RENOVARE ENVIRONMENTAL, INC. The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Readers should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with theSEC .
As used in this report, the terms "Company", "we", "our", and "us" refer to
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements can be identified by
the use of words such as "believes," "estimates," "intends", "plans", "could,"
"possibly," "probably," anticipates," "projects," "expects," "may," "will," or
"should," "designed to," "designed for," or other variations or similar words or
language. The forward-looking statements are based on the current expectations
of the Company and are subject to certain risks, uncertainties and assumptions,
including those set forth in the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this report.
Actual results may differ materially from results anticipated in these
forward-looking statements. We base the forward-looking statements on
information currently available to us, and we assume no obligation to update
them.
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.
26
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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 inthe 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 to its line of Revolution Series Digesters to meet customer needs. RESOURCE RECOVERY TECHNOLOGY
The Company utilizes 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, is
designed to process up to 110,000 tons of mixed municipal waste annually. At
full capacity, the Martinsburg Facility can 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. Subsequent to December
31, 2021 , 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.
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 inthe 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 inthe United States . RECENT POTENTIAL ACQUISITION As further discussed in the Item I: Business - Company Overview, onFebruary 28, 2022 , the Company entered into definitive agreements to purchase Harp Renewables and its affiliate, Harp Electric Eng. Limited for$20 million , comprised of$15 million of common stock and$5 million of cash. The closing is conditioned upon the Registrant consummating financing in an amount not less than$5 million of cash and obtaining Shareholder approval of the transactions, among other items and is anticipated to be completed during the second quarter of 2022. 27
Table of Contents
The Company believes that combination of Harp and Renovare will dramatically increase our growth prospects by expanding our complementary product offerings and positioning Renovare as the world leader in providing renewable and sustainable solutions for the treatment of organic waste. With the combined portfolio of solutions and an established footprint in bothEurope andNorth America , the Company will be in a strong position to capitalize on these trends and cross-sell our complementary products to an expanded variety of sectors, including food manufacturers, supermarkets, hospitals, and educational institutions." Our customers will also benefit from a combined sales and service footprint in bothNorth America andEurope . The transaction will allow Renovare to expand manufacturing capabilities, extend our geographic reach, and augment our management team. Results of operations for the year endedDecember 31, 2021 compared to the year ended December 31, 2020 Overview Operations by Business Line 28 Table of Contents Year ended December 31, Digester and Corporate MBT Facility Total 2021 2020 Change 2021 2020 Change 2021 2020 Change Revenue Equipment sales$ 8,640,229 $ 2,268,647 $ 6,371,582 $ - $ - -$ 8,640,229 $ 2,268,647 $ 6,371,582 Rental, services and maintenance 2,297,944 1,607,519 690,425 - - - 2,297,944 1,607,519 690,425 MBT - - - 1,409,356 1,878,107 (468,751) 1,409,356 1,878,107 (468,751) Management and advisory fees and other - 124,380 (124,380) - - - - 124,380 (124,380)
