Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of assets, and capital leased assets are given useful lives coinciding with the asset classification they are classified as. These lives are as follows:
Leasehold improvements
|
lesser of useful life or term of the lease
|
Machinery and office equipment
|
3-15 years
|
Furniture and fixtures
|
7 years
|
Office and industrial buildings
|
25 years
|
Gains and losses on depreciable assets retired or sold are recognized in the statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred and expenditures that increase the value or useful life of the asset are capitalized.
Construction in Process
The Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates are applied.
Impairment of Long-Lived Assets
The Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated with sold properties are reclassified to discontinued operations for all periods presented (Note 19).
As of December 31, 2013 and 2012, the Company had recorded impairment losses on property, plant and equipment of $1,122,829 and $191,466 respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value.
Asset Retirement Obligations
The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation of the asset retirement obligation. As of the date of the creation of the asset retirement obligation, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense on the consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligation in the consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As at December 31, 2013 and December 31, 2012, the Company recorded asset retirement obligations of $30,306 and $29,423, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure. This liability is included in other long-term liabilities.
Environmental Contingencies
The Company records environmental liabilities at their undiscounted amounts on our balance sheets as other current or long-term liabilities when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. These costs may be discounted to reflect the time value of money if the timing of the cash payments is fixed or reliably determinable and extends beyond a current period. Estimates of our liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit future periods and we recognize a current period charge in operation and maintenance expense when clean-up efforts do not benefit future periods.
We evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of remediation costs from third parties including insurance coverage separately from our liability. Recovery is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset separately from the associated liability on our balance sheets. No amounts for recovery have been accrued to date.
Deposits
Deposits represent payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment, all payments made to these vendors are classified as deposits on assets. Deposits were $1,484,453 and $839,005 for the years ended December 31, 2013 and 2012, respectively.
Leases
The Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the lease agreement (Note 9).
Lease inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of the lease.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
P2O sales are recognized when the customers take possession of the fuel since at that stage the customer has completed all prior testing necessary for their acceptance of the fuel. At the time of possession they have arranged for transportation to pick it up and the sales price has either been set in their purchase contract or negotiated prior to the time of pick up through the issuance of a purchase order. The Company negotiates the pricing of the fuel based on the quality of the product and the type of fuel being sold (i.e. Naphtha, Fuel Oil No. 6 or Fuel Oil No. 2).
Shipping and Handling Costs
The Company’s shipping and handling costs of $155,451, and $48,213 for the years ended December 31, 2013, and 2012, respectively, are included in cost of goods sold for the years presented. Shipping and handling costs are capitalized to inventory and expensed to cost of sales when the related inventory is sold for the years presented.
Advertising costs
The Company expenses advertising costs as incurred. Advertising costs were $11,585, and $27,380 for the years ended December 31, 2013, and 2012, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations.
Research and Development
The Company is engaged in research and development activities. Research and development costs are charged as operating expense of the Company as incurred. For the years ended December 31, 2013, and 2012 the Company expensed $465,671, and $445,947, respectively, towards research and development costs. Components of the processors that are fabricated or purchased with research and development plans and then used on the processor in production are capitalized into the cost of the processor and depreciated over the remaining life of the processor.
Foreign Currency Translation
The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Foreign exchange losses of $11,145, and $47,332 are included as general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2013, and 2012, respectively.
Income Taxes
The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption, the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2013, and 2012. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign country. The years ended December 31, 2009 through December 31, 2013 are open tax years for IRS review.
Loss Per Share
The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive.
Segment Reporting
The Company operates in two reportable segments. ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our operating segments include plastic to oil conversion (Plastic2Oil), which includes our fuel sales as well as sales of waste paper fiber and Data Recovery and Migration, our magnetic tape reading segment. Our Chief Operating Decision Maker is the Company’s Chief Executive Officer.
Concentrations and Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of operating demand deposit accounts and accounts receivable. The Company’s policy is to place our operating demand deposit accounts with high credit quality financial institutions that are insured by the FDIC, however, account balances may at times exceed insured limits. The Company extends limited credit to its customers based upon their creditworthiness and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information. The Company also routinely makes an assessment of the collectability of the short-term note receivable and determines its exposure for non-performance based on the specific holder and other pertinent information.
Fair Value of Financial Instruments
Fair value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:
●
|
Level 1 - Quoted prices in active markets for identical assets or liabilities;
|
●
|
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities; and
|
●
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities
|
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt and mortgage payable approximate fair value because of the short-term nature of these items. Per ASC Topic 820 framework these are considered Level 2 inputs where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Changes in Accounting Policies Including Initial Adoption
There are no recently adopted accounting pronouncements that impact the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represents strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The amendments also require expanded disclosures concerning discontinued operations and disclosures of certain financial results attributable to a disposal of a significant components of an entity that does not qualify for discontinued operations reporting. The amendments in this ASU are effective prospectively for reporting periods beginning on or after December 15, 2014, with early adoption permitted. The impact on our Financial Statements of adopting ASU 2014-08 is being assessed by management.
On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 4 - INVENTORIES
Inventories at December 31 consist of the following:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
392,147
|
|
|
$
|
222,642
|
|
Finished goods
|
|
|
81,499
|
|
|
|
74,077
|
|
Obsolescence reserve
|
|
|
(326,526
|
)
|
|
|
(56,623
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
147,120
|
|
|
$
|
240,096
|
|
As of December 31, 2013 and 2012, inventory includes $27,651 and $53,312 respectively, of general and administrative costs.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
2013
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
260,271
|
|
|
$
|
(5,251)
|
|
|
$
|
255,020
|
|
Machinery and office equipment
|
|
|
5,728,587
|
|
|
|
(1,509,954)
|
|
|
|
4,218,633
|
|
Furniture and fixtures
|
|
|
24,918
|
|
|
|
(15,619)
|
|
|
|
9,299
|
|
Land
|
|
|
273,118
|
|
|
|
-
|
|
|
|
273,118
|
|
Asset retirement obligation
|
|
|
27,745
|
|
|
|
(3,329)
|
|
|
|
24,416
|
|
Office and industrial buildings
|
|
|
1,418,663
|
|
|
|
(118,213)
|
|
|
|
1,300,450
|
|
Equipment under capital lease
|
|
|
108,316
|
|
|
|
(32,567)
|
|
|
|
75,749
|
|
Construction in process
|
|
|
1,027,323
|
|
|
|
-
|
|
|
|
1,027,323
|
|
|
|
$
|
8,868,941
|
|
|
$
|
(1,684,933)
|
|
|
$
|
7,184,008
|
|
2012
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
59,271
|
|
|
$
|
(11,787
|
)
|
|
$
|
47,484
|
|
Machinery and office equipment
|
|
|
4,782,323
|
|
|
|
(1,187,768
|
)
|
|
|
3,594,555
|
|
Furniture and fixtures
|
|
|
24,918
|
|
|
|
(12,306
|
)
|
|
|
12,612
|
|
Land
|
|
|
273,118
|
|
|
|
-
|
|
|
|
273,118
|
|
Asset retirement obligation
|
|
|
27,745
|
|
|
|
(2,220
|
)
|
|
|
25,525
|
|
Office and industrial buildings
|
|
|
1,126,522
|
|
|
|
(65,593
|
)
|
|
|
1,060,929
|
|
Equipment under capital lease
|
|
|
108,317
|
|
|
|
(17,094
|
)
|
|
|
91,223
|
|
Construction in process
|
|
|
1,780,613
|
|
|
|
-
|
|
|
|
1,780,613
|
|
|
|
$
|
8,182,827
|
|
|
$
|
(1,296,768
|
)
|
|
$
|
6,886,059
|
|
At December 31, 2013 and 2012 machinery and equipment with a cost of $108,317 and $108,317, respectively and accumulated amortization of $32,567 and $17,094 respectively were under capital lease. During the years ended December 31, 2013, and 2012, the Company recognized $15,473, and $11,388, respectively, of depreciation expense related to these assets under capital lease.
