UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K /A
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2013
or
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________ to ___________________
Commission file number:000-30396
GLYECO, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 45-4030261 | |||
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |||
230 Gill Way Rock Hill, South Carolina | ||||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(866) 960-1539
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.0001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso ¨Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso ¨Nox
Note
– Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNoo¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o¨
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer: | Accelerated filer: |
Non-accelerated filer: | Smaller reporting company:x |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso ¨Nox
As of June 30, 2013,2016, the last business day of the registrant’s most recently completed second fiscal quarter, 20,043,912102,443,650 shares of its Common Stock, par value $0.0001 per share, were held by non-affiliates of the registrant. The aggregate market value of those shares was $24,854,451$13,317,675 based on the closing sale price of $1.24$0.13 on such date as reported on the OTCQBOTC Market system. Shares held by executive officers, directors, and persons then owning directly or indirectly more than 10% of the outstanding common stockCommon Stock have been excluded from the preceding number because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.
As of March 31, 2014,24, 2017, the Registrantregistrant had 51,619,364126,392,891 shares of Common Stock, par value $0.0001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE
OF CONTENTS| Page | |||
| PART I | 4 | ||
| Item 1. | |||
| Item 1A. | |||
| Item 1B. | 19 | ||
| Item 2. | Properties | 19 | |
| Item 3. | Legal Proceedings | 20 | |
| Item | |||
| PART II | 21 | ||
| Item 5. | |||
| Item 6. | |||
| Item 7. | |||
| Item 7A. | |||
| Item 8. | |||
| Item 9. | |||
| Item 9A. | |||
| Item 9B. | |||
| PART III | 67 | ||
| Item 10. | |||
| Item 11. | |||
| Item 12. | |||
| Item 13. | |||
| Item 14. | |||
| PART IV | 87 | ||
| Item | |||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this Annual Report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the Securities and Exchange Commission that are incorporated into this Annual Report by reference, if any. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this Annual Report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Annual Report. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission. Also note that we include a cautionary discussion of risks, uncertainties, and possibly inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us.
When used in this Annual Report, the words “anticipate,” “believe,” “expect,” “estimate,” “project,” “intend,” “plan,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated, projected, intended, or planned. For additional discussion of such risks, uncertainties, and assumptions, see “Cautionary Note Regarding Forward-Looking Statements” included in the beginning of this report and “Risk Factors” beginning on page 1312 of this Annual Report.
Unless otherwise noted, terms such as the “Company,” “GlyEco,” “we,” “us,” “our” and similar terms refer to GlyEco, Inc., a Nevada corporation, and its wholly-owned subsidiaries.
Corporate History
GlyEco, Inc. (“GlyEco” or the “Company”) is a Nevada corporation, with its principal executive offices located at 230 Gill Way, Rock Hill, South Carolina, 29730. GlyEco was formed in the State of Nevada on October 21, 2011. On that same date, the Company Overview
On November 28, 2011, the Company consummated a reverse triangular merger (the “Merger” or “Transaction”) as a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended, pursuant to an Agreement and Plan of Merger, dated November 21, 2011 (the “Merger Agreement”), with GRT Acquisition, Inc., a Nevada corporation and wholly-owned subsidiary of the Company, and Global Recycling Technologies, Ltd., a Delaware corporation and privately-held operating subsidiary (“Global Recycling”). Pursuant to the Merger Agreement, GRT Acquisition, Inc. merged with and into Global Recycling, with Global Recycling being the surviving corporation and which resulted in Global Recycling becoming a wholly-owned subsidiary of the Company.
On December 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that collectsdevelops, manufactures and recyclesmarkets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries; and 96% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology. On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation, a wholly-owned subsidiary of The Dow Chemical Company, at Institute, West Virginia.
Description of Business Activity
GlyEco is a leading specialty chemical company, leveraging technology and innovation to focus on vertically integrated, eco-friendly manufacturing, customer service and distribution solutions. Our eight facilities, including the recently acquired 14-20 million gallons per year, ASTM E1177 EG-1, glycol re-distillation plant at Institute, West Virginia, deliver superior quality glycol products that meet or exceed ASTM quality standards, including a wide spectrum of ready to use antifreezes and additive packages for antifreeze/coolant, gas patch coolants and heat transfer fluid industry, throughout North America. Our team's extensive experience in the chemical field, including direct experience with reclamation of all types of glycols, gives us the ability to process a wide range of feedstock streams, formulate and produce unique products and has earned us an outstanding reputation in our markets.
GlyEco has two segments: Consumer and Industrial. Consumer’sprincipal business activity is the processing of waste glycol into a reusable product that is sold to third party customershigh-quality recycled glycol products, specifically automotive antifreeze, and related specialty blended antifreeze, which we sell in the automotive and industrial end-markets.end markets. We are the largest independent glycol recycleroperate six processing and distribution centers located in the eastern region of the United States, as measured by revenueStates. Industrial’s principal business activity consists of two divisions. WEBA develops, manufactures and number of locations. Our proprietary technology, GlyEco Technologymarkets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America, and RS&T, which operates aTM14-20 million gallons per year, ASTM E1177 EG-1, glycol re-distillation plant in West Virginia that, allows us to recycle all five major types ofprocesses waste glycol into a virgin-quality product usable in anyvirgin quality recycled glycol application. We are dedicatedfor sale to conserving natural resources, limiting liability for waste generators, safeguardingindustrial customers worldwide.
Consumer segment
Prior to the environment,December acquisitions of WEBA, RS&T and creating valuable green products.
Our telephone number at that office is (866) 960-1539. Our website address is www.glyeco.com. Our stock is traded on the OTCQB under the symbol “GLYE.”
We have deployed our proprietary technology across our six processing distribution centers, allowing for safe and efficient handling of waste generating customers, the company has completed upgrades to improve quality and expand processing capabilities and capacity at eachstreams, application of our processing centers. The following upgrades were made totechnology and Quality Control & Assurance Program (“QC&A”), sales of high-quality glycol products, and data systems allowing for tracking, training, and further development of our processing centers in 2013:
Our Consumer segment product offerings include:
| High-Quality Recycled Glycols - Our technology allows us to produce glycols which meet ASTM standards and can be used in any industrial application. | ||
| · | Recycled Antifreeze - We formulate several universal recycled antifreeze products to meet ASTM and/or OEM manufacturer specifications for engine coolants. In addition, we custom blend recycled antifreeze to customer specifications. | |
| · | Recycled HVAC Fluids - We formulate a universal recycled HVAC coolant to meet ASTM and/or OEM manufacturer specifications for heating, ventilation and air conditioning fluids. In addition, we custom blend recycled HVAC coolants to customer specifications. | |
| · | Waste Glycol Disposal Services - Utilizing our fleet of collection/delivery trucks, we collect waste glycol from |
| · | Windshield Washer Fluid - In certain markets we sell windshield washer fluids which we do not recycle. |
We currently sell and deliver all of our products in the United States, we intend to build on the past year’s growth. We intend to increase production of T1TM recycled glycol and increase our customer base for that product offering. We plan to expand the number of waste glycol generators we service and expand those services in to new markets. We intend to increase our customer base for fully formulated antifreeze, HVAC fluids, and recycled glycols. We will continue to expand recycling services into new markets. Further, we will continue to explore additional acquisitions and seek to create strategic alliances with companies producingbulk containers (55 gallon barrels, 250 gallon totes, etc.) or aggregating waste glycol.
We began developing innovative new methods for recycling glycols in 1999. We sawrecognized a need in the market to improve the quality of recycled glycol being returned to retail customers. In addition, we believed through process technology, systems, and tofootprint we could clean more types of waste glycol in a more cost efficient manner. Each type of industrial waste glycol contains a different setlist of impurities which traditional waste antifreeze processing just doesn'tdoes not clean effectively. And,Additionally, many of the contaminants left behind using these processes - such as esters, organic acids and high dissolved solids - leave the recycled material risky to use in vehicles or machinery.
Our proprietary and development, independent market validation, and financial analysis to determine the most advantageous business position for expanding what we believe to be groundbreaking technologies. The result is our breakthrough patent-pending processing system, GlyEco TechnologyTM. Our inventivepatented technology removes challengingdifficult pollutants, including esters, organic acids, high dissolved solids and high-undissolved solids. Our technology also hashigh un-dissolved solids in addition to the added benefit of clearing oil/hydrocarbons, additives and dyes that are typically found in used engine coolants. Our quality assurance and controlQC&A program which includes independent lab testing,(Quality Control & Assurance) seeks to ensure consistently high quality, AmericanASTM (American Society for Testing and Materials (“ASTM”)Materials) standard compliant recycled material.
Industrial Segment
Our Industrial segment consists of two divisions: WEBA, our additives business, and RS&T, our glycol re-distillation plant in West Virginia.
WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America. We have received verificationbelieve WEBA is one of the largest companies serving the North American additive market. WEBA's METALGUARD® additive package product line includes one-step inhibitor systems, which give our customers the ability to easily make various types of antifreeze concentrate and 50/50 coolants for all automobiles, heavy-duty diesel engines, stationary engines in gas patch and other applications. METALGUARD additive packages cover the entire range of coolant types from multiple American Associationbasic green conventional to the newest extended life OAT antifreezes of all colors. Our heat transfer fluid additives allow our customers to make finished heat transfer fluids for Laboratory Accredited (A2LA)most industry applications including all-aluminum systems. The METALGUARD heat transfer fluids include light and heavy-duty fluids, both propylene and ethylene glycol based, for various operating temperatures. These inhibitors cover the industry standard of phosphate-based inhibitors as well as all-organic (OAT) inhibitors for specific pH range and aluminum system requirements.
All of the METALGUARD products are tested at our in-house laboratory facility and by third-party laboratories thatto assure conformance. We use the standards set by ASTM (American Society of Testing Materials) for all of our products. All of our products pass the most current ASTM standards and testing for each type of product. Our manufacturing facility conforms to the highest levels of process quality control including ISO 9001 certification.
RS&T operates a 14-20 million gallons per year, ASTM E1177 EG-1, glycol re-distillation plant in West Virginia, which processes waste glycol into virgin quality recycled glycol for sale to industrial customers worldwide. The facility is uniquely designed to process industrial waste glycol. It utilizes the only currently active process that produces a product that both meets the specifications of thevirgin glycol antifreeze grade specification, ASTM E1177 Type EG-1, standard, whichand achieves the important aesthetic requirement for most applications of having no odor. It is the official standard for refinery-grade glycol.
Our GlyEco Technology™ usesStrategy
We are a tri-phase recycling processvertically integrated specialty chemical company focused on high quality glycol-based and other products where we can be an efficiency leader providing value added products. To deliver value to remove all oil, hydrocarbons, dissolved solids, undissolved solids, color,of our stakeholders we: develop, manufacture and smell:
Our Industry Overview
Background on Glycol
Glycols are man-made liquid chemicals derived from natural gas and crude oil —non-renewable- non-renewable and limited natural resources. Glycols are used as a base chemical component in five primary industries: (1) Automotive; (2) Heating, Ventilation, and Air Conditioning (“HVAC”); (3) Textiles, (4) Airline, and (5) Medical.
| 1. | Automotive |
| 2. | HVAC - Glycols are in the heat transfer fluids used to warm and cool buildings. |
| 3. | Textiles |
| 4. | Airline |
| 5. | Medical |
Glycols are also used extensively in the Oil & Gas/Exploration & Production industry, which is an industry segment we plan to focus considerable effort on during the upcoming 2017 year.
During use in these industries, glycol becomes contaminated with impurities. Impurities in waste glycol vary depending on the industry source, with each waste stream containing different amounts of water, glycols, dirt, metals, and oils. Most waste glycol is landfilled, sent to waste water treatment, released to surface water, or disposed of improperly, wasting an important natural resource and causing a negative effect on our environment. Because of rapid biodegradability of glycol, the U.S. Environmental Protection Agency (“EPA”) allows disposal by “release to surface waters."” However, when glycols break down in water they deplete oxygen levels, which kill fish and other aquatic life. Exposure to ethylene glycol can be hazardous and may cause death for humans, animals, birds, fish, and plants.
There are different types of glycol, including propylene glycol and ethylene glycol. Our GlyEco TechnologyTM focusesThrough the use of our technology, assets and expertise, we generally focus on ethylene glycol but can be modified to work with any type of glycol. Virgin ethylene glycol is produced in petrochemical plants using the ethane/ethylene extracted from natural gas or cracked from crude oil in refineries. Ethylene is oxidized in these petrochemical plants to ethylene oxide, which is then hydrated to form ethylene glycol. Glycols are also used in other applications such as paints and coatings, but these uses do not produce waste glycol, thus are not relevant to our business.
Glycol and Antifreeze Market
World-wide consumption for ethylene glycol is over 5.5 billion gallons per year with an expected growth rate of approximately 6% from 2013 to 2018.year. China and the United States are the largest consumers of ethylene glycol.glycol (“EG”), with the majority of EG being used in polyester and antifreeze applications. While the growth rate of EG consumption has slowed, demand continues to exceed supply for ethylene glycol, largely because of growth in polyester manufacturing used to make clothing, plastic containers, and plastic beverage bottles.2
It is disposed of rather than recycled. The EPA has estimated that only 12%15% of waste antifreeze is recycled, equaling aroundapproximately 25 to 30 million gallons recycled per year (EPA; WEBA Corporation)(Environmental Protection Agency).
Glycol Recycling
Companies began recycling waste glycol in the 1980s. Material technological advances and market acceptance of recycled glycol did not occur until the 1990s, but recyclers rarely processed any other type of glycol than waste automotive antifreeze. To this day, recyclers still generally focus on automotive antifreeze, as waste glycol from the other industries have unique impurities and are challenging to process. There are approximately 25-30 independentThe glycol recyclers in the United States.recycling industry is generally fragmented with many small to mid-sized companies throughout North America that recycle glycol, antifreeze, and/or other glycol-based liquids. Additionally, a few used motor-oil recyclers who operate in multi-state regions also collect and recycle waste antifreeze. The most common methods of glycol recycling include distillation, nanofiltration, and electrodialysis.
Glycol Recycling Standards
The American Society for Testing and all references to third parties herein represent our understanding based upon publicly available information.
Competition
We compete in the polyester manufacturing industries generally require ahighly fragmented specialty chemicals industry. We operate in highly competitive markets and face competition in each of our product that is equivalent or exceeds T1TM standards, as do Original Equipment Manufacturers (“OEMs”) (e.g., automobile manufacturers). T2TM was established to define a product with more impurities than those in a T1TM product. Glycols that are T2TM can only be used in a limited number of applications (e.g. automotive antifreeze)categories and only certain customers are willing to purchase T2TM glycol (e.g. certain national automobile service chains). We believe that only a few ethylene glycol recycling companies currently meet T2TM requirements, and none meet T1TM requirements on a commercial scale.
The glycol recycling industry, a key submarket for GlyEco, is comprised primarily of independent recyclers who operate within their own geographic region. The industry is fragmented with approximately 25-30multiple small to mid-sized independent recyclers spread out across the United States. MostMany operations are companies still owned by the original entrepreneur that founded the company, or they are a division of a larger chemical operation where glycol recycling is only a small portion of the business. Additionally, a few used motor-oil recyclers who operate in multi-statemultistate regions also collect and recycle waste antifreeze. These companies often use what we consider unsophisticated technologies and outdated equipment with limited capacity and poor quality control processes. Consequently, we believe that most operations (1) produce substandard products, (2) cannot be trusted to produce consistent batches of recycled product, and (3) do not have the capacity to provide product to major buyers. The majority of recycled glycol from these operations is sold into secondary markets as generic automotive antifreeze. This material is often mixed with refinery-grade glycol to dilute remaining impurities and because the quality does not meet the standards of many buyers and certain industries as a whole. These glycol recycling competitors actively seek to purchase waste glycol from local, regional, and national collectors, competition which can increase the price to obtain such waste.
Other competitors include refinery grade glycol manufacturers (e.g. MEGlobal and SABIC), antifreeze producers (e.g. Prestone and Old World), antifreeze distributors (e.g. Nexeo and Brenntag), and waste collectors and recyclers (e.g. Safety Kleen)Kleen; Heritage-Crystal Clean). While these competitors have a large footprint and access to resources, they have not traditionally focused on glycol and we believe that they do not have
Suppliers
We purchase raw materials from multiple sources of supply primarily in the recycling technology to produce high quality products–such that we receive wasteUnited States.
Waste glycol from some of these companies.
Seasonality
Our business is affected by seasonal factors, mainly the demand for automotive antifreeze, and plastic bottles, which can affect our sales volume and the price point. Because the demand for automotive antifreeze is highesttypically higher in winter months, our processing centerswe often see an increase in sales during the first and fourth quarters. Generally, our processing centers have slower second and third quarters, but this trend is not absolute and will depend on the climate in that facility’s region and how quickly the business is growing. As the Company diversifies recycling services in to additional industries, some of this seasonality may be reduced.
Regulation
Although glycol can be considered a hazardous material, there are few federal rules or regulations governing its characterization, transportation, packaging, processing, or disposal (e.g. handling). Typically any regulations that address such activities occur at either the state and/or county level and can vary significantly from region to region. For example, while a majority of states do not regulate the resale of recycled glycol in any manner, a few states do regulate the quality of recycled glycol that can be resold in the market as antifreeze by requiring that all branded recycled antifreeze be tested and approved before resale can occur.
Regarding the handling of waste glycol, most states have little to no regulation specifically regarding the handling of waste glycol. Instead, the handling of waste glycol is typically regulated under state-level hazardous waste and solid waste regulations. Waste glycol is not automatically characterized as a hazardous waste by the states, but it can be considered hazardous if the waste material is tested and contains a certain amount of contaminants, such as lead. For example, the State of Indiana published guidance explaining that used antifreeze is not a “listed” hazardous waste, but it can be identified as a hazardous waste if it is contaminated from use or mixture with other wastes. Importantly, a handful of states grant an exception to handlers of waste glycol allowing them to not have to test their waste material if its destination is a recycling facility. This is a notable exception that allows the glycol recycling industry to function without significant barriers. For example, the State of Minnesota does not require used antifreeze destined for recycling to be evaluated. Additionally, some states exempt the handling of waste glycol from the application of state-level hazardous waste regulations if the waste material is recycled according to certain best management practices (BMPs) identified by the states. BMPs often relate to the labeling and storage of waste glycol and to proper recordkeeping. For example, the State of Florida exempts used antifreeze generated by vehicle repair facilities from the application of the state’s hazardous waste regulations if it is recycled according to the BMPs outlined by the state. The handling of waste glycol is also often regulated by state-level solid waste regulations, as such regulations typically define “solid waste” to include spent liquids. However, similar to state-level hazardous waste regulations, an exception sometimes applies that exempts the handling of waste glycol from the application of state-level solid waste regulations if the waste glycol is being recycled and therefore does not pose any threat to public health or the environment.
A few states and localities require a license or permit to process waste glycol. The cost of such licenses and permits to process waste glycol can vary from less than one hundred dollars to a few thousand dollars. Recyclers are often left with hazardous metals or chemicals as a byproduct of their process, for which they pay a nominal fee to register with the state and/or county as a hazardous waste generator and pay for the waste to be incinerated or disposed of in some other environmentally friendly way.
As a handler of glycol, we are subject to the requirements of the United States Occupational Safety and Health Act (“OSHA”) and comparable state laws that regulate the protection of employee health and safety. OSHA’s hazard communication standard requires that information about hazardous materials used or produced in our operations be maintained and provided to employees, state and local government authorities and citizens.
We also conduct interstate motor carrier operations that are subject to federal regulation by the Federal Motor Carrier Safety Administration (“FMCSA”), a unit within the United States Department of Transportation, (“USDOT”). The FMCSA publishes and enforces comprehensive trucking safety regulations, including rules on commercial driver licensing, controlled substance testing, medical and other qualifications for drivers, equipment maintenance, and drivers’ hours of service. Another unit within USDOT publishes and enforces regulations regarding the transportation of hazardous materials, but our interstate motor carrier operations are not typically regulated as hazmat (hazardous materials) at this time.
In addition to taking the necessary precautions and maintaining the required permits/licenses, glycol recyclers generally take out environmental liability insurance policies to mitigate any risks associated with the handling of waste glycol. We do everything within our powerbelieve we have appropriate procedures in place to make sureso that all permits, licenses, and insurance policies are in place to mitigate any risks stemming from the actions of our employees or third parties.
Internationally, the regulation of waste glycol varies from country to country. Some countries have strong regulations, meaning they specifically identify waste glycol as a hazardous waste that requires particular handling (e.g. transportation, collection, processing, packaging, resale, and disposal). Other countries have fewer regulations, meaning they do not specifically identify waste glycol as a hazardous waste that requires particular handling, allowing producers of waste glycol to dispose of the waste in ways that may harm the environment. Europe and Canada have strong regulations. Aside from the United States, Canada, and Europe, the remainder of the world generally has weak regulations. Despite strong regulations in certain parts of the world, we believe the United States is the only market with an established glycol recycling industry. Strong regulations are favorable for glycol recyclers because it causes waste generators to track their waste—waste, resulting in more waste glycol supply for recyclers, and therefore potentially lower prices for raw material.
Intellectual Property
On March 15, 2013, we filed a utility patent application for our GlyEco Technology™ processes with the United States Patent and Trademark Office (“USPTO”) claiming priority to the provisional patent application that we filed in August of 2012. This utility patent application was approved and issued by the USPTO on September 29, 2015. We maintain and use several service marks including “GlyEco®“GlyEcoÒ”, “Innovative Green Chemistry®ChemistryÒ”, “GlyEco Certified®”, “GlyEco TechnologyCertifiedTM”, “G-TECHTM”, “T1TMÒ”, and “T2TM”“GlyEco Technology”. In addition, we have developed a website and have registeredwww.glyeco.com as our domain name, which contains information we do not desire to incorporate by reference herein.
GlyEco University is our center for intellectual property, advanced development group, and both internal and external glycol and GlyEco course training. We have thirty-one full-time employees, including John Lorenz,begun to operate a larger facility in South Carolina, specifically, Rock Hill, SC, for our Chief Executive Officer.
Employees
We currently have a monthly basis and engage other consultants on a project basis.total of 50 employees. We believe that we have good relations with all of our employee relations to be good.employees.
10
Our business faces many risks and an investment in our securities involves significant risks. Prospective investors are strongly encouraged to consider carefully the Company is highly speculative, involves a high degreerisks described below, as well as other information contained herein, before investing in our securities. Investors are further advised that the risks described below may not be the only risks we face. Additional risks that we do not yet know of, risk and should be considered only by those persons whoor that we currently think are able to afford a loss of their entire investment. In evaluating us andimmaterial, may also negatively impact our business prospectiveoperations or financial results. If any of the events or circumstances described in this section occurs, our business, financial condition or results of operations could suffer. Prospective investors in our securities should carefully consider the following factors, in additionrisks before deciding whether to purchase our securities.
We have a history of operating losses and we expect to continue to realize net losses for at least the other information contained in this Annual Report.
At December 31, 2013,2016, we had $4,393,299$1,413,999 in cash on hand, and we domay not currently have enough capital to sustain our operations for the next 12 months. On February 26, 2016, the Company closed a prior rights offering (the “2016 Rights Offering”) that resulted in gross proceeds to the Company of $2,998,050 before deducting expenses of the rights offering. In their report dated April , 2014,on our audited financials, our independent registered public accounting firm has included an emphasis-of-matter paragraph with respect to our consolidated financial statements for the fiscal year ended December 31, 20132016 concerning the Company’s assumption that we will continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of current working capital requirements and recurring losses from operations. To date, the Company has yet to achieve profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable operations. Our plans to address these matters include raising additional financing through offering its shares of our capital stock in private and/or public offerings and through debt financing, if available and needed. We might not be able to obtain additional financing on favorable terms, if at all, which could materially adversely affect our business and operations
We have made and plan to continue to make acquisitions, which could require significant management attention, disrupt our business, result in dilution to our stockholders, and adversely affect our financial results.
As part of our business strategy, we have made and intend to make acquisitions to add specialized employees, complementary companies, strategic assets or products, or to acquire new technologies. The recent acquisitions of RS&T, WEBA, and the Union Carbide Institute, West Virginia assets were significant acquisitions for us. As a result, our ability to acquire and integrate larger or more significant businesses, products, or technologies in a successful manner is unproven. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Our previous and future acquisitions may not achieve our goals, and any future acquisitions we complete could be viewed negatively by our business counterparts, customers, or investors. In addition, if we fail to successfully integrate any acquisitions, or the technologies or assets associated with such acquisitions, into our company, the revenue and operating results of the our core company and our combined company could be adversely affected. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology, assets, or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, any of which could adversely affect our financial results. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
We may need to obtain additional funding to continue to implement our business strategy. If we are unable to obtain additional funding, our business operations may be harmed, and if we do obtain additional financing, then existing stockholders may suffer substantial dilution.
On February 26, 2016, the Company closed the 2016 Rights Offering that resulted in gross proceeds to the Company of approximately $2,998,050 before deducting expenses of the rights offering. We may require additional funds to sustain our operations and institute our business plan. We anticipate incurring monthly operating expenses, which includesinclude compensation to be paid to executives, additional employees, and consultants, and legal and accounting costs, at an approximate amount of $200,000$250,000 per month, for an indefinite period of time. Additional capital willmay be required to effectively support our operations and to otherwise implement our overall business strategy. Even if we do receive additional financing, it may not be sufficient to sustain or expand our development operations or continue our business operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct our business operations. If we are unable to obtain additional financing, we will likely be required to curtail our development plans. Any additional equity financing may involve substantial dilution to our then existing stockholders and may adversely affect the market price of our Common Stock.
Disruptions in the supply of feedstock could have an adverse effect on our business.
We depend on the continuing availability of raw materials, including feedstock, to remain in production. A serious disruption in supply of feedstock, or significant increases in the prices of feedstock, could significantly reduce the availability of raw materials at our processing centers. Additionally, increases in production costs could have a material adverse effect on our business, results of operations and financial condition. For example, there are enough competitors vying for waste antifreeze from the automotive industry that supply can be difficult to find at times. Similar supply and feedstock cost issues have been seen in the waste lube oil market.
Our inability to obtain other raw materials, component parts, and/or finished goods in a timely and cost-effective manner from suppliers would adversely affect our ability to process glycol.
We purchase raw materials and component parts from suppliers to be used in the processing of our products. In addition, we purchase certain finished goods from suppliers. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts, or finished goods could result in processing interruptions, delays, inefficiencies, or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers.
We may face significant competition.
The glycol recycling industry is generally fragmented with many small to mid-sized companies throughout North America that recycle glycol, antifreeze, and/or other glycol-based liquids. The industry is in the preliminary stage of development. However, a few large, well-recognized companies with substantial resources and established relationships have begun to increase their share of the market. It is possible that such a group will attempt to purchase multiple glycol recycling companies as part of an overall roll-up business strategy. Additionally, potential competitors may have greater financial, technical, marketing, and sales resources that will permit them to (i) react more quickly to emerging product and service offerings and changes in customer requirements, and (ii) devote greater resources to the development, promotion, and sale of competing products or services. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share.
Our business strategy without our former New Jersey Processing Center may not be implemented successfully.
With the cessation of operations at our former New Jersey Processing Center, we plan to reinvest in expanding our footprint in the Southern and Eastern United States through partnerships and potentially acquisitions. We plan to invest in infrastructure to support the growth of our existing business, and we plan to increase our processing center capacities through optimizing our existing systems and through the purchase of distillation equipment, tanks to store newly acquired feedstock waste streams, delivery vehicles for distribution locations, satellite distribution center storage, and as needed, certain recycling hardware. This strategy is dependent upon finding suitable partners and securing sufficient capital to invest in our infrastructure to the extent necessary, among other factors. Depending on these factors, it is possible that our business strategy may not be implemented successfully.
We have a limited operating historycontrol over the prices that we charge for our products.
The prices of glycol are dependent upon the supply/demand balance and supply capacity in the United States. Unfavorable changes to the supply/demand balance could affect the prices we charge for our products and therefore could reduce our revenues and adversely affect our profitability. Additionally, if our products gain acceptance and attract the attention of competitors, we may experience pressure to decrease the prices we charge for our products, which could adversely affect our revenue and our gross margin. If we are unable to offer our products at acceptable prices, or if we fail to offer additional products with sufficient profit margins, our revenue growth will slow, our margins may shrink, and our business model is new and unproven, which makes it difficultfinancial results will suffer.
Our business may be significantly affected if antifreeze producers begin to evaluateoffer base fluids other than ethylene glycol.
If antifreeze producers were to begin to offer base fluids other than ethylene glycol, major changes would have to be made in the industry. If such other base fluids, like for example, glycerin, become accepted in the marketplace, competition could increase, demand could fall, and our future prospects.
If we cannot protect our intellectual property rights, our business and competitive position will be harmed.
Our success depends, in large part, on our ability to obtain and enforce our patent, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. Litigation can be costly and time consuming. Litigation expenses could be significant. In addition, we may decide to settle legal claims, despite our beliefs on the probability of success on the merits, to avoid litigation expenses as well as the diversion of management resources. We anticipate being able to protect our proprietary rights from unauthorized use by third parties to the extent that such rights are covered by a valid and enforceable patent. On March 15, 2013, we filed a utility patent application for our GlyEco Technology™ processes with the United States Patent and Trademark OfficesOffice claiming priority to the provisional patent application that we filed in August of 2012 (the “Patent”). The Patent was approved and issued on September 29, 2015. Our potential patent position involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Moreover, if a patent is awarded, our competitors may infringe upon our patent or trademarks, independently develop similar or superior products or technologies, duplicate our designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may obtain patent or trademark protection. In addition, it is possible that third parties may have or acquire other technology or designs that we may use or desire to use, so that we may need to acquire licenses to, or to contest the validity of, such third-party patents or trademarks. Such licenses may not be made available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of such third-party rights.
Any patent application may be challenged, invalidated, or circumvented. One way a patent application may be challenged outside the United States is for a party to file an opposition. These opposition proceedings are increasingly common in the European Union and are costly to defend. To the extent we would discover that our patent may infringe upon a third party’s rights, the continued use of the intellectual property underlying our patent would need to be reevaluated and we could incur substantial liability for which we do not carry insurance. We have not obtained any legal opinions providing that the technology underlying our patent will not infringe upon the intellectual property rights of others.
Litigation brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property rights owned or used by us may be costly and time consuming.
We may face lawsuits from time to time alleging that our growth relyproducts infringe on being ablethird-party intellectual property, and/or seeking to procureinvalidate or limit our ability to use our intellectual property. If we become involved in litigation, we may incur substantial expense defending these claims and the proceedings may divert the attention of management, even if we prevail. An adverse determination in proceedings of this type could subject us to significant waste glycol.
Environmental, health and safety requirements could expose us to material obligations and liabilities and affect our profitability.
We are subject to federal, state, and local laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. The consequence for violating such requirements can be material. We have made and will continue to make capital and other expenditures to comply with environmental and health and safety requirements. In addition, if a release of hazardous substances occurs on or from our properties or any offsite disposal location where our wastes have been disposed, or if contamination from prior activities is discovered at any of our properties or third-party owned properties that we or our predecessors formerly owned or operated, we may be subject to liability arising out of such conditions and the amount of such liability could be material. Liability can include, for example, costs of investigation and cleanup of the contamination, natural resource damages, damage to properties and personal injuries.
