounted to $1,135,906 as compared to $3,040,290 for the three months ended March 31, 2021. Equipment sales for the three months ended March 31, 2022 amounted to $550,640 as compared to $2,266,513 for the three months ended March 31, 2021. This $1,715,873 was primarily driven by reduced Carnival Cruise Lines (“Carnival”) sales as the round out their deployments in 2022 under our contract with them decreased, as compared to 2021 when we were ramping up production for them. We paused operations at the West Virginia MBT facility in the first quarter of 2022 for an operational and strategic review and as a result, year over year revenues declined at the facility by $310,044 to $42,504 for the three months ended March 31, 2022 from $352,548 for the three months ended March 31, 2021. Rental, services and maintenance increased by $121,533 to $542,762 for the three months ended March 31, 2022 from $421,229 for the three months ended March 31, 2021 primarily due to increased parts sales to Carnival, offset in part by a decrease in rental revenues as a result of the Company’s migration to an asset light focus, which includes a de-emphasis in carrying a digester rental portfolio.
The contribution margin from digester revenues was 42% for the three months ended March 31, 2022, as compared to a 44% contribution margin for the three months ended March 31, 2021. This was primarily the result of a 3% margin erosion on equipment sales due to continued raw materials price pressure, offset in part by a 2% increase in the contribution margin related to rental, services and maintenance.
As a result of the pause in operations at the West Virginia MBT facility, direct costs, which are a mix of short term variable and non-variable costs, decreased 42% from $677,277 during the three months ended March 31, 2021 to $393,436 during the three months ended March 31, 2022.
Selling, general and administrative expenses increased by $236,114 (14%) to $1,882,071 for the three months ended March 31, 2022 from $1,645,957 for the three months ended March 31, 2021. This increase was primarily driven by Harp acquisition costs of $184,875, an unhedged US$-GBP postion with our UK subsidiary that resulted in a $60,693 expense due to currency fluctuations primarily driven by the Ukraine uncertainties in the global exchanges, offset in part by the Company terminating a management agreement relating to the West Virginia MBT facility in the second half of 2021.
The loss from operations for the three months ended March 31, 2022 amounted to $2,273,079, a $996,577 increase from $1,276,502 for the three months ended March 31, 2021.
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The results of operations by business line are presented below.
Three months ended September 30, | |||||||||||||||||||||||||||
Digester and Corporate | MBT Facility | Total | |||||||||||||||||||||||||
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Equipment sales | $ | 550,640 | $ | 2,266,513 | $ | (1,715,873) | $ | — | $ | — |
| — | $ | 550,640 | $ | 2,266,513 | $ | (1,715,873) | |||||||||
Rental, services and maintenance |
| 542,762 |
| 421,229 |
| 121,533 |
| — |
| — |
| — |
| 542,762 |
| 421,229 |
| 121,533 | |||||||||
MBT |
| — |
| — |
| — |
| 42,504 |
| 352,548 |
| (310,044) |
| 42,504 |
| 352,548 |
| (310,044) | |||||||||
Total Revenue |
| 1,093,402 |
| 2,687,742 |
| (1,594,340) |
| 42,504 |
| 352,548 |
| (310,044) |
| 1,135,906 |
| 3,040,290 |
| (1,904,384) | |||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Equipment sales |
| 318,843 |
| 1,236,016 |
| (917,173) |
| — |
| — |
| — |
| 318,843 |
| 1,236,016 |
| (917,173) | |||||||||
Rental, services and maintenance |
| 318,477 |
| 255,709 |
| 62,768 |
| — |
| — |
| — |
| 318,477 |
| 255,709 |
| 62,768 | |||||||||
MBT |
| — |
| — |
| — |
| 393,436 |
| 677,277 |
| (283,841) |
| 393,436 |
| 677,277 |
| (283,841) | |||||||||
Selling, general and administrative |
| 1,551,110 |
| 1,255,198 |
| 295,912 |
| 330,961 |
| 390,759 |
| (59,798) |
| 1,882,071 |
| 1,645,957 |
| 236,114 | |||||||||
Depreciation and amortization |
| 106,738 |
| 124,851 |
| (18,113) |
| 389,420 |
| 376,982 |
| 12,438 |
| 496,158 |
| 501,833 |
| (5,675) | |||||||||
Total operating expenses |
| 2,295,168 |
| 2,871,774 |
| (576,606) |
| 1,113,817 |
| 1,445,018 |
| (331,201) |
| 3,408,985 |
| 4,316,792 |
| (907,807) | |||||||||
Loss from operations |
| (1,201,766) |
| (184,032) |
| (1,017,734) |
| (1,071,313) |
| (1,092,470) |
| 21,157 |
| (2,273,079) |
| (1,276,502) |
| (996,577) | |||||||||
Other expenses, net |
| 481,734 |
| 390,338 |
| 91,396 |
| 620,029 |
| 667,883 |
| (47,854) |
| 1,101,763 |
| 1,058,221 |
| 43,542 | |||||||||
Net loss | $ | (1,683,500) | $ | (574,370) | $ | (1,109,130) | $ | (1,691,342) | $ | (1,760,353) | $ | 69,011 | $ | (3,374,842) | $ | (2,334,723) | $ | (1,040,119) | |||||||||
Contribution
The contribution by business line and product is presented below.
