UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014 |
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________to ______________ |
Commission File Number: 000-52444
PLASTIC2OIL, INC.
(Exact name of registrant as specified
in its charter)
Nevada |
|
90-0822950 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
20 Iroquois Street
Niagara Falls, NY 14303
(Address of principal executive offices)
(Zip Code)
(716) 278-0015
(Registrant’s telephone
number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
Smaller reporting company |
x |
(Do not check if a smaller reporting company) |
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes o
No x
As of November 14, 2014, there
were 116,861,535 shares of Common Stock, $0.001 par value per share, issued and outstanding.
PLASTIC2OIL Inc.
|
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Part
I |
Financial Information |
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Page |
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Item
1. |
Financial
Statements |
|
|
|
|
Condensed Consolidated
Balance Sheets – September 30, 2014 (Unaudited) and December 31, 2013 |
|
4 |
|
|
Condensed Consolidated
Statements of Operations – Three and Nine Month Ended September 30, 2014 and 2013 (Unaudited) |
|
5 |
|
|
Condensed Consolidated
Statements of Cash Flows – Nine Month Ended September 30, 2014 and 2013 (Unaudited) |
|
6 |
|
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Notes to Condensed
Consolidated Financial Statements (Unaudited) |
|
7 |
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
|
18 |
|
Item
3. |
Quantitative
and Qualitative Disclosures about Market Risk |
|
23 |
|
Item
4. |
Controls and
Procedures |
|
23 |
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Item
5. |
Other
Information |
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24 |
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Part
II |
Other Information |
|
24 |
|
Item
1. |
Legal Proceedings |
|
24 |
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Item
1A. |
Risk Factors |
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24 |
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Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
|
24 |
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Item
3. |
Defaults Upon
Senior Securities |
|
24 |
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Item
4. |
Mine Safety
Disclosures |
|
24 |
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Item
5. |
Other Information |
|
24 |
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Item
6. |
Exhibits |
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24 |
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Signatures |
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25 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q (the
“Report”) contains “forward looking statements” within the meaning of applicable securities laws. Such
statements include, but are not limited to, statements with respect to the Company’s beliefs, plans, strategies, objectives,
goals and expectations, including expectations about the future financial or operating performance of the Company and its projects,
capital expenditures, capital needs, government regulation of the industry, environmental risks, limitations of insurance coverage,
and the timing and possible outcome of regulatory matters, including the granting of patents and permits. Words such as “expect”,
“anticipate”, “intend”, “attempt”, “may”, “will”, “plan”,
“believe”, “seek”, “estimate”, and variations of such words and similar expressions are intended
to identify such forward looking statements. These statements are not guarantees of future performance and involve assumptions,
risks and uncertainties that are difficult to predict.
These statements are based on and were
developed using a number of factors and assumptions including, but not limited to: stability in the U.S. and other foreign economies;
stability in the availability and pricing of raw materials, energy and supplies; stability in the competitive environment; the
continued ability of the Company to access cost effective capital when needed; and no unexpected or unforeseen events occurring
that would materially alter the Company’s current plans. All of these assumptions have been derived from statements
currently available to the Company including information obtained by the Company from third party sources. Although management
believes that these assumptions are reasonable, these assumptions may prove to be incorrect in whole or in part. As a result of
these and other factors, actual results may differ materially from those expressed, implied or forecasted in such forward looking
statements, which reflect the Company’s expectations only as of the date hereof.
Factors
that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking
statements include risks associated with general business, economic, competitive, political and social uncertainties; risks associated
with changes in project parameters as plans continue to be refined; risks associated with failure of plant, equipment or processes
to operate as anticipated; risks associated with accidents or labor disputes; risks associated in delays in obtaining governmental
approvals or financing, or in the completion of development or construction activities; risks associated with financial leverage
and the availability of capital; risks associated with the price of commodities and the inability of the Company to control commodity
prices; risks associated with the regulatory environment within which the Company operates; risks associated with litigation including
the availability of insurance; and risks posed by competition. These and other factors that could cause actual results or outcomes
to differ materially from the results expressed, implied or forecasted by the forward looking statements are discussed in more
detail in the section entitled “Risk Factors” in Part IA of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2013 as filed with the Securities and Exchange Commission on June 4, 2014.
