QUEST RESOURCE HOLDING CORP, 10-Q filed on 8/14/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 01, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol QRHC  
Entity Registrant Name Quest Resource Holding Corporation  
Entity Central Index Key 0001442236  
Entity Current Reporting Status Yes  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   15,350,153
Entity File Number 001-36451  
Entity Tax Identification Number 510665952  
Entity Address, Address Line One 3481 Plano Parkway  
Entity Address, City or Town The Colony  
Entity Address, State or Province Texas  
Entity Address, Postal Zip Code 75056  
City Area Code 972  
Local Phone Number 464-0004  
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 2,087,606 $ 2,122,297
Accounts receivable, less allowance for doubtful accounts of $977,088 and $929,399 as of June 30, 2019 and December 31, 2018, respectively 15,893,340 16,711,809
Prepaid expenses and other current assets 1,373,431 965,755
Total current assets 19,354,377 19,799,861
Goodwill 58,208,490 58,208,490
Intangible assets, net 2,124,698 2,610,921
Property and equipment, net, and other assets 2,806,442 968,025
Total assets 82,494,007 81,587,297
Current liabilities:    
Accounts payable and accrued liabilities 15,248,086 15,777,921
Deferred revenue and other current liabilities 23,140 71,717
Total current liabilities 15,271,226 15,849,638
Revolving credit facility, net 4,861,355 5,194,588
Other long-term liabilities 1,452,457 353
Total liabilities 21,585,038 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 June 30, 2019 and December 31, 2018
Common stock, $0.001 par value, 200,000,000 shares authorized,15,350,153 and 15,328,870 shares issued and outstanding as of June 30, 2019 and December 31, 2018 15,350 15,329
Additional paid-in capital 160,204,422 159,701,542
Accumulated deficit (99,310,803) (99,174,153)
Total stockholders’ equity 60,908,969 60,542,718
Total liabilities and stockholders’ equity $ 82,494,007 $ 81,587,297
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts receivable $ 977,088 $ 929,399
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 15,350,153 15,328,870
Common stock, shares outstanding 15,350,153 15,328,870
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenue $ 25,445,373 $ 27,928,626 $ 52,094,414 $ 52,624,549
Cost of revenue 20,695,798 23,500,848 42,801,994 44,648,944
Gross profit 4,749,575 4,427,778 9,292,420 7,975,605
Operating expenses:        
Selling, general, and administrative 4,226,912 3,879,280 8,441,142 7,631,040
Depreciation and amortization 327,093 981,610 652,880 1,966,191
Total operating expenses 4,554,005 4,860,890 9,094,022 9,597,231
Operating income (loss) 195,570 (433,112) 198,398 (1,621,626)
Interest expense 113,697 105,430 225,508 229,435
Income (loss) before taxes 81,873 (538,542) (27,110) (1,851,061)
Income tax expense 54,771   109,540  
Net income (loss) 27,102 (538,542) (136,650) (1,851,061)
Net income (loss) applicable to common stockholders $ 27,102 $ (538,542) $ (136,650) $ (1,851,061)
Net income (loss) per share applicable to common stockholders        
Basic $ 0.00 $ (0.04) $ (0.01) $ (0.12)
Diluted $ 0.00 $ (0.04) $ (0.01) $ (0.12)
Weighted average number of common shares outstanding        
Basic 15,339,743 15,307,859 15,334,397 15,305,172
Diluted 15,362,406 15,307,859 15,334,397 15,305,172
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - 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 224,133   224,133  
Net income (loss) (1,312,519)     (1,312,519)
Ending Balance at Mar. 31, 2018 61,059,344 $ 15,302 159,091,733 (98,047,691)
Ending Balance, Shares at Mar. 31, 2018   15,302,455    
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    
Net income (loss) (1,851,061)      
