QUEST RESOURCE HOLDING CORP, 10-Q filed on 5/15/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 01, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Trading Symbol QRHC  
Entity Registrant Name Quest Resource Holding Corporation  
Entity Central Index Key 0001442236  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   15,302,455
v3.8.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,083,575 $ 1,055,281
Accounts receivable, less allowance for doubtful accounts of $470,652 and $699,102 as of March 31, 2018 and December 31, 2017, respectively 17,183,870 16,263,276
Prepaid expenses and other current assets 1,549,564 1,508,014
Total current assets 19,817,009 18,826,571
Goodwill 58,208,490 58,337,290
Intangible assets, net 4,038,168 5,031,595
Property and equipment, net, and other assets 1,344,199 1,320,342
Total assets 83,407,866 83,515,798
Current liabilities:    
Accounts payable and accrued liabilities 17,076,484 14,253,818
Deferred revenue and other current liabilities 162,277 328,763
Total current liabilities 17,238,761 14,582,581
Revolving credit facility, net 5,100,957 6,763,497
Other long-term liabilities 8,814 21,990
Total liabilities 22,348,532 21,368,068
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2018 and December 31, 2017, respectively
Common stock, $0.001 par value, 200,000,000 shares authorized, 15,302,455 shares issued and outstanding as of March 31, 2018 and December 31, 2017 15,302 15,302
Additional paid-in capital 159,091,723 158,867,600
Accumulated deficit (98,047,691) (96,735,172)
Total stockholders’ equity 61,059,334 62,147,730
Total liabilities and stockholders’ equity $ 83,407,866 $ 83,515,798
v3.8.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts receivable $ 470,652 $ 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 15,302,455 15,302,455
Common stock, shares outstanding 15,302,455 15,302,455
v3.8.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Revenue $ 24,695,923 $ 42,539,822
Cost of revenue 21,148,096 38,354,070
Gross profit 3,547,827 4,185,752
Operating expenses:    
Selling, general, and administrative 3,751,760 4,980,095
Depreciation and amortization 984,581 1,000,734
Total operating expenses 4,736,341 5,980,829
Operating loss (1,188,514) (1,795,077)
Other expense:    
Interest expense (124,005) (114,275)
Total other expense (124,005) (114,275)
Loss before taxes (1,312,519) (1,909,352)
Net loss (1,312,519) (1,909,352)
Net loss applicable to common stockholders $ (1,312,519) $ (1,909,352)
Net loss per share    
Basic and diluted $ (0.09) $ (0.13)
Weighted average number of common shares outstanding    
Basic and diluted 15,302,455 15,272,575
v3.8.0.1
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - 3 months ended Mar. 31, 2018 - 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 224,123   224,123  
Net loss (1,312,519)     (1,312,519)
Ending Balance at Mar. 31, 2018 $ 61,059,334 $ 15,302 $ 159,091,723 $ (98,047,691)
Ending Balance, Shares at Mar. 31, 2018   15,302,455    
v3.8.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Net loss $ (1,312,519) $ (1,909,352)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation 103,310 115,246
Amortization of intangibles 926,567 926,563
Amortization of debt issuance costs 23,475 7,825
Provision for doubtful accounts 39,915 100,000
Stock-based compensation 224,123 614,265
Changes in operating assets and liabilities:    
Accounts receivable (960,509) 1,915,997
Prepaid expenses and other current assets (41,550) 84,907
Security deposits and other assets 128,785 193,329
Accounts payable and accrued liabilities 2,822,666 (4,169,411)
Deferred revenue and other liabilities (166,700) (324)
Net cash provided by (used in) operating activities 1,787,563 (2,120,955)
Cash flows from investing activities:    
Purchase of property and equipment (9,367) (19,950)
Purchase of capitalized software development (50,925) (89,228)
Net cash used in investing activities (60,292) (109,178)
Cash flows from financing activities:    
Proceeds from credit facilities 21,936,963 6,717,706
Repayments of credit facilities (23,622,978) (3,431,077)
Debt issuance costs   (234,522)
Repayments of capital lease obligations (12,962) (22,169)
Net cash provided by (used in) financing activities (1,698,977) 3,029,938
Net increase in cash and cash equivalents 28,294 799,805
Cash and cash equivalents at beginning of period 1,055,281 1,328,174
Cash and cash equivalents at end of period 1,083,575 2,127,979
Supplemental cash flow information:    
Cash paid for interest 74,394 68,749
Supplemental non-cash activities:    
Sale of goodwill and intangible assets 246,585  
Investment in Earth Media Partners, LLC $ (246,585)  
Repayment of Regions line of credit   (9,250,000)
ABL Facility [Member]    
Supplemental non-cash activities:    
Draw on Citizens ABL facility   9,250,000
Draw on Citizens ABL facility for repayment of capital lease obligation   212,609
Debt issuance costs financed with Citizens ABL facility   $ 234,985
v3.8.0.1
The Company, Description of Business, and Liquidity
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
The Company, Description of Business, and Liquidity

