Source: http://d1lge852tjjqow.cloudfront.net/CIK-0001442236/2d644438-0cc9-4e4d-9dcd-6dfa54631472.html
Timestamp: 2020-01-24 13:17:35
Document Index: 751732750

Matched Legal Cases: ['arty\n10', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911', 'arth911']

QUEST RESOURCE HOLDING CORP, 10-K filed on 3/16/2016
111,788,225�
$�28,189,912�
Accounts receivable, less allowance for doubtful accounts of $586,941 and $760,917 as of December 31, 2015 and 2014, respectively
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of December 31, 2015 and 2014
Common stock, $0.001 par value, 200,000,000 shares authorized, 111,788,225 and 111,601,304 shares issued and outstanding as of December 31, 2015 and 2014, respectively
111,788�
152,249,558�
$�174,453,667�
160,185,976�
14,267,691�
14,383,540�
3,827,128�
18,210,668�
(3,942,977)
(4,296,170)
(5,954,701)
(9,897,678)
$�(9,897,678)
111,692,934�
100,554,314�
1,637,022�
18,577,018�
18,566,826�
15,786,739�
Note and accrued interest conversions, Value
Note and accrued interest conversions, Shares
Common stock issued for services, Value
186,921�
109,936�
130,421�
$�111,788�
$�152,249,558�
292,067�
3,535,061�
441,338�
1,547,769�
(9,224,041)
(279,244)
358,382�
(8,559,423)
(839,605)
(1,020,024)
Repayments of senior convertible notes � related party
10,057,003�
477,556�
The accompanying consolidated financial statements include the accounts of Quest Resource Holding Corporation (“QRHC”) and its subsidiaries, Earth911, Inc. (“Earth911”), Quest Resource Management Group, LLC (“Quest”), Landfill Diversion Innovations, LLC, and Youchange, Inc. (“YouChange”) (collectively, “we,” “us,” or “our company”).
Quest provides businesses with one-stop management programs to reuse, recycle, and dispose of a wide variety of waste streams and recyclables generated by their businesses. Our comprehensive reuse, recycling, and proper disposal management programs are designed to enable regional and national customers to have a single point of contact for managing a variety of waste streams and recyclables. Earth911 also operates environmentally based social media and online data platforms that contain information and instructions necessary to empower consumers and consumer product companies to recycle or properly dispose of household products and materials. Our directory of local recycling and proper disposal options empowers consumers directly and enables consumer product companies to empower their customers by giving them the guidance necessary for the proper recycling or disposal of a wide range of household products and materials, including the “why, where, and how” of recycling. Quest generates substantially all of our revenues, and two of Quest’s customers accounted for 60% and 73% of revenue for the years ended December 31, 2015 and 2014, respectively. Our principal offices are located in The Colony, Texas.
As of December 31, 2015 and 2014, our working capital balance was $2,059,248 and $1,316,319, respectively.
The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the operating activity of QRHC and its subsidiaries for the years ended December 31, 2015 and 2014.
As Quest, Earth911, and YouChange each operate as ecology based green service companies, we did not deem segment reporting necessary.
We use significant estimates when accounting for the carrying amounts of accounts receivable, long-lived assets, goodwill and other intangible assets, stock-based compensation expense, and deferred taxes, all of which are discussed in their respective notes to the consolidated financial statements.
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. We record amounts collected from customers for sales tax on a net basis. In situations in which we are not primarily obligated, we do not have credit risk, or we determine amounts earned using fixed percentage or fixed payment schedules, we record the net amounts as management fees earned. Currently, we have one contract accounted for as management fees with revenue of $109,846 and nil for the years ended December 31, 2015 and 2014, respectively. Our gross billings on this management fee contract were $1,437,579 and nil for the years ended December 31, 2015 and 2014, respectively.
We follow the allowance method of recognizing uncollectible accounts receivable, which recognizes bad debt expense based on a review of the individual accounts outstanding and our prior history of uncollectible accounts receivable. Credit is extended based on evaluation of each customer’s financial condition and is generally unsecured. Accounts receivable are typically due within 30 days and are stated net of an allowance for doubtful accounts in the consolidated balance sheet. We consider accounts past due if outstanding longer than contractual payment terms. We record an allowance based on consideration of a number of factors, including the length of time trade accounts are past due, our previous loss history, the creditworthiness of individual customers, economic conditions affecting specific customer industries, and economic conditions in general. We charge-off accounts receivable after all reasonable collection efforts have been exhausted. We credit payments subsequently received on such receivables to bad debt expense in the period we receive the payment.
