Company Quick10K Filing
Quick10K
Glyeco
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-31 Enter Agreement, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Other Events, Exhibits
8-K 2019-04-01 Earnings, Exhibits
8-K 2019-03-25 Shareholder Vote
8-K 2019-01-31 Enter Agreement
8-K 2019-01-11 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-10-02 Enter Agreement, Officers
8-K 2018-09-11 Officers, Other Events, Exhibits
8-K 2018-07-09 Other Events, Exhibits
8-K 2018-05-04 Enter Agreement, Sale of Shares
8-K 2018-04-27 Enter Agreement, Sale of Shares, Officers, Other Events, Exhibits
8-K 2018-04-06 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-04-02 Earnings, Exhibits
8-K 2018-03-01 Enter Agreement, Off-BS Arrangement, Exhibits
EGC Energy XXI Gulf Coast 300
FRAF Franklin Financial Services 140
VRME Verifyme 10
ALYE Aly Energy Services 2
WASM Westmountain 0
CNCL Cancer Capital 0
ALPLT Alp Liquidating Trust 0
ZGL Zayo Group 0
WSCC Waterside Capital 0
RTE Red Trail Energy 0
GLYE 2019-03-31
Part I&Mdash;Financial Information
Item 1. Financial Statements
Note 1 - Organization and Nature of Business
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Revenue
Note 4 - Inventories
Note 5 - Goodwill and Other Intangible Assets
Note 6 - Property, Plant and Equipment
Note 7- Stockholders' Equity
Note 8 - Leases
Note 10 - Notes Payable
Note 11 - Related Party Transactions
Note 12 - Commitments and Contingencies
Note 13 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 s118304_ex31-1.htm
EX-31.2 s118304_ex31-2.htm
EX-32.1 s118304_ex32-1.htm
EX-32.2 s118304_ex32-2.htm

Glyeco Earnings 2019-03-31

GLYE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 s118304_10q.htm FORM 10-Q

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

(Mark One)

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2019

 

 TRANSITION REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to ______________

 

Commission file number:  000-30396 

 

(logo)

 

GLYECO, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   45-4030261
(State or other jurisdiction of incorporation)   (IRS Employer Identification No.)
     
PO BOX 387
Institute, West Virginia
  25112
(Address of principal executive offices)   (Zip Code)

 

(866) 960-1539
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  Accelerated filer 
   
Non-accelerated filer   (Do not check if a smaller reporting company)  Smaller reporting company 
   
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

Yes   No 

 

Securities registered pursuant to Section 12(b) of Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value GLYE OTCMKTS

 

As of May 14, 2019, the registrant has 1,448,411 shares of Common Stock, par value $0.0001 per share, issued and outstanding.

 

 

   

TABLE OF CONTENTS
  Page No:
PART I — FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited) 2
  Condensed Consolidated Balance Sheets – As of March 31, 2019 (unaudited) and December 31, 2018 2
  Unaudited Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2019 and 2018 3
  Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) – Three Months Ended March 31, 2019 and 2018 4
  Unaudited Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018 5
  Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28
     
PART II — OTHER INFORMATION  
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Mine Safety Disclosures 30
Item 5. Other Information 30
Item 6. Exhibits 30
Signatures 31

 

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

GLYECO, INC. AND SUBSIDIARIES 

Condensed Consolidated Balance Sheets

March 31, 2019 and December 31, 2018

 

   March 31,   December 31, 
   2019   2018 
    (unaudited)      
ASSETS          
           
Current Assets          
Cash  $157,716   $237,648 
Accounts receivable, net   736,271    215,336 
Prepaid expenses   248,894    137,067 
Inventories   218,289    238,895 
Current assets from discontinued operations   81,975    1,760,100 
Total current assets   1,443,145    2,589,046 
           
Property, plant and equipment, net   2,500,900    2,562,618 
           
Other Assets          
Deposits   47,155    49,081 
Operating lease right-of-use assets   447,094     
Goodwill   2,937,288    2,937,288 
Other intangible assets, net   1,610,376    1,721,000 
Noncurrent assets from discontinued operations   215,106     
Total other assets   5,257,019    4,707,369 
           
Total assets  $9,201,064   $9,859,033 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable and accrued expenses  $3,553,794   $2,845,856 
Customer deposits   107,650    274,103 
Contingent acquisition consideration   815,670    815,670 
Notes payable – current portion, net of debt discount   2,200,026    2,080,071 
Operating lease liabilities – current portion   199,167     
Finance lease obligations – current portion   508,505    494,131 
Current liabilities from discontinued operations   270,470    586,019 
Total current liabilities   7,655,282    7,095,850 
           
Non-Current Liabilities          
Notes payable – non-current portion   2,715,023    2,783,744 
Operating lease liabilities – non-current portion   389,596     
Finance lease obligations – non-current portion   617,287    749,992 
Noncurrent liabilities from discontinued operations   200,752     
Total non-current liabilities   3,922,658    3,533,736 
           
Total liabilities   11,577,940    10,629,586 
           
Commitments and Contingencies          
           
Stockholders’ Deficit          
Preferred stock, par value $0.0001 per share: 40,000,000 shares authorized; no shares issued and outstanding as of  March 31, 2019 and December 31, 2018,   respectively        
Common stock, par value $0.0001 per share: 300,000,000 shares authorized; 1,383,731 and 1,358,597 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively   138    136 
Additional paid-in capital   46,656,557    46,539,845 
Accumulated deficit   (49,033,571)   (47,310,534)
Total stockholders’ deficit   (2,376,876)   (770,553)
           
Total liabilities and stockholders’ deficit  $9,201,064   $9,859,033 

 

See accompanying notes to the condensed consolidated financial statements.

 

2

 

GLYECO, INC. AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Operations

For the three months ended March 31, 2019 and 2018

 

   Three months ended March 31, 
   2019   2018 
         
Net sales  $1,729,151   $1,261,425 
Cost of goods sold   1,865,286    869,877 
Gross (loss) profit   (136,135)   391,548 
           
Operating expenses:          
Consulting fees   6,500    46,689 
Share-based compensation   109,965    119,888 
Salaries and wages   353,376    556,451 
Legal and professional   321,045    330,439 
General and administrative   450,111    368,226 
Total operating expenses   1,240,997    1,421,693 
           
Loss from operations   (1,377,132)   (1,030,145)
           
Other expense:          
Interest expense   222,220    103,678 
Total other expense   222,220    103,678 
           
Loss from continuing operations before provision for income taxes   (1,599,352)   (1,133,823)
           
Provision for income taxes       17,251 
           
Net loss from continuing operations   (1,599,352)   (1,151,074)
           
Loss from discontinued operations, net of income taxes   (123,685)   (66,498)
           
Net loss  $(1,723,037)  $(1,217,572)
           
Basic and diluted loss per share from continuing operations  $(1.16)  $(0.87)
Basic and diluted loss per share from discontinued operations  $(0.09)  $(0.05)
Basic and diluted loss per share  $(1.25)  $(0.92)
Weighted average number of common shares outstanding- basic and diluted   1,383,031    1,323,398 

 

See accompanying notes to the consolidated financial statements.