Total Revenue 10,938,173 4,004,546 6,937,627 1,409,356 1,878,107 (468,751) 12,347,529 5,878,653 6,468,876 Operating Expenses Equipment sales 5,729,313 1,224,185 4,505,128 - - - 5,729,313 1,224,185 4,505,128 Rental, services and maintenance 1,352,335 856,751 495,584 - - - 1,352,335 856,751 495,584 MBT processing - - - 3,351,997 3,571,314 (219,317) 3,351,997 3,571,314 (219,317) Selling, general and administrative 4,971,100 6,387,587 (1,416,487) 1,742,626 2,232,542 (489,916) 6,713,726 8,620,129 (1,906,403) Impairment expense 6,432,484 - 6,432,484 5,272,004 975,420 4,296,584 11,704,488 975,420 10,729,068 Depreciation and amortization 489,124 496,645 (7,521) 1,523,220 1,810,388 (287,168) 2,012,344 2,307,033 (294,689) Total operating expenses 18,974,356 8,965,168 10,009,188 11,889,847 8,589,664 3,300,183 30,864,203 17,554,832 13,309,371 Loss from operations (8,036,183) (4,964,622) (3,071,561) (10,480,491) (6,711,557) (3,768,934) (18,516,674) (11,676,179) (6,840,495) Other expenses, net 1,237,598 1,439,865 (202,267) 4,569,203 2,625,795 1,943,408 5,806,801 4,065,660 1,741,141 Net loss$ (9,273,781) $ (6,404,487) $ (2,869,294) $ (15,049,694) $ (9,337,352) $ (5,712,342) $ (24,323,475) $ (15,741,839) $ (8,581,636) 29 Table of Contents Revenue Total revenue for the year endedDecember 31, 2021 of$12,347,529 increased$6,468,876 (110%) over$5,878,653 for the year endedDecember 31, 2020 . Digester revenues increased by$7,062,007 (182%) primarily due to equipment and parts sales toCarnival Cruise Lines . The MBT facility's revenues for the year endedDecember 31, 2021 of$1,409,356 decreased by$468,751 (25%) from$1,878,107 for the year endedDecember 31, 2020 primarily due to closures and the inability of the facility's primary customer ability to accept SRF which in-turn resulted in interrupted manufacturing at the MBT facility. Corporate revenues decreased for the year endedDecember 31, 2021 by$124,380 (100%) due to the termination of the underlying management agreement withGold Medal Group, LLC in 2020. Contribution Year ended December 31, Digester and Corporate MBT Facility Total 2021 2020 Change 2021 2020 Change 2021 2020 Change Contribution Equipment sales$ 2,910,916 $ 1,044,462 $ 1,866,454 $ - $ - $ -$ 2,910,916 $ 1,044,462 $ 1,866,454 Rental, services and maintenance 945,609 750,768 194,841 - - - 945,609 750,768 194,841 MBT - - - (1,942,641) (1,693,207) (249,434) (1,942,641) (1,693,207) (249,434) Management and advisory fees and other - 124,380 (124,380) - - - - 124,380 (124,380) Total contribution$ 3,856,525 $ 1,919,610 $ 1,936,915 $ (1,942,641) $ (1,693,207) $ (249,434) $ 1,913,884 $ 226,403 $ 1,687,481 Contribution rate Equipment sales 34 % 46 % (12) % - % - % - % 34 % 46 % (12) % Rental, services and maintenance 41 47 (6) - - - 41 47 (6) MBT - - - (138) (90) (48) (138) (90) (48) Management and advisory fees and other - 100 (100) - - - - 100 (100) Total contribution rate 35 % 48 % (13) % (138) % (90) % (48) % 16 % 4 % 12 %
The contribution from sales less costs for the year endedDecember 31, 2021 of$1,913,884 increased by$1,687,481 (745%) over$226,380 for the year endedDecember 31, 2020 . The digester and corporate contribution rate for the year endedDecember 31, 2021 of 35% decreased 13% from 45% for the year endedDecember 31, 2020 primarily due to increases in the price of stainless steel, a major cost of our digesters and other supply chain impacted prices that could not be passed along to our largest customerCarnival Cruise Lines . The MBT facility's negative contribution of$(1,942,641) increased$(249,434) from$(1,693,207) for the year endedDecember 31, 2020 primarily as a result of the interruptions noted above for the facility that resulted in a decrease in sales, as the facility operates as a continuous process with greater inelastic costs that cannot be quickly reduced for lower volumes of production. On a consolidated basis the contribution rate for the year endedDecember 31, 2021 of 16% increased by 12% from 4% for the year endedDecember 31, 2020 due to the increased level of digester related revenues and contribution as compared to the MBT facility's negative contribution. 