| 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 consolidated financial statements
have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“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 There were no noncontrolling interests as of December 31, 2018 and
noncontrolling interests were not significant as of December 31, 2017. Operating Segments As a result of the sale of the consumer assets,
the Company operates as one segment. Use of Estimates The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses
during the reporting periods. Because of the use of estimates inherent within the financial reporting process, actual results may
differ significantly from those estimates. Significant estimates include, but are not limited to, items such as the
allowance for doubtful accounts, the value of share-based compensation and warrants, the recoverability of property, plant and
equipment, goodwill, other intangibles and the determination of their estimated useful lives, contingent liabilities, valuation
of deferred tax assets 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’s significant accounting
policy for revenue was updated as a result of the adoption of Accounting Standards Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers (Topic 606)” (“ASU 2014-09”) and the associated ASU’s (collectively “Topic
606”) in the first quarter of 2018. The Company recognizes revenue when its customer
obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive
in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are
within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2)
identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price
to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance
obligation. Costs and Expenses 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, which are expensed as incurred and are included in operating expenses, were insignificant
in the years ended December 31, 2018 and 2017. 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 $6,427 and $103,027 as of December 31, 2018 and 2017, respectively,
for continuing operations. Inventories Inventories are reported at the lower of cost
and 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 net realizable values. Net realizable value is the estimated selling price in the ordinary course of business
less the costs to sell. 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 Goodwill and Other Intangible Assets We account for an acquisition of a business,
as defined in Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”, as required
by an analysis of the inputs, processes and outputs associated with the transaction. 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 revisions are recorded in operations when the change arises. We recognize impairment when the estimated undiscounted cash flows
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 entity 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 2018 and 2017 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 and restricted 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. The Company classifies its contingent acquisition
consideration liability in connection with the acquisition of WEBA within the Level 3 category, as factors used to develop the
estimated fair value are unobservable inputs that are not supported by market activity. At the time of the acquisition, the Company
estimated the fair value of the contingent consideration liability, which consisted of revenue and net income based milestones,
using assumptions including estimated revenues (based on internal budgets and long-range strategic plans), discount rates, probability
of payment and projected payment dates. Any change in these assumptions could result in a significantly higher (lower) fair value
measurement. The fair value of the contingent consideration is remeasured each reporting period. During the fourth quarter of 2018
and 2017, the Company reversed $687,443 and $241,910, respectively, of the contingent consideration liability since the 2018 and
2017 milestones were not met. There were no other changes to the estimated fair value of the contingent acquisition consideration
liability during the years ended December 31, 2018 and 2017. Changes in our contingent acquisition consideration liability were
as follows:
Total
Balance as of December 31, 2016 $ (1,745,023 )
Gain on reversal of contingent acquisition consideration 241,910
Balance as of December 31, 2017 (1,503,113 )
Gain on reversal of contingent acquisition consideration 687,443
Balance as of December 31, 2018 $ (815,670 ) 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 shareholders by the weighted average number of common 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 2018 and 2017 would be anti-dilutive. At
December 31, 2018, these potentially dilutive securities included warrants to purchase 104,957 shares of common stock and stock
options to purchase 25,941 shares of common stock for a total of 130,898 shares of common stock. At December 31, 2017, these potentially
dilutive securities included warrants to purchase 42,485 shares of common stock and stock options to purchase 27,101 shares of
common stock for a total of 69,586 shares of common stock. Income Taxes The Company accounts for its income taxes in
accordance with 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-Stock Compensation”. 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. Discontinued Operations Our consumer segment, which was sold subsequent
to year end, was classified as discontinued operations in the consolidated balance sheets at December 31, 2018 and in the consolidated
statements of operations, in accordance with ASC 205-20 “Presentation of Financial Statements”, ASC 360-10 “Property
Plant and Equipment” and ASC 350-20 “Intangibles-Goodwill and Other Goodwill”. Cash flows and operations that
relate to the consumer segment are shown separately from continuing operations. Assets and liabilities classified as discontinued
operations are measured at the lower of carrying amount and fair value less costs to sell. Assets, liabilities and results of operations
in the prior year have been reclassified as discontinued operations. 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 the first quarter of 2018, the Company adopted
ASU 2014-09, which is the new comprehensive revenue recognition standard that supersedes the revenue recognition requirements in
Topic 605, “Revenue Recognition,” and most industry specific guidance. The core principle of ASU 2014-09 is that a
company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In 2015 and 2016, FASB issued additional ASUs
related to Topic 606 that delayed the effective date of ASU 2014-09 and clarified various aspects of the new revenue guidance,
including principal versus agent considerations, identification of performance obligations, and accounting for licenses, and included
other improvements and practical expedients. ASU 2014-09 was effective for annual and interim periods beginning after December 15, 2017.
The Company elected to adopt ASU 2014-09 using the modified retrospective transition method for all contracts not completed as
of the date of adoption. The adoption of the new guidance did not have a material impact on the consolidated financial statements.
See “Revenue Recognition” in Note 3 for additional disclosures regarding the Company’s revenue recognition policies
and contracts with customers. 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 will not 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 new lease standard will be effective
for us in the first quarter of 2019 as we adopt the modified retrospective approach. Based on the sale of the consumer segment,
we do expect the adoption to have a material impact on the consolidated financial statements. In August 2016, the FASB issued ASU 2016-18, “Statement
of Cash Flows: Classification Restricted Cash”, which requires that a statement of cash flows explain the change during the
period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The
Company adopted this standard in the first quarter of 2018 by using the retrospective transition method, which required the following
disclosures and changes to the presentation of its consolidated financial statements: cash and restricted cash reported on the
consolidated statements of cash flows now includes restricted cash of $6,642 and $76,552 as of December 31, 2017 and 2016, respectively. |
