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EX-32.2 - EXHIBIT 32.2 - GlyEco, Inc.s104633_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - GlyEco, Inc.s104633_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - GlyEco, Inc.s104633_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - GlyEco, Inc.s104633_ex31-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q 

 

 

(Mark One)

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

 

For the quarterly period ended: September 30, 2016

 

¨ 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 

 

 

GLYECO, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   45-4030261
(State or other jurisdiction of incorporation)   (IRS Employer Identification No.)
     
230 Gill Way
Rock Hill, South Carolina
  29730
(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 x  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 x  No ¨

 

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

 

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

 

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

Yes ¨  No x

 

As of November 11, 2016, the registrant had 119,632,020 shares of Common Stock, par value $0.0001 per share, issued and outstanding.

 

 

 

  
 

 

TABLE OF CONTENTS
  Page No:
PART I — FINANCIAL INFORMATION 3
Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets – September 30, 2016 and December 31, 2015 3
  Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2016 and 2015 4
  Condensed Consolidated Statement of Stockholders' Equity – Nine Months Ended September 30, 2016 5
  Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2016 and 2015 6
  Notes to the Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 29
     
PART II — OTHER INFORMATION 30
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 31
Item 4. Mine Safety Disclosures 31
Item 5. Other Information 31
Item 6. Exhibits 32
Signatures 33

 

 

 

 2 
 

 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

GLYECO, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2016 and December 31, 2015

 

 

 

    September 30,     December 31,  
    2016     2015  
    (unaudited)        
ASSETS                
                 
Current Assets                
Cash   $ 1,710,273     $ 1,276,687  
Cash - restricted     100,000       -  
Accounts receivable, net     657,827       807,906  
Prepaid expenses     85,916       95,775  
Inventories     235,990       380,789  
Total current assets     2,790,006       2,561,157  
                 
Property, plant and equipment, net     1,787,737       1,279,057  
                 
Other Assets                
Deposits     32,035       26,688  
Goodwill     885,295       835,295  
Other intangible assets, net     243,911       169,533  
Total other assets     1,161,241       1,031,516  
                 
Total assets   $ 5,738,984     $ 4,871,730  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 907,864     $ 1,522,037  
Due to related parties     -       34,405  
Contingent acquisition obligation     100,000       -  
Notes payable – current portion     110,794       117,972  
Capital lease obligations – current portion     6,243       9,752  
Total current liabilities     1,124,901       1,684,166  
                 
Non-Current Liabilities                
Notes payable – non-current portion     186,298       -  
Capital lease obligations – non-current portion     4,769       10,211  
Total non-current liabilities     191,067       10,211  
                 
Total liabilities     1,315,968       1,694,377  
                 
Commitments and Contingencies                
                 
Stockholders' Equity                
Preferred stock; 40,000,000 shares authorized; $0.0001 par value; no shares issued and outstanding as of September 30, 2016 and December 31, 2015     -       -  
Common stock, 300,000,000 shares authorized; $0.0001 par value; 119,575,964 and 72,472,412 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively     11,958       7,248  
Additional paid-in capital     41,509,538       37,720,608  
Accumulated deficit     (37,098,480 )     (34,550,503 )
Total stockholders' equity     4,423,016       3,177,353  
                 
Total liabilities and stockholders' equity   $ 5,738,984     $ 4,871,730  

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 3 
 

 

GLYECO, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2016 and 2015

 

 

 

    Three months ended September
30,
    Nine months ended September
30,
 
    2016     2015     2016     2015  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                         
Sales, net   $ 1,388,980     $ 2,141,924     $ 4,145,741     $ 5,526,276  
Cost of goods sold     1,282,507       2,239,512       3,968,501       5,971,400  
Gross profit (loss)     106,473       (97,588 )     177,240       (445,124 )
                                 
Operating expenses                                
Consulting fees     13,479       65,592       114,902       285,364  
Share-based compensation     258,613       168,128       856,848       798,227  
Salaries and wages     277,058       142,216       816,069       411,663  
Legal and professional     50,255       50,035       192,152       235,972  
General and administrative     200,421       170,443       736,802       488,473  
Total operating expenses     799,826       596,414       2,716,773       2,219,699  
                                 
Loss from operations     (693,353 )     (694,002 )     (2,539,533 )     (2,664,823 )
                                 
Other (income) and expenses                                
Interest income     (108 )     (39 )     (326 )     (215 )
Interest expense     5,761       39,645       17,739       123,552  
Gain on settlement of note payable     -       -       (15,000 )     -  
Total other expense, net     5,653       39,606       2,413       123,337  
                                 
Loss before provision for income taxes     (699,006 )     (733,608 )     (2,541,946 )     (2,788,160 )
                                 
Provision for income taxes     85       2,086       6,031       2,086  
                                 
Net loss   $ (699,091 )   $ (735,694 )   $ (2,547,977 )   $ (2,790,246 )
                                 
Basic and diluted loss per share   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.04 )
                                 
Weighted average number of common shares outstanding - basic and diluted     118,838,577       71,021,497       106,102,370       68,213,880  

 

 See accompanying notes to the condensed consolidated financial statements. 

 

 

 4 
 

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

For the nine months ended September 30, 2016

 

 

 

          Additional           Total  
    Common Stock     Paid -In     Accumulated     Stockholders'  
    Shares     Par Value     Capital     Deficit     Equity  
                               
Balance, December 31, 2015     72,472,412     $ 7,248     $ 37,720,608     $ (34,550,503 )   $ 3,177,353  
                                         
Issuance of common stock for cash, net     37,475,620       3,747       2,933,045       -       2,936,792  
                                         
Share-based compensation     9,627,932       963       855,885       -       856,848  
                                         
Net loss     -       -       -       (2,547,977 )     (2,547,977 )
                                         
Balance, September 30, 2016     119,575,964     $ 11,958     $ 41,509,538     $ (37,098,480 )   $ 4,423,016  

 

See accompanying notes to the condensed consolidated financial statements. 

 

 5 
 

 

GLYECO, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2016 and 2015

 

 

 

    Nine months ended September 30,  
    2016     2015  
    (unaudited)     (unaudited)  
             
Net cash flow from operating activities                
Net loss   $ (2,547,977 )   $ (2,790,246 )
                 
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     193,775       607,465  
Amortization     60,622       -  
Share-based compensation expense     856,848       798,227  
Provision for bad debt     27,264       -  
Gain on settlement of note payable     (15,000 )     -  
Changes in operating assets and liabilities:                
Accounts receivable, net     122,815       (519,167 )
Prepaid expenses     9,859       (25,383
Inventories     144,799       (219,704 )
Deposits     (5,347 )     (5,980 )
Accounts payable and accrued expenses     (732,074 )     (385,557 )
Due to related parties     (34,405 )     (52,569 )
                 
Net cash used in operating activities     (1,918,821 )     (2,592,914 )
                 
Cash flows from investing activities                
Cash paid for acquisition     (100,000 )     -  
Cash - restricted     (100,000 )     -  
Purchases of property, plant and equipment     (249,698 )     (143,389 )
                 
Net cash used in investing activities     (449,698 )     (143,389 )
                 
Cash flows from financing activities                
Repayment of notes payable     (125,736 )     (5,139 )
Repayment of capital lease obligations     (8,951 )     (241,233 )
Proceeds from sale of common stock, net     2,936,792       3,547,048  
                 
Net cash provided by financing activities     2,802,105       3,300,676  
                 
Increase in cash     433,586       564,373  
                 
Cash at beginning of the period     1,276,687       494,847  
                 
Cash at end of the period   $ 1,710,273     $ 1,059,220  
                 
Supplemental disclosure of cash flow information                
Interest paid during period   $ 17,739     $ 123,552  
Income taxes paid during period   $ 6,031     $ -  
                 
Supplemental disclosure of non-cash items                
Acquisition of equipment with notes payable   $ 319,856     $ -  

Acquisition of equipment included in accounts payable

  $

117,900

    $ -  

 

See accompanying notes to the condensed consolidated financial statements.

