Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Note 1. Basis of Presentation and Going Concern

Nature of Operations -BioHiTech Global, Inc. (the “Company” or “BioHiTech”) through its wholly-owned subsidiaries, BioHiTech America, LLC, BioHiTech Europe Limited and E.N.A. Renewables LLC (formerly Entsorga North America, LLC) (collectively “subsidiaries”) offers its customers cost-effective and technologically innovative advancements integrating technological, biological and mechanical engineering solutions for the control, reduction and / or reuse of organic and municipal waste.

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

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2016, which contains the audited financial statements and notes thereto, for the years ended December 31, 2016 and 2015 included within the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2017. The financial information as of December 31, 2016 presented hereto is derived from the audited consolidated financial statements presented in the Company’s audited consolidated financial statements for the year ended December 31, 2016. The interim results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any future interim periods.

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

Going Concern — For the six months ended June 30, 2017, the Company had a net loss of $3,907,434, incurred a consolidated loss from operations of $3,229,087 and used net cash in consolidated operating activities of $2,153,367. For the year ended December 31, 2016, the Company had a net loss of $6,745,386, incurred a consolidated loss from operations of $5,924,667 and used net cash in consolidated operating activities of $5,181,400. At June 30, 2017, consolidated stockholders’ deficit amounted to $14,470,591 and the Company had a consolidated working capital deficit of $6,782,719. The Company does not yet have a history of financial stability. Historically the principal source of liquidity has been the issuance of debt and equity securities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

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

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

Note 2. Summary of Significant Accounting Policies

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

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Product and Services Revenue Recognition — The Company recognizes revenue for the majority of its products sold upon transfer of title and the passage of the risk of ownership, which is generally upon shipment to the customer. Revenue from services is recognized as services are performed.

Lease Revenue Recognition — The Company recognizes revenue from the rental of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection with its Eco Safe Digester units qualify as operating leases, for which the Company is the operating lessor.

Fair Value Measurements — Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets held and used, long-lived assets held for sale, goodwill and other intangible assets. The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The three-tier value hierarchy, which prioritizes valuation methodologies based on the reliability of the inputs, is:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

In connection with a professional services agreement, a warrant liability for an agreement to issue warrants that were not issued as of March 31, 2017 has been recognized with a fair value of $105,188 on March 31, 2017 based upon utilization of the Black–Scholes–Merton model utilizing a stock price of $2.954 on the date of the grant, an exercise price of $2.75, a standard deviation (volatility) of 31.43%, a risk free interest rate of 2.88% with a term of 5 years. Subsequently, the warrant was issued and a loss of $1,999 was recognized in May 2017 based upon a stock price of $3.00 on the date of the grant, an exercise price of $2.75, a standard deviation (volatility) of 31.11%, a risk free interest rate of 2.75% with a term of 5 years.

Equity Method Based Investments — The Company utilizes the equity method of accounting for investments in companies if the investment provides the ability to exercise significant influence, but no control, over operating and financial policies of the investee. The Company’s proportionate share of net income or loss is included in the Company’s consolidated operations as earning or loss from unconsolidated equity basis investments.

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

For the six and three months ended June 30, 2017 and 2016, the Company’s effective rate, before valuations, was 39.8% and 36.7%, respectively, and would have resulted in net deferred tax assets for federal and state tax purposes arising primarily from net operating losses; A full valuation allowance, due to the level of uncertainty relative to the realization of the deferred tax assets, has been provided resulting in an effective tax rate of 0.0%.

Loss per Share — The Company computes basic loss per share using the weighted-average number of shares of common stock outstanding and diluted loss per share, while the diluted loss per share also includes the effects of dilutive instruments using the “treasury method.”

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

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

During the three months ended June 30, 2017 and 2016, depreciation expense included in cost of revenue, amounted to $69,377 and $90,706, respectively. During the six months ended June 30, 2017 and 2016, depreciation expense included in cost of revenue, amounted to $143,957 and $150,320, respectively.

The Company is a lessor of Revolution and Eco Safe Series digester units under non-cancellable operating lease agreements expiring through December 2022. During the three months ended June 30, 2017 and 2016, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $209,114 and $173,283, respectively. During the six months ended June 30, 2017 and 2016, revenue under the agreements, which is included in rental, service and maintenance revenue, amounted to $411,578 and $323,162, respectively.

The minimum future estimated contractual payments to be received under these leases as of June 30, 2017 is as follows:

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

During the three months ended June 30, 2017 and 2016, depreciation expense amounted to $5,025 and $4,675, respectively. During the six months ended June 30, 2017 and 2016, depreciation expense amounted to $10,298 and $6,151, respectively.