As of December 31, 2013 and 2012, the Company had recorded impairment losses on property, plant and equipment of $1,122,829 in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value. The 2013 charges relate to (i) the impairment of the Processor#1 for $931,363 as it takes on a more dedicated role in research & development activities and forgoes revenue generation activities; and (ii) the impairment of capitalized cost of $191,466 related to a discontinued business venture (Note 19).
As of December 31, 2012, the Company had recorded impairment losses on property, plant and equipment of $191,466. The charges in the year ended December 31, 2012 related to the impairment of tape reading equipment in the Data Business for $36,500 and the determination that the reactor on Processor#1 was no longer suitable for use due to the heavy demands placed on it during research and development testing, totaling $154,966.
During the third quarter of 2013, the Company announced to the employees of its recycling facility in Thorold, Ontario its plan to close operations at the facility. The recycling facility for accounting purposes qualified as an operating segment and was reported as Discontinued Operations. The recycling facility operations primarily consisted of accepting, separating and processing mixed paper and cardboard for sale to paper mills and various grades of plastic waste for processing into fuel products at the Company’s Niagara Falls, New York facility. The plan to close the facility was a result of the Company’s continued effort to focus on its P2O operations, as well as the decision to obtain processor-ready feedstock without further need for pre-processing. As a result, the Company performed an analysis on several vertical balers and shredder and shredder components for impairment by comparing carrying values to their undiscounted future cash flows, and concluded that the recording of impairment through discontinued operations was necessary. As a result, $173,681 was recorded as a loss on discontinued operations and is related to accelerated depreciation on the RRON assets to reduce the book value to zero. (Note 19).
NOTE 6 – SHORT-TERM NOTE RECEIVABLE
Upon consummation of the sale of Pak-It, the Company entered into a long-term note receivable (the “Note”) with the buyer of Pak-It in the amount of $500,000. The Note was recorded as of the date of closing at the fair value determined by discounting the face value of the Note using 7%, based on factors considered by the Company at the time of recording the Note. Interest income is amortized into the value of the Note during the life of the Note and is recognized as interest income throughout the term of the Note, which was due on July 1, 2013. Interest income recognized on the Note for the years ended December 31, 2013 and 2012 was $12,278 and $20,464, respectively. On September 30, 2013 the amount was deemed uncollectible and written-off to bad debts (Notes 19 and 21).
NOTE 7 – LETTER OF CREDIT
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
$100,000 Letter of Credit, secured by restricted cash on deposit.
|
|
$
|
-
|
|
|
$
|
-
|
|
During 2012, the Company entered into a letter of credit with one of its financial institutions to secure a performance bond required by a governmental agency for the sale of fuel. This letter of credit is fully secured by restricted cash (Note 2) held by this institution and was not utilized at any point during the year ended December 31, 2013.
NOTE 8 - INCOME TAXES
|
|
2013
|
|
|
2012
|
|
Statutory tax rate:
|
|
|
|
|
|
|
U.S.
|
|
|
34
|
%
|
|
|
34
|
%
|
Foreign
|
|
|
26.50
|
%
|
|
|
26.50
|
%
|
|
|
|
|
|
|
|
|
|
Loss from operations before recovery of income taxes:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(10,819,127
|
)
|
|
$
|
(11,307,856
|
)
|
Foreign
|
|
|
(387,679
|
)
|
|
|
(1,385,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,206,806
|
)
|
|
$
|
(12,693,771
|
)
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
$
|
(3,781,238
|
)
|
|
$
|
(4,211,939
|
)
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
(9,418
|
)
|
|
|
(269,029
|
)
|
Other
|
|
|
-
|
|
|
|
83,693
|
|
Tax rate changes and other adjustments
|
|
|
(713,238
|
)
|
|
|
356,105
|
|
Increase in valuation allowance
|
|
|
4,503,894
|
|
|
|
4,041,170
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery from continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
The Company’s income tax recovery is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s deferred tax assets and liabilities as at December 31, 2013 and 2012 are as follows:
Deferred Tax Assets
|
|
2013
|
|
|
2012
|
|
Non-capital losses
|
|
$
|
13,930,292
|
|
|
$
|
10,227,927
|
|
Reserve – Contingency
|
|
|
173,475
|
|
|
|
167,949
|
|
Property, plant and equipment
|
|
|
112,588
|
|
|
|
1,158
|
|
Accounts receivable
|
|
|
197,247
|
|
|
|
19,353
|
|
Accrued expenses
|
|
|
514
|
|
|
|
13,984
|
|
Bad debt recovery
|
|
|
8,874
|
|
|
|
-
|
|
Fees and Payroll in Stocks and Options
|
|
|
208,736
|
|
|
|
-
|
|
Impairment Reserve
|
|
|
275,729
|
|
|
|
-
|
|
Other
|
|
|
297
|
|
|
|
1,381
|
|
|
|
|
14,907,752
|
|
|
|
10,431,752
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(410,693
|
)
|
|
$
|
(438,587
|
)
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(14,497,059
|
)
|
|
|
(9,993,165
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s non-capital income tax losses expire as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
2029
|
|
$
|
526,411
|
|
|
2030
|
|
|
6,080,091
|
|
|
2031
|
|
|
9,240,965
|
|
|
2032
|
|
|
10,853,750
|
|
|
2033
|
|
|
10,436,738
|
|
|
|
|
$
|
37,137,955
|
|
|
|
|
|
|
|
Foreign
|
2030
|
|
$
|
1,224,680
|
|
|
2031
|
|
|
1,818,894
|
|
|
2032
|
|
|
1,284,807
|
|
|
2033
|
|
|
607,349
|
|
|
|
|
$
|
4,935,730
|
|
The Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date ordinary income (loss) at the end of the period. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. For the years ended December 31, 2013 and 2012, the Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively, for both the United States and Canada. The Company had no income tax expense on its $11,206,806 and $12,693,771 loss from continuing operations and $2,027,459 and $628,434 loss from discontinued operations for the years ended December 31, 2013 and 2012, respectively.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within selling, general and administrative expenses. As of December 31, 2013 and 2012, the Company had no uncertain tax positions.
The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. The years ended December 31, 2008 through December 31, 2013 are open tax years.
NOTE 9 – LONG-TERM DEBT, MORTGAGE PAYABLE AND CAPITAL LEASES
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Mortgage in the amount of $280,000 Canadian dollars, bears simple interest at 7% per annum, secured by the land and building, and matures on June 15, 2015. Principal and interest are due, in their entirety, at maturity.
|
|
$
|
280,700
|
|
|
$
|
280,700
|
|
Equipment capital lease bears interest at 5.0% per annum, secured by the equipment and matures in April 2015, repayable in monthly installments of approximately $360.
|
|
|
5,556
|
|
|
|
9,485
|
|
Equipment capital lease, bears interest at 5.85% per annum, secured by the equipment and matures in November 2015, repayable in monthly installments of approximately $516.
|
|
|
11,201
|
|
|
|
17,000
|
|
Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matures on May 10, 2015, repayable in monthly installments of approximately $1,194.
|
|
|
18,140
|
|
|
|
30,599
|
|
Secured Promissory Notes (provided by a related party) bearing interest of 12% per annum compounded annually and payable upon maturity in 2018 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries. (Note 15)
|
|
|
2,240,100
|
|
|
|
-
|
|
|
|
|
2,555,697
|
|
|
|
337,784
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
23,618
|
|
|
|
23,068
|
|
|
|
$
|
2,532,079
|
|
|
$
|
314,716
|
|
Continuity of Secured Promissory Notes
|
|
Year ended
December 31,
2013
|
|
|
Year ended
December 31,
2012
|
|
Face value of August 29, 2013 secured note payable
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
Face value of September 30, 2013 secured note payable
|
|
|
2,000,000
|
|
|
|
-
|
|
Total face value of promissory notes payable
|
|
|
3,000,000
|
|
|
|
-
|
|
Discount on August 29, 2013 secured note payable
|
|
|
(310,200
|
)
|
|
|
-
|
|
Discount on September 30, 2013 secured note payable
|
|
|
(600,400
|
)
|
|
|
-
|
|
Accretion of discount on secured notes payable
|
|
|
50,700
|
|
|
|
-
|
|
Interest on secured notes payable
|
|
|
100,000
|
|
|
|
-
|
|
Carrying value of Secured Promissory Notes
|
|
$
|
2,240,100
|
|
|
$
|
-
|
|
The following annual payments of principal are required over the next five years in respect of these mortgages and capital leases:
|
|
Annual
Payments
|
|
2014
|
|
$
|
23,618
|
|
2015
|
|
|
291,979
|
|
2016
|
|
|
-
|
|
2017
|
|
|
-
|
|
2018
|
|
|
2,240,100
|
|
Total repayments
|
|
$
|
2,555,697
|
|
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Commitments
Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract during 2010 with a company owned by the current CEO. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. As of December 31, 2013 there are no currently installed marine vessel processors as per the terms of the contract.
