QUEST RESOURCE HOLDING CORP, 10-K filed on 3/12/2020
Annual Report
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Mar. 01, 2020
Jun. 28, 2019
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
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 Non-accelerated Filer    
Entity Shell Company false    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Common Stock, Shares Outstanding   15,372,905  
Entity Public Float     $ 29,122,420
Entity File Number 001-36451    
Entity Tax Identification Number 51-0665952    
Entity Address, Address Line One 3481 Plano Parkway    
Entity Address, City or Town The Colony    
Entity Address, State or Province TX    
Entity Address, Postal Zip Code 75056    
City Area Code 972    
Local Phone Number 464-0004    
Entity Interactive Data Current Yes    
Title of 12(b) Security Common Stock, par value $.001 per share    
Entity Incorporation, State or Country Code NV    
Security Exchange Name NASDAQ    
Document Annual Report true    
Document Transition Report false    
Documents Incorporated by Reference

None

   
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 3,411,108 $ 2,122,297
Accounts receivable, less allowance for doubtful accounts of $767,464 and $929,339 as of December 31, 2019 and 2018, respectively 13,899,451 16,711,809
Prepaid expenses and other current assets 1,110,266 965,755
Total current assets 18,420,825 19,799,861
Goodwill 58,208,490 58,208,490
Intangible assets, net 1,590,524 2,610,921
Property and equipment, net, and other assets 2,436,094 968,025
Total assets 80,655,933 81,587,297
Current liabilities:    
Accounts payable and accrued liabilities 13,316,805 15,777,921
Deferred revenue and other current liabilities 19,644 71,717
Total current liabilities 13,336,449 15,849,638
Revolving credit facility, net 4,534,683 5,194,588
Other long-term liabilities 1,140,749 353
Total liabilities 19,011,881 21,044,579
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of December 31, 2019 and 2018
Common stock, $0.001 par value, 200,000,000 shares authorized, 15,372,905 and 15,328,870 shares issued and outstanding as of December 31, 2019 and 2018, respectively 15,373 15,329
Additional paid-in capital 160,858,072 159,701,542
Accumulated deficit (99,229,393) (99,174,153)
Total stockholders’ equity 61,644,052 60,542,718
Total liabilities and stockholders’ equity $ 80,655,933 $ 81,587,297
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]      
Allowance for doubtful accounts receivable $ 767,464 $ 929,339 $ 699,102
Preferred stock, par value $ 0.001 $ 0.001  
Preferred stock, shares authorized 10,000,000 10,000,000  
Preferred stock, shares issued 0 0  
Preferred stock, shares outstanding 0 0  
Common stock, par value $ 0.001 $ 0.001  
Common stock, shares authorized 200,000,000 200,000,000  
Common stock, shares issued 15,372,905 15,328,870  
Common stock, shares outstanding 15,372,905 15,328,870  
v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]    
Revenue $ 98,979,140 $ 103,805,432
Cost of revenue 80,253,172 86,942,718
Gross profit 18,725,968 16,862,714
Operating expenses:    
Selling, general, and administrative 16,815,767 16,163,153
Depreciation and amortization 1,314,731 2,700,809
Total operating expenses 18,130,498 18,863,962
Operating income (loss) 595,470 (2,001,248)
Interest expense 431,628 437,733
Income (loss) before taxes 163,842 (2,438,981)
Income tax expense 219,082  
Net loss (55,240) (2,438,981)
Net loss applicable to common stockholders $ (55,240) $ (2,438,981)
Net loss per share applicable to common stockholders    
Basic $ 0.00 $ (0.16)
Diluted $ 0.00 $ (0.16)
Weighted average number of common shares outstanding    
Basic 15,347,039 15,311,220
Diluted 15,347,039 15,311,220
v3.20.1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Beginning Balance at Dec. 31, 2017 $ 62,147,730 $ 15,302 $ 158,867,600 $ (96,735,172)
Beginning Balance, Shares at Dec. 31, 2017   15,302,455    
Stock-based compensation 793,589   793,589  
Shares issued for Employee Stock Purchase Plan options, Value 40,380 $ 27 40,353  
Shares issued for Employee Stock Purchase Plan options, Shares   26,415    
Net loss (2,438,981)     (2,438,981)
Ending Balance at Dec. 31, 2018 60,542,718 $ 15,329 159,701,542 (99,174,153)
Ending Balance, Shares at Dec. 31, 2018   15,328,870    
Stock-based compensation 1,085,906   1,085,906  
Shares issued for Employee Stock Purchase Plan options, Value 70,668 $ 44 70,624  
Shares issued for Employee Stock Purchase Plan options, Shares   44,035    
Net loss (55,240)     (55,240)
Ending Balance at Dec. 31, 2019 $ 61,644,052 $ 15,373 $ 160,858,072 $ (99,229,393)
Ending Balance, Shares at Dec. 31, 2019   15,372,905    
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:    
Net loss $ (55,240) $ (2,438,981)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation 225,061 385,863
Amortization of intangibles 1,176,722 2,499,349
Amortization of debt issuance costs 93,901 93,902
Provision for doubtful accounts 60,000 1,085,622
Stock-based compensation 1,085,906 793,589
Changes in operating assets and liabilities:    
Accounts receivable 2,752,358 (1,534,155)
Prepaid expenses and other current assets (144,511) 542,259
Security deposits and other assets 46,922 256,553
Accounts payable and accrued liabilities (2,919,577) 1,524,103
Deferred revenue and other liabilities (45,663) (239,616)
Net cash provided by operating activities 2,275,879 2,968,488
Cash flows from investing activities:    
Purchase of property and equipment (145,008) (43,514)
Purchase of capitalized software development (156,325) (196,460)
Net cash used in investing activities (301,333) (239,974)
Cash flows from financing activities:    
Proceeds from credit facilities 99,403,848 100,479,383
Repayments of credit facilities (100,157,654) (102,142,194)
Proceeds from shares issued for Employee Stock Purchase Plan 70,668 40,380
Repayments of capital lease obligations (2,597) (39,067)
Net cash used in financing activities (685,735) (1,661,498)
Net increase in cash and cash equivalents 1,288,811 1,067,016
Cash and cash equivalents at beginning of period 2,122,297 1,055,281
Cash and cash equivalents at end of period $ 3,411,108 $ 2,122,297
v3.20.1
The Company and Description of Business
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
The Company and Description of Business