Our ability to operate the Company effectively could be impaired if we fail to attract additional key personnel.
Our ability to operate our businesses and implement our strategies depends, in part, on the efforts of our management and certain other key personnel. However, our future success will depend on, among other factors, our ability to attract and retain additional qualified personnel, including research professionals, technical sales professionals, and engineers. Our failure to attract or retain these additional qualified personnel could have a material adverse effect on our business or business prospects.
We may fail to recruit and Geib have agreedretain qualified personnel.
We expect to certain invention assignmentrapidly expand our operations and confidentiality restrictions thatgrow our sales, development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may not be ableunable to enforce.
We rely on key executive officers, and their knowledge of our management team, Messrs. Lorenzbusiness and Geib willtechnical expertise would be exposeddifficult to allreplace.
We are highly dependent on our executive officers because of their expertise and experience in the telecommunications industry. We have agreements with our executive officers containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have "key person" life insurance policies for any of our confidential informationofficers. The loss of the technical knowledge and will develop allmanagement and industry expertise of any of our corporate strategies. We cannot be certain that Messrs. Lorenz or Geib will not compete with the Companykey personnel could result in the future. Moreover, we cannot be certain that the invention assignmentdelays in product development, loss of customers and confidentiality restrictions set forth in the nondisclosure agreements will be enforceable under applicable law. Even if a dispute arises that is ultimately resolved in our favor, any litigation associated with such invention assignment,sales and confidentiality restrictionsdiversion of management resources, which could be time consuming, costly, and distract our focus from effectuating our business plan.
We may continue to grow through acquisitions, which would either dilute ownership of our existing stockholders or increase interest expense.
In connection with any future acquisitions, we may issue a substantial number of shares of our Common Stock as transaction consideration and also may incur significant debt to finance the cash consideration used for acquisitions. We may continue to issue equity securities for future acquisitions, which would dilute existing stockholders, perhaps significantly depending on the terms of such acquisitions
Our efforts to grow through acquisitions may be affected by a decrease in qualified targets and an increase of cost to acquire.
We may not be able to continue to identify attractive acquisition opportunities or successfully acquire those opportunities identified. Also, competition for acquisition targets may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions.
We currently operate seven processing centers, and if we are unable to effectively oversee all of their intellectual property rights or tryingthese locations, our business reputation and operating results could be materially adversely affected.
We are subject to invalidate intellectual property rights owned or used by us may be costly and time consuming.
We may not be able to manage our growth.
We believe that our future success depends on our ability to manage the rapid growth that we have experienced, and the continued growth that we expect to experience organically and through acquisitions. Our growth places additional demands and responsibilities on our management to, among other things, maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. The following factors could present difficulties to us: lack of sufficient executive-level personnel at the facility level,level; increased administrative burden,burden; lead times associated with acquiring additional equipment; availability of suitable acquisition candidates and availability of additional capacity of trucks, rail cars, and processing equipment; and the ability to provide focused service attention to our customers.
We are dependent on third parties for the manufacturing of our equipment.
We do not manufacture our equipment. Accordingly, we rely on a number of third party suppliers to manufacture equipment. The supply of third party equipment could be interrupted or halted by operational problems of such suppliers or a significant decline in their financial condition. If we are not able to obtain equipment, we may not be able to compete successfully for new business, complete existing engagements profitably, or retain our existing customers. Additionally, if we are provided with defective equipment, we may be subject to reputational damage or product liability claims which may negatively impact our reputation, financial condition, and results of operations.
Our failure to keep pace with technological developments may adversely affect our operations and financial results.
We are engaged in an industry whichthat will be affected by future technological developments. The introduction of products or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success will depend upon our ability to develop and introduce, on a timely and cost-effective basis, new products, processes, and applications that keep pace with technological developments and address increasingly sophisticated customer requirements. We may not be successful in identifying, developing, and marketing new products, applications, and processes and product or process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction, and marketing of product or process enhancements or new products, applications, or processes. Our products, applications, or processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our business, operating results, and financial condition could be materially and adversely affected if we were to incur delays in developing new products, applications, or processes or product or process enhancements or if our products do not gain market acceptance.
If the use of our recycled glycol harms people or equipment, we could be subject to costly and damaging product liability claims.
We could face costly and damaging claims arising from applicable laws governing our products and operations. Because our industry is highly regulated, if our products do not comply with regulatory requirements, we may be exposed to product liability risk. Our product liability insurance may not cover all potential liabilities or may not completely cover any liability arising from any such litigation. Moreover, we may not have access to liability insurance or be able to maintain the insurance on acceptable terms.
A continued downturn in the United States economy could have a material adverse effect on our ability to effectuate our business plan and our financial results.
Our ability to achieve our goals depends heavily on varying conditions in the United States economy. The United States economy is currently experiencing a prolonged downturn and there can be no assurance that the United States economy will emerge from such downturn and experience significant levels of growth in the near future. Certain end-use applications for glycol experience demand cycles that are highly correlated to the general economic environment, which is sensitive to a number of factors outside of our control. Additionally, the industrial markets in which we compete are subject to considerable cyclicality, and move in response to cycles in the overall business environment. Therefore, downturns in the United States economy are likely to result in decreases in demand for our products. A continued downturn or deepening of the downturn could decrease demand for our products or could otherwise adversely affect the prices at which we charge for recycled glycol. Moreover, a continued downturn or deepening of the downturn in the specific areas of the economy in which we operate our business could have a material adverse effect on our ability to effectuate our business plan and our financial results. We are not able to predict the timing, extent, and duration of the economic cycles in the markets in which we operate.
Market regulation may affect our business plan.
We intend to conduct business in the glycol recycling industry in North America. We are unable to predict changes in governmental regulations or policies that may influence or inhibit our ability to deliver compliant products and services to market. The recycled glycol industry is highly regulated and is subject to changing political, regulatory, and other influences. Forced changes through legislation and regulations adopted by United States, state, or foreign governmental agencies may disrupt our business processes and strategies. Continued compliance with newly enacted rules and regulations could be costly and require complex changes in our products and operations. We are unable to predict future rules or regulations with any certainty or to predict the effect they would have on our business, products, or services. Accordingly, there is significant uncertainty concerning competitive pressures and the impact on our actual and prospective customers. There can be no assurance that heightened or new regulations will not come into effect or that such regulation will not have a detrimental impact on the Company and our planned business.
If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.
Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial. We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other similarly situated companies in our industry. If we are unable to obtain adequate or required insurance coverage in the future, or if such insurance is not available at affordable rates, we could be in violation of permit conditions or the other requirements of environmental laws, rules, and regulations under which we operate. Such violations could render us unable to continue our operations. These events could result in an inability to operate certain assets and significantly impair our financial condition.
Our insurance policies do not cover all losses, costs, or liabilities that we may experience.
We maintain insurance coverage, but these policies do not cover all of our potential losses, costs, or liabilities. We could suffer losses for uninsurable or uninsured risks, or in amounts in excess of our existing insurance coverage, which would significantly affect our financial performance. Our insurance policies also have deductibles and self-retention limits that could expose us to significant financial expense. Our ability to maintain adequate insurance may be affected by conditions in the insurance market over which we have no control. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition, and results of operations. In addition, our business requires that we maintain various types of insurance. If such insurance is not available or not available on economically acceptable terms, our business would be materially and adversely affected.
Current uncertainty in the global financial markets and the global economy may negatively affect our financial results.
Current uncertainty in the global financial markets and economy may negatively affect our financial results. These macroeconomic developments could negatively affect our business, operating results or financial condition in a number of ways, which, in turn, could adversely affect our stock price. A prolonged period of economic decline could have a material adverse effect on our results of operations and financial condition and exacerbate some of the other risk factors described herein. Our customers may defer purchases of our products, licenses, and services in response to tighter credit and negative financial news or reduce their demand for them. Our customers may also not be able to obtain adequate access to credit, which could affect their ability to make timely payments to us or ultimately cause the customer to file for protection from creditors under applicable insolvency or bankruptcy laws. If our customers are not able to make timely payments to us, our accounts receivable could increase.
In addition, our operating results and financial condition could be negatively affected if, as a result of economic conditions, either:
| · | the demand for, and prices of, our products, licenses, or services are reduced as a result of actions by our competitors or otherwise; or |
| · | our financial counterparts or other contractual counterparties are unable to, or do not, meet their contractual commitments to us. |
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business/operating margins, revenues and competitive position.`
Seasonal weather conditions and natural disasters could severely disrupt normal operations and harm our business.
We currently operate primarily in the northern, mid-western, and eastern United States. These areas are adversely affected by seasonal weather conditions, primarily in the winter and spring. During periods of heavy snow, ice, or rain, our customers may curtail their operations or we may be unable to move our trucks to provide services, thereby reducing demand for, or our ability to provide services and generate revenues. The regions in which we operate have in the past been, and may in the future be, affected by natural disasters such as hurricanes, windstorms, floods, and tornadoes. Future natural disasters or inclement weather conditions could severely disrupt the normal operation of our, or our customers’, business and have a material adverse effect on our financial condition and results of operations.
Risks RelatedRelating to our Common Stock
There is a limited market for our Common Stock and the market price of our Common Stock may be volatile.
Currently, our Common Stock is quoted on the OTC Pink Sheets under the symbol “GLYE.” Our Common Stock currently trades in small volumes. There can be no assurance that any trading market will ever develop or be maintained on the OTC Pink Sheets. Any trading market that may develop in the future for our Common Stock will most likely be very volatile; and numerous factors beyond our control may have a significant effect on the market. The market price of our Common Stock may also fluctuate significantly in response to the following factors, some which are beyond our control:
| · | actual or anticipated variations in our quarterly operating results; |
| · | changes in securities analysts’ estimates of our financial performance; |
| · | changes in market valuations of similar companies; |
| · | increased competition; |
| · | announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new products or product enhancements; |
| · | loss of a major customer or failure to complete significant transactions; |
| · | additions or departures of key personnel; and |
| · | the number of shares in our public float. |
The trading price of our Common Stock on OTC Pink since our reorganization has ranged from a high of $2.99 on April 30, 2012, to a low of $0.05 on November 16, 2016. In recent years, the stock market in general has experienced extreme price fluctuations that have oftentimes been unrelated to the operating performance of the affected companies. Similarly, the market price of our Common Stock may fluctuate significantly based upon factors unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our Common Stock.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the future.
Any return on investment may be limited to the value of our Common Stock. We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant.
The failure to comply with the internal control evaluation and certification requirements of Section 404 of Sarbanes-Oxley Act could harm our operations and our ability to comply with our periodic reporting obligations.
The Company is subject to the reporting requirements of the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). We are also required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). This process may divert internal resources and will take a significant amount of time, effort and expense to complete. If it is determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and reevaluate our financial reporting. We may experience higher than anticipated operating expenses as well as outsideindependent auditor fees during the implementation of these changes and thereafter. Further, we may need to hire additional qualified personnel in order for us to be compliant with Section 404. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results.
We have financed our operations, and we expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or pari passu with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our shares of common stock. Additionally, in conjunction with our acquisition of WEBA and RS&T, we issued notes in the aggregate of $2.76 million, including $1 million of notes that come due in May 31, 2017 and must be repaid by that date or we will be required to amortize any existing principal and interest over the successive 4-month period. We cannot be certain how the repayment of those promissory notes will be funded and we may issue further equity or debt in order to raise funds to repay the promissory notes, including funding that may be highly dilutive. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilution from the issuance of additional securities and we grant superior rights to new securities over common stockholders, it may negatively impact the trading price of our shares of common stock and you may lose all or part of your investment.
Our Common Stock is a "penny stock"“penny stock” under the rules of the SEC and the trading market in our securities will be limited, which makes transactions in our Common Stock cumbersome and may reduce the value of an investment in our Common Stock.
The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which establishes the definition of a "penny“penny stock,"” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| · | that a broker or dealer approve a |
· | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person'sperson’s account for transactions in penny stocks, the broker or dealer must:
| · | obtain the financial information and investment experience objectives of the person; and |
| · | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
| · | sets forth the basis on which the broker or dealer made the suitability determination; and |
| · | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock"“penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
None.
We maintain our principal executive offices at 4802 East Ray Road, Suite 23-408, Phoenix, Arizona 85044.230 Gill Way, Rock Hill, SC 29730. Our telephone number at that office is (866) 960-1539. We also lease a small office space located at 10429 South 51st Street, Suite 235, Phoenix, AZ 85044 for accounting and legal purposes. The monthly base rent for this office space is $2,900. The lease term expires on February 28, 2015.
Our Minnesota processing centerfacility leases approximately 9,600 square feet of property located at 796 29th Avenue SE, Minneapolis, MN 55414. The monthly base rent for this location is currently $3,368.$3,560. The base rent will gradually increase until the lease term expires on March 31,April 30, 2021.
Our Indiana processing centerfacility leases approximately 10,000 square feet of property located at 3455 E. St. Clair Street, Indianapolis, IN 46201. The monthly base rent for this location is currently $3,500.$4,200. The base rent will gradually increase until the lease term expires on December 31, 2017.
Our Florida processing centerfacility leases approximately 4,200 square feet of property located at 4302 Holden Road, Lakeland, FL 33811. The monthly base rent for this location is $2,500. The lease term expires on August 31, 2018.
Our South Carolina processing centerfacility leases approximately 7,000 square feet of property located at 230 Gill Way, Rock Hill, SC 29730. The monthly base rent for this location is currently $2,800.$4,698. The base rent will gradually increase until the lease term expires on October 28, 2017.
Our South Dakota processing centerfacility leases approximately 3,600 square feet of property located at 46991 Mindy Street, Tea, SD 57064. The monthly base rent for this location is $2,100.$2,900. The lease term expires on December 31, 2017.
Our Maryland processing centerfacility leases approximately 12,000 square feet of property located at 8464 Ardwick-Ardmore Road, Landover, MD 20785. The monthly base rent for this location is currently $6,378.$6,562. The lease term expired on December 31, 2016 and the property currently being rented on a month to month basis.
Our West Virginia facility leases approximately 15 acres of property located in Institute, WV. The monthly base rent will gradually increase until thefor this location is currently $3,125 and increases on an annual basis to $12,500 per month. The lease term expires on December 31, 2017.
We believe our existing facilities are adequate to meet our present requirements. We anticipate that additional space will be available, when needed, on commercially reasonable terms.
The Company may be party to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigationThe Company believes that the nature of these proceedings (collection actions, etc.) is typical for a Company of our size and scope of operations. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently notBelow is an overview of a recently resolved legal proceeding, one pending legal proceeding, and one outstanding alleged claim.
On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company received a favorable judgment regarding this civil action in the amount of $95,000.
On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.
The Company is also aware of any such legal proceedings orone matter that involves an alleged claim against the Company, and it is at least reasonably possible that the claim will be pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In this matter, the landlord of the Company’s formerly leased property claims that we believe will have, individually orback rent is due for property used by the Company outside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the New Jersey facility and prepared an eviction notice. The Company negotiated a payment in the aggregate,amount of $250,000 to regain access to the facility, and reached an accord to negotiate with the landlord to resolve the outstanding issues by May 31, 2015. On December 28, 2015, the Company ultimately approved the termination of the lease agreements related to the New Jersey facility, thereby ceasing all operations at that particular facility. This termination was prompted by the former landlord’s demand for payment of approximately $2.3 million to maintain access to the facility. In September 2016, the Company reached an agreement with the landlord. The agreement required the Company to resolve certain environmental issues regarding the former processing facility and make certain payments to the landlord. The Company, the landlord and their related entities also agreed to a material adverse effect on our business, financial condition, or operating results.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities.
Our Common Stock, $0.0001 par value, tradesis quoted on the OTC Bulletin Board systemPink Sheets under the symbol “GLYE.”
The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices for the Common Stock as reported by the OTC Bulletin Board system.Pink Sheets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| High ($) | Low ($) | |||||||
| 2012 | ||||||||
1st Quarter | $ | 1.89 | $ | 1.01 | ||||
2nd Quarter | $ | 2.81 | $ | 1.26 | ||||
3rd Quarter | $ | 2.30 | $ | 1.76 | ||||
4th Quarter | $ | 1.90 | $ | 1.20 | ||||
2013 | ||||||||
1st Quarter | $ | 1.99 | $ | 0.99 | ||||
2nd Quarter | $ | 1.39 | $ | 0.90 | ||||
3rd Quarter | $ | 1.35 | $ | 0.90 | ||||
4th Quarter | $ | 1.40 | $ | 1.03 |
| 2015 | ||||||||
| 1st Quarter | $ | 0.40 | $ | 0.23 | ||||
| 2nd Quarter | $ | 0.32 | $ | 0.12 | ||||
| 3rd Quarter | $ | 0.20 | $ | 0.06 | ||||
| 4th Quarter | $ | 0.12 | $ | 0.08 | ||||
| 2016 | ||||||||
| 1st Quarter | $ | 0.14 | $ | 0.08 | ||||
| 2nd Quarter | $ | 0.14 | $ | 0.09 | ||||
| 3rd Quarter | $ | 0.14 | $ | 0.09 | ||||
| 4th Quarter | $ | 0.11 | $ | 0.05 | ||||
As of March 31, 2014,15, 2017, the closing sale price for our Common Stock as reportedquoted on the OTC Bulletin BoardPink Sheets system was $1.06.$0.11. As of March 31, 2014,15, 2017, there were approximately 979970 shareholders of record for our Common Stock. This does not include shareholders holding stock in street name in brokerage accounts.
Transfer Agent
The Company’s transfer agent is Olde Monmouth Stock Transfer Co. Inc. located at 200 Memorial Parkway, Atlantic Highlands, NJ 07716. The transfer agent’s phone number is (732) 872-2727 and its website iswww.oldemonmouth.com.
Dividend Policy
We have never paid cash dividends on our Common Stock, and it is unlikely that we will pay any dividends in the foreseeable future. We currently intend to invest future earnings, if any, to finance expansion of our business. Any payment of cash dividends in the future will be dependent upon our earnings, financial condition, capital requirements, and other factors deemed relevant by our Board of Directors.
Securities Authorized For Issuance Under Equity Compensation Plans
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders: | ||||||||||||
2007 Stock Incentive Plan | 6,647,606 | $ | 0.60 | 95,000 | ||||||||
2012 Equity Incentive Plan | 3,800,900 | $ | 0.94 | 2,699,100 | ||||||||
Equity compensation plans not approved by security holders: | ||||||||||||
None | 0 | 0 | 0 | |||||||||
Total | 10,548,506 | $ | 0.73 | 2,794,100 | ||||||||
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of granted options, warrants and rights (a) | Weighted-average exercise price of granted options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders: | ||||||||||||
| 2007 Stock Incentive Plan | 6,647,606 | $ | 0.60 | 95,000 | ||||||||
| 2012 Equity Incentive Plan | 5,748,230 | $ | 0.80 | 751,771 | ||||||||
| Equity compensation plans not approved by security holders: | ||||||||||||
| None | - | - | - | |||||||||
| Total | 12,395,836 | $ | 0.69 | 846,771 | ||||||||
Third Amended and Restated 2007 Stock Incentive Plan
The Company assumed the Third Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Plan”) from Global Recycling Technologies, Ltd., a Delaware corporation (“Global Recycling”), upon the consummation of a reverse triangular merger between the Company, Global Recycling, and GRT Acquisition, Inc., a Nevada corporation, on November 28, 2011.
There are an aggregate of 6,742,606 shares of our Common Stock reserved for issuance upon exercise of options granted under the 2007 Stock Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company (collectively, “Eligible Persons”). As of DecemberMarch 31, 2013,2017, we have issued options to purchase an aggregate of 6,647,606 shares of our Common Stock originally reserved under the 2007 Stock Plan.
Under the 2007 Stock Plan, Eligible Persons may be granted: (a) stock options (“Options”), which may be designated as Non-Qualified Stock Options (“NQSOs”) or Incentive Stock Options (“ISOs”); (b) stock appreciation rights (“SARs”); (c) restricted stock awards (“Restricted Stock”); (d) performance share awards (“Performance Awards”); or (e) other forms of stock-based incentive awards.
The 2007 Stock Plan will remain in full force and effect through May 30, 2017, unless earlier terminated by our Board of Directors. After the 2007 Stock Plan is terminated, no future awards may be granted under the 2007 Stock Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions.
A more comprehensive description of the 2007 Stock Plan is included in Item 11. Executive Compensation of this Annual Report and is included by reference herein.
2012 Equity Incentive Plan
On February 23, 2012, subject to stockholder approval, the Company’s Board of Directors approved of the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). By written consent in lieu of a meeting, dated March 14, 2012, stockholders of the Company owning an aggregate of 14,398,402 shares of Common Stock (representing approximately 66.1% of the then 23,551,991 outstanding shares of Common Stock) approved and adopted the 2012 Plan. Also by written consent in lieu of a meeting, dated July 27, 2012, stockholders of the Company owning an aggregate of 12,676,202 shares of Common Stock (representing approximately 51.8% of the then 24,451,991 outstanding shares of Common Stock) approved an amendment to the 2012 Plan to increase the number of shares reserved for issuance under the 2012 Plan by 3,000,000 shares.
There are an aggregate of 6,500,000 shares of our Common Stock reserved for issuance upon exercise of awards granted under the 2012 Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company. As of DecemberMarch 31, 2013,2017, we have issued options to purchase an aggregate of 3,800,9005,748,229 shares of our Common Stock originally reserved under the 2012 Plan.
The 2012 Plan includes a variety of forms of awards, including (a) ISOs (b) NQSOs (c) SARs (d) Restricted Stock, (e) Performance Awards, and (e) other forms of stock-based incentive awards to allow the Company to adapt its incentive compensation program to meet its needs.
The 2012 Plan will terminate on February 23, 2022, unless sooner terminated by our Board of Directors. After the 2012 Plan is terminated, no future awards may be granted under the 2012 Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions and the 2012 Plan’s terms and conditions.
A more comprehensive description of the 2012 Plan is included in Item 11. Executive Compensation of this Annual Report and is included by reference herein.
Recent Sales of Unregistered Securities
Below describes the unregistered securities issued by the Company within the period covered by this Annual Report.
On January 1, 2013,31, 2016, the Company issued an aggregate of 377,372 shares of Common Stock at a price of $0.50 per share to the Evergreen Selling Principal pursuant to the “Evergreen Agreement in consideration for the business, properties and substantially all of the assets of Evergreen. The shares of Common Stock issued pursuant to the Evergreen Agreement are restricted under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Company issued theses shares pursuant to the registration exemptions of the Securities Act afforded the Company under Section 4(2) thereunder.
On February 15, 2013,28, 2016, the Company issued an aggregate of 940,00097,292 shares of Common Stock and 2,342,740 sharesto five employees of Series AA Preferred Stockthe Company pursuant to one investor in consideration for the Note Conversion AgreementCompany's Equity Incentive Plan at a price of $0.50$0.08 per share. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such purchaser represented that they were an “accredited investor” as such term is defined under the Securities Act and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares are restricted under Rule 144 promulgated under the Securities Act.
On February 27, 2013,March 28, 2016, the Company issued an aggregate of 36,842419,348 shares of Common Stock to one non-accredited investor in consideration for equipmentfour employees of the Company pursuant to certain performance incentive programs at a price of $0.95$0.11 per share. The shares were issued pursuant to Section 4(2)4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investorinvestors had sufficient sophistication and knowledge of the Company and the financing transaction, and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
On April 1, 2013,March 31, 2016, the Company issued an aggregate of 123,077837,498 shares of Common Stock to one accredits investor in consideration for rentseven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.65$0.09 per share. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such purchaser represented that they were an “accredited investor” as such term is defined under the Securities Act and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
On August 28, 2013,March 31, 2016, the Company issued an aggregate of 470,40097,292 shares of Common Stock to one accredited investor forfive employees of the cashless exercise of 480,000 warrants at an exercise price of $0.025 per share. The closing price on the OTCQB Market on the day of exercise was $1.25 per share of Common Stock. The warrants exercised vested immediately upon issuance and were converted at a rate of one share of Common Stock for each warrant exercised. The shares were issuedCompany pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such purchaser represented that they were an “accredited investor” as such term is defined under the Securities Act and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
On December 5, 2013,April 30, 2016, the Company issued an aggregate of 59,01664,875 shares of Common Stock to one non-accredited investor forseven employees of the cashless exercise of 100,000 optionsCompany pursuant to the Company's Equity Incentive Program at an exercisea price of $0.50$0.10 per share. The closing price on the OTCQB Market on the day of exercise was $1.22 per share of Common Stock. The options exercised vested immediately upon issuance and were converted at a rate of one share of Common Stock for each option exercised. The shares were issued pursuant to Section 4(2)4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investorinvestors had sufficient sophistication and knowledge of the Company and the financing transaction, and the saleissuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On May 31, 2016, the Company issued an aggregate of 86,234 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On June 13, 2016, the Company issued an aggregate of 6,281,250 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On June 30, 2016, the Company issued an aggregate of 86,150 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On June 30, 2016, the Company issued an aggregate of 769,583 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On July 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On August 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On September 30, 2016, the Company issued an aggregate of 54,359 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On September 30, 2016, the Company issued an aggregate of 628,125 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On October 31, 2016, the Company issued an aggregate of 56,056 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On November 30, 2016, the Company issued an aggregate of 56,246 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On December 6, 2016, the Company issued an aggregate of 512,550 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On December 22, 2016, the Company issued an aggregate of 7,000 shares of Common Stock to five employees of the Company for achieving certain performance goals at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On December 30, 2016, the Company issued an aggregate of 5,625,000 shares of Common Stock in connection with the acquisition of WEBA Technology Corp. at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On December 31, 2016, the Company issued an aggregate of 44,573 shares of Common Stock to seven employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
On December 31, 2016, the Company issued an aggregate of 283,800 shares of Common Stock to six directors of the Company pursuant to the Company's Director Compensation Plan at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Not Applicable
You should read the following discussion and analysis of our results of operations and financial condition for the years ended December 31, 2013,2016, and 2012,2015, with the audited Consolidated Financial Statements and related notes included elsewhere herein. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs, and which involve numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.
Company Overview
GlyEco is a green chemistryleading specialty chemical company, leveraging technology and innovation to focus on vertically integrated, eco-friendly manufacturing, customer service and distribution solutions. Our eight facilities, including the recently acquired 14-20 million gallons per year, ASTM E1177 EG-1, glycol re-distillation plant in West Virginia, deliver superior quality glycol products that collectsmeet or exceed ASTM quality standards, including a wide spectrum of ready to use antifreezes and recyclesadditive packages for antifreeze/coolant, gas patch coolants and heat transfer fluid industry, throughout North America. Our team's extensive experience in the chemical field, including direct experience with reclamation of all types of glycols, gives us the ability to process a wide range of feedstock streams, formulate and produce unique products and has earned us an outstanding reputation in our markets.
Prior to the December 2016 acquisitions of WEBA, RS&T and DOW assets and through December 31, 2016, the Company operated as one segment. Effective January 1, 2017, GlyEco has two segments: Consumer and Industrial. Consumer’s principal business activity is the processing of waste glycol into a reusable product that is sold to third party customershigh-quality recycled glycol products, specifically automotive antifreeze, and related specialty blended antifreeze, which we sell in the automotive and industrial end-markets. end markets. We operate six processing and distribution centers located in the eastern region of the United States. Industrial’s principal business activity consists of two divisions. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America, and RS&T, which operates a14-20 million gallons per year ASTM E1177 EG-1 glycol re-distillation plant in West Virginia thatprocesses waste glycol into virgin quality recycled glycol for sale to industrial customers worldwide.
Consumer segment
Our Consumer segment has processing and distribution centers located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. The Minneapolis, Minnesota, Lakeland, Florida, Rock Hill, South Carolina and Tea, South Dakota facilities have distillation equipment and operations for recycling waste glycol streams as well as blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers, while the Indianapolis, Indiana and Landover, Maryland facilities currently only have blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers. We estimate that the monthly processing capacity of our four facilities with distillation equipment is approximately 100,000 gallons of ready to use finished products. We have invested significant time and money into increasing the capacity and actual production of our facilities. Our average monthly production was approximately 40,000 gallons in the first quarter of 2016 as compared to approximately 60,000 gallons in the fourth quarter of 2016. Our processing and distribution centers utilize a fleet of trucks to collect waste material for processing and delivering recycled glycol products directly to retail end users at their storefront, which is typically 50-100 gallons per customer order. Collectively, we directly service approximately 5,000 generators of waste glycol. To meet the delivery volume needs of our existing customers, we supplement our collected and processed glycol with new or virgin glycol that we purchase in bulk from various suppliers. In addition to our retail end users, we also sell our recycled glycol products to wholesale or bulk distributors who, in turn, sell to retail end users specifically as automotive or specialty blended antifreeze. In certain markets we also sell windshield washer fluids which we do not recycle.
We have deployed our proprietary technology across our six processing distribution centers, allowing for safe and efficient handling of waste streams, application of our processing technology and Quality Control & Assurance Program (“QC&A”), sales of high-quality glycol products, and data systems allowing for tracking, training, and further development of our products and service.
Our Consumer segment product offerings include:
| · | High-Quality Recycled Glycols - Our technology allows us to produce glycols which meet ASTM standards and can be used in any industrial application. | |
| · | Recycled Antifreeze - We formulate several universal recycled antifreeze products to meet ASTM and/or OEM manufacturer specifications for engine coolants. In addition, we custom blend recycled antifreeze to customer specifications. | |
| · | Recycled HVAC Fluids - We formulate a universal recycled HVAC coolant to meet ASTM and/or OEM manufacturer specifications for heating, ventilation and air conditioning fluids. In addition, we custom blend recycled HVAC coolants to customer specifications. | |
| · | Waste Glycol Disposal Services - Utilizing our fleet of collection/delivery trucks, we collect waste glycol from generators for recycling. We coordinate large batches of waste glycol to be picked up from generators and delivered to our processing centers for recycling or in some cases to be safely disposed. | |
| · | Windshield Washer Fluid - In certain markets we sell windshield washer fluids which we do not recycle. |
We currently sell and deliver all of our products in bulk containers (55 gallon barrels, 250 gallon totes, etc.) or variable metered bulk quantities.
We began developing innovative new methods for recycling glycols in 1999. We recognized a need in the market to improve the quality of recycled glycol being returned to retail customers. In addition, we believed through process technology, systems, and footprint we could clean more types of waste glycol in a more cost efficient manner. Each type of industrial waste glycol contains a different list of impurities which traditional waste antifreeze processing does not clean effectively. Additionally, many of the contaminants left behind using these processes - such as esters, organic acids and high dissolved solids - leave the recycled material risky to use in vehicles or machinery.
Our proprietary and patented technology removes difficult pollutants, including esters, organic acids, high dissolved solids and high un-dissolved solids in addition to the benefit of clearing oil/hydrocarbons, additives and dyes that are typically found in used engine coolants. Our QC&A program (Quality Control & Assurance) seeks to ensure consistently high quality, ASTM (American Society for Testing and Materials) standard compliant recycled material. Our products are trusted in all vehicle makes and models, regional fleet, local auto, and national retailers. Our proprietary QC&A program is managed and supported by dedicated process and chemical engineering staff, requires periodic onsite field audits, and ongoing training by our facility managing partners.
Industrial Segment
Our Industrial segment consists of two divisions: WEBA, our additives business and RS&T, our glycol re-distillation plant in West Virginia.
WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America. We believe WEBA is one of the largest companies serving the North American additive market. WEBA's METALGUARD® additive package product line includes one-step inhibitor systems, which give our customers the ability to easily make various types of antifreeze concentrate and 50/50 coolants for all automobiles, heavy-duty diesel engines, stationary engines in gas patch and other applications. METALGUARD additive packages cover the entire range of coolant types from basic green conventional to the newest extended life OAT antifreezes of all colors. Our heat transfer fluid additives allow our customers to make finished heat transfer fluids for most industry applications including all-aluminum systems. The METALGUARD heat transfer fluids include light and heavy-duty fluids, both propylene and ethylene glycol based, for various operating temperatures. These inhibitors cover the industry standard of phosphate-based inhibitors as well as all-organic (OAT) inhibitors for specific pH range and aluminum system requirements.
All of the METALGUARD products are tested at our in-house laboratory facility and by third-party laboratories to assure conformance. We use the standards set by ASTM (American Society of Testing Materials) for all of our products. All of our products pass the most current ASTM standards and testing for each type of product. Our manufacturing facility conforms to the highest levels of process quality control including ISO 9001 certification.
RS&T operates a 14-20 million gallons per year, ASTM E1177 EG-1, glycol re-distillation plant in West Virginia, which processes waste glycol into virgin quality recycled glycol for sale to industrial customers worldwide. The facility is uniquely designed to process industrial waste glycol. It utilizes the only currently active process that produces a product that both meets the virgin glycol antifreeze grade specification, ASTM E1177 EG-1, and achieves the important aesthetic requirement for most applications of having no odor. It is the largest glycol re-distillation plant in North America, with a capacity of 14-20 million gallons per year, several times higher processing capacity than the next largest glycol recycling facility. The facility, located at the Dow Institute Site in Institute, WV, includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.
Our Strategy
We are a vertically integrated specialty chemical company focused on high quality glycol-based and other products where we can be an efficiency leader providing value added products. To deliver value to all of our stakeholders we: develop, manufacture and deliver value-added niche or specialty products, deliver high quality products which meet or exceed industry standards, provide superior customer service, effectively manage costs as a low cost manufacturer, operate a dependable low cost distribution network, leverage technology and innovation throughout our company and are eco-friendly.
To effectively deliver on our strategy, we offer a broad spectrum of products in our niches, focus on non-standard innovative products, leverage multiple distribution channels and we are market smart in that we maximize less competitive/under-served markets. We provide white glove proactive customer service. Our manufacturing operations produce the largest independent glycol recyclerhighest quality products while effectively managing costs by recycling at high capacity and high up time, driving down raw material costs with focused feedstock streams management and using technology and data to manage our business in real-time. Our distribution operations provide dependable service at a low cost by effectively using know how, technology and data. We leverage technology and innovation to develop a recognized brand and operate certified laboratories and well supported research and development activities. Similarly, we focus on internal and external training programs. We are eco-friendly with the products we offer and the way we operate our businesses.
Critical Accounting Policies
We have identified in the consolidated financial statements contained herein certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. Management reviews with the audit committee the selection, application and disclosure of critical accounting policies. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include going concern, collectability of accounts receivable, inventory, impairment of goodwill, carrying amounts and useful lives of intangible assets, fair value of assets acquired and liabilities assumed in business combinations, stock-based compensation expense, and deferred taxes. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.
We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity:
Revenue Recognition
The Company recognizes revenue when (1) delivery of product has occurred or services have been rendered, (2) there is persuasive evidence of a sale arrangement, (3) selling prices are fixed or determinable, and (4) collectability from the customer (individual customers and distributors) is reasonably assured. Revenue consists primarily of revenue generated from the sale of the Company’s products. This generally occurs either when the Company’s products are shipped from its facility or delivered to the customer when title has passed. Revenue is recorded net of estimated cash discounts. The Company estimates and accrues an allowance for sales returns at the time the product is sold. To date, sales returns have not been material. Shipping costs passed to the customer are included in the net sales.
Collectability of Accounts Receivable
Accounts receivable consist primarily of amounts due from customers from sales of products and are recorded net of an allowance for doubtful accounts. In order to record our accounts receivable at their net realizable value, we assess their collectability. A considerable amount of judgment is required in order to make this assessment, based on a detailed analysis of the aging of our receivables, the credit worthiness of our customers and our historical bad debts and other adjustments. If economic, industry or specific customer business trends worsen beyond earlier estimates, we increase the allowance for uncollectible accounts by recording additional expense in the period in which we become aware of the new conditions.
Substantially all our customers are based in the United States. The economic conditions in the United States can significantly impact the recoverability of our accounts receivable.
Inventories
Inventories consist primarily of used glycol to be recycled, recycled glycol for resale and supplies used in the recycling process. Inventories are stated at the lower of cost or market with cost recorded on an average cost basis. Costs include purchase costs, fleet and fuel costs, direct labor, transportation costs and production related costs. In determining whether inventory valuation issues exist, we consider various factors including estimated quantities of slow-moving inventory by reviewing on-hand quantities, historical sales and production usage. Shifts in market trends and conditions, changes in customer preferences or the loss of one or more significant customers are factors that could affect the value of our inventory. These factors could make our estimates of inventory valuation differ from actual results.
Long-Lived Assets
We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment and intangible assets or whether the remaining balance of the long-lived assets should be evaluated for possible impairment. Instances that may lead to an impairment include the following: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
Upon recognition of an event, as measuredpreviously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure impairment loss as the amount by revenuewhich the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ the two following methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; or (ii) the present value of expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.
Goodwill and numberOther Intangibles
As of locations.December 31, 2016, goodwill and net intangible assets recorded on our consolidated balance sheet aggregated to $6,487,287 (of which $3,693,083 is goodwill that is not subject to amortization). We perform an annual impairment review in the fourth quarter of each year. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other, we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions: industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.
In addition to the required goodwill impairment analysis, we also review the recoverability and estimated useful life of our net intangibles with finite lives when an indicator of impairment exists. When we acquire intangible assets, management determines the estimated useful life, expected residual value if any and appropriate allocation method of the asset value based on the information available at the time. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Our assumptions with respect to expected future cash flows relating to intangible assets is impacted by our assessment of (i) the proprietary technology, GlyEco TechnologyTM, allowsnature of our recycling process combined with (ii) the technological advances we have made allowing us to recycle all five major types of waste glycol into a virgin-quality product usable in any glycol application. We are dedicated to conserving natural resources, limiting liability for waste generators, safeguardingapplication along with (iii) the environment,fact that the market is currently served by primarily smaller local processors. If our assumptions and creating valuable green products.
Deferred Financing Costs, Debt Discount and Detachable Debt-Related Warrants
Costs incurred in connection with debt are locateddeferred and recorded as a reduction to the debt balance in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Elizabeth, New Jersey (the “NJ Processing Center”), (5) Rock Hill, South Carolina, (6) Tea, South Dakota,the accompanying consolidated balance sheets. The Company amortizes debt issuance costs over the expected term of the related debt using the effective interest method. Debt discounts relate to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction to the debt balance and (7) Landover, Maryland. We discontinued our operations in Newell, West Virginia in Novemberaccreted over the expected term of 2013. Customers in this region are currently serviced through our Maryland and New Jersey processing centers.
Share-based Compensation
We use the physical collectionBlack-Scholes-Merton option-pricing model to estimate the value of options and disposalwarrants issued to employees and consultants as compensation for services rendered to the Company. This model uses estimates of wastevolatility, risk free interest rate and the expected term of the options or warrants, along with the current market price of the underlying stock, to estimate the value of the options and warrants on the date of grant. In addition, the calculation of compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of the stock-based awards is very much a local business. The dynamicsamortized over the vesting period of the awards. For stock-based awards that vest based on performance conditions, expense is recognized when it is probable that the conditions will be met. For stock-based awards that vest based on market conditions, expense is recognized on the accelerated attribution method over the derived service period.
Assumptions used in the calculation were determined as follows:
| · | Expected term is generally determined using the weighted average of the contractual term and vesting period of the award; |
| · | Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of the Company, over the expected term of the award; |
| · | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and |
| · | Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential forfeitures. |
Accounting for Income Taxes
We use the asset and opportunities differliability method to account for income taxes. Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. In preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment, intangible assets, goodwill and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within our markets. By combining localconsolidated balance sheets. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating management with standardized business practices,history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we drive greater overall operating efficiency acrossinclude an adjustment within the tax provision of our consolidated statements of operations. As of December 31, 2016 and 2015, we had established a full valuation allowance for all deferred tax assets.
As of December 31, 2016, and December 31, 2015, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during the next 12 months. Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense. Since there are no unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest.
Contingencies
Litigation
The Company may be party to legal proceedings in the ordinary course of business. The Company believes that the nature of these proceedings (collection actions, etc.) are typical for a Company of our size and scope of operations. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Below is an overview of a recently resolved legal proceeding, one pending legal proceeding, and one outstanding alleged claim.
On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company while maintaining day-to-day operating decisionsreceived a favorable judgment regarding this civil action in the amount of $95,000.
On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.
The Company is also aware of one matter that involves an alleged claim against the Company, and it is at least reasonably possible that the local level, closestclaim will be pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In this matter, the landlord of the Company’s formerly leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the customer.
Environmental Matters
We are subject to federal, state, and expand processing capabilitieslocal laws, regulations and capacity at eachordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. It is management’s opinion that the Company is not currently exposed to significant environmental remediation liabilities or asset retirement obligations. However, if a release of hazardous substances occurs, or is found on one of our processing centers. The following upgrades were madeproperties from prior activity, we may be subject to our processing centers in 2013:
The Company accrues for potential environmental liabilities in a manner consistent with accounting principles generally accepted in the United States; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. The Company reviews the status of its environmental sites on a yearly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. The Company maintains insurance coverage for unintentional acts that result in environmental remediation liabilities up to $1 million per occurrence; $2 million in the aggregate, with an umbrella liability policy that doubles the coverage. These policies do, however, take into account the likely share other parties will bear at remediation sites. It would be difficult to estimate the Company’s ultimate level of liability due to the number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or Acquisitions.
The Company is aware of one environmental remediation issue related to our financials but those that have long-term growth potentialformer leased property in New Jersey, which is currently subject to a remediation stemming from the sale of property by the previous owner in 2008 to the current landlord. To Management’s knowledge, the former landlord has engaged a licensed site remediation professional and fit withhad assumed responsibility for this remediation. In Management’s opinion the overall goalsliability for this remediation is the responsibility of the Company.
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Results of Operations
Year Ended December 31, 2012
Net Sales
For the fiscal year ended December 31, 2013,2016, Net Sales were $5,538,005,$5,591,087 compared to $1,266,295$7,364,452 for the year ended December 31, 2012, an increase2015, representing a decrease of $4,271,710$1,773,365, or 337.3%24%. The increasedecrease in Net Sales was due to increased production capabilities and corresponding sales fromthe impact of the closure of our former New Jersey processing center in December 2015, partially offset by the addition of new facilities added in 2013.
Cost of Goods Sold
For the year ended December 31, 2016, our Costs of Good Sold was $5,193,445,$5,283,054 compared to $1,021,332$8,167,841 for the fiscal year ended December 31, 2012,2015, representing an increasea decrease of $4,172,113,$2,884,787, or approximately 408.5%35%. The increasedecrease in Cost of Goods Sold was primarily due to the closure of our former New Jersey processing center in December 2015, partially offset by costs associated with sales to new customers. For the year ended December 31, 2015, Cost of Goods Sold from increased production capabilities from new facilities added in 2013. Cost of Goods Sold consists of all costs of sales, including costs to purchase, transport, store and processfor the raw materials, and overheadNew Jersey facility related to product manufacture and sale. We sometimes receive raw materials (used antifreeze) at no cost to the Company, which can have an impact on our reported consolidated gross profit.
Gross Profit
For the fiscal year ended December 31, 2013,2016, we realized a gross profit of $344,560,$308,033 compared to $244,963a gross loss of $(803,389) for the year ended December 31, 2012, an increase2015, representing a change of $99,597 or 40.7%. The increase$1,111,422. This change is primarily the result of the impact of the closure of our former New Jersey processing center in gross profit was primarily due to an increase in production capabilities from new facilities added in 2013 and related sales growth. December 2015.
Our gross margin profit margin(loss) for the year ended December 31, 20132016, was approximately 6.2%,6% compared to approximately 19.3%(11)%, for the year ended December 31, 2012. The decrease in gross profit margin is primarily attributable to additional, one-time costs for the integration, training, and process standardization at our facilities, which were expensed as incurred. These additional costs at times caused the production costs per unit to exceed the revenues per unit produced at certain facilities.
Operating Expenses
For the year ended December 31, 2013,2016, operating expenses increaseddecreased to $3,763,352$3,492,475 from $1,930,439$11,477,791 for the year ended December 31, 2012,2015, representing an increasea decrease of $1,832,913, or approximately 95.0%.$7,985,316. Operating expenses consist of Consulting Fees, Legalconsulting fees, share-based compensation, salaries and Professional Feeswages, legal and Generalprofessional fees, general and Administrative Expenses. This increase is attributable to our expansion through acquisitionadministrative expenses and the establishment ofimpairment loss, primarily related to the necessary infrastructureNew Jersey processing center (see Note 1 to the Consolidated Financial Statements for our currentadditional information regarding the impairment). The reduction in operating expenses is primarily due to the $8,633,761 impairment loss in 2015, partially offset by an increase in salaries and planned future scope of operations.
Consulting Fees.Consulting Fees
consist of marketing, administrative and management fees paid under consulting agreements. Consulting FeesShare-Based Compensation. Share-Based Compensation consists of stock, options and warrants issued to consultants, employees and directors in consideration for services provided to the Company. Share-Based Compensation increased to $1,064,086 for the year ended December 31, 2016, from $887,173 for the year ended December 31, 2015, representing an increase of $56,247,$176,913, or approximately 9.0%20%. The increase is primarily attributabledue to our current year expansion into new marketschanges in the type and the desire to maintain continuityamount of leadership while integrating recent acquisitions.
Salaries and Wages
. Salaries and wages consist of wages and the related taxes. Salaries and Wages increased toLegal and Professional Fees. Legal and professional fees consist of legal, accounting, tax and audit services. For the year ended December 31, 2016, Legal and Professional Fees decreased to the new operations and related administrative support for activities added in 2013.
General and Administrative (G&A) Expenses
. G&A Expenses consist of general operational costs of our business. For theOther Income and Expenses
For the fiscal year ended December 31, 2013,2016, Other Income and Expenses increasedwas expense of $100,170 compared to $594,335 from $184,355an expense of $160,706 for the fiscal year ended December 31, 2012,2015, representing an increasea decrease of $409,980,$60,356, or approximately 222.4%38%. Other Income and Expenses consist primarily of interesta $89,666 Loss on sale of equipment, net, Interest income and interest expense.
Interest Expense
. Interest expense consists of interest on the Company’s outstanding indebtedness. For theAdjusted EBITDA
Presented below is the lossnon-GAAP financial measure representing earnings before interest, taxes, depreciation, amortization and share-based compensation (which we refer to as “Adjusted EBITDA”). Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for, net income (loss) and cash flows from operations was $3,418,792calculated in accordance with GAAP.
Adjusted EBITDA is used by our management as an additional measure of our Company’s performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our Company’s financial results that may not be shown solely by period-to-period comparisons of net income (loss) and cash flows from operations. In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to many of our employees in order to evaluate our Company’s performance. Further, we believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results and helps investors make comparisons between our company and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income (loss), as well as trends in those items. The amounts of those items are set forth, for the same period. The difference arisesapplicable periods, in the reconciliations of Adjusted EBITDA to net loss below.
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
| As Reported | ||||||||
| Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net loss | $ | (2,264,560 | ) | $ | (12,452,260 | ) | ||
| Interest expense, net | 25,504 | 160,706 | ||||||
| Income tax (benefit) expense | (1,020,052 | ) | 10,374 | |||||
| Depreciation and amortization | 358,491 | 793,438 | ||||||
| Share-based compensation | 1,064,086 | 887,173 | ||||||
| Adjusted EBITDA | $ | (1,836,531 | ) | $ | (10,600,569 | ) | ||
Liquidity & Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from non-cash transactions comprisedoperating activities, capital expenditures, and acquisitions of stock issued for goodsbusinesses and services $553,360, stock-based compensationtechnologies. Cash provided from financing continues to be the Company’s primary source of $1,065,288, depreciationfunds. We believe that we can raise adequate funds through issuance of equity or debt as necessary to continue to support our planned expansion.
As of December 31, 2016, we had $3,572,685 in current assets, consisting primarily of $1,413,999 in cash, $1,096,713 in accounts receivable and amortization$644,522 in inventory. Cash increased from $1,276,687 as of $441,472,December 31, 2015, to $1,413,999 as of December 31, 2016, primarily due to the rights offering in February 2016 and warrantsthe unsecured debt issued in a note conversion of $392,170, partiallyDecember 2016, significantly offset by changes in working capitalnegative operating cash flow and purchases of assets and businesses. Accounts receivable increased from $807,906 as of December 31, 2015, to $1,096,713 as of December 31, 2016 primarily due to 2013 transactions.
As of December 31, 2016, we had total current liabilities of $5,336,792, consisting primarily of contingent acquisition consideration of $1,821,575 and notes payable – current portion, net of debt discount of $2,541,178. Contingent acquisition consideration relates to potential future earn out payment amounts primarily related to the WEBA acquisition in 2016. Notes payable – current portion, net of debt discount increased from $117,972 as of December 31, 2015 to $2,541,178 as of December 31, 2016 primarily related to the unsecured debt issued in December 2016.
The table below sets forth certain information about the Company’s liquidity and capital resources for the years ended December 31, 2016 and 2015:
| For the Year Ended | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Net cash (used in) operating activities | $ | (2,997,392 | ) | $ | (2,256,162 | ) | ||
| Net cash (used in) investing activities | $ | (2,382,971 | ) | $ | (173,874 | ) | ||
| Net cash provided by financing activities | $ | 5,517,675 | $ | 3,211,876 | ||||
| Net increase (decrease) in cash | $ | 137,312 | $ | (781,840 | ) | |||
| Cash - beginning of year | $ | 1,276,687 | $ | 494,847 | ||||
| Cash - end of year | $ | 1,413,999 | $ | 1,276,687 | ||||
The Company may not have sufficient capital to sustain expected operations and investing activities for the next twelve months. To date, we financed operations and investing activities through private sales of our securities exempt from the registration requirements of the Securities Act of 1933, as amended. During the year ended December 31, 2013,2016, we completed a rights offering and raised $8,546,386net proceeds of $2,936,792, which is discussed further below. During the year ended December 31, 2016, we also raised gross proceeds of $2,810,000 through equity financing forthe issuance of unsecured debt, which is discussed further below. During the year ended December 31, 2015, we completed a totalprivate placement offering and raised net proceeds of $8,178,471, net of financing costs of $367,915.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2013,2016, the Company has yet to achieve profitable operations and is dependent on itsour ability to raise capital from stockholders or other sources to sustain operations anduntil, if at all, the Company is able to ultimately achieve profitable operations when operating efficiencies can be realized from facilities added in 2013. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Our plans to address these matters include realizing synergies and cost efficiencies with current year acquisitions,achieving profitable operations, raising additional financing through offering our shares of the Company’sCompany's capital stock in private and/or public offerings of our securities and through debt financing if available and needed. There can be no assurances, however, that the Company will be able to obtain any financings or that such financings will be sufficient to sustain our business operation or permit the Company to implement our intended business strategy. The Company plansWe plan to becomeachieve profitable by upgradingoperations through the capacityimplementation of operating efficiencies at our facilities and capabilities at its existing operatingincreased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities continuing to implement our patent-pending technology in international markets, and acquiring profitable glycol recycling companies. We have acquired four glycol recycling businesses, and are in discussions with five other companies to acquire their glycol recycling businesses.
In their report dated April 15, 2014,6, 2017, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our consolidated financial statements for the fiscal year ended December 31, 20132016 concerning the Company’s assumption that we will continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of current working capital requirements and recurring losses from operations.
Private Financings
February 2015 Private Placement
On February 17, 2015, the Company completed a private placement offering (the “Offering”) of units of the Company’s liquidity and capital resources for the fiscal years ended December 30, 2013 and 2012:
| For the Fiscal Year Ended | ||||||||
| December 31, 2013 | December 31, 2012 | |||||||
Net cash (used in) operating activities | $ | (1,452,692 | ) | $ | (1,769,669 | ) | ||
Net cash (used in) investing activities | $ | (3,243,765 | ) | $ | (2,057,781 | ) | ||
Net cash provided by financing activities | $ | 7,935,815 | $ | 4,404,264 | ||||
Net increase (decrease) in cash and cash equivalents | $ | 3,239,358 | $ | 576,814 | ||||
Cash - beginning of period | $ | 1,153,941 | $ | 577,127 | ||||
Cash - end of period | $ | 4,393,299 | $ | 1,153,941 | ||||
The Company utilized the services of a FINRA registered placement agent (the “Placement Agent”) for the Offering. In connection with the Offering, the Company paid an aggregate cash fee of $34,827 to the Placement Agent and issued to Mr. Frenkel warrants to purchase 400,000 shares of Global Recycling Common Stock at $.00025 per share with an expiration of December 31, 2011. Mr. Frenkel did not exercise any of these warrants before their expiration.
February 2016 Rights Offering
On February 26, 2016, the Company closed the 2016 Rights Offering. The rights offering was in defaultmade pursuant to a registration statement on Form S-1 filed with the Frenkel Convertible Note.
Pursuant to the Merger,2016 Rights Offering, the Company assumed the Frenkel Convertible Note, Second Forbearance Agreement, and warrants issued by Global Recyclingdistributed to Mr. Frenkel in connection with the Frenkel Convertible Note.
During the 2016 Rights Offering, subscription rights to retire the convertible note payable. The warrants were expensed to interest expense with an estimated fair valuepurchase a total of $392,170. Interest expense of $24,913 was recorded at the time the notes payable were converted to the common and Series AA preferred stock.
5% Notes Issuance
On December 27, 2016, the Company entered into a subscription agreement (the “5% Notes Subscription Agreement”) by and between the Company and various funds managed by Wynnefield Capital. Pursuant to the 5% Notes Subscription Agreement, the Company offered and issued $1,000,000 in principal amount of 5% Senior Unsecured Promissory Notes (the “5% Notes”). The Company received $1,000,000 in net proceeds from the offering. The 5% Notes will mature on May 31, 2017, or at an earlier date consistent with Section 2(d) of the 5% Note (the “5% Note Maturity Date”). The 5% Notes bear interest at a pricerate of $0.505% per share. As consideration forannum due on the extension5% Note Maturity Date or as otherwise specified by the 5% Note. The 5% Notes contain standard events of default, including: (i) failure to repay the 5% Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of default. If the 5% Notes are not repaid at the 5% Note Maturity Date, then the default rate becomes 12% per annum and the balance of the redemption date5% Notes outstanding must be paid in four equal installments during the succeeding four months.
8% Notes Issuance
On December 27, 2016, the Company entered into subscription agreements (the “8% Notes Subscription Agreements”) by and between the Company and certain accredited investors. Pursuant to the 8% Notes Subscription Agreements, the Company offered and issued: (i) $1,810,000 in principal amount of the Series AA Preferred Stock, an additional 262,7638% Senior Unsecured Promissory Notes (the “8% Notes”); and (ii) warrants (the “Warrants”) to purchase up to 5,656,250 shares of Common Stock were issuedof the Company. The Company received $1,760,000 in net proceeds from the offering. The 8% Notes will mature on December 27, 2017 (the “8% Note Maturity Date”), or at an earlier date consistent with Section 2(d) of the 8% Note. The 8% Notes bear interest at a pricerate of $0.508% per share. Of these combined shares, 1,946,280 shares were issuedannum due on the 8% Note Maturity Date or as otherwise specified by the 8% Note. The 8% Notes contain standard events of default, including: (i) failure to Mr. Frenkel,repay the 8% Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and 659,223 shares were issued to Triage Capital Management L.P. Additionally, per the terms(iv) other standard events of the Conversion Agreement, a three-year warrant to purchase one sharedefault. The Warrants are exercisable for an aggregate of Common Stock was issued for each share of Common Stock received in the conversion with each such warrant having an exercise price of $1.00. Therefore, Mr. Frenkel was issued warrants to purchase 2,605,5135,656,250 shares of Common Stock, in connectionbeginning on December 27, 2016, and will be exercisable for a period of three years. The exercise price with respect to the conversion.
Off-balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Not Applicableapplicable.
Immediately following are our audited consolidated financial statements and notes as of and for the years ended December 31, 20132016 and 2012.
| Page | |
| 39 | |
| 40 | |
| 41 | |
| Consolidated Statements of Changes in Stockholders’ Equity | 42 |
| Consolidated Statements of Cash Flows | 43 |
| Notes to |
To the Board of Directors and Stockholders of
We have audited the accompanying consolidated balance sheetsheets of GlyEco, Inc. and subsidiaries (the “Company”) as of December 31, 20132016 and 2015, and the related consolidated statementstatements of operations, changes in stockholders’ equity and cash flows for the yearyears then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit ofon its internal control over financial reporting. Our auditaudits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GlyEco, Inc. and subsidiaries atas of December 31, 2013,2016 and 2015, and the results of itstheir operations and itstheir cash flows for the yearyears then ended,, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has yet to achieve profitableexperienced recurring losses from operations, has negative operating cash flows during the year ended December 31, 2016, has an accumulated deficit of $36,815,063 as of December 31, 2016 and is dependent on its ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable profitable operations.capital. These factors raise substantial doubt about the Company'sCompany’s ability to continue as a going concern. Management's plans in regard to these mattersfactors are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KMJ Corbin & Company LLP
Costa Mesa, California
April 6, 2017
Consolidated Balance Sheets
December 31, 20132016 and 2012
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 4,393,299 | $ | 1,153,941 | ||||
| Accounts receivable, net | 898,934 | 116,963 | ||||||
| Due from related parties | 34,868 | - | ||||||
| Prepaid expenses | 53,732 | 12,550 | ||||||
| Inventories | 268,191 | 58,719 | ||||||
| Total current assets | 5,649,024 | 1,342,173 | ||||||
| Property, Plant and Equipment | ||||||||
| Machinery and equipment | 3,719,344 | 756,047 | ||||||
| Leasehold improvements | 7,641 | - | ||||||
| Accumulated depreciation | (328,803 | ) | (70,641 | ) | ||||
| 3,398,182 | 685,406 | |||||||
| Construction in process | 2,117,001 | - | ||||||
| Total property, plant and equipment | 5,515,183 | 685,406 | ||||||
| Other Assets | ||||||||
| Deposits | 80,708 | - | ||||||
| Goodwill | 779,303 | 159,484 | ||||||
| Other intangibles, net | 3,673,190 | 3,500,000 | ||||||
| Total other assets, net | 4,533,201 | 3,659,484 | ||||||
| Total assets | $ | 15,697,408 | $ | 5,687,063 | ||||
| LIABILITIES, MEZZANINE, AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,271,674 | $ | 184,134 | ||||
| Due to related parties | 582,682 | 470,443 | ||||||
| Accrued interest | - | 616,462 | ||||||
| Convertible note payable | - | 1,000,000 | ||||||
| Note payable | 6,504 | - | ||||||
| Capital lease obligation, related party | 285,363 | - | ||||||
| Total current liabilities | 2,146,223 | 2,271,039 | ||||||
| Non-Current Liabilities | ||||||||
| Note payable | 9,877 | - | ||||||
| Capital lease obligation, related party | 1,189,574 | - | ||||||
| Total non-current liabilities | 1,199,451 | - | ||||||
| Total liabilities | 3,345,674 | 2,271,039 | ||||||
| Mandatorily redeemable Series AA convertible preferred stock, 2,342,740 shares issues and outstanding | 1,171,375 | - | ||||||
| Stockholders' Equity | ||||||||
Preferred stock: 40,000,000 shares authorized; $0.0001 par value; 2,342,740 Series AA (above) issued and outstanding as of December 31, 2013 and none issued and outstanding as of December 31, 2012 | - | - | ||||||
Common stock: 300,000,000 shares authorized; $0.0001 par value; 48,834,916 and 36,149,985 shares issued and outstanding as of December 31, 2013 and 2012, respectively | 4,884 | 3,615 | ||||||
| Additional paid-in capital | 24,541,809 | 12,765,616 | ||||||
| Accumulated deficit | (13,366,334 | ) | (9,353,207 | ) | ||||
| Total stockholders' equity | 11,180,359 | 3,416,024 | ||||||
| Total liabilities, mezzanine, and stockholders' equity | $ | 15,697,408 | $ | 5,687,063 | ||||
| 2013 | 2012 | |||||||
| Net sales | $ | 5,538,005 | $ | 1,266,295 | ||||
Cost of goods sold ($2,274,345 related party for 2013) | 5,193,445 | 1,021,332 | ||||||
| Gross profit | 344,560 | 244,963 | ||||||
| Operating expenses | ||||||||
| Consulting fees ($496,438 and $161,945 related party for 2013 and 2012, respectively) | 680,196 | 623,949 | ||||||
| Salaries and wages | 830,677 | 467,023 | ||||||
| Share-based compensation | 1,065,288 | 124,660 | ||||||
| Legal and professional fees | 286,728 | 300,674 | ||||||
General and administrative ($48,123 related party for 2013) | 900,463 | 414,133 | ||||||
| Total operating expenses | 3,763,352 | 1,930,439 | ||||||
| Loss from operations | (3,418,792 | ) | (1,685,476 | ) | ||||
| Other (income) and expenses | ||||||||
| Interest income | (2,496 | ) | (1,206 | ) | ||||
Interest expense ($392,170 warrants issued for convertible note for 2013; $176,862 related party for 2013) | 592,788 | 185,561 | ||||||
| Other | 4,043 | - | ||||||
| Total other income and expenses | 594,335 | 184,355 | ||||||
| Loss before provision for income taxes | (4,013,127 | ) | (1,869,831 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (4,013,127 | ) | $ | (1,869,831 | ) | ||
| Basic and diluted loss per share | $ | (0.09 | ) | $ | (0.07 | ) | ||
| Weighted average common shares outstanding (basic and diluted) | 45,527,044 | 26,402,477 | ||||||
| December 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 1,413,999 | $ | 1,276,687 | ||||
| Cash – restricted | 76,552 | - | ||||||
| Accounts receivable, net | 1,096,713 | 807,906 | ||||||
| Prepaid expenses and other current assets | 340,899 | 95,775 | ||||||
| Inventories | 644,522 | 380,789 | ||||||
| Total current assets | 3,572,685 | 2,561,157 | ||||||
| Property, plant and equipment, net | 3,657,839 | 1,279,057 | ||||||
| Other Assets | ||||||||
| Deposits | 387,035 | 26,688 | ||||||
| Goodwill | 3,693,083 | 835,295 | ||||||
| Other intangibles, net | 2,794,204 | 169,533 | ||||||
| Total other assets, net | 6,874,322 | 1,031,516 | ||||||
| Total assets | $ | 14,104,846 | $ | 4,871,730 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 961,010 | $ | 1,522,037 | ||||
| Due to related parties | 6,191 | 34,405 | ||||||
| Contingent acquisition consideration | 1,821,575 | - | ||||||
| Notes payable – current portion, net of debt discount | 2,541,178 | 117,972 | ||||||
| Capital lease obligations – current portion | 6,838 | 9,752 | ||||||
| Total current liabilities | 5,336,792 | 1,684,166 | ||||||
| Non-Current Liabilities | ||||||||
| Notes payable – non-current portion | 2,963,640 | - | ||||||
| Capital lease obligations – non-current portion | 3,371 | 10,211 | ||||||
| Total non-current liabilities | 2,967,011 | 10,211 | ||||||
| Total liabilities | 8,303,803 | 1,694,377 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock: 40,000,000 shares authorized; $0.0001 par value; no shares issued and outstanding as of December 31, 2016 and 2015 | - | - | ||||||
| Common Stock: 300,000,000 shares authorized; $0.0001 par value; 126,156,189 and 72,472,412 shares issued and outstanding as of December 31, 2016 and 2015, respectively | 12,616 | 7,248 | ||||||
| Additional paid-in capital | 42,603,490 | 37,720,608 | ||||||
| Accumulated deficit | (36,815,063 | ) | (34,550,503 | ) | ||||
| Total stockholders’ equity | 5,801,043 | 3,177,353 | ||||||
| Total liabilities and stockholders’ equity | $ | 14,104,846 | $ | 4,871,730 | ||||
See accompanying notes to the consolidated financial statements.
