| NOTE 12 - Acquisitions, Goodwill and 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 was recorded in 2014 and 2013 as the carrying amount of the reporting unit's assets did not exceed the estimated
fair value determined. Acquisition of Evergreen Recycling, Inc. Effective January 1, 2013, the Company acquired
Evergreen Recycling Co., Inc., an Indiana corporation ("Evergreen"), pursuant to an Asset Purchase Agreement, dated December
31, 2012 (the "Evergreen Agreement"), by and among the Company, Evergreen, Mr. Thomas Shiveley, the selling principal
of Evergreen (the "Evergreen Selling Principal"), and GlyEco Acquisition Corp. #2, an Arizona corporation and wholly
owned subsidiary of the Company ("Acquisition Sub #2"). Evergreen operated a business located in Indianapolis,
Indiana, relating to processing recyclable glycol streams, primarily used antifreeze, and selling glycol as remanufactured product. Pursuant to the Evergreen Agreement, the Company
(through Acquisition Sub #2) acquired the business and all of the glycol-related assets of Evergreen, free and clear of any liabilities
or encumbrances, consisting of Evergreen's personal property (equipment, tools, machinery, furniture, supplies, materials, and
other tangible personal property), inventory, intangible property, contractual rights, books and records, intellectual property,
accounts receivable (excluding trade accounts receivable equal to or greater than 90 days), goodwill, and miscellaneous assets,
in exchange for a $59,304 cash payment, 377,372 unregistered shares of the Company's common stock, valued at the then current fair
market value of $1.57, determined by using the average closing price from the preceding five days up to the transaction closing
date, and assumption of Evergreen's current payables totaling $10,010. Transaction with Full Circle Manufacturing
Group, Inc. New Jersey Processing Center On December 10, 2012, we entered into the following
agreements allowing us to rent real property, and equipment and receive manufacturing, distribution and consulting services with
the entities and sole owner, who is a former member of our Board of Directors, as more fully described below. Effective January 1, 2013, and beginning on
February 1, 2013, GlyEco Acquisition Corp. #4, an Arizona corporation and wholly owned subsidiary of the Company ("Acquisition
Sub #4") commenced an operating Lease Agreement with NY Terminals II, LLC, a New Jersey limited liability company ("NY
Terminals") and related party, whereby Acquisition Sub #4 agreed to lease certain real property owned by NY Terminals for
a five-year term at a monthly rate of $30,000. Effective January 1, 2013, and beginning on
February 1, 2013, as a part of the same transaction, Acquisition Sub #4 commenced a capital Equipment Lease Agreement with Full
Circle Manufacturing Group, Inc., a New Jersey corporation ("Full Circle"), whereby it agreed to lease Full Circle's
equipment for $32,900 a month for a term of five years (refer to Note 8). The Company also commenced a Consulting Agreement with
Joseph A. Ioia, the sole shareholder of Full Circle and sole member of NY Terminals ("Mr. Ioia"), in which the Company
engaged Mr. Ioia, and agreed to compensate Mr. Ioia, to serve as a consultant for the Company. Effective December 10, 2012, we executed a
Manufacturing and Distribution Agreement (the "M&D Agreement") with Full Circle and a consulting agreement with Mr.