1. The Company and Description of Business

The accompanying consolidated financial statements include the accounts of Quest Resource Holding Corporation (“QRHC”) and its subsidiaries, Quest Resource Management Group, LLC (“Quest”), Landfill Diversion Innovations, LLC (“LDI”), Youchange, Inc. (“Youchange”), Quest Vertigent Corporation (“QVC”), Quest Vertigent One, LLC (“QV One”), and Quest Sustainability Services, Inc. (“QSS”) (collectively, “we,” “us,” or “our company”).  

Operations

We are a national provider of waste and recycling services to customers from across multiple industry sectors that are typically larger, multi-location businesses.  We create customer-specific programs and perform the related services for the collection, processing, recycling, disposal, and tracking of waste streams and recyclables.  In addition, we offer products such as antifreeze and windshield washer fluid and other minor ancillary services.  We also provide information and data that tracks and reports the detailed transactional and environmental results of our services and provides actionable data to improve business operations. The data we generate also enables our customers to address their environmental and sustainability goals and responsibilities. Our principal office is located in The Colony, Texas within the Dallas metroplex.

v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Presentation and Consolidation

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, 2019 and 2018.

As QRHC, Quest, LDI, Youchange, QVC, QV One, and QSS each operate as environmental-based 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 carrying amounts of accounts receivable, 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.

Revenue Recognition

We recognize revenue as services are performed or products are delivered.  For example, we recognize revenue as waste and recyclable material are collected or when products are delivered.  We recognize revenue net of any contracted pricing discounts or rebate arrangements.    

We generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment.  We record amounts collected from customers for sales tax on a net basis.

Cash and Cash Equivalents

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

Accounts Receivable

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. We extend credit based on an evaluation of each customer’s financial condition, and our receivables are generally unsecured. Accounts receivable are stated net of an allowance for doubtful accounts in the consolidated balance sheets. 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, 2019 and 2018, we had established an allowance of $767,464 and $929,339, respectively, for potentially uncollectible accounts receivable. We record delinquent finance charges on outstanding accounts receivable only if they are collected.

The changes in our allowance for doubtful accounts for the years ended December 31, 2019 and 2018 were as follows:

 

 

 

Years ended December 31,

 

 

 

2019

 

 

2018

 

Beginning balance

 

$

929,339

 

 

$

699,102

 

Bad debt expense

 

 

60,000

 

 

 

1,085,622

 

Uncollectible accounts written off, net of recoveries

 

 

(221,875

)

 

 

(855,385

)

Ending balance

 

$

767,464

 

 

$

929,339

 

 

Fair Value Measurements

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received in the sale of 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.

Property and Equipment

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 estimated 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 held for sale, if any, at the lower of the carrying amount or fair value less costs to sell.

The useful lives of property and equipment for purposes of computing depreciation are as follows:

 

Vehicles

 

5 to 7 years

Computer equipment

 

3 to 5 years

Office furniture and fixtures

 

5 to 7 years

Machinery and equipment

 

5 to 7 years

Leasehold improvements

 

5 to 7 years

 

Impairment of Long-Lived Assets

We analyze long-lived assets, including property and equipment and definite-lived intangible assets, which are held and used in our operations, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life 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 did not recognize any impairment charges for long-lived assets during 2019 and 2018.        

Goodwill

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. 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 most recent goodwill impairment analysis in the third quarter of 2019, utilizing an income approach with no impairment recorded.  We believe that the discounted cash flow method best captures the significant value-creating activities we are undertaking.  The primary assumptions in our income approach included estimating cash flows and projections.  We determined that the fair value of our goodwill exceeded our carrying value, and consequently, no impairment was deemed to have occurred.  However, a continued or prolonged period of declining gross margins or a significant decrease in our anticipated revenue growth could result in the write-off of a portion or all of our goodwill and other intangible assets in future periods.

Net Income (Loss) per Share

We compute basic net income (loss) per share using the weighted average number of shares of common stock outstanding plus the number of common stock equivalents for DSUs during the period. We compute diluted net income (loss) per share using the weighted average number of shares of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents.  Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of outstanding stock options.  Dilutive potential securities are excluded from the computation of earnings per share if their effect is antidilutive.  The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method.  

