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| EXCEL - IDEA: XBRL DOCUMENT - GlyEco, Inc. | Financial_Report.xls |
| EX-32.2 - EX-32.2 - GlyEco, Inc. | ex32-2.htm |
| EX-21.1 - EX-21.1 - GlyEco, Inc. | ex21-1.htm |
| EX-31.2 - EX-31.2 - GlyEco, Inc. | ex31-2.htm |
| EX-31.1 - EX-31.1 - GlyEco, Inc. | ex31-1.htm |
| EX-32.1 - EX-32.1 - GlyEco, Inc. | ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
o TRANSITION REPORT PURSUANT TO 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)
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Nevada
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45-4030261
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(State or other jurisdiction of incorporation)
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(I.R.S. Employer Identification No.)
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4802 East Ray Road, Suite 23-408
Phoenix, Arizona
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85044
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (866) 960-1539
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.0001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer: o
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Accelerated filer: o
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Non-accelerated filer: o
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Smaller reporting company: x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, 28,942,158 shares of its Common Stock, par value $0.0001 per share, were held by non-affiliates of the registrant. The aggregate market value of those shares was $19,970,089 based on the closing sale price of $0.69 on such date as reported on the OTCQB Market system. Shares held by executive officers, directors, and persons owning directly or indirectly more than 10% of the outstanding common stock have been excluded from the preceding number because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.
As of March 30, 2015, the registrant had 69,299,826 shares of Common Stock, par value $0.0001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
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Page
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this Annual Report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the Securities and Exchange Commission that are incorporated into this Annual Report by reference, if any. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this Annual Report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Annual Report. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission. Also note that we include a cautionary discussion of risks, uncertainties, and possibly inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us.
PART I
When used in this Annual Report, the words “anticipate,” “believe,” “expect,” “estimate,” “project,” “intend,” “plan,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated, projected, intended, or planned. For additional discussion of such risks, uncertainties, and assumptions, see “Cautionary Note Regarding Forward-Looking Statements” included in the beginning of this report and “Risk Factors” beginning on page 9 of this Annual Report.
Item 1. Business
Unless otherwise noted, terms such as the “Company,” “GlyEco,” “we,” “us,” “our” and similar terms refer to GlyEco, Inc., a Nevada corporation, and its wholly-owned subsidiaries, unless otherwise specified.
Corporate History
GlyEco, Inc. (the “Company”) was formed in the State of Nevada on October 21, 2011. On that same date, the Company became a wholly-owned subsidiary of Environmental Credits, Inc. (“ECVL”). On November 21, 2011, ECVL merged itself into its wholly-owned subsidiary, GlyEco, Inc. (the “Reincorporation”). Upon the consummation of the Reincorporation, the Company was the surviving corporation and the Articles of Incorporation and Bylaws of the Company replaced the Certificate of Incorporation and Bylaws of ECVL.
On November 28, 2011, the Company consummated a reverse triangular merger (the “Merger” or “Transaction”) as a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended, pursuant to an Agreement and Plan of Merger, dated November 21, 2011 (the “Merger Agreement”), with GRT Acquisition, Inc., a Nevada corporation and wholly-owned subsidiary of the Company, and Global Recycling Technologies, Ltd., a Delaware corporation and privately-held operating subsidiary (“Global Recycling”). Global Recycling was incorporated in Delaware on July 11, 2007.
GRT Acquisition, Inc. was incorporated in the State of Nevada on November 7, 2011 for the purpose of the consummating the Merger. Pursuant to the Merger Agreement, GRT Acquisition, Inc. merged with and into Global Recycling, with Global Recycling being the surviving corporation and which resulted in Global Recycling becoming a wholly-owned subsidiary of the Company.
On December 30, 2011, Global Recycling’s wholly-owned subsidiary, Global Acquisition Corp. #6 (“Acquisition #6”), a Delaware corporation, was dissolved. Acquisition #6 ceased operations on December 31, 2009, when the assets (including rights to additive formula and goodwill) were sold in an exchange for the common shares of Global Recycling. Prior to its sale, Acquisition #6 operated as a chemical company selling additives used in producing antifreeze and heat transfer fluid from recycled ethylene glycol. Sales of additives were discontinued upon the sale of the assets effective December 31, 2009.
On January 9, 2012, the Company and Global Recycling consummated a merger pursuant to which Global Recycling merged with and into the Company (the “Global Merger”), with the Company being the surviving entity.
The 11,591,958 shares of common stock of Global Recycling (constituting 100% of the issued and outstanding shares of Global Recycling on the effective date of the Global Merger) held by the Company pursuant to the reverse merger consummated on November 28, 2011, were cancelled upon the consummation of the Merger.
Description of Business Activity
Our principal business activity is the processing of used glycol into high-quality recycled glycol products that we sell in the automotive, HVAC, and industrial end markets. We are the largest independent glycol recycler in North America, with seven processing centers located in the eastern region of the United States.
Our products include T1™ recycled glycols which may be used in any industrial application, recycled antifreeze used in the automotive industry, and HVAC fluids used in the heating and air conditioning industry. We generate revenue by selling recycled glycols. We also generate revenue through the collection of used glycol.
We have developed a proprietary green chemistry process, GlyEco Technology™, the first glycol treatment process able to restore any type of used glycol to original specifications for purity. Our GlyEco Technology™ allows us to recycle all five major types of waste glycol into a refinery-grade product usable in any industrial glycol application.
GlyEco began to acquire glycol recycling and processing centers in February 2012, completing our most recent acquisition in March 2014. Since acquisition, these subsidiaries have been upgraded with proprietary systems to improve product quality and greatly increase processing capacities. We are dedicated to innovative solutions in sustainable glycol products and to creating products that conserve natural resources, limit liability for waste generators, and create value for our customers.
Our Operations
We currently operate seven processing centers in the United States. These processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Elizabeth, New Jersey (hereinafter referred to as the “NJ Processing Center”), (5) Rock Hill, South Carolina, (6) Tea, South Dakota, and (7) Landover, Maryland.
Six of our processing centers utilize a fleet of trucks to collect waste material for processing and deliver recycled glycol products directly to customers at their business. These processing centers combined currently collect waste glycol directly from approximately 3,500 generators.
Our NJ Processing Center is our largest processing center. The NJ Processing Center is designed for larger batch processing and focuses primarily on generating T1™ recycled glycol from multiple waste sources. We have completed the implementation of our GlyEco Technology™ at the NJ Processing Center, and recycled product from this processing center meets ASTM E1177 EG-1 or EG-2 specifications. The NJ Processing Center is strategically located to service high volume customers from multiple waste glycol creating industries.
Throughout 2014, we installed capital improvements and implemented system enhancements at our NJ Processing Center. These newly installed systems feature proprietary advanced pre-treatment, distillation and separation systems to improve end-product quality, and state-of-the-art post-treatment systems.
Our Products
Our product offerings include the following:
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T1™ Recycled Glycols – Our GlyEco Technology™ allows us to produce glycols which meet ASTM E1177 Type EG-1 standards and can be used in any industrial application.
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Recycled Antifreeze – We formulate several universal recycled antifreeze products to meet ASTM and/or OEM manufacturer specifications for engine coolants. In addition, we custom blend recycled antifreeze to customer specifications.
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Recycled HVAC Fluids – We formulate a universal recycled HVAC coolant to meet ASTM and/or OEM manufacturer specifications for heating, ventilation and air conditioning fluids. In addition, we custom blend recycled HVAC coolants to customer specifications.
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Waste Glycol Disposal Services – Utilizing our fleet of collection/delivery trucks, we collect waste glycol from generators for recycling. We coordinate large batches of waste glycol to be picked up from generators and delivered to our processing centers for recycling or in some cases to be safely disposed.
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Our Technology
Our founders began developing innovative new methods for recycling glycols in 1999. We saw a need in the market to improve the quality of recycled glycol and to clean more types of waste glycol in a cost efficient manner. Each type of industrial waste glycol contains a different set of impurities which traditional waste antifreeze processing just doesn't clean effectively. And, many of the contaminants left behind using these processes - such as esters, organic acids and high dissolved solids - leave the recycled material risky to use in vehicles or machinery.
We spent ten years on research and development, independent market validation, and financial analysis to determine the most advantageous business position for expanding what we believe to be groundbreaking technologies. The result was our breakthrough patent-pending processing system, GlyEco Technology™. Our inventive technology removes challenging pollutants, including esters, organic acids, high dissolved solids and high un-dissolved solids. Our technology also has the added benefit of clearing oil/hydrocarbons, additives and dyes that are typically found in used engine coolants. Our quality assurance and control program, which includes independent lab testing, seeks to ensure consistently high quality, American Society for Testing and Materials (“ASTM”) standard compliant recycled material.
We have received verification from multiple American Association for Laboratory Accredited (A2LA) laboratories that our recycled glycol meets the specifications of the ASTM E1177 Type EG-1 standard, which is the official standard for refinery-grade glycol (“T1™”).
Industry Overview1
Background on Glycol
Glycols are man-made liquid chemicals derived from natural gas and crude oil —non-renewable and limited natural resources. Glycols are used as a base chemical component in five primary industries: (1) Automotive; (2) Heating, Ventilation, and Air Conditioning (“HVAC”); (3) Textiles, (4) Airline, and (5) Medical.
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Automotive – Glycols are used as antifreeze in vehicles and other equipment with a combustion engine.
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HVAC - Glycols are in the heat transfer fluids used to warm and cool buildings.
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Textiles – Glycols are used as a raw material in the manufacturing of polyester fiber and plastics (e.g. water bottles).
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Airline – Glycols are used in aircraft deicing fluid to avoid accumulation of moisture on aircraft wings.
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Medical – Glycols are used for equipment sterilization in the medical industry.
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During use in these industries, glycol becomes contaminated with impurities. Impurities in waste glycol vary depending on the industry source, with each waste stream containing different amounts of water, glycols, dirt, metals, and oils. Most waste glycol is landfilled, sent to waste water treatment, released to surface water, or disposed of improperly, wasting an important natural resource and causing a negative effect on our environment. Because of rapid biodegradability of glycol, the U.S. Environmental Protection Agency (“EPA”) allows disposal by “release to surface waters." However, when glycols break down in water they deplete oxygen levels, which kill fish and other aquatic life. Exposure to ethylene glycol can be hazardous and may cause death for humans, animals, birds, fish, and plants.
There are different types of glycol, including propylene glycol and ethylene glycol. Our GlyEco Technology™ focuses generally on ethylene glycol but can be modified to work with any type of glycol. Virgin ethylene glycol is produced in petrochemical plants using the ethane/ethylene extracted from natural gas or cracked from crude oil in refineries. Ethylene is oxidized in these petrochemical plants to ethylene oxide, which is then hydrated to form ethylene glycol. Glycols are also used in other applications such as paints and coatings, but these uses do not produce waste glycol, thus are not relevant to our business.
Glycol Market
World-wide consumption for ethylene glycol is over 5.5 billion gallons per year with an expected growth rate of approximately 5% from 2014 to 2018. China and the United States are the largest consumers of ethylene glycol. While the growth rate has slowed, demand continues to exceed supply for ethylene glycol, largely because of growth in polyester manufacturing used to make clothing, plastic containers, and plastic beverage bottles.2
Despite the negative effects waste glycol can have on people and the environment, the majority is disposed of rather than recycled. It is estimated that only 12% of waste antifreeze is recycled, equaling approximately 25 to 30 million gallons recycled per year (EPA; WEBA Corporation).
Glycol Recycling
Companies began recycling waste glycol in the 1980s. Material technological advances and market acceptance of recycled glycol did not occur until the 1990s, but recyclers rarely processed any other type of glycol than waste automotive antifreeze. To this day, recyclers still generally focus on automotive antifreeze, as waste glycol from the other industries have unique impurities and are challenging to process. The glycol recycling industry is generally fragmented with many small to mid-sized companies throughout North America that recycle glycol, antifreeze, and/or other glycol-based liquids. Additionally, a few used motor-oil recyclers who operate in multi-state regions also collect and recycle waste antifreeze. The most common methods of glycol recycling include distillation, nanofiltration, and electrodialysis.
1 Any and all references to third parties herein represent our understanding based upon publicly available information.
2 Global Ethylene Glycol Market 2014-2018, Business Wire, November 17, 2014, http://www.businesswire.com/news/home/20141117005506/en/Research-Markets-Global-Ethylene-Glycol-Market-2014-2018#.VQxUehZICbA.
Glycol Recycling Standards
The ASTM, Original Equipment Manufacturers (“OEM”), and various states have developed guidelines and regulations that govern the quality of virgin and recycled glycol. ASTM is recognized as the independent leader in creating standards for the composition of antifreeze and other glycol-based products. ASTM sets both performance standards (e.g. specifications for engine coolant used in light- and heavy-duty automobiles) and general purity standards. ASTM E1177 provides specifications on the purity level of glycol. ASTM has subdivided its ASTM E1177 glycol specification into two levels, Type EG-1 and Type EG-2.
Type EG-1 specifications are consistent with virgin glycol. Recycled glycol can also meet the Type EG-1 standard, but none of the competitors that we are aware of meet this standard. Meeting the Type EG-1 standard is important, as it determines what price customers are willing to buy the recycled product for. Customers in the polyester manufacturing industries generally require a product that meets or exceeds this standard, as do OEMs (e.g. automobile manufacturers).
Type EG-2 was established to define a product with a higher water content, often used to create coolants. Glycols that are Type EG-2 can only be used in a limited number of applications and only certain customers are willing to purchase Type EG-2 glycol (e.g. certain national automobile service chains). We believe that only a few ethylene glycol recycling companies currently meet Type EG-2 requirements, and none meet Type EG-1 requirements on a commercial scale.
Glycol Pricing3
Glycol is a commodity, and prices vary based upon supply, demand, and feedstock costs. On the supply side, there are a few companies that control the majority of virgin glycol production worldwide (e.g. MEGlobal, SABIC, and Formosa Group). These producers establish the market pricing of glycol with their sales to large polyester companies (e.g. Indorama, Sinopec, DAK Americas, and M&G Group) and antifreeze blenders (e.g. Old World, Prestone, and Valvoline). Large producers affect market pricing with short and long-term supply and capacity. For example, month-to-month fluctuation in pricing often derives from planned and unplanned temporary shutdowns of refineries for maintenance and repair. Upstream feedstock costs, including the price of crude oil and natural gas, also have some influence on the price of glycol. On the demand side, the automotive antifreeze and polyester industries are the major drivers of downstream demand. Generally, the demand for glycol is highest in the months leading up to winter for use in automotive antifreeze and in the months leading up to summer for use in plastic bottles for water and other drinks. The current benchmark price for virgin ethylene glycol is approximately $4.10 per gallon.
Competitors
We face competition both in the recycling and virgin glycol sectors.
The glycol recycling industry is comprised primarily of independent recyclers who operate within their own geographic region. The industry is fragmented with multiple small to mid-sized independent recyclers spread out across the United States. Most operations are companies still owned by the original entrepreneur that founded the company, or they are a division of a larger chemical operation where glycol recycling is only a small portion of the business. Additionally, a few used motor-oil recyclers who operate in multistate regions also collect and recycle waste antifreeze. The majority of recycled glycol from these operations is sold into secondary markets as generic automotive antifreeze. This material is often mixed with refinery-grade glycol to dilute remaining impurities and because the quality does not meet the standards of many buyers and certain industries as a whole. These glycol recycling competitors actively seek to purchase waste glycol from local, regional, and national collectors, competition which can increase the price to obtain such waste.
Other competitors include refinery grade glycol manufacturers (e.g. MEGlobal and SABIC), antifreeze producers (e.g. Prestone and Old World), and waste collectors (e.g. Safety Kleen). While these competitors have a large footprint and access to resources, they have not traditionally focused on glycol and we believe that they do not have the recycling technology to produce high quality products–such that we receive waste glycol from some of these companies.
3 Pricing information in this section comes from ICIS Chemical Business and is based upon shipment of mono-ethylene glycol by rail or truck.
While there is a possibility of competitors (both from existing antifreeze glycol recyclers and from new entrants into the glycol recycling industry) producing recycled glycol that can meet ASTM Type EG-1 standards in commercial volumes, there are several barriers to entry. Potential competitors entering the Type EG-1 recycled glycol market would first need to develop technology that produces comparable quality recycled material without violating any of our intellectual property. We are not aware of any such systems currently in development. This solved, potential competitors would need to purchase or build sufficient facilities to service the North American territory. Finally, potential competitors would need to establish or build relationships with target customers to obtain waste glycol material in large volumes. While these challenges are not insurmountable, we believe they would take significant time to overcome.
Competitive Strengths
We believe our business possesses the following competitive strengths which position us to serve our customers, grow our revenues and profits, and maintain a competitive edge over other companies in our sector:
Multiple Recycling Facilities. We operate seven processing centers servicing multiple waste glycol producing regions. Providing waste glycol disposal services to national and regional waste collectors has increased. We believe multi-region clients prefer a business partner who is experienced with hazardous waste disposal regulations, is a publically traded company, and has a large operating footprint with conveniently located disposal centers. We believe our sales growth with large disposal clients and national recycled glycol customers will continue due to our experience and larger footprint. We also believe having centralized management of multiple locations will streamline administrative functions, elevate our logistics and decrease costs such as transportation and personnel.
Proprietary Technology. We believe our GlyEco Technology™ gives us distinct advantages in servicing our clients, creating premium products, and controlling our costs. We can cost effectively process waste glycol created by industries who often pay to dispose of this hazardous waste. Many of our waste disposal clients are concerned with cradle-to-grave products liability, we believe that our GlyEco TechnologyTM will give them greater incentive to dispose of their material with a company that handles the waste responsibly and will recycle it into a quality product. We have begun producing T1TM recycled glycol and are selling it in our target price range, similar to refinery-grade pricing.
Diversified Feedstock Supply Network. We obtain our waste glycol supply through a combination of direct collection activities and aggregation from third-party collectors. We believe our balanced direct and indirect approach to obtaining waste is highly advantageous, maximizing total supply and minimizing infrastructure. We collect waste glycol directly from approximately 3,500 generators —including oil change service stations, automotive and heavy equipment repair shops, and brokers— which reduces our reliance on any single supplier. We also receive waste glycol from five or six large waste collectors, which allows us to benefit from large volumes of waste without the infrastructure needed to support collection and customer service management.
Relationships with Customers. All of the companies that we acquired have established and personal relationships with their feedstock and off take customers, having provided a high level of product and customer service to their clients for up to fifteen years. Because nearly all of our general managers have continued with the Company and have a vested interest in the Company succeeding, we believe our relationships with these parties will be strong and could lead to expanded feedstock supply through customer referral and brand recognition in the local community.
Experienced Management Team. We are led by a management team with expertise in glycol recycling, waste management, finance, and operations. Certain key members of our executive management team have more than 10 years of industry experience, and have executed plans similar to GlyEco’s plan moving forward—including upgrading processing centers and expanding glycol recycling businesses through organic growth. Each plant manager has over 13 years of experience in the glycol recycling business. We believe the strength of our management team will help our success in the marketplace.
Strategy
Our strategy is to increase production by continuing to expand our customer base, both in the regions we currently serve and in new regions across North America and abroad. We will expand our waste glycol disposal services and waste glycol recycling services to additional industries within our regions. The principal elements of our business strategy are to:
Expand Customer Base and Increase Profits. We have completed extensive capital improvements to increase our production capacity and ability to service an expanded field of customers. Each of our processing centers has improved production capabilities. We intend to utilize our increased ability to produce product to drive market expansion. Our customers and partners require high levels of regulatory and environmental compliance, which we intend to emphasize through employee training, facility policies and procedures, and ongoing analysis of operating performance. We have begun to implement standardized accounting, invoicing, and logistics management systems across our operations. We implemented computerized customer relationship management, dispatch and inventory control systems in 2014. We have implemented the initial phase of our GlyEco® brand strategy and will continue to build brand equity via marketing initiatives. We believe all of these measures will increase the quality service we can provide to customers, increase the visibility of the Company, and maximize profitability.
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: stress segregation from other liquid wastes and a focus on waste glycol recovery to our existing customers; attract new waste generator customers by displacing incumbent waste collectors through product quality and customer service value propositions; and attract 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.
Pursue Selective Strategic Relationships or Acquisitions. We intend to grow our market share by consolidating feedstock supply through partnering with waste collection companies, leveraging recently acquired relationships, or acquiring other companies with glycol recycling operations. We plan to focus on partnerships and acquisitions that not only add revenue and profitability to our financials but those that have long-term growth potential and fit with the overall goals of the Company.
New Market Development. We have completed the initial processing center expansions necessary to diversify our customer base into new markets. During 2014, we increased our market reach into the textile, HVAC, and airline industries at some of our processing centers. We intend to continue this growth into new markets and underserved industries. We plan to implement additional capacity at our processing centers to allow them to process additional types of waste glycol streams and therefore to serve any prevailing new markets in their respective geographic areas.
Expand Services in Canadian Markets. We have begun processing waste antifreeze material collected in five Canadian Provinces; however, no sales in this market have been made to date. We intend to expand our services offering to additional waste generating industries within this territory.
Suppliers
We conduct business with a number of waste glycol generators, as well as waste collectors that have varied operations in solid, hazardous, special, and liquid waste. We collect waste glycol directly from approximately 3,500 generators, such as oil change service stations, automotive and heavy equipment repair shops, automotive dealerships, vehicle fleet operations, plastic bottle manufacturers, virgin glycol refineries, and other companies that generate waste glycol. We also receive waste glycol from five to ten waste collectors that act as a “one-stop shop” for companies generating a variety of waste including oil, glycol, solvents, and solid waste. At our processing centers, we receive the majority of our waste glycol from waste generators, with the balance coming from waste collectors. We normally collect waste glycol from waste generators in volumes between 50 to 100 gallons. We also receive waste glycol in 5,000 gallon tanker trucks from waste collectors. Our glycol concentrate processing centers generally receive their material from waste collectors, brokers, glycol manufacturers, and other larger waste sources. These processing centers receive the waste material by rail in 20,000 gallon loads or by truck in 5,000 gallon loads. Depending on the type of waste glycol and the chemical composition of that glycol, we can be paid by the generators to take the material, take it for free, or pay for the material. We plan to expand our feedstock sources at all processing centers as we increase capacity and storage.
Customers
We sell to a variety of customers including automotive garages, vehicle fleet operations, antifreeze blenders, the U.S. government, and others. Our processing centers most often sell their recycled antifreeze product back to their feedstock suppliers—including oil change service stations, automotive and heavy equipment repair shops, automotive dealerships, and vehicle fleet operations—in volumes of 50 to 100 gallons per order. However, they also sell material in volumes of 1,000 to 5,000 gallons per order to distributors who resell normally into the automotive industry. Our processing centers agree with their customers to a fixed pricing for recycled antifreeze which is below refinery grade pricing. Pricing at our processing centers will change from time to time based upon market conditions. Our T1TM processing center sells concentrated glycol, mainly to the military or government, antifreeze blenders, and distributors in volumes of 5,000 to 20,000 gallons per order. We normally sell this based on the spot price market for refinery grade glycol.
Seasonality
Our business is affected by seasonal factors, mainly the demand for automotive antifreeze and plastic bottles, which can affect our sales volume and the price point. Because the demand for automotive antifreeze is highest in winter months, our processing centers often see an increase in sales during the first and fourth quarters. Generally, our processing centers have slower second and third quarters, but this trend is not absolute and will depend on the climate in that facility’s region and how quickly the business is growing. As the Company diversifies recycling services in to additional industries, some of this seasonality may be reduced.
Our T1™ processing centers can be affected not only by the volume collected and sold in colder months but also by the spot and contract pricing of refinery grade glycol (e.g. what MEGlobal and SABIC are selling glycol for in domestic and international markets). Generally, the demand for glycol peaks in the months leading up to winter for the use in automotive antifreeze, heating systems and aircraft deicing fluids. Glycol demand is also high in the months leading up to summer as production increases for plastic food containers, water and beverage bottles, and increases in use of air conditioning system fluids. Because the finished products at our T1™ processing centers are normally based upon the spot market, the pricing can be influenced by seasonal demand for antifreeze and plastic bottles. However, there are many other variables that can affect the pricing of glycol, including supply being affected by refinery shutdowns and other upstream conditions.
National and International Regulation
Although glycol can be considered a hazardous material, there are few federal rules or regulations governing its characterization, transportation, packaging, processing, or disposal (e.g. handling). Typically any regulations that address such activities occur at either the state and/or county level and can vary significantly from region to region. For example, while a majority of states do not regulate the resale of recycled glycol in any manner, a few states do regulate the quality of recycled glycol that can be resold in the market as antifreeze by requiring that all branded recycled antifreeze be tested and approved before resale can occur.
Regarding the handling of waste glycol, most states have little to no regulation specifically regarding the handling of waste glycol. Instead, the handling of waste glycol is typically regulated under state-level hazardous waste and solid waste regulations. Waste glycol is not automatically characterized as a hazardous waste by the states, but it can be considered hazardous if the waste material is tested and contains a certain amount of contaminants, such as lead. For example, the State of Indiana published guidance explaining that used antifreeze is not a “listed” hazardous waste, but it can be identified as a hazardous waste if it is contaminated from use or mixture with other wastes. Importantly, a handful of states grant an exception to handlers of waste glycol allowing them to not have to test their waste material if its destination is a recycling facility. This is a notable exception that allows the glycol recycling industry to function without significant barriers. For example, the State of Minnesota does not require used antifreeze destined for recycling to be evaluated. Additionally, some states exempt the handling of waste glycol from the application of state-level hazardous waste regulations if the waste material is recycled according to certain best management practices (BMPs) identified by the states. BMPs often relate to the labeling and storage of waste glycol and to proper recordkeeping. For example, the State of Florida exempts used antifreeze generated by vehicle repair facilities from the application of the state’s hazardous waste regulations if it is recycled according to the BMPs outlined by the state. The handling of waste glycol is also often regulated by state-level solid waste regulations, as such regulations typically define “solid waste” to include spent liquids. However, similar to state-level hazardous waste regulations, an exception sometimes applies that exempts the handling of waste glycol from the application of state-level solid waste regulations if the waste glycol is being recycled and therefore does not pose any threat to public health or the environment.
A few states and localities require a license or permit to process waste glycol. The cost of such licenses and permits to process waste glycol can vary from less than one hundred dollars to a few thousand dollars. Recyclers are often left with hazardous metals or chemicals as a byproduct of their process, for which they pay a nominal fee to register with the state and/or county as a hazardous waste generator and pay for the waste to be incinerated or disposed of in some other environmentally friendly way.
As a handler of glycol, we are subject to the requirements of the United States Occupational Safety and Health Act (“OSHA”) and comparable state laws that regulate the protection of employee health and safety. OSHA’s hazard communication standard requires that information about hazardous materials used or produced in our operations be maintained and provided to employees, state and local government authorities and citizens.
We also conduct interstate motor carrier operations that are subject to federal regulation by the Federal Motor Carrier Safety Administration (“FMCSA”), a unit within the United States Department of Transportation, (“USDOT”). The FMCSA publishes and enforces comprehensive trucking safety regulations, including rules on commercial driver licensing, controlled substance testing, medical and other qualifications for drivers, equipment maintenance, and drivers’ hours of service. Another unit within USDOT publishes and enforces regulations regarding the transportation of hazardous materials, but our interstate motor carrier operations are not typically regulated as hazmat (hazardous materials) at this time.
In addition to taking the necessary precautions and maintaining the required permits/licenses, glycol recyclers generally take out environmental liability insurance policies to mitigate any risks associated with the handling of waste glycol. We do everything within our power to make sure that all permits, licenses, and insurance policies are in place to mitigate any risks stemming from the actions of our employees or third parties.
Intellectual Property
On March 15, 2013, we filed a utility patent application for our GlyEco Technology™ processes with the United States Patent and Trademark Office (“USPTO”) claiming priority to the provisional patent application that we filed in August of 2012. This utility patent application is currently under review by the USPTO. We maintain and use several service marks including “GlyEco®”, “Innovative Green Chemistry®”, “GlyEco Certified®”, “GlyEco TechnologyTM”, “G-TECHTM”, “T1TM”, and “T2TM”. In addition, we have developed a website and have registered www.glyeco.com as our domain name, which contains information we do not desire to incorporate by reference herein.