As of December 31, 2013, the Company has committed to purchase certain pieces of key machinery from vendors related to the future expansion of our operations. In addition to the payments made to these vendors classified as deposits on assets, the Company will be required to pay approximately $495,000 upon the delivery of these assets.
The Company leases premises in Thorold, Ontario, which was previously used in the operation JBI (Canada), Inc. doing business as Regional Recycling of Niagara ("RRON"). As at September 30, 2013, the remaining lease term was almost 17 years. During the third quarter of 2013, the Company determined that it would shut down the operations of RRON (Note 19). The employees of RRON were given notice of the shut down in the first week of September, after which point the Company approached the landlord about terminating the lease; however, there was no formal termination as an agreement to terminate the lease was not reached. During September, the Company was assessing its options with the facility, including potential sublease, but determined that a sublease of the facility was not permitted by the lease and officially decided to cease use of the premises as of September 30, 2013. Accordingly, the Company has applied September 30, 2013 as the cease-use-date in recognizing the liability for the contract termination costs. In measuring the liability, the Company calculated all remaining contracted lease payments, being $1,872,650 ($1,926,000 CAD), and performed a present value calculation using a discount rate of 20%. The present value calculation resulted in an accrued lease liability of $505,747, of which $89,269 is due within the next 12 months and has been presented as a current liability. The total accrued lease liability expense was reduced by $68,818 of the deferred rent liability which was being amortized over the period of the lease. The total expense included in loss from discontinued operations in the consolidated statements of operations is $398,035 for the year ended December 31, 2013 (Note 19).
All future payments required under various agreements are summarized below:
Fiscal year ending December 31, 2014
|
|
$
|
95,900
|
|
2015
|
|
|
95,900
|
|
2016
|
|
|
95,900
|
|
2017
|
|
|
95,900
|
|
2018
|
|
|
101,542
|
|
Thereafter
|
|
|
1,303,117
|
|
Total
|
|
$
|
1,788,259
|
|
Total rent expenses recognized under operating leases during the years ended December 31, 2013 and 2012 were $106,580, and $107,651 respectively.
Contingencies
In August 2010, a former employee filed a complaint against the Company’s subsidiary alleging wrongful dismissal and seeking compensatory damages. The Company denied the validity of the contract which was signed by the former employee as employee and president of the subsidiary. The Company entered into negotiations with the former employee to trade-off some of the benefits of the alleged employment agreement in return for repayment of debts to the Company incurred by the former employee while in the employment of the Company’s subsidiary. The debt in the amount of $346,386 was written off. Prior to December 31, 2011, the former employee settled the dispute with the Company and agreed to repay $250,813 to the Company. The employee owns shares of the Company and will sell and use the proceeds to make the repayments. The Company recognizes these receipts as recoveries when realized. As of December 31, 2013, the Company has received $118,250 of repayments. This is a cumulative amount from 2012 and 2013. These recoveries of bad debt are included in selling, general and administrative expenses.
As previously reported, on July 28, 2011, certain of the Company’s stockholders filed a class action lawsuit against the Company and Messrs. Bordynuik and Baldwin on behalf of purchasers of its securities. In an amended complaint filed on July 10, 2012, these stockholders sought to represent such purchasers during the period from August 28, 2009 through January 4, 2012. The original and amended complaints in that case, filed in federal court in Nevada, allege that the defendants made false or misleading statements, or both, and failed to disclose material adverse facts about the Company’s business, operations and prospects in press releases and filings made with the SEC. Specifically, the lawsuit alleges that the defendants made false or misleading statements or failed to disclose material information, or a combination thereof regarding: (1) that certain media credits (“Media Credits”) were substantially overvalued; (2) that the Company improperly accounted for acquisitions; (3) that, as such, the Company's financial results were not prepared in accordance with Generally Accepted Accounting Principles; and (4) that the Company lacked adequate internal and financial controls. During the quarter ended June 30, 2012, a lead plaintiff was appointed in the case and an amended complaint was filed. The defendants’ answer to the amended complaint was filed during the fourth quarter of 2012.
On August 8, 2013, JBI, Inc., entered a stipulation agreement (the “Stipulation Agreement”) in potential settlement of the previously reported class action lawsuit filed by certain stockholders of the Company against the Company and Messrs. Bordynuik and Baldwin (both former officers of the Company) on behalf of a settlement class consisting of purchasers of the Company’s common stock during the period from August 28, 2009 through January 4, 2012 (the “Proposed Class Period”). Under the Stipulation Agreement, the Company would agree to issue shares of its common stock that will comprise a settlement fund. The number of shares to be issued will be dependent on the price per share of the Company’s common stock during a period preceding the date of the Court’s entry of final judgment in the case (the “Judgment Date”). If the price of the Company’s common stock is less than $0.50 per share based upon the average closing price for the 90 trading days preceding the Judgment Date, the Company would issue 3 million shares of its common stock. If the price of the Company’s common stock is between $0.50 and $0.70 per share, based upon the same 90-day average closing price, the Company would issue 2.5 million shares of its common stock. If the price of the Company’s common stock is more than $0.70 per share based upon the same 90-day average closing price the Company will issue 1.75 million shares of its common stock. The shares will not be distributed to class members in kind. At any time after final approval by the Court, class counsel would have the option to sell all or any portion of such shares for the benefit of class members, subject to certain volume limitations. Plaintiff’s counsel’s attorneys’ fees, subject to Court approval, would be paid out of the settlement fund. The Company would also pay settlement-related costs up to a maximum of $200,000. The plaintiffs and each of the class members who purchased the Company’s common stock during the Proposed Class Period and alleged they were damaged would be deemed to have fully released all claims against the Company and other defendants upon entry of judgment. On September 10, 2013, that agreement was submitted to the Court, and class counsel moved for entry of an order granting preliminary approval of the settlement, including the mailing of a settlement notice that will include, among other things, the general terms of the settlement, proposed plan of allocation, and terms of plaintiff’s counsel’s fee application. On April 1, 2014, the Court issued an Order denying that motion. The Company is currently reviewing what steps should be taken in light of this Court Order. The Company cannot predict the outcome of the class action litigation at this time.
On April 25, 2013, plaintiffs ASPTO LLC, Plastic2Oil of Clearwater 1 LLC, and ES Resources LLC filed suit against the Company in the Circuit Court of Pinellas County, Florida, alleging breaches of certain contracts and seeking unspecified damages. The Company thereafter removed the case to the United States District Court for the Middle District of Florida, and filed a motion to dismiss certain counts of the Complaint. On November 12, 2013, the Court issued an Order transferring the case to the United States District Court for the District of Massachusetts. The Company cannot predict the outcome of this matter at this time.