Concentrations

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, such as $3,188,540 at December 31, 2019; however, we have never experienced any losses related to these balances.

We sell our services and products primarily to customers without requiring collateral; however, we routinely assess the financial condition of our customers and maintain allowances for anticipated losses.  From year to year, the customers that exceed 10% of our annual revenue, if any, may change. 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, 2019 and 2018:

 

 

 

Customers Exceeding 10%

of Revenue

 

Year

 

Number of

Customers

 

 

Revenue

Combined Percent

 

 

Accounts Receivable

Combined Percent

 

2019

 

 

3

 

 

 

53

%

 

 

36

%

2018

 

 

3

 

 

 

51

%

 

 

33

%

 

We believe we have no significant credit risk in excess of recorded reserves.

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 the position is taken on the income tax return. If we did not recognize the penalty in the period when the position was initially taken, we recognize the expense in the period when we change our judgment about meeting minimum statutory thresholds related to the initial position taken.

Advertising

We charge our advertising costs to expense when incurred. During the years ended December 31, 2019 and 2018, advertising expense totaled $20,364 and $38,570, respectively.

Stock-Based Compensation

We measure all share-based payments, including grants of options to purchase common stock and the issuance of deferred stock units to employees, third parties and board members, using a fair value-based method, in accordance with ASC Topic 718, Stock Compensation. We classify all share-based awards as equity instruments and recognize the vesting of the awards ratably over their respective terms.  See Note 12 for a description of our share-based compensation plan and information related to awards granted under the plan.

We estimate the fair value of stock options using the Black-Scholes-Merton valuation model. Significant assumptions used in the calculation are as follows:

 

We determine the expected term in accordance with SEC Staff Accounting Bulletin No. 107 using the simplified method for plain vanilla options by the average of the contractual term and vesting period of the award as appropriate statistical data required to properly estimate the expected term was not available;

 

We measure the expected volatility using the historical changes in the market price of our common stock and applicable comparison companies;

 

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

 

We recognize the effects of forfeitures in compensation cost when they occur.

Deferred Stock Units for Nonemployee Directors

Effective September 1, 2019, nonemployee directors can elect to receive all or a portion of their annual retainers in the form of deferred stock units (“DSUs”).   The DSUs are recognized at their fair value on the date of grant.  Director fees deferred into stock units are calculated and expensed each month by taking fees earned during the month and dividing by the closing price of our common stock on the last trading day of the month, rounded down to the nearest whole share.  Each DSU represents the right to receive one share of our common stock following the completion of a director’s service.  A total of 14,451 stock units were deferred in the year ended December 31, 2019.

Recently Issued Accounting Pronouncements

Adopted

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), using a modified retrospective approach with an effective date as of January 1, 2019.  Accordingly, prior year financial statement data is presented in accordance with the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented.  We elected the package of practical expedients, which allowed us to carryforward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs.  As of January 1, 2019, we recognized an operating right-of-use asset of approximately $2.0 million and corresponding operating lease liabilities of approximately $2.2 million.  Finance lease assets were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded on the balance sheet under ASC 840.  The adoption did not materially impact our results of operations or cash flows and no cumulative adjustment to accumulated deficit was necessary as of January 1, 2019.  Refer to Note 7, Leases for additional information and enhanced disclosures related to this amended guidance.

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective approach for all ongoing customer contracts.  Refer to Note 8, Revenue for additional information and disclosures related to this amended guidance.

Pending Adoption

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments.  The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates.  ASU 2016-13 is effective for us on January 1, 2023.  We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40).  The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. This guidance also requires entities to present the expense in the same line item in the statement of operations as the fees associated with the hosting arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The amendments in this ASU are effective for us on January 1, 2020.  The adoption of the standard is not expected to have a material effect on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions and amending guidance to improve consistent application of accounting over income taxes. This guidance is effective January 1, 2021 with early adoption permitted. The adoption of the standard is not expected to have a material effect on our consolidated financial statements.

There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us.

v3.20.1
Property and Equipment, Net, and Other Assets
12 Months Ended
Dec. 31, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment, Net, and Other Assets

3. Property and Equipment, net, and Other Assets

At December 31, 2019 and 2018, Property and equipment, net, and other assets consisted of the following:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Vehicles

 

$

493,373

 

 

$

493,373

 

Computer equipment

 

 

247,776

 

 

 

700,218

 

Office furniture and fixtures

 

 

541,464

 

 

 

541,464

 

Machinery and equipment

 

 

688,137

 

 

 

845,128

 

Leasehold improvements

 

 

558,035

 

 

 

558,035

 

    Property and equipment, gross

 

 

2,528,785

 

 

 

3,138,218

 

Accumulated depreciation

 

 

(1,994,320

)

 

 

(2,523,700

)

    Property and equipment, net

 

 

534,465

 

 

 

614,518

 

Right-of-use operating lease asset

 

 

1,595,044

 

 

 

 

Security deposits and other assets

 

 

306,585

 

 

 

353,507

 

    Property and equipment, net, and other assets

 

$

2,436,094

 

 

$

968,025

 

 

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, 2019 was $225,061, including $87,053 of depreciation expense reflected within “Cost of revenue” in our consolidated statement of operations as it related to assets used directly in servicing customer contracts.  Depreciation expense for the year ended December 31, 2018 was $385,863, including $184,404 depreciation expense recorded in “Cost of revenue.”   