Employees
We currently have a total of forty-three employees, of which thirty-six are full-time and seven are part-time. Of the forty-three employees, twelve are drivers and thirty-one are executive, sales, and administrative staff. In addition to the employees, we use five consultants on a monthly basis and engage other consultants on a project basis. We believe all of our employee relations to be good.
Item 1A. Risk Factors
An investment in the Company is highly speculative, involves a high degree of risk and should be considered only by those persons who are able to afford a loss of their entire investment. In evaluating us and our business, prospective investors should carefully consider the following factors, in addition to the other information contained in this Annual Report.
Risks Related to Our Business and Financial Condition
Going Concern. At December 31, 2014, we had $494,847 in cash on hand, and we do not currently have enough capital to sustain our operations for the next 12 months. In their report dated April 10, 2015, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the fiscal year ended December 31, 2014 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. To date, 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 and to ultimately achieve viable operations. Our plans to address these matters include raising additional financing through offering its shares of our capital stock in private and/or public offerings and through debt financing, if available and needed. We might not be able to obtain additional financing on favorable terms, if at all, which could materially adversely affect our business and operations
We may need to obtain additional funding to continue to implement our business strategy. If we are unable to obtain additional funding, our business operations may be harmed, and if we do obtain additional financing, then existing stockholders may suffer substantial dilution. We may require additional funds to sustain our operations and institute our business plan. We anticipate incurring monthly operating expenses, which includes compensation to be paid to executives, additional employees, and consultants, and legal and accounting costs, at an approximate amount of $80,000 per month, for an indefinite period of time. Additional capital will be required to effectively support our operations and to otherwise implement our overall business strategy. Even if we do receive additional financing, it may not be sufficient to sustain or expand our development operations or continue our business operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our development plans. Any additional equity financing may involve substantial dilution to our then existing stockholders and may adversely affect the market price of our Common Stock.
Our business plan and our growth rely on being able to procure significant waste glycol. Although we believe that waste glycol in excess of the quantities that we will need to support our growth will be available, we cannot be certain that we will be able to obtain such quantities. Any failure to obtain such quantities could have a material adverse effect on our business, prospects, or financial results.
Disruptions in the supply of feedstock could have an adverse effect on our business. We depend on the continuing availability of raw materials, including feedstock, to remain in production. A serious disruption in supply of feedstock, or significant increases in the prices of feedstock, could significantly reduce the availability of raw materials at our processing centers. Additionally, increases in production costs could have a material adverse effect on our business, results of operations and financial condition. For example, there are enough competitors vying for waste antifreeze from the automotive industry that supply can be difficult to find at times. Similar supply and feedstock cost issues have been seen in the waste lube oil market.
Our inability to obtain other raw materials, component parts, and/or finished goods in a timely and cost-effective manner from suppliers would adversely affect our ability to process glycol. We purchase raw materials and component parts from suppliers to be used in the processing of our products. In addition, we purchase certain finished goods from suppliers. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts, or finished goods could result in processing interruptions, delays, inefficiencies, or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers.
Our New Jersey Processing Center may not generate the operating results that we anticipate and may lead to greater volatility in our revenue and earnings. There can be no assurance that unforeseen market conditions will not adversely impact the operation or profitability of our largest processing center in New Jersey (the “New Jersey Processing Center”). Our success in operating our New Jersey Processing Center may be affected by the following factors:
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Used Glycol Feedstock – Operations at our New Jersey Processing Center capacity depend on our ability to obtain the required volume of glycol feedstock and to acquire such feedstock at competitive rates.
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Operation of the New Jersey Processing Center - Operations at our New Jersey Processing Center depend on our employees and management to run the processing center safely and in compliance with all relevant regulations. Any extended or unscheduled shutdowns may inhibit our ability to operate the processing center at capacity.
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Logistics - Operations at our New Jersey Processing Center capacity depend on our ability to efficiently transport used glycol to our site and to transport finished product out of our site.
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Glycol Demand - Operations at our New Jersey Processing Center capacity depend on the demand for glycol in general and specifically the glycol produced at our processing center; and
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Glycol Pricing - The price at which we sell glycol-based products from our New Jersey Processing Center is affected by changes in certain glycol pricing indexes. If the relevant indexes decline, we would typically reduce prices for our recycled product, even if our costs do not experience a similar decline. If we reduce prices for our products, we may not realize expected results, and our operating margins may be adversely impacted.
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We may face significant competition. The glycol recycling industry is generally fragmented with many small to mid-sized companies throughout North America that recycle glycol, antifreeze, and/or other glycol-based liquids. The industry is in the preliminary stage of development. However, a few large, well-recognized companies with substantial resources and established relationships have begun to increase their share of the market. It is possible that such a group will attempt to purchase multiple glycol recycling companies as part of an overall roll-up business strategy. Additionally, potential competitors may have greater financial, technical, marketing, and sales resources that will permit them to (i) react more quickly to emerging product and service offerings and changes in customer requirements, and (ii) devote greater resources to the development, promotion, and sale of competing products or services. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share.
We are in negotiations with our New Jersey landlord over disputed amounts owed. Our New Jersey landlord has made claims for additional rents owed for the use of a storage tank, and the use of additional space at the New Jersey facility. To date we have agreed on an additional payment of $250,000 and to continue further negotiations to resolve their claim. Negotiations have been contentious, with the landlord preparing a notice of eviction and denying us access to the facility at one point in time. Should we be unable to reach an amicable solution, the landlord may deny us access to our processing equipment in New Jersey, which would severely hamper our operations, and necessitate additional legal action.
We have limited control over the prices that we charge for our products. The prices of glycol are dependent upon the supply/demand balance and supply capacity in the United States. Unfavorable changes to the supply/demand balance could affect the prices we charge for our products and therefore could reduce our revenues and adversely affect our profitability. Additionally, if our products gain acceptance and attract the attention of competitors, we may experience pressure to decrease the prices we charge for our products, which could adversely affect our revenue and our gross margin. If we are unable to offer our products at acceptable prices, or if we fail to offer additional products with sufficient profit margins, our revenue growth will slow, our margins may shrink, and our business and financial results will suffer.
Our business may be significantly affected if antifreeze producers begin to offer base fluids other than ethylene glycol. If antifreeze producers were to begin to offer base fluids other than ethylene glycol, major changes would have to be made in the industry. If such other base fluids, like for example, glycerin, become accepted in the marketplace, competition could increase, demand could fall, and our prices could be adversely affected. Accordingly, if such a situation occurs, our revenue growth will slow, our margins will shrink, and our business and financial results will suffer.
If we cannot protect our intellectual property rights, our business and competitive position will be harmed. Our success depends, in large part, on our ability to obtain and enforce our patent, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. Litigation can be costly and time consuming. Litigation expenses could be significant. In addition, we may decide to settle legal claims, despite our beliefs on the probability of success on the merits, to avoid litigation expenses as well as the diversion of management resources. We anticipate being able to protect our proprietary rights from unauthorized use by third parties to the extent that such rights are covered by a valid and enforceable patent. On March 15, 2013, we filed a utility patent application for our GlyEco Technology™ processes with the United States Patent and Trademark Offices claiming priority to the provisional patent application that we filed in August of 2012 (the “Patent”). Our potential patent position involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Moreover, if a patent is awarded, our competitors may infringe upon our patent or trademarks, independently develop similar or superior products or technologies, duplicate our designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may obtain patent or trademark protection. In addition, it is possible that third parties may have or acquire other technology or designs that we may use or desire to use, so that we may need to acquire licenses to, or to contest the validity of, such third-party patents or trademarks. Such licenses may not be made available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of such third-party rights.
Any patent application may be challenged, invalidated, or circumvented. One way a patent application may be challenged outside the United States is for a party to file an opposition. These opposition proceedings are increasingly common in the European Union and are costly to defend. To the extent we would discover that our patent may infringe upon a third party’s rights, the continued use of the intellectual property underlying our patent would need to be reevaluated and we could incur substantial liability for which we do not carry insurance. We have not obtained any legal opinions providing that the technology underlying our patent will not infringe upon the intellectual property rights of others.
Litigation brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property rights owned or used by us may be costly and time consuming. We may face lawsuits from time to time alleging that our products infringe on third-party intellectual property, and/or seeking to invalidate or limit our ability to use our intellectual property. If we become involved in litigation, we may incur substantial expense defending these claims and the proceedings may divert the attention of management, even if we prevail. An adverse determination in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products without a license from us, prohibit us from marketing our products or require us to seek licenses from third parties that may not be available on commercially reasonable terms, if at all.
Environmental, health and safety requirements could expose us to material obligations and liabilities and affect our profitability. 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. The consequence for violating such requirements can be material. We have made and will continue to make capital and other expenditures to comply with environmental and health and safety requirements. In addition, if a release of hazardous substances occurs on or from our properties or any offsite disposal location where our wastes have been disposed, or if contamination from prior activities is discovered at any of our properties or third-party owned properties that we or our predecessors formerly owned or operated, we may be subject to liability arising out of such conditions and the amount of such liability could be material. Liability can include, for example, costs of investigation and cleanup of the contamination, natural resource damages, damage to properties and personal injuries.
Failure to obtain and/or maintain all necessary licenses and permits may significantly affect our profitability. The regulation of our industry varies from state to state. Some states require that a license or permit be obtained in order to process waste glycol. Failure to obtain and/or maintain such permits may significantly affect our profitably and could also expose us to material liabilities.
We are dependent upon our key personnel. Our success is largely dependent upon the personal efforts and abilities of our management and certain other key personnel as the recycled glycol industry is complex. We are particularly substantially dependent upon the continued services of Richard Geib, our Chief Technical Officer. Mr. Geib spearheads the implementation of our proprietary GlyEco TechnologyTM and has significant contacts and experience in the recycled glycol industry. The loss of Mr. Geib could have a material adverse effect on our results of operations and financial condition.
Our ability to operate the Company effectively could be impaired if we fail to attract additional key personnel. Our ability to operate our businesses and implement our strategies depends, in part, on the efforts of our management and certain other key personnel. However, our future success will depend on, among other factors, our ability to attract and retain additional qualified personnel, including research professionals, technical sales professionals, and engineers. Our failure to attract or retain these additional qualified personnel could have a material adverse effect on our business or business prospects.
We may continue to grow through acquisitions, which would either dilute ownership of our existing stockholders or increase interest expense. In connection with any future acquisitions, we may issue a substantial number of shares of our Common Stock as transaction consideration and also may incur significant debt to finance the cash consideration used for acquisitions. We may continue to issue equity securities for future acquisitions, which would dilute existing stockholders, perhaps significantly depending on the terms of such acquisitions
Our efforts to grow through acquisitions may be affected by a decrease in qualified targets and an increase of cost to acquire. We may not be able to continue to identify attractive acquisition opportunities or successfully acquire those opportunities identified. Also, competition for acquisition targets may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions.
We currently operate seven processing centers, and if we are unable to effectively oversee all of these locations, our business reputation and operating results could be materially adversely affected. We are subject to risks related to our ability to oversee all seven of our processing center locations. If we are unable to effectively oversee our processing center locations, our results of operations could be materially adversely affected, we could fail to comply with environmental regulations, we could lose customers, we could lose control of inventory and other assets, and our business could be materially adversely affected.
We may not be able to manage our growth. We believe that our future success depends on our ability to manage the rapid growth that we have experienced, and the continued growth that we expect to experience organically and through acquisitions. Our growth places additional demands and responsibilities on our management to, among other things, maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. The following factors could present difficulties to us: lack of sufficient executive-level personnel at the facility level, increased administrative burden, lead times associated with acquiring additional equipment; availability of suitable acquisition candidates and availability of additional capacity of trucks, rail cars, and processing equipment; and the ability to provide focused service attention to our customers.
We are dependent on third parties for the manufacturing of our equipment. We do not manufacture our equipment. Accordingly, we rely on a number of third party suppliers to manufacture equipment. The supply of third party equipment could be interrupted or halted by operational problems of such suppliers or a significant decline in their financial condition. If we are not able to obtain equipment, we may not be able to compete successfully for new business, complete existing engagements profitably, or retain our existing customers. Additionally, if we are provided with defective equipment, we may be subject to reputational damage or product liability claims which may negatively impact our reputation, financial condition, and results of operations.
Our failure to keep pace with technological developments may adversely affect our operations and financial results. We are engaged in an industry which will be affected by future technological developments. The introduction of products or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success will depend upon our ability to develop and introduce, on a timely and cost-effective basis, new products, processes, and applications that keep pace with technological developments and address increasingly sophisticated customer requirements. We may not be successful in identifying, developing, and marketing new products, applications, and processes and product or process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction, and marketing of product or process enhancements or new products, applications, or processes. Our products, applications, or processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our business, operating results, and financial condition could be materially and adversely affected if we were to incur delays in developing new products, applications, or processes or product or process enhancements or if our products do not gain market acceptance.
If the use of our recycled glycol harms people or equipment, we could be subject to costly and damaging product liability claims. We could face costly and damaging claims arising from applicable laws governing our products and operations. Because our industry is highly regulated, if our products do not comply with regulatory requirements, we may be exposed to product liability risk. Our product liability insurance may not cover all potential liabilities or may not completely cover any liability arising from any such litigation. Moreover, we may not have access to liability insurance or be able to maintain the insurance on acceptable terms.
A downturn in the United States economy could have a material adverse effect on our ability to effectuate our business plan and our financial results. Our ability to achieve our goals depends heavily on varying conditions in the United States economy. Certain end-use applications for glycol experience demand cycles that are highly correlated to the general economic environment, which is sensitive to a number of factors outside of our control. Additionally, the industrial markets in which we compete are subject to considerable cyclicality, and move in response to cycles in the overall business environment. Therefore, downturns in the United States economy are likely to result in decreases in demand for our products. A downturn could decrease demand for our products or could otherwise adversely affect the prices at which we charge for recycled glycol. Moreover, a downturn in the specific areas of the economy in which we operate our business, could have a material adverse effect on ability to effectuate our business plan and our financial results. We are not able to predict the timing, extent, and duration of the economic cycles in the markets in which we operate.
Market regulation may affect our business plan. We intend to conduct business in the glycol recycling industry in North America. We are unable to predict changes in governmental regulations or policies that may influence or inhibit our ability to deliver compliant products and services to market. The recycled glycol industry is highly regulated and is subject to changing political, regulatory, and other influences. Forced changes through legislation and regulations adopted by United States, state, or foreign governmental agencies may disrupt our business processes and strategies. Continued compliance with newly enacted rules and regulations could be costly and require complex changes in our products and operations. We are unable to predict future rules or regulations with any certainty or to predict the effect they would have on our business, products, or services. Accordingly, there is significant uncertainty concerning competitive pressures and the impact on our actual and prospective customers. There can be no assurance that heightened or new regulations will not come into effect or that such regulation will not have a detrimental impact on the Company and our planned business.
If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations. Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial. We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other similarly situated companies in our industry. If we are unable to obtain adequate or required insurance coverage in the future, or if such insurance is not available at affordable rates, we could be in violation of permit conditions or the other requirements of environmental laws, rules, and regulations under which we operate. Such violations could render us unable to continue our operations. These events could result in an inability to operate certain assets and significantly impair our financial condition.
Our insurance policies do not cover all losses, costs, or liabilities that we may experience. We maintain insurance coverage, but these policies do not cover all of our potential losses, costs, or liabilities. We could suffer losses for uninsurable or uninsured risks, or in amounts in excess of our existing insurance coverage, which would significantly affect our financial performance. Our insurance policies also have deductibles and self-retention limits that could expose us to significant financial expense. Our ability to maintain adequate insurance may be affected by conditions in the insurance market over which we have no control. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition, and results of operations. In addition, our business requires that we maintain various types of insurance. If such insurance is not available or not available on economically acceptable terms, our business would be materially and adversely affected.
Current uncertainty in the global financial markets and the global economy may negatively affect our financial results. Current uncertainty in the global financial markets and economy may negatively affect our financial results. These macroeconomic developments could negatively affect our business, operating results or financial condition in a number of ways which, in turn, could adversely affect our stock price. A prolonged period of economic decline could have a material adverse effect on our results of operations and financial condition and exacerbate some of the other risk factors described herein. Our customers may defer purchases of our products, licenses, and services in response to tighter credit and negative financial news or reduce their demand for them. Our customers may also not be able to obtain adequate access to credit, which could affect their ability to make timely payments to us or ultimately cause the customer to file for protection from creditors under applicable insolvency or bankruptcy laws. If our customers are not able to make timely payments to us, our accounts receivable could increase.
In addition, our operating results and financial condition could be negatively affected if, as a result of economic conditions, either:
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the demand for, and prices of, our products, licenses, or services are reduced as a result of actions by our competitors or otherwise; or
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our financial counterparts or other contractual counterparties are unable to, or do not, meet their contractual commitments to us.
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Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business/operating margins, revenues and competitive position.
Seasonal weather conditions and natural disasters could severely disrupt normal operations and harm our business. We currently operate in the northern, mid-western, and eastern United States. These areas are adversely affected by seasonal weather conditions, primarily in the winter and spring. During periods of heavy snow, ice, or rain, our customers may curtail their operations or we may be unable to move our trucks to provide services, thereby reducing demand for, or our ability to provide services and generate revenues. The regions in which we operate have in the past been, and may in the future be, affected by natural disasters such as hurricanes, windstorms, floods, and tornadoes. Future natural disasters or inclement weather conditions could severely disrupt the normal operation of our, or our customers’, business and have a material adverse effect on our financial condition and results of operations.
Risks Related to our Common Stock
There is a limited market for our Common Stock and the market price of our Common Stock may be volatile. Currently, our Common Stock is quoted on the OTCQB under the symbol “GLYE.” Our Common Stock currently trades in small volumes. There can be no assurance that any trading market will ever develop or be maintained on the OTCQB. Any trading market that may develop in the future for our Common Stock will most likely be very volatile; and numerous factors beyond our control may have a significant effect on the market. The market price of our common stock may also fluctuate significantly in response to the following factors, some which are beyond our control:
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actual or anticipated variations in our quarterly operating results;
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changes in securities analysts’ estimates of our financial performance;
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changes in market valuations of similar companies;
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increased competition;
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announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new products or product enhancements;
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loss of a major customer or failure to complete significant transactions;
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additions or departures of key personnel; and
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the number of shares in our public float.
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The trading price of our common stock on OTCQB since our reverse merger has ranged from a high of $2.99 on April 30, 2012, to a low of $0.25, which was the last reported price of our common stock on the OTCQB on March 27, 2015.
In recent years, the stock market in general has experienced extreme price fluctuations that have oftentimes been unrelated to the operating performance of the affected companies. Similarly, the market price of our common stock may fluctuate significantly based upon factors unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the future. Any return on investment may be limited to the value of our Common Stock. We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant.
The failure to comply with the internal control evaluation and certification requirements of Section 404 of Sarbanes-Oxley Act could harm our operations and our ability to comply with our periodic reporting obligations. The Company is subject to the reporting requirements of the Securities Exchange Act of 1934. We are also required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). This process may divert internal resources and will take a significant amount of time, effort and expense to complete. If it is determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and reevaluate our financial reporting. We may experience higher than anticipated operating expenses as well as outside auditor fees during the implementation of these changes and thereafter. Further, we may need to hire additional qualified personnel in order for us to be compliant with Section 404. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results.
Our Common Stock is a "penny stock" under the rules of the SEC and the trading market in our securities will be limited, which makes transactions in our Common Stock cumbersome and may reduce the value of an investment in our Common Stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person's account for transactions in penny stocks; and
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the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
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In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
|
n
|
sets forth the basis on which the broker or dealer made the suitability determination; and
|
|
n
|
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our stock. In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We maintain our principal executive offices at 4802 East Ray Road, Suite 23-408, Phoenix, Arizona 85044. Our telephone number at that office is (866) 960-1539. We also maintain a virtual office at 10429 South 51st Street, Phoenix, AZ 85044. The monthly base rent for this virtual office is $200. The lease term is month-to-month.
Our Minnesota processing center leases approximately 9,600 square feet of property located at 796 29th Avenue SE, Minneapolis, MN 55414. The monthly base rent for this location is currently $5,054. The base rent will gradually increase until the lease term expires on December 31, 2018.
Our Indiana processing center leases approximately 10,000 square feet of property located at 3455 E. St. Clair Street, Indianapolis, IN 46201. The monthly base rent for this location is currently $3,550. The base rent will gradually increase until the lease term expires on December 31, 2017.
Our Florida processing center leases approximately 4,200 square feet of property located at 4302 Holden Road, Lakeland, FL 33811. The monthly base rent for this location is $2,500. The lease term expires on August 31, 2018.
Our New Jersey processing center leases approximately 174,000 square feet of property at 534 S. Front Street, Elizabeth, NJ 07202. The monthly base rent for this location is $30,000. The lease term expires on December 31, 2017.
Our South Carolina processing center leases approximately 7,000 square feet of property located at 230 Gill Way, Rock Hill, SC 29730. The monthly base rent for this location is currently $3,500. The base rent will gradually increase until the lease term expires on October 28, 2018.
Our South Dakota processing center leases approximately 3,600 square feet of property located at 46991 Mindy Street, Tea, SD 57064. The monthly base rent for this location is $2,100. The lease term expires on December 31, 2017.
Our Maryland processing center leases approximately 12,000 square feet of property located at 8464 Ardwick-Ardmore Road, Landover, MD 20785. The monthly base rent for this location is currently $6,570. The rent will gradually increase until the lease term expires on December 31, 2016.
We believe our existing facilities are adequate to meet our present requirements. We anticipate that additional space will be available, when needed, on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
However, the Company is aware of two matters that involve alleged claims against the Company, and it is at least reasonably possible that the claims will be pursued. Both of these claims are related to our New Jersey processing facility. The smaller of the claims is related to construction management services provided for the ongoing improvements to the facility. The entity has billed for amounts above their contract amount for services that the Company believes were, to some extent, either already paid for, or overbilled. The estimated range involved in this dispute is from $0 to $175,000. The second matter involves our contracts with our former director and his related entities that provide services, and is the landlord, for the processing facility. In this matter, the landlord of the Company’s leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. The estimated range involved in this dispute, is from $0 to $750,000.
Management believes both of these claims are meritless, and the Company will defend itself to the extent it is economically justified. Subsequent to December 31, 2014, the landlord denied the Company access to the 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. As of December 31, 2014, the Company has recorded an accrual in the amount of $525,000 to reflect the $250,000 payment, as well as to provide for potential costs to litigate these matters.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities.
Our Common Stock, $0.0001 par value, trades on the OTC Bulletin Board system under the symbol “GLYE.”
The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices for the Common Stock as reported by the OTC Bulletin Board system. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
|
High ($)
|
Low ($)
|
|||||||
|
2013
|
||||||||
|
1st Quarter
|
$
|
1.99
|
$
|
0.99
|
||||
|
2nd Quarter
|
$
|
1.39
|
$
|
0.90
|
||||
|
3rd Quarter
|
$
|
1.35
|
$
|
0.90
|
||||
|
4th Quarter
|
$
|
1.40
|
$
|
1.03
|
||||
|
2014
|
||||||||
|
1st Quarter
|
$
|
1.22
|
$
|
0.77
|
||||
|
2nd Quarter
|
$
|
1.06
|
$
|
0.57
|
||||
|
3rd Quarter
|
$
|
0.76
|
$
|
0.63
|
||||
|
4th Quarter
|
$
|
0.65
|
$
|
0.27
|
As of March 27, 2015, the closing sale price for our Common Stock as reported on the OTC Bulletin Board system was $0.25. As of March 27, 2015, there were approximately 969 shareholders of record for our Common Stock. This does not include shareholders holding stock in street name in brokerage accounts.
Transfer Agent
The Company’s transfer agent is Olde Monmouth Stock Transfer Co. Inc. located at 200 Memorial Parkway, Atlantic Highlands, NJ 07716. The transfer agent’s phone number is (732) 872-2727 and its website is www.oldemonmouth.com.
Cash Dividends
We have never paid cash dividends on our Common Stock, and it is unlikely that we will pay any dividends in the foreseeable future. We currently intend to invest future earnings, if any, to finance expansion of our business. Any payment of cash dividends in the future will be dependent upon our earnings, financial condition, capital requirements, and other factors deemed relevant by our Board of Directors.
Securities Authorized For Issuance Under Equity Compensation Plans
|
Equity Compensation Plan Information
|
||||||||||||
|
Plan category
|
Number of securities to be issued upon
exercise of granted options, warrants and rights
(a)
|
Weighted-average exercise price of granted options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
|||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
2007 Stock Incentive Plan
|
6,647,606
|
$
|
0.60
|
95,000
|
||||||||
|
2012 Equity Incentive Plan
|
5,010,072
|
$
|
0.88
|
1,489,928
|
||||||||
|
Equity compensation plans not approved by security holders:
|
||||||||||||
|
None
|
-
|
-
|
-
|
|||||||||
|
Total
|
11,657,678
|
$
|
0.72
|
1,584,928
|
||||||||
Third Amended and Restated 2007 Stock Incentive Plan
The Company assumed the Third Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Plan”) from Global Recycling Technologies, Ltd., a Delaware corporation (“Global Recycling”), upon the consummation of a reverse triangular merger between the Company, Global Recycling, and GRT Acquisition, Inc., a Nevada corporation, on November 28, 2011.
There are an aggregate of 6,742,606 shares of our Common Stock reserved for issuance upon exercise of options granted under the 2007 Stock Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company (collectively, “Eligible Persons”). As of December 31, 2014, we have issued options to purchase an aggregate of 6,647,606 shares of our Common Stock originally reserved under the 2007 Stock Plan.
Under the 2007 Stock Plan, Eligible Persons may be granted: (a) stock options (“Options”), which may be designated as Non-Qualified Stock Options (“NQSOs”) or Incentive Stock Options (“ISOs”); (b) stock appreciation rights (“SARs”); (c) restricted stock awards (“Restricted Stock”); (d) performance share awards (“Performance Awards”); or (e) other forms of stock-based incentive awards.
The 2007 Stock Plan will remain in full force and effect through May 30, 2017, unless earlier terminated by our Board of Directors. After the 2007 Stock Plan is terminated, no future awards may be granted under the 2007 Stock Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions.
A more comprehensive description of the 2007 Stock Plan is included in Item 11. Executive Compensation of this Annual Report and is included by reference herein.
2012 Equity Incentive Plan
On February 23, 2012, subject to stockholder approval, the Company’s Board of Directors approved of the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). By written consent in lieu of a meeting, dated March 14, 2012, stockholders of the Company owning an aggregate of 14,398,402 shares of Common Stock (representing approximately 66.1% of the then 23,551,991 outstanding shares of Common Stock) approved and adopted the 2012 Plan. Also by written consent in lieu of a meeting, dated July 27, 2012, stockholders of the Company owning an aggregate of 12,676,202 shares of Common Stock (representing approximately 51.8% of the then 24,451,991 outstanding shares of Common Stock) approved an amendment to the 2012 Plan to increase the number of shares reserved for issuance under the 2012 Plan by 3,000,000 shares.
There are an aggregate of 6,500,000 shares of our Common Stock reserved for issuance upon exercise of awards granted under the 2012 Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company. As of December 31, 2014, we have issued options to purchase an aggregate of 5,010,072 shares of our Common Stock originally reserved under the 2012 Plan.
The 2012 Plan includes a variety of forms of awards, including (a) ISOs (b) NQSOs (c) SARs (d) Restricted Stock, (e) Performance Awards, and (e) other forms of stock-based incentive awards to allow the Company to adapt its incentive compensation program to meet its needs.
The 2012 Plan will terminate on February 23, 2022, unless sooner terminated by our Board of Directors. After the 2012 Plan is terminated, no future awards may be granted under the 2012 Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions and the 2012 Plan’s terms and conditions.
A more comprehensive description of the 2012 Plan is included in Item 11. Executive Compensation of this Annual Report and is included by reference herein.
Recent Sales of Unregistered Securities
Below describes the unregistered securities issued by the Company within the period covered by this Annual Report.
On January 24, 2014, the Company issued an aggregate of 24,167 shares of Common Stock to one non-accredited investor for the cashless exercise of 45,000 stock options at a weighted average exercise price of $0.72 per share. The closing price on the OTCQB Market on the day of exercise was $1.08 per share of Common Stock. The stock options exercised vested immediately upon issuance and were converted at a rate of one share of Common Stock for each stock option exercised. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because the investor had sufficient sophistication and knowledge of the Company and the financing transaction, and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale.