On August 9, 2013, a purported shareholder derivative suit was filed in the United States District Court for the District of Massachusetts against John Bordynuik, former Chief Executive Officer of the Company and a former member of the Company’s Board of Directors, and Ronald C. Baldwin, former Chief Financial Officer of the Company. The Complaint was filed by Erwin Grampp, allegedly acting on behalf of the Company, and it names the Company as a nominal defendant. This is the second purported shareholder derivative suit that Mr. Grampp has filed in which the Company has been named as a nominal defendant. As previously reported, the first such suit by Mr. Grampp was dismissed by the court. This recent Complaint (“Grampp II”) alleges, inter alia, that defendants Bordynuik and Baldwin breached fiduciary duties owed to the Company by causing the Company to erroneously book certain media credits in 2009. Grampp II alleges that this conduct resulted in two lawsuits against the Company, one an action brought by the Securities and Exchange Commission (“SEC Action”) and the other a purported class action by Ellisa Pancoe and Howard Howell (“Class Action”). Grampp II alleges that the Company has settled the SEC Action, and that the Company is in the process of settling the Class Action, but that the Company has been damaged as a result of these two lawsuits. Grampp II seeks to recover damages on behalf of the Company from defendants Bordynuik and Baldwin in an unspecified amount. It also seeks unspecified equitable relief, and costs and attorneys’ fees incurred in the action. On October 11, 2013, defendants Bordynuik and Baldwin filed a motion to dismiss this action. That motion is pending and the Court has not ruled upon it. Pursuant to the Company’s By-Laws, the Company has an obligation to indemnify defendants Bordynuik and Baldwin to the fullest extent permitted by Nevada law.
On August 20, 2013, plaintiff Stephen Seneca filed suit against the Company and John Bordynuik, former Chief Executive Officer of the Company and a former member of its Board of Directors, alleging claims against the Company for fraud, negligence, civil conspiracy, and breach of contract, as well as a breach of Section 678.4011, Florida Statutes. The claims allege wrongdoing by the Company in connection with a Unit Purchase and Exchange Agreement dated September 30, 2009, and certain shares of the Company’s stock issued pursuant thereto. On September 17, 2013, plaintiff caused a Summons to be issued on the Complaint, and on September 26, 2013, plaintiff caused the Complaint to be served on the Company. Plaintiff seeks damages “in excess of one million dollars.” On October 31, 2013, the Company and Mr. Bordynuik filed a motion to dismiss this Complaint. On May 14, 2014, the Court issued an Order granting the motion in part. The Court dismissed one of the claims made against the Company, and struck another from the Complaint. The Company cannot predict the outcome of this matter at this time.
On August 14, 2013, John Bordynuik, Inc. aka 310 Holdings, Inc. brought suit against the Company in the United States District Court for the District of Nevada, alleging damages for breach of contract, conversion, fraud and fraud in the inducement in connection with an alleged 2009 Asset Purchase Agreement. In September of 2013 and October of 2013, the Company brought motions to dismiss the complaint and for summary judgment. Those motions are pending before the Court. The Company cannot predict the outcome of this matter at this time.
At December 31, 2013, the Company is involved in litigation and claims in addition to the above mentioned legal claims, which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of the Company.
NOTE 11 – STOCKHOLDERS’ EQUITY
(
a) Common Stock and Additional Paid in Capital
2013
During the first quarter of 2013, the Company issued 34,247 shares of common stock for services rendered that had previously been subscribed. These shares were valued at $0.73 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During the second quarter of 2013, the Company issued 51,168 shares of common stock for services rendered that had previously been subscribed. These shares were valued at $0.70 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During the second quarter of 2013, the Company issued 11,911 shares of common stock for services rendered. These shares were valued at $0.46 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During the third quarter of 2013, holders of 74,400 shares of Series B Preferred Stock converted their shares into common stock at the stated conversion rate of one share of Series B Preferred Stock to seven shares of common stock. This resulted in the issuance of 520,800 shares of common stock at the effective conversion price of $0.50 per share.
During the third quarter of 2013, the Company issued 7,801 shares of common stock for services rendered. These shares were valued at $0.51 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During the third quarter of 2013, holders of 21,500 shares of Series B Preferred Stock converted their shares into common stock at the stated conversion rate of one share of Series B Preferred Stock for seven shares of common stock. This resulted in 150,500 shares of common stock being subscribed as of September 30, 2013 and issued subsequent to this date.
During the third quarter of 2013, the Company granted 60,000 shares of common stock for services rendered. These shares were valued at $0.40 per share, on the date of approval by the Board of Directors and subscribed as of September 30, 2013, and issued on October 3, 2013. The stock paid for services was valued based on the market price on the grant date, which was more reliably determinable as compared to the services rendered.
In August 29, 2013, the Company entered into a Subscription Agreement with Mr. Richard Heddle, the Company’s Chief Executive Officer and a member of the Company’s Board of Directors a $1 million principal amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.54 per share. The gross proceeds to the Company were $1 million.
In September 30, 2013, the Company entered into a second Purchase Agreement with Mr. Heddle, a second note (a $2 million principal amount Note), together with a Warrant to purchase up to two million shares of the Company’s common stock at an exercise price of $0.54 per share. The gross proceeds to the Company were $2 million. The Notes bear interest of 12% per annum compounded annually and interest are payable upon maturity. The Notes mature on August 31, 2018 and September 30, 2018, respectively. Repayment of the Notes is secured by a security interest in substantially all of the assets of the Company and its subsidiaries (Note 9).
Warrants
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Average
|
|
Details
|
|
Number
|
|
|
Amount
|
|
|
Exercise Price
|
|
OUTSTANDING, DECEMBER 31, 2012
|
|
|
1,997,500
|
|
|
|
2,037,450
|
|
|
$
|
2.00
|
|
Issued (ii)
|
|
|
3,000,000
|
|
|
|
910,600
|
|
|
|
0.54
|
|
Expired
|
|
|
(1,854,000
|
)
|
|
|
(1,891,081
|
)
|
|
|
(2.00
|
)
|
OUTSTANDING, December 31, 2013
|
|
|
3,143,500
|
|
|
$
|
1,056,970
|
|
|
$
|
0.61
|
|
(i) Warrants attributable to January 2012 Private Placement
Pursuant to a private placement that took place between December 30, 2011 and January 6, 2012, the Company issued 1,997,500 warrants to purchase shares of common stock for $2.00 to the subscribers of the December 2011/ January 2012 private placements. The warrants have an eighteen month term from the date of issuance, such issuance dates ranged from January 6, 2012 through August 29, 2012. As of March 30, 2013, 1,854,000 warrants had expired and their value of $1,891,081 was reclassified as additional paid in capital. The remaining 143,500 outstanding warrants have expiration of date of February, 26, 2014. As of the date of their issuance, the warrants were determined to have a fair value of $1.02. The Company determined this valuation through use of a binomial pricing model, the assumptions in valuing these Warrants consisted of:
●
|
Volatility – 163.67%, based on the Company’s Historical Stock Price
|
|
|
●
|
Probability of Occurrence – 100%, based on the expectation and discussions the Company held with additional investors during and after the consummation of this private placement
|
|
|
●
|
Risk Free Rate – 2.70%, based on the long-term US Treasury rate
|
(ii) Warrants attributable to 2013 Secured Debt Financing
Pursuant to two separate secured debt issuances on August 29, 2013 and September 30, 2013, the Company issued 1,000,000 and 2,000,000 warrants, respectively to purchase shares of common stock for $0.54 to the holder of the secured debt (Note 10). The warrants have a five year term from the date of issuance, as such the corresponding expiry dates are August 29, 2018 and September 30, 2018.