30 Table of Contents Impairments & Abandonments Total impairments and abandonments of$11,704,488 for the year endedDecember 31, 2021 increased by$ 10,729,068 over$975,420 for the year endedDecember 31, 2020 . During the year ended Decmber 31, 2021, the Company recognized a$6,019,200 impairment of a technology license that was originally acquired for a future plant as the related project development agreements expired without an available project being commenced. In addition, the Company evaluated the Martinsburg MBT facility and its technology license and determined that there was an impairment related to the facility of$3,728,504 and the technology license of$1,543,500 . Also in 2021, the Company abandoned its project located inRensselaer, NY , which had accumulated$413,284 of facility development costs, as the Company determined that it would no longer continue to appeal the initial denial from theNew Your State Department of Environmental Protection . During 2020, the Company received a claim of$917,420 from a minority owner of the MBT facility, who also provided intellectual property, equipment and engineering services relating to the set-up and initial operation of the MBT facility, which the MBT facility management determined did not represent capitalizable costs or were offset by other costs incurred by the MBT facility. In connection with the claims the Company recognized the$917,420 as an impairment expense. Also in 2020, the initial MBT facility goodwill of$58,000 was also expensed as impaired. Selling, General and Administrative Expenses
Year ended
Digester and Corporate MBT Facility Total
2021 2020 Change 2021 2020 Change 2021 2020 Change
Selling,
general and
administrative
expenses
Staffing $ 2,559,738 $ 2,610,090 $ (50,352) $ 375,355 $ 211,510 $ 163,845 $ 2,935,093 $ 2,821,600 $ 113,493
Stock based
compensation 257,188 1,475,961 (1,218,773) - - - 257,188 1,475,961 (1,218,773)
Professional
fees 749,951 1,104,062 (354,111) 62,406 291,503 (229,097) 812,357 1,395,565 (583,208)
Office
operations 503,966 459,653 44,313 766,824 500,591 266,233 1,270,790 960,244 310,546
Other expenses 900,257 737,821 162,436 538,041 1,228,938 (690,897) 1,438,298 1,966,759 (528,461)
Total Selling,
general and
administrativeexpenses$ 4,971,100 $ 6,387,587 $ (1,416,487) $ 1,742,626 $ 2,232,542 $ (489,916) $ 6,713,726 $ 8,620,129 $ (1,906,403) Staffing expense for the year endedDecember 31, 2021 of$2,935,093 increased by$113,493 (4%) over$2,821,600 for the year endedDecember 31, 2020 . The increase is primarily the result of adding new positions offset by savings from separations that occurred in late 2020. Stock based compensation expense for the year endedDecember 31, 2021 of$257,188 decreased by$1,218,773 (83%) from$1,475,961 for the year endedDecember 31 , 2020.The decrease in stock based compensation was the result of no new awards being issued during 2021 and a significant amount of short-term vesting awards issued during 2020 in place of cash compensation becoming vested in early 2021.
Professional fees on a total basis were comprised of the following:
Year ended December 31,
2021 2020 Change
Professional fees
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Accounting $ 410,326 $ 433,959 $ (23,633) (5) %
Legal 205,595 490,564 (284,969) (58)
Investor relations and banking 30,544 334,225 (303,681) (91)
Marketing 165,892 136,817 29,075 21
Total Professional fees $ 812,357 $ 1,395,565 $ (583,208) (42) %
Accounting expense for the year ended December 31, 2021 of $410,326 decreased by
$23,633 (5%) from $433,959 for the year ended December 31, 2020 . The decrease is
primarily the result consolidating accounting firms and accounting systems
utilized. Legal expense for the year ended December 31, 2021 of $205,595
decreased by $284,969 (58%) from $490,564 for the year ended December 31, 2020 .
The decrease is primarily the result reductions in fees associated with the MBT
facility of $186,197 resulting from the settlement of a litigation matter and
lower legal fees incurred by the bond trustee that are charged to the facility.
The remainder of the decrease was primarily due to a lower level of
transactional matters requiring legal services. During 2021 the Company
restructured its marketing and investor relations focus from multiple firms to a
smaller group of providers and with the consolidation of services and messaging
the Company realized lower spending on a combined basis.
Office operations for the year ended December 31, 2021 of $1,270,790 increased
by $310,546 (32%) over $960,244 for the year ended December 31, 2020 . The
majority of the increase was from the MBT facility, which increased by $266,233
(53%) as a result of increased insurance costs, a reevaluation of the facility
for local property taxes and an increase in rent.