As of December 31, 2015 and 2014, we had established an allowance of $586,941 and $760,917, respectively, for potentially uncollectible accounts receivable. We record delinquent finance charges on outstanding accounts receivables only if they are collected.
The changes in our allowance for doubtful accounts for the years ended December 31, 2015 and 2014 were as follows:
Inventories consist of waste disposal and recycling equipment and are stated at the lower of cost (average cost method which approximates first-in, first-out) or market. If required, we establish reserves for inventory to reflect situations in which the cost of the inventory is not expected to be recovered. In evaluating whether inventory is stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory, and current and expected market conditions. We record inventories within “Prepaid expenses and other current assets” in our consolidated balance sheets. As of December 31, 2015 and 2014, all inventories were finished goods with balances of $54,473 and $30,759, respectively, with no reserve for inventory obsolescence at either date.
We record property and equipment at cost. We provide for depreciation on the straight-line method, over the estimated useful lives of the assets. We amortize leasehold improvements over the shorter of the useful life or the remaining term of the related leases. We charge expenditures for repairs and maintenance to operations as incurred; we capitalize renewals and betterments when they extend the useful life of the asset. We record gains and losses on the disposition of property and equipment in the period incurred. We report assets to be disposed of, if any, at the lower of the carrying amount or fair value less costs to sell.
We analyze assets that are held and used for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and period at least at each balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets. We carry assets held for sale, if any, at the lower of carrying amount or fair value less selling costs. We did not recognize any impairment charges for long-lived assets during 2015 and 2014.
We record as goodwill the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the net identifiable assets acquired. We do not amortize goodwill; however, annually, or whenever there is an indication that goodwill may be impaired, we evaluate qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. We performed our Step 1 goodwill impairment analysis in the third quarter of 2015 and 2014 with no impairment recorded. Despite declines in our stock price during the fourth quarter of 2015, our market capitalization at December 31, 2015 exceeded our carrying value by approximately $7.3 million, and we determined that an impairment analysis was not required. However, continued declines in our stock price could require a future Step 2 impairment assessment and the write off of a portion or all of our goodwill and other intangible assets in future periods.
We compute basic net loss per share by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. We have other potentially dilutive securities outstanding that are not shown in a diluted net loss per share calculation because their effect in both 2015 and 2014 would be anti-dilutive. These potentially dilutive securities include stock options, restricted stock units, and warrants and totaled 17,734,908 and 18,130,132 shares at December 31, 2015 and December 31, 2014, respectively.
Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, and trade accounts receivable. We deposit our cash with commercial banks. Cash deposits at commercial banks are at risk to the extent that the balances exceed the Federal Deposit Insurance Corporation insured level per institution. The bank cash balances on deposit may periodically exceed federally insured limits, including $2,017,060 at December 31, 2015; however, we have never experienced any losses related to these balances.
We sell our products and services primarily to consumers, advertisers, and businesses without requiring collateral; however, we routinely assess the financial condition of our customers and maintain allowances for anticipated losses. The following table discloses the number of customers that accounted for more than 10% of our annual revenue and their related receivable balances for the years ended December 31, 2015 and 2014:
We charge our advertising costs to expense when incurred. During the years ended December 31, 2015 and 2014, advertising expense totaled $43,670 and $72,241, respectively.
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, Stock Compensation. 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 to employees as equity instruments and recognize the vesting of the awards ratably over their respective terms. See Note 10 for a description of our share-based compensation plan and information related to awards granted under the plan.
At December 31, 2015 and 2014, Property and equipment, net, and other assets consisted of the following:
We compute depreciation using the straight-line method over the estimated useful lives of the property and equipment. Depreciation expense for the year ended December 31, 2015 was $314,178, inclusive of $3,641 of depreciation expense reflected within “Cost of revenue” in our consolidated statement of operations as it related to assets used in directly servicing customer contracts. Depreciation expense for the year ended December 31, 2014 was $292,067, with no depreciation expense recorded to “Cost of revenue.” At December 31, 2015, our capital lease assets were $426,757, net of $34,041 of accumulated depreciation. At December 31, 2014, our capital lease assets were $51,003, net of $11,539 of accumulated depreciation.
