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EX-32.2 - EXHIBIT 32.2 - GlyEco, Inc.s109460_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - GlyEco, Inc.s109460_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - GlyEco, Inc.s109460_ex31-2.htm
EX-31.1 - EXHIBIT31.1 - GlyEco, Inc.s109460_ex31-1.htm
EX-23.1 - EXHIBIT 23.1 - GlyEco, Inc.s109460_ex23-1.htm
EX-14.1 - EXHIBIT 14.1 - GlyEco, Inc.s109460_ex14-1.htm
EX-10.25 - EXHIBIT 10.25 - GlyEco, Inc.s109460_ex10-25.htm
EX-10.24 - EXHIBIT 10.24 - GlyEco, Inc.s109460_ex10-24.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, 2017

 

or

 

¨      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)

 

Nevada 45-4030261
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
   

230 Gill Way

Rock Hill, South Carolina

29730
(Address of principal executive offices) (Zip Code)

 

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 ¨ 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 ¨ 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 ¨

 

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 ¨

 

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. ¨

 

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.

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨ No x

 

As of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, 76,640,145 shares of its common stock, par value $0.0001 per share (the “Common Stock”), were held by non-affiliates of the registrant.  The aggregate market value of those shares was $6,131,212 based on the closing sale price of $0.08 on such date as reported on the OTC Markets system. Shares held by executive officers, directors, and persons then 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, 2018, the registrant had 165,438,061 shares of Common Stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
  PART I 4
Item 1. Business 4
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
     
  PART II 13
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
Item 6. Selected Financial Data 16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 58
Item 9A. Controls and Procedures 59
Item 9B. Other Information 60
     
  PART III 60
Item 10. Directors, Executive Officers and Corporate Governance 60
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 79
Item 13. Certain Relationships and Related Transactions, and Director Independence 82
Item 14. Principal Accounting Fees and Services 83
     
  PART IV 85
Item 15. Exhibits and Financial Statement Schedules 85
     
Signatures 89

 

 2 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled “Business” 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 included 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 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 future 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission. Also note that we include in this Annual Report a cautionary discussion of risks, uncertainties, and 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.

 

 3 

 

 

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 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 subsidiaries, unless otherwise specified.

 

Corporate History

 

GlyEco, Inc. (“GlyEco” or the “Company”) is a Nevada corporation, with its principal executive offices located at 230 Gill Way, Rock Hill, South Carolina 29730.  GlyEco 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., a Delaware corporation (“ECVL”). On November 21, 2011, ECVL was merged into its wholly-owned subsidiary, GlyEco (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”). 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 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries, and 96.9% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology. On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation (“UCC”), a wholly-owned subsidiary of The Dow Chemical Company, located in Institute, West Virginia (the “Dow Assets”). During the first quarter of fiscal year 2017, the Company purchased an additional 2.9% of RS&T (for a total percentage ownership of 99.8% of RS&T).

 

Description of Business Activity

 

GlyEco is a developer, manufacturer and distributor of performance fluids for the automotive, commercial and industrial markets. We specialize in coolants, additives and complementary fluids. We believe our vertically integrated approach, which includes formulating products, acquiring feedstock, managing facility construction and upgrades, operating facilities, and distributing products through our fleet of trucks, positions us to serve our key markets and enables us to capture incremental revenue and margin throughout the process. Our network of facilities, develop, manufacture and distribute high quality products that meet or exceed industry quality standards, including a wide spectrum of ready to use antifreezes and additive packages for the antifreeze/coolant, gas patch coolants and heat transfer fluid industries, throughout North America. 

 

 4 

 

 

Prior to our acquisitions of WEBA, RS&T and the Dow Assets in December 2016, the Company operated in only one business segment, the Consumer segment. Effective as of January 1, 2017, GlyEco conducts its operation in two business segments: the Consumer segment and the Industrial segment. The Consumer segment’s principal business activity is the production and distribution of ASTM (American Society for Testing Materials) grade glycol products, specifically automotive antifreeze and specialty-blended antifreeze, for sale into the automotive and industrial end markets. The Consumer segment operates a full lifecycle business, picking up waste antifreeze and producing finished antifreeze from both recycled and virgin glycol sources. We operate six processing and distribution centers located in the eastern region of the United States. The production capacity of the Consumer segment is approximately 90,000 gallons per month of ready to use (50/50) antifreeze. Operations in our Industrial segment are conducted through WEBA and RS&T, two of our subsidiaries. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolant and heat transfer industries throughout North America.  RS&T operates a glycol re-distillation plant in West Virginia that produces virgin quality glycol for sale to industrial customers worldwide. The RS&T facility currently produces antifreeze and industrial grade ethylene glycol. The production capacity of the RS&T facility is approximately 1.5 million gallons per month of concentrated ethylene glycol.

 

Consumer Segment

 

Our Consumer segment has processing and distribution centers located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. The Minneapolis, Minnesota, Lakeland, Florida, Rock Hill, South Carolina and Tea, South Dakota facilities have distillation equipment and operations for recycling waste glycol streams as well as blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers, while the Indianapolis, Indiana and Landover, Maryland facilities currently only have blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers. We estimate that the monthly processing capacity of our facilities with distillation equipment is approximately 90,000 gallons of ready to use finished products. We have invested significant time and money into increasing the capacity and actual production of our facilities. Our processing and distribution centers utilize a fleet of trucks to deliver glycol products directly to retail end users at their storefronts, which is typically 50-100 gallons per customer order and to collect waste material for processing at our facilities. Collectively, we directly service approximately 5,000 customers. To meet the delivery volume needs of our existing customers, we supplement our collected and processed glycol with new or virgin glycol that we purchase in bulk from various suppliers. In addition to our retail end users, we also sell our recycled products to wholesale or bulk distributors who, in turn, sell to retail end users specifically as automotive or specialty blended antifreeze.

 

We have deployed our technology and processes across our six processing and distribution centers, allowing for safe and efficient handling of waste streams, application of our processing technology and Quality Control & Assurance Program (“QC&A Program”), sales of high-quality glycol products, and data systems allowing for tracking, training, and further development of our products and service.

 

Our Consumer segment product offerings include:

 

·Antifreeze/Coolant - We formulate several antifreeze products to meet ASTM and/or Original Equipment Manufacturers (“OEM”) manufacturer specifications for engine coolants. In addition, we custom blend antifreeze to customer specifications.
·Heating, Ventilation and Air Conditioning (“HVAC”) Fluids - We formulate HVAC coolants to meet ASTM and/or OEM manufacturer specifications for HVAC fluids. In addition, we custom blend HVAC coolants to customer specifications.
·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 and distribution centers for recycling or in some cases to be safely disposed.

 

 5 

 

 

We currently sell and deliver all of our products in bulk containers (55 gallon barrels, 250 gallon totes, etc.) or variable metered bulk quantities.

 

We began developing new methods for recycling glycols in 1999. We recognized a need in the market to improve the quality of recycled glycol being returned to retail customers. In addition, we believed through process technology, systems, and footprint we could clean more types of waste glycol in a more cost-efficient manner. Each type of industrial waste glycol contains a different list of impurities which traditional waste antifreeze processing does not clean effectively. Additionally, 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.

 

 

Our patented technology removes difficult pollutants, including esters, organic acids, high dissolved solids and high un-dissolved solids in addition to the benefit of clearing oil/hydrocarbons, additives and dyes that are typically found in used engine coolants. Our QC&A Program seeks to ensure consistently high quality, ASTM (American Society for Testing and Materials) standard compliant recycled material. We believe our products are trusted in all vehicle makes and models and regional fleet and by local and national auto retailers. Our QC&A Program is managed and supported by dedicated process and chemical engineering staff and requires periodic onsite field audits, and ongoing training by our facility managing partners.

 

Industrial Segment

 

Our Industrial segment consists of two divisions: WEBA, our additives business, and RS&T, our glycol re-distillation plant in West Virginia.

 

WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America. We believe WEBA is one of the largest companies serving the North American additive market. WEBA's METALGUARD® additive package product line includes one-step inhibitor systems, which give our customers the ability to easily make various types of antifreeze concentrate and 50/50 coolants for all automobiles, heavy-duty diesel engines, stationary engines in gas patch and other applications. METALGUARD® additive packages cover the entire range of coolant types from basic green conventional to the newest extended life OAT antifreezes of all colors. Our heat transfer fluid additives allow our customers to make finished heat transfer fluids for most industry applications including all-aluminum systems. The METALGUARD® heat transfer fluids include light and heavy-duty fluids, both propylene and ethylene glycol based, for various operating temperatures. These inhibitors cover the industry standard of phosphate-based inhibitors as well as all-organic (OAT) inhibitors for specific pH range and aluminum system requirements.

 

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

 

RS&T operates a glycol re-distillation plant in West Virginia, which produces virgin quality glycol for sale to industrial customers worldwide. The RS&T facility currently produces antifreeze and industrial grade ethylene glycol. We believe it is one of the largest glycol re-distillation plants in North America, with production capacity of approximately 1.5 million gallons per month of concentrated ethylene glycol. The facility, located at the Dow Institute Site at Institute, West Virginia, includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.

 

 6 

 

 

Our Strategy

 

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

 

To effectively deliver on our strategy, we offer a broad spectrum of products in our niches, focus on non-standard innovative products, leverage multiple distribution channels and we are market smart in that we maximize less competitive/under-served markets. Our manufacturing operations produce high quality products while effectively managing costs by recycling at high capacity and high up time, driving down raw material costs with focused feedstock streams management and using technology and data to manage our business in real-time. Our distribution operations provide dependable service at a low cost by effectively using know how, technology and data. We leverage technology and innovation to develop a recognized brand and operate certified laboratories and well supported research and development activities. In addition, we focus on internal and external training programs and we are eco-friendly with the products we offer and the way we operate our businesses.

 

Our Industry

 

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 industries such as:

 

1.Automotive - Glycols are used as antifreeze in vehicles and other equipment with a combustion engine.
2.HVAC - Glycols are in the heat transfer fluids used to warm and cool buildings.
3.Textiles - Glycols are used as a raw material in the manufacturing of polyester fiber and plastics (e.g. water bottles).
4.Airline - Glycols are used in aircraft deicing fluid to avoid accumulation of moisture on aircraft wings.
5.Medical - Glycols are used for equipment sterilization in the medical industry.

 

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 the 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. Through the use of our technology and assets, we generally focus on ethylene glycol but can 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 and Antifreeze Market

 

World-wide consumption for ethylene glycol is over 5.5 billion gallons per year. China and the United States are the largest consumers of ethylene glycol (“EG”), with the majority of EG being used in polyester and antifreeze applications. While the growth rate of EG consumption 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. The United States consumes approximately 700 million gallons of EG per year, with over 160 million gallons being used in antifreeze applications.

 

 7 

 

 

It is estimated that only 15% of waste antifreeze is recycled, equaling approximately 25 million gallons recycled per year (Environmental Protection Agency).

  

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.

 

Glycol Recycling Standards

 

ASTM, 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. OEMs set particular standards for the individual needs and preferences for the vehicles/equipment they each manufacture.

 

Competition

 

We compete in the highly fragmented specialty chemicals industry.  We operate in highly competitive markets and face competition in each of our product categories and subcategories. The participants in the industry offer a varied and broad array of product lines designed to meet specific customer requirements.  Participants compete with individual and service product offerings on a global, regional and/or local level subject to the nature of the businesses and products, as well as the end-markets and customers served.  Competition is based on several key criteria, including product performance and quality, product price, product availability and security of supply, responsiveness of product development in cooperation with customers, customer service, industry knowledge and technical capability.  Most key competitors are significantly larger than GlyEco and have greater financial resources, leading to greater operating and financial flexibility.

 

The glycol recycling industry, a key submarket for GlyEco, 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. Many 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 Huntsman), antifreeze producers (e.g. Prestone and Old World), antifreeze distributors (e.g. Nexeo and Brenntag), waste collectors and recyclers (e.g. Safety Kleen and Heritage-Crystal Clean).

 

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Suppliers

 

We purchase raw materials, including waste glycol, from multiple sources of supply primarily in the United States.

 

We conduct business with a number of waste glycol generators, including specialty chemical companies, as well as waste collectors that have varied operations in solid, hazardous, special, and liquid waste. In connection with business conducted in our Consumer segment, we collect waste glycol directly from approximately 5,000 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 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 and distribution 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 and 100 gallons. We also receive waste glycol in bulk loads by trucks and railcars from waste collectors and generators. Depending on the type of waste glycol and the chemical composition of that glycol, we may pay the collector/generators to take the material, take it for free, or pay for the material.

 

Seasonality

 

Our business is affected by seasonal factors, mainly the demand for automotive antifreeze, which can affect our sales volume and the price point. Because the demand for automotive antifreeze is typically higher in winter months, we often see an increase in sales during the first and fourth quarters.

 

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.

 

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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 hazardous materials at this time. 

 

In addition to taking the necessary precautions and maintaining the required permits/licenses, glycol recyclers generally purchase environmental liability insurance policies to mitigate risks associated with the handling of waste glycol. We believe we have the appropriate permits, licenses, and insurance policies in place to mitigate risks stemming from the actions of our employees or third parties.

 

Internationally, the regulation of waste glycol varies from country to country. Some countries have strong regulations, meaning they specifically identify waste glycol as a hazardous waste that requires particular handling (e.g. transportation, collection, processing, packaging, resale, and disposal). Other countries have fewer regulations, meaning they do not specifically identify waste glycol as a hazardous waste that requires particular handling, allowing producers of waste glycol to dispose of the waste in ways that may harm the environment. Europe and Canada have strong regulations. Aside from the United States, Canada, and Europe, the remainder of the world generally has weak regulations. Despite strong regulations in certain parts of the world, we believe the United States is the only market with an established glycol recycling industry. Strong regulations are favorable for glycol recyclers because it causes waste generators to track their waste, resulting in more waste glycol supply for recyclers, and therefore potentially lower prices for raw material.

 

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 2012. This utility patent application was approved and issued by the USPTO on September 29, 2015. We maintain and use several service marks including “GlyEcoÒ”, “Innovative Green ChemistryÒ”, “GlyEco CertifiedÒ”, “GlyEco Technology” and “METALGUARD”. 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

 

As of March 30, 2018, we have a total of 51 employees, including 49 full-time employees. We believe that we have good relations with all of our employees.

 

 10 

 

 

Item 1A. Risk Factors

 

As a smaller reporting company, the Company is not required to include disclosure under this Item 1A.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We maintain our principal executive offices at 230 Gill Way, Rock Hill, SC 29730. Our telephone number is (866) 960-1539.

 

Our Consumer segment has six processing and distribution centers located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. The Minnesota, Florida, South Carolina and South Dakota facilities have distillation equipment and operations for recycling waste glycol streams as well as blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers. The Indiana and Maryland facilities currently only have blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers.

 

Our Industrial segment includes our subsidiary, RS&T. RS&T operates our glycol re-distillation plant located in Institute, West Virginia, which processes waste glycol into virgin quality recycled glycol for sale to industrial customers worldwide.

 

Our Minnesota facility 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 $3,560. The base rent will gradually increase until the lease term expires on March 31, 2021.

 

Our Indiana facility 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 $4,500. The base rent will gradually increase until the lease term expires on December 31, 2018.

 

Our Florida facility leases approximately 4,200 square feet of property located at 4302 Holden Road, Lakeland, FL 33811. The monthly base rent for this location is $2,675. The lease term expires on August 31, 2018.

 

Our South Carolina facility 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 $4,698. The base rent will gradually increase until the lease term expires on October 1, 2023. Our South Carolina facility also leases approximately 3,500 square feet of property located at 1500 Farmer Road, Suite G-1, Conyers, GA 30012. The monthly base rent for this location is currently $1,183. The base rent will gradually increase until the lease term expires on January 31, 2019.

 

Our South Dakota facility leases approximately 7,200 square feet of property located at 46958 Mindy Street, Tea, SD 57064. The monthly base rent for this location is $3,060. The base rent will gradually increase until the lease term expires on July 31, 2027.

 

Our Maryland facility 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 $4,600. The lease term expired on December 31, 2016 and the property is currently being rented on a month to month basis.

 

 11 

 

 

Our Louisiana facility leases approximately 1,380 square feet of property located at 14141 Airline Highway, Building 2, Suite E, Baton Rouge, Louisiana 70817. The monthly base rent for this location is currently $818. The lease term expires on March 31, 2020.

 

Our West Virginia facility leases approximately 15 acres of property located in Institute, WV. The monthly base rent for this location is currently $3,125 and increases to $6,500 at the beginning of 2018 and increases to $12,500 at the beginning of 2019 on a per month basis. The lease term expires December 27, 2021.

 

We believe that our existing consumer facilities are adequate to meet our current business needs and that additional space will be available, if needed, on commercially reasonable terms for the foreseeable future.

 

Item 3. Legal Proceedings

 

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

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relates to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company believes it has paid PSP Falcon in full for the services rendered and, therefore, no outstanding balance remains due. Accordingly, the Company plans to vigorously defend itself from this claim.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 12 

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our Common Stock is quoted on the OTC Pink Sheets 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 for each fiscal quarter for the two most recent fiscal years as reported by the OTC Pink Sheets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

  High   Low 
2016          
1st Quarter  $0.14   $0.08 
2nd Quarter  $0.14   $0.09 
3rd Quarter  $0.14   $0.09 
4th Quarter  $0.11   $0.05 
         
2017        
1st Quarter  $0.48   $0.10 
2nd Quarter  $0.14   $0.06 
3rd Quarter  $0.09   $0.06 
4th Quarter  $0.09   $0.05 

 

As of March 30, 2018, the closing sale price for our Common Stock as quoted on the OTC Pink Sheets system was $0.05. As of March 30, 2018, there were 165,438,061 shares of Common Stock outstanding and approximately 983 shareholders of record for our Common Stock. This does not include shareholders holding Common 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.

 

Dividend Policy

 

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.

 

 13 

 

 

Securities Authorized For Issuance under Equity Compensation Plans

 

Reference is made to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Information” for information required by this Item 5.

 

Recent Sales of Unregistered Securities

 

The Company issued the following unregistered securities during the fiscal year ended December 31, 2017, some of which were issued pursuant to the Company’s Equity Incentive Program, a program approved by the Company's Board of Directors on December 18, 2014, pursuant to which the Company’s employees can elect to receive equity in lieu of cash for all or part of their salary compensation (the “Equity Incentive Program”):

 

On January 31, 2017, the Company issued an aggregate of 38,401 shares of Common Stock to fourteen employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On February 13, 2017, the Company issued an aggregate of 160,000 shares of Common Stock to two employees of the Company at a price of $0.125 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale.  The shares of Common Stock issued are restricted.

 

On February 28, 2017, the Company issued an aggregate of 38,301 shares of Common Stock to fourteen employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On March 31, 2017, the Company issued an aggregate of 38,801 shares of Common Stock to fourteen employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On March 31, 2017, the Company issued an aggregate of 512,498 shares of Common Stock to six directors of the Company pursuant to the Company’s Fiscal Year 2017 Director Compensation Plan at a price of $0.12 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the directors had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The directors made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On April 30, 2017, the Company issued an aggregate of 44,040 shares of Common Stock to nine employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

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On May 11, 2017, the Company issued an aggregate of 3,437,500 shares of Common Stock to a warrant holder in connection with the exercise of warrants at an exercise price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the warrant holder had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising.

 

On May 31, 2017, the Company issued an aggregate of 44,020 shares of Common Stock to nine employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On June 30, 2017, the Company issued an aggregate of 106,979 shares of Common Stock to nine employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.10 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On June 30, 2017, the Company issued an aggregate of 627,546 shares of Common Stock to six directors of the Company pursuant to the Company’s Fiscal Year 2017 Director Compensation Plan at a price of $0.098 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the directors had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The directors made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On July 31, 2017, the Company issued an aggregate of 78,973 shares of Common Stock to twelve employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On August 10, 2017, the Company issued an aggregate of 781,250 shares of Common Stock to four investors in connection with the conversion of convertible notes at a conversion price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the issuance of the convertible notes and underlying shares of Common Stock 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.

 

On August 30, 2017, the Company issued an aggregate of 79,686 shares of Common Stock to twelve employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

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On September 30, 2017, the Company issued an aggregate of 79,789 shares of Common Stock to twelve employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.08 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On September 30, 2017, the Company issued an aggregate of 803,930 shares of Common Stock to six directors of the Company pursuant to the Company’s Fiscal Year 2017 Director Compensation Plan at a price of $0.077 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the directors had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The directors made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On October 31, 2017, the Company issued an aggregate of 60,342 shares of Common Stock to ten employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.09 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale.

The shares of Common Stock issued are restricted.

 

On November 30, 2017, the Company issued an aggregate of 60,386 shares of Common Stock to ten employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.09 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On December 31, 2017, the Company issued an aggregate of 60,408 shares of Common Stock to ten employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $0.09 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the employees had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The employees made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

On December 31, 2017, the Company issued an aggregate of 691,010 shares of Common Stock to six directors of the Company pursuant to the Company’s Fiscal Year 2017 Director Compensation Plan at a price of $0.089 per share. The shares were issued pursuant to Section 4(a)(2) of the Securities Act because the directors had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. The directors made representations that the shares were taken for investment purposes and not with a view to resale. The shares of Common Stock issued are restricted.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Item 6. Selected Financial Data

 

As a smaller reporting company, the Company is not required to include the disclosure required under this Item 6.

 

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, 2017 and 2016 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. Actual results may differ materially from those contained in any forward-looking statements.

 

 16 

 

 

Company Overview

 

GlyEco is a developer, manufacturer and distributor of performance fluids for the automotive, commercial and industrial markets. We specialize in coolants, additives and complementary fluids. We believe our vertically integrated approach, which includes formulating products, acquiring feedstock, managing facility construction and upgrades, operating facilities, and distributing products through our fleet of trucks, positions us to serve our key markets and enables us to capture incremental revenue and margin throughout the process. Our network of facilities, develop, manufacture and distribute high quality products that meet or exceed industry quality standards, including a wide spectrum of ready to use antifreezes and additive packages for the antifreeze/coolant, gas patch coolants and heat transfer fluid industries, throughout North America.

 

Prior to our acquisitions of WEBA, RS&T and the Dow Assets in December 2016, the Company operated in only one business segment, the Consumer segment. Effective as of January 1, 2017, GlyEco conducts its operation in two business segments: the Consumer segment and the Industrial segment. The Consumer segment’s principal business activity is the production and distribution of ASTM grade glycol products, specifically automotive antifreeze and specialty-blended antifreeze, for sale into the automotive and industrial end markets. The Consumer segment operates a full lifecycle business, picking up waste antifreeze and producing finished antifreeze from both recycled and virgin glycol sources. We operate six processing and distribution centers located in the eastern region of the United States. The production capacity of the Consumer segment is approximately 90,000 gallons per month of ready to use (50/50) antifreeze. Operations in our Industrial segment are conducted through WEBA and RS&T, two of our subsidiaries. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolant and heat transfer industries throughout North America.  RS&T operates a glycol re-distillation plant in West Virginia that produces virgin quality glycol for sale to industrial customers worldwide. The RS&T facility currently produces antifreeze and industrial grade ethylene glycol. The production capacity of the RS&T facility is approximately 1.5 million gallons per month of concentrated ethylene glycol.

 

Consumer segment

 

 Our Consumer segment has processing and distribution centers located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South Carolina, (5) Tea, South Dakota, and (6) Landover, Maryland. The Minneapolis, Minnesota, Lakeland, Florida, Rock Hill, South Carolina and Tea, South Dakota facilities have distillation equipment and operations for recycling waste glycol streams as well as blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers, while the Indianapolis, Indiana and Landover, Maryland facilities currently only have blending equipment and operations for mixing glycol and other chemicals to produce finished products for sale to third party customers. We estimate that the monthly processing capacity of our facilities with distillation equipment is approximately 90,000 gallons of ready to use finished products. We have invested significant time and money into increasing the capacity and actual production of our facilities. Our processing and distribution centers utilize a fleet of trucks to deliver glycol products directly to retail end users at their storefronts, which is typically 50-100 gallons per customer order and to collect waste material for processing at our facilities. Collectively, we directly service approximately 5,000 customers. To meet the delivery volume needs of our existing customers, we supplement our collected and processed glycol with new or virgin glycol that we purchase in bulk from various suppliers. In addition to our retail end users, we also sell our recycled products to wholesale or bulk distributors who, in turn, sell to retail end users specifically as automotive or specialty blended antifreeze.

 

We have deployed our technology and processes across our six processing and distribution centers, allowing for safe and efficient handling of waste streams, application of our processing technology and Quality Control & Assurance Program (“QC&A Program”), sales of high-quality glycol products, and data systems allowing for tracking, training, and further development of our products and service.

 

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Our Consumer segment product offerings include:

 

·Antifreeze/Coolant - We formulate several antifreeze products to meet ASTM and/or Original Equipment Manufacturers (“OEM”) manufacturer specifications for engine coolants. In addition, we custom blend antifreeze to customer specifications.
·Heating, Ventilation and Air Conditioning (“HVAC”) Fluids - We formulate HVAC coolant to meet ASTM and/or OEM manufacturer specifications for HVAC fluids. In addition, we custom blend HVAC coolants to customer specifications.
·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 and distribution centers for recycling or in some cases to be safely disposed.

 

We currently sell and deliver all of our products in bulk containers (55 gallon barrels, 250 gallon totes, etc.) or variable metered bulk quantities.

 

We began developing new methods for recycling glycols in 1999. We recognized a need in the market to improve the quality of recycled glycol being returned to retail customers. In addition, we believed through process technology, systems, and footprint we could clean more types of waste glycol in a more cost-efficient manner. Each type of industrial waste glycol contains a different list of impurities which traditional waste antifreeze processing does not clean effectively. Additionally, 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.

 

Our patented technology removes difficult pollutants, including esters, organic acids, high dissolved solids and high un-dissolved solids in addition to the benefit of clearing oil/hydrocarbons, additives and dyes that are typically found in used engine coolants. Our QC&A Program seeks to ensure consistently high quality, ASTM standard compliant recycled material.

 

We believe our products are trusted in all vehicle makes and models and regional fleet and by local and national auto retailers. Our QC&A Program is managed and supported by dedicated process and chemical engineering staff and requires periodic onsite field audits and ongoing training by our facility managing partners.

 

Industrial Segment

 

Our Industrial segment consists of two divisions: WEBA, our additives business and RS&T, our glycol re-distillation plant in West Virginia.

 

WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries throughout North America. We believe WEBA is one of the largest companies serving the North American additive market. WEBA's METALGUARD® additive package product line includes one-step inhibitor systems, which give our customers the ability to easily make various types of antifreeze concentrate and 50/50 coolants for all automobiles, heavy-duty diesel engines, stationary engines in gas patch and other applications. METALGUARD® additive packages cover the entire range of coolant types from basic green conventional to the newest extended life OAT antifreezes of all colors. Our heat transfer fluid additives allow our customers to make finished heat transfer fluids for most industry applications including all-aluminum systems. The METALGUARD® heat transfer fluids include light and heavy-duty fluids, both propylene and ethylene glycol based, for various operating temperatures. These inhibitors cover the industry standard of phosphate-based inhibitors as well as all-organic (OAT) inhibitors for specific pH range and aluminum system requirements.

 

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

 

RS&T operates a glycol re-distillation plant in West Virginia, which produces virgin quality glycol for sale to industrial customers worldwide. The RS&T facility currently produces antifreeze and industrial grade ethylene glycol. We believe it is one of the largest glycol re-distillation plants in North America, with production capacity of approximately 1.5 million gallons per month of concentrated ethylene glycol. The RS&T facility, located at the Dow Institute Site at Institute, West Virginia, includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.

 

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Our Strategy

 

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

 

To effectively deliver on our strategy, we offer a broad spectrum of products in our niches, focus on non-standard innovative products, leverage multiple distribution channels and we are market smart in that we maximize less competitive/under-served markets. Our manufacturing operations produce high quality products while effectively managing costs by recycling at high capacity and high up time, driving down raw material costs with focused feedstock streams management and using technology and data to manage our business in real-time. Our distribution operations provide dependable service at a low cost by effectively using know how, technology and data. We leverage technology and innovation to develop a recognized brand and operate certified laboratories and well supported research and development activities. We focus on internal and external training programs. We are also eco-friendly with the products we offer and the way we operate our businesses.

 

Results of Operations

 

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

 

Net Sales

 

For the year ended December 31, 2017, Net Sales were $12,072,686 compared to $5,591,087 for the year ended December 31, 2016, representing an increase of $6,481,599 or 116%. The increase in Net Sales was due to organic revenue growth of $674,692, or approximately 12%, and $5,806,907 of sales related to the businesses and assets acquired in December 2016. Net Sales, excluding intersegment sales for the year ended December 31, 2017, were $6,265,779 and $5,806,907 for the Consumer and Industrial segments, respectively, for the year ended December 31, 2017.

 

Cost of Goods Sold

 

For the year ended December 31, 2017, our Costs of Good Sold was $10,444,573 compared to $5,283,054 for the year ended December 31, 2016, representing an increase of $5,161,519, or approximately 98%. The increase in Cost of Goods Sold was primarily due to costs associated with the increase in Net Sales as well as approximately $200,000 of production costs that were not fully absorbed into inventory, but rather expensed as incurred while our West Virginia facility was not operational during the first two months of fiscal year 2017 for infrastructure related capital improvements.

 

Gross Profit

 

For the year ended December 31, 2017, we realized a gross profit of $1,628,113 compared to a gross profit of $308,033 for the year ended December 31, 2016. Gross profit, excluding intersegment sales, for the year ended December 31, 2017 was $742,947 and $885,166 for the Consumer and Industrial segments, respectively.

 

Our gross profit margin for the year ended December 31, 2017 was approximately 13% compared to approximately 6% for the year ended December 31, 2016. Gross profit margin, excluding intersegment sales for the year ended December 31, 2017, was 12% and 13% for the Consumer and Industrial segments, respectively, for the year ended December 31, 2017. The gross profit margin for the Consumer segment was positively impacted by increased sales and proportionately lower costs.

 

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Operating Expenses

 

For the year ended December 31, 2017, Operating Expenses increased to $5,963,734 from $3,492,475 for the year ended December 31, 2016, representing an increase of $2,471,259, or approximately 71%.  Operating Expenses consist of Consulting Fees, Share-Based Compensation, Salaries and Wages, Tank Remediation, Legal and Professional Expenses, and General and Administrative Expenses. Our operating expense ratio for the year ended December 31, 2017 was approximately 49% compared to approximately 62% for the year ended December 31, 2016.

 

Consulting Fees consist of marketing and administrative fees incurred under consulting agreements.  Consulting Fees increased to $416,445 for the year ended December 31, 2017 from $129,752 for the year ended December 31, 2016, representing an increase of $286,693, or approximately 221%.  The increase is primarily due to the Company’s use of external specialists to assist with short duration projects and the implementation of our ERP software.

 

Share-Based Compensation consists of stock, options and warrants issued to consultants and employees in consideration for services provided to the Company. Share-Based Compensation decreased to $523,613 for the year ended December 31, 2017 from $1,064,086 for the year ended December 31, 2016, representing a decrease of $540,473, or 51%. The decrease is due to a market vesting based stock grant to the Company’s Board of Directors in 2016 that was expensed in full during 2016.

 

Salaries and Wages consist of wages and the related taxes.  Salaries and Wages increased to $1,855,713 for the year ended December 31, 2017 from $1,094,465 for the year ended December 31, 2016, representing an increase of $761,248 or 70%.  The increase is due to the addition of employees in such areas as marketing, sales and finance in late 2016 and 2017, as well as additional employees related to the businesses and assets acquired in December 2016.

 

Legal and Professional Fees consist of legal, accounting, tax and audit services.  For the year ended December 31, 2017, Legal and Professional Fees increased to $901,339 from $274,824 for the year ended December 31, 2016, representing an increase of $626,515 or approximately 228%. The increase is primarily related to work performed that was related to the businesses and assets acquired in December 2016, as well as other special projects in 2017.

 

General and Administrative (G&A) Expenses consist of general operational costs of our business. For the year ended December 31, 2017, G&A Expenses increased to $1,486,624 from $929,348 for the year ended December 31, 2016, representing an increase of $557,276, or approximately 60%. The increase is due to additional depreciation and amortization of $428,721 related to the property and equipment and intangible assets acquired in December 2016, as well as expenses related to the build out of our sales team, including the associated travel and training expenses.

 

Other Income and Expenses

 

For the year ended December 31, 2017, Other Income and Expenses was an expense of $830,993 compared to an expense of $100,170 for the year ended December 31, 2016. Other Income and Expenses consist of Interest Income, Interest Expense and Accelerated Interest. The change was primarily due to Interest Expense associated with the debt issued in late December 2016, as well as Accelerated Interest expense as a result of the repayment and conversion of notes payable which was classified as loss on debt extinguishment.

 

Adjusted EBITDA

 

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

 

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

 

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

 

   As Reported 
   Years Ended December 31, 
   2017   2016 
Net loss  $(5,181,535)  $(2,264,560)
           
Interest expense, net   684,429    25,504 
Loss on debt extinguishment   146,564     
Tank remediation (1)   780,000     
Income tax expense (benefit)   14,921    (1,020,052)
Depreciation and amortization   1,036,205    358,491 
Share-based compensation   523,613    1,064,086 
Adjusted EBITDA  $(1,995,803)  $(1,836,531)

 

(1)This is an expense related to estimated equipment remediation efforts to comply with new West Virginia regulations.

 

Liquidity and Capital Resources

 

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, and acquisitions of businesses and technologies.  Cash provided from financing continues to be the Company’s primary source of funds. We believe that we can raise adequate funds through the issuance of equity or debt as necessary to continue to support our planned expansion.

 

Cash Flows

 

The table below sets forth certain information about the Company’s cash flows for the years ended December 31, 2017 and 2016:

 

   For the Year Ended 
   December 31,
2017
   December 31,
2016
 
Net cash (used in) operating activities  $(1,565,304)  $(2,997,392)
Net cash (used in) investing activities  $(864,750)  $(2,382,971)
Net cash provided by financing activities  $1,127,357   $5,517,675 
Net increase (decrease) in cash  $(1,302,697)  $137,312 
Cash - beginning of year  $1,413,999   $1,276,687 
Cash - end of year  $111,302   $1,413,999 

 

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For the year ended December 31, 2017 and 2016, net cash used in operating activities was $1,565,304 and $2,997,392, respectively. The decrease in cash used in operating activities is due to the significant period over period changes in accounts receivables, inventories and accounts payable and accrued expenses.

 

For the year ended December 31, 2017, the Company used $864,750 in cash for investing activities compared to the $2,382,971 used in the year ended December 31, 2016.   These amounts were comprised primarily of capital expenditures for equipment.

 

For the years ended December 31, 2017 and 2016, we received $1,127,357 and $5,517,675, respectively, in cash from financing activities. The amount of cash received in 2016 is primarily comprised of proceeds from the February 2016 rights offering. The amount of cash received in 2017 is primarily comprised of proceeds from the exercise of warrants and proceeds from a sale-leaseback, partially offset by the repayment of debt, including the 5% Notes, as well as proceeds from our August 2017 rights offering.

 

As of December 31, 2017, we had $2,589,397 in current assets, consisting primarily of $111,302 in cash, $1,546,367 in accounts receivable and $564,133 in inventory. Cash decreased from $1,413,999 as of December 31, 2016 to $111,302 as of December 31, 2017, primarily due to cash used in operations.

 

As of December 31, 2017, we had total current liabilities of $5,105,915, consisting primarily of accounts payable and accrued expenses of $2,921,406. As of December 31, 2017, we had total non-current liabilities of $4,039,616, consisting primarily of the non-current portion of our notes payable and capital lease obligations.

 

Going Concern and Liquidity

 

The accompanying consolidated financial statements included elsewhere in this Annual Report have been prepared assuming that the Company will continue as a going concern. As of December 31, 2017, 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of filing of this Annual Report.

 

In their report dated April 2, 2018 with respect to our consolidated financial statements for the years ended December 31, 2017 and December 31, 2016, KMJ Corbin & Company LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as a result of our recurring losses from operations and our dependence on our ability to raise capital, among other factors.

 

Our plans to address these matters include achieving profitable operations and raising additional financing through private and/or public offerings of our equity securities and through debt financing if available and needed. We plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. There can be no assurances, however, that the Company will be able to achieve profitable operations or be able to obtain any financings or that such financings will be sufficient to sustain our business operations or permit the Company to implement our intended business strategy.

 

In March 2018, the Company began executing on a plan to raise additional capital to support the Company’s current operations and future growth plans. The Company plans to work with investment banking firms to determine optimal amount of capital and structure. On March 29, 2018, the Company closed on an initial round of approximately $1.0 in bridge financing from certain affiliates. The Company anticipates an additional closing of up to $1 million, which the Company believes will cover its immediate liquidity requirements in anticipation of a more permanent raise. There is no certainty that the Company will receive the additional funding or if received will be on reasonable terms.

 

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Financing Events

 

August 2017 Rights Offering

 

On August 10, 2017, the Company closed the 2017 Rights Offering. The 2017 Rights Offering was conducted pursuant to a registration statement on Form S-1 (No. 333-215941), which became effective on August 30, 2017. In connection with the 2017 Rights Offering, the Company raised aggregate gross proceeds of approximately $2.29 million, including $670,000 in cash and $1.62 million in redemption of previously issued 8% notes payable and accrued interest, from the sale of 28.6 million shares of Common Stock at a price of $0.08 per share. The Company had approximately $0.1 million of costs associated with the offering netted against the cash proceeds. The Company used the net proceeds for general working capital purposes.

 

Off-balance Sheet Arrangements

 

In the year ended December 31, 2017, the Company did not enter into any off-balance sheet arrangements.

 

Critical Accounting Policies

 

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

 

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

 

Revenue Recognition

 

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

 

Collectability of Accounts Receivable

 

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

 

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

 

Inventories

 

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

 

Long-Lived Assets

 

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

 

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

 

Goodwill and Other Intangibles

 

We perform an annual impairment review in the fourth quarter of each year of our goodwill and intangible assets. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other, we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions: industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

 

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In addition to the required goodwill impairment analysis, we also review the recoverability and estimated useful life of our net intangibles with finite lives when an indicator of impairment exists. When we acquire intangible assets, management determines the estimated useful life, expected residual value if any and appropriate allocation method of the asset value based on the information available at the time. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Our assumptions with respect to expected future cash flows relating to intangible assets is impacted by our assessment of (i) the 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.

 

Deferred Financing Costs, Debt Discount and Detachable Debt-Related Warrants

 

Costs incurred in connection with debt are deferred and recorded as a reduction to the debt balance in the accompanying consolidated balance sheets. The Company amortizes debt issuance costs over the expected term of the related debt using the effective interest method. Debt discounts relate to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction to the debt balance and accreted over the expected term of the debt to interest expense using the effective interest method.

 

 Share-based Compensation

 

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

 

Assumptions used in the calculation were determined as follows:

 

·Expected term is generally determined using the weighted average of the contractual term and vesting period of the award;
·Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of the Company, over the expected term of the award;
·Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and
·Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential forfeitures.

 

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, 2017 and 2016, we had established a full valuation allowance for all deferred tax assets.

 

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As of December 31, 2017 and 2016 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 from time to time. Litigation is subject to inherent uncertainties, and an adverse result in a legal proceeding could arise that may harm our business. Below is an overview of a pending legal proceeding in which an adverse result could have a material adverse effect on our business and results of operations.

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relates to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company believes it has paid PSP Falcon in full for the services rendered and therefore that no outstanding balance remains due. Accordingly, the Company plans to vigorously defend itself from this claim.

 

Environmental Matters

 

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

 

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

 

In December 2016, the Company completed an acquisition of certain glycol distillation assets from Union Carbide Corporation in Institute, West Virginia. In order to comply with West Virginia regulations enacted in 2017, the Company has accrued $780,000 for tank remediation for the year ended December 31, 2017. The amount of the accrual is based on various assumptions and estimates and will be periodically reevaluated in light of a variety of future events and contingencies.

 

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this Item 7A.

 

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, 2017 and 2016.

 

  Page
Report of Independent Registered Public Accounting Firm 28
   
Consolidated Balance Sheets 29
   
Consolidated Statements of Operations 30
   
Consolidated Statements of Changes in Stockholders’ Equity 31
   
Consolidated Statements of Cash Flows 32
   
Notes to Consolidated Financial Statements 33

 

 27 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of Glyeco, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of GlyEco, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses from operations, has negative operating cash flows during the year ended December 31, 2017, has an accumulated deficit of $41,996,598 as of December 31, 2017 and is dependent on its ability to raise capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these factors are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for our Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KMJ Corbin & Company LLP

 

We have served as the Company’s auditor since 2015.

 

Costa Mesa, California
April 2, 2018

 

 28 

 

 

GLYECO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2017 and 2016

 

 

 

   December 31,   December 31, 
   2017   2016 
         
ASSETS          
Current Assets          
Cash  $111,302   $1,413,999 
Cash – restricted   6,642    76,552 
Accounts receivable, net   1,546,367    1,096,713 
Prepaid expenses   360,953    340,899 
Inventories   564,133    644,522 
Total current assets   2,589,397    3,572,685 
           
Property, plant and equipment, net   3,897,950    3,657,839 
           
Other Assets          
Deposits   436,450    387,035 
Goodwill   3,822,583    3,693,083 
Other intangibles, net   2,266,654    2,794,204 
Total other assets   6,525,687    6,874,322 
           
Total assets  $13,013,034   $14,104,846 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities          
Accounts payable and accrued expenses  $2,921,406   $961,010 
Due to related parties   -    6,191 
Contingent acquisition consideration   1,509,755    1,821,575 
Notes payable – current portion, net of debt discount   297,534    2,541,178 
Capital lease obligations – current portion   377,220    6,838 
Total current liabilities   5,105,915    5,336,792 
           
Non-Current Liabilities          
Notes payable – non-current portion   2,953,631    2,963,640 
Capital lease obligations – non-current portion   1,085,985    3,371 
Total non-current liabilities   4,039,616    2,967,011 
           
Total liabilities   9,145,531    8,303,803 
           
Commitments and Contingencies          
           
Stockholders’ Equity          
Preferred stock: 40,000,000 shares authorized; $0.0001 par value; no shares issued and outstanding as of December 31, 2017 and 2016   -    - 
Common stock: 300,000,000 shares authorized; $0.0001 par value; 165,288,061 and 126,156,189 shares issued and outstanding as of December 31, 2017 and 2016, respectively   16,529    12,616 
Additional paid-in capital   45,847,572    42,603,490 
Accumulated deficit   (41,996,598)   (36,815,063)
Total stockholders’ equity   3,867,503    5,801,043 
           
Total liabilities and stockholders’ equity  $13,013,034   $14,104,846 

 

See accompanying notes to the consolidated financial statements.

 

 29 

 

 

GLYECO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the years ended December 31, 2017 and 2016

 

 

 

   Years Ended December 31, 
   2017   2016 
         
Net sales  $12,072,686   $5,591,087 
Cost of goods sold   10,444,573    5,283,054 
Gross profit   1,628,113    308,033 
           
Operating expenses:          
Consulting fees   416,445    129,752 
Share-based compensation   523,613    1,064,086 
Salaries and wages   1,855,713    1,094,465 
Legal and professional   901,339    274,824 
Tank remediation   780,000     
General and administrative   1,486,624    929,348 
Total operating expenses   5,963,734    3,492,475 
           
Loss from operations   (4,335,621)   (3,184,442)
           
Other (income) and expense:          
Interest income       (372)
Loss on debt extinguishment   146,564     
Interest expense   684,429    25,876 
Loss on sale of equipment, net       89,666 
Gain on settlement of note payable       (15,000)
Total other expense, net   830,993    100,170 
           
Loss before provision (benefit) for income taxes   (5,166,614)   (3,284,612)
           
Provision (benefit) for income taxes   14,921    (1,020,052)
           
Net loss  $(5,181,535)  $(2,264,560)
           
Basic and diluted net loss per share  $(0.04)  $(0.02)
           
Weighted average common shares outstanding - basic and diluted   142,212,041    109,553,834 

 

See accompanying notes to the consolidated financial statements.

 

 30 

 

 

GLYECO, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended December 31, 2017 and 2016

 

       Additional       Total 
   Common Stock   Paid -In   Accumulated   Stockholders’ 
   Shares   Par Value   Capital   Deficit   Equity 
                     
Balance, December 31, 2015   72,472,412   $7,248   $37,720,608   $(34,550,503)  $3,177,353 
                          
Offering of common shares, net   37,475,620    3,746    2,933,046    -    2,936,792 
                          
Share-based compensation   10,583,157    1,059    1,063,027    -    1,064,086 
                          
Shares issued in connection with business combination   5,625,000    563    561,937    -    562,500 
                          
Relative fair value of warrants to purchase common stock issued in connection with promissory notes   -    -    324,872    -    324,872 
                          
Net loss   -    -    -    (2,264,560)   (2,264,560)
                          
Balance, December 31, 2016   126,156,189    12,616    42,603,490    (36,815,063)   5,801,043 
                          
Offering of common shares, net   8,324,212    832    540,947    -    541,779 
                          
Share-based compensation   3,525,110    352    523,261    -    523,613 
                          
Notes payable and accrued interest converted into common stock in connection with rights offering   20,309,300    2,031    1,622,712    -    1,624,743 
                          
Notes payable and accrued interest converted into common stock   2,754,500    276    220,084    -    220,360 
                          
Exercise of warrants   4,218,750    422    337,078    -    337,500 
                          
Net loss   -    -    -    (5,181,535)   (5,181,535)
                          
Balance, December 31, 2017   165,288,061   $16,529   $45,847,572   $(41,996,598)  $3,867,503 

 

See accompanying notes to the consolidated financial statements.

 

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GLYECO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2017 and 2016

 

   Years Ended December 31, 
   2017   2016 
         
Cash flows from operating activities          
Net loss  $(5,181,535)  $(2,264,560)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   508,655    273,162 
Amortization   527,550    85,329 
Share-based compensation expense   523,613    1,064,086 
Amortization of debt discount   205,180    - 
Loss on debt extinguishment   146,564    - 
Gain on reversal of contingent acquisition consideration   (241,910)   - 
Provision for bad debt   123,747    38,409 
Gain on settlement of note payable   -    (15,000)
Loss on disposal of equipment   103,139    97,841 
Income tax benefit related to WEBA acquisition   -    (1,030,000)
Changes in operating assets and liabilities, net of effects from acquisitions           
Accounts receivable   (573,401)   155,480 
Prepaid expenses   222,812    164,332 
Inventories   80,389    (263,733)
Deposits   (49,415)   (360,347)
Accounts payable and accrued expenses   2,045,499    (914,177)
Due to related parties   (6,191)   (28,214)
           
Net cash used in operating activities   (1,565,304)   (2,997,392)
           
Cash flows from investing activities          
Cash paid for acquisitions, net of cash received   (129,500)   (96,754)
Cash – restricted   -    (76,552)
Purchase of property, plant and equipment   (735,250)   (2,209,665)
Net cash used in investing activities   (864,750)   (2,382,971)
           
Cash flows from financing activities          
Repayment of notes payable   (1,204,918)   (142,491)
Repayment of capital lease obligations   (247,004)   (9,754)
Proceeds from sale-leaseback   1,700,000    - 
Proceeds from exercise of warrants   337,500    - 
Proceeds for issuance of notes payable, net of offering costs   -    2,733,128 
Proceeds from the sale of common stock, net   541,779    2,936,792 
Net cash provided by financing activities   1,127,357    5,517,675 
           
Net change in cash   (1,302,697)   137,312 
           
Cash at the beginning of the year   1,413,999    1,276,687 
           
Cash at end of the year  $111,302   $1,413,999 
           
Supplemental disclosure of cash flow information          
Interest paid during the year  $182,142   $25,876 
Income taxes paid during the year  $14,921   $9,948 
           
Supplemental disclosure of non-cash items          
Acquisition of equipment with notes payable  $116,655   $436,081 
Acquisition of equipment included in accounts payable  $-   $58,950 
Acquisition of equipment with capital lease obligation  $1,700,000   $- 
Notes payable issued in connection with business combination  $-   $2,650,000 
Notes payable and accrued interest converted into shares of common stock  $1,845,103   $- 
Common stock issued in connection with business combination  $-   $562,500 
Relative fair value of warrants to purchase common stock issued in connection with promissory notes  $-   $324,872 
Reduction in contingent acquisition liability through restricted cash  $69,910   $- 
Note payable proceeds committed and held in escrow  $-   $50,000 
Note payable issued for various insurance premiums  $242,866   $- 

 

See accompanying notes to the consolidated financial statements.

 

 32 

 

 

GLYECO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

 

 

NOTE 1 – Organization and Nature of Business

 

GlyEco, Inc. (the “Company”, “we”, or “our”) is a developer, manufacturer and distributor of performance fluids for the automotive, commercial and industrial markets. We specialize in coolants, additives and complementary fluids. We believe our vertically integrated approach, which includes formulating products, acquiring feedstock, managing facility construction and upgrades, operating facilities, and distributing products through our fleet of trucks, positions us to serve our key markets and enables us to capture incremental revenue and margin throughout the process. Our network of facilities, develop, manufacture and distribute high quality products that meet or exceed industry quality standards, including a wide spectrum of ready to use antifreezes and additive packages for antifreeze/coolant, gas patch coolants and heat transfer fluid industries, throughout North America. 

 

On December 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries, and purchased 96.9% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology. On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation (“UCC”), a wholly-owned subsidiary of The Dow Chemical Company, located in Institute, West Virginia (the “Dow Assets”). During the first quarter of fiscal year 2017, the Company purchased an additional 2.9% of RS&T (for a total percentage ownership of 99.8% of RS&T).

 

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

 

We are currently comprised of the parent corporation GlyEco, Inc., WEBA, RS&T, and our acquisition subsidiaries that were formed to acquire the processing and distribution centers listed above. Our current processing and distribution centers are held in six subsidiaries under the names 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, 2017 have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses from operations, has negative operating cash flows during the year ended December 31, 2017, has an accumulated deficit of $41,996,598 as of December 31, 2017 and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Ultimately, we plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

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

 

Basis of Presentation

 

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

 

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Principles of Consolidation

 

These consolidated financial statements include the accounts of GlyEco, Inc., and its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions have been eliminated as a result of consolidation.

 

Noncontrolling Interests

The Company recognizes noncontrolling interests as equity in the consolidated financial statements separate from the parent company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to noncontrolling interests is included in consolidated net income (loss) on the face of the consolidated statements of operations. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

 

The Company provides either in the consolidated statements of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

 

(1)Net income or loss
(2)Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners.
(3)Each component of other comprehensive income or loss

 

Noncontrolling interests were not significant as of December 31, 2017 and 2016

 

Operating Segments

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the segment. Operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, among other criteria. Prior to the December 2016 acquisitions of WEBA, RS&T and the DOW Assets and through December 31, 2016, the Company operated as one business segment. Effective as of January 1, 2017, the Company conducts its operations in two business segments: the Consumer and Industrial segments (see Note 15).

 

Use of Estimates

 

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

 

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Revenue Recognition

 

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

 

Costs

 

Cost of goods sold includes all direct material and labor costs and those indirect costs of bringing raw materials to sale condition, including depreciation of equipment used in manufacturing and shipping and handling costs. Selling, general and administrative costs are charged to operating expenses as incurred. Research and development costs, which are expensed as incurred and are included in operating expenses, were insignificant in the years ended December 31, 2017 and 2016. Advertising costs are expensed as incurred.

 

Accounts Receivable

 

Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s willingness or ability to pay, the Company’s compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the consolidated statements of operations. The allowance for doubtful accounts totaled $213,136 and $80,207 as of December 31, 2017 and 2016, respectively.

 

Inventories

 

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

 

Property, Plant and Equipment

 

Property, plant and equipment is stated at cost. The Company provides for depreciation on the cost of its equipment using the straight-line method over an estimated useful life, ranging from three to twenty years, and zero salvage value. Expenditures for repairs and maintenance are charged to expense as incurred.

 

For purposes of computing depreciation, the useful lives of property, plant and equipment are as follows:

 

Leasehold improvements    Lesser of the remaining lease term or 5 years 
     
Machinery and equipment    3-15 years

 

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Goodwill and Other 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 transaction. Intangible assets that we acquire are recognized separately if they arise from contractual or other legal rights or if they are separable and are recorded at fair value less accumulated amortization. We analyze intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and period at least at each balance sheet date. The effects of any revision are recorded to operations when the change arises. We recognize impairment when the estimated undiscounted cash flows generated by those assets is less than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets.

 

Goodwill is recorded as the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the net identifiable assets acquired. We do not amortize goodwill; however, we annually, or whenever there is an indication that goodwill may be impaired, evaluate qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the assets exceeds fair value. Any future increases in fair value would not result in an adjustment to the impairment loss that may be recorded in our consolidated financial statements. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Based on our analysis, no impairment loss of goodwill was recorded in 2017 and 2016 as the carrying amount of the reporting unit’s assets did not exceed the estimated fair value determined.

 

Impairment of Long-Lived Assets

 

Property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

The Company classified its contingent acquisition consideration liability in connection with the acquisition of WEBA within the Level 3 category, as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. At the time of the acquisition, the Company estimated the fair value of the contingent consideration liability, which consisted of revenue and net income based milestones, using assumptions including estimated revenues (based on internal budgets and long-range strategic plans), discount rates, probability of payment and projected payment dates. Any change in these assumptions could result in a significantly higher (lower) fair value measurement. The fair value of the contingent consideration was remeasured each reporting period. During the fourth quarter of 2017, the Company reversed $241,910 of the contingent consideration liability since the 2017 milestones were not met. There were no other changes to the estimated fair value of the contingent acquisition consideration liability during the year ended December 31, 2017.

 

Deferred Financing Costs, Debt Discount and Detachable Debt-Related Warrants

 

Costs incurred in connection with debt are deferred and recorded as a reduction to the debt balance in the accompanying consolidated balance sheets. The Company amortizes debt issuance costs over the expected term of the related debt using the effective interest method. Debt discounts relate to the relative fair value of warrants issued in conjunction with the debt and are also recorded as a reduction to the debt balance and amortized over the expected term of the debt to interest expense using the effective interest method.

 

Net Loss per Share Calculation

 

The basic net loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding during a period. Diluted loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding plus potentially dilutive securities. The Company’s potentially dilutive securities outstanding are not shown in a diluted net loss per share calculation because their effect in both 2017 and 2016 would be anti-dilutive. At December 31, 2017, these potentially dilutive securities included warrants to purchase 5,310,624 shares of Common Stock and stock options to purchase 3,387,621 shares of Common Stock for a total of 8,698,245 shares of Common Stock. At December 31, 2016, these potentially dilutive securities included warrants to purchase 13,922,387 shares of Common Stock and stock options to purchase 7,950,093 shares of Common Stock for a total of 21,872,480 shares of Common Stock.

 

Income Taxes

 

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

 

 37 

 

 

Share-based Compensation

 

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

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public companies. Companies will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company will adopt ASU 2014-09 effective in its first quarter of fiscal year 2018 utilizing the modified retrospective approach.

 

In May 2014, the FASB and International Accounting Standards Board formed The Joint Transition Resource Group for Revenue Recognition ("TRG"), consisting of financial statement preparers, auditors and users, to seek feedback on potential issues related to the implementation of the new revenue standard. As a result of feedback from the TRG, the FASB issued additional guidance to provide clarification, implementation guidance and practical expedients to address some of the challenges of implementation. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which is an amendment on assessing whether an entity is a principal or an agent in a revenue transaction. This amendment addresses issues to clarify the principal versus agent assessment and lead to more consistent application. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarity and implementation guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The new standards have the same effective date and transition requirements as ASU 2014-09. The Company will adopt the new standard using the modified retrospective approach, under which the cumulative effect of initially applying the new guidance will be recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2018. The Company does not anticipate any adjustments based on the nature of its business.

 

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In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating ASU 2016-02, the Company expects the adoption of ASU 2016-02 will not have a material effect on the Company’s consolidated financial condition due to the recognition of the lease rights and obligations as assets and liabilities. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The Company has not yet selected a transition method and is currently assessing the impact of adoption of ASU 2016-02 will have on the consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Classification Restricted Cash”, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017 with early adoption permitted. The Company expects the implementation of this standard to have an impact on the Company’s consolidated financial statements and related disclosures as the Company had restricted cash on its balance sheet of $6,642 as of December 31, 2017, and currently does not present the amount as a cash equivalent in its consolidated statements of cash flows.

 

In January 2017, the FASB, issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Goodwill impairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company has adopted the provisions in this ASU for its annual goodwill impairment test during 2017.

 

NOTE 3 – Accounts Receivable

 

As of December 31, 2017 and 2016, the Company’s net accounts receivable were $1,546,367 and $1,096,713, respectively.

 

The following table summarizes activity for the allowance for doubtful accounts for the years ended December 31, 2017 and 2016:

 

   2017   2016 
Beginning balance as of January 1,  $80,207   $203,270 
Bad debt expense   123,747    38,409 
Charge offs, net   9,182    (161,472)
Ending balance as of December 31,  $213,136   $80,207 

 

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NOTE 4 – Inventories

 

As of December 31, 2017 and 2016, the Company’s total inventories were as follows:

 

December 31,  2017   2016 
Raw materials  $241,297   $221,088 
Work in process   69,991    172,142 
Finished goods   252,845    251,292 
Total inventories  $564,133   $644,522 

 

NOTE 5 – Property, Plant and Equipment

 

As of December 31, 2017 and 2016, the property, plant and equipment, net of accumulated depreciation, is as follows:

 

December 31,  2017   2016 
Machinery and equipment  $4,782,257   $4,154,305 
Leasehold improvements   275,973    126,598 
Accumulated depreciation   (1,335,615)   (927,909)
    3,722,615    3,352,994 
Construction in process   175,335    304,845 
Total property, plant and equipment  $3,897,950   $3,657,839 

 

Depreciation expense recorded during the years ended December 31, 2017 and 2016 was $508,655 and $273,162, respectively.

 

 NOTE 6 – Goodwill and Other Intangible Assets

 

The components of goodwill and other intangible assets are as follows (See Note 10 for 2016 business combinations).

 

      Gross
Balance at
       Net
Balance at
           Net
Balance
at
 
   Estimated  December 31,   Accumulated   December 31,       Accumulated   December 31, 
   Useful Life  2016   Amortization   2016   Additions   Amortization   2017 
Finite live intangible assets:                                 
Customer list and tradename  5 years  $987,500   $(26,296)  $961,204   $-   $(226,046)  $761,454 
                                  
Non-compete agreements  5 years   1,199,000    (246,000)   953,000    -    (485,800)   713,200 
                                  
Intellectual property  10 years   880,000    -    880,000    -    (88,000)   792,000 
                                  
Total intangible assets     $3,066,500   $(272,296)  $2,794,204   $-   $(799,846)  $2,266,654 
                                  
Goodwill  Indefinite  $3,693,083   $-   $3,693,083   $129,500   $-   $3,822,583 

 

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.

 

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Aggregate amortization expense included in general and administrative expenses for the years ended December 31, 2017 and 2016 totaled $527,550 and $85,329, respectively. The following table represents the total estimated amortization of intangible assets for future years:

 

For the Year Ending December 31,  Estimated
Amortization
Expense
 
     
2018  $478,154 
2019   454,000 
2020   454,000 
2021   440,500 
2022   88,000 
Thereafter   352,000 
   $2,266,654 

 

NOTE 7 – Income Taxes

 

As of December 31, 2017 and 2016, there was a provision (benefit) for income taxes of $14,921 and ($1,020,052), respectively. The amount as of December 31, 2017 includes the expected state income taxes for the states in which our subsidiaries operate. As of December 31, 2016, the $1,020,052 provision primarily consists of the income tax benefit, under purchase accounting, for the valuation allowance on one of the acquisitions we made in December 2016.

 

There is no provision for federal income taxes because we have historically incurred operating losses and we maintain a full valuation allowance against our net deferred tax asset; however, there is a provision for state income taxes for states in which our subsidiaries operate. As of December 31, 2017 and 2016, the provision for state income taxes was $14,921 and $600, respectively.

 

The provision (benefit) for income taxes is as follows for the years ended December 31, 2017 and 2016:

 

   Year Ended December 31, 
   2017   2016 
Income tax expense (benefit) at statutory federal rate          
Current:          
Federal  $-   $(1,020,652)
State   14,921    600 
Total current   14,921    (1,020,052)
Deferred:          
Federal   -    1,573,163 
State   -    375,291 
Change in valuation allowance   -    (1,948,454)
Total deferred   -    - 
Provision (benefit) for income taxes  $14,921   $(1,020,052)

 

The differences between our effective income tax rate and the U.S. federal income tax rate for the years ended December 31, 2017 and 2016 are:

 

   2017   2016 
Expected income tax provision at the federal statutory rate   34.0%   34.0%
Loss on debt extinguishment   0.96%   - 
Change in contingent liability   (1.59)%   - 
Impact of the change in the federal corporate rate   (80.16)%   - 
Adjustment for forfeiture of non-qualified stock options   (5.58)%   (27)%
Other   (0.30)%   - 
Release of valuation allowance   52.42%   32.0%
Total   (0.25)%   39.0%
Valuation allowance   -    (7)%
Effective tax rate   (0.25)%   32.0%

 

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As of December 31, 2017 and 2016, the Company had net operating loss (NOL) carryforwards of approximately $34,603,000 and $31,373,000, respectively, adjusted for 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 2037. 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, 2017 and 2016 to reduce the tax benefit asset value to zero.

 

The deferred tax assets, including a valuation allowance, are as follows at December 31:

 

   Year Ended December 31, 
   2017   2016 
Deferred tax assets:          
           
Net operating loss carryforwards  $8,997,000   $12,323,000 
Stock compensation   243,000    635,000 
Reserves and accruals   241,000    84,000 
Deferred tax asset (DTA)   9,481,000    13,042,000 
Basis difference in intangibles and fixed assets   (603,000)   (1,176,000)
Deferred tax liability (DTL)   (603,000)   (1,176,000)
Net operating loss   8,878,000    11,866,000 
Valuation allowance   (8,878,000)   (11,866,000)
Net current deferred tax assets  $-   $- 

 

The change in the valuation allowance for deferred tax assets for the years ended December 31, 2017 and 2016 was $2,988,000 and $810,000, 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, 2017 and 2016, and recorded a full valuation allowance.

 

Pursuant to Section 382 of the Internal Revenue Code of 1986, the annual utilization of a company's net operating loss carryforwards could be limited if the Company experiences a change in ownership of more than 50 percentage points within a three-year period. An ownership change occurs with respect to a corporation if it is a loss corporation on a testing date and, immediately after the close of the testing date, the percentage of stock of the corporation owned by one or more five-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of such corporation owned by such shareholders at any time during the testing period. The Company has not performed an analysis to determine if any ownership changes have occurred that may limit the use of the Company’s loss carryforwards.

 

The Company applies the provisions of ASC 740 related to accounting for uncertain tax positions and concluded there were no such positions associated with the Company requiring accrual of a liability. As of December 31, 2017, the Company has not accrued for any such positions. The Company is currently not under audit for federal or state tax purposes. The Company does not expect a significant change to occur within the next 12 months.

 

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In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvement to Employee Share - Based Payment Accounting”. The standard contains several amendments that simplifies the accounting for employee share-based payment transactions. The changes in the new standard eliminated the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in income tax provision or in additional paid-in capital. The Company's deferred tax assets as of December 31, 2017 did not include any excess tax benefits from employee stock option exercises, which are a component of the federal and state net operating loss carryforwards and on a go forward basis the excess tax benefits will be recognized as a component of income tax expense.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Act"). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January 1, 2018. As a result of the rate reduction, the Company has reduced the deferred tax asset balance as of December 31, 2017 by $4.2 million. Due to the Company's full valuation allowance position, there was no net impact on the Company's income tax provision at December 31, 2017 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance.

 

In conjunction with the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities at December 31, 2017. There was no net impact on the Company's consolidated financial statements for the year ended December 31, 2017 as the corresponding adjustment was made to the valuation allowance. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act.

 

NOTE 8 – Notes Payable

 

Notes payable consist of the following:

 

   December 31, 2017   December 31, 2016 
2017 Secured Note  $104,990   $- 
2017 Unsecured Note   188,060    - 
2016 Secured Notes   308,115    396,562 
2016 5% Related Party Unsecured Notes   -    1,000,000 
2016 8% Related Party Unsecured Notes   -    1,458,256 
2016 WEBA Seller Notes   2,650,000    2,650,000 
Total notes payable   3,251,165    5,504,818 
Less current portion   (297,534)   (2,541,178)
Long-term portion of notes payable  $2,953,631   $2,963,640 

 

2017 Secured Note

 

In July 2017, the Company entered into a secured promissory note with PACCAR Financial (the “2017 Secured Note”). The 2017 Secured Note is collateralized by vehicles. The key terms of the 2017 Secured Note includes: (i) an original principal balance of $116,655, (ii) interest rate of 7.95%, and (iii) a term of 5 years.

 

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2017 Unsecured Note

 

In October 2017, the Company entered into an unsecured note with Bank Direct to finance its insurance premiums (the “2017 Unsecured Note”). The key terms of the 2017 Unsecured Note include: (i) an original principal balance of $242,866, (ii) an interest rate of 5.4%, and (iii) a term of ten months. If the Company should default on the loan, Bank Direct may cancel the Company’s underlying insurance and the Company would only owe any earned but unpaid premium. This would be a minimal amount as deposits and payments are paid in advance to reduce the lenders risk.

 

2016 Secured Notes

 

In January and April 2016, the Company entered into secured promissory notes with Ascentium Capital. In July and September 2016, the Company entered into secured promissory notes with PACCAR Financial. In November 2016, the Company entered into secured promissory notes with MHC Financial Services, Inc. (collectively, the “2016 Secured Notes”). The key terms of the 2016 Secured Notes include: (i) an aggregate original principal balance of $437,000, (ii) interest rates ranging from 4.0% to 9.0%, and (iii) terms of 4-5 years. The 2016 Secured Notes are collateralized by vehicles and equipment.

 

2016 Related Party Unsecured Notes

 

5% Notes Issuance

 

On December 27, 2016, the Company entered into a subscription agreement (the “5% Notes Subscription Agreement”) by and between the Company and various funds managed by Wynnefield Capital. Pursuant to the 5% Notes Subscription Agreement, the Company offered and issued $1,000,000 in principal amount of 5% Senior Unsecured Promissory Notes (the “5% Notes”). The Company received $1,000,000 in gross proceeds from the offering. The 5% Notes were scheduled to mature on May 31, 2017 (the “5% Note Maturity Date”). The 5% Notes bore interest at a rate of 5% per annum due on the 5% Note Maturity Date or as otherwise specified by the 5% Notes. On April 17, 2017, the Company repaid the 5% Notes in full.

 

8% Notes Issuance

 

On December 27, 2016, the Company entered into subscription agreements (the “8% Notes Subscription Agreements”) by and between the Company and certain accredited investors. Pursuant to the 8% Notes Subscription Agreements, the Company offered and issued: (i) $1,810,000 in principal amount of 8% Senior Unsecured Promissory Notes (the “8% Notes”); and (ii) warrants (the “Warrants”) to purchase up to 5,656,250 shares of Common Stock. The Company received $1,810,000 in gross proceeds from the offering of which $1,760,000 was received in 2016 and $50,000 was accrued as an other current asset at December 31, 2016 and received in 2017. The 8% Notes were scheduled to mature on December 27, 2017 (the “8% Note Maturity Date”). The 8% Notes bore interest at a rate of 8% per annum due on the 8% Note Maturity Date or as otherwise specified by the 8% Note. The Company also incurred $26,872 of issuance costs, which were recorded as a debt discount and were amortized as interest expense through the 8% Note Maturity Date. The Warrants are exercisable for an aggregate of 5,656,250 shares of Common Stock, beginning on December 27, 2016, and will be exercisable for a period of three years. The exercise price with respect to the Warrants is $0.08 per share. The exercise price and the amount of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other similar issuances. On August 4, 2017, the Company redeemed $1,550,000 of the 8% Notes through the issuance of Common Stock through the rights offering that closed on August 4, 2017. On August 10, 2017, the Company repaid the remaining $260,000 of 8% Notes through a conversion of debt and the issuance of Common Stock and a cash repayment.

 

The Company allocated the proceeds received to the 8% Notes and the Warrants on a relative fair value basis at the time of issuance. The estimated fair value of the Warrants was computed using the BSM with the following assumptions: 3 year expected term; volatility of 110.09% and a risk-free rate of 1.58%. The total debt discount was amortized over the life of the 8% Notes to interest expense. Amortization expense during 2017 was $205,180. On the date the debt was converted into common stock or repaid, the remaining unamortized debt discount was expensed and recorded as a loss on debt extinguishment. The Company recorded $146,564 of loss on debt extinguishment during the year ended December 31, 2017.

 

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WEBA Seller Notes

 

In connection with the WEBA acquisition (see Note 10), the Company issued $2.65 million in 8% promissory notes (“Seller Notes”). The Seller Notes mature on December 27, 2021. The Seller Notes bear interest at a rate of 8% per annum payable on a quarterly basis in arrears. The Seller Notes contain standard default provisions, including: (i) failure to repay the Seller Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of default.

 

NOTE 9 – Stockholders’ Equity

 

Preferred Stock

 

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

 

As of December 31, 2017 and 2016, the Company had no shares of preferred stock outstanding. 

 

Common Stock

 

As of December 31, 2017, the Company has 165,288,061 shares of common stock, par value $0.0001, outstanding. The Company’s articles of incorporation authorize the Company to issue up to 300,000,000 shares of common stock. The holders are entitled to one vote for each share on matters submitted to a vote to shareholders, and to share pro rata in all dividends payable on common stock after payment of dividends on any shares of preferred stock having preference in payment of dividends.

 

During the year ended December 31, 2017, the Company issued the following shares of common stock in connection with financing activities:

 

On August 10, 2017, the Company announced the closing of its rights offering, which expired on August 4, 2017, and raised aggregate gross proceeds of approximately $2.29 million, including $670,000 in cash and $1.6 million in conversion of previously issued 8% notes payable and accrued interest (see Note 8), from the sale of 28.6 million shares of common stock at a price of $0.08 per share. The Company had approximately $0.1 million of costs associated with the offering netted against the cash proceeds. The rights offering was made pursuant to a registration statement on Form S-1 (No. 333-215941) and prospectus on file with the SEC. The Company used the net proceeds for general working capital purposes.

 

The Company also extinguished the remaining 8% promissory notes issued in December 2016 through the conversion of indebtedness into shares of its common stock at a per share price of $0.08 and cash repayment. The Company issued 2,754,500 shares for the conversion of a total of $220,360 in principal and accrued interest and repaid the remaining balance in cash in the full amount of $52,467 of principal and accrued interest. As a result of these transactions, the previously issued 8% notes payable have been extinguished in full.

 

Equity Incentive Program

 

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

  

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During the year ended December 31, 2017, the Company issued the following shares of common stock for compensation:

 

During the year ended December 31, 2017, the Company issued an aggregate of 730,126 shares of common stock to employees of the Company pursuant to the Company’s Equity Incentive Program at prices ranging from $0.08 to $0.12.

 

During the year ended December 31, 2017, the Company issued an aggregate of 2,634,984 shares of common stock to directors of the Company pursuant to the Company’s Fiscal Year 2017 Director Compensation Plan at prices ranging from $0.077 to $0.12.

 

On February 13, 2017, the Company issued an aggregate of 160,000 shares of common stock to two employees of the Company as compensation at a price of $0.125 per share.

 

During the year ended December 31, 2017, the Company issued the following shares of common stock in connection with the exercise of warrants:

 

On May 11, 2017, the Company issued an aggregate of 3,437,500 shares to accredited investors in connection with the exercise of warrants at an exercise price of $0.08 per share.

 

On August 10, 2017, the Company issued an aggregate of 781,250 shares to accredited investors in connection with the exercise of warrants at an exercise price of $0.08 per share.

  

The following table summarizes the number of shares of Common Stock issued by the Company for cash, conversion of notes payable, for share-based compensation and upon the exercise of warrants for the year ended December 31, 2017:

 

   Number of Shares
of Common
Stock Issued
   Value 
Shares of Common Stock for cash and conversions of notes payable, net of
offering costs
   28,633,512   $2,166,522 
Share-based compensation   3,525,110   $335,144 
Exercise of warrants   4,218,750   $337,500 

 

For the year ended December 31, 2016, the Company issued the following shares of Common Stock: 

 

   Number of Shares
of Common
Stock Issued
   Value 
Shares of Common Stock for cash, net of offering costs   37,475,620   $2,936,792 
Share-based compensation   10,583,157   $423,783 

 

Performance and/or market based stock awards

 

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

 

The initial value of the restricted stock grant was approximately $38,000, as adjusted for forfeitures resulting from directors who have resigned, which will be amortized over the estimated service period. The Company recorded an expense of $15,871 and $30,793 from the amortization of the unvested restricted shares for the years ended December 31, 2017 and 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 88.0% volatility and a risk-free interest rate of 1.79%.

 

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

 

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

 

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

 

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

 

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

 

The initial value of the restricted stock grant was approximately $198,000, which was amortized over the estimated service period. The Company recorded an expense of $23,658 and $22,409 from the amortization of the unvested restricted shares for the years ended December 31, 2017 and 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 91.0% volatility and a risk-free interest rate of 1.34%. In December 2016, in conjunction with the resignation of the President, the Board of Directors modified the terms of the President’s award of 1,100,453 shares to provide for an expiration date of December 2017. The Company revalued this award based on the new terms and determined the value of the award was approximately $18,000, which was being amortized over the estimated service period.

 

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

 

The initial value of the restricted stock grant was $509,000, which has been amortized over the estimated performance period. The Company recorded the entire value as expense from the amortization of the restricted shares for the year ended December 31, 2016. The shares were valued using a Monte Carlo Simulation with a one-year life, 106.0% volatility and a risk free interest rate of 0.65%.

 

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

 

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

 

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

 

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

 

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

 

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The initial value of the restricted stock grant was approximately $94,000, which was to be amortized over the estimated service period. In December 2016, the then Chief Executive Officer resigned from the Company; therefore, any recognized expense was reversed and the expense recognized by the Company during the year ended December 31, 2016 was $0. In December 2016, the Board of Directors modified the terms of this award in conjunction with the resignation of the then Chief Executive Officer to provide for an expiration date of December 2017. The Company revalued this award based on the new terms and determined the value of the award was approximately $18,000, which was being amortized over the estimated service period.

 

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

 

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

 

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

 

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

 

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

 

The initial value of the restricted stock grant was approximately $141,000, which was being amortized over the estimated service period. Upon the termination of the then Vice President of Sales and Marketing on April 28, 2017, this grant was terminated and the Company reversed all previous expense and is no longer recording expense related to this award. The Company recorded income of $14,802 from the reversal of previous amortization of the unvested restricted shares for the year ended December 31, 2017. The shares were valued using a Monte Carlo Simulation with a 6-year life, 92.0% volatility and a risk-free interest rate of 1.35%.

 

In December 2016, the Board of Directors approved the issuance of 6,790,000 restricted shares of Common Stock of the Company. These shares will be issued to members of the Board of Directors and certain executives and employees upon vesting, which will occur when the price per share of the Company’s Common Stock, based upon a 30-trading day volume weighted average price (“VWAP”), is equal to at least $0.20 per share.

 

The initial value of the restricted stock grant was approximately $464,000, which is being amortized over the estimated service period. The Company recorded an expense of $91,087 and $5,967 from the amortization of the unvested restricted shares for the years ended December 31, 2017 and 2016, respectively. The shares were valued using a Monte Carlo Simulation with a 6-year life, 98.0% volatility and a risk free interest rate of 2.00%.

 

In June 2017, the Board of Directors approved the issuance of 1,000,000 restricted shares of Common Stock of the Company. The initial value of the restricted stock grant was $72,099, which is being amortized over the estimated service period. These shares will be issued to certain executives upon the Company meeting the following bench marks: 50% will vest when the price per share of the Company’s Common Stock, based upon a 30-trading day VWAP, is equal to at least $0.20 per share and 50% will vest when the price per share of the Company’s Common Stock, based upon a 30-trading day VWAP, is equal to at least $0.35 per share. The expense for the year ended December 31, 2017 was $7,671.

 

Throughout the year ended December 31, 2017, the Board of Directors approved the issuance of 2,200,000 restricted shares of Common Stock of the Company. The initial value of the restricted stock grant was $150,258, which is being amortized over the estimated service period. These shares will be issued to certain executives and employees upon vesting, which will occur when the price per share of the Company’s Common Stock, measured and approved based upon a 30-day trading VWAP, is equal to at least $0.20 per share. The expense for the year ended December 31, 2017 was $18,177.

 

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On December 29, 2017, the Board of Directors approved the issuance of 2,100,000 restricted shares of Common Stock of the Company. These shares will be issued to certain executives upon vesting: 50% of the grant upon the Company reporting its first quarter positive Adjusted EBITDA (as presented by the Company) and 50% of the grant upon the Company reporting its first quarter positive Net Income (GAAP). The value of the shares of $0.05 per share was based on the fair market value of the Company’s Common Stock on the date of the issuance was approved. The Company will expense the value of the shares when it determines it is probable the performance targets will be achieved. There was no expense recorded during the year ended December 31, 2017.

 

A summary of the Company's restricted stock awards (including shares approved but not issued) is presented below:

 

   Number of
Shares
   Weighted-
Average
Grant-Date
Fair Value
per Share
 
Unvested at January 1, 2017   12,691,084   $0.08 
Restricted stock granted   5,300,000    0.04 
Restricted stock vested        
Restricted stock forfeited   (4,211,586)   0.05 
           
Unvested at December 31, 2017   13,779,498   $0.08 

 

Options and Warrants

 

During the year ended December 31, 2017, the Company issued 4,218,750 shares of common stock in connection with the exercise of stock warrants at an exercise price of $0.08 per share for total proceeds of $337,500. During the year ended December 31, 2016, the Company did not have any exercises of stock warrants. (See Note 11 for additional information about stock options and warrants).

 

NOTE 10 – Business Combinations and Asset Acquisition

 

Brian’s On-Site Recycling

 

Effective June 26, 2016, the Company entered into an Asset Purchase Agreement with Brian’s On-Site Recycling, Inc., a Florida corporation (“BOSR”), and Brian Fidalgo, principal of BOSR (the “BOSR Principal”) and Former General Manager of our Florida processing center, pursuant to which the Company acquired certain assets of BOSR, primarily equipment and customer relationships for aggregate consideration of $200,000, of which $100,000 is subject to an earn out provision. The period of the earn out is expected to be over one year. Per the terms of the Asset Purchase Agreement, the Company placed $100,000 in an escrow account related to the earn out, which has been reflected as restricted cash in the accompanying consolidated balance sheets at December 31, 2017 and 2016. This acquisition expanded the Company’s customer base in Florida.

 

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

 

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The allocation of the purchase price is as follows:

 

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

  

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

 

WEBA

 

On December 27, 2016, the Company entered into a Stock Purchase Agreement (“WEBA SPA”) with WEBA, a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries. Pursuant to the WEBA SPA, the Company acquired all of the WEBA shares from the WEBA sellers for $150,000 in cash and $2.65 million in 8% Promissory Notes (see Note 8). In addition, the WEBA sellers may be entitled to receive earn-out payments of up to an aggregate of $2,500,000 for calendar years 2017, 2018, and 2019 based upon terms set forth in the WEBA SPA. The Company also issued 5,625,000 shares as repayment of $450,000 of notes payable due to the WEBA sellers. The fair market value of the shares was $0.10 on the date of issuance. Following the WEBA acquisition, WEBA became a wholly owned subsidiary of the Company.

 

We accounted for the acquisition of WEBA as required under applicable accounting guidance. Tangible assets acquired are recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired. The earn-out payments liability was recorded at its estimated fair value of $1,745,023.

 

During the year ended December 31, 2017, the Company decreased the contingent liability amount related to the cash payment and recognized a credit to operating expenses of $241,910 due to the fiscal 2017 revenue and earnings milestones not being met. Contingent acquisition consideration was $1,509,755 and $1,821,575 at December 31, 2017 and 2016, respectively.

 

Although management estimates that certain of the contingent consideration will be paid, it has applied a discount rate to the contingent consideration amounts in determining fair value to represent the risk of these payments not being made. The total acquisition date fair value of the consideration transferred and to be transferred is estimated at approximately $5.1 million, as follows:

 

Cash payment to the WEBA Sellers at closing  $150,000 
Common stock issuance to the WEBA Sellers   562,500 
Promissory notes to the WEBA Sellers   2,650,000 
Contingent cash consideration to the WEBA Sellers   1,745,023 
Total acquisition date fair value  $5,107,523 

 

Allocation of Consideration Transferred

 

The identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of December 27, 2016, the acquisition date of WEBA. The excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired was recorded as goodwill.

 

 50 

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

 

Cash  $172,950 
Accounts receivable   342,151 
Loan receivable from RS&T   500,000 
Property and equipment   8,720 
Customer list   470,000 
Intellectual property   880,000 
Trade name   390,000 
Non compete agreement   835,000 
Total identifiable assets acquired   3,598,821 
Accounts payable and accrued expenses   190,527 
Deferred tax liability   1,030,000 
Total liabilities assumed   1,220,527 
Total identifiable assets less liabilities assumed   2,378,294 
Goodwill   2,729,229 
      
Net assets acquired  $5,107,523 

 

The Company is amortizing the intangibles (excluding goodwill) over an estimated useful life of five to ten years. The Company will evaluate the fair value of the earn-out liability on a periodic basis and adjust the balance, with an offsetting adjustment to the income statement, as needed. The acquisition was considered to be significant. The Company has included the financial results of the WEBA acquisition in its consolidated financial statements from the acquisition date and the results from WEBA were not material to the Company’s consolidated financial statements for the year ended December 31, 2016.

 

Pro Forma Financial Information

 

The following table presents the Company’s unaudited pro forma results (including WEBA) for the year ended December 31, 2016 as though the companies had been combined as of the beginning of the year ended December 31, 2016. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the year ended December 31, 2016, nor is it indicative of results of operations which may occur in the future. The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.

 

   For the 
   Year Ended 
   December 31, 2016 
Total revenues  $7,683,545 
Net loss  $(2,667,016)

 

The Company did not incur material acquisition expenses related to the WEBA acquisition.

 

RS&T

 

On December 27, 2016 the Company purchased RS&T, a privately-owned company involved in the development and commercialization of glycol recovery technology. Pursuant to the Stock Purchase Agreement (“RS&T SPA”) the Company acquired 96.9% of the RS&T shares of common stock from the RS&T seller for $360 in cash consideration. In the first quarter of fiscal year 2017, the Company acquired an additional 2.9% of RS&T. The RS&T SPA provided that the Company would infuse the capital necessary to enable RS&T to exercise its contractual right to acquire the Dow Assets (see below). Following the RS&T acquisition, RS&T became a majority owned subsidiary of the Company.

 

We accounted for the acquisition of RS&T as required under applicable accounting guidance. RS&T had no ongoing operations or significant assets or liabilities. Tangible assets acquired are recorded at fair value. Identifiable intangible assets that we acquired are recognized separately if they arise from contractual or other legal rights or if they are separable, and are recorded at fair value. Goodwill is recorded as the excess of the consideration transferred over the fair value of the net identifiable assets acquired. The acquisition was not considered to be significant. The Company has included the financial results of the RS&T acquisition in its consolidated financial statements from the acquisition date and the results from RS&T were not material to the Company’s consolidated financial statements.

 

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The allocation of the purchase price is as follows:

 

Cash  $4,104 
Fixed assets   21,369 
Deposit   862,500 
Accounts payable   (103,672)
Loan from WEBA   (500,000)
Loan from GlyEco   (362,500)
Goodwill   78,559 
Total  $360 

 

DOW Asset Acquisition

 

On December 28, 2016, the Company purchased the Dow Assets through its 96.9% owned subsidiary RS&T, pursuant to an amended and restated asset transfer agreement (the “UCC Asset Transfer Agreement”), by and between RS&T and UCC, dated August 23, 2016, and as amended on December 1, 2016 (the “UCC Acquisition”). Pursuant to the UCC Asset Transfer Agreement, RS&T acquired the Dow Assets for a purchase price of $1,725,000.

 

In connection with the purchase of the Dow Assets, the Company also purchased inventory of approximately $422,000.

 

 The Dow Assets are located at the Dow Institute Site in Institute, West Virginia, which produce virgin quality glycol for sale to industrial customers worldwide. The facility currently produces antifreeze and industrial grade ethylene glycol. The facility includes five distillation columns, three wiped-film evaporators, heat exchangers, processing and storage tanks, and other processing equipment. The facility’s tanks include feedstock storage capacity of several million gallons and finished goods storage capacity of several million gallons. The plant is equipped with rail and truck unloading/loading facilities, and on-site barge loading/unloading facilities.

 

The Company treated the acquisition of the Dow Assets as an asset purchase. In determining that the acquisition of the Dow Assets is an asset purchase, we considered, among other factors, (1) the Dow Assets were part of a larger group of assets and as such we are unable to determine all historical revenues and certain expenses associated with the Dow Assets, (2) we plan to change the nature of the revenue-generating activities post acquisition and (3) we expect certain attributes related to the Dow Assets to change post acquisition, including, market distribution system, sales force, customer base, and trade names.

 

 NOTE 11 – Options and Warrants

 

The following are details related to options issued by the Company:

 

       Weighted   Weighted Avg.
Remaining
     
   Options for   Average   Contractual   Aggregate 
   Shares   Exercise Price   Life (yrs)   Intrinsic Value 
                 
Outstanding as of January 1, 2017   7,950,093   $0.69    6      
Granted   -    -    -      
Exercised   -    -    -      
Forfeited   -    -    -      
Expired   (4,562,472)   0.66    -      
Outstanding as of December 31, 2017   3,387,621   $0.73    5   $- 
Options exercisable as of December 31, 2017   3,387,621   $0.73    5   $- 

 

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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 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.

 

There were no options granted during the year ended December 31, 2017. The estimated value of employee stock options granted during the year ended December 31, 2016 was determined using the BSM option pricing model with the following assumptions: 

 

   Year ended
December 31,
2016
 
Expected volatility   100%
Risk-free interest rate   1.90%
Expected dividends   0.00%
Expected term in years   3 – 5 

 

At December 31, 2017, there is no amount of unearned stock-based compensation currently estimated to be expensed over future years related to unvested common stock options. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.

 

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The following are details related to warrants issued by the Company:

  

       Weighted 
   Warrants for   Average 
   Shares   Exercise Price 
         
Outstanding as of January 1, 2017   13,922,387   $0.61 
Granted   -   $- 
Exercised   (4,218,750)  $0.07 
Forfeited   -   $- 
Cancelled   -   $- 
Expired   (4,393,013)  $0.88 
Outstanding and exercisable as of December 31, 2017   5,310,624   $0.80 

 

The Company recorded expense of $7,500 and $64,552 for vesting of outstanding options and warrants during the years ended December 31, 2017 and 2016, respectively.

 

As of December 31, 2017, the Company had 846,770 shares of common stock reserved for future issuance under the Company’s stock plans. 

 

There were no warrants granted during the year ended December 31, 2017.

 

The weighted-average estimated fair value of warrants granted during the year ended December 31, 2016 was estimated using the BSM option pricing model with the following assumptions:

 

   Year Ended December 31, 
   2016 
Expected volatility   110.1%
Risk-free interest rate   1.58%
Expected dividends   0.00%
Expected term in years   3 

 

NOTE 12 – Related Party Transactions

 

Former Vice President of U.S. Operations

 

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

 

   2017   2016 
Beginning Balance as of January 1,  $5,123   $5,972 
Monies owed to related party for services performed   126,059    98,196 
Monies paid   (131,182)   (99,045)
Ending Balance as of December 31  $-   $5,123 

 

5% Notes

 

On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,000,000 from the offering and issuance of 5% Notes to Wynnefield Partners I, Wynnefield Partners and Wynnefield Offshore, all of which are under the management of Wynnefield Capital, Inc (“Wynnefield Capital”), an affiliate of the Company. The Company’s Chairman of the Board, Dwight Mamanteo, is a portfolio manager of Wynnefield Capital. (See Note 8 for additional information).

 

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8% Notes

 

On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,810,000 from the offering and issuance of 8% Notes and warrants to purchase up to 5,656,250 shares of our common stock. The 8% Notes and warrants were sold to Dwight Mamanteo, our Chairman of the Board, Charles F. Trapp and Scott Nussbaum, members of the Board, Ian Rhodes, our Chief Executive Officer, Wynnefield Capital, an affiliate of the Company, and certain family members of Mr. Mamanteo and of Mr. Nussbaum. (See Note 8 for additional information).

 

NOTE 13 – Commitments and Contingencies

 

Rental Agreements

 

During the years ended December 31, 2017 and 2016, the Company leased office and warehouse space on a monthly basis under written rental agreements. The terms of these agreements range from several months to five years. The 2017 monthly rental payments ranged from $818 to $4,600.

 

For the years ended December 31, 2017 and 2016, the Company’s rent expense was $459,619 and $291,867, respectively.

 

Future minimum lease payments due are as follows:

 

Year Ended December 31,    
2018  $316,637 
2019   304,147 
2020   295,986 
2021   258,531 
2022   103,114 
Thereafter   236,326 
Total minimum lease payments  $1,514,741 

 

Litigation

 

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

 

 

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relates to an outstanding balance alleged to be due to PSP Falcon from the Company in an amount of $530,633 related to certain construction expenses. The Company believes it has paid PSP Falcon in full for the services rendered and therefore that no outstanding balance remains due. Accordingly, the Company plans to vigorously defend itself from this claim.

 

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Environmental Matters

 

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

 

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

 

NOTE 14 – 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 – Financial instruments that subject the Company to credit risk are cash balances maintained in excess of federal depository insurance limits.  At December 31, 2017 and 2016, the Company had $0 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 the years ended December 31, 2017 and 2016, the Company had one customer that accounted for 15% and 33%, respectively, of revenues and two customers whose accounts receivable balance (unsecured) accounted for 29% and 36%, respectively, of accounts receivable at December 31, 2017 and 2016.

 

NOTE 15 – Segments

 

Prior to our acquisitions of WEBA, RS&T and the Dow Assets in December 2016, the Company operated in only one business segment, the Consumer segment. Effective as of January 1, 2017, GlyEco conducts its operation in two business segments: the Consumer segment and the Industrial segment. The Consumer segment’s principal business activity is the production and distribution of ASTM grade glycol products, specifically automotive antifreeze and specialty-blended antifreeze, for sale into the automotive and industrial end markets. The Consumer segment operates a full lifecycle business, picking up waste antifreeze and producing finished antifreeze from both recycled and virgin glycol sources. We operate six processing and distribution centers located in the eastern region of the United States. The production capacity of the Consumer segment is approximately 90,000 gallons per month of ready to use (50/50) antifreeze. Operations in our Industrial segment are conducted through WEBA and RS&T, two of our subsidiaries. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolant and heat transfer industries throughout North America.  RS&T operates a glycol re-distillation plant in West Virginia that produces virgin quality glycol for sale to industrial customers worldwide. The production capacity of the RS&T facility is approximately 1.5 million gallons per month of concentrated ethylene glycol. The RS&T facility current produces antifreeze and industrial grade ethylene glycol.

 

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The Company uses loss before provision for income taxes as its measure of profit/loss for segment reporting purposes. Loss before provision for income taxes by operating segment includes all operating items relating to the businesses, including inter segment transactions. Items that primarily relate to the Company as a whole are assigned to Corporate.

 

Inter segment eliminations present the adjustments for inter segment transactions to reconcile segment information to the Company’s consolidated financial statements.

 

Segment information, and the reconciliation to the Company’s consolidated financial statements for the year ended December 31, 2017, is presented below:

 

   Consumer   Industrial   Inter
Segment
Eliminations
   Corporate   Total 
Sales, net  $6,265,779    6,966,746    (1,159,839)   -    12,072,686 
Cost of goods sold   5,522,832    6,081,580    (1,159,839)   -    10,444,573 
Gross profit   742,947    885,166    -    -    1,628,113 
                          
Total operating expenses   2,516,386    2,095,483    -    1,351,865    5,963,734 
                          
Loss from operations   (1,773,439)   (1,210,317)   -    (1,351,865)   (4,335,621)
                          
Total other expenses   (22,552)   (128,262)   -    (680,179)   (830,993)
                          
Loss before provision for income taxes  $(1,795,991)   (1,338,579)   -    (2,032,044)   (5,166,614)

 

NOTE 16 – Capital Lease

 

On April 13, 2017, the Company closed an amended sale-leaseback transaction with NFS Leasing, Inc. (“NFS”), wherein the Company sold $1,700,000 of certain operational equipment used in the Company’s glycol recovery and recycling operations (the “Equipment”) pursuant to a bill of sale and simultaneously entered into a master equipment lease agreement, as modified (the “Lease Agreement”) with NFS for the lease of the Equipment by the Company. Pursuant to the Lease Agreement, the lease term (the “Lease Term”) is 48 months commencing on May 1, 2017. There was no gain or loss associated with the sale-leaseback. During the Lease Term, the Company is obligated to make monthly rental payments of $44,720 to NFS. The agreements are effective as of March 31, 2017. At the conclusion of the Lease Term, the Company may repurchase the Equipment from NFS for $1. The Company has accounted for this transaction as a capital lease.   

 

The following is a schedule of minimum future rentals on the non-cancelable capital leases as of December 31, 2017:

 

Year ending December 31,  Total 
2018  $541,000 
2019   539,000 
2020   537,000 
2021   179,000 
Total minimum payments required  $1,796,000 
Less amount representing interest   (332,795)
Present value of net minimum lease payments  $1,463,205 
Less current portion   (377,220)
   $1,085,985 
      
Equipment under capital lease  $1,750,000 
Less: accumulated depreciation   (127,000)
Net book value  $1,623,000 

 

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NOTE 17 – Subsequent Events

 

Loan Agreement with NFS

 

On March 1, 2018, the Company and NFS entered into an Interim Loan Financing Agreement (the “Loan Agreement”) with respect to NFS’ purchase of new equipment (the “New Equipment”) from a vendor on account of the Company, which is estimated to cost approximately $150,000 (the “Equipment Cost”). In connection therewith, the Company will owe the Equipment Cost to NFS for the lease of the New Equipment by the Company (the “Loan”). The Loan Agreement provides that the Company will make certain interest payments to NFS until the Company receives and accepts the New Equipment. At such time, the Loan Agreement will no longer be of any force and effect, the Loan will be subject only to the Lease Agreement, and the repayment of the Loan will be governed by the Lease Agreement. In addition, pursuant to the Loan Agreement, the security agreements entered into by GlyEco and RS&T with NFS were amended and restated to evidence the new obligations of GlyEco and RS&T under the Loan Agreement and the security interests of NFS in the New Equipment.

 

Reincorporation of RS&T

 

On February 14, 2018, RS&T, an Arizona corporation and majority-owned subsidiary of the Company (“RS&T Arizona”), completed its reincorporation from the State of Arizona to the State of Delaware pursuant to a merger transaction in which RS&T Arizona merged with and into Recovery Solutions & Technologies, Inc., a newly formed Delaware corporation (“RS&T Delaware”). In connection with the reincorporation, each outstanding share of common stock of RS&T Arizona was converted into one (1) share of common stock of RS&T Delaware.

  

Recent Stock Issuances

 

Since December 31, 2017, the Company has issued an aggregate of 150,000 shares of Common Stock pursuant to the Company’s Equity Incentive Program. 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

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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, 2017, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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.

 

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 2013 Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our evaluation under the criteria set forth in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

 

During 2017, we believe we were able to remediate our previously identified material weakness of lack of sufficient accounting personnel by retaining accounting staff members with public company experience and establishing a segregation of duties.

 

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.

 

Inherent Limitations on Internal Control

 

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 benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control Over Financial Reporting

 

Other than as set forth above with respect to hiring additional accounting personnel and establishing a segregation of duties, there were no changes in our internal control over financial reporting in the last quarter of the fiscal year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

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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. The following table sets forth certain information with respect to the current directors and executive officers of the Company:

 

Name   Age   Position
Dwight Mamanteo   48   Chairman of the Board
David Ide   44   Director
Charles F. Trapp   68   Director
Frank Kneller   59   Director
Scott Nussbaum   40   Director
Scott Krinsky   55   Director
Ian Rhodes   45   Chief Executive Officer and Director
Brian Gelman   45   Chief Financial Officer
Richard Geib   70   Executive Vice President – Additives and Glycols
Michael Olsson   39   Executive Vice President and Chief Operating Officer - Consumer Segment

 

Dwight Mamanteo — Chairman of the Board. Mr. Mamanteo 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 also serves as the Chairman of the Compensation Committee and as a member of its 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, and also served as the Chairman of its Governance Committee and as a member of its 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, and also served as a member of its 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, and also served as a member of its 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 Engineering in Electrical Engineering from Concordia University (Montreal). Mr. Mamanteo brings to the Board of Directors valuable business, operations, finance, and governance experience related to public and private companies in the automotive aftermarket and other industries.

 

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David Ide — Director. Mr. Ide 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. Mr. Ide served as interim Chief Executive Officer and President until May 1, 2016. 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 Chief Executive Officer, chairman, patented inventor, and director. Mr. Ide brings to the Board of Directors experience in public company leadership, commercialization of technologies, and expertise in automation and systems.

 

Charles F. Trapp — Director. Mr. Trapp became a director of the Company on May 22, 2015. Mr. Trapp is the former Executive Vice President and Chief Financial Officer of MAM Software Group, Inc. (NASDAQ: MAMS), a leading provider of business and supply chain management solutions primarily to the automotive parts manufacturers, retailers, tire and service chains, independent installers, and wholesale distributors in the automotive aftermarket, where he served as Chief Financial Officer from November 2007 until his retirement in October 2015. Prior to his employment with MAM Software Group, Inc., Mr. Trapp was the co-founder and President of Somerset Kensington Capital Co., a Bridgewater, New Jersey-based investment firm that provided capital and expertise to help public companies restructure and reorganize from 1997 until November 2007. Earlier in his career, he served as Chief Financial Officer and/or a board member for a number of public companies, including AW Computer Systems, Vertex Electronics Corp., Worldwide Computer Services and Keystone Cement Co. His responsibilities have included accounting and financial controls, federal regulatory filings, investor relations, mergers and acquisitions, loan and labor negotiations, and litigation management. Mr. Trapp is a Certified Public Accountant and received his Bachelor of Science degree in Accounting from St. Peter’s College in Jersey City, New Jersey. Mr. Trapp brings to the Board of Directors experience in public company financial leadership within manufacturing and distribution companies, the automotive aftermarket and other industries.

 

Frank Kneller — Director. Mr. Kneller became a director of the Company on August 17, 2015. Mr. Kneller is currently the Chief Executive Officer of HoSoPo Corporation dba Horizon Solar Power, which was acquired in August 2017 by Northern Pacific Group from Oaktree Capital Management’s GFI Energy Group, and includes oversight of Horizon Solar Power and Solar Spectrum under the Sungevity brand.  Previously, Mr. Kneller was the Chief Operating Officer of Verengo Solar, a leading residential solar installation business that was founded in 2008 and grew rapidly to be a top 5 US residential solar business by 2014. Mr. Kneller was recruited to Verengo Solar in October 2015 for his successful track record of driving operational excellence at multiple companies and across several different industries. In eight months, Mr. Kneller executed a turnaround project that reduced expenses and increased revenues in the strategic solar market of Southern California. From 2010 to 2014, Mr. Kneller served as the Vice President of Sales & Operations at Sears Holding Company, where he led sales and operations with full profit and loss responsibility of $1.3 billion, over 740 corporate stores, six franchise stores, multiple call centers, and over 12,000 associates. From 2007 to 2010, he served as the Chief Executive Officer of Aquion Water Treatment Products, a $250 million global manufacturer and marketer of water treatment equipment and water quality solutions, where he was selected by the board to lead the revitalization of the company and was responsible for a total reorganization of the business. Mr. Kneller brings to the Board of Directors experience in leadership of companies with different sizes and within different industries, including auto service and distributed service to the consumer markets.

 

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Scott Nussbaum — Director. Mr. Nussbaum became a director of the Company in December 2016. Mr. Nussbaum is an investor with fifteen years of experience investing in small public companies. Since2010, Mr. Nussbaum has been a Partner and Director of Operations for a private fund in New York. Mr. Nussbaum has experience developing and launching new lines of business, managing regulatory compliance programs, building and maintaining infrastructure in support of front office activities and performing operational reviews in support of the firm’s investment portfolio. Mr. Nussbaum also serves as a Director and Endowment Manager for the Emerald Bay Association, a California-based non-profit organization. Mr. Nussbaum holds the Chartered Financial Analyst (CFA) designation and graduated with a Bachelor of Arts degree in Political Science from Tufts University. Mr. Nussbaum brings to the Board of Directors experience in investment in small public companies and business operations.

 

Scott Krinsky — Director. Mr. Krinsky became a director of the Company in October 2016. Mr. Krinsky is a 35-year automotive aftermarket industry veteran. He joined Advance Auto Parts/CARQUEST (“AAP/CQ”) in August 2006 as Vice President of National Accounts. Before AAP/CQ, Mr. Krinsky was a National Accounts Manager and Divisional Commercial Sales Manager with AutoZone from 2000 to 2006. Since 2009, Mr. Krinsky has been a Trustee on the Aftermarket Foundation Board, sitting on the Finance Committee, as well as other committee assignments. He has also been an appointed Trustee on the Dollars for Doers at General Parts. Prior to 2000, Mr. Krinsky had two other senior automotive management positions with Sears Automotive Group as a District Manager from 1997 to 2000, and with Tire Kingdom Inc. from 1980 to 1997 where he was promoted to increasing responsibilities up to his last position as Vice President of Retail Stores & Customer Service. Mr. Krinsky brings to the Board of Directors experience of market assessment, business development, and relationship management within the automotive aftermarket industry.

 

Ian Rhodes — Chief Executive Officer and Director. Mr. Rhodes was appointed as Chief Executive Officer of the Company on December 5, 2016 and became a director of the Company on November 14, 2017. Mr. Rhodes previously served as Interim Chief Financial Officer of the Company from February 2016 to July 2017. Mr. Rhodes previously served as the Chief Financial Officer of Calmare Therapeutics Incorporated, a biotherapeutic company furthering proprietary and patented pain mitigation and wound care technologies, from 2014 to 2016. As Chief Financial Officer, Mr. Rhodes was responsible for all financial and accounting matters, including SEC reporting. From 2012 to 2014, Mr. Rhodes was an independent consultant and entrepreneur and his activities included leading an investor/management group in assessing a potential multi-location franchised food concept. From 2009 to 2012, he served as the Vice President, Chief Accounting Officer, and Treasurer of Arch Capital, where he had overall responsibility for SEC and GAAP technical matters. Finally, from 1994 to 2009, Mr. Rhodes was with PricewaterhouseCoopers LLP, where he served as a Senior Manager from 1994 to 2004 and as Audit Senior Manager from 2004 to 2009, during which time he worked with some of the firm’s largest and most technically challenging audit clients. Mr. Rhodes brings to the Board of Directors valuable financial, accounting and investment experience across a variety of industries.

 

Brian Gelman – Chief Financial Officer. Mr. Gelman became Chief Financial Officer of the Company on July 5, 2017. Mr. Gelman has nearly 20 years of experience in the areas of accounting and finance, including serving as a senior financial officer of a public company. Prior to joining the Company, Mr. Gelman held various positions of increasing responsibility, including Interim Chief Financial Officer, Chief Accounting Officer, Corporate Controller and Assistant Controller, with Warren Resources, Inc., a publicly traded independent energy company, from April 2002 to March 2016. From August 1998 to April 2002, Mr. Gelman was employed at EisnerAmper, LLP, an accounting firm. Mr. Gelman received a Bachelor of Science in Finance from the State University of New York at Old Westbury, located in Old Westbury, New York.

 

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Michael Olsson – Executive Vice President and Chief Operating Officer – Consumer Segment. Mr. Olsson was appointed as Vice President of Sales & Marketing of the Company effective on May 29, 2017 and became Executive Vice President and Chief Operating Officer of the Company's Consumer segment effective December 11, 2017. Mr. Olsson previously served as Vice President of Sales at Kauffman Tire from February 2014 to May 2017, where he was directly responsible for the operations and sales for the 62 stores in the southeast United States and served as a member of the Kauffman Tire Executive Leadership Team. From March 2006 to February 2014, Mr. Olsson worked at Sears Holdings, where he served under multiple field positions, including Region Manager with the Automotive Group in which he directly managed 215 stores during his tenure. Under Mr. Olsson's leadership at Sears Holdings, , he was directly responsible for sales and operations for the $300 million in sales revenue while managing all assets and people for 18 districts across 14 states in the southeast of the United States. . Mr. Olsson also served his country with active duty enlistment for the United States Air Force from January 2001 to March 2006 as a Combat Command Post Controller. Mr. Olsson is also a veteran with active campaign deployments for Operation Enduring Freedom and Operation Iraqi Freedom while serving with the NATO Joint Task Force in national security operations.. Mr. Olsson brings a wealth of experience and knowledge about the automotive industry and operations, including management of multi-location business.

 

Richard Geib - Executive Vice President- Additives and Glycols. Mr. Geib was appointed as Executive Vice President – Additives and Glycols on December 28, 2016. Mr. Geib previously served as the Company’s Chief Technical Officer, developing the Company’s GlyEco Technology™ from November 2011 to December 2015. Prior to that, Mr. Geib was employed for over twenty years with the Monsanto Company, a multinational agrochemical and agricultural biotechnology company, serving in various functions including engineering, manufacturing, marketing and sales. Mr. Geib served as Global Recycling Technologies’ Director of Technology and Development from July 2007 until the merger. Since 2002, 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 at 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 at Monsanto’s W.G. Krummrich Plant; Production Supervisor for the 4-Nitrodiphenylamine Chlorine and Caustic Soda/Potash plants; and Design and Plant Engineer at World Headquarters.

  

Employment / Consulting Agreements

 

Ian Rhodes

 

On December 30, 2016, the Company entered into an Employment Agreement with Ian Rhodes effective on December 30, 2016 (the “Rhodes Employment Agreement”) under the terms of which Mr. Rhodes serves as the Company’s Chief Executive Officer. The initial term of the Rhodes Employment Agreement was for a period of one year and such term automatically renews for successive one-year periods on each anniversary of the commencement date unless earlier terminated by Mr. Rhodes or the Company.

 

Pursuant to the Rhodes Employment Agreement, Mr. Rhodes is entitled to receive: (i) an annual base salary of $175,000 (the “Rhodes Initial Base Salary”); (ii) an annual incentive of up to 50% of the Rhodes Initial Base Salary based upon the achievement of certain performance goals; and (iii) a stock grant of 1,000,000 shares of Common Stock, which shares shall fully vest when the price per share of the Common Stock, measured and approved based upon a 30-day trading volume weighted average price (VWAP), is equal to at least $0.20 per share. Mr. Rhodes is also eligible to participate in the Company’s long term equity inventive plan and to receive other such benefits as are generally available to officers of the Company.

 

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If Mr. Rhodes terminates his employment for good reason, as defined in the Rhodes Employment Agreement, or is terminated by the Company other than for cause, as defined in the Rhodes Employment Agreement, the Company is required to pay Mr. Rhodes: (i) an amount equal to twelve months salary at the level of his base salary, as defined in the Rhodes Employment Agreement, then in effect; and (ii) to the extent not theretofore paid or provided, any other benefits, as defined in the Rhodes Employment Agreement.

 

Richard Geib

 

On December 28, 2016, the Company entered into an employment agreement with Richard Geib in connection with his appointment as Executive Vice President-Additives and Glycols of the Company (the “Geib Employment Agreement”). The initial term of the Geib Employment Agreement is for a period of three years (the “Geib Initial Term”), and the Geib Initial Term automatic renews thereafter for successive one-year periods on each anniversary of the commencement date, unless earlier terminated by Mr. Geib or by the Company.

 

Pursuant to the Geib Employment Agreement, Mr. Geib is entitled to receive: (i) an annual base salary of $150,000 (the “Geib Initial Base Salary”); (ii) an annual incentive of up to 35% of the Geib Initial Base Salary based upon the achievement of certain performance goals; and (iii) a stock grant of 1,000,000 shares of Common Stock, which shares shall fully vest when the price per share of the Common Stock, measured and approved based upon a 30-day trading volume weighted average price (VWAP), is equal to at least $0.20 per share. Mr. Geib is also eligible to participate in the Company’s long term equity inventive plan and to receive other such benefits as are generally available to officers of the Company.

 

If Mr. Geib terminates his employment for good reason, as defined in the Geib Employment Agreement, or is terminated by the Company other than for cause, as defined in the Geib Employment Agreement, the Company is required to pay Mr. Geib the lesser of: (i) twelve months of his then current base salary, as defined in the Geib Employment Agreement; or (ii) the amount of base salary which would have been payable to him had the employment term, as defined in the Geib Employment Agreement, continued until the end of the Geib Initial Term or the then current one-year term renewal period.

 

Brian Gelman

 

On June 12, 2017, the Company entered into a letter agreement, which was effective as of June 15, 2017, with Brian Gelman (the “Gelman Letter Agreement”), establishing his compensation as Chief Financial Officer. Pursuant to the terms of the Gelman Letter Agreement, the Company agreed to pay Mr. Gelman an annual base salary of $150,000, subject to annual review. Mr. Gelman also received a $10,000 signing bonus payable in one lump sum. Mr. Gelman is eligible for a targeted cash bonus of 35% of his base salary based on performance goals established by the Company. Mr. Gelman is also eligible to participate in the employee benefit plans and programs generally available to officers of the Company.

 

Mr. Gelman was granted 750,000 shares of the Common Stock, which shares shall vest when the market price of the Common Stock trades at or above $0.20 for the previous 30-day volume weighted average price. 

 

Committees of the Board of Directors

 

Our Board of Directors has an Audit Committee, a Compensation Committee, and a Governance and Nominating 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;

 

·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 attestation services and for dealing directly with any such accounting firm;

 

·provides a medium for consideration of matters relating to any audit issues; and

 

·prepares the audit committee report that the rules require be included in our filings with the SEC.

 

The members of our Audit Committee are Charles F. Trapp, Scott Nussbaum and Dwight Mamanteo. Mr. Trapp serves as chairperson of the committee. The Board of Directors has determined that Mr. Trapp meets the criteria of an “audit committee financial expert” (as defined under Item 407(d)(5)(ii) of Regulation S-K). Mr. Trapp 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 http://www.glyeco.com/corporate_charters.

 

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 Scott Nussbaum, David Ide, Charles F. Trapp, and Frank Kneller. Mr. Nussbaum 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 http://www.glyeco.com/corporate_charters.

 

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; evaluates our Board of Directors and our management; develops, reviews and recommends 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: Frank Kneller, David Ide, Scott Krinsky and Scott Nussbaum. Mr. Kneller serves as chairperson of the committee.

 

The Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which can be accessed online at http://www.glyeco.com/corporate_charters.

 

Family Relationships

 

There are no family relationships between any of the officers or directors of the Company.

 

Involvement in Certain Legal Proceedings

 

During the past ten years, none of our directors or executive officers has been:

 

·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;
·convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

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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;
·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;
·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
·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.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act 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 SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our Common Stock and other equity securities on Forms 3, 4 and 5, respectively. Executive officers, directors, and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.

 

Specific due dates for such Section 16(a) reports have been established by the SEC, and the Company is required to disclose in this Annual Report any failure to file reports by such dates during the fiscal year ended December 31, 2017. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no Form 5s were required for such persons, the Company believes that during the fiscal year ended December 31, 2017, there was no failure to comply with Section 16(a) filing requirements applicable to its executive officers, directors or greater than 10% stockholders other than as listed in the table below:

 

Name   Number of Late
Reports
  Description
Scott P. Nussbaum   2   1 transaction was not reported on a timely basis upon the acquisition of warrants to purchase common stock; 1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.
Dwight Mamanteo   2   1 transaction was not reported on a timely basis upon the acquisition of warrants to purchase common stock; 1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.
Ian Rhodes   7   1 transaction was not reported on a timely basis upon the acquisition of warrants to purchase common stock; 2 transactions were not reported on a timely basis upon the acquisition of restricted Common Stock; 4 transactions were not reported on a timely basis upon the acquisition of Common Stock.
Charles Trapp   2   1 transaction was not reported on a timely basis upon the acquisition of warrants to purchase common stock; 1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.
Wynnefield Flynn Small Cap Value LP   2   1 transaction was not reported on a timely basis upon the acquisition of warrants to purchase common stock; 1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
Scott Krinsky   3   Scott Krinsky’s Form 3 was not filed on a timely basis; 1 transaction was not reported on a timely basis upon the acquisition of restricted Common Stock; 1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.

 

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David Ide   2   1 transaction was not reported on a timely basis upon the acquisition of restricted Common Stock; 1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.
Frank Kneller   1   1 transaction was not reported on a timely basis upon the acquisition of a restricted stock grant.
Richard Geib   12   2 transactions were not reported on a timely basis upon the acquisition of Common Stock; 5 transactions were not reported on a timely basis upon the acquisition of options with rights to buy; 5 transactions were not reported on a timely basis upon the acquisition of warrants to purchase common stock.
Michael Olsson  

1

 

1 transaction was not reported on a timely basis upon the filer's appointment as an officer of the Company.

 

Director Nominating Procedures

 

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

 

Code of Ethics

 

On August 5, 2014, the Board of Directors of the Company adopted a Code of Business Conduct and Ethics, amended on March 23, 2017 (as amended, 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 GlyEco, Inc. Attn: Corporate Secretary, at 230 Gill Way, Rock Hill, SC 29730. 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”) or acted in a similar capacity and the Company’s two other mostly highly compensated executive officers during the last completed fiscal year, regardless of compensation level, 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

 

Name &

Principal

Position

  Year  Salary ($)   Bonus
($)
   Stock
Awards
($)(4)
   Option
Awards
($)
   Non-Equity
Incentive
Plan
Compensation
($)
   Change in
Pension
Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)
   Total ($) 
Ian Rhodes, CEO, President and Interim CFO (PEO) (1)  2017  $200,000    10,000    -    -    -    -    -   $210,000 
   2016  $128,776    -    195,181    -    -    -    -   $323,957 
                                            
Brian Gelman, CFO and Vice-President (2)  2017  $80,962    -    47,452    -    -    -    -   $128,414 
Richard Geib, Executive Vice-President (3)  2017  $150,000                                 $150,000 

 

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(1) Mr. Rhodes was appointed Chief Executive Officer, President and Interim Chief Financial Officer effective on December 5, 2016. From February 22, 2016 until December 5, 2016, Mr. Rhodes served as Chief Financial Officer of the Company.
(2) Mr. Gelman was appointed Chief Financial Officer on July 5, 2017.
(3) Mr. Geib was appointed Executive Vice President – Additives and Glycols effective on December 28, 2016.
(4)The amounts shown in this column represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 Compensation—Stock Compensation.

 

Option/SAR Grants in Fiscal Year Ended December 31, 2017

 

None.

 

Option/SAR Grants in Fiscal Year Ended December 31, 2016

 

None.

 

Outstanding Equity Awards at Fiscal Year-End Table 

 

The following table sets forth information for the named executive officers 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, 2017.

 

Name  Number of
Securities
underlying
Unexercised
Options and
Warrants (#)
Exercisable
   Number of
Securities
underlying
Unexercised
Options
and Warrants (#)
Unexercisable
   Option/Warrant
Exercise Price
($/Sh)
   Option/Warrant
Expiration Date
Ian Rhodes   31,250    -   $0.08   12/27/2019

 

Equity Award Plans

 

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 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.

 

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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 March 30, 2018, we have issued 5,748,230 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 was filed as Exhibit 4.5 to our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on April 16, 2012 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 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. 5,748,230 stock options have been granted under the 2012 Plan.

 

 Plan Administration

 

The 2012 Plan is 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, is 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 is 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) are eligible to receive only Nonqualified Stock Options.

 

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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.

 

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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.

 

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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 options under the 2012 Plan.

 

 2017 Incentive Compensation Plan

 

In September, 2017, subject to stockholder approval, the Company’s Board of Directors approved the Company’s 2017 Incentive Compensation Plan (the “2017 ICP”). The 2017 ICP was approved by the Company’s stockholders at the Company’s 2017 Annual Meeting of Stockholders on November 14, 2017.

 

The aggregate maximum number of shares of Common Stock (including shares underlying options) that may be issued under the 2017 ICP is limited to 10,000,000 shares of Common Stock pursuant to awards of Restricted Shares or Options. The number of shares of Common Stock that are the subject of awards under the 2017 ICP which are forfeited or terminated, are settled in cash in lieu of shares of Common Stock or in a manner such that all or some of the shares covered by an award are not issued to a participant or are exchanged for awards that do not involve shares will again immediately become available to be issued pursuant to awards granted under the 2017 ICP. If shares of Common Stock are withheld from payment of an award to satisfy tax obligations with respect to the award, those shares of Common Stock will be treated as shares that have been issued under the 2017 ICP and will not again be available for issuance under the 2017 ICP.

 

Purpose of the 2017 ICP

 

The purpose of the 2017 ICP 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 10,000,000 shares of the Company’s Common Stock pursuant to awards granted under the 2017 ICP, 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 2017 ICP 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.

 

Plan Administration

 

The 2017 ICP is administered by the Company’s Board of Directors or the Compensation Committee. The Board has full authority, subject to the terms of the 2017 ICP, to establish rules and regulations for the proper administration of the 2017 ICP, to select the employees, directors and consultants to whom awards are granted, and to set the dates of grants, the types of awards that shall be made and the other terms of the awards. When granting awards, the Board will consider such factors as an individual’s duties and present and potential contributions to the Company’s success and such other factors as the Board in its discretion shall deem relevant. The Board may also correct any defect or supply any omission or reconcile any inconsistency in the 2017 ICP or in any agreement relating to an award in the manner and to the extent it shall deem expedient to carry it into effect.

 

Eligibility

 

All employees, directors and consultants of the Company are eligible to participate in the 2017 ICP. The selection of those eligible employees, directors and consultants who will receive Restricted Shares is within the discretion of the Board. 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.

 

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Corporate Change and Other Adjustments

 

Upon the occurrence of a Change of Control (as such term is defined in the 2017 ICP), all restrictions and conditions applicable to the Restricted Shares held by participants shall immediately lapse. “Change in Control” shall mean a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or the sale, transfer or other disposition of all or substantially all of the Company’s assets to a non-affiliate of the Company.

 

The maximum number of shares of Common Stock that may be issued under the 2017 ICP and the maximum number of shares of Common Stock that may be issued to any one individual and the other individual award limitations, as well as the number and price of shares of Common Stock or other consideration subject to an award under the 2017 ICP, will be appropriately adjusted by the Board in the event of changes in the outstanding Common Stock by reason of recapitalizations, reorganizations, mergers, consolidations, combinations, split-ups, split-offs, spin-offs, exchanges or other relevant changes in capitalization or distributions to the holders of Common Stock occurring after an award is granted.

 

Options

 

Term of Option.

 

The term of each option will be as specified by the Board at the date of grant but shall not be exercisable more than ten (10) years after the date of grant.

 

Option Price.

 

The option price will be determined by the Board and may not be less than the fair market value of a share of Common Stock on the date that the Option is granted.

 

Repricing Restrictions.

 

Except for adjustments for certain changes in the Common Stock, the Board may not, without the approval of our stockholders, amend any outstanding option agreement that evidences an Option grant to lower the Option price (or cancel and replace any outstanding option agreement with an option agreement having a lower Option price).

 

Size of Grant.

 

Subject to any limitations set forth in the 2017 ICP, the number of shares of Common Stock for which an Option is granted to an employee, director or consultant will be determined by the Board.

 

Payment.

 

The Option price upon exercise may be paid by an optionee in any combination of the following: (a) cash, certified check, bank draft or postal or express money order for an amount equal to the Option price under the Option, (b) an election to make a cashless exercise through a registered broker-dealer (if approved in advance by the Board or one of our executive officers) or (c) any other form of payment which is acceptable to the Board.

 

Option Agreement.

 

All Options will be evidenced by a written agreement containing provisions consistent with the 2017 ICP and such other provisions as the Board deems appropriate. The terms and conditions of the respective option agreements need not be identical. The Board may, with the consent of the participant, amend any outstanding option agreement in any manner not inconsistent with the provisions of the 2017 ICP, including amendments that accelerate the exercisability of the Option.

 

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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 2017 ICP 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 2017 ICP, 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 2017 ICP, 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 2017 ICP 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.

 

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Transfer Restrictions and Forfeiture Obligations.

 

Pursuant to a Restricted Share award, shares of Common Stock may be issued or delivered to the employee, director or consultant at the time the award is made without any payment to us (other than for any payment amount determined by the Board in its discretion), but such shares of Common Stock will be subject to certain restrictions on the disposition thereof and certain obligations to forfeit and surrender such shares to us as may be determined in the discretion of the Board. The Board may provide that the restrictions on disposition and the obligations to forfeit the shares of Common Stock will lapse based on (i) the attainment of one or more performance measures established by the Board, (ii) the continued employment or service with the Company for a specified period or (iii) the occurrence of any event or the satisfaction of any other condition specified by the Board in its sole discretion. Upon the issuance of shares of Common Stock pursuant to a Restricted Share award, except for the foregoing restrictions and unless otherwise provided, the recipient of the award will have all the rights of a stockholder with respect to such shares, including the right to vote such shares and to receive all dividends paid with respect to such shares, which dividends will accrue and be paid when the forfeiture restrictions applicable to the Restricted Share award have lapsed. At the time of such award, the Board may, in its sole discretion, prescribe additional terms, conditions, or restrictions relating to Restricted Share awards, including rules pertaining to the effect of the termination of employment or service as a director or consultant of a recipient of Restricted Shares (by reason of retirement, disability, death or otherwise) prior to the lapse of any applicable restrictions.

 

Other Terms and Conditions.

 

The Board may establish other terms and conditions for the issuance of Restricted Shares under the 2017 ICP.

 

 Amendments

 

The Board may from time to time amend the 2017 ICP; however, any change that would impair the rights of a participant with respect to an award theretofore granted will require the participant’s consent. Further, without the prior approval of our stockholders, the Board may not amend the 2017 ICP to change the class of eligible individuals or increase the number of shares of Common Stock that may be issued under the 2017 ICP.

 

2017 Employee Stock Purchase Plan

 

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

 

All initially capitalized terms not otherwise defined here shall have the meanings given to those terms in the 2017 ESPP.

 

Under the 2017 ESPP, the Company may grant eligible employees the right to purchase our Common Stock through payroll deductions at a price equal to the lesser of the fifteen percent (15%) of the fair market value of a share of Common Stock on the Exercise Date of the current Offering Period or fifteen percent (15%) of the fair market value of our Common Stock on the Grant Date of the then current Offering Period. The first offering period began on November 14, 2017. Thereafter, there will be consecutive six-month offering periods until January 2, 2022, or until the Plan is terminated by the Board, if earlier.

 

Purpose of the 2017 ESPP

 

The purpose of the 2017 ESPP is to encourage employee stock ownership by offering employees rights to purchase our Common Stock at discounted prices and without payment of brokerage costs. Our management believes that the 2017 ESPP offers a convenient means for our employees who might not otherwise own Common Stock to purchase and hold such an investment. Our management also believes that the discounted sale feature of the 2017 ESPP offers a meaningful incentive to participate, and that employees’ continuing economic interests as stockholders in Company performance and success should further enhance entrepreneurial spirit and contribute to the Company’s potential for growth and profitability.

 

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Shares Subject to the 2017 ESPP

 

The 2017 ESPP covers a maximum of 10,000,000 shares of our Common Stock.  The maximum number of shares of Common Stock each participant may purchase during each Purchase Period, as well as the price per share and the number of shares of Common Stock covered by each option under the 2017 ESPP which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date that shall terminate immediately prior to the consummation of such proposed dissolution or liquidation.  In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation, or a new Exercise Date will be set if such corporation refuses to assume such options.

 

Certificates evidencing the shares of Common Stock purchased upon exercise of a participant’s option will be issued by the Company’s transfer agent as promptly as practicable after each Exercise Date on which a purchase of shares occurs.

 

Eligibility

 

Any individual who is an employee of the Company or a Designated Subsidiary on the first Trading Day of each Offering Period shall be eligible to participate in the 2017 ESPP.  Employees who are ineligible to participate include (i) employees who have been employed less than 30 days prior to the applicable Offering Period (ii) employees whose customary employment with the Company is twenty (20) hours or less per week; (iii) employees whose customary employment with the Company for not more than five (5) months in any calendar year; and (iv) employees who are residents of or employed in any jurisdiction in which the 2017 ESPP is prohibited under Applicable Law.   An eligible employee may become a participant in the 2017 ESPP by completing a Subscription Agreement authorizing payroll deductions.

 

No employee shall be granted an option under the 2017 ESPP: (i) to the extent that, immediately after the grant, such employee would own stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the stock of the Company or of any Subsidiary thereof; or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its Subsidiaries would accrue at a rate which exceeds Two-Thousand, Four-Hundred Dollars ($2,400) of fair market value of such stock for each calendar year in which such option is outstanding at any time.

 

Offering Periods

 

Offering Periods consist of the six (6) months period during which an option shall be granted and may be exercised pursuant to the Plan, commencing on the first Trading Day on or after January 1 and July 1 of each year following the approval of the 2017 ESPP by the Company’s stockholders and the Board of Directors, and terminating on the last Trading Day in the periods ending six (6) months later from each defined date.

 

Payroll Deductions

 

At the time a participant files his or her Subscription Agreement, he or she shall elect to have payroll deductions made on each payday during the Offering Period in an amount not exceeding twenty-five percent (25%) of the compensation that he or she receives on each payday during the Offering Period. All payroll deductions made for a participant shall be credited to his or her account under the 2017 ESPP and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. To the extent necessary to comply with Section 423(b)(8) of the Code, a participant’s payroll deductions may be decreased to zero percent (0%) at any time during an Offering Period.

 

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Purchase Price

 

A participant may purchase shares subject to the terms and conditions of the 2017 ESPP at the lesser of 85% of the Fair Market Value of a share of Common Stock on the Exercise Date of the current Offering Period or 85% of the Fair Market Value of a share of Common Stock on the Grant Date of the current Offering Period; provided however, that the Purchase Price may be adjusted by the Board or the Committee.

 

Exercise of Option

 

A participant’s option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share shall be retained in the participant’s account for the subsequent Offering Period. Any other monies left over in a participant’s account after the Exercise Date shall be returned to the participant or, at the election of the participant, maintained in the ESPP for use in subsequent Offering Periods. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.

 

If insufficient shares of Common Stock remain available in any Offering Period, the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or terminate any or all other Offering Periods then in effect.

 

Withdrawal

 

A participant may withdraw all payroll deductions credited to his or her account and not yet used to exercise his or her option under the 2017 ESPP at any time by giving written notice to the Company. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new Subscription Agreement. A participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.

 

Termination of Employment

 

Upon a participant’s ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the 2017 ESPP and the payroll deductions credited to such participant’s account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, and such participant’s option shall be automatically terminated.

 

Administration

 

The Board of Directors of the Company or a duly authorized Committee of the Board, as determined in the sole discretion of the Board, shall administer the 2017 ESPP. The Board or the Committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the 2017 ESPP, to determine eligibility and to adjudicate all disputed claims filed under the 2017 ESPP. Every finding, decision and determination made by the Board or the Committee shall, to the full extent permitted by law, be final and binding upon all parties.

 

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Transferability

 

Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the 2017 ESPP may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or to a designated beneficiary) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.

 

Amendment

 

Subject to compliance with applicable law, but without shareholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Board or the Committee shall be entitled to make certain amendments to the 2017 ESPP and any rights to acquire Common Stock under the plan.  In the event the Board or the Committee determines that the ongoing operation of the 2017 ESPP may result in unfavorable financial accounting consequences, the Board or the Committee may, in its discretion and, to the extent necessary or desirable, modify or amend the ESPP to reduce or eliminate such accounting consequence. Such modifications or amendments shall not require stockholder approval or the consent of any 2017 ESPP participants.

 

Termination

 

The Board of Directors or the Committee may at any time and for any reason terminate or amend the 2017 ESPP. Subject to some exceptions, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors or the Committee on any Exercise Date if the Board or the Committee determines that the termination of the Offering Period or the 2017 ESPP is in the best interests of the Company and its stockholders.

 

Director Compensation

 

According to the Fiscal Year 2017 Director Compensation Plan, directors received a base director fee of either $12,500 paid quarterly in immediately vesting restricted stock or $10,000 paid quarterly in immediately vesting restricted stock with an additional 100,000 shares of performance based restricted stock paid upon the Common Stock maintaining a $0.20 price per share for a 30-day volume weighted average price. Additional compensation is available to be earned under the Fiscal Year 2017 Director Compensation Plan based on certain Board committee membership criteria.

 

The table below sets forth the compensation paid to our non-employee directors during the fiscal year ended December 31, 2017.

 

Director  Fees Earned or
Paid in Cash
   All Other
Compensation
   Stock Awards   Total 
Dwight Mamanteo  $-   $-   $40,065(1)  $40,065 
Charles Trapp  $-   $-   $40,065(2)  $40,065 
Frank Kneller  $-   $-   $40,065(3)  $40,065 
David Ide  $-   $-   $40,065(4)  $40,065 
Scott Krinsky  $-   $-   $40,065(5)  $40,065 
Scott Nussbaum  $-   $-   $46,075(6)  $46,075 
                     

(1) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Mamanteo was granted 83,333 shares on March 31, 2017 (valued at $10,000), 102,040 shares on June 30, 2017 (valued at $10,000), 130,720 shares on September 30, 2017 (valued at $10,065.44), and 112,360 shares on December 31, 2017 (valued at $10,000.).

 

(2) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Trapp was granted 83,333 shares on March 31, 2017 (valued at $10,000), 102,040 shares on June 30, 2017 (valued at $9,999.92), 130,720 shares on September 30, 2017 (valued at $10,065), and 112,360 shares on December 31, 2017 (valued at $10,000).

 

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(3) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Kneller was granted 83,333 shares on March 31, 2017 (valued at $10,000), 102,040 shares on June 30, 2017 (valued at $10,000), 130,720 shares on September 30, 2017 (valued at $10,065), and 112,360 shares on December 31, 2017 (valued at $10,000).

 

(4) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Ide was granted 83,333 shares on March 31, 2017 (valued at $10,000), 102,040 shares on June 30, 2017 (valued at $10,000), 130,720 shares on September 30, 2017 (valued at $10,065), and 112,360 shares on December 31, 2017 (valued at $10,000).

 

(5) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Krinsky was granted 83,333 shares on March 31, 2017 (valued at $10,000), 102,040 shares on June 30, 2017 (valued at $10,000), 130,720 shares on September 30, 2017 (valued at $10,065), and 112,360 shares on December 31, 2017 (valued at $10,000).

 

(6) Pursuant to the Fiscal Year 2017 Director Compensation Plan, Mr. Nussbaum was granted 95,833 shares on March 31, 2017 (valued at $11,500), 117,346 shares on June 30, 2017 (valued at $11,500), 150,330 shares on September 30, 2017 (valued at $11,575), and 129,210 shares on December 31, 2017 (valued at $11,500).

 

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 as of March 30, 2018, 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 sixty (60) days. Shares of Common Stock subject to options, warrants or convertible securities exercisable or convertible within sixty (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 herein have sole voting and investment power with respect to such shares, except as otherwise noted.

 

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Name and Address of Beneficial Owner(1) 

Number of

Shares

Beneficially

Owned

  

Percentage of

Outstanding

Common

Stock(2)

 
Executive Officers and Directors          
           
Dwight Mamanteo — Chairman of the Board   8,015,507(3)   4.8%
           
David Ide — Director   3,203,208(4)   1.9%
           
Charles F. Trapp — Director   7,415,769(5)   4.5%
           
Frank Kneller — Director   1,970,228(6)   1.2%
           
Scott Nussbaum — Director   3,901,157(7)   2.4%
           
Scott Krinsky — Director   534,953(8)   * 
           
Ian Rhodes — Director, Chief Executive Officer   748,780(9)   * 
           
Brian Gelman — Chief Financial Officer   0(10)   * 
           
Michael Olsson—Chief Operating Officer   150,000(11)   * 
           
Richard Geib—Executive Vice President   0(12)   * 
           
Executive Officers and Directors as a group (10 persons)   25,939,602    15.7%
           
5% Stockholders          
           
Wynnefield Capital Management, LLC 450 Seventh Avenue, Suite 509 New York, NY 10123   39,439,971(13)   23.8%

 

  * Represents less than 1%

 

  (1) Unless otherwise indicated, the business address of each individual named is 230 Gill Way, Rock Hill, SC 29730 and our telephone number is (866) 960-1539.

 

  (2) Based on 165,438,061 shares of Common Stock outstanding as of March 30, 2018.

 

  (3) Includes (i) 50,000 shares of Common Stock issuable upon the exercise of options at $1.03 per share until January 15, 2024, and (ii) 15,000 shares of Common Stock issuable upon the exercise of options at $0.66 per share until September 30, 2024. Mr. Mamanteo also holds the following unvested stock, which is not included in the table above: 162,500 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $2.00 per share stock price for a 30-trading day volume weighted average price (“VWAP”) duration, and 350,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Mamanteo.

 

  (4) Includes (i) 10,000 shares of Common Stock issuable upon the exercise of options at $0.69 per share until June 30, 2024, and (ii) 50,000 shares of Common Stock issuable upon the exercise of options at $0.30 per share until December 18, 2024. Mr. Ide also holds the following unvested stock, which is not included in the table above: (i) 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 Common Stock maintaining a $2.00 per share stock price for a 30-trading day VWAP duration, and 350,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30- trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Ide.

 

  (5) Includes (i) 50,000 shares of Common Stock issuable upon the exercise of options at $0.17 per share until May 22, 2025, and (ii) 468,750 shares of Common Stock issuable upon the exercise of warrants at $0.08 per share until December 27, 2019. Mr. Trapp also holds the following unvested stock, which is not included in the table above: 175,676 unvested shares of Common Stock granted pursuant to the Company’s Fiscal Year 2015 Director Compensation Plan, which shares shall vest 100% upon the Common Stock maintaining a $2.00 per share stock price for a 30-trading day VWAP duration, and 350,000 unvested shares of Common Stock which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Trapp.

 

  (6) Includes 50,000 shares of Common Stock issuable upon the exercise of options at $0.14 per share until August 27, 2025. Mr. Kneller also holds the following unvested stock, which is not included in the table above: 350,000 unvested shares of Common Stock which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Kneller.

 

 80 

 

 

  (7) Mr. Nussbaum also holds the following unvested stock, which is not included in the table above: 1,100,000 unvested shares of Common Stock which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Nussbaum.
     
  (8) Mr. Krinsky holds the following unvested stock, which is not included in the table above: 1,100,000 unvested shares of Common Stock which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Krinsky.

 

  (9) Includes 31,250 shares of Common Stock issuable upon the exercise of warrants at $0.08 per share until December 27, 2019. Mr. Rhodes also holds the following unvested stock, which is not included in the table above: 3,200,906 unvested shares of Common Stock granted pursuant to Mr. Rhodes’ Employment Agreement, 1,000,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration, and 2,200,906 unvested shares of Common Stock, which shares shall vest upon the Common Stock achieving certain 30-trading day VWAPs, as follows: 20% will vest at $0.30 per share, 30% will vest at $0.40 per share, 30% will vest at $0.50 per share, and 20% will vest at $0.60 per share. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Rhodes.

 

  (10) Mr. Gelman holds the following unvested stock, which is not included in the table above: 750,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Gelman.

 

  (11) Mr. Olsson holds the following unvested stock, which is not included in the table above: 500,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Olsson

 

  (12) Mr. Geib holds the following unvested stock, which is not included in the table above: 1,000,000 unvested shares of Common Stock, which shares shall vest 100% upon the Common Stock maintaining a $0.20 per share stock price for a 30-trading day VWAP duration. In the event that any of such shares vest hereafter, such shares shall be included in the number of shares of Common Stock beneficially owned by Mr. Geib.

 

  (13) 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. Information is based on a Schedule 13D/A filed with the SEC on August 18, 2017. Mr. Mamanteo, Chairman of our Board of Directors, serves as a Portfolio Manager at Wynnefield Capital.

 

Equity Compensation Plan Information

 

The following summary information is as of December 31, 2017 and relates to our 2007 Stock Incentive Plan, 2012 Equity Incentive Plan, 2017 Incentive Compensation Plan and 2017 Employee Stock Purchase Plan, pursuant to which we may grant options to purchase our Common Stock:

 

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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    - 
                
2012 Equity Incentive Plan   5,748,230   $0.80    751,770 
                
2017 Equity Incentive Plan   -   $-    10,000,000 
                
2017 Employee Stock Purchase Plan   -   $-    10,000,000 
                
Equity compensation plans not approved by security holders:               
                
None   -    -    - 
Total   12,395,836   $0.69    20,751,770 

 

Change in Control

 

Except as set forth herein, 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

 

Other than compensation arrangements, during the past two years, there have been no transactions, whether directly or indirectly, between our company and any of our officers, directors, or beneficial owners of more than 5% of our outstanding Common Stock or any of the immediate family members of any of the foregoing that involved amounts that exceeded or will exceed the lesser of 1% of our total assets or $120,000 other than as described below:

 

On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,000,000 from the offering and issuance of 5% Notes to Wynnefield Partners I, Wynnefield Partners and Wynnefield Offshore, all of which are under the management of Wynnefield Capital, Inc. (“Wynnefield Capital”), an affiliate of the Company. The Company’s Chairman of the Board, Dwight Mamanteo, is a portfolio manager of Wynnefield Capital. As of April 17, 2017, the 5% Notes were repaid in full.

 

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On December 27, 2016, we entered into debt agreements for an aggregate principal amount of $1,810,000 from the offering and issuance of 8% Notes and warrants to purchase up to 5,625,000 shares of our Common Stock. The 8% Notes and warrants were sold to Dwight Mamanteo, our Chairman of the Board, Charles F. Trapp and Scott Nussbaum, members of our Board of Directors, Ian Rhodes, our then Chief Executive Officer and current Chief Executive Officer and director, Wynnefield Capital, an affiliate of the Company, and certain family members of Mr. Mamanteo and of Mr. Nussbaum.  On August 10, 2017, the Company repaid the remaining $260,000 of 8% Notes through a conversion of debt and the issuance of Common Stock and a cash repayment. As of December 31, 2017, the warrants were exercised for 4,218,750 shares of Common Stock.

 

Our Audit Committee considers and approves or disapproves any related person transaction.

 

Director Independence

 

The Board of Directors has determined that each of the following 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: Dwight Mamanteo, Charles Trapp, Frank Kneller, Scott Krinsky, and Scott Nussbaum.

 

David Ide does not qualify as an “independent director,” as Mr. Ide previously was as an executive officer of the Company.

 

Ian Rhodes does not qualify as an “independent director,” as Mr. Rhodes is currently the Chief Executive Officer of the Company.

 

Item 14.  Principal Accounting Fees and Services

 

The Company engaged KMJ Corbin & Company LLP (“KMJ Corbin”) to serve as its independent registered public accounting firm for the fiscal years ended December 31, 2017 and 2016.

 

Set forth below are the fees paid to KMJ Corbin 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 KMJ Corbin for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Quarterly Reports on Form 10-Q or services that are normally provided by KMJ Corbin in connection with the Company’s statutory and regulatory filings or engagements for those fiscal years.

 

Auditor:  2017   2016 
KMJ Corbin & Company LLP  $122,955   $117,135 

 

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 KMJ Corbin 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:  2017   2016 
KMJ Corbin & Company LLP  $33,000   $- 

 

Tax Fees

 

Set forth below are the aggregate fees billed in each of the last two fiscal years for professional services rendered by KMJ Corbin for tax compliance, tax advice, and tax planning.

 

   2017   2016 
KMJ Corbin & Company LLP  $-   $- 

 

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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 KMJ Corbin, other than the services reported above.

 

   2017   2016 
KMJ Corbin & Company LLP  $-   $- 

  

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.

 

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PART IV

 

Item 15. Exhibits, Financial Statements Schedules

 

  (a) The following documents are filed as part of this Annual Report:

 

  (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, 2017 and 2016

Consolidated Statements of Operations for the years ended December 31, 2017 and 2016

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016

Notes to Consolidated Financial Statements

 

  (2) Financial Statement Schedules

 

Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes thereto.

 

  (3) Exhibits

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report.

 

  (b) The following are exhibits to this Annual Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

 

Certain of the agreements filed as exhibits to this Annual Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

 

  may apply standards of materiality that differ from those of a reasonable investor; and

 

  were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

 85 

 

 

Exhibit
No.
  Description
2.1   Agreement and Plan of Merger, dated October 31, 2011, between Environmental Credits, Ltd. and GlyEco, Inc., effective November 21, 2011.(1)
2.2   Agreement and Plan of Merger, dated November 21, 2011, by and among GlyEco, Inc., GRT Acquisition, Inc. and Global Recycling Technologies, Ltd. (1)  
2.3   Stock Purchase Agreement by and between GlyEco, Inc., WEBA Technology Corp., and the shareholders of WEBA Technology Corp., dated December 27, 2016. (20) 
2.4   Stock Purchase Agreement by and between GlyEco, Inc., Recovery Solutions & Technologies, Inc., and the shareholders of Recovery Solutions & Technologies, Inc., dated December 27, 2016.(20)
3.1(i)(a)   Articles of Incorporation of GlyEco, Inc., dated and filed with the Secretary of State of Nevada on October 21, 2011.(1)  
3.1(i)(b)   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.(1)  
3.1(i)(c)   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.(1)  
3.1(i)(d)   Certificate of Designation of Series AA Preferred Stock.(1)  
3.1(ii)   Amended and Restated Bylaws of GlyEco, Inc., effective as of August 5, 2014.(15)  
4.1   Note Purchase Agreement, dated August 9, 2008, by and between Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC , as Custodian.(2)  
4.2   Forbearance Agreement, dated August 11, 2010, by Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian.(2)  
4.3    Second Forbearance Agreement, dated May 25, 2011, Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian.(2)  
4.4    Form of Subscription Rights Certificate for 2016 Rights Offering(17)
10.1   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.(5)  
10.2   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). (6)  
10.3   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). (7)  
10.4   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.(8)   
10.5   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(9)  
10.6   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)
10.7   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). (11)
10.8   Assignment of Intellectual Property, dated December 10, 2012, by and among Joseph A. Ioia and GlyEco Acquisition Corp. #4, Inc. (12)
10.9   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.(13)
10.10   Note Conversion Agreement and Extension, dated April 3, 2012, by and between GlyEco, Inc. and IRA FBO Leonid Frenkel, Pershing LLC as Custodian.(14)
10.11   Asset Purchase Agreement, dated June 15, 2016, by and among GlyEco Acquisition Corp., #3 and Brian’s On-Site Recycling, Inc.(20)
10.12   Amended and Restated Asset Transfer Agreement, by and between GlyEco, Inc. and Union Carbide Corporation, dated August 23, 2016, as amended on December 1, 2016.(20)
10.13   Form of 5% Notes Subscription Agreement.(20)
10.14   Form of 8% Notes Subscription Agreement.(20)
10.15+   Employment Agreement with Ian Rhodes, dated December 30, 2016.(20)

 

 86 

 

 

10.16+   Employment Agreement with Richard Geib, dated December 28, 2016(20)
10.17+   Consulting Agreement, dated September 4, 2015, between GlyEco, Inc. and David Ide.(16)  
10.18+   Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Ian Rhodes.(17)  
10.19+   Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Grant Sahag.(17)
10.20+   Amendment No. 1 to Employment Agreement, dated May 1, 2016, by and between GlyEco, Inc. and Grant Sahag.(18)  
10.21+   2007 Stock Option Plan(3)  
10.22+   2012 Equity Incentive Plan(3)  
10.23+   First Amendment to GlyEco, Inc. 2012 Equity Incentive Plan.(4)
10.24+*   2017 Incentive Compensation Plan
10.25+ *   2017 Employee Stock Purchase Plan
10.26   Bill of Sale, dated March 31, 2017, issued to NFS Leasing, Inc. (21)  
10.27   Master Equipment Lease, dated March 31, 2017, by and among GlyEco, Inc., Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (21)  
10.28   Security Agreement, dated March 31, 2017, between GlyEco, Inc. and NFS Leasing, Inc. (21)  
10.29   Security Agreement, dated March 31, 2017, between Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (21)  
10.30   Amended and Restated Security Agreement, dated March 1, 2018, between GlyEco, Inc. and NFS Leasing, Inc. (22)
10.31   Amended and Restated Security Agreement, dated March 1, 2018, between Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (22)
14.1   Code of Business Conduct and Ethics
21.1   List of Subsidiaries of the Company.(23)    
23.1*   Consent of KMJ Corbin & Company LLP
31.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document
101.SCH*   XBRL Taxonomy Schema
101.CAL*   XBRL Taxonomy Calculation Linkbase
101.DEF*   XBRL Taxonomy Definition Linkbase
101.LAB*   XBRL Taxonomy Label Linkbase
101.PRE*   XBRL Taxonomy Presentation Linkbase

 

+ Management Contracts and Compensatory Plans, Contracts or Arrangements.
* Filed herewith

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

(1) Filed as an exhibit to the Form 8-K filed by the Company with the SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC on October 9, 2012, and incorporated by reference herein.

 

 87 

 

 

(7) Filed as an exhibit to the Form 8-K filed by the Company with the SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC on September 11, 2015, and incorporated by reference herein.
(17) Filed as an exhibit to the Form S-1/A filed by the Company with the SEC on November 24, 2016, and incorporated by reference herein.
(18)    Filed as an exhibit to the Form 8-K filed by the Company with the SEC on May 5, 2016, and incorporated by reference herein.
(19) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on June 24, 2016, and incorporated by reference herein.
(20) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on January 5, 2017, and incorporated by reference herein.
(21) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on April 17, 2017, and incorporated by reference herein.
(22) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on March 7, 2018, and incorporated by reference herein.
(23) Filed as an exhibit to the Annual Report on Form 10-K filed by the Company with the SEC on April 6, 2017, and incorporated by reference herein.

 

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SIGNATURES

 

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

 

  GLYECO, INC.  
     
  By: /s/ Ian Rhodes  
Date: April 2, 2018

Ian Rhodes

Chief Executive Officer 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/ Ian Rhodes        
Ian Rhodes  

Chief Executive Officer and Director

(Principal Executive Officer)

  April 2, 2018
         
/s/ Brian Gelman        
Brian Gelman   Chief Financial Officer   April 2, 2018
    (Principal Financial Officer and Principal Accounting Officer)    
     
/s/ Dwight Mamanteo        
Dwight Mamanteo   Chairman of the Board of Directors   April 2, 2018
     
/s/ David Ide        
David Ide   Director   April 2, 2018
     
/s/ Charles Trapp        
Charles Trapp   Director   April 2, 2018
         
/s/ Frank Kneller        
Frank Kneller   Director   April 2, 2018
         
/s/ Scott Nussbaum        
Scott Nussbaum   Director   April 2, 2018
         
/s/ Scott Krinsky        
Scott Krinsky   Director   April 2, 2018

 

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Index of Exhibits

 

Exhibit
No.

  Description
2.1   Agreement and Plan of Merger, dated October 31, 2011, between Environmental Credits, Ltd. and GlyEco, Inc., effective November 21, 2011.(1)
2.2   Agreement and Plan of Merger, dated November 21, 2011, by and among GlyEco, Inc., GRT Acquisition, Inc. and Global Recycling Technologies, Ltd. (1)  
2.3   Stock Purchase Agreement by and between GlyEco, Inc., WEBA Technology Corp., and the shareholders of WEBA Technology Corp., dated December 27, 2016. (20) 
2.4   Stock Purchase Agreement by and between GlyEco, Inc., Recovery Solutions & Technologies, Inc., and the shareholders of Recovery Solutions & Technologies, Inc., dated December 27, 2016.(20)
3.1(i)(a)   Articles of Incorporation of GlyEco, Inc., dated and filed with the Secretary of State of Nevada on October 21, 2011.(1)  
3.1(i)(b)   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.(1)  
3.1(i)(c)   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.(1)  
3.1(i)(d)   Certificate of Designation of Series AA Preferred Stock.(1)  
3.1(ii)   Amended and Restated Bylaws of GlyEco, Inc., effective as of August 5, 2014.(15)  
4.1   Note Purchase Agreement, dated August 9, 2008, by and between Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian.(2)  
4.2   Forbearance Agreement, dated August 11, 2010, by Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian.(2)  
4.3    Second Forbearance Agreement, dated May 25, 2011, Global Recycling Technologies, Ltd. and IRA FBO Leonid Frenkel, Pershing LLC, as Custodian.(2)  

4.4    Form of Subscription Rights Certificate for 2016 Rights Offering(17)
10.1   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.(5)  
10.2   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). (6)  
10.3   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). (7)  
10.4   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.(8)   
10.5   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(9)  
10.6   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)
10.7   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). (11)
10.8   Assignment of Intellectual Property, dated December 10, 2012, by and among Joseph A. Ioia and GlyEco Acquisition Corp. #4, Inc. (12)
10.9   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.(13)
10.10   Note Conversion Agreement and Extension, dated April 3, 2012, by and between GlyEco, Inc. and IRA FBO Leonid Frenkel, Pershing LLC as Custodian.(14)

 

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10.11   Asset Purchase Agreement, dated June 15, 2016, by and among GlyEco Acquisition Corp., #3 and Brian’s On-Site Recycling, Inc.(20)
10.12   Amended and Restated Asset Transfer Agreement, by and between GlyEco, Inc. and Union Carbide Corporation, dated August 23, 2016, as amended on December 1, 2016.(20)
10.13   Form of 5% Notes Subscription Agreement.(20)
10.14   Form of 8% Notes Subscription Agreement.(20)
10.15+   Employment Agreement with Ian Rhodes, dated December 30, 2016.(20)
10.16+   Employment Agreement with Richard Geib, dated December 28, 2016(20)
10.17+   Consulting Agreement, dated September 4, 2015, between GlyEco, Inc. and David Ide.(16)  
10.18+   Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Ian Rhodes.(17)  
10.19+   Employment Agreement, dated February 12, 2016, between GlyEco, Inc. and Grant Sahag.(17)
10.20+   Amendment No. 1 to Employment Agreement, dated May 1, 2016, by and between GlyEco, Inc. and Grant Sahag.(18)  
10.21+   2007 Stock Option Plan(3)  
10.22+   2012 Equity Incentive Plan(3)  
10.23+   First Amendment to GlyEco, Inc. 2012 Equity Incentive Plan.(4)  
10.24+*     2017 Incentive Compensation Plan
10.25+*   2017 Employee Stock Purchase Plan
10.26   Bill of Sale, dated March 31, 2017, issued to NFS Leasing, Inc. (21)  
10.27   Master Equipment Lease, dated March 31, 2017, by and among GlyEco, Inc., Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (21)  
10.28   Security Agreement, dated March 31, 2017, between GlyEco, Inc. and NFS Leasing, Inc. (21)  
10.29   Security Agreement, dated March 31, 2017, between Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (21)  

10.30   Amended and Restated Security Agreement, dated March 1, 2018, between GlyEco, Inc. and NFS Leasing, Inc. (22)
10.31   Amended and Restated Security Agreement, dated March 1, 2018, between Recovery Solutions &Technologies, Inc. and NFS Leasing, Inc. (22)
14.1*   Code of Business Conduct and Ethics
21.1   List of Subsidiaries of the Company.(23)
23.1*   Consent of KMJ Corbin & Company LLP
31.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document
101.SCH*   XBRL Taxonomy Schema
101.CAL*   XBRL Taxonomy Calculation Linkbase
101.DEF*   XBRL Taxonomy Definition Linkbase
101.LAB*   XBRL Taxonomy Label Linkbase
101.PRE*   XBRL Taxonomy Presentation Linkbase

 

+ Management Contracts and Compensatory Plans, Contracts or Arrangements.
* Filed herewith

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

(1) Filed as an exhibit to the Form 8-K filed by the Company with the SEC 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 SEC on January 18, 2012, and incorporated by reference herein.

 

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(3) Filed as an exhibit to the Form 10-K filed by the Company with the SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC on September 11, 2015, and incorporated by reference herein.
(17) Filed as an exhibit to the Form S-1/A filed by the Company with the SEC on November 24, 2016, and incorporated by reference herein.
(18)    Filed as an exhibit to the Form 8-K filed by the Company with the SEC on May 5, 2016, and incorporated by reference herein.
(19) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on June 24, 2016, and incorporated by reference herein.
(20) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on January 5, 2017, and incorporated by reference herein.
(21) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on April 17, 2017, and incorporated by reference herein.
(22) Filed as an exhibit to the Form 8-K filed by the Company with the SEC on March 7, 2018, and incorporated by reference herein.
(23) Filed as an exhibit to the Annual Report on Form 10-K filed by the Company with the SEC on April 6, 2017, and incorporated by reference herein.

 

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