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: September 30, 2018March 31, 2019

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

For the transition period from _______________ to ______________

Commission file number:  000-30396 

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

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 November 13, 2018,May 14, 2019, the registrant has 1,358,5971,448,411 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

September 30, 2018March 31, 2019 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 and nine months ended September 30,March 31, 2019 and 2018 and 2017

See accompanying notes to the condensed consolidated financial statements.

GLYECO, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated StatementStatements of Stockholders’ Equity (Deficit)

For the ninethree months ended September 30,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 ninethree months ended September 30,March 31, 2019 and 2018 and 2017

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 specialize in 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, now doing business as Glyeco West Virginia, Inc.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 Glyeco WVRS&T (for a total percentage ownership of 99.8%100% of Glyeco WV)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 formed to acquire our processingWEBA, and distribution centers. We currently have six processing and distribution centers, which are located in (1) Minneapolis, Minnesota, (2) Indianapolis, Indiana, (3) Lakeland, Florida, (4) Rock Hill, South California, (5) Tea, South Dakota, and (6) Landover, Maryland, which are held in six subsidiaries under the names of GlyEco Acquisition Corp. #1 through GlyEco Acquisition Corp. #7, excluding #4.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 reflect the reverse stock split.

Going Concern

The condensed consolidated financial statements as of September 30, 2018March 31, 2019 and December 31, 20172018 and for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017 have been prepared assuming that the Company will continue as a going concern. As of September 30, 2018,March 31, 2019, the Company has yet to achieve profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Ultimately, we plan to achieve profitable operations through the implementation of operating efficiencies at our facilities and increased revenue through the offering of additional products and the expansion of our geographic footprint through acquisitions, broader distribution from our current facilities and/or the opening of additional facilities. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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

The following represents an update for the ninethree months ended September 30, 2018March 31, 2019 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 2, 2018.1, 2019.

Basis of Presentation

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation on an interim basis. The operating results for the ninethree months ended September 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the 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 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 of September 30, 2018 and Decemberfor the three months ended March 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 Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) in the first quarter of 2018. 

The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the 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 the three and nine months ended September 30, 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 condensed consolidated statements of operations. The allowance for doubtful accounts totaled $77,277 and $213,136 as of September 30, 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 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 would be presented separately in the appropriate asset and liability sections of the condensed 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 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 both the three and nine months ended September 30, 2018 and 2017 would be anti-dilutive. At September 30, 2018, these potentially dilutive securities included warrants to purchase 104,957 shares of common stock and stock options to purchase 27,101 shares of common stock for a total of 132,058 shares of common stock. At September 30, 2017, these potentially dilutive securities included warrants to purchase 45,185 shares of common stock and stock options to purchase 38,981 shares of common stock for a total of 84,166 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, 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 core principle of ASU 2014-09 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 ASU 2014-09 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. ASU 2014-09 was effective for annual and interim periods beginning after December 15, 2017. The Company elected to adopt ASU 2014-09 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 “Revenue Recognition” in Notes 2 and 3 for additional disclosures regarding the Company’s revenue recognition policies and contracts with customers.

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. The Company has not yet selected a transition method and is currently assessing the impact that 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, $22,435 and $6,642 as of December 31, 2016, September 30, 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 ASU 2014-09. See discussion of the principal activities of 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 September 30, 2018March 31, 2019 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 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 September 30, 2018,March 31, 2019, the Company had no shares of preferred stock outstanding. 

Common Stock

As of September 30, 2018,March 31, 2019, the Company had 1,348,2531,383,731 shares of common stock, par value $0.0001 per share, outstanding. The Company’s articles of incorporation authorize the Company to issue up to 300,000,000 shares of common stock. The holders are entitled to one vote for each share on matters submitted to a vote of stockholders, and to share pro rata in all dividends payable on the common stock after payment of dividends on any shares of preferred stock having preference in payment of dividends.

The Company issued 3,7786,354 shares of common stock to employees in connection with our employee stock purchase plan (see below) for total payments of $20,326.$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 eighty five percent (85%) of the fair market value of a share of common stock on the exercise date of the current offering period or eighty five percent (85%) of the fair market value of our common stock on the grant date of the then current offering period. The first offering period began on November 14, 2017. Thereafter, there will be consecutive six-month offering periods until January 2, 2022, or until the 2017 ESPP is terminated by the Board of Directors of the Company, if earlier. 

The Company recorded stock-basedshare-based compensation expense related to the 2017 ESPP of approximately $1,000 and $10,000 during the three and nine months ended September 30, 2018, respectively.March 31, 2019 was insignificant.

During the ninethree months ended September 30, 2018,March 31, 2019, the Company issued the following shares of common stock for compensation:

On January 8, 2018, the Company issued 1,200 shares of common stock to one employee of the Company at a price of $7.50 per share for a value of approximately $9,000.