We compute amortization using the straight-line method over the estimated useful lives of the finite lived intangible assets. The amortization expense related to finite lived intangible assets was $4,257,565 and $3,535,061 for the years ended December 31, 2015 and 2014, respectively. Our amortization expense for the year ended December 31, 2015 includes $566,000 related to the cessation of the Earth911 e-commerce marketplace website during the fourth quarter of 2015. We expect amortization expense to be approximately $3.7 million for the year ending December 31, 2016, approximately $3.6 million for the year ending December 31, 2017, approximately $2.5 million for the year ending December 31, 2018, approximately $1.1 million for the year ending December 31, 2019, approximately $600,000 for the year ending December 31, 2020, and approximately $300,000 thereafter. We have no indefinite-lived intangible assets other than goodwill. The goodwill is not deductible for tax purposes. As required by FASB ASC Topic 350, Intangibles – Goodwill and Other, we performed our goodwill impairment analysis in the third quarter of 2015 and 2014 with no impairment recorded in either period.
On December 15, 2010, Quest entered into a Revolving Credit Note and Loan Agreement with Regions Bank (“Regions”), a national banking association. This agreement, as amended, provides Quest with a loan facility of up to $15,000,000 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 facility matures May 13, 2018. 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% (2.57% as of December 31, 2015). 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 with guarantees from QRHC and Earth911. Quest had $4,000,000 outstanding and $11,000,000 available to be borrowed as of December 31, 2015. The amount of interest expense related to the Regions line of credit for the years ended December 31, 2015 and 2014 was $204,984 and $163,607, respectively. As of December 31, 2015 we were in compliance with the financial covenants.
Our capital lease obligations are included within “Deferred revenue and other current liabilities” and “Other long-term liabilities” in our consolidated balance sheets.
At December 31, 2015 and 2014, total capital lease obligations outstanding consisted of the following:
Capital lease obligations, imputed interest of 2.65% to 4.87%,
with monthly payments of $10,508.37 through November 2020,
secured by computer, telephone and office equipment
The amount of interest expense related to our capital leases for the years ended December 31, 2015 and 2014 was $4,080 and $2,406, respectively. The following table summarizes future maturities of our capital lease obligations, as of December 31, 2015:
Convertible Secured Promissory Notes – Quest Acquisition
In connection with our acquisition of Quest from Quest Resource Group LLC (“QRG”) on July 16, 2013, we issued convertible secured promissory notes with a total principal amount of $22,000,000 to the owners of QRG who were related parties: the former Chief Executive Officer of Quest and the former President of Quest. After the close of the transaction, the Chief Executive Officer of Quest became the President, Chief Executive Officer, and a member of the Board of Directors of our company until his resignation in October 2015, and the former president of Quest became a member of the Board of Directors of our company. The convertible secured promissory notes (collectively, the “Sellers Notes”) were 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 accrued interest at a rate of 7% per annum and were payable on a monthly basis on the 5th day of the month beginning on September 5, 2013. The principal amount was due and payable in one installment on July 16, 2016.
The Sellers Notes were 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 were convertible, in our sole discretion, into shares of our common stock at a price of $2.00 per share at any time after (i) the two year anniversary of the Notes, (ii) the principal amount of each Sellers Note had been paid down by $5,000,000 as a result of the first capital raise, (iii) our common stock traded on the Nasdaq Stock Market, the New York Stock Exchange, or NYSE MKT, and (iv) our common stock 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, we recognized a beneficial conversion feature (“BCF”) of $5,500,000 and discounted the Sellers Notes.
On September 24, 2014, we repaid $11,000,000 of the Sellers Notes using proceeds from our public offering. Additionally, the holders converted the remaining $11,000,000 of Sellers Notes, plus accrued interest through September 24, 2014 of $101,260, into 5,550,630 shares of our common stock. In accordance with FASB ASC Topic 740-20, Debt with Conversion and Other Options, for the portion of the Sellers Notes retired through conversion to our common stock, the remaining unamortized BCF of $1,658,531 at the time of conversion is reflected as “Interest expense” in our consolidated statement of operations. Additionally, for the portion of the Sellers Notes repaid in cash, we did not allocate the consideration paid to the BCF, as we determined the intrinsic value was zero as of the extinguishment date, and we recorded the $1,658,531 difference between the carrying amount of the remaining Sellers Notes and the consideration paid as “Loss on extinguishment of debt” in our consolidated statement of operations. Therefore, as of December 31, 2014, the unamortized discount on the Sellers Notes was nil. The amount of interest expense related to the Sellers Notes for the year ended December 31, 2014 was $1,126,521. The amount of interest expense related to the amortization of the discount on the Sellers Notes for the year ended December 31, 2014 was $2,998,403. There was no comparable expense for the year ended December 31, 2015.
