UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

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

For the quarterly period ended: March 31, 20182019

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

For the transition period from _______________ to ______________

Commission file number:  000-30396 

GLYECO, INC.

(Exact name of registrant as specified in its charter)

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

Yes ☒  No ☐

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

Yes ☒  No ☐

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

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

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

Yes ☐  No ☒

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

As of May 14, 2018,2019, the registrant has 166,593,6611,448,411 shares of Common Stock, par value $0.0001 per share, issued and outstanding.

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

GLYECO, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 20182019 and December 31, 20172018

See accompanying notes to the condensed consolidated financial statements.

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

For the three months ended March 31, 20182019 and 20172018

See accompanying notes to the condensed consolidated financial statements.

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated StatementStatements of Stockholders’ Equity (Deficit)

For the three months ended March 31, 2019 and 2018

See accompanying notes to the condensed consolidated financial statements.statements 

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 20182019 and 20172018

See accompanying notes to the condensed consolidated financial statements.statements

GLYECO, INC. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – Organization and Nature of Business

GlyEco, Inc. (the “Company”, “we”, or “our”)is adeveloper, manufacturer chemical company focused on technology development and distributormanufacturing of performance fluids for the automotive, commercial and industrial markets. We specializein coolants, additives, and complementaryrelated performance fluids.We believe ourserve and support the automotive, heavy-duty, and industrial markets with an unwavering commitment to customer service and quality. GlyEco Inc., located in Institute, West Virginia, is a vertically integrated approach,company which includes formulating products, acquiring feedstock,manufactures ethylene glycol, additives, and finished fluids. Maintaining control over all core ingredients of its glycol-based performance fluids, and directly managing facility construction and upgrades, operating facilities, and distributing products throughall aspects of the manufacturing process allows GlyEco Inc. to offer our fleetcustomers the highest value with competitive costs.

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

On December 27, 2016, the Company purchased WEBA Technology Corp. (“WEBA”), a privately-owned company that develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolants and heat transfer industries, and purchased 96.9% of Recovery Solutions & Technologies Inc. (“RS&T”), a privately-owned company involved in the development and commercialization of glycol recovery technology.technology, now named (“Glyeco WV”). On December 28, 2016, the Company purchased certain glycol distillation assets from Union Carbide Corporation (“UCC”), a wholly-owned subsidiary of The Dow Chemical Company, located in Institute, West Virginia (the “Dow Assets”). During the first quarter of fiscal year 2017 and fourth quarter of fiscal year 2018, the Company purchased an additional 2.9% and 0.20%, respectively, of RS&T (for a total percentage ownership of 99.8%100% of RS&T).

TheOn January 11, 2019, the Company was formed incompleted the Statesale (the “Asset Sale”) of Nevada on October 21, 2011.the route antifreeze collection and re-distillation segment (the “Consumer Segment”) to Heritage-Crystal Clean, LLC (the “Purchaser”) pursuant to the terms of an asset purchase agreement (see Note 9).

We are currently comprised of the parent corporation GlyEco, Inc., WEBA, RS&T, and our acquisition subsidiaries that were formedWEBA, and Glyeco WV.

Stock Split

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

Going Concern

The condensed consolidated financial statements as of March 31, 20182019 and December 31, 20172018 and for the three months ended March 31, 20182019 and 2017,2018, have been prepared assuming that the Company will continue as a going concern. As of March 31, 2018,2019, the Company has yet to achieve profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Ultimately, we plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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

The following represents an update for the three months ended March 31, 20182019 to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018, filed with the United States Securities and Exchange Commission (the “SEC”) on April 1, 2019.

Basis of Presentation

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

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation on an interim basis. The operating results for the three months ended March 31, 20182019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018.2019.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, including the Company’s audited consolidated financial statements and related notes included therein.

Principles of Consolidation

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

Noncontrolling Interests

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

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

NoncontrollingThere were no noncontrolling interests as of March 31, 2019 and December 31, 2018 and noncontrolling interests were not significant as offor the three months ended March 31, 2018 and December 31, 2017.2018.

Operating Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated onAs 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 performanceresult of the segment. Operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, among other criteria. We have two operating segments,sale of the Consumer and Industrial segments (See Note 8).Segment in January 2019, the Company operates as one segment.

Use of Estimates

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

Revenue Recognition

The Company’s significant accounting policy for revenue was updated as a result of the adoption of Topic 606:

The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer,customer; (2) identify the performance obligations in the contract,contract; (3) determine the transaction price,price; (4) allocate the transaction price to the performance obligations in the contractcontract; and (5) recognize revenue when (or as) the entityCompany satisfies a performance obligation. See Note 3 for additional information on revenue recognition.

Costs

Cost of goods sold includes all direct material and labor costs and those indirect costs of bringing raw materials to sale condition, including depreciation of equipment used in manufacturing and shipping and handling costs. Selling, general, and administrative costs are charged to operating expenses as incurred. Research and development costs are expensed as incurred, are included in operating expenses and were insignificant in 2018 and 2017. Advertising costs are expensed as incurred.

Accounts Receivable

Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s willingness or ability to pay, the Company’s compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the consolidated statements of operations. The allowance for doubtful accounts totaled $134,339 and $213,136 as of March 31, 2018 and December 31, 2017, respectively.

Inventories

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

Property, Plant and Equipment

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

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

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the 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.

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 shares outstanding during a period. Diluted loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding plus potentially dilutive securities. The Company’s potentially dilutive securities outstanding are not shown in a diluted net loss per share calculation because their effect in both 2018 and 2017 would be anti-dilutive. At March 31, 2018, these potentially dilutive securities included warrants to purchase of 9,973,124 of common stock and stock options to purchase 3,387,621 shares of common stock for a total of 13,360,745 shares of common stock. At March 31, 2017, these potentially dilutive securities included warrants to purchase 11,316,874 shares of common stock and stock options to purchase 7,950,093 shares of Common Stock for a total of 19,266,967 shares of common stock.  

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 Accounting Standards Codification (“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 the first quarter of 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance. The 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. In 2015 and 2016, FASB issued additional ASUs related to Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identification of performance obligations, and accounting for licenses, and included other improvements and practical expedients. The new guidance was effective for annual and interim periods beginning after December 15, 2017. The Company elected to adopt the new guidance using the modified retrospective transition method for all contracts not completed as of the date of adoption. The adoption of the new guidance did not have a material impact on the consolidated financial statements. See the Revenue Recognition sub header and Note 3 for additional disclosures regarding the Company’s contracts with customers as well as the impact of adopting Topic 606.

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 the 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. The Company adopted this standard in the first quarter of 2018 by using the retrospective transition method, which required the following disclosures and changes to the presentation of its consolidated financial statements: cash and restricted cash reported on the condensed consolidated statements of cash flows now includes restricted cash of $76,552, $58,653 and $6,642 as of December 31, 2016, March 31, 2017 and December 31, 2017, respectively, as well as previously reported cash.

NOTE 3 – Revenue

Revenue Recognition

All of the Company’s revenue is derived from product sales. As of January 1, 2018, the Company accounts for revenue in accordance with Topic 606, “Revenue from Contracts with Customers.” See discussion of principal activities for the Company’s operating segments in Note 8.

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

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

Costs and Expenses

Cost of goods sold includes all direct material and labor costs and those indirect costs of bringing raw materials to sale condition, including depreciation of equipment used in manufacturing and shipping and handling costs. Selling, general, and administrative costs are charged to operating expenses as incurred. Research and development costs are expensed as incurred, are included in operating expenses and were insignificant in the three months ended March 31, 2019 and 2018. Advertising costs are expensed as incurred.

Accounts Receivable

Accounts receivable are recognized and carried at the original invoice amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s willingness or ability to pay, the Company’s compliance with customer invoicing requirements, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off trade receivables when all reasonable collection efforts have been exhausted. Bad debt expense is reflected as a component of general and administrative expenses in the condensed consolidated statements of operations. The allowance for doubtful accounts totaled $19,480 and $6,427 as of March 31, 2019 and December 31, 2018, respectively.

Inventories

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

Property, Plant and Equipment

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

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

Impairment of Long-Lived Assets

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

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

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

Net Loss Per Share Calculation

The basic net loss per share of common stock is computed by dividing the net loss available to holders of common stock by the weighted average number of shares of common stock outstanding during a period. Diluted loss per share of common stock is computed by dividing the net loss available to holders of common stock by the weighted average number of shares of common stock outstanding plus potentially dilutive securities. The Company’s potentially dilutive securities outstanding are not shown in the diluted net loss per share calculation because their effect in the three months ended March 31, 2019 and 2018 would be anti-dilutive. At March 31, 2019, these potentially dilutive securities included warrants to purchase 104,957 shares of common stock and stock options to purchase 25,941 shares of common stock for a total of 130,898 shares of common stock. At March 31, 2018, these potentially dilutive securities included warrants to purchase 79,785 shares of common stock and stock options to purchase 27,101 shares of common stock for a total of 106,886 shares of common stock. 

Share-based Compensation

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

Discontinued Operations

Our Consumer Segment, which was sold in January 2019, was classified as discontinued operations in the condensed consolidated balance sheets at March 31, 2019 and December 31, 2018 and in the condensed consolidated statements of operations, in accordance with ASC 205-20 “Presentation of Financial Statements”, ASC 360-10 “Property Plant and Equipment” and ASC 350-20 “Intangibles-Goodwill and Other Goodwill”. Cash flows and operations that relate to the Consumer Segment are shown separately from continuing operations. Assets and liabilities classified as discontinued operations are measured at the lower of carrying amount and fair value less costs to sell. Assets, liabilities and results of operations related to the Consumer Segment in the prior year have been reclassified as discontinued operations.

Recently Issued Accounting Pronouncements

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

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. The Company has adopted ASU 2016-02 using the modified retrospective approach. This ASU also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows. See Note 8, Leases, for further information regarding our lease accounting policies.

NOTE 3 – Revenue

Disaggregation of Revenue

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

Contract Balances

Accounts receivable are recorded when the right to consideration becomes unconditional. The Company does not have any contract assets or liabilities as of March 31, 20182019 and December 31, 2017.2018. The Company has utilized the practical expedient which enables the Company to expenseexpenses commissions when incurred as they would be amortized over one year or less.

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

NOTE 4 – Inventories

The Company’s total inventories were as follows:

NOTE 5 – Goodwill and Other Intangible Assets

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

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

NOTE 6 – Property, Plant and Equipment 

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

NOTE 7– Stockholders’ Equity

Preferred Stock

The Company’s articles of incorporation authorize the Company to issue up to 40,000,000 shares of $0.0001preferred stock, par value preferred shares$0.0001 per share, having preferences to be determined by the boardBoard of directorsDirectors of the Company for dividends and liquidation of the Company’s assets. Of the 40,000,000 shares of preferred sharesstock 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 shares. Preferred Stock.

As of March 31, 2018,2019, the Company had no shares of preferred stock outstanding. 

Common Stock

As of March 31, 2018,2019, the Company has 166,593,661had 1,383,731 shares of common stock, par value $0.0001 per share, outstanding. The Company’s articles of incorporation authorize the Company to issue up to 300,000,000 shares of the common stock. The holders are entitled to one vote for each share on matters submitted to a vote to shareholders,of stockholders, and to share pro rata in all dividends payable on the common stock after payment of dividends on any shares of preferred sharesstock having preference in payment of dividends.

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

2017 Employee Stock Purchase Plan

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

Under the 2017 ESPP, the Company may grant eligible employees the right to purchase our common stock through payroll deductions at a price equal to the lesser of the eighty five percent (85%) of the fair market value of a share of common stock on the exercise date of the current offering period or eighty five percent (85%) of the fair market value of our common stock on the grant date of the then current offering period. The first offering period began on November 14, 2017. Thereafter, there will be consecutive six-month offering periods until January 2, 2022, or until the Plan2017 ESPP is terminated by the Board of Directors of the Company, if earlier.

The Company recorded stock-basedshare-based compensation expense related to the 2017 ESPP of $9,000 during the three months ended March 31, 2018.2019 was insignificant.

During the three months ended March 31, 2018,2019, the Company issued the following shares of common stock for compensation:

On January 8, 2018, the Company issued 150,000 shares of common stock to one employee of the Company at a price of $0.06 per share for a value of $9,000.

On March 31, 2018,2, 2019, the Company issued an aggregate of 1,155,60018,780 shares of common stock to six directors of the Company pursuant to the Company’s FY2018FY2017 Director Compensation Plan at a price of $0.065$3.99 per share for a value of $75,114.approximately $75,000 which was expensed during the year ended December 31, 2018.

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

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

During the three months ended March 31, 20182019 and 2017,2018, the Company recorded $26,774$35,032 and $34,126,$26,774 respectively, related to the performance and market basedmarket-based restricted stock awards. 

Options and warrantsWarrants

During the three months ended March 31, 2018,2019, the Company issued 5,000,000 warrants (See Note 9). did not issue any options or warrants.

NOTE 8 – SegmentsLeases

GlyEco conducts its operationsOn January 1, 2019, we adopted ASC 842, “Leases” which, among other changes, requires us to record liabilities classified as operating leases on our condensed consolidated balance sheets along with a corresponding right-of-use asset. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in two business segments:accordance with our historic accounting under Topic 840. We elected the Consumer segmentpackage of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are or contain leases, lease classification tests and the Industrial segment. The Consumer segment’s principal business activity is the productiontreatment of initial direct costs. We also elected to not separate lease components from non-lease components for all fixed payments, 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 locatedwe exclude variable lease payments in the eastern regionmeasurement 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 WEBAright-of-use assets 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.

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.lease liabilities.

Segment information,Upon adoption of ASC 842, we recorded a $475,000 increase in other assets, a $112,000 decrease to other current liabilities, and the reconciliationa $587,000 increase to operating lease liabilities. The impact primarily related to the Company’schange in assigning a right-of-use asset and related lease liability to our operating leases. We did not record any cumulative effect adjustments to opening retained earnings, and adoption of the lease standard had no impact to cash from or used in operating, financing, or investing on our consolidated financial statements, for the three months ended March 31, 2018, is presented below:cash flow statements.

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

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

NOTE 10 – Notes Payable

Notes payable consist of the following:

2018 Related Party2019 Unsecured NotesNote

10% Notes Issuance

OnIn March 29, 2018,2019, the Company entered into an unsecured note with Bank Direct to finance its insurance premiums (the “2019 Unsecured Note”). The key terms of the 2019 Unsecured Note include: (i) an original principal balance of $69,549, (ii) an interest rate of 6.74%, and (iii) a subscription agreement (the “10%term of ten months. 

2018 Related Party 10% Unsecured Notes Subscription Notes Agreement”) by and between

On April 6, 2018, the Company and various funds managed by Wynnefield Capital. The 10% Notes Subscription Agreement was the first tranche ofcommenced a private placement (see Note 12). Pursuant to the 10% Notes Subscription Agreement, the Company offered and issued $1,000,000 in principal amount(“Private Placement”) of 10% Senior Unsecured Promissory Notes (the “10% Notes”) and (ii) warrants (the “Warrants”) to purchase up to 5,000,000100,000 shares of common stock of the Company. The Company, received $1,000,000 in proceeds from the offering. The 10% Notes are scheduledthat were issued pursuant to mature on May 4, 2019 (the “10% Note Maturity Date”).subscription agreement. The 10% Notes bear interest at a rate of 10% per annum due on the 10% Note Maturity Datematurity date or as otherwise specified by the 10% Notes. The Warrants have an exercise price per share of $6.25.

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

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

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

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

The Company allocated the proceeds received tofrom the 10% Notes and the Warrants on a relative fair value basis at the time of issuance. The total debt discount of $166,667$300,297, including the relative fair value of the Warrants and the debt issuance costs will be amortized over the life of the 10% Notes to interest expense using the effective interest method. Amortization expense during the quarterthree months ended March 31, 2019 and 2018 was insignificant.$75,074 and insignificant, resprectively.

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

The proceeds of the 10% Notes were allocated to the components as follows: 

2018 and 2017 Unsecured Note

In October 2017 and later amended in January 2018, the Company entered into an unsecured note with Bank Direct to finance its insurance premiums (the “2018 and 2017 Unsecured Note”). The key terms of the 2018 and 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 lender’s risk.

NOTE 1011 – 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’sone of the Company’s processing and distribution center iscenters was located. The former Vice President of U.S. Operations also is the sole owner of Renew Resources, LLC, which providesprovided services to the Company as a vendor. The ending balance is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet.

10% Notes

On March 29,April 6, 2018 we entered into debt agreementsand May 4, 2018, the Company issued the 10% Notes for an aggregate principal amount of $1,000,000$2,000,000 from the offering and issuance of 10% Notes to Wynnefield Partners Small Cap Value I, L.P. and Wynnefield Partners Small Cap Value, L.P, which are under the management of Wynnefield Capital, Inc. (“Wynnefield Capital”), an affiliate of the Company.Capital. The Company’s Chairman of the Board, Dwight Mamanteo, is a portfolio manager of Wynnefield Capital. (See Note 910 for additional information).information.)

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

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

NOTE 1112 – Commitments and Contingencies

Litigation

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

On December 27, 2017, PSP Falcon Industries, LLC (“PSP Falcon”) filed a civil action against the Company in the Ocean County Superior Court located in Toms River, New Jersey. The civil action relatesrelated 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 fullsettled this issue on February 26, 2019 for the services rendered and therefore that no outstanding balance remains due. Accordingly, the Company plans to vigorously defend itself from this claim. a minimal amount.

Environmental Matters

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

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

NOTE 1213 – Subsequent Events

Closing of Private Placement

On April 6, 2018,We have evaluated subsequent events through the Company closed on a private placement (the “Private Placement”) of up to $2,500,000 million (the “Maximum Offering Amount) in principal amount of 10% Unsecured Promissory Notes (the “Notes”) and common stock purchase warrants to purchase up to 12,500,000 shares of the Company’s common stock pursuant to a Subscription Agreement (the “Subscription Agreement”) by and among the Company and each prospective investor. Each of the Notes will mature thirteen months from their issuance date (each a “Maturity Date”). The Private Placement will continue until the earlier of (a) the date upon which subscriptions for the Maximum Offering Amount have been received and accepted by the Company or (b) April 30, 2018, unless terminated at an earlier time by the Company, or unless extended by the Company in its sole discretion, without notice to or consent by prospective investors, to a date not later than May 15, 2018.

The Company closed a subsequent tranche of the Private Placement on April 10, 2018, with one of its directors, Charles F. Trapp (“Trapp”; and together with the Institutional Investors, the “Initial Investors” and each an “Initial Investor”), with respect to a Note with a principal amount of $50,000 (the “Trapp Note”; and together with the Institutional Notes, the “Initial Notes” and each an “Initial Note”) and a Warrant to purchase 250,000 shares of common stock (the “Trapp Warrant”; and together with the Institutional Warrants, the “Initial Warrants”).

The Company closed a subsequent tranche of the Private Placement on May 1, 2018, with one of its directors and its Chief Executive Officer, Ian Rhodes (“Rhodes”; and together with the Institutional Investors, the “Initial Investors” and each an “Initial Investor”), with respect to a Note with a principal amount of $50,000 (the “Rhodes Note”; and together with the Institutional Notes, the “Initial Notes” and each an “Initial Note”) and a Warrant to purchase 250,000 shares of common stock (the “Rhodes Warrant”; and together with the Institutional Warrants, the “Initial Warrants”).

The Company closed a subsequent tranche of the Private Placement on May 4, 2018, with various funds managed by Wynnefield Capital, for an aggregate principal amount of $1,000,000 of Notes (the “Institutional Notes”) and Warrants to purchase an aggregate of 5,000,000 shares of common stock (the “Institutional Warrants”).

The proceeds from the purchase of all Notes and Warrants will be used primarily for working capital and general corporate purposes. The Initial Notes and Initial Warrants were issued pursuant to the Subscription Agreement, by and among the Company and each Initial Investor.

