QUEST RESOURCE HOLDING CORP, 10-Q filed on 8/14/2014
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 1, 2014
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
QRHC 
 
Entity Registrant Name
Quest Resource Holding Corporation 
 
Entity Central Index Key
0001442236 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Smaller Reporting Company 
 
Entity Common Stock, Shares Outstanding
 
97,050,674 
CONSOLIDATED BALANCE SHEETS (USD $)
Jun. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 3,196,877 
$ 2,676,984 
Accounts receivable, less allowance for doubtful accounts of $360,887 and $319,735 as of June 30, 2014 and December 31, 2013, respectively
24,220,169 
20,849,140 
Inventory
 
3,251 
Prepaid expenses and other assets
726,064 
401,537 
Total current assets
28,143,110 
23,930,912 
Property and equipment, net
555,578 
645,485 
Goodwill
58,337,290 
58,337,290 
Intangible assets, net
16,312,104 
17,636,964 
Security deposits and other assets
111,609 
95,892 
Total assets
103,459,691 
100,646,543 
Current liabilities:
 
 
Line of credit
5,250,000 
2,750,000 
Accounts payable
23,629,752 
23,589,755 
Accrued liabilities
2,155,263 
2,673,770 
Deferred revenue
481,958 
234,899 
Long-term debt and capital lease obligations - current portion
16,418 
16,096 
Convertible notes payable - short term
 
25,000 
Total current liabilities
31,533,391 
29,289,520 
Long-term capital lease obligations, less current maturities
24,793 
33,067 
Long-term senior secured convertible notes - related parties, net of discount of $3,748,631 and $4,656,934 as of June 30, 2014 and December 31, 2013, respectively
18,251,369 
17,343,066 
Total liabilities
49,809,553 
46,665,653 
Commitments and contingencies
   
   
Stockholders' equity:
 
 
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of June 30, 2014 and December 31, 2013, respectively
Common stock, $0.001 par value, 200,000,000 shares authorized, 97,050,674 and 95,814,565 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
97,051 
95,815 
Additional paid-in capital
122,393,956 
119,410,777 
Accumulated deficit
(68,840,869)
(65,525,702)
Total stockholders' equity
53,650,138 
53,980,890 
Total liabilities and stockholders' equity
$ 103,459,691 
$ 100,646,543 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Statement Of Financial Position [Abstract]
 
 
Allowance for doubtful accounts receivable
$ 360,887 
$ 319,735 
Long term senior secured convertible note - related party, discount
$ 3,748,631 
$ 4,656,934 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
97,050,674 
95,814,565 
Common stock, shares outstanding
97,050,674 
95,814,565 
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Income Statement [Abstract]
 
 
 
 
Revenue
$ 42,514,265 
$ 402,014 
$ 80,674,315 
$ 715,502 
Cost of revenue
39,005,550 
108,628 
73,833,185 
148,321 
Gross profit
3,508,715 
293,386 
6,841,130 
567,181 
Operating expenses:
 
 
 
 
Selling, general and administrative
3,491,507 
2,398,731 
6,485,215 
4,657,533 
Depreciation and amortization
953,499 
14,813 
1,905,162 
29,793 
Total operating expenses
4,445,006 
2,413,544 
8,390,377 
4,687,326 
Operating loss
(936,291)
(2,120,158)
(1,549,247)
(4,120,145)
Other expense:
 
 
 
 
Interest expense
(890,453)
(292,220)
(1,765,920)
(600,634)
Financing cost for senior secured convertible notes - related parties
 
(1,465,000)
Total other expense, net
(890,453)
(292,220)
(1,765,920)
(2,065,634)
Loss before taxes and equity income
(1,826,744)
(2,412,378)
(3,315,167)
(6,185,779)
Equity in Quest Resource Management Group, LLC income
103,155 
578,951 
Loss before taxes
(1,826,744)
(2,309,223)
(3,315,167)
(5,606,828)
Income tax expense
 
 
Net loss
(1,826,744)
(2,309,223)
(3,315,167)
(5,606,828)
Net loss applicable to common stockholders
$ (1,826,744)
$ (2,309,223)
$ (3,315,167)
$ (5,606,828)
Net loss per share
 
 
 
 
Basic and diluted
$ (0.02)
$ (0.04)
$ (0.03)
$ (0.09)
Weighted average number of common shares outstanding
 
 
 
 
Basic and diluted
96,649,466 
65,338,152 
96,237,784 
61,670,008 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (USD $)
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit[Member]
Beginning Balance at Dec. 31, 2013
$ 53,980,890 
$ 95,815 
$ 119,410,777 
$ (65,525,702)
Beginning Balance, Shares at Dec. 31, 2013
 
95,814,565 
 
 
Stock-based compensation
520,414 
 
520,414 
 
Sale of common stock
2,385,000 
1,193 
2,383,807 
 
Sale of common stock, Shares
1,192,500 
1,192,500 
 
 
Note conversion
29,001 
23 
28,978 
 
Note conversion, Shares
 
23,201 
 
 
Common stock issued for services
50,000 
20 
49,980 
 
Common stock issued for services, Shares
20,408 
20,408 
 
 
Net loss
(3,315,167)
 
 
(3,315,167)
Ending Balance at Jun. 30, 2014
$ 53,650,138 
$ 97,051 
$ 122,393,956 
$ (68,840,869)
Ending Balance, Shares at Jun. 30, 2014
 
97,050,674 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:
 
 
Net loss
$ (3,315,167)
$ (5,606,828)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation
142,461 
29,793 
Amortization of intangibles
1,762,701 
Amortization of debt discount and deferred financing costs
908,303 
478,473 
Equity in Quest Resource Management Group, LLC income
(578,951)
Provision for doubtful accounts
41,338 
994 
Stock-based compensation
580,573 
1,573,010 
Financing costs for senior convertible notes - related parties
1,465,000 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(3,412,367)
7,392 
Inventory
3,251 
887 
Prepaid expenses and other assets
(307,861)
7,760 
Security deposits and other assets
(15,717)
63,626 
Accounts payable
39,997 
141,204 
Accrued liabilities
(541,332)
240,022 
Deferred revenue
247,059 
129,454 
Net cash used in operating activities
(3,866,761)
(2,048,164)
Cash flows from investing activities:
 
 
Purchase of property and equipment
(52,554)
(6,493)
Capitalized software development
(437,840)
 
Distributions received from Quest Resource Management Group, LLC
800,000 
Net cash (used in) provided by investing activities
(490,394)
793,507 
Cash flows from financing activities:
 
 
Proceeds from senior related party secured convertible note
1,000,000 
Proceeds from line of credit
2,500,000 
 
Proceeds from sale of capital stock
2,385,000 
 
Repayments of capital lease obligations
(7,952)
(38,571)
Net cash provided by financing activities
4,877,048 
961,429 
Net increase (decrease) in cash and cash equivalents
519,893 
(293,228)
Cash and cash equivalents at beginning of period
2,676,984 
485,728 
Cash and cash equivalents at end of period
3,196,877 
192,500 
Supplemental cash flow information:
 
 
Cash paid for interest
732,018 
83,792 
Supplemental non-cash flow activities:
 
 
Common stock issued for services and loan fees
33,333 
178,858 
Common stock issued for warrants - cashless exercise
21,698,338 
Discount to senior convertible note - related party
1,000,000 
Notes Payable [Member]
 
 
Supplemental non-cash flow activities:
 
 
Common stock issued for conversion of notes payable, including accrued interest
$ 29,001 
$ 113,993 
The Company and Description of Business and Future Liquidity Needs
The Company and Description of Business and Future Liquidity Needs

1. The Company and Description of Business and Future Liquidity Needs

The accompanying consolidated financial statements include the accounts of Quest Resource Holding Corporation (“QRHC”), formerly Infinity Resources Holdings Corp., and its subsidiaries, Earth911, Inc. (“Earth911”), Quest Resource Management Group, LLC (“Quest”), Landfill Diversion Innovations, LLC, and Youchange, Inc. (“YouChange”) (collectively, “QRHC”, the “Company”, “we”, “us”, or “our company”). On October 28, 2013, we changed our name to Quest Resource Holding Corporation, increased our shares of common stock authorized for issuance to 200,000,000 and changed our trading symbol to “QRHC.”

On July 16, 2013, we acquired the membership interests of Quest held by Quest Resource Group LLC (“QRG”), comprising 50% of Quest (the “Quest Interests”). Prior to July 16, 2013, our wholly owned subsidiary, Earth911, held the remaining 50% membership interest of Quest. Upon acquisition of the Quest Interests, we assigned the Quest Interests to Earth911 so that Earth911 now owns Quest and Quest is now our indirect wholly owned subsidiary. We consolidated Quest in these financial statements for the quarter ended June 30, 2014.

Operations – We are an environmental solutions company that serves as a single-source provider of full service recycling and waste stream management solutions, as well as an environmental program services and information provider. We offer innovative, cost-effective, one-stop reuse, recycling, and waste disposal management programs designed to provide regional and national customers with a single point of contact for managing a variety of recyclables and disposables. We also own the Earth911.com website, offering original online environmental related content about reuse, recycling, and disposal of waste and recyclables, and we own a comprehensive online database of local recycling and proper disposal options. Our principal offices are located in Frisco, Texas.

Liquidity – During 2013, we restructured and relocated the operations of Earth911 and YouChange to reduce future operating expenses and streamline management. We expect the acquisition of the Quest Interests to provide increased cash flow from operations. In addition, we plan to increase working capital by increasing sales, maintaining efficient operating expenses, and through other initiatives.

On April 18, 2014, we issued an aggregate of 1,192,500 units (the “Units”) to accredited investors, for an aggregate purchase price of $2,385,000, with each Unit consisting of one share of our common stock and a warrant to purchase one share of our common stock for $2.00 per share. Each warrant may be exercised by the holder thereof, in such holder’s sole discretion, in whole or in part, any time prior to April 1, 2017.

Pro forma Three and Six Months Ended June 30, 2013 Operating Results – As discussed above and in Note 10 to these financial statements, we previously accounted for Quest as an equity investment. On July 16, 2013, we acquired the remaining 50% membership interests of Quest and now hold 100% of the membership interests of Quest. The accompanying financial statements consolidate the results of operations of Quest for the quarter ended June 30, 2014.

The following table summarizes our pro forma consolidated operating results for the three and six months ended June 30, 2013, assuming Quest had been a wholly owned subsidiary and 100% of Quest’s operations were included in the relevant periods:

 

     Pro Forma
Three Months Ended June 30,
2013
    Pro Forma
Six Months Ended June 30,
2013
 
     (Unaudited)     (Unaudited)  

Consolidated operating statement information:

    

Net sales

   $ 32,655,802      $ 63,620,354   

Gross profit

     2,865,440        6,436,589   

Income (loss) from operations

     (1,821,926     5,493,425   

Net loss

     (2,102,913     (4,448,926
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principals of Presentation, Consolidation, and Reclassifications

The consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

 

The accompanying consolidated financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2014, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2013 consolidated balance sheet data from audited financial statements, but did not include all disclosures required by GAAP.