The Company does not intend to, and
the Company disclaims any obligation to, update any forward looking statements, whether written or oral, or whether as a result
of new information, future events or otherwise, except as required by law.
Unless otherwise noted, references in
this report the “Company,” “we,” “our” or “us” means Plastic2oil, Inc., a Nevada
corporation.
PART I –
FINANCIAL INFORMATION
Plastic2Oil, Inc. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013 |
|
|
|
ASSETS |
| | |
| | |
|
| September 30, 2014 | |
| December 31, 2013 | |
|
| (UNAUDITED) | |
| | |
|
| | |
| | |
CURRENT ASSETS |
| | |
| | |
Cash and cash equivalents |
$ | 20,391 | |
$ | 203,949 | |
Cash held in attorney trust (Note 2) |
| 5,827 | |
| 12,637 | |
Restricted cash (Note 2) |
| 100,197 | |
| 100,122 | |
Accounts receivable, net of allowance of $0 (2013 - $91,710) |
| 40,021 | |
| 80,814 | |
Inventories (Note 4) |
| 110,793 | |
| 147,120 | |
Prepaid expenses and other current assets |
| 49,563 | |
| 76,305 | |
TOTAL CURRENT ASSETS |
| 326,792 | |
| 620,947 | |
|
| | |
| | |
PROPERTY, PLANT AND EQUIPMENT, NET |
| 6,382,728 | |
| 7,184,008 | |
|
| | |
| | |
Deposits (Note 2) |
| 1,483,987 | |
| 1,484,453 | |
|
| | |
| | |
TOTAL ASSETS |
$ | 8,193,507 | |
$ | 9,289,408 | |
|
| | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| | |
| | |
|
| | |
| | |
CURRENT LIABILITIES |
| | |
| | |
Accounts payable |
$ | 1,866,569 | |
$ | 1,510,611 | |
Accrued expenses |
| 1,392,801 | |
| 851,532 | |
Customer advances |
| — | |
| 26,120 | |
Accrued lease obligation – current (Note 10) |
| 71,929 | |
| 83,466 | |
Long-Term Debt, mortgage payable and capital leases – current (Note 9) |
| 657,389 | |
| 23,618 | |
Other current liabilities |
| — | |
| — | |
TOTAL CURRENT LIABILITIES |
| 3,988,688 | |
| 2,495,347 | |
|
| | |
| | |
LONG-TERM LIABILITIES |
| | |
| | |
Asset retirement obligations (Note 2) |
$ | 30,988 | |
$ | 30,306 | |
Accrued lease obligation (Note 10) |
| 330,799 | |
| 383,388 | |
Long-Term Debt, mortgage payable and capital leases (Note 9) |
| 2,649,423 | |
| 2,532,079 | |
TOTAL LONG-TERM LIABILITIES |
| 3,011,210 | |
| 2,945,773 | |
|
| | |
| | |
TOTAL LIABILITIES |
| 6,999,898 | |
| 5,441,120 | |
|
| | |
| | |
STOCKHOLDERS' EQUITY |
| | |
| | |
Preferred stock, Series B, par $0.001; 2,300,000 shares authorized, convertible into 16,100,000 shares of Common Stock, 0 and 2,204,100 shares issued and outstanding as of September 30, 2014 and December 31, 2013 |
| — | |
| 2,204 | |
|
| | |
| | |
Common stock, par $0.001; 250,000,000 (2013-150,000) authorized, 116,861,535 shares issued and outstanding (2013 – 90,692,243) |
| 116,862 | |
| 90,692 | |
Preferred stock, Series A, par $0.001; 1,000,000 authorized, 1,000,000 shares issued and outstanding |
| — | |
| 1,000 | |
Additional paid in capital |
| 66,377,099 | |
| 64,872,659 | |
Accumulated deficit |
| (65,300,352 | ) |
| (61,118,267 | ) |
TOTAL STOCKHOLDERS' EQUITY |
| 1,193,609 | |
| 3,848,288 | |
|
| | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | 8,193,507 | |
$ | 9,289,408 | |
|
| | |
| | |
The accompanying notes
are an integral part of the condensed consolidated financial statements. |
Plastic2Oil, Inc. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 |
(UNAUDITED) |
| |
For the Three Months Ended September 30, | |
For the Nine Months Ended September 30, |
| |
2014 | |
2013 | |
2014 | |
2013 |
| |
| |
| |
| |
|
Sales | |
| | | |
| | | |
| | | |
| | |
P2O | |
$ | 34,599 | | |
$ | 277,276 | | |
$ | 59,672 | | |
$ | 473,757 | |
Other | |
| 8,042 | | |
| 24,999 | | |
| 8,042 | | |
| 75,231 | |
Total sales | |
| 42,641 | | |
| 302,275 | | |
| 67,714 | | |