Ending Balance at Jun. 30, 2018 60,721,780 $ 15,313 159,292,700 (98,586,233)
Ending Balance, Shares at Jun. 30, 2018   15,313,383    
Beginning Balance at Mar. 31, 2018 61,059,344 $ 15,302 159,091,733 (98,047,691)
Beginning Balance, Shares at Mar. 31, 2018   15,302,455    
Stock-based compensation 182,582   182,582  
Shares issued for Employee Stock Purchase Plan options, Value 18,396 $ 11 18,385  
Shares issued for Employee Stock Purchase Plan options, Shares   10,928    
Net income (loss) (538,542)     (538,542)
Ending Balance at Jun. 30, 2018 60,721,780 $ 15,313 159,292,700 (98,586,233)
Ending Balance, Shares at Jun. 30, 2018   15,313,383    
Beginning Balance at Dec. 31, 2018 60,542,718 $ 15,329 159,701,542 (99,174,153)
Beginning Balance, Shares at Dec. 31, 2018   15,328,870    
Stock-based compensation 204,031   204,031  
Net income (loss) (163,752)     (163,752)
Ending Balance at Mar. 31, 2019 60,582,997 $ 15,329 159,905,573 (99,337,905)
Ending Balance, Shares at Mar. 31, 2019   15,328,870    
Beginning Balance at Dec. 31, 2018 60,542,718 $ 15,329 159,701,542 (99,174,153)
Beginning Balance, Shares at Dec. 31, 2018   15,328,870    
Net income (loss) (136,650)      
Ending Balance at Jun. 30, 2019 60,908,969 $ 15,350 160,204,422 (99,310,803)
Ending Balance, Shares at Jun. 30, 2019   15,350,153    
Beginning Balance at Mar. 31, 2019 60,582,997 $ 15,329 159,905,573 (99,337,905)
Beginning Balance, Shares at Mar. 31, 2019   15,328,870    
Stock-based compensation 269,201   269,201  
Shares issued for Employee Stock Purchase Plan options, Value 29,669 $ 21 29,648  
Shares issued for Employee Stock Purchase Plan options, Shares   21,283    
Net income (loss) 27,102     27,102
Ending Balance at Jun. 30, 2019 $ 60,908,969 $ 15,350 $ 160,204,422 $ (99,310,803)
Ending Balance, Shares at Jun. 30, 2019   15,350,153    
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net loss $ (136,650) $ (1,851,061)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation 116,629 203,972
Amortization of intangibles 585,260 1,853,217
Amortization of debt issuance costs 46,951 46,951
Provision for doubtful accounts 45,000 159,915
Stock-based compensation 473,232 406,715
Changes in operating assets and liabilities:    
Accounts receivable 773,469 (1,774,385)
Prepaid expenses and other current assets (407,676) (280,320)
Security deposits and other assets 91,720 259,210
Accounts payable and accrued liabilities (930,793) 3,239,972
Deferred revenue and other liabilities (203,545) (196,544)
Net cash provided by operating activities 453,597 2,067,642
Cash flows from investing activities:    
Purchase of property and equipment (36,862) (42,287)
Purchase of capitalized software development (99,037) (105,890)
Net cash used in investing activities (135,899) (148,177)
Cash flows from financing activities:    
Proceeds from credit facilities 51,978,018 48,875,349
Repayments of credit facilities (52,358,202) (50,761,385)
Proceeds from shares issued for Employee Stock Purchase Plan 29,669 18,396
Repayments of finance lease obligations (1,874) (26,118)
Net cash used in financing activities (352,389) (1,893,758)
Net increase (decrease) in cash and cash equivalents (34,691) 25,707
Cash and cash equivalents at beginning of period 2,122,297 1,055,281
Cash and cash equivalents at end of period 2,087,606 1,080,988
Supplemental cash flow information:    
Cash paid for interest 186,069 224,486
Cash paid for income taxes $ 26,905  
Supplemental non-cash activities:    
Sale of goodwill and intangible assets   246,585
Investment in Earth Media Partners, LLC   $ (246,585)
v3.19.2
The Company and Description of Business
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
The Company and Description of Business