Through July 16, 2013, Quest was deemed to be a separate operating company and as such, there were no intercompany transactions that required elimination at that time. All other intercompany accounts and transactions have been eliminated in consolidation, including transactions between QRHC and Quest subsequent to July 16, 2013. Certain reclassifications have been made to prior year balances to conform to the current year presentation. Interim results are subject to seasonal variations, and the results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year.

As Quest, Earth911, and YouChange are operating as ecology based green service companies, we did not deem segment reporting necessary.

Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

We use significant estimates when accounting for the collectability of accounts receivable, depreciable lives of fixed assets, accruals, assumptions used in the valuation and recognition of share-based payments and warrant liability, the realization of goodwill and intangible assets, deferred tax assets, the equity method investment in Quest, and the application of accounting for the senior secured convertible notes, all of which are discussed in their respective notes to the consolidated financial statements.

Revenue Recognition

We recognize revenue only when all of the following criteria have been met:

 

    persuasive evidence of an arrangement exists;

 

    delivery has occurred or services have been rendered;

 

    the fee for the arrangement is fixed or determinable; and

 

    collectability is reasonably assured.

Persuasive Evidence of an Arrangement – We document all terms of an arrangement in a quote signed or confirmed by the customer prior to recognizing revenue.

Delivery Has Occurred or Services Have Been Performed – We perform all services or deliver all products prior to recognizing revenue. Services are deemed to be performed when the services are complete.

The Fee for the Arrangement is Fixed or Determinable – Prior to recognizing revenue, a customer’s fee is either fixed or determinable under the terms of the quote or accepted customer purchase order.

Collectability Is Reasonably Assured – We assess collectability on a customer by customer basis based on criteria outlined by management.

We provide businesses with management programs to reuse, recycle, and dispose of a wide variety of waste streams and recyclables generated by their business. We utilize third-party subcontractors to execute the collection, transport, and recycling or disposal of used motor oil, oil filters, scrap tires, cooking oil, and expired food products. We evaluate the criteria outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-45, Revenue Recognition—Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of service revenue and related costs or the net amount earned as management fees. Generally, when we are primarily obligated in a transaction, have latitude in establishing prices and selecting suppliers, have credit risk, or have several but not all of these indicators, we record revenue gross and record amounts collected from customers for sales tax on a net basis. In a situation where we are not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, we would record the net amounts as management fees earned. Currently, we have no contracts accounted for as management fees.

Earth911 revenue primarily represents licensing fees that are recognized ratably over the term of the license. We derive some revenue from advertising contracts, which we recognize ratably, over the term that the advertisement appears on our website.

Cash and Cash Equivalents

We consider all highly liquid instruments with a remaining maturity of three months or less when purchased to be cash equivalents.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities;

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

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability.

Fair value accounting has been applied to the valuation of stock-based compensation, warrants issued, intangible assets, and goodwill.

Stock Options - We estimate the fair value of stock options on the grant date in accordance with ASC Topic 718 using the Black-Scholes-Merton valuation model. Significant Level 3 assumptions used in the calculation are as follows:

 

    We determine the expected term using the simplified method for plain vanilla options by averaging the contractual term and vesting period of the award due to the unavailability of appropriate statistical data required to properly estimate the expected term in accordance with SEC Staff Accounting Bulletin No. 107;

 

    We measure expected volatility using the historical changes in the market price of our common stock and applicable comparison companies, disregarding identifiable periods of extraordinarily volatile share prices due to certain events that are not expected to recur during the expected term;

 

    We use the risk-free interest rate to approximate the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and

 

    We base forfeitures on the history of cancellations of options granted by us and our analysis of potential future forfeitures.

Net Loss Per Share

We compute basic net loss per share by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. The calculation of basic loss per share gives retroactive effect to the recapitalization related to our reverse acquisition of Earth911. We have other potentially dilutive securities outstanding that are not shown in a diluted net loss per share calculation because their effect in both 2014 and 2013 would be anti-dilutive. These potentially dilutive securities include options, warrants, and convertible promissory notes totaled 19,287,215 and 13,107,162 shares at June 30, 2014 and 2013, respectively.

 

The following table sets forth the computation of basic and diluted loss per share:

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2014     2013     2014     2013  
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

Net loss applicable to common stockholders - numerator for basic and diluted earnings per share

   $ (1,826,744   $ (2,309,223   $ (3,315,167   $ (5,606,828
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted - average common shares outstanding - denominator for basic and diluted earnings per share

     96,649,466        65,338,152        96,237,784        61,670,008   

Net loss per share:

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted

   $ (0.02   $ (0.04   $ (0.03   $ (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth the anti-dilutive securities excluded from diluted loss per share:

 

     For the Six Months Ended June 30,  
     2014      2013  
     (Unaudited)      (Unaudited)  

Anti-dilutive securities excluded from diluted loss per share:

     

Stock options

     4,996,215         3,417,115   

Warrants

     3,291,000        1,381,113   

Convertible notes

     11,000,000         8,308,934   
  

 

 

    

 

 

 
     19,287,215         13,107,162   
  

 

 

    

 

 

 

Investment in Quest

Investee companies that are not consolidated, but over which we exercise significant influence, are accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to an investee depends on an evaluation of several factors, including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Prior to July 17, 2013, we accounted for the investment in Quest under the equity method of accounting, in which the investee company’s accounts were not consolidated within our consolidated balance sheet and statement of operations. We reflected our share of earnings or losses of the investee company in the caption “Equity in Quest Resource Management Group, LLC income” in our consolidated statement of operations. Subsequent to our acquisition of the Quest Interests, we have consolidated the operational activity of Quest with our company.

Income Taxes

We recognize deferred tax assets and liabilities for the future tax consequences of temporary differences between the book and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. We establish valuation allowances to reduce a deferred tax asset to the amount expected to be realized. We assess our ability to realize deferred tax assets based on current earnings performance and on projections of future taxable income in the relevant tax jurisdictions. These projections do not include taxable income from the reversal of deferred tax liabilities and do not reflect a general growth assumption but do consider known or pending events, such as the passage of legislation. We review our estimates of future taxable income annually. We first analyze all tax positions to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. After the initial analysis, we measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Our income tax returns are subject to adjustment under audit for approximately the last three years.

If we are required to pay interest on the underpayment of income taxes, we recognize interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

If we are subject to payment of penalties, we recognize an expense for the amount of the statutory penalty in the period when we take the position on the income tax return. If we did not recognize the penalty in the period when we initially took the position, we recognize the expense in the period when we change our judgment about meeting minimum statutory thresholds related to the initial position taken.

 

Stock-Based Compensation

We expense all share-based grants to employees, including grants of employee stock options, based on their estimated fair values at grant date, in accordance with ASC Topic 718. We record compensation expense for stock options over the vesting period using the estimated fair value on the date of grant, as calculated using the Black-Scholes-Merton model. We classify all share-based awards as equity instruments and recognize the vesting of the awards ratably over their respective terms. See Note 13 for a description of our share-based compensation plan and information related to awards granted under the plan.

Inventories
Inventories

3. Inventories

As of June 30, 2014 and December 31, 2013, finished goods inventories were nil and $3,251, respectively, and consisted of composite heaters, with no reserve for inventory obsolescence at either date.

Property and Equipment
Property and Equipment

4. Property and Equipment

At June 30, 2014 and December 31, 2013, property and equipment consisted of the following:

 

     June 30,     December 31,  
     2014     2013  
     (Unaudited)        

Vehicles

   $ 544,984      $ 544,984   

Computer equipment

     727,648        790,987   

Office furniture and fixtures

     329,210        239,662   

Machinery and equipment

     479,135        458,257   

Leasehold improvements

     17,830        12,363   
  

 

 

   

 

 

 
     2,098,807        2,046,253   

Less: accumulated depreciation

     (1,543,229     (1,400,768
  

 

 

   

 

 

 
   $ 555,578      $ 645,485   
  

 

 

   

 

 

 

We lease certain computer equipment under agreements that are classified as capital leases. The cost of equipment under these capital leases was $50,470 and $49,163 at June 30, 2014 and December 31, 2013, respectively, and we record it in the consolidated financial statements as property and equipment. Accumulated depreciation of the leased equipment at June 30, 2014 and December 31, 2013 was $5,047, and $1,402, respectively.

Intangible Assets
Intangible Assets

5. Intangible Assets

The components of intangible assets are as follows:

 

June 30, 2014    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
     Net  

Finite lived intangible assets:

           

Customer relationships

     5 years       $ 12,720,000       $ 2,438,000       $ 10,282,000   

Trademarks

     7 years         6,230,000         852,917         5,377,083   

Patents

     7 years         230,683         230,683         —     

Software

     7 years         437,841         1,254        436,587   

Customer lists

     5 years         307,153         90,719         216,434   
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 19,925,677       $ 3,613,573       $ 16,312,104   
     

 

 

    

 

 

    

 

 

 
December 31, 2013    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
     Net  

Finite lived intangible assets:

           

Customer relationships

     5 years       $ 12,720,000       $ 1,166,000       $ 11,554,000   

Trademarks

     7 years         6,230,000         407,917         5,822,083   

Patents

     7 years         230,683         216,951         13,732   

Customer lists

     5 years         307,153         60,004         247,149   
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 19,487,836       $ 1,850,872       $ 17,636,964   
     

 

 

    

 

 

    

 

 

 

 

June 30, 2014 and December 31, 2013    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
   Net  

Goodwill

     Indefinite       $ 58,337,290          $ 58,337,290   
     

 

 

       

 

 

 

We compute amortization using the straight-line method over the estimated useful lives of the assets. The amortization expense related to intangible assets was $880,605 for the quarter ended June 30, 2014 and $1,762,701 for the six months ended June 30, 2014, with no comparable expense for the comparable periods ended June 30, 2013. We have no indefinite-lived intangible assets other than goodwill. The goodwill is not deductible for tax purposes.

Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

     June 30,      December 31,  
     2014      2013  
     (Unaudited)         

Compensation

   $ 820,020       $ 1,114,252   

Deferred rent obligation

     752,787         930,274   

Sales and use tax

     178,278         484,134   

Professional fees

     164,959         40,241   

Insurance

     —           48,663   

Accrued interest and other

     239,219         56,206   
  

 

 

    

 

 

 
   $ 2,155,263       $ 2,673,770   
  

 

 

    

 

 

 
Line of Credit
Line of Credit

7. Line of Credit

On December 15, 2010, Quest entered into a Revolving Credit Note and Loan Agreement with Regions Bank (“Regions”), a national banking association. This agreement provides Quest with a loan facility up to $10,000,000 for working capital with advances generally limited to 80% of eligible accounts receivable from Quest’s largest customer and 85% of all other eligible accounts receivable. The interest on the outstanding principal amount accrues daily and is payable monthly based on a fluctuating interest rate per annum, which is the base rate plus 1.50% (2.65% as of June 30, 2014). The base rate for any day is the greater of (a) the Federal funds rate plus one-half of 1%, (b) Region’s published effective prime rate, or (c) the Eurodollar rate for such day based on an interest period of one month. To secure the amounts due under the agreement, Quest granted Regions a security interest in all of its assets. Quest had $5,250,000 outstanding and $4,097,235 available to be borrowed as of June 30, 2014.