1. The Company, Description of Business, and Liquidity

The accompanying condensed 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”), and Quest Vertigent One, LLC (“QV One”), and Quest Sustainability Services, Inc. (“QSS”) (collectively, “we,” “us,” “our,” or “our company”).  

Operations – We are a national provider of reuse, recycling, and disposal services that enable our customers to achieve and satisfy their environmental and sustainability goals and responsibilities.  We provide businesses across multiple industry sectors with single source solutions for the reuse, recycling, and disposal of a wide variety of waste streams and recyclables generated by their operations.  

Liquidity – As of March 31, 2018 and December 31, 2017, our working capital balance was $2,578,248 and $4,243,990, respectively.

v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Presentation and Consolidation

The condensed consolidated financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended December 31, 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

The accompanying condensed consolidated financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2018 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2017 condensed consolidated balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. As Quest, LDI, Youchange, QVC, QV One, and QSS each operate as environmental based service companies, we did not deem segment reporting necessary.

All intercompany accounts and transactions have been eliminated in consolidation. Interim results are subject to seasonal variations, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.

Net Loss Per Share

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 2018 and 2017 would be anti-dilutive. These potentially dilutive securities include stock options and warrants and totaled 3,497,424 and 3,313,907 shares at March 31, 2018 and 2017, respectively.

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

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Anti-dilutive securities excluded from diluted loss per share:

 

 

 

 

 

 

 

 

Stock options

 

 

1,763,859

 

 

 

1,375,216

 

Warrants

 

 

1,733,565

 

 

 

1,938,691

 

Total anti-dilutive securities excluded from diluted loss per share

 

 

3,497,424

 

 

 

3,313,907

 

 

 

 

Recent Accounting Pronouncements

Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we adopted ASU 2014-09 using the full retrospective approach for all ongoing customer contracts.  There was no impact to our financial statements as a result of adopting Topic 606 for the three months ended March 31, 2018 and 2017.  See Note 8 for additional information and disclosures related to this amended guidance.

Pending Adoption

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The update improves financial reporting about leasing transactions by requiring a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are still evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements. However, given the material amount of our future minimum payments under non-cancellable operating leases, primarily office rent, at March 31, 2018, we expect to recognize a material right-of-use lease asset and lease liability upon adoption of the ASU.

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, 2020, with early adoption permitted on January 1, 2019.  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.  

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.

v3.8.0.1
Property and Equipment, Net, and Other Assets
3 Months Ended
Mar. 31, 2018
Property Plant And Equipment [Abstract]  
Property and Equipment, Net, and Other Assets

3. Property and Equipment, net, and Other Assets

At March 31, 2018 and December 31, 2017, property and equipment, net, and other assets consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $2,296,541

     and $2,193,231 as of March 31, 2018 and December 31, 2017,

     respectively

 

$

862,924

 

 

$

956,867

 

Security deposits and other assets

 

 

481,275

 

 

 

363,475

 

    Property and equipment, net, and other assets

 

$

1,344,199

 

 

$

1,320,342

 

 

We compute depreciation using the straight-line method over the estimated useful lives of the property and equipment. Depreciation expense for the three months ended March 31, 2018 was $103,310, inclusive of $45,296 of depreciation expense reflected within “Cost of revenue” in our condensed consolidated statement of operations as it related to assets used in directly servicing customer contracts.  Depreciation expense for the three months ended March 31, 2017 was $115,246, inclusive of $41,075 of depreciation expense reflected within “Cost of revenue.”  At March 31, 2018, the carrying value of our capital lease assets was $217,729, net of $282,368 of accumulated depreciation. At December 31, 2017, the carrying value of our capital lease assets was $243,778, net of $256,319 of accumulated depreciation.