| 548,988 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| | | |
| | | |
| | | |
| | |
P2O | |
| 29,391 | | |
| 263,590 | | |
| 53,195 | | |
| 514,350 | |
Other | |
| 2,017 | | |
| 9,209 | | |
| 2,146 | | |
| 27,384 | |
Total cost of sales | |
| 31,408 | | |
| 272,799 | | |
| 55,341 | | |
| 541,734 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 11,233 | | |
| 29,476 | | |
| 12,373 | | |
| 7,254 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling general and administrative expenses | |
| | | |
| | | |
| | | |
| | |
Selling general and administrative- Professional Fees | |
| 218,511 | | |
| 201,063 | | |
| 1,182,123 | | |
| 263,073 | |
Selling general and administrative- Compensation | |
| 617,594 | | |
| 2,291,366 | | |
| 1,062,324 | | |
| 4,538,980 | |
Selling general and administrative- Other | |
| 129,922 | | |
| 236,460 | | |
| 874,163 | | |
| 1,979,272 | |
Depreciation of property, plant and equipment and accretion of long-term liability | |
| 256,749 | | |
| 284,513 | | |
| 787,674 | | |
| 662,046 | |
Research and development expenses | |
| 4,654 | | |
| 107,643 | | |
| 20,999 | | |
| 365,289 | |
Total operating expenses | |
| 1,227,430 | | |
| 3,121,045 | | |
| 3,927,283 | | |
| 7,808,660 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,216,197 | ) | |
| (3,091,569 | ) | |
| (3,914,910 | ) | |
| (7,801,406 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expenses | |
| — | | |
| | | |
| | | |
| | |
Gain (Loss) from disposal of assets | |
| 3,223 | | |
| — | | |
| (11,549 | ) | |
| — | |
Interest income (expense), net | |
| (104,447 | ) | |
| (15,264 | ) | |
| (306,107 | ) | |
| (10,803 | ) |
Other income, net | |
| (10,966 | ) | |
| 5,960 | | |
| (10,988 | ) | |
| 23,526 | |
Total other expenses | |
| (112,190 | ) | |
| (9,304 | ) | |
| (328,644 | ) | |
| 12,723 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (1,328,297 | ) | |
| (3,100,873 | ) | |
| (4,243,464 | ) | |
| (7,788,683 | ) |
| |
| | | |
| | | |
| | | |
| | |
Current and future income tax expense (Note 8) | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Net loss from continuing operations | |
| (1,328,387 | ) | |
| (3,100,873 | ) | |
| (4,243,554 | ) | |
| (7,788,683 | ) |
Net income (loss) from discontinued operations (note 15) | |
| (82,040 | ) | |
| (952,057 | ) | |
| 61,469 | | |
| (2,034,483 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (1,410,427 | ) | |
$ | (4,052,930 | ) | |
$ | (4,182,085 | ) | |
$ | (9,823,166 | ) |
| |
| | | |
| | | |
| | | |
| | |
Deemed Dividends | |
| — | | |
| — | | |
| (1,713,117 | ) | |
| — | |
Net loss attributable to common shareholders | |
| 1,410,427 | | |
| (4,052,930 | ) | |
| (5,895,200 | ) | |
| (9,823,166 | ) |
| |
| | | |
| | | |
| | | |
| | |
Earnings (loss) per share | |
| | | |
| | | |
| | | |
| | |
Basic and dilutive - from continuing operations | |
$ | (0.01 | ) | |
$ | (0.03 | ) | |
$ | (0.04 | ) | |
$ | (0.09 | ) |
Basic and dilutive - from discontinued operations | |
| ** | | |
$ | (0.01 | ) | |
| ** | | |
$ | (0.02 | ) |
Basic and dilutive per share | |
$ | (0.01 | ) | |
$ | (0.04 | ) | |
$ | (0.04 | ) | |
$ | (0.11 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic and dilutive (Note 2) | |
| 115,130,943 | | |
| 90,270,744 | | |
| 102,150,000 | | |
| 90,028,406 | |
| |
| | | |
| | | |
| | | |
| | |
** Less than $.01 | |
| | | |
| | | |
| | | |
| | |
The accompanying notes
are an integral part of the condensed consolidated financial statements. |
| |
| |
|
Plastic2Oil, Inc. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 |
(UNAUDITED) |
| |
For the Nine Months Ended
September 30, |
| |
2014 | |
2013 |
| |
| |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss from continuing operations | |