Three Months Ended March 31, |
| |||||||||||||||||||||||||||
Digester and Corporate | MBT Facility | Total |
| |||||||||||||||||||||||||
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change |
| ||||||||||
Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Equipment sales | $ | 231,797 | $ | 1,030,497 | $ | (798,700) | $ | — | $ | — | $ | — | $ | 231,797 | $ | 1,030,497 | $ | (798,700) | ||||||||||
Rental, services and maintenance |
| 224,285 |
| 165,520 |
| 58,765 |
| — |
| — |
| — |
| 224,285 |
| 165,520 |
| 58,765 | ||||||||||
MBT |
| — |
| — |
| — |
| (350,932) |
| (324,729) |
| (26,203) |
| (350,932) |
| (324,729) |
| (26,203) | ||||||||||
Total contribution | $ | 456,082 | $ | 1,196,017 | $ | (739,935) | $ | (350,932) | $ | (324,729) | $ | (26,203) | $ | 105,150 | $ | 871,288 | $ | (766,138) | ||||||||||
Contribution rate | ||||||||||||||||||||||||||||
Equipment sales | 42 | % | 45 | % | (3) | % | — | % | — | % | — | % | 42 | % | 45 | % | (3) | % | ||||||||||
Rental, services and maintenance | 41 | 39 | 2 | — | — | — | 41 | 39 | 2 | |||||||||||||||||||
MBT | — | — | — | (826) | (92) | (734) | (826) | (92) | (734) | |||||||||||||||||||
Total contribution rate | 42 | % | 44 | % | (2) | % | (826) | % | (92) | % | (734) | % | 9 | % | 29 | % | (20) | % | ||||||||||
Selling, General and Administrative Expenses
Selling, general and administrative expenses by business line is presented below.
Three Months Ended March 31, | |||||||||||||||||||||||||||
Digester and Corporate | MBT Facility | Total | |||||||||||||||||||||||||
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||||||
Selling, general and administrative expenses | |||||||||||||||||||||||||||
Staffing | $ | 674,607 | $ | 568,620 | $ | 105,987 | $ | 144,912 | $ | 97,701 | $ | 47,211 | $ | 819,519 | $ | 666,321 | $ | 153,198 | |||||||||
Stock based compensation |
| 4,513 |
| 165,218 |
| (160,705) |
| - |
| - |
| - |
| 4,513 |
| 165,218 |
| (160,705) | |||||||||
Professional fees |
| 537,020 |
| 242,840 |
| 294,180 |
| 3,500 |
| 18,650 |
| (15,150) |
| 540,520 |
| 261,490 |
| 279,030 | |||||||||
Office operations |
| 115,888 |
| 120,504 |
| (4,616) |
| 181,934 |
| 180,199 |
| 1,735 |
| 297,822 |
| 300,703 |
| (2,881) | |||||||||
Other expenses |
| 219,082 |
| 158,016 |
| 61,066 |
| 615 |
| 94,209 |
| (93,594) |
| 219,697 |
| 252,225 |
| (32,528) | |||||||||
Total Selling, general and administrative expenses | $ | 1,551,110 | $ | 1,255,198 | $ | 295,912 | $ | 330,961 | $ | 390,759 | $ | (59,798) | $ | 1,882,071 | $ | 1,645,957 | $ | 236,114 | |||||||||
Consolidated staffing and stock based compensation expenses of $824,032 during the three months ended March 31, 2022 reflect the impact a reduction in issuance of short term stock based compensation as an element of compensation offset by increases in professional and general staffing between the two periods.
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Professional fees are presented below.
