| NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies | Basis
of Presentation The
condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial
statements for the year ended December 31, 2014. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been
condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information
presented herein not misleading. The
accompanying condensed consolidated financial statements reflect, in our opinion, all normal recurring adjustments necessary to
present fairly our financial position at September 30, 2015, and the results of our operations and cash flows for the periods
presented. We derived the December 31, 2014, condensed consolidated balance sheet data from audited consolidated financial statements
but did not include all disclosures required by GAAP. Interim results are subject to seasonal variations and the results of operations
for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full
year. Consolidation These
condensed consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-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") located in Minneapolis, Minnesota; GlyEco Acquisition Corp #2 ("Acquisition Sub
#2") located in Indianapolis, Indiana; GlyEco Acquisition Corp #3 ("Acquisition Sub #3") located in Lakeland, Florida;
GlyEco Acquisition Corp #4 ("Acquisition Sub #4") located in Elizabeth, New Jersey; GlyEco Acquisition Corp #5 ("Acquisition
Sub #5") located in Rock Hill, South Carolina; GlyEco Acquisition Corp #6 ("Acquisition Sub #6") located in Tea,
South Dakota; and GlyEco Acquisition Corp. #7 ("Acquisition Sub #7") located in Landover, Maryland. 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. The Company operates as one segment. Use
of Estimates The
preparation of 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 for doubtful accounts, the carrying value of inventories, the value of stock-based
compensation and warrants, the allocation of the purchase price in the various acquisitions, the recoverability of property, plant
and equipment, goodwill, other intangible assets and their estimated useful lives, contingent liabilities, and environmental and
asset retirement obligations. Due to the uncertainties inherent in the formulation of accounting estimates, it is reasonable to
expect that these estimates could be materially revised within the next year. Cash
and Cash Equivalents All
highly liquid investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. Revenue
Recognition The
Company recognizes revenue when four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery
has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. Cost of
products sold consists of direct and indirect costs of the purchased goods and labor related to the corresponding sales transaction.
The Company recognizes revenue from services at the time the services are completed. Shipping costs passed to the customer are
included in 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. 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. Advertising costs are expensed as incurred. 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's
willingness or ability to pay, the Company'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. 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 condensed
consolidated statements of operations. The allowance for doubtful accounts totaled $74,070 and $62,249 as of September 30, 2015,
and December 31, 2014, respectively. 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. The Company periodically reviews its inventories
for obsolete or unsalable items and adjusts its carrying value to reflect estimated realizable values. Property,
Plant and Equipment Property,
plant and equipment is stated at cost. The Company provides for depreciation on the cost of its equipment using the straight-line
method over an estimated useful life, ranging from three to twenty-five years, and zero salvage value. Expenditures for repairs
and maintenance are charged to expense as incurred. As of September 30, 2015, the Company had incurred and capitalized construction
in process totaling $1,523,025. The upgrades relate to construction in process for our New Jersey processing center and are scheduled
to be completed in 2016, pending resolution of the landlord dispute discussed in Note 10, at which time depreciation is expected
to commence. For
purposes of computing depreciation, the useful lives of property, plant and equipment are as follows:
Leasehold improvements
5 years
Machinery and
equipment 3-25 years 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
· Level
2
· Level
3 Cash,
accounts receivable, accounts payable, accrued expenses, amounts due to related parties, and the current portions of capital lease
obligations and notes payable are reflected in the balance sheet at their estimated fair values primarily due to their short-term
nature. Net
Loss per Share Calculation The
basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during
a period. Diluted income per common share is computed by dividing the net income, by the weighted average number of common shares
outstanding plus potentially dilutive securities. The Company's potentially dilutive securities outstanding are not shown in a
diluted net loss per share calculation because their effect in both 2015 and 2014 would be anti-dilutive. At September 30, 2015,
these potentially dilutive securities included warrants of 16,567,326 and stock options of 11,724,585 for a total of 28,291,911.
At September 30, 2014, these potentially dilutive securities included warrants of 18,667,326 and stock options of 10,699,428 for
a total of 29,366,754. Income
Taxes The
Company accounts for its income taxes in accordance with Financial Accounting Standard Board ("FASB") Accounting Standards
Codification ("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, 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 options 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-Merton ("BSM") option-pricing
model. 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. Non-employee
share-based compensation is accounted for based on the fair value of the related stock or options, using the BSM, or the fair
value of the goods or services on the measurement date, whichever is more readily determinable. Reclassification
of Prior Year Amounts Certain
prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have not affected
the net loss or net loss per share as previously reported. Recently
Issued Accounting Pronouncements There
have been no recent accounting pronouncements 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") No. 2014-09, "Revenue from Contracts with Customers"
("ASU 2014-09"). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires
revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required
about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill
a contract. This accounting guidance will become effective beginning in the first quarter of 2017 using one of two prescribed
transition methods. In July 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year.
The Company is currently evaluating the effect that the standard will have on the consolidated financial statements and related
disclosures. In
June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments
When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period" ("ASU
2014-12"). ASU 2014-12 provides explicit guidance on whether to treat a performance target that could be achieved after the
requisite service period as a performance condition that affects vesting, or as a non-vesting condition that affects the grant-date
fair value of an award. The update requires that compensation costs are recognized in the period in which it becomes probable
that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which
the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of
the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining
requisite service period. This update is effective for the annual periods and interim periods within those annual periods, beginning
after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the effect that the standard will have
on the consolidated financial statements and related disclosures. In
August 2014, the FASB issued ASU 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 beginning in the first quarter of
2017. Early application is permitted. The Company is currently evaluating the effect that the standard will have on the consolidated
financial statements and related disclosures. In
April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 simplifies the presentation of debt issuance costs, the amendments
in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a
direct deduction from that debt liability, consistent with the presentation of a debt discount. This presentation is consistent
with the guidance in Concepts Statement 6, which states that debt issuance costs are similar to a debt discount and in effect
reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt
issuance costs are not assets because they provide no future economic benefit. This presentation also improves consistency with
IFRS, which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as
separate assets. This update is effective for the annual periods and interim periods within those annual periods, beginning after
December 15, 2015. Early adoption is permitted. The Company is currently evaluating the effect that the standard will have on
the consolidated financial statements and related disclosures. In
July 2015, the FASB issued ASU NO. 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 is currently assessing this guidance for future implementation. |