Other expenses for the year ended December 31, 2021 of $1,438,298 decreased by
$528,461 (27%) from $1,966,759 for the year ended December 31, 2020 , which
included a MBT facility one-time settlement amounting to $646,196 with one of
the non-controlling investors relating to previous claimed charges and services.
In the digester and corporate business line, other expenses increased by
$162,436 (22%) primarily due to increases in travel expenses ($110,294 ), an
unfavorable swing in the foreign currency translation at the U.K. subsidiary
($61,016 ), an increase in technology expenses ($27,731 ) research and development
expenses related to new models of digesters ($23,046 ) and an increase in
promotion and selling expenses ($19,162 ) and other expenses, offset in part by a
decrease in bad debt expense ($91,916 ).
Depreciation and Amortization
Depreciation and amortization expense for the year ended December 31, 2021 of
$2,012,344 decreased by $294,689 (13%) from $2,307,033 for the year ended
December 31, 2020 . The decrease is primarily the result adjustments initiated in
2021 in the remaining lives of assets at the MBT facility.
Other Expenses, Net
Other operating expenses, net for the year ended December 31, 2021 of $5,806,801
increased by $ 1,741,141 (43%) from $4,065,660 for the year ended December 31,
2020. The increase is primarily due to interest expense resulting from the
acceleration of amortization of deferred financing costs and discounts resulting
from non-compliance with covenants and terms of several debt instrument of
$1,796,604 offset by a $421,300 forgiveness of the Company's Payroll Protection
Program note payable offset in part by increases in interest expense and a loss
from an unconsolidated entity.
Liquidity and Capital Resources
The Company currently generates revenues from sales and rentals of its
digesters, the sale of replacement parts and from services. The Company's other
known sources of capital are common and preferred stock offerings, proceeds from
private placements, issuance of notes payable, convertible notes payable, and
investments, loans and advances from related and unrelated parties and cash from
future revenues.
We will require additional financing in order to execute our business expansion
and development plans and will require additional financing in order to sustain
substantial future business operations for an extended period of time. The
Company does not yet have a history of financial profitability. For the year
ended December 31, 2021 , the Company had a consolidated net loss of $24,323,475 ,
incurred a consolidated loss from operations of $18,516,674 and used net cash in
consolidated operating activities of $6,846,192 . As of December 31, 2021 ,
consolidated total stockholders' deficit amounted to $10,102,010 , and the
Company had a consolidated working capital deficit of $41,817,881 This working
capital deficit includes the WVEDA nonrecourse bonds of $33,000,000 that are
32
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collateralized by the Facility and the membership interests in EWV for which the
EWV has not met certain covenants, financial and otherwise, which is classified
as a current liability. In addition, the Company had not met certain of its
senior secured note's financial covenants as of December 31, 2021 amounting to
$3,275,000 which has also been classified as current debt. Additionally, EWV has
also defaulted on scheduled payments to a junior unsecured series of notes from
EntsorgaFin S.p.A, ("EFin") a minority member of EWV, amounting to $1,254,696 as
of December 31, 2021 which is classified as a current liability. The Company
does not yet have a history of financial profitability. In February 2021 and
during the fourth quarter of 2021 the Company raised net proceeds of $8,558,669
through an At-The-Market series and through an Equity Facility Line series of
transactions. Subsequent to December 31, 2021 , the Company received proceeds of
$1,118,401 through the sales of common stock and warrants in a Private
Investment In Public company transaction. There is no assurance that the Company
will continue to raise sufficient capital or debt to sustain operations or to
pursue other strategic initiatives or that such financing will be on terms that
are favorable to the Company. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Cash
As of
Borrowings and Debt