$ | (4,243,554 | ) | |
| (7,788,683 | ) |
Net income (loss) from discontinued operations | |
| 61,469 | | |
| (2,034,483 | ) |
Items not affecting cash: | |
| | | |
| | |
Depreciation of property plant and equipment and accretion of long-term liability | |
| 650,252 | | |
| 702,209 | |
Accretion of discount on secured senior debt | |
| 135,500 | | |
| 5,170 | |
Other income | |
| 1,392 | | |
| (12,355 | ) |
Accrued interest expense | |
| 268,647 | | |
| 10,000 | |
Non-cash stock based compensation | |
| 914,558 | | |
| 1,745,306 | |
Write-off of property plant and equipment | |
| 63,610 | | |
| | |
Total non-cash items from continuing operations | |
| 2,033,959 | | |
| 2,450,330 | |
Non-cash items impacting discontinued operations | |
| — | | |
| 1,238,601 | |
Working capital changes: | |
| | | |
| | |
Cash held in attorney trust | |
| 6,810 | | |
| 141,756 | |
Accounts receivable | |
| 14,673 | | |
| 131,388 | |
Recovery of uncollectible accounts | |
| — | | |
| 12,000 | |
Inventories | |
| 36,327 | | |
| (238,379 | ) |
Prepaid expenses and other current assets | |
| 26,742 | | |
| 282,360 | |
Accounts payable | |
| 394,586 | | |
| (693,394 | ) |
Accrued expenses | |
| 541,359 | | |
| (134,011 | ) |
Other long-term liabilities and customer advances | |
| — | | |
| (170 | ) |
Total working capital changes: | |
| 1,020,497 | | |
| (498,450 | ) |
| |
| | | |
| | |
NET CASH PROVIDE BY OPERATING ACTIVITIES | |
| (1,127,629 | ) | |
| (6,632,685 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Property, plant and equipment additions | |
| (10,584 | ) | |
| (1,544,341 | ) |
Deposits for property, plant and equipment | |
| — | | |
| (645,448 | ) |
Proceeds from sale of property,plant & equipment | |
| 102,374 | | |
| — | |
Changes attributable to discontinued operations | |
| (64,125 | ) | |
| — | |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| 27,665 | | |
| (2,189,789 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Preferred Stock – Series B proceeds, net | |
| — | | |
| 3,998,292 | |
Proceeds from the issuance of senior secured notes | |
| | | |
| 3,000,000 | |
Proceeds from the issuance of short term notes | |
| 346,895 | | |
| | |
Repayment of Debt | |
| (10,584 | ) | |
| | |
Proceeds from exercise of warrants | |
| 40,000 | | |
| | |
Proceeds from sale of common stock and warrants, Net | |
| 540,095 | | |
| — | |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 916,406 | | |
| 6,998,292 | |
| |
| | | |
| | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| (183,558 | ) | |
| (1,824,182 | ) |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 203,949 | | |
| 3,965,720 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
| 20,391 | | |
| 2,141,538 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information | |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Cash paid for interest | |
$ | 13,979 | | |
$ | 16,042 | |
| |
| | | |
| | |
Schedule of Non-Cash Investing and Financing Activities | |
| | | |
| | |
Settlement of accounts payable with the issuance of common stock | |
$ | 21,540 | | |
$ | — | |
The
accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION
Plastic2Oil, Inc. (the “Company”)
was originally incorporated as 310 Holdings, Inc. (“310”) in the State of Nevada on April 20, 2006. 310
had no significant activity from inception through 2009. In April 2009, John Bordynuik, the Company’s former CEO
and current Chief of Technology, purchased 63% of the issued and outstanding shares of 310. During 2009, the Company
changed its name to JBI, Inc. and its main business operation. In August 2014, the Company changed its name to Plastic2Oil, Inc.