On February 10, 2014, the Company issued an aggregate of 204,689 shares of Common Stock to four employees of the Company, pursuant to a performance incentive plan at a price of $1.04 per share. The shares were issued pursuant to Section 4(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 sale 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. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act. These shares were later retired on December 29, 2014, as the four employees have elected to receive all shares due pursuant to the performance incentive plan at a later date.
On March 14, 2014, the Company issued an aggregate of 2,605,513 shares of Common to two accredited investors in consideration for the conversion of Series AA Preferred Stock into Common Stock, per the terms of the Note Conversion Agreement at a price of $0.50 per share. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such investors represented that they were “accredited investors” as such term is defined under the Securities Act and the sale 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. The shares are restricted under Rule 144 promulgated under the Securities Act.
On March 21, 2014, the Company issued an aggregate of 204,750 shares of Common Stock to MMT Technologies at a price of $1.03 per share, pursuant to the MMT Agreement, by and among the Company, Acquisition Sub #3, and MMT Technologies, pursuant to which Acquisition Sub #3 acquired MMT Technologies’ business and all of its assets. The shares of Common Stock issued pursuant to the MMT Agreement are restricted under Rule 144 promulgated under the Securities Act. The Company issued theses shares pursuant to the registration exemptions of the Securities Act afforded the Company under Section 4(2) thereunder
On May 2, 2014, the Company issued an aggregate of 47,980 shares of Common Stock to one non-accredited investor for the cashless exercise of 101,250 stock options at an exercise price of $0.50 per share. The closing price on the OTCQB Market on the day of exercise was $0.90 per share of Common Stock. The stock options exercised vested immediately upon issuance and were converted at a rate of one share of Common Stock for each stock option exercised. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because the investor had sufficient sophistication and knowledge of the Company and the financing transaction, and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale.
On June 11, 2014, the Company issued an aggregate of 43,600 shares of Common Stock to one accredited investor in consideration for consulting services at a price of $0.65 per share. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because the investor had sufficient sophistication and knowledge of the Company and the financing transaction, and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
On July 1, 2014, the Company issued an aggregate of 6,268,628 shares of Common Stock, par value $0.0001 per share, upon the exercise of 6,268,628 warrants. The Company temporarily reduced the exercise price of all of its outstanding warrants to $0.50 per share for a period beginning on June 4, 2014, and ending on July 1, 2014 (the “Temporary Exercise Period”). During the Temporary Exercise Period, forty-six warrant holders exercised a total of 6,268,628 warrants and therefore purchased 6,268,628 shares of common stock in exchange for an aggregate purchase price of $3,134,314. The Company utilized the services of two FINRA registered placement agents during the Temporary Exercise Period. In connection with the warrant exercises, the Company paid an aggregate cash fee of approximately $62,144 to such placement agents. The net proceeds to the Company from the warrant exercises, after deducting the foregoing cash fee, were approximately $3,072,170. The securities issued in connection with the warrant exercises have not been registered under the Securities Act, and were made pursuant to the exemptions from registration provided by Section 4(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder. The securities are therefore restricted in accordance with Rule 144 under the Securities Act.
On September 19, 2014, the Company issued an aggregate of 4,000 shares of Common Stock to one non-accredited investor in consideration for equipment at a price of $0.67 per share. The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because the investor had sufficient sophistication and knowledge of the Company and the financing transaction, and the sale did not involve any form of general solicitation or general advertising. The investor made investment representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
Item 6. Selected Financial Data
Not Applicable
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our results of operations and financial condition for the years ended December 31, 2014, and 2013, with the audited Consolidated Financial Statements and related notes included elsewhere herein. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs, and which involve numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.
Company Overview
Our principal business activity is the processing of used glycol into high-quality recycled glycol products that we sell in the automotive, HVAC, and industrial end markets. We are the largest independent glycol recycler in North America, with seven processing centers located in the eastern region of the United States.
Our products include T1™ recycled glycols which may be used in any industrial application, recycled antifreeze used in the automotive industry, and HVAC fluids used in the heating and air conditioning industry. We generate revenue by selling recycled glycols. We also generate revenue through the collection of used glycol.
We have developed a proprietary green chemistry process, GlyEco Technology™, the first glycol treatment process able to restore any type of used glycol to original specifications for purity. Our GlyEco Technology™ allows us to recycle all five major types of waste glycol into a refinery-grade product usable in any industrial glycol application.
GlyEco began to acquire glycol recycling and processing centers in February 2012, completing our most recent acquisition in March 2014. Since acquisition, these subsidiaries have been upgraded with proprietary systems to improve product quality and greatly increase processing capacities. We are dedicated to innovative solutions in sustainable glycol products and to creating products that conserve natural resources, limit liability for waste generators, and create value for our customers.
We currently operate seven processing centers in the United States. These processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Elizabeth, New Jersey (hereinafter referred to as the “NJ Processing Center”), (5) Rock Hill, South Carolina, (6) Tea, South Dakota, and (7) Landover, Maryland.
Six of our processing centers utilize a fleet of trucks to collect waste material for processing and deliver recycled glycol products directly to customers at their business. These processing centers combined currently collect waste glycol directly from approximately 3,500 generators.
Our NJ Processing Center is our largest processing center. The NJ Processing Center is designed for larger batch processing and focuses primarily on generating T1™ recycled glycol from multiple waste sources. We have completed the implementation of our GlyEco Technology™ at the NJ Processing Center, and recycled product from this processing center meets ASTM E1177 EG-1 or EG-2 specifications. The NJ Processing Center is strategically located to service high volume customers from multiple waste glycol creating industries.
Throughout 2014, we installed capital improvements and implemented system enhancements at our NJ Processing Center. These newly installed systems feature proprietary advanced pre-treatment, distillation and separation systems to improve end-product quality, and state-of-the-art post-treatment systems.
Strategy
Our strategy is to increase production by continuing to expand our customer base, both in the regions we currently serve and in new regions across North America and abroad. We will expand our waste glycol disposal services and waste glycol recycling services to additional industries within our regions. The principal elements of our business strategy are to:
Expand Customer Base and Increase Profits. We have completed extensive capital improvements to increase our production capacity and ability to service an expanded field of customers. Each of our processing centers has improved production capabilities. We intend to utilize our increased ability to produce product to drive market expansion. Our customers and partners require high levels of regulatory and environmental compliance, which we intend to emphasize through employee training, facility policies and procedures, and ongoing analysis of operating performance. We have begun to implement standardized accounting, invoicing, and logistics management systems across our operations. We implemented computerized customer relationship management, dispatch and inventory control systems in 2014. We have implemented the initial phase of our GlyEco® brand strategy and will continue to build brand equity via marketing initiatives. We believe all of these measures will increase the quality service we can provide to customers, increase the visibility of the Company, and maximize profitability.
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: stress segregation from other liquid wastes and a focus on waste glycol recovery to our existing customers; attract new waste generator customers by displacing incumbent waste collectors through product quality and customer service value propositions; and attract 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.
Pursue Selective Strategic Relationships or Acquisitions. We intend to grow our market share by consolidating feedstock supply through partnering with waste collection companies, leveraging recently acquired relationships, or acquiring other companies with glycol recycling operations. We plan to focus on partnerships and acquisitions that not only add revenue and profitability to our financials but those that have long-term growth potential and fit with the overall goals of the Company.
New Market Development. We have completed the initial processing center expansions necessary to diversify our customer base into new markets. During 2014, we increased our market reach into the textile, HVAC, and airline industries at some of our processing centers. We intend to continue this growth into new markets and underserved industries. We plan to implement additional capacity at our processing centers to allow them to process additional types of waste glycol streams and therefore to serve any prevailing new markets in their respective geographic areas.
Expand Services in Canadian Markets. We have begun processing waste antifreeze material collected in five Canadian Provinces; however, no sales have been made in this market to date. We intend to expand our services offering to additional waste generating industries within this territory.
Critical Accounting Policies
We have identified in Note 2 - "Basis of Presentation and Summary of Significant Accounting Policies" to the Financial Statements, certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the 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, 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. 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, but are not limited to, items such as, the allowance of doubtful accounts, the value of stock-based compensation and warrants, the allocation of the purchase price in the various acquisitions, the realization of property, plant and equipment, goodwill, other intangibles and their estimated useful lives, contingent liabilities, and environmental and asset retirement obligations. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.
We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity:
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. The allowance for uncollectible accounts totaled $62,249 and $47,927 as of December 31, 2014 and 2013, respectively. 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.
Inventory
Inventory consists primarily of used glycol to be recycled, recycled glycol for resale and supplies used in the recycling process that, in each case, are stated at the lower of cost or market approximating cost on a first in, first out 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 trend 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 or whether the remaining balance of property and equipment, or other 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.
Stock Options
We use the Black-Scholes-Merton valuation 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.
Assumptions used in the calculation were determined as follows:
|
•
|
Expected term is generally determined using 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 similar industry indices selected by us as representative, which are publicly traded, over the expected term of the award, due to our limited trading history for awards granted through June 30, 2014. Thereafter, we began using our own trading history as we deemed there to be sufficient history at that point in time;
|
|
•
|
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.
|
Impairment of Goodwill and Other Intangible Assets
As of December 31, 2014, goodwill and net intangible assets recorded on our audited consolidated balance sheet aggregated to $4,296,656 (of which $835,295 is goodwill that is not subject to amortization). We perform an annual impairment review in the third quarter of each fiscal year. In accordance with 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. To date, we have not recorded an impairment of goodwill.
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.
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 December 31, 2014 and 2013, we had established a full valuation allowance for all deferred tax assets.
As of December 31, 2014 and 2013, 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. Currently, there are no pending legal proceedings.
However, the Company is aware of two matters that involve alleged claims against the Company, and it is at least reasonably possible that the claims will be pursued. Both of these claims are related to our New Jersey processing facility. The smaller of the claims is related to construction management services provided for the ongoing improvements to the facility. The entity has billed for amounts above their contract amount for services that the Company believes were, to some extent, either already paid for, or overbilled. The estimated range involved in this dispute is from $0 to $175,000. The second matter involves our contracts with our former director and his related entities that provide services, and is the landlord, for the processing facility. In this matter, the landlord of the Company’s leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. The estimated range involved in this dispute is from $0 to $750,000.
Management believes both of these claims are meritless, and the Company will defend itself to the extent it is economically justified. Subsequent to December 31, 2014, the landlord denied the Company access to the 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. As of December 31, 2014, the Company has recorded an accrual in the amount of $525,000 to reflect the $250,000 payment, as well as to provide for potential costs to litigate these matters.
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 as of December 31, 2014 and 2013. 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 aggregate, with an umbrella liability policy that doubles the coverage. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites 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 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 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 landlord. However, the landlord has disputed this position and it is an open issue subject to negotiation and the ultimate transfer of the New Jersey business. Currently, we have no knowledge as to the scope of the landlord’s remediation obligation.
The Company acknowledges that there will need to be recorded an asset retirement obligation for environmental matters that are expected to be addressed at the eventual asset retirement of our facility in New Jersey. Currently, the landlord of the property maintains a letter of credit, in the approximate amount of $400,000, to the benefit of the state of New Jersey to support such asset retirement expenditures. The transfer of the business operations to GlyEco, which began with the transfer of the Class D permit in August 2014, is still in process. Upon completion of the transfer, we anticipate that the Company will record an asset retirement obligation of approximately $400,000. We will need to post the $400,000 letter of credit with the New Jersey Department of Environmental Protection to ensure the funds are available if the facility is closed. The resultant $400,000 asset retirement obligation will be expensed over the anticipated operating life of the project, which is estimated to be approximately 25 years.
Results of Operations
Fiscal Year ended December 31, 2014 Compared to Fiscal Year Ended December 31, 2013
Net Sales
For the fiscal year ended December 31, 2014, Net Sales were $5,893,844 compared to $5,538,005 for the year ended December 31, 2013, an increase of $355,839, or 6.4%. At the end of 2013, we ceased providing service to a major customer, comprising approximately $1,300,000 in revenues during 2013, as the customer discontinued related operations. Increased sales in 2014 were due to increased production capabilities and corresponding sales from facilities added in late 2013. In 2015, the Company expects to ramp up production, and consequently revenues, at its facility in New Jersey. At the higher levels of production, the facility is anticipated to reach economies of scale sufficient to generate profits.
Cost of Goods Sold
For the fiscal year ended December 31, 2014, our Costs of Good Sold was $6,577,168 compared to $5,193,445 for the fiscal year ended December 31, 2013, representing an increase of $1,383,723, or approximately 26.6%. The was due to the associated Cost of Goods Sold related to additional production capabilities from facilities added in late 2013 and early 2014, and increased production costs at our facility in New Jersey. Cost of Goods Sold consists of all costs of sales, including costs to purchase, transport, store and process the raw materials, and overhead related to product manufacture and sale. We sometimes receive raw materials (used antifreeze) at no cost to the Company, which can have an impact on our reported consolidated gross profit.
Gross Profit (Loss)
For the fiscal year ended December 31, 2014, we realized a gross profit of $(683,324) compared to $344,560 for the year ended December 31, 2013, a decrease of $(1,027,884), or (298.3)%. The decrease in gross profit was primarily due to low production volumes at our facility in New Jersey that were insufficient to cover fixed costs.
Our gross profit margin for the year ended December 31, 2014 was approximately (11.6)% compared to approximately 6.2% for the year ended December 31, 2013. The decrease in gross profit margin is primarily attributable to low production volumes at our facility in New Jersey that were insufficient to cover fixed costs. In 2015, the Company expects to ramp up production, and consequently revenues, at its facility in New Jersey. At the higher levels of production, the facility is anticipated to reach economies of scale sufficient to generate profits, with gross profit margins ranging from 20-30%.
Operating Expenses
For the year ended December 31, 2014, operating expenses increased to $5,619,758 from $3,763,352 for the year ended December 31, 2013, representing an increase of $1,856,406, or approximately 49.3%. Operating expenses consist of Consulting Fees, Salaries and Wages, Share-Based Compensation, Legal and Professional Fees and General and Administrative Expenses. This increase is primarily attributable to an increase in our Salaries and Wages, Share-Based Compensation, and General and Administrative Expenses.
Consulting Fees consist of marketing, administrative and management fees paid under consulting agreements. Consulting Fees increased to $767,914 for the fiscal year ended December 31, 2014, from $680,196 for the fiscal year ended December 31, 2013, representing an increase of $87,718, or approximately 12.9%. The increase is primarily attributable to our expansion into the Canadian market.
Salaries and Wages consist of wages and the related taxes. Salaries and Wages increased to $999,968 for the year ended December 31, 2014, from $830,667 for the year ended December 31, 2013, representing an increase of $169,301 or 20.4%. The increase is due to the additional hiring of employees and salary increases attributable to the new operations and related administrative support for activities added in late 2013 and in 2014.
Share-Based Compensation consists of options issued to consultants and employees in consideration for services provided to the Company. Share-Based Compensation increased to $2,046,074 for the year ended December 31, 2014, from $1,065,288 for the year ended December 31, 2013, representing an increase of $980,786, or 92.1%. The increase is due to vesting of options during 2014 that were granted in 2013 and due to the issuance of 1,209,172 compensatory options and 4,293,013 compensatory warrants during 2014 to reward and provide an incentive to our consultants and employees and align their interest with our shareholders while conserving cash for expanding operations and investing activities.
Legal and Professional Fees consist of legal, outsourced accounting services, corporate tax and audit services. For the fiscal year ended December 31, 2014, Legal and Professional Fees increased to $337,118 from $286,728 for the fiscal year ended December 31, 2013, representing an increase of $50,390 or approximately 17.6%. The increase is due to additional legal and accounting expenses for SEC filings, licenses and permits, and contract negotiations.
General and Administrative (G&A) Expenses consist of general operational costs of our business. For the fiscal year ended December 31, 2014, G&A Expenses increased to $1,468,684 from $900,463 for the fiscal year ended December 31, 2013, representing an increase of $568,221, or approximately 63.1%. This increase is due to corresponding expenses from facilities added in late 2013 and early 2014, associated costs of building out our infrastructure to support future growth of the Company, and the reservation of funds for the settlement or litigation of certain legal disputes.
Other Income and Expenses
For the fiscal year ended December 31, 2014, Other Expenses, net decreased to $185,417 from $594,335 for the fiscal year ended December 31, 2013, representing a decrease of $(408,918), or approximately (68.8)%. Other Income and Expenses consist primarily of interest income and interest expense.
Interest Income consists of the interest earned on the Company’s corporate bank account. Interest Income for the fiscal year ended December 31, 2014 decreased to $1,103 from $2,496 for the fiscal year ended December 31, 2013, representing a decrease of $(1,393), or approximately (55.8)%. The decrease was due to a reduction in cash held in interest bearing accounts.
Interest Expense consists of interest on the Company’s outstanding indebtedness. For the fiscal year ended December 31, 2014, Interest Expense decreased to $180,128 from $592,788 for the fiscal year ended December 31, 2013, representing a decrease of $(412,660) or approximately (69.6)%. In 2013, the Company incurred interest expense associated with warrants issued for the Frenkel Conversion Agreement, discussed under Liquidity and Capital Resources, which was a one-time expense. A similar expense did not occur in 2014, which led to a reduction in interest expense for the year.
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
|
As Reported
|
||||||||
|
Years Ended December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Net loss
|
$
|
(6,488,499
|
)
|
$
|
(4,013,127
|
)
|
||
|
Interest expense
|
180,128
|
592,788
|
||||||
|
Income tax expense
|
-
|
-
|
||||||
|
Depreciation and amortization
|
687,613
|
441,472
|
||||||
|
Share-based compensation
|
2,046,074
|
1,065,288
|
||||||
|
Adjusted EBITDA
|
$
|
(3,574,684
|
)
|
$
|
(1,913,579
|
)
|
||
Liquidity & Capital Resources; Going Concern
As of December 31, 2014, we had $1,985,636 in current assets, consisting of $494,847 in cash, $786,056 in accounts receivable, $137,056 in prepaid expenses, and $567,677 in inventories. We had total current liabilities of $2,160,422 consisting of accounts payable and accrued expenses of $1,649,361, due to related parties of $62,500, the current portion of notes payable of $121,905, and the current portion of capital lease obligations of $326,656. We had total non-current liabilities of $899,393, consisting of note payable of $2,971, and the non-current portion of capital lease obligations of $896,422. Net cash used by operating activities for the year ended December 31, 2014, was $4,010,979, while the loss from operations was $6,303,082 for the same period. The difference arises primarily from non-cash transactions comprised of stock-based compensation of $2,046,074, depreciation and amortization of $687,613, and changes in assets and liabilities of $(262,559).
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2014, 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 and to ultimately achieve profitable operations when operating efficiencies can be realized from facilities added in 2013 and 2012. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Our plans to address these matters include realizing synergies and cost efficiencies with recent acquisitions, 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. The Company plans to become profitable by upgrading the capacity and capabilities at its existing operating facilities, continuing to implement our patent-pending technology in international markets, and acquiring profitable glycol recycling companies.
We intend to expand customer and supplier bases once operational capacity and capabilities have been upgraded and fully integrated.
In their report dated April 10, 2015, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the fiscal year ended December 31, 2014 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 fiscal years ended December 31, 2014 and 2013:
|
For the Fiscal Year Ended
|
||||||||
|
December 31, 2014
|
December 31, 2013
|
|||||||
|
Net cash (used in) operating activities
|
$
|
(4,010,979
|
)
|
$
|
(1,452,692
|
)
|
||
|
Net cash (used in) investing activities
|
$
|
(2,653,925
|
)
|
$
|
(3,243,765
|
)
|
||
|
Net cash provided by financing activities
|
$
|
2,766,452
|
|
$
|
7,935,815
|
|||
|
Net increase (decrease) in cash and cash equivalents
|
$
|
(3,898,452
|
)
|
$
|
3,239,358
|
|||
|
Cash - beginning of period
|
$
|
4,393,299
|
$
|
1,153,941
|
||||
|
Cash - end of period
|
$
|
494,847
|
$
|
4,393,299
|
||||
The Company does not currently have sufficient capital to sustain expected operations and acquisitions for the next 12 months. During 2014 and 2013, 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 year ended December 31, 2014, we raised $3,134,314 through equity financing for total proceeds of $3,072,170, net of financing costs of $62,144.
On February 17, 2015, the Company completed a private placement offering and raised $3,581,880, with net proceeds of $3,547,053 after deducting financing costs of $34,827. The Company intends to use $2,500,000 of the funds raised for the purchase of equipment to be installed at our facility in NJ during the fourth quarter of 2015. This equipment is expected to increase the facility’s production capacity to 10 million gallons. At the higher levels of production, the facility is expected to reach economies of scale sufficient to generate profits. Remaining funds from the capital raise will be used to support ongoing operations through the third quarter of 2015. By the third quarter, we will need to show growth in revenues adequate to support our costs of operations in order to continue as on ongoing concern without additional financing.
Frenkel Convertible Note
On March 14, 2014, the Series AA Preferred Stock was converted under the Conversion Agreement into 2,342,750 shares of Common Stock at a price of $1.02 per share. As inducement for the redemption of the Series AA Preferred Stock, an additional 262,763 shares of Common Stock were issued at a price of $1.02 per share. Additionally, per the terms of the Conversion Agreement, a three-year warrant to purchase one share of Common Stock was issued for each share of Common Stock received in the conversion with each such warrant having an exercise price of $1.00; therefore, a warrant to purchase 2,605,513 shares of Common Stock was issued in connection with the conversion. For a more detailed discussion of the Convertible Note and Series AA Preferred Stock, please see Note 10 in the consolidated financial statements for the year ended December 31, 2014.
Private Financings
On July 1, 2014, the Company sold an aggregate of 6,268,628 shares of Common Stock to forty-five accredited investors and one non-accredited investor upon the exercise of 6,268,628 warrants at an exercise price of $0.50 per share, which resulted in consideration of $3,134,314. The shares were issued under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Environmental, Health and Safety
The Company’s operations are governed by environmental laws and worker safety laws. Under various circumstances, these laws impose civil and criminal penalties and fines, as well as injunctive and remedial relief, for noncompliance and require remediation at sites where Company-related substances have been released into the environment.
The Company has expended substantial resources, both financial and managerial, to comply with applicable environmental laws and worker safety laws and to protect the environment and workers. The Company believes it is in substantial compliance with such laws and maintains procedures designed to foster and ensure compliance. However, the Company has been, and in the future may become, the subject of formal or informal enforcement actions or proceedings regarding noncompliance with such laws or the remediation of Company-related substances released into the environment. Such matters typically are resolved by negotiation with regulatory authorities resulting in commitments to compliance, abatement or remediation programs and in some cases payment of penalties. Historically, any such commitments or penalties imposed on the Company have not been material.
Environmental considerations are a part of all significant capital expenditure decisions; however, expenditures in fiscal 2014 related solely to environmental compliance were not 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. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites 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 issue related to our leased property in New Jersey, which is currently subject to site remediation stemming from a sale of assets by a previous tenant in 2008 to the current landlord. The landlord has engaged a licensed site remediation professional and has assumed responsibility for this remediation. The liability for this remediation has not been transferred to the Company. The incident giving rise to the remediation liability occurred before the Company’s use of the property.
The Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of our facility in New Jersey. Currently, in the opinion of management, the landlord and prior operator remain responsible for any environmental obligations that may arise because the transfer of the business operations, which commenced in August 2014 with the transfer of the permit to recycle Class D recyclable material, is still in process. Upon completion of the transfer, we anticipate that the Company will record an asset retirement obligation of approximately $400,000. The $400,000 will be reserved and a letter of credit will be filed with the New Jersey Department of Environmental Protection to ensure the funds are available if the facility is closed. The asset retirement obligation will be amortized over the anticipated operating life of the project, which is estimated to be approximately 25 years. At this time, the prior operator maintains a similar letter of credit, as required by the New Jersey Department of Environmental Protection, to cover costs associated with the closure of the facility.
Off-balance Sheet Arrangements
None
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
Immediately following are our audited consolidated financial statements and notes as of and for the years ended December 31, 2014 and 2013.
|
Page
|
|
| 33 | |
| 34 | |
| 35 | |
| 36 | |
| 37 | |
| 38 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
GlyEco, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of GlyEco, Inc. and subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GlyEco, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of its operations, changes in stockholders’ equity, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, 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 and to ultimately achieve viable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Semple, Marchal & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
April 10, 2015
GLYECO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2014 and 2013
|
ASSETS
|
||||||||
|
December 31,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
Current Assets
|
||||||||
|
Cash
|
$
|
494,847
|
$
|
4,393,299
|
||||
|
Accounts receivable, net
|
786,056
|
898,934
|
||||||
|
Due from related parties
|
-
|
34,868
|
||||||
|
Prepaid expenses
|
137,056
|
53,732
|
||||||
|
Inventories
|
567,677
|
268,191
|
||||||
|
Total current assets
|
1,985,636
|
5,649,024
|
||||||
|
Property, Plant and Equipment, net
|
7,889,207
|
5,515,183
|
||||||
|
Other Assets
|
||||||||
|
Deposits
|
80,708
|
80,708
|
||||||
|
Goodwill
|
835,295
|
779,303
|
||||||
|
Other intangibles, net
|
3,461,361
|
3,673,190
|
||||||
|
Total other assets
|
4,377,364
|
4,533,201
|
||||||
|
Total assets
|
$
|
14,252,207
|
$
|
15,697,408
|
||||
|
LIABILITIES, MEZZANINE, AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable and accrued expenses
|
$
|
1,649,361
|
$
|
1,271,674
|
||||
|
Due to related parties
|
62,500
|
582,682
|
||||||
|
Notes payable
|
121,905
|
6,504
|
||||||
|
Capital lease obligations
|
326,656
|
285,363
|
||||||
|
Total current liabilities
|
2,160,422
|
2,146,223
|
||||||
|
Non-Current Liabilities
|
||||||||
|
Notes payable – non-current portion
|
2,971
|
9,877
|
||||||
|
Capital lease obligations – non-current portion
|
896,422
|
1,189,574
|
||||||
|
Total non-current liabilities
|
899,393
|
1,199,451
|
||||||
|
Total liabilities
|
3,059,815
|
3,345,674
|
||||||
|
Mandatorily redeemable Series AA convertible preferred stock, 0 and 2,342,750 shares issued and outstanding at December 31, 2014 and 2013, respectively
|
-
|
1,171,375
|
||||||
|
Stockholders' Equity
|
||||||||
|
Preferred stock: 40,000,000 shares authorized; $0.0001 par value; 0 and 2,342,750 Series AA (above) issued and outstanding as of December 31, 2014 and 2013, respectively
|
-
|
-
|
||||||
|
Common stock: 300,000,000 shares authorized; $0.0001 par value; 58,033,560 and 48,834,916 shares issued and outstanding as of December 31, 2014 and 2013, respectively
|
5,804
|
4,884
|
||||||
|
Additional paid in capital
|
33,284,831
|
24,541,809
|
||||||
|
Accumulated deficit
|
(22,098,243
|
)
|
(13,366,334
|
)
|
||||
|
Total stockholders' equity
|
11,192,392
|
11,180,359
|
||||||
|
Total liabilities, mezzanine, and stockholders' equity
|
$
|
14,252,207
|
$
|
15,697,408
|
||||
See accompanying notes to the consolidated financial statements.