As of August 29, 2013, the 1,000,000 warrants issued were determined to each have a fair value of $0.3102, totaling a fair value of $310,200. The Company determined this valuation through use of a binomial pricing model, the assumptions in valuing these Warrants consisted of:
●
|
Volatility – 141.929%, based on the Company’s Historical Stock Price
|
|
|
●
|
Risk Free Rate – 1.36%, based on the long-term US Treasury rate
|
As of September 30, 2013, the 2,000,000 warrants issued were determined to each have a fair value of $0.3002, totaling a fair value of $600,400. The Company determined this valuation through use of a binomial pricing model, the assumptions in valuing these Warrants consisted of:
●
|
Volatility – 141.028%, based on the Company’s Historical Stock Price
|
|
|
●
|
Risk Free Rate – 1.36%, based on the long-term US Treasury rate
|
2012
Between December 30, 2011 and January 6, 2012, JBI, Inc. (the “Company”) entered into separate Subscription Agreements (the “Purchase Agreements”) with 13 investors (the “Purchasers”) in connection with a private placement of units consisting of one share of common stock and a warrant (the “Warrants”) to purchase shares of common stock for $2.00. In addition to the units sold, the Purchasers were provided a price protection clause in which all of the Purchasers would be made whole should the Company consummate another private placement with an offering price of less than $1.00 per share (the “Make Whole Provision”). This provision was valid for a total offering price of up to $5,000,000, at which time the Purchasers would be made whole and then the Make Whole Provision would be terminated. On May 15, 2012, the Company consummated a Private Placement which offered shares of common stock at a price of $0.80 per share. As such, the Make Whole Provision was affected, resulting in the Company issuing an additional 880,250 shares of the Company’s common stock to these investors. These shares were issued at a market price of $1.13 per share. This resulted in gains recorded on the Make Whole Provision of $305,798 and $Nil, recorded during the nine and three months ended September 30, 2012, respectively. There was no similar transaction consummated by the Company during the nine and three month periods ended September 30, 2013.
On January 6, 2012, the Company assessed the likelihood of another transaction triggering the Make Whole Provision contained in the Purchase Agreements. At that time, the Company had begun to discuss options for another private offering to be consummated near the end of the first quarter of 2012. It was determined that the Company would perform an offering similar to the prior offering in which the Company would offer a share of Common Stock and a Warrant. Based on the expected value of the Warrants contemplated in this proposed new financing transaction, the Company determined that it was certain that it would trigger the Make Whole Provision and be required to perform under the Make Whole Provision. As such, a liability was recorded for the fair value of the Equity Derivative Liability in the amount of $1,214,455, based on the 100% probability of the Make Whole Provision being enacted at the market price of the Company’s common stock as of January 6, 2012. The following factors and assumptions were used by the Company in determining the value of the Make Whole Provision on initial measurement. The Company used the binomial lattice pricing model to determine this valuation, using the following assumptions in the model:
●
|
The market price of the Company’s common stock at January 6, 2012 ($1.42 per share);
|
|
|
●
|
Shares to be issued upon occurrence – 880,250 shares of Common Stock (based on an offering price of $0.80); and
|
|
|
●
|
Probability of occurrence – 100%, based on the expectation and discussions the Company held with additional investors during and after the consummation of this private placement.
|
At March 31, 2012, the Company again assessed the likelihood of enacting the Make Whole Provision. Based on current discussions with a number of investors, the Company determined that again, it was a certainty that this clause would be triggered based on the discussions of a possible private placement under the considerations outlined above. As such, the Company re-measured the Equity Derivative Liability at the fair value of $1,000,643 based on the market price of the Company’s common stock as of March 31, 2012, which resulted in a gain of $213,812. The following factors and assumptions were used by the Company in the valuation of the Make Whole Provision for the re-measurement:
●
|
The market price of the Company’s common stock at March 31, 2012 ($1.17 per share);
|
|
|
●
|
Shares to be issued upon occurrence – 880,250 shares of Common Stock (based on an offering price of $0.80); and
|
|
|
●
|
Probability of occurrence – 100%, based on the expectation and discussions the Company held with additional investors during and after the consummation of this private placement.
|
On January 17, 2012, the Company issued 200,000 shares of common stock as repayment for a loan. These shares were valued at $1.00 and repaid the full $200,000 loan.
Between January 4, 2012 and March 31, 2012, the Company authorized the issuance of 715,198 shares of common stock to various parties for services rendered during the quarter. These shares were valued as of the date of approval or the date of the consulting agreement which they were issued pursuant to, and had values ranging from $0.60 to $1.48 per share. During the second quarter of 2012, the aforementioned 715,198 shares of common stock were issued.
Between January 9, 2012 and February 3, 2012, Company authorized the issuance of 30,786 shares of common stock for the purchase of equipment. These shares were valued as of the date of the vendor invoice and had values ranging from $1.43 to $1.48 per share. During the second quarter of 2012, the aforementioned 30,786 shares of common stock were issued.
On May 15, 2012, the Company entered into separate Subscription Agreements (the “Purchase Agreements”) with 30 investors (the “Purchasers”) in connection with a private placement to purchase shares of common stock for $0.80 per share. The Company issued 14,153,750 shares of common stock in this private placement and received gross proceeds from these Purchase Agreements in the amount of $11,343,000.
Between June 11, 2012 and June 30, 2012, the Company authorized the issuance of 439,333 shares of common stock to various parties for services rendered during the quarter. These shares were valued as of the date of approval or the date of the consulting agreement which they were issued pursuant to, and had values ranging from $0.60 to $1.28 per share. During the third quarter of 2012, a total of 364,333 of these shares were issued. The remaining 75,000 shares were issued during the fourth quarter of 2012.
On July 6, 2012, the Company authorized the issuance of 657,188 shares of common stock as an advisory fee related to the Company’s financing efforts. During the third quarter of 2012, the aforementioned shares of common stock were issued at par value.
On August 29, 2012, the Company reached an agreement with one of the advisors involved in the May 15, 2012 private placement. In exchange for the return of the advisor’s 601,250 shares issued in connection with the May private placement, the Company converted the $162,000 short-term loan provided to this advisor into a payment for general services and stock advisory services performed by the advisor on behalf of the Company. The short-term loan, which had been previously classified as other current assets, was recorded as consulting expense, which is classified as a selling, general and administrative expense for the year ended December 31, 2012.
On September 5, 2012 the Company issued 287,000 shares of common stock and 287,000 warrants, previously subscribed, and to an advisor as payment for services performed in the private placement during December 2011 and January 2012. In addition, this advisor was entitled to and was issued an additional 71,750 shares of common stock in connection with the Make Whole Provision enacted related to the aforementioned private placement.
Between September 5, 2012 and September 30, 2012, the Company issued 169,226 shares of common stock to various parties for services rendered during the quarter. These shares were valued as of the date of approval or the consulting agreement which they were issued pursuant to, and had values ranging from $1.04 to $1.42 per share.
On October 1, 2012, the Company issued 41,399 shares of common stock to various parties for services rendered during the quarter. These shares were valued as of the date of approval or the date of the consulting agreement which they were issued pursuant to, and had a value of $0.83 per share.
On December 3, 2012, the Company authorized the issuance of 51,168 shares of common stock to various parties for services rendered during the quarter. These shares were valued as of the date of approval of the Board of Directors and had a value of $0.70 per share.
On December 12, 2012, the Company authorized the issuance of 34,247 shares of common stock as payment to an outside director for services rendered on the Board of Directors in accordance with the approved payment structure for outside directors of the Company. These shares were values at $0.73 on the date of Board approval and issued subsequent to December 31, 2012.
Preferred Stock
Series A Preferred Stock
Mr. John Bordynuik, the Company’s founder and current Chief of Technology, holds all outstanding 1,000,000 shares of the Company’s issued and outstanding Series A Preferred Stock. These shares have no participation rights, however, they carry super voting rights in which each share of Preferred Stock has 100:1 times the voting rights of common stock. Mr. Bordynuik was a party to a letter agreement (the “Letter Agreement”) with certain investors (the “Investors”) in our May 2012 private placement, which Letter Agreement contained certain restrictions on Mr. Bordynuik’s ability to vote his shares of Series A Preferred Stock (Note 21).
Series B Preferred Stock
The Series B Preferred Stock was created pursuant to the Certificate of Designation setting forth the powers, designations, preferences, rights, qualifications, limitations and restrictions of the Series B Convertible Preferred Stock filed with the Secretary of State of the State of Nevada on December 24, 2012 (the “Series B Designation”). Pursuant to the Series B Designation, the Series B Preferred Stock are convertible at the election of the holder into shares of common stock, par value $0.001 per share, of the Company (“Common Stock”), at the rate of seven (7) shares of Common Stock for each share of Series B Preferred Stock, subject to proportional adjustment for stock splits, combinations, consolidations, stock dividends, stock distributions, recapitalizations, reorganizations, reclassifications and other similar events. Upon any conversion, a holder of shares of Series B Preferred Stock must convert all shares of Series B Preferred Stock then held by such holder. All shares of Series B Preferred Stock that remain outstanding on June 30, 2014 shall be automatically converted into Common Stock.