We recorded a right-of-use operating lease asset of $2.0 million related to our corporate office lease upon the adoption of ASC 842 effective January 1, 2019.  Refer to Note 7, Leases for additional information.

On February 20, 2018 (the “Closing Date”), we entered into an Asset Purchase Agreement with Earth Media Partners, LLC to sell certain assets of our wholly owned subsidiary, Earth911, Inc., in exchange for a 19% interest in Earth Media Partners, LLC, which was recorded as an investment in the amount of $246,585 as of the Closing Date, and a potential future earn-out amount of approximately $350,000.  The net assets sold related to the Earth911.com website business and consisted primarily of the website and its content and customers, deferred revenues, and accounts receivable as of the Closing Date.  Earth911, Inc. was subsequently renamed Quest Sustainability Services, Inc.  The carrying amount of our investment in Earth Media Partners, LLC is included in “Security deposits and other assets” and we have an accrued receivable in the amount of $163,781 related to the earn-out included in “Accounts receivable” as of December 31, 2019.

v3.20.1
Goodwill and Other Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets

4. Goodwill and Other Intangible Assets

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

 

December 31, 2019

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

12,720,000

 

 

$

 

Trademarks

 

7 years

 

 

6,235,069

 

 

 

5,751,037

 

 

 

484,032

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

2,090,633

 

 

 

984,141

 

 

 

1,106,492

 

Customer lists

 

5 years

 

 

307,153

 

 

 

307,153

 

 

 

 

Total finite lived intangible assets

 

 

 

$

21,583,538

 

 

$

19,993,014

 

 

$

1,590,524

 

 

December 31, 2018

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

12,720,000

 

 

$

 

Trademarks

 

7 years

 

 

6,235,068

 

 

 

4,860,305

 

 

 

1,374,763

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

1,934,308

 

 

 

698,150

 

 

 

1,236,158

 

Customer lists

 

5 years

 

 

307,153

 

 

 

307,153

 

 

 

 

Total finite lived intangible assets

 

 

 

$

21,427,212

 

 

$

18,816,291

 

 

$

2,610,921

 

 

 

December 31, 2019 and 2018

 

Estimated

Useful Life

 

Carrying

Amount

 

Indefinite lived intangible asset:

 

 

 

 

 

 

Goodwill

 

Indefinite

 

$

58,208,490

 

 

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 $1,176,722 and $2,499,349 for the years ended December 31, 2019 and 2018, respectively.  We expect amortization expense to be approximately $780,000 for the year ending December 31, 2020, approximately $295,000 for the year ending December 31, 2021, approximately $245,000 for the year ending December 31, 2022, approximately $115,000 for the year ending December 31, 2023, approximately $90,000 for the year ending December 31, 2024, and approximately $65,000 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 2019 and 2018 with no impairment recorded in either period.

 

v3.20.1
Accounts Payable and Accrued Liabilities
12 Months Ended
Dec. 31, 2019
Accounts Payable And Accrued Liabilities Current [Abstract]  
Accounts Payable and Accrued Liabilities

5. Accounts Payable and Accrued Liabilities

 

The components of Accounts payable and accrued liabilities are as follows:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Accounts payable

 

$

10,436,715

 

 

$

14,025,221

 

Accrued taxes

 

 

716,545

 

 

 

548,126

 

Employee compensation

 

 

1,384,360

 

 

 

910,796

 

Operating lease liability - current portion

 

 

627,896

 

 

 

 

Other

 

 

151,289

 

 

 

293,778

 

 

 

$

13,316,805

 

 

$

15,777,921

 

v3.20.1
Revolving Credit Facility
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Revolving Credit Facility

6. Revolving Credit Facility

We entered into a Loan, Security and Guaranty Agreement (the “Citizens Loan Agreement”), dated as of February 24, 2017, with Citizens Bank, National Association as a lender, and as administrative agent, collateral agent, and issuing bank, which provides for an asset-based revolving credit facility (the “ABL Facility”) of up to $20 million and an equipment loan facility in the maximum principal amount of $2.0 million.  Available borrowings on the ABL facility are based on formula-determined amounts of eligible trade receivables, as defined in the Citizens Loan Agreement, and are recalculated on a monthly basis.

Each loan under the ABL Facility bears interest, at our option, at either the Base Rate, as defined in the Citizens Loan Agreement, plus a margin ranging from 1.0% to 1.5% (6.00% as of December 31, 2019), or the LIBOR lending rate for the interest period in effect, plus a margin ranging from 2.0% to 2.5% (4.09% as of December 31, 2019). The maturity date of the ABL Facility is February 24, 2022.  

LIBOR is expected to be discontinued after 2021.  The ABL Facility provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable.  However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR.  We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with Citizens Bank, National Association to ensure any transition away from LIBOR will have minimal impact on our financial condition.  We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.

We had no borrowings under the equipment loan facility, which were required to be requested no later than February 24, 2019.