The Initial Notes bear interest at a rate of 10% per annum and shall be payable on the relevant Maturity Date along with the principal amount of the Initial Notes, plus any liquidated damages and other amounts due under the Initial Notes. At any time after issuance of the Institutional Notes or the Trapp Note, the Company may deliver to such investor a notice of prepayment with respect to any portion of the principal amount of the relevant Initial Note, and any accrued and unpaid interest thereon. Upon the occurrence of an event of default under the Initial Notes, the Company must repay to the Initial Investors a 125% premium of the outstanding principal amount of the Initial Notes and accrued and unpaid interest thereon, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of the Initial Notes.

The Initial Warrants are exercisable to purchase up to an aggregate of 5,250,000 shares of common stock (the “Initial Warrant Shares”; and together with the Initial Notes and the Initial Warrants, the “Initial Securities”) commencing on thefiling date of issuance at an exercise price of $0.05 per share (the “Exercise Price”). The Initial Warrants will expire onthis Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the third anniversary of their date of issuance. The Exercise Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes. An Initial Investor does not have a right to exercise its respective Initial Warrants tocondensed consolidated financial statements or disclosure in the extent that such exercise would resultnotes thereto other than as discussed in such Initial Investor being the beneficial owner in excess of 4.99% (or, upon election of such Initial Investor, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company. 

accompanying notes.

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

You should read theThe following discussion and analysis of our financial condition and results of operations in conjunctionfor the three months ended March 31, 2019 should be read together with our condensed consolidated financial statements for the fiscal year ended December 31, 2017, and therelated notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed separately with the US Securities and Exchange Commission.this quarterly report. This discussion and analysis contains forward-looking statements based uponand information relating to our business that reflect our current beliefs, plans, expectations, intentions and projections that involve risks, uncertaintiesviews and assumptions such as statements regardingwith respect to future events and are subject to risks and uncertainties that may cause our plans, objectives, expectations, intentions and projections. We use words such as “anticipate,” “estimate,” “plan, “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressionsor our industry’s actual results, levels of activity, performance or achievements to identifybe materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Our actual results and the timing of selected events could differ materially from those anticipated in theseThese forward-looking statements speak only as a result of several factors,the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including those set forth under the “Risk Factors” sectionsecurities laws of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, andUnited States, we expressly disclaim any updatesobligation or undertaking to those risk factors filed from timedisseminate any update or revisions of any of the forward-looking statements to reflect any change in our Quarterly Reports on Form 10-Q including those set forth under Part II, Item 1A of this Quarterly Report on Form 10-Q.expectations with regard thereto or to conform these statements to actual results.

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

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

Company Overview

GlyEco is adeveloper, manufacturer and distributor of performance fluids for the automotive, commercial and industrial markets. We specialize incoolants, 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.

GlyEco, conducts its operation in two business segments: the Consumer segmentInc. (the “Company”, “we”, or “our”) is a chemical company focused on technology development and the Industrial segment. The Consumer segment’s principal business activity is the productionmanufacturing of coolants, additives, and distribution of ASTM grade glycol products, specifically automotive antifreezerelated performance fluids. We serve and specialty-blended antifreeze, for sale intosupport the automotive, heavy-duty, and industrial end markets. The Consumer segment operates a full lifecycle business, picking up waste antifreezemarkets with an unwavering commitment to customer service and producing finished antifreeze from both recycled and virgin glycol sources. We operate six processing and distribution centersquality. GlyEco Inc., located in the eastern regionInstitute, West Virginia, is a vertically integrated company which manufactures ethylene glycol, additives, and finished fluids. Maintaining control over all core ingredients of its glycol-based performance fluids, and directly managing all aspects of the United States. The production capacity ofmanufacturing process allows GlyEco Inc. to offer our customers the Consumer segment is approximately 90,000 gallons per month of ready to use (50/50) antifreeze. highest value with competitive costs.

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

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

Industrial Operations

Our 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:

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. 