On March 31, 2018,2, 2019, the Company issued an aggregate of 9,24518,780 shares of common stock to six directors of the Company pursuant to the Company’s FY2017 Director Compensation Plan at a price of $8.13$3.99 per share for a value of approximately $75,000. $75,000 which was expensed during the year ended December 31, 2018.

On June 30, 2018,March 31, 2019, the Company expensed the value of an aggregate of 11,76664,680 shares of common stock to six directors of the Company pursuant to the Company’s FY2017 Director Compensation Plan at a price of $6.38$1.16 per share totaling approximately $75,000. The shares were issued in July 2018.

On September 30, 2018, the Company expensed the value of approximately $75,000 for 10,344 shares of common stock to six directors of the Company pursuant to the Company’s FY2017 Director Compensation Plan at a price of $7.25 per share. The shares were issued in October 2018.

During the three months ended September 30, 2018, the Company issued an aggregate of 3,778 shares of common stock to employees of the Company pursuant to the Company’s Equity Incentive Program at a price of $5.38 per share.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 and nine months ended September 30,March 31, 2019 and 2018, and 2017, the Company recorded $41,700$35,032 and $104,044 and $48,749 and $96,420,$26,774 respectively, related to the performance and market-based restricted stock awards. 

Options and Warrants

During the ninethree months ended September 30, 2018,March 31, 2019, the Company issued warrants to purchase an aggregate of 84,000 shares of common stock in connection with the issuance of notes payable (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 (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 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 Glyeco WV, two of our subsidiaries. WEBA develops, manufactures and markets additive packages for the antifreeze/coolant, gas patch coolant and heat transfer industries throughout North America.  Glyeco WV operates a glycol re-distillation plant in West Virginia that produces virgin quality glycol for sale to industrial customers worldwide. The production capacity of the Glyeco WV facility is approximately 1.5 million gallons per month of concentrated ethylene glycol. The Glyeco WV facility current produces antifreeze and industrial grade ethylene glycol. lease liabilities.

Upon adoption of ASC 842, we recorded a $475,000 increase in other assets, a $112,000 decrease to other current liabilities, and a $587,000 increase to operating lease liabilities. The Company uses loss before provision for income taxes as its measure of profit/loss for segment reporting purposes. Loss before provision for (benefit from) income taxes by operating segment includes all operating items relatingimpact primarily related to the businesses, including inter segment transactions. Itemschange in assigning a right-of-use asset and related lease liability to our operating leases. We did not record any cumulative effect adjustments to opening retained earnings, and adoption of the lease standard had no impact to cash from or used in operating, financing, or investing on our consolidated cash flow statements.

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

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

Lease Costs

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

Other Information

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

NOTE 9 – Discontinued Operations

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

Inter-segment eliminations presentThe loss from discontinued operations in the adjustments for inter-segment transactions to reconcile segment information tocondensed consolidated statements of operations includes the Company’s consolidated financial statements.following:

Segment information,

The carrying amount of assets and liabilities included in discontinued operations comprise the reconciliation to the Company’s consolidated financial statements, for the three months ended September 30, 2018 is presented below:following:

Segment information, and the reconciliation to the Company’s consolidated financial statements, for the nine months ended September 30, 2018 is presented below:

NOTE 910 – Notes Payable

Notes payable consist of the following:

2019 Unsecured Note

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

2018 Related Party 10% Unsecured Notes

On April 6, 2018, the Company commenced a private placement (“Private Placement”) of 10% Senior Unsecured Promissory Notes (the “10% Notes”) and (ii) warrants (the “Warrants”) to purchase up to 100,000 shares of common stock of the Company, that were issued pursuant to subscription agreement. The 10% Notes bear interest at a rate of 10% per annum due on the maturity date or as otherwise specified by the 10% Notes. The Warrants have an exercise price per share of $0.05.$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 iswas scheduled to mature on May 4, 2019.2019 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 iswas scheduled to mature on May 9, 2019. 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, (see Item 5), 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 iswas scheduled to mature on May 6, 2019.2019 and extension discussions are in place.

The Company allocated the proceeds received from the 10% Notes and the Warrants on a relative fair value basis at the time of issuance. The total debt discount of $313,980,$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 ninethree months ended September 30,March 31, 2019 and 2018 was $146,040.$75,074 and insignificant, resprectively.

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

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

2018 Secured Note

In September 2018, the Company entered into a secured promissory note with MHC Financial (the “2018 Secured Note”). The 2018 Secured Note is collateralized by a vehicle. The key terms of the 2018 Secured Note includes: (i) an original principal balance of $74,600, (ii) interest rate of 8.74%, and (iii) term of 3.5 years.

2018 and 2017 Unsecured Note

In October 2017, and later amended in January 2018, the Company issued 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. This loan has been paid in full.

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.