 

 6 
 

 

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 recycling and distribution company, which specializes in collecting and recycling waste glycol streams into reusable glycol products that are sold to third party customers in the automotive and industrial end-markets in the United States. Our proprietary technology allows us to recycle all five major types of waste glycol into high-quality products usable in any glycol application. We currently operate six processing centers in the United States, with our corporate offices located in Rock Hill, South Carolina. These processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. The Minneapolis, Minnesota, Lakeland, Florida, Rock Hill, South Carolina and Tea, South Dakota facilities have distillation equipment and operations for recycling waste glycol streams as well as blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers, while the Indianapolis, Indiana and Landover, Maryland facilities currently only have blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers.  We also previously operated a processing center in Elizabeth, New Jersey.

 

The Company was formed in the State of Nevada on October 21, 2011. We were formed to acquire the assets of companies in the business of recycling and processing waste glycol and to apply our proprietary technology to provide a higher quality of glycol to end-market users throughout North America.

 

We are currently comprised of the parent corporation GlyEco, Inc., and the acquisition subsidiaries that were formed to acquire the processing centers listed above, including the Elizabeth, New Jersey Processing Center which we no longer operate. These processing centers are held in seven subsidiaries under the names of GlyEco Acquisition Corp. #1 through GlyEco Acquisition Corp. #7.

 

Going Concern

 

The condensed consolidated financial statements as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015, have been prepared assuming that the Company will continue as a going concern. As of September 30, 2016, 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.

 

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

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

 

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair presentation on an interim basis. The operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.

 

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, 2015, including the Company’s audited consolidated financial statements and related notes.

 

Principles of Consolidation

 

These condensed consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-owned subsidiaries. All significant intercompany accounting transactions have been eliminated as a result of consolidation. The subsidiaries include: GlyEco Acquisition Corp #1 (“Acquisition Sub #1”) located in Minneapolis, Minnesota; GlyEco Acquisition Corp #2 (“Acquisition Sub #2”) located in Indianapolis, Indiana; GlyEco Acquisition Corp #3 (“Acquisition Sub #3”) located in Lakeland, Florida; GlyEco Acquisition Corp #4 (“Acquisition Sub #4”) formerly located in Elizabeth, New Jersey; GlyEco Acquisition Corp #5 (“Acquisition Sub #5”) located in Rock Hill, South Carolina; GlyEco Acquisition Corp #6 (“Acquisition Sub #6”) located in Tea, South Dakota; and GlyEco Acquisition Corp. #7 (“Acquisition Sub #7”) located in Landover, Maryland.

 

 7 
 

 

 

Operating Segments

 

Operating segments are defined as components of an enterprise for each of which separate financial information is available that is evaluated on a regular basis by our chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of each segment. Operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, among other criteria. The Company operates as one segment.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent within the financial reporting process, actual results may differ significantly from those estimates.  Significant estimates include, but are not limited to, items such as, the allowance for doubtful accounts, the valuation of share-based compensation and warrants, the allocation of the purchase price in the Company’s acquisitions, the recoverability of property, plant and equipment, goodwill, and other intangibles and their estimated useful lives, contingent liabilities, and environmental and asset retirement obligations. Due to the uncertainties inherent in the formulation of accounting estimates, it is reasonable to expect that these estimates could be materially revised within the next year.

  

Revenue Recognition

 

The Company recognizes revenue when (1) delivery of product has occurred or services have been rendered, (2) there is persuasive evidence of a sale arrangement, (3) selling prices are fixed or determinable, and (4) collectability from the customer (individual customers and distributors) is reasonably assured. Revenue consists primarily of revenue generated from the sale of the Company’s products. This generally occurs when the Company’s products are shipped from its facility as title has passed. Revenue is recorded net of estimated cash discounts. The Company estimates and accrues an allowance for sales returns at the time the product is sold. To date, sales returns have not been material. Shipping costs passed to the customer are included in net sales.

 

Costs 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 and are included in operating expenses. Such amounts were insignificant during the three and nine months ended September 30, 2016 and 2015. Advertising costs are expensed as incurred.

 

Accounts Receivable

 

Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s willingness or ability to pay, the Company’s compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the condensed consolidated statements of operations. The allowance for doubtful accounts totaled $66,147 and $203,270 as of September 30, 2016 and December 31, 2015, respectively.

 

Inventories

 

Inventories are reported at the lower of cost or market. The cost of raw materials, including feedstocks and additives, is determined on an average unit cost of the units in a production lot. Work-in-process represents labor, material and overhead costs associated with the manufacturing costs at an average unit cost of the units in the production lot. Finished goods represents work-in-process items with additive costs added. The Company periodically reviews its inventories for obsolete or unsalable items and adjusts its carrying value to reflect estimated realizable values.

 

 8 
 

 

 

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    3-20 years

 

Fair Value of Financial Instruments

 

The Company has adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).

 

The three levels of inputs that may be used to measure fair value are as follows:

 

  Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date;

 

  Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

 

  Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability. Valuation is generated from model-based techniques with the unobservable assumptions reflecting our own estimate of assumptions that market participants would use in pricing the asset or liability.

 

Cash, restricted cash, accounts receivable, accounts payable and accrued expenses, amounts due to related parties, contingent acquisition obligations and current portion of capital lease obligations and notes payable are reflected in the condensed consolidated balance sheets at their estimated fair values primarily due to their short-term nature. As to long-term capital lease obligations and notes payable, estimated fair values are based on borrowing rates currently available to the Company for loans with similar terms and maturities.

 

Net Loss Per Share Calculation

 

The basic net loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during a period. Diluted loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding plus potentially dilutive securities. The Company’s potentially dilutive securities outstanding are not shown in a diluted net loss per share calculation because their effect in both 2016 and 2015 would be anti-dilutive. At September 30, 2016, these potentially dilutive securities included warrants of 8,266,137 and stock options of 7,935,093 for a total of 16,201,230. At September 30, 2015, these potentially dilutive securities included warrants of 16,567,326 and stock options of 11,724,585 for a total of 28,291,911.

 

Income Taxes

 

The Company accounts for its income taxes in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. An allowance for the deferred tax asset is established if it is more likely than not that the asset will not be realized.

 

 9 
 

 

 

Share-based Compensation

 

All share-based payments to employees and non-employee directors, including grants of employee stock options, are expensed based on their estimated fair values at the grant date, in accordance with ASC 718. Compensation expense for share-based payments to employees and directors is recorded over the vesting period using the estimated fair value on the date of grant, as calculated by the Company using the Black-Scholes-Merton (“BSM”) option-pricing model or the Monte Carlo Simulation. For awards with only service conditions that have graded vesting schedules, compensation cost is recorded on a straight-line basis over the requisite service period for the entire award, unless vesting occurs earlier. For awards with market conditions, compensation cost is recorded on the accelerated attribution method over the derived service period.

 

Non-employee share-based compensation is accounted for based on the fair value of the related stock or options, using the BSM, or the fair value of the goods or services on the measurement date, whichever is more readily determinable.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Recently Issued Accounting Pronouncements

 

There have been no recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance to the Company, except as discussed below.

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company has not yet selected a transition method and is currently assessing the impact the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and disclosures.

 

In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”). ASU 2014-12 provides explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting, or as a non-vesting condition that affects the grant-date fair value of an award. The update requires that compensation costs are recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. This update is effective for the annual periods and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. There was no impact from the adoption of this ASU.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provides related footnote disclosure requirements. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting establishes the fundamental basis for measuring and classifying assets and liabilities. The update provides guidance on when there is substantial doubt about an organization’s ability to continue as a going concern and how the underlying conditions and events should be disclosed in the footnotes. It is intended to reduce diversity that existed in footnote disclosures because of the lack of guidance about when substantial doubt existed. The amendments in this update are effective for the year ended December 31, 2016. Early application is permitted. The Company is currently evaluating the effect that the standard will have on the condensed consolidated financial statements and related disclosures.

  

 10 
 

 

 

In July 2015, the FASB issued ASU 2015-11, “Inventory” (Topic 330) (“ASU 2015-11”). The amendments in ASU 2015-11 require that an entity measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transaction. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting. ASU 2015-11 is effective for annual and interim periods beginning on or after December 15, 2016. The amendments in this update should be applied prospectively with early application permitted as of the beginning of the interim or annual reporting period. The Company is currently assessing this guidance for future implementation.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes”, an update to accounting guidance to simplify the presentation of deferred income taxes. The guidance requires an entity to classify all deferred tax liabilities and assets, along with any valuation allowance, as noncurrent in the balance sheet. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2016, including interim periods within these reporting periods. Early adoption is permitted. The Company is currently assessing the impact of the adoption of ASU 2015-17 will have on its condensed consolidated financial statements and disclosures.