Note 7. Investment in Entsorga West Virginia LLC (“EWV”)

Effective January 1, 2017, the Company executed several agreements to acquire up to approximately a 40% interest in EWV from the original investors at their original purchase price of $60,000 for each 1% of interest in EWV. The agreement provides for a required investment of $1,034,028, representing a 17.2% interest, with the remaining 23.1% being at the option of the Company. The agreement was subject to the approval of the EWV bond trustee, which was granted on March 20, 2017. On March 21, 2017, the Company completed the required investment acquisition of $1,034,028 for a 17.2% interest, which is recognized utilizing the equity method of accounting.

Summarized financial information for EWV is as follows:

EWV has financed the development and construction of the facility through $25,000,000 in Solid Waste Disposal Revenue Bonds issued by the West Virginia Economic Development Authority (the “Bonds”). In connection with the Bonds, each member has been required to pledge their membership interest in EWV to the Bond trustee as collateral of the Bonds.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Note 8. MBT Facility Development Costs

On March 1, 2017 the Town Counsel of New Windsor, NY approved, subject to a 30 day petition period during which certain voters could objection, the sale of 12 acres of property to the Company for the development of a Mechanical Biological Treatment (“MBT”) facility. On April 3, 2017, the Town Clerk of New Windsor certified that there had not been any objections raised and the agreement was executed on April 10, 2017. The purchase price of the property is $1,092,000, subject to reduction for option payments made by the Company in the monthly amount of $3,500 for the first 12 months and $6,000 per month for the following 12 months, until the closing. The purchase of the property is contingent upon the Company obtaining: necessary permits to allow construction of a Mechanical Biological Treatment (“MBT”) facility; approvals from state and local authorities; financing for the construction of the MBT facility; contracts for offtake of Solid Recovered Fuel; and the satisfaction of the Company’s due diligence investigation of the property. The contract also contains customary representations warranties and covenants of the parties for like transactions.

As of June 30, 2017, the financial statements include costs related to the New Windsor, NY site, including those related to the land option payments, legal costs and survey/engineering costs of $35,000, $10,371 and $29,595, respectively.

During the three months ended June 30, 2017 and 2016, amortization expense, included in depreciation and amortization of operating expenses, amounted to $23,310 and $24,499, respectively. During the six months ended June 30, 2017 and 2016, amortization expense, included in depreciation and amortization of operating expenses, amounted to $47,809 and $48,898, respectively.

At June 30, 2017, future annual estimated amortization expense is summarized as follows:

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Major customers - During the three months ended June 30, 2017, no customers represented at least 10% of revenues. During the three months ended June 30, 2016, one customer accounted for at least 10% of revenues, accounting for 10% of revenues. During the six months ended June 30, 2017, no customers represented at least 10% of revenues. During the six months ended June 30, 2016, one customer accounted for at least 10% of revenues, accounting for 10% of revenues.

As of June 30, 2017, two customers represented at least 10% of accounts receivable, each accounting for 11% of accounts receivable. As of December 31, 2016, two customers represented at least 10% of accounts receivable, accounting for 22% and 10% of accounts receivable.

Vendor concentration - During the three months ended June 30, 2017, two vendors represented at least 10% of costs of revenue, each accounting for 17% of the combined cost of revenues and change in inventory. During the six months ended June 30, 2017, three vendors represented at least 10% of costs of revenue, accounting for 14%, 12% and 12% of the combined cost of revenues and change in inventory. During the three months ended June 30, 2016, two vendors represented at least 10% of costs of revenue, accounting for 42% (BioHiTech International, a 10% shareholder) and 32% of the combined cost of revenues and change in inventory. During the six months ended June 30, 2016, one vendor represented at least 10% of costs of revenue, accounting for 51% (BioHiTech International, a 10% shareholder) and 21% of the combined cost of revenues and change in inventory.

As of June 30, 2017, three vendors represented at least 10% of accounts payable, accounting for 26% (a 1.9% shareholder), 18% and 12% (BioHiTech International, a 10% shareholder) of accounts payable. As of December 31, 2016, two vendors represented at least 10% of accounts payable, accounting for 32% (a 1.9% shareholder) and 21% of accounts payable.

The table below presents direct related party expenses or transactions for the periods indicated. Compensation and related costs for employees of the Company are excluded from the table below.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

*Related party debt is presented at mature face value.