40
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 20132016 and 2012
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2011 | 22,858,235 | $ | 2,286 | $ | 5,880,271 | $ | (7,483,376 | ) | $ | (1,600,819 | ) | |||||||||
| Common shares for acquisition | 4,171,750 | 417 | 2,357,333 | - | 2,357,750 | |||||||||||||||
| Common shares for cash | 8,920,000 | 892 | 4,303,372 | - | 4,304,264 | |||||||||||||||
| Stock-based compensation expense | - | - | 124,660 | - | 124,660 | |||||||||||||||
| Warrants and options exercised | 200,000 | 20 | 99,980 | - | 100,000 | |||||||||||||||
| Net loss | - | - | - | (1,869,831 | ) | (1,869,831 | ) | |||||||||||||
| Balance, December 31, 2012 | 36,149,985 | 3,615 | 12,765,616 | (9,353,207 | ) | 3,416,024 | ||||||||||||||
| Common shares for acquisition | 835,810 | 84 | 1,118,089 | - | 1,118,173 | |||||||||||||||
Common shares for payment of goods and services | 793,679 | 79 | 553,281 | - | 553,360 | |||||||||||||||
| Common shares for note conversion | 940,000 | 94 | 469,906 | - | 470,000 | |||||||||||||||
Warrants issued in conjunction with note conversion | - | - | 392,170 | - | 392,170 | |||||||||||||||
| Common shares for cash, net | 9,357,578 | 936 | 8,177,535 | - | 8,178,471 | |||||||||||||||
| Warrants and options exercised | 757,864 | 76 | (76 | ) | - | - | ||||||||||||||
| Stock-based compensation expense | - | - | 1,065,288 | - | 1,065,288 | |||||||||||||||
| Net loss | - | - | - | (4,013,127 | ) | (4,013,127 | ) | |||||||||||||
| Balance, December 31, 2013 | 48,834,916 | $ | 4,884 | $ | 24,541,809 | $ | (13,366,334 | ) | $ | 11,180,359 | ||||||||||
| Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net sales | $ | 5,591,087 | $ | 7,364,452 | ||||
| Cost of goods sold | 5,283,054 | 8,167,841 | ||||||
| Gross profit (loss) | 308,033 | (803,389 | ) | |||||
| Operating expenses: | ||||||||
| Consulting fees | 129,752 | 324,947 | ||||||
| Share-based compensation | 1,064,086 | 887,173 | ||||||
| Salaries and wages | 1,094,465 | 549,578 | ||||||
| Legal and professional | 274,824 | 300,350 | ||||||
| General and administrative | 929,348 | 781,982 | ||||||
| Impairment loss | - | 8,633,761 | ||||||
| Total operating expenses | 3,492,475 | 11,477,791 | ||||||
| Loss from operations | (3,184,442 | ) | (12,281,180 | ) | ||||
| Other (income) and expense: | ||||||||
| Interest income | (372 | ) | (231 | ) | ||||
| Interest expense | 25,876 | 160,937 | ||||||
| Loss on sale of equipment, net | 89,666 | - | ||||||
| Gain on settlement of note payable | (15,000 | ) | - | |||||
| Total other expense, net | 100,170 | 160,706 | ||||||
| Loss before provision for income taxes | (3,284,612 | ) | (12,441,886 | ) | ||||
(Benefit) provision for income taxes | (1,020,052 | ) | 10,374 | |||||
| Net loss | $ | (2,264,560 | ) | $ | (12,452,260 | ) | ||
| Basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.18 | ) | ||
| Weighted average common shares outstanding (basic and diluted) | 109,553,834 | 69,113,112 | ||||||
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 20132016 and 2012
| 2013 | 2012 | |||||||
| Net cash flows from operating activities | ||||||||
| Net loss | $ | (4,013,127 | ) | $ | (1,869,831 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Depreciation | 258,162 | 70,641 | ||||||
| Amortization | 183,310 | - | ||||||
| Stock-based compensation expense | 1,065,288 | 124,660 | ||||||
| Stock issued for conversion of accrued interest | 24,913 | - | ||||||
| Warrants issued in conjunction with note conversion | 392,170 | - | ||||||
| Stock and warrants issued for goods and services | 553,360 | - | ||||||
| Other | 4,043 | - | ||||||
| (Increase) decrease in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (689,651 | ) | (81,865 | ) | ||||
| Due from related parties | (34,868 | ) | - | |||||
| Prepaid expenses | (121,890 | ) | (12,550 | ) | ||||
| Inventories | (185,238 | ) | (58,719 | ) | ||||
| Accounts payable and accrued expenses | 989,597 | (28,615 | ) | |||||
| Due to related party | 112,239 | (98,160 | ) | |||||
| Accrued interest | - | 184,770 | ||||||
| Other | 9,000 | - | ||||||
| Net cash used in operating activities | (1,452,692 | ) | (1,769,669 | ) | ||||
| Investing activities | ||||||||
| Cash paid for acquisitions | (539,304 | ) | - | |||||
| Purchase of equipment | (593,738 | ) | (57,781 | ) | ||||
| Construction in process | (2,117,001 | ) | - | |||||
| Proceeds from sale of fixed assets | 6,278 | - | ||||||
| Purchase of intangible assets | - | (2,000,000 | ) | |||||
| Net cash used in investing activities | (3,243,765 | ) | (2,057,781 | ) | ||||
| Financing activities | ||||||||
| Repayment of debt | (3,619 | ) | - | |||||
| Repayment of capital lease | (239,037 | ) | - | |||||
| Proceeds from the sale of common stock | 8,546,386 | 4,404,264 | ||||||
| Stock issuance costs | (367,915 | ) | - | |||||
| Net cash provided by financing activities | 7,935,815 | 4,404,264 | ||||||
| Increase (decrease) in cash for year | 3,239,358 | 576,814 | ||||||
| Cash at the beginning of the year | 1,153,941 | 577,127 | ||||||
| Cash at end of the year | $ | 4,393,299 | $ | 1,153,941 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid during year | $ | 122,510 | $ | 792 | ||||
| Taxes paid during year | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing items | ||||||||
| Common stock issued for acquisition | $ | 1,118,173 | $ | 2,357,750 | ||||
| Common stock for goods and services | $ | 553,360 | $ | 698,266 | ||||
| Common stock issued for convertible note, principal and interest | $ | 470,000 | $ | - | ||||
| Series AA Preferred Stock issued for convertible note, principal and interest | $ | 1,171,375 | $ | - | ||||
| Equipment under capital lease | $ | 1,714,974 | $ | - | ||||
| Equipment purchased with debt | $ | 20,000 | $ | - | ||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid -In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2014 | 58,033,560 | $ | 5,804 | $ | 33,284,831 | $ | (22,098,243 | ) | $ | 11,192,392 | ||||||||||
| Offering of common shares, net | 11,013,170 | 1,101 | 3,543,347 | - | 3,544,448 | |||||||||||||||
| Common shares for payment of accounts payable | 16,334 | 2 | 5,598 | - | 5,600 | |||||||||||||||
| Warrants exercised | 999,667 | 100 | (100 | ) | - | - | ||||||||||||||
| Share-based compensation | 2,409,681 | 241 | 886,932 | - | 887,173 | |||||||||||||||
| Net loss | - | - | - | (12,452,260 | ) | (12,452,260 | ) | |||||||||||||
| Balance, December 31, 2015 | 72,472,412 | 7,248 | 37,720,608 | (34,550,503 | ) | 3,177,353 | ||||||||||||||
| Offering of common shares, net | 37,475,620 | 3,746 | 2,933,046 | - | 2,936,792 | |||||||||||||||
| Share-based compensation | 10,583,157 | 1,059 | 1,063,027 | - | 1,064,086 | |||||||||||||||
| Shares issued in connection with business combination | 5,625,000 | 563 | 561,937 | - | 562,500 | |||||||||||||||
| Relative fair value of warrants to purchase Common Stock issued in connection with promissory notes | - | - | 324,872 | - | 324,872 | |||||||||||||||
| Net loss | - | - | - | (2,264,560 | ) | (2,264,560 | ) | |||||||||||||
| Balance, December 31, 2016 | 126,156,189 | $ | 12,616 | $ | 42,603,490 | $ | (36,815,063 | ) | $ | 5,801,043 | ||||||||||
See accompanying notes to the consolidated financial statements.
42
Consolidated Statements of Cash Flows
For the years ended December 31, 2016 and 2015
| Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net cash flow from operating activities | ||||||||
| Net loss | $ | (2,264,560 | ) | $ | (12,452,260 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 273,162 | 586,502 | ||||||
| Amortization of intangibles | 85,329 | 206,936 | ||||||
| Share-based compensation | 1,064,086 | 887,173 | ||||||
| Provision for bad debt | 38,409 | 167,315 | ||||||
| Gain on settlement of note payable | (15,000 | ) | - | |||||
| Loss on disposal of equipment | 97,841 | - | ||||||
| Impairment of inventories | - | 168,795 | ||||||
| Impairment of property, plant and equipment | - | 5,320,074 | ||||||
| Impairment of deposit | - | 60,000 | ||||||
| Impairment of intangible assets | - | 3,084,892 | ||||||
| Income tax benefit related to WEBA acquisition | (1,030,000 | ) | - | |||||
| Change in operating assets and liabilities, net of effects from acquisitions: | ||||||||
| Accounts receivable | 155,480 | (189,165 | ) | |||||
| Prepaid expenses and other current assets | 164,332 | 41,281 | ||||||
| Inventories | (263,733 | ) | 18,093 | |||||
| Deposits | (360,347 | ) | (5,980 | ) | ||||
| Accounts payable and accrued expenses | (914,177 | ) | (121,723 | ) | ||||
| Due to related party | (28,214 | ) | (28,095 | ) | ||||
| Net cash used in operating activities | (2,997,392 | ) | (2,256,162 | ) | ||||
| Cash flows from investing activities | ||||||||
| Cash paid for acquisitions, net of cash received | (96,754 | ) | - | |||||
| Cash – restricted | (76,552 | ) | - | |||||
| Purchase of property, plant and equipment | (2,209,665 | ) | (173,874 | ) | ||||
| Net cash used in investing activities | (2,382,971 | ) | (173,874 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of notes payable | (142,491 | ) | (6,904 | ) | ||||
| Repayment of capital lease obligations | (9,754 | ) | (325,668 | ) | ||||
| Proceeds for issuance of notes payable, net of offering costs | 2,733,128 | - | ||||||
| Proceeds from the sale of Common Stock, net | 2,936,792 | 3,544,448 | ||||||
| Net cash provided by financing activities | 5,517,675 | 3,211,876 | ||||||
| Net change in cash | 137,312 | 781,840 | ||||||
| Cash at the beginning of the year | 1,276,687 | 494,847 | ||||||
| Cash at end of the year | $ | 1,413,999 | $ | 1,276,687 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid during the year | $ | 25,876 | $ | 160,937 | ||||
| Income taxes paid during the year | $ | 9,948 | $ | 10,374 | ||||
| Supplemental disclosure of non-cash items | ||||||||
| Acquisition of equipment with notes payable | $ | 436,081 | $ | - | ||||
| Acquisition of equipment included in accounts payable | $ | 58,950 | $ | - | ||||
| Notes payable issued in connection with business combination | $ | 2,650,000 | $ | - | ||||
| Common Stock issued in connection with business combination | $ | 562,500 | $ | 5,600 | ||||
| Extinguishment of capital lease | $ | - | $ | 877,449 | ||||
| Relative fair value of warrants to purchase Common Stock issued in connection with promissory notes | $ | 324,872 | $ | - | ||||
| Note payable proceeds committed and held in escrow | $ | 50,000 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
43
Notes to Consolidated Financial Statements
December 31, 20132016 and 2012
NOTE 1 – Organization and Nature of Business
GlyEco, Inc. (the "Company"“Company”, “we”, or “our”) is a green chemistry company that collects and recycles waste glycol streams into a reusable productglycol products that isare sold to third party customers in the automotive and industrial end-markets. We are the largest independent glycol recyclerend-markets in the United States, as measured by revenue and number of locations.States. Our proprietary technology GlyEco TechnologyTM, allows us to recycle all five major types of waste glycol into a virgin-quality producthigh-quality products usable in any glycol application. We are dedicated to conserving natural resources, limiting liability for waste generators, safeguarding the environment, and creating valuable green products. We currently operate sevensix processing centers in the United States with our principalcorporate offices located in Phoenix, Arizona. OurThese processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Elizabeth, New Jersey, (5) Rock Hill, South Carolina, (6)(5) Tea, South Dakota, and (7)(6) Landover, Maryland.
On December 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries; and purchased 96% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology. On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation (“UCC”), a wholly-owned subsidiary of The Dow Chemical Company (“Dow”), at Institute, West Virginia (the “Dow Assets”).
The Company was formed in the State of Nevada on October 21, 2011. On October 21, 2011, the Company became a wholly-owned subsidiary of Environmental Credits, Inc. ("ECVL"). On November 21, 2011, ECVL merged itself into its wholly-owned subsidiary, GlyEco, Inc. (the "Reincorporation"). Upon the consummation of the Reincorporation, the Company was the surviving corporation and the Articles of Incorporation and Bylaws of the Company replaced the Certificate of Incorporation and Bylaws of ECVL.
We are currently comprised of the parent corporation GlyEco, Inc., WEBA, RS&T, and the acquisition subsidiaries that were formed to acquire the processing centers listed above. These processing centers are held in seven subsidiaries under the names of GlyEco Acquisition Corp. #6 ("Global Sub #6"), a Delaware corporation, was dissolved. Global Sub #6 ceased operations on December 31, 2009, when the assets (including rights to additive formula and goodwill) were sold in an exchange for the common shares of Global Recycling. Prior to its sale, Global Sub #6 operated as a chemical company selling additives used in producing antifreeze and heat transfer fluid from recycled ethylene glycol. Sales of additives were discontinued upon the sale of the assets effective December 31, 2009.
Going Concern
The consolidated financial statements as of and for the year ended December 31, 20132016 have been prepared assuming that the Company will continue as a going concern. AsThe Company has experienced recurring losses from operations, has negative operating cash flows during the year ended December 31, 2016, has an accumulated deficit of $36,815,063 as of December 31, 2013, the Company has yet to achieve profitable operations2016 and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Ultimately, we hopeplan to achieve viable profitable operations whenthrough the implementation of operating efficiencies can be realizedat our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the facilities added in 2013.opening of additional facilities. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. These factors raise substantial doubt about the Company's ability to continue as a going concern. In their report dated April 15, 2014, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the fiscal year ended December 31, 2013, expressing uncertainty regarding the Company’s assumption that we will continue as a going concern.
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"“SEC”).
Principles of Consolidation
These consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounting transactions have been eliminated as a result of consolidation. The subsidiaries include: GlyEco Acquisition Corp #1 ("Acquisition Sub #1”); GlyEco Acquisition Corp #2 ("Acquisition Sub #2”); GlyEco Acquisition Corp #3 ("Acquisition Sub #3”); GlyEco Acquisition Corp #4 ("Acquisition Sub #4”); GlyEco Acquisition Corp #5 ("Acquisition Sub #5”); GlyEco Acquisition Corp #6 ("Acquisition Sub #6”); and GlyEco Acquisition Corp. #7 (“Acquisition Sub #7”).
Noncontrolling Interests
The Company recognizes noncontrolling interests as equity in the consolidated financial statements separate from the parent company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to noncontrolling interests is included in consolidated net income (loss) on the face of the consolidated statements of operations. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.
The Company provides either in the consolidated statements of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:
| (1) | Net income or loss | |
| (2) | Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners. | |
| (3) | Each component of other comprehensive income or loss |
Noncontrolling interests were not significant as of December 31, 2016.
Operating Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the segment. Operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, among other criteria. ThePrior to the December 2016 acquisitions of WEBA, RS&T and DOW assets and through December 31, 2016, the Company operatesoperated as one segment.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent within the financial reporting process, actual results may differ significantly from those estimates. Significant estimates include, but are not limited to, items such as the allowance of doubtful accounts, the value of stock-basedshare-based compensation and warrants, the allocation of the purchase price in the variousCompany’s acquisitions, and the realizationrecoverability of property, plant and equipment, goodwill, other intangibles and their estimated useful lives.
Revenue Recognition
The Company recognizes revenue when four basic criteria have been met: (1) persuasive evidencedelivery of an arrangement exists; (2) deliveryproduct has occurred or services rendered;have been rendered, (2) there is persuasive evidence of a sale arrangement, (3) the fee isselling prices are fixed and determinable;or determinable, and (4) collectability from the customer (individual customers and distributors) is reasonably assured. CostRevenue consists primarily of products sold consistsrevenue generated from the sale of the cost ofCompany’s products. This generally occurs either when the purchased goods and labor relatedCompany’s products are shipped from its facility or delivered to the corresponding sales transaction.customer when title has passed. Revenue is recorded net of estimated cash discounts. The Company recognizes revenue from servicesestimates and accrues an allowance for sales returns at the time the services are completed.product is sold. To date, sales returns have not been material. Shipping costs passed to the customer are included in the net sales.
Costs
Cost of goods sold includes all direct material and labor costs and those indirect costs of bringing raw materials to sale condition, including depreciation of equipment used in manufacturing and shipping and handling costs. We have entered into a Manufacturing and Distribution Agreement (M&D Agreement) with Full Circle MFG Group, Inc. (“Full Circle”) to provide us with recycling and production services, which is included in related party in cost of goods sold as Full Circle is owned by a member of our Board of Directors. Selling, general, and administrative costs are charged to operating expenses as incurred. Research and development costs are expensed as incurred, and are included in operating expenses.expenses and were insignificant in 2016 and 2015. Advertising costs are expensed as incurred. Total advertising costs for 2013 and 2012 were $86,000 and $4,000, respectively.
Accounts Receivable
Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer'scustomer’s willingness or ability to pay, the Company'sCompany’s compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due and wedue. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the consolidated statements of operations.
Inventories
Inventories are reported at the lower of cost or market. The cost of raw materials, including feedstocks and additives, is determined on an average unit cost of the units in a production lot. Work-in-process represents labor, material and overhead costs associated with the manufacturing costs at an average unit cost of the units in the production lot. Finished goods represents work-in-process items with additive costs added. The Company periodically reviews its inventories for obsolete or unsalable items and adjusts its carrying value to reflect estimated realizable values. There was no allowance for obsolete inventory as of December 31, 2013
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Property, Plant and 2012.
Property, plant and Equipment
For purposes of computing depreciation, the useful lives of property, plant and equipment are:
| Leasehold improvements | Lesser of the remaining lease term or 5 years | |||
| Machinery and | 3-15 years |
Impairment of Long-Lived Assets
Property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.
Fair Value of Financial Instruments
The Company has adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).
The three levels of inputs that may be used to measure fair value are as follows:
| ● | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date; |
| ● | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and |
| ● | Level 3: Significant unobservable inputs that reflect a reporting |
Cash, accounts receivable, other current assets, accounts payable and other accrued liabilities,expenses, amounts due to and sharesfrom related parties and current portion of Series AA Preferred Stockcapital lease obligations and notes payable are reflected in the consolidated balance sheetsheets at their estimated fair values primarily due to their short-term nature. As to long-term capital leaseslease obligations and notes payable, estimated fair values are based on borrowing rates currently available to the Company for loans with similar terms and maturities, which represent level 3 input levels.maturities.
Deferred Financing Costs, Debt Discount and Detachable Debt-Related Warrants
Costs incurred in connection with debt are deferred and recorded as a reduction to the debt balance in the accompanying consolidated balance sheets. The Company did not engage in any transaction involving derivative instruments. Fair value accounting has been appliedamortizes debt issuance costs over the expected term of the related debt using the effective interest method. Debt discounts relate to the initial valuationrelative fair value of warrants issued intangible assets,in conjunction with the debt and goodwill, which is discussed inare also recorded as a reduction to the respective notes.
Net Loss per Share Calculation
The basic net loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during a period. Diluted incomeloss per common share is computed by dividing the net income, adjusted on an as if converted basis,loss available to common shareholders by the weighted average number of common shares outstanding plus potentially dilutive securities. The Company has otherCompany’s potentially dilutive securities outstanding that are not shown in a diluted net loss per share calculation because their effect in both 20132016 and 20122015 would be anti-dilutive. These potentially dilutive securities excluded from the calculation include Series AA Preferred Stock, options and warrants. At December 31, 2013,2016, these potentially dilutive securities included warrants of 19,530,44113,922,387 and stock options of 10,133,5067,950,093 for a total of 29,663,947.21,872,480. At December 31, 2012,2015, these potentially dilutive securities included warrants of 12,307,55816,567,326 and stock options of 6,837,60611,612,302 for a total of 19,145,164. In addition, at December 31, 2013, there are 2,342,740 common shares that can potentially be issued upon the conversion of the Series AA Convertible Preferred Stock. There were no shares of Series AA Convertible Preferred Stock outstanding at December 31, 2012.29,192,128.
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Income Taxes
The Company accounts for its income taxes in accordance with the IncomeFinancial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes, Topic of ASC 740, Income Taxes,” which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. An allowance for the deferred tax asset is established if it is more likely than not that the asset will not be realized.
Share-based Compensation
All share-based payments to employees and non-employee directors, including grants of employee stock options, are expensed based on their estimated fair values at the grant date, in accordance with ASC 718. Compensation expense for stock optionsshare-based payments to employees and directors is recorded over the vesting period using the estimated fair value on the date of grant, as calculated by the Company using the Black-Scholes model. The Company classifies allBlack-Scholes-Merton (“BSM”) option-pricing model or the Monte Carlo Simulation. For awards with only service conditions that have graded vesting schedules, compensation cost is recorded on a straight-line basis over the requisite service period for the entire award, unless vesting occurs earlier. For awards with market conditions, compensation cost is recorded on the accelerated attribution method over the derived service period.
Non-employee share-based awards as equity instruments.
Reclassifications
Certain prior year numbersperiod amounts have been reclassified to conform to the current yearperiod presentation. These reclassifications have not affected the net loss as previously reported.
Recently Issued Accounting Pronouncements
There were varioushave been no recent accounting standardspronouncements or changes in accounting pronouncements that are of significance, or potential significance to the Company, except as discussed below.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and interpretationsannual periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company has not yet selected a transition method and is currently assessing the impact the adoption of ASU 2014-09 will have on its consolidated financial statements and disclosures.
In August 2014, the FASB issued recently, noneASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provides related footnote disclosure requirements. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting establishes the fundamental basis for measuring and classifying assets and liabilities. The update provides guidance on when there is substantial doubt about an organization’s ability to continue as a going concern and how the underlying conditions and events should be disclosed in the footnotes. It is intended to reduce diversity that existed in footnote disclosures because of the lack of guidance about when substantial doubt existed. The amendments in this update are effective for the year ended December 31, 2016. There was no impact from the adoption of the standard.
In July 2015, the FASB issued ASU 2015-11, “Inventory” (Topic 330) (“ASU 2015-11”). The amendments in ASU 2015-11 require that an entity measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transaction. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting. ASU 2015-11 is effective for annual and interim periods beginning on or after December 15, 2016. The amendments in this update should be applied prospectively with early application permitted as of the beginning of the interim or annual reporting period. The Company does not expect the adoption of this standard will have a significant impact on the consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes”, an update to accounting guidance to simplify the presentation of deferred income taxes. The guidance requires an entity to classify all deferred tax liabilities and assets, along with any valuation allowance, as noncurrent in the balance sheet. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2016, including interim periods within these reporting periods. Early adoption is permitted. The Company is currently assessing the impact of the adoption of ASU 2015-17 will have on its consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which are expectedrequires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to abe recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating ASU 2016-02, the Company expects the adoption of ASU 2016-02 to have a material impacteffect on ourthe Company’s consolidated financial position, operationscondition due to the recognition of the lease rights and obligations as assets and liabilities. 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 modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The Company has not yet selected a transition method and is currently assessing the impact of adoption of ASU 2016-02 will have on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which simplified certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business(“ASU 2017-01”), which amends the guidance used in evaluating whether a set of acquired assets and activities represents a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not considered a business. Application of ASU 2017-01 is expected to result in more acquisitions to be accounted for as asset acquisitions as opposed to business combinations. As a result, acquisition fees and expenses will be capitalized to the cost basis of the property acquired, and the tangible and intangible components acquired will be recorded based on their relative fair values as of the acquisition date. The standard is effective for all public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted for periods for which financial statements have not yet been issued. The Company elected to early adopt the provisions of ASU 2017-01. As a result of the adoption of ASU 2017-01, the Company’s acquisition of the Dow Assets was determined to be an asset acquisition.
NOTE 3 – Accounts Receivable
As of December 31, 20132016 and 2012,2015, the Company'sCompany’s net accounts receivable was $898,934were $1,096,713 and $116,963,$807,906, respectively.
The following table summarizes activity for the allowance for doubtful accounts:accounts for the years ended December 31, 2016 and 2015:
| 2013 | 2012 | |||||||
Beginning balance as of January 1, | $ | 4,892 | - | |||||
Bad debt expense | 44,198 | 4,892 | ||||||
Charge offs, net | (1,163 | ) | - | |||||
Ending balance as of December 31, | $ | 47,927 | 4,892 | |||||
| 2016 | 2015 | |||||||
| Beginning balance as of January 1, | $ | 203,270 | $ | 62,249 | ||||
| Bad debt expense | 38,409 | 167,315 | ||||||
| Charge offs, net | (161,472 | ) | (26,293 | ) | ||||
| Ending balance as of December 31, | $ | 80,207 | $ | 203,270 | ||||
NOTE 4 – Inventory
As of December 31, 20132016 and 2012,2015, the Company’s total inventories were $268,191 and $58,719, respectively.
| December 31, | 2013 | 2012 | ||||||
| Raw materials | $ | 76,165 | $ | 18,039 | ||||
| Work in process | 47,106 | 31,569 | ||||||
| Finished goods | 144,920 | 9,111 | ||||||
| Total inventories | $ | 268,191 | $ | 58,719 | ||||
| December 31, | 2016 | 2015 | ||||||
| Raw materials | $ | 221,088 | $ | 217,165 | ||||
| Work in process | 172,142 | 84,343 | ||||||
| Finished goods | 251,292 | 79,281 | ||||||
| Total inventories | $ | 644,522 | $ | 380,789 | ||||
NOTE 5 – Property, Plant and Equipment
As of December 31, 20132016 and 2012,2015, the property, plant and equipment, is being reflected net of accumulated depreciation, is as $5,515,183 and $685,406, respectively.
| December 31, | 2013 | 2012 | ||||||
| Machinery and equipment | $ | 3,719,344 | $ | 756,047 | ||||
| Leasehold improvements | 7,641 | - | ||||||
| Accumulated depreciation | (328,803 | ) | (70,641 | ) | ||||
| 3,398,182 | 685,406 | |||||||
| Construction in process | 2,117,001 | - | ||||||
| Total property, plant and equipment | $ | 5,515,183 | $ | 685,406 | ||||
| December 31, | 2016 | 2015 | ||||||
| Machinery and equipment | $ | 4,154,305 | $ | 1,863,322 | ||||
| Leasehold improvements | 126,598 | 50,772 | ||||||
| Accumulated depreciation | (927,909 | ) | (661,930 | ) | ||||
| 3,352,994 | 1,252,164 | |||||||
| Construction in process | 304,845 | 26,893 | ||||||
| Total property, plant and equipment | $ | 3,657,839 | $ | 1,279,057 | ||||
Depreciation expense recorded during the years ended December 31, 20132016 and 20122015 was $258,162$273,162 and $70,641,$586,502, respectively.
During December 2015, the Company ceased operations at its New Jersey facility (see Note 1). In connection with the cessation of operations at the New Jersey facility the Company recorded an impairment to property, plant and equipment of approximately $5.3 million.
NOTE 6 – Acquisitions, Goodwill and Other Intangible Assets
We account for an acquisition of a business, as defined in ASC Topic 805, as required by an analysis of the inputs, processes and outputs associated with the transactions. Intangible assets that we acquire are recognized separately if they arise from contractual or other legal rights or if they are separable and are recorded at fair value less accumulated amortization. We analyze intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and period at least at each balance sheet date. The effects of any revision are recorded to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets.
Goodwill is recorded as the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquired over the (ii) fair value of the net identifiable assets acquired. We do not amortize goodwill; however, we annually, or whenever there is an indication that goodwill may be impaired, evaluate qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the assets exceeds fair value. Any future increases in fair value would not result in an adjustment to the impairment loss that may be recorded in our consolidated financial statements. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Based on our analysis, no impairment loss of goodwill was recorded in 20132016 and 20122015 as the carrying amount of the reporting unit’s assets did not exceed the estimated fair value determined. Any future increases in fair value would not result in an adjustment to the impairment loss that may be recorded in our consolidated financial statements.