 

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating ASU 2016-02, the Company expects the adoption of ASU 2016-02 to have a material effect on the Company’s consolidated financial condition due to the recognition of the lease rights and obligations as assets and liabilities. The Company is currently assessing the impact of the adoption of ASU 2016-02 will have on its condensed consolidated financial statements and disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which simplified certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. ASU 2016-09 will be effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. The Company is currently evaluating the impact of adopting the new stock compensation standard on its condensed consolidated financial statements.

 

NOTE 3 – Inventories

 

The Company’s total inventories were as follows:

 

    September 30,     December 31,  
    2016     2015  
Raw materials   $ 156,265     $ 217,165  
Work in process     36,991       84,343  
Finished goods     42,734       79,281  
Total inventories   $ 235,990     $ 380,789  

 

NOTE 4 – Income Taxes

 

As of September 30, 2016 and December 31, 2015, the Company had a net operating loss (NOL) carryforward available to reduce future taxable income, if any. The NOL carryforward begins to expire in 2027, and fully expires in 2035. Because management is unable to determine that it is more likely than not that the Company will be able to realize the tax benefit related to the NOL carryforward, by having taxable income, a valuation allowance has been established as of September 30, 2016 and December 31, 2015 to reduce the net tax benefit asset value to zero. The provision for income taxes for the three and nine months ended September 30, 2016 consists of state tax expenses.

 

NOTE 5 – Property, Plant and Equipment

 

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

 

   September 30,   December 31, 
   2016   2015 
Machinery and equipment  $2,284,313   $1,863,322 
Leasehold improvements   125,853    50,772 
Accumulated depreciation   (855,705)   (661,930)
    1,554,461    1,252,164 
Construction in process   233,276    26,893 
Total property, plant and equipment, net  $1,787,737   $1,279,057 

 

NOTE 6– Stockholders' Equity

 

Preferred Stock

 

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

 

As of September 30, 2016, the Company had no shares of Preferred Stock outstanding.

 

 11 
 

 

 

Common Stock

 

As of September 30, 2016, the Company has 119,575,964, $0.0001 par value, shares of common stock (the “Common Stock”) outstanding. The Company's articles of incorporation authorize the Company to issue up to 300,000,000 shares of the Common Stock. The holders are entitled to one vote for each share on matters submitted to a vote to shareholders, and to share pro rata in all dividends payable on common stock after payment of dividends on any preferred shares having preference in payment of dividends.

 

Equity Incentive Program

 

On December 18, 2014, the Company’s Board of Directors approved an Equity Incentive Program (the “Equity Incentive Program”), whereby the Company’s employees may elect to receive equity in lieu of cash for all or part of their salary compensation.

 

For the quarter ended September 30, 2016, employees could elect to receive eight and a third shares of common stock per each dollar participated in the Equity Incentive Program. Nine employees participated in the Equity Incentive Plan during the quarter.

 

During the nine months ended September 30, 2016, the Company issued the following shares of common stock in connection with financing activities:

 

On February 26, 2016, the Company closed a rights offering. The rights offering was made pursuant to a registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on January 20, 2016.

 

Pursuant to the rights offering, the Company distributed to holders of its Common Stock non-transferable subscription rights to purchase up to 50,200,947 shares of the Company’s common stock, par value $0.0001 per share. Each shareholder received one subscription right for every one share of common stock owned at 5:00 p.m. EST on October 30, 2015, the record date. Each subscription right entitled a shareholder to purchase 0.7 shares of the Company’s common stock at a subscription price of $0.08 per share, which was referred to as the basic subscription privilege. If a shareholder fully exercised their basic subscription privilege and other shareholders did not fully exercise their basic subscription privileges, shareholders could also exercise an over-subscription privilege to purchase a portion of the unsubscribed shares at the same subscription price of $0.08 per share.

 

During the rights offering, subscription rights to purchase a total of 37,475,620 shares of common stock, par value $0.0001, were exercised. The exercise of these subscription rights resulted in gross proceeds to the Company of $2,998,050 before deducting expenses of the rights offering.

 

During the nine months ended September 30, 2016, the Company issued the following shares of common stock for compensation:

 

On January 31, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share.

 

On February 28, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share.

 

On March 28, 2016, the Company issued an aggregate of 419,348 shares of Common Stock to four employees of the Company pursuant to certain performance incentive programs at a price of $0.11 per share.

 

On March 31, 2016, the Company issued an aggregate of 837,498 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.09 per share.

 

On March 31, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share.

 

On April 30, 2016, the Company issued an aggregate of 64,875 shares of Common Stock to seven employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share.

 

On May 31, 2016, the Company issued an aggregate of 86,234 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share.

 

On June 13, 2016, the Company issued an aggregate of 6,281,250 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan due to the market condition related to the grant being achieved (see below).

 

On June 30, 2016, the Company issued an aggregate of 86,150 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share.

 

On June 30, 2016, the Company issued an aggregate of 769,583 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.10 per share.

 

On July 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share.

 

On August 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share.

 

On September 30, 2016, the Company issued an aggregate of 54,359 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share.

 

On September 30, 2016, the Company issued an aggregate of 628,125 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.12 per share.

 

 

Summary:

 

    Number of Common
Shares Issued
    Value  
Common shares for cash, net of offering costs     37,475,620     $ 2,936,792  
Share-based compensation     9,627,932     $

856,848

 

 

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Performance and/or market based stock awards

 

In January 2015, the Board of Directors approved the issuance of 940,595 restricted shares of the Company. These shares will be issued to the then members of the Board of Directors upon vesting, which will be when the market price of the Company’s common stock trades at or above $2 for a specified period.

 

The initial value of the restricted stock grant was approximately $257,000, which will be amortized over the estimated service period. The Company recorded an expense of $7,125 and $50,565 from the amortization of the unvested restricted shares for the quarter and nine months ended September 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 88.0% volatility and a risk free interest rate of 1.79%.

 

In September 2015, the Board of Directors approved the issuance of 1,524,245 restricted shares of the Company. These shares will be issued to the then Interim Chief Executive Officer and President upon vesting, which will be according to the following terms:

 

  · 50% if the Company’s revenue for the first half of 2016 is at least 20% greater than revenue for the first half of 2015 and

 

  · 50% if the Company has positive EBITDA (a non GAAP measure) for the first half of 2016.

 

The initial value of the restricted stock grant was approximately $92,000. The Company has not recorded any expense related to this grant as the applicable accounting guidance requires that if the performance condition must be met for the award to vest, compensation cost will be recognized only if the performance condition is satisfied and the above noted performance conditions have not been met. Further, the estimated quantity of awards for which it is probable that the performance conditions will be achieved must be reevaluated each reporting period and adjusted and management has estimated that the probability of achieving the performance conditions is minimal.

 

The above noted vesting criteria were not met during the measurement period. As such, the grant expired without the vesting of any shares.

 

In February 2016, the Board of Directors approved the issuance of 3,301,358 restricted shares of the Company. These shares will be issued to the then President (1,100,453 shares) and Chief Financial Officer (2,200,905 shares) upon vesting, which will be according to the following terms:

 

  - 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period.

 

  - 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period.

 

The initial value of the restricted stock grant was approximately $198,000, which will be amortized over the estimated service period. The Company recorded an expense of $8,773 and $20,470 from the amortization of the unvested restricted shares for the quarter and nine months ended September 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 91.0% volatility and a risk free interest rate of 1.34%.

 

In January 2016, the Board of Directors approved the issuance of 6,281,250 restricted shares of the Company. These shares will be issued to the then members of the Board of Directors upon vesting, which will be when the market price of the Company’s common stock trades at or above $0.12 for a specified period or if the Company has positive EBITDA (a non GAAP measure) for one quarter in 2016. These shares were issued to the members of the Board on June 13, 2016, when the market price of the Company’s common stock traded at or above $0.12 for a 30-day volume weighted average price.

 

 13 
 

 

 

The initial value of the restricted stock grant was approximately $509,000, which has been amortized over the estimated performance period. The Company recorded an expense of $127,195 and $381,586 from the amortization of the restricted shares for the quarter and nine months ended September 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a one-year life, 106.0% volatility and a risk free interest rate of 0.65%.