On February 20, 2018 (“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.  In addition to our investment in Earth Media Partners, LLC, we accrued a receivable in the amount of $8,086 related to the earn-out as of March 31, 2018.  The carrying amount of our investment and the accrued earn-out receivable are included in other assets.  

v3.8.0.1
Goodwill and Other Intangible Assets
3 Months Ended
Mar. 31, 2018
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 were as follows:

  

March 31, 2018 (Unaudited)

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

11,978,000

 

 

$

742,000

 

Trademarks

 

7 years

 

 

6,242,055

 

 

 

4,192,258

 

 

 

2,049,797

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

1,781,785

 

 

 

552,914

 

 

 

1,228,871

 

Customer lists

 

5 years

 

 

307,153

 

 

 

289,653

 

 

 

17,500

 

Total finite lived intangible assets

 

 

 

$

21,281,676

 

 

$

17,243,508

 

 

$

4,038,168

 

 

December 31, 2017

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

11,342,000

 

 

$

1,378,000

 

Trademarks

 

7 years

 

 

6,242,055

 

 

 

3,969,576

 

 

 

2,272,479

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

1,904,279

 

 

 

548,163

 

 

 

1,356,116

 

Customer lists

 

5 years

 

 

307,153

 

 

 

282,153

 

 

 

25,000

 

Total finite lived intangible assets

 

 

 

$

21,404,170

 

 

$

16,372,575

 

 

$

5,031,595

 

 

 

 

 

 

Carrying

Amount

 

Changes in goodwill:

 

 

 

 

 

 

Goodwill balance at December 31, 2017

 

 

 

$

58,337,290

 

Adjustment related to Earth911 asset sale

 

 

 

 

(128,800

)

Goodwill balance at March 31, 2018

 

 

 

$

58,208,490

 

 

We compute amortization using the straight-line method over the estimated useful lives of the finite lived intangible assets. Amortization expense related to finite lived intangible assets was $926,567 and $926,563 for the three months ended March 31, 2018 and 2017, respectively.

 

We have no indefinite-lived intangible assets other than goodwill. The goodwill is not deductible for tax purposes.  See Note 3 for discussion of sale of certain assets related to Earth911.

 

We performed our annual impairment analysis for goodwill and other intangible assets in the second quarter of 2017 with no impairment recorded.

v3.8.0.1
Accounts Payable and Accrued Liabilities
3 Months Ended
Mar. 31, 2018
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 were as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Accounts payable

 

$

15,827,780

 

 

$

12,739,117

 

Accrued taxes

 

 

627,046

 

 

 

807,037

 

Employee compensation

 

 

289,853

 

 

 

434,358

 

Other

 

 

331,805

 

 

 

273,306

 

 

 

$

17,076,484

 

 

$

14,253,818

 

 

v3.8.0.1
Revolving Credit Facility
3 Months Ended
Mar. 31, 2018
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.

Each loan under the ABL Facility bears interest, at our option, at either the Base Rate, as defined in the agreement, plus a margin ranging from 1.0% to 1.5% (6.25% as of March 31, 2018), or the LIBOR lending rate for the interest period in effect, plus a margin ranging from 2.0% to 2.5% (4.28% as of March 31, 2018). The maturity date of the revolving credit facility is February 24, 2022.  

Loans under the equipment loan facility may be requested at any time until February 24, 2019. Each loan under the equipment loan facility bears interest, at our option, at either the Base Rate, as defined in the agreement, plus 2.00%, or the LIBOR lending rate for the interest period in effect, plus 3.00%. The maturity date of the equipment loan facility is February 24, 2022.