The table below presents borrowings as of
December 31, 2021 December 31, 2020
Non- Non-
Current Current Current Current
Demand note, line of credit $ 1,500,000 $ - $ 1,498,975 $ -
Advance from related party 935,000 - 935,000 -
Senior secured note 3,275,000 - 4,494,424 -Payroll Protection Program note - - 327,678 93,622 Junior note due to related party - 993,928 - 971,426 EntsorgaFin S.p.A notes payable 1,254,696 - - - Note payable 100,000 - - 100,000 Nonrecourse WV EDA senior secured bonds 33,000,000 - 2,860,000 28,476,359 Long term debts, remaining balances 3,820 - 4,380 3,820
Total Notes, Bonds, Debts and Borrowings
Contractual Maturities, as adjusted for non-compliance with terms or covenants, of Demand Note, Promissory Notes Payable, Notes Payable, Advances, and Long-Term Debts as ofDecember 31, 2021 , excluding discounts and deferred finance costs, are as follow: 2026 and 2022 2023 2024 2025 thereafter Total
Demand note, line of credit$ 1,500,000 $ - $ - $ - $ -$ 1,500,000 Advance from related party 935,000 - - - - 935,000 Senior secured note 3,275,000 - - - - 3,275,000 Junior note due to related party - - 1,044,477 - - 1,044,477 EntsorgaFin S.p.A notes payable 1,254,696 - - - - 1,254,696 Note Payable 100,000 - - - - 100,000 Nonrecourse WVEDA senior secured bonds 33,000,000 - - - - 33,000,000 Long term debts, remaining balances 3,820 - - - - 3,820 Total Maturities by Year$ 40,068,516 $ -$ 1,044,477
$ - $ -$ 41,112,993 33 Table of Contents Cash Flows Cash flows used in operating activities - Cash used in operating activities for the year endedDecember 31, 2021 of$6,846,192 decreased by$1,912,014 (22%) from$8,758,207 for the year endedDecember 31, 2020 . For the year endedDecember 31, 2021 , the net loss of$24,323,475 was offset by non-cash impairments of$11,704,488 , depreciation and amortization of$2,012,344 , interest resulting from amortization of financing costs and discount of$2,178,007 and other net non-cash adjustments to reconcile net loss of$176,305 and a source of cash of$1,406,139 resulting from changes in operating assets and liabilities. For the year endedDecember 31, 2020 , the net loss of$15,741,839 was offset by non-cash impairments of$975,420 , depreciation and amortization of$2,307,495 and other net non-cash adjustments to reconcile net loss of$2,586,872 and a source of cash of$1,113,845 resulting from changes in operating assets and liabilities. Cash flows used in investing activities - Cash used in investing activities for the year endedDecember 31, 2021 of$266,922 decreased by$749,728 (74%) from$1,016,650 for the year endedDecember 31, 2020 . The decrease was primarily the result of a$650,000 investment in an affiliate entity in 2020 and a decrease in the costs deferred in MBT facility development costs of$118,554 . Cash flows from financing activities - Cash from activities for the year endedDecember 31, 2021 of$6,745,844 decreased by$4,393,781 (39%) from$11,139,625 for the year endedDecember 31, 2020 . While the proceeds from common stock offerings were consistent between the years, during 2021 the Company repaid$1,725,000 on the Company's senior debt and$83,450 on the Company's notes payable to EntsorgaFin S.p.A., and in 2020, the Company had proceeds of$1,560,450 from the sale of preferred stock,$421,300 from a Payroll Protection Program note and net advances from a related party of$725,000 .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates - The preparation of consolidated financial statements, in
conformity with GAAP requires the extensive use of management's estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates. Estimates are used
when accounting for items and matters including, but not limited to, valuation
of deferred tax assets, share based compensation, allowance for uncollectible
accounts receivable, obsolete, slow moving and excess inventory, asset
valuations, including intangibles, and contingencies.
Product and Services Revenue Recognition - The Company records revenue based on
a five-step model in accordance with ASC 606, Revenue from Contracts with
Customers, which require that we: 1.Identify the contract with a customer; 2.
Identify the performance obligations in the contract; 3. Determine the
transaction price of the contract; 4. Allocate the transaction price to the
performance obligations in the contract, and; 5. Recognize revenue when the
performance obligations are met or delivered.
