NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – NATURE OF OPERATIONS AND ORGANIZATION
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Attis Industries Inc. and its subsidiaries
(collectively called the “Company”) included herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial
statements do not include all of the information and footnotes required by US Generally Accepted Accounting Principles (“GAAP”)
for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with
the annual consolidated financial statements and notes for the year ended December 31, 2017 included in our Annual Report on Form
10-K for the Company as filed with the SEC. The consolidated balance sheet at December 31, 2017 contained herein was derived from
audited financial statements but does not include all disclosures included in the Form 10-K for Attis Industries Inc., and applicable
under accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally
included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United
States of America, but not required for interim reporting purposes, have been omitted or condensed.
In the opinion of management, all adjustments
(consisting of normal recurring items) necessary for a fair presentation of the unaudited condensed financial statements as of
June 30, 2018, and the results of operations and cash flows for the three and six months ended June 30, 2018 have been made. The
results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected
for a full year.
An amendment to the Company’s certificate
of incorporation to change the name of the Company to Attis Industries Inc. became effective on April 23, 2018.
Historically, the Company was a regional,
vertically integrated solid waste services company that provided collection, transfer, disposal and landfill services. This set
of businesses was held for sale beginning on December 6, 2017. As of April 20, 2018, in connection with the closing of the sale
of this set of companies, the results of such operations are classified as losses from discontinued operations.
The Company was previously primarily in the business of residential and commercial waste disposal and
hauling and had contracts with various cities and municipalities. The majority of the Company’s customers were located in
the St. Louis metropolitan and surrounding areas and throughout central Virginia.
On February 15, 2017, the Company, in
order to expand its geographical footprint to new markets outside of the state of Missouri, acquired 100% of the membership interests
of The CFS Group, LLC, The CFS Group Disposal & Recycling Services, LLC and RWG5, LLC (“The CFS Group”) pursuant
to a Membership Interest Purchase Agreement, dated February 15, 2017. This acquisition was consummated to further define the Company’s
growth strategy of targeting and expanding within vertically integrated markets and serve as a platform for further growth (see
Note 3,
Acquisitions
).
The discontinued operations of the Company
operated under seven separate Limited Liability Companies:
(1) Here To Serve Missouri Waste
Division, LLC (“HTSMWD”), a Missouri Limited Liability Company;
(2) Here To Serve Georgia Waste
Division, LLC (“HTSGWD”), a Georgia Limited Liability Company;
(3) Meridian Land Company, LLC
(“MLC”), a Georgia Limited Liability Company;
(4) Christian Disposal, LLC
and subsidiary (“CD”), a Missouri Limited Liability Company;
(5) The CFS Group, LLC;
(6) The CFS Group Disposal &
Recycling Services, LLC; and
(7) RWG5, LLC
Attis Industries Inc. f/k/a Meridian Waste
Solutions, Inc. (the “Company” or “Attis”) is now an innovative technology company which focuses on biomass
innovation and healthcare technologies. Attis generally operates two lines of business currently: technologies (the “Technologies
Business”) through its wholly-owned subsidiary, Mobile Science Technologies, Inc.; and innovations (the “Innovations
Business”) through its wholly-owned subsidiary, Attis Innovations, LLC. Attis’ Technologies Business centers on creating
community-based synergies through healthcare collaborations and software solutions and the Innovation Business strives to create
value from recovered resources, through advanced byproduct technologies and assets found in downstream production. The Technologies
Division of the Company, sometimes referred to herein as “Attis Healthcare”, includes our healthcare group. Our healthcare
group focuses on improving patient care and providing cost-saving opportunities through innovative, compliant, and comprehensive
diagnostic and therapeutic solutions for patients and healthcare providers. We offer a broad portfolio of what we believe to be
best-in-class solutions, combined with insight and expertise, to give providers tools that lead to healthier patients and communities.
Attis Healthcare offers products and services in a variety of areas, including hospital consulting services for both laboratory
services and emergency department revenue enhancement, polymerase chain reaction (“PCR”) molecular testing, pharmacogenetics
(“PGx”) testing, and medication therapy management.
The Company’s operations held for
use operate under the following Limited Liability Companies:
(1) Mobile Science Technologies,
Inc. (referred to herein as “Attis Healthcare”); and
(2) Attis Innovations, LLC (“Innovations”).
BASIS OF CONSOLIDATION
The condensed consolidated financial statements
for the six months ended June 30, 2018 include the operations of the Company and its wholly-owned subsidiaries and a Variable Interest
Entity (“VIE”) owned 20% by the Company (and included in discontinued operations) and a VIE owned approximately 70%
by the Company (included in continuing operations).
Effective May 25, 2018, the Company acquired
4,900 membership interest units of Genarex FD LLC (“GFD”) corresponding to 49% of the issued and outstanding equity
of GFD. The remaining 51% of the Company is owned by Sutra Sails L.L.C. (“Sutra”), which entity holds the super-majority
voting and management control of the Company. The Company accounts for this as an unconsolidated equity investment and accordingly,
records the Company’s share of the GFD net loss on the statement of operations.
The Company entered into a share exchange
agreement with Mobile Science Technologies, Inc., a Georgia corporation (“MSTI”) which was deemed to be an entity under
common control during the second quarter of 2017. Accordingly, the consolidated financial statements have been retrospectively
adjusted to furnish comparative information for all periods presented in accordance with Accounting Standards Codification (ASC)
805. Specifically, the consolidated financial statements include the financial information of MSTI for all periods presented.
All significant intercompany accounts and
transactions have been eliminated in consolidation.
GOING CONCERN, LIQUIDITY AND MANAGEMENT’S
PLAN
The accompanying condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. We have experienced recurring
operating losses in recent years. Because of these losses, the Company had a working capital deficit of approximately $19,000,000
at June 30, 2018, excluding current assets and current liabilities held for sale. The conditions raise substantial doubt about
the Company’s ability to continue as a going concern. The Company believes that the working capital deficit can be satisfied
with additional capital raises, cash on hand at June 30, 2018, the sale of the waste services division, and the growth of our
innovations and technology division. There is no assurance the Company will be successful in implementing its strategy.
On February 20, 2018, Attis Industries
Inc. signed an agreement with Warren Equity Partners (“WEP”), which closed on April 20, 2018, to sell the waste operations
of the Company to WEP. As part of this sale the Company eliminated a majority of its debt, as well as the approximately $11,000,000
annual debt service payments. The Company received $3,000,000 in cash as part of the sale. We also have a revised credit agreement
from our primary lender with more favorable terms this will help to execute our growth strategy without the encumbrances of the
substantial debt and recurring losses of the waste operations (see Note 6,
Notes Payable and Convertible Notes
).
Post-close, the Company will focus on growing
its Innovations and Technology divisions. In anticipation of the sale of the waste division the Company purchased Verifi Labs in
November of 2017. Additionally, we have set up a commercial and federal lab, both of which will become operational in August of
2018.
As of June 30, 2018, the Company had approximately
$280,000 in cash, in its continued operations, to cover its short- term cash requirements. The Company is still evaluating raising
additional capital through the public markets as well as looking for capital partners to assist with operating activities and
growth strategies.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid
investments with original maturities of six months or less to be cash equivalents. At June 30, 2018 and 2017, the Company
had no cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments
consist of cash and cash equivalents, accounts receivable, account payable, accrued expenses, contingent consideration arrangement,
shortfall provision payable and notes payable. The carrying amount of these financial instruments approximates fair value due
to length of maturity of these instruments.
DERIVATIVE INSTRUMENTS
The Company enters into financing arrangements
that consist of freestanding derivative instruments or hybrid instruments that contain embedded derivative features. The Company
accounts for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments
and Hedging Activities (“ASC 815”) as well as related interpretations of this standard. In accordance with this standard,
derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with
gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are
bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company
determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation
models, considering of the rights and obligations of each instrument.
The Company estimates fair values of
derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the
objective measuring fair values. In selecting the appropriate technique, the Company considers, among other factors, the
nature of the instrument, the market risks that it embodies and the expected means of settlement. The Company uses a Monte
Carlo simulation put option Black-Scholes-Merton model. For less complex derivative instruments, such as freestanding
warrants, the Company generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of
the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair
value these instruments. Estimating fair values of derivative financial instruments requires the development of significant
and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in
internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile
and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are
initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these
estimates and assumption changes. Under the terms of this accounting standard, increases in the trading price of the
Company’s common stock and increases in fair value during a given financial quarter result in the application
of non-cash derivative loss. Conversely, decreases in the trading price of the Company’s common stock and decreases in
trading fair value during a given year result in the application of non-cash derivative gain.
See Notes 6,
Notes Payable and Convertible Notes
, Note
8,
Shareholders’ Equity
and Note 9,
Fair Value Measurement
for a description and valuation of the Company’s
derivative instruments.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the valuation of
components of its property and equipment and other long-lived assets whenever events or circumstances dictate that the carrying
value might not be recoverable. The Company bases its evaluation on indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that
may be present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, the Company
determines whether an impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for
which identifiable cash flows exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset
is less than the carrying value of the asset, the Company recognizes a loss for the difference between the carrying value of the
asset and its estimated fair value, generally measured by the present value of the estimated cash flows. No impairments were noted
during the six months ended June 30, 2018 and 2017.
INCOME TAXES
The Company accounts for income taxes
pursuant to the provisions of ASC 740, “Accounting for Income Taxes,” which requires, among other things, an asset
and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management
believes it is more likely than not that the net deferred asset will not be realized. The Company has deferred tax liabilities
related to its intangible assets, which were approximately $158,000 as of June 30, 2018.
The Company follows the provisions of
the ASC 740 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the
merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance
of ASC 740, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized
upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds
the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance
sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company
believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability
for uncertain tax benefits.
The Company analyzes its tax positions
by utilizing ASC 740 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can
be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax
positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is
not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open.
USE OF ESTIMATES
Management estimates and judgments are
an integral part of consolidated financial statements prepared in accordance with GAAP. We believe that the critical accounting
policies described in this section address the more significant estimates required of management when preparing our consolidated
financial statements in accordance with GAAP.
We consider an accounting estimate critical
if changes in the estimate may have a material impact on our financial condition or results of operations. We believe that the
accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from
the original estimates, requiring adjustment to these balances in future periods.
SEGMENT INFORMATION
We determined our reporting units in accordance
with FASB ASC 280, “Segment Reporting” (“ASC 280”). We evaluate a reporting unit by first identifying
its operating segments under ASC 280. We then evaluate each operating segment to determine if it includes one or more components
that constitute a business. If there are components within an operating segment that meet the definition of a business, we evaluate
those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if
it is appropriate to aggregate different operating segments, we determine if the segments are economically similar and, if so,
the operating segments are aggregated.
ACCOUNTS RECEIVABLE
Accounts receivable are uncollateralized,
non-interest-bearing customer obligations due under normal trade terms requiring payment within 30 days from the invoice date.
Accounts receivable are stated at the amount billed to the customer. Accounts receivable in excess of 90 days old are evaluated
for delinquency. Accounts receivable are recorded at management’s estimate of net realizable value. At June 30, 2018, and
December 31, 2017 the Company had approximately $395,000 and $860,000 of trade receivables, net, respectively.