 

In May 2016, the Board of Directors approved the issuance of 1,100,453 restricted shares of the Company. These shares will be issued to the Chief Executive Officer upon vesting, which will be according to the following terms:

 

  - 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period.

 

  - 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period.

 

The initial value of the restricted stock grant was approximately $198,000, which will be amortized over the estimated service period. The Company recorded an expense of $4,334 and $7,223 from the amortization of the unvested restricted shares for the quarter and nine months ended September 30, 2016. The shares were valued using a Monte Carlo Simulation with a 6-year life, 92.0% volatility and a risk free interest rate of 1.43%.

 

In September 2016, the Board of Directors approved the issuance of 1,650,680 restricted shares of the Company. These shares will be issued to the Vice President of Sales and Marketing upon vesting, which will be according to the following terms:

 

  - 20% when the market price of the Company’s common stock trades at or above $0.30 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.40 for a specified period.

 

  - 30% when the market price of the Company’s common stock trades at or above $0.50 for a specified period.

 

  - 20% when the market price of the Company’s common stock trades at or above $0.60 for a specified period.

 

The initial value of the restricted stock grant was approximately $141,000, which will be amortized over the estimated service period. The Company recorded an expense of $1,083 from the amortization of the unvested restricted shares for the three months ended September 30, 2016. The shares were valued using a Monte Carlo Simulation with a 6-year life, 92.0% volatility and a risk free interest rate of 1.35%.

 

 

Options and warrants

 

During the nine months ended September 30, 2016, the Company did not have any issuances or exercises of stock warrants. During the nine months ended September 30, 2016, the Company granted 60,000 stock options. No stock options were exercised during the three and nine months ended September 30, 2016. The Company recognized $15,000 and $54,551 of expense related to the vesting of outstanding options during the three and nine months ended September 30, 2016, respectively.

 

NOTE 7 – Business Combination

 

Effective June 26, 2016, Acquisition Sub #3 entered into an Asset Purchase Agreement with Brian’s On-Site Recycling, Inc., a Florida corporation (“BOSR”), and Brian Fidalgo, principal of BOSR (the “BOSR Principal”) and General Manager of our Florida processing center, pursuant to which Acquisition Sub #3 acquired certain assets of BOSR, primarily equipment and customer relationships for aggregate consideration of $200,000, of which $100,000 is subject to an earn out provision. The period of the earn out is expected to be over one year. Per the terms of the Asset Purchase Agreement, the Company placed $100,000 in an escrow account related to the earn out and has been reflected as restricted cash in the accompanying condensed consolidated balance sheet. This acquisition expanded the Company’s customer base in Florida.

 

We accounted for the acquisition of BOSR as required under applicable accounting guidance. Tangible assets acquired are recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable, and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired.

 

The allocation of the purchase price is as follows:

 

Fixed assets – equipment   $ 15,000  
Intangibles:        
Customer relationships     82,000  
Non compete agreement     32,000  
Other intangibles, including trade name     21,000  
Goodwill     50,000  
Total   $ 200,000  

 

 14 
 

 

The Company is amortizing the intangibles (excluding goodwill) over an estimated useful life of five years. The acquisition was not considered to be significant. The Company has included the financial results of the BOSR acquisition in its consolidated financial statements from the acquisition date and the results from BOSR were not material to the Company’s consolidated financial statements.

 

NOTE 8 – Notes Payable

 

Notes payable consist of the following:

 

Short term   September 30, 2016     December 31, 2015  
2013 Secured Note   $ -     $ 2,972  
Manzo Note     -       115,000  
2016 Secured Notes     110,794       -  
Short term notes payable    $ 110,794     $ 117,972  

 

Long term   September 30, 2016     December 31, 2015  
2016 Secured Notes   $ 186,298     $ -  
                 

 

2013 Secured Note

 

In May 2013, Acquisition Sub #1 entered into a secured promissory note with Security State Bank of Marine in Minnesota (the “2013 Secured Note”). The key terms of the 2013 Secured Note include: (i) a principal balance of $20,000, (ii) an interest rate of 6.0%, and (iii) a term of three years with a maturity date of May 2, 2016. The 2013 Secured Note was collateralized by a vehicle. Under the terms of the agreement, the note matured in May 2016 and was paid in full.

 

Manzo Note

 

In May 2014, Acquisition Sub #4 entered into a promissory note with Rose Manzo, a private individual (the “Manzo Note”). The key terms of the Manzo Note include: (i) a principal balance of $115,000, (ii) an interest rate of 12.0%, and (iii) principal balance to be paid upon the raising of additional necessary capital. During June 2016, Acquisition Sub #4 and Rose Manzo entered into a settlement agreement pursuant to which Acquisition Sub #4 paid Rose Manzo $100,000 plus accrued and unpaid interest to extinguish the note and recognized a gain on settlement of $15,000.

 

2016 Secured Notes

 

In January 2016, Acquisition Sub #5 entered into a secured promissory note with Ascentium Capital. In April 2016, Acquisition Sub #5 and separately, the Company, entered into secured promissory notes with Ascentium Capital. In July 2016, Acquisition Sub #3 entered into a secured promissory note with PACCAR Financial. In September 2016, Acquisition Sub #2 entered into a secured promissory note with PACCAR Financial (collectively, the “2016 Secured Notes”). The key terms of the 2016 Secured Notes include: (i) a combined principal balance of $320,000, (ii) an agreement date weighted average interest rate of 7.1% (range of 5.8% to 9.0%), and (iii) terms of 4-5 years. The 2016 Secured Notes are collateralized by vehicles and equipment.

 

NOTE 9 – Related Party Transactions

 

Former Interim Chief Executive Officer

 

The former Interim Chief Executive Officer, who stepped down at the end of April 2016, is the sole owner of Rocco Advisors. Amounts due and payable to the former Interim Chief Executive Officer for services performed were paid to Rocco Advisors, instead of directly to the former Interim Chief Executive Officer. These services and fees were in the ordinary course of business and subject to an agreement approved by the Company’s Board of Directors.

 

    2016     2015  
Beginning Balance as of January 1,   $ -     $ -  
Monies owed to related party for services performed     66,667       60,000  
Monies paid     (66,667 )     (60,000 )
Ending Balance as of September 30,   $ -     $ -  

 

 15 
 

 

Vice President of U.S. Operations

 

The Vice President of US Operations is the sole owner of BKB Holdings, LLC, which is the landlord of the property where GlyEco Acquisition Corp #5’s processing center is located. The Vice President of U.S. Operations also is the sole owner of Renew Resources, LLC, which provides services to the Company as a vendor.

 

    2016     2015  
Beginning Balance as of January 1,   $ 2,791     $ (3,200 )
Monies owed to related party for services performed     73,749       55,127  
Monies paid     (75,667 )     (45,955 )
Ending Balance as of September 30, payable (receivable)   $ 873     $ 5,972  

 

Florida General Manager

 

The General Manager of our Florida processing center, who joined the Company in December 2015, also managed the business of BOSR, which was a competitor to the Company in the local Florida market until the Company purchased BOSR on June 26, 2016 (see Note 7). The Company sold finished goods to BOSR and bought raw materials from BOSR. BOSR is no longer considered a related party after the purchase date.

 

    2016  
Beginning Balance as of January 1,   $ 3,942  
Monies owed to related party for services performed     5,980  
Monies due from related party for services performed     (26,812 )
Monies paid, net     16,890  
Ending Balance as of June 26,   $ -  

 

Former Chief Technical Officer

 

The former Chief Technical Officer, who left the Company in late 2015, is the sole owner of WEBA Technologies (“WEBA”), which was paid for products sold to GlyEco, primarily consisting of additive packages for antifreeze. The Company also incurred expenses for consulting services provided by the former Chief Technical Officer in the ordinary course of business. The WEBA transactions are summarized below.

 

    2015  
Beginning Balance as of January 1, payable   $ 8,024  
Monies owed to related party for services performed     262,276  
Monies paid     (249,194 )
Ending Balance as of September 30, payable   $ 21,106  

 

NOTE 10 – Commitments and Contingencies

 

Litigation

 

The Company may be party to legal proceedings in the ordinary course of business.  The Company believes that the nature of these proceedings (collection actions, etc.) are typical for a Company of our size and scope of operations. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Below is an overview of two pending legal proceedings and one outstanding alleged claim.