The Company’s Plastic2Oil, or P2O, process is a combination of proprietary technologies and processes developed by the Company
which converts waste plastics and waste oil into fuel. As of the date of this Report, the Company has built three processors
which are located at its Niagara Falls, NY facility (the “Niagara Falls Facility”).
In August, 2009, the Company acquired
Javaco, Inc. (“Javaco”), a distributor of electronic components, including home theater and audio video products. In
July 2012, the Company closed Javaco and sold substantially all its inventory and fixed assets. The operations of Javaco
have been classified as discontinued operations for all periods presented (see Note 15).
In September 2009, the Company acquired
Pak-It, LLC (“Pak-It”). Pak-It operated a bulk chemical processing, mixing, and packaging facility. It
also developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. During
2011, the Company initiated a plan to sell certain operating assets of Pak-It and subsequently sold Pak-It in February 2012, with
an effective date of January 1, 2012. The operations of Pak-It have been classified as discontinued operations for all
periods presented (see Note 15).
In
December 2010, the Company entered into a twenty-year lease for a recycling facility in Thorold, Ontario. During 2013, the Company determined that it would no longer operate the facility and shut down all operations. The assets and
operations related to the recycling facility have been reclassified as discontinued operations for all periods presented (see Note
15 ).
The Company shut down its fuel production
late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components of its processors. Management
estimated that the repair of the processors will require the expenditure of between $175,000 and $200,000. As of the date of this
report, the Company lacked the working capital or access to bank credit to make these repairs. The Company is reviewing its financing
options, including the sale of shares of its common stock or other securities, in order to allow it to obtain sufficient funds
to make the required repairs and resume operation of its processors. Management currently anticipates that the processors will
remain idle at least until the first quarter of 2015. During the idle period, the Company significantly reduced its headcount by
furloughing its operations personnel but retained a small team to perform general repairs and maintenance on the processors. Once
the processors are repaired, the Company expects a small increase in its headcount in order to resume normal operations.
On July 29, 2014, a certificate of withdrawal relating
to the Company’s Series B Convertible Preferred Stock was filed with the Secretary of State of Nevada. The Series B Convertible
Preferred Stock was automatically converted into shares of Common Stock during the nine-month ended September 30, 2014.
On July 31, 2014, a charter amendment to effect the
name change to Plastic2Oil, Inc. was filed with the Secretary of State of Nevada.
Going Concern
These condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US
GAAP"), which contemplates continuation of the Company as a going concern which assumes the realization of assets and satisfaction
of liabilities and commitments in the normal course of business. The Company has experienced negative cash flows from operations
since inception, and has a working capital deficiency of $3,661,896 and an accumulated deficit of $65,300,352 as of September 30,
2014. Management’s assessment of potential liquidity problems, working capital issues and negative cash flows from operations
raise substantial doubt about its ability to continue as a going concern and to operate in the normal course of business. To date,
the Company has funded its activities primarily from equity financings and, to a much lesser extent, debt financing and cash
from operations. A portion of such financings was funded by officers and directors of the Company. (See Note 13).
The Company will continue to require
substantial funds to resume fuel production and to continue the expansion of its P2O business in order to achieve significant commercial
production, and to significantly increase sales and marketing efforts. Management’s plans in order to meet its operating
cash flow requirements include financing activities such as private placements of its common and/ or preferred stock and issuances
of debt and/ or convertible debt instruments.