Pursuant to the Series B Designation, in the event of the liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock shall be entitled to receive out of assets of the Company available for distribution to stockholders of the Company, prior and in preference to any distribution to the holders of any other capital stock of the Company, an amount per share of Series B Preferred Stock equal to the original purchase price for such shares of Series B Preferred Stock. The holders of the Series B Preferred Stock will vote together with the Common Stock and not as a separate class, except as otherwise required by law. Each share of Series B Preferred Stock will have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series B Preferred Stock. The approval of the holders of a majority of the Series B Preferred Stock will be required to amend the Certificate of Designation or to alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock in a manner that adversely affects such shares.
The holders of the Series B Preferred Stock shall not be entitled to receive dividends on the Series B Preferred Stock; provided, however, in the event the Board of Directors of the Company (the “Board”) declares and pays a dividend in respect of any Common Stock, then the Board shall declare and pay to the holders of the Series B Preferred Stock in an amount per share of Series B Preferred Stock equal to the number of shares of Common Stock into which the Series B Preferred Stock is convertible on the record date established by the Board or under applicable law for such dividend multiplied by the per share amount declared and paid in respect of each share of Common Stock.
The Series B Preferred Stock was valued using the common shares available upon conversion of all shares of Series B Preferred Stock and the closing market price of the Company’s Common Stock on the date of the execution of the subscription agreements as follows:
Date of Closing
|
|
Preferred Shares Issued
|
|
Closing Market Price
|
December 27, 2012
|
|
860,544
|
|
$0.80
|
December 31, 2012
|
|
285,900
|
|
$0.83
|
Based on the excess of the market price of the underlying common stock over the conversion price, the Company recognized a total fair value of the shares of Series B Preferred Stock of $6,480,125. The Company also recognized a beneficial conversion feature related to the Series B Preferred Shares, to the extent that the conversion feature, based on the proceeds allocated to the Series B Preferred Shares, was in-the-money at the time they were issued. Such beneficial conversion feature amounted to approximately $2,467,571. Because the Series B Preferred Shares have a stated conversion date and may be converted by the holder at any time, the beneficial conversion feature will be recognized ratably over the eighteen months in which the holders of the Series B Preferred Shares may exercise their conversion option. Additionally, as the beneficial conversion feature is amortized, a deemed distribution will be recorded for the Series B Preferred Shares. This is recorded as an increase to accumulated deficit and a reduction of the beneficial conversion feature of the Series B Preferred Stock. No actual cash is paid out in relation to this transaction.
NOTE 12 – STOCK-BASED COMPENSATION PLANS AND AWARDS
The Company’s 2012 Long Term Incentive Plan (the “2012 Plan”) provides for the issuance of stock options, restricted stock units and other stock-based awards to members of management and key employees. The 2012 Plan is administered by the compensation committee of the Board of Directors of the Company, or in the absence of a committee, the full Board of Directors of the Company. The Plan was enacted in July 2012, and prior to this time, no plan and consequently, no stock options or shares of restricted stock were granted under an equity compensation plan.
Valuation of Awards
The per-share fair value of each stock option with a service period condition was determined on the date of grant using the Black-Scholes option pricing model using the following assumptions:
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
0.10%-1.03
|
%
|
|
|
0.77%-0.78
|
%
|
Expected volatility
|
|
|
154.30%-157.14
|
%
|
|
|
154.30%-157.14
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock Options
A summary of stock option activity for the year ended December 31, 2013 is as follows:
|
|
Options
Outstanding
Stock
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Balance as of December 31, 2012
|
|
|
5,240,000
|
|
|
$
|
1.50
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,060,000
|
|
|
|
0.38
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Cancelled
|
|
|
494,000
|
|
|
|
0.83
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
|
6,806,000
|
|
|
$
|
1.21
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards available for grant at December 31, 2013
|
|
|
3,194,000
|
|
|
|
|
|
|
|
|
|
Restricted Stock
The fair value of the restricted stock is expensed ratably over the vesting period. During the years ended December 31, 2013, and 2012, the Company recorded stock-based compensation expense related to restricted stock of approximately $69,000, and $64,500, respectively.
The following table summarizes the activities for the year ended December 31, 2012:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Unvested at December 31, 2011
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
5,240,000
|
|
|
|
1.5
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
Unvested at December 31, 2012
|
|
|
-
|
|
|
$
|
-
|
|
For the years ended December 31, 2013, and 2012, the Company recorded compensation expense (included in selling, general and administrative expense) of $1,859,799, and $1,481,666, respectively, related to stock options and restricted stock.
During the year ended December 31, 2013, 2,030,334 options and 138,681 shares of restricted stock vested and no stock options were exercised. During the year ended December 31, 2012, 765,000 stock options and 38,269 shares of restricted stock vested.
(1)
|
Amounts represent the difference between the exercise price and the fair value of common stock at period end for all in the money options outstanding based on the fair value per share of common stock. As of December 31, 2013, no options that had been granted were “in the money.”
|
NOTE 13 – RETIREMENT PLAN
The Company adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. employees which complies with section 401(k) of the Internal Revenue Code. The Company does not currently match any of the employee contributions. Employees are not required to make contributions into the fund. Total administrative expense under this plan was $3,157, and $1,436 for the years ended December 31, 2013, and 2012 respectively.
NOTE 14 – FAIR VALUE MEASUREMENTS
The following table summarizes the valuation of the Company’s financial instruments by the following three categories as of December 31, 2013 and 2012:
●
|
Level 1 - Quoted prices in active markets for identical assets or liabilities
|
●
|
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities
|
●
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities
|
Balance Sheet Classification
|
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Short term notes receivable
|
|
Level 1
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Level 2
|
|
|
-
|
|
|
|
487,722
|
|
|
|
Level 3
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
$
|
|
|
|
$
|
487,722
|
|
We have elected to use the income approach to value the short-term note receivable, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount assuming that participants are motivated, but not compelled, to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability (specifically Prime interest rates). Mid-market pricing is used as a practical expedient for fair value measurements. Fair value measurement of the asset must reflect the nonperformance risk of the counterparty. Therefore, the impact of the counterparty’s creditworthiness has also been factored into the fair value measurement and did not have a material impact on the fair value of these derivative instruments. The counterparty is expected to perform under the contractual terms of the note receivable. Additionally, during the year ended December 31, 2012, the Company recognized an increase in the carrying value of its short-term note receivable of approximately $20,464 of interest income related to this note, which has been classified as net interest expense in the consolidated statement of operations.
At December 31, 2013 and 2012, the Company had no non-financial assets or liabilities that are measured and recorded at fair value on a recurring basis, and our other financial assets or liabilities generally consist of cash and cash equivalents, cash held in attorney’s trust, restricted cash, accounts receivable, accounts payable, accrued expenses, notes payable, mortgage payable, short-term loans and stock subscriptions payable. The estimated fair values of our cash and cash equivalents is determined based on quoted prices in active markets for identical assets. The fair value of the other financial assets and liabilities is based on the value that would be received or paid in an orderly transaction between market participants and approximates the carrying value due to their nature and short duration.
NOTE 15 – RELATED PARTY TRANSACTIONS AND BALANCES
In August 29, 2013, the Company entered into a Subscription Agreement with Mr. Richard Heddle, the Company’s Chief Executive Officer and a member of the Company’s board of directors a $1 million principal amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.54 per share. The gross proceeds to the Company were $1 million.
In September 30, 2013, the Company entered into second Purchase Agreement with Mr. Heddle, a second note (a $2 million principal amount Note), together with a Warrant to purchase up to two million shares of the Company’s common stock at an exercise price of $0.54 per share. The gross proceeds to the Company were $2 million. The Notes bear interest of 12% per annum compounded annually and interest is payable upon maturity. The Notes mature on August 31, 2018 and September 30, 2018, respectively. Repayment of the Notes is secured by a security interest in substantially all of the assets of the Company and its subsidiaries.