On May 9, 2014, Quest entered into a Sixth Amendment to the Loan Agreement with Regions Bank. The Loan Agreement was amended to, among other things, (i) add a $5.0 million accordion feature, (ii) increase the Borrowing Base, (iii) reduce the Applicable Margin for Eurodollar Rate Loans by 1% per annum, (iv) add an unused fee of 0.25% per annum, (v) extend the maturity date to May 31, 2015, (vi) release the Guaranty of our Chief Executive Officer previously executed in favor of the Lender, (vii) add our company and our wholly owned subsidiary, Earth911, Inc., as Guarantors, (viii) allow for Permitted Acquisitions, and (ix) delete two of the financial covenants and modify the other financial covenants in certain respects.

In connection with the Sixth Amendment, on May 9, 2014, we and Earth911entered into a Guaranty (the “Guaranty”) for the benefit of Regions to guarantee the obligations of Quest under the Loan Agreement and other Loan Documents. In addition, on May 9, 2014, Earth911 entered into a Pledge Agreement with Regions, pursuant to which Earth911 pledged to Regions 50% of the membership interests in Quest held by Earth911 to secure the prompt and complete payment and performance of the obligations of Quest and the Guarantors under the Loan Agreement and other Loan Documents.

Convertible Note Payable
Convertible Note Payable

8. Convertible Note Payable

During the six months ended June 30, 2014, $25,000 of principal and $4,001 of interest was converted into 23,201 shares of our common stock. We treat the intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which we do not bifurcate, separately from the convertible note payable, and we may not settle in cash upon conversion, as a discount to the convertible note payable. We amortize this discount over the period from the date of issuance to the date the note is due using the effective interest method. If we retire the note payable prior to the end of its contractual term, we expense the unamortized discount in the period of retirement to interest expense. In general, we measure the beneficial conversion feature by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

The following convertible note payable was outstanding as of June 30, 2014 and December 31, 2013:

 

     June 30,
2014
     December 31,
2013
 
     (Unaudited)         

Convertible note payable to unrelated parties, issuance date of September 2012

     —        $ 25,000   
  

 

 

    

 

 

 

Total convertible notes payable - short term

     —        $ 25,000   
  

 

 

    

 

 

 

During September 2012, we issued for cash a $25,000 convertible note to an unrelated, accredited third party. The note matured six months from the date of issuance. The note bore interest at a rate of 10.0% per annum and was convertible at any time, with accrued interest, at the discretion of the investor into shares of our common stock at a rate of $1.25 per share. Based on our share price at the time we entered into the note agreement, we recognized a beneficial conversion feature of $17,500 for this convertible note.

Long-Term Debt and Capital Lease Obligations
Long-Term Debt and Capital Lease Obligations

9. Long-Term Debt and Capital Lease Obligations

At June 30, 2014 and December 31, 2013, total long-term debt outstanding consisted of the following:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

Secured convertible notes payable to related parties, 7% interest due monthly in arrears, due July 2016, repayment provisions discussed further below (Net of discount of $3,748,631 and $4,656,934 as of June 30, 2014 and December 31, 2013, respectively)

   $ 18,251,369      $ 17,343,066  

Capital lease obligations, imputed interest at 4.75%, with monthly payments of $1,507 through November 2016, secured by computer equipment

     41,211        49,163   
  

 

 

   

 

 

 

Total

     18,292,580        17,392,229   

Less: current maturities

     (16,418     (16,096
  

 

 

   

 

 

 

Long-term portion

   $ 18,276,162      $ 17,376,133   
  

 

 

   

 

 

 

Convertible Secured Promissory Notes – Quest Acquisition - In connection with our acquisition of Quest on July 16, 2013, we issued convertible secured promissory notes with a total principal amount of $22,000,000 to the owners of QRG: the Chief Executive Officer of Quest and the former President of Quest, who are also related parties of our company. The convertible secured promissory notes (collectively, the “Sellers Notes”) are each secured by a first-priority security interest in a 25% membership interest held by Earth911 in Quest (comprising a total of 50% of the membership interests of Quest), as set forth in security and membership interest pledge agreements, by and between Earth911 and the sellers. The Sellers Notes accrue interest at a rate of 7% per annum and are payable on a monthly basis on the 5th day of the month beginning on September 5, 2013. The principal amount will be due and payable in one installment on July 16, 2016.

The Sellers Notes are convertible at any time, in the sole discretion of the holders, into shares of our common stock at a price of $2.00 per share. In addition, the Sellers Notes are convertible, in our sole discretion, into shares of our common stock at a price of $2.00 per share at any time (i) after the two year anniversary of the Notes, (ii) the principal amount of each Sellers Notes has been paid down by $5,000,000 as a result of the first capital raise, (iii) our common stock trades on the Nasdaq Stock Market, the New York Stock Exchange, or NYSE MKT, and (iv) our common stock has traded at four times the $2.00 conversion price, as adjusted for any stock splits, reverse stock splits, or both. Based on our share price at the time we entered into the Sellers Notes agreement, we recognized a beneficial conversion feature of $5,500,000 and discounted the Sellers Notes. As of June 30, 2014, the unamortized discount on the Sellers Notes was $3,748,631. The amount of interest expense related to the Sellers Notes for the quarter ended June 30, 2014 was $763,671. The amount of interest expense related to the amortization of the discount on the Sellers Notes for the quarter ended June 30, 2014 was $908,303.

 

Stockbridge Senior Secured Convertible Note - On March 22, 2012, Earth911 entered into a securities purchase agreement with Stockbridge Enterprises, L.P., a related party (“Stockbridge”), pursuant to which Earth911 issued a senior secured convertible note (the “Convertible Note”) and four warrants to Stockbridge. All of the assets of Earth911 secured the Convertible Note. On each of October 10, 2012 and March 29, 2013, the terms of the note and the warrants were amended and additional warrants were issued to Stockbridge (the “Allonge” and the “Second Allonge”). The Convertible Note and warrants were also adjusted for the Earth911 Merger in October 2012. On July 16, 2013, Stockbridge elected to convert $3,000,000 in principal and $34,500 of accrued interest into 8,382,597 shares of our common stock.

The amended Convertible Note provided for up to $3,000,000 principal with a maturity date of October 1, 2015, which was extendable under certain circumstances. As of June 30, 2013, the full amount of the principal had been drawn. The annual interest rate was adjusted in October 2012 to 9.0% from the original 6.0%, and was due monthly in arrears. Reflecting the adjustment for the Earth911 Merger, the Convertible Note was convertible into shares of our common stock at $0.362 per share prior to the maturity date, subject to a downward formula-based adjustment for future issuances of common stock or stock equivalents under certain conditions whereby the issue price was lower than the conversion price in effect immediately prior to such issue or sale (the “Fixed Conversion Price”). As a result of the Earth911 Merger, a United States exchange listed our common stock, which was a Triggering Event under the Convertible Note; therefore the conversion price was the lower of the Fixed Conversion Price or the average closing bid price during the ten trading days immediately preceding the conversion date.

In connection with the Convertible Note, we issued five-year warrants that were subsequently adjusted for the Earth911 Merger and consisted of the following:

 

  (i) a warrant issued March 2012 to acquire up to 1,381,115 shares of our common stock, exercisable immediately upon execution of the Convertible Note (“Warrant 1-1”);

 

  (ii) three contingent warrants issued March 2012, exercisable only in the event that all outstanding principal and accrued interest on the Convertible Note was not paid in full at such dates, as follows: a warrant to acquire up to 345,278 shares of our common stock, exercisable at the conclusion of 42 months after the issuance date of the warrant (“Warrant 1-2”); a warrant to acquire up to 345,278 shares of our common stock, exercisable at the conclusion of 45 months after the issuance date of the warrant (“Warrant 1-3”); and a warrant to acquire up to 690,557 shares of our common stock, exercisable at the conclusion of 48 months after the issuance date of the warrant (“Warrant 1-4”);

 

  (iii) a warrant issued October 2012 upon execution of the Allonge to acquire up to 5,524,461 shares of our common stock, exercisable immediately (“Warrant 1-5”); and

 

  (iv) a warrant issued March 2013 upon execution of the Second Allonge to acquire up to 500,000 shares of our common stock, exercisable immediately (“Warrant 1-6”).

Warrant 1-1 was exercisable at the lower of $0.37 per share or the average closing bid price during the ten trading days immediately preceding the exercise date. Warrant 1-5 was exercisable at the lower of $0.37 per share or the average closing bid price during the ten trading days immediately preceding the exercise date. Warrant 1-6 was exercisable at the lower of $0.37 per share or the average closing bid price during the ten trading days immediately preceding the exercise date.

Warrant 1-1, Warrant 1-5, and Warrant 1-6 were exercised in March 2013 as part of the Second Allonge using a cashless exercise formula.

If the contingent Warrant 1-2, Warrant 1-3, and Warrant 1-4 had become exercisable, the exercise price would have been the lower of $0.37 per share or the average closing bid price during the ten trading days immediately preceding the exercise date. The exercise price for all of the warrants was also subject to a downward formula-based adjustment for future issuances of common stock or stock equivalents under certain conditions whereby the issue price is lower than the exercise price in effect immediately prior to such issue or sale. These warrants were cancelled when the Convertible Note was converted on July 16, 2013.

In connection with the issuance of the Convertible Note, Warrant 1-1 and Warrant 1-5 were initially valued and accounted for as a warrant liability of $18,742,526 and allocated as a discount to the Convertible Note of $1,500,000 with the remainder of $17,242,526 expensed as a financing cost. See Note 12 regarding the valuations of the warrant liability.

 

On March 29, 2013, Stockbridge elected to exercise Warrant 1-1, Warrant 1-5, and Warrant 1-6 with exercisable rights in total to purchase 7,405,576 shares of our common stock at $0.37 per share under the cashless exercise option of the Second Allonge. The Company determined the net number of shares to issue using the “Cashless Exercise” formula, as amended and restated, as follows:

Net Number of Shares to Issue = (A x B) – (A x C)

                                                                            D

For purposes of the foregoing formula as of March 29, 2013:

A = 7,406,576, the total number of warrant shares with respect to which these warrants were then being exercised.

B = $3.30, the closing price of our common stock plus 10.0% on the date of exercise of the warrant.

C = $0.37, the warrant exercise price then in effect for the applicable warrant shares at the time of such exercise.

D = $3.00, the closing price of our common stock on the date of exercise of the warrant.

Based on the cashless exercise formula, on March 29, 2013, Warrant 1-1, Warrant 1-5, and Warrant 1-6 yielded a net number of shares to issue of 7,232,779 with a value of $21,698,338 based on the $3.00 closing price of the stock on the date of issue.