While the Company believes that it will
be successful in obtaining the necessary financing to fund its operations, meet regulatory requirements and achieve commercial
production goals, there are no assurances that the Company will be successful in obtaining such financing or that the Company will
succeed in its future operations. The condensed consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company
be unable to continue in existence.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with US GAAP. as promulgated by the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S
Securities and Exchange Commission (“SEC”) for interim financial information. The unaudited condensed consolidated
financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for
a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily
indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited
condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and Results
of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Basis of Consolidation
The condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil of NY#1, LLC, JBI (Canada) Inc.,
JBI CDE Inc., JBI Re One Inc., JBI Re#1 Inc., Plastic2Oil Marine Inc., Javaco, Pak-It and Plastic2Oil Land Inc. All
intercompany transactions and balances have been eliminated on consolidation. Amounts in the condensed consolidated
financial statements are expressed in US dollars. Javaco and Pak-It have also been consolidated; however, as mentioned earlier,
their operations are classified as discontinued operations (See Note 15).
Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include
amounts for impairment of property, plant and equipment, estimating reserves and determining accruals related to discontinued operations,
projecting future cash flows from property, plant and equipment, carrying value of inventory, share based compensation, asset retirement
obligations, inventory obsolescence, accrued liabilities, accounts receivable exposures, and the discount rate used to calculate
the present value of the accrued lease liability.
Cash and Cash
Equivalents
The Company considers all highly liquid
investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
Restricted cash relates to cash on deposit,
which secures the Company’s letter of credit with a banking institution, related to a fuel sales bond.
Cash Held in Attorney Trust
The amount held in trust represents
retainer payments the Company has made to law firms which were being held on its behalf for the payment of future services.
Accounts Receivable
Accounts receivable represent unsecured
obligations due from customers under terms requesting payments upon receipt of invoice up to thirty days, depending on the customer. Accounts
receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible
accounts. Customer balances with invoices beyond agreed upon terms are considered delinquent. Payments of accounts
receivable are applied to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest
unpaid invoice.
The allowance for uncollectible accounts
reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and
the credit standing of individual customers. The allowances for uncollectible accounts as of September 30, 2014
was $Nil and as of December 31, 2013 was $91,710.
Inventories
Inventories, which consist primarily
of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market. The Company
uses an average costing method in determining cost. Inventories are periodically reviewed for use and obsolescence,
and adjusted as necessary.
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 period 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 when events or circumstances change in the business or the use of the long-lived asset
that indicate that the carrying value of such assets may not be recoverable. 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. (See Note 15).
Asset Retirement Obligation
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 balance sheet and is depreciated over the asset’s estimated useful
life and is included in depreciation and accretion expense on the condensed 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 condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation.
As of September 30, 2014 and December
31, 2013, the Company has accrued asset retirement obligations of $30,988 and $30,306, respectively. These costs include
disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure.
Environmental Contingencies
The Company records environmental liabilities
at their undiscounted amounts on the condensed consolidated 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. The Company’s
estimates are subject to revision in future periods based on actual costs or new circumstances. The Company capitalizes costs that
benefit future periods and recognizes a current period charge in operation and maintenance expense when clean-up efforts do not
benefit future periods.
The Company evaluates 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 the Company’s liability. Recovery is evaluated based on the creditworthiness
or solvency of the third party, among other factors. When recovery is assured, the Company records and reports an asset separately
from the associated liability on the condensed consolidated 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 the Company has possession of the equipment,
all payments made to these vendors are classified as deposits on assets. Deposits were $1,483,987 and $1,484,453 as
of September 30, 2014 and December 31, 2013, respectively.
Leases
The Company has entered into various
leases for 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-term and long-term debt obligations, in accordance with the lease agreement.
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 a customer takes 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 the customer has arranged for transportation of the fuel
and the sales price either has been set in its 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 (e.g. Naphtha, Fuel Oil No. 6 or Fuel Oil No. 2 ).