 

3

 

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

For the three months ended March 31, 2019 and 2018

 

       Additional       Total 
   Common Stock   Paid-In   Accumulated   Stockholders’ 
   Shares   Par Value   Capital   Deficit   Equity (Deficit) 
                     
Balance, December 31, 2018   1,358,597   $136   $46,539,845   $(47,310,534)  $(770,553)
                          
Share-based compensation   18,780    2    109,963        109,965 
                          
Common stock issued under ESPP   6,354        6,749        6,749 
                          
Net loss               (1,723,037)   (1,723,037)
                          
Balance, March 31, 2019   1,383,731   $138   $46,656,557   $(49,033,571)  $(2,376,876)

 

       Additional       Total 
   Common Stock   Paid-In   Accumulated   Stockholders’ 
   Shares   Par Value   Capital   Deficit   Equity (Deficit) 
                     
Balance, December 31, 2017   1,322,264   $132   $45,863,969   $(41,996,598)  $3,867,503 
                          
Share-based compensation   10,485    1    119,887        119,888 
                          
Relative fair value of warrants to purchase common stock issued in connection with notes payable           166,667        166,667 
                          
Net loss               (1,217,572)   (1,217,572)
                          
Balance, March 31, 2018   1,332,749   $133   $46,150,523   $(43,214,170)  $2,936,486 

 

See accompanying notes to the condensed consolidated financial statements 

 

4

 

 GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2019 and 2018

 

   Three Months Ended March 31, 
   2019   2018 
         
Cash flows from operating activities          
Net loss from continuing operations  $(1,599,352)  $(1,151,074)
           
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:          
Depreciation   85,321    91,875 
Amortization   110,624    107,181 
Amortization of operating lease right-use of assets   27,954     
Share-based compensation expense   109,965    119,888 
Amortization of debt discount   75,074     
Provision for (recoveries on) bad debt   13,053    (33,390)
Loss on disposal of equipment   26,689     
Changes in operating assets and liabilities:          
Accounts receivable   (533,988)   460,666 
Prepaid expenses   59,550    (133,410)
Inventories   (81,222)   112,966 
Deposits   1,926     
Accounts payable and accrued expenses   655,200    69,453 
Net cash used in operating activities from continued operations   (1,049,206)   (355,845)
Net cash used in operating activities from discontinued operations   (221,662)   (90,881)
Net cash used in operating activities   (1,270,868)   (446,726)
           
Cash flows from investing activities          
Payment of contingent acquisition consideration       (6,642)
Proceeds from sale of Consumer Segment   1,352,620     
Purchases of property, plant and equipment   (31,328)   (4,283)
Net cash provided by (used in) investing activities from continuing operations   1,321,292    (10,925)
Net cash used in investing activities from discontinued operations       (79,289)
Net cash provided by (used in) investing activities   1,321,292    (90,214)
           
Cash flows from financing activities          
Repayment of notes payable   (18,774)   (64,587)
Repayment of finance lease obligations   (118,331)   (96,100)
Proceeds from issuance of notes payable       1,000,000 
Purchase of ESPP shares   6,749     
Net cash (used in) provided by financing activities from continuing operations   (130,356)   839,313 
Net cash used in financing activities from discontinued operations       (16,027)
Net cash (used in) provided by financing activities   (130,356)   823,286 
           
Net change in cash and restricted cash   (79,932)   286,346 
Cash and restricted cash at beginning of the period   237,648    117,944 
           
Cash and restricted cash at end of the period  $157,716   $404,290 
           
Supplemental disclosure of cash flow information          
Interest paid during the period  $42,302   $56,049 
Income taxes paid during the period  $   $16,429 
           
Supplemental disclosure of non-cash investing and financing activities          
Acquisition of equipment with finance lease obligations  $   $162,551 
Notes payable issued for insurance premium  $69,549   $65,875 
Relative fair value of warrants issued in connection with notes payable  $   $166,667 

 

See accompanying notes to the condensed consolidated financial statements

 

5

 

GLYECO, INC. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1 – Organization and Nature of Business

 

GlyEco, Inc. (the “Company”, “we”, or “our”) is a chemical company focused on technology development and manufacturing of coolants, additives, and related performance fluids. We serve and support the automotive, heavy-duty, and industrial markets with an unwavering commitment to customer service and quality. GlyEco Inc., located in Institute, West Virginia, is a vertically integrated company which manufactures ethylene glycol, additives, and finished fluids. Maintaining control over all core ingredients of its glycol-based performance fluids, and directly managing all aspects of the manufacturing process allows GlyEco Inc. to offer our customers the highest value with competitive costs.

 

The Company was formed in the State of Nevada on October 21, 2011.

 

On December 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries, and purchased 96.9% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology, now named (“Glyeco WV”). On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation (“UCC”), a wholly-owned subsidiary of The Dow Chemical Company, located in Institute, West Virginia (the “Dow Assets”). During the first quarter of fiscal year 2017 and fourth quarter of fiscal year 2018, the Company purchased an additional 2.9% and 0.20%, respectively, of RS&T (for a total percentage ownership of 100% of RS&T).

 

On January 11, 2019, the Company completed the sale (the “Asset Sale”) of the route antifreeze collection and re-distillation segment (the “Consumer Segment”) to Heritage-Crystal Clean, LLC (the “Purchaser”) pursuant to the terms of an asset purchase agreement (see Note 9).

 

We are currently comprised of the parent corporation GlyEco, Inc., and our subsidiaries WEBA, and Glyeco WV.

 

Stock Split

 

On July 10, 2018, the Company effected a reverse stock split of its common stock, immediately followed by a forward stock split of its common stock. The ratio for the reverse stock split is fixed at 1-for-500 and the ratio for the forward stock split is fixed at 4-for-1, resulting in a net reverse split of 125-for-1. All share and per share information in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the reverse stock split.

 

Going Concern

 

The condensed consolidated financial statements as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018, have been prepared assuming that the Company will continue as a going concern. As of March 31, 2019, the Company has yet to achieve profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Ultimately, we plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.  

 

6

 

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies

 

The following represents an update for the three months ended March 31, 2019 to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the United States Securities and Exchange Commission (the “SEC”) on April 1, 2019.

 

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 of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

 

In the opinion of management, the accompanying unaudited 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 three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

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, 2018, including the Company’s audited consolidated financial statements and related notes included therein.

 

Principles of Consolidation

 

These consolidated financial statements include the accounts of the Company 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 a 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; and
  (3) Each component of other comprehensive income or loss.

 

There were no noncontrolling interests as of March 31, 2019 and December 31, 2018 and noncontrolling interests were not significant for the three months ended March 31, 2018.

 

7

 

Operating Segments

 

As a result of the sale of the Consumer Segment in January 2019, 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 receivable, 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, 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 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 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 Company satisfies a performance obligation.

 

Product sales consist of sales of the Company’s products to manufacturers and distributors. The Company considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. Product sale contracts are short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year.

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing, depending on business and geographic region. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized. The Company has no obligations for returns and warranties. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

 

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 are expensed as incurred, are included in operating expenses and were insignificant in the three months ended March 31, 2019 and 2018. 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 $19,480 and $6,427 as of March 31, 2019 and December 31, 2018, respectively.

 

8

 

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 cost 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

 

Impairment of Long-Lived Assets

 

Long-lived assets 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 condensed 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 or related to discontinued operations would be presented separately in the appropriate asset and liability sections of the condensed consolidated balance sheets, if material.

  

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 share of common stock is computed by dividing the net loss available to holders of common stock by the weighted average number of shares of common stock outstanding during a period. Diluted loss per share of common stock is computed by dividing the net loss available to holders of common stock by the weighted average number of shares of common stock outstanding plus potentially dilutive securities. The Company’s potentially dilutive securities outstanding are not shown in the diluted net loss per share calculation because their effect in the three months ended March 31, 2019 and 2018 would be anti-dilutive. At March 31, 2019, 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 March 31, 2018, these potentially dilutive securities included warrants to purchase 79,785 shares of common stock and stock options to purchase 27,101 shares of common stock for a total of 106,886 shares of common stock. 

 

9

 

Share-based Compensation

 

All share-based payments including grants of stock options, are expensed based on their estimated fair values at the grant date, in accordance with Accounting Standards Codification (“ASC”) 718. Compensation expense for share-based payments 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. 

  

Discontinued Operations

 

Our Consumer Segment, which was sold in January 2019, was classified as discontinued operations in the condensed consolidated balance sheets at March 31, 2019 and December 31, 2018 and in the condensed 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 related to the Consumer Segment 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 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. The Company has adopted ASU 2016-02 using the modified retrospective approach. This ASU also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows. See Note 8, Leases, for further information regarding our lease accounting policies.

 

NOTE 3 – Revenue

 

Disaggregation of Revenue

 

The Company disaggregates its revenue from contracts with customers by principal product group and geographic region, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See details in the tables below:

 

Net Trade Revenue by Principal Product Group    
   Three Months Ended
March 31,
 
   2019   2018 
Antifreeze  $119,736   $ 
Ethylene Glycol   919,507    763,802 
Additive   689,908    497,623 
Total  $1,729,151   $1,261,425 

 

10

 

Net Trade Revenue by Geographic Region        
   Three Months Ended
March 31,
 
   2019   2018 
US  $1,218,067   $917,380 
Canada   502,785    316,099 
China       20,658 
Mexico       7,288 
Chile   8,299     
Total  $1,729,151   $1,261,425 

 

Contract Balances

 

Accounts receivable are recorded when the right to consideration becomes unconditional. The Company does not have any contract assets or liabilities as of March 31, 2019 and December 31, 2018. The Company expenses commissions when incurred as they would be amortized over one year or less. 

 

Contract liabilities consist of deposits made by customers for goods that have not yet been delivered. Once delivery is made the liability is reduced and the revenue is recognized. As of March 31, 2019 and December 31, 2018, the Company had $107,650 and $274,103, respectively, in customer deposits. The Company recognized $229,044 in revenue during the three months ended March 31, 2019, related to customer deposits at December 31, 2018.

 

NOTE 4 – Inventories

 

The Company’s total inventories were as follows:

 

   March 31,   December 31, 
   2019   2018 
Raw materials  $186,495   $157,031 
Finished goods   31,794    81,864 
Total inventories  $218,289   $238,895 

 

NOTE 5 – Goodwill and Other Intangible Assets

 

The components of goodwill and other intangible assets are as follows:

 

      Gross
Balance at
           Net
Balance at
 
   Estimated  March 31,       Accumulated   March 31, 
   Useful Life  2019   Additions   Amortization   2019 
Finite live intangible assets:                       
Customer list and tradename  5 years  $881,000   $   $(395,400)  $485,600 
                        
Non-compete agreements  5 years   814,000        (371,224)   442,776 
                        
Intellectual property  10 years   880,000        (198,000)   682,000 
                        
Total intangible assets     $2,575,000   $   $(964,624)  $1,610,376 
                        
Goodwill  Indefinite  $2,937,288   $   $   $2,937,288 

 

11

 

We compute amortization using the straight-line method over the estimated useful lives of the intangible assets. The Company has no indefinite-lived intangible assets other than goodwill.  

 

NOTE 6 – Property, Plant and Equipment 

 

The Company’s property, plant and equipment were as follows:

 

   March 31,   December 31, 
   2019   2018 
Machinery and equipment  $2,734,810   $2,694,528 
Leasehold improvements   275,985    305,772 
Accumulated depreciation   (590,895)   (522,160)
    2,419,900    2,478,140 
Construction in process   81,000    84,478 
Total property, plant and equipment, net  $2,500,900    2,562,618 

 

NOTE 7– Stockholders’ Equity

 

Preferred Stock

 

The Company’s articles of incorporation authorize the Company to issue up to 40,000,000 shares of preferred stock, par value $0.0001 per share, having preferences to be determined by the Board of Directors of the Company for dividends and liquidation of the Company’s assets. Of the 40,000,000 shares of preferred stock the Company is authorized to issue by its articles of incorporation, the Board of Directors has designated up to 3,000,000 shares as Series AA Preferred Stock.

 

As of March 31, 2019, the Company had no shares of preferred stock outstanding. 

 

Common Stock

 

As of March 31, 2019, the Company had 1,383,731 shares of common stock, par value $0.0001 per share, outstanding. The Company’s articles of incorporation authorize the Company to issue up to 300,000,000 shares of common stock. The holders are entitled to one vote for each share on matters submitted to a vote of stockholders, and to share pro rata in all dividends payable on the common stock after payment of dividends on any shares of preferred stock having preference in payment of dividends.