GLYECO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2014 and 2013
|
Years Ended December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Net sales
|
$
|
5,893,844
|
$
|
5,538,005
|
||||
|
Cost of goods sold
|
6,577,168
|
5,193,445
|
||||||
|
Gross profit (loss)
|
(683,324
|
)
|
344,560
|
|||||
|
Operating expenses
|
||||||||
|
Consulting fees
|
767,914
|
680,196
|
||||||
|
Share-based compensation
|
2,046,074
|
1,065,288
|
||||||
|
Salaries and wages
|
999,968
|
830,677
|
||||||
|
Legal and professional
|
337,118
|
286,728
|
||||||
|
General and administrative
|
1,468,684
|
900,463
|
||||||
|
Total operating expenses
|
5,619,758
|
3,763,352
|
||||||
|
Loss from operations
|
(6,303,082
|
)
|
(3,418,792
|
)
|
||||
|
Other (income) and expenses
|
||||||||
|
Interest income
|
(1,103
|
)
|
(2,496
|
)
|
||||
|
Interest expense
|
180,128
|
592,788
|
||||||
|
Other
|
6,392
|
4,043
|
||||||
|
Total other (income) and expenses
|
185,417
|
594,335
|
||||||
|
Loss before provision for income taxes
|
(6,488,499
|
)
|
(4,013,127
|
)
|
||||
|
Provision for income taxes
|
-
|
-
|
||||||
|
Net loss
|
(6,488,499
|
)
|
(4,013,127
|
)
|
||||
|
Premium on Series AA Preferred conversion to common shares
|
(2,243,410
|
)
|
-
|
|||||
|
Net loss available to common shareholders
|
$
|
(8,731,909
|
)
|
$
|
(4,013,127
|
)
|
||
|
Basic and diluted loss per share
|
$
|
(0.16
|
)
|
$
|
(0.09
|
)
|
||
|
Weighted average common shares outstanding (basic and diluted)
|
54,451,172
|
45,527,044
|
||||||
See accompanying notes to the consolidated financial statements.
GLYECO, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2014 and 2013
|
Additional
|
||||||||||||||||||||
|
Common Stock
|
Paid -In
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Par Value
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance, December 31, 2012
|
36,149,985
|
$
|
3,615
|
$
|
12,765,616
|
$
|
(9,353,207
|
)
|
3,416,024
|
|||||||||||
|
Common shares for acquisition
|
835,810
|
84
|
1,118,089
|
- |
1,118,173
|
|||||||||||||||
|
Common shares for payment of goods and services
|
793,679
|
79
|
553,281
|
- |
553,360
|
|||||||||||||||
|
Common shares for note conversion
|
940,000
|
94
|
469,906
|
- |
470,000
|
|||||||||||||||
|
Warrants issued in conjunction with note conversion
|
-
|
-
|
392,170
|
- |
392,170
|
|||||||||||||||
|
Common shares for cash, net
|
9,357,578
|
936
|
8,177,535
|
- |
8,178,471
|
|||||||||||||||
|
Warrants and options exercised
|
757,864
|
76
|
(76
|
)
|
- |
(0
|
)
|
|||||||||||||
|
Share-based compensation expense
|
-
|
-
|
1,065,288
|
- |
1,065,288
|
|||||||||||||||
|
Net loss
|
- | - | - |
(4,013,127
|
)
|
(4,013,127
|
)
|
|||||||||||||
|
Balance, December 31, 2013
|
48,834,916
|
4,884
|
24,541,809
|
(13,366,334
|
)
|
11,180,359
|
||||||||||||||
|
Common shares for acquisition
|
204,750
|
20
|
210,893
|
- |
210,913
|
|||||||||||||||
|
Common shares for Series AA Preferred conversion
|
2,605,513
|
261
|
1,171,114
|
- |
1,171,375
|
|||||||||||||||
|
Warrants and options exercised
|
6,340,775
|
634
|
3,071,536
|
- |
3,072,170
|
|||||||||||||||
|
Share-based compensation expense
|
47,606
|
5
|
2,046,069
|
- |
2,046,074
|
|||||||||||||||
|
Premium on Series AA Preferred conversion to common shares
|
- | - |
2,243,410
|
(2,243,410
|
)
|
-
|
||||||||||||||
|
Net loss
|
- | - |
(6,488,499
|
)
|
(6,488,499
|
)
|
||||||||||||||
|
Balance, December 31, 2014
|
58,033,560
|
$
|
5,804
|
$
|
33,284,831
|
$
|
(22,098,243
|
)
|
$
|
11,192,392
|
||||||||||
See accompanying notes to the consolidated financial statements.
GLYECO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2014 and 2013
|
Years Ended December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Net cash flow from operating activities
|
||||||||
|
Net loss
|
$
|
(6,488,499
|
)
|
$
|
(4,013,127
|
)
|
||
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||
|
Depreciation
|
475,784
|
258,162
|
||||||
|
Amortization
|
211,829
|
183,310
|
||||||
|
Share-based compensation
|
2,046,074
|
1,065,288
|
||||||
|
Stock issued for accrued interest expense
|
-
|
24,913
|
||||||
|
Warrants issued in conjunction with note conversion
|
-
|
392,170
|
||||||
|
Stock and warrants issued for goods and services
|
-
|
553,360
|
||||||
|
Other
|
6,392
|
4,043
|
||||||
|
Change in operating assets and liabilities:
|
||||||||
|
Accounts receivable, net
|
112,878
|
(689,651
|
)
|
|||||
|
Due from related parties
|
34,868
|
(34,868
|
)
|
|||||
|
Prepaid expenses
|
(83,324
|
)
|
(121,890
|
)
|
||||
|
Inventories
|
(299,486
|
)
|
(185,238
|
)
|
||||
|
Accounts payable and accrued expenses
|
492,687
|
989,597
|
||||||
|
Due to related party
|
(520,182
|
)
|
112,239
|
|||||
|
Other
|
-
|
9,000
|
||||||
|
Net cash used in operating activities
|
(4,010,979
|
)
|
(1,452,692
|
)
|
||||
|
Cash flows from investing activities
|
||||||||
|
Cash paid for acquisitions
|
-
|
(539,304
|
)
|
|||||
|
Purchase of property, plant and equipment
|
(2,655,725
|
)
|
(2,710,739
|
)
|
||||
|
Proceeds from sale of fixed assets
|
1,800
|
6,278
|
||||||
|
Net cash used in investing activities
|
(2,653,925
|
)
|
(3,243,765
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Repayment of debt
|
(6,505
|
)
|
(3,619
|
)
|
||||
|
Repayment of capital lease
|
(299,213
|
)
|
(239,037
|
)
|
||||
|
Proceeds from the sale of common stock
|
3,134,314
|
8,546,386
|
||||||
|
Stock issuance costs
|
(62,144
|
)
|
(367,915
|
)
|
||||
|
Net cash provided by financing activities
|
2,766,452
|
7,935,815
|
||||||
|
Increase (decrease) in cash
|
(3,898,452
|
)
|
3,239,358
|
|||||
|
Cash at the beginning of the period
|
4,393,299
|
1,153,941
|
||||||
|
Cash at end of the period
|
$
|
494,847
|
$
|
4,393,299
|
||||
|
Supplemental disclosure of cash flow information
|
||||||||
|
Interest paid during period
|
$
|
180,128
|
$
|
122,510
|
||||
|
Income taxes paid during period
|
$
|
-
|
$
|
-
|
||||
|
Supplemental disclosure of non-cash items
|
||||||||
|
Premium on Series AA Preferred conversion to common shares
|
$ |
2,243,410
|
$ | - | ||||
|
Common stock issued for acquisition
|
$ |
210,913
|
$ |
1,118,173
|
||||
|
Common stock issued for goods and services
|
$ |
-
|
$ |
553,360
|
||||
|
Common stock issued for convertible note, principal and interest
|
$ |
-
|
$ |
470,000
|
||||
|
Series AA Preferred Stock issued for convertible note, principal and interest
|
$ |
-
|
$ |
1,171,375
|
||||
|
Note payable issued in payment of accounts payable
|
$ |
115,000
|
$ |
-
|
||||
|
Common stock issued for conversion of Series AA Preferred stock
|
$ |
1,171,375
|
$ |
-
|
||||
|
Equipment purchased with capital lease
|
$ |
47,354
|
$ |
1,714,974
|
||||
|
Equipment purchased with debt
|
$ |
-
|
$ |
20,000
|
||||
See accompanying notes to the consolidated financial statements.
GLYECO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 1 – Organization and Nature of Business
GlyEco, Inc. (the "Company", “we”, or “our”) is a green chemistry company that collects and recycles waste glycol into a reusable product that is sold to third party customers in the automotive and industrial end-markets in the United States. Our proprietary technology, GlyEco TechnologyTM, allows us to recycle all five major types of waste glycol into a virgin-quality product usable in any glycol application. We are dedicated to conserving natural resources, limiting liability for waste generators, safeguarding the environment, and creating valuable green products. We currently operate seven processing centers in the United States with our corporate location in Phoenix, Arizona. Our processing centers are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Elizabeth, New Jersey, (5) Rock Hill, South Carolina, (6) Tea, South Dakota, and (7) Landover, Maryland.
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 ethylene glycol, and to apply a newly developed proprietary technology to produce ASTM E1177 Type I virgin grade recycled ethylene glycol to end users throughout North America.
We are currently comprised of the parent corporation GlyEco, Inc. and the various acquisition subsidiaries that were formed to acquire the seven processing centers listed above. They are held in seven subsidiaries under the name of GlyEco Acquisition Corp. #1 through GlyEco Acquisition Corp. #7.
Going Concern
The consolidated financial statements as of and for the year ended December 31, 2014 have been prepared assuming that the Company will continue as a going concern. As of December 31, 2014, 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. Ultimately, we hope to achieve viable profitable operations when operating efficiencies can be realized from the facilities added in 2013. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. These factors raise substantial doubt about the Company's ability to continue as a going concern. In their report dated April 10, 2015, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our consolidated financial statements for the fiscal year ended December 31, 2014, expressing uncertainty regarding the Company’s assumption that we will continue as a going concern.
Management's plans to address these matters include raising additional financing through offering our shares of capital stock in private and/or public offerings of our securities and through debt financing if available and needed. The Company plans to become profitable by upgrading the capacity and capabilities at its existing operating facilities, continuing to implement its patent-pending technology in international markets, and acquiring profitable glycol recycling companies, which may desire to take advantage of the Company's public company status and improve their profitability through a combined synergy. The Company intends to expand customer and supplier bases once operational capacity and capabilities have been upgraded.
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").
Consolidation
These 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”) 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.
Operating Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the segment. Operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, among other criteria. 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 of doubtful accounts, the value of stock-based compensation and warrants, the allocation of the purchase price in the various acquisitions, the realization of property, plant and equipment, goodwill, other intangibles and their estimated useful lives, contingent liabilities, and environmental and asset retirement obligations. Due to the uncertainties inherent in the formulation of accounting estimates, it is reasonable to expect that these estimates could be materially revised within the next year.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the time of purchase are considered to be cash equivalents.
Revenue Recognition
The Company recognizes revenue when four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. Cost of products sold consists of direct and indirect costs of the purchased goods and labor related to the corresponding sales transaction. The Company recognizes revenue from services at the time the services are completed. Shipping costs passed to the customer are included in the net sales.
Costs
Cost of goods sold includes all direct material and labor costs and those indirect costs of bringing raw materials to sale condition, including depreciation of equipment used in manufacturing and shipping and handling costs. Selling, general, and administrative costs are charged to operating expenses as incurred. Research and development costs are expensed as incurred and are included in operating expenses. Advertising costs are expensed as incurred. Total advertising costs for 2014 and 2013 were $21,569 and $85,528 respectively.
Accounts Receivable
Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer's willingness or ability to pay, the Company's compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the consolidated statements of operations.
Inventory
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. The Company periodically reviews its inventories for obsolete or unsalable items and adjusts its carrying value to reflect estimated realizable values. There was no inventory write-down during the years ended December 31, 2014 and 2013.
Property and Equipment
Property and equipment is stated at cost. The Company provides depreciation on the cost of its equipment using the straight-line method over an estimated useful life, ranging from three to twenty-five years, and zero salvage value. Expenditures for repairs and maintenance are charged to expense as incurred. The upgrades related to construction in process for our New Jersey processing center as of December 31, 2014 are scheduled to be completed in 2015, at which time depreciation is expected to commence. As of December 31, 2014, the Company incurred and capitalized construction in process totaling $1,440,690. The estimated cost to be incurred in 2015 to complete upgrades at the processing center is estimated to be approximately $2.5 million. Depreciation expense for the years ended December 31, 2014 and 2013, was $475,784 and 258,162, respectively.
For purposes of computing depreciation, the useful lives of property and equipment are:
|
Leasehold improvements
|
5 years
|
||
|
Machinery and equipment
|
3-25 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, accounts receivable, accounts payable and accrued liabilities, and current portion of capital lease obligations and notes payable are reflected in the balance sheet at their estimated fair values primarily due to their short-term nature. As to long-term capital lease obligations and notes payable, estimated fair values are based on borrowing rates currently available to the Company for loans with similar terms and maturities, which represent level 3 input levels.
Net Loss per Share Calculation
The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted income per common share is computed by dividing the net income, 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 2014 and 2013 would be anti-dilutive. At December 31, 2014, these potentially dilutive securities included warrants of 17,567,326 and stock options of 11,096,428 for a total of 28,663,754 At December 31, 2013, these potentially dilutive securities included warrants of 19,530,441 and stock options of 10,133,506 for a total of 29,663,947.
Provision for Taxes
The Company accounts for its income taxes in accordance with ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. An allowance for the deferred tax asset is established if it is more likely than not that the asset will not be realized.
Stock Based Compensation
All share-based payments to employees, including grants of employee stock options, are expensed based on their estimated fair values at the grant date, in accordance with ASC 718. Compensation expense for stock options is recorded over the vesting period using the estimated fair value on the date of grant, as calculated by the Company using the Black-Scholes model. For awards with only service conditions that have graded vesting schedules, compensation cost is recorded on a straight-line basis over the requisite service period for the entire awards, unless vesting occurs earlier. The Company classifies all share-based awards as equity instruments.
See Note 12 for a description of the Company’s share-based compensation plans and information related to awards granted under the plans.
Non-employee stock-based compensation is accounted for based on the fair value of the related stock or options, using the Black-Scholes Model, or the fair value of the goods or services on the grant date, whichever is more readily determinable.
Reclassification of Prior Year Amounts
Certain prior year numbers have been reclassified to conform to the current year presentation. These reclassifications have not affected the net loss or net loss per share as previously reported.
Recently Issued Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2014 that are of significance, or potential significance to the Company, except as discussed below.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance will become effective beginning in the first quarter of 2017 using one of two prescribed transition methods. Early adoption is not permitted. The Company is currently evaluating the effect that the updated standard will have on the financial statements and related disclosures.
In June 2014, the FASB issued Accounting Standards Update 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. The Company is currently evaluating the effect that the updated standard will have on the financial statements and related disclosures.
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 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 U.S. 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 beginning in the first quarter of 2017. Early application is permitted. The Company is currently evaluating the effect that the updated standard will have on the financial statements and related disclosures.
NOTE 3 – Accounts Receivable
As of December 31, 2014 and 2013, the Company's net accounts receivable were $786,056 and $898,934, respectively.
The following table summarizes activity for the allowance for doubtful accounts for the years ended December 31, 2014 and 2013:
|
2014
|
2013
|
|||||||
|
Beginning balance as of January 1,
|
$
|
47,927
|
$ |
4,892
|
||||
|
Bad debt expense
|
64,226
|
44,198
|
||||||
|
Charge offs, net
|
(49,904
|
)
|
(1,163
|
)
|
||||
|
Ending balance as of December 31,
|
$
|
62,249
|
$ |
47,927
|
||||
NOTE 4 – Inventory
As of December 31, 2014 and 2013, the Company’s total inventories were $567,677 and $268,191, respectively.
|
December 31,
|
2014
|
2013
|
||||||
|
Raw materials
|
$
|
232,611
|
$
|
76,165
|
||||
|
Work in process
|
110,466
|
47,106
|
||||||
|
Finished goods
|
224,600
|
144,920
|
||||||
|
Total inventories
|
$
|
567,677
|
$
|
268,191
|
||||
NOTE 5 – Property, Plant and Equipment
As of December 31, 2014 and 2013, the property, plant and equipment, net of accumulated depreciation, is $7,889,207 and $5,515,183, respectively.
|
December 31,
|
2014
|
2013
|
||||||
|
Machinery and equipment
|
$
|
6,802,971
|
$
|
3,719,344
|
||||
|
Leasehold improvements
|
449,271
|
7,641
|
||||||
|
Accumulated depreciation
|
(803,725
|
)
|
(328,803
|
)
|
||||
|
6,448,517
|
3,398,182
|
|||||||
|
Construction in process
|
1,440,690
|
2,117,001
|
||||||
|
Total property, plant and equipment
|
$
|
7,889,207
|
$
|
5,515,183
|
||||
Depreciation expense recorded during the years ended December 31, 2014 and 2013 was $475,784 and $258,162, respectively.
NOTE 6 – Acquisitions, Goodwill and Intangible Assets
We account for an acquisition of a business, as defined in ASC Topic 805, as required by an analysis of the inputs, processes and outputs associated with the transactions. Intangible assets that we acquire are recognized separately if they arise from contractual or other legal rights or if they are separable and are recorded at fair value less accumulated amortization. We analyze intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and period at least at each balance sheet date. The effects of any revision are recorded to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets.
Goodwill is recorded as the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquired over the (ii) fair value of the net identifiable assets acquired. We do not amortize goodwill; however, we annually, or whenever there is an indication that goodwill may be impaired, evaluate qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the assets exceeds fair value. Any future increases in fair value would not result in an adjustment to the impairment loss that may be recorded in our consolidated financial statements. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Based on our analysis, no impairment loss was recorded in 2014 and 2013 as the carrying amount of the reporting unit’s assets did not exceed the estimated fair value determined.
Acquisition of Evergreen Recycling, Inc.
Effective January 1, 2013, the Company acquired Evergreen Recycling Co., Inc., an Indiana corporation ("Evergreen"), pursuant to an Asset Purchase Agreement, dated December 31, 2012 (the "Evergreen Agreement"), by and among the Company, Evergreen, Mr. Thomas Shiveley, the selling principal of Evergreen (the "Evergreen Selling Principal"), and GlyEco Acquisition Corp. #2, an Arizona corporation and wholly owned subsidiary of the Company (“Acquisition Sub #2”).
Evergreen operated a business located in Indianapolis, Indiana, relating to processing recyclable glycol streams, primarily used antifreeze, and selling glycol as remanufactured product.
Pursuant to the Evergreen Agreement, the Company (through Acquisition Sub #2) acquired the business and all of the glycol-related assets of Evergreen, free and clear of any liabilities or encumbrances, consisting of Evergreen's personal property (equipment, tools, machinery, furniture, supplies, materials, and other tangible personal property), inventory, intangible property, contractual rights, books and records, intellectual property, accounts receivable (excluding trade accounts receivable equal to or greater than 90 days), goodwill, and miscellaneous assets, in exchange for a $59,304 cash payment, 377,372 unregistered shares of the Company's common stock, valued at the then current fair market value of $1.57, determined by using the average closing price from the preceding five days up to the transaction closing date, and assumption of Evergreen's current payables totaling $10,010.
Transaction with Full Circle Manufacturing Group, Inc. – New Jersey Processing Center
On December 10, 2012, we entered into the following agreements allowing us to rent real property, and equipment and receive manufacturing, distribution and consulting services with the entities and sole owner, who is a former member of our Board of Directors, as more fully described below.
Effective January 1, 2013, and beginning on February 1, 2013, GlyEco Acquisition Corp. #4, an Arizona corporation and wholly owned subsidiary of the Company (“Acquisition Sub #4”) commenced an operating Lease Agreement with NY Terminals II, LLC, a New Jersey limited liability company ("NY Terminals") and related party, whereby Acquisition Sub #4 agreed to lease certain real property owned by NY Terminals for a five-year term at a monthly rate of $30,000.
Effective January 1, 2013, and beginning on February 1, 2013, as a part of the same transaction, Acquisition Sub #4 commenced a capital Equipment Lease Agreement with Full Circle Manufacturing Group, Inc., a New Jersey corporation ("Full Circle"), whereby it agreed to lease Full Circle's equipment for $32,900 a month for a term of five years (refer to Note 8). The Company also commenced a Consulting Agreement with Joseph A. Ioia, the sole shareholder of Full Circle and sole member of NY Terminals ("Mr. Ioia"), in which the Company engaged Mr. Ioia, and agreed to compensate Mr. Ioia, to serve as a consultant for the Company.
Effective December 10, 2012, we executed a Manufacturing and Distribution Agreement (the “M&D Agreement”) with Full Circle and a consulting agreement with Mr. Ioia, whereby Full Circle, under the supervision of Mr. Ioia, operates Full Circle to process recyclable glycol streams and sell glycol as remanufactured product at our direction. Under the M&D Agreement, Full Circle agreed to perform the manufacturing and distribution services relating to its glycol recycling business using the GlyEco Technology™, to exclusively produce remanufactured glycol for the sole benefit of us and to use the Intellectual Property (“IP”) sold to us by Mr. Ioia covering the worldwide right, title, and interest in Mr. Ioia’s exclusive glycol remanufacturing process. We acquired the IP for consideration of $2,000,000 in cash and 3,000,000 unregistered shares of the Company’s common stock valued at $0.50 per share in 2012. Mr. Ioia became a director of the Company on January 15, 2013, and resigned as a director on August 22, 2014.
On September 11, 2014, the State of New Jersey Department of Environmental Protection transferred to Acquisition Sub #4 the permit for Class D Recyclable Materials from Full Circle. The permit allows Acquisition Sub #4 to recycle products containing waste glycols. The transfer of the Class D permit is one of the final steps towards completing the transition of business operations from Full Circle to Acquisition Sub #4. The remaining steps include the transfer of a letter of credit related to the Class D permit (discussed further in Note 14), and the cancellation of the M&D Agreement. The Company has yet to determine whether the purchase of the equipment under our capital Equipment Lease Agreement must be accomplished prior to the transfer of business operations. Discussions between Full Circle and the Company to finalize the transition are ongoing.
Interim Management Agreement with MMT Technologies, Inc.
Effective August 26, 2013, GlyEco Acquisition Corp. #3, an Arizona subsidiary and wholly owned corporation of the Company (“Acquisition Sub #3”) entered into an Interim Management Agreement with MMT Technologies, Inc., a Florida corporation (“MMT Technologies”), and Otho N. Fletcher, Jr., principal of MMT Technologies (the “MMT Principal”), pursuant to which Acquisition Sub #3 assumed control of the operations of MMT Technologies’ antifreeze recycling business in anticipation of the closing of the transaction contemplated by that certain Asset Purchase Agreement originally entered into on May 24, 2012, by and between the Company, Acquisition Sub #3, MMT Technologies, and the MMT Principal (the “MMT Agreement”).
Pursuant to the Interim Management Agreement, the Company (through Acquisition Sub #3) purchased two vehicles and assumed control of MMT Technologies’ business and all of the assets to be assigned to Acquisition Sub #3 pursuant to the MMT Agreement in exchange for $50,000 in cash, which will be deducted from the aggregate purchase price outlined in the MMT Agreement.
On March 21, 2014, the Company completed the MMT Acquisition, by acquiring all business and all assets in exchange for 204,750 shares of restricted common stock, par value $0.0001, of the Company valued at a current fair market value of $1.03 per share determined by using the average closing price from the preceding five days up to the transaction closing date.
Merger of GSS Automotive Recycling, Inc. with and into GlyEco Acquisition Corp. #7
Effective September 30, 2013, GSS Automotive Recycling, Inc., a Maryland corporation (“GSS Automotive Recycling”), merged with and into GlyEco Acquisition Corp. #7, an Arizona corporation and wholly owned subsidiary of the Company (“Acquisition Sub #7”), with Acquisition Sub #7 continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to an Agreement and Plan of Merger, dated September 27, 2013 (the “GSS Agreement”), by and among the Company, Acquisition Sub #7, GSS Automotive Recycling, Joseph Getz, an individual (“Getz”), and John Stein, an individual (“Stein” and collectively with Getz, the “GSS Shareholders”).
Pursuant to the GSS Agreement, the Company (through Acquisition Sub #7) purchased all of the issued and outstanding shares of GSS Automotive Recycling’s common stock from the GSS Shareholders in exchange for $430,000 in cash and 455,000 unregistered shares of the Company’s Common Stock, valued at the then current fair market value of $1.12 per share determined by using the average closing price from the preceding five days up to the transaction closing date.
As a result of the merger, Acquisition Sub #7 has assumed operations and all of the assets of GSS Automotive Recycling’s business located in Landover, Maryland, relating to processing recyclable glycol streams, primarily used as antifreeze, and reselling glycol as remanufactured product.
The acquisition of GSS includes a contingent consideration arrangement that requires the provision of $1.00 credit to the GSS Shareholders towards the purchase of additional shares of the Company for each additional $1.00 of Gross Profits (as defined in the GSS Agreement) that Acquisition Sub #7 earns in excess of $72,000 through December 31, 2014. The range of the undiscounted amounts the Company could owe under this arrangement is estimated to be between $0 and $38,000. The fair value of the contingent consideration on the acquisition date of approximately $0 was estimated based on the present value of projected payments, which were based on projected gross profit through 2014. These calculations and projections are based on significant inputs not observable in the market, which ASC 820 refers to as Level 3 inputs. Key assumptions include a discount rate of 25 percent as well as an increasing level of revenues and expenses based on probability factors at the acquisition date.
At December 31, 2014, the Company evaluated the cash flow projections included in the contingent consideration and determined that there was no change in the fair value of the contingent consideration.
During 2013, the Company completed the Evergreen, Full Circle, MMT Technologies and GSS Automotive Recycling transactions (the “Transactions”) in order to expand our market within North America, obtain synergies and cost efficiencies among the Transactions and GlyEco, and where economically feasible, add our technological advances to already operating facilities. As a result of the Transactions, we expect to reduce costs through economies of scale. The goodwill of $619,819 arising from the Transactions during 2013 consists largely of the synergies and economies of scale expected from combining the operations and expanding our market. The Company recognized additional goodwill of $55,992 in 2014 when it completed the acquisition of MMT Technologies.
The following table summarizes the aggregate consideration paid during 2014 and 2013 for the Transactions and resolution of previous contingent consideration, and the amounts of the assets acquired and liabilities assumed at the effective acquisition date:
Consideration:
|
Cash
|
$
|
539,304
|
||
|
Equity instruments (1,040,560 common shares of the Company) issued
|
1,329,086
|
|||
|
Assets acquired under capital lease
|
1,714,974
|
|||
|
Fair value of total consideration transferred
|
$
|
3,583,364
|
||
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
||||
|
Financial assets (primarily accounts receivable)
|
$
|
92,320
|
||
|
Inventory
|
24,234
|
|||
|
Property, plant, and equipment
|
2,532,442
|
|||
|
Identifiable intangible assets
|
356,500
|
|||
|
Financial liabilities
|
(97,943
|
)
|
||
|
Total identifiable net assets
|
2,907,553
|
|||
|
Goodwill
|
675,811
|
|||
|
$
|
3,583,364
|
|||
During 2013, the Company had placed in escrow 200,000 shares to be released to the former owners upon the passage of one year as long as no undisclosed contingencies arise as more fully described in the documents. The 200,000 shares were released from escrow in October 2014.
The amounts of the Transactions’ revenue and earnings included in the Company's consolidated statement of operations for the year ended December 31, 2013, and the revenue and earnings of the combined entity had the acquisition date been done on January 1, 2013, are:
|
Revenue
|
Earnings (Loss)
|
|||||||
|
Actual from date of Transaction through 12/31/2013
|
$
|
3,057,071
|
$
|
569,697
|
||||
|
Pro forma (unaudited) supplemental information as if the
Transactions had occurred at the beginning of the period
is approximately as shown below:
|
||||||||
|
Supplemental (unaudited) pro forma for 1/1/2013 - 12/31/2013
|
$
|
6,420,000
|
$
|
(3,420,000
|
)
|
|||
The 2013 supplemental (unaudited) pro forma earnings were adjusted to exclude approximately $35,000, of acquisition-related costs incurred in 2013.