Shipping and Handling Costs
The
Company’s shipping and handling costs were $16,475 and $117,370 for the nine-month periods ended September 30, 2014 and 2013,
respectively. The Company’s shipping and handling costs were $4,455 and $35,668 for the three-month periods ended September
30, 2014 and 2013, respectively. Shipping and handling costs are capitalized to inventory and expensed to cost of sales when
the related inventory is sold for all periods presented .
Advertising costs
The
Company expenses advertising costs as incurred. Advertising costs were $490 and $9,655 for the nine-month periods ended September
30, 2014 and 2013, respectively. The Company’s advertising costs were $Nil and $3,950 for the three-month periods ended September
30, 2014 and 2013, respectively. These expenses are included in selling, general and administrative expenses in the condensed consolidated
statements of operations .
Research and Development
The
Company is engaged in research and development activities. Research and development costs are charged as an operating expense of
the Company as incurred. For the nine month periods ended September 30, 2014 and 2013, the Company expensed $20,999 and $365,289,
respectively, for research and development costs. The Company’s research and development costs were $4,654 and $107,643
for the three-month periods ended September 30, 2014 and 2013, respectively. 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 condensed consolidated financial
statements have been translated into U.S. dollars in accordance with FASB 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.
Amounts included in the condensed consolidated
statement of operations have been translated using the average exchange rate for the periods. For the nine months ended September
30, 2014 and 2013, the Company recognized foreign exchange losses of $3,852 and $7,641, respectively. The Company’s
foreign exchange losses were $385 and gains of $(89) for the three-month periods ended September 30, 2014 and 2013, respectively.
These amounts are included as selling, general and administrative expenses in the condensed consolidated statements of operations.
Accounting for Uncertainty in Income Taxes
The Company applies the provisions
of ASC Topic 740-10-25, Income Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with
respect to the accounting for uncertainty of income tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty
in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic
740-10-25 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. As of September 30, 2014, tax years since December 31, 2011 remain open for IRS audit. The Company has received
no notice of audit from the Internal Revenue Service for any of the open tax years.
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. For the nine month and three month periods ended September 30, 2014 and 2013, potential dilutive common
stock equivalents consisted of 11,850 shares underlying common stock warrants, and 5,345,334 shares underlying stock options, which
were not included in the calculation of the diluted loss per share .
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 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 (P2O), which includes our fuel sales, and Data Recovery and Migration, our magnetic tape reading
segment. Our chief operating decision maker is the Company’s Chief Executive Officer. (See Note 14).
Concentrations and Credit Risk
Financial instruments which potentially
expose the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The
Company’s policy is to place our cash and cash equivalents 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
The carrying amounts of cash and cash
equivalents, cash held in attorney trust, restricted cash, accounts receivable, accounts payable, accrued expenses, and current
portion of mortgage and capital leases approximate their fair values because of the short-term nature of these items.
Summary
The Company believes the above discussion
addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition
and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of
the need to make estimates about the effect of matters that are inherently uncertain.
NOTE 3 - RECENTLY ISSUED ACCOUNTING
STANDARDS AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
There are no recently adopted accounting
pronouncements that impact the Company’s financial statements.
Recently Issued Accounting Pronouncements
In April 2014, the 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
represent 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 the Company’s 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, NET
Inventories consist of the following
as of September 30, 2014 and December 31, 2013:
|
|
September 30,
2014 |
|
December 30,
2013 |
|
|
|
|
|
Raw materials |
|
$ |
385,064 |
|
|
$ |
392,147 |
|
Finished goods |
|
|
52,255 |
|
|
|
81,499 |
|
Obsolescence reserve |
|
|
(326,526 |
) |
|
|
(326,526 |
) |
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
110,793 |
|
|
$ |
147,120 |
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following
as of September 30, 2014 and December 31, 2013:
September 30, 2014 |
|
|
Cost |
|
|
|
Accumulated
Depreciation |
|
|
Net Book
Value |
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
218,053 |
|
|
|
$ (10,701 |
) |
|
$ 207,352 |
Machinery and office equipment |
|
|
5,507,232 |
|
|
|
(1,992,972 |
) |
|
3,514,260 |
Furniture and fixtures |
|
|
16,368 |
|
|
|
(14,460 |
) |
|
1,908 |
Land |
|
|
273,118 |
|
|
|
— |
|
|
273,118 |
Asset retirement obligation |
|
|
27,745 |
|
|
|
(4,162 |
) |
|
23,583 |
Office and industrial buildings |
|
|
1,433,523 |
|
|
|
(162,483 |
) |
|
1,271,040 |
Fixed assets under capital lease |
|
|
108,317 |
|
|
|
(44,173 |
) |
|
64,144 |
Construction in process |
|
|
1,027,323 |
|
|
|
|
|
|
1,027,323 |
|
|
$ |
8,611,679 |
|
|
|
$ (2,228,951 |
) |
|
$6,382,728 |
December 31, 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 |
|
Fixed assets under capital lease |
|
|
108,317 |
|
|
|
(32,567 |
) |
|
|
75,749 |
|
Construction in process |
|
|
1,027,323 |
|
|
|
— |
|
|
|
1,027,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,868,941 |
|
|
|
$(1,684,933 |
) |
|
|
$7,184,008 |
|
At September 30, 2014 and 2013, machinery
and equipment with a cost of $108,317 and accumulated amortization of $44,173 and $28,699, respectively, were under capital lease.