The ABL Facility contains certain specific financial covenants regarding a minimum liquidity requirement and a minimum fixed charge coverage ratio.  In addition, the ABL Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, mergers and acquisitions, and other matters customarily restricted in such agreements.  As of December 31, 2019, we were in compliance with the financial covenants included in the Citizens Loan Agreement.

Quest and LDI are the borrowers under the Citizens Loan Agreement. QRHC and QSS are guarantors under the Citizens Loan Agreement.  In addition, obligations under the ABL Facility are secured by certain first-priority security interests in substantially all of the tangible and intangible personal property of the borrowers, including a pledge of the capital stock and membership interests, as applicable, of certain of their direct and indirect subsidiaries. The guarantors under the Citizens Loan Agreement have granted a first priority lien on the capital stock and membership interests, as applicable, of certain of their direct and indirect subsidiaries.

The amount of interest expense related to borrowings for the years ended December 31, 2019 and 2018 was $326,212 and $325,534, respectively. Debt issuance cost of $469,507 is being amortized to interest expense over the life of the ABL Facility.  As of December 31, 2019, the unamortized portion of the debt issuance costs was $203,453.  The amount of interest expense related to the amortization of the discount on the ABL Facility for the years ended December 31, 2019 and 2018 was $93,901 and $93,902, respectively.  As of December 31, 2019, the ABL Facility borrowing base availability was $9,794,000, of which $4,738,136 principal was outstanding.  The outstanding liability as of December 31, 2019 was $4,534,683, net of unamortized debt issuance cost of $203,453.

v3.20.1
Leases
12 Months Ended
Dec. 31, 2019
Lessee Disclosure [Abstract]  
Leases

 

7. Leases

ASU 2016-02 Adoption

On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), and the related amendments (collectively “ASC 842”).  We used the optional transition method of adoption, in which the cumulative effect of initially applying the new standard, as of January 1, 2019, to our existing leases was approximately $2.0 million and $2.2 million to record the operating lease right-of-use asset and the related liabilities, respectively, all of which relate to our corporate office lease.  Under this method of adoption, the comparative

information in the condensed consolidated financial statements has not been revised and continues to be reported under the previous applicable lease accounting guidance (ASC 840).  Leases with terms of 12 months or less are not recorded on the balance sheet.

When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and if it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease.

As of December 31, 2018, leases classified as capital leases under ASC 840 were included in Property and equipment, net and represented almost fully depreciated office equipment with a negligible book value.  At December 31, 2018, capital lease obligations of $2,597 were included in Deferred revenue and other current liabilities.

We lease certain equipment to a customer under a lease arrangement that expires in 2020.  The capital lease receivable amounts are approximately $5,000 at December 31, 2019, which is included in Prepaid expenses and other current assets.

Balance Sheet Classification

The table below presents the lease related assets and liabilities recorded on the balance sheet. Right-of-use assets and related liabilities related to finance leases at December 31, 2019 are de minimis.

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Operating Leases

 

 

 

 

 

 

 

 

Right-of-use operating lease asset:

 

 

 

 

 

 

 

 

   Property and equipment, net and other assets

 

$

1,595,044

 

 

$

 

 

 

 

 

 

 

 

 

 

Lease Liabilities:

 

 

 

 

 

 

 

 

   Accounts payable and accrued liabilities

 

$

627,896

 

 

$

 

   Other long-term liabilities

 

 

1,136,583

 

 

 

 

       Total operating lease liabilities

 

$

1,764,479

 

 

$

 

Lease Costs

For the years ended December 31, 2019 and 2018, we recorded $602,587 and $609,295, respectively, of fixed cost operating lease expense.  Our operating lease expense is offset by a minimum annual incentive received from a local Economic Development Council, which is accrued monthly and will continue over the term of the lease through August 2022.  This minimum annual incentive is $63,000, which will increase to $93,600 for the annual incentive period starting September 2020 through the remainder of the lease term.  

Effective December 1, 2019, we subleased a portion of our corporate office space to a single tenant.  The sublease agreement is accounted for as an operating lease and we recognize sublease income as an offset to operating lease expense on a straight-line basis over the term of the sublease agreement through August 2022.  Sublease income, net of amortized leasing costs, for the year ended December 31, 2019 was approximately $4,000.  

Cash paid for operating leases approximated operating lease expense and non-cash right of use asset amortization for the year ended December 31, 2019.  We did not obtain any new operating lease right-of-use assets in the year ended December 31, 2019.

Other Information

We lease corporate office space in The Colony, Texas under an 84-month, non-cancelable operating lease.  The lease expires in October 2022.  Our office lease had a remaining term of 2.75 years as of December 31, 2019, and we used an effective interest rate of 2.456%, which was our incremental borrowing rate in effect at the inception of the lease as our lease does not provide a readily determinable implicit rate.

The future minimum lease payments required under our office lease as of December 31, 2019 were as follows:    

Year Ending December 31,

 

Amount

 

2020

 

$

664,200

 

2021

 

 

664,200

 

2022

 

 

498,150

 

Total lease payments

 

 

1,826,550

 

Less:  Interest

 

 

62,071

 

Present value of lease payments

 

 

1,764,479

 

v3.20.1
Revenue
12 Months Ended
Dec. 31, 2019
Revenue From Contract With Customer [Abstract]  
Revenue

8. Revenue

Operating Revenues

We provide businesses with services to reuse, recycle, and dispose of a wide variety of waste streams and recyclables generated by their operations.  In addition, we have product sales and other revenue primarily from sales of products such as antifreeze and windshield washer fluid, as well as minor ancillary services.  