Ioia, whereby Full Circle, under the supervision of Mr. Ioia, operates Full Circle to process recyclable glycol streams and sell
glycol as remanufactured product at our direction. Under the M&D Agreement, Full Circle agreed to perform the manufacturing
and distribution services relating to its glycol recycling business using the GlyEco Technology, to exclusively produce
remanufactured glycol for the sole benefit of us and to use the Intellectual Property ("IP") sold to us by Mr. Ioia covering
the worldwide right, title, and interest in Mr. Ioia's exclusive glycol remanufacturing process. We acquired the IP for consideration
of $2,000,000 in cash and 3,000,000 unregistered shares of the Company's common stock valued at $0.50 per share in 2012. Mr. Ioia
became a director of the Company on January 15, 2013, and resigned as a director on August 22, 2014. On September 11, 2014, the State of New Jersey
Department of Environmental Protection transferred to Acquisition Sub #4 the permit for Class D Recyclable Materials from Full
Circle. The permit allows Acquisition Sub #4 to recycle products containing waste glycols. The transfer of the Class D permit is
one of the final steps towards completing the transition of business operations from Full Circle to Acquisition Sub #4. The remaining
steps include the transfer of a letter of credit related to the Class D permit (discussed further in Note 14), and the cancellation
of the M&D Agreement. The Company has yet to determine whether the purchase of the equipment under our capital Equipment Lease
Agreement must be accomplished prior to the transfer of business operations. Discussions between Full Circle and the Company to
finalize the transition are ongoing. Interim Management Agreement with MMT
Technologies, Inc. Effective August 26, 2013, GlyEco Acquisition
Corp. #3, an Arizona subsidiary and wholly owned corporation of the Company ("Acquisition Sub #3") entered into an Interim
Management Agreement with MMT Technologies, Inc., a Florida corporation ("MMT Technologies"), and Otho N. Fletcher, Jr.,
principal of MMT Technologies (the "MMT Principal"), pursuant to which Acquisition Sub #3 assumed control of the operations
of MMT Technologies' antifreeze recycling business in anticipation of the closing of the transaction contemplated by that certain
Asset Purchase Agreement originally entered into on May 24, 2012, by and between the Company, Acquisition Sub #3, MMT Technologies,
and the MMT Principal (the "MMT Agreement"). Pursuant to the Interim Management Agreement,
the Company (through Acquisition Sub #3) purchased two vehicles and assumed control of MMT Technologies' business and all of the
assets to be assigned to Acquisition Sub #3 pursuant to the MMT Agreement in exchange for $50,000 in cash, which will be deducted
from the aggregate purchase price outlined in the MMT Agreement. On March 21, 2014, the Company completed the
MMT Acquisition, by acquiring all business and all assets in exchange for 204,750 shares of restricted common stock, par value
$0.0001, of the Company valued at a current fair market value of $1.03 per share determined by using the average closing price
from the preceding five days up to the transaction closing date. Merger of GSS Automotive Recycling, Inc.
with and into GlyEco Acquisition Corp. #7 Effective September 30, 2013, GSS Automotive
Recycling, Inc., a Maryland corporation ("GSS Automotive Recycling"), merged with and into GlyEco Acquisition Corp. #7,
an Arizona corporation and wholly owned subsidiary of the Company ("Acquisition Sub #7"), with Acquisition Sub #7 continuing
as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to an Agreement and Plan of Merger, dated September
27, 2013 (the "GSS Agreement"), by and among the Company, Acquisition Sub #7, GSS Automotive Recycling, Joseph Getz,
an individual ("Getz"), and John Stein, an individual ("Stein" and collectively with Getz, the "GSS Shareholders"). Pursuant to the GSS Agreement, the Company
(through Acquisition Sub #7) purchased all of the issued and outstanding shares of GSS Automotive Recycling's common stock from
the GSS Shareholders in exchange for $430,000 in cash and 455,000 unregistered shares of the Company's Common Stock, valued at
the then current fair market value of $1.12 per share determined by using the average closing price from the preceding five days
up to the transaction closing date. As a result of the merger, Acquisition Sub
#7 has assumed operations and all of the assets of GSS Automotive Recycling's business located in Landover, Maryland, relating
to processing recyclable glycol streams, primarily used as antifreeze, and reselling glycol as remanufactured product. The acquisition of GSS includes a contingent
consideration arrangement that requires the provision of $1.00 credit to the GSS Shareholders towards the purchase of additional
shares of the Company for each additional $1.00 of Gross Profits (as defined in the GSS Agreement) that Acquisition Sub #7 earns
in excess of $72,000 through December 31, 2014. The range of the undiscounted amounts the Company could owe under this arrangement
is estimated to be between $0 and $38,000. The fair value of the contingent consideration on the acquisition date of approximately
$0 was estimated based on the present value of projected payments, which were based on projected gross profit through 2014. These
calculations and projections are based on significant inputs not observable in the market, which ASC 820 refers to as Level 3 inputs.
Key assumptions include a discount rate of 25 percent as well as an increasing level of revenues and expenses based on probability
factors at the acquisition date. At December 31, 2014, the Company evaluated
the cash flow projections included in the contingent consideration and determined that there was no change in the fair value of
the contingent consideration. During 2013, the Company completed the Evergreen,
Full Circle, MMT Technologies and GSS Automotive Recycling transactions (the "Transactions") in order to expand our market
within North America, obtain synergies and cost efficiencies among the Transactions and GlyEco, and where economically feasible,
add our technological advances to already operating facilities. As a result of the Transactions, we expect to reduce costs through
economies of scale. The goodwill of $619,819 arising from the Transactions during 2013 consists largely of the synergies and economies
of scale expected from combining the operations and expanding our market. The Company recognized additional goodwill of $55,992
in 2014 when it completed the acquisition of MMT Technologies. The following table summarizes the aggregate
consideration paid during 2014 and 2013 for the Transactions and resolution of previous contingent consideration, and the amounts
of the assets acquired and liabilities assumed at the effective acquisition date: Consideration:
Cash $ 539,304
Equity instruments (1,040,560 common shares of the Company) issued 1,329,086
Assets acquired under capital lease 1,714,974
Fair value of total consideration transferred $ 3,583,364
Recognized amounts of identifiable assets acquired and liabilities assumed:
Financial assets (primarily accounts receivable) $ 92,320
Inventory 24,234
Property, plant, and equipment 2,532,442
Identifiable intangible assets 356,500
Financial liabilities (97,943 )
Total identifiable net assets 2,907,553
Goodwill 675,811
$ 3,583,364 During 2013, the Company had placed in escrow
200,000 shares to be released to the former owners upon the passage of one year as long as no undisclosed contingencies arise as
more fully described in the documents. The 200,000 shares were released from escrow in October 2014. The amounts of the Transactions' revenue and
earnings included in the Company's consolidated statement of operations for the year ended December 31, 2013, and the revenue and
earnings of the combined entity had the acquisition date been done on January 1, 2013, are:
Revenue Earnings (Loss)
Actual from date of Transaction through 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 - 12/31/2013 $ 6,420,000 $ (3,420,000 ) The 2013 supplemental (unaudited) pro forma
earnings were adjusted to exclude approximately $35,000, of acquisition-related costs incurred in 2013. The components of intangible assets are as
follows:
Gross Balance at
Gross Balance at
Net Balance at
Estimated December 31, Current Year December 31, Accumulated December 31,
Useful Life 2013 Additions 2014 Amortization 2014
Finite live intangible assets:
Customer list and tradename 5 years $ 24,500 $ - $ 24,500 $ 7,239 $ 17,261
Non-compete agreements 5 years 332,000 - 332,000 107,900 224,100
Intellectual property 25 years 3,500,000 - 3,500,000 280,000 3,220,000
Total intangible assets $ 3,856,500 $ - $ 3,856,500 $ 395,139 $ 3,461,361
Goodwill Indefinite $ 779,303 $ 55,992 $ 835,295 $ - $ 835,295 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 the Company believes it will be able to deduct goodwill
amortization for tax purposes. Aggregate amortization expense included in
general and administrative expenses for the years ended December 31, 2014 and 2013, totaled $211,829 and $183,310, respectively.
The following table represents the total estimated amortization of intangible assets for the five succeeding years and thereafter:
For the Year Ending December 31, Estimated Amortization Expense
2015 $ 211,829
2016 211,829
2017 211,829
2018 165,874
2019 140,000
Thereafter 2,520,000
$ 3,461,361 |