For the nine-month period ended September
30, 2014, total depreciation expense consists of $Nil included in Cost of Sales and depreciation of property, plant and equipment
and accretion of long-term liability of $650,252 is included in operating expenses.
For the nine-month period ended September
30, 2013, total depreciation expense consists of $13,564 included in Cost of Sales and depreciation of property, plant and equipment
and accretion of long-term liability of $656,876 is included in operating expenses.
Depreciation expense recognized in the
condensed consolidated statements of operations was included in the following captions:
|
|
For the nine months periods ended |
|
|
September 30, |
Depreciation Expense |
|
2014 |
|
2013 |
|
|
|
|
|
Depreciation expense and accretion of the asset retirement obligation included in operating expenses |
|
$ |
650,252 |
|
|
|
$ 656,876 |
|
Depreciation expense included in cost of sales |
|
|
— |
|
|
|
13,564 |
|
Depreciation expense included in net loss from discontinued operations |
|
|
— |
|
|
|
31,769 |
|
Total depreciation of property, plant and equipment and accretion of the asset retirement obligation |
|
$ |
650,252 |
|
|
|
$ 702,209 |
|
|
|
|
|
|
|
|
|
|
|
|
For the three month periods ended |
|
|
|
September 30, |
|
Depreciation Expense |
|
|
2014 |
|
|
2013 |
|
Depreciation expense and accretion of the asset retirement obligation included in operating expenses |
|
$ |
120,160 |
|
$ |
279,343 |
|
Depreciation expense included in cost of sales |
|
|
|
|
|
4,211 |
|
Depreciation expense included in net loss from discontinued operations |
|
|
|
|
|
11,535 |
|
Total depreciation of property, plant and equipment and accretion of the asset retirement obligation |
|
$ |
120,160 |
|
$ |
295,089 |
|
|
|
|
|
|
|
|
|
NOTE 6 – SHORT-TERM NOTE RECEIVABLE
Upon consummation of the sale of Pak-It,
the Company entered into a long-term note receivable (the “Pak-It Note”) with the buyer (“the Buyer”) of
Pak-It in the amount of $500,000. The Pak-It Note was recorded as of the date of closing at the fair value determined
by discounting the face value of the Pak-It Note using 7%, based on factors considered by the Company at the time of recording
the Pak-It Note. Interest income is amortized into the value of the Pak-It Note during the life of the Pak-It Note and
is recognized as interest income throughout the term of the Pak-It Note, which was due on July 1, 2013. Interest income recognized
on the Pak-It Note for the nine-month periods ended September 30, 2014 and 2013 was $Nil and $12,278, respectively. Interest
income recognized on the Pak-It Note for the three month periods ended September 30, 2014 and 2013 was $Nil and $ Nil, respectively.
Cancellation of Promissory note
On February 7, 2014, the Company accepted
a cash payment of $200,000 in settlement of the $500,000 Pak-It Note. In connection with the termination of the Pak-It Note, the
Company and the Buyer executed a mutual general release of claims.