Revenue Recognition

We recognize revenue as services are performed or products are delivered.  For example, we recognize revenue as waste and recyclable material are collected or when products are delivered.  We recognize revenue net of any contracted pricing discounts or rebate arrangements.    

We generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment.  We record amounts collected from customers for sales tax on a net basis.

Disaggregation of Revenue

The following table presents our revenue disaggregated by source.  Three customers accounted for 53% of revenue for the year ended December 31, 2019, and three customers accounted for 51% of revenue for the year ended December 31, 2018.  We operate primarily in the United States, with minor services in Canada.

 

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

Revenue Type:

 

 

 

 

 

 

 

 

Services

 

$

88,841,868

 

 

$

93,524,370

 

Product sales and other

 

 

10,137,272

 

 

 

10,281,062

 

   Total revenue

 

$

98,979,140

 

 

$

103,805,432

 

 

Contract Balances

Our incremental direct costs of obtaining a customer contract are generally deferred and amortized to selling, general, and administrative expense or as a reduction to revenue (depending on the nature of the cost) over the estimated life of the customer contract.  We classify our contract acquisition costs as current or noncurrent based on the timing of when we expect to recognize the amortization and are included in other assets.

As of December 31, 2019 and 2018 we had $113,750 and $7,448, respectively, of deferred contract costs.  During the year ended December 31, 2019, we amortized $215,000 deferred contract costs to selling, general, and administrative expense.  During the year ended December 31, 2018, we amortized $211,250 and $36,139 of deferred contract costs to selling, general, and administrative expense and as a reduction to income, respectively.

Certain customers are billed in advance, and, accordingly, recognition of related revenues is deferred as a contract liability until the services are provided and control transferred to the customer.  As of December 31, 2019 and 2018, we had $19,644 and $69,473, respectively, of deferred revenue, which was classified in “Deferred revenue and other current liabilities.”

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes      

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, 2019 and 2018, and we have recorded a valuation allowance of $12,452,000 and $12,202,000, 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:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

Net operating loss

 

$

4,616,000

 

 

$

5,095,000

 

Depreciation and amortization

 

 

5,002,000

 

 

 

4,449,000

 

Stock-based compensation

 

 

3,113,000

 

 

 

2,840,000

 

Capitalized software costs

 

 

(561,000

)

 

 

(522,000

)

Deferred lease liability

 

 

45,000

 

 

 

53,000

 

Allowance for doubtful accounts

 

 

206,000

 

 

 

251,000

 

Other

 

 

31,000

 

 

 

36,000

 

Total deferred tax assets, net

 

 

12,452,000

 

 

 

12,202,000

 

Less: valuation allowance

 

 

(12,452,000

)

 

 

(12,202,000

)

Net deferred taxes

 

$

 

 

$

 

 

Our statutory income tax rate is expected to be approximately 26.8%.  We had state income tax expense of $219,082 for the year ended December 31, 2019, which is attributable to state obligations for states with no net operating loss carryforwards, and the continued reserve against the benefit of the net operating losses at the federal level.  The provision for income taxes consisted of the following:

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

Current

 

$

219,082

 

 

$

 

Deferred

 

 

 

 

 

 

Total

 

$

219,082

 

 

$

 

 

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

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

U.S. federal statutory rate applied to pretax income (loss)

 

$

34,000

 

 

$

(512,000

)

State taxes, net of federal benefit

 

 

165,082

 

 

 

(146,000

)

Permanent differences

 

 

11,000

 

 

 

7,000

 

Benefit of federal operating loss carryforwards

 

 

(381,000

)

 

 

(170,000

)

Cumulative adjustment to deferred taxes

 

 

 

 

 

612,000

 

Change in state tax rates and other

 

 

140,000

 

 

 

157,000

 

Change in valuation allowance

 

 

250,000

 

 

 

52,000

 

 

 

$

219,082

 

 

$

 

 

As of December 31, 2019 and 2018, we had federal income tax net operating loss carryforwards of approximately $17,200,000 and $18,900,000, respectively, which expire at various dates ranging from 2031 through 2037.  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, 2019 and 2018, 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 2020. It is our policy to classify interest and penalties on income taxes as interest expense or penalties expense, should any be incurred.

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 2016 to 2019. Tax audits by their very nature are often complex and can require several years to complete.

v3.20.1
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

10. Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, deferred revenue and the ABL Facility. We do not believe that we are exposed to significant interest, currency, or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values using Level 3 inputs, based on their short maturities or, for the ABL Facility, based on borrowing rates currently available to us for loans with similar terms and maturities.

v3.20.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. Commitments and Contingencies

Indemnifications

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, 2019 and 2018.