The components of intangible assets are as follows:
|
Gross
Balance at
|
Gross
Balance at
|
Net
Balance at
|
||||||||||||||||||||
|
Estimated
|
December 31,
|
Current Year
|
December 31,
|
Accumulated
|
December 31,
|
|||||||||||||||||
|
Useful Life
|
2013
|
Additions
|
2014
|
Amortization
|
2014
|
|||||||||||||||||
|
Finite live intangible assets:
|
||||||||||||||||||||||
|
Customer list and tradename
|
5 years
|
$
|
24,500
|
$
|
-
|
$
|
24,500
|
$
|
7,239
|
$
|
17,261
|
|||||||||||
|
Non-compete agreements
|
5 years
|
332,000
|
-
|
332,000
|
107,900
|
224,100
|
||||||||||||||||
|
Intellectual property
|
25 years
|
3,500,000
|
-
|
3,500,000
|
280,000
|
3,220,000
|
||||||||||||||||
|
Total intangible assets
|
$
|
3,856,500
|
$
|
-
|
$
|
3,856,500
|
$
|
395,139
|
$
|
3,461,361
|
||||||||||||
|
Goodwill
|
Indefinite
|
$
|
779,303
|
$
|
55,992
|
$
|
835,295
|
$
|
-
|
$
|
835,295
|
|||||||||||
We compute amortization using the straight-line method over the estimated useful lives of the intangible assets. The Company has no indefinite-lived intangible assets other than goodwill. The tax deductibility of goodwill has yet to be determined, but the Company believes it will be able to deduct goodwill amortization for tax purposes.
Aggregate amortization expense included in general and administrative expenses for the years ended December 31, 2014 and 2013, totaled $211,829 and $183,310, respectively. The following table represents the total estimated amortization of intangible assets for the five succeeding years and thereafter:
|
For the Year Ending December 31,
|
Estimated Amortization Expense
|
|||
|
2015
|
$
|
211,829
|
||
|
2016
|
211,829
|
|||
|
2017
|
211,829
|
|||
|
2018
|
165,874
|
|||
|
2019
|
140,000
|
|||
|
Thereafter
|
2,520,000
|
|||
|
$
|
3,461,361
|
|||
NOTE 7 – Income Taxes
As of December 31, 2014 and 2013, the Company had net operating loss (NOL) carryforwards of approximately $16,500,000 and $9,980,000, respectively, adjusted for stock based compensation and certain other non-deductible items available to reduce future taxable income, if any. The NOL carryforward begins to expire in 2027, and fully expires in 2034. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carryforward, by having taxable income, a valuation allowance has been established as of December 31, 2014 and 2013 to reduce the tax benefit asset value to zero.
The deferred tax assets, including a valuation allowance, are as follows at December 31:
|
December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Deferred tax assets – NOL
|
$
|
6,600,000
|
$
|
3,480,000
|
||||
|
Depreciation and amortization
|
(600,000
|
) |
-
|
|||||
|
Valuation allowance
|
(6,000,000
|
)
|
(3,480,000
|
)
|
||||
|
Net deferred tax assets
|
$
|
-
|
$
|
-
|
||||
The change in the valuation allowance for deferred tax assets for the years ended December 31, 2014 and 2013 was $2,520,000 and $1,230,000, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2014 and 2013, and recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2014 and 2013:
|
Federal and state statutory tax rate
|
40
|
%
|
||
|
Permanent difference and valuation allowance
|
(40
|
)%
|
||
|
Effective tax rate
|
0
|
%
|
NOTE 8 – Capital Leases
Acquisition Sub #4 entered into a capital Equipment Lease Agreement with Full Circle, a former related party, as its sole owner was on our Board of Directors until August 22, 2014, whereby it agreed to lease Full Circle's equipment for $32,900 a month for a term of five years with an option to purchase the equipment at the end of the lease for $200,000. The net present value of the equipment is estimated at $1,714,974 based on a 9% discount rate. The lease is amortized over the five-year term at a rate of 9%. The equipment acquired included a distillation column and infrastructure, tanks and related equipment, filtration equipment, and vehicles. Depreciation on the cost of its equipment is calculated using the straight-line method over an estimated useful life, ranging from five to twenty-five years, and zero salvage value.
On May 22, 2014, the Company entered into a capital equipment lease agreement with Balboa Capital, whereby it agreed to lease carbon vessels for $1,030 a month for a term of two years with an option to purchase the equipment at the end of the lease for $1. The net present value of the equipment is estimated at $22,154 based on a discount rate of 11%. The lease is amortized over the two-year term at the rate of 11%. Depreciation on the cost of its equipment is calculated using the straight-line method over an estimated useful life of ten years, and zero salvage value.
On August 26, 2014, the Company entered into a capital lease agreement with De Lage Laden, whereby it agreed to lease a forklift for $347 a month for a term of five years with an option to purchase the equipment at the end of the lease for $1. The net present value of the equipment is estimated at $25,200 based on a discount rate of 4%. The lease is amortized over the five-year term at the rate of 4%. Depreciation on the cost of its equipment is calculated using the straight-line method over an estimated useful life of fifteen years, and zero salvage value.
At December 31, 2014, the value of the assets under the capital leases was $1,604,915, net. The depreciation expense for the year ended December 31, 2014 was $79,540.
Future minimum lease payments are due as follow:
|
Year Ended December 31,
|
Principal
|
Interest
|
Total
|
|||||||||
|
2015
|
$ | 326,656 | $ | 84,674 | $ | 411,330 | ||||||
|
2016
|
351,048 | 54,101 | 405,149 | |||||||||
|
2017
|
377,238 | 21,729 | 398,967 | |||||||||
|
2018
|
165,738 | 430 | 166,168 | |||||||||
|
2019
|
2,398 | 32 | 2,430 | |||||||||
|
Total minimum lease payments
|
$ | 1,223,078 | $ | 160,966 | $ | 1,384,044 | ||||||
NOTE 9 – Note Payable
On May 3, 2013, Acquisition Sub #1 entered into a secured promissory note with Security State Bank of Marine in Minnesota (the "Note Payable"). The key terms of the Note Payable include: (i) a principal value 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 Note Payable is collateralized by a vehicle.
On May 30, 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 value of $115,000, (ii) an interest rate of 12.0%, and (iii) principal balance to be paid upon the raising of additional necessary capital.
Future minimum note payments due are as follows:
|
Year Ended December 31,
|
||||
|
2015
|
$ |
121,905
|
||
|
2016
|
2,971
|
|||
|
Total minimum note payments
|
$
|
124,876
|
||
NOTE 10 – Convertible Note Payable
On August 9, 2008, Global Recycling issued a convertible promissory note to Leonid Frenkel, a principal stockholder, registered in the name of “IRA FBO Leonid Frenkel,” for $1,000,000 and bearing interest at 10.0% per annum (the “Frenkel Convertible Note”). Interest payments were due semi-annually in cash or shares of Global Recycling common stock. The Frenkel Convertible Note was convertible into 575,350 shares, at any time prior to maturity, at the option of the holder, into Global Recycling common stock at a conversion price of $2.50 per share. The Frenkel Convertible Note was secured by a lien on Global Recycling’s provisional patent application, including the GlyEco TechnologyTM Patent. The holder was also granted 480,000 warrants at $0.025 per share at the time the Frenkel Convertible Note was issued. The warrants expired on September 8, 2013.
On April 3, 2012, the Company executed a Note Conversion Agreement (the "Conversion Agreement") with Mr. Frenkel. The terms of the Conversion Agreement extended the maturity date for the convertible note (the “Frenkel Convertible Note”) to December 31, 2013, with interest accrued at a rate of 12.5% compounding semi-annually, and waived any and all claims of demand arising from or related to a default on the Frenkel Convertible Note prior to the Conversion Agreement. The Conversion Agreement further stated that Mr. Frenkel would convert all money owed into a combination of common and Series AA preferred stock on the date that the Company had received an aggregate of $5,000,000 in equity investment following the date of the Conversion Agreement and warrants. Of the debt converted, $470,000 would be converted into common stock at $1.00 per share or the price offered to any investor subsequent to the Conversion Agreement, if lower. The remainder would be converted into Series AA preferred stock at $1.00 per share or the price offered to any investor subsequent to the Conversion Agreement, if lower. The Series AA preferred stock shall in all respects be the same as common stock, except for the following features: (i) the Series AA preferred stock shall accrue a dividend of 12.5% per year, compounded semi-annually; (ii) the Series AA preferred stock shall have priority in payment upon liquidation over common stock to the extent of the $1,171,375 and all accrued but unpaid dividends; (iii) the Series AA preferred stock shall automatically convert into common stock at the rate of one share of common stock for each $1 of the Series AA preferred stock plus accrued but unpaid dividends if the closing price on the common stock on the OTC/BB is $5.00 per share for 20 consecutive trading days, or if the stock is listed on NYSE or NASDAQ; (iv) the original issue price of $1,171,375 plus all accrued but unpaid dividends shall be due and payable on December 31, 2013 if the Series AA preferred stock is not converted to common stock under the terms herein by such date; and (v) the Series AA preferred stock shall provide that the holder may not voluntarily convert into common stock to the extent that the holder will beneficially own in excess of 9.99% of the then issued and outstanding common stock of the Company. As of February 15, 2013 the amount outstanding under the convertible note, including principal and interest, totaled $1,641,375.
On February 15, 2013, the Company satisfied the terms of the Conversion Agreement, upon receiving an aggregate of $5,000,000 in equity investment. At this time, the Company issued to Mr. Frenkel 940,000 shares of common stock at a price of $0.50 per share, 2,342,750 shares of Series AA preferred stock at a price of $0.50 per share, and 940,000 warrants to purchase shares of Common Stock at a price of $1.00 per share. The estimated value of the warrants totaling $392,170 were expensed under interest expense during 2013. Interest expense of $24,913 was recorded during 2013 for the period from January 1, 2013 through the date the notes payable were converted to the common and Series AA preferred stock. Upon conversion of the Series AA preferred stock to Common Stock, the Company will issue warrants at a price of $1.00 per share for each share of the Series AA preferred stock that is converted. The Series AA preferred stock is shown on the balance sheet as mandatorily redeemable Series AA convertible preferred stock as of December 31, 2013.
On December 31, 2013, the Company and Mr. Frenkel entered into an Amendment No. 1 to the Conversion Agreement, pursuant to which the redemption date of the Series AA preferred stock was extended to January 31, 2014. On January 31, 2014, the Company and Mr. Frenkel entered into an Amendment No. 2 to the Conversion Agreement, pursuant to which the redemption date of the Series AA preferred stock was further extended to March 15, 2014.
On March 14, 2014, Mr. Frenkel redeemed the Series AA Preferred Stock under the Conversion Agreement into 2,342,750 shares of Common Stock at a conversion rate of one share of Common Stock for each one share of Series AA Preferred Stock redeemed. As an inducement to convert the Series AA Preferred Stock into Common Shares, an additional 262,763 shares of Common Stock were issued upon conversion. Further, per the terms of the Conversion Agreement, a three-year warrant to purchase one share of Common Stock was issued for each share of Common Stock received in the redemption. Therefore, 2,605,513 warrants at an exercise price of $1.00 were issued in connection with the redemption of the Series AA Preferred Stock for Common Stock. The redemption price per share of Series AA Preferred Stock was $1.46 per share, or $3,414,785 in total, which included a redemption premium of $0.85 per share, or $1,975,392 in total; and, an inducement premium of $0.11 per share, or $268,018 in total. The redemption premium included the fair value of the warrants issued of $757,162 and the excess of the fair value of common shares over the book value of the Series AA Preferred Stock of $1,218,230. The total redemption and inducement premium of $2,243,410 is deducted from net earnings to arrive at net earnings applicable to common shareholders in the accompanying consolidated Statements of Operations earnings per share calculation.
The warrants issued to Mr. Frenkel in connection with the satisfaction of the Conversation Agreement have an exercise price of $1.00 and are exercisable at any time until the third anniversary of the date of issuance, which is March 14, 2017. The warrants may only be exercised upon the payment of cash to the Company. In the event the Company’s common stock trades at an average of at least $3.00 per share for a period of not less than twenty consecutive trading days and the warrants have been registered under an effective Registration Statement, Mr. Frenkel shall be required to fully exercise the warrants within ten business days following the twentieth trading day. The exercise price of the warrants may be adjusted upon any increase or decrease in the number of issued shares of our common stock resulting from any stock split, reverse stock split, split-up, combination or exchange of shares, consolidation, spin-off, reorganization, or recapitalization of shares.
The fair value of the warrants was determined using the Black-Scholes Model with inputs from the time when the Conversion Agreement terms were met. The resulting value was approximately $0.29 per warrant. The warrants were expensed pursuant to the provisions of ASC 470 for a debt extinguishment wherein the fair value of the equity securities issued are considered a component of the reacquisition price of the debt. The warrants issued were fully vested and exercisable on the date of grant.
NOTE 11 – 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 to issue up to 3,000,000 Series AA preferred shares. As discussed in Note 10, the 2,342,750 shares of Series AA Preferred stock were converted to common stock on March 14, 2014. As of December 31, 2014, there are no shares of Series AA Preferred stock outstanding and no accrued dividends payable.
As of December 31, 2013, the Company had 2,342,750 Series AA preferred shares issued and outstanding. Please see the description of the features and issuance of the Series AA preferred stock in Note 10. As of December 31, 2013, the accrued dividends payable on the Series AA preferred stock was approximately $30.
Common Stock
As of December 31, 2014, the Company has 58,033,560, shares of common stock outstanding. The Company's articles of incorporation authorize the Company to issue up to 300,000,000 shares of $0.0001 par value, 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.
For the year ended December 31, 2014, the Company issued the following common stock:
|
Number of Common
|
Value
|
|||||||
|
Shares Issued
|
Recorded
|
|||||||
|
Common Shares for Acquisition
|
204,750
|
$
|
210,913
|
|||||
|
Share-Based Compensation
|
47,606
|
$
|
2,046,074
|
|||||
|
Common Shares for Series AA Conversion
|
2,605,513
|
$
|
1,171,375
|
|||||
|
Warrants and Options Exercised
|
6,340,775
|
$
|
3,072,170
|
|||||
Cash received from shares issued through equity financing during the year ended December 31, 2014, was $3,072,170, net of $62,144 of stock issuance costs. Please refer to the information regarding warrant exercises in 2014 in Note 12 for further information related to this equity financing.
For the year ended December 31, 2013, the Company issued the following common stock:
|
Number of Common
|
Value
|
|||||||
|
Shares Issued
|
Recorded
|
|||||||
|
Common Shares for Acquisition
|
835,810
|
$
|
1,118,173
|
|||||
|
Common Shares for Goods and Services
|
793,679
|
$
|
553,360
|
|||||
|
Common Shares for Convertible Note
|
940,000
|
$
|
470,000
|
|||||
|
Common Shares for Cash
|
9,357,578
|
$
|
8,178,471
|
|||||
|
Warrants and Options Exercised
|
757,864
|
$
|
-
|
|||||
Cash received from shares issued under private placements during the year ended December 31, 2013, was $8,178,471, net of $367,915 of stock issuance costs.
We account for share based payments for goods and services to non-employees in accordance with ASC Subtopic 505-50 that requires that all such payments shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. In order to evaluate whether the fair value of consideration received or the fair value of equity instruments issued is more reliable, we calculate the fair value of each. Primarily we have had contractual obligations owed and goods and services related to working capital exchanged for units in our private placements at their issue price to the public.
To determine the fair value of shares issued for acquisitions, we used the fair value determined by using the average closing price from the preceding five days up to the transaction closing date on the OTCQB Market.
The common shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such purchasers represented that they were “accredited investors” as such term is defined under the Securities Act and the sale 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. The shares of common stock issued are restricted under Rule 144 promulgated under the Securities Act.
Share-Based Compensation
As of December 31, 2014 the Company had 1,584,928 common shares reserved for future issuance under the Company’s stock plans (See Note 12).
NOTE 12 – Options and Warrants
The following are details related to options issued by the Company:
|
Weighted
|
||||||||
|
Options for
|
Average
|
|||||||
|
Shares
|
Exercise Price
|
|||||||
|
Outstanding as of December 31, 2012
|
6,837,606
|
$
|
0.59
|
|||||
|
Granted
|
3,445,900
|
1.00
|
||||||
|
Exercised
|
(150,000
|
)
|
0.50
|
|||||
|
Forfeited
|
-
|
-
|
||||||
|
Cancelled
|
-
|
-
|
||||||
|
Expired
|
-
|
-
|
||||||
|
Outstanding as of December 31, 2013
|
10,133,506
|
$
|
0.74
|
|||||
|
Outstanding as of December 31, 2013
|
10,133,506
|
$
|
0.74
|
|||||
|
Granted
|
1,209,172
|
0.66
|
||||||
|
Exercised
|
(146,250
|
)
|
0.77
|
|||||
|
Forfeited
|
-
|
-
|
||||||
|
Cancelled
|
(100,000
|
)
|
2.45
|
|||||
|
Expired
|
-
|
-
|
||||||
|
Outstanding as of December 31, 2014
|
11,096,428
|
$
|
0.72
|
|||||
During 2014 and 2013, there were no forfeitures or expirations under our stock plans. The weighted-average grant-date fair value of options granted was $0.33 and $0.44 per option for the years ended December 31, 2014 and 2013, respectively.
For the year ended December 31, 2014, the intrinsic value of options outstanding was $14,450 and of options exercisable was $10,025.
All options exercised were done so by means of a cashless exercise, whereby the Company received no cash and issued new shares.
We account for all stock-based payment awards made to employees and directors based on estimated fair values. We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period.
We use the Black-Scholes-Merton (“BSM”) option-pricing model as our method of valuation. The fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of share-based payment awards on the date of grant as determined by the BSM model is affected by our stock price as well as other assumptions. These assumptions include, but are not limited to:
|
•
|
Expected term is generally determined using 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 similar industry indices selected by us as representative, which are publicly traded, over the expected term of the award, due to our limited trading history for awards granted through June 30, 2014. Thereafter, we began using our own trading history as we deemed there to be sufficient history at that point in time;
|
|
•
|
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.
|
The estimated value of employee stock options granted during the years ended December 31, 2014 and 2013 were estimated using the BSM option pricing model with the following assumptions:
|
Years Ended December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Expected volatility
|
40 - 86
|
%
|
40
|
%
|
||||
|
Risk-free interest rate
|
0.16 – 0.70 |
%
|
0.16 – 0.70 |
%
|
||||
|
Expected dividends
|
0.00
|
%
|
0.00
|
%
|
||||
|
Expected term in years
|
5 | 3 – 5 | ||||||
The following are details related to warrants issued by the Company:
|
Weighted
|
||||||||
|
Warrants for
|
Average
|
|||||||
|
Shares
|
Exercise Price
|
|||||||
|
Outstanding as of December 31, 2012
|
12,307,558
|
0.86
|
||||||
|
Granted
|
8,187,817
|
1.31
|
||||||
|
Exercised
|
(680,000
|
)
|
0.03
|
|||||
|
Forfeited
|
(284,934
|
)
|
0.48
|
|||||
|
Cancelled
|
-
|
-
|
||||||
|
Expired
|
-
|
-
|
||||||
|
Outstanding as of December 31, 2013
|
19,530,441
|
1.08
|
||||||
|
Outstanding as of December 31, 2013
|
19,530,441
|
1.08
|
||||||
|
Granted
|
5,305,513
|
0.86
|
||||||
|
Exercised
|
(6,268,628
|
)
|
1.33
|
|||||
|
Forfeited
|
-
|
-
|
||||||
|
Cancelled
|
-
|
-
|
||||||
|
Expired
|
(1,000,000
|
)
|
1.00
|
|||||
|
Outstanding as of December 31, 2014
|
17,567,326
|
0.93
|
||||||
The weighted-average grant-date fair value of the 4,293,013 compensatory warrants granted for the year ended December 31, 2014, was $0.31 per warrant.
The weighted-average grant-date fair value of the 1,439,560 compensatory warrants granted for the year ended December 31, 2013, was $0.37 per warrant.
For the year ended December 31, 2014, the intrinsic value of warrants outstanding and exercisable was $0.
All warrants exercised were for cash. The Company issued an aggregate of 6,268,628 shares of Common Stock, par value $0.0001 per share, upon the exercise of 6,268,628 warrants. The Company temporarily reduced the exercise price of all of its outstanding warrants to $0.50 per share for a period beginning on June 4, 2014, and ending on July 1, 2014 (the “Temporary Exercise Period”). During the Temporary Exercise Period, forty-six warrant holders exercised a total of 6,268,628 warrants and therefore purchased 6,268,628 shares of common stock in exchange for an aggregate purchase price of $3,134,314. The Company utilized the services of two FINRA registered placement agents during the Temporary Exercise Period. In connection with the warrant exercises, the Company paid an aggregate cash fee of approximately $62,144 to such placement agents. The net proceeds to the Company from the warrant exercises, after deducting the foregoing cash fee, were approximately $3,072,170.
For the year ended December 31, 2014, the Company issued 4,293,013 compensatory warrants to purchase its common stock while recording expense for these warrants of $1,339,880 using the BSM option pricing model based upon:
|
n
|
Expected term is generally determined using the contractual term of the award;
|
|
n
|
Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices selected by us as representative, which are publicly traded, over the expected term of the award, due to our limited trading history for awards granted through June 30, 2014. Thereafter, we began using our own trading history as we deemed there to be sufficient history at that point in time;
|
|
n
|
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,
|
|
n
|
Forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures.
|
Forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures.
The weighted-average estimated fair value of warrants granted as stock based compensation during the years ended December 31, 2014 and 2013 were estimated using the BSM option pricing model with the following assumptions:
|
Years Ended December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Expected volatility
|
40 - 86
|
%
|
40
|
%
|
||||
|
Risk-free interest rate
|
0.60 – 0.70 |
%
|
0.60 – 0.70 |
%
|
||||
|
Expected dividends
|
0.00
|
%
|
0.00
|
%
|
||||
|
Expected term in years
|
3 – 5 | 3 – 5 | ||||||
For the Year Ended December 31, 2014:
|
Warrants and Options Outstanding
|
Warrants and Options Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Price
|
Number Outstanding
|
Weighted Average Remaining Contractual Life (years)
|
Range of Exercise Price
|
Number Exercisable
|
Weighted Average Exercise Price
|
|||||||||||||||||
|
$
|
0.00 – 0.50
|
7,612,550
|
5.78
|
$
|
0.00 – 0.50
|
7,015,300
|
$
|
0.42
|
||||||||||||||
|
$
|
0.51 – 1.00
|
17,020,617
|
2.36
|
$
|
0.51 – 1.00
|
14,859,777
|
$
|
0.96
|
||||||||||||||
|
$
|
1.01 – 1.50
|
4,030,587
|
0.44
|
$
|
1.01 – 1.50
|
3,980,587
|
$
|
1.35
|
||||||||||||||
|
28,663,754
|
25,855,664
|
|||||||||||||||||||||
For the Year Ended December 31, 2013:
|
Warrants and Options Outstanding
|
Warrants and Options Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Price
|
Number Outstanding
|
Weighted Average Remaining Contractual Life (years)
|
Range of Exercise Price
|
Number Exercisable
|
Weighted Average Exercise Price
|
|||||||||||||||||
|
$
|
0.0001
|
1,000,000
|
1.4
|
$
|
0.0001
|
1,000,000
|
0.0001
|
|||||||||||||||
|
$
|
0.50
|
6,410,800
|
8.1
|
$
|
0.50
|
5,182,300
|
0.50
|
|||||||||||||||
|
$
|
1.00
|
15,036,830
|
4.2
|
$
|
1.00
|
13,414,330
|
1.00
|
|||||||||||||||
|
$
|
1.25
|
2,912,716
|
2.2
|
$
|
1.25
|
2,912,716
|
1.25
|
|||||||||||||||
|
$
|
1.50
|
4,203,601
|
4.7
|
$
|
1.50
|
4,203,601
|
1.50
|
|||||||||||||||
|
$
|
2.45
|
100,000
|
8.5
|
$
|
2.45
|
40,000
|
2.45
|
|||||||||||||||
|
29,663,947
|
26,752,947
|
|||||||||||||||||||||
Third Amended and Restated 2007 Stock Incentive Plan
The Company assumed the Third Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Plan”) from Global Recycling Technologies, Ltd., a Delaware corporation (“Global Recycling”), upon the consummation of a reverse triangular merger between the Company, Global Recycling, and GRT Acquisition, Inc., a Nevada corporation, on November 28, 2011.
There are an aggregate of 6,742,606 shares of our Common Stock reserved for issuance under options granted by the 2007 Stock Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company (collectively, “Eligible Persons”). As of December 31, 2014, we have issued options to purchase an aggregate of 6,647,606 shares of our Common Stock originally reserved under the 2007 Stock Plan. There remain 95,000 shares of Common Stock available for issuance under this plan.
Under the 2007 Stock Plan, Eligible Persons may be granted: (a) stock options (“Options”), which may be designated as Non-Qualified Stock Options (“NQSOs”) or Incentive Stock Options (“ISOs”); (b) stock appreciation rights (“SARs”); (c) restricted stock awards (“Restricted Stock”); (d) performance share awards (“Performance Awards”); or (e) other forms of stock-based incentive awards.
The 2007 Stock Plan will remain in full force and effect through May 30, 2017, unless earlier terminated by our Board of Directors. After the 2007 Stock Plan is terminated, no future awards may be granted under the 2007 Stock Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions.
2012 Equity Incentive Plan
On February 23, 2012, subject to stockholder approval, the Company’s Board of Directors approved the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). By written consent in lieu of a meeting, dated March 14, 2012, Stockholders of the Company owning an aggregate of 14,398,402 shares of Common Stock (representing approximately 66.1% of the then 23,551,991 outstanding shares of Common Stock) approved and adopted the 2012 Plan. Also by written consent in lieu of a meeting, dated July 27, 2012, Stockholders of the Company owning an aggregate of 12,676,202 shares of Common Stock (representing approximately 51.8% of the then 24,451,991 outstanding shares of Common Stock) approved an amendment to the 2012 Plan to increase the number of shares reserved for issuance under the 2012 Plan by 3,000,000 shares.
There are an aggregate of 6,500,000 shares of our Common Stock reserved for issuance upon exercise of awards granted under the 2012 Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company. As of December 31, 2014, we have issued options to purchase an aggregate of 5,010,072 shares of our Common Stock originally reserved under the 2012 Plan. There remain 1,489,928 shares of Common Stock available for issuance under this plan.
The 2012 Plan includes a variety of forms of awards, including (a) ISOs (b) NQSOs (c) SARs (d) Restricted Stock, (e) Performance Awards, and (e) other forms of stock-based incentive awards to allow the Company to adapt its incentive compensation program to meet its needs.
The 2012 Plan will terminate on February 23, 2022, unless sooner terminated by our Board of Directors. After the 2012 Plan is terminated, no future awards may be granted under the 2012 Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions and the 2012 Plan’s terms and conditions.
NOTE 13 – Related Party Transactions
Accounts Payable Related Party
Chief Executive Officer
The Chief Executive Officer is the sole owner of a corporation, Barcid Investment Group, which was owed $114,434 as of December 31, 2013 for management consulting services provided to the Company.
The accounts payable related party in the amount of $62,500 was owed to the former Chief Executive Officer as of December 31, 2014 and is comprised of a deferred compensation obligation, which was paid in full subsequent to December 31, 2014.
Chief Technical Officer
The Chief Technical Officer is the sole owner of WEBA Technologies, which was paid for products sold to GlyEco, primarily consisting of additive packages for antifreeze.
|
2014
|
2013
|
|||||||
|
Beginning balance as of December 31, 2013
|
$
|
-
|
$
|
-
|
||||
|
Monies owed
|
218,195
|
-
|
||||||
|
Monies paid
|
(203,145
|
)
|
-
|
|||||
|
Ending balance as of December 31, 2014
|
$
|
15,050
|
$
|
-
|
||||
This liability is included in accounts payable as of December 31, 2014.
In addition to the above amounts, the Company incurred expenses for consulting services provided by the Chief Technical Officer in the ordinary course of business, totaling $119,668 and $0 during 2014 and 2013, respectively.
Chief Business Development Officer
The Chief Business Development Officer is the sole owner of two corporations, CyberSecurity, Inc. and Market Tactics, Inc., which were owed $16,058 for marketing consulting services provided to the Company as of December 31, 2013. The Company incurred expenses totaling $145,011 during 2013 for marketing consulting services.
In 2014, the Company incurred expenses for consulting services provided by the Chief Business Development Officer totaling $84,500 to the Company in the ordinary course of business through Market Tactics, Inc.
Chief Financial Officer
The Chief Financial Officer was owed $16,138 for reimbursable business expenses charged on a personal credit card as of December 31, 2013.