Series B Unsecured Subordinated Convertible Promissory Notes – During the six months ended June 30, 2017, the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell and the Investors agreed to purchase in a private placement offering (the “Private Placement”) units (the “Units”) in the aggregate offering amount of $650,000, including $500,000 who were also shareholders and officers of the Company.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Convertible Note – Effective March 30, 2017 the Company entered into a Securities Purchase Agreement, a Convertible Note with a maximum funding amount of $550,000 and Warrants with Vista Capital Investments LLC (“Vista”). As of March 31, 2017, in exchange for $100,000, Vista received a $110,000 face value note, which included a beneficial conversion feature valued at $4,014, a warrant for 24,750 shares of common stock valued at $16,043 utilizing the Black–Scholes–Merton model utilizing a stock price of $2.954 on the date of the grant, an exercise price of $4.00, a standard deviation (volatility) of 31.43%, a risk-free interest rate of 2.88% with a term of 5 years. As of June 26, 2017, in exchange for an additional $100,000, the face value note outstanding was $220,000; this additional $100,000 funding also included a beneficial conversion feature valued at $1,930, a warrant for 24,750 shares of common stock valued at $16,360 utilizing the Black–Scholes–Merton model utilizing a stock price of $2.98 on the date of the grant, an exercise price of $4.00, a standard deviation (volatility) of 31.43%, a risk-free interest rate of 2.88% with a term of 5 years.

The note allows for fundings representing up to $550,000 in original principal amount notes with interest at 9.5%, of which $220,000 is outstanding as of June 30, 2017. Each funding matures in seven months from the time of the funding, accordingly the funding of March 31, 2017 matures on October 31, 2017 and the funding of June 26, 2017 matures January 26, 2018. The note is convertible into common shares of the Company at $2.85 per share at any time there is an outstanding balance. In the event that the note is in default, the conversion price will equal 65% of the lowest closing price occurring during 25 consecutive trading days immediately preceding the conversion date. Events of default include: failure to pay the holder of the note any amount outstanding, a failure to convert shares exercised, any bankruptcy or bankruptcy-like actions against the Company, defaults on other obligations, a suspension of trading of the Company’s common stock, loss of DTC eligible status, delinquent Securities & Exchange Commission (“SEC”) filings, failure to reserve and keep available up to four times the full number of shares into which the note is convertible and the inability of the Company top comply with the provisions of SEC Rule 144.

The total related warrants outstanding provide for the acquisition of up to 49,500 share of common stock at $4.00 per share and expire in five years from the date of issuance.

Series C Convertible Notes and Warrants - On May 24, 2017 the Company entered into a series of Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell and the Investors agreed to purchase units (the “Units”) in the aggregate offering amount of $940,000. The aggregate offering amount included $640,000 from the Company’s Chief Executive Officer. Each Unit, in the minimum subscription amount of $100,000 is comprised of an Original Issue Discount Convertible Promissory Note (the “Note,” collectively, the “Notes”) and warrants (the “Warrants”) to purchase shares of the Registrant’s common stock, par value $0.0001 per share (the “Common Stock”). Each Note bears interest at the rate of 3.5 % per annum, has been issued with an original issue discount of 10% and is due on May 24, 2018 (the “Maturity Date”). The Notes are secured by any proceeds received by the Registrant from its investments in Entsorga West Virginia, LLC and Apple Valley Waste Conversions, LLC, (“AVWC”) and the membership interests in AVWC. The Notes are convertible at the option of the Investors, at any time up to and including the Maturity Date, into shares of Common Stock equal to the outstanding principal amount under the Note, plus any accrued and unpaid interest, divided by a conversion price (the “Conversion Price”) equal to $3.00 per share. The Warrants are exercisable for a period of five years into a number of shares of Common Stock equal to 50% of the number of shares of Common Stock into which the Notes are convertible at an exercise price equal to $3.75 per share. The Purchase Agreement also provides the Investors the right to participate in up to 20% of the future external financing for the Registrant’s equity investment in up to six future High Efficiency Biological Treatment (HEBioT) facilities. The Purchase Agreement contains customary representations, warranties and covenants of the Registrant and the Investors for like transactions.

As of June 30, 2017, the Notes reflect an: original issue discount of $94,000, beneficial conversion feature of valued at $15,666 and warrants for 156,667 shares of common stock valued at $118,174 utilizing the Black–Scholes–Merton model utilizing a stock price of $3.05 on the date of the grant, an exercise price of $3.75, a standard deviation (volatility) of 31.1%, a risk-free interest rate of 2.75% with a term of 5 years, net of discount amortization of $8,575. The Black-Scholes option valuation model was used to estimate the fair value of the warrants and conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The Company determined the fair value of the Monte Carlo Model and the Black-Scholes-Merton Valuation Model to be materially the same. Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Maturities of Promissory Notes, Convertible Notes, Long Term Debt and Unsecured Subordinated Convertible Notes – as of June 30, 2017, excluding discounts and deferred finance costs, which are being amortized as interest expense, are as follow:

* Certain non-amortizing notes are subject to earlier maturities. The table above presents all non-amortizing notes at their time period based maturity condition.