The ABL Facility contains certain specific financial covenants regarding a minimum liquidity requirement and a minimum fixed charge coverage ratio. The minimum fixed charge coverage ratio covenant applies commencing May 15, 2018, when the trailing 12-month period ending March 31, 2018 is reported. 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.

The amount of interest expense related to borrowings for the three months ended March 31, 2018 and 2017 was $84,288 and $110,381, respectively.  Debt issuance cost of $469,507 is being amortized to interest expense over the life of the new revolving credit facility beginning March 1, 2017.  As of March 31, 2018, the unamortized portion of the debt issuance costs was $367,781.  The amount of interest expense related to the amortization of the discount on the revolving credit facility for the three months ended March 31, 2018 was $23,475.  As of March 31, 2018, the ABL Facility borrowing base availability was $11,545,000 and the outstanding liability was $5,100,957, net of unamortized debt issuance cost of $367,781. There were no draws made on the equipment loan facility as of March 31, 2018.

v3.8.0.1
Capital Lease Obligations
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Capital Lease Obligations

7. Capital Lease Obligations

At March 31, 2018 and December 31, 2017, total capital lease obligations outstanding consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Capital lease obligations, imputed interest at 4.88% to 13.29%, with monthly payments of approximately $6,000, expiring through September 2019, secured by computer and office equipment

 

$

28,701

 

 

$

41,664

 

Total

 

 

28,701

 

 

 

41,664

 

Less: current maturities

 

 

(27,132

)

 

 

(39,067

)

Long-term portion

 

$

1,569

 

 

$

2,597

 

 

Our capital lease obligations are included within “Deferred revenue and other current liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.  The amount of interest expense related to our capital leases for the three months ended March 31, 2018 and 2017 was $618 and $2,462, respectively.

v3.8.0.1
Revenue
3 Months Ended
Mar. 31, 2018
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, revenue is recognized as waste and recyclable material is collected or when products are delivered.  

We generally recognize revenues 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 previously had a contract accounted for as a net basis management fee contract, with revenue of $44,088 and gross billings of $1,294,459 for the three months ended March 31, 2017. This management fee contract ended in the second quarter of 2017, and we currently have no other net basis contracts.  

Disaggregation of Revenue

The following table presents our revenue disaggregated by source.  Sales and usage-based taxes are excluded from revenue.  Three customers accounted for 48.4% of revenue for the three months ended March 31, 2018, and two customers accounted for 55.1% of revenue for the three months ended March 31, 2017.  We operate primarily in the United States, with minor services in Canada.

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue Type:

 

 

 

 

 

 

 

 

Services

 

$

22,005,572

 

 

$

39,835,675

 

Product sales and other

 

 

2,690,351

 

 

 

2,704,147

 

   Total Revenue

 

$

24,695,923

 

 

$

42,539,822

 

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.  Our contract acquisition costs are classified as current or noncurrent based on the timing of when we expect to recognize the amortization and are included in other assets.

As of March 31, 2018 and December 31, 2017, we had $199,736  and $136,139, respectively, of deferred contract costs.  During the three months ended March 31, 2018, we amortized $33,333 and $18,069 of deferred contract costs to selling, general, and administrative expense and as a reduction to income, respectively.  During the three months ended March 31, 2017, we amortized $100,000 and $18,069 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 March 31, 2018 and December 31, 2017, we had $142,389 and $309,089, respectively, of deferred revenue, the majority of which was classified in “Deferred revenue and other current liabilities.”

v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
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 March 31, 2018 and December 31, 2017, and we have recorded a valuation allowance of $12,800,000 and $12,150,000, respectively, against deferred tax assets in excess of deferred tax liabilities in the accompanying condensed consolidated financial statements. As of March 31, 2018 and December 31, 2017, we had federal income tax net operating loss carryforwards of approximately $20,200,000 and $19,700,000, respectively, which expire at various dates beginning in 2031.

On December 22, 2017, The Tax Cuts and Jobs Act (the “2017 Act”) was enacted. The most significant impact to us of the 2017 Act was a decrease in the federal corporate income tax rate from 35% to 21% starting in 2018.

