RENOVARE ENVIRONMENTAL, INC. 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 theUnited States Securities and Exchange Commission , or theSEC , onApril 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 theUnited States Securities and Exchange Commission , or theSEC , onApril 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.
SinceMarch 2020 , when theWorld 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. 20 Table of Contents
Shelter-in-place and essential-only travel regulations negatively impacted many of our customers. In addition, while our digesters are manufactured inthe 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 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 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 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 . Results of operations for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 Overview For the three months endedMarch 31, 2022 , total revenue amounted to$1,135,906 as compared to$3,040,290 for the three months endedMarch 31, 2021 . Equipment sales for the three months endedMarch 31, 2022 amounted to$550,640 as compared to$2,266,513 for the three months endedMarch 31, 2021 . This$1,715,873 was primarily driven by reducedCarnival 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 endedMarch 31, 2022 from$352,548 for the three months endedMarch 31, 2021 . Rental, services and maintenance increased by$121,533 to$542,762 for the three months endedMarch 31, 2022 from$421,229 for the three months endedMarch 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 endedMarch 31, 2022 , as compared to a 44% contribution margin for the three months endedMarch 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 endedMarch 31, 2021 to$393,436 during the three months endedMarch 31, 2022 . Selling, general and administrative expenses increased by$236,114 (14%) to$1,882,071 for the three months endedMarch 31, 2022 from$1,645,957 for the three months endedMarch 31, 2021 . This increase was primarily driven by Harp acquisition costs of$184,875 , an unhedged US$-GBP postion with ourUK subsidiary that resulted in a$60,693 expense due to currency fluctuations primarily driven by theUkraine 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 endedMarch 31, 2022 amounted to$2,273,079 , a$996,577 increase from$1,276,502 for the three months ended
March 31, 2021 . 22 Table of Contents
The results of operations by business line are presented below.
Three months ended September 30,
Digester and Corporate MBT Facility Total
2022 2021 Change 2022 2021 Change 2022 2021 Change Revenue Equipment sales$ 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 $
- $ - $ -
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
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 endedMarch 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 inUkraine , 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 endedMarch 31, 2022 decreased by$5,675 from$501,833 for the three months endedMarch 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 endedMarch 31, 2022 increased by$43,542 as compared to$1,058,221 during the three months endedMarch 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 endedMarch 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 . AtMarch 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 endedMarch 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 ofMarch 31, 2022 andDecember 31, 2021 , the Company had unrestricted cash balances of$53,279 and$180,381 , respectively. In addition, as ofMarch 31, 2022 andDecember 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. 24 Table of Contents 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 endedMarch 31, 2022 , an increase of$298,939 from$1,939,521 of cash used in operating activities during the three months endedMarch 31, 2021 . Excluding the change in operating assets and liabilities, we used$2,641,361 of cash in operating activities during the three months endedMarch 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 endedMarch 31, 2021 . Our net loss for the three months endedMarch 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 endedMarch 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
Cash flows from financing activities - Cash flows from financing activities amounted to$874,092 during the three months endedMarch 31, 2022 , a decrease of$6,020,451 from$6,894,543 of cash flows from financing activities during the three months endedMarch 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
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