When revenue is earned based on product sales, such as sales of digester
equipment and parts, solid recovered fuel and recycled materials, the Company's
performance obligations are satisfied at the point in time when products are
shipped to the customer, which is when the customer has title and control.
Therefore, the Company's contracts have a single performance obligation
(shipment of product). The Company primarily receives fixed consideration for
sales of products. When revenue is earned on services, such as digester
maintenance and repair services fees are recognized over the period the services
are performed based on service milestones.
Lease Revenue Recognition - Rental, service and maintenance revenues relating to
the Company's rental agreements involve providing use of the Company's digesters
at customer locations, access to our software as a service and preventative
maintenance over the term. The agreements generally provide for flat monthly
payments that the Company believes are consistent with our costs and obligations
underlying the agreements.
The Company selected the practical expedient not to separate non-lease
components from lease components. The Company recognizes revenue from the rental
of the digester units ratably on a monthly basis over the term of the lease, as
it has determined that the rental agreements entered into in connection with its
digester units qualify as operating leases, for which the Company is the
operating lessor. In order to determine lease classification as operating, the
Company evaluates the terms of the rental agreement to determine if the lease
includes any provisions which would indicate sales type lease treatment.
Long-Lived Assets - The Company assesses its long-lived assets, including
definite-lived intangible assets, plant, property and equipment, which are held
and used in our operations for impairment if events or changes in circumstances
indicate that the carrying
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amount of an asset may not be recoverable. The amortization method and estimated
period of useful life of definite-lived intangible assets are reviewed annually,
or more frequently if events or changes in circumstances. We recognize
impairment when the estimated undiscounted cash flow generated by those assets
is less than the carrying amount of such assets. The amount of impairment is the
excess of the carrying amount over the fair value of such assets.
Income Taxes - Deferred income taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given provisions of enacted laws. Deferred income tax
provisions and benefits are based on changes to the asset or liabilities from
year to year. In providing for deferred taxes, the Company considers tax
regulations of the jurisdictions in which it operates, estimates the future
taxable income and available tax planning strategies. If tax regulations,
operating results or the ability to implement tax planning and strategies vary,
adjustments to the carrying value of deferred tax assets and liabilities may be
required. Valuation allowances are recorded related to deferred tax assets based
on the "more than likely" criteria.
The Company recognizes the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent likelihood of being
realized upon ultimate settlement with the relevant tax authority.
Financial Instruments, Convertible Instruments, Warrants and Derivatives - The
Company reviews its convertible instruments for the existence of embedded
conversion features that may require bifurcation. If certain criteria are met,
the bifurcated derivative financial instrument is required to be recorded at
fair value. The Company also reviews and re-assesses, at each reporting date,
any common stock purchase warrants and other freestanding derivative financial
instruments and classifies them on the consolidated balance sheet as equity,
assets or liabilities based upon the nature of the instruments.
Stock-Based Compensation - The Company accounts for stock-based compensation in
accordance with ASC 718, "Compensation - Stock Compensation." ASC 718 requires
generally that all equity awards be accounted for at their "fair value." This
fair value is measured on the grant date for stock-settled awards. Fair value is
equal to the underlying value of the stock for "full-value" awards such as
restricted stock and performance shares, which is estimated using an
option-pricing model with traditional inputs for "appreciation" awards such as
stock options and stock appreciation rights.
Recently Issued Accounting Standards
The Company has not implemented any recent accounting standards during the year
ended
The Company has not implemented the following accounting standards:
InJune 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 beginningDecember 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. InMarch 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 upon issuance for all entities throughDecember 31, 2022 . The Company is currently evaluating the effect the updated standard will have on its financial position, results of operations or financial statement disclosure. InAugust 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 35
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modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as ofJanuary 1, 2022 (Early adoption was permitted effectiveJanuary 1, 2021 ). The Company is currently evaluating the effect the updated standard will have on its financial position, results of operations or financial statement disclosure.
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