We compute income taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes. 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 more likely than not to be realized. Realization of our net operating loss carryforward was not reasonably assured as of December 31, 2015 and 2014, and we have recorded a valuation allowance of $12,313,000 and $9,108,000, respectively, against deferred tax assets in excess of deferred tax liabilities in the accompanying consolidated financial statements.
(3,365,211
As of December 31, 2015, we had federal income tax net operating loss carryforwards of approximately $14,500,000, which expire at various dates beginning in 2031. We are subject to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss. Such limitation of the net operating losses may have occurred, which we have not fully analyzed at this time as we have fully reserved the deferred tax asset.
As of December 31, 2015, 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 2016. It is our policy to classify interest and penalties on income taxes as interest expense or penalties expense.
We are potentially subject to tax audits for federal and state tax returns for tax years ended 2013 to 2015. Tax audits by their very nature are often complex and can require several years to complete.
Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, line of credit, capital lease obligations 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 approximate their carrying values using Level 3 inputs, based on their short maturities or, for long-term portions of capital lease obligations and line of credit, based on borrowing rates currently available to us for loans with similar terms and maturities.
On May 7, 2014, we issued an aggregate of 200,000 warrants to purchase shares of our common stock to a consultant in exchange for services rendered during the year ended December 31, 2014. Of these warrants, 100,000 vested immediately and resulted in no expense recorded for the year ended December 31, 2015. The remaining 100,000 warrants, which we had classified as a liability, vested on May 7, 2015 subject to performance conditions. We measured the warrants at fair value by applying the Black-Scholes-Merton valuation model, which utilizes Level 3 inputs. The assumptions used in the Black-Scholes-Merton valuation for the warrants that immediately vested on May 7, 2014 were as follows: volatility of 97.6%; risk free interest rate of 0.9%; expected term of three years; and expected dividend yield of 0%. The grant date fair value of the initial warrant valuation described above was $1.61 per warrant. As of May 7, 2015, the assumptions used in the Black-Scholes-Merton valuation for the 100,000 warrants that vested on May 7, 2015 were as follows: volatility of 88.5%; risk free interest rate of 0.63%; expected term of two years; and expected dividend yield of 0%. The grant date fair value of the warrant valuation as described above was $0.35 per warrant. We based the risk free interest rate on U.S. Treasury rates with maturity dates approximating the expected term of the warrants. We determined the historical volatility using the historical changes in the market price of our common stock.
The following table summarizes the warrant liability valuation for the two years ended December 31, 2015:
Total (gains) or losses (Level 3)
Vesting of performance condition (Level 3)
We lease corporate office space in The Colony, Texas under an 84 month, non-cancelable operating lease. The lease expires in October 2022. We also lease corporate office space in Scottsdale, Arizona under a 66 month, non-cancelable operating lease. The lease, which expires in March 2017, provides for a renewal option of 60 months, and was subleased during 2014. The total amount of minimum rentals we expect to receive on this sublease is $320,061 as of December 31, 2015. Lease expense totaled $509,586 and $352,670 for the years ended December 31, 2015 and 2014, respectively.
The following is a schedule, by year, of future minimum rental payments required under the operating lease agreements as of December 31, 2015:
During the normal course of business, we make certain indemnities and commitments under which we may be required to make payments in relation to certain transactions. These may include (i) intellectual property indemnities to customers in connection with the use, sales, and/or license of products and services; (ii) indemnities to customers in connection with losses incurred while performing services on their premises; (iii) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; and (iv) indemnities involving the representations and warranties in certain contracts. In addition, under our bylaws we are committed to our directors and officers for providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities and commitments do not provide for any limitation on the maximum potential for future payments that we could be obligated to make. We have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of December 31, 2015 and 2014.
Our authorized preferred stock includes 10,000,000 shares of preferred stock with a par value of $0.001, of which no shares have been issued or are outstanding as of December 31, 2015 and 2014.