Investment in Quest Resource Management Group, LLC
Investment in Quest Resource Management Group, LLC

10. Investment in Quest Resource Management Group, LLC

Prior to July 16, 2013, we held a 50% ownership interest in Quest, which Earth911 acquired on August 21, 2008. On July 16, 2013, we acquired all of the Quest Interests, held by QRG, comprising 50% of the membership interests of Quest. The purchase price for the Quest Interests consisted of 22,000,000 shares of our common stock issued at a fair market value of $2.50 per share based on the closing price of the stock on the date of the transaction and the Sellers Notes in the aggregate principal amount of $22,000,000. We paid the total purchase price of $77,000,000 to the owners of QRG and related parties: the Chief Executive Officer of Quest and the President of Quest. After the close of the transaction, the Chief Executive Officer of Quest became the President, Chief Executive Officer, and member of the Board of Directors of our company. Subsequent to our purchase of the Quest Interests on July 16, 2013, we consolidated 100% of the operating activity of Quest into the operations of our company and reflected the adjustments for the ownership purchase and valuation of goodwill.

Concurrently with our acquisition of the Quest Interests, we assigned the Quest Interests to Earth911, our wholly owned subsidiary, which now holds 100% of Quest. We accounted for the acquisition of Quest under ASC Topic 805; thereby the acquisition accounting for the acquired Quest Interests and the step up basis of the previously owned 50% interest resulted in the following total purchase price for Quest as follows:

 

Consideration paid for Quest Interests

   $ 77,000,000   

Non-controlling interest in the acquiree at the acquisition date fair value

     27,050,000   
  

 

 

 

Total consideration

   $ 104,050,000   
  

 

 

 

We primarily employed two methodologies that yielded substantially the same results to determine the fair value of our preexisting equity interest in Quest, which we re-measured as a non-controlling interest independent of the acquired controlling interest as of the effective date of the acquisition: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; and (ii) the present value of expected future cash flows of Quest, which are level 2 and level 3 inputs, respectively.

The purchase price allocation as of July 16, 2013 for the assets, liabilities, intangibles, and goodwill totaling $104,050,000 was as follows:

 

Net assets and liabilities

   $ 1,214,804   

Customer relationships

     12,720,000   

Trademarks

     6,230,000   

Goodwill

     83,885,196   
  

 

 

 
   $ 104,050,000   
  

 

 

 

 

 

In connection with the fair value adjustment to the Investment in Quest due to the acquisition, we recorded in 2013 a gain on investment in Quest of $23,449,372, the difference between the fair value and the carrying amount of the asset on the date of the acquisition. In addition, we recognized $26,850,039 of goodwill impairment based on our goodwill impairment testing. We determined that the carrying amount of the reporting unit exceeded the fair value and recorded a goodwill impairment charge. The impact of the goodwill impairment and the gain on investment was a net expense of $3,400,667 included in the operating loss for the year ended December 31, 2013.

The financial condition and operating results of Quest for the relevant periods are presented below:

 

     Three Months ended June 30,      Six Months ended June 30,  
     2014     2013      2014     2013  
     (Unaudited)     (Unaudited)      (Unaudited)     (Unaudited)  

Condensed operating statement information:

         

Net sales

   $ 42,326,342      $ 32,253,788       $ 80,298,981      $ 62,904,852   

Gross profit

     3,320,873        2,572,054         6,465,796        5,869,408   

Income (loss) from operations

     (89,557     298,232         (68,195     1,373,280   

Net income (loss)

     (139,405     206,310         (161,691     1,157,902   
Income Taxes
Income Taxes

11. Income Taxes

We compute income taxes using the asset and liability method in accordance with ASC Topic 740. Under the asset and liability method, we determine deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure them using currently enacted tax rates and laws. We provide a valuation allowance for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. In our opinion, realization of our net operating loss carry forward is not reasonably assured as of June 30, 2014 and December 31, 2013, and we have recorded a valuation allowance of $7,534,000 and $6,582,000 respectively, against deferred tax assets in excess of deferred tax liabilities in the accompanying consolidated financial statements.

The components of net deferred taxes are as follows:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

Deferred tax assets (liabilities):

    

Net operating loss

   $ 4,857,000      $ 4,212,000   

Stock-based compensation

     2,322,000        2,103,000   

Accrued interest expense

     205,000        150,000   

Allowance for doubtful accounts

     64,000        47,000   

Deferred lease liability

     86,000        70,000   
  

 

 

   

 

 

 

Total deferred tax assets

     7,534,000        6,582,000   

Less: valuation allowance

     (7,534,000     (6,582,000
  

 

 

   

 

 

 

Net deferred taxes

   $ —       $ —    
  

 

 

   

 

 

 

 

The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss and the income tax benefit reported in the accompanying consolidated financial statements is as follows:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

U.S. federal statutory rate applied to pretax income

   $ (1,127,157   $ (6,051,780

Permanent differences

     308,823        2,739,048   

State taxes and other

     (133,666     1,597,415   

Change in valuation allowance

     952,000        1,715,317   
  

 

 

   

 

 

 
   $     $  
  

 

 

   

 

 

 

As of December 31, 2013, we had federal income tax net operating loss carry forwards of approximately $4,212,000, which expire at various dates beginning in 2032. We are subject to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss.

As of December 31, 2013, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during 2014. We classify interest and penalties on income taxes as penalties expense.

Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. Tax positions include the following:

 

    an allocation or shift of income between taxing jurisdictions;

 

    the characterization of income or a decision to exclude reportable taxable income in a tax return; or

 

    a decision to classify a transaction, entity, or other position in a tax return as tax exempt.

We are potentially subject to tax audits for federal and state tax returns for tax years ended 2013 to 2011. Tax audits by their very nature are often complex and can require several years to complete. Prior to July 13, 2010, as a limited liability company, we were not a tax paying entity for federal and state income tax purposes. Accordingly, we allocated our taxable income or loss to our members in accordance with their respective percentage ownership.

Fair Value of Financial Instruments
Fair Value of Financial Instruments

12. Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, convertible notes payable, notes payable, and warrant liability. We do not believe that we are exposed to significant interest, currency, or credit risks arising from these financial instruments. With the exception of the warrant liability, the fair values of these financial instruments approximates their carrying values using Level 3 inputs, based on their short maturities or, for long-term debt based on borrowing rates currently available to us for loans with similar terms and maturities. Gains and losses recognized on changes in fair value of convertible notes and warrant liability are reported in other income (expense).

We issued on April 18, 2014 an aggregate 1,141,000 warrants along with our issuance of 1,192,500 shares of common stock. We measured the warrants issued along with the common stock issuance during the quarter ended June 30, 2014 at fair value by applying the Black-Scholes-Merton option valuation model, which utilizes Level 3 inputs. The assumptions used in the Black-Scholes-Merton option valuation for the warrants are as follows: volatility of 99.3%; risk free interest rate of 0.2%; expected term of 1.5 years; and expected dividend yield of 0%. The grant date fair value of the initial warrant valuation described above was $0.99 per warrant. We base the risk free interest rate on U.S. Treasury rates with maturity dates approximating the expected term of the warrants. We base the historical volatility of a relevant sector index, which we have generated from companies that are publicly traded and do business within the industry we operate.

We issued on May 7, 2014 an aggregate 200,000 warrants for services during the quarter ended June 30, 2014. We measured the warrants at fair value by applying the Black-Scholes-Merton option valuation model, which utilizes Level 3 inputs. The assumptions used in the Black-Scholes-Merton option valuation for the warrants are as follows: volatility of 97.6%; risk free interest rate of 0.9%; expected term of 3.0 years; and expected dividend yield of 0%. The grant date fair value of the initial warrant valuation described above was $1.61 per warrant. We base the risk free interest rate on U.S. Treasury rates with maturity dates approximating the expected term of the warrants. We base the historical volatility of a relevant sector index, which we have generated from companies that are publicly traded and do business within the industry we operate.

We measured warrants issued in connection with the Stockbridge Senior Secured Convertible notes at fair value by applying the Black-Scholes-Merton option valuation model, which utilizes Level 3 inputs. The assumptions used in the Black-Scholes-Merton option valuation for the warrants are as follows: volatility of 66%; risk free interest rate of 1%; expected term of 5 years; and expected dividend yield of 0%. The grant date fair value of the initial warrant valuation described above was $2.56 per warrant. We base the risk free interest rate on U.S. Treasury rates with maturity dates approximating the expected term of the warrants. At the time of the initial warrant valuation, we were a private company and common stock transactions were too infrequent, therefore we could not practicably estimate the expected volatility of our own stock. Accordingly, we have substituted the historical volatility of a relevant sector index, which we have generated from companies that are publicly traded and do business within the industry we operate.

We measured the March 29, 2013 fair value by utilizing the quoted market price for our common stock and the valuation for the cashless exercise of Warrant 1-1, Warrant 1-5, and Warrant 1-6 in March 2013, which are Level 1 and Level 2 inputs. These inputs of (i) an observable warrant exercise transaction and (ii) publicly traded market price provided a reasonable basis for valuation for the warrants as of March 29, 2013. Based on that valuation using the $3.00 closing market price and exercisable rights in total to purchase 6,905,576 shares of our common stock at $0.37 per share, Warrant 1-1 and Warrant 1-5 had a net number value of $20,233,338. Using the same valuation method, Warrant 1-6 had a net number value of $1,465,000 upon issuance on March 29, 2013. All three warrants were exercised on March 29, 2013. See Note 9 for further discussion regarding the cashless exercise of these warrants.

Stockholders' Equity
Stockholders' Equity

13. Stockholders’ Equity

Preferred Stock - Our authorized preferred stock consists of 10,000,000 shares of preferred stock with a par value of $0.001, of which no shares have been issued or are outstanding.

Common Stock - Our authorized common stock consists of 200,000,000 shares of common stock with a par value of $0.001 with 97,050,674 shares and 95,814,565 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively.

During the six months ended June 30, 2014, we issued shares of common stock as follows:

 

     Common Stock
Shares
     Amount  

Sale of common stock and warrants

     1,192,500       $ 2,385,000   

Note and interest conversions

     23,201         29,001   

Common stock for services

     20,408         50,000   
  

 

 

    

 

 

 
     1,236,109       $ 2,464,001   
  

 

 

    

 

 

 

Common Stock for Services – We issued 20,408 shares of common stock to consultants for $50,000 of services, which $33,333 was expensed during the six months ended June 30, 2014 and $16,667 was prepaid for services in the subsequent period. We issued 17,226 shares of common stock to employees and consultants for $50,780 of services during the six months ended June 30, 2013.

Sale of Common Stock and Warrants – On April 18, 2014, we issued an aggregate of 1,192,500 units (the “Units”) to several accredited investors, for an aggregate purchase price of $2,385,000, with each Unit consisting of one share of our common stock and a warrant to purchase one share of our common stock for $2.00 per share. An additional 248,500 warrants were issued as finder’s fees to third parties. Therefore, in total we issued 1,192,500 shares of common stock and 1,441,000 warrants with a right to purchase one share of common stock for $2.00 per share. Each warrant may be exercised by the holder thereof, in such holder’s sole discretion, in whole or in part, any time prior to April 1, 2017.