Our reported balance of accounts receivable,
net of the allowance for doubtful accounts, represents our estimate of the amount that ultimately will be realized in cash. We
review the adequacy and adjust our allowance for doubtful accounts on an ongoing basis, using historical payment trends and the
age of the receivables and knowledge of our individual customers. Payments of accounts receivable are allocated to the specific
invoices identified on the customer’s remittance advice or, if unspecified, are applied to the oldest unpaid invoices. However,
if the financial condition of our customers were to deteriorate, additional allowances may be required. At June 30, 2018 and December
31, 2017 the Company had approximately $717,000 and $0 recorded for the allowance for doubtful accounts, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at
its historical cost. The cost of property and equipment is depreciated over the estimated useful lives (ranging from 3 -39 years)
of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized)
over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance
are expensed when incurred and major repairs will be capitalized and expensed if it benefits future periods. Gains and losses
on depreciable assets retired or sold are recognized in the statement of operations in the year of disposal, and repair and maintenance
expenditures are expensed as incurred.
INTANGIBLE ASSETS
The Company accounts for its intangible
assets pursuant to ASC 350-20-55-24, “Intangibles – Goodwill and Other”. Under ASC 350, intangibles with definite
lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms.
Intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair
value with its carrying value, based on cash flow methodology. Intangibles with definite lives are subject to impairment testing
in the event of certain indicators. Impairment in the carrying value of an asset is recognized whenever anticipated future cash
flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is
the difference between the carrying value of the asset and its fair value.
Intangible assets that are subject to
amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be
recoverable. Assets not subject to amortization are tested for impairment at least annually. The Company has intangible assets
subject to amortization related to its asset purchase of Advanced Lignin Biocomposite Patents and the acquisition of WelNess Benefits,
LLC and Integrity Labs, LLC. In June of 2017, the Company recorded $221,146 of impairment expense on the MSTI capitalized software.
VALUATION OF INTELLECTUAL PROPERTY
Actual results may differ from previously
estimated amounts, and such differences may be material to our financial statements. The Company periodically review estimates
and assumptions, and the effects of revisions are reflected in the period in which the revision is made. The revisions to estimates
or assumptions during the periods presented in the accompanying financial statements were not considered to be significant.
EQUITY INVESTMENTS
Equity investments in which the Company
exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method.
The Company’s share of its equity method investee’s earnings or losses is included in other income in the accompanying
Statements of Operations.
GOODWILL
Goodwill represents the excess of the
purchase price over the fair value of net tangible and identifiable intangible assets acquired. In accordance with Accounting
Standards Codification (ASC) 350, “Goodwill and Other Intangible Assets”, goodwill is not amortized, but rather is
tested for impairment at least annually or more frequently if indicators of impairment are present. The Company performs its annual
goodwill impairment analysis as of November 30, and, if certain events or circumstances indicate that an impairment loss may have
been incurred, on an interim basis. The Company adopted ASU 2017-04, “Intangibles - Goodwill and Other: Topic 350: Simplifying
the Test for Goodwill Impairment”, which eliminated step two from the goodwill impairment test. In assessing impairment
on goodwill, the Company first analyzes qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative
goodwill impairment test. The qualitative factors the Company assesses include long-term prospects of its performance, share price
trends and market capitalization and Company-specific events. If the Company concludes it is more likely than not that the fair
value of a reporting unit exceeds its carrying amount, the Company does not need to perform the quantitative impairment test.
If based on that assessment, the Company believes it is more likely than not that the fair value of the reporting unit is less
than its carrying value or the Company decides to opt out of this step, a quantitative goodwill impairment test will be performed
by comparing the fair value of each reporting unit to its carrying value. A goodwill impairment charge is recognized for the amount
by which the reporting unit’s fair value is less than its carrying value. Any loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. As a result of our November 30, 2017 impairment test, the Company recognized
a $6.0 million impairment related to our then Midatlantic waste removal business, which is included in loss from discontinued
operations on the consolidated statement of operations. Goodwill was reduced by approximately $7,230,000 as a result of the sale
of the waste companies. No impairment was recorded for the quarter ended June 30, 2018.
REVENUE RECOGNITION
The Company adopted Financial Accounting
Standards Board (“FASB”) ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers and its amendments
with a date of the initial application of January 1, 2018. ASC Topic 606 sets forth a five-step model for determining when and
how revenue is recognized. Under the model, an entity is required to recognize revenue to depict the transfer of goods or services
to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods and services.
The Company applied the modified retrospective
approach under ASC 606 which allows for the cumulative effect of adopting the new guidance on the date of initial application.
Use of the modified retrospective approach means the Company’s comparative periods prior to initial application are not restated.
The initial application was applied to all contracts at the date of the initial application. The Company has determined that the
adjustments using the modified retrospective approach did not have a material impact on the date of the initial application along
with the disclosure of the effect on prior periods.
Revenue from continuing operations consisted
of referral and management related lab testing fees of $758,000 and management fees related to the management of laboratory services
of $99,000.
In relation to the lab testing fees, the
Company receives revenues from the referral of blood and toxicology testing services. As compensation for the referral and management
services rendered hereunder, the Company gets paid a percentage of the net collected revenue of the hospital outreach laboratory
as it pertains to samples processed as part of its outpatient outreach program. The amount of revenue varies based off the sample
type. Our earned fees are paid weekly based upon all the net collected revenue received by the hospital during the period following
the previous payment date. The Company recognizes revenue when the performance obligation when the testing has occurred as that
completes our performance obligation. There are no variable consideration estimates, service type warranties or other significant
management estimates related to our recognition of this revenue.
In relation to our management service
agreement revenue, the Company manages a hospital’s laboratory and serves as the sole and exclusive provider of non-patient
lab administrative and management consulting services including the day-to-day management assistance, administrative and support
services for, and on behalf of the laboratory related to the operation of its facility. In this arrangement, the management fee
is a fixed monthly amount that does not vary with the number of procedures performed. This service is governed by a management
service agreement and our performance obligation is the performance of the management services. There are no variable revenue
components and revenue is recognized ratably over the month as the services are performed. The Company does not offer any service
type warranties and there are no other significant management estimates related to our recognition of this revenue.
The Company recognizes revenue related
to the JVCo when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the price
is fixed or determinable, and collection is reasonably assured. The Company recognizes revenue from management fees payable under
the JVCo operating and management agreements upon receipt of payment. The Company anticipates generating revenue in the future
from third parties in addition to management fees, resulting in revenue from technology royalties and related services and products.
If they occur in the future, licensing royalties will be recognized as earned by calculating the royalty as a percentage of gross
sales by licensees. For the purposes of assessing royalties, the licensee’s sales will be deemed to occur when shipped,
which is when four basic criteria have been met: (i) persuasive evidence of a customer arrangement; (ii) the price is fixed or
determinable; (iii) collectability is reasonably assured, and (iv) product delivery has occurred, which is generally upon shipment
to the buyer of the products produced with the licensed technology. To the extent revenues are generated from the Company’s
licensing support services in the future, the Company will recognize such revenues when the services are completed and billed.
Any such services will be provided on fixed price contracts. Revenue from any such contracts will be recognized on a pro rata
basis over the life of the contract as they are generally performed evenly over the contract period. The Company additionally
anticipates performing services under fixed-price contracts involving design, engineering, procurement, installation, and start-up
of production systems based on the Company’s technologies. Revenues and fees on these contracts will be recognized using
the percentage-of-completion method of accounting. Our percentage-of-completion methods may further include the efforts-expended
percentage-of-completion method and the cost-to-cost method. The efforts-expended method utilizes using measures such as task
duration and completion. The efforts-expended approach is used in situations where it is more representative of progress on a
contract than the cost-to-cost or the labor-hours method. The Company will use the cost-to-cost method to determine the percentage
of completion of a project based on the actual costs incurred. Earnings will be recognized periodically based upon our estimate
of contract revenues and costs in providing the services required under the contract. The percentage of completion method must
be used in lieu of the completed contract method when all of the following are present: reasonably reliable estimates can be made
of revenue and costs; the construction contract specifies the parties’ rights as to the goods, consideration to be paid
and received, and the resulting terms of payment or settlement; the contract purchaser has the ability and expectation to perform
all contractual duties; and the contract contractor has the same ability and expectation to perform. Under the completed contract
method income will be recognized only when a contract is completed or substantially completed. The asset, “costs and estimated
earnings in excess of billings on uncompleted contracts,” in such instances will represent revenues recognized in excess
of amounts billed. Likewise, the liability, “billings in excess of costs and estimated earnings on uncompleted contracts,”
will represent billings in excess of revenues recognized.
Revenue related to our discontinued operations
consists of solid waste services performed including the collection, hauling, transfer, disposal of waste and landfill services.
The Company primarily focused on residential and commercial waste disposal and hauling and has contracts with various cities and
municipalities in Missouri and Virginia. Our performance obligations under these contracts tend to be singular in nature such
as period pick-ups at specified times or the physical storing of waste. Our pricing is fixed and contractually stated with any
variable revenue components such as discounts and rebates being immaterial to revenue as a whole. Revenue is recognized as the
service is performed which for periodic pick up is ratably over the pick-up period and for transfer and disposal services it is
when such transfer and disposal has taken place.
BASIC INCOME (LOSS) PER SHARE
Basic income (loss) per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income (loss) available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
At June 30, 2018, the Company had outstanding
stock warrants and options for 23,578,208 and 11,472 common shares, respectively. Also, at June 30, 2018 the Company had outstanding
Preferred Stock Series D, E, F and G convertible in to 2,166,910, 3,262,015, 5,065,240 and 40,520,000 shares, respectively. These
are not presented in the consolidated statements of operations as the effect of these shares is anti-dilutive.
At December 31, 2017 the Company had outstanding
stock warrants and options for 13,154,872 and 11,472 common shares, respectively. Also, at December 31, 2017 the Company had outstanding
Preferred Stock Series D and E convertible in to 1,410,000 and 3,000,000 shares, respectively. These are not presented in the
consolidated statements of operations as the effect of these shares is anti dilutive.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for at fair value in
accordance with ASC Topic 718.
Stock-based compensation is accounted
for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial
statements of the cost of employee and director services received in exchange for an award of equity instruments over the period
the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The
ASC also require measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award.
Pursuant to ASC Topic 505-50, for share
based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.”
The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation
expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting
date.
The Company recorded stock-based compensation
expense of approximately $203,000 and $70,000 during the six months ended June 30, 2018 and 2017, respectively, which is included
in compensation, professional fees and related expense on the statement of operations.
ACCOUNTING FOR ACQUISITIONS
Effective May 25, 2018, the Company, Attis’s
wholly-owned subsidiary, Innovations, GreenShift Corporation (“GreenShift”), and GreenShift’s wholly-owned subsidiary,
GS CleanTech Corporation (“CleanTech”), among others, entered into a Securities Purchase Agreement (“JVCo Acquisition
Transaction”) and related transaction documents pursuant to which the Company acquired 80% of the membership interest units
(“80% Units”) of FLUX Carbon LLC (“JVCo”). Under the acquisition method of accounting outlined in ASC
805, the identifiable assets acquired, and liabilities assumed in the JVCo Acquisition Transaction are recorded at their acquisition
date fair values and are included in the Company’s consolidated financial position.
RECENT ACCOUNTING PRONOUNCEMENTS
Derivatives and Hedging
. In August
2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic
effects of risk management activities in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December
15, 2018, including interim periods therein with early adoption permitted. The Company will adopt this guidance in the first quarter
of 2019 and does not expect a significant impact on its consolidated financial statements.
Stock Compensation.