 

v3.8.0.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2018
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, revolving credit facility, and capital lease obligations. 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 long-term portions of capital lease obligations and revolving credit facility, based on borrowing rates currently available to us for loans with similar terms and maturities.

 

v3.8.0.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders' Equity

11. Stockholders’ Equity

Preferred StockOur 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.

Common Stock – Our authorized common stock includes 200,000,000 shares of common stock with a par value of $0.001, of which 15,302,455 shares were issued and outstanding as of March 31, 2018 and December 31, 2017.

Warrants – At March 31, 2018, we had outstanding exercisable warrants to purchase 1,733,565 shares of common stock.  

The following table summarizes the warrants issued and outstanding as of March 31, 2018:

 

 

 

 

Date of

 

Exercise

 

 

Shares of

 

Description

 

Issuance

 

Expiration

 

Price

 

 

Common Stock

 

Exercisable warrants

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

09/24/2014

 

09/24/2019

 

$

20.00

 

 

 

1,125,005

 

Warrants

 

10/20/2014

 

10/20/2019

 

$

20.00

 

 

 

87,500

 

Warrants

 

3/30/2016

 

03/30/2021

 

$

3.88

 

 

 

521,060

 

Total warrants issued and outstanding

 

 

 

 

 

 

1,733,565

 

Employee Stock Purchase Plan – On September 17, 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (“ESPP”).  We recorded expense of $2,044 and $1,738 related to the ESPP during the three months ended March 31, 2018 and 2017, respectively.

Stock Options – We recorded stock option expense of $222,079 and $193,777 for the three months ended March 31, 2018 and 2017, respectively.  The following table summarizes the stock option activity for the three month period ended March 31, 2018:

 

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Exercise

 

Average

 

 

 

Number

 

 

Price Per

 

Exercise Price

 

 

 

of Shares

 

 

Share

 

Per Share

 

Outstanding at December 31, 2017

 

 

1,389,816

 

 

$1.17 — $26.00

 

$

8.39

 

Granted

 

 

398,000

 

 

$2.39  —  $2.39

 

$

2.39

 

Canceled/Forfeited

 

 

(23,957

)

 

$2.39  —  $6.40

 

$

2.65

 

Outstanding at March 31, 2018

 

 

1,763,859

 

 

$1.17 — $26.00

 

$

7.12

 

 

v3.8.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Principles of Presentation and Consolidation

Principles of Presentation and Consolidation

The condensed consolidated financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended December 31, 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

The accompanying condensed consolidated financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2018 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2017 condensed consolidated balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. As Quest, LDI, Youchange, QVC, QV One, and QSS each operate as environmental based service companies, we did not deem segment reporting necessary.

All intercompany accounts and transactions have been eliminated in consolidation. Interim results are subject to seasonal variations, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.

Net Loss Per Share

Net Loss Per Share

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 2018 and 2017 would be anti-dilutive. These potentially dilutive securities include stock options and warrants and totaled 3,497,424 and 3,313,907 shares at March 31, 2018 and 2017, respectively.

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

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Anti-dilutive securities excluded from diluted loss per share:

 

 

 

 

 

 

 

 

Stock options

 

 

1,763,859

 

 

 

1,375,216

 

Warrants

 

 

1,733,565

 

 

 

1,938,691

 

Total anti-dilutive securities excluded from diluted loss per share

 

 

3,497,424

 

 

 

3,313,907

 

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we adopted ASU 2014-09 using the full retrospective approach for all ongoing customer contracts.  There was no impact to our financial statements as a result of adopting Topic 606 for the three months ended March 31, 2018 and 2017.  See Note 8 for additional information and disclosures related to this amended guidance.

Pending Adoption

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The update improves financial reporting about leasing transactions by requiring a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are still evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements. However, given the material amount of our future minimum payments under non-cancellable operating leases, primarily office rent, at March 31, 2018, we expect to recognize a material right-of-use lease asset and lease liability upon adoption of the ASU.

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, 2020, with early adoption permitted on January 1, 2019.  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.  