Defined Contribution Plan

We maintain a defined contribution 401(k) plan covering substantially all full-time employees.  Employees are permitted to make voluntary contributions, which we match at a certain percentage, to the plan.  For the years ended December 31, 2019 and 2018, our plan contribution expense was $182,702 and $150,791, respectively.

v3.20.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders' Equity

12. 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 were outstanding as of December 31, 2019 and 2018.  Preferred stock is to be designated in classes or series and the number of each class or series and the voting powers, designations, preferences, limitations, restrictions, relative rights, and distinguishing designation of each class or series of stock as the Board of Directors shall determine in its sole discretion.

Common Stock

Our authorized common stock consists of 200,000,000 shares of common stock with a par value of $0.001, of which 15,372,905 and 15,328,870 shares were issued and outstanding as of December 31, 2019 and 2018, respectively.

Employee Stock Purchase Plan

On September 17, 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (“ESPP”). We recorded expense of $31,848 and $17,738 related to the ESPP during the years ended December 31, 2019 and 2018, respectively.

During the year ended December 31, 2019, we issued an aggregate 44,035 shares of common stock for $70,668, all to employees under our ESPP, as follows:

 

On May 14, 2019, we issued 21,283 shares for $29,669 for options that vested and were exercised.

 

On November 14, 2019, we issued 22,752 shares for $40,999 for options that vested and were exercised.

During the year ended December 31, 2018 we issued an aggregate 26,415 shares of common stock for $40,380, all to employees under our ESPP, as follows:

 

On May 16, 2018, we issued 10,928 shares for $18,396 for options that vested and were exercised.    

 

On November 16, 2018, we issued 15,487 shares for $21,984 for options that vested and were exercised. 

Warrants

During the year ended December 31, 2019, we did not issue any warrants, no holders exercised warrants, and warrants to purchase 1,212,505 shares of common stock expired.  During the year ended December 31, 2018, we did not issue any warrants and no holders exercised warrants.

The following table summarizes the warrants issued and outstanding as of December 31, 2019:

 

Warrants Issued and Outstanding as of December 31, 2019

 

 

 

Date of

 

Exercise

 

 

Shares of

 

Description

 

Issuance

 

Expiration

 

Price

 

 

Common Stock

 

Exercisable warrants

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

3/30/2016

 

3/30/2021

 

$

3.88

 

 

 

521,060

 

Total warrants issued and outstanding

 

 

 

 

 

 

521,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Compensation Plan

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 purpose of the plan is 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 4,837,500. 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.

Stock Options

The following table summarizes the stock option activity from January 1, 2018 through December 31, 2019:

 

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Exercise

 

Average

 

 

 

Number

 

 

Price Per

 

Exercise Price

 

 

 

of Shares

 

 

Share

 

Per Share

 

Outstanding at January 1, 2018

 

 

1,389,816

 

 

$1.17 — $26.00

 

$

8.39

 

Granted

 

 

420,500

 

 

$1.65  —  $2.62

 

$

2.38

 

Canceled/Forfeited

 

 

(37,250

)

 

$2.39 — $23.20

 

$

5.98

 

Outstanding at December 31, 2018

 

 

1,773,066

 

 

$1.17 — $26.00

 

$

7.02

 

Granted

 

 

1,074,515

 

 

$1.51  —  $3.12

 

$

1.93

 

Canceled/Forfeited

 

 

(402,128

)

 

$1.51 — $26.00

 

$

15.64

 

Outstanding at December 31, 2019

 

 

2,445,453

 

 

$1.17 — $23.20

 

$

3.37

 

 

The weighted-average grant-date fair value of options granted was $1.23 and $1.71 for the years ended December 31, 2019 and 2018, respectively.

For the years ended December 31, 2019 and 2018, the intrinsic value of options outstanding was approximately $360,573 and $7,220, respectively, and the intrinsic value of options exercisable was approximately $53,259 and $7,220, respectively.

The following additional information applies to options outstanding at December 31, 2019:

 

Range of

Exercise

Prices

 

Outstanding at

December 31, 2019

 

 

Weighted-

Average

Remaining

Contractual

Life

 

 

Weighted-

Average

Exercise

Price

 

 

Exercisable at

December 31, 2019

 

 

Weighted-

Average

Exercise

Price

 

$1.17 - $23.20

 

 

2,445,453

 

 

 

7.6

 

 

$

3.37

 

 

 

1,209,087

 

 

$

4.47

 

 

The following additional information applies to options outstanding at December 31, 2018:

 

Range of

Exercise

Prices

 

Outstanding at

December 31, 2018

 

 

Weighted-

Average

Remaining

Contractual

Life

 

 

Weighted-

Average

Exercise

Price

 

 

Exercisable at

December 31, 2018

 

 

Weighted-

Average

Exercise

Price

 

$1.17 - $26.00

 

 

1,773,066

 

 

 

6.9

 

 

$

7.02

 

 

 

999,999

 

 

$

10.05

 

 

Stock-based compensation expense for stock-based incentive awards was $1,019,409 and $775,851 for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards was approximately $1.4 million. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately 2 years.

Stock-Based Compensation

We account for all stock-based payment awards made to employees and directors, including stock options and employee stock purchases, based on estimated fair values. We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model and the value of the portion of the award is recognized as expense over the requisite service period.  We recognize the effects of forfeitures in compensation cost when they occur.