Industrial Segment

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

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

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 (AmericanAmerican Society of Testing Materials)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&TGlyeco WV operates a glycol re-distillation plant in West Virginia, which produces virgin quality glycol for sale to industrial customers worldwide. The RS&TGlyeco WV facility currently produces antifreeze and industrial grade ethylene glycol. We believe it is one of the largest glycol re-distillation plants in North America, with production capacity of approximately 1.5 million gallons per month of concentrated ethylene glycol. The 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.

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.products as a low-cost manufacturer. To deliver value to all of our stakeholders we: develop manufacture and delivermanufacture 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 costlow-cost manufacturer, operate a dependable low cost distribution network, leverage technology and innovation throughout our company and are eco-friendly.company.

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

Our manufacturing operations produce high quality products while effectively managing costs by recycling at high capacitycosts. As a vertically integrated company, we manufacture glycol, develop and high up time, driving down raw material costs with focused feedstock streams managementmanufacture additive technologies, and using technologyleverage our position in glycols and dataadditives 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 themanufacture finished downstream products we offer and the way we operate our businesses.as performance fluids.

Critical Accounting Policies

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

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

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer,customer; (2) identify the performance obligations in the contract,contract; (3) determine the transaction price,price; (4) allocate the transaction price to the performance obligations in the contractcontract; and (5) recognize revenue when (or as) the entityCompany satisfies a performance obligation. See Note 3 for additional information on revenue recognition.

Collectability of Accounts Receivable

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

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

Inventories

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

Long-Lived Assets

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

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

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-MertonBlack-Sholes-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:

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 fullsettled this matter on February 26, 2019 for the services rendered and therefore that no outstanding balance remains due. Accordingly, the Company plans to vigorously defend itself from this claim.a minimal amount.

Environmental Matters

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

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

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

Results of Operations

Three Months Ended March 31, 20182019 Compared to Three Months Ended March 31, 20172018

Net Sales

For the three-month periodthree months ended March 31, 2019, Net Sales were $1,729,151 compared to $1,261,425 for the three months ended March 31, 2018, Net Sales were $3,001,010 compared to $2,290,321 for the three-month period ended March 31, 2017, representing an increase of $710,689,$467,726, or approximately 31%37%. The increase in Net Salessales was due to $667,644partially driven by an increase in gross sales of $94,644 and $34,710 at WEBA and the WV glycol plant respectively. The remaining difference in net sales related toof $338,372 was the Industrial Segment businesses compared toresult of the same period in 2017. Net Sales, including intersegmentsale of the consumer business as the Company replaced intercompany sales for the three-month period ended March 31, 2018, were $1,739,584 and $1,608,325 for the Consumer and Industrial segments, respectively.with revenue from external customers.

Cost of Goods Sold

For the three-month periodthree months ended March 31, 2018,2019, our Costs of Goods Sold was $2,449,100,$1,865,286, compared to $2,150,586$869,877 for the three-month periodthree months ended March 31, 2017,2018, representing an increase of $298,514,$995,409, or approximately 14%114%. The increase in Cost of Goods Sold was primarily due to costs associated with the increase in net sales.sales as well as a step up in cost structure at the WV glycol facility. The facility began processing a more expensive feedstock stream and incurred an increase in the site service fees charged by Dow for utilities at the plant that was part of the original purchase agreement.  

Gross (Loss) Profit

For the three-month periodthree months ended March 31, 2018,2019, we realized a gross profitloss of $551,910,($136,135), compared to a gross profit of $139,735$391,548 for the three-month period ended March 31, 2017. Gross profit, including intersegment sales, for the three-month periodthree months ended March 31, 2018, representing a decrease of $527,683 or approximately 135%. The gross loss was $170,397the result of operations at the WV glycol plant and $ 381,513pricing in the ethylene glycol market. Weakness in the market for ethylene glycol resulted in a decrease in the average sales price from $0.40/lb for the Consumer and Industrial segments, respectively.

Our gross profit margin for the three-month periodthree months ended March 31, 2018 was approximately 18%, compared to approximately 6%$0.32/lb for the three-month periodthree months ended March 31, 2017. Gross profit margin, excluding intersegment sales2019. Sales volume at the glycol plant increased by 22% from 2018 causing a significant increase in production costs while revenue remained constant. The facility also saw an increase in utility expenses and feedstock costs for raw materials.