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| Digester and Corporate |
| MBT Facility |
| Total | ||||||||||||||||||||||
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||||||
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accounting | $ | 222,041 | $ | 187,290 | $ | 34,751 | $ | — | $ | — | $ | — | $ | 222,041 | $ | 187,290 | $ | 34,751 | |||||||||
Legal |
| 51,739 |
| 14,350 |
| 37,389 |
| 3,500 |
| 18,650 |
| (15,150) |
| 55,239 |
| 33,000 |
| 22,239 | |||||||||
Investor relations and banking |
| 63,365 |
| 31,000 |
| 32,365 |
| — |
| — |
| — |
| 63,365 |
| 31,000 |
| 32,365 | |||||||||
Harp acquisition transaction |
| 184,875 |
| — |
| 184,875 |
| — |
| — |
| — |
| 184,875 |
| — |
| 184,875 | |||||||||
Marketing |
| 15,000 |
| 10,200 |
| 4,800 |
| — |
| — |
| — |
| 15,000 |
| 10,200 |
| 4,800 | |||||||||
Total Professional fees | $ | 537,020 | $ | 242,840 | $ | 294,180 | $ | 3,500 | $ | 18,650 | $ | (15,150) | $ | 540,520 | $ | 261,490 | $ | 279,030 | |||||||||
Consolidated professional fees increased by $279,030 primarily due to $184,875 in fees related to our pending acquisition of Harp. Accounting and legal expenses increased by $34,751 and $22,239, respectively as a result of increased complex activities during 2022. Investor relations increased by $32,365 primarily due to shareholder outreach activities.
Consolidated other expenses of $219,697 decreased by $32,528 as compared to the three months ended March 31, 2021 due primarily to a $60,693 negative swing in foreign currency exchange (GBPound) on an unhedged position that was influenced by the turmoil in Ukraine, offset by a reduction in management fees in the MBT business line as we brought management in-house later in 2021.
Depreciation and Amortization
Consolidated depreciation and amortization of $496,158 for the three months ended March 31, 2022 decreased by $5,675 from $501,833 for the three months ended March 31, 2021 due to a decrease of $18,113 in the Digester and Corporate business line resulting from more assets becoming fully depreciated, offset by an increase of $12,438 at the MBT faculty due to assets added during 2021.
Other Expenses
Consolidated other expenses of $1,101,763 for the three months ended March 31, 2022 increased by $43,542 as compared to $1,058,221 during the three months ended March 31, 2021 primarily due to a $51,447 increase in interest expense due to default rate interest being incurred on several of the debts, offset by a $47,854 decrease in the MBT facility interest due to a reduction in the amortization of deferred financing costs.
Liquidity and Capital Resources
For the three months ended March 31, 2022, the Company had a consolidated net loss of $3,374,842, incurred a consolidated loss from operations of $2,273,079 and used net cash in consolidated operating activities of $2,238,460. At March 31, 2022, consolidated total stockholders’ deficit amounted to $12,337,847 and the Company had a consolidated working capital deficit of $43,431,302. The working capital deficit includes $33,000,000 of non-recourse bonds and $3,281,250 of a senior secured note that are presently in default of their most recent forbearance agreements or not compliant with their financial covanents. The Company does not yet have a history of financial profitability. While during the three months ended March 31, 2022, the Company raised $1,075,220 from the sale and issuance of common stock, there is no assurance that the Company will continue to raise sufficient capital or debt to sustain operations or to pursue its strategic initiatives or that such financing will be on terms that are favorable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Cash
As of March 31, 2022 and December 31, 2021, the Company had unrestricted cash balances of $53,279 and $180,381, respectively. In addition, as of March 31, 2022 and December 31, 2021, the Company had restricted cash balances of $5,111,485 and $6,348,751 relating to its nonrecourse West Virginia EDA Senior Secured Bonds payable.
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Borrowing and Debt
See Note 5. Line of Credit, Promissory Notes Payable, Notes Payable, Advances, Bonds and Long-Term Debts to the Condensed Consolidated Financial Statements filed herewith.
Cash Flows
Cash flows used in operating activities — We used $2,238,460 of cash in operating activities during the three months ended March 31, 2022, an increase of $298,939 from $1,939,521 of cash used in operating activities during the three months ended March 31, 2021. Excluding the change in operating assets and liabilities, we used $2,641,361 of cash in operating activities during the three months ended March 31, 2022, as compared to $1,413,464 of cash used in operating activities, excluding changes in operating assets and liabilities during the three months ended March 31, 2021. Our net loss for the three months ended March 31, 2022 of $3,374,842 was reduced by $733,481 of non-cash operating income and expenses as compared to a net loss for the three months ended March 31, 2021 of $2,334,723 that was reduced by $921,259 of non-cash operating income and expenses. The $187,778 decrease in non-cash operating income and expenses was primarily the result of a $222,255 decrease in share based employee and vendor compensation.