 

The Company issued 6,354 shares of common stock to employees in connection with our employee stock purchase plan (see below) for total payments of $6,749.

 

12

 

2017 Employee Stock Purchase Plan

 

On September 29, 2017, subject to stockholder approval, the Company’s Board of Directors approved the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”). The 2017 ESPP was approved by the Company’s stockholders at the Company’s 2017 Annual Meeting of Stockholders on November 14, 2017.

  

Under the 2017 ESPP, the Company may grant eligible employees the right to purchase our common stock through payroll deductions at a price equal to the lesser of eighty five percent (85%) of the fair market value of a share of common stock on the exercise date of the current offering period or eighty five percent (85%) of the fair market value of our common stock on the grant date of the then current offering period. The first offering period began on November 14, 2017. Thereafter, there will be consecutive six-month offering periods until January 2, 2022, or until the 2017 ESPP is terminated by the Board of Directors of the Company, if earlier. 

 

The share-based compensation expense related to the 2017 ESPP during the three months ended March 31, 2019 was insignificant.

 

During the three months ended March 31, 2019, the Company issued the following shares of common stock for compensation:

  

On January 2, 2019, the Company issued an aggregate of 18,780 shares of common stock to six directors of the Company pursuant to the Company’s FY2017 Director Compensation Plan at a price of $3.99 per share for a value of approximately $75,000 which was expensed during the year ended December 31, 2018.

 

On March 31, 2019, the Company expensed the value of an aggregate of 64,680 shares of common stock to six directors of the Company pursuant to the Company’s FY2017 Director Compensation Plan at a price of $1.16 per share totaling approximately $75,000. The shares were issued in April 2019.

 

A summary of the Company’s performance and market-based restricted stock awards (including shares approved but not issued) is presented below:

 

   Number of
Shares
   Weighted-
Average
Grant-Date
Fair Value
per Share
 
Unvested at January 1, 2019   120,596   $8.34 
Restricted stock granted        
Restricted stock vested        
Restricted stock forfeited        
           
Unvested at March 31, 2019   120,596   $8.34 

  

During the three months ended March 31, 2019 and 2018, the Company recorded $35,032 and $26,774 respectively, related to the performance and market-based restricted stock awards. 

 

Options and Warrants

 

During the three months ended March 31, 2019, the Company did not issue any options or warrants.

 

NOTE 8 – Leases

 

On January 1, 2019, we adopted ASC 842, “Leases” which, among other changes, requires us to record liabilities classified as operating leases on our condensed consolidated balance sheets along with a corresponding right-of-use asset. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are or contain leases, lease classification tests and treatment of initial direct costs. We also elected to not separate lease components from non-lease components for all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease liabilities.

 

13

 

Upon adoption of ASC 842, we recorded a $475,000 increase in other assets, a $112,000 decrease to other current liabilities, and a $587,000 increase to operating lease liabilities. The impact primarily related to the change in assigning a right-of-use asset and related lease liability to our operating leases. We did not record any cumulative effect adjustments to opening retained earnings, and adoption of the lease standard had no impact to cash from or used in operating, financing, or investing on our consolidated cash flow statements.

 

We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the ordinary course of business as follows: warehouses to store our materials; office space for administrative activities to support our business; and certain manufacturing facilities. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.

 

Most lease agreements include one or more renewal options, all of which are at our sole discretion. Future renewal options that have not been executed as of the consolidated balance sheet date are excluded from right-of-use assets and related lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

Lease Position as of March 31, 2019
 
The table below presents the lease-related assets and liabilities recorded on the condensed consolidated balance sheet:

 

         Balance at  
         March 31,  
   Classification     2019  
Assets            
Non-Current            
   Finance  Property, plant and equipment  $ 1,637,753  
   Operating  Operating lease right-of-use assets    447,094  
      Total lease assets  $ 2,084,847  
Liabilities            
Current            
   Operating  Operating lease liabilities- current portion  $ 199,167  
   Finance  Finance lease obligations- current portion    508,505  
Non-Current            
   Operating  Operating lease obligations- non-current portion  $ 389,596  
   Finance  Finance lease obligations- non current portion    617,287  
      Total lease liabilities  $ 1,714,555  
             
Weighted-average remaining lease term            
   Operating leases       3.01 years  
   Finance leases       2.07 years  
Weighted-average discount rate            
   Operating leases       10.82 %
   Finance leases       12.5 %

 

14

 

Lease Costs

 

The table below presents certain information related to the lease costs for finance and operating leases during 2019:

 

   Classification  Three months ended
March 31, 2019
 
Operating lease cost  Administrative  $43,862 
Finance lease cost        
Amortization of leased assets  Cost of Sales   37,275 
Interest on capital lease obligations  Interest expense, net   37,637 
Total lease costs     $118,774 

   

Other Information

 

The table below presents supplemental cash flow information related to leases during 2019:

 

   Three months ended
March 31, 2019
 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows for operating leases  $14,514 
Operating cash flows for finance leases   37,637 
Financing cash flows for finance leases   118,331 

 

15

 

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum finance lease payments as of March 31, 2019 were as follows:
    
   Operating Leases   Finance Leases 
2019 (remaining)  $199,977   $465,905 
2020   216,396    619,355 
2021   218,502    198,728 
2022   52,850     
Total minimum lease payments   687,725    1,283,988 
Amount representing interest   (98,962)   (158,196)
Present value of future minimum lease obligations   588,763    1,125,792 
Current portion   (199,167)   (508,505)
   $389,596   $617,287 

 

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2018 as determined prior to the adoption of ASC 842 were as follows:
     

         
   Operating Leases   Capital Leases 
2019  $220,000   $621,785 
2020   212,000    619,355 
2021   213,000    198,728 
2022   64,000     
2023   49,000     
Total minimum lease payments  $758,000    1,439,868 
Amount representing interest        (195,745)
Present value of future minimum finance lease obligations        1,244,123 
Current portion        (494,131)
        $749,992 

 

16

 

NOTE 9 – Discontinued Operations

 

On January 11, 2019, we completed the Asset Sale of the Consumer Segment to the Purchaser pursuant to the terms of an asset purchase agreement, effective as of January 11, 2019 (the “Closing Date”), by and among the Purchaser, the Company and certain subsidiaries of the Company listed therein (the “Asset Purchase Agreement”). In consideration for the assets, the Purchaser paid the Company a purchase price of $1,417,000 in cash, which price is subject to adjustment based on the delivered value of the working capital of the Consumer Segment, to be determined within 90 days after the Closing Date, as well as a $100,000 damage hold back, to be paid to the Company within 30 days of the closing of the Asset Sale (the “Closing”). Other than the assumption of loan payments related to certain vehicle financings, no debt or significant liabilities were assumed by the Purchaser in the Asset Sale.

 

The loss from discontinued operations in the condensed consolidated statements of operations includes the following:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
Net sales  $149,534   $1,739,585 
Cost of goods sold   (182,630)   (1,579,223)
Operating expenses   (77,213)   (221,488)
Impairment of operating lease right-of-use assets   (12,745)    
Interest expense   (656)   (5,372)
Pretax loss from discontinued operations   (123,710)   (66,498)
Income tax benefit   25     
Loss from discontinued operations  $(123,685)  $(66,498)

 

The carrying amount of assets and liabilities included in discontinued operations comprise the following:

 

   March 31, 2019   December 31, 2018 
Accounts receivable  $57,058   $289,967 
Prepaid expenses       1,693 
Inventories       399,677 
Property, plant and equipment       1,031,865 
Deposits   24,917    36,898 
Operating lease right-of-use assets   215,106     
Total assets classified as discontinued operations  $297,111   $1,760,100 
           
Accounts payable and accrued expenses  $245,621   $410,563 
Notes payable       175,456 
Operating lease liabilities   225,601     
Total liabilities classified as discontinued operations  $471,222   $586,019 

 

17

 

NOTE 10 – Notes Payable

 

Notes payable consist of the following:

 

   As of
March 31, 2018
   As of
December 31, 2018
 
2019 Unsecured Note  $62,768   $ 
2018 Related Party 10% Unsecured Notes, net of debt discount of $8,669 and $83,743, respectively   2,091,331    2,016,257 
2018 Secured Note   63,689    68,431 
2017 Secured Note       81,659 
2016 Secured Notes   47,261    47,468 
2016 WEBA Seller Notes   2,650,000    2,650,000 
Total notes payable   4,915,049    4,863,815 
Less current portion   (2,200,026)   (2,080,071)
Long-term portion of notes payable  $2,715,023   $2,783,744 

 

2019 Unsecured Note

 

In March 2019, the Company entered into an unsecured note with Bank Direct to finance its insurance premiums (the “2019 Unsecured Note”). The key terms of the 2019 Unsecured Note include: (i) an original principal balance of $69,549, (ii) an interest rate of 6.74%, and (iii) a term of ten months. 

 

2018 Related Party 10% Unsecured Notes

 

On April 6, 2018, the Company commenced a private placement (“Private Placement”) of 10% Senior Unsecured Promissory Notes (the “10% Notes”) and (ii) warrants (the “Warrants”) to purchase up to 100,000 shares of common stock of the Company, that were issued pursuant to subscription agreement. The 10% Notes bear interest at a rate of 10% per annum due on the maturity date or as otherwise specified by the 10% Notes. The Warrants have an exercise price per share of $6.25.

 

The Company closed the first tranche of the Private Placement on April 6, 2018, with Wynnefield Partners Small Cap Value I, L.P. and Wynnefield Partners Small Cap Value, L.P., (“Wynnefield Funds”), which are under the management of Wynnefield Capital, Inc. (“Wynnefield Capital”), with respect to 10% Notes with an aggregate principal amount of $1,000,000 and Warrants to purchase an aggregate of 40,000 shares of common stock. This tranche of the Private Placement was scheduled to mature on May 4, 2019 and extension discussions are in place.

 

The Company closed the second tranche of the Private Placement on April 10, 2018, with one of its directors, Charles F. Trapp, with respect to a 10% Note with a principal amount of $50,000 and a Warrant to purchase 2,000 shares of common stock. This tranche of the Private Placement was scheduled to mature on May 9, 2019 and extension discussions are in place.

 

The Company closed a third tranche of the Private Placement on May 1, 2018 with Ian Rhodes, the Company’s former Chief Executive Officer and a former director, with respect to a 10% Note with a principal amount of $50,000 and a Warrant to purchase 2,000 shares of common stock. This tranche of the Private Placement is scheduled to mature on June 1, 2019. 

 

The Company closed a fourth tranche of the Private Placement on May 4, 2018 with the Wynnefield Funds managed by Wynnefield Capital, for an aggregate principal amount of $1,000,000 of 10% Notes and Warrants to purchase an aggregate of 40,000 shares of common stock. This tranche of the Private Placement was scheduled to mature on May 6, 2019 and extension discussions are in place.

 

18

 

The Company allocated the proceeds received from the 10% Notes and the Warrants on a relative fair value basis at the time of issuance. The total debt discount of $300,297, including the relative fair value of the Warrants and the debt issuance costs will be amortized over the life of the 10% Notes to interest expense using the effective interest method. Amortization expense during the three months ended March 31, 2019 and 2018 was $75,074 and insignificant, resprectively.

 

We estimated the fair value of the Warrants on the issuance date using a BSM option pricing model with the following assumptions:

 

   Warrants 
Expected term   3 years 
Volatility   143.81%
Risk Free Rate   2.39%

    

The proceeds of the Notes were allocated to the components as follows: 

 

   Proceeds
allocated at
issuance
date
 
Notes  $ 1,820,946  
Warrants    279,054  
Total  $ 2,100,000  

 

NOTE 11 – Related Party Transactions

 

Former Vice President of U.S. Operations

 

The former Vice President of U.S. Operations is the sole owner of BKB Holdings, LLC, which is the landlord of the property where one of the Company’s processing and distribution centers was located. The former Vice President of U.S. Operations also is the sole owner of Renew Resources, LLC, which provided services to the Company as a vendor. The ending balance is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet.

 

   2019   2018 
Beginning Balance as of January 1,  $   $ 
Monies owed to related party for services performed   22,449    18,780 
Monies paid   (15,127)   (18,780)
Ending balance as of March 31,  $4,462   $ 

 

10% Notes

 

On April 6, 2018 and May 4, 2018, the Company issued the 10% Notes for an aggregate principal amount of $2,000,000 from the offering and issuance of 10% Notes to Wynnefield Partners Small Cap Value I, L.P. and Wynnefield Partners Small Cap Value, L.P, which are under the management of Wynnefield Capital. The Company’s Chairman of the Board, Dwight Mamanteo, is a portfolio manager of Wynnefield Capital. (See Note 10 for additional information.)

 

19

 

The Company closed a subsequent tranche of the Private Placement on April 10, 2018, with Charles Trapp with respect to a 10% Note with a principal amount of $50,000 and a Warrant to purchase 2,000 shares of common stock. (See Note 10 for additional information.)

 

The Company closed a subsequent tranche of the Private Placement on May 1, 2018, with Ian Rhodes with respect to a 10% Note with a principal amount of $50,000 and a Warrant to purchase 2,000 shares of common stock. (See Note 10 for additional information.)

 

NOTE 12 – Commitments and Contingencies

 

Litigation

 

The Company may be party to legal proceedings in the ordinary course of business from time to time.  Litigation is subject to inherent uncertainties, and an adverse result in a legal proceeding could arise that may harm our business. Below is an overview of a pending legal proceeding in which an adverse result could have a material adverse effect on our business and results of operations.

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action related to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company settled this issue on February 26, 2019 for a minimal amount.

 

Environmental Matters

 

We are subject to federal, state, and local laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. It is management’s opinion that the Company is not currently exposed to significant environmental remediation liabilities or asset retirement obligations. However, if a release of hazardous substances occurs, or is found on one of our properties from prior activity, we may be subject to liability arising out of such conditions and the amount of such liability could be material. The Company accrues for potential environmental liabilities in a manner consistent with GAAP; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. The Company reviews the status of its environmental sites on a yearly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. The Company maintains insurance coverage for unintentional acts that result in environmental remediation liabilities up to $1 million per occurrence; $2 million in the aggregate, with an umbrella liability policy that doubles the coverage. These policies do, however, take into account the likely share other parties will bear at remediation sites. It would be difficult to estimate the Company’s ultimate level of liability due to the number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. The Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

In December 2016, the Company completed the acquisition of certain glycol distillation assets from Union Carbide Corporation in Institute, West Virginia. In order to comply with West Virginia regulations enacted in 2017, the Company has elected to accrue $780,000 for tank remediation. The amount of the accrual is based on various assumptions and estimates and will be periodically reevaluated in light of a variety of future events and contingencies.

 

NOTE 13 – Subsequent Events

 

We have evaluated subsequent events through the filing date of this Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other than as discussed in the accompanying notes.

 

20

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

 

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2019 should be read together with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.

 

Unless otherwise noted herein, terms such as the “Company,” “GlyEco,” “we,” “us,” “our” and similar terms refer to GlyEco, Inc., a Nevada corporation, and our subsidiaries.

 

Company Overview

 

GlyEco, Inc. (the “Company”, “we”, or “our”) is a chemical company focused on technology development and manufacturing of coolants, additives, and related performance fluids. We serve and support the automotive, heavy-duty, and industrial markets with an unwavering commitment to customer service and quality. GlyEco Inc., located in Institute, West Virginia, is a vertically integrated company which manufactures ethylene glycol, additives, and finished fluids. Maintaining control over all core ingredients of its glycol-based performance fluids, and directly managing all aspects of the manufacturing process allows GlyEco Inc. to offer our customers the highest value with competitive costs.

 

Operations are conducted through WEBA Technology Corp. (“WEBA”) and Glyeco West Virginia, two of our subsidiaries. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolant and heat transfer industries throughout North America.  Glyeco WV operates a glycol re-distillation plant in West Virginia that produces virgin quality glycol for sale to industrial customers worldwide. The Glyeco WV facility currently produces antifreeze and industrial grade ethylene glycol. The production capacity of the Glyeco WV facility is approximately 1.5 million gallons per month of concentrated ethylene glycol. 

 

On January 11, 2019, the Company completed the Asset Sale of the route antifreeze collection and Consumer Segment to Heritage-Crystal Clean, LLC pursuant to the terms of an asset purchase agreement. As a result, the Company operates as one segment.

 

Industrial Operations

 

Our Industrial operation consists of two business: WEBA, our additives business, and Glyeco WV, our glycol re-distillation plant in West Virginia.

 

WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America. We believe WEBA is one of the largest companies serving the North American additive market. WEBA’s METALGUARD® additive package product line includes one-step inhibitor systems, which give our customers the ability to easily make various types of antifreeze concentrate and 50/50 coolants for all automobiles, heavy-duty diesel engines, stationary engines in gas patch and other applications.

 

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METALGUARD® additive packages cover the entire range of coolant types from basic green conventional to the newest extended life OAT antifreezes of all colors. Our heat transfer fluid additives allow our customers to make finished heat transfer fluids for most industry applications including all-aluminum systems. The METALGUARD® heat transfer fluids include light and heavy-duty fluids, both propylene and ethylene glycol based, for various operating temperatures. These inhibitors cover the industry standard of phosphate-based inhibitors as well as all-organic (OAT) inhibitors for specific pH range and aluminum system requirements.

 

All of the METALGUARD® products are tested at our in-house laboratory facility and by third-party laboratories to assure conformance. We use the standards set by the American Society of Testing Materials (“ASTM”) for all of our products. All of our products pass the most current ASTM standards and testing for each type of product. Our manufacturing facility conforms to the highest levels of process quality control including ISO 9001 certification.

 

Glyeco WV operates a glycol re-distillation plant in West Virginia, which produces virgin quality glycol for sale to industrial customers worldwide. The Glyeco WV facility currently produces antifreeze and industrial grade ethylene glycol. We believe it is one of the largest glycol re-distillation plants in North America, with production capacity of approximately 1.5 million gallons per month of concentrated ethylene glycol. The facility, located at the Dow Institute Site at Institute, West Virginia, includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.

 

Our Strategy

 

We are a vertically integrated specialty chemical company focused on high quality glycol-based products where we can be an efficiency leader, providing value added products as a low-cost manufacturer. To deliver value to all of our stakeholders we: develop and manufacture value-added niche or specialty products which meet or exceed industry standards, provide proactive customer service, effectively manage costs as a low-cost manufacturer, leverage technology and innovation throughout our company.

 

To effectively deliver on our strategy, we offer a broad spectrum of products in our niches, focus on non-standard innovative products, leverage multiple distribution channels and we are market smart in that we maximize less competitive/under-served markets.

 

Our manufacturing operations produce high quality products while effectively managing costs. As a vertically integrated company, we manufacture glycol, develop and manufacture additive technologies, and leverage our position in glycols and additives to manufacture finished downstream products as performance fluids.

 

Critical Accounting Policies

 

We have identified in the condensed consolidated financial statements contained elsewhere herein certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. Management reviews with the Audit Committee the selection, application and disclosure of critical accounting policies. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include allowance for doubtful accounts receivable, the value of share-based compensation and warrants, the recoverability of property, plant andequipment, goodwill, other intangibles and the determination of their estimated useful lives, contingent liabilities, and environmental and asset retirement obligations. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.

 

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We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity:

 

Revenue Recognition

 

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 Company satisfies a performance obligation. See Note 3 for additional information on revenue recognition.

 

Collectability of Accounts Receivable

 

Accounts receivable consist primarily of amounts due from customers from sales of products and are recorded net of an allowance for doubtful accounts. In order to record our accounts receivable at their net realizable value, we assess their collectability. A considerable amount of judgment is required in order to make this assessment, based on a detailed analysis of the aging of our receivables, the credit worthiness of our customers and our historical bad debts and other adjustments. If economic, industry or specific customer business trends worsen beyond earlier estimates, we increase the allowance for uncollectible accounts by recording additional expense in the period in which we become aware of the new conditions.

 

Substantially all our customers are based in the United States. The economic conditions in the United States can significantly impact the recoverability of our accounts receivable.

 

Inventories

 

Inventories consist primarily of feedstock and other raw materials and finished product ready for sale. Inventories are stated at the lower of cost or market with cost recorded on an average cost basis. Costs include purchase costs, fleet and fuel costs, direct labor, transportation costs and production-related costs. In determining whether inventory valuation issues exist, we consider various factors including estimated quantities of slow-moving inventory by reviewing on-hand quantities, historical sales and production usage. Shifts in market trends and conditions, changes in customer preferences or the loss of one or more significant customers are factors that could affect the value of our inventory. These factors could make our estimates of inventory valuation differ from actual results. 

 

Long-Lived Assets

 

We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of long-lived assets or whether the remaining balance of the long-lived assets should be evaluated for possible impairment. Instances that may lead to an impairment include the following: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

 

Upon recognition of an event, as previously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ the two following methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; or (ii) the present value of expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.

 

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Share-Based Compensation

 

We use the Black-Sholes-Merton option-pricing model to estimate the value of options and warrants as compensation for services rendered to the Company. This model uses estimates of volatility, risk free interest rate and the expected term of the options or warrants, along with the current market price of the underlying stock, to estimate the value of the options and warrants on the date of grant. In addition, the calculation of compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of the stock-based awards is amortized over the vesting period of the awards. For stock-based awards that vest based on performance conditions, expense is recognized when it is probable that the conditions will be met. For stock-based awards that vest based on market conditions, expense is recognized on the accelerated attribution method over the derived service period.

 

Assumptions used in the calculation were determined as follows:

 

Expected term is generally determined using the weighted average of the contractual term and vesting period of the award;

 

Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of the Company, over the expected term of the award;

 

Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and

 

Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential forfeitures.

 

Contingencies

 

Litigation

 

The Company may be party to legal proceedings in the ordinary course of business from time to time. Litigation is subject to inherent uncertainties, and an adverse result in a legal proceeding could arise that may harm our business. Below is an overview of a pending legal proceeding in which an adverse result could have a material adverse effect on our business and results of operations.

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relates to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company settled this matter on February 26, 2019 for a minimal amount.

 

Environmental Matters

 

We are subject to federal, state, and local laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. It is management’s opinion that the Company is not currently exposed to significant environmental remediation liabilities or asset retirement obligations. However, if a release of hazardous substances occurs, or is found on one of our properties from prior activity, we may be subject to liability arising out of such conditions and the amount of such liability could be material.

 

The Company accrues for potential environmental liabilities in a manner consistent with GAAP; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. The Company reviews the status of its environmental sites on a yearly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. The Company maintains insurance coverage for unintentional acts that result in environmental remediation liabilities up to $1 million per occurrence and $2 million in the aggregate, with an umbrella liability policy that doubles the coverage. These policies do, however, take into account the likely share other parties will bear at remediation sites. It would be difficult to estimate the Company’s ultimate level of liability due to the number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. The Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

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In December 2016, the Company completed the acquisition of certain glycol distillation assets from Union Carbide Corporation in Institute, West Virginia. In order to comply with West Virginia regulations enacted in 2017, the Company has elected to accrue $780,000 for tank remediation. The amount of the accrual is based on various assumptions and estimates and will be periodically reevaluated in light of a variety of future events and contingencies. 

 

During early August 2018, the Company experienced an environmental issue related to the processing of feedstock at its Institute, WV facility, which resulted in the Company shutting down production at the facility. The Company was back in operation before the last week of August. The WVDEP and USEPA investigated the incident, and determined the Company had done everything correctly, and no citations or fines were issued. The feedstock suppliers involved have made concessions to compensate us for our related costs. 

 

Results of Operations

 

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

 

Net Sales

 

For the three months ended March 31, 2019, Net Sales were $1,729,151 compared to $1,261,425 for the three months ended March 31, 2018, representing an increase of $467,726, or approximately 37%. The increase in sales was partially driven by an increase in gross sales of $94,644 and $34,710 at WEBA and the WV glycol plant respectively. The remaining difference in net sales of $338,372 was the result of the sale of the consumer business as the Company replaced intercompany sales with revenue from external customers.

 

Cost of Goods Sold

 

For the three months ended March 31, 2019, our Costs of Goods Sold was $1,865,286, compared to $869,877 for the three months ended March 31, 2018, representing an increase of $995,409, or approximately 114%. The increase in Cost of Goods Sold was primarily due to costs associated with the increase in net sales as well as a step up in cost structure at the WV glycol facility. The facility began processing a more expensive feedstock stream and incurred an increase in the site service fees charged by Dow for utilities at the plant that was part of the original purchase agreement.  

 

Gross (Loss) Profit

 

For the three months ended March 31, 2019, we realized a gross loss of ($136,135), compared to a gross profit of $391,548 for the three months ended March 31, 2018, representing a decrease of $527,683 or approximately 135%. The gross loss was the result of operations at the WV glycol plant and pricing in the ethylene glycol market. Weakness in the market for ethylene glycol resulted in a decrease in the average sales price from $0.40/lb for the three months ended March 31, 2018 to $0.32/lb for the three months ended March 31, 2019. Sales volume at the glycol plant increased by 22% from 2018 causing a significant increase in production costs while revenue remained constant. The facility also saw an increase in utility expenses and feedstock costs for raw materials.

 

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Operating Expenses

 

For the three months ended March 31, 2019, Operating Expenses decreased to $1,240,997 from $1,421,693 for the three months ended March 31, 2018, representing a decrease of $180,696, or approximately 13%. Operating Expenses consist of Consulting Fees, Share-Based Compensation, Salaries and Wages, Legal and Professional Expenses, and General and Administrative Expenses. Our operating expense ratio for the three months ended March 31, 2019 was approximately 72%, compared to approximately 113% for the three months ended March 31, 2018. The decrease in expense ratio from the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, was driven by a reduction in corporate headcount associated with the sale of the consumer division. Salaries and wages for logistics and operations employees were reduced from $389,544 for the three months ended March 31, 2018 to $260,600 for the three months ended March 31, 2019. The remaining decrease was attributable to a reduction in consulting services used for supporting consumer operations.

 

Consulting Fees consist of marketing and administrative fees incurred under consulting agreements.  Consulting Fees decreased to $6,500 for the three months ended March 31, 2019 from $46,689 for the three months ended March 31, 2018, representing a decrease of $40,189 or 86%. The only consulting expenses incurred in Q1 2019 were a small monthly retainer fee for outsourced HR functions. Expenses associated with recruiting new staff and technology support for the consumer segment were eliminated.  

 

Share-Based Compensation consists of stock and options issued to employees in consideration for services provided to the Company. Share-Based Compensation decreased to $109,965 for the three months ended March 31, 2019 from $119,888 for the three months ended March 31, 2018, representing a decrease of $9,923, or 8%. 

 

Salaries and Wages consist of wages and the related taxes.  Salaries and Wages decreased to $353,376 for the three months ended March 31, 2019 from $556,451 for the three months ended March 31, 2018, representing a decrease of $203,075 or 36%.  The decrease was due to the reduction in corporate staff needed to support the consumer business. The Company reduced headcount in the areas of accounting, logistics and operations.  

 

Legal and Professional Fees consist of legal, accounting, tax and audit services.  For the three months ended March 31, 2019, Legal and Professional Fees decreased to $321,045 from $330,439 for the three months ended March 31, 2018, representing a decrease of $9,394 or 3%.

 

General and Administrative (“G&A”) Expenses consist of the general operational costs of our business. For the three months ended March 31, 2019, G&A Expenses increased to $450,111 from $368,226 for the three months ended March 31, 2018, representing an increase of $81,885, or approximately 22%. The increase is due to expenses associated with the sale of the consumer business.

 

Other Expense

 

For the three months ended March 31, 2019, Other Expense was $222,220 compared to $103,678 for the three months ended March 31, 2018, representing an increase of $118,542 or 114%. Other Expense consists of Interest Expense.

 

Adjusted EBITDA

 

Presented below is the non-GAAP financial measure representing earnings before interest, taxes, depreciation, amortization and share-based compensation (which we refer to as “Adjusted EBITDA”). Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for, net income (loss) and cash flows from operations calculated in accordance with GAAP.

 

Adjusted EBITDA is used by our management as an additional measure of our Company’s performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our Company’s financial results that may not be shown solely by period-to-period comparisons of net income (loss) and cash flows from operations. In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to many of our employees in order to evaluate our Company’s performance. Further, we believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results and helps investors make comparisons between our company and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income (loss), as well as trends in those items. The amounts of those items are set forth, for the applicable periods, in the reconciliations of Adjusted EBITDA to net loss below.  

 

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RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

 

   Three Months Ended
March 31,
 
   2019   2018  
Net loss from continuing operations  $(1,599,352)  $(1,151,074)
           
Interest expense   222,220    103,678 
Income tax expense       17,251 
Depreciation and amortization   195,945    199,056 
Share-based compensation   109,965    119,888 
Adjusted EBITDA  $(1,071,222)  $(711,201)

 

Liquidity and Capital Resources; Going Concern

 

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, and acquisitions of businesses and technologies.  Cash provided by financing continues to be the Company’s primary source of funds.

 

Cash Flows

 

The table below sets forth certain information about the Company’s cash flows for the three months ended March 31, 2019 and 2018:

 

   For the Three
Months Ended
 
   March
31, 2019
   March
31, 2018
 
Net cash used in operating activities from continuing operations  $(1,049,206)  $(355,845)
Net cash used in operating activities from discontinued operations   (221,662)   (90,881)
Net cash provided by (used in) investing activities from continuing operations   1,321,292    (10,925)
Net cash used in investing activities from discontinued operations       (79,289)
Net cash (used in) provided by financing activities from continuing operations   (130,356)   839,313 
Net cash used in financing activities from discontinued operations       (16,027)
Net change in cash and restricted cash   (79,932)   286,346 
Cash and restricted cash - beginning of period   237,648    117,944 
Cash and restricted cash - end of period  $157,716   $404,290 

 

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Current Assets and Liabilities

 

As of March 31, 2019, we had $1,443,145 in current assets, including $157,716 in cash, $736,271 in accounts receivable and $218,289 in inventories. Cash decreased from $237,648 as of December 31, 2018 to $157,716 as of March 31, 2019, primarily due to the timing of payments and receivables.

 

As of March 31, 2019, we had total current liabilities of $7,655,282, consisting primarily of accounts payable and accrued expenses of $3,553,794, contingent acquisition consideration of $815,670, and the current portion of notes payable of $2,200,026. As of March 31, 2019, we had total non-current liabilities of $3,922,658, consisting primarily of the non-current portion of our notes payable, operating lease liabilities and finance lease obligations.

 

Going Concern

 

In its report dated April 1, 2019 with respect to our consolidated financial statements for the years ended December 31, 2018 and 2017, KMJ Corbin & Company LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as a result of our recurring losses from operations and our dependence on our ability to raise capital, among other factors. As of March 31, 2019, the Company has yet to achieve profitable operations and is dependent on our ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve profitable operations. These factors continue to raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date of this filing.

 

Our plans to address these matters include achieving profitable operations, raising additional financing through offering our shares of the Company’s capital stock in private and/or public offerings of our securities and through debt financing if available and needed. We plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. We also believe that we can raise adequate funds through the issuance of equity or debt as necessary to continue to support our planned expansion. There can be no assurances, however, that the Company will be able to achieve profitable operations or be able to obtain any financings or that such financings will be sufficient to sustain our business operation or permit the Company to implement our intended business strategy.  

 

Off-balance Sheet Arrangements

 

None.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.  

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 

 

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Inherent Limitations on Internal Control

 

Our management, including our Chief Executive officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

 

Changes in Internal Control Over Financial Reporting

 

During the three months ended March 31, 2019, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

 

PART II—OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

The Company may be party to legal proceedings in the ordinary course of business from time to time.  Litigation is subject to inherent uncertainties, and an adverse result in a legal proceeding could arise that may harm our business. Below is an overview of a pending legal proceeding in which an adverse result could have a material adverse effect on our business and results of operations.

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relates to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company settled this matter on February 26, 2019 for a minimal amount.

 

Item 1A.  Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

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Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

There have been no material changes to the procedures by which the Company’s stockholders may recommend nominees to our Board of Directors. 

 

Item 6.  Exhibits.

 

No.   Description
     
31.1   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
  In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

 

  GlyEco, Inc.
   
Date: May 15, 2019 By: /s/ Richard Geib
  Richard Geib
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: May 15, 2019 By: /s/ Brian Gelman
  Brian Gelman
  Chief Financial Officer
  (Principal Financial Officer)

 

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