1. The Company and Description of Business

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”), 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.

v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
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, 2018. 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 June 30, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed consolidated balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. As QRHC, 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

Recent 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, 2020.  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.

v3.19.2
Property and Equipment, Net, and Other Assets
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment, Net, and Other Assets

3. Property and Equipment, net, and Other Assets

At June 30, 2019 and December 31, 2018, property and equipment, net, and other assets consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $2,640,329

     and $2,523,700 as of June 30, 2019 and December 31, 2018,

     respectively

 

$

534,752

 

 

$

614,518

 

Right-of-use operating lease asset

 

 

1,872,499

 

 

 

 

Security deposits and other assets

 

 

399,191

 

 

 

353,507

 

    Property and equipment, net, and other assets

 

$

2,806,442

 

 

$

968,025

 

 

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 June 30, 2019 was $49,112, including $15,511 of depreciation expense reflected within “Cost of revenue” in our condensed consolidated statements of operations as it related to assets used in directly servicing customer contracts, and was $116,629 for the six months ended June 30, 2019, including $49,009 of depreciation expense reflected within “Cost of revenue.”  Depreciation expense for the three months ended June 30, 2018 was $100,662, including $45,702 of depreciation expense reflected within “Cost of revenue,” and was $203,972 for the six months ended June 30, 2018, including $90,998 reflected within “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 revenue, 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 $107,815 related to the earn-out as of June 30, 2019.  The carrying amount of our investment and the accrued earn-out receivable are included in other assets.

v3.19.2
Goodwill and Other Intangible Assets
6 Months Ended
Jun. 30, 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 were as follows:

  

June 30, 2019 (Unaudited)

 

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

 

 

 

5,305,671

 

 

 

929,397

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

2,033,345

 

 

 

838,044

 

 

 

1,195,301

 

Customer lists

 

5 years

 

 

307,153

 

 

 

307,153

 

 

 

 

Total finite lived intangible assets

 

 

 

$

21,526,249

 

 

$

19,401,551

 

 

$

2,124,698

 

 

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

 

 

June 30, 2019 (Unaudited) and December 31, 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. Amortization expense related to finite lived intangible assets was $293,491 and $926,650 for the three months ended June 30, 2019 and 2018, respectively.  Amortization expense related to finite lived intangible assets was $585,260 and $1,853,217 for the six months ended June 30, 2019 and 2018, respectively.

 

We have no indefinite-lived intangible assets other than goodwill. The goodwill is not deductible for tax purposes.  

 

We performed our annual impairment analysis for goodwill and other intangible assets in the third quarter of 2018 with no impairment recorded.

v3.19.2
Accounts Payable and Accrued Liabilities
6 Months Ended
Jun. 30, 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 were as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Accounts payable

 

$

12,895,242

 

 

$

14,025,221

 

Accrued taxes

 

 

743,347

 

 

 

548,126

 

Employee compensation

 

 

765,837

 

 

 

910,796

 

Operating lease liability - current portion

 

 

609,304

 

 

 

 

Other

 

 

234,356

 

 

 

293,778

 

 

 

$

15,248,086

 

 

$

15,777,921

 

 

Refer to Note 7, Leases for additional disclosure related to the operating lease liability recorded upon the adoption of ASC 842 Leases.

v3.19.2
Revolving Credit Facility
6 Months Ended
Jun. 30, 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.

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% (6.75% as of June 30, 2019), or the LIBOR lending rate for the interest period in effect, plus a margin ranging from 2.0% to 2.5% (4.77% as of June 30, 2019). The maturity date of the ABL Facility is February 24, 2022.  

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.

The amount of interest expense related to borrowings for the three months ended June 30, 2019 and 2018 was $90,035 and $81,140, respectively.  The amount of interest expense related to borrowings for the six months ended June 30, 2019 and 2018  was $176,777 and $165,428, respectively.  Debt issuance cost of $469,507 is being amortized to interest expense over the term of the ABL Facility beginning March 1, 2017.  As of June 30, 2019, the unamortized portion of the debt issuance costs was $250,404.  The amount of interest expense related to the amortization of the discount on the ABL Facility for the six months ended June 30, 2019 and 2018 was $46,951.  As of June 30, 2019, the ABL Facility borrowing base availability was $11,631,000 and the outstanding liability was $4,861,355, net of unamortized debt issuance cost of $250,404.

v3.19.2
Leases
6 Months Ended
Jun. 30, 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, 2109, 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.