In February 2012, a member of the Board of Directors entered into a short-term loan agreement with the Company in the amount of $75,000. This amount was repaid in cash during the year.
In May 2012, a member of the Board of Directors entered into a short-term loan agreement with the Company in the amount of $30,000. This note was repaid in cash during the year.
Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract during 2010 with a company owned by the current CEO. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2013 there were no currently installed marine vessel processors as per the terms of the contract.
NOTE 16 – SEGMENT REPORTING
During 2013, the Company had two principal operating segments, Plastic2Oil and the Data Business. These operating segments were determined based on the nature of the products and services offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer has been identified as the chief operating decision maker, and directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment. During 2012, Javaco, historically the Company’s third operating segment, was determined to no longer be in line with the Company’s strategic vision and has been included in discontinued operations for the years presented and, as such, the results of Javaco are not included below.
The Company evaluates performance based on several factors, of which the primary financial measure is net income. The accounting policies of the business segments are the same as those described in “Note 2: Summary of Accounting Policies.” The following tables show the operations of the Company’s reportable segments:
|
|
2013
|
|
|
|
Data
Business
|
|
|
Plastic2Oil
|
|
|
Total
|
|
Sales
|
|
$
|
93,712
|
(1)
|
|
$
|
599,413
|
(1)
|
|
$
|
693,125
|
|
Net Income (Loss)
|
|
|
32,641
|
|
|
|
(11,239,447
|
)
|
|
|
(11,206,806
|
)
|
Total Assets
|
|
|
18,481
|
|
|
|
9,270,927
|
(3)
|
|
|
9,289,408
|
|
Accounts Receivable-Net
|
|
|
18,481
|
|
|
|
62,333
|
|
|
|
80,814
|
|
Inventories
|
|
|
-
|
|
|
|
147,120
|
|
|
|
147,120
|
|
|
|
2012
|
|
|
|
Data
Business
|
|
|
Plastic2Oil
|
|
|
Total
|
|
Sales
|
|
$
|
70,381
|
(1)
|
|
$
|
609,553
|
(1)
|
|
$
|
679,934
|
|
Net Loss
|
|
|
18,284
|
|
|
|
(12,712,055
|
)
|
|
|
(12,693,771
|
)
|
Total Assets
|
|
|
70,381
|
(2) (3)
|
|
13,293,020
|
(3)
|
|
|
13,363,401
|
|
Accounts Receivable - Net
|
|
|
70,381
|
|
|
|
169,758
|
|
|
|
240,139
|
|
Inventories
|
|
|
-
|
|
|
|
240,096
|
|
|
|
240,096
|
|
(1)
|
All sales from the Data Business were recorded in the United States for the year ended December 31, 2013. For the year ended December 31, 2013 P2O sales in the United States and Canada were $143,307 and $455,996, respectively. For the year ended December 31, 2012, P2O sales in the United States and Canada were $119,266 and $490,287, respectively.
|
(2)
|
As of March 31, 2012, due to the conclusion that the Company could not substantiate when a significant amount of revenues would be earned from the Data Business, all property, plant and equipment assets related to the Data Business were determined to be impaired and an impairment expense of $36,500 was recorded to write the assets down to $Nil. All other amounts included in the measure of segment profit or loss related to the Data business are not material. Other than as noted above, the amounts shown for Operating Expenses and Other Income (Expense) items on the consolidated statements of operations related to the P2O segment.
|
(3)
|
All Data Business Assets are located in the United States. P2O assets include the Company headquarters and various machinery and equipment used at the aforementioned sites and at the Niagara Falls Facility. As at December 31, 2013, total long-lived assets of $6,515,577 and $668,432 were located in the United States and Canada, respectively. As at December 31, 2012, total long-lived assets of $5,956,508 and $929,551, were located in the United States and Canada, respectively. The mortgage payable of $280,000 and the equipment capital lease maturing on May 10, 2015, both disclosed in Note 9, relate to assets held in Canada.
|
NOTE 17 – SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
Fiscal Year
Ended
December 31,
2013
|
|
|
Fiscal Year
Ended
December 31,
2012
|
|
Common shares issued in exchange for services
|
|
|
165,127
|
|
|
|
1,471,745
|
|
Stock-based compensation
|
|
|
1,891,080
|
|
|
|
1,481,666
|
|
Common shares issued for repayments of loans
|
|
|
-
|
|
|
|
200,000
|
|
Common shares subscribed for services rendered
|
|
|
145,415
|
|
|
|
60,818
|
|
Purchases of property, plant and equipment in accounts payable at year-end
|
|
|
-
|
|
|
|
413,122
|
|
Common shares subscribed in exchange for property, plant and equipment
|
|
|
-
|
|
|
|
35,120
|
|
Cash paid for interest
|
|
|
-
|
|
|
|
22,819
|
|
NOTE 18 – RISK MANAGEMENT
Concentration of Credit Risk
The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these financial institutions.
During the years ended December 31, 2013 and 2012, 81.0%, and 58.0%, respectively, of total net revenues were generated from four customers. As of December 31, 2013, and 2012 three, and three customers, respectively, accounted for 77.0%, and 76.0% of accounts receivable.
During the years ended December 31, 2013, and 2012, 26.4%, and 25.5%, of total net purchases were made from four vendors. As of December 31, 2013 and 2012, four, and three suppliers, respectively, accounted for 27.9%, and 36.6% respectively, of accounts payable.
NOTE 19 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Regional Recycling of Niagara
During the third quarter of 2013, the Company determined that due to the significant losses incurred by Regional Recycling of Niagara, and the continuous need to fund their operations through the Company’s Plastic2Oil operations, that it would shut down the operations of the facility. The decision to do this was based on the following factors:
●
|
The inventory processed over the prior months at Regional Recycling of Niagara was comingled with contaminated materials that made the significant majority of their inventory worthless without significant additional processing and labor (Note 4);
|
|
|
●
|
The fixed assets utilized at the facility were old and beginning to become in need of significant repairs, which would have been a significant cost to maintain (Note 5);
|
|
|
●
|
The pre-processing cost of plastic at Regional Recycling of Niagara was significant and was a hindrance to the Company becoming profitable on a cost per gallon of fuel basis; and
|
|
|
●
|
The Company leases the JBI Recycling Facility in Thorold, Ontario, Canada with terms remaining of up to 17 years (Note 10).
|
The results of operations from Regional Recycling of Niagara for the twelve months ended December 31, 2013 and 2012 have been classified as discontinued operations and are as follows:
Condensed Statements of Operations
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Revenue
|
|
$
|
96,615
|
|
|
$
|
305,455
|
|
Cost of sales
|
|
|
52,377
|
|
|
|
112,480
|
|
Gross profit
|
|
|
44,238
|
|
|
|
192,976
|
|
Operating expenses
|
|
|
1,524,748
|
|
|
|
704,738
|
|
Other expense
|
|
|
5,382
|
|
|
|
10,102
|
|
Loss before income taxes
|
|
|
(1,530,130
|
)
|
|
|
(521,864
|
)
|
Future income tax recovery
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(1,530,130
|
)
|
|
$
|
(521,864
|
)
|
Sale of Pak-It
On February 14, 2013, the Company completed the sale of substantially all of the assets of Pak-It, LLC and Dickler Chemical Company, Inc. (collectively “Pak-It”). The sale had an effective date of January 1, 2012, in which the new owners of Pak-It were responsible for the operations of the entity. The results of operations from Pak-It for the years presented have been classified as discontinued operations and there were no operations for the year ended December 31, 2012 included in the consolidated financial statements.
The Company sold Pak-It for $900,000, in exchange for $400,000 cash at the closing of the sale and entry into a note receivable for $500,000 due on July 1, 2013. In the third quarter of 2013, the Company’s assessed the collectability of the note receivable from the buyer of Pak-It. It was determined that due to the lack of a payment within forty days of the due date that the collectability was not assured and the Company has reserved for the full amount of the note receivable.