Warrants for Services - On May 7, 2014, we issued to a third party for services an aggregate of 200,000 warrants to purchase one share of our common stock for $2.65 per share. Of the 200,000 warrants, 100,000 of the warrants were exercisable immediately and the remaining warrants become exercisable one year from grant based on performance conditions. We recorded stock-based compensation expense of $187,783 for the three months ended June 30, 2014 related to these warrants.

On May 28, 2014, we issued to a third party for services an aggregate of 1,650,000 contingent warrants to purchase one share of our common stock for $4.31 per share. The warrants become exercisable at various times after achieving future performance conditions related to services and revenue targets for Earth911. We recorded no stock-based compensation expense for the three months ended June 30, 2014 related to these warrants due to the uncertainty of attaining any of the performance conditions.

 

At June 30, 2014, we had outstanding exercisable warrants to purchase 1,541,000 shares of common stock and contingent warrants to purchase 1,750,000 shares of common stock.

 

Warrants Issued and Outstanding as of June 30, 2014

 
     Date of      Exercise
Price
     Shares of
Common Stock
 

Description

   Issuance      Expiration        

Exercisable warrants

           

Warrants 10 - 24

     4/18/14         4/1/17       $ 2.00         1,441,000   

Warrant 25

     5/7/2014         5/7/17       $ 2.65         100,000   
           

 

 

 

Total exercisable warrants

              1,541,000   

Contingent warrants

           

Warrant 26

     5/7/2014         5/7/17       $ 2.65         100,000   

Warrant 27

     5/28/2014         10/31/16       $ 4.31         450,000   

Warrants 28 - 34

     5/28/2014         10/31/18       $ 4.31         1,200,000   
           

 

 

 

Total contingent warrants

              1,750,000   
           

 

 

 

Total warrants issued and outstanding

              3,291,000   
           

 

 

 

Stock Option Plan - In October 2012, we adopted our 2012 Incentive Compensation Plan, which was subsequently amended in September 2013 (the “2012 Plan”). The 2012 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, dividend equivalents, other stock-based awards, and performance awards that may be settled in cash, stock, or other property to our officers, directors, employees, and consultants who are natural persons providing bona fide services to us or our subsidiaries and other designated affiliates, which we refer to as “Related Entities.” The purpose of the 2012 Plan is to assist us and our Related Entities in attracting, motivating, retaining, and rewarding high-quality executives and other employees, officers, directors, and individual consultants who provide services to us or our Related Entities, by enabling such persons to acquire or increase a proprietary interest in our company in order to strengthen the mutuality of interests between such persons and our stockholders, and providing such persons with performance incentives to expend their maximum efforts in the creation of stockholder value. The 2012 Plan is administered by the compensation committee of our Board of Directors or a subcommittee thereof formed by the compensation committee, except to the extent our Board of Directors elects to administer the 2012 Plan (subject to limitations described in the 2012 Plan). Our policy is to fulfill any exercise of options from common stock that is authorized and unissued. The maximum number of shares of common stock available for grant under the plan is 7,500,000. Stock compensation expense prior to October 2012 is related to options granted prior to the Earth911 Merger that the 2012 Plan superseded at the time of the Earth911 Merger. The number of shares available for award under the plan is subject to adjustment for certain corporate changes in accordance with the provisions of the plan. Employee stock-based compensation expense was $359,456 and $1,573,010 for the six months ended June 30, 2014 and 2013, respectively.

Restricted Stock Units - During the quarter ended June 30, 2014, we granted restricted stock units representing 132,600 hypothetical shares of common stock under the 2012 Incentive Compensation Plan. The restricted stock units vested based on a combination of financial performance factors and continued service. The financial performance factors are based on the revenue generated by new business activity of one of our subsidiaries. All payouts of restricted stock units that vest will be exercisable immediately and will be paid in the form of common stock. While we do not anticipate issuing dividends, the restricted stock unit awards will not participate in any dividends prior to vesting.

We determined the fair value of the restricted stock unit awards granted based on the market value of the Company’s common stock on the date of grant, which was $3.75 per share. The company assumed a forfeiture rate of 0%. For the quarter ended June 30, 2014, the Company did not determine that it was probable that the restricted stock units would vest and recognized no compensation expense for the quarter.

 

Stock Options - Following is a summary of stock option activity subsequent to December 31, 2013 through June 30, 2014:

 

     Stock Options  
     Number
of Shares
    Exercise
Price Per
Share
     Weighted-
Average
Exercise Price
Per Share
 

Outstanding at December 31, 2013

     4,141,948      $ 2.00 - 3.25       $ 2.48   

Granted

     780,000      $ 2.90 - 3.75       $ 3.66   

Canceled/Forfeited

     (58,333   $ 2.05 - 2.05       $ 2.05   
  

 

 

      

Outstanding at June 30, 2014

     4,863,615      $ 2.00 - 3.75       $ 2.70   
  

 

 

      

As of June 30, 2014, the intrinsic value of options outstanding was $12,331,935 and the intrinsic value of options exercisable was $8,699,835.

The following additional information applies to options outstanding at June 30, 2014:

 

Ranges of

Exercise

Prices

 

Outstanding at

June 30,

2014

 

Weighted-

Average

Remaining

Contractual

Life

 

Weighted-

Average

Exercise

Price 

 

Exercisable at

June 30,

2014

 

Weighted-

Average

Exercise

Price

$2.00 - $3.75

  4,863,615   7.3   $                          2.70   3,266,115   $                        2.63

At June 30, 2014, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, was approximately $2,019,103.

Related Party Transactions
Related Party Transactions

14. Related Party Transactions

Stockbridge Convertible Note - In March 2012, we issued the Convertible Note to Stockbridge, a related party. In connection with the issuance of the Convertible Note, we issued four warrants (Warrants1-1 through 1-4) in March 2012. On July 16, 2013, Stockbridge elected to convert $3,000,000 in principal and $34,500 of accrued interest of the Convertible Note into 8,382,597 shares of our common stock. With the conversion, the contingent Warrants 1-2, 1-3, and 1-4 were cancelled.

Allonge to the Convertible Note - In October 2012, we amended the Convertible Note. We increased the original principal amount to $3,000,000 from the original $1,000,000 amount. We changed the maturity of the note to October 1, 2014. We changed the conversion rate of the Convertible Note to $.50 per common share prior to the maturity date and $.25 per common share after the maturity, subject to certain adjustments. In connection with the amendment, we issued Warrant 1-5 in October 2012 and issued 100,000 shares of our common stock.

Second Allonge to the Convertible Note - On March 29, 2013, the terms of the note and the warrants were amended and additional warrants were issued to Stockbridge. Under the amendment on March 29, 2013, Earth911 and Stockbridge entered into the Second Allonge, pursuant to which the parties agreed to (i) change all references to common stock, options, warrants, warrant shares, or

convertible securities of Earth911 in the original note documents and the Allonge documents to our common stock, options, warrants, warrant shares, or convertible securities, respectively, and (ii) expand all references to a “Triggering Event” in the original note documents and the Allonge documents to include any exchanges on which our common stock may be listed or quoted for trading. The parties also (i) amended how the fair market value of our common stock, on the date of exercise, would be defined in a formula used to calculate the net number of shares that Stockbridge would receive upon a cashless exercise, (ii) extended the maturity date of the Convertible Note to October 1, 2015, (iii) revised the terms of Warrant 1-5 to apply the conversion rate from the shares of Earth911 to the number of shares of our common stock underlying Warrant 1-5 and the exercise price at which such shares would be issued upon the exercise date, and (iv) amended the exercisable dates of the contingent Warrant 1-2, the contingent Warrant 1-3, and the contingent Warrant 1-4 to be exercisable 42 months, 45 months, and 48 months, respectively, following the issuance date of the contingent warrants. Finally, Stockbridge retroactively agreed to waive its right to effect a partial conversion of the Convertible Note, with such waiver to be effective for a period of 12 months from October 17, 2012.

 

To effect the changes in the Second Allonge, we issued to Stockbridge an additional warrant to purchase 500,000 shares of our common stock (“Warrant 1-6”). Warrant 1-6 was exercisable at or after the date of the Second Allonge, and was in the same form as Warrant 1-5, as amended by the Second Allonge. Warrant 1-6 would expire five years from the date of issuance.

See Note 9 for a discussion of the Convertible Note and of the exercise of the related exercisable warrants in March 2013.

Acquisition of the Quest Interests - On July 16, 2013, we acquired all of the Quest Interests held by QRG, comprising 50% of the membership interests of Quest. The purchase price for the Quest Interests consisted of 22,000,000 shares of our common stock issued at a fair market value of $2.50 per share based on the closing price of the stock on the date of the transaction and the Sellers Notes as described in Note 10 in the aggregate principal amount of $22,000,000. The total purchase price of $77,000,000 was paid to the owners of QRG who at the time of the transaction were related parties: the Chief Executive Officer of Quest and the President of Quest. After the close of the transaction, the Chief Executive Officer of Quest became the President, Chief Executive Officer and member of the Board of Directors of our company. Unpaid interest related to the Sellers Notes at June 30, 2014 and December 31, 2013 is $126,575 and $132,878, respectively.

The Securities Purchase Agreement provides that QRG and its members may not engage or take a financial interest in any Competitive Business within the Restricted Territory (each as defined in the Securities Purchase Agreement) for a period of five years. The Securities Purchase Agreement also provides restrictions with respect to customers of Quest and non-solicitation of employees of Quest for a period of five years. The Securities Purchase Agreement further provides that if there is an event of default on the Sellers Notes, QRG and its members may compete with us and solicit customers, provided that they resign from all positions held with us first.

Summary of Significant Accounting Policies (Policies)

Principals of Presentation, Consolidation, and Reclassifications

The consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

 

The accompanying consolidated financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2014, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2013 consolidated balance sheet data from audited financial statements, but did not include all disclosures required by GAAP.

Through July 16, 2013, Quest was deemed to be a separate operating company and as such, there were no intercompany transactions that required elimination at that time. All other intercompany accounts and transactions have been eliminated in consolidation, including transactions between QRHC and Quest subsequent to July 16, 2013. Certain reclassifications have been made to prior year balances to conform to the current year presentation. Interim results are subject to seasonal variations, and the results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year.

As Quest, Earth911, and YouChange are operating as ecology based green service companies, we did not deem segment reporting necessary.

Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

We use significant estimates when accounting for the collectability of accounts receivable, depreciable lives of fixed assets, accruals, assumptions used in the valuation and recognition of share-based payments and warrant liability, the realization of goodwill and intangible assets, deferred tax assets, the equity method investment in Quest, and the application of accounting for the senior secured convertible notes, all of which are discussed in their respective notes to the consolidated financial statements.

Revenue Recognition

We recognize revenue only when all of the following criteria have been met:

 

    persuasive evidence of an arrangement exists;

 

    delivery has occurred or services have been rendered;

 

    the fee for the arrangement is fixed or determinable; and

 

    collectability is reasonably assured.