Our authorized common stock includes 200,000,000 shares of common stock with a par value of $0.001, of which 111,788,225 and 111,601,304 shares were issued and outstanding as of December 31, 2015 and 2014, respectively.
On March 5, 2015, we issued 56,500 shares to an employee related to restricted stock units that vested and were expensed during fiscal year 2014.
Shares issued for Employee Stock Purchase Plan offering –
On May 15, 2015, we issued 57,134 shares to employees for $60,705 under our 2014 Employee Stock Purchase Plan (“ESPP”) for options that vested and were exercised.
On November 15, 2015, we issued 73,287 shares to employees for $49,361 under our 2014 ESPP for options that vested and were exercised.
During the year ended December 31, 2014, we issued shares of common stock as follows:
Sale of common stock and warrants, net of issuance costs
18,577,018
Note and accrued interest conversions
29,757,279
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. Additionally, we issued an additional 248,500 warrants to third parties for services provided related to the issuance.
On September 24, 2014, we issued an aggregate of 9,000,000 shares of our common stock at a price per share of $1.99, together with warrants to purchase 9,000,000 shares of our common stock at a price per warrant of $0.01, for a total of $2.00 for one share and one warrant, generating $18,000,000 in gross proceeds.
Note and interest conversions –
The holders of the Sellers Notes converted $11,000,000 of principal, plus accrued interest through September 24, 2014 of $101,260, into 5,550,630 shares of our common stock. See Note 6 for a discussion of the conversion.
During the year ended December 31, 2014, $25,000 of principal and $4,001 of interest were converted into 23,201 shares of our common stock.
We issued 20,408 shares of common stock to consultants for $50,000 of services during the year ended December 31, 2014.
During the year ended December 31, 2015, we did not issue any warrants, no holders exercised warrants, and a third party forfeited 1,200,000 contingent warrants. Due to the uncertainty of attaining any of the performance conditions, we did not recognize any additional expense for the non-vested warrants. As these warrants related to internally developed software, we did not capitalize any costs or recognize any expense for the year ended December 31, 2015. During the year ended December 31, 2014, we issued 12,991,000 warrants, no holders exercised warrants, and no warrants expired. There were 11,791,000 exercisable warrants and no contingent warrants outstanding as of December 31, 2015. There were 11,241,000 exercisable warrants and 1,750,000 contingent warrants outstanding as of December 31, 2014.
Warrants issued in conjunction with sale of common stock –
On April 18, 2014, we issued 1,192,500 warrants to accredited investors, each to purchase one share of our common stock for $2.00 per share as part of a Unit that included a share of our common stock. Additionally, we issued an additional 248,500 warrants to third-parties for services provided related to the issuance. 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.
On September 24, 2014, we issued 9,000,000 warrants to purchase 9,000,000 shares of our common stock at a price per warrant of $0.01, as part of the sale of 9,000,000 shares of common stock. We also granted to the underwriters a 45-day option to acquire up to 700,000 additional shares of common stock and/or additional warrants to acquire up to 700,000 shares of common stock. On October 20, 2014, the underwriters exercised their option and acquired an additional 700,000 warrants. The warrants may be exercised for a period of five years to purchase common stock at an exercise price of $2.50 per share.
On May 7, 2014, we issued to a third party for services rendered an aggregate of 200,000 warrants to purchase 200,000 shares of our common stock for $2.65 per share. Of the 200,000 warrants, 100,000 were exercisable immediately and the remaining become exercisable one year from the date of grant based on the achievement of performance conditions. We recorded stock-based compensation expense of $144 and $195,814 related to these warrants for the years ended December 31, 2015 and 2014, respectively. See Note 8 for a discussion of our Black-Scholes-Merton valuation assumptions.
On May 28, 2014, we issued to a third party for services rendered an aggregate of 1,650,000 contingent warrants to purchase 1,650,000 shares 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.
As these warrants related to internally developed software, we recorded $174,109 to intangible assets for the year ended December 31, 2014 as the third party satisfied the first vesting condition. We measured the 450,000 vested warrants during the year ended December 31, 2014 at fair value by applying the Black-Scholes-Merton valuation model, which utilizes Level 3 inputs. The assumptions used in the Black-Scholes-Merton option valuation for the warrants were as follows: volatility of 93.5%; risk free interest rate of 0.5%; expected term of 2.0 years; and expected dividend yield of 0%. The fair value of the warrant described above as of December 31, 2014 was $0.39 per warrant. We based the risk free interest rate on U.S. Treasury rates with maturity dates approximating the expected term of the warrants. We determined the historical volatility using the historical changes in the market price of our common stock and applicable comparison companies.