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| Cash | $ | 539,304 | ||
| Equity instruments (635,810 common shares of the Company) issued | 894,173 | |||
| Assets acquired under capital lease | 1,714,974 | |||
| Equity instruments held in escrows (200,000 common shares of the Company) | 224,000 | |||
| Fair value of total consideration transferred | $ | 3,372,451 | ||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Financial assets (primarily accounts receivable) | $ | 92,320 | ||
| Inventory | 24,234 | |||
| Property, plant, and equipment | 2,377,521 | |||
| Identifiable intangible assets | 356,500 | |||
| Financial liabilities | (97,943 | ) | ||
| Total identifiable net assets | 2,752,632 | |||
| Goodwill | 619,819 | |||
| $ | 3,372,451 | |||
| Revenue | Earnings (Loss) | |||||||
| Actual from date of Transaction 12/31/2013 | $ | 3,057,071 | $ | 569,697 | ||||
Pro forma (unaudited) supplemental information as if the Transactions had occurred at the beginning of the period is approximately, as shown below: | ||||||||
| Supplemental (unaudited) pro forma for 1/1/2013 - 12/31/13 | $ | 6,420,000 | $ | (3,420,000 | ) | |||
| Supplemental (unaudited) pro forma for 1/1/2012 - 12/31/12 | $ | 5,200,000 | $ | (1,275,000 | ) | |||
The components of goodwill and other intangible assets are as follows:
| Balance at | Balance at | |||||||||||||||||||||
| Estimated | December 31, | Current Year | December 31, | Accumulated | ||||||||||||||||||
| Useful Life | 2012 | Additions | 2013 | Amortization | Net | |||||||||||||||||
| Finite live intangible assets: | ||||||||||||||||||||||
| Customer list and tradename | 5 years | $ | - | $ | 24,500 | $ | 24,500 | $ | 1,810 | $ | 22,690 | |||||||||||
| Non-compete agreements | 5 years | - | 332,000 | 332,000 | 41,500 | 290,500 | ||||||||||||||||
| Intellectual property | 25 years | 3,500,000 | - | 3,500,000 | 140,000 | 3,360,000 | ||||||||||||||||
| Total intangible assets | $ | 3,500,000 | $ | 356,500 | $ | 3,856,500 | $ | 183,310 | $ | 3,673,190 | ||||||||||||
| Goodwill | Indefinite | $ | 159,484 | $ | 619,819 | $ | 779,303 | $ | - | $ | 779,303 | |||||||||||
| Gross Balance at | Net Balance at | Net Balance at | ||||||||||||||||||||||||
| Estimated | December 31, | Accumulated | December 31, | Accumulated | December 31, | |||||||||||||||||||||
| Useful Life | 2015 | Amortization | 2015 | Additions | Amortization | 2016 | ||||||||||||||||||||
| Finite live intangible assets: | ||||||||||||||||||||||||||
| Customer list and tradename | 5 years | $ | 24,500 | $ | (12,667 | ) | $ | 11,833 | $ | 963,000 | $ | (26,296 | ) | $ | 961,204 | |||||||||||
| Non-compete agreements | 5 years | 332,000 | (174,300 | ) | 157,700 | 867,000 | (246,000 | ) | 953,000 | |||||||||||||||||
| Intellectual property | 10 years | - | - | - | 880,000 | - | 880,000 | |||||||||||||||||||
| Total intangible assets | $ | 356,500 | $ | (186,967 | ) | $ | 169,533 | $ | 2,710,000 | $ | (272,296 | ) | $ | 2,794,204 | ||||||||||||
| Goodwill | Indefinite | $ | 835,295 | $ | - | $ | 835,295 | $ | 2,857,788 | $ | - | $ | 3,693,083 | |||||||||||||
We compute amortization using the straight-line method over the estimated useful lives of the intangible assets. The Company has no indefinite-lived intangible assets other than goodwill. The tax deductibility of goodwill has yet to be determined, but
During December 2015, the Company believes it will be ableceased operations at its New Jersey facility (see Note 1). In connection with the cessation of operations at the New Jersey facility the Company recorded an impairment to deduct goodwill amortization for tax purposes.
Aggregate amortization expense included in general and administrative expenses for the years ended December 31, 20132016 and 2012,2015, totaled $183,310$85,329 and zero,$206,936, respectively. The following table represents the total estimated amortization of intangible assets for the five succeeding years and thereafter:future years:
| For the Year Ending December 31, | Estimated Amortization Expense | |||
| 2017 | 525,829 | |||
| 2018 | 479,875 | |||
| 2019 | 454,000 | |||
| 2020 | 454,000 | |||
| 2021 | 440,500 | |||
| Thereafter | 440,000 | |||
| $ | 2,794,204 | |||
| For the Year Ending December 31, | Estimated Amortization Expense | |||
| 2014 | $ | 209,380 | ||
| 2015 | 209,380 | |||
| 2016 | 209,380 | |||
| 2017 | 209,380 | |||
| 2018 | 166,355 | |||
| Thereafter | 2,669,315 | |||
| $ | 3,673,190 | |||
NOTE 7 – Income Taxes
The (benefit) provision for income taxes is as follows for the year ended December 31, 2016:
| Current: | ||||
| Federal | $ | (1,020,652 | ) | |
| State | 600 | |||
| Total current | (1,020,052 | ) | ||
| Deferred: | ||||
| Federal | 1,573,163 | |||
| State | 375,291 | |||
| Change in valuation allowance | (1,948,454 | ) | ||
| Total deferred | — | |||
| Income tax (benefit) | $ | (1,020,052 | ) | |
The differences between our effective income tax rate and the U.S. federal income tax rate for the year ended December 31, 2016 are:
| 2016 | ||||
| U.S. federal tax | 34 | % | ||
| Adjustment for forfeiture of non-qualified stock options | (27 | )% | ||
| Other | — | % | ||
| Release of valuation allowance | 32 | % | ||
| Total | 39 | % | ||
| Valuation allowance | (7 | )% | ||
| Effective tax rate | 32 | % | ||
As of December 31, 20132016 and 2012,2015, the Company had a net operating loss (NOL) carryforwards of approximately $9,980,000$31,373,000 and $6,400,000,$30,842,000, respectively, adjusted for stock based compensation and certain other non-deductible items available to reduce future taxable income, if any. The NOL carryforward begins to expire in 2028,2027, and fully expires in 2033.2036. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carryforward, by having taxable income, a valuation allowance has been established as of December 31, 20132016 and 20122015 to reduce the tax benefit asset value to zero.
The deferred tax assets, including a valuation allowance, are as follows at December 31:
| December 31, | ||||||||
| 2013 | 2012 | |||||||
Deferred tax assets – NOL | $ | 3,480,000 | $ | 2,250,000 | ||||
Valuation allowance | (3,480,000 | ) | (2,250,000 | ) | ||||
Net deferred tax assets | $ | - | $ | - | ||||
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net Operating Loss | $ | 12,323,000 | $ | 12,953,000 | ||||
| Stock Compensation | 635,000 | 1,732,000 | ||||||
| Reserves | 84,000 | 85,000 | ||||||
| DTA | 13,042,000 | 14,770,000 | ||||||
| Basis difference in intangibles and fixed assets | (1,176,000 | ) | (956,000 | ) | ||||
| DTL | (1,176,000 | ) | (956,000 | ) | ||||
| Net Operating Loss | 11,866,000 | 13,814,000 | ||||||
| Valuation allowance | (11,866,000 | ) | (13,814,000 | ) | ||||
| $ | — | $ | — | |||||
The change in the valuation allowance for deferred tax assets for the years ended December 31, 20132016 and 20122015 was $1,230,000$810,000 and $605,000,$2,520,000, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 20132016 and 2012,2015, and recorded a full valuation allowance.
Pursuant to Section 382 of the Internal Revenue Code of 1986, the annual utilization of a company's net operating loss carryforwards could be limited if the Company experiences a change in ownership of more than 50 percentage points within a three-year period. An ownership change occurs with respect to a corporation if it is a loss corporation on a testing date and, immediately after the close of the testing date, the percentage of stock of the corporation owned by one or more five-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of such corporation owned by such shareholders at any time during the testing period. The Company has not performed an analysis to determine if any ownership changes have occurred that may limit the use of the Company’s loss carryforwards.
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NOTE 8 – Capital Lease
Notes payable consist of the lease for $200,000. The net present value of the equipment is estimated at $1,714,974 based on a 9% discount rate. The lease is amortized over the five year term at a rate of 9%. The equipment acquired included a distillation column and infrastructure, tanks and related equipment, filtration equipment, and vehicles. Depreciation on the cost of its equipment is calculated using the straight-line method over an estimated useful life, ranging from five to twenty-five years, and zero salvage value.
| December 31, 2016 | December 31, 2015 | |||||||
| 2013 Secured Note | $ | - | $ | 2,972 | ||||
| Manzo Note | - | 115,000 | ||||||
| 2016 Secured Notes | 396,562 | - | ||||||
| 2016 5% Related Party Unsecured Notes | 1,000,000 | - | ||||||
| 2016 8% Related Party Unsecured Notes, net of debt discount of $351,744 | 1,458,256 | - | ||||||
| 2016 WEBA Seller Notes | 2,650,000 | - | ||||||
| Total notes payable | 5,504,818 | 117,972 | ||||||
| Less current portion | (2,541,178 | ) | (117,972 | ) | ||||
| Long-term portion of notes payable | $ | 2,963,640 | $ | - | ||||
2013 the value of the assets under the capital lease was $1,637,101, net. The depreciation expense for the year ended December 31, 2013 was $77,873.
| Year Ended December 31, | Principal | Interest | ||||||
| 2014 | $ | 285,363 | $ | 109,437 | ||||
| 2015 | 312,125 | 82,675 | ||||||
| 2016 | 341,396 | 53,404 | ||||||
| 2017 | 373,413 | 21,387 | ||||||
| 2018 | 162,640 | 245 | ||||||
| Total minimum lease payments | $ | 1,474,937 | $ | 267,148 | ||||
In May 3, 2013, Acquisition Sub #1 entered into a secured promissory note with Security State Bank of Marine in Minnesota (the "Note Payable"“2013 Secured Note”). The key terms of the 2013 Secured Note Payable include:included: (i) a principal valuebalance of $20,000, (ii) an interest rate of 6.0%, and (iii) a term of three years with a maturity date of May 2, 2016. The 2013 Secured Note Payable iswas collateralized by a vehicle.
| Year Ended December 31, | ||||
| 2014 | $ | 6,504 | ||
| 2015 | 6,905 | |||
| 2016 | 2,972 | |||
| Total minimum note payments | $ | 16,381 | ||
Manzo Note
In May 2014, Acquisition Sub #4 entered into a promissory note with Rose Manzo, a private individual (the “Manzo Note”). The key terms of the Frenkel ConvertibleManzo Note files bankruptcy or ceases operations. Ininclude: (i) a principal balance of $115,000, (ii) an interest rate of 12.0%, and (iii) principal balance to be paid upon the eventraising of default, at the holder’s election, the outstanding principaladditional necessary capital. During June 2016, Acquisition Sub #4 and Rose Manzo entered into a settlement agreement pursuant to which Acquisition Sub #4 paid Rose Manzo $100,000 plus accrued and unpaid accrued interest to extinguish the note and recognized a gain on settlement of the Frenkel Convertible Note may be due$15,000.
2016 Secured Notes
In January 2016, Acquisition Sub #5 entered into a secured promissory note with Ascentium Capital. In April 2016, Acquisition Sub #5 and payable immediately.
2016 Related Party Unsecured Notes
5% Notes Issuance
On December 27, 2016, the Company entered into a subscription agreement (the “5% Notes Subscription Agreement”) by and between the Company and various funds managed by Wynnefield Capital. Pursuant to the 5% Notes Subscription Agreement, extended the maturity date forCompany offered and issued $1,000,000 in principal amount of 5% Senior Unsecured Promissory Notes (the “5% Notes”). The Company received $1,000,000 in gross proceeds from the convertible noteoffering. The 5% Notes will mature on May 31, 2017 (the “Frenkel Convertible Note”“5% Note Maturity Date”) to December 31, 2013, with. The 5% Notes bear interest accrued at a rate of 12.5% compounding semi-annually, and waived any and all claims of demand arising from or related to a default5% per annum due on the Frenkel Convertible5% Note priorMaturity Date or as otherwise specified by the 5% Notes. The 5% Notes contain standard events of default, including: (i) failure to repay the 5% Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of default. If the 5% Notes are not repaid at the 5% Note Maturity Date, then the default rate becomes 12% per annum and the balance of the 5% Notes outstanding must be paid in four equal installments during the succeeding four months.
8% Notes Issuance
On December 27, 2016, the Company entered into subscription agreements (the “8% Notes Subscription Agreements”) by and between the Company and certain accredited investors. Pursuant to the Conversion Agreement. The Conversion Agreement further stated that Mr. Frenkel would convert all money owed into a combination of common and Series AA preferred stock on the date that8% Notes Subscription Agreements, the Company had received an aggregateoffered and issued: (i) $1,810,000 in principal amount of $5,000,000 in equity investment following the date8% Senior Unsecured Promissory Notes (the “8% Notes”); and (ii) warrants (the “Warrants”) to purchase up to 5,656,250 shares of the Conversion Agreement and warrants. Of the debt converted, $470,000 would be converted into common stock at $1.00 per share or the price offered to any investor subsequent to the Conversion Agreement, if lower. The remainder would be converted into Series AA preferred stock at $1.00 per share or the price offered to any investor subsequent to the Conversion Agreement, if lower. The Series AA preferred stock shall in all respects be the same as common stock, except for the following features: (i) the Series AA preferred stock shall accrue a dividend of 12.5% per year, compounded semi-annually; (ii) the Series AA preferred stock shall have priority in payment upon liquidation over common stock to the extent of the $1,171,375 and all accrued but unpaid dividends; (iii) the Series AA preferred stock shall automatically convert into common stock at the rate of one share of common stock for each $1 of the Series AA preferred stock plus accrued but unpaid dividends if the closing price on the common stock on the OTC/BB is $5.00 per share for 20 consecutive trading days, or if the stock is listed on NYSE or NASDAQ; (iv) the original issue price of $1,171,375 plus all accrued but unpaid dividends shall be due and payable on December 31, 2013 if the Series AA preferred stock is not converted to common stock under the terms herein by such date; and (v) the Series AA preferred stock shall provide that the holder may not voluntarily convert into common stock to the extent that the holder will beneficially own in excess of 9.99% of the then issued and outstanding common stock of the Company. AsCompany (the “Common Stock”). The Company received $1,810,000 in gross proceeds from the offering of February 15, 2013which $1,760,000 was received in 2016 and $50,000 was accrued as an other current asset at December 31, 2016 and received in 2017. The 8% Notes will mature on December 27, 2017 (the “8% Note Maturity Date”). The 8% Notes bear interest at a rate of 8% per annum due on the amount outstanding under8% Note Maturity Date or as otherwise specified by the convertible note, including principal8% Note. The 8% Notes contain standard events of default, including: (i) failure to repay the 8% Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of default. The Company also incurred $26,872 of issuance costs, which were recorded as a debt discount and will be amortized as interest totaled $1,641,375.
The Company allocated the proceeds received to the 8% Notes and the warrants on a relative fair value basis at a pricethe time of $0.50 per share, 2,342,750 sharesissuance. The total debt discount will be amortized over the life of Series AA preferred stock at a price of $0.50 per share, and 940,000 warrantsthe 8% Notes to purchase shares of Common Stock at a price of $1.00 per share. Theinterest expense. Amortization expense during the year ended December 31, 2016 was insignificant.
We estimated the fair value of the warrants totaling $392,170on the issue date using a Black-Scholes pricing model with the following assumptions:
| Warrants | ||||
| Expected term | 3 years | |||
| Volatility | 110.09 | % | ||
| Risk Free Rate | 1.58 | % | ||
The proceeds of the 8% Notes were expensed under interest expense during 2013. Interest expense of $24,913 was recorded during 2013 for the period from January 1, 2013 through the date the notes payable were convertedallocated to the common and Series AA preferred stock. Upon conversion of the Series AA preferred stock to Common Stock, the Company will issue warrants at a price of $1.00 per share for each share of the Series AA preferred stock that is converted. The Series AA preferred stock is shown on the balance sheetcomponents as Mandatorily redeemable Series AA convertible preferred stock as of December 31, 2013.
| Proceeds allocated at issuance date | ||||
| Notes | $ | 1,485,128 | ||
| Warrants | 324,872 | |||
| Total | $ | 1,810,000 | ||
WEBA Seller Notes
In connection with the conversionWEBA acquisition (see Note 10) the Company issued $2.65 million in 8% promissory notes (“Seller Notes”). The Seller Notes mature on December 27, 2021. The Seller Notes bear interest at a rate of 8% per annum payable on a quarterly basis in arrears. The Seller Notes contain standard default provisions, including: (i) failure to repay the Series AA preferred stock. The accounting for the extension from January 1, 2014Seller Note when it is due at maturity; (ii) failure to March 14, 2014pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of the redemption has not been determined and will be included in our first quarter 2014 results.default.
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NOTE 119 – Stockholders’ Equity
Preferred Stock
The Company'sCompany’s articles of incorporation authorize the Company to issue up to 40,000,000 shares of $0.0001 par value, preferred shares having preferences to be determined by the board of directors for dividends, and liquidation of the Company'sCompany’s assets. Of the 40,000,000 preferred shares the Company is authorized by its articles of incorporation, to issuethe Board of Directors has designated up to 3,000,000 as Series AA preferred shares.
As of December 31, 2013,2016 and 2015, the Company had 2,342,740 Series AA preferredno shares issued andof Preferred Stock outstanding. Please see the description of the features and issuance of the Series AA preferred stock in Note 10.
Common Stock
As of December 31, 2013, the accrued dividends payable on the Series AA preferred stock was approximately $30.
Equity Incentive Program
On December 18, 2014, the Company’s Board of Directors approved an Equity Incentive Program (the “Equity Incentive Program”), whereby the Company’s employees may elect to receive equity in lieu of cash for all or part of their salary compensation.
During the year ended December 31, 2016, the Company issued the following shares of Common Stock in connection with financing activities:
On February 26, 2016, the Company closed a rights offering. The rights offering was made pursuant to a registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on January 20, 2016.
Pursuant to the rights offering, the Company distributed to holders of its Common Stock non-transferable subscription rights to purchase up to 50,200,947 shares of the Company’s Common Stock., par value $0.0001 per share. Each shareholder received one subscription right for every one share of common stock owned at 5:00 p.m. EST on October 30, 2015, the record date. Each subscription right entitled a shareholder to purchase 0.7 shares of the Company’s Common Stock at a subscription price of $0.08 per share, which was referred to as the basic subscription privilege. If a shareholder fully exercised their basic subscription privilege and other shareholders did not fully exercise their basic subscription privileges, shareholders could also exercise an over-subscription privilege to purchase a portion of the unsubscribed shares at the same subscription price of $0.08 per share.
During the rights offering, subscription rights to purchase a total of 37,475,620 shares of common stock, par value $0.0001, were exercised. The exercise of these subscription rights resulted in gross proceeds to the Company of $2,998,050 before deducting expenses of the rights offering.
During the year ended December 31, 2016, the Company issued the following shares in connection with a business combination
On December 27, 2016, in connection with the acquisition of WEBA, the Company issued 5,625,000 shares of Common Stock at the fair market price of $0.10 (see Note 10).
During the year ended December 31, 2016, the Company issued the following shares of Common Stock for compensation:
During the year ended December 31, 2016, the Company issued an aggregate of 1,263,351 shares of Common Stock to employees of the Company pursuant to the Company’s Equity Incentive Program at prices ranging from $0.08 to $0.12.
During the year ended December 31, 2016, the Company issued an aggregate of 3,031,556 shares of Common Stock to directors of the Company pursuant to the Company’s FY 2016 Director Compensation Plan at prices ranging from $0.075 to $0.12.
On June 13, 2016, the Company issued an aggregate of 6,281,250 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan due to the market condition related to the grant being achieved (see below).
On December 22, 2016, the Company issued an aggregate of 7,000 shares of Common Stock to five employees of the Company for achieving certain performance goals at a price of $0.08 per share.
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Summary:
| Number of Common Shares Issued | Value | |||||||
| Common shares for cash, net of offering costs | 37,475,620 | $ | 2,936,792 | |||||
| Share-based compensation | 10,583,157 | $ | 423,783 | |||||
For the year ended December 31, 2013,2015, the Company issued the following common stock:
| Number of Common | Value of Common | |||||||
| Shares Issued | Shares as Recorded | |||||||
| Common Shares for Acquisition | 835,810 | $ | 1,118,173 | |||||
| Common Shares for Goods and Services | 793,679 | $ | 553,360 | |||||
| Common Shares for Convertible Note | 940,000 | $ | 470,000 | |||||
| Common Shares for Cash | 9,357,578 | $ | 8,178,471 | |||||
| Warrants and Options Exercised | 757,864 | $ | - | |||||
| Number of Common Shares Issued | Value of Common Shares | |||||||
| Common shares issued for cash, net of offering costs | 11,013,170 | $ | 3,544,448 | |||||
Common shares for settlement of accounts payable | 16,334 | $ | 5,600 | |||||
| Share-based compensation | 2,409,681 | $ | 371,737 | |||||
| Warrants exercised | 999,667 | $ | - | |||||
Performance and/or market based stock awards
In January 2015, the Board of Directors approved the issuance of 940,595 restricted common shares of the Company. These shares will be issued to the then members of the Board of Directors upon vesting, which will be when the market price of the Company’s Common Stock trades at or above $2 for share based payments for goods and services to non-employees in accordance with ASC Subtopic 505-50 that requires that all such payments shall be measured at the faira specified period.
The initial value of the consideration received orrestricted stock grant was approximately $257,000, and is being amortized over the fairestimated service period. The Company recorded an expense $30,793 from the amortization of the unvested restricted shares for the year ended December 31, 2016. The expense for the year ended December 31, 2015 was insignificant. The shares were valued using a Monte Carlo Simulation with a six-year life, 88.0% volatility and a risk free interest rate of 1.79%.
In September 2015, the Board of Directors approved the issuance of 1,524,245 restricted common shares of the Company. These shares will be issued to the then Interim Chief Executive Officer and President upon vesting, which will be according to the following terms:
| · | 50% if the Company’s revenue for the first half of 2016 is at least 20% greater than revenue for the first half of 2015 and |
| · | 50% if the Company has positive EBITDA (a non GAAP measure) for the first half of 2016. |
The initial value of the equity instrumentsrestricted stock grant was approximately $92,000. The Company did not record any expense related to this grant as the applicable accounting guidance requires that if the performance condition must be met for the award to vest, compensation cost will be recognized only if the performance condition is satisfied and the above noted performance conditions have not been met. Further, the estimated quantity of awards for which it is probable that the performance conditions will be achieved must be reevaluated each reporting period and adjusted and management has estimated that the probability of achieving the performance conditions is minimal.
The above noted vesting criteria were not met during the measurement period. As such, the grant expired without the vesting of any shares.
In February 2016, the Board of Directors approved the issuance of 3,301,358 restricted common shares of the Company. These shares will be issued whichever is more reliably measured. In order to evaluate whether the fairthen President (1,100,453 shares) and Chief Financial Officer (2,200,905 shares) upon vesting, which will be according to the following terms:
| - | 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period. |
| - | 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period. |
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The initial value of consideration received or the fair valuerestricted stock grant was approximately $198,000, which was amortized over the estimated service period. The Company recorded an expense of equity instruments$22,409 from the amortization of the unvested restricted shares for the year ended December 31, 2016. The shares were valued using a Monte Carlo Simulation with a six-year life, 91.0% volatility and a risk free interest rate of 1.34%.
In January 2016, the Board of Directors approved the issuance of 6,281,250 restricted common shares of the Company. These shares will be issued is more reliable, we calculate the fair value of each. Primarily we have had contractual obligations owed and goods and services related to working capital exchanged for units in our private placements at their issue price to the public.
The initial value of the restricted stock grant was $509,000, which has been amortized over the estimated performance period. The Company recorded the entire value as expense from the amortization of the restricted shares for the year ended December 31, 2016. The shares were valued using a Monte Carlo Simulation with a one-year life, 106.0% volatility and Rule 506a risk free interest rate of Regulation D promulgated thereunder because such purchasers represented that they0.65%.
In May 2016, the Board of Directors approved the issuance of 1,100,453 restricted common shares of the Company. These shares were “accredited investors” as such term is defined underto be issued to the Securities Actthen Chief Executive Officer upon vesting, which was to be according to the following terms:
| - | 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period. |
| - | 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period. |
The initial value of the restricted stock grant was approximately $198,000, which was to be amortized over the estimated service period. In December 2016, the then Chief Executive Officer resigned from the Company; therefore, any recognized expense was reversed and the sale did not involve any form of general solicitation or general advertising. The investors made investment representations thatexpense recognized by the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
In September 2016, the Board of Directors approved the issuance of 1,650,680 restricted common shares of the Company. These shares will be issued to the Vice President of Sales and Marketing upon vesting, which will be according to the following terms:
| - | 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period. |
| - | 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period. |
| - | 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period. |
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The initial value of the restricted stock grant was approximately $141,000, which is being amortized over the estimated service period. The Company recorded an expense of $7,582 from the amortization of the unvested restricted shares for the year ended December 31, 2016. The shares were valued using a Monte Carlo Simulation with a 6-year life, 92.0% volatility and a risk free interest rate of 1.35%.
In December 2016, the Board of Directors approved the issuance of 6,290,000 restricted common shares of the Company. These shares will be issued to members of the Board of Directors and certain executives and employees upon vesting, which will occur when the price per of the Company’s common stock, measured and approved based upon a 30-day trading volume weighted average price (VWAP), is equal to at least $0.20 per share.
The initial value of the restricted stock grant was approximately $430,000, which is being amortized over the estimated service period. The Company recorded an expense of $5,967 from the amortization of the unvested restricted shares for the year ended December 31, 2016. The shares were valued using a Monte Carlo Simulation with a 6-year life, 98.0% volatility and a risk free interest rate of 2.00%.
A summary of the Company's restricted stock awards is presented below:
| Number of Shares | Weighted- Average Grant-Date Fair Value per Share | |||||||
| Unvested at January 1, 2016 | 636,093 | $ | 0.27 | |||||
| Restricted stock granted | 20,147,986 | 0.08 | ||||||
| Restricted stock vested | (6,281,250 | ) | 0.08 | |||||
| Restricted stock forfeited | (1,811,745 | ) | 0.24 | |||||
| Unvested at December 31, 2016 | 12,691,084 | $ | 0.08 | |||||
Options and warrants
During the year ended December 31, 2016, the Company had 2,794,100 common shares reservedgranted 5,656,250 stock warrants in conjunction with the issuance of the 8% Notes (see Note 8). During the year ended December 31, 2016, the Company granted 75,000 stock options. No stock options were exercised during the year ended December 31, 2016. The Company recognized $64,552 of expense related to the vesting of outstanding options during the year ended December 31, 2016. See Note 11 for future issuance underadditional information about stock options and warrants.
NOTE 10 – Business Combinations and Asset Acquisition
Brian’s On-Site Recycling
Effective June 26, 2016, Acquisition Sub #3 entered into an Asset Purchase Agreement with Brian’s On-Site Recycling, Inc., a Florida corporation (“BOSR”), and Brian Fidalgo, principal of BOSR (the “BOSR Principal”) and General Manager of our Florida processing center, pursuant to which Acquisition Sub #3 acquired certain assets of BOSR, primarily equipment and customer relationships for aggregate consideration of $200,000, of which $100,000 is subject to an earn out provision. The period of the earn out is expected to be over one year. Per the terms of the Asset Purchase Agreement, the Company placed $100,000 in an escrow account related to the earn out and has been reflected as restricted cash in the accompanying consolidated balance sheet at December 31, 2016. This acquisition expanded the Company’s stock plans. (Seecustomer base in Florida.
We accounted for the acquisition of BOSR as required under applicable accounting guidance. Tangible assets acquired were recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable, and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired.
The allocation of the purchase price is as follows:
| Fixed assets – equipment | $ | 15,000 | ||
| Intangibles: | ||||
Customer list | 82,000 | |||
| Non compete agreement | 32,000 | |||
| Other intangibles, including tradename | 21,000 | |||
| Goodwill | 50,000 | |||
| Total | $ | 200,000 |
The Company is amortizing the intangibles (excluding goodwill) over an estimated useful life of five years. The acquisition was not considered to be significant. The Company has included the financial results of the BOSR acquisition in its consolidated financial statements from the acquisition date and the results from BOSR were not material to the Company’s consolidated financial statements.
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WEBA
On December 27, 2016, the Company entered into a Stock Purchase Agreement (“WEBA SPA”) with WEBA, a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries. Pursuant to the WEBA SPA, the Company acquired all of the WEBA shares from the WEBA sellers for $150,000 in cash and $2.65 million in 8% Promissory Notes (see Note 12)
We accounted for the acquisition of WEBA as required under applicable accounting guidance. Tangible assets acquired are recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable, and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired. The earn-out payments liability was recorded at their estimated fair value of $1,745,023.
Although management estimates that certain of the contingent consideration will be paid, it has applied a discount rate to the contingent consideration amounts in determining fair value to represent the risk of these payments not being made. The total acquisition date fair value of the consideration transferred and to be transferred is estimated at approximately $6.1 million, as follows:
| Cash payment to the WEBA Sellers at closing | $ | 150,000 | ||
| Common Stock issuance to the WEBA Sellers | 562,500 | |||
| Promissory notes to the WEBA Sellers | 2,650,000 | |||
| Contingent cash consideration to the WEBA Sellers | 1,745,023 | |||
| Income tax benefit | 1,030,000 | |||
| Total acquisition date fair value | $ | 6,137,523 |
Allocation of Consideration Transferred
The identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of December 27, 2016, the acquisition date. The excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired was recorded as goodwill.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
| Cash | $ | 172,950 | ||
| Accounts receivable | 342,151 | |||
| Loan receivable from RS&T | 500,000 | |||
| Property and equipment | 8,720 | |||
| Customer list | 470,000 | |||
| Intellectual property | 880,000 | |||
| Trade name | 390,000 | |||
| Non complete agreement | 835,000 | |||
| Total identifiable assets acquired | 3,598,821 | |||
| Accounts payable and accrued expenses | 190,527 | |||
| Total liabilities assumed | 190,527 | |||
| Total identifiable assets less liabilities assumed | 3,408,294 | |||
| Goodwill | 2,729,229 | |||
| Net assets acquired | $ | 6,137,523 |
The Company is amortizing the intangibles (excluding goodwill) over an estimated useful life of five to ten years. The Company will evaluate the fair value of the earn-out liability on a periodic basis and adjust the balance, with an offsetting adjustment to the income statement, as needed. The acquisition was considered to be significant. The Company has included the financial results of the WEBA acquisition in its consolidated financial statements from the acquisition date and the results from WEBA were not material to the Company’s consolidated financial statements for the year ended December 31, 20132016.
Pro Forma Financial Information
The following table presents the Company’s unaudited pro forma results (including WEBA) for the years ended December 31, 2016 and 2012 2015 as though the companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented, nor is it indicative of results of operations which may occur in the future. The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.
| For the | For the | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Total revenues | $ | 7,683,545 | $ | 9,522,995 | ||||
| Net loss | $ | (2,667,016 | ) | $ | (12,720,021 | ) | ||
The Company did not incur material acquisition expenses related to the WEBA acquisition.
RS&T
On December 27, 2016 the Company purchased RS&T, a privately-owned company involved in the development and commercialization of glycol recovery technology. Pursuant to the Stock Purchase Agreement (“RS&T SPA”) the Company acquired 96% of the RS&T shares from the RS&T seller for $360 in cash consideration. The RS&T SPA provided that the Company would infuse the capital necessary to enable RS&T to exercise its contractual right to acquire the Dow Assets (see below). Following the RS&T acquisition, RS&T became a majority owned subsidiary of the Company. The 4% noncontrolling interest is not significant to the consolidated financial statements.
We accounted for the acquisition of RS&T as required under applicable accounting guidance. RS&T had no ongoing operations or significant assets or liabilities. Tangible assets acquired are recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable, and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired. The acquisition was not considered to be significant. The Company has included the financial results of the RS&T acquisition in its consolidated financial statements from the acquisition date and the results from RS&T were not material to the Company’s consolidated financial statements.
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The allocation of the purchase price is as follows:
| Cash | $ | 4,104 | ||
| Fixed assets | 21,369 | |||
| Deposit | 862,500 | |||
| Accounts payable | (103,672 | ) | ||
| Loan from WEBA | (500,000 | ) | ||
| Loan from GlyEco | (362,500 | ) | ||
| Goodwill | 78,559 | |||
| Total | $ | 360 |
DOW Asset Acquisition
On December 28, 2016, the Company purchased the Dow Assets through its 96% owned subsidiary RS&T, pursuant to an amended and restated asset transfer agreement (the “UCC Asset Transfer Agreement”), by and between RS&T and UCC, dated August 23, 2016, and as amended on December 1, 2016 (the “UCC Acquisition”). Pursuant to the UCC Asset Transfer Agreement, RS&T acquired the Dow Assets for a purchase price of $1,725,000.
In connection with the purchase of the Dow Assets, the Company also purchased inventory of approximately $422,000.
The Dow Assets are located at the Dow Institute Site in Institute, WV. The Company plans to utilize the Dow Assets to produce a product that both meets the virgin glycol antifreeze grade specification, ASTM E1177 EG-1, and achieves the important aesthetic requirement for most applications of having no odor. The acquired assets have a capacity of approximately 14-20 million gallons per year. The facility includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.
The Company is treating the acquisition of the Dow Assets as an asset purchase. In determining that the acquisition of the Dow Assets is an asset purchase, we considered, among other factors, 1) the Dow Assets were part of a larger group of assets and as such we are unable to determine all historical revenues and certain expenses associated with the Dow Assets, 2) we plan to change the nature of the revenue-generating activities post acquisition and 3) we expect certain attributes related to the assets to change post acquisition, including, market distribution system, sales force, customer base, and trade names.
NOTE 1211 – Options and Warrants
The following are details related to options issued by the Company:
| Weighted | Weighted Avg. Remaining | |||||||||||||||
| Options for | Average | Contractual | Aggregate | |||||||||||||
| Shares | Exercise Price | Life (yrs) | Intrinsic Value | |||||||||||||
| Outstanding as of January 1, 2016 | 11,612,302 | $ | 0.68 | 7 | ||||||||||||
| Granted | 75,000 | 0.10 | 10 | |||||||||||||
| Exercised | - | - | - | |||||||||||||
| Forfeited | (3,654,409 | ) | 0.66 | - | ||||||||||||
| Expired | (82,800 | ) | 0.50 | - | ||||||||||||
| Outstanding as of December 31, 2016 | 7,950,093 | $ | 0.69 | 6 | $ | - | ||||||||||
| Options exercisable as of December 31, 2016 | 7,867,593 | $ | 0.69 | 6 | $ | - | ||||||||||
| Options exercisable and expected to vest as of December 31, 2016 | 7,950,093 | $ | 0.69 | 6 | $ | - | ||||||||||
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| Weighted | ||||||||
| Options for | Average | |||||||
| Shares | Exercise Price | |||||||
Outstanding as of December 31, 2011 | 3,717,606 | $ | 0.60 | |||||
Granted | 3,285,000 | 0.59 | ||||||
Exercised | (165,000 | ) | 0.50 | |||||
Forfeited | - | - | ||||||
Cancelled | - | - | ||||||
Expired | - | - | ||||||
Outstanding as of December 31, 2012 | 6,837,606 | $ | 0.59 | |||||
Outstanding as of December 31, 2012 | 6,837,606 | $ | 0.59 | |||||
Granted | 3,445,900 | 1.00 | ||||||
Exercised | (150,000 | ) | 0.50 | |||||
Forfeited | - | - | ||||||
Cancelled | - | - | ||||||
Expired | - | - | ||||||
Outstanding as of December 31, 2013 | 10,133,506 | $ | 0.74 | |||||
We account for all stock-based payment awards made to employees and directors based on estimated fair values. We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period, netperiod.
On April 8, 2015, the Board of forfeitures.
We use the Black-Scholes-Merton (“BSM”)BSM option-pricing model as our method of valuation. The fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of share-based payment awards on the date of grant as determined by the BSM model is affected by our stock price as well as other assumptions. These assumptions include, but are not limited to:
The estimated value of employee stock options granted during the years ended December 31, 20132016 and 20122015 were estimated using the BSM option pricing model with the following assumptions:
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | |||||||||||
Expected volatility | 40 | % | 10 | % | ||||||||
Risk-free interest rate | 0.16 | – | 0.70 | % | 0.60 | – | 0.70 | % | ||||
Expected dividends | 0.00 | % | 0.00 | % | ||||||||
Expected term in years | 3 | – | 5 | 5 | – | 10 | ||||||
| Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Expected volatility | 100% | 86 – 110% | ||||||
| Risk-free interest rate | 1.90% | 0.89 – 1.21% | ||||||
| Expected dividends | 0.00% | 0.00% | ||||||
| Expected term in years | 3 – 5 | 3 – 5 | ||||||
The weighted-average grant date fair value per share of options for the year ended December 31, 2016 was $0.085.
At December 31, 2016, the amount of unearned stock-based compensation currently estimated to be expensed over future years related to unvested Common Stock options is approximately $9,000, net of estimated forfeitures. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.
The following are details related to warrants issued by the Company:
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| Weighted | ||||||||
| Warrants for | Average | |||||||
| Shares | Exercise Price | |||||||
Outstanding as of December 31, 2011 | 4,410,991 | $ | 0.64 | |||||
Granted | 7,946,500 | 1.00 | ||||||
Exercised | (35,000 | ) | 0.50 | |||||
Forfeited | - | - | ||||||
Cancelled | (14,933 | ) | 2.50 | |||||
Expired | - | - | ||||||
Outstanding as of December 31, 2012 | 12,307,558 | $ | 0.86 | |||||
Outstanding as of December 31, 2012 | 12,307,558 | 0.86 | ||||||
Granted | 8,187,817 | 1.31 | ||||||
Exercised | (680,000 | ) | 0.03 | |||||
Forfeited | (284,934 | ) | 0.48 | |||||
Cancelled | - | - | ||||||
Expired | - | - | ||||||
Outstanding as of December 31, 2013 | 19,530,441 | 1.08 | ||||||
| Weighted | ||||||||
| Warrants for | Average | |||||||
| Shares | Exercise Price | |||||||
| Outstanding as of January 1, 2016 | 16,567,326 | $ | 1.02 | |||||
| Granted (see Note 8) | 5,656,250 | $ | 0.08 | |||||
| Exercised | - | $ | - | |||||
| Forfeited | - | $ | - | |||||
| Cancelled | - | $ | - | |||||
| Expired | (8,301,187 | ) | $ | 1.06 | ||||
| Outstanding and exercisable as of December 31, 2016 | 13,922,387 | $ | 0.61 | |||||
The weighted-average grant-date fair valueCompany recorded expense of $64,552 and $515,436 (including $102,426 of option modification expense) for options and warrants during the 1,439,560 compensatory warrants granted for the yearyears ended December 31, 2013, was $0.37 per warrant.
As of December 31, 2013, the intrinsic value of warrants outstanding and exercisable was 3,835,245.
| · | Expected term is generally determined using the contractual term of the award; |
| · | Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices selected by us as representative, which are publicly traded, over the expected term of the award, due to our limited trading history for awards granted through June 30, 2014. Thereafter, we began using our own trading history as we deemed there to be sufficient history at that point in time; |
| · | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and, |
| · | Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential forfeitures. |
The weighted-average estimated fair value of warrants granted as stock based compensation during the yearsyear ended December 31, 2013 and 20122016 were estimated using the BSM option pricing model with the following assumptions:
| Year Ended December 31, | ||||
| 2016 | ||||
| Expected volatility | 110.1 | % | ||
| Risk-free interest rate | 1.58 | % | ||
| Expected dividends | 0.00 | % | ||
| Expected term in years | 3 | |||
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| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | |||||||||||
Expected volatility | 40 | % | 10 | % | ||||||||
Risk-free interest rate | 0.60 | – | 0.70 | % | 0.60 | – | 0.70 | % | ||||
Expected dividends | 0.00 | % | 0.00 | % | ||||||||
Expected term in years | 3 | – | 5 | 3 | – | 5 | ||||||
| Warrants and Options Outstanding | Warrants and Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Range of Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.0001 | 1,000,000 | 2.5 | $ | 0.0001 | 1,000,000 | $ | 0.0001 | ||||||||||||||
$ | 0.025 | 680,000 | 0.3 | $ | 0.025 | 680,000 | $ | 0.025 | ||||||||||||||
$ | 0.50 | 6,360,000 | 9.0 | $ | 0.50 | 3,975,000 | $ | 0.50 | ||||||||||||||
$ | 0.625 | 220,000 | 0.1 | $ | 0.625 | 220,000 | $ | 0.625 | ||||||||||||||
$ | 1.00 | 10,420,230 | 9.0 | $ | 1.00 | 10,370,230 | $ | 1.00 | ||||||||||||||
$ | 1.50 | 300,000 | 2.5 | $ | 1.50 | 300,000 | $ | 1.50 | ||||||||||||||
$ | 2.45 | 100,000 | 5.0 | $ | 2.45 | 20,000 | $ | 2.45 | ||||||||||||||
$ | 2.50 | 64,934 | 0.5 | $ | 2.50 | 64,934 | $ | 2.50 | ||||||||||||||
19,145,164 | 16,630,164 | |||||||||||||||||||||
| Warrants and Options Outstanding | Warrants and Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Range of Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.0001 | 1,000,000 | 1.4 | $ | 0.0001 | 1,000,000 | 0.0001 | |||||||||||||||
$ | 0.50 | 6,410,800 | 8.1 | $ | 0.50 | 5,182,300 | 0.50 | |||||||||||||||
$ | 1.00 | 15,036,830 | 4.2 | $ | 1.00 | 13,414,330 | 1.00 | |||||||||||||||
$ | 1.25 | 2,912,716 | 2.2 | $ | 1.25 | 2,912,716 | 1.25 | |||||||||||||||
$ | 1.50 | 4,203,601 | 4.7 | $ | 1.50 | 4,203,601 | 1.50 | |||||||||||||||
$ | 2.45 | 100,000 | 8.5 | $ | 2.45 | 40,000 | 2.45 | |||||||||||||||
29,663,947 | 26,752,947 | |||||||||||||||||||||
NOTE 1312 – Related Party Transactions
Former Interim Chief Executive Officer
The former Interim Chief Executive Officer, who stepped down at the end of April 2016, is the sole owner of a corporation, Barcid Investment Group, that was paid for management consulting services providedRocco Advisors. Amounts due and payable to the Company. Asformer Interim Chief Executive Officer for services performed were paid to Rocco Advisors, instead of February 1, 2012,directly to the CEO changed his status from a consultantformer Interim Chief Executive Officer. These services and became an employee of the Company. The CEO purchased 156,000 sharesfees were in the offering that closed on February 15, 2013 at a priceordinary course of $0.65 per share in consideration of monies owedbusiness and subject to himan agreement approved by the Company.
| 2013 | 2012 | |||||||
| Beginning balance as of December 31, 2012 | $ | 211,800 | $ | 278,800 | ||||
| Monies owed | 87,069 | 12,500 | ||||||
| Monies paid | (184,435 | ) | (79,500 | ) | ||||
| Ending balance as of December 31, 2013 | $ | 114,434 | $ | 211,800 | ||||
| 2016 | 2015 | |||||||
| Beginning Balance as of January 1, | $ | - | $ | - | ||||
| Monies owed to related party for services performed | 66,667 | 60,000 | ||||||
| Monies paid | (66,667 | ) | (60,000 | ) | ||||
| Ending Balance as of December 31, | $ | - | $ | - | ||||
Vice President of U.S. Operations
The Chief Business Development OfficerVice President of U.S. Operations is the sole owner of two corporations, CyberSecurity, Inc. and Market Tactics, Inc.,BKB Holdings, LLC, which were paid for marketing consulting services provided tois the Company.
| 2013 | 2012 | |||||||
| Beginning balance as of December 31, 2012 | $ | - | $ | 41,000 | ||||
| Monies owed | 145,011 | 77,000 | ||||||
| Monies paid | (128,953 | ) | (118,000 | ) | ||||
| Ending balance as of December 31, 2013 | $ | 16,058 | $ | - | ||||
| 2013 | 2012 | |||||||
| Beginning balance as of December 31, 2012 | $ | - | $ | - | ||||
| Monies owed | 57,272 | - | ||||||
| Monies paid | (41,134 | ) | - | |||||
| Ending balance as of December 31, 2013 | $ | 16,138 | $ | - | ||||
| 2013 | 2012 | |||||||
| Beginning balance as of December 31, 2012 | $ | - | $ | - | ||||
| Monies owed | 2,832,046 | - | ||||||
| Monies paid | (2,405,994 | ) | - | |||||
| Ending balance as of December 31, 2013 | $ | 426,052 | $ | - | ||||
| 2016 | 2015 | |||||||
| Beginning Balance as of January 1, | $ | 5,972 | $ | (3,200 | ) | |||
| Monies owed to related party for services performed | 98,196 | 55,127 | ||||||
| Monies paid | (99,045 | ) | (45,955 | ) | ||||
| Ending Balance as of December 31, payable (receivable) | $ | 5,123 | $ | 5,972 | ||||
Florida General Manager
The General Manager of Acquisition Sub #3 is co-owner of MMT Technologies, which is paid rent pursuant to a lease agreement for the building and land occupied by Acquisition Sub #3.
| 2013 | 2012 | |||||||
| Beginning balance as of December 31, 2012 | $ | - | $ | - | ||||
| Monies owed | 10,000 | - | ||||||
| Monies paid | - | - | ||||||
| Ending balance as of December 31, 2013 | $ | 10,000 | $ | - | ||||
| 2016 | ||||
| Beginning Balance as of January 1, | $ | 3,942 | ||
| Monies owed to related party for services performed | 5,980 | |||
| Monies due from related party for services performed | (26,812 | ) | ||
| Monies paid, net | 16,890 | |||
| Ending Balance as of June 26, | $ | - | ||
5% Notes
On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,000,000 from the Company in Januaryoffering and issuance of 20135% Notes to Wynnefield Partners I, Wynnefield Partners and Wynnefield Offshore, all of which are under the outstanding payable balance was repaid.
8% Notes
On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,810,000 from the offering and issuance of 8% Notes and warrants to purchase up to 5,656,250 shares of our common stock. The 8% Notes and warrants were sold to Dwight Mamanteo, our Chairman of the Board, Charles F. Trapp and Scott Nussbaum, members of the Board, Ian Rhodes, our Chief Executive Officer, Wynnefield Capital, an affiliate of the Company, was owed $230,000 at the endand certain family members of 2012 for consulting services provided to the Company. In 2013, the shareholder ceased to be a related partyMr. Mamanteo and the outstanding payable balance was repaid.
NOTE 1413 – Commitments and Contingencies
Rental Agreements
During the years ended December 31, 20132016 and 2012,2015, the Company rentedleased office and warehouse space on a monthly basis under a written rental agreements. The terms of these agreements range from several months to five years.
| 62 |
For the years ended December 31, 20132016 and 2012,2015, rent expense was $516,952$291,867 and $44,100,$645,477, respectively.
Future minimum lease payments due are as follows:
| Year Ended December 31, | ||||
| 2014 | $ | 652,670 | ||
| 2015 | 645,687 | |||
| 2016 | 650,652 | |||
| 2017 | 564,251 | |||
| 2018 | 73,097 | |||
| Total minimum lease payments | $ | 2,586,357 | ||
| Year Ended December 31, | ||||
| 2017 | $ | 268,199 | ||
| 2018 | 230,028 | |||
| 2019 | 209,709 | |||
| 2020 | 210,396 | |||
| 2021 | 212,502 | |||
| Thereafter | 112,893 | |||
| Total minimum lease payments | $ | 1,243,727 | ||
Litigation
The Company may be party to legal proceedings in the ordinary course of business. The Company believes that the nature of these proceedings (collection actions, etc.) are typical for a Company of our size and scope of operations. Currently, there are noLitigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Below is an overview of a recently resolved legal proceeding, one pending legal proceedings. However,proceeding, and one outstanding alleged claim.
On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company received a favorable judgment regarding this civil action in the amount of $95,000.
On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.
The Company is also aware of two mattersone matter that involve potential claimsinvolves an alleged claim against the Company, thatand it is at least reasonably possible that athe claim maywill be asserted.pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In the firstthis matter, the landlord of the Company’s formerly leased property claims back rent is due for property used by the Company had retainedoutside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the New Jersey facility and prepared an entity to assisteviction notice. The Company negotiated a payment in the raisingamount of capital.$250,000 to regain access to the facility, and reached an accord to negotiate with the landlord to resolve the outstanding issues by May 31, 2015. On December 28, 2015, the Company ultimately approved the termination of the lease agreements related to the New Jersey facility, thereby ceasing all operations at that particular facility. This termination was prompted by the former landlord’s demand for payment of approximately $2.3 million to maintain access to the facility. In September 2016, the Company reached an agreement with the landlord. The agreement required the Company to resolve certain environmental issues regarding the former processing facility and make certain payments to the landlord. The Company, believes that the entity has violatedlandlord and their related entities also agreed to a full and final settlement of existing and possible future claims between the termsparties. As of our contract. The estimated range involved in this dispute is from $0 to $100,000. In the second matter, the Company had a contract with an entity to provide project management services. The entity has billed for amounts above their contract amount for services thatMarch 31, 2017, the Company believes were includedit has addressed the environmental issues by removing and disposing of the waste from the facility and cleaning the storage tanks. Additionally, as of March 31, 2017, the Company has paid in full the scope of work of their contract. The estimated range involved in this dispute is from $0agreed upon $335,000 payment to $129,000. Management believes both of these possible claims are without merit and intends to vigorously defend themselves should a formal claim be made.
Environmental Matters
We are subject to federal, state, and local laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. It is management’s opinion that the Company is not currently exposed to significant environmental remediation liabilities or asset retirement obligations as of December 31, 2013 and 2012.obligations. However, if a release of hazardous substances occur,occurs, or is found on one of our properties from prior activity, we may be subject to liability arising out of such conditions and the amount of such liability could be material.
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The Company accrues for potential environmental liabilities in a manner consistent with accounting principles generally accepted in the United States; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. The Company reviews the status of its environmental sites on a yearly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. The Company maintains insurance coverage for unintentional acts that result in environmental remediation liabilities up to $1 million per occurrence; $2 million in the aggregate, with an umbrella liability policy that doubles the coverage. These policies do, however, take into account the likely share other parties will bear at remediation sites. It would be difficult to estimate the Company’s ultimate level of liability due to the number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company is aware of one environmental remediation issue related to our former leased property in New Jersey, which is currently subject to a remediation stemming from the sale of property by the previous owner in 2008 to the current landlord. To Management’s knowledge, the former landlord has engaged a licensed site remediation professional and had assumed responsibility for this remediation. In Management’s opinion the liability for this remediation is the responsibility of the former landlord. However, the former landlord has disputed this position and it is an open issue subject to negotiation. Currently, we have no knowledge as to the scope of the landlord’s former remediation obligation.
NOTE 1514 – Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed completely to perform as contracted. Concentrations of credit risk that arise from financial instruments exist for groups of customers when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions described below.
| Cash |
NOTE 1615 – Subsequent Events
Filing of Registration Statement
On January 24, 2014,February 8, 2017, the Company filed a Registration Statement on Form S-1 seeking to register up to 50,000,000 shares for purposes of conducting a rights offering and raising up to a proposed maximum of $5,000,000.
Recent Stock Issuances
Since December 31, 2016, the Company has issued an aggregate of 24,167236,702 shares of Common Stock for the cashless exercise of 45,000 options at an exercise price of $0.50 per share. The closing price on the OTCQB Market on the day of exercise was $1.08 per share of Common Stock.
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Number of Common Shares Issued | Value of Common Shares | |||||||
Common Shares for Acquisition | 204,750 | $ | 210,893 | |||||
Common Shares for Performance Plan | 204,689 | $ | 212,877 | |||||
Common Shares for Conversion of Series AA Preferred Shares | 2,605,513 | $ | 1,302,757 | |||||
Warrants and Options Exercised | 24,167 | $ | 26,100 | |||||
None.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013,2016, our disclosure controls and procedures were not effective for the reasons discussed below, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| 65 |
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. In connection with our evaluation, we identified a material weakness in our internal control over financial reporting as of December 31, 2013.
Our material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner. The material weakness related to our companyCompany was due to not having the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions.
We do not believe that this material weakness has resulted in deficient financial reporting because we have worked through the audit process to review our transactions to assure compliance with professional standards.
This Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, subsequent to December 31, 2013, we retained a new Corporate Controller with public company experience to remediate the material weakness identified above.
Inherent Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
None.
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The members of the Board of Directors of the Company serve for a period of one year or until his/her successor is elected and qualified. The officers of the Company are appointed by our Board of Directors and hold office until their death, resignation, or removal from office. A summary ofThe following table sets forth certain information with respect to the composition of the Company’scurrent directors and executive officers their ages, positions held, are as follows:
| Name | Age | Position | |||||
| Chief Executive Officer | |||||||
| Executive Vice President – Additives and Glycols | |||||||
| Dwight Mamanteo | 47 | Chairman of the Board | |||||
| David Ide | 43 | Director | |||||
| Director | |||||||
| Director | |||||||
| 39 | Director | ||||||
| Director | |||||||
Ian Rhodes — Chief Executive Officer and President.
Mr. LorenzRhodes was appointed Chief Financial Officer on February 12, 2016 and later appointed as Chief Executive Officer on December 5, 2016. Mr. Rhodes previously served as the Chief ExecutiveFinancial Officer President,of Calmare Therapeutics Incorporated, a biotherapeutic company furthering proprietary and sole director of Global Recycling Technologiespatented pain mitigation and wound care technologies, from its formation in May 2006 until the reverse triangular merger on November 28, 2011. Upon the consummation of the merger,2014 to 2016. As Chief Financial Officer, Mr. Lorenz replaced Ralph M. Amato as the Chief Executive Officer, PresidentRhodes was responsible for all financial and Chairman of the Board of Directors of the Company.accounting matters, including SEC reporting. From 2012 to 2014, Mr. Lorenz is experienced in identifying and managing new technologies, financing industry consolidations and acquisitions, and providing initial financing for such ventures. Mr. Lorenz hasRhodes served as an independent consultant and entrepreneur, and his activities included leading an investor/management group in assessing a founder and management, financial and strategic consultant to a number of emerging, public and private companies. Mr. Lorenz founded Environmental Waste of America, Inc. (“EWA”) in 1986, where he participated in virtually all management aspects of the solid waste industry, including acquisitions and integration. He served as President, Chief Executive Officer, and a director of EWA between 1986 and 1997 until its merger with Envirofil, Inc., a public company that is now Waste Management, Inc. In addition, Mr. Lorenz was formerly a founder, director, and Chief Executive Officer of Automotive Services of America. Earlier in his career, Mr. Lorenz worked as a financial, marketing, and political consultant, doing media, market, and public opinion research. Mr. Lorenz has articles on diachronic survey research, and is an author and editor of the book, The Political Image Merchants, published in 1971. Mr. Lorenz is an “inventor” on patents and is a frequent lecturer at Universities in the United States on capital, financial strategies, and equity development. Mr. Lorenz holds an Adjunct Professorship at Marylhurst University, and is preparing a book for publication in 2014 on financial strategies in challenging economic environments. Mr. Lorenz is an active triathlete and regularly competes in triathlons and marathons in the US. Mr. Lorenz holds an undergraduate degree with honors from the University of Portland, and a master’s degree from the University of Chicago.
Richard Geib - Executive Vice President- Additives and Governance Committees. Since June 2013, Glycols
Mr. Mamanteo has served on the Board of Directors of ARI Network Services, Inc. (NASDAQ: ARIS), a provider of products and solutions that serve several vertical markets with a focus on the outdoor power, power sports, marine, RV, and appliance segments. Mr. Mamanteo serves as the Chairman of the Governance Committee and as a member of the Compensation Committee. From March 2012 to April 2012, Mr. Mamanteo served on the Board of Directors of CDC Software Corp. (NASDAQ: CDCS), a provider of Enterprise CRM and ERP software designed to increase efficiencies and profitability. Mr. Mamanteo served as a member of the Audit Committee. From April 2009 to November 2010, Mr. Mamanteo served on the Board of Directors of EasyLink Services International Corp. (NASDAQ: ESIC), a provider of on demand electronic messaging and transaction services that help companies optimize relationships with their partners, suppliers and customers. Mr. Mamanteo served as a member of the Compensation and Governance & Nominating Committees. From December 2007 to November 2008, Mr. Mamanteo served on the Board of Directors and as the Chairman of PetWatch Animal Hospitals, Inc. (a private company), a provider of primary care and specialized services to companion animals through a network of fully owned veterinary hospitals. Mr. Mamanteo received an M.B.A. from the Columbia University Graduate School of Business and a B.Eng. in Electrical Engineering from Concordia University (Montreal).
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Dwight Mamanteo — Chairman of the Board
Mr. Smith was appointed as the Company’s Chief Operating Officer on January 8, 2014. Prior to being appointed as Chief Operating Officer, Mr. Smith served as Senior VP Sales, Mergers & AcquisitionsMamanteo became a director of the Company since 2010. From 1995 to 2008, Mr. Smith served as President of Northeast Environmental Services, Inc. (“NES”), located in Cumberland, Rhode Island. NES specialized in the recycling of used engine coolants, and the distribution of recycled automotive antifreezes, as well as various other collection and disposal services offered to the customer base. Mr. Smith was responsible for all aspects of the NES operations, and by 2007, NES had gone from its infancy to achieving $5,000,000 in gross revenues. Mr. Smith supervised the daily operations, research and development, and finances of NES. Additionally, Mr. Smith was directly involved in the development of a sales force that led to a customer base of over 3,000 clients, maintaining account relations and retention, and the expansion of NES from a 100 mile radius to the entire Northeastern United States. In 2000 and 2003, Mr. Smith was nominated for the Small Business Association Entrepreneur of the Year Award.
David Ide — Director
Mr. Ide became a director of the Company on October 24, 2014. On January 21, 2015, the Board of Directors appointed him to serve as interim Chief Executive Officer and President, effective February 1, 2015. Mr. Ide served as interim Chief Executive Officer and President until May 1, 2016. Since August 2010, Mr. Ide has served as an independent director, investor, and advisor to technology and start-up ventures focused on simple to use software automation tools including mobile SaaS, CMS, and custom marketing and payment systems for small to medium businesses, developers, and enterprise customers. Mr. Ide served as non-executive Chairman of Spindle, Inc. from January 2012 to November 2014. Mr. Ide was a founder and the Chairman and Chief Executive Officer of Modavox, Inc. in October 2005 after he managed the transition of SurfNet Media into Modavox, Inc. In July 2009, Mr. Ide developed and executed Modavox, Inc.’s acquisition of Augme Technologies, Inc. creating the first full service mobile agency for Fortune 100 companies. At that time, Mr. Ide was appointed to the Board of Directors of Augme Technologies, Inc. and became the Chief Strategy Officer. He resigned as an officer and director in August 2010 to engage in developing and advising technology companies. Mr. Ide was also an independent director in the early stage of SEFE, Inc. Prior to 2005, Mr. Ide served as President of a successful digital agency in Arizona focused on ecommerce, targeted and demand marketing, CMS, and SaaS marketing platforms for fortune 500 companies. Mr. Ide is a technology entrepreneur and an experienced CEO, chairman, patented inventor, and director. Mr. Ide brings to the Board experience in public company leadership, commercialization of technologies, and expertise in automation and systems.
Charles F. Trapp — Director
Mr. Trapp is the former Executive Vice President and Chief Financial Officer of MAM Software Group, Inc. (NASDAQ: MAMS), a leading provider of business and supply chain management solutions primarily to the automotive parts manufacturers, retailers, tire and service chains, independent installers, and wholesale distributors in the automotive aftermarket, where he served as CFO from November 2007 until his retirement in October 2015. Prior to his employment with MAM Software Group, Inc., Mr. Trapp was the co-founder and President of Somerset Kensington Capital Co., a Bridgewater, New Jersey-based investment firm that provided capital and expertise to help public companies restructure and reorganize from 1997 until November 2007. Earlier in his career, he served as CFO and/or a board member for a number of public companies, including AW Computer Systems, Vertex Electronics Corp., Worldwide Computer Services and Keystone Cement Co. His responsibilities have included accounting and financial controls, federal regulatory filings, investor relations, mergers and acquisitions, loan and labor negotiations, and litigation management. Mr. Trapp is a Certified Public Accountant and received his Bachelor of Science degree in Accounting from St. Peter’s College in Jersey City, New Jersey. Mr. Trapp brings to the Board experience in financial leadership within manufacturing and distribution companies during his time at companies like Keystone Cement and the automotive aftermarket during his time at MAM Software.
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Frank Kneller — Director
Mr. Kneller is currently the CEO of HoSoPo Corporation dba Horizon Solar Power, which was recently acquired by Oaktree Capital Management’s GFI Energy Group. Mr. Kneller was previously the Chief Operating Officer of Verengo Solar, a leading residential solar installation business that was founded in 2008 and grew rapidly to be a top 5 US residential solar business by 2014. Mr. Kneller was recruited to Verengo Solar last October for his successful track record of driving operational excellence at multiple companies and across several different industries. In eight months, Mr. Kneller executed a turnaround project that reduced expenses and increased revenues in the strategic solar market of Southern California. From 2010 to 2014, Mr. Kneller served as the Vice President of Sales & Operations at Sears Holding Company, where he led sales and operations with full profit and loss responsibility of $1.3B, 740+ corporate stores, six franchise stores, multiple call centers, and over 12,000 associates. From 2007 to 2010, he served as the Chief Executive Officer of Aquion Water Treatment Products, a $250M global manufacturer and marketer of water treatment equipment and water quality solutions, where he was selected by the board to lead the revitalization of the company and was responsible for a total reorganization of the business. Mr. Kneller brings to the Board experience in leadership of companies with different sizes and within different industries, including auto service and distributed service to the consumer markets.
Scott Nussbaum — Director
Mr. Nussbaum is an investor with fifteen years of experience investing in small public companies. Since [date], Mr. Nussbaum has been a Partner and Director of Operations for a Fund of Hedge Funds in New York, Mr. Nussbaum has experience developing and launching new lines of business, managing an internal regulatory compliance program, building & maintaining an infrastructure in support of front office activities and performing operational reviews in support of the firm’s investment portfolio. Mr. Nussbaum also serves as a Director and Endowment Manager for the Emerald Bay Association, a California-based non-profit organization. Mr. Nussbaum holds the Chartered Financial Analyst (CFA) designation and graduated with a Bachelor of Arts degree in Political Science from Tufts University. Mr. Nussbaum brings to the Board experience in investment in small public companies and operations responsibilities of a hedge fund.
Scott Krinsky — Director
Mr. Krinsky is a 35-year automotive aftermarket industry veteran. Mr. Krinsky has served as Vice President of National Accounts at Advance Auto Parts/CARQUEST (“AAP/CQ”) since August 2006. Before AAP/CQ, Mr. Krinsky was a National Accounts Manager and Divisional Commercial Sales Manager with AutoZone from 2000–2006. Since 2009, Mr. Krinsky has been a Trustee on the Aftermarket Foundation Board, sitting on the Finance Committee, as well as other committee assignments. He has also been an appointed Trustee on the Dollars for Doers at General Parts. Prior to 2000, Mr. Krinsky has had two other senior automotive management positions with Sears Automotive Group as a District Manager from 1997–2000, and with Tire Kingdom Inc. from 1980–1997 where he was promoted to increasing responsibilities up to his last position as Vice President of Retail Stores & Customer Service. Mr. Krinsky brings to the Board experience of market assessment, business development, and relationship management within the automotive aftermarket industry.
Employment / Consulting Agreements
Ian Rhodes
On December 5, 2016, the Company appointed Ian Rhodes, 44 years old, as Chief Executive Officer of the Company. Mr. Rhodes previously served as the Company’s Chief Financial Officer. Prior to that, Mr. Rhodes served as the Chief Financial Officer of Calmare Therapeutics Incorporated, a biotherapeutic company furthering proprietary and patented pain migration and wound care technologies, responsible for all financial and accounting matters, including SEC reporting.
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The Company entered into an Employment Agreement with Mr. Rhodes effective on December 30, 2016 (the “Rhodes Employment Agreement”). The initial term of the Rhodes Employment Agreement is one year (the “Rhodes Initial “Term”), with automatic renewals for successive one-year terms unless terminated by Mr. Rhodes or the Company.
Pursuant to the Rhodes Employment Agreement, Mr. Rhodes shall be entitled to receive: (i) an annual base salary of $175,000 (the “Rhodes Initial Base Salary”); (ii) an annual incentive of up to 50% of the Rhodes Initial Base Salary based upon the achievement of certain performance goals; and (iii) a stock grant of 1,000,000 shares of Common Stock, which shares shall fully vest when the price per share of the Common Stock, measured and approved based upon a 30-day trading volume weighted average price (VWAP), is equal to at least $0.20 per share. Mr. Rhodes will also be eligible to participate in the Company’s long term equity inventive plan, and to receive other such benefits as are generally available to officers of the Company.
If Mr. Rhodes terminates his employment for good reason, as defined in the Rhodes Employment Agreement, or is terminated by the Company other than for cause, as defined in the Rhodes Employment Agreement, the Company is required to pay Mr. Rhodes: (i) an amount equal to twelve months salary at the level of his base salary, as defined in the Rhodes Employment Agreement, then in effect; and (ii) to the extent not theretofore paid or provided, any other benefits, as defined in the Rhodes Employment Agreement.
Richard Geib
On December 28, 2016, the Company appointed Richard Geib as Executive Vice President- Additives and Glycols of the Company. The Company entered into an Employment Agreement with Mr. Geib effective on December 28, 2016 (the “Geib Employment Agreement”). The initial term of the Geib Employment Agreement is three years (the “Geib Initial Term”), with automatic renewals for successive one-year terms, unless terminated by Mr. Geib or by the Company.
Pursuant to the Geib Employment Agreement, Mr. Geib shall be entitled to receive: (i) an annual base salary of $150,000 (the “Geib Initial Base Salary”); (ii) an annual incentive of up to 35% of the Geib Initial Base Salary based upon the achievement of certain performance goals; and (iii) a stock grant of 1,000,000 shares of Common Stock, which shares shall fully vest when the price per share of the Common Stock, measured and approved based upon a 30-day trading volume weighted average price (VWAP), is equal to at least $0.20 per share. Mr. Geib will also be eligible to participate in the Company’s long term equity inventive plan, and to receive other such benefits as are generally available to officers of the Company.
If Mr. Geib terminates his employment for good reason, as defined in the Geib Employment Agreement, or is terminated by the Company other than for cause, as defined in the Geib Employment Agreement, the Company is required to pay Mr. Geib the lesser of: (i) twelve months of his then current base salary, as defined in the Geib Employment Agreement; or (ii) the amount of base salary which would have been payable to him had the employment term, as defined in the Geib Employment Agreement, continued until the end of the Geib Initial Term or the then current one-year term of automatic extension, as defined in the Geib Employment Agreement, as applicable.
Committees of the Board of Directors
Our Board of Directors has an Audit Committee, Financial Expert. a Compensation Committee, and a Governance and Nominating Committee, each of which has the composition and responsibilities described below.
Audit Committee
Our Audit Committee oversees a broad range of issues surrounding our accounting and financial reporting processes and audits of our financial statements, including the following:
| · | monitors the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent registered public accounting firm; |
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| · | assumes direct responsibility for the appointment, compensation, retention and oversight of the work of any independent registered public accounting firm engaged for the purpose of performing any audit, review or attestation services and for dealing directly with any such accounting firm; | |
| · | provides a medium for consideration of matters relating to any audit issues; and | |
| · | prepares the audit committee report that the rules require be included in our filings with the SEC. |
The members of our Audit Committee are Charles F. Trapp, Scott Nussbaum and Dwight Mamanteo. Mr. Trapp serves as chairperson of the committee. The Board of Directors has determined that Mr. Richard Q. Opler, the Chairman of the Audit & Corporate Governance Committee,Trapp meets the criteria of an “audit committee financial expert” (as defined under Item 407(d)(5)(ii) of Regulation S-K. Mr. OplerTrapp is also an “independent director” as defined by Section 10A(m)(3)(B)(ii) of the Exchange Act and Rule 5065(a)5605(a)(2) of the NASDAQ Marketplace Rules.
Compensation Committee
Our Compensation Committee reviews and recommends policy relating to compensation and benefits of our directors and executive officers, including reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other senior officers, evaluating the performance of these persons in light of those goals and objectives and setting compensation of these persons based on such evaluations. The Compensation Committee reviews and evaluates, at least annually, the performance of the compensation committee and its members, including compliance of the Compensation Committee with its charter. The members of our Compensation Committee are Scott Nussbaum, David Ide, Charles F. Trapp, and Frank Kneller. Mr. Nussbaum serves as chairperson of the committee.
The Board of Directors has adopted a written charter for the Compensation Committee, a copy of which can be accessed online athttp://www.glyeco.com/corporate_charters.
Governance and Nominating Committee
The Governance and Nominating Committee oversees and assists our Board of Directors in identifying, reviewing and recommending nominees for election as directors; evaluates our Board of Directors and our management; develops, reviews and recommends corporate governance guidelines and a corporate code of business conduct and ethics; and generally advises our Board of Directors on corporate governance and related matters. The members of our Governance and Nominating Committee are: Frank Kneller, David Ide, Scott Krinsky and Scott Nussbaum. Mr. Kneller serves as chairperson of the committee.
The Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which can be accessed online athttp://www.glyeco.com/corporate_charters.
Family Relationships
There are married, and Keri Smith and Todd Smith are siblings. No otherno family relationship exists that is reportable under Item 401(d)relationships between any of Regulation S-K.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors or executive officers has been:
| the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
| found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated; |
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| subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors, and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.
Based on a review of the last completedcopies of such reports, to the knowledge of the Company, all Section 16(a) filing requirements applicable to its executive officers, directors, and greater than 10% stockholders were complied with during the fiscal year ended December 31, 2016.
Director Nominating Procedures
There have been no material changes to the following reports requiredprocedures by Section 16(a) were not timely filed with the Securities and Exchange Commission:
Code of Ethics
On August 5, 2014, the Board of Directors of the Company adopted a Code of Ethics. Business Conduct and Ethics, amended on March 23, 2017 (as amended, the “Code of Business Conduct and Ethics”), which sets forth legal and ethical standards of conduct applicable to all directors, executive officers, and employees of the Company.
A copy of the Code of Business Conduct and Ethics may be requested, free of charge, by sending a written communication to GlyEco, Inc. Attn: Corporate Secretary, at 230 Gill Way, Rock Hill, SC 29730. The Code of Business Conduct and Ethics has been incorporated by reference as Exhibit 14.1 to this Form 10-K and hasalso been posted on the Company’s website, www.glyeco.com. The Company shall provide to any person, without charge, a copy of the Company’s Code of Ethics upon written request to Matt Hamilton, Staff Counsel, at the Company’s executive offices.
The following table sets forth all plan and non-plan compensation for the last two completed fiscal years paid to all individuals who served as the Company’s principal executive officer (“PEO”), principal financial officer (“PFO”) or acting in similar capacity during the last completed fiscal year, , regardless of compensation level, and other individuals as required by Item 402(m)(2) of Regulation S-K. We refer to all of these individuals collectively as our “named executive officers.”
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Summary Compensation Table
| Name & Principal Position | Year | Salary ($) | Bonus ($) | Warrant Awards ($) | Option Awards ($) (15) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||
| John Lorenz, President and CEO (PEO) | 2013 | $ | 175,000 | $ | 30,000 | $ | - | $ | 198,090 | (1 | ) | $ | - | $ | - | $ | 2,100 | (8 | ) | $ | 405,190 | ||||||||||||||||
| 2012 | 137,500 | - | - | 36,135 | (1 | ) | - | - | 13,000 | (9 | ) | 186,635 | |||||||||||||||||||||||||
| Kevin Conner, CFO (PFO) | 2013 | - | - | - | - | - | 31,775 | (10 | ) | 31,775 | |||||||||||||||||||||||||||
| 2012 | - | - | - | 4,015 | (2 | ) | - | 72,245 | (10 | ) | 76,260 | ||||||||||||||||||||||||||
| Alicia Williams Young, CFO | 2013 | 100,500 | 17,500 | - | 132,060 | (3 | ) | - | - | 250,060 | |||||||||||||||||||||||||||
| 2012 | 58,500 | 1,500 | - | 28,507 | (3 | ) | - | - | 19,500 | (11 | ) | 108,007 | |||||||||||||||||||||||||
| Richard Geib, Chief Technical Officer | 2013 | - | - | 58,000 | (4 | ) | 44,020 | (5 | ) | - | - | - | 102,020 | ||||||||||||||||||||||||
| 2012 | - | - | 4,940 | (4 | ) | - | - | - | - | 4,940 | |||||||||||||||||||||||||||
| Janet Carnell Lorenz, Chief Business Development Officer | 2013 | - | 5,000 | - | 132,060 | (6 | ) | - | - | 108,000 | (12 | ) | 245,060 | ||||||||||||||||||||||||
| 2012 | - | - | 28,105 | (6 | ) | - | - | 77,000 | (13 | ) | 105,105 | ||||||||||||||||||||||||||
| Todd Smith, Chief Operating Officer | 2013 | 120,000 | 5,000 | - | 132,060 | (7 | ) | - | - | 257,060 | |||||||||||||||||||||||||||
| 2012 | 69,000 | - | 34,128 | (7 | ) | - | - | 21,000 | (14 | ) | 124,128 | ||||||||||||||||||||||||||
Name & Principal Position | Year | Salary ($) | Bonus ($) | Warrant Awards ($) | Option Awards ($)(5) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Ian Rhodes, CEO, President and Interim CFO (PEO) (1) | 2016 | $ | 13,173 | - | - | - | - | - | - | $ | 13,173 | |||||||||||||||||||||||||
| Grant Sahag, CEO and President (PEO) (1) | 2016 | $ | 86,041 | - | - | - | - | - | - | $ | 86,041 | |||||||||||||||||||||||||
| David Ide, Interim CEO and President (PEO) (1) | 2016 | $ | 66,667 | - | - | - | - | - | - | $ | 66,667 | |||||||||||||||||||||||||
| 2015 | $ | 179,171 | - | - | - | - | - | - | $ | 179,171 | ||||||||||||||||||||||||||
| John Lorenz, CEO and President (PEO) (1) | 2015 | $ | 1,385 | - | - | $ | 11,673 | (2) | - | - | - | $ | 13,058 | |||||||||||||||||||||||
| Ian Rhodes, CFO (PFO) (4) | 2016 | $ | 115,593 | - | - | - | - | - | - | $ | 115,593 | |||||||||||||||||||||||||
| Maria Tellez, Interim CFO (PFO) (4) | 2016 | $ | 12,154 | - | - | - | - | - | $ | 12,154 | ||||||||||||||||||||||||||
| 2015 | $ | 18,231 | - | - | - | - | - | $ | 18,231 | |||||||||||||||||||||||||||
| Alicia Williams Young, CFO (PFO) (4) | 2015 | $ | 35,215 | - | - | $ | 10,625 | (3) | - | - | - | $ | 45,840 | |||||||||||||||||||||||
| (1) | |
| (2) | |
| The estimated value of options issued to | |
| The estimated value of the warrants issued to | |
| These amounts represent full grant date fair value of these awards, in accordance with the Financial Accounting Standard Board’s (“FASB”) ASC Topic 718. Assumptions used in the calculation of dollar amounts of these awards are included in |
Option/SAR Grants in Fiscal Year Ended December 31, 2013
None.
Option/SAR Grants in Fiscal Year Ended December 31, 2012
In 2012,2015, our named executive officers were granted the following:
Mr. Lorenz was granted on January 31, 2015, 51,652 shares |
Ms. Williams Young was granted on January 31, 2015, 45,913 shares of Common Stock issuable upon the exercise of options at $0.30 per share until January 31, 2025. All options vested immediately upon issuance. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $10,625. These options were issued pursuant to the Company’s Equity Incentive Program.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information for the named executive officerofficers regarding the number of shares subject to both exercisable and unexercisable stock options and warrants, as well as the exercise prices and expiration dates thereof, as of December 31, 2013.
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| Name | Number of Securities underlying Unexercised Options (#) Exercisable | Number of Securities underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($/Sh) | Option Expiration Date | |||||||||
| John Lorenz | 119,172 | - | $ | 1.00 | 6/27/2021 | ||||||||
| 318,356 | - | $ | 1.00 | 6/27/2021 | |||||||||
| 488,750 | 86,250 | $ | 0.50 | 10/25/2021 | |||||||||
| 337,500 | 112,500 | $ | 0.50 | 12/5/2022 | |||||||||
| 225,000 | 225,000 | $ | 1.00 | 9/20/2023 | |||||||||
| Kevin Conner | 63,750 | 11,250 | $ | 0.50 | 10/25/2021 | ||||||||
| 37,500 | 12,500 | $ | 0.50 | 12/5/2022 | |||||||||
| Alicia Williams Young | 15,000 | - | $ | 1.00 | 6/27/2021 | ||||||||
| 212,500 | 37,500 | $ | 0.50 | 10/25/2021 | |||||||||
| 266,250 | 88,750 | $ | 0.50 | 12/5/2022 | |||||||||
| 150,000 | 150,000 | $ | 1.00 | 9/20/2023 | |||||||||
| Richard Geib | 60,000 | - | $ | 1.00 | 6/27/2021 | ||||||||
| 127,500 | 22,500 | $ | 0.50 | 10/25/2021 | |||||||||
| 50,000 | 50,000 | $ | 1.00 | 9/20/2023 | |||||||||
| Todd Smith | 255,000 | 45,000 | $ | 0.50 | 10/25/2021 | ||||||||
| 318,750 | 106,250 | $ | 0.50 | 12/5/2022 | |||||||||
| 150,000 | 150,000 | $ | 1.00 | 9/20/2023 | |||||||||
| Janet Carnell Lorenz | 80,000 | - | $ | 1.00 | 6/27/2021 | ||||||||
| 180,000 | - | $ | 1.00 | 6/27/2021 | |||||||||
| 255,000 | 45,000 | $ | 0.50 | 10/25/2021 | |||||||||
| 262,500 | 87,500 | $ | 0.50 | 12/5/2022 | |||||||||
| 150,000 | 150,000 | $ | 1.00 | 9/20/2023 | |||||||||
| Name | Number of Securities underlying Unexercised Options and Warrants (#) Exercisable | Number of Securities underlying Unexercised Options and Warrants (#) Unexercisable | Option/Warrant Exercise Price ($/Sh) | Option/Warrant Expiration Date | ||||||||||
| Ian Rhodes | 31,250 | - | $ | 0.08 | 12/27/2019 | |||||||||
| 125,000 | - | $ | 0.08 | 12/27/2019 | ||||||||||
| Grant Sahag | 200,000 | - | $ | 0.50 | 12/31/2017 | |||||||||
| 350,000 | - | $ | 0.50 | 12/31/2017 | ||||||||||
| 300,000 | - | $ | 1.00 | 12/31/2017 | ||||||||||
| 50,000 | - | $ | 0.69 | 12/31/2017 | ||||||||||
| 5,000 | - | $ | 1.00 | 6/27/2021 | ||||||||||
| David Ide | 10,000 | - | $ | 0.69 | 6/30/2024 | |||||||||
| 50,000 | - | $ | 0.30 | 12/18/2024 | ||||||||||
| John Lorenz | 318,356 | - | $ | 1.00 | 6/27/2021 | |||||||||
| Maria Tellez | 53,043 | 13,261 | $ | 0.68 | 4/15/2017 | |||||||||
| 11,957 | - | $ | 0.30 | 4/15/2017 | ||||||||||
| 8,333 | - | $ | 0.30 | 4/15/2017 | ||||||||||
| 8,333 | - | $ | 0.30 | 4/15/2017 | ||||||||||
| 10,417 | - | $ | 0.24 | 4/15/2017 | ||||||||||
| 10,417 | - | $ | 0.24 | 4/15/2017 | ||||||||||
| 10,417 | - | $ | 0.24 | 4/15/2017 | ||||||||||
| Alicia Williams Young | 15,000 | - | $ | 1.00 | 6/27/2021 | |||||||||
Stock Option Plans
Third Amended and Restated 2007 Stock Incentive Plan
Upon the consummation of the merger, Global Recycling’s Third Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Plan”) was assumed by the Company.
The following is a summary of certain of the more significant provisions of the 2007 Stock Plan. The statements contained in this summary concerning the provisions of the 2007 Stock Plan are merely summaries and do not purport to be complete. They are subject to and qualified in their entirety by the actual terms of the 2007 Stock Plan. A copy of the 2007 Stock Plan has been incorporated by reference as Exhibit 4.4 to this Annual Report and is incorporated by reference herein.
Shares Reserved Under the 2007 Stock Plan
We have reserved 6,742,606 shares of our common stockCommon Stock issuable upon exercise of options granted under the 2007 Stock Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company (collectively, “Eligible Persons”). As of the date of this Form 10-K, we have issued 6,647,606 options to purchase the shares of our common stockCommon Stock originally reserved under the 2007 Stock Plan. All previously granted options issued pursuant to the 2007 Stock Plan will be subject to the requirements set forth in the 2007 Stock Plan and are Non-Qualified Stock Options.
The aggregate number of shares that may be granted to any one Eligible Person in any year will not exceed 50.0% of the total number of shares that may be issued under the 2007 Stock Plan. At the discretion of the Plan Administrator (defined below), the number and type of shares of our common stockCommon Stock available for award under the 2007 Stock Plan (including the number and type of shares and the exercise price covered by any outstanding award) may be adjusted for any increase or decrease in the number of issued shares of our common stockCommon Stock resulting from any stock split, reverse stock split, split-up, combination or exchange of shares, consolidation, spin-off, reorganization, or recapitalization of shares.
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Administration
The 2007 Stock Plan is currently being administered by our Board of Directors. Our Board of Directors may delegate its authority and duties under the 2007 Stock Plan to a committee. Our Board of Directors and/or any committee that has been delegated the authority to administer the 2007 Stock Plan is referred to as the “Plan Administrator.” Subject to certain restrictions, the Plan Administrator generally has full discretion and power to (i) determine all matters relating to awards issued under the 2007 Stock Plan, including the persons to be granted awards, the time of grant, the type of awards, the number of shares of our common stockCommon Stock subject to an award, vesting conditions, and any and all other terms, conditions, restrictions, and limitations of an award, (ii) interpret, amend, and rescind any rules and regulations relating to the 2007 Stock Plan, (iii) determine the terms of any award agreement made pursuant to the 2007 Stock Plan, and (iv) make all other determinations that may be necessary or advisable for the administration of the 2007 Stock Plan. All decisions made by the Plan Administrator relating to the 2007 Stock Plan will be final, conclusive, and binding on all persons.
Eligibility
The Plan Administrator may grant any award permitted under the 2007 Stock Plan to any Eligible Person. With respect to awards that are options, directors who are not employees of the Company, proposed non-employee directors, proposed employees, and independent contractors will be eligible to receive only Non-Qualified Stock Options (“NQSOs”). An award may be granted to a proposed employee or director prior to the date he, she, or it performs services for the Company, so long as the award will not vest prior to the date on which the proposed employee or director first performs such services.
Awards under the 2007 Stock Plan
Under the 2007 Stock Plan, Eligible Persons may be granted: (a) stock options (“Options”), which may be designated as NQSOs or Incentive Stock Options (“ISOs”); (b) stock appreciation rights (“SARs”); (c) restricted stock awards (“Restricted Stock”); (d) performance share awards (“Performance Awards”); or (e) other forms of stock-based incentive awards (collectively, the “Awards”). An Eligible Person who has been granted an Option is referred to in this summary as an “Optionee” and an Eligible Person who has been granted any other type of Award is referred to in this summary as a “Participant.”
No Award granted under the 2007 Stock Plan can be inconsistent with the terms and purposes of the 2007 Stock Plan. Additionally, the applicable exercise price for which shares of our common stockCommon Stock may be purchased upon exercise of an Award will not be less than (i) 100.0% of the Fair Market Value (as defined in the 2007 Stock Plan) of shares of our common stockCommon Stock on the date that the Award is granted, or (ii) 110.0% of the Fair Market Value if the Award is granted to an Eligible Person who, directly or indirectly, holds more than 10.0% of the total voting power of the Company.
The Plan Administrator may grant to Optionees NQSOs or ISOs that are evidenced by stock option agreements. A NQSO is a right to purchase a specific number of shares of our common stockCommon Stock during such time as the Plan Administrator may determine. A NQSO that is exercisable at the time an Optionee ceases providing services to the Company will remain exercisable for such period of time as determined by the Plan Administrator. Generally, Options that are intended to be ISOs will be treated as NQSOs to the extent that the Fair Market Value of the common stockCommon Stock issuable upon exercise of such ISO, plus all other ISOs held by such Optionee that become exercisable for the first time during any calendar year, exceeds $100,000.
An ISO is an Option that meets the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as an ISO under the Code, the Option generally must (among other things) (x) be granted only to employees, (y) have an exercise price equal to or greater than the Fair Market Value on the date of grant, and (z) terminate if not exercised within 10 years from the date of grant (or five years if granted to an Optionee who, at the time the ISO is granted, directly or indirectly, holds more than 10.0% of the total voting power of the Company). Except in certain limited instances (including termination for cause, death, or disability), if any Optionee ceases to provide services to the Company, the Optionee’s rights to exercise vested ISOs will expire within three months following the date of termination.
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A SAR is a right granted to a Participant to receive, upon surrender of the right, payment in an amount equal to (i) the excess of the Fair Market Value of one share of common stockCommon Stock on the date the right is exercised, over (ii) the Fair Market Value of one share of common stockCommon Stock on the date the right is granted.
Restricted Stock is common stockCommon Stock that is issued to a Participant at a price determined by the Plan Administrator. Restricted stock awards may be subject to (i) forfeiture upon termination of employment or service during an applicable restriction period, (ii) restrictions on transferability, (iii) limitations on the right to vote such shares, (iv) limitations on the right to receive dividends with respect to such shares, (v) attainment of certain performance goals, and (vi) such other conditions, limitations, and restrictions as determined by the Plan Administrator.
A Performance Award grants the Participant the right to receive payment upon achievement of certain performance goals established by the Plan Administrator. Such payments will be valued as determined by the Plan Administrator and will be payable to or exercisable by the Participant for cash, shares of our common stock,Common Stock, other awards, or other property determined by the Plan Administrator.
Other Awards may be issued under the 2007 Stock Plan, which include, without limitation, (i) shares of our common stockCommon Stock awarded purely as a bonus and not subject to any restrictions or conditions, (ii) convertible or exchangeable debt or equity securities, (iii) other rights convertible or exchangeable into shares of our common stock,Common Stock, and (iv) awards valued by reference to the value of shares of our common stockCommon Stock or the value of securities or the performance of specified subsidiaries of the Company.
Exercise Price
The price for which shares of our common stockCommon Stock may be purchased upon exercise of a particular Award will be determined by the Plan Administrator at the time of grant. However, the applicable exercise price for which shares of our common stockCommon Stock may be purchased upon exercise of an Award will not be less than (i) 100.0% of the Fair Market Value (as defined in the 2007 Stock Plan) of shares of our common stockCommon Stock on the date that the Award is granted, or (ii) 110.0% of the Fair Market Value if the Award is granted to an Eligible Person who, directly or indirectly, holds more than 10.0% of the total voting power of the Company.
No Deferral Features
No Award granted under the 2007 Stock Plan will contain a deferral feature. Awards cannot be modified or otherwise extended. No Award will contain a provision providing a reduction in the applicable exercise price, an addition of a deferral feature, or any extension of the term of the award.
Payment / Exercise of Award
An Award may be exercised using as the form of payment (a) cash or cash equivalent, (b) stock-for-stock payment, (c) cashless exercises, (d) the granting of replacement awards, (e) any combination of the above, or (f) such other means as the Plan Administrator may approve. No shares of our common stockCommon Stock will be delivered in connection with the exercise of any Award until payment in full of the exercise price is received by the Company.
Change of Control
The Stock Option provides that if a Change of Control (as defined in the 2007 Stock Plan) occurs, then the surviving, continuing, successor, or purchasing entity (the “Acquiring Company”), will either assume our rights and obligations under outstanding Awards or substitute for outstanding Awards substantially equivalent awards for the Acquiring Company’s capital stock. If the Acquiring Company elects not to assume or substitute for such outstanding Awards in connection with a Change of Control, our Board of Directors may determine that all or any unexercisable and/or unvested portions of outstanding Awards will be immediately vested and exercisable in full upon consummation of the Change of Control. Unless otherwise determined by our Board of Directors, Awards that are neither (i) assumed or substituted for by the Acquiring Company in connection with the Change of Control, nor (ii) exercised upon consummation of the Change of Control, will terminate and cease to be outstanding effective as of the date of the Change of Control. Upon the consummation of the Merger, the Company assumed the obligations of Global Recycling under the Plan.
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Amendment
Our Board of Directors may, without action on the part of our stockholders, amend, change, make additions to, or suspend or terminate the 2007 Stock Plan as it may deem necessary or appropriate and in the best interests of the Company; provided, however, that our Board of Directors may not, without the consent of the Participants, take any action that disqualifies any previously granted Option for treatment as an ISO or which adversely affects or impairs the rights of the holder of any outstanding Award. Additionally, our Board of Directors will need to obtain the consent of our stockholders in order to (a) amend the 2007 Stock Plan to increase the aggregate number of shares of our common stockCommon Stock subject to the plan, or (b) amend the 2007 Stock Plan if stockholder approval is required either (i) to comply with Section 422 of the Code with respect to ISOs, or (ii) for purposes of Section 162(m) of the Code.
Term
The 2007 Stock Plan will remain in full force and effect through May 30, 2017, unless terminated earlier by our Board of Directors. After the 2007 Stock Plan is terminated, no future Awards may be granted under the 2007 Stock Plan, but Awards previously granted will remain outstanding in accordance with their applicable terms and conditions.
2012 Equity Incentive Plan
On February 23, 2012, subject to stockholder approval, the Company’s Board of Directors approved of the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). By written consent in lieu of a meeting, dated March 14, 2012, Company stockholders owning an aggregate of 14,398,402 shares of Common Stock (representing approximately 66.1% of the 22,551,991 outstanding shares of Common Stock) approved and adopted the 2012 Plan. Also by written consent in lieu of a meeting, dated July 27, 2012, stockholders of the Company owning an aggregate of 12,676,202 shares of Common Stock (representing approximately 51.8% of the then 24,451,991 outstanding shares of Common Stock) approved an amendment to the 2012 Plan to increase the number of shares reserved for issuance under the 2012 Plan by 3,000,000 shares.
There are an aggregate of 6,500,000 shares of our Common Stock reserved for issuance upon exercise of awards granted under the 2012 Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company. As of the date of this Form 10-K, we have issued 3,800,9005,748,229 options under the 2012 Plan. The following description of the 2012 Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2012 Plan. A copy of the 2012 Plan has been filed as Exhibit 4.5 to this Annual Report and is incorporated by reference herein.
Purpose of the 2012 Plan
The purpose of the 2012 Plan is to attract, retain, and motivate employees, directors, advisors, independent contractors (and their employees and agents, or, in the Plan Administrator’s discretion, any of their employees or contractors), and other persons who provide valuable services to the Company by providing them with the opportunity to acquire a proprietary interest in the Company and to link their interest and efforts to the long-term interests of the Company’s stockholders. The Company believes that increased share ownership by such persons will more closely align stockholder and employee interests by encouraging a greater focus on the profitability of the Company. The Company has reserved and authorized the issuance of up to 6,500,000 shares of the Company’s Common Stock pursuant to awards granted under the 2012 Plan, subject to adjustment in the case of any stock dividend, forward or reverse stock split, split-up, combination or exchange of shares, consolidation, spin-off, reorganization, or recapitalization of shares or any like capital adjustment.
The 2012 Plan includes a variety of forms of awards, including (i) stock options intended to qualify as Incentive Stock Options (“Incentive Stock Options”) under the Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”), (ii) stock options not intended to qualify as Incentive Stock Options under the Code (“Nonqualified Stock Options”), (iii) stock appreciation rights, (iv) restricted stock awards, (v) performance stock awards and (vi) other stock-based awards to allow the Company to adapt its incentive compensation program to meet the needs of the Company. 3,800,9005,010,072 stock options have been granted under the 2012 Plan.
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Plan Administration
The 2012 Plan will be administered by the Board of Directors of the Company (the “Board”). The Board may delegate all or any portion of its authority and duties under the 2012 Plan to one or more committees appointed by the Board and consisting of at least one member of the Board, under such conditions and limitations as the Board may from time to time establish. Notwithstanding anything contained in the 2012 Plan to the contrary, only the Board or a committee thereof composed of two or more “Non-Employee Directors” (as that term is defined in Rule 16b-3 of the Exchange Act may make determinations regarding grants of awards to executive officers, directors, and 10% stockholders of the Company (“Affiliates”).
The Board and/or any committee that has been delegated the authority to administer the 2012 Plan, as the case may be, will be referred to as the “Plan Administrator.”
The Plan Administrator has the authority, in its sole and absolute discretion, to grant awards as an alternative to, as a replacement of, or as the form of payment for grants or rights earned or due under the 2012 Plan or other compensation plans or arrangements of the Company or a subsidiary of the Company, including the 2012 Plan of any entity acquired by the Company or a subsidiary of the Company.
Eligibility
Any employee, director, proposed employee or director, independent contractor (or employee or agent thereof), or other agent or person who provides valuable services to the Company will be eligible to receive awards under the 2012 Plan. With respect to awards that are options, directors who are not employees of the Company, proposed non-employee directors, proposed employees, and independent contractors (and their employees and agents, or, in the Plan Administrator’s discretion, any of their employees or contractors) will be eligible to receive only Nonqualified Stock Options.
Change of Control
Unless otherwise provided by the Board, in the event of a Change of Control (as defined in the 2012 Plan), the surviving, continuing, successor, or purchasing entity or parent entity thereof, as the case may be (the “Acquiring Company”), will either assume the Company’s rights and obligations under outstanding awards or substitute for outstanding awards substantially equivalent awards for the Acquiring Company’s capital stock. In the event the Acquiring Company elects not to assume or substitute for such outstanding awards in connection with a Change of Control, the Board may, in its sole and absolute discretion, provide that all or any unexercisable and/or unvested portions of the outstanding awards will be immediately vested and exercisable in full upon consummation of the Change of Control. The vesting and/or exercise of any award that is permissible solely by reason of this section will be conditioned upon the consummation of the Change of Control. Unless otherwise provided by the Board, any awards that are neither (i) assumed or substituted for by the Acquiring Company in connection with the Change of Control, nor (ii) exercised upon consummation of the Change of Control, will terminate and cease to be outstanding effective as of the date of the Change of Control.
Exercise Price of Options
The price for which shares of Common Stock may be purchased upon exercise of a particular option will be determined by the Plan Administrator at the time of grant; provided, however, that the exercise price of any award granted under the 2012 Plan will not be less than 100% of the Fair Market Value (as defined in the 2012 Plan) of the Common Stock on the date such option is granted (or 110% of the Fair Market Value of the Common Stock if the award is granted to a stockholder who, at the time the option is granted, owns or is deemed to own stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or of any parent or subsidiary of the Company).
Term of Options; Modifications
The Plan Administrator will set the term of each stock option, but no Incentive Stock Option will be exercisable more than ten years after the date such option is granted (or five years for an Incentive Stock Option granted to a stockholder who, at the time the option is granted, owns or is deemed to own stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or of any parent or subsidiary of the Company).
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Payment; No Deferrals.
Awards granted under the 2012 Plan may be settled through exercise by (i) cash payments, (ii) the delivery of Common Stock (valued at Fair Market Value), (iii) the cashless exercise of such award, (iv) the granting of replacement awards, (v) combinations thereof as the Plan Administrator will determine, in its sole and absolute discretion, or (vi) any other method authorized by the 2012 Plan. The Plan Administrator will not permit or require the deferral of any award payment, including, without limitation, the payment or crediting of interest or dividend equivalents and converting such credits to deferred stock unit equivalents. No award granted under the 2012 Plan will contain any deferral feature.
Other Stock-Based Awards
Stock Appreciation Rights
.The Plan Administrator may grant stock appreciation rights, either in tandem with a stock option granted under the 2012 Plan or with respect to a number of shares for which no option has been granted. A stock appreciation right will entitle the holder to receive, with respect to each share of stock as to which the right is exercised, payment in an amount equal to (i) the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised, over (ii) the Fair Market Value of one share of Common Stock on the date the right is granted; provided,, however,, that in the case of stock appreciation rights granted in tandem with or otherwise related to any award under the 2012 Plan, the grant price per share will be at least the Fair Market Value per share of Common Stock on the date the right was granted. The Plan Administrator may establish a maximum appreciation value payable for stock appreciation rights and such other terms and conditions for such rights as the Plan Administrator may determine, in its sole and absolute discretion.
Restricted Stock Awards
.The Plan Administrator may grant restricted stock awards consisting of shares of Common Stock or denominated in units of Common Stock in such amounts as determined by the Plan Administrator, in its sole and absolute discretion. Restricted stock awards may be subject to (i) forfeiture of such shares upon termination of employment or Service (as defined below) during the applicable restriction period, (ii) restrictions on transferability, (iii) limitations on the right to vote such shares, (iv) limitations on the right to receive dividends with respect to such shares, (v) attainment of certain performance goals, such as those described in Section 5.8(c) of the 2012 Plan, and (vi) such other conditions, limitations, and restrictions as determined by the Plan Administrator, in its sole and absolute discretion, and as set forth in the instrument evidencing the award. These restrictions may lapse separately or in combinations or may be waived at such times, under such circumstances, in such installments, or otherwise as determined by the Plan Administrator, in its sole and absolute discretion. Certificates representing shares of Common Stock subject to restricted stock awards will bear an appropriate legend and may be held subject to escrow and such other conditions as determined by the Plan Administrator until such time as all applicable restrictions lapse.
Performance Share Awards
.The Plan Administrator may grant performance share awards that give the award recipient the right to receive payment upon achievement of certain performance goals established by the Plan Administrator, in its sole and absolute discretion, as set forth in the instrument evidencing the award. Such payments will be valued as determined by the Plan Administrator and payable to or exercisable by the award recipient for cash, shares of Common Stock (including the value of Common Stock as a part of a cashless exercise), other awards, or other property as determined by the Plan Administrator. Such conditions or restrictions may be based upon continuous Service (as defined below) with the Company or the attainment of performance goals related to the award holder’s performance or the Company’s profits, profit growth, profit-related return ratios, cash flow, stockholder returns, or such other criteria as determined by the Plan Administrator. Such performance goals may be (i) stated in absolute terms, (ii) relative to other companies or specified indices, (iii) to be achieved during a period of time, or (iv) as otherwise determined by the Plan Administrator.
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Other Stock-Based Awards
.The Plan Administrator may grant such other awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock, as may be deemed by the Plan Administrator to be consistent with the purposes of the 2012 Plan and applicable laws and regulations. Such other awards may include, without limitation, (i) shares of Common Stock awarded purely as a bonus and not subject to any restrictions or conditions, (ii) convertible or exchangeable debt or equity securities, (iii) other rights convertible or exchangeable into shares of Common Stock, and (iv) awards valued by reference to the value of shares of Common Stock or the value of securities or the performance of specified subsidiaries of the Company.
Transferability
Any Incentive Stock Option granted under the 2012 Plan will, during the recipient’s lifetime, be exercisable only by such recipient, and will not be assignable or transferable by such recipient other than by will or the laws of descent and distribution. Except as specifically allowed by the Plan Administrator, any other award granted under the 2012 Plan and any of the rights and privileges conferred thereby will not be assignable or transferable by the recipient other than by will or the laws of descent and distribution and such award will be exercisable during the recipient’s lifetime only by the recipient.
Term of the 2012 Plan
The 2012 Plan will terminate on February 23, 2022, unless sooner terminated by the Board. After the 2012 Plan is terminated, no future awards may be granted under the 2012 Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions and the 2012 Plan’s terms and conditions.
Consideration
The Board or Committee will grant Stock Options under the 2012 Plan in consideration for services rendered. There will be no other consideration received or to be received by the Company or any of its subsidiaries for the granting or extension of Stock Option under the 2012 Plan.
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Director Compensation
According to the Fiscal Year 2016 Director Compensation Plan, directors were each granted $50,000 in restricted stock priced at the close of the February 1st, 2016 trading day, which stock vested on June 13, 2016, upon the Company’s stock price maintaining a $0.12 price per share for a 30 volume weighted average price. Directors were also paid a retainer of $7,500 per quarter that was paid in restricted stock in lieu of cash. The Chairman of the Board received an additional 30%, the Chairman of the former Executive Committee received an additional 20%, the Audit Committee Chairman received an additional 20%, and the Compensation Committee Chairman and Governance & Nominating Committee Chairmen each received an additional 15% of each form of compensation. Executive Committee members received an additional 20%, Audit Committee members received an additional 15%, while Compensation Committee and Governance & Nominating Committee members received an additional 10% of each form of compensation.
On December 2, 2016, the Board of Directors approved a new compensation plan (hereafter referred to as "the New Director Compensation Plan”). According to the new compensation plan, directors received a one-time restricted stock grant of 250,000 shares for continuing directors and 1,000,000 shares for new directors, which shall vest upon the Company’s stock maintaining a $0.20 price per share for a 30 volume weighted average price. Additionally, directors will receive a base director fee of either $12,500 paid quarterly in immediately vesting restricted stock or $10,000 paid quarterly in immediately vesting restricted stock with an additional 100,000 shares paid upon the Company’s stock maintaining a $0.20 price per share for a 30 volume weighted average price.
The table below sets forth the Compensation paid to our Directors during the fiscal year ended December 31, 2013.
| Director | Fees Earned or Paid in Cash | All Other Compensation | Stock Awards | Total | ||||||||||||
| John Lorenz | $ | 2 ,100 | (1) | $ | 205,000 | (1) | $ | 198,090 | (1) | $ | 405,190 | |||||
| James Flach | $ | 1,000 | (2) | $ | $ | - | $ | 1,000 | ||||||||
| Michael Jaap | $ | 2 ,100 | (3) | $ | 2,000 | (3) | $ | 44,020 | (3) | $ | 48,120 | |||||
| William Miller | $ | 1 ,000 | (4) | $ | 72,000 | (4) | $ | - | $ | 73,000 | ||||||
| Joseph Ioia | $ | 2,100 | (5) | $ | 74,069 | (5) | $ | 44,020 | (5) | $ | 120,189 | |||||
| Rick Opler | $ | 600 | (6) | $ | $ | 22,010 | (6) | $ | 22,610 | |||||||
| Keri Smith | $ | 600 | (7) | $ | $ | 22,010 | (7) | $ | 22,610 | |||||||
| Director | Fees Earned or Paid in Cash | All Other Compensation | Stock Awards | Total | ||||||||||||
| Dwight Mamanteo | $ | - | $ | - | $ | 139,100 | (1) | $ | 139,100 | |||||||
| Michael Jaap | $ | - | $ | - | $ | 93,120 | (2) | $ | 93,120 | |||||||
| Richard Q. Opler | $ | - | $ | - | $ | 97,000 | (3) | $ | 97,000 | |||||||
| Charles Trapp | $ | - | $ | - | $ | 119,700 | (4) | $ | 119,700 | |||||||
| Frank Kneller | $ | - | $ | - | $ | 116,315 | (5) | $ | 116,315 | |||||||
| Karim Babay | $ | - | $ | - | $ | 126,410 | (6) | $ | 126,410 | |||||||
| Scott Krinsky | $ | - | $ | - | $ | 3,300 | (7) | $ | 3,300 | |||||||
| Scott Nussbaum | $ | - | $ | - | $ | 3,795 | (8) | $ | 3,795 | |||||||
(1) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Mamanteo was granted 145,833 shares on March 31, 2016 (valued at $13,125), 1,093,750 shares on June 13, 2016 (valued at $87,500), 131,250 shares on June 30, 2016 (valued at $13,125), 109,375 shares on September 30, 2016 (valued at $13,125), and 89,250 shares on December 2, 2016 (valued at $8,925). Pursuant to the New Director Compensation Plan, Mr. Mamanteo was granted 44,000 shares on December 31, 2016 (valued at $3,300).
(2) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Jaap was granted 100,000 shares on March 31, 2016 (valued at $9,000), 750,000 shares on June 13, 2016 (valued at $60,000), 90,000 shares on June 30, 2016 (valued at $9,000), 75,000 shares on September 30, 2016 (valued at $9,000), and 61,200 shares on December 2, 2016 (valued at $6,120).
(3) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Opler was granted 104,166 shares on March 31, 2016 (valued at $9,375), 781,250 shares on June 13, 2016 (valued at $62,500), 93,750 shares on June 30, 2016 (valued at $9,375), 78,125 shares on September 30, 2016 (valued at $9,375), and 63,750 shares on December 2, 2016 (valued at $6,375).
(4) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Trapp was granted 125,000 shares on March 31, 2016 (valued at $11,250), 937,500 shares on June 13, 2016 (valued at $75,000), 112,500 shares on June 30, 2016 (valued at $11,250), 93,750 shares on September 30, 2016 (valued at $11,250), and 76,500 shares on December 2, 2016 (valued at $7,650). Pursuant to the New Director Compensation Plan, Mr. Trapp was granted 44,000 shares on December 31, 2016 (valued at $3,300).
(5) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Kneller was granted 120,833 shares on March 31, 2016 (valued at $10,875), 906,250 shares on June 13, 2016 (valued at $72,500), 108,750 shares on June 30, 2016 (valued at $10,875), 90,625 shares on September 30, 2016 (valued at $10,875), and 73,950 shares on December 2, 2016 (valued at $7,395). Pursuant to the New Director Compensation Plan, Mr. Kneller was granted 50,600 shares on December 31, 2016 (valued at $3,795).
(6) Pursuant to the Fiscal Year 2016 Director Compensation Plan, Mr. Babay was granted 141,166 shares on March 31, 2016 (valued at $12,750), 1,000,000 shares on June 13, 2016 (valued at $80,000), 127,500 shares on June 30, 2016 (valued at $12,750), 100,000 shares on September 30, 2016 (valued at $12,750), and 81,600 shares on December 2, 2016 (valued at $8,160).
(7) Pursuant to the New Director Compensation Plan, Mr. Krinsky was granted 44,000 shares on December 31, 2016 (valued at $3,300).
(8) Pursuant to the New Director Compensation Plan, Mr. Nussbaum was granted 50,600 shares on December 31, 2016 (valued at $3,795).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our Common Stock beneficially owned onas of March 31, 2014,24, 2017, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding common stock,Common Stock, (ii) each executive officer and director, and (iii) all executive officers and directors as a group. In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days. Shares of Common Stock subject to options, warrants or convertible securities exercisable or convertible within 60 days of the date of determination are deemed outstanding for computing the percentage of the person or entity holding such options, warrants or convertible securities but are not deemed outstanding for computing the percentage of any other person. To the best of our knowledge, subject to community and marital property laws, all persons named herein have sole voting and investment power with respect to such shares, except as otherwise noted.
Name and Address of Beneficial Owner (1) | Number of Shares Beneficially Owned | Percentage of Outstanding Common Stock (2) | ||||||
| Executive Officers and Directors | ||||||||
John Lorenz | 5,943,730 | (3) | 10.97% | |||||
--CEO, President, and Chairman of the Board of Directors | ||||||||
Alicia Williams Young | 843,790 | (4) | 1.61% | |||||
--Chief Financial Officer, Secretary, and VP of Internal Operations | ||||||||
Richard Geib --Chief Technical Officer | 809,900 | (5) | 1.55% | |||||
Todd Smith --Chief Operating Officer | 1,469,752 | (6) | 2.81% | |||||
Janet Carnell Lorenz --Chief Business Development Officer | 5,943,730 | (7) | 10.97% | |||||
Michael Jaap --Director | 333,500 | (8) | * | |||||
Joseph A. Ioia --Director | 3,559,354 | (9) | 6.85% | |||||
Keri Smith --Director | 72,200 | (10) | * | |||||
Richard Q. Opler --Director | 179,700 | (11) | * | |||||
Everett Alexander --Director | 850,000 | (12) | 1.64% | |||||
Dwight Mamanteo --Director | 175,000 | (13) | * | |||||
Executive Officers and Directors as a group (11 persons) | 20,180,646 | (3)-(13) | 35.18% | |||||
5% Stockholders | ||||||||
Leonid Frenkel 401 City Avenue, Suite 528 Bala Cynwyd, PA 19004 | 9,414,906 | (14) | 16.55% | |||||
Ralph M. Amato 2098 Cherry Creek Circle Summerlin, NV 89135 | 8,439,089 | (15) | 16.08% | |||||
| Name and Address of Beneficial Owner(1) | Number of Shares Beneficially Owned | Percentage of Outstanding Common Stock(2) | ||||||
| Executive Officers and Directors | ||||||||
| Dwight Mamanteo — Chairman of the Board | 5,868,178 | (3) | 4.6 | % | ||||
| David Ide — Director | 2,785,172 | (4) | 2.2 | % | ||||
| Charles F. Trapp — Director | 4,667,268 | (5) | 3.7 | % | ||||
| Frank Kneller — Director | 1,479,275 | (6) | 1.2 | % | ||||
| Scott Nussbaum — Director | 4,262,049 | (7) | 2.9 | % | ||||
| Scott Krinsky — Director | 44,000 | (8) | * | |||||
| Ian Rhodes — Chief Executive Officer | 342,085 | (9) | * | |||||
| Grant Sahag — Former Chief Executive Officer, President | 1,402,532 | (10) | 1.1 | % | ||||
| Executive Officers and Directors as a group (8 persons) | 20,753,892 | 16.1 | % | |||||
| 5% Stockholders | ||||||||
| Leonid Frenkel 401 City Avenue, Suite 528 Bala Cynwyd, PA 19004 | 8,052,706 | (11) | 6.3 | % | ||||
| Wynnefield Capital Management, LLC 450 Seventh Avenue, Suite 509 New York, NY 10123 | 36,360,248 | (12) | 28.1 | % | ||||
| * | Represents less than 1% |
| (1) | Unless otherwise indicated, the business address of each individual named is |
| (2) | Based on |
| 83 |
| (3) | Includes |
| (4) | Includes (i) 10,000 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024, and (ii) 37,500 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. Mr. Ide also holds the following unvested stock, which is not included in the table above: (i) 10,417 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Common Stock maintaining a $2 per share stock price for a thirty trading day VWAP duration and 100,000 unvested shares of Common Stock which shares vest 100% upon the Common Stock maintaining a $0.20 share stock price for a thirty trading VWAP duration. |
| (5) | Includes (i) 37,500 shares of Common Stock issuable upon the exercise of options at $0.17 per share until May 22, 2025 and (ii) 468,750 shares of Common Stock issuable upon the exercise of warrants at $0.08 per share until December 27, 2019. Mr. Trapp also holds the following unvested stock, which is not included in the table above: 175,676 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Common Stock maintaining a $2 per share stock price for a thirty trading day VWAP duration. And 100,000 unvested shares of Common Stock which shares vest 100% upon the Common Stock maintaining a $0.20 share stock price for a thirty trading VWAP duration. |
| (6) | Includes 25,000 shares of Common Stock issuable upon the exercise of options at $0.14 per share until August 27, 2025. Mr. Kneller also holds the following unvested stock, which are not included in the table above: 100,000 unvested shares of Common Stock which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a thirty trading day VWAP duration. |
| (7) | Includes 625,000 shares of Common Stock issuable upon the exercise of warrants at $0.08 per share until December 27, 2019. Mr. Nussbaum also holds the following unvested stock, which is not included in the table above: 1,000,000 unvested shares of Common Stock which shares vest 100% upon the Common Stock maintaining a $0.20 share stock price for a thirty trading VWAP duration. |
| (8) | Mr. Krinsky holds the following unvested stock, which is not included in the table above: 1,000,000 unvested shares of Common Stock which shares vest 100% upon the Common Stock maintaining a $0.20 share stock price for a thirty trading VWAP duration. |
| (9) | Includes 156,250 shares of Common Stock issuable upon the exercise of warrants at $0.08 per share until December 27, 2019. Mr. Rhodes also holds the following unvested stock, which is not included in the table above: 3,200,906 unvested shares of Common Stock granted pursuant to Mr. Rhodes’ Employment Agreement, 1,000,000 unvested shares of Common Stock which shares vest 100% upon the Common Stock maintaining a $0.20 share stock price for a thirty trading VWAP duration and 2,200,906 unvested shares of Common Stock which shares shall vest upon the Common Stock achieving certain 30 trading day volume weighted average prices, as follows: 20% will vest at $0.30 per share, 30% will vest at $0.40 per share, 30% will vest at $0.50 per share, and 20% will vest at $0.60 per share. |
| (10) | Includes (i) 5,000 shares of Common Stock issuable upon the exercise of warrants at $1.00 per share until | |
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| (11) | Includes (i) |
Equity Compensation Plan Information | ||
The following summary information is as of December 31, 2016 and relates to our 2007 Stock Incentive Plan and our 2012 Equity Incentive Plan, pursuant to which we have granted options to purchase our common stock: |
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of granted options, warrants and rights (a) | Weighted-average exercise price of granted options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders: | ||||||||||||
| 2007 Stock Incentive Plan | 6,647,606 | $ | 0.60 | 95,000 | ||||||||
| 2012 Equity Incentive Plan | 5,748,230 | $ | 0.80 | 751,771 | ||||||||
| Equity compensation plans not approved by security holders: | ||||||||||||
| None | - | - | - | |||||||||
| Total | 12,395,836 | $ | 0.69 | 846,771 | ||||||||
Except as set forth in this Annual Report,herein, there are no arrangements known to us, the operation of which may at a subsequent date result in a change in control of the Company.
Certain Relationships and Related Transactions
During the past three years, there have been no transactions, whether directly or indirectly, between our company and NY Terminals II, LLC
On December 10, 2012,27, 2016, we entered into debt agreements for an aggregate principal amount of $1,000,000 from the following agreements allowing usoffering and issuance of 5% Notes to rent real propertyWynnefield Partners I, Wynnefield Partners and equipment and receive manufacturing, distribution, and consulting services withWynnefield Offshore, all of which are under the entities and their sole owner, whomanagement of Wynnefield Capital, Inc. (“Wynnefield Capital”), an affiliate of the Company. The Company’s Chairman of the Board, Dwight Mamanteo, is a memberportfolio manager of Wynnefield Capital. As of March 31, 2017, the entire principal amount of the of the 5% Notes, plus accrued interest, remains outstanding.
On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,760,000 from the offering and issuance of 8% Notes and warrants to purchase up to 5,500,00 shares of our Common Stock. The 8% Notes and warrants were sold to Dwight Mamanteo, our Chairman of the Board, Charles F. Trapp and Scott Nussbaum, members of Directors, as more fully described below.
Director Independence
The Board of Directors has determined that each of the following non-employee directors qualifies as an “independent director” as defined by Section 10A(m)(3)(ii) of the Exchange Act and Rule 5065(a)(2) of the NASDAQ Marketplace Rules: Michael Jaap, Richard Q. Opler, Keri Smith, Everett Alexander,Dwight Mamanteo, Charles Trapp, Frank Kneller, Scott Krinsky, and Dwight Mamanteo.
David Ide does not qualify as an “independent director” due to the fact that he is alsodirector,” as Mr. Ide previously was as an employeeexecutive officer of the Company. Joseph A. Ioia is also not an “independent director” because he received a payment from the Company in excess of $120,000 during the fiscal year ended December 31, 2012, as part of the Company’s transaction with Full Circle Manufacturing Group, Inc.
The Company engaged Semple, MarchalKMJ Corbin & Cooper,Company LLP to serve as its independent registered public accounting firm for the fiscal yearyears ended December 31, 2013. The Company previously engaged Jorgensen & Co. as its independent registered public accounting firm for the fiscal year ended December 31, 2012.
Set forth below are the fees paid to Semple, MarchalKMJ Corbin & Cooper,Company LLP and Jorgensen & Co. for each of the last two fiscal years:
Audit Fees
Set below are the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
| 85 |
| Auditor: | 2013 | 2012 | ||||||
Semple, Marchal & Cooper, LLP | $ | 38,803 | $ | - | ||||
Jorgensen & Co. | 77,500 | 53,500 | ||||||
| Auditor: | 2016 | 2015 | ||||||
| KMJ Corbin & Company LLP | $ | 117,135 | $ | 25,673 | ||||
Audit-Related Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for assurance and related services by the Company’s principal accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees” above.
| Auditor: | 2012 | 2013 | ||||||
Jorgensen & Co. | $ | - | $ | 2,375 | ||||
| Auditor: | 2016 | 2015 | ||||||
| KMJ Corbin & Company LLP | $ | - | $ | - |
Tax Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
| Auditor: | 2012 | 2013 | ||||||
Jorgensen & Co. | $ | - | $ | 600 | ||||
| 2016 | 2015 | |||||||
| KMJ Corbin & Company LLP | $ | - | $ | - |
All Other Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above. Registrants shall describe the nature of the services comprising the
| 2016 | 2015 | |||||||
| KMJ Corbin & Company LLP | $ | - | $ | - |
The fees disclosed under this category.
| Auditor: | 2012 | 2013 | ||||||
Jorgensen & Co. | $ | 80,500 | (1) | $ | - | |||
Pre-Approval Policies and Procedures
Before an independent registered public accounting firm is engaged by the Company to render audit or permissible non-audit services the engagement is approved by the Company'sAudit Committee of the Company’s Board of Directors acting as the audit committee.Directors.
| 86 |
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| (1) | All Financial Statements |
The following have been included under Item 8 of Part II of this Annual Report.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2016 and 2015
Notes to Consolidated Financial Statements
| (2) | Financial Statement Schedules |
Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
| (3) | Exhibits |
| Exhibit No. | Description | |
| Agreement and Plan of Merger, dated October 31, 2011, between Environmental Credits, Ltd. and GlyEco, Inc., effective November 21, | ||
| Agreement and Plan of Merger, dated November 21, 2011, by and among GlyEco, Inc., GRT Acquisition, Inc. and Global Recycling Technologies, Ltd.(1) | ||
| Stock Purchase Agreement by and between GlyEco, Inc., WEBA Technology Corp., and the shareholders of WEBA Technology Corp. dated December 27, 2016.(20) | ||
| 2.4 | Stock Purchase Agreement by and between GlyEco, Inc., Recovery Solutions and Technologies, Inc., and the shareholders of Recovery Solutions and Technologies, Inc. dated December 27, 2016.(20) | |
| 3.1(i)(a) | Articles of Incorporation of GlyEco, Inc., dated and filed with the Secretary of state of Nevada on October 21, | |
| Certificate of Merger, dated October 31, 2011, executed by Environmental Credits Ltd. and GlyEco, Inc., filed with the Secretary of State of Delaware on November 8, 2011 and effective November 21, | ||
| Articles of Merger, dated October 31, 2011, executed by Environmental Credits, Ltd. and GlyEco., filed with the Secretary of State of Nevada on November 3, 2011 and effective November 21, | ||
| Certificate of Designation of Series AA Preferred | ||
| Amended and Restated Bylaws of GlyEco, Inc., effective as of August 5, 2014.(15) | ||
| 4.1 | Note Purchase Agreement, dated August 9, 2008, by and between Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC , as Custodian.(2) | |
| Forbearance Agreement, dated August 11, 2010, by Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as | ||
| Second Forbearance Agreement, dated May 25, 2011, Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as |
| 4.4 | ||
| Asset Purchase Agreement, dated May 24, 2012, by and among MMT Technologies, Inc. (the Seller), Otho N. Fletcher, Jr. (the Selling Principal), GlyEco Acquisition Corp. #3, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc.(5) | ||
| Asset Purchase Agreement, dated October 3, 2012, by and among Antifreeze Recycling, Inc. (the Seller), Robert J. Kolhoff (the Selling Principal), GlyEco Acquisition Corp. #7, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer).(6) | ||
| Asset Purchase Agreement, dated October 3, 2012, by and among Renew Resources, LLC (the Seller), Todd M. Bernard (the Selling Principal), GlyEco Acquisition Corp. #5, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer).(7) | ||
| Novation Agreement and Amendment No. 1 to Asset Purchase Agreement, dated October 26, 2012, by and among Antifreeze Recycling, Inc., Robert J. Kolhoff, GlyEco Acquisition Corp. #7, and GlyEco Acquisition Corp. #6.(8) | ||
| Amendment No. 1 to Asset Purchase Agreement, dated October 26, 2012, by and among Renew Resources, LLC, Todd M. Bernard, and GlyEco Acquisition Corp. | ||
| Amendment No. 2 to Asset Purchase Agreement, effective January 31, 2013, by and among Renew Resources, LLC, Todd M. Bernard, and GlyEco Acquisition Corp. #5(10) | ||
| Asset Purchase Agreement, dated December 31, 2012, by and among Evergreen Recycling Co., Inc., an Indiana corporation (the Seller), Thomas Shiveley (the Selling Principal), and GlyEco Acquisition Corp. #2, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer).(11) | ||
| Assignment of Intellectual Property, dated December 10, 2012, by and among Joseph A. Ioia and GlyEco Acquisition Corp. #4, Inc.(12) | ||
| 10.9 | Agreement and Plan of Merger, dated September 27, 2013, by and among GlyEco, Inc., a Nevada corporation, GlyEco Acquisition Corp. #7, an Arizona corporation and wholly owned subsidiary of GlyEco, Inc., GSS Automotive Recycling, Inc., a Maryland corporation, Joseph Getz, an individual, and John Stein, an individual.(13) |
| Note Conversion Agreement and Extension, dated April 3, 2012, by and between GlyEco, Inc. and IRA FBO Leonid Frenkel, Pershing LLC as Custodian.(14) | ||
| 10.11 | ||
| 10.12 | Amended and Restated Asset Transfer Agreement, by and between GlyEco, Inc. and |
Employment Agreement with Ian Rhodes, dated December 30, 2016.(20) | ||
| 10.16+ | Employment Agreement with Richard Geib, dated December 28, 2016(20) | |
| 10.17+ | Consulting Agreement, dated September 4, 2015, between GlyEco, Inc. and David Ide.(16) | |
| 10.18+ | Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Ian Rhodes.(17) | |
| 10.19+ | Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Grant Sahag.(17) | |
| 10.20+ | Amendment No. 1 to Employment Agreement, dated May 1, 2016, by and between GlyEco, Inc. and Grant Sahag.(18) | |
| 10.21+ | 2007 Stock Option Plan(3) | |
| 10.22+ | 2012 Equity Incentive Plan(3) | |
| 10.23+ | First Amendment to GlyEco, Inc. 2012 Equity Incentive Plan.(4) | |
| 21.1* | List of Subsidiaries of the Company | |
| Consent of | ||
| 31.2* | ||
| XBRL Instance Document | ||
| XBRL Taxonomy Schema | ||
| XBRL Taxonomy Calculation Linkbase | ||
| XBRL Taxonomy Definition Linkbase | ||
| XBRL Taxonomy Label Linkbase | ||
| XBRL Taxonomy Presentation Linkbase |
| + | Management Contracts and Compensatory Plans, Contracts or Arrangements. |
| * | Filed herewith |
| (1) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 28, 2011, and incorporated by reference herein. |
| (2) | Filed as an exhibit to the Form 8-K/A filed by the Company with the Commission on January 18, 2012, and incorporated by reference herein. |
| (3) | Filed as an exhibit to the Form 10-K filed by the Company with the Commission on April 14, 2012, and incorporated by reference herein. |
| (4) | Filed as an exhibit to the Form 10-Q filed by the Company with the Commission on August 14, 2012, and incorporated by reference herein. |
(5) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on May 30, 2012, and incorporated by reference herein. |
| (6) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 9, 2012, and incorporated by reference herein. |
| (7) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 9, 2012, and incorporated by reference herein. |
| (8) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 1, 2012, and incorporated by reference herein. |
| (9) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 2, 2012, and incorporated by reference herein. |
| (10) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on February 6, 2013, and incorporated by reference herein. |
| (11) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on January 4, 2013, and incorporated by reference herein. |
| Filed as an exhibit to the Form 8-K filed by the Company with the Commission on December 13, 2012, and incorporated by reference herein. |
| Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 2, 2013 and incorporated by reference herein. |
| Filed as an exhibit to the Form 8-K filed by the Company with the Commission on May 30, 2012, and incorporated by reference herein. | |
| (15) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on August 8, 2014, and incorporated by reference herein. |
| (16) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on September 11, 2015, and incorporated by reference herein. |
| (17) | Filed as an Exhibit to the Form S-1/A filed by the Company with the Commission on November 24, 2016. |
| (18) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on May 5, 2016, and incorporated by reference herein. |
| (19) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on June 24, 2016, and incorporated by reference herein. |
| (20) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on January 5, 2017, and incorporated by reference herein. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GLYECO, INC. | |||
| By: /s/ | |||
| Date: | Ian Rhodes Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Capacity | |||
| Date | ||||
| /s/ | ||||
Chief Executive Officer (Principal Executive Officer) | ||||
| /s/ | ||||
| Interim Chief Financial Officer | ||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||
| /s/ | ||||
| Dwight Mamanteo | ||||
| /s/ David Ide | ||||
| David Ide | Director | April 6, 2017 | ||
| /s/ Charles Trapp | ||||
| Charles Trapp | Director | April 6, 2017 | ||
| /s/ Frank Kneller | ||||
| Frank Kneller | Director | April 6, 2017 | ||
| /s/ Scott Nussbaum | ||||
| Scott Nussbaum | Director | April 6, 2017 | ||
| /s/ Scott Krinsky | ||||
| Scott Krinsky | Director | April 6, 2017 | ||
| 90 |