Persuasive Evidence of an Arrangement – We document all terms of an arrangement in a quote signed or confirmed by the customer prior to recognizing revenue.

Delivery Has Occurred or Services Have Been Performed – We perform all services or deliver all products prior to recognizing revenue. Services are deemed to be performed when the services are complete.

The Fee for the Arrangement is Fixed or Determinable – Prior to recognizing revenue, a customer’s fee is either fixed or determinable under the terms of the quote or accepted customer purchase order.

Collectability Is Reasonably Assured – We assess collectability on a customer by customer basis based on criteria outlined by management.

We provide businesses with management programs to reuse, recycle, and dispose of a wide variety of waste streams and recyclables generated by their business. We utilize third-party subcontractors to execute the collection, transport, and recycling or disposal of used motor oil, oil filters, scrap tires, cooking oil, and expired food products. We evaluate the criteria outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-45, Revenue Recognition—Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of service revenue and related costs or the net amount earned as management fees. Generally, when we are primarily obligated in a transaction, have latitude in establishing prices and selecting suppliers, have credit risk, or have several but not all of these indicators, we record revenue gross and record amounts collected from customers for sales tax on a net basis. In a situation where we are not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, we would record the net amounts as management fees earned. Currently, we have no contracts accounted for as management fees.

Earth911 revenue primarily represents licensing fees that are recognized ratably over the term of the license. We derive some revenue from advertising contracts, which we recognize ratably, over the term that the advertisement appears on our website.

Cash and Cash Equivalents

We consider all highly liquid instruments with a remaining maturity of three months or less when purchased to be cash equivalents.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities;

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

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability.

Fair value accounting has been applied to the valuation of stock-based compensation, warrants issued, intangible assets, and goodwill.

Stock Options - We estimate the fair value of stock options on the grant date in accordance with ASC Topic 718 using the Black-Scholes-Merton valuation model. Significant Level 3 assumptions used in the calculation are as follows:

 

    We determine the expected term using the simplified method for plain vanilla options by averaging the contractual term and vesting period of the award due to the unavailability of appropriate statistical data required to properly estimate the expected term in accordance with SEC Staff Accounting Bulletin No. 107;

 

    We measure expected volatility using the historical changes in the market price of our common stock and applicable comparison companies, disregarding identifiable periods of extraordinarily volatile share prices due to certain events that are not expected to recur during the expected term;

 

    We use the risk-free interest rate to approximate the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and

 

    We base forfeitures on the history of cancellations of options granted by us and our analysis of potential future forfeitures.

Net Loss Per Share

We compute basic net loss per share by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. The calculation of basic loss per share gives retroactive effect to the recapitalization related to our reverse acquisition of Earth911. We have other potentially dilutive securities outstanding that are not shown in a diluted net loss per share calculation because their effect in both 2014 and 2013 would be anti-dilutive. These potentially dilutive securities include options, warrants, and convertible promissory notes totaled 19,287,215 and 13,107,162 shares at June 30, 2014 and 2013, respectively.

Investment in Quest

Investee companies that are not consolidated, but over which we exercise significant influence, are accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to an investee depends on an evaluation of several factors, including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Prior to July 17, 2013, we accounted for the investment in Quest under the equity method of accounting, in which the investee company’s accounts were not consolidated within our consolidated balance sheet and statement of operations. We reflected our share of earnings or losses of the investee company in the caption “Equity in Quest Resource Management Group, LLC income” in our consolidated statement of operations. Subsequent to our acquisition of the Quest Interests, we have consolidated the operational activity of Quest with our company.

Income Taxes

We recognize deferred tax assets and liabilities for the future tax consequences of temporary differences between the book and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. We establish valuation allowances to reduce a deferred tax asset to the amount expected to be realized. We assess our ability to realize deferred tax assets based on current earnings performance and on projections of future taxable income in the relevant tax jurisdictions. These projections do not include taxable income from the reversal of deferred tax liabilities and do not reflect a general growth assumption but do consider known or pending events, such as the passage of legislation. We review our estimates of future taxable income annually. We first analyze all tax positions to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. After the initial analysis, we measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Our income tax returns are subject to adjustment under audit for approximately the last three years.

If we are required to pay interest on the underpayment of income taxes, we recognize interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

If we are subject to payment of penalties, we recognize an expense for the amount of the statutory penalty in the period when we take the position on the income tax return. If we did not recognize the penalty in the period when we initially took the position, we recognize the expense in the period when we change our judgment about meeting minimum statutory thresholds related to the initial position taken.

Stock-Based Compensation

We expense all share-based grants to employees, including grants of employee stock options, based on their estimated fair values at grant date, in accordance with ASC Topic 718. We record compensation expense for stock options over the vesting period using the estimated fair value on the date of grant, as calculated using the Black-Scholes-Merton model. We classify all share-based awards as equity instruments and recognize the vesting of the awards ratably over their respective terms. See Note 13 for a description of our share-based compensation plan and information related to awards granted under the plan.

The Company and Description of Business and Future Liquidity Needs (Tables)
Summarized Pro Forma Consolidated Operating Results

The following table summarizes our pro forma consolidated operating results for the three and six months ended June 30, 2013, assuming Quest had been a wholly owned subsidiary and 100% of Quest’s operations were included in the relevant periods:

 

     Pro Forma
Three Months Ended June 30,
2013
    Pro Forma
Six Months Ended June 30,
2013
 
     (Unaudited)     (Unaudited)  

Consolidated operating statement information:

    

Net sales

   $ 32,655,802      $ 63,620,354   

Gross profit

     2,865,440        6,436,589   

Income (loss) from operations

     (1,821,926     5,493,425   

Net loss

     (2,102,913     (4,448,926
Summary of Significant Accounting Policies (Tables)

The following table sets forth the computation of basic and diluted loss per share:

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2014     2013     2014     2013  
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

Net loss applicable to common stockholders - numerator for basic and diluted earnings per share

   $ (1,826,744   $ (2,309,223   $ (3,315,167   $ (5,606,828
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted - average common shares outstanding - denominator for basic and diluted earnings per share

     96,649,466        65,338,152        96,237,784        61,670,008   

Net loss per share:

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted

   $ (0.02   $ (0.04   $ (0.03   $ (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth the anti-dilutive securities excluded from diluted loss per share:

 

     For the Six Months Ended June 30,  
     2014      2013  
     (Unaudited)      (Unaudited)  

Anti-dilutive securities excluded from diluted loss per share:

     

Stock options

     4,996,215         3,417,115   

Warrants

     3,291,000        1,381,113   

Convertible notes

     11,000,000         8,308,934   
  

 

 

    

 

 

 
     19,287,215         13,107,162   
  

 

 

    

 

 

 
Property and Equipment (Tables)
Components of Property and Equipment

At June 30, 2014 and December 31, 2013, property and equipment consisted of the following:

 

     June 30,     December 31,  
     2014     2013  
     (Unaudited)        

Vehicles

   $ 544,984      $ 544,984   

Computer equipment

     727,648        790,987   

Office furniture and fixtures

     329,210        239,662   

Machinery and equipment

     479,135        458,257   

Leasehold improvements

     17,830        12,363   
  

 

 

   

 

 

 
     2,098,807        2,046,253   

Less: accumulated depreciation

     (1,543,229     (1,400,768
  

 

 

   

 

 

 
   $ 555,578      $ 645,485   
  

 

 

   

 

 

 
Intangible Assets (Tables)
Schedule of Intangible Assets

The components of intangible assets are as follows:

 

June 30, 2014    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
     Net  

Finite lived intangible assets:

           

Customer relationships

     5 years       $ 12,720,000       $ 2,438,000       $ 10,282,000   

Trademarks

     7 years         6,230,000         852,917         5,377,083   

Patents

     7 years         230,683         230,683         —     

Software

     7 years         437,841         1,254        436,587   

Customer lists

     5 years         307,153         90,719         216,434   
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 19,925,677       $ 3,613,573       $ 16,312,104   
     

 

 

    

 

 

    

 

 

 
December 31, 2013    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
     Net  

Finite lived intangible assets:

           

Customer relationships

     5 years       $ 12,720,000       $ 1,166,000       $ 11,554,000   

Trademarks

     7 years         6,230,000         407,917         5,822,083   

Patents

     7 years         230,683         216,951         13,732   

Customer lists

     5 years         307,153         60,004         247,149   
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 19,487,836       $ 1,850,872       $ 17,636,964   
     

 

 

    

 

 

    

 

 

 

 

June 30, 2014 and December 31, 2013    Estimated
Useful Life
     Gross Carrying
Amount
     Accumulated
Amortization
   Net  

Goodwill

     Indefinite       $ 58,337,290          $ 58,337,290   
     

 

 

       

 

 

 
Accrued Expenses and Other Current Liabilities (Tables)
Summary of Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

     June 30,      December 31,  
     2014      2013  
     (Unaudited)         

Compensation

   $ 820,020       $ 1,114,252   

Deferred rent obligation

     752,787         930,274   

Sales and use tax

     178,278         484,134   

Professional fees

     164,959         40,241   

Insurance

     —           48,663   

Accrued interest and other

     239,219         56,206   
  

 

 

    

 

 

 
   $ 2,155,263       $ 2,673,770   
  

 

 

    

 

 

 
Convertible Note Payable (Tables)
Summary of Convertible Notes Payable Outstanding

The following convertible note payable was outstanding as of June 30, 2014 and December 31, 2013:

 

     June 30,
2014
     December 31,
2013
 
     (Unaudited)         

Convertible note payable to unrelated parties, issuance date of September 2012

     —        $ 25,000   
  

 

 

    

 

 

 

Total convertible notes payable - short term

     —        $ 25,000   
  

 

 

    

 

 

 
Long-Term Debt and Capital Lease Obligations (Tables)
Summary of Long-Term Debt

At June 30, 2014 and December 31, 2013, total long-term debt outstanding consisted of the following:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

Secured convertible notes payable to related parties, 7% interest due monthly in arrears, due July 2016, repayment provisions discussed further below (Net of discount of $3,748,631 and $4,656,934 as of June 30, 2014 and December 31, 2013, respectively)

   $ 18,251,369      $ 17,343,066  

Capital lease obligations, imputed interest at 4.75%, with monthly payments of $1,507 through November 2016, secured by computer equipment

     41,211        49,163   
  

 

 

   

 

 

 

Total

     18,292,580        17,392,229   

Less: current maturities

     (16,418     (16,096
  

 

 

   

 

 

 

Long-term portion

   $ 18,276,162      $ 17,376,133   
  

 

 

   

 

 

 
Investment in Quest Resource Management Group, LLC (Tables)

The following total purchase price for Quest as follows:

 

Consideration paid for Quest Interests

   $ 77,000,000   

Non-controlling interest in the acquiree at the acquisition date fair value

     27,050,000   
  

 

 

 

Total consideration

   $ 104,050,000   
  

 

 

 

The purchase price allocation as of July 16, 2013 for the assets, liabilities, intangibles, and goodwill totaling $104,050,000 was as follows:

