| Basis of Presentation and Summary of Significant Accounting Policies | NOTE
2 – Basis of Presentation and Summary of Significant Accounting Policies Basis
of Presentation The
accompanying condensed 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”). In
the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments
(consisting of normally recurring accruals) necessary for a fair presentation on an interim basis. The operating results for the
three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the full year ending
December 31, 2017. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This
report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,
including the Company’s audited consolidated financial statements and related notes. Principles
of Consolidation These
consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-owned and majority-owned subsidiaries.
All significant intercompany transactions have been eliminated as a result of consolidation. 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 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. Prior to the December 2016 acquisitions of
WEBA, RS&T and the DOW Assets and through December 31, 2016, the Company operated as one segment. As of January 1, 2017 we
have two operating segments, Consumer and Industrial. 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 for doubtful accounts, the value of share-based compensation
and warrants, the allocation of the purchase price in the Company’s acquisitions, the recoverability of property, plant
and equipment, goodwill, other intangibles 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. 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 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, are included in
operating expenses and were insignificant in 2017 and 2016. 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 consolidated statements of operations. The allowance for doubtful accounts totaled $94,184 and $80,207 as of March 31, 2017
and December 31, 2016, respectively. Inventories Inventories
are reported at the lower of cost or net realizable value. 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. 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 years, and zero salvage value. Expenditures for repairs and
maintenance are charged to expense as incurred. For
purposes of computing depreciation, the useful lives of property, plant and equipment are as follows:
Leasehold improvements Lesser of the remaining lease term or
5 years
Machinery
and equipment 3-15
years Business
Combinations The
Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management
to make significant estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration
payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets the Company
has acquired or may acquire in the future include but are not limited to:
● future
expected cash flows from product sales, other customer contracts, and
● discount
rates utilized in valuation estimates. Unanticipated
events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date,
including changes from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets,
will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related
contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have
a material effect on the consolidated financial position, statements of operations or cash flows in the period of the change in
the estimate. Goodwill
and Intangible Assets 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. The Company’s management believes
there is no impairment of long-lived assets as of March 31, 2017. However, market conditions could change or demand for the Company’s
products could decrease, which could result in future impairment of long-lived 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 2017 and 2016 as the carrying amount
of the reporting unit’s assets did not exceed the estimated fair value determined. 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
● Level 2
● Level 3 Cash,
restricted cash, accounts receivable, accounts payable and accrued expenses, amounts due to related parties and current portion
of capital lease obligations and notes payable are reflected in the consolidated balance sheets at their estimated fair values
primarily due to their short-term nature. As to long-term capital lease obligations and notes payable, estimated fair values are
based on borrowing rates currently available to the Company for loans with similar terms and 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 condensed 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 and are also recorded
as a reduction to the debt balance and amortized over the expected term of the debt to interest expense using the effective interest
method. Net
Loss Per Share Calculation The
basic net loss per common share is computed by dividing the net loss available to common stockholders by the weighted average
number of shares outstanding during a period. Diluted loss per common share is computed by dividing the net loss available to
common stockholders 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 2017 and 2016 would be anti-dilutive. At March 31, 2017, these potentially dilutive securities included warrants of 11,316,874
and stock options of 7,950,093 for a total of 19,266,967. At March 31, 2016, these potentially dilutive securities included
warrants of 8,366,137 and stock options of 11,499,400 for a total of 19,865,537. 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 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 share-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-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 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. 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”). 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 annual 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 condensed consolidated financial statements and disclosures. 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 adoption of this ASU did not have a material impact on the condensed 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 adoption of this ASU did not have a material impact on the condensed consolidated financial
statements. | 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”). Principles
of Consolidation These
consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-owned and majority-owned subsidiaries.
All significant intercompany transactions have been eliminated as a result of consolidation. 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. Prior to the December 2016 acquisitions of
WEBA, RS&T and DOW assets and through December 31, 2016, the Company operated as one segment. After the acquisitions we will
be operating as two segments, Consumer and Industrial. As of December 31, 2016, $6,890,891 and $7,213,955 of assets were held
in our Consumer and Industrial segments, respectively. 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 share-based compensation
and warrants, the allocation of the purchase price in the Company’s acquisitions, the recoverability of property, plant
and equipment, goodwill, other intangibles 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. 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 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, are included in
operating expenses and were insignificant in 2016 and 2015. 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 consolidated statements of operations. The allowance for doubtful accounts totaled $80,207 and $203,270 as of December 31,
2016 and 2015, 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. 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. 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 years, and zero salvage value. Expenditures for repairs and
maintenance are charged to expense as incurred. For
purposes of computing depreciation, the useful lives of property, plant and equipment are as follows:
Leasehold improvements Lesser of the remaining lease term or
5 years
Machinery
and equipment 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
● Level 2
● Level 3 Cash,
accounts receivable, accounts payable and accrued expenses, amounts due to and from related parties and current portion of capital
lease obligations and notes payable are reflected in the consolidated balance sheets at their estimated fair values primarily
due to their short-term nature. As to long-term capital lease 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 2 input
levels. 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 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 and are also recorded
as a reduction to the debt balance and amortized over the expected term of the debt to interest expense using the effective interest
method. Net
Loss per Share Calculation The
basic net loss per common share is computed by dividing the net loss available to common stockholders by the weighted average
number of shares outstanding during a period. Diluted loss per common share is computed by dividing the net loss available to
common stockholders 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 2016 and 2015 would be anti-dilutive. At December 31, 2016, these potentially dilutive securities included warrants of 13,922,387
and stock options of 7,950,093 for a total of 21,872,480. At December 31, 2015, these potentially dilutive securities included
warrants of 16,567,326 and stock options of 11,612,302 for a total of 29,192,128. 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. Reclassifications Certain
prior period amounts have been reclassified to conform to the current period presentation. 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”) 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 annual 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 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 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 requires the lease rights and obligations arising from
lease contracts, including existing and new arrangements, to be 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 effect on the Company’s
consolidated financial condition 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. ASU 2016-09 will be effective for annual reporting periods beginning after December 15, 2016 and interim periods
within those annual periods. There was no impact from the adoption of the standard. 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. |