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.

v3.8.0.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Schedule of Anti-dilutive Securities Excluded from Diluted Loss Per Share

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

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Anti-dilutive securities excluded from diluted loss per share:

 

 

 

 

 

 

 

 

Stock options

 

 

1,763,859

 

 

 

1,375,216

 

Warrants

 

 

1,733,565

 

 

 

1,938,691

 

Total anti-dilutive securities excluded from diluted loss per share

 

 

3,497,424

 

 

 

3,313,907

 

 

v3.8.0.1
Property and Equipment, Net, and Other Assets (Tables)
3 Months Ended
Mar. 31, 2018
Property Plant And Equipment [Abstract]  
Components Property and Equipment, Net, and Other Assets

At March 31, 2018 and December 31, 2017, property and equipment, net, and other assets consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $2,296,541

     and $2,193,231 as of March 31, 2018 and December 31, 2017,

     respectively

 

$

862,924

 

 

$

956,867

 

Security deposits and other assets

 

 

481,275

 

 

 

363,475

 

    Property and equipment, net, and other assets

 

$

1,344,199

 

 

$

1,320,342

 

 

v3.8.0.1
Goodwill and Other Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Finite-Lived Intangible Assets

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

  

March 31, 2018 (Unaudited)

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

11,978,000

 

 

$

742,000

 

Trademarks

 

7 years

 

 

6,242,055

 

 

 

4,192,258

 

 

 

2,049,797

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

1,781,785

 

 

 

552,914

 

 

 

1,228,871

 

Customer lists

 

5 years

 

 

307,153

 

 

 

289,653

 

 

 

17,500

 

Total finite lived intangible assets

 

 

 

$

21,281,676

 

 

$

17,243,508

 

 

$

4,038,168

 

 

December 31, 2017

 

Estimated

Useful Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Finite lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 years

 

$

12,720,000

 

 

$

11,342,000

 

 

$

1,378,000

 

Trademarks

 

7 years

 

 

6,242,055

 

 

 

3,969,576

 

 

 

2,272,479

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

1,904,279

 

 

 

548,163

 

 

 

1,356,116

 

Customer lists

 

5 years

 

 

307,153

 

 

 

282,153

 

 

 

25,000

 

Total finite lived intangible assets

 

 

 

$

21,404,170

 

 

$

16,372,575

 

 

$

5,031,595

 

 

Schedule of Changes in Goodwill

 

 

 

 

 

Carrying

Amount

 

Changes in goodwill:

 

 

 

 

 

 

Goodwill balance at December 31, 2017

 

 

 

$

58,337,290

 

Adjustment related to Earth911 asset sale

 

 

 

 

(128,800

)

Goodwill balance at March 31, 2018

 

 

 

$

58,208,490

 

 

v3.8.0.1
Accounts Payable and Accrued Liabilities (Tables)
3 Months Ended
Mar. 31, 2018
Accounts Payable And Accrued Liabilities Current [Abstract]  
Components of Accounts Payable and Accrued Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Accounts payable

 

$

15,827,780

 

 

$

12,739,117

 

Accrued taxes

 

 

627,046

 

 

 

807,037

 

Employee compensation

 

 

289,853

 

 

 

434,358

 

Other

 

 

331,805

 

 

 

273,306

 

 

 

$

17,076,484

 

 

$

14,253,818

 

 

v3.8.0.1
Capital Lease Obligations (Tables)
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Summary of Capital Lease Obligations

At March 31, 2018 and December 31, 2017, total capital lease obligations outstanding consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Capital lease obligations, imputed interest at 4.88% to 13.29%, with monthly payments of approximately $6,000, expiring through September 2019, secured by computer and office equipment

 

$

28,701

 

 

$

41,664

 

Total

 

 

28,701

 

 

 

41,664

 

Less: current maturities

 

 

(27,132

)

 

 

(39,067

)

Long-term portion

 

$

1,569

 

 

$

2,597

 

 

v3.8.0.1
Revenue (Tables)
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Summary of Revenue Disaggregated by Source

The following table presents our revenue disaggregated by source.