Cash flows used in investing activities — No cash was used in investing activities during the three months ended March 31, 2022, as compared to a usage of $44,547 during the three months ended March 31, 2021.
Cash flows from financing activities — Cash flows from financing activities amounted to $874,092 during the three months ended March 31, 2022, a decrease of $6,020,451 from $6,894,543 of cash flows from financing activities during the three months ended March 31, 2021. This decrease was primarily due to a decrease in cash flows from the issuance of common stock shares of $5,820,398 and an increase in payments on the Company’s senior secured note of $150,000 and a decrease in advances from related parties of $50,000.
Off Balance Sheet Arrangements
We have not entered into or are a party to any off-balance sheet arrangements during the three months ended March 31, 2022.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).
Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that a material weakness existed and that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Because of our limited operations, many of our controls have not been formalized and evidence of the performance of those controls is limited, additionally, we have a small number of employees which prohibits a segregation of duties, which result in a material weakness over disclosure controls and procedures, as well as internal control over financial reporting. During 2021 the Company had limited access to sufficient resources within the accounting function, which restricted the Company’s ability to gather, analyze and
25
properly review information related to financial reporting in a timely manner. We expect to add additional resources as we grow and expand our overall operations. However, there can be no assurance that our operations will expand.
Changes in Internal Controls Over Financial Reporting
There have not been any significant changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - | OTHER INFORMATION |
Item 1. | Legal Proceedings. |
During the first quarter of 2022, the Company commenced an operational and strategic review of EWVLLC and its Facility based MBT operations in Martinsburg, West Virginia that resulted in a decision to pause production operations to allow for reducing losses and cash requirements from the Facility. The pause has continued into the second quarter of 2022.
In connection with the pause of operations at the Facility, EVWLLC provided notice of the pause to the West Virginia Department of Environmental Protection (“WVDEP”) which provides the license to operate the Facility. While there has been no communications from the WVDEP, under their authority, they may take actions that could include suspending or withdrawing the Facility’s license to operate and other actions to protect the environment. In addition, the Facility’s landlord, Berkeley County Solid Waste Authority (“BCSWA”) has been apprised of the Facility’s pause of operations and on March 24, 2022 BCSWA, by letter, provided a notice of monetary and non-monetary default and reserved their rights under the lease, which include, but are not limited to terminating the lease and requiring EWVLLC perform obligations under the lease. In addition, EWVLLC and the Facility is collateral to a nonrecourse WV EDA senior secured series of bonds (the “Bonds”). While the Bond trustee has not provided a forbearance agreement in connection with the issuance of December 31, 2021 or March 31, 2022 financial statements, they have not taken any actions resulting from our default under the most recent forbearance agreement. Under the terms of the Bonds, the trustee may declare a default and take actions to secure or foreclose on their collateral, which includes the Facility, other assets and the membership interests in EWVLLC.
During September 2020, the Company’s Entsorga West Virginia, LLC subsidiary (“EWVLLC”) received notice that EntsorgaFin S.p.A., an affiliate of a minority owner of EWV, who also provided intellectual property, equipment and engineering services relating to the set-up and initial operation of the EWVLLC’s facility (the “Facility”), was claiming it was owed $917,420 related to services contracted as part of the Facility’s construction and initial start-up and operation. EWVLLC incurred offsetting costs and expenses greater than the claim correcting or replacing the services that were contracted but that were either not performed or performed correctly. As a result of this claim and the related costs incurred by EWVLLC to cure the deficiencies in the services that were contracted, EWVLLC reflected an impairment charge amounting to $917,420 during the year ended December 31, 2020. On May 19, 2021 EWVLLC signed an agreement, effective May 7, 2021, settling this matter through the issuance of a series of notes payable. On November 1, 2021, EWVLLC failed to repay a note then due. On February 25, 2022, EFin filed a complaint in the United States District Court for the Southern District of New York seeking repayment of the notes payable. The Company is defending the claims and does not believe that the outcome will have a material impact on the financial statements of the Company. As of March 31, 2022, the notes amount to $1,254,696, reflecting the effect of the default.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.
Item 1A. | Risk Factors. |
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
On January 25, 2022, the Company completed a private placement with several investors, wherein a total of 2,141,667 shares of the Company’s common stock, par value $0.0001 per share were issued at a purchase price of $0.60 per share, with warrants to
26
purchase up to 2,141,667 shares of common stock at an exercise price of $0.60 per share (the “Purchaser Warrants”), for a total purchase price of $1,285,000 (the “Offering”). The Purchaser Warrants are immediately exercisable on the date of issuance and expire five years from the date of issuance.