We lease certain equipment to a customer under a lease arrangement that expires in 2020.  The capital lease receivable amounts are approximately $30,000 at June 30, 2019, the majority of 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 June 30, 2019 are de minimis and mature in less than 12 months.

 

 

June 30,

 

 

2019

 

Operating Leases:

 

 

 

Right-of-use operating lease asset:

 

 

 

   Property and equipment, net and other assets

$

1,872,499

 

 

 

 

 

Lease Liabilities:

 

 

 

   Accounts payable and accrued liabilities

$

609,304

 

   Other long-term liabilities

 

1,452,457

 

       Total operating lease liabilities

$

2,061,761

 

Lease Costs

For the three and six months ended June 30, 2019, we recorded approximately $150,000 and $300,000 of fixed cost operating lease expense, respectively.  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.  

Cash paid for operating leases approximated operating lease expense and non-cash right of use asset amortization for the three and six months ended June 30, 2019.  We did not obtain any new operating lease right-of-use assets in the six months ended June 30, 2019.

Other Information

Our office lease had a remaining term of 3.25 years as of June 30, 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 June 30, 2019 were as follows:    

Year Ending December 31,

 

Amount

 

2019

 

$

321,120

 

2020

 

 

664,200

 

2021

 

 

664,200

 

2022

 

 

498,150

 

   Total lease payments

 

 

2,147,670

 

Less:  Interest

 

 

85,909

 

    Present value of lease liabilities

 

$

2,061,761

 

 

v3.19.2
Revenue
6 Months Ended
Jun. 30, 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.  Sales and usage-based taxes are excluded from revenue.  Three customers accounted for 54.1% of revenue for the three months ended June 30, 2019, and three customers accounted for 53.0% of revenue for the three months ended June 30, 2018.  Three customers accounted for 57.0% of revenue for the six months ended June 30, 2019, and three customers accounted for 50.8% of revenue for the six months ended June 30, 2018. We operate primarily in the United States, with minor services in Canada.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

22,767,059

 

 

$

25,324,837

 

 

$

46,821,578

 

 

$

47,330,409

 

Product sales and other

 

 

2,678,314

 

 

 

2,603,789

 

 

 

5,272,836

 

 

 

5,294,140

 

   Total revenue

 

$

25,445,373

 

 

$

27,928,626

 

 

$

52,094,414

 

 

$

52,624,549

 

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 June 30, 2019 and December 31, 2018, we had $121,250 and $7,448, respectively, of deferred contract costs.  During the three months ended June 30, 2019, we amortized $53,750 and nil of deferred contract costs to selling, general, and administrative expense and as a reduction to revenue, respectively.  During the three months ended June 30, 2018, we amortized $70,417 and $18,070 of deferred contract costs to selling, general, and administrative expense and as a reduction to income, respectively.  During the six months ended June 30, 2019, we amortized $107,500, and nil of deferred contract costs to selling, general, and administrative expense and as a reduction to income, respectively.  During the six months ended June 30, 2018, we amortized $103,750 and $36,139 of deferred contract costs to selling, general, and administrative expense and as a reduction to income, respectively.

We bill certain customers in advance, and, accordingly, we defer recognition of related revenues as a contract liability until the services are provided and control is transferred to the customer.  As of June 30, 2019 and December 31, 2018, we had $22,416 and $69,473, respectively, of deferred revenue, the majority of which was classified in “Deferred revenue and other current liabilities.”

v3.19.2
Income Taxes
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

Our statutory income tax rate is anticipated to be 27%.  However, we had income tax expense of $109,540 on a net operating loss for the six months ended June 30, 2019, which is attributable to state tax 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.