 

 16 
 

 

On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company received a favorable judgment regarding this civil action in the amount of $95,000.

 

On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.

 

The Company is also aware of one matter that involves an alleged claim against the Company, and it is at least reasonably possible that the claim will be pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In this matter, the landlord of the Company’s formerly leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the New Jersey facility and prepared an eviction notice. The Company negotiated a payment in the amount of $250,000 to regain access to the facility, and reached an accord to negotiate with the landlord to resolve the outstanding issues by May 31, 2015. On December 28, 2015, the Company ultimately approved the termination of the lease agreements related to the New Jersey facility, thereby ceasing all operations at that particular facility. This termination was prompted by the former landlord’s demand for payment of approximately $2.3 million to maintain access to the facility. In September 2016, the Company reached an agreement with the landlord. The agreement required the Company to resolve certain environmental issues regarding the former processing facility and make certain payments to the landlord. The Company, the landlord and their related entities also agreed to a full and final settlement of existing and possible futures claims between the parties. As of November 14, 2016, the Company believes it has addressed the environmental issues by removing and disposing of the waste from the facility and cleaning the storage tanks. Additionally, as of November 14, 2016, the Company has paid $295,000 of the agreed upon $335,000 payment to the landlord. The remaining $40,000 will be paid to the landlord upon resolution of related pending regulatory matters, subject to certain additional terms. Because the Company had already fully reserved for this contingency, the agreement’s execution did not result in an additional expense to the Company in the quarter ended September 30, 2016.

 

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 accounting principles generally accepted in the United States; 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. Nevertheless, 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 consolidated financial position, results of operations or cash flows.

 

The Company is aware of one environmental remediation issue related to our former leased property in New Jersey, which is currently subject to a remediation stemming from the sale of property by the previous owner in 2008 to the current landlord. To management’s knowledge, the former landlord has engaged a licensed site remediation professional and had assumed responsibility for this remediation. In management’s opinion the liability for this remediation is the responsibility of the former landlord. However, the former landlord has disputed this position and it is an open issue subject to negotiation. Currently, we have no knowledge as to the scope of the landlord’s former remediation obligation.

 

NOTE 11 – Subsequent Events

 

Recent Stock Issuances

 

Since October 1, 2016, the Company has issued an aggregate of 56,056 shares of common stock pursuant to the Company’s Equity Incentive Program.

 

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

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements for the fiscal year ended December 31, 2015, and the notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed separately with the US Securities and Exchange Commission. This discussion and analysis contains forward-looking statements based upon current beliefs, plans, expectations, intentions and projections that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. We use words such as “anticipate,” “estimate,” “plan, “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and any updates to those risk factors filed from time in our Quarterly Reports on Form 10-Q including those set forth under Part II, Item 1A of this Quarterly Report on Form 10-Q.

 

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.

 

The following discussion should be read in conjunction with the information contained in the condensed consolidated financial statements of the Company and related notes included elsewhere herein.

 

Company Overview

 

Our principal business activity is the processing of waste glycol into high-quality recycled glycol products, specifically automotive antifreeze, and related specialty blended antifreeze, which we sell in the automotive and industrial end-markets. We operate six processing centers located in the eastern region of the United States.

 

These processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. Our processing centers utilize a fleet of trucks to collect waste material for processing and delivering recycled glycol products directly to retail end users at their storefronts, which is typically 50-100 gallons per customer order. Collectively, we directly service approximately 5,000 generators of waste glycol. To meet the delivery volume needs of our existing customers, we supplement our collected and processed glycol with new or virgin glycol that we purchase in bulk from various suppliers. In addition to our retail end users, we also sell our recycled glycol products to wholesale or bulk distributors who, in turn, sell to retail end users specifically as automotive or specialty blended antifreeze. In certain markets we recently began selling windshield washer fluids which we do not recycle. The Company delivers this additional product to same store and new store customers as a non-recycled product.

 

We have deployed our proprietary technology across our footprint, allowing for safe and efficient handling of waste streams, application of our processing technology and Quality Control & Assurance Program (“QC&A”), sales of high-quality glycol products, and data systems allowing for tracking, training, and further development of our products and service. We have rolled out GlyEco University, a data and training tool for GlyEco stakeholders. GlyEco University will continue to be our center for intellectual property, advanced development group, and both internal and external glycol and GlyEco course training. We have expanded our space in Rock Hill, SC, for our QC&A, research and advanced development group headquarters, as well as for our sales and client services groups, respectively.

 

We ceased operations at our former New Jersey Processing Center, effective December 28, 2015. We believe the reduction in expenses and related negative cash flow from the New Jersey Processing Center will allow the Company to continue and advance its retail automotive business, and as a result, help support the goal of positive cash flows from the Company’s six processing centers. With the expected reduction in cash losses, we plan to reinvest in expanding our footprint in the United States.

 

Our knowledge and focus on the glycol industry creates opportunities for GlyEco to leverage our process technology. These include difficult to process waste streams, process engineering partnerships, technology licensing, and other types of ventures. Also, our current footprint and markets remain open to growth and same store increases. We will weigh our opportunities as they are introduced, leveraging our management team and Board of Directors as needed to support or contribute experience to these opportunities. We will invest in infrastructure to support the growth of our existing business, and as we continue to add customers, we will be required to multiply the capacity of our processing centers. We will increase our processing center capacities through optimizing our existing systems and through the purchase of distillation equipment, tanks to store newly acquired feedstock waste streams, delivery vehicles for distribution locations, satellite distribution center storage, and, as needed, certain recycling hardware. As our business is focused on retail we will continue to evolve our sales and marketing groups primarily in marketing automation, lead generation, and sales onboarding. We will also continue to add human resources in situations where they may be optimized for effectiveness, of which we have identified several. We believe our continuing adaptation to the market place will support greater acceptance of glycol recycling, sales opportunities, and greater price integrity of our products. GlyEco is a brand and as such we will continue to promote the values and culture of the organization. Our marketing messages will be delivered through social, print, and other related media distribution.

 

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We are dedicated to being the standard in the glycol industry by providing the highest-quality products, services, and technology possible to our customers.

 

Strategic Plan

 

Expand Customer Count and Profits. We intend to utilize our ability to produce an exceptional product, accept difficult streams, provide outstanding customer service, and advance outbound sales to drive market expansion. Our customers and partners require high levels of quality and sensitivity to regulatory and environmental compliance, which we emphasize through initial and through ongoing field training, facility policies and procedures, and through ongoing analysis of operating performance. Our current markets offer opportunity for improvement and we believe we can increase same store sales year over year. Also, we plan to enter new markets with strategic partners and current customers. In some markets we intend to sell, other accretive products such as windshield washer fluid.

 

Expand Feedstock Supply Volume. We intend to expand our feedstock supply volume by growing our relationships with direct waste generators and indirect waste collectors. We plan to increase the volume we collect from direct waste generators in the following ways: stressing segregation from other liquid wastes and focusing on waste glycol recovery to our existing customers; attracting new waste generator customers by displacing incumbent waste collectors through product quality and customer service value propositions; and attracting new waste generators in territories that we do not currently serve. We plan to increase the volume we collect from indirect waste collectors by implementing specific sales programs and increasing personnel dedicated to sales generation.

 

New Market Development. We will focus primarily on increasing our current footprint and strategic locations that can contribute to the profitability of our business. In addition, our new market development may include larger retailers or limited partnerships for our intellectual property. We are a technology company in the glycol waste and antifreeze product business and as such we may address each new market differently – leveraging our resources and assets accordingly.

 

Critical Accounting Policies

 

We have identified in the consolidated financial statements contained herein certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the 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 going concern status collectability of accounts receivable, inventory, impairment of goodwill, carrying amounts and useful lives of intangible assets, fair value of assets acquired and liabilities assumed in business combinations, stock-based compensation expense, and deferred taxes. 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.

 

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 (1) delivery of product has occurred or services have been rendered, (2) there is persuasive evidence of a sale arrangement, (3) selling prices are fixed or determinable, and (4) collectability from the customer (individual customers and distributors) is reasonably assured. Revenue consists primarily of revenue generated from the sale of the Company’s products. This generally occurs when the Company’s products are shipped from its facility as title has passed. Revenue is recorded net of estimated cash discounts. The Company estimates and accrues an allowance for sales returns at the time the product is sold. To date, sales returns have not been material. Shipping costs passed to the customer are included in the net sales.

 

Collectability of Accounts Receivable

 

Accounts receivable consist primarily of amounts due from customers from sales of products and is 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.

 

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.

 

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Inventories

 

Inventories consist primarily of used glycol to be recycled, recycled glycol for resale and supplies used in the recycling process. 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 property and equipment and intangible 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.

 

Goodwill

 

As of September 30, 2016, goodwill and net intangible assets recorded on our condensed consolidated balance sheet aggregated to $1,129,206 (of which $885,295 is goodwill that is not subject to amortization).  We perform an annual impairment review in the fourth quarter of each year. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other, we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions: industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

 

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In addition to the required goodwill impairment analysis, we also review the recoverability and estimated useful life of our net intangibles with finite lives when an indicator of impairment exists. When we acquire intangible assets, management determines the estimated useful life, expected residual value if any and appropriate allocation method of the asset value based on the information available at the time. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Our assumptions with respect to expected future cash flows relating to intangible assets is impacted by our assessment of (i) the proprietary nature of our recycling process combined with (ii) the technological advances we have made allowing us to recycle all five major types of waste glycol into a virgin-quality product usable in any glycol application along with (iii) the fact that the market is currently served by primarily smaller local processors. If our assumptions and related estimates change in the future, or if we change our reporting structure or other events and circumstances change, we may be required to record impairment charges of goodwill and intangible assets in future periods and we may need to change our estimated useful life of amortizing intangible assets. Any impairment charges that we may take in the future or any change to amortization expense could be material to our results of operations and financial condition.

 

Share-based Compensation

 

We use the Black-Scholes-Merton option-pricing model to estimate the value of options and warrants issued to employees and consultants 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.

 

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Accounting for Income Taxes

 

We use the asset and liability method to account for income taxes. Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. In preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment, intangible assets, goodwill, and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within our consolidated balance sheets. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an adjustment within the tax provision of our consolidated statements of operations. As of September 30, 2016 and 2015, we had established a full valuation allowance for all deferred tax assets.

 

As of September 30, 2016 and December 31, 2015, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during the next 12 months. Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense. Since there are no unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest.

 

Contingencies

 

Litigation

 

The Company may be party to legal proceedings in the ordinary course of business.  The Company believes that the nature of these proceedings (collection actions, etc.) are typical for a Company of our size and scope of operations. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Below is an overview of two pending legal proceedings and one outstanding alleged claim.

 

On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company received a favorable judgment regarding this civil action in the amount of $95,000.

 

On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.

 

The Company is also aware of one matter that involves an alleged claim against the Company, and it is at least reasonably possible that the claim will be pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In this matter, the landlord of the Company’s formerly leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the New Jersey facility and prepared an eviction notice. The Company negotiated a payment in the amount of $250,000 to regain access to the facility, and reached an accord to negotiate with the landlord to resolve the outstanding issues by May 31, 2015. On December 28, 2015, the Company ultimately approved the termination of the lease agreements related to the New Jersey facility, thereby ceasing all operations at that particular facility. This termination was prompted by the former landlord’s demand for payment of approximately $2.3 million to maintain access to the facility. In September 2016, the Company reached an agreement with the landlord. The agreement required the Company to resolve certain environmental issues regarding the former processing facility and make certain payments to the landlord. The Company, the landlord and their related entities also agreed to a full and final settlement of existing and possible futures claims between the parties. As of November 14, 2016, the Company believes it has addressed the environmental issues by removing and disposing of the waste from the facility and cleaning the storage tanks. Additionally, as of November 14, 2016, the Company has paid $295,000 of the agreed upon $335,000 payment to the landlord. The remaining $40,000 will be paid to the landlord upon resolution of related pending regulatory matters, subject to certain additional terms. Because the Company had already fully reserved for this contingency, the agreement’s execution did not result in an additional expense to the Company in the quarter ended September 30, 2016.

  

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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 accounting principles generally accepted in the United States; 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. Nevertheless, 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.

 

The Company is aware of one environmental remediation issue related to our former leased property in New Jersey, which is currently subject to a remediation stemming from the sale of property by the previous owner in 2008 to the current landlord. To Management’s knowledge, the former landlord has engaged a licensed site remediation professional and had assumed responsibility for this remediation. In Management’s opinion the liability for this remediation is the responsibility of the former landlord. However, the former landlord has disputed this position and it is an open issue subject to negotiation. Currently, we have no knowledge as to the scope of the landlord’s former remediation obligation.

 

Results of Operations

 

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

 

Net Sales

 

For the nine-month period ended September 30, 2016, Net Sales were $4,145,741 compared to $5,526,276 for the nine-month period ended September 30, 2015, representing a decrease of $1,380,535, or approximately 25%. The decrease in Net Sales was due to the impact of the closure of our former New Jersey processing center in December 2015, partially offset by the addition of new customers. For the nine-month period ended September 30, 2015, Net Sales for the New Jersey facility were approximately $2,032,000. Although the Company is making an ongoing effort to retain and serve certain customers from its existing facilities that were previously served by its New Jersey facility, Net Sales may decrease over the next one to two years given the cessation of the Company’s New Jersey facility and our ordinary course of business decision to discontinue non-profitable sales and/or operations.

 

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Cost of Goods Sold

 

For the nine-month period ended September 30, 2016, our Cost of Goods Sold was $3,968,501, compared to $5,971,400 for the nine-month period ended September 30, 2015, representing a decrease of $2,002,899, or approximately 34%. The decrease in Cost of Goods Sold was primarily due to the closure of our former New Jersey processing center in December 2015, partially offset by costs associated with sales to new customers. For the nine-month period ended September 30, 2015, Cost of Goods Sold for the New Jersey facility was approximately $2,647,000.

 

Gross Profit (Loss)

 

For the nine-month period ended September 30, 2016, we realized a gross profit of $177,240, compared to a gross loss of $(445,124) for the nine-month period ended September 30, 2015. This change is primarily the result of the impact of the closure of our former New Jersey processing center in December 2015.

 

Our gross profit margin for the nine-month period ended September 30, 2016, was approximately 4%, compared to approximately (8)% for the nine-month period ended September 30, 2015.

 

Operating Expenses

 

For the nine-month period ended September 30, 2016, operating expenses increased to $2,716,773 from $2,219,699 for the nine-month period ended September 30, 2015, representing an increase of $497,074, or approximately 22%.  Operating Expenses consist of Consulting Fees, Share-Based Compensation, Salaries and Wages, Legal and Professional, and General and Administrative Expenses.

 

Consulting Fees consist of marketing, administrative and management fees incurred under consulting agreements. Consulting Fees decreased to $114,902 for the nine-month period ended September 30, 2016, from $285,364 for the nine-month period ended September 30, 2015, representing a decrease of $170,462, or 60%. The decrease is primarily due to the change in direction by management to utilize employees rather than consultants to advance our business.

 

Share-Based Compensation consists of stock, options and warrants issued to consultants, employees and directors in consideration for services provided to the Company. Share-Based Compensation increased to $856,848 for the nine-month period ended September 30, 2016, from $798,227 for the nine-month period ended September 30, 2015, representing an increase of $58,621, or 7%.   The increase is due to changes in the type and amount of awards granted between periods.

 

Salaries and Wages consist of wages and the related taxes.  Salaries and Wages increased to $816,069 for the nine-month period ended September 30, 2016, from $411,663 for the nine-month period ended September 30, 2015, representing an increase of $404,406 or 98%.  The increase is due to a shift by management to use employees rather than consultants as well as the build out of certain in-house resources, including sales, marketing and customer service personnel to support the Company’s short term and long term growth plans and technical resources to support the Company’s product quality enhancement and production capacity increase efforts. Towards the end of the quarter ended September 30, 2016 and continuing into the quarter ended December 31, 2016, the Company increased its sales and market team, including the hiring of a Vice President of Sales and Marketing. The Company expects that this increase in personnel will result in an immediate increase in salaries and wages expense and an increase in sales in 2017.

 

Legal and Professional Fees consist of legal, accounting, tax and audit services.  For the nine-month period ended September 30, 2016, Legal and Professional Fees decreased to $192,152 from $235,972 for the nine-month period ended September 30, 2015, representing a decrease of $43,820 or approximately 19%. The decrease is primarily attributable to our focus on reducing our reliance on the outsourcing of professional services and utilizing the abilities of our in-house staff and well as cost savings realized in connection with certain services.

 

General and Administrative (G&A) Expenses consist of general operational costs of our business. For the nine-month period ended September 30, 2016, G&A Expenses increased to $736,802 from $488,473 for the nine-month period ended September 30, 2015, representing an increase of $248,329, or approximately 51%.  The increase is primarily due to costs incurred in the six months ended June 30, 2016, related to our New Jersey processing center that was closed in December 2015, partially offset by cost savings realized across other areas of the Company. The Company has taken steps to complete the wind down of the New Jersey processing center and eliminate these ongoing costs, including the reduction of costs in the quarter ended September 30, 2016 compared to the first two quarters of 2016.

 

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Other Income and Expenses

 

For the nine-month period ended September 30, 2016, Other Income and Expenses was expense of $2,413 compared to an expense of $123,337 for the nine-month period ended September 30, 2015, representing a change of $120,924, or approximately 98%. Other Income and Expenses consist primarily of Interest Income and Interest Expense along with a gain on settlement of a note payable of $15,000 during 2016. The change was primarily due to costs associated with our former New Jersey processing center that was closed in December 2015 and the gain on settlement.

 

Interest Expense consists of interest on the Company’s outstanding indebtedness.  For the nine-month period ended September 30, 2016, Interest Expense decreased to $17,739 from $123,552 for the nine-month period ended September 30, 2015, representing a decrease of $105,813 or approximately 86%. The decrease was primarily due to costs associated with our former New Jersey processing center that was closed in December 2015.

 

Adjusted EBITDA

 

Presented below is the non-GAAP financial measure representing earnings before interest, taxes, depreciation, amortization and stock 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.

 

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

 

    Nine Months Ended September 30,  
    2016     2015  
Net loss   $ (2,547,977 )   $ (2,790,246 )
                 
Interest expense, net     17,413       123,337  
Gain on settlement of note payable     (15,000 )     -  
Income tax expense     6,031       2,086  
Depreciation and amortization     254,397       607,465  
Share-based compensation     856,848       798,227  
Adjusted EBITDA   $ (1,428,288 )   $ (1,259,131 )

 

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

 

Net Sales

 

For the three-month period ended September 30, 2016, Net Sales were $1,388,980 compared to $2,141,924 for the three-month period ended September 30, 2015, representing a decrease of $752,944, or approximately 35%. The decrease in Net Sales was due to the impact of the closure of our former New Jersey processing center in December 2015, partially offset by the addition of new customers. For the three-month period ended September 30, 2015, Net Sales for the New Jersey facility were approximately $952,000. Although the Company is making an ongoing effort to retain and serve certain customers from its existing facilities that were previously served by its New Jersey facility, Net Sales may decrease over the next one to two years given the cessation of the Company’s New Jersey facility and our ordinary course of business decision to discontinue non-profitable sales and/or operations.

 

Cost of Goods Sold

 

For the three-month period ended September 30, 2016, our Costs of Goods Sold was $1,282,507, compared to $2,239,512 for the three-month period ended September 30, 2015, representing a decrease of $957,005, or approximately 43%. The decrease in Cost of Goods Sold was primarily due to the closure of our former New Jersey processing center in December 2015 partially offset by additional costs associated with new customers. For the three-month period ended September 30, 2015, Cost of Goods Sold for the New Jersey facility was approximately $1,223,000.

 

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Gross Profit (Loss)

 

For the three-month period ended September 30, 2016, we realized a gross profit of $106,473, compared to a gross loss of $(97,588) for the three-month period ended September 30, 2015. This change is primarily the result of the impact of the closure of our former New Jersey processing center in December 2015.

 

Our gross profit margin for the three-month period ended September 30, 2016, was approximately 8%, compared to approximately (5)% for the three-month period ended September 30, 2015.

 

Operating Expenses

 

For the three-month period ended September 30, 2016, operating expenses increased to $799,826 from $596,414 for the three-month period ended September 30, 2015, representing an increase of $203,412, or approximately 18%.  Operating Expenses consist of Consulting Fees, Share-Based Compensation, Salaries and Wages, Legal and Professional, and General and Administrative Expenses.

 

Consulting Fees consist of marketing, administrative and management fees incurred under consulting agreements. Consulting Fees decreased to $13,479 for the three-month period ended September 30, 2016, from $65,592 for the three-month period ended September 30, 2015, representing a decrease of $52,113, or 79%. The decrease is primarily due to the change in direction by management to utilize employees rather than consultants to advance our business.

 

Share-Based Compensation consists of stock, options and warrants issued to consultants and employees in consideration for services provided to the Company. Share-Based Compensation increased to $258,613 for the three-month period ended September 30, 2016, from $168,128 for the three-month period ended September 30, 2015, representing an increase of $90,485, or 54%.   The increase is due to changes in the type and amount of awards granted between periods.

 

Salaries and Wages consist of wages and the related taxes.  Salaries and Wages increased to $277,058 for the three-month period ended September 30, 2016, from $142,216 for the three-month period ended September 30, 2015, representing an increase of $134,842 or 95%.   The increase is due to a shift by management to use employees rather than consultants as well as the build out of certain in-house resources, including sales, marketing and customer service personnel to support the Company’s short term and long term growth plans and technical resources to support the Company’s product quality enhancement and production capacity increase efforts. Towards the end of the quarter ended September 30, 2016 and continuing into the quarter ended December 31, 2016, the Company increased its sales and market team, including the hiring of a Vice President of Sales and Marketing. The Company expects that this increase in personnel will result in an immediate increase in salaries and wages expense and an increase in sales in 2017.

 

Legal and Professional Fees consist of legal, accounting, tax and audit services.  For the three-month period ended September 30, 2016, Legal and Professional Fees increased to $50,255 from $50,035 for the three-month period ended September 30, 2015, representing an increase of $220.

 

General and Administrative (G&A) Expenses consist of general operational costs of our business. For the three-month period ended September 30, 2016, G&A Expenses increased to $200,421 from $170,443 for the three-month period ended September 30, 2015, representing an increase of $29,978, or approximately 18%. The decrease is primarily due to ongoing costs related to our New Jersey processing center that was closed in December 2015. The Company is taking steps to complete the wind down of the New Jersey processing center and eliminate these ongoing costs. The increase is primarily due to costs associated with increased focus in areas such as sales, marketing and customer service as well as product quality enhancement and production capacity increase efforts.

 

Other Income and Expenses

 

For the three-month period ended September 30, 2016, Other Income and Expenses was expense of $5,653 compared to an expense of $39,606 for the three-month period ended September 30, 2015, representing a decrease of $33,953, or approximately 86%. Other Income and Expenses consist of Interest Income and Interest Expense.

 

Interest Expense consists of interest on the Company’s outstanding indebtedness.  For the three-month period ended September 30, 2016, Interest Expense decreased to $5,761 from $39,645 for the three-month period ended September 30, 2015, representing a decrease of $33,884 or approximately 85%. The decrease was primarily due to costs associated with our former New Jersey processing center that was closed in December 2015.

 

Adjusted EBITDA

 

Presented below is the non-GAAP financial measure representing earnings before interest, taxes, depreciation, amortization and stock 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.

 

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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.

 

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

 

    Three Months Ended September 30,  
    2016     2015  
Net loss   $ (699,091 )   $ (735,694 )
                 
Interest expense, net     5,653       39,606  
Gain on settlement of note payable             -  
Income tax expense     85       2,086  
Depreciation and amortization     98,628       202,986  
Share-based compensation     258,613       168,128  
Adjusted EBITDA   $ (336,112 )   $ (322,888 )

 

Liquidity & 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 from financing continues to be the Company’s primary source of funds. We believe that we can raise adequate funds through issuance of equity or debt as necessary to continue to support our planned expansion.