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue Type:

 

 

 

 

 

 

 

 

Services

 

$

22,005,572

 

 

$

39,835,675

 

Product sales and other

 

 

2,690,351

 

 

 

2,704,147

 

   Total Revenue

 

$

24,695,923

 

 

$

42,539,822

 

 

v3.8.0.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Summary of Warrants Issued and Outstanding

The following table summarizes the warrants issued and outstanding as of March 31, 2018:

 

 

 

 

Date of

 

Exercise

 

 

Shares of

 

Description

 

Issuance

 

Expiration

 

Price

 

 

Common Stock

 

Exercisable warrants

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

09/24/2014

 

09/24/2019

 

$

20.00

 

 

 

1,125,005

 

Warrants

 

10/20/2014

 

10/20/2019

 

$

20.00

 

 

 

87,500

 

Warrants

 

3/30/2016

 

03/30/2021

 

$

3.88

 

 

 

521,060

 

Total warrants issued and outstanding

 

 

 

 

 

 

1,733,565

 

 

Summary of Stock Option Activity

The following table summarizes the stock option activity for the three month period ended March 31, 2018

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Exercise

 

Average

 

 

 

Number

 

 

Price Per

 

Exercise Price

 

 

 

of Shares

 

 

Share

 

Per Share

 

Outstanding at December 31, 2017

 

 

1,389,816

 

 

$1.17 — $26.00

 

$

8.39

 

Granted

 

 

398,000

 

 

$2.39  —  $2.39

 

$

2.39

 

Canceled/Forfeited

 

 

(23,957

)

 

$2.39  —  $6.40

 

$

2.65

 

Outstanding at March 31, 2018

 

 

1,763,859

 

 

$1.17 — $26.00

 

$

7.12

 

 

v3.8.0.1
The Company, Description of Business, and Liquidity - Additional Information (Detail) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Risks And Uncertainties [Abstract]    
Working Capital $ 2,578,248 $ 4,243,990
v3.8.0.1
Summary of Significant Accounting Policies - Additional Information (Detail) - shares
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Accounting Policies [Abstract]    
Potentially dilutive securities include options and warrants 3,497,424 3,313,907
v3.8.0.1
Summary of Significant Accounting Policies - Schedule of Anti-dilutive Securities Excluded from Diluted Loss Per Share (Detail) - shares
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from diluted loss per share 3,497,424 3,313,907
Stock options [Member]    
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from diluted loss per share 1,763,859 1,375,216
Warrants [Member]    
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from diluted loss per share 1,733,565 1,938,691
v3.8.0.1
Property and Equipment, Net, and Other Assets - Components of Property and Equipment, Net, and Other Assets (Detail) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Property Plant And Equipment [Abstract]    
Property and equipment, net of accumulated depreciation of $2,296,541 and $2,193,231 as of March 31, 2018 and December 31, 2017, respectively $ 862,924 $ 956,867
Security deposits and other assets 481,275 363,475
Property and Equipment net and other assets $ 1,344,199 $ 1,320,342
v3.8.0.1
Property and Equipment, Net, and Other Assets - Components of Property and Equipment, Net, and Other Assets ( Parenthetical) (Detail) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Property Plant And Equipment [Abstract]    
Accumulated depreciation, Property and equipment $ 2,296,541 $ 2,193,231
v3.8.0.1
Property and Equipment, Net, and Other Assets - Additional Information (Detail) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Feb. 20, 2018
Dec. 31, 2017
Property Plant And Equipment [Line Items]        
Depreciation $ 103,310 $ 115,246    
Depreciation reflected in cost of revenue 45,296 $ 41,075    
Carrying value of capital lease assets, net 217,729     $ 243,778
Capital lease assets, accumulated depreciation 282,368     $ 256,319
Asset Purchase Agreement [Member] | Earth Media Partners, LLC [Member]        
Property Plant And Equipment [Line Items]        
Percentage of ownership interest     19.00%  
Ownership interest amount recorded as investment     $ 246,585  
Accrued earn-out amount $ 8,086      
Asset Purchase Agreement [Member] | Earth Media Partners, LLC [Member] | Wholly Owned Subsidiary and Earth911, Inc. [Member] | Disposal Group, Not Discontinued Operations [Member]        
Property Plant And Equipment [Line Items]        
Future earn-out amount     $ 350,000