 

Net assets and liabilities

   $ 1,214,804   

Customer relationships

     12,720,000   

Trademarks

     6,230,000   

Goodwill

     83,885,196   
  

 

 

 
   $ 104,050,000   
  

 

 

 

The financial condition and operating results of Quest for the relevant periods are presented below:

 

     Three Months ended June 30,      Six Months ended June 30,  
     2014     2013      2014     2013  
     (Unaudited)     (Unaudited)      (Unaudited)     (Unaudited)  

Condensed operating statement information:

         

Net sales

   $ 42,326,342      $ 32,253,788       $ 80,298,981      $ 62,904,852   

Gross profit

     3,320,873        2,572,054         6,465,796        5,869,408   

Income (loss) from operations

     (89,557     298,232         (68,195     1,373,280   

Net income (loss)

     (139,405     206,310         (161,691     1,157,902   
Income Taxes (Tables)

The components of net deferred taxes are as follows:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

Deferred tax assets (liabilities):

    

Net operating loss

   $ 4,857,000      $ 4,212,000   

Stock-based compensation

     2,322,000        2,103,000   

Accrued interest expense

     205,000        150,000   

Allowance for doubtful accounts

     64,000        47,000   

Deferred lease liability

     86,000        70,000   
  

 

 

   

 

 

 

Total deferred tax assets

     7,534,000        6,582,000   

Less: valuation allowance

     (7,534,000     (6,582,000
  

 

 

   

 

 

 

Net deferred taxes

   $ —       $ —    
  

 

 

   

 

 

 

The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss and the income tax benefit reported in the accompanying consolidated financial statements is as follows:

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

U.S. federal statutory rate applied to pretax income

   $ (1,127,157   $ (6,051,780

Permanent differences

     308,823        2,739,048   

State taxes and other

     (133,666     1,597,415   

Change in valuation allowance

     952,000        1,715,317   
  

 

 

   

 

 

 
   $     $  
  

 

 

   

 

 

 
Stockholders' Equity (Tables)

During the six months ended June 30, 2014, we issued shares of common stock as follows:

 

     Common Stock
Shares
     Amount  

Sale of common stock and warrants

     1,192,500       $ 2,385,000   

Note and interest conversions

     23,201         29,001   

Common stock for services

     20,408         50,000   
  

 

 

    

 

 

 
     1,236,109       $ 2,464,001   
  

 

 

    

 

 

 

At June 30, 2014, we had outstanding exercisable warrants to purchase 1,541,000 shares of common stock and contingent warrants to purchase 1,750,000 shares of common stock.

 

Warrants Issued and Outstanding as of June 30, 2014

 
     Date of      Exercise
Price
     Shares of
Common Stock
 

Description

   Issuance      Expiration        

Exercisable warrants

           

Warrants 10 - 24

     4/18/14         4/1/17       $ 2.00         1,441,000   

Warrant 25

     5/7/2014         5/7/17       $ 2.65         100,000   
           

 

 

 

Total exercisable warrants

              1,541,000   

Contingent warrants

           

Warrant 26

     5/7/2014         5/7/17       $ 2.65         100,000   

Warrant 27

     5/28/2014         10/31/16       $ 4.31         450,000   

Warrants 28 - 34

     5/28/2014         10/31/18       $ 4.31         1,200,000   
           

 

 

 

Total contingent warrants

              1,750,000   
           

 

 

 

Total warrants issued and outstanding

              3,291,000   
           

 

 

 

Stock Options - Following is a summary of stock option activity subsequent to December 31, 2013 through June 30, 2014:

 

     Stock Options  
     Number
of Shares
    Exercise
Price Per
Share
     Weighted-
Average
Exercise Price
Per Share
 

Outstanding at December 31, 2013

     4,141,948      $ 2.00 - 3.25       $ 2.48   

Granted

     780,000      $ 2.90 - 3.75       $ 3.66   

Canceled/Forfeited

     (58,333   $ 2.05 - 2.05       $ 2.05   
  

 

 

      

Outstanding at June 30, 2014

     4,863,615      $ 2.00 - 3.75       $ 2.70   
  

 

 

      

The following additional information applies to options outstanding at June 30, 2014:

 

Ranges of

Exercise

Prices

 

Outstanding at

June 30,

2014

 

Weighted-

Average

Remaining

Contractual

Life

 

Weighted-

Average

Exercise

Price 

 

Exercisable at

June 30,

2014

 

Weighted-

Average

Exercise

Price

$2.00 - $3.75

  4,863,615   7.3   $                          2.70   3,266,115   $                        2.63
The Company and Description of Business and Future Liquidity Needs - Additional Information (Detail) (USD $)
0 Months Ended 6 Months Ended
May 7, 2014
Apr. 18, 2014
Jul. 16, 2013
Jun. 30, 2014
Dec. 31, 2013
Oct. 28, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
 
Entity name changing effective date
 
 
 
Oct. 28, 2013 
 
 
Increased common stock shares authorized
 
 
 
200,000,000 
200,000,000 
200,000,000 
Percentage of ownership interest acquired
 
 
50.00% 
 
 
 
Warrant conversions, shares
 
1,192,500 
 
1,192,500 
 
 
Warrant conversions, amount
 
$ 2,385,000 
 
$ 2,385,000 
 
 
Warrant to purchase common stock, per share
$ 2.65 
$ 2.00 
 
$ 2.00 
 
 
Warrant to purchase common stock, description
 
A warrant to purchase one share of our common stock for $2.00 per share 
 
 
 
 
Percentage of ownership interest held by company
 
 
100.00% 
 
 
 
Quest Resource Management Group, LLC [Member]
 
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
 
Percentage of remaining ownership interest
 
 
50.00% 
 
 
 
The Company and Description of Business and Future Liquidity Needs - Summarized Pro Forma Consolidated Operating Results (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Schedule Of Condensed Consolidating Statement Of Operations [Line Items]
 
 
 
 
Net sales
$ 42,514,265 
$ 402,014 
$ 80,674,315 
$ 715,502 
Gross profit
3,508,715 
293,386 
6,841,130 
567,181 
Income (loss) from operations
(936,291)
(2,120,158)
(1,549,247)
(4,120,145)
Net loss
(1,826,744)
(2,309,223)
(3,315,167)
(5,606,828)
Quest Resource Management Group, LLC [Member]
 
 
 
 
Schedule Of Condensed Consolidating Statement Of Operations [Line Items]
 
 
 
 
Net sales
42,326,342 
32,253,788 
80,298,981 
62,904,852 
Gross profit
3,320,873 
2,572,054 
6,465,796 
5,869,408 
Income (loss) from operations
(89,557)
298,232 
(68,195)
1,373,280 
Net loss
(139,405)
206,310 
(161,691)
1,157,902 
Pro Forma [Member] |
Quest Resource Management Group, LLC [Member]
 
 
 
 
Schedule Of Condensed Consolidating Statement Of Operations [Line Items]
 
 
 
 
Net sales
 
32,655,802 
 
63,620,354 
Gross profit
 
2,865,440 
 
6,436,589 
Income (loss) from operations
 
(1,821,926)
 
5,493,425 
Net loss
 
$ (2,102,913)
 
$ (4,448,926)
Summary of Significant Accounting Policies - Additional Information (Detail)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Significant Accounting Policies [Line Items]
 
 
Potentially dilutive securities include options, warrants, and convertible promissory notes
19,287,215 
13,107,162 
Tax benefit percentage of being realized upon ultimate settlement
50.00% 
 
Minimum [Member]
 
 
Significant Accounting Policies [Line Items]
 
 
Percentage of voting right
20.00% 
 
Maximum [Member]
 
 
Significant Accounting Policies [Line Items]
 
 
Percentage of voting right
50.00% 
 
Summary of Significant Accounting Policies - Schedule of Computation of Basic and Diluted Earnings Per Share (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Earnings Per Share [Abstract]
 
 
 
 
Net loss applicable to common stockholders - numerator for basic and diluted earnings per share
$ (1,826,744)
$ (2,309,223)
$ (3,315,167)
$ (5,606,828)
Weighted - average common shares outstanding - denominator for basic and diluted earnings per share
96,649,466 
65,338,152 
96,237,784 
61,670,008 
Basic and diluted
$ (0.02)
$ (0.04)
$ (0.03)
$ (0.09)
Summary of Significant Accounting Policies - Schedule of Anti-dilutive Securities Excluded from Diluted Loss Per Share (Detail)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Dilutive Securities Included And Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Anti-dilutive securities excluded from diluted earnings per share
19,287,215 
13,107,162 
Stock options [Member]
 
 
Dilutive Securities Included And Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Anti-dilutive securities excluded from diluted earnings per share
4,996,215 
3,417,115 
Warrants [Member]
 
 
Dilutive Securities Included And Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Anti-dilutive securities excluded from diluted earnings per share
3,291,000 
1,381,113 
Convertible notes [Member]
 
 
Dilutive Securities Included And Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Anti-dilutive securities excluded from diluted earnings per share
11,000,000 
8,308,934 
Inventories - Additional Information (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Inventory Disclosure [Abstract]
 
 
Finished goods inventory
 
$ 3,251 
Reserve for inventory obsolescence of consumer electronics and computer devices
$ 0 
$ 0 
Property and Equipment - Components of Property and Equipment (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
$ 2,098,807 
$ 2,046,253 
Less: accumulated depreciation
(1,543,229)
(1,400,768)
Property plant and equipment Net
555,578 
645,485 
Vehicles [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
544,984 
544,984 
Computer equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
727,648 
790,987 
Office furniture and fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
329,210 
239,662 
Machinery and equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
479,135 
458,257 
Leasehold improvements [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment Gross
$ 17,830 
$ 12,363 
Property and Equipment - Additional Information (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Property, Plant and Equipment [Line Items]
 
 
Accumulated depreciation of leased equipment
$ 5,047 
$ 1,402 
Office furniture and equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Capital leases is included in the financial Statements
$ 50,470 
$ 49,163 
Intangible Assets - Schedule of Intangible Assets (Detail) (USD $)
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
 
 
Gross Carrying Amount
$ 19,925,677 
$ 19,487,836 
Accumulated Amortization
3,613,573 
1,850,872 
Net
16,312,104 
17,636,964 
Goodwill Useful Life Description
Indefinite 
 
Goodwill Gross Carrying Amount
58,337,290 
 
Goodwill Net
58,337,290 
58,337,290 
Customer relationships [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Estimated Useful Life
5 years 
5 years 
Gross Carrying Amount
12,720,000 
12,720,000 
Accumulated Amortization
2,438,000 
1,166,000 
Net
10,282,000 
11,554,000 
Trademarks [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Estimated Useful Life
7 years 
7 years 
Gross Carrying Amount
6,230,000 
6,230,000 
Accumulated Amortization
852,917 
407,917 
Net
5,377,083 
5,822,083 
Patents [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Estimated Useful Life
7 years 
7 years 
Gross Carrying Amount
230,683 
230,683 
Accumulated Amortization
230,683 
216,951 
Net
13,732 
Software [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Estimated Useful Life
7 years 
 