Former Director
A former Director of the Company is the counter party to consulting and non-compete contracts, as well as the sole owner of two corporations, Full Circle and NY Terminals with contracts with the Company. As described in Note 6, Full Circle is paid pursuant to lease and services agreements. NY Terminals is paid pursuant to a ground lease agreement. The former Director, Full Circle and NY Terminals were owed $426,052 as of December 31, 2013. By the fourth quarter of 2014, the former Director ceased to be a related party upon his resignation from the Board on August 22, 2014. During the year ended December 31, 2013, and the nine months ended September 30, 2014, the Company incurred expenses from the Former Director, Full Circle and NY Terminals totaling $2,832,046 and $1,687,706, respectively.
General Manager
The General Manager of Acquisition Sub #3 is co-owner of MMT Technologies and was owed $10,000 as of December 31, 2013 in rent pursuant to a lease agreement for the building and land occupied by Acquisition Sub #3. In 2014, the outstanding balance was paid and the lease was transferred to a banking institution.
NOTE 14 – Commitments and Contingencies
Rental Agreements
During the years ended December 31, 2014 and 2013, the Company rented office and warehouse space on a monthly basis under a written rental agreements. The terms of these agreements range from several months to five years.
For the years ended December 31, 2014 and 2013, rent expense was $694,899 and $516,952, respectively.
Future minimum lease payments due are as follows:
|
Year Ended December 31,
|
||||
|
2015
|
$
|
645,687
|
||
|
2016
|
650,652
|
|||
|
2017
|
564,251
|
|||
|
2018
|
80,651
|
|||
|
Total minimum lease payments
|
$
|
1,941,241
|
||
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. Currently, there are no pending legal proceedings.
However, the Company is aware of two matters that involve alleged claims against the Company, and it is at least reasonably possible that the claims will be pursued. Both of these claims are related to our New Jersey processing facility. The smaller of the claims is related to construction management services provided for the ongoing improvements to the facility. The entity has billed for amounts above their contract amount for services that the Company believes were, to some extent, either already paid for, or overbilled. The estimated range involved in this dispute is from $0 to $175,000. The second matter involves our contracts with our former director and his related entities that provide services, and is the landlord, for the processing facility. In this matter, the landlord of the Company’s leased property claims back rent is due for property used by the Company outside of the scope of its lease agreement. The estimated range involved in this dispute is from $0 to $750,000.
Management believes both of these claims are meritless, and the Company will defend itself to the extent it is economically justified. Subsequent to December 31, 2014, the landlord denied the Company access to the 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. As of December 31, 2014, the Company has recorded an accrual in the amount of $525,000 to reflect the $250,000 payment, as well as to provide for potential costs to litigate these matters.
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 as of December 31, 2014 and 2013. 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 aggregate, with an umbrella liability policy that doubles the coverage. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites 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 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 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 landlord. However, the landlord has disputed this position and it is an open issue subject to negotiation and the ultimate transfer of the New Jersey business. Currently, we have no knowledge as to the scope of the landlord’s remediation obligation.
The Company acknowledges that there will need to be recorded an asset retirement obligation for environmental matters that are expected to be addressed at the eventual asset retirement of our facility in New Jersey. Currently, the landlord of the property maintains a letter of credit, in the approximate amount of $400,000, to the benefit of the state of New Jersey to support such asset retirement expenditures. The transfer of the business operations to GlyEco, which began with the transfer of the Class D permit in August 2014, is still in process. Upon completion of the transfer, we anticipate that the Company will record an asset retirement obligation of approximately $400,000. We will need to post the $400,000 letter of credit with the New Jersey Department of Environmental Protection to ensure the funds are available if the facility is closed. The resultant $400,000 asset retirement obligation will be expensed over the anticipated operating life of the project, which is estimated to be approximately 25 years.
NOTE 15 – Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed completely to perform as contracted. Concentrations of credit risk that arise from financial instruments exist for groups of customers when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions described below.
-
Cash and cash equivalents – Financial instruments that subject the Company to credit risk are cash balances maintained in excess of federal depository insurance limits. At December 31, 2014, the Company had $0 in cash which was not guaranteed by the Federal Deposit Insurance Corporation. At December 31, 2013, the Company had $3,828,685 in cash which was not guaranteed by the Federal Deposit Insurance Corporation. To date, the Company has not experienced any losses in such accounts and believes the exposure is minimal.
-
Major customers and accounts receivable – Major customers represent any customer that accounts for more than 10% of revenues for the year. During 2014, the Company had one customer that accounted for 30% of revenues and whose accounts receivable balance (unsecured) accounted for approximately 19% of accounts receivable at December 31, 2014. During 2013, the Company had two customers that accounted for 23% and 29% of revenues and whose accounts receivable balance (unsecured) accounted for approximately 23% and 7% of accounts receivable at December 31, 2013.
NOTE 16 – Subsequent Events
Private Placement Offering
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 (the “Investors”), pursuant to which the Company sold to the Investors, for an aggregate purchase price of $3,581,880, 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 shall issue 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, are expected to be approximately $3,547,053.
Recent Stock Issuances
From January 1, 2015, to March 30, 2015, the Company issued an aggregate of 245,096 shares of common stock, of which 220,692 shares were issued pursuant to the Company’s Equity Incentive Program, as described in a Form 8-K filed by the Company with the SEC on December 24, 2014, and 24,404 shares were issued as severance pay to two departing employees. All shares of common stock issued are restricted under Rule 144 promulgated under the Securities Act.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, our disclosure controls and procedures were not effective, for the reasons discussed below, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. In connection with our evaluation, we identified a material weakness in our internal control over financial reporting as of December 31, 2014.
A material weakness is 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 the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions. We do not believe that this material weakness has resulted in deficient financial reporting because we have worked through the audit process to review our transactions to assure compliance with professional standards.
Accordingly, while we identified a material weakness in our system of internal control over financial reporting as of December 31, 2014, we believe that we have taken reasonable steps to ascertain that the financial information contained in this report are in accordance with accounting principles generally accepted in the United States. We believe we have made progress toward remediating the previously identified material weakness by retaining a new Corporate Controller with public company experience in February 2014 to assure financial reporting compliance in the future and to assist the Chief Financial Officer.
This Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error 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, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on 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. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The members of the Board of Directors of the Company serve for a period of one year or until his/her successor is elected and qualified. The officers of the Company are appointed by our Board of Directors and hold office until their death, resignation, or removal from office. A summary of the composition of the Company’s directors and executive officers, their ages, positions held, are as follows:
|
Name
|
Age
|
Position
|
Director Since
|
||||
|
David Ide
|
41 |
Chief Executive Officer, President, and Director
|
October 24, 2014
|
||||
|
Dwight Mamanteo
|
45 |
Chairman of the Board
|
January 15, 2014
|
||||
|
John Lorenz
|
71 |
Director
|
November 28, 2011
|
||||
|
Michael Jaap
|
58 |
Director
|
November 28, 2011
|
||||
|
Richard Q. Opler
|
60 |
Director
|
July 29, 2013
|
||||
|
Keri Smith
|
50 |
Director
|
July 29, 2013
|
||||
|
Alicia Williams Young
|
38 |
Chief Financial Officer
|
- | ||||
|
Richard Geib
|
67 |
Chief Technical Officer
|
- | ||||
|
Todd Smith
|
53 |
Chief Operating Officer
|
- | ||||
|
Janet Carnell Lorenz
|
53 |
Chief Business Development Officer
|
- |
David Ide – Chief Executive Officer, President, and Director. Mr. Ide, 41, became a director of the Company on October 24, 2014. On January 21, 2015, the Board of Directors appointed him to serve as interim Chief Executive Officer and President, effective February 1, 2015. Since August 2010, Mr. Ide has served as an independent director, investor, and advisor to technology and start-up ventures focused on simple to use software automation tools including mobile SaaS, CMS, and custom marketing and payment systems for small to medium businesses, developers, and enterprise customers. Mr. Ide served as non-executive Chairman of Spindle, Inc. from January 2012 to November 2014. Mr. Ide was a founder and the Chairman and Chief Executive Officer of Modavox, Inc. in October 2005 after he managed the transition of SurfNet Media into Modavox, Inc. In July 2009, Mr. Ide developed and executed Modavox, Inc.’s acquisition of Augme Technologies, Inc. creating the first full service mobile agency for Fortune 100 companies. At that time, Mr. Ide was appointed to the Board of Directors of Augme Technologies, Inc. and became the Chief Strategy Officer. He resigned as an officer and director in August 2010 to engage in developing and advising technology companies. Mr. Ide was also an independent director in the early stage of SEFE, Inc. Prior to 2005, Mr. Ide served as President of a successful digital agency in Arizona focused on ecommerce, targeted and demand marketing, CMS, and SaaS marketing platforms for fortune 500 companies. Mr. Ide is a technology entrepreneur and an experienced CEO, chairman, patented inventor, and director.
Dwight Mamanteo – Chairman of the Board. Mr. Mamanteo, 45, became a director of the Company on January 15, 2014. On January 21, 2015, the Board of Directors appointed him to serve as Chairman of the Board, effective February 1, 2015. Since November 2004, Mr. Mamanteo has served as a Portfolio Manager at Wynnefield Capital, Inc. Since March 2007, Mr. Mamanteo has served on the Board of Directors of MAM Software Group, Inc. (NASDAQ: MAMS), a provider of innovative software and data solutions for a wide range of businesses, including those in the automotive aftermarket. Mr. Mamanteo serves as the Chairman of the Compensation Committee and as a member of the Audit and Governance Committees. From June 2013 to October 2014, Mr. Mamanteo served on the Board of Directors of ARI Network Services, Inc. (NASDAQ: ARIS), a provider of products and solutions that serve several vertical markets with a focus on the outdoor power, power sports, marine, RV, and appliance segments. Mr. Mamanteo served as the Chairman of the Governance Committee and as a member of the Compensation Committee. From March 2012 to April 2012, Mr. Mamanteo served on the Board of Directors of CDC Software Corp. (NASDAQ: CDCS), a provider of Enterprise CRM and ERP software designed to increase efficiencies and profitability. Mr. Mamanteo served as a member of the Audit Committee. From April 2009 to November 2010, Mr. Mamanteo served on the Board of Directors of EasyLink Services International Corp. (NASDAQ: ESIC), a provider of on demand electronic messaging and transaction services that help companies optimize relationships with their partners, suppliers and customers. Mr. Mamanteo served as a member of the Compensation and Governance & Nominating Committees. From December 2007 to November 2008, Mr. Mamanteo served on the Board of Directors and as the Chairman of PetWatch Animal Hospitals, Inc. (a private company), a provider of primary care and specialized services to companion animals through a network of fully owned veterinary hospitals. Mr. Mamanteo received an M.B.A. from the Columbia University Graduate School of Business and a Bachelor of Science in Electrical Engineering from Concordia University (Montreal).
John Lorenz – Director. Mr. Lorenz served as the Chief Executive Officer, President, and sole director of Global Recycling Technologies from its formation in May 2006 until its reverse triangular merger with the Company on November 28, 2011. Upon the consummation of the merger, Mr. Lorenz replaced Ralph M. Amato as the Chief Executive Officer, President and Chairman of the Board of Directors of the Company. Mr. Lorenz filled these roles until voluntarily stepping down, effective February 1, 2015, at which time he assumed the title of Chairman Emeritus of the Company’s Board of Directors. Mr. Lorenz is experienced in identifying and managing new technologies, financing industry consolidations and acquisitions, and providing initial financing for such ventures. Mr. Lorenz has served as a founder and management, financial and strategic consultant to a number of emerging, public and private companies. Mr. Lorenz founded Environmental Waste of America, Inc. (“EWA”) in 1986, where he participated in virtually all management aspects of the solid waste industry, including acquisitions and integration. He served as President, Chief Executive Officer, and a director of EWA between 1986 and 1997 until its merger with Envirofil, Inc., a public company that is now Waste Management, Inc. In addition, Mr. Lorenz was formerly a founder, director, and Chief Executive Officer of Automotive Services of America. Earlier in his career, Mr. Lorenz worked as a financial, marketing, and political consultant, doing media, market, and public opinion research. Mr. Lorenz has articles on diachronic survey research, and is an author and editor of the book, The Political Image Merchants, published in 1971. Mr. Lorenz is an “inventor” on patents and is a frequent lecturer at Universities in the United States on capital, financial strategies, and equity development. Mr. Lorenz holds an Adjunct Professorship at Marylhurst University, and is preparing a book for publication in 2014 on financial strategies in challenging economic environments. Mr. Lorenz is an active triathlete and regularly competes in triathlons and marathons in the US. Mr. Lorenz holds an undergraduate degree with honors from the University of Portland, and a master’s degree from the University of Chicago.
Michael Jaap – Director. Mr. Jaap has had an extensive career in the field of nonferrous scrap metal recycling, including the areas of copper recycling and copper related raw material feed procurement. Mr. Jaap has worked with companies such as Amax Copper, where he held positions of purchasing copper and precious metal based scrap. Mike also worked for Commercial Metals, where he ran the yard operations of their Los Angeles facility. Mr. Jaap worked for Metal Traders, Warrenton Refining Company, owned by Phillip Anschutz. Mr. Jaap was involved with scrap copper procurement and copper ingot sales. Cyprus Copper Company acquired Warrenton, and Mr. Jaap worked for the Cyprus Copper Division in Phoenix AZ. The sale of Warrenton by Cyprus prompted Mr. Jaap to set up his own companies over the next 19 years. These companies include Copper Consulting Industries, DeReelTech, Southwest Metals, Commodity Choppers, INTL Sieramet, Carbontech, JPH LLC and other ventures not specific to the recycling industry. Mr. Jaap currently owns and operates a copper recycling facility in Indiana, and is an active member of Southwest Metals in Glendale, AZ. Mr. Jaap is a graduate of Michigan State University with a BS in Microbiology and Public Health.
Richard Q. Opler – Director. Since 1998, Mr. Opler has worked in real estate development. Previously Mr. Opler held careers as a commercial real estate agent, VP of Finance for a technology startup firm, and VP of a business consulting and venture capital firm. He also served as director at certain companies. From 1977 to 1985 he worked at World’s Finest Chocolate. Mr. Opler received a Bachelor’s degree from Duke University in 1977 and a Master’s degree in business from the University of Chicago in 1981.
Keri Smith – Director. Ms. Smith has 25 years of experience in Securities Services, during which she has occupied many significant operational and management positions. From 2009 to 2012, Ms. Smith served as an Executive Director within WSS, Global Fund Services Division for JPMorgan Chase, Boston and JPMorgan Chase, London. From 2006 to 2008, she was the Global Head/Director – Worldwide Network Management for RBC Dexia Investor Services, London. From 1998 to 2006, Ms. Smith was the Director – Global Network Management of Investors Bank & Trust Company, and from 1995 to 1998, she was the Vice President – Global Network Management of BankBoston. Ms. Smith attended Rhode Island College of Teaching for a Bachelors in Education, and holds an Associates Degree in Finance.
Alicia Williams Young, Esq. – Chief Financial Officer. Ms. Williams Young was appointed as Chief Financial Officer of the Company by the Board of Directors on September 20, 2013. She had previously served as the Company’s interim principal financial officer since January 15, 2013. Ms. Williams Young was appointed as Secretary of the Company by the Board of Directors on November 30, 2011. From October 2008 until the date Global Recycling Technologies merged with and into the Company, Ms. Williams Young served as the Director of Internal Operations of Global Recycling Technologies. Upon the consummation of the merger of Global Recycling Technologies with and into the Company, Ms. Williams Young became the Controller and VP of Internal Operations of the Company. From August 2004 until she joined the Company, Ms. Williams Young was a full-time law student and/or part-time law clerk. From March 2000 to August 2004, Ms. Williams Young served as a Senior Systems Analyst/Data Lead at Intel Corporation in Chandler, Arizona. Ms. Williams Young holds a law degree (J.D.) from the University of Southern California Gould School of Law in Los Angeles, California (December 2007) and a Bachelor of Science in Management Information Systems & Accounting (December 1999). Ms. Williams Young was admitted to practice law in the state of Arizona (2008).
Richard Geib – Chief Technical Officer. Mr. Geib was appointed as the Chief Technical Officer of the Company upon the consummation of the merger. Mr. Geib served as Global Recycling Technologies’ Director of Technology and Development from July 2007 until the merger. Since 2002 through current, Mr. Geib has served as the President of WEBA, which develops advanced additive packages for antifreeze and heat transfer fluid and used glycol treatment processes, including re-distillation and recovery technology. Under Mr. Geib’s direction, WEBA launched its additive sales into Canada and Mexico. From 1998 through 2002, Mr. Geib served as President of Additives Inc., a former chemical division of Silco Distributing Co., where he developed new products, added many domestic customers, began industry trade show participation, became chairman of ASTM Coolants Committee, and established a laboratory, customer service, production, and sales department. From 1994 to 1998, Mr. Geib served as the Manager of the Chemical Division of Silco Distributing Company, where he developed and grew his division, developed products, designed a production plant, negotiated contracts for outside production, wrote marketing and technical literature, developed and implemented a sales program, arranged freight, and managed cash flow. From 1990 to 1994, Mr. Geib served as the President of Chemical Sales Company. From 1969 through 1989, Mr. Geib held several positions with Monsanto Company, including, Director of Sales, Detergents and Phosphates Division; Director, Process Chemicals, Europe/Africa Monsanto’s Europe/Africa Headquarters, Brussels, Belgium; Strategic and Financial Planning Director, Process Chemicals Division; Business Manager for Maleic Anhydride, Chlor-Alkali, Phosphate Esters, Fumaric Acid, etc.; Plant Manager Monsanto’s W.G. Krummrich Plant; Operations Superintendent Monsanto’s W.G. Krummrich Plant; Production Supervisor for the 4-Nitrodiphenylamine Chlorine and Caustic Soda/Potash plants; and Design and Plant Engineer World Headquarters.
Todd Smith – Chief Operating Officer. Mr. Smith was appointed as the Company’s Chief Operating Officer on January 8, 2014. Prior to being appointed as Chief Operating Officer, Mr. Smith served as Senior VP Sales, Mergers & Acquisitions of the Company since 2010. From 1995 to 2008, Mr. Smith served as President of Northeast Environmental Services, Inc. (“NES”), located in Cumberland, Rhode Island. NES specialized in the recycling of used engine coolants, and the distribution of recycled automotive antifreezes, as well as various other collection and disposal services offered to the customer base. Mr. Smith was responsible for all aspects of the NES operations, and by 2007, NES had gone from its infancy to achieving $5,000,000 in gross revenues. Mr. Smith supervised the daily operations, research and development, and finances of NES. Additionally, Mr. Smith was directly involved in the development of a sales force that led to a customer base of over 3,000 clients, maintaining account relations and retention, and the expansion of NES from a 100 mile radius to the entire Northeastern United States. In 2000 and 2003, Mr. Smith was nominated for the Small Business Association Entrepreneur of the Year Award.
Janet Carnell Lorenz– Chief Business Development Officer. Ms. Carnell Lorenz was appointed as the Company’s Chief Business Development Officer on January 14, 2014. Prior to being appointed as Chief Business Development Officer, Ms. Carnell Lorenz served as Senior VP of Corporate Development and Marketing of the Company since 2010. Ms. Lorenz founded CyberSecurity Group, Inc. (dba Market Tactics) in 2000 to assist developing technologies into innovative and marketable products. She has synthesized a twenty-one year background in computer systems engineering, corporate development and marketing into a resource for creativity and business acumen. Clients include Apple’s iPhone application developers center and Digital Ghost. She provides in-depth knowledge of corporate branding, market validation, product development and positioning, consumer sales, and viral marketing. She has placed dozens of successful product lines with retailers including Best Buy, Office Depot, Amazon.com and Costco Wholesale. Prior to founding CyberSecurity Group, Inc., she was a founding partner at a top ranked marketing representative's firm. She created the company’s international sales division, devising channel and localization strategies which grew sales to over $40 Million per year. Clients included Hewlett-Packard’s PC division, Hitachi Hard Drives, Creative Labs, Lexmark Printers, PNY Electronics, Umax Technologies, and Fuji Digital Cameras. She attended the University of Washington receiving her Bachelor of Arts in Business Administration, has earned several technical certifications, and is an authorized instructor for a number of computing platforms.
Significant Employees
The Company also relies on the following employees to make significant contributions to its business:
Grant Sahag, Esq. – Senior VP Business Development. Prior to being appointed as Senior VP Business Development, Mr. Sahag served as VP International Development. Before joining the Company, Mr. Sahag was a business attorney who specialized in providing strategic business development advice to emerging growth companies. Mr. Sahag managed a practice that focused in the areas of business formation, corporate governance, mergers and acquisitions, intellectual property, strategic partnerships, and international development. Mr. Sahag’s past clients include technology start-ups, retailers, U.S. and international universities, school districts, non-profit charities, and professional athletes. Mr. Sahag has lead several international initiatives, including the expansion of retail franchises into Mexico, the development of a legal practice in Asia, and supply-chain logistics strategy for a non-profit in Africa. Mr. Sahag received a Juris Doctor from Arizona State University, specializing in business law, and a B.S. in Business Administration from the University of Arizona. Mr. Sahag is President and Chairman of the non-profit charity Success Through Sports.
Jim Maguire – Senior Engineer. Mr. Maguire is a chemical engineer with over 43 years of experience in petroleum, petrochemical processing, process design, and project management. Mr. Maguire started a career in refining in 1972 at the Udex unit in Sunoco Inc.’s Marcus Hook Refinery. Since then, a majority of his experiences have been technical and operations management focused on petroleum specialties such as lube oils and waxes. His previous experience includes 35 years with Sunoco, four years with Middough, Inc., and four years working at the Yorktown Refinery under Western Refining and Plains All American. Mr. Maguire has served on various industry committees, most notably the NPRA Lubricants & Waxes Committee and Wax Subcommittee. He was also a regular participant in the Independent Lubricants Manufacturers Association and met a number of antifreeze manufacturers through that association. Mr. Maguire received his Bachelors Degree in Chemical Engineering from Villanova University in 1970.
Matt Hamilton, Esq. – General Counsel and Secretary. Mr. Hamilton joined the Company upon earning his Juris Doctor (J.D.) degree from the Sandra Day O'Connor College of Law at Arizona State University in 2012. Mr. Hamilton's focus prior to joining the Company was in pro bono legal work. He worked at the College of Law's Civil Justice Clinic, where he and a colleague argued a pro bono case before the Arizona Court of Appeals, and he volunteered at the Arizona Center for Disability Law, where he focused on know-your-rights literature. Mr. Hamilton was a William H. Pedrick Scholar at the College of Law and served as Executive Managing Editor of the Sports and Entertainment Law Journal. Mr. Hamilton is admitted to practice law in the State of Arizona. He graduated summa cum laude with a Bachelor of Science (B.S.) degree in Political Science from Arizona State University in 2009.
Maria Tellez – Controller. Ms. Tellez has over 15 combined years of accounting, audit, and controllership experience. Since 2008 until joining the Company, Ms. Tellez served as the Assistance Controller of Empereon Marketing / Constar Financial Services, where she assisted in the documentation, development, implementation, and management of the company’s internal control processes and procedures. From 2004 to 2008, she performed audit and review procedures as an Auditor with Semple, Marchal & Cooper, LLP. From 1999 to 2004, she was a Senior Accountant with Bechtel Corporation, where she managed a staff of accountants in the billing, compliance, contracts, and general ledger departments. Ms. Tellez earned a Bachelor of Science (B.S.) degree in Accounting/Finance from the University of Arizona in 1998.
Employment / Consulting Agreements
Richard Geib - On August 4, 2014, the Company entered into a Consulting Agreement with Richard Geib, the Company’s Chief Technical Officer. The Consulting Agreement superseded the terms of the Consulting Agreement previously entered into between Global Recycling Technologies, Ltd., a Delaware corporation (“Global Recycling”), and Mr. Geib on May 3, 2010, which the Company assumed upon the consummation of a reverse triangular merger with Global Recycling on November 28, 2011.
The Consulting Agreement is for a term of two years and may be extended for additional one-year terms by written agreement. Pursuant to the Consulting Agreement, Mr. Geib will assist in the further development and implementation of the Company’s proprietary technology for recycling glycol, the GlyEco TechnologyTM, and perform such other duties as requested by the Company’s Chief Executive Officer. In consideration for his services during the term, the Company will compensate Mr. Geib with an initial engagement fee of $50,000, a monthly consulting fee of $12,500 per month for the first year of the term, a to be determined monthly consulting fee for the second year of the term, and a total of 2,700,000 warrants to purchase shares of GlyEco common stock, par value $0.0001 per share, at an exercise price of $0.73 per share, of which half shall vest immediately and the remaining amount shall vest on August 4, 2015.
David Ide - On February 15, 2015, the Company entered into a Consulting Agreement with David Ide, the Company’s interim Chief Executive Officer and President.
Pursuant to the Agreement, the Company engaged Mr. Ide to serve as the Company’s Chief Executive Officer and President and to have the duties and responsibilities ascribed to such positions in the Company’s Amended and Restated Bylaws. Mr. Ide’s engagement commenced on February 1, 2015 (the “Effective Date”), and shall continue for a term of twelve (12) months. Thereafter, Mr. Ide’s engagement may be extended by a written agreement.
In consideration for his services during the term, the Company will compensate Mr. Ide with cash compensation of $15,000 per month of which 50% will be paid in cash and 50% will be paid in restricted common stock, which restricted stock shall be priced at the closing price of the Company’s common stock on the last trading day of each month. Mr. Ide will also receive equity compensation of $90,000 worth of restricted common stock priced as of the day after the Effective Date at $0.31. The equity compensation shall vest 100% upon the Company attaining EBITDA positive results by August 1, 2015, using an adjusted EBITDA calculation.
Committees of the Board of Directors and Meeting Attendance
Our Board of Directors has an Audit Committee, a Compensation Committee, a Governance and Nominating Committee, and a Strategic Committee, each of which has the composition and responsibilities described below.
Audit Committee
Our Audit Committee oversees a broad range of issues surrounding our accounting and financial reporting processes and audits of our financial statements, including the following:
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monitors the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent registered public accounting firm;
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assumes direct responsibility for the appointment, compensation, retention and oversight of the work of any independent registered public accounting firm engaged for the purpose of performing any audit, review or attest services and for dealing directly with any such accounting firm;
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provides a medium for consideration of matters relating to any audit issues; and
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prepares the audit committee report that the rules require be included in our filings with the SEC.
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The members of our Audit Committee are Richard Q. Opler, Michael Jaap, and Keri Smith. Mr. Opler serves as chairperson of the committee. The Board of Directors has determined that Mr. Opler meets the criteria of an “audit committee financial expert” (as defined under Item 407(d)(5)(ii) of Regulation S-K. Mr. Opler is also an “independent director” as defined by Section 10A(m)(3)(B)(ii) of the Exchange Act and Rule 5605(a)(2) of the NASDAQ Marketplace Rules.
The Board of Directors has adopted a written charter for the Audit Committee, a copy of which can be accessed online at www.glyeco.com/corporategov.html.
Compensation Committee.
Our Compensation Committee reviews and recommends policy relating to compensation and benefits of our directors and executive officers, including reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other senior officers, evaluating the performance of these persons in light of those goals and objectives and setting compensation of these persons based on such evaluations. The Compensation Committee reviews and evaluates, at least annually, the performance of the compensation committee and its members, including compliance of the Compensation Committee with its charter.
The members of our Compensation Committee are Michael Jaap, Richard Q. Opler, Dwight Mamanteo, and Keri Smith. Mr. Jaap serves as chairperson of the committee.
The Board of Directors has adopted a written charter for the Compensation Committee, a copy of which can be accessed online at www.glyeco.com/corporategov.html.
Governance and Nominating Committee
The Governance and Nominating Committee oversees and assists our Board of Directors in identifying, reviewing and recommending nominees for election as directors; evaluating our Board of Directors and our management; developing, reviewing and recommending corporate governance guidelines and a corporate code of business conduct and ethics; and generally advises our Board of Directors on corporate governance and related matters.
The members of our Governance and Nominating Committee are Keri Smith, Dwight Mamanteo, and John Lorenz. Ms. Smith serves as chairperson of the committee.
The Board of Directors has adopted a written charter for the Governance and Nominating, a copy of which can be accessed online at www.glyeco.com/corporategov.html.
Strategic Committee
The Strategic Committee advises and makes recommendations to our Board of Directors and the Company’s executive management team regarding the strategic direction of the Company.
The members of our Strategic Committee are John Lorenz, Michael Jaap, David Ide, Keri Smith, and Dwight Mamanteo. Mr. Lorenz serves as chairperson of the committee.
Family Relationships
John Lorenz and Janet Carnell Lorenz are married, and Keri Smith and Todd Smith are siblings. No other family relationship exists that is reportable under Item 401(d) of Regulation S-K.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors or executive officers has been:
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o
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the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
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o
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convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
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o
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subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
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o
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found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;
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o
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subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
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o
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subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors, and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.
Based on a review of the copies of such reports, to the knowledge of the Company, all Section 16(a) filing requirements applicable to its executive officers, directors, and greater than 10% stockholders were complied with during the fiscal year ended December 31, 2014.
Code of Ethics
On August 5, 2014, the Board of Directors of the Company adopted a Code of Business Conduct and Ethics (the “Code of Business Conduct and Ethics”), which sets forth legal and ethical standards of conduct applicable to all directors, executive officers, and employees of the Company.
A copy of the Code of Business Conduct and Ethics may be requested, free of charge, by sending a written communication to Matt Hamilton, General Counsel, at 4802 E. Ray Rd. Ste. 23-408, Phoenix, AZ 85044. The Code of Business Conduct and Ethics has also been posted on the Company’s website, www.glyeco.com.
Item 11. Executive Compensation
The following table sets forth all plan and non-plan compensation for the last two completed fiscal years paid to all individuals who served as the Company’s principal executive officer (“PEO”), principal financial officer (“PFO”) or acting in similar capacity during the last completed fiscal year, regardless of compensation level, and other individuals as required by Item 402(m)(2) of Regulation S-K. We refer to all of these individuals collectively as our “named executive officers.”
Summary Compensation Table
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Name & Principal Position
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Year
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Salary ($)
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Bonus ($)
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Warrant Awards
($)
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Option Awards
($)(9)
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Non-Equity Incentive Plan Compensation
($)
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Change in
Pension Value
and Non-
Qualified
Deferred Compensation Earnings ($)
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All Other Compensation
($)
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Total ($)
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John Lorenz, President and CEO (PEO)
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2014
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$
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130,385
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$
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-
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$
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-
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$
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- |
(1)
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$
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-
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$
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-
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$
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2,000
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(7)
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$
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132,385
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|||||||||||||||
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2013
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175,000
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30,000
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-
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198,090
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(1)
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-
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-
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2,100
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(7)
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405,190
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Alicia Williams Young, CFO (PFO)
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2014
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95,769
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-
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-
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16,254
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(2)
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-
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-
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-
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112,023
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2013
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100,500
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17,500
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-
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132,060
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(2)
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-
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-
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250,060
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Richard Geib, Chief Technical Officer
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2014
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-
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-
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582,718
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(3)
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-
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(4)
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-
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-
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119,668
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702,386
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|||||||||||||||||||||||
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2013
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-
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-
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58,000
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(3)
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44,020
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(4)
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-
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-
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-
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102,020
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Janet Carnell Lorenz, Chief Business Development Officer
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2014
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14,769
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-
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-
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11,574
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(5)
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-
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-
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84,500
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(8)
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110,843
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2013
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-
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5,000
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-
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132,060
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(5)
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-
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-
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108,000
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(8)
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245,060
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Todd Smith, Chief Operating Officer
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2014
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98,615
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-
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-
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-
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(6)
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-
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-
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-
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98,615
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||||||||||||||||||||||||
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2013
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120,000
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5,000
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-
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132,060
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(6)
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-
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-
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-
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257,060
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(1)
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The estimated value of the options issued to Mr. John Lorenz is based on the Black-Scholes method. See the disclosure below under “Option/SAR Grants in Fiscal Years Ended December 31, 2013 and 2014.”
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(2)
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The estimated value of options issued to Ms. Williams Young is based on the Black-Scholes method. See disclosure below under “Option/SAR Grants in the Fiscal Years Ended December 31, 2013 and 2014.”
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(3)
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The estimated value of the warrants issued to Mr. Geib is based on the Black-Scholes method. See disclosure below under “Options/SAR Grants in the Fiscal Years Ended December 31, 2013 and 2014.”
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(4)
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The estimated value of the options issued to Mr. Geib is based on the Black-Scholes method. See disclosure below under “Options/SAR Grants in the Fiscal Years Ended December 31, 2013 and 2014.”
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(5)
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The estimated value of the options issued to Ms. Carnell Lorenz is based on the Black-Scholes method. See disclosure below under “Options/SAR Grants in the Fiscal Year Ended December 31, 2013 and 2014.”
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(6)
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The estimated value of the options issued to Mr. Smith is based on the Black-Scholes method. See disclosure below under “Options/SAR Grants in the Fiscal Years Ended December 31, 2013 and 2014.”
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(7)
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Consisted $2,100 and $2,000 paid to Mr. Lorenz as compensation for being a Director in the Fiscal Years Ended December 31, 2013 and 2014, respectively.
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(8)
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Consisted of consulting service fees paid to Ms. Carnell Lorenz by the Company. Ms. Carnell Lorenz provided marketing consulting services to the Company through Market Tactics, Inc., a corporation solely owned by Ms. Carnell Lorenz. Neither Ms. Carnell Lorenz nor Market Tactics has a formal written consulting agreement with the Company. Ms. Carnell Lorenz, by and through Market Tactics, was paid on a monthly basis and earned $7,500 from January 2013 to March 2013 and $9,500 from April 2013 to December 2013. For 2014, she was paid $9,500 from January to March and $8,000 from April to October. She became an employee in November of 2014.
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(9)
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These amounts represent full grant date fair value of these awards, in accordance with the Financial Accounting Standard Board’s (“FASB”) ASC Topic 718. Assumptions used in the calculation of dollar amounts of these awards are included in Note 12 of our audited financial statements for the fiscal years ended December 31, 2014 and 2013.
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Option/SAR Grants in Fiscal Year Ended December 31, 2014
In 2014, our named executive officers were granted the following:
Ms. Williams Young was granted on June 30, 2014, 43,043 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024. 21,521 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $11,574.
Ms. Williams Young was also granted on September 30, 2014, 10,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024. 5,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $4,680.
Ms. Carnell Lorenz was granted on June 30, 2014, 43,043 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024. 21,521 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $11,574.
Mr. Geib was granted on August 4, 2014, 2.7 million shares of Common Stock issuable upon the exercise of warrants at $0.73 per share until August 4, 2019. 1,350,000 of the warrants vested immediately upon grant with the balance of the warrants vesting twenty-five percent each quarter beginning on December 31, 2014. The aggregate grant date estimated fair value of the warrants vested in 2014, determined by the Black-Scholes method, was $582,718.
Option/SAR Grants in Fiscal Year Ended December 31, 2013
In 2013, our named executive officers were granted the following:
Mr. Lorenz was granted on September 20, 2013, 450,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023. 225,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $198,090.
Ms. Williams Young was granted on September 20, 2013, 300,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023. 150,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $132,060.
Mr. Geib was granted on September 20, 2013, 100,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023. 50,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $44,020. Pursuant to his consulting agreement, Mr. Geib was also issued 100,000 shares of Common Stock issuable upon the exercise of warrants at $0.50 per share until May 3, 2018. The aggregate grant date estimated fair value of these warrants, determined by the Black-Scholes method, was $58,000.
Ms. Carnell Lorenz was granted on September 20, 2013, 300,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023. 150,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $132,060.
Mr. Smith was granted on September 20, 2013, 300,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023. 225,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, was $132,060.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information for the named executive officer regarding the number of shares subject to both exercisable and unexercisable stock options and warrants, as well as the exercise prices and expiration dates thereof, as of December 31, 2014.
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Name
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Number of Securities
underlying Unexercised
Options and Warrants (#) Exercisable
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Number of Securities
underlying Unexercised
Options and Warrants (#) Unexercisable
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Option/Warrant
Exercise Price
($/Sh)
|
Option/Warrant
Expiration Date
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John Lorenz
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156,000
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-
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$
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1.25
|
2/15/2016
|
||||||||
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119,172
|
-
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$
|
1.00
|
6/27/2021
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|||||||||
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318,356
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-
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$
|
1.00
|
6/27/2021
|
|||||||||
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575,000
|
-
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$
|
0.50
|
10/25/2021
|
|||||||||
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450,000
|
-
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$
|
0.50
|
12/5/2022
|
|||||||||
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337,500
|
112,500
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$
|
1.00
|
9/20/2023
|
|||||||||
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Alicia Williams Young
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15,000
|
-
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$
|
1.00
|
6/27/2021
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||||||||
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250,000
|
-
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$
|
0.50
|
10/25/2021
|
|||||||||
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355,000
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-
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$
|
0.50
|
12/5/2022
|
|||||||||
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225,000
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75,000
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$
|
1.00
|
9/20/2023
|
|||||||||
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21,521
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21,522
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$
|
0.69
|
06/30/2024
|
|||||||||
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5,000
|
5,000
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$
|
0.66
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09/30/2024
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|||||||||
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Richard Geib
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100,000
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-
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$
|
0.50
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5/3/2016
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||||||||
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100,000
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-
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$
|
0.50
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5/3/2017
|
|||||||||
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1,350,000
|
-
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$
|
0.73
|
8/4/2017
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|||||||||
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337,500
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-
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$
|
0.73
|
12/31/2017
|
|||||||||
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337,500
|
-
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$
|
0.73
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3/31/2018
|
|||||||||
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100,000
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-
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$
|
0.50
|
5/3/2018
|
|||||||||
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337,500
|
-
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$
|
0.73
|
6/30/2018
|
|||||||||
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337,500
|
-
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$
|
0.73
|
9/30/2018
|
|||||||||
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60,000
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-
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$
|
1.00
|
6/27/2021
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|||||||||
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40,000
|
-
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$
|
1.00
|
6/27/2021
|
|||||||||
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150,000
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-
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$
|
0.50
|
10/25/2021
|
|||||||||
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75,000
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25,000
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$
|
1.00
|
9/20/2023
|
|||||||||
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Todd Smith
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300,000
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-
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$
|
0.50
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10/25/2021
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||||||||
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425,000
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-
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$
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0.50
|
12/5/2022
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|||||||||
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225,000
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75,000
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$
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1.00
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9/20/2023
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Janet Carnell Lorenz
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80,000
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-
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$
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1.00
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6/27/2021
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||||||||
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180,000
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-
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$
|
1.00
|
6/27/2021
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|||||||||
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300,000
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-
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$
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0.50
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10/25/2021
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|||||||||
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350,000
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-
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$
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0.50
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12/5/2022
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|||||||||
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225,000
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75,000
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$
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1.00
|
9/20/2023
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|||||||||
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21,521
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21,522
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$
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0.69
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06/30/2024
|
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Stock Option Plans
Third Amended and Restated 2007 Stock Incentive Plan
Upon the consummation of the merger, Global Recycling’s Third Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Plan”) was assumed by the Company.
The following is a summary of certain of the more significant provisions of the 2007 Stock Plan. The statements contained in this summary concerning the provisions of the 2007 Stock Plan are merely summaries and do not purport to be complete. They are subject to and qualified in their entirety by the actual terms of the 2007 Stock Plan. A copy of the 2007 Stock Plan has been incorporated by reference as Exhibit 4.4 to this Annual Report and is incorporated by reference herein.
Shares Reserved Under the 2007 Stock Plan
We have reserved 6,742,606 shares of our common stock issuable upon exercise of options granted under the 2007 Stock Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company (collectively, “Eligible Persons”). As of the date of this Form 10-K, we have issued 6,647,606 options to purchase the shares of our common stock originally reserved under the 2007 Stock Plan. All previously granted options issued pursuant to the 2007 Stock Plan will be subject to the requirements set forth in the 2007 Stock Plan and are Non-Qualified Stock Options.
The aggregate number of shares that may be granted to any one Eligible Person in any year will not exceed 50.0% of the total number of shares that may be issued under the 2007 Stock Plan. At the discretion of the Plan Administrator (defined below), the number and type of shares of our common stock available for award under the 2007 Stock Plan (including the number and type of shares and the exercise price covered by any outstanding award) may be adjusted for any increase or decrease in the number of issued shares of our common stock resulting from any stock split, reverse stock split, split-up, combination or exchange of shares, consolidation, spin-off, reorganization, or recapitalization of shares.
Administration
The 2007 Stock Plan is currently being administered by our Board of Directors. Our Board of Directors may delegate its authority and duties under the 2007 Stock Plan to a committee. Our Board of Directors and/or any committee that has been delegated the authority to administer the 2007 Stock Plan is referred to as the “Plan Administrator.” Subject to certain restrictions, the Plan Administrator generally has full discretion and power to (i) determine all matters relating to awards issued under the 2007 Stock Plan, including the persons to be granted awards, the time of grant, the type of awards, the number of shares of our common stock subject to an award, vesting conditions, and any and all other terms, conditions, restrictions, and limitations of an award, (ii) interpret, amend, and rescind any rules and regulations relating to the 2007 Stock Plan, (iii) determine the terms of any award agreement made pursuant to the 2007 Stock Plan, and (iv) make all other determinations that may be necessary or advisable for the administration of the 2007 Stock Plan. All decisions made by the Plan Administrator relating to the 2007 Stock Plan will be final, conclusive, and binding on all persons.
Eligibility
The Plan Administrator may grant any award permitted under the 2007 Stock Plan to any Eligible Person. With respect to awards that are options, directors who are not employees of the Company, proposed non-employee directors, proposed employees, and independent contractors will be eligible to receive only Non-Qualified Stock Options (“NQSOs”). An award may be granted to a proposed employee or director prior to the date he, she, or it performs services for the Company, so long as the award will not vest prior to the date on which the proposed employee or director first performs such services.
Awards under the 2007 Stock Plan
Under the 2007 Stock Plan, Eligible Persons may be granted: (a) stock options (“Options”), which may be designated as NQSOs or Incentive Stock Options (“ISOs”); (b) stock appreciation rights (“SARs”); (c) restricted stock awards (“Restricted Stock”); (d) performance share awards (“Performance Awards”); or (e) other forms of stock-based incentive awards (collectively, the “Awards”). An Eligible Person who has been granted an Option is referred to in this summary as an “Optionee” and an Eligible Person who has been granted any other type of Award is referred to in this summary as a “Participant.”
No Award granted under the 2007 Stock Plan can be inconsistent with the terms and purposes of the 2007 Stock Plan. Additionally, the applicable exercise price for which shares of our common stock may be purchased upon exercise of an Award will not be less than (i) 100.0% of the Fair Market Value (as defined in the 2007 Stock Plan) of shares of our common stock on the date that the Award is granted, or (ii) 110.0% of the Fair Market Value if the Award is granted to an Eligible Person who, directly or indirectly, holds more than 10.0% of the total voting power of the Company.
The Plan Administrator may grant to Optionees NQSOs or ISOs that are evidenced by stock option agreements. A NQSO is a right to purchase a specific number of shares of our common stock during such time as the Plan Administrator may determine. A NQSO that is exercisable at the time an Optionee ceases providing services to the Company will remain exercisable for such period of time as determined by the Plan Administrator. Generally, Options that are intended to be ISOs will be treated as NQSOs to the extent that the Fair Market Value of the common stock issuable upon exercise of such ISO, plus all other ISOs held by such Optionee that become exercisable for the first time during any calendar year, exceeds $100,000.
An ISO is an Option that meets the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as an ISO under the Code, the Option generally must (among other things) (x) be granted only to employees, (y) have an exercise price equal to or greater than the Fair Market Value on the date of grant, and (z) terminate if not exercised within 10 years from the date of grant (or five years if granted to an Optionee who, at the time the ISO is granted, directly or indirectly, holds more than 10.0% of the total voting power of the Company). Except in certain limited instances (including termination for cause, death, or disability), if any Optionee ceases to provide services to the Company, the Optionee’s rights to exercise vested ISOs will expire within three months following the date of termination.
A SAR is a right granted to a Participant to receive, upon surrender of the right, payment in an amount equal to (i) the excess of the Fair Market Value of one share of common stock on the date the right is exercised, over (ii) the Fair Market Value of one share of common stock on the date the right is granted.
Restricted Stock is common stock that is issued to a Participant at a price determined by the Plan Administrator. Restricted stock awards may be subject to (i) forfeiture upon termination of employment or service during an applicable restriction period, (ii) restrictions on transferability, (iii) limitations on the right to vote such shares, (iv) limitations on the right to receive dividends with respect to such shares, (v) attainment of certain performance goals, and (vi) such other conditions, limitations, and restrictions as determined by the Plan Administrator.
A Performance Award grants the Participant the right to receive payment upon achievement of certain performance goals established by the Plan Administrator. Such payments will be valued as determined by the Plan Administrator and will be payable to or exercisable by the Participant for cash, shares of our common stock, other awards, or other property determined by the Plan Administrator.
Other Awards may be issued under the 2007 Stock Plan, which include, without limitation, (i) shares of our common stock awarded purely as a bonus and not subject to any restrictions or conditions, (ii) convertible or exchangeable debt or equity securities, (iii) other rights convertible or exchangeable into shares of our common stock, and (iv) awards valued by reference to the value of shares of our common stock or the value of securities or the performance of specified subsidiaries of the Company.
Exercise Price
The price for which shares of our common stock may be purchased upon exercise of a particular Award will be determined by the Plan Administrator at the time of grant. However, the applicable exercise price for which shares of our common stock may be purchased upon exercise of an Award will not be less than (i) 100.0% of the Fair Market Value (as defined in the 2007 Stock Plan) of shares of our common stock on the date that the Award is granted, or (ii) 110.0% of the Fair Market Value if the Award is granted to an Eligible Person who, directly or indirectly, holds more than 10.0% of the total voting power of the Company.
No Deferral Features
No Award granted under the 2007 Stock Plan will contain a deferral feature. Awards cannot be modified or otherwise extended. No Award will contain a provision providing a reduction in the applicable exercise price, an addition of a deferral feature, or any extension of the term of the award.
Payment / Exercise of Award
An Award may be exercised using as the form of payment (a) cash or cash equivalent, (b) stock-for-stock payment, (c) cashless exercises, (d) the granting of replacement awards, (e) any combination of the above, or (f) such other means as the Plan Administrator may approve. No shares of our common stock will be delivered in connection with the exercise of any Award until payment in full of the exercise price is received by the Company.
Change of Control
The Stock Option provides that if a Change of Control (as defined in the 2007 Stock Plan) occurs, then the surviving, continuing, successor, or purchasing entity (the “Acquiring Company”), will either assume our rights and obligations under outstanding Awards or substitute for outstanding Awards substantially equivalent awards for the Acquiring Company’s capital stock. If the Acquiring Company elects not to assume or substitute for such outstanding Awards in connection with a Change of Control, our Board of Directors may determine that all or any unexercisable and/or unvested portions of outstanding Awards will be immediately vested and exercisable in full upon consummation of the Change of Control. Unless otherwise determined by our Board of Directors, Awards that are neither (i) assumed or substituted for by the Acquiring Company in connection with the Change of Control, nor (ii) exercised upon consummation of the Change of Control, will terminate and cease to be outstanding effective as of the date of the Change of Control. Upon the consummation of the Merger, the Company assumed the obligations of Global Recycling under the Plan.
Amendment
Our Board of Directors may, without action on the part of our stockholders, amend, change, make additions to, or suspend or terminate the 2007 Stock Plan as it may deem necessary or appropriate and in the best interests of the Company; provided, however, that our Board of Directors may not, without the consent of the Participants, take any action that disqualifies any previously granted Option for treatment as an ISO or which adversely affects or impairs the rights of the holder of any outstanding Award. Additionally, our Board of Directors will need to obtain the consent of our stockholders in order to (a) amend the 2007 Stock Plan to increase the aggregate number of shares of our common stock subject to the plan, or (b) amend the 2007 Stock Plan if stockholder approval is required either (i) to comply with Section 422 of the Code with respect to ISOs, or (ii) for purposes of Section 162(m) of the Code.
Term
The 2007 Stock Plan will remain in full force and effect through May 30, 2017, unless terminated earlier by our Board of Directors. After the 2007 Stock Plan is terminated, no future Awards may be granted under the 2007 Stock Plan, but Awards previously granted will remain outstanding in accordance with their applicable terms and conditions.
2012 Equity Incentive Plan
On February 23, 2012, subject to stockholder approval, the Company’s Board of Directors approved of the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). By written consent in lieu of a meeting, dated March 14, 2012, Company stockholders owning an aggregate of 14,398,402 shares of Common Stock (representing approximately 66.1% of the 22,551,991 outstanding shares of Common Stock) approved and adopted the 2012 Plan. Also by written consent in lieu of a meeting, dated July 27, 2012, stockholders of the Company owning an aggregate of 12,676,202 shares of Common Stock (representing approximately 51.8% of the then 24,451,991 outstanding shares of Common Stock) approved an amendment to the 2012 Plan to increase the number of shares reserved for issuance under the 2012 Plan by 3,000,000 shares.
There are an aggregate of 6,500,000 shares of our Common Stock reserved for issuance upon exercise of awards granted under the 2012 Plan to employees, directors, proposed employees and directors, advisors, independent contractors (and their employees and agents), and other persons who provide valuable services to the Company. As of the date of this Form 10-K, we have issued 5,010,072 options under the 2012 Plan. The following description of the 2012 Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2012 Plan. A copy of the 2012 Plan has been filed as Exhibit 4.5 to this Annual Report and is incorporated by reference herein.
Purpose of the 2012 Plan
The purpose of the 2012 Plan is to attract, retain, and motivate employees, directors, advisors, independent contractors (and their employees and agents, or, in the Plan Administrator’s discretion, any of their employees or contractors), and other persons who provide valuable services to the Company by providing them with the opportunity to acquire a proprietary interest in the Company and to link their interest and efforts to the long-term interests of the Company’s stockholders. The Company believes that increased share ownership by such persons will more closely align stockholder and employee interests by encouraging a greater focus on the profitability of the Company. The Company has reserved and authorized the issuance of up to 6,500,000 shares of the Company’s Common Stock pursuant to awards granted under the 2012 Plan, subject to adjustment in the case of any stock dividend, forward or reverse stock split, split-up, combination or exchange of shares, consolidation, spin-off, reorganization, or recapitalization of shares or any like capital adjustment.
The 2012 Plan includes a variety of forms of awards, including (i) stock options intended to qualify as Incentive Stock Options (“Incentive Stock Options”) under the Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”), (ii) stock options not intended to qualify as Incentive Stock Options under the Code (“Nonqualified Stock Options”), (iii) stock appreciation rights, (iv) restricted stock awards, (v) performance stock awards and (vi) other stock-based awards to allow the Company to adapt its incentive compensation program to meet the needs of the Company. 5,010,072 stock options have been granted under the 2012 Plan.
Plan Administration
The 2012 Plan will be administered by the Board of Directors of the Company (the “Board”). The Board may delegate all or any portion of its authority and duties under the 2012 Plan to one or more committees appointed by the Board and consisting of at least one member of the Board, under such conditions and limitations as the Board may from time to time establish. Notwithstanding anything contained in the 2012 Plan to the contrary, only the Board or a committee thereof composed of two or more “Non-Employee Directors” (as that term is defined in Rule 16b-3 of the Exchange Act may make determinations regarding grants of awards to executive officers, directors, and 10% stockholders of the Company (“Affiliates”).
The Board and/or any committee that has been delegated the authority to administer the 2012 Plan, as the case may be, will be referred to as the “Plan Administrator.”
The Plan Administrator has the authority, in its sole and absolute discretion, to grant awards as an alternative to, as a replacement of, or as the form of payment for grants or rights earned or due under the 2012 Plan or other compensation plans or arrangements of the Company or a subsidiary of the Company, including the 2012 Plan of any entity acquired by the Company or a subsidiary of the Company.
Eligibility
Any employee, director, proposed employee or director, independent contractor (or employee or agent thereof), or other agent or person who provides valuable services to the Company will be eligible to receive awards under the 2012 Plan. With respect to awards that are options, directors who are not employees of the Company, proposed non-employee directors, proposed employees, and independent contractors (and their employees and agents, or, in the Plan Administrator’s discretion, any of their employees or contractors) will be eligible to receive only Nonqualified Stock Options.
Change of Control
Unless otherwise provided by the Board, in the event of a Change of Control (as defined in the 2012 Plan), the surviving, continuing, successor, or purchasing entity or parent entity thereof, as the case may be (the “Acquiring Company”), will either assume the Company’s rights and obligations under outstanding awards or substitute for outstanding awards substantially equivalent awards for the Acquiring Company’s capital stock. In the event the Acquiring Company elects not to assume or substitute for such outstanding awards in connection with a Change of Control, the Board may, in its sole and absolute discretion, provide that all or any unexercisable and/or unvested portions of the outstanding awards will be immediately vested and exercisable in full upon consummation of the Change of Control. The vesting and/or exercise of any award that is permissible solely by reason of this section will be conditioned upon the consummation of the Change of Control. Unless otherwise provided by the Board, any awards that are neither (i) assumed or substituted for by the Acquiring Company in connection with the Change of Control, nor (ii) exercised upon consummation of the Change of Control, will terminate and cease to be outstanding effective as of the date of the Change of Control.
Exercise Price of Options
The price for which shares of Common Stock may be purchased upon exercise of a particular option will be determined by the Plan Administrator at the time of grant; provided, however, that the exercise price of any award granted under the 2012 Plan will not be less than 100% of the Fair Market Value (as defined in the 2012 Plan) of the Common Stock on the date such option is granted (or 110% of the Fair Market Value of the Common Stock if the award is granted to a stockholder who, at the time the option is granted, owns or is deemed to own stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or of any parent or subsidiary of the Company).
Term of Options; Modifications
The Plan Administrator will set the term of each stock option, but no Incentive Stock Option will be exercisable more than ten years after the date such option is granted (or five years for an Incentive Stock Option granted to a stockholder who, at the time the option is granted, owns or is deemed to own stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or of any parent or subsidiary of the Company).
Payment; No Deferrals.
Awards granted under the 2012 Plan may be settled through exercise by (i) cash payments, (ii) the delivery of Common Stock (valued at Fair Market Value), (iii) the cashless exercise of such award, (iv) the granting of replacement awards, (v) combinations thereof as the Plan Administrator will determine, in its sole and absolute discretion, or (vi) any other method authorized by the 2012 Plan. The Plan Administrator will not permit or require the deferral of any award payment, including, without limitation, the payment or crediting of interest or dividend equivalents and converting such credits to deferred stock unit equivalents. No award granted under the 2012 Plan will contain any deferral feature.
Other Stock-Based Awards
Stock Appreciation Rights.
The Plan Administrator may grant stock appreciation rights, either in tandem with a stock option granted under the 2012 Plan or with respect to a number of shares for which no option has been granted. A stock appreciation right will entitle the holder to receive, with respect to each share of stock as to which the right is exercised, payment in an amount equal to (i) the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised, over (ii) the Fair Market Value of one share of Common Stock on the date the right is granted; provided, however, that in the case of stock appreciation rights granted in tandem with or otherwise related to any award under the 2012 Plan, the grant price per share will be at least the Fair Market Value per share of Common Stock on the date the right was granted. The Plan Administrator may establish a maximum appreciation value payable for stock appreciation rights and such other terms and conditions for such rights as the Plan Administrator may determine, in its sole and absolute discretion.
Restricted Stock Awards.
The Plan Administrator may grant restricted stock awards consisting of shares of Common Stock or denominated in units of Common Stock in such amounts as determined by the Plan Administrator, in its sole and absolute discretion. Restricted stock awards may be subject to (i) forfeiture of such shares upon termination of employment or Service (as defined below) during the applicable restriction period, (ii) restrictions on transferability, (iii) limitations on the right to vote such shares, (iv) limitations on the right to receive dividends with respect to such shares, (v) attainment of certain performance goals, such as those described in Section 5.8(c) of the 2012 Plan, and (vi) such other conditions, limitations, and restrictions as determined by the Plan Administrator, in its sole and absolute discretion, and as set forth in the instrument evidencing the award. These restrictions may lapse separately or in combinations or may be waived at such times, under such circumstances, in such installments, or otherwise as determined by the Plan Administrator, in its sole and absolute discretion. Certificates representing shares of Common Stock subject to restricted stock awards will bear an appropriate legend and may be held subject to escrow and such other conditions as determined by the Plan Administrator until such time as all applicable restrictions lapse.