We use the Black-Scholes-Merton option-pricing model as our method of valuation. The fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of share-based payment awards on the date of grant as determined by the Black-Scholes-Merton model is affected by our stock price as well as other assumptions. These assumptions include the expected stock price volatility over the term of the awards, and the actual and projected employee stock option exercise behaviors.

The weighted-average estimated value of employee stock options granted during the years ended December 31, 2019 and 2018 were estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

Expected volatility

 

 

76

%

 

 

85

%

Risk-free interest rate

 

 

2.37

%

 

 

2.42

%

Expected dividends

 

 

0.00

%

 

 

0.00

%

Expected term in years

 

 

5.8

 

 

 

5.9

 

 

Deferred Stock Units – Effective September 1, 2019, nonemployee directors can elect to receive all or a portion of their annual retainers in the form of DSUs.  The DSUs are recognized at their fair value on the date of grant.  Each DSU represents the right to receive one share of our common stock following the completion of a director’s service.  During the year ended December 31, 2019, we granted 14,451 DSUs and recorded director compensation expense of $34,649 related to the grants.

 

v3.20.1
Net Loss per Share
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Net Loss per Share

13. Net Loss per Share

We compute basic net income (loss) per share using the weighted average number of shares of common stock outstanding plus the number of common stock equivalents for DSUs during the period. We compute diluted net loss per share using the weighted average number of shares of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents.  Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of outstanding stock options.  Dilutive potential securities are excluded from the computation of earnings per share if their effect is antidilutive.  The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method.  Deferred stock units (see Note 12) are included in both basic and diluted earnings per share computations.

The computation of basic and diluted net loss per share attributable to common stockholders is as follows:

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Numerator:

 

 

 

 

 

 

 

 

     Net loss applicable to common stockholders

 

$

(55,240

)

 

$

(2,438,981

)

Denominator:

 

 

 

 

 

 

 

 

     Weighted average common shares outstanding, basic

 

 

15,347,039

 

 

 

15,311,220

 

     Effect of dilutive common shares

 

 

 

 

 

 

     Weighted average common shares outstanding, diluted

 

 

15,347,039

 

 

 

15,311,220

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.00

)

 

$

(0.16

)

Diluted

 

$

(0.00

)

 

$

(0.16

)

Anti-dilutive securities excluded from diluted net loss per share:

 

 

 

 

 

 

 

 

Stock options

 

 

2,445,453

 

 

 

1,773,066

 

Warrants

 

 

521,060

 

 

 

1,733,565

 

Total anti-dilutive securities excluded from net loss per share

 

 

2,966,513

 

 

 

3,506,631

 

v3.20.1
Supplemental Cash Flow Information
12 Months Ended
Dec. 31, 2019
Supplemental Cash Flow Elements [Abstract]  
Supplemental Cash Flow Information

 

14. Supplemental Cash Flow Information

The following is provided as supplemental information to the consolidated statements of cash flows:

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

351,741

 

 

$

364,372

 

Cash paid for income taxes

 

$

76,030

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental non-cash activities:

 

 

 

 

 

 

 

 

Sale of goodwill and intangible assets

 

$

 

 

$

246,585

 

Investment in Earth Media Partners, LLC

 

$

 

 

$

(246,585

)

 

v3.20.1
Related Party Transactions
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

15.  Related Party Transactions

During the year ended December 31, 2019, three stockholders sold approximately 4.3 million shares of our common stock in a registered public offering.  In a separate private transaction, a certain selling stockholder sold 1,750,000 shares of our common stock.  The offering and private transaction, together the “Transactions”, closed on April 11, 2019.  We did not receive any proceeds from sales by the selling stockholders in the Transactions.  We incurred costs and expenses in connection with the Transactions, consisting of various registration, due diligence, printing, and professional service fees and expenses, and such costs, less amounts reimbursed by the selling stockholders at the closing of the Transactions, were approximately $248,000, and are included in selling, general, and administrative expense for the year ended December 31, 2019.

v3.20.1
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Principles of Presentation and Consolidation

Principles of Presentation and Consolidation

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, 2019 and 2018.

As QRHC, Quest, LDI, Youchange, QVC, QV One, and QSS each operate as environmental-based service companies, we did not deem segment reporting necessary.

Accounting Estimates

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 carrying amounts of accounts receivable, 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.

Revenue Recognition

Revenue Recognition

We recognize revenue as services are performed or products are delivered.  For example, we recognize revenue as waste and recyclable material are collected or when products are delivered.  We recognize revenue net of any contracted pricing discounts or rebate arrangements.    

We generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment.  We record amounts collected from customers for sales tax on a net basis.

Cash and Cash Equivalents

Cash and Cash Equivalents

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

Accounts Receivable

Accounts Receivable

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. We extend credit based on an evaluation of each customer’s financial condition, and our receivables are generally unsecured. Accounts receivable are stated net of an allowance for doubtful accounts in the consolidated balance sheets. 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, 2019 and 2018, we had established an allowance of $767,464 and $929,339, respectively, for potentially uncollectible accounts receivable. We record delinquent finance charges on outstanding accounts receivable only if they are collected.

The changes in our allowance for doubtful accounts for the years ended December 31, 2019 and 2018 were as follows:

 

 

 

Years ended December 31,

 

 

 

2019

 

 

2018