 

For the nine months ended September 30, 2016 and 2015, net cash used in operating activities was $1,918,821 and $2,592,914, respectively.  The decrease in cash used in operating activities is due to the decrease in our net loss as well as significant period over period changes in accounts receivables, inventories, accounts payable and accrued expenses and depreciation and amortization. For the nine months ended September 30, 2016, the Company used $449,698 in cash for investing activities, compared to the $143,389 used in the prior year’s period.  These amounts were comprised of capital expenditures for equipment as well as the acquisition of Brian’s On-Site Recycling. For the nine months ended September 30, 2016 and 2015, we received $2,802,105 and $3,300,676, respectively, in cash from financing activities. The decrease is due to the funds received from a private placement offering in February 2015 exceeding the funds received from the rights offering conducted in February 2016, which are both discussed further below, as well as the repayment of debt.

 

As of September 30, 2016, we had $2,790,006 in current assets, including $1,710,273 in cash, $657,827 in accounts receivable and $235,990 in inventories. Cash increased from $1,276,687 as of December 31, 2015, to $1,710,273 as of September 30, 2016, primarily due to the rights offering in February 2016.

 

As of September 30, 2016, we had total current liabilities of $1,161,241 consisting primarily of accounts payable and accrued expenses of $907,864. As of September 30, 2016, we had total non-current liabilities of $191,067, consisting primarily of the non-current portion of our notes payable obligations of $186,298.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2016, 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.

 

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. There can be no assurances, however, that the Company will 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. 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.

 

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In their report dated April 1, 2016, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our consolidated financial statements for the year ended December 31, 2015 concerning the Company's assumption that we will continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of current working capital requirements and recurring losses from operations.

 

The table below sets forth certain information about the Company’s liquidity and capital resources for the nine months ended September 30, 2016 and 2015:

 

    For the Nine Months Ended  
    September 30, 2016     September 30, 2015  
Net cash (used in) operating activities   $ (1,918,821 )   $ (2,592,914 )
Net cash (used in) investing activities     (449,698 )     (143,389 )
Net cash provided by financing activities     2,802,105       3,300,676  
Net increase in cash and cash equivalents     433,586       564,373  
Cash - beginning of period     1,276,687       494,847  
Cash - end of period   $ 1,710,273     $ 1,059,220  

 

The Company may not have sufficient capital to sustain expected operations for the next twelve months. To date, we financed operations and investing activities through private sales of our securities exempt from the registration requirements of the Securities Act of 1933, as amended. During the nine months ended September 30, 2016, we completed a rights offering and raised net proceeds of $2,936,792, which is discussed further below.

 

Private Placement in February 2015

 

On February 17, 2015, the Company completed a private placement offering (the “Offering”) of units of the Company’s securities (the “Units”) at a price of $0.325 per Unit, with each Unit consisting of one share of the Company’s common stock, par value $0.0001 per share. In connection with the Offering, the Company entered into subscription agreements with eighteen (18) accredited investors and one (1) non-accredited investor (collectively, the “Investors”), pursuant to which the Company sold to the Investors, for an aggregate purchase price of $3,581,875, a total of 11,021,170 Units, consisting of 11,021,170 shares of common stock.

 

The Company utilized the services of a FINRA registered placement agent (the “Placement Agent”) for the Offering. In connection with the Offering, the Company paid an aggregate cash fee of $34,827 to the Placement Agent and issued to the Placement Agent five-year stock options to purchase up to 107,160 shares of common stock at an exercise price of $0.325 per share. The net proceeds to the Company from the Offering, after deducting the foregoing cash fee and other expenses related to the Offering, were $3,547,048.

 

Rights Offering in February 2016

 

On February 26, 2016, the Company closed a rights offering (the “Rights Offering”). The rights offering was made pursuant to a registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on January 20, 2016.

 

Pursuant to the Rights Offering, the Company distributed to holders of its common stock non-transferable subscription rights to purchase up to 50,200,947 shares of the Company’s common stock, par value $0.0001 per share. Each shareholder received one subscription right for every one share of common stock owned at 5:00 p.m. EST on October 30, 2015, the record date. Each subscription right entitled a shareholder to purchase 0.7 shares of the Company’s common stock at a subscription price of $0.08 per share, which was referred to as the basic subscription privilege. If a shareholder fully exercised their basic subscription privilege and other shareholders did not fully exercise their basic subscription privileges, shareholders could also exercise an over-subscription privilege to purchase a portion of the unsubscribed shares at the same subscription price of $0.08 per share.

 

During the Rights Offering, subscription rights to purchase a total of 37,475,620 shares of common stock, par value $0.0001, were exercised. The exercise of these subscription rights resulted in gross proceeds to the Company of $2,998,050 before deducting expenses associated with the rights offering.

 

Off-balance Sheet Arrangements

 

None.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

Not Applicable.

 

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Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information 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. Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal 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, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. 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 also is 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.

 

As of September 30, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, management concluded that as of September 30, 2016, our disclosure controls and procedures were not effective.

 

Our management has previously identified a material weakness regarding a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner. The material weakness related to our Company was due to not having adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions. The Company made progress to remedy this deficiency through retaining accounting staff members with public company experience. However, due to the limited time that these controls have been in place, we believe that our disclosure controls remain ineffective.

 

Changes in Internal Control Over Financial Reporting

 

During the fiscal quarter ended September 30, 2016, 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.

 

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PART II—OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

On January 8, 2016, Acquisition Sub. #4 filed a civil action against Onyxx Group LLC in the Circuit Court of Hillsborough County, Florida. This civil action relates to an outstanding balance due from Onyxx Group LLC to Acquisition Sub. #4. In September 2016, the Company received a favorable judgment regarding this civil action in the amount of $95,000.

 

On March 22, 2016, Acquisition Sub. #4 filed a civil action against Encore Petroleum, LLC in the Superior Court of New Jersey Law Division, Hudson County. This civil action relates to an outstanding balance due from Encore Petroleum to Acquisition Sub. #4. This civil action is still pending.

 

The Company is also aware of one matter that involves an alleged claim against the Company, and it is at least reasonably possible that the claim will be pursued. The claim involves contracts with our former director and his related entities that provided services and was our landlord for the Company’s former processing facility in New Jersey. In this matter, the landlord of the Company’s formerly leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. During the quarter ended March 31, 2015, the former landlord denied the Company access to the New Jersey facility and prepared an eviction notice. The Company negotiated a payment in the amount of $250,000 to regain access to the facility, and reached an accord to negotiate with the landlord to resolve the outstanding issues by May 31, 2015. On December 28, 2015, the Company ultimately approved the termination of the lease agreements related to the New Jersey facility, thereby ceasing all operations at that particular facility. This termination was prompted by the former landlord’s demand for payment of approximately $2.3 million to maintain access to the facility. In September 2016, the Company reached an agreement with the landlord. The agreement required the Company to resolve certain environmental issues regarding the former processing facility and make certain payments to the landlord. The Company, the landlord and their related entities also agreed to a full and final settlement of existing and possible futures claims between the parties. As of November 14, 2016, the Company believes it has addressed the environmental issues by removing and disposing of the waste from the facility and cleaning the storage tanks. Additionally, as of November 14, 2016, the Company has paid $295,000 of the agreed upon $335,000 payment to the landlord. The remaining $40,000 will be paid to the landlord upon resolution of related pending regulatory matters, subject to certain additional terms. Because the Company had already fully reserved for this contingency, the agreement’s execution did not result in an additional expense to the Company in the quarter ended September 30, 2016.

 

Item 1A.  Risk Factors.

 

There have been no changes that constitute a material change from the risk factors previously disclosed in our 2015 Annual Report on Form 10-K filed on April 4, 2016.

 

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

 

For the three months ended September 30, 2016, the Company issued unregistered securities as follows:

 

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On July 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.

 

On August 31, 2016, the Company issued an aggregate of 54,317 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.

 

On September 30, 2016, the Company issued an aggregate of 54,359 shares of Common Stock to nine employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.

 

On September 30, 2016, the Company issued an aggregate of 628,125 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder because the investors had sufficient sophistication and knowledge of the Company and the financing transaction, and the issuance did not involve any form of general solicitation or general advertising. The investors made investment representations that the shares were taken for investment purposes and not with a view to resale.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

There have been no material changes to the procedures by which holders may recommend nominees to our Board of Directors.

 

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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: November 14, 2016 By: /s/ Grant Sahag
  Grant Sahag
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 14, 2016 By: /s/ Ian Rhodes
  Ian Rhodes
  Chief Financial Officer
  (Principal Financial Officer)

 

 

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