The Offering raised net cash proceeds of $1,075,220 (after deducting the placement agent fee and expenses of the Offering). The Company intends to use the net cash proceeds from the Offering for general working capital and administrative purposes.
The Company engaged EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) as the Company’s placement agent for the Offering pursuant to a Placement Agency Agreement (the “PAA”) dated as of January 21, 2022. Pursuant to the PAA, the Company agreed to pay EF Hutton a cash placement fee equal to 7.0% of the gross proceeds of the Offering and an additional cash fee of $70,000 for EF Hutton’s expenses. In addition the Company issued 100,000 shares of the Company’s common stock, par value $0.0001 per share were issued to Keystone Capital Partners, LLC in connection with this private placement.
On February 10, 2022, the Company issued 10,000 shares of the Company’s common stock, par value $0.0001 per share to Michaelson Capital Special Finance Fund II, L.P. (“MCSFF”) at market in connection with MCSFF’s issuance of a consent relating to the private placement described, above.
On March 15, 2022, the Company issued 50,000 shares of the Company’s common stock, par value $0.0001 per share to MCSFF at market in connection with MCSFF’s issuance of a forbearance agreement relating to the Company’s senior debt outstanding to MCSFF.
On March 21, 2022, the Company issued 83,333 shares of the Company’s common stock, par value $0.0001 per share to a holder of the Company’s Series C preferred Stock (“SCPS”) in connection with the conversion of 5,000 shares of the SCPS at $0.60 per common share.
On April 5, 2022, the Company issued 83,333 shares of the Company’s common stock, par value $0.0001 per share to a holder of the Company’s SCPS in connection with the conversion of 5,000 shares of the SCPS at $0.60 per common share.
All of the securities referred to, above, were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D promulgated thereunder. All of the foregoing securities as well the Common Stock issuable upon conversion or exercise of such securities, have not been registered under the Securities Act or any other applicable securities laws and are deemed restricted securities, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act.
The sale of securities did not involve a public offering; the Company made no solicitation in connection with the sale other than communications with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the investors either received or had access to adequate information about the Company in order to make an informed investment decision.
Item 3. | Defaults Upon Senior Securities. |
Entsorga West Virginia, LLC Nonrecourse WVEDA Solid Waste Disposal Revenue Bonds - The loan agreement and indenture of trust, which are collateralized by the assets and membership interests of Entsorga West Virginia, LLC, a less than wholly owned subsidiary of the Registrant, place restrictions on the EWV 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 March 31, 2022 and December 31, 2021 the Company was not in compliance with all of the financial and other covenants and was in default on principal repayments due in through February 2021. The Company had entered into a series forbearance agreements and amendments, most recently on November 15, 2021 with the bond trustee that provided they will not accelerate the repayment of the bonds due to the defaults through October 1, 2022. During December 2021 Entsorga West Virginia, LLC failed to make payments under the forbearance agreement. As a result of the forbearance default, as of March 31, 2022 and December 31, 2021, the Company has recognized the entire amount of the WVEDA Bonds as a current liability and accelerated the recognition of the unamortized deferred costs as interest expenses as of December 31, 2021. As of March 31, 2022, the default and arrearage under the forbearance agreement amounts to $3,137,398.
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Item 4. | Mine Safety Disclosures. |
Not Applicable.
Item 5. | Other Information. |
Not Applicable.
Item 6. | Exhibits. |
See the exhibits listed in the accompanying “Index to Exhibits” following the signature page.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Renovare Environmental, Inc. | |
|
| |
June 30, 2022 | By: | /s/ Anthony Fuller |
Name: | Anthony Fuller | |
Title: | Chief Executive Officer | |
| (Principal Executive Officer) | |
|
| |
By: | /s/ Brian C. Essman | |
Name: | Brian C. Essman | |
Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) |
29
INDEX TO EXHIBITS
Exhibit |
|
|
| Incorporated by Reference |
| Filed or | ||||
No. |
| Exhibit Description |
| Form |
| Date |
| Number |
| Herewith |
31.1 |
|
|
|
|
|
|
|
| Filed | |
31.2 |
|
|
|
|
|
|
|
| Filed | |
32.1 |
|
|
|
|
|
|
|
| Furnished* | |
32.2 |
|
|
|
|
|
|
|
| Furnished* | |
101.INS |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
| Filed |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
| Filed |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
| Filed |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
| Filed |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
| Filed |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
| Filed |
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) | Filed | ||||||||
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-X.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to our Corporate Secretary at 80 Red Schoolhouse Road, Chestnut Ridge, New York 10977.
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