As of December 31, 2013, there were no remaining assets held for sale related to Pak-It.
The Company’s statements of operations from discontinued operations related to Pak-it for the years ended December 31, 2013, and 2012 are as follows:
Condensed Statements of Operations of Pak-It
|
|
2013
|
|
|
2012
|
|
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
500,000
|
|
|
|
-
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
Other income
|
|
|
(10,433)
|
|
|
|
-
|
|
Loss before income taxes
|
|
|
-
|
|
|
|
-
|
|
Future income tax recovery
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(489,567
|
)
|
|
$
|
-
|
|
Closure of Javaco
During the second quarter of 2012, the Company determined that the operations of Javaco no longer coincided with the strategy of the Company and that it would close down Javaco’s operations. In July 2012, the Company shut down the Javaco operations, including the termination of the five employees of Javaco, the liquidation of the inventory and fixed assets and the termination of the lease for the building. The results of operations from Javaco for the years ended December 31, 2013, and 2012 have been classified as discontinued operations.
The Company paid approximately $38,000 in severance and lease termination related expenses during the year ended December 31, 2012. Additionally, the Company liquidated the inventory and fixed assets of Javaco for net proceeds of approximately $180,000. As of December 31, 2012, there were no remaining assets held for sale related to Javaco.
The Company’s statements of operations from discontinued operations related to Javaco for the years ended December 31, 2013, and 2012 are as follows:
Condensed Statements of Operations of Javaco
|
|
2013
|
|
|
2012
|
|
Sales
|
|
$
|
-
|
|
|
$
|
948,224
|
|
Cost of sales
|
|
|
-
|
|
|
|
780,848
|
|
Gross profit
|
|
|
-
|
|
|
|
167,376
|
|
Operating expenses
|
|
|
7,762
|
|
|
|
321,977
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
Other income
|
|
|
-
|
|
|
|
48,031
|
|
Loss before income taxes
|
|
|
-
|
|
|
|
(106,570
|
)
|
Future income tax recovery
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(7,762)
|
|
|
$
|
(106,570
|
)
|
NOTE 20 – BASIC AND DILUTED NET LOSS PER SHARE
Loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Loss per share from Continuing Operations
|
|
$
|
(0.12
|
)
|
|
$
|
(0.15
|
)
|
Loss per share from Discontinued Operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
Total Loss per Share
|
|
$
|
(0.14
|
)
|
|
$
|
(0.16
|
)
|
For the years ended December 31, 2013, and 2012, there are no adjustments necessary to the numerator or denominator in calculating the diluted loss per common, as there are no potentially dilutive instruments. As a result of the net loss for the years ended December 2013, and 2012, the additional shares issuable upon the conversation of the Series B Preferred Stock, potential stock options, warrants granted and shares issued to settle the stock subscription advances, subsequent to year end, would be anti-dilutive and have been excluded from the calculation of basic and diluted loss per share.
NOTE 21 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events occurring after the balance sheet date and has identified the following:
Name Change and increase in total number of shares authorized
On May 16, 2014, our board of directors and certain stockholders holding a majority of the voting power of our outstanding common stock and preferred stock approved resolutions authorizing an amendment to our Articles of Incorporation (the “Charter Amendment”) to (i) change our name to “Plastic2Oil, Inc.” and (ii) increase the total number of authorized shares of common stock, par value $0.001 per share, of our Company from 150,000,000 shares to 250,000,000 shares. The Charter Amendment will not be implemented until at least twenty (20) calendar days after the mailing of a definitive Information Statement to our stockholders. On May 19, 2014, we filed a preliminary Information Statement with the Securities and Exchange Commission, which will be followed by the filing and mailing of a definitive information statement. We anticipate that the Charter Amendment will be implemented in late June 2014.
Private Placement
On February 19, 2014 the Company entered into Subscription Agreements with three investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 2.4 million shares of its common stock and Warrants to purchase up to an additional 2.4 million shares of its common stock. The closings occurred between February 19 and 24, 2014. The purchase price per share was $0.05 and the gross proceeds to the Company were $120,000. The Warrants have a three year term, and an exercise price of $0.10 per share of common stock. Concurrent with these subscriptions the Company entered into a consulting agreement with the investors and a fourth arm’s length party under which the Company would issue 1,500,000 shares upon commencement of the contract, and 1,000,000 shares on each of May 15, 2014, August 15, 2014 and January 15, 2015, respectively, for a total of 4,000,000 shares. Along with each of the forgoing share issuances, the Company will issue a commensurate number of warrants with a three year term and an exercise price of $0.10. The shares and warrants specified by the consulting agreement have not been issued. Additionally, under the terms of the consulting agreement the Company is committed to issue 1,000,000 additional shares if the Company becomes listed on the AMEX division of the New York Stock Exchange or NASDAQ. The consulting agreement also specifies contingent fees of 5% of the gross transaction amount for introducing a merger or acquisition candidate and 3% of fees earned from the introduction of a strategic or business partner.
On March 26, 2014 the Company entered into Subscription Agreements with eleven investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 3.2 million shares of its common stock and Warrants to purchase up to an additional 3.2 million shares of its common stock. The closings occurred between March 17 and 28, 2014. The purchase price per share was $0.10 and the gross proceeds to the Company were $320,000. The Warrants have a three year term, and an exercise price of $0.10 per share of common stock.
Ontario Securities Commission (OSC)
As of December 31, 2013, the Ontario Securities Commission (the “Commission”) had indicated that it intended to bring an administrative proceeding against JBI, and negotiations with respect to the settlement of that matter were underway. A Statement of Allegations dated April 1, 2014 naming JBI was issued by the Commission and Allegations against JBI were subsequently withdrawn by order dated April 4, 2014. At the same time, the OSC entered into a Settlement with John Bordynuik, former CEO and current Chief Technology Officer of the Company, in which Mr. Bordynuik agreed to pay an administrative penalty of CAN$125,000 and to pay CAN$45,000 on account of the Commission’s costs of investigation. The Company was legally obligated to indemnify Mr. Bordynuik for these amounts, and did so. The matter is now closed.
Cancellation of Promissory note
On February 7, 2014, the Company accepted a cash payment of $200,000 in settlement of a $500,000 promissory note dated February 14, 2012 (the “Note”) that was originally issued by Big 3 Packaging LLC (the “Buyer”) in connection with the Company’s sale to Buyer of substantially all of the assets of Pak-It, LLC and Dickler Chemical Laboratories, Inc. on February 14, 2012. In connection with the termination of the Note, the Company and the Buyer executed a mutual general release of claims.
The Note, as described in Note 19, matured on July 1, 2013 but remained unpaid by the Buyer. At this time, the Company fully reserved for the full value of the note and included the amount of $500,000 as a loss contributable to discontinued operations (Note 19). The final termination payment of $200,000 will be recorded as a bad debt recovery and included in income from discontinued operations for the three month period ended March 31, 2014.
Series A Preferred Stock
On May 30, 2014, Mr. John Bordynuik, the Company’s founder and current Chief of Technology, returned to the Company for cancellation 1,000,000 shares of the Company’s issued and outstanding Series A Preferred Stock. On June 2, 2014, the company filed an amendment to its Article of Incorporation to terminate the Series A Preferred Stock. Mr. Bordynuik was a party to a letter agreement (the “Letter Agreement”) with certain investors (the “Investors”) in our May 2012 private placement, which Letter Agreement contained certain restrictions on Mr. Bordynuik’s ability to vote his 1 million shares of Series A Preferred Stock. In the second quarter of 2014, the Letter Agreement was terminated upon the receipt of waiver/rescission notices from the requisite number of Investors required under the Letter Agreement’s terms. On May 30, 2014, all of the issued and outstanding shares of Series A Preferred Stock were cancelled and, on June 3, 2014, a Certificate of Withdrawal relating to the Series A Preferred Stock was filed with the Secretary of State of Nevada.