In May 2017,
the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09) to provide
clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based
payment awards. Under ASU 2017-09, modification accounting is required to be applied unless all of the following are the same
immediately before and after the change:
|
1.
|
The award’s
fair value (or calculated value or intrinsic value, if those measurement methods are used);
|
|
2.
|
The award’s
vesting conditions; and
|
|
3.
|
The award’s
classification as an equity or liability instrument.
|
The Company adopted this guidance in the
first quarter of 2018 and it did not have a significant impact an impact on the financial statements.
Statement of Cash Flows.
In August
2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are
classified in the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted
Cash (Topic 230) (ASU 2016-18), which requires the inclusion of restricted cash with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-15 and ASU 2016-18 are
both effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, provided
that all of the amendments are adopted in the same period. The amendments will be applied using a retrospective transition method
to each period presented. The Company adopted these guidances in the first quarter of 2018 and it did not have a significant impact
on its financial statements.
Financial Instruments.
In June
2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments (ASU 2016-13). The standard changes the methodology for measuring credit losses on financial instruments and the timing
of when such losses are recorded. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after
December 15, 2018. The Company will adopt this guidance in the first quarter of 2020 and is currently evaluating the impact of
this new standard on its consolidated financial statements.
Leases.
In February 2016, the FASB
issued ASU 2016-02, Leases (ASU 2016-02), which increases transparency and comparability among organizations by recognizing lease
assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.
Upon adoption, lessees must apply a modified retrospective transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements. The Company will adopt this guidance in
the first quarter of 2019 and is currently evaluating the impact of this new standard on its consolidated financial statements.
Financial Instruments.
In January
2016, the FASB issued ASU 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities (ASU 2016-01), which requires that most equity investments be measured at fair value, with subsequent changes in fair
value recognized in net income. The ASU also impacts financial liabilities under the fair value option and the presentation and
disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance
assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. Entities
will have to assess the realizability of such deferred tax assets in combination with the entities other deferred tax assets.
ASU 2016-01 is effective for fiscal years beginning after December 15, 2017 and for interim periods within that reporting period.
In the first quarter of 2018, the Company will elect to adopt the measurement alternative, which will apply this ASU prospectively,
for its equity investments that do not have readily determinable fair values. The Company adopted this guidance in the first quarter
of 2018 and it did not have a significant impact on its consolidated financial statements.
Revenue Recognition.
In May 2014,
the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)”. The objective of this amendment is
to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this
amendment, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. This amendment
applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. An entity should
apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying
the amendments recognized at the date of initial application. In July 2015, the FASB issued ASU 2015-14 which deferred May 25,
2018 of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim periods within
that reporting period. The Company has not yet selected which transition method it will apply upon adoption. Historically, the
Company has not generated any revenue. The Company will continue to evaluate and will quantify the impact, if any, the adoption
of ASU 2014-09 will have on our revenue streams when they occur. When our evaluations do occur, The Company does not expect material
changes to its accounting policies.
NOTE 3 – ACQUISITIONS
FLUX CARBON LLC JVCO ACQUISITION TRANSACTION
Effective May 25, 2018 (the “Closing Date”), the Company, Innovations, the Company’s
wholly-owned subsidiary, GreenShift, and GreenShift’s wholly-owned subsidiary, GS CleanTech, and Candent Corporation (“Candent”)
among others, entered into a SPA and related transaction documents pursuant to which Attis acquired 80% of the membership interest
units (“80% Units”) of JVCo, and $10,000,000 of GreenShift’s subordinate secured debt, in exchange for an earn-out
based purchase price equal to the greater of (i) $18,000,000 (“Floor Price”); (ii) five (5) times Company’s Consolidated
EBITDA during 2018, 2019, and 2020; (iii) four (4) times Company’s Consolidated EBITDA during 2021, 2022, and 2023; (iv)
three (3) times Company’s Consolidated EBITDA during 2024 and 2025; (v) two (2) times Company’s Consolidated EBITDA
during 2026; or (vi), one (1) times Company’s Consolidated EBITDA during 2027. The agreements additionally call for Attis
to pay $200,000 over sixty days, and for GreenShift to pay certain working capital surplus equal to about $200,000 to the Company.
An initial payment against the SPA purchase price was paid at Closing in the form of 2,000,000 restricted shares of Attis’s
common stock and 180,000 shares of Attis’s Series G Stock. GreenShift is required to use the first proceeds received upon
sale of the shares to pay or refinance its senior secured debt. In connection with closing under the SPA, 100% of the issued and
outstanding equity of Advanced Lignin Biocomposites LLC (“ALB”) and 49% of the issued and outstanding equity of Genarex
FD LLC (“GFD”) was transferred to JVCo.
The SPA transaction documents also include
an Amended and Restated Limited Liability Attis Operating Agreement and a Management Agreement (“Company Agreements”)
under which GreenShift and CleanTech have in essence ‘outsourced’ its operations to the Company, which the parties
have agreed to fully capitalize to meet a number of specific objectives, including servicing the continuing and future needs of
licensees, investing in growth with the parties’ combined intellectual properties, protecting GreenShift’s intellectual
properties, and supporting all pending and future litigation for infringement and related matters. The Company agreements further
require that no distributions shall be paid by the Company prior to the date on which GreenShift’s senior secured lender
is fully paid.
On and subject to the terms and conditions
of the SPA and related transaction documents, at the Closing, GreenShift issued to Attis a subordinate secured convertible debenture
in the original principal amount of $10,000,000 (“Debenture”). Commencing November 22, 2018, the Debenture shall be
convertible into GreenShift’s common stock at the sole and exclusive option of the holder in one or more installments up
to 9.9% of the GreenShift’s issued and outstanding common stock at the time of conversion (when taken with any other shares
of GreenShift common stock held by the holder at the time of conversion). The Debenture converts into GreenShift common stock
at the greater of (i) $0.10 per share or (ii) 100% of the lowest closing market price per share for the GreenShift common stock
for the thirty (30) Trading Days preceding conversion. The Debenture shall accrue interest at the lesser of 2% or the minimum
allowable rate under applicable law and shall be waived if the GreenShift Debenture is converted or otherwise fully paid on or
before June 30, 2028. The Debenture shall be exclusively paid in the form of GreenShift common stock, provided, however, that
the principal balance due under the Debenture shall be reduced on a dollar for dollar basis in an amount equal to any distributions
paid as provided for in the SPA and Company Agreements.
Effective May 25, 2018, Attis Industries, Inc. acquired 4,900 membership interest units of GFD corresponding
to 49% of the issued and outstanding equity of GFD. The remaining 51% of GFD is owned by Sutra, which entity holds the super-majority
voting and management control of GFD.
GFD was formed as a research and development
platform for developing sustainable bio-based products for the plastics industry. GFD takes low cost by-products from the corn
ethanol industry and has developed cost effective additives for the plastics industry. This drives the cost of plastics down using
renewable non-fossil fuel-based feedstock.
The following table summarizes the estimated
fair value of the JVCo assets acquired at the date of acquisition:
Long-term Note receivable
|
|
|
10,000,000
|
|
Intangible Intellectual Property
|
|
|
18,000,000
|
|
Purchase price
|
|
$
|
28,000,000
|
|
The acquisition was accounted for in
accordance with ASC 805, Business Combinations. The standard allows for provisional amounts to be recorded related to a
business combination in the event the accounting is yet to be compete at the end of a reporting period. Entities have up to
one year from the effective date of a business combination, referred to a s a measurement period, to adjust any provisional
amounts recorded. The Company is finalizing the estimate of fair value amounts in connection with this acquisition. The
completion of the fair value assessment of assets acquired is anticipated to be finalized before the measurement period. The
measurement period for this acquisition ends on May 25, 2019. The Company will disclose any changes to the accounting of the
acquisition, if any, in future reporting periods.
The following tables set forth certain unaudited pro forma consolidated financial data for the three months
ended 6/30/18 and 6/30/17 and for the six months ended 6/30/18 and 6/30/17. We have derived the data from unaudited Condensed Consolidated
Financial Statements that, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of such quarterly information. The operating results for any period are not necessarily indicative of the
results to be expected for any future period. These results are updated for continuing operations.
|
|
Three
Months
Ended
June 30,
2018
|
|
|
Six
Months
Ended
June 30,
2018
|
|
|
3 Months
Ended
June 30,
2017
|
|
|
Six
Months
Ended
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
281,782
|
|
|
$
|
1,070,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total revenue
|
|
|
281,782
|
|
|
|
1,070,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
841,355
|
|
|
$
|
(1,941,955
|
)
|
|
$
|
(2,362,877
|
)
|
|
$
|
(2,415,074
|
)
|
NOTE 4 – PROPERTY AND EQUIPMENT
The following is a summary of property and equipment—at
cost, less accumulated depreciation:
|
|
June
30,
2018
|
|
|
December 31,
2017
|
|
Building & Leasehold improvements
|
|
|
2,808,485
|
|
|
|
49,603
|
|
Computer equipment
|
|
|
140,710
|
|
|
|
205,767
|
|
Machinery, & equipment
|
|
|
294,473
|
|
|
|
156,656
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
3,243,668
|
|
|
|
412,026
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(188,542
|
)
|
|
|
(78,527
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
3,055,126
|
|
|
$
|
333,499
|
|
Depreciation expense for the six months
ended June 30, 2018 and 2017 was approximately $130,000 and $30,000, respectively.
NOTE 5 – INTANGIBLE ASSETS
The following tables set forth the intangible
assets, both acquired and developed, including accumulated amortization as of June 30, 2018:
|
|
June
30, 2018
|
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Customer lists
|
|
4.33 years
|
|
$
|
2,809,000
|
|
|
$
|
299,600
|
|
|
$
|
2,509,400
|
|
Patents
|
|
18.10 years
|
|
|
4,996,983
|
|
|
|
190,853
|
|
|
|
4,806,130
|
|
Capitalized software
|
|
2.08 years
|
|
|
135,021
|
|
|
|
48,757
|
|
|
|
86,264
|
|
Intellectual Property
|
|
Indefinite
|
|
|
18,050,000
|
|
|
|
--
|
|
|
|
18,050,000
|
|
|
|
|
|
$
|
25,991,004
|
|
|
$
|
539,210
|
|
|
$
|
25,451,794
|
|
Amortization expense, amounted to approximately
$141,000 and $395,000 for the six months ended June 30, 2018 and 2017, respectively.
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES
The Company had the following long-term debt from continuing
operations, excluding liabilities held for sale:
|
|
December 31,
2017
|
|
|
June 30,
2018
|
|
Goldman Sachs - Tranche A Term Loan - LIBOR Interest on loan date plus 8%, 9.65% at June 30, 2018, respectively
|
|
$
|
7,083,257
|
|
|
$
|
7,100,000
|
|
Promissory note payable to a bank, unsecured, bearing interest at a variable rate, 4.75%, at June 30, 2018 with a floor of 4.75% due on demand
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Promissory note payable to a bank, unsecured, bearing interest at 5.5%, due on demand
|
|
|
299,578
|
|
|
|
310,803
|
|
Promissory note payable to a bank, unsecured, bearing interest at a variable rate, 5%, at June 30, 2018 with a floor of 5.00% due in monthly installments of $12,300, maturing August 2022
|
|
|
622,259
|
|
|
|
565,165
|
|
Note payable, see description below
|
|
|
-
|
|
|
|
2,173,990
|
|
Note payable, related party, see description below
|
|
|
-
|
|
|
|
937,500
|
|
Note payable, see description below
|
|
|
-
|
|
|
|
937,500
|
|
Note payable, see description below
|
|
|
-
|
|
|
|
500,000
|
|
Note payable, related party, see description below
|
|
|
-
|
|
|
|
375,000
|
|
Note payable, see description below
|
|
|
-
|
|
|
|
187,500
|
|
Note payable, see description below
|
|
|
-
|
|
|
|
62,500
|
|
Notes payable to seller of Meridian, subordinated debt
|
|
|
1,475,000
|
|
|
|
1,475,000
|
|
Less: deferred loan costs
|
|
|
-
|
|
|
|
(1,259,668
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
10,480,094
|
|
|
|
14,365,290
|
|
Less: current portion
|
|
|
(8,502,387
|
)
|
|
|
(7,094,677
|
)
|
Long term debt less current portion
|
|
$
|
1,977,707
|
|
|
$
|
7,270,613
|
|
GOLDMAN SACHS CREDIT AGREEMENT
On April 20, 2018 (the “Restatement
Date”), Attis closed a Second Amended and Restated Credit and Guaranty Agreement (the “New Credit Agreement”)
by and among Operations, Mobile Science Technologies, Inc. (“Mobile”), Attis Healthcare, LLC (“Healthcare”),
Integrity Lab Solutions, LLC, (“Integrity”), Red X Medical LLC (“Red X”), Welness Benefits, LLC (“Welness”),
LGMG, LLC (“LGMG”), Attis Innovations, LLC (“Attis Innovations”), Advanced Lignin Biocomposites LLC (“Advanced
Lignin”), Attis Envicare Medical Waste, LLC (“Envicare”), Attis Genetics, LLC (“Genetics”), Attis
Federal Labs, LLC (“Federal Labs”) and Attis Commercial Labs, LLC (“Commercial Labs” and together with
Mobile, Healthcare, Integrity, Red X, Welness, LGMG, Attis Innovations, and Advanced Lignin, Envicare, Genetics and Federal Labs,
the “New Credit Companies”), the Company and certain subsidiaries of the Company, as guarantors, the lenders party
thereto from time to time and Goldman Sachs Specialty Lending Group, L.P., as Administrative Agent, Collateral Agent, and Lead
Arranger. The Credit Agreement amended and restated the Amended and Restated Credit and Guaranty Agreement entered into as of
February 15, 2017 by and among Attis, certain of the Acquired Entities, and certain current or former subsidiaries of the Company,
as Guarantors and co-borrowers, the Lenders party thereto from time to time and Goldman Sachs Specialty Lending Group, L.P., as
Administrative Agent, Collateral Agent, and Lead Arranger (as amended prior to the Restatement Date, the “Prior Credit Agreement”).
Pursuant to the New Credit Agreement,
the Lenders thereunder have agreed to waive any mandatory prepayments under the Prior Credit Agreement in connection to the Transaction
and restructure the remaining indebtedness and accrued interest under the Prior Credit Agreement as a term loan payable by the
New Credit Companies, in an aggregate amount of approximately $8.7 million (the “Loan”), including interest accrued
but unpaid for the interest periods ending on January 1, 2018 through June 30, 2018 in an aggregate amount of approximately $1.6
million. Subsequent to June 30, 2018, interest payments have not been made creating a default of the new credit agreement.
The Loan matures on December 22, 2020,
principal amounts of the Term Loans shall be repaid in consecutive quarterly installments of $350,000 on the last day of each
fiscal quarter commencing on June 30, 2018, unless such Loan becomes due and payable earlier by acceleration or otherwise. So
long as no default or event of default has occurred that is then continuing, the New Credit Companies have the option to convert
any part of the Loan equal to $500,000 and integral multiples of $100,000 in excess thereof into a “Base Rate Loan”
or a “LIBOR Rate Loan.” Base Rate Loans bear interest at the greatest of (i) the rate of interest quoted in The Wall
Street Journal, Money Rates Section as the Prime Rate in effect on such date, (ii) the rate per annum equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers
in effect on such day, plus one-half of 1%, (iii) the sum of (1) the Adjusted LIBOR Rate (as defined below) for a period of one
month and (2) 1.00%, in each instance, as of such day, and (iv) 4.25%, plus 7.00%. LIBOR Rate Loans bear interest at the greater
of (i) the rate per annum obtained by dividing (a)(1) the rate per annum equal to the rate determined by the Administrative Agent
to be the London interbank offered rate administered by the ICE Benchmark Administration for deposits with a term equivalent to
such period in U.S. dollars displayed on the ICE LIBOR USD page of the Reuters screen (the “Eurodollar Screen Rate”)
or (2) in the event the Eurodollar Screen Rate is not available, the rate per annum equal to the offered rate that is set forth
on or in such other available quotation page or service as is acceptable to the Administrative Agent in its sole discretion and
the provide an average ICE Benchmark Administration Limited Interest Settlement Rate or another London interbank offered rate
administered by any other person that takes over the administration of such rate for deposits with a term equivalent to such period
in U.S. dollars, or (3) in the event the rates reference in preceding clauses (1) and (2) are not available or if such information,
in the reasonable judgment of the Administrative Agent shall cease to accurately reflect the rate offered by leading banks in
the London interbank market as reported by any publicly available source of similar market data selected by the Administrative
Agent, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate (collectively, the “Adjusted
LIBOR Rate”) plus 8.00%.
The amounts outstanding pursuant to the
Loan are secured by a first position security interest in substantially all of the Company’s assets and the New Credit Companies’
assets in favor of the Agent, in accordance with that certain Amended and Restated Pledge and Security Agreement dated as of April
20, 2018 (the “New Pledge and Security Agreement”).
The Credit Agreement and the New Pledge and Security Agreement contain customary representations and warranties
as well as customary affirmative and negative covenants. Negative covenants include, among others, limitations on incurrence of
liens and secured indebtedness, and limitations on incurrence of any indebtedness by the Company’s subsidiaries. The Credit
Agreement also contains customary events of default. Upon the occurrence and during the continuance of an event of default, the
Lender may declare the outstanding loans and all other obligations under the Credit Agreement immediately due and payable. The
Credit Agreement also contains financial covenants for adjusted EBITDA and minimum consolidated liquidity, effective September
30, 2018.
SUBORDINATED DEBT
In connection with the acquisition with
Meridian Waste Services, LLC on May 15, 2014, notes payable to the sellers of Attis issued five-year term subordinated debt loans
paying interest at 8.00%. At June 30, 2018 and December 31, 2017, the balance on these loans was $1,475,000 and $1,475,000, respectively.
In 2015 the term of these notes was extended an additional 1 and 1/2 years.
OTHER DEBTS
NOTE PAYABLE
In February of 2018, the Company
added two note payables from an individual with a principal amount of $2,500,000, to be repaid in weekly installments of
approximately $64,000 for 12 months starting from the funding date. The total amount to be repaid is $3,325,000. The Company
has the option to prepay the note at certain times. If the Company chooses this option, it will reduce the amount of interest
cost associated with this note. The Company recorded original issue discount (“OID”) of approximately $890,000
and deferred loan costs of approximately $125,000. The balance of the OID and the deferred loan costs at June 30, 2018 was
approximately $676,666. The note is guaranteed by an officer of the Company.
On May 9, 2018, the Company added a
note payable from a related party with a principal amount of $937,500, with an OID of $187,500. The maturity date of
this loan is November 9, 2018 and no payments are due until that date. If the note is not satisfied by the initial maturity
date, the note will be extended for 90 days and the principal will be increased by $75,000. The Company recorded the OID and
deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was $165,000. The note is
guaranteed by an officer of the Company.
On May 15, 2018, the Company added a
note payable from an individual with a principal amount of $937,500, with an original issuance discount of $187,500. The
maturity date of this loan is November 15, 2018 and no payments are due until that date. If the note is not satisfied by the
initial maturity date, the note will be extended for 90 days and the principal will be increased by $75,000. The Company
recorded the OID and deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was
$165,000. The note is guaranteed by an officer of the Company.
On May 23, 2018, the Company added a
note payable from an individual with a principal amount of $187,500, with an original issuance discount of $37,500. The
maturity date of this loan is November 23, 2018 and no payments are due until that date. If the note is not satisfied by the
initial maturity date, the note will be extended for 90 days and the principal will be increased by $15,000. The Company
recorded the OID and deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was
$41,250. The note is guaranteed by an officer of the Company.
On May 30, 2018, the Company added a
note payable from an individual with a principal amount of $62,500, with an original issuance discount of $12,500. The
maturity date of this loan is November 30, 2018 and no payments are due until that date. If the note is not satisfied by the
initial maturity date, the note will be extended for 90 days and the principal will be increased by $5,000. The Company
recorded the OID and deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was
$13,750. The note is guaranteed by an officer of the Company.
On June 12, 2018, the Company added
a note payable from a related party with a principal amount of $375,000, with an original issuance discount of $75,000. The
maturity date of this loan December 12, 2018 and no payments are due until that date. If the note is not satisfied by the
initial maturity date, the note will be extended for 90 days and the principal will be increased by $5,000. The Company
recorded the OID and deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was
$82,500. The note is guaranteed by an officer of the Company.
On June 26, 2018, the Company added
a note payable from an individual with a principal amount of $500,000, with an original issuance discount of $100,000. The
maturity date of this loan July 27, 2018 and no payments are due until that date. If the note is not satisfied by the initial
maturity date, the note will be extended for 30 days and the principal will be increased by $40,000. The Company recorded the
OID and deferred loan costs of $60,000. The balance of the OID and the deferred loan costs at June 30, 2018 was $132,500. The
note is guaranteed by an officer of the Company.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
JVCo is subject to a first priority lien granted in favor of Candent Corporation (“Candent”)
on February 18, 2015, under a guaranty agreement executed by JVCo in connection with the issuance by JVCo’s former parent
company, EXO Opportunity Fund LLC (“EXO”) of a $15 million senior secured loan to Candent on the same date. Effective
May 25, 2018, on and subject to applicable agreements, Candent agreed to release the foregoing first priority security interest
and lien upon satisfaction by JVCo’s parent company, Attis, and its affiliates of certain conditions under the SPA.
ALB is party to a license agreement with UT-Battelle
LLC, the manager and operator of Oak Ridge National Laboratory under contract with the United States Department of Energy. The
license called for $12,500 to be paid upon execution, and an ongoing royalty of 1.5% to 2.5% of ALB’s (and/or its affiliate’s
or designee’s) net sales, if applicable. ALB’s parent company as of March 31, 2017, Innovations, paid the execution
fee on ALB’s behalf upon execution of the license, and released ALB from any payment obligation in connection with said
amount. Neither ALB, nor any of its affiliates, have generated net sales with the intellectual properties covered by the Oakridge
license.
On February 23, 2015, the Company and
GS CleanTech Corporation (“CleanTech”) entered into a contingent litigation financing agreement (“Litigation
Financing Agreement”), pursuant to which the Company agreed to cover all costs of recovery for litigation matters commenced
on or before February 23, 2015 in exchange for 125% of all costs and expenses of recovery, plus a contingent recovery fee payable
to CleanTech’s litigation counsel (“Litigation Counsel”) or its designee equal to 25% of all recovered amounts.
To ensure payment, the Litigation Financing Agreement required the assignment of the applicable receivables, including rights
to collect damages and other amounts arising upon default of underlying agreements, to the Company. The applicable damages relate
further to certain disputed restricted cash and accounts receivable balances. The restricted cash relates to amounts deposited
into an escrow account pending completion of settlement. That amount increases at the rate of about $125,000 per month. The accounts
receivable relates to amounts in default as of February 23, 2015, but that increase on a monthly basis under applicable agreements.
While litigation has not yet commenced in connection with any of the foregoing amounts, and settlement discussions are ongoing,
filing suit is likely to be necessary in several instances. The Company has accordingly determined that collectability was not
reasonably assured as of each relevant reporting date. The corresponding revenues were therefore not recognized. In addition,
the restricted cash and accounts receivable above were otherwise deemed to be subject to a 100% valuation allowance as of March
31, 2018.
NOTE 8 – SHAREHOLDERS’ EQUITY
TREASURY STOCK
During 2014, the Company’s Board
of Directors authorized a stock repurchase of 11,500 shares of its common stock for approximately $230,000 at an average price
of $20.00 per share. At June 30, 2018 and December 31, 2017, the Company holds 11,500 shares of its common stock in its treasury.
PREFERRED STOCK
The Company has authorized 5,000,000 shares
of Preferred Stock, for which seven classes have been designated to date. Series A has 51 and 51 shares issued and outstanding,
Series B has 0 and 0 shares issued and outstanding, Series C has 0 and 0 shares issued and outstanding, Series D has 106,950 and
141,000 shares issued and outstanding, Series E has 161,000 and 300,000 shares issued and outstanding, and Series F has 2,500
and 0 shares issued and outstanding and Series G has 202,600 and 0 shares issued and outstanding as of June 30, 2018 and December
31, 2017, respectively.
Each share of Series A Preferred Stock
has no conversion rights, is senior to any other class or series of capital stock of the Company and has special voting rights.
Each one (1) share of Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and
outstanding Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49,
minus (z) the Numerator.
Private Placement of Series D Preferred
Stock, Common Stock and Warrants
During the third quarter of 2017, the
Company completed a private placement offering to accredited investors (the “Offering”) of $1,410,000 of units (the
“Units”), with each Unit comprised of (i) one (1) share of Series D Preferred Stock, par value $0.001 per share (the
“Series D Preferred Stock”), (ii) fifteen (15) warrants (the “Warrants”) to purchase shares of the Company’s
common stock, par value $0.025 per share (“Common Stock”), and (iii) three (3) shares of Common Stock, at a per unit
purchase price of $10.00. In addition, shares of common stock were issued and identified in the agreement as the prepayment of
the first year of dividends.
During the six months ended June 30, 2018,
34,050 shares of Series D Preferred stock was converted under its contractual terms into 340,500 shares of common stock. In accordance
with ASC 470, the Company recognized a deemed dividend of approximately $212,000 upon conversion which represented the unamortized
discount on these converted Series D Preferred Shares.
MARCH MODIFICATION – SERIES D
PREFERRED STOCK
On March 13, 2018, the Company made certain
changes to the Series D Preferred Stock and Series D Warrants including amending the conversion price of the Series D Preferred
Stock and the exercise price of the Series D Warrants to $0.94. In addition, a down round provision was added to both instruments
that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise,
conversion or sales price or if a current equity offering resets to a lower exercise, conversion or sales price.
In relation to the warrants, the Company
determined the fair values of the unmodified warrants and modified warrants at the modification date and recognized the incremental
increase in fair value as a deemed dividend of approximately $90,000. Further, given the warrants can reset based on something
other than a future equity offering, such as a triggering event change to the Series F instruments, the Company cannot assert
that the Series D Warrants are indexed to our own stock. Accordingly, the Series D Warrants are now classified as warrant liabilities
and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized
gain or loss on derivatives. A rollforward of the Series D warrant liability balance is as follows:
March 13, 2018 Pre Modification – Equity
|
|
$
|
1,096,758
|
|
Change in Fair Value due to modification
|
|
|
89,827
|
|
March 13, 2018 Reclass Liability
|
|
|
1,186,585
|
|
Change in Fair Value
|
|
|
(138,207
|
)
|
March 31, 2018 Fair Value
|
|
|
1,048,378
|
|
Change in Fair Value
|
|
|
(682,464
|
)
|
June 30, 2018 Fair Value
|
|
$
|
365,914
|
|
The Company used a Black-Scholes-Merton
model to value the Series D warrants (pre-modification) at March 13, 2018 with the following key assumptions: (1) Stock price
- $0.64; (2) Exercise price - $1.44; (3) Term – 4.5 years; (4) Risk free rate of return – 2.62%; and (5) Volatility
– 140%. The Company used a modified binomial lattice model to value the Series D warrants (post modification) at March 13,
2018 and June 30, 2018 with the following key assumptions:
|
|
March 13,
2018
|
|
|
June
30,
2018
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
0.64
|
|
|
$
|
0.38
|
|
Exercise Price
|
|
$
|
0.94
|
|
|
$
|
0.49
|
|
Term (years)
|
|
|
4.50
|
|
|
|
4.19
|
|
Risk Free Rate
|
|
|
2.62
|
%
|
|
|
2.73
|
%
|
Volatility
|
|
|
140.4
|
%
|
|
|
133.0
|
%
|
In relation to the Series D Preferred
Stock, the Company determined the modification changed the fair value of the embedded conversion option and instrument as a whole
by more than 10% of carrying value and thus extinguishment accounting was appropriate. In accordance with ASC 260-10-S99-2, the
Company remeasured the Series D Preferred Stock to its post modification fair value of $1,269,000 with the excess value over the
prior carrying balance of $403,000 being recognized as a deemed dividend of $866,000 as of March 31, 2018.
On May 7, 2018 the down round provision
was triggered and the conversion price of the preferred stock was lowered from $0.94 to $0.49356. Under the early adopted ASU
2017-11, convertible instruments with embedded conversion options that have down round features are now subject to the specialized
guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options). In
accordance with ASC 2017-11-2, the Company recognized the incremental beneficial conversion feature the Series D Preferred Stock
in regards to the number of shares after the down round provision was triggered which resulted in a difference of 1,029,144 additional
shares to be issued being recognized as a deemed dividend of $739,548 as of the three months ended June 30, 2018.
PRIVATE PLACEMENT OF SERIES E PREFERRED
STOCK, COMMON STOCK AND WARRANTS
During the fourth quarter of 2017, the
Company completed a private placement offering to accredited investors (the “Offering”) of $3,000,000 of units (the
“Units”), with each Unit comprised of (i) one (1) share of Series E Preferred Stock, par value $0.001 per share (the
“Series E Preferred Stock”), (ii) fifteen (15) warrants (the “Warrants”) to purchase shares of the Company’s
common stock, par value $0.025 per share (“Common Stock”), at a per unit purchase price of $10.00. In addition, shares
of common stock were issued and identified in the agreement as the prepayment of the first year of dividends.
The holders of shares of the Series E
Preferred shall be entitled to receive quarterly dividends out of any assets legally available, to the extent permitted by New
York law, at an annual rate equal to 20% of the stated value of the shares of Series E Preferred. Dividends for the first year
will be payable in advance.
In total the Company issued an aggregate
of 300,000 shares of Series E Preferred Stock, 4,500,000 Warrants and with an aggregate of 600,000 shares of Common Stock issued
to investors in the Offering as dividends for Series E Preferred Stock. During the six months ended June 30, 2018 76,050
shares were converted in to 760,500 shares of common stock. At June 30, 2018 there are 223,950 shares of Series E Preferred Stock
outstanding, convertible in to 2,223,950 shares of common stock.
During the six months ended June 30, 2018,
203,593 shares of Series E Preferred stock was converted under its contractual terms into 2,035,930 shares of common stock. In
accordance with ASC 470, the Company recognized a deemed dividend of approximately $387,000 upon conversion which represented
the unamortized discount on these converted Series E Preferred Shares.
MARCH MODIFICATION – SERIES E
PREFERRED STOCK
On March 13, 2018, the Company made certain
changes to the Series E Preferred Stock and Series E Warrants including amending the conversion price of the Series E Preferred
Stock and the exercise price of the Series E Warrants to $0.94. In addition, a round down provision was added to both instruments
that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise,
conversion or sales price or if a current equity offering resets to a lower exercise, conversion or sales price.
In relation to the warrants, the Company
determined the fair values of the unmodified warrants and modified warrants at the modification date and recognized the incremental
increase in fair value as a deemed dividend of approximately $145,000. Further, given the warrants can reset based on something
other than a future equity offering, such as a triggering event change to the Series F instruments, the Company cannot assert
that the Series E Warrants are indexed to our own stock. Accordingly, the Series E Warrants are now classified as warrant liabilities
and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized
gain or loss on derivatives. A rollforward of the Series E warrant liability balance is as follows:
March 13, 2018 Pre Modification - Equity
|
|
$
|
2,390,687
|
|
Change in Fair Value due to modification
|
|
|
145,085
|
|
March 13, 2018 Reclass Liability
|
|
|
2,535,772
|
|
Change in Fair Value
|
|
|
(295,226
|
)
|
March 31, 2018 Fair Value
|
|
|
2,240,546
|
|
Change in Fair Value
|
|
|
(1,462,885
|
)
|
June 30, 2018 Fair Value
|
|
$
|
777,661
|
|
The Company used a Black-scholes-Merton
model to value the Series E warrants (pre-modification) at March 13, 2018 with the following key assumptions: (1) Stock price
- $0.64; (2) Exercise price - $1.20; (3) Term – 4.58 years; (4) Risk free rate of return – 2.62%; and (5) Volatility
– 140%. The Company used a modified binomial lattice model to value the Series E warrants (post modification) at March 13,
2018 and June 30, 2018 with the following key assumptions:
|
|
March 13,
2018
|
|
|
June
30,
2018
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
0.64
|
|
|
$
|
0.38
|
|
Exercise Price
|
|
$
|
0.94
|
|
|
$
|
0.49
|
|
Term (years)
|
|
|
4.58
|
|
|
|
4.32
|
|
Risk Free Rate
|
|
|
2.62
|
%
|
|
|
2.73
|
%
|
Volatility
|
|
|
140.4
|
%
|
|
|
133.0
|
%
|
In relation to the Series E Preferred
Stock, the Company determined the modification changed the fair value of the embedded conversion option and instrument as a whole
by more than 10% of carrying value and thus extinguishment accounting was appropriate. In accordance with ASC 260-10-S99-2, the
Company remeasured the Series E Preferred Stock to its post modification fair value of $2,717,000 with the excess value over the
prior carrying balance of $957,000 being recognized as a deemed dividend of $1,760,783 as of March 31, 2018.
On May 7, 2018 the down round provision
was triggered and the conversion price of the preferred stock was lowered from $0.94 to $0.49356. Under the early adopted ASU
2017-11, convertible instruments with embedded conversion options that have down round features are now subject to the specialized
guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options). In
accordance with ASC 2017-11-2, the Company recognized the incremental beneficial conversion feature the Series D Preferred Stock
in regards to the number of shares after the down round provision was triggered which resulted in a difference of 2,154,995 additional
shares to be issued being recognized as a deemed dividend of $1,548,590 as of the three months ended June 30, 2018.
PRIVATE PLACEMENT OF SERIES F PREFERRED
STOCK AND WARRANTS
During the first quarter of 2018, the
Company completed a private placement offering to accredited investors of 2,500 units for $2,250,000, with each unit consisting
of (i) 2,500 shares of Series F Preferred Stock, par value $0.001 per share, with a stated value of $1,000 per share (the “
Series
F Preferred Stock
”); and (ii) 5,319,141 Series A warrants (the “
Warrants
”) to purchase shares of
the Company’s common stock.
In relation to this offering, the Company
paid a placement agent an aggregate cash fee of $180,000, reimbursed $40,000 of the placement agent’s expenses, and issued
the placement agent 200,000 warrants, in substantially the same form as the warrants issued in the investment unit.
The net proceeds to the Company from the
Closing, after deducting the foregoing fees and other Offering expenses, was approximately $2,002,000.
The holders of shares of the Series F
Preferred shall be entitled to receive quarterly dividends out of any assets legally available, to the extent permitted by New
York law, at an annual rate equal to 8% of the stated value of the shares of Series F Preferred. Dividends for the first year
will be payable in advance.
The Warrants are five-year warrants to purchase shares of Common Stock at an exercise price of $0.95 per
share subject to adjustment in accordance with the price resets set forth in the Series F Preferred Stock designations, exercisable
beginning six months after the date of issuance thereof. The Warrants provide for cashless exercise to the extent that there is
no registration statement available for the underlying shares of Common Stock. Upon a reduction
to
the exercise price of such warrants, the number of warrant shares shall increase such that the aggregate exercise price will remain
the same.
Both the Series F Preferred Stock and
the Series A warrants contain a down round provision that resets the conversion price and exercise price of these instruments
if a future equity offering occurs at a lower exercise, conversion or sales price or if a current equity offering resets to a
lower exercise, conversion or sales price. In addition, the Series F Preferred Stock can reset based upon a lower stock price
on certain trigger dates such as: (1) 30 days after the effective date of any registration statement related to this offering;
(2) 30 days after shareholder approval of the transaction; (3) 30 days after the six month anniversary of the transaction; (4)
the tenth day following the announcement of an asset sale; and (5) potentially 30 days after the one year anniversary if certain
public information requirements under Rule 144c are not complied with and there is no effective registration statement.
As a result of the triggering event clause
in the Series F Preferred Stock, the Series A, Series B, Class D, and Class E warrants can reset based on something other than
a future equity offering, and as such the Company cannot assert that these warrants are indexed to our own stock. Accordingly,
these warrants require classification as warrant liabilities and will be subsequently remeasured to fair value each reporting
period with the change in fair value being recorded as unrealized gain or loss on derivatives. The Company reviewed the impact
of this clause on the conversion feature of the Series F Preferred Stock itself and determined that the embedded conversion option
is clearly and closely related to the host instrument and thus no bifurcation is required.
As the Series A warrants issued within
this investment unit are deemed to be warrant liabilities, they must be presented at fair value. Thus, in terms of allocating
the proceeds of this offering, the proceeds are first allocated to the instrument initially and subsequently measured at fair
value (warrants) and the remaining proceeds, if any, are allocated to the Series F Preferred Stock. The Company calculated the
warrant’s fair value at issuance as $6,216,000. Such amount exceeded net proceeds by $4,214,000 which is recognized as a
deemed dividend. In addition, the warrant liability was remarked to fair value at June 30, 2018 which was determined to be $4,490,000
which resulted in an unrealized gain on derivatives of $1,708,000 as of June 30, 2018.
A rollforward of the Series A warrant liability balance is
as follows:
March 31, 2018
|
|
$
|
4,499,243
|
|
Change in Fair Value
|
|
|
(8,874
|
)
|
June 30, 2018
|
|
$
|
4,490,369
|
|
The Company used a modified binomial lattice
model to value the Series E warrants (post modification) at March 13, 2018 and June 30, 2018 with the following key assumptions:
|
|
February 21,
2018
|
|
|
June
30,
2018
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
0.9600
|
|
|
$
|
0.38
|
|
Exercise Price
|
|
$
|
0.95
|
|
|
$
|
0.49
|
|
Term (years)
|
|
|
5.00
|
|
|
|
4.65
|
|
Risk Free Rate
|
|
|
2.69
|
%
|
|
|
2.73
|
%
|
Volatility
|
|
|
152.9
|
%
|
|
|
133.0
|
%
|
SERIES G
The Company submitted for filing with the
Secretary of State of the State of New York, on June 1, 2018, the Certificate of Amendment to the Certificate of Incorporation
of the Company (the “Series G Amendment to Certificate”), which established 500,000 shares of the Series G Convertible
Preferred Stock (“Series G Stock”), par value $0.001 per share, having such designations, rights and preferences as
set forth in the Amendment to Certificate.
The shares of Series G Stock have a stated
value of $100.00 per share, are convertible into Common Stock at a price of the greater of $0.50 per share or 100% of the lowest
closing market price per share for the thirty days prior to conversion, subject to certain adjustments and beneficial ownership
limitations. Shares of the Series G Stock are non-voting, but, in the event a dividend is declared by the Board of Directors, entitle
the holder of each share of Series G Stock to receive a cumulative dividend, in each case equal in amount and kind to that payable
to the holder of the number of shares of the Company’s common stock into which that holder’s Series G Stock could be converted
on the record date for the dividend without giving effect to the 9.9% conversion limitation stated above. The shares of Series
G Stock rank senior to the common stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and any other
class or series of capital stock of the Company thereafter created.
Notwithstanding anything in the Company’s
Series G Amendment to Certificate to the contrary, if the Company has not obtained Shareholder Approval (as defined in the Series
G Amendment to Certificate), then the Company may not issue, upon conversion of the Series G Stock a number of shares of Common
Stock which, when aggregated with any shares of Common Stock issued to one or more of the Holders on or after the date of the first
issuance of Series G Stock and prior to such Conversion Date in connection with any conversion of Series G Stock, would exceed
19.99% of the Company’s issued and outstanding Common Stock on the date of the filing of Series G Amendment to Certificate.
During the six months ended June 30, 2018, 202,600 shares of
Series G Preferred stock was issued in relation to the JVCo acquisition.
COMMON STOCK TRANSACTIONS
During the six months ended June 30, 2018,
the Company issued 6,910,673 shares of common stock and cancelled 400,000 shares related to the ALB acquisition. The fair values
of the shares of common stock were based on the quoted trading price on the date of issuance. Of the 6,910,673 shares issued during
the six months ended June 30, 2018, the Company:
1.
|
Issued 600,000 of
these shares previously accrued in 2017 as dividends to the Series E Preferred Stock holders,
|
2.
|
Issued 2,035,930
of these shares due to the conversion of Series E Preferred Stock to common shares,
|
|
|
3.
|
Issued 340,500 of these shares
due to the conversion of Series D Preferred Stock to common shares,
|
4
|
Issued 500,000 of
these shares as a result of the American Science and Technology Corporation License Agreement and Lease,
|
|
|
5.
|
Issued 17,500 of
these shares due to the exercise of warrants,
|
|
|
6.
|
Issued 62,162 of
these shares to an employee as compensation,
|
7.
|
Issued 10,000 of
these shares to Environmental Trash Company in connection with the acquisition agreement,
|
|
|
8.
|
Issued 250,000 of
these shares to Garden State Securities in connection with a consulting agreement.
|
|
|
9.
|
Issued 94,581 of
these shares to the directors of the Company.
|
|
|
10.
|
Issued 3,000,000
shares in relation to the Flux Carbon LLC joint venture
|
WARRANTS
The 5,319,143 warrants issued in the first
quarter of 2018, as part of the Series F preferred stock offering are exercisable for 5 years and have an exercise price equal
to $0.95. The Company also issued the placement agent 200,000 warrants with the same terms.
On November 29, 2017, the Company, entered
into a Securities Purchase Agreement with five (5) accredited investors (the “Purchasers”). Pursuant to the Securities
Purchase Agreement, the Purchasers purchased 1,868,933 shares of the Company’s common stock, par value $0.025 per share
at a price of $1.03 per share of Common Stock, 736,948 Series A Common Stock Purchase Warrants (the “Series A Warrants”),
and 664,753 Series B Common Stock Purchase Warrants for an aggregate of $1,925,000. The Series A Warrants are exercisable immediately,
at the price of $1.31 per share, and expire five years from the date of issuance. The Series B Warrants are exercisable on the
date six months from the date of issuance, at the price of $1.31 per share, expiring five years from the initial exercise date.
Now, both the Series A and Series B warrants include a down round provision that resets the conversion price and exercise price
of these instruments if a future equity offering occurs at a lower exercise, conversion or sales price.
Upon the issuance of Series F Preferred
Stock, a down round of the exercise price was triggered for the Series A and Series B Warrants as the exercise price reset to
$0.94. In accordance with ASC 260-10-35-1 and 30-1, the Company measured the effect of the round down as the difference between
the fair value of the warrant immediately before the round down and then after and recorded such difference, $10,000 as a deemed
dividend.
In addition, as a result of the Series
F Preferred Stock issuance, the down round provision was expanded to include the reset of any existing instrument, including if
the reset is triggered as a result of something other than a future equity offering such as remeasurement on certain triggering
event days which would reset Series F Preferred Stock and thereby trigger the round down provision of the Series A and B warrants.
Accordingly, effective with the issuance of the Series F Preferred Stock on February 21, 2018, the Company cannot assert that
the Series A and B Warrants are indexed to our own stock. Accordingly, the Series A and B Warrants are now classified as warrant
liabilities and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded
as unrealized gain or loss on derivatives. A rollforward of the Series A and B warrant liability balance is as follows:
February 21, 2018 Pre Down Round (Equity)
|
|
$
|
1,233,086
|
|
Change in Fair Value (deemed dividend)
|
|
|
9,649
|
|
February 21, 2018 Post Down Round (Liability)
|
|
|
1,242,735
|
|
Change in Fair Value
|
|
|
(541,145
|
)
|
March 31, 2018, ending balance
|
|
|
701,590
|
|
Change in Fair Value
|
|
|
(244,785
|
)
|
June 30, 2018, ending balance
|
|
$
|
456,805
|
|
The Company used a modified binomial lattice
model to value the Series A and B warrants (post modification) at March 13, 2018 and June 30, 2018 with the following key assumptions:
|
|
February 21,
2018
Pre Round
Down
|
|
|
February 21,
2018
Post Down
Round
|
|
|
June
30,
2018
|
|
Stock Price
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
$
|
0.38
|
|
Exercise Price
|
|
$
|
1.31
|
|
|
$
|
0.94
|
|
|
$
|
0.49
|
|
Term (years)
|
|
|
4.75
|
|
|
|
4.75
|
|
|
|
4.42
|
|
Risk Free Rate
|
|
|
2.69
|
%
|
|
|
2.69
|
%
|
|
|
2.73
|
%
|
Volatility
|
|
|
152.9
|
%
|
|
|
152.9
|
%
|
|
|
133.0
|
%
|
A summary of the status of the Company’s
outstanding stock warrants for the period ended June 30, 2018 is as follows:
|
|
Number
of Shares
|
|
|
Average
Exercise Price
|
|
|
Expiration
Date
|
Outstanding - December 31, 2017
|
|
|
13,154,872
|
|
|
$
|
2.21
|
|
|
|
Granted
|
|
|
5,519,143
|
|
|
|
0.95
|
|
|
February, 2023
|
Exercised
|
|
|
(17,500
|
)
|
|
|
1.90
|
|
|
|
Outstanding, June 30, 2018
|
|
|
18,689,015
|
|
|
$
|
1.37
|
|
|
|
Warrants exercisable at June 30, 2018
|
|
|
18,689,015
|
|
|
|
|
|
|
|
STOCK OPTIONS
A summary of the Company’s stock
options as of and for the six months ended June 30, 2018 are as follows:
|
|
Number
of Shares Underlying Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
11,472
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
3.61
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
11,472
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
3.17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable
at June 30, 2018
|
|
|
1,701
|
|
|
$
|
19.35
|
|
|
$
|
4.78
|
|
|
|
3.17
|
|
|
|
-
|
|
(1)
|
The aggregate intrinsic
value is based on the $0.3811 closing price as of June 29, 2018 for the Company’s Common Stock.
|
The following information applies to options outstanding at
June 30, 2018:
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
|
Number
of Shares Underlying Options
|
|
|
Weighted
Average Remaining
Contractual Life
|
|
|
Number
Exercisable
|
|
|
Exercise
Price
|
|
$
|
12.00
|
|
|
|
222
|
|
|
|
3.13
|
|
|
|
222
|
|
|
$
|
12.00
|
|
$
|
20.00
|
|
|
|
11,250
|
|
|
|
3.13
|
|
|
|
5,313
|
|
|
$
|
20.00
|
|
|
|
|
|
|
11,472
|
|
|
|
3.13
|
|
|
|
5,535
|
|
|
|
|
|
At June 30, 2018 there was approximately
$28,000 of unrecognized compensation cost related to stock options, with expense expected to be recognized ratably over the next
3 years.
NOTE 9 – FAIR VALUE MEASUREMENT
ASC Topic 820 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires
disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Also, ASC Topic 820 provides
clarification that in circumstances, in which a quoted price in an active market for the identical liabilities is not available,
a reporting entity is required to measure fair value using one or more of the techniques provided for in this update.
The standard describes a fair value hierarchy
based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to
measure fair value, which are the following:
Level 1
- Quoted prices in active
markets for identical assets and liabilities.
Level 2
- Input other than Level
1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the asset or liabilities.
Level 3
- Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our assessment of the significance of
a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset
or liability.
The following table sets forth the liabilities
at June 30, 2018 which were recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy.
As required, these are classified based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
Fair
Value Measurements at
Reporting Date Using
|
|
|
|
June
30,
2018
|
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Contingent liability – Verifi Acquisition
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Derivative liability – ALB shortfall
provision
|
|
|
1,433,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,433,578
|
|
Derivative liability –
stock warrants
|
|
|
7,092,523
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,092,523
|
|
|
|
$
|
8,526,101
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
8,526,1011
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
December 31,
2017
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Contingent Liability – Verifi Acquisition
|
|
|
1,957,225
|
|
|
|
|
|
|
|
|
|
|
|
1,957,225
|
|
Derivative liability – ALB shortfall provision
|
|
|
2,307,363
|
|
|
|
|
|
|
|
|
|
|
|
2,307,363
|
|
|
|
$
|
4,264,588
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4,264,588
|
|
The roll forward of the Contingent liability – Verifi
acquisition is as follows:
Balance December 31, 2017
|
|
$
|
1,957,226
|
|
Fair value adjustment
|
|
|
(27,290
|
)
|
Write-off contingent liability
|
|
|
(1,929,936
|
)
|
Balance June 30, 2018
|
|
|
--
|
|
During the second quarter of 2018, the
nature of the business related to this acquisition changed. Specifically, the contracts, arrangements and initial activities of
the business did not pan out as planned and accordingly, this portion of the business was abandoned. The personnel and sellers
continue to be involved with the company working on other deals and projects. As a result of the abandonment of these specific
business plans, management has concluded that there will be no payouts in the future as no targets will be met. Accordingly, the
contingent liability is effectively zero. In determining the accounting for this write-down, the Company notes none of the facts
discussed here are indicative of facts and circumstances that existed at acquisition or during Q1. Further, this is not considered
a renegotiation or reneging of the original agreement. Thus, the write down of the contingent liability should be a period item
(change in fair value of fair value liability)
The roll forward of the derivative liability – ALB shortfall
provision is as follows:
Balance December 31, 2017
|
|
$
|
2,307,363
|
|
Fair value adjustment
|
|
|
151,143
|
|
Extinguishment due to modification
|
|
|
(1,408,154
|
)
|
Balance June 30, 2018
|
|
$
|
1,433,578
|
|
On May 25, 2018, the agreement with a
holder of 400,000 shares of common stock was modified. The result was the issuance of a total of 1,000,000 shares of common stock,
with no true-up, and the cancellation of 400,000 shares of common stock. Thus, the liability is fair valued one last time at May
25, 2018 and then one half of such liability is extinguished through the issuance of additional shares.
From time to time, certain assets may be
recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are the result of impairment
determinations or the initial determination of fair value of assets received and liabilities assumed upon the consummation of a
business combination (see Note 3,
Acquisitions
and Note 12,
Variable Interest Entity
). Outside of such business combination
assets and liabilities, there were no assets or liabilities held for use where the carrying value of such assets or liabilities
were measured at fair value on a non-recurring basis.
NOTE 10 – DISCONTINUED OPERATIONS
In order to increase access to cost-effective
growth capital to help create shareholder value in our biomass innovation and healthcare businesses, in the fourth quarter of
2017, the Company committed to a plan to make available for immediate sale the waste management business. Management engaged in
an active program to market the business which culminated with the reaching of a binding sales agreement in February 2018. Pursuant
to the purchase Agreement, upon the closing of the Transaction, Buyer will pay Seller Parties $3.0 million in cash; satisfy $75.8
million of outstanding indebtedness under the Credit Agreement; and assume the Acquired Entities’ obligations under certain
equipment leases and other operating indebtedness. At the Closing, Attis will issue to Buyer a warrant to purchase shares of common
stock, par value $0.025, of Attis, equal to two percent of the issued and outstanding shares of capital stock of Attis on a fully-diluted
basis as of Closing (subject to adjustment as set forth in the Purchase Agreement) on such terms to be determined by Attis and
Buyer.
As all the required criteria for held for
sale classification were met at December 31, 2017, the waste management business is classified as held for sale in the Consolidated
Balance Sheets and reflected as discontinued operations in the Consolidated Statements of Operations for all periods presented.
Included in these results are the operations of a consolidated variable interest entity (see Note 12,
Variable Interest Entity)
.
The assets held for sale represent that
entirety of the Mid-Atlantic and Midwest waste management segments historically disclosed by the Company. These assets included
a 20% interest of the Tri-City Recycling Center (“TCR”), which had been treated as a variable interest entity. The
Company will have no continuing involvement with the discontinued operations after the disposal date.
Upon the terms and subject to the conditions
set forth in the Purchase Agreement, on April 20, 2018 Buyer purchased from Seller all of the membership interests in each of
the direct wholly-owned subsidiaries of Seller (the “Acquired Parent Entities” and together with each direct and indirect
subsidiary of the Acquired Parent Entities, the “Acquired Entities”), which constitute the Solid Waste Business (as
defined below), and each such Acquired Parent Entity continues as a wholly-owned subsidiary of Buyer (the “Transaction”).
Pursuant to the Purchase Agreement, upon the consummation of the Transaction (the “Closing”), Buyer paid Seller Parties
$3.0 million in cash; satisfied $75.8 million of outstanding indebtedness under the Prior Credit Agreement (as defined below);
and assumed the Acquired Entities’ obligations under certain equipment leases and other operating indebtedness and obligations.
At the Closing, the Seller Parties retained approximately $8.7 million of outstanding indebtedness under the New Credit Agreement
(as defined below), including accrued interest in an aggregate amount approximately equal to $1.6 million, and all other assets
and obligations of Attis, the Technologies Business and the Innovations Business (each as defined below). Pursuant to the terms
of the Purchase Agreement, at the Closing, Attis issued to Buyer a warrant (the “Company Warrant”) to purchase shares
of Attis’ common stock, par value $0.025 equal to two percent of the issued and outstanding shares of capital stock of Attis
on a fully-diluted basis as of Closing (subject to adjustment as set forth therein and as more fully described in the Purchase
Agreement and the Company Warrant) at a per share purchase price equal to $1.00 (the “Company Warrant Exercise Price”).
The Company Warrant Exercise Price is subject to adjustment as more fully set forth in the Company Warrant.
On March 30, 2018, Seller Parties and
Buyer entered into Amendment #1 to the Purchase Agreement (“Amendment No. 1”) to (i) provide an exception to the indemnification
obligations of Seller Parties with respect to Losses (as defined in the Purchase Agreement) arising out of or relating to an acquisition
of certain solid waste assets by an Acquired Entity following the execution date of the Purchase Agreement and the assets and
liabilities assumed by such Acquired Entity in connection with the acquisition and (ii) to amend the description of the Company
Warrant to provide that the Company Warrant Exercise Price shall be equal to the lower of (a) $1.25 or (b) the average of the
daily high and low sale prices per share over the 30 days ending one day prior to the Closing, provided that such price shall
not be less than $1.00 per share of Common Stock.
In addition, on April 20, 2018, prior
to the Closing, Parties and Buyer entered into Amendment #2 to the Purchase Agreement (“Amendment No. 2”) to, among
other things, (i) require the Seller Parties to take certain actions related to the Company’s 401(k) plans and (ii) require
the Company to maintain the employment agreement of a specific employee and indemnify Buyer for certain breaches of such employee’s
employment agreement.
The following table contains select amounts
reported in our Consolidated Statements of Operations as discontinued operations:
Major Class of line items constituting
pretax (loss) of discontinued operations as of the three months ended June 30, 2017:
|
|
Three months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,410,270
|
|
|
$
|
14,220,423
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
|
|
Operating
|
|
|
2,019,919
|
|
|
|
11,370,739
|
|
Depreciation, depletion and amortization
|
|
|
-
|
|
|
|
4,320,920
|
|
Bad debt expense
|
|
|
-
|
|
|
|
158,886
|
|
Selling, general and administrative
|
|
|
(58,637
|
)
|
|
|
1,395,687
|
|
Interest Expense
|
|
|
1,021,375
|
|
|
|
2,042,030
|
|
Other
|
|
|
232,280
|
|
|
|
(20,301
|
)
|
Total costs and expenses
|
|
|
23,215,477
|
|
|
|
19,267,962
|
|
Pretax income (loss) from discontinued operations
|
|
|
194,793
|
|
|
|
(5,047,539
|
)
|
Gain on disposal of assets
|
|
|
21,778,559
|
|
|
|
(841
|
)
|
(Provision) benefit for income taxes
|
|
|
-
|
|
|
|
(122,905
|
)
|
Income (loss) from discontinued operations
|
|
$
|
21,973,353
|
|
|
$
|
(5,169,603
|
)
|
Major Class of line items constituting
pretax (loss) of discontinued operations as of the six months ended June 30, 2017:
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
17,811,595
|
|
|
$
|
25,125,490
|
|
Total costs and expenses
|
|
|
|
|
|
|
|
|
Operating
|
|
|
12,393,313
|
|
|
|
18,358,125
|
|
Depreciation, depletion and amortization
|
|
|
-
|
|
|
|
7,356,344
|
|
Bad debt expense
|
|
|
40,089
|
|
|
|
337,374
|
|
Selling, general and administrative
|
|
|
2,100,643
|
|
|
|
3,521,530
|
|
Interest Expense
|
|
|
3,618,990
|
|
|
|
3,544,995
|
|
Other
|
|
|
(268
|
)
|
|
|
(76,459
|
)
|
Total costs and expenses
|
|
|
18,152,767
|
|
|
|
33,041,068
|
|
Pretax income (loss) from discontinued operations
|
|
|
(341,172
|
)
|
|
|
(7,916,420
|
)
|
Gain on disposal of assets
|
|
|
21,778,559
|
|
|
|
(841
|
)
|
(Provision) benefit for income taxes
|
|
|
-
|
|
|
|
(224,518
|
)
|
Income (loss) from discontinued operations
|
|
$
|
21,437,388
|
|
|
$
|
(8,140,097
|
)
|
The following table presents the depreciation,
amortization, accretion, and capital expenditures for the discontinued operations for the six months ended June 30, 2018 and
2017, respectively and also any significant operating or investing non-cash items for the three and six months ended June 30, 2018
and 2017, respectively.
|
|
Three Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,678,000
|
|
|
$
|
4,356,000
|
|
Accretion expense
|
|
|
117,000
|
|
|
|
113,000
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
5,131,000
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,678,000
|
|
|
$
|
7,356,000
|
|
Accretion expense
|
|
|
117,000
|
|
|
|
169,000
|
|
Capital expenditures
|
|
$
|
2,557,000
|
|
|
$
|
6,531,000
|
|
Significant Non-cash Operating and Investing Activities
Related to Discontinued Operations
|
|
Three Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Note payable incurred for acquisition
|
|
$
|
-
|
|
|
$
|
4,400,000
|
|
Common stock issued for acquisition
|
|
|
-
|
|
|
|
12,500,000
|
|
Property, plant and equipment additions financed by notes payable and capital leases
|
|
$
|
-
|
|
|
$
|
32,000
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Note payable incurred for acquisition
|
|
$
|
3,692,000
|
|
|
$
|
38,500,000
|
|
Common stock issued for acquisition
|
|
|
-
|
|
|
|
13,700,000
|
|
Property, plant and equipment additions financed by notes payable and capital leases
|
|
$
|
577,194
|
|
|
$
|
6,600,000
|
|
NOTE 11 – LITIGATION
The Company is involved in various lawsuits
related to the operations of its subsidiaries which arise in the normal course of business. Management believes that it has adequate
insurance coverage and/or has appropriately accrued for the settlement of these claims. If applicable, claims that exceed amounts
accrued and/or that are covered by insurance, management believes they are without merit and intends to vigorously defend and
resolve and does not expect any material impact on financial condition.
On June 15, 2018, the plaintiff in a lawsuit
styled Rampey Enterprises, Inc. v. LGMG, LLC, District Court of Tulsa County, Oklahoma, Case No. CJ-2017-1908, filed a motion to
have the Company substituted as the defendant on the grounds the Company had “merged” with LGMG, LLC, and therefore
should be held liable for all of such plaintiff’s claims against LGMG, LLC (“LGMG”). No such merger has ever
occurred. The Company is the sole shareholder of MSTI, which in turn is the sole member of WelNess, which in turn is the majority
member of LGMG. LGMG has filed, and the Company is in the process of filing, an objection to said motion. The Company intends to
vigorously defend this action. Management is unable to characterize or evaluate the probability of any outcome at this time.
NOTE 12 – VARIABLE INTEREST ENTITY
AMERICAN SCIENCE AND TECHNOLOGY CORPORATION
– VARIABLE INTEREST ENTITY
On November 9, 2017, the Company entered
into a Patent License Agreement with American Science and Technology Corporation (“AST”). Consistent with the terms
of this agreement, effective January 1, 2018, the Company gained the exclusive commercial license to certain licensed patents
of AST for a term of 24 months. In addition, the Company entered into a commercial lease with AST for certain property and equipment
which comprised the entirety of the operational assets of AST for a term of 24 months.
Pursuant to these agreements, the Company
paid $500,000 and issued 500,000 shares of the Company stock. Additionally, effective January 1, 2019, the Company will pay to
AST monthly license and lease payments of $125,000 for twelve months.
In addition, the Company and AST also entered
into an Option Agreement (the “Option”), granting the Company the option to purchase outright the assets (patents and
property and equipment) of AST for $2,500,000, and certain future royalty payments consisting of two tenths of a percent (0.2%)
of all the Company’s Biomass Feedstock Costs incurred in operating the Property as a biorefinery which has incorporated the
technology contained in the Biorefinery Patents in its design, construction or operations. Also, the Company will pay $250,000
for any third party owned biorefinery constructed, with the Company’s written consent, employing the technology contained
in the Biorefinery Patents. The option is exercisable from date of execution through December 31, 2019.
As noted above, the license and lease agreements
cover the entirety of the assets of AST and effectively result in the Company having control of the AST business. Management evaluated
this arrangement and determined that AST was a variable interest entity to which the Company had a variable interest and is the
primary beneficiary of AST as the result of these agreements. Accordingly, management determined that AST should be consolidated
by the Company in these condensed financial statements since January 1, 2018.
The Company acquired AST to further its
footprint in the bio-renewable space. AST business is focused on the conversion of lignocellulosic biomass into high-value chemicals
and products. The acquisition of this variable interest entity was accounted for by the Company using the acquisition method under
business combination accounting. Under this method, the purchase price paid by the acquirer is allocated to the assets acquired
and liabilities assumed as of the acquisition date based on the fair value. Determining the fair value of certain assets and liabilities
assumed is judgmental in nature and often involves the use of significant estimates and assumptions. Certain amounts below are
provisional based on our best estimates using information available as of the reporting date. The Company is waiting for information
to become available to finalize its valuation of certain elements of this transaction. Specifically, the assigned values for property,
plant and equipment, patents, lease payments payable, non-controlling interest and goodwill are provisional in nature and subject
to change upon the completion of the final valuation of such elements.
Although structured as leases, the purchase
price consideration was deemed to be the upfront cash and common stock payments, along with the monthly payments required to be
made in 2019. The option to purchase is considered a call option over the non-controlling interest in AST which was evaluated
to discern whether it required any accounting under ASC 480 or ASC 815. As a result of this evaluation, the option agreement was
considered to be an equity item embedded within the noncontrolling interest.
The calculation of purchase price, including
measurement period adjustments, is as follows:
Cash consideration
|
|
$
|
500,000
|
|
Stock consideration
|
|
|
540,000
|
|
Lease payments consideration
(provisional)
|
|
|
1,358,942
|
|
Total
|
|
$
|
2,398,942
|
|
The acquisition was accounted for in
accordance with ASC 805, Business Combinations. The standard allows for provisional amounts to be recorded related to a
business combination in the event the accounting is yet to be compete at the end of a reporting period. Entities have up to
one year from the effective date of a business combination, referred to a s a measurement period, to adjust any provisional
amounts recorded. The Company is finalizing the estimate of fair value amounts in connection with this acquisition. The
completion of the fair value assessment of assets acquired is anticipated to be finalized before the measurement period. The
measurement period for this acquisition ends on November 9, 2018. The Company will disclose any changes to the accounting of
the acquisition, if any, in future reporting periods.
As noted in the table above, the Company
issued 500,000 shares of common stock as consideration, which was valued based on the trading price of the stock on the effective
date of the transaction ($1.08 per share). The lease payment consideration is provisionally valued based off the present value
of the future cash flows discounted at a market participant expected cost of debt.
The following table summarizes the estimated
fair value of the assets acquired and liabilities assumed at the date of acquisition:
Property, plant and equipment (provisional)
|
|
$
|
2,749,020
|
|
Patents (provisional)
|
|
|
1,832,680
|
|
Non-controlling interest
|
|
|
(2,182,758
|
)
|
Goodwill
|
|
|
-
|
|
Total
|
|
$
|
2,398,942
|
|
The following unaudited pro forma information
below presents the consolidated results operations data for the six months ended June 30, 2017 as if the acquisition took place
on January 1, 2017:
|
|
Three Months Ended June 30,
2017
|
|
|
Six Months
Ended
June 30,
2017
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
|
|
|
$
|
1,028,000
|
|
Consolidated Net Loss
|
|
|
|
|
|
$
|
(3,233,000
|
)
|
Basic Net Loss Per Share
|
|
|
|
|
|
$
|
(0.62
|
)
|
Note: The acquisition was effective January
1, 2018, thus the consolidated statements of operations for the six months ended June 30, 2018 include the results of AST for
the entire period.
NOTE 13 – SEGMENT AND RELATED INFORMATION
Historically, the Company had one operating
segment. However, with the acquisition of the Mid-Atlantic segment in the first quarter of 2017, the Company’s operations
were managed through two operating segments: Mid-Atlantic and Midwest regions. Both these segments are now included in discontinued
operations. The Company has shifted its focus and now operates 2 new lines of business currently: technologies (the “Technologies
Business”) through its wholly-owned subsidiary, Mobile Science Technologies, Inc.; and innovations (the “Innovations
Business”) through its wholly-owned subsidiary, Attis Innovations, LLC. The Company’s Technologies Business centers
on creating community-based synergies through healthcare collaborations and software solutions and the Innovation Business strives
to create value from recovered resources, through advanced byproduct technologies and assets found in downstream production. These
two operating segments and corporate are presented below as its reportable segments.
Summarized financial information concerning
our reportable segments for the six months ended June 30, 2018 is shown in the following table:
|
|
Service
Revenues
|
|
|
Depreciation
and
Amortization
|
|
|
Capital
Expenditures
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
|
|
$
|
858,000
|
|
|
$
|
190,000
|
|
|
$
|
161,000
|
|
|
$
|
5,300,000
|
|
Innovations
|
|
|
212,000
|
|
|
|
50,000
|
|
|
|
2,750,000
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
31,000
|
|
|
|
15,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,070,000
|
|
|
$
|
271,000
|
|
|
$
|
2,926,000
|
|
|
$
|
5,300,000
|
|
Summarized financial information
concerning our reportable segments for the three months ended June 30, 2018 is shown in the following table:
|
|
Service
Revenues
|
|
|
Depreciation
and
Amortization
|
|
|
Capital
Expenditures
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
|
|
$
|
70,000
|
|
|
$
|
(116,000
|
)
|
|
$
|
159,000
|
|
|
$
|
-
|
|
Innovations
|
|
|
212,000
|
|
|
|
(55,000
|
)
|
|
|
50,000
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
282,000
|
|
|
$
|
(161,000
|
)
|
|
$
|
2,926,000
|
|
|
$
|
5,300,000
|
|
NOTE 14 – SUBSEQUENT EVENTS
SERIES F PREFERRED STOCK
Effective August 6, 2018, the Company announced
the restructuring of its Series F Preferred Stock financing completed in February 2018. As part of the restructuring, the Company
executed the closing agreements on a new financing arrangement with a single existing institutional shareholder, which now allows
for future long-term financing, increasing the conversion valuation, and reducing potential dilution. As a result of such recent
agreements, four of the prior Series F Preferred holders were bought out and the conversion rate changed from a variable price
to the greater of $0.50 per share or 100% of the lowest closing market price for the 30 days preceding conversion. Additionally,
the new holders of the Series F Preferred Stock have agreed to leak-out restrictions limiting the amount of common stock that can
be sold upon conversion of the preferred stock. On August 6, 2018 the Company submitted for filing with the Secretary of State
of the State of New York that certain Certificate of Amendment to the Certificate of Incorporation (the “Series F Amended
Certificate”) to amend the designations for the Series F Preferred Stock to state that the conversion price of the Series
F Preferred Stock shall be the greater of (a) $0.50 or (b) 100% of the lowest closing market price during the 30-calendar day period
preceding the date of delivery of the conversion notice by the Series F Preferred Stock shareholder, subject to adjustment
INCREASE IN AUTHORIZED SHARES OF CAPITAL STOCK
On July 2, 2018, the Company filed with the Secretary of State of the State of New York that certain Certificate
of Amendment to the Certificate of Incorporation to affect an increase in the aggregated authorized shares the Company may issue
to 155,000,000 shares, increasing the number of shares of common stock the Company has the authority to issue, with a par value
of $0.025 per share, to 150,000,000 shares.