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 to reduce the amount of deferred tax assets that, based on available evidence, is more likely than not to be realized. Realization of our net operating loss carryforward was not reasonably assured as of June 30, 2019 and December 31, 2018, and we had recorded a valuation allowance of $12,152,000 and $12,202,000, respectively, against deferred tax assets in excess of deferred tax liabilities in the accompanying condensed consolidated financial statements. As of June 30, 2019 and December 31, 2018, we had federal income tax net operating loss carryforwards of approximately $18,300,000 and $18,900,000, respectively, which expire at various dates ranging from 2031-2037.

 

v3.19.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 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.

 

v3.19.2
Stockholders' Equity
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Stockholders' Equity

11. Stockholders’ Equity

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

Common Stock – Our authorized common stock consists of 200,000,000 shares of common stock with a par value of $0.001, of which 15,350,153 and 15,328,870 shares were issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.

Employee Stock Purchase Plan – On September 17, 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (“ESPP”).  On May 14, 2019, we issued 21,283 shares to employees for $29,669 under our ESPP for options that vested and were exercised.  We recorded expense of $13,827 and $5,262 related to the ESPP for the six months ended June 30, 2019 and 2018, respectively.

Warrants – At June 30, 2019, 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 June 30, 2019:

 

 

 

 

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

 

Stock Options – We recorded stock option expense of $459,405 and $401,453 for the six months ended June 30, 2019 and 2018, respectively.  The following table summarizes the stock option activity for the six months ended June 30, 2019:

 

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Exercise

 

Average

 

 

 

Number

 

 

Price Per

 

Exercise Price

 

 

 

of Shares

 

 

Share

 

Per Share

 

Outstanding at December 31, 2018

 

 

1,773,066

 

 

$1.17 — $26.00

 

$

7.02

 

Granted

 

 

1,004,015

 

 

$1.51  —   $3.12

 

$

1.90

 

Canceled/Forfeited

 

 

(64,125

)

 

$1.51 — $16.40

 

$

3.05

 

Outstanding at June 30, 2019

 

 

2,712,956

 

 

$1.17 — $26.00

 

$

5.22

 

v3.19.2
Net Income (Loss) per Share
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Net Income (Loss) per Share

 

12. Net Income (Loss) per Share

We compute basic net income (loss) per share using the weighted average number of shares of common stock outstanding 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.  In periods where losses are reported, the weighted average number of shares of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.  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.

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

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(Unaudited)

 

 

(Unaudited)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income (loss) applicable to common stockholders

$

27,102

 

 

$

(538,542

)

 

$

(136,650

)

 

$

(1,851,061

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Weighted average common shares outstanding, basic

 

15,339,743

 

 

 

15,307,859

 

 

 

15,334,397

 

 

 

15,305,172

 

     Effect of dilutive common shares

 

22,663

 

 

 

 

 

 

 

 

 

 

     Weighted average common shares outstanding, diluted

 

15,362,406

 

 

 

15,307,859

 

 

 

15,334,397

 

 

 

15,305,172

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.00

 

 

$

(0.04

)

 

$

(0.01

)

 

$

(0.12

)

Diluted

$

0.00

 

 

$

(0.04

)

 

$

(0.01

)

 

$

(0.12

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

2,690,293

 

 

 

1,753,816

 

 

 

2,712,956

 

 

 

1,753,816

 

Warrants

 

1,733,565

 

 

 

1,733,565

 

 

 

1,733,565

 

 

 

1,733,565

 

Total anti-dilutive securities excluded from net income (loss) per share

 

4,423,858

 

 

 

3,487,381

 

 

 

4,446,521

 

 

 

3,487,381

 

 

v3.19.2
Related Party Transactions
6 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

13.  Related Party Transactions

During the quarter ended June 30, 2019, three stockholders sold approximately 4.3 million shares of our common stock in a registered public offering that closed on April 11, 2019.  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 is included in selling, general, and administrative expense for the six months ended June 30, 2019.  The majority of the costs associated with the Transactions were recognized in the first quarter of 2019, with approximately $17,000 recognized in the quarter ended June 30, 2019.

 

v3.19.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
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, 2018. 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 June 30, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed consolidated balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. As QRHC, 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

Recent 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, 2020.  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.

v3.19.2
Property and Equipment, Net, and Other Assets (Tables)
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Components Property and Equipment, Net, and Other Assets

At June 30, 2019 and December 31, 2018, property and equipment, net, and other assets consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $2,640,329

     and $2,523,700 as of June 30, 2019 and December 31, 2018,

     respectively

 

$

534,752

 

 

$

614,518

 

Right-of-use operating lease asset

 

 

1,872,499

 

 

 

 

Security deposits and other assets

 

 

399,191

 

 

 

353,507

 

    Property and equipment, net, and other assets

 

$

2,806,442

 

 

$

968,025

 

v3.19.2
Goodwill and Other Intangible Assets (Tables)
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Finite-Lived Intangible Assets

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

  

June 30, 2019 (Unaudited)

 

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

 

 

 

5,305,671

 

 

 

929,397

 

Patents

 

7 years

 

 

230,683

 

 

 

230,683

 

 

 

 

Software

 

7 years

 

 

2,033,345

 

 

 

838,044

 

 

 

1,195,301

 

Customer lists

 

5 years

 

 

307,153

 

 

 

307,153

 

 

 

 

Total finite lived intangible assets

 

 

 

$

21,526,249

 

 

$

19,401,551

 

 

$

2,124,698

 

 

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

 

Schedule of Indefinite-Lived Intangible Assets

 

June 30, 2019 (Unaudited) and December 31, 2018

 

Estimated

Useful Life

 

Carrying

Amount

 

 

 

 

 

Indefinite lived intangible asset:

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Indefinite

 

$

58,208,490

 

 

 

 

 

v3.19.2
Accounts Payable and Accrued Liabilities (Tables)
6 Months Ended
Jun. 30, 2019
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:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Accounts payable

 

$

12,895,242

 

 

$

14,025,221

 

Accrued taxes

 

 

743,347

 

 

 

548,126

 

Employee compensation

 

 

765,837

 

 

 

910,796

 

Operating lease liability - current portion

 

 

609,304

 

 

 

 

Other

 

 

234,356

 

 

 

293,778

 

 

 

$

15,248,086

 

 

$

15,777,921

 

v3.19.2
Leases (Tables)
6 Months Ended
Jun. 30, 2019
Lessee Disclosure [Abstract]  
Summary of Lease Related Assets and Liabilities Recorded on Balance Sheet

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 June 30, 2019 are de minimis and mature in less than 12 months.

 

 

June 30,

 

 

2019

 

Operating Leases:

 

 

 

Right-of-use operating lease asset:

 

 

 

   Property and equipment, net and other assets

$

1,872,499

 

 

 

 

 

Lease Liabilities:

 

 

 

   Accounts payable and accrued liabilities

$

609,304

 

   Other long-term liabilities

 

1,452,457

 

       Total operating lease liabilities

$

2,061,761

 

Future Minimum Lease Payments Required Under Office Lease

The future minimum lease payments required under our office lease as of June 30, 2019 were as follows:    

Year Ending December 31,

 

Amount

 

2019

 

$

321,120

 

2020

 

 

664,200

 

2021

 

 

664,200

 

2022

 

 

498,150

 

   Total lease payments

 

 

2,147,670

 

Less:  Interest

 

 

85,909

 

    Present value of lease liabilities

 

$

2,061,761

 

v3.19.2
Revenue (Tables)
6 Months Ended
Jun. 30, 2019
Revenue From Contract With Customer [Abstract]  
Summary of Revenue Disaggregated by Source The following table presents our revenue disaggregated by source.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

22,767,059

 

 

$

25,324,837

 

 

$

46,821,578

 

 

$

47,330,409

 

Product sales and other

 

 

2,678,314

 

 

 

2,603,789

 

 

 

5,272,836

 

 

 

5,294,140

 

   Total revenue

 

$

25,445,373

 

 

$

27,928,626

 

 

$

52,094,414

 

 

$