Due to the uncertainty of attaining any of the remaining performance conditions, we did not recognize any additional activity for the remaining warrants for the year ended December 31, 2015. See Note 8 for a discussion of our Black-Scholes-Merton valuation assumptions.
The following table summarizes the warrants issued and outstanding as of December 31, 2015:
Warrants Issued and Outstanding as of December 31, 2015
In October 2012, we adopted our 2012 Incentive Compensation Plan (the “2012 Plan”) as the sole plan for providing equity-based incentive compensation to our employees, non-employee directors, and other service providers. The plan allows for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, and other incentive awards to our employees, non-employee directors, and other service providers who are in a position to make a significant contribution to our success and our affiliates. The purposes of the plan are to attract and retain individuals, further align employee and stockholder interests, and closely link compensation with our performance. The plan is administered by the compensation committee of our board of directors. 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 related to options granted prior to the Earth911 Merger that was superseded by the 2012 Plan 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.
During April 2014, we granted restricted stock units representing 132,600 shares of common stock under the 2012 Plan. The restricted stock units vest 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 our common stock on the date of grant, which was $3.75 per share. We recorded $211,875 of stock-based compensation expense for the year ended December 31, 2014 related to these restricted stock units as the grantee satisfied the first vesting condition. Due to the uncertainty of attaining any of the remaining performance conditions, we recorded no additional stock-based compensation expense for the remaining performance conditions for the year ended December 31, 2015. We issued 56,500 shares during the year ended December 31, 2015 related to the restricted stock units that vested and were expensed during 2014. The remaining 76,100 restricted stock unit awards were forfeited during December 2015 upon the grantee’s termination. As of December 31, 2015 and 2014, outstanding restricted stock units totaled nil and 132,600, respectively.
On September 17, 2014, our stockholders approved the ESPP. We recorded expense of $61,023 and $4,683 related to the ESPP during the years ended December 31, 2015 and 2014, respectively.
The following table summarizes the stock option activity from January 1, 2014 through December 31, 2015:
$2.00 — $3.25
$1.45 — $3.75
(440,416
$2.05 — $2.10
$0.78 — $1.46
(1,305,249
$1.28 — $3.75
5,943,908
$0.78 — $3.75
The weighted-average grant-date fair value of options granted was $0.55 and $1.41 for the years ended December 31, 2015 and 2014, respectively.
For the years ended December 31, 2015 and 2014, the intrinsic value of options outstanding was nil and nil, respectively, and the intrinsic value of options exercisable was nil and nil, respectively.
$0.78 - $3.75
3,643,718
The following additional information applies to options outstanding at December 31, 2014:
Stock-based compensation expense for stock based incentive awards was $1,315,530 and $1,085,217 for the years ended December 31, 2015 and 2014, respectively. At December 31, 2015, 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 $2,408,855. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately one year.
The weighted-average estimated value of employee stock options granted during the years ended December 31, 2015 and 2014 were estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:
We compute basic 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. We have potentially dilutive securities outstanding that are not shown in a diluted loss per share calculation because their effect in both 2015 and 2014 would be anti-dilutive. These potentially dilutive securities include options, restricted stock units, and warrants and totaled 17,734,908 and 18,130,132 shares at December 31, 2015 and 2014, respectively.
17,734,908
18,130,132
Warrants issued for capitalized software purchases
On July 16, 2013, we acquired all of the issued and outstanding membership interest of Quest held by QRG, comprising 50% of the membership interests of Quest (the “Quest Interests”). 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. The total purchase price of $77,000,000 was paid to the owners of QRG who were related parties: the Chief Executive Officer of Quest and the former President of Quest until his resignation in October 2015, and the former President of Quest became a member of the Board of Directors of our company. 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. On September 24, 2014, we paid $11,000,000 to the holders of the Sellers’ Notes and such holders converted the remaining $11,000,000 of principal, plus accrued interest through September 24, 2014 of $101,260, into 5,550,630 shares of our common stock. See Note 6 for a discussion of the conversion.
The following table discloses the number of customers that accounted for more than 10% of our annual revenue and their related receivable balances for the years ended December 31, 2015 and 2014: