| 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 normal recurring accruals)
necessary for a fair presentation on an interim basis. The operating results for the six months ended June 30, 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 included therein. Principles of Consolidation These consolidated financial statements include
the accounts of GlyEco, Inc., and its wholly-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 $105,185 and $80,207 as of June 30, 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 June 30, 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, carrying values approximate fair value since the 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 related
to the relative fair value of warrants issued in conjunction with the debt 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 shareholders 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 shareholders 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
June 30, 2017, these potentially dilutive securities included warrants of 7,879,374 and stock options of 7,622,437 for a total
of 15,501,811. At June 30, 2016, these potentially dilutive securities included warrants of 8,266,137 and stock options of
10,461,618 for a total of 18,727,755. 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 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. The Company is currently assessing the impact of the adoption of
ASU 2016-02 will have on its condensed consolidated financial statements and disclosures . In January 2017, the FASB, issued ASU No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the accounting
for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Goodwill impairment will now be the
amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill.
ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with
early adoption permitted for any impairment tests performed after January 1, 2017. The Company has not yet decided if
it will early adopt the provisions in this ASU for its annual goodwill impairment test during 2017. |