Performance Share Awards.
The Plan Administrator may grant performance share awards that give the award recipient the right to receive payment upon achievement of certain performance goals established by the Plan Administrator, in its sole and absolute discretion, as set forth in the instrument evidencing the award. Such payments will be valued as determined by the Plan Administrator and payable to or exercisable by the award recipient for cash, shares of Common Stock (including the value of Common Stock as a part of a cashless exercise), other awards, or other property as determined by the Plan Administrator. Such conditions or restrictions may be based upon continuous Service (as defined below) with the Company or the attainment of performance goals related to the award holder’s performance or the Company’s profits, profit growth, profit-related return ratios, cash flow, stockholder returns, or such other criteria as determined by the Plan Administrator. Such performance goals may be (i) stated in absolute terms, (ii) relative to other companies or specified indices, (iii) to be achieved during a period of time, or (iv) as otherwise determined by the Plan Administrator.
Other Stock-Based Awards.
The Plan Administrator may grant such other awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock, as may be deemed by the Plan Administrator to be consistent with the purposes of the 2012 Plan and applicable laws and regulations. Such other awards may include, without limitation, (i) shares of Common Stock awarded purely as a bonus and not subject to any restrictions or conditions, (ii) convertible or exchangeable debt or equity securities, (iii) other rights convertible or exchangeable into shares of Common Stock, and (iv) awards valued by reference to the value of shares of Common Stock or the value of securities or the performance of specified subsidiaries of the Company.
Transferability
Any Incentive Stock Option granted under the 2012 Plan will, during the recipient’s lifetime, be exercisable only by such recipient, and will not be assignable or transferable by such recipient other than by will or the laws of descent and distribution. Except as specifically allowed by the Plan Administrator, any other award granted under the 2012 Plan and any of the rights and privileges conferred thereby will not be assignable or transferable by the recipient other than by will or the laws of descent and distribution and such award will be exercisable during the recipient’s lifetime only by the recipient.
Term of the 2012 Plan
The 2012 Plan will terminate on February 23, 2022, unless sooner terminated by the Board. After the 2012 Plan is terminated, no future awards may be granted under the 2012 Plan, but awards previously granted will remain outstanding in accordance with their applicable terms and conditions and the 2012 Plan’s terms and conditions.
Consideration
The Board or Committee will grant Stock Options under the 2012 Plan in consideration for services rendered. There will be no other consideration received or to be received by the Company or any of its subsidiaries for the granting or extension of Stock Option under the 2012 Plan.
Director Compensation
The table below sets forth the Compensation paid to our Directors during the fiscal year ended December 31, 2014.
|
Director
|
Fees Earned or Paid in Cash
|
All Other Compensation
|
Stock Awards
|
Total
|
||||||||||||
|
Michael Jaap
|
$
|
2,000
|
(1)
|
$
|
-
|
$
|
10,155
|
(1)
|
$
|
12,155
|
||||||
|
Everett Alexander
|
$
|
1,500
|
(2)
|
$
|
-
|
$
|
18,900
|
(2)
|
$
|
20,400
|
||||||
|
Joseph Ioia
|
$
|
1,500
|
(3)
|
$
|
82,332
|
$
|
-
|
(3)
|
$
|
83,832
|
||||||
|
Richard Q. Opler
|
$
|
2,000
|
(4)
|
$
|
-
|
$
|
5,475
|
(4)
|
$
|
7,475
|
||||||
|
Keri Smith
|
$
|
2,000
|
(5)
|
$
|
-
|
$
|
5,475
|
(5)
|
$
|
7,475
|
||||||
|
Dwight Mamanteo
|
$
|
2,000
|
(6)
|
$
|
-
|
$
|
25,920
|
(6)
|
$
|
27,920
|
||||||
|
David Ide
|
$
|
500
|
(7)
|
$
|
-
|
$
|
10,950
|
(7)
|
$
|
11,450
|
||||||
|
(1)
|
Mr. Jaap was paid $2,000 as compensation for sitting on the Board of Directors. Mr. Jaap was granted on September 30, 2014, 10,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024. 5,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $4,680. Mr. Jaap was also granted on December 18, 2014, 25,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. 12,500 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $5,475.
|
|
(2)
|
Mr. Alexander, who until August 22, 2014, was a member of our Board of Directors, was paid $1,500 as compensation for sitting on the Board of Directors. Mr. Alexander was granted on January 15, 2014, 50,000 shares of Common Stock issuable upon the exercise of options at $1.03 per share until January 15, 2024. 25,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $18,900.
|
|
(3)
|
Mr. Ioia, who until August 22, 2014, was a member of our Board of Directors, was paid $82,332 pursuant to his consulting agreement, in addition to his compensation of $1,500 for sitting on the Board of Directors.
|
|
(4)
|
Mr. Opler was paid $2,000 as compensation for sitting on the Board of Directors. Mr. Opler was granted on December 18, 2014, 25,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. 12,500 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $5,475.
|
|
(5)
|
Ms. Smith was paid $2,000 as compensation for sitting on the Board of Directors. Ms. Smith was granted on December 18, 2014, 25,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. 12,500 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $5,475.
|
| (6) | Mr. Mamanteo was paid $2,000 as compensation for sitting on the Board of Directors. Mr. Mamanteo was granted on January 15, 2014, 50,000 shares of Common Stock issuable upon the exercise of options at $1.03 per share until January 15, 2024. 25,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $18,900. Mr. Mamanteo was also granted on September 30, 2014, 15,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024. 7,500 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $7,020. |
| (7) | Mr. Ide was paid $500 as compensation for sitting on the Board of Directors. Mr. Ide was granted on December 18, 2014, 50,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. 25,000 of the options granted vested immediately upon grant with the balance of the options vesting fifty percent on each of the next two anniversaries of the grant date. The aggregate grant date estimated fair value of these options, determined by the Black-Scholes method, in accordance with FASB ASC 718, was $10,950. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our Common Stock beneficially owned on March 30, 2015, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding common stock, (ii) each executive officer and director, and (iii) all executive officers and directors as a group. In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days. Shares of Common Stock subject to options, warrants or convertible securities exercisable or convertible within 60 days of the date of determination are deemed outstanding for computing the percentage of the person or entity holding such options, warrants or convertible securities but are not deemed outstanding for computing the percentage of any other person. To the best of our knowledge, subject to community and marital property laws, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.
|
Name and
Address
of
Beneficial Owner (1)
|
Number of Shares
Beneficially Owned
|
Percentage
of Outstanding
Common Stock (2)
|
||||||
|
Executive Officers and Directors
|
||||||||
|
|
||||||||
|
David Ide
--Chief Executive Officer, President, and Director |
333,240
|
(3) |
*
|
|||||
|
Alicia Williams Young
--Chief Financial Officer |
1,154,902
|
(4) |
1.65%
|
|||||
|
Richard Geib
--Chief Technical Officer
|
2,444,900
|
(5)
|
3.42%
|
|||||
|
Todd Smith
--Chief Operating Officer
|
1,696,002
|
(6)
|
2.42%
|
|||||
|
Janet Carnell Lorenz
--Chief Business Development Officer
|
6,672,181
|
(7)
|
9.20%
|
|||||
|
Dwight Mamanteo
--Chairman of the Board
|
972,900
|
(8)
|
1.40%
|
|||||
|
John Lorenz
--Director
|
6,672,181
|
(9)
|
9.20%
|
|||||
|
Michael Jaap
--Director
|
596,000
|
(10)
|
*
|
|||||
|
Keri Smith
--Director
|
234,700
|
(11)
|
*
|
|||||
|
Richard Q. Opler
--Director
|
362,200
|
(12)
|
*
|
|||||
|
Executive Officers and Directors as
a group (10 persons)
|
14,467,035
|
(3)-(12)
|
18.48%
|
|||||
|
5% Stockholders
|
||||||||
|
Leonid Frenkel
401 City Avenue, Suite 528
Bala Cynwyd, PA 19004
|
8,753,656
|
(13)
|
11.85%
|
|||||
|
Ralph M. Amato
2098 Cherry Creek Circle
Summerlin, NV 89135
|
7,053,115
|
(14)
|
10.07%
|
|||||
| Wynnefield Capital Management, LLC
450 Seventh Avenue, Suite 509
New York, NY 10123
|
10,635,247
|
(15) |
15.35%
|
|||||
*Represents less than 1%
|
(1)
|
Unless otherwise indicated, the business address of each individual named is 4802 East Ray Road, Suite 23-408, Phoenix, Arizona 85044 and our telephone number is (866) 960-1539.
|
|
(2)
|
Based on 69,299,826 shares of Common Stock of GlyEco, Inc. outstanding as of March 30, 2015.
|
|
(3)
|
Includes (i) 290,323 unvested shares of Common Stock granted to Mr. Ide pursuant to his Consulting Agreement, which shares shall vest 100% upon the Company attaining positive EBITDA results by August 1, 2015, using an adjusted EBITDA calculation, (ii) 10,417 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (iii) 7,500 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024, and (iv) 25,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024.
|
|
(4)
|
Includes (i) 15,000 shares of Common Stock issuable upon the exercise of warrants at $1.00 per share until June 27, 2021, (ii) 250,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (iii) 355,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until December 5, 2022, (iv) 225,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, (v) 32,282 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024; (vi) 5,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024; and (vii) 45,913 shares of Common Stock issuable upon the exercise of options at $0.30 per share until January 31, 2015.
|
|
(5)
|
Includes (i) 100,000 shares of Common Stock issuable upon the exercise of warrants at $0.50 per share until May 3, 2016, (ii) 40,000 shares of Common Stock issuable upon exercise of a warrant at $1.00 per share until June 27, 2021, (iii) 100,000 shares of Common Stock issuable upon the exercise of a warrant at $0.50 per share until May 3, 2017, (iv) 100,000 shares of Common Stock issuable upon the exercise of a warrant at $0.50 per share until May 3, 2018, (v) 60,000 shares of Common Stock issuable upon exercise of options at $1.00 per share until June 27, 2021, (vi) 150,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (vii) 1,350,000 shares of Common Stock issuable upon the exercise of warrants at $0.73 per share until August 4, 2017, (viii) 75,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, and (ix) 337,500 shares of Common Stock issuable upon the exercise of warrants at $0.73 per share until December 31, 2017.
|
|
(6)
|
Includes (i) 300,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (ii) 425,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until December 5, 2022, and (iii) 225,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023.
|
|
(7)
|
Includes (i) 180,000 shares of Common Stock issuable upon the exercise of warrants at $1.00 per share until June 27, 2021, (ii) 80,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until June 27, 2021, (iii) 300,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (iv) 350,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until December 5, 2022, (v) 225,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, and (vi) 32,282 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024. Also includes an aggregate of 2,777,781 of Common Stock beneficially held by Ms. Carnell Lorenz’s husband, John Lorenz. Pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, Ms. Carnell Lorenz is deemed to beneficially own shares of Common Stock held by her husband.
|
|
(8)
|
Includes (i) 162,500 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (ii) 37,500 shares of Common Stock issuable upon the exercise of options at $1.03 per share until January 15, 2024, and (ii) 7,500 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024.
|
|
(9)
|
Includes (i) 177,419 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (ii) 318,356 shares of Common Stock issuable upon the exercise of warrants at $1.00 per share until June 27, 2021, (iii) 119,172 shares of Common Stock issuable upon the exercise of options at $1.00 per share until June 27, 2021, (iv) 575,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (v) 450,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until December 5, 2022, (vi) 337,500 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, and (vii) 156,000 shares of Common Stock issuable upon exercise of warrants at $1.25 per share until February 15, 2016. Also includes an aggregate of 3,894,400 shares of Common Stock beneficially held by Mr. Lorenz’s wife, Janet Carnell Lorenz. Pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, Mr. Lorenz is deemed to beneficially own shares of Common Stock held by his wife.
|
|
(10)
|
Includes (i) 137,500 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (ii) 100,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (iii) 150,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until December 5, 2022, (iv) 75,000 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, (v) 5,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024, (vi) 12,500 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024, and (vii) 30,000 shares of Common Stock issuable upon the exercise of warrants at $1.25 until February 15, 2016.
|
|
(11)
|
Includes (i) 137,500 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (ii) 37,500 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, and (iii) 12,500 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024.
|
|
(12)
|
Includes (i) 150,000 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Company’s common stock maintaining a $2 per share stock price for a thirty trading day VWAP duration, (ii) 20,000 shares of Common Stock issuable upon the exercise of warrants at $1.00 per share until June 27, 2021 (iii) 50,000 shares of Common Stock issuable upon the exercise of options at $0.50 per share until October 25, 2021, (iv) 37,500 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023, and (v) 12,500 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024.
|
|
(13)
|
Consists of (i) 1,000,000 shares of Common Stock issuable upon the exercise of a warrant at a purchase price of $0.0001 per share until May 25, 2015, (ii) 940,000 shares of Common Stock issuable upon the exercise of a warrant at a purchase price of $1.00 until February 15, 2016, (iii) 2,605,513 shares of Common Stock issuable upon exercise of a warrant at a purchase price of $1.00 until March 14, 2017, and (iv) 56,250 shares of Common Stock issuable upon the exercise of options at $1.00 per share until September 20, 2023.
|
|
(14)
|
Consists of (i) 100,000 shares of Common Stock issuable upon the exercise of a warrant at a purchase price of $1.00 per share until September 1, 2015, (ii) 250,000 shares of Common Stock issuable upon the exercise of a warrant at a purchase price of $1.00 per share until December 1, 2015, and (iii) 400,000 shares of Common Stock issuable upon the exercise of a warrant at a purchase price of $1.00 per share until December 10, 2015.
|
|
(15)
|
Entities included: Wynnefield Partners Small Cap Value, L.P.I, Wynnefield Partners Small Cap Value, L.P., Wynnefield Small Cap Value Offshore Fund, Ltd., and Wynnefield Capital, Inc. Profit Sharing Plan. Mr. Mamanteo, Chairman of our Board of Directors, serves as a Portfolio Manager at Wynnefield Capital.
|
Except as set forth in this Annual Report, there are no arrangements known to us, the operation of which may at a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
Transaction with Full Circle Manufacturing Group, Inc. and NY Terminals II, LLC
On December 10, 2012, we entered into the following agreements allowing us to rent real property and equipment and receive manufacturing, distribution, and consulting services with the entities and their sole owner, Joseph A. Ioia, who until August 22, 2014, was a member of our Board of Directors.
Effective January 1, 2013, and beginning on February 1, 2013, GlyEco Acquisition Corp. #4, an Arizona corporation and wholly owned subsidiary of the Company (“Acquisition Sub #4”) entered into an operating Lease Agreement with NY Terminals II, LLC, a New Jersey limited liability company ("NY Terminals"), whereby Acquisition Sub #4 agreed to lease certain real property owned by NY Terminals for a five-year term at a monthly rate of $30,000.
Effective January 1, 2013, and beginning on February 1, 2013, as a part of the same transaction, Acquisition Sub #4 entered into a capital Equipment Lease Agreement with Full Circle Manufacturing Group, Inc., a New Jersey corporation ("Full Circle"), a related party, whereby it agreed to lease Full Circle's equipment for $32,900 a month for a term of five years. The Company also entered into a Consulting Agreement with Joseph A. Ioia, the sole shareholder of Full Circle and sole member of NY Terminals ("Mr. Ioia") and related party as until August 22, 2014, Mr. Ioia served on our Board of Directors, in which the Company engaged Mr. Ioia, and agreed to compensate Mr. Ioia, to serve as a consultant for the Company.
Effective December 10, 2012, as more fully described in our Annual Report on Form 10-K for the year ended December 31, 2012, we executed a Manufacturing and Distribution Agreement (the “M&D Agreement”) with Full Circle and a consulting agreement with Mr. Ioia, whereby Full Circle, under the supervision of Mr. Ioia, operates Full Circle to process recyclable glycol streams and sell glycol as remanufactured product at our direction. Under the M&D Agreement, Full Circle agreed to perform the manufacturing and distribution services relating to its glycol recycling business using the GlyEco Technology™, to exclusively produce remanufactured glycol for the sole benefit of us and to use the Intellectual Property (“IP”) sold to us by Mr. Ioia covering the worldwide right, title, and interest in Mr. Ioia’s exclusive glycol remanufacturing process. We acquired the IP for consideration of $2,000,000 in cash and 3,000,000 unregistered shares of the Company’s common stock valued at $0.50 per share in 2012. Mr. Ioia became a director of the Company on January 15, 2013, and later resigned on August 22, 2014.
Director Independence
The Board of Directors has determined that each of the following non-employee directors qualifies as an “independent director” as defined by Section 10A(m)(3)(ii) of the Exchange Act and Rule 5065(a)(2) of the NASDAQ Marketplace Rules: Michael Jaap, Richard Q. Opler, Keri Smith, and Dwight Mamanteo.
David Ide and John Lorenz do not qualify as an “independent director,” as Mr. Ide is currently an executive officer of the Company, and Mr. Lorenz has been an executive officer of the Company within the last three years.
Item 14. Principal Accounting Fees and Services
The Company engaged Semple, Marchal & Cooper, LLP to serve as its independent registered public accounting firm for the fiscal years ended December 31, 2014, and December 31, 2013.
Set forth below are the fees paid to Semple, Marchal & Cooper, LLP for each of the last two fiscal years:
Audit Fees
Set below are the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
|
Auditor:
|
2014
|
2013
|
||||||
|
Semple, Marchal & Cooper, LLP
|
$
|
220,383
|
$
|
38,803
|
||||
Audit-Related Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for assurance and related services by the Company’s principal accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees” above.
|
Auditor:
|
2014
|
2013
|
||||||
|
Semple, Marchal & Cooper, LLP
|
$
|
-
|
$
|
-
|
||||
Tax Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
|
2014
|
2013
|
|||||||
|
Semple, Marchal & Cooper, LLP
|
$
|
-
|
$
|
-
|
||||
All Other Fees
Set forth below are the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above. Registrants shall describe the nature of the services comprising the fees disclosed under this category.
|
2014
|
2013
|
|||||||
|
Semple, Marchal & Cooper, LLP
|
$
|
44,365
|
$
|
-
|
||||
The 2014 fees above related to the Company’s Form S-1 registration statement.
Pre-Approval Policies and Procedures
Before an independent registered public accounting firm is engaged by the Company to render audit or permissible non-audit services the engagement is approved by the Audit Committee of the Company’s Board of Directors.
PART IV
Item 15. Exhibits, Financial Statements Schedules.
|
(a)
|
The following documents are filed as part of this Annual Report on Form 10-K:
|
||
|
|
(1)
|
All Financial Statements
|
|
The following have been included under Item 8 of Part II of this Annual Report.
|
Report of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets as of December 31, 2014 and 2013
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2014 and 2013
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013
|
|
|
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2014 and 2013
|
|
|
Notes to Consolidated Financial Statements
|
|
(2)
|
Financial Statement Schedules
|
Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
|
|
(3)
|
Exhibits
|
|
Exhibit No.
|
Description
|
|
|
2.1(1)
|
Agreement and Plan of Merger, dated October 31, 2011, between Environmental Credits, Ltd. and GlyEco, Inc., effective November 21, 2011
|
|
|
2.2(1)
|
Agreement and Plan of Merger, dated November 21, 2011, by and among GlyEco, Inc., GRT Acquisition, Inc. and Global Recycling Technologies, Ltd.
|
|
|
3.1(1)
|
Articles of Incorporation of GlyEco, Inc., dated and filed with the Secretary of state of Nevada on October 21, 2011
|
|
|
3.2(1)
|
Certificate of Incorporation of GRT Acquisition, Inc., dated November 3, 2011, filed with the Secretary of State on November 7, 2011
|
|
|
3.3(1)
|
Certificate of Incorporation of Global Recycling Technologies, Ltd., dated and filed with the Secretary of State of Delaware on January 28, 2008
|
|
|
3.4(1)
|
First and Amended Certificate of Incorporation of Global Recycling Technologies, Ltd., dated and filed with the Secretary of State of Delaware on October 10, 2008
|
|
|
3.5(1)
|
Second and Amended Certificate of Incorporation of Global Recycling Technologies, Ltd., dated and filed with the Secretary of State of Delaware on August 31, 2011.
|
|
|
3.6(15)
|
Amended and Restated Bylaws of GlyEco, Inc., effective as of August 5, 2014
|
|
|
3.7(1)
|
GRT Acquisition, Inc. Bylaws
|
|
|
3.8(1)
|
Global Recycling Technologies Ltd. Bylaws
|
|
|
3.9(1)
|
Certificate of Merger, dated October 31, 2011, executed by Environmental Credits Ltd. and GlyEco, Inc., filed with the Secretary of State of Delaware on November 8, 2011 and effective November 21, 2011
|
|
|
3.10(1)
|
Articles of Merger, dated October 31, 2011, executed by Environmental Credits, Ltd. and GlyEco., filed with the Secretary of State of Nevada on November 3, 2011 and effective November 21, 2011
|
|
|
3.11(1)
|
Certificate of Merger, dated November 21, 2011, executed by GRT Acquisition, Inc. and Global Recycling Technologies, Inc., filed with the Secretary of State of Delaware and effective November 28, 2011
|
|
|
3.12(8)
|
Certificate of Designation of Series AA Preferred Stock
|
|
|
4.1(2)
|
Note Purchase Agreement, dated August 9, 2008, by and between Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC , as Custodian.
|
|
|
4.2(2)
|
Forbearance Agreement, dated August 11, 2010, by Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian
|
|
|
4.3(2)
|
Second Forbearance Agreement, dated May 25, 2011, Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian
|
|
|
4.4(3)
|
2007 Stock Option Plan
|
|
4.5(3)
|
2012 Equity Incentive Plan
|
|
|
4.6(4)
|
First Amendment to GlyEco, Inc. 2012 Equity Incentive Plan
|
|
10.1(5)
|
Asset Purchase Agreement, dated May 24, 2012, by and among MMT Technologies, Inc. (the Seller), Otho N. Fletcher, Jr. (the Selling Principal), GlyEco Acquisition Corp. #3, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc.
|
|
| 10.2(6) | Asset Purchase Agreement, dated October 3, 2012, by and among Antifreeze Recycling, Inc. (the Seller), Robert J. Kolhoff (the Selling Principal), GlyEco Acquisition Corp. #7, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer) | |
| 10.3(7) | Asset Purchase Agreement, dated October 3, 2012, by and among Renew Resources, LLC (the Seller), Todd M. Bernard (the Selling Principal), GlyEco Acquisition Corp. #5, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer). | |
| 10.4(8) | Novation Agreement and Amendment No. 1 to Asset Purchase Agreement, dated October 26, 2012, by and among Antifreeze Recycling, Inc., Robert J. Kolhoff, GlyEco Acquisition Corp. #7, and GlyEco Acquisition Corp. #6. | |
| 10.5(9) | Amendment No. 1 to Asset Purchase Agreement, dated October 26, 2012, by and among Renew Resources, LLC, Todd M. Bernard, and GlyEco Acquisition Corp. #5. | |
| 10.6(10) | Amendment No. 2 to Asset Purchase Agreement, effective January 31, 2013, by and among Renew Resources, LLC, Todd M. Bernard, and GlyEco Acquisition Corp. #5 | |
| 10.7(11) | Asset Purchase Agreement, dated December 31, 2012, by and among Evergreen Recycling Co., Inc., an Indiana corporation (the Seller), Thomas Shiveley (the Selling Principal), and GlyEco Acquisition Corp. #2, an Arizona corporation and wholly-owned subsidiary of GlyEco, Inc. (the Buyer). | |
|
10.8(12)
|
Assignment of Intellectual Property, dated December 10, 2012, by and among Joseph A. Ioia and GlyEco Acquisition Corp. #4, Inc.
|
|
|
10.9(13)
|
Agreement and Plan of Merger, dated September 27, 2013, by and among GlyEco, Inc., a Nevada corporation, GlyEco Acquisition Corp. #7, an Arizona corporation and wholly owned subsidiary of GlyEco, Inc., GSS Automotive Recycling, Inc., a Maryland corporation, Joseph Getz, an individual, and John Stein, an individual.
|
|
|
10.10(14)
|
Note Conversion Agreement and Extension, dated April 3, 2012, by and between GlyEco, Inc. and IRA FBO Leonid Frenkel, Pershing LLC as Custodian.
|
|
| 10.11 (1)* | Consulting Agreement, dated May 3, 2010, between Global Recycling Technologies, Ltd. and Richard Geib | |
| 10.13(16)* | Consulting Agreement, dated February 15, 2015, between GlyEco, Inc. and David Ide | |
|
14.1(3)
|
Code of Ethics
|
|
|
16.1(1)
|
Letter from Stan J. H. Lee, CPA to the Commission
|
|
|
21.1(17)
|
||
|
31.1(17)
|
||
|
31.2(17)
|
||
|
32.1(17)
|
||
|
32.2(17)
|
||
|
101.INS(18)
|
XBRL Instance Document
|
|
|
101.SCH(18)
|
XBRL Schema Document
|
|
|
101.CAL(18)
|
XBRL Calculation Linkbase Document
|
|
|
101.DEF(18)
|
XBRL Definition Linkbase Document
|
|
|
101.LAB(18)
|
XBRL Label Linkbase Document
|
|
|
101.PRE(18)
|
XBRL Presentation Linkbase Document
|
* Management Contracts and Compensatory Plans, Contracts or Arrangements.
|
(1)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 28, 2011, and incorporated by reference herein.
|
|
(2)
|
Filed as an exhibit to the Form 8-K/A filed by the Company with the Commission on January 18, 2012, and incorporated by reference herein.
|
|
(3)
|
Filed as an exhibit to the Form 10-K filed by the Company with the Commission on April 14, 2012, and incorporated by reference herein.
|
|
(4)
|
Filed as an exhibit to the Form 10-Q filed by the Company with the Commission on August 14, 2012, and incorporated by reference herein.
|
|
(5)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on May 30, 2012, and incorporated by reference herein.
|
| (6) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 9, 2012, and incorporated by reference herein. |
| (7) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 9, 2012, and incorporated by reference herein. |
| (8) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 1, 2012, and incorporated by reference herein. |
| (9) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on November 2, 2012, and incorporated by reference herein. |
| (10) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on February 6, 2013, and incorporated by reference herein. |
| (11) | Filed as an exhibit to the Form 8-K filed by the Company with the Commission on January 4, 2013, and incorporated by reference herein. |
|
(12)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on December 13, 2012, and incorporated by reference herein.
|
|
(13)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on October 2, 2013 and incorporated by reference herein.
|
|
(14)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on May 30, 2012, and incorporated by reference herein.
|
|
(15)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on August 8, 2014, and incorporated by reference herein.
|
|
(16)
|
Filed as an exhibit to the Form 8-K filed by the Company with the Commission on February 19, 2015, and incorporated by reference herein.
|
| (17) | Filed herewith. |
| (18) | Furnished herewith. Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability. |
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 its behalf by the undersigned thereunto duly authorized.
|
GLYECO, INC.
|
|||
|
By: /s/ David Ide
|
|||
|
Date: April 10, 2015
|
David Ide
Chief Executive Officer, President, and Director
(Principal Executive Officer)
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Capacity
|
Date
|
||
|
/s/ David Ide
|
||||
|
David Ide
|
Chief Executive Officer, President, and Director
(Principal Executive Officer)
|
April 10, 2015
|
||
|
/s/ Alicia Williams Young
|
||||
|
Alicia Williams Young
|
Chief Financial Officer
|
April 10, 2015
|
||
|
(Principal Financial Officer and Principal Accounting Officer)
|
||||
|
/s/ Dwight Mamanteo
|
||||
|
Dwight Mamanteo
|
Chairman of the Board of Directors
|
April 10, 2015
|
||
|
/s/ John Lorenz
|
||||
|
John Lorenz
|
Director
|
April 10, 2015
|
||
|
/s/ Michael Jaap
|
||||
|
Michael Jaap
|
Director
|
April 10, 2015
|
||
|
/s/ Richard Q. Opler
|
||||
|
Richard Q. Opler
|
Director
|
April 10, 2015
|
|
/s/ Keri Smith
|
||||
|
Keri Smith
|
Director
|
April 10, 2015
|
||
84