Gross Carrying Amount
437,841 
 
Accumulated Amortization
1,254 
 
Net
436,587 
 
Customer lists [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Estimated Useful Life
5 years 
5 years 
Gross Carrying Amount
307,153 
307,153 
Accumulated Amortization
90,719 
60,004 
Net
$ 216,434 
$ 247,149 
Intangible Assets - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
 
 
 
 
Amortization expense relates to intangible assets
$ 880,605 
$ 0 
$ 1,762,701 
$ 0 
Indefinite-lived intangible assets other than goodwill
 
 
$ 0 
 
Accrued Expenses and Other Current Liabilities - Summary of Accrued Expenses and Other Current Liabilities (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Payables And Accruals [Abstract]
 
 
Compensation
$ 820,020 
$ 1,114,252 
Deferred rent obligation
752,787 
930,274 
Sales and use tax
178,278 
484,134 
Professional fees
164,959 
40,241 
Insurance
 
48,663 
Accrued interest and other
239,219 
56,206 
Accrued Liabilities, Total
$ 2,155,263 
$ 2,673,770 
Line of Credit - Additional Information (Detail) (Revolving Credit Facility [Member], USD $)
6 Months Ended 6 Months Ended 0 Months Ended
Jun. 30, 2014
Jun. 30, 2014
Eligible Accounts Receivable [Member]
Largest Customer [Member]
Jun. 30, 2014
Eligible Accounts Receivable [Member]
Other Customer [Member]
Jun. 30, 2014
Base Rate [Member]
May 9, 2014
Sixth Amendment to Loan Agreement with Regions Bank [Member]
May 9, 2014
Sixth Amendment to Loan Agreement with Regions Bank [Member]
Eurodollar [Member]
Line of Credit Facility [Line Items]
 
 
 
 
 
 
Line of credit facility agreement date
Dec. 15, 2010 
 
 
 
 
 
Working capital from loan agreement with Regions Bank
$ 10,000,000 
 
 
 
 
 
Percentage of accounts receivable form Quest's customers
 
80.00% 
85.00% 
 
 
 
Interest on outstanding principal amount
2.65% 
 
 
 
 
 
Fluctuating interest rate based on base rate
 
 
 
1.50% 
 
 
Outstanding principal amount on line of credit facility
5,250,000 
 
 
 
 
 
Amount available to be borrow under line of credit facility
4,097,235 
 
 
 
 
 
Interest rate line of credit facility description
The base rate for any day is the greater of (a) the Federal funds rate plus one-half of 1%, (b) Region's published effective prime rate, or (c) the Eurodollar rate for such day based on an interest period of one month. 
 
 
 
 
 
Line of credit, accordion feature
 
 
 
 
$ 5,000,000 
 
Decrease in applicable margin rate of loans during the period
 
 
 
 
 
1.00% 
Unused fee percentage
 
 
 
 
0.25% 
 
Maturity date of loan agreement with Regions Bank
 
 
 
 
May 31, 2015 
 
Terms of loan agreement
 
 
 
 
The Loan Agreement was amended to, among other things, (i) add a $5.0 million accordion feature, (ii) increase the Borrowing Base, (iii) reduce the Applicable Margin for Eurodollar Rate Loans by 1% per annum, (iv) add an unused fee of 0.25% per annum, (v) extend the maturity date to May 31, 2015, (vi) release the Guaranty of our Chief Executive Officer previously executed in favor of the Lender, (vii) add our company and our wholly owned subsidiary, Earth911, Inc., as Guarantors, (viii) allow for Permitted Acquisitions, and (ix) delete two of the financial covenants and modify the other financial covenants in certain respects. 
 
Percentage of membership interest pledged to guarantee loan obligation
 
 
 
 
50.00% 
 
Convertible Note Payable - Additional Information (Detail) (USD $)
6 Months Ended 6 Months Ended 1 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Mar. 29, 2013
Jun. 30, 2014
Convertible Notes Payable [Member]
Sep. 30, 2012
Convertible note payable to unrelated parties, issuance date of September 2012 [Member]
Notes Payable [Line Items]
 
 
 
 
 
Debt instrument principal amount
 
 
 
$ 25,000 
 
Debt instrument interest amount
 
 
 
4,001 
 
Number of shares converted in to common stock
 
 
 
23,201 
 
Convertible notes issued during the period
 
 
 
 
25,000 
Debt instrument interest rate
 
 
 
 
10.00% 
Common Stock value per share
$ 0.001 
$ 0.001 
$ 3.00 
 
$ 1.25 
Debt instrument beneficial conversion feature amount
$ 5,500,000 
 
 
 
$ 17,500 
Convertible Note Payable - Summary of Convertible Note Payable Outstanding (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Notes Payable [Line Items]
 
 
Total convertible notes payable-short term
    
$ 25,000 
Convertible note payable to unrelated parties, issuance date of September 2012 [Member]
 
 
Notes Payable [Line Items]
 
 
Total convertible notes payable-short term
    
$ 25,000 
Long-Term Debt and Capital Lease Obligations - Summary of Long-Term Debt (Detail) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Long Term Debt And Equity Financings [Line Items]
 
 
Debt and Capital lease obligation, Total
$ 18,292,580 
$ 17,392,229 
Less: current maturities
(16,418)
(16,096)
Long-term portion
18,276,162 
17,376,133 
Capital lease obligations, imputed interest at 4.75% [Member]
 
 
Long Term Debt And Equity Financings [Line Items]
 
 
Capital lease obligations, imputed interest at 4.75%, with monthly payments of $1,507 through November 2016, secured by computer equipment
41,211 
49,163 
7% Secured Notes Due 2016 [Member]
 
 
Long Term Debt And Equity Financings [Line Items]
 
 
Secured convertible notes payable to related parties
$ 18,251,369 
$ 17,343,066 
Long-Term Debt and Capital Lease Obligations - Summary of Long-Term Debt (Parenthetical) (Detail) (USD $)
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Capital lease obligations, imputed interest at 4.75% [Member]
 
 
Long Term Debt And Equity Financings [Line Items]
 
 
Imputed interest rate for capital lease obligation
4.75% 
4.75% 
Monthly installment capital lease obligation
$ 1,507 
$ 1,507 
7% Secured Notes Due 2016 [Member]
 
 
Long Term Debt And Equity Financings [Line Items]
 
 
Interest rate on convertible notes
7.00% 
7.00% 
Debt instrument, maturity date
July 2016 
 
Debt instrument, net of discount
$ 3,748,631 
$ 4,656,934 
Long-Term Debt and Capital Lease Obligations - Additional Information (Detail) (USD $)
0 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended
Mar. 29, 2013
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
May 7, 2014
Dec. 31, 2013
Mar. 31, 2012
Warrant
Jun. 30, 2014
Convertible Notes Payable [Member]
Jun. 30, 2014
Convertible Secured Promissory Notes [Member]
Jul. 16, 2013
Convertible Secured Promissory Notes [Member]
Jul. 16, 2013
Convertible Secured Promissory Notes [Member]
Chief Executive Officer [Member]
Jul. 16, 2013
Convertible Secured Promissory Notes [Member]
President of Quest [Member]
Jul. 16, 2013
Stockbridge Senior Secured Convertible Note [Member]
Mar. 22, 2012
Stockbridge Senior Secured Convertible Note [Member]
Debt_Instruments
Mar. 29, 2013
Stockbridge Enterprises, LP [Member]
Jul. 16, 2013
Stockbridge Enterprises, LP [Member]
Oct. 31, 2012
Stockbridge Enterprises, LP [Member]
Jun. 30, 2014
Stockbridge Enterprises, LP [Member]
Convertible Notes Payable [Member]
Jun. 30, 2014
Stockbridge Enterprises, LP [Member]
Amendment [Member]
Jun. 30, 2014
Stockbridge Enterprises, LP [Member]
Amendment [Member]
Convertible Notes Payable [Member]
Jun. 30, 2014
Before Maturity Period [Member]
Oct. 31, 2012
Before Maturity Period [Member]
Mar. 31, 2012
Maximum [Member]
42 Month Warrant [Member]
Mar. 31, 2012
Maximum [Member]
45 Month Warrant [Member]
Mar. 31, 2012
Maximum [Member]
48 Month Warrant [Member]
Jun. 30, 2013
Warrant 1-1 [Member]
Mar. 31, 2012
Warrant 1-1 [Member]
Maximum [Member]
Jun. 30, 2013
Warrant 1-5 [Member]
Oct. 31, 2012
Warrant 1-5 [Member]
Maximum [Member]
Jun. 30, 2013
Warrant 1-6 [Member]
Mar. 29, 2013
Warrant 1-6 [Member]
Mar. 31, 2013
Warrant 1-6 [Member]
Maximum [Member]
Jun. 30, 2014
Warrant 1-2 [Member]
Jun. 30, 2014
Warrant 1-3 [Member]
Jun. 30, 2014
Warrant 1-4 [Member]
Jun. 30, 2014
Warrant [Member]
Long Term Debt Maturity [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible secured promissory note principle amount payable
 
 
 
 
 
 
 
 
 
 
 
$ 22,000,000 
$ 22,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Security interest, secured
 
 
 
 
 
 
 
 
 
 
 
25.00% 
25.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of ownership by officials before acquisition
 
 
 
 
 
 
 
 
 
 
 
50.00% 
50.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual interest rate on convertible note
 
 
 
 
 
 
 
 
 
 
7.00% 
 
 
 
 
 
 
 
9.00% 
 
6.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes accrue interest payable beginning
 
 
 
 
 
 
 
 
 
Sep. 05, 2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes accrue interest payable in one installment
 
 
 
 
 
 
 
 
 
Jul. 16, 2016 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion price of notes to common stock
 
$ 2.00 
 
$ 2.00 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 0.362 
$ 0.50 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal amount of each sellers note paid down by first capital rise
 
 
 
5,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note beneficial conversion feature
 
 
 
5,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock conversion adjusted
 
 
 
Common stock has traded at four times the $2.00 conversion price, as adjusted for any stock splits, reverse stock splits, or both. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized discount on sellers notes
 
3,748,631 
 
3,748,631 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense on seller notes
 
890,453 
292,220 
1,765,920 
600,634 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of discount on sellers notes
 
 
 
908,303 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note
 
 
 
 
 
 
 
 
 
 
 
 
 
3,000,000 
 
 
3,000,000 
3,000,000 
 
3,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note accrued interest
 
 
 
 
 
 
 
 
 
 
 
 
 
34,500 
 
 
34,500 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note converted into common stock
 
 
 
 
 
 
 
 
23,201 
 
 
 
 
8,382,597 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured convertible notes issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured convertible warrants issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note maturity period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oct. 01, 2015 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of trading days for calculating average bid price
 
 
 
10 days 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenure of warrant issued
 
 
 
5 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant to acquire
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
345,278 
345,278 
690,557 
 
1,381,115 
 
5,524,461