Interest Expense - All interest on the Company’s various debts, including coupon and amortization of discounts and deferred financing costs are recognized as interest expense in the accompanying consolidated financial statements.

Note 13. Equity Transactions

Shareholder Information and Marketing Agreement – During 2016, the Company entered into a service agreement for an initial three-month term, subject to a termination option after the initial 30-day period. In addition to monthly cash fees, the Company will issue 8,000 shares of restricted common stock that will vest over the three-month period. During the three months ended March 31, 2017, 3,200 shares were earned at a cost of $8,053. During 2016, 4,800 shares were earned with a related cost of $12,952. The costs reflect the vesting of such shares based upon the daily closing prices of the Company’s common stock and reflected as professional fees and an increase to additional paid in capital.

Shareholder Awareness Consulting Agreement – During 2017, the Company entered into a ninety-day consulting agreement for shareholder awareness. The contract provided for 100,000 shares of the Company’s restricted common stock that will vest over the ninety-day period. During the three months ended March 31, 2017 and three months ended June 30, 2017, 89,063 shares were earned at a cost of $267,094, and 10,937 shares were earned at a cost of $35,274, respectively. The Contract also provided for the granting of a warrant for 100,000 shares of common stock. The warrant was initially valued at $105,188 utilizing the Black–Scholes–Merton model utilizing a stock price of $3.00 on the date of the initial estimation of the liability in the second quarter of 2017 utilizing the Black–Scholes–Merton model utilizing, an exercise price of $2.75, a standard deviation (volatility) of 31.11%, a risk-free interest rate of 2.75% with a term of 5 years. The costs reflect the vesting of such shares based upon the daily closing prices of the Company’s common stock and the estimated valuation of the warrant, which are reflected as professional fees and an increase to additional paid in capital. During the second quarter of 2017, the warrant was issued and the valuation at the time of issuance resulted in a $1,999 change in the fair value of the warrant, which has been expensed as a non-operational expense.

Subsequent to June 30, 2017, the Company and the consultant agreed to new terms to extend the contract through September 30, 2017. Under the terms of the extension, in addition to cash fees, the Company agreed to grant the consultant an additional 75,000 shares that will be earned over the term of the contract, from the date that the initial contract expired. Through June 30, 2017, the consultant has earned 34,884 shares with a cost of $102,670, which has been reflected as professional fees and an increase to additional paid in capital.

Series A and B Warrants – In connection with the issuance of Series A and B units, which included convertible debt and warrants that are exercisable for a period of five years into shares of common stock equal to the number of shares of common stock into which the notes are convertible at an exercise price equal to 120% of the conversion price of the notes. The embedded conversion feature and warrants issued in the transaction are not indexed to the Company’s common stock. However, the embedded conversion feature and warrants did not meet the definition of a derivative and therefore such conversion feature was not bifurcated from the underlying note payable and the warrants were not recorded as a derivative liability.

Maxim Warrants - In connection with the issuance of the Series A Units, the Company agreed to issue warrants to Maxim Group LLC, the placement agent, that are exercisable into 10% of the total number of shares of common stock that the notes are convertible under the notes at an exercise price of $3.75 per share. The warrants expire 5 years from the date of issuance of the underlying notes. As the number of shares that the note holders will receive upon conversion is unknown, the number of shares into which the warrants apply is also unknown.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Barksdale Warrants - In connection with an Offering in October 2013 the Company agreed to issue Barksdale Global Holdings, LLC (“Barksdale”) warrants. These warrants were issued on June 30, 2015 to purchase up to $140,000 of Common Interests (as converted to common stock) on or before the expiration date of June 30, 2020. The warrant is exercisable following the completion of an equity raise with financial institutions or accredited investors in which the Company receives gross proceeds of a minimum of $5.0 million. If the Company does not consummate a Qualified Financing prior to the expiration date, the warrant shall never be exercisable.

Other Warrants - In connection with prior debt offerings that have been converted into equity, warrants expiring between May and July of 2020 representing an $80,000 purchase equity interest remain outstanding. The warrants allow the holders to acquire up to $80,000 of the Company’s common stock at a price of 120% of the closing price of the Company’s first issuance of equity in one, or a series of related transactions, through which the Company receives gross proceeds of $5.0 million or more from one or more financial institutions or accredited investors. If the Company does not consummate a Qualified Financing prior to the expiration date, the warrant shall never be exercisable.

Note 14. Equity Incentive Plans

During 2015, the Company established the BioHiTech Global, Inc. 2015 Equity Incentive Plan, which is available to eligible employees, directors, consultants and advisors of the Company and its affiliates. The plan allows for the granting of incentive stock options, nonqualified stock options, reload options, stock appreciation rights, and restricted stock representing up to 750,000 shares. The Plan is administered by the board of directors. Effective March 1, 2016, the Company granted nonqualified options for 371,250 shares. Effective April 15, 2016, the Company granted 347,500 restricted stock units. As of June 30, 2017, there were 102,429 shares available under the Plan for future grants. There have been no grant awards made during the six months ended June 30, 2017. Compensation expense related to the options and restricted stock units was:

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2017:

The following table summarizes the Company’s restricted stock unit activity for the six months ended June 30, 2017:

At the Annual Shareholders Meeting on June 7, 2017 the shareholders approved the 2017 Executive Incentive Plan that allows for the granting of awards for up to 1,000,000 shares of the Company’s common stock. No grants under the plan have been made as of June 30, 2017.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Note 15. Commitments and Contingencies

From time to time, the Company is involved in legal matters arising in the ordinary course of business, including matters that relate to items for which the Company has accrued their contractual obligations, but are disputing payment for. The Company has one such matter relating to a professional services agreement in litigation that it believes does not present a material risk to the Company. While the Company believes that these such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.

Note 16. Operating Leases

The Company rents its headquarters and attached warehousing space from a related party (see Note 11) and their research and development office from an unrelated party under operating leases. The research and development office lease commenced in October 2015 and will expire in 2018, subject to one renewal option for an additional one-year period. The total future minimum lease payments under these leases as of June 30, 2017 is:

Total rent expense under all operating leases amounted to $32,830 and $28,682 for the three months ended June 30, 2017 and 2016, respectively. Total rent expense under all operating leases amounted to $65,781 and $48,133 for the six months ended June 30, 2017 and 2016, respectively.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Note 18. Recent Accounting Pronouncements

During the six months ended June 30, 2017, the Company implemented the following recent accounting pronouncements:

Stock Compensation - In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (Topic 718). The amendments in this ASU is to significantly reduce the complexity and cost of accounting for excess tax benefits and tax deficiencies related to employee share-based payment transactions, which include restricted stock and stock options. Also, ASU No. 2016-09 requires an entity to run excess tax benefits and deficiencies through its income statement, which in effect eliminates the concept of additional paid-in capital. This new guidance was implemented during the first quarter of 2017 and its implementation did not have a material impact on the financial statements.

Inventory - In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory measured using any method other than last-in, first out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. This new guidance was implemented during the first quarter of 2017 and its implementation did not have a material impact on the financial statements.

Statement of Cash Flows – In August 2016, the FASB issued Accounting Standards Update No. 2016-15,  Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments  (“ASU 2016-15”). The update amends the guidance in Accounting Standards Codification 230,  Statement of Cash Flows , and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The Company elected to early adopt this new guidance during the first quarter of 2017 and its implementation did not have a material impact on the financial statements.

Accounting for Certain Financial Instruments with Down Round Features - In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The effective date for ASU 2017-11 is for annual or any interim periods beginning after December 15, 2018. Early adoption is permitted. The Company implemented this ASU on a retrospectively basis as of January 1, 2017 and April 1, 2017. Since there was no reduction of the conversion price and exercise price of the warrants associated with the Notes, there is no impact upon implementation of ASU 2017-11 to the condensed consolidated financial statements.

The Company has not yet implemented the following recent accounting pronouncements:

Revenue from Contracts with Customers - In April 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing” (Topic 606). The amendments clarify two aspects of ASU No. 2014-09, “Revenue from Contracts with Customers,” by providing (1) guidance for identifying performance obligations and (2) licensing implementation guidance. Public business entities should apply the guidance similar to Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09, as amended, is effective for fiscal years beginning after December 15, 2017 and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company does not anticipate that the adoption, by means of a retrospective approach with a cumulative effect, if any, will have a material effect on its consolidated financial position or results of operations.

BioHiTech Global, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2017 and 2016, and as of June 30, 2017 and December 31, 2016 (Unaudited)

Leases - In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) 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 modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company will evaluate the effects, if any, that adoption of this ASU will have on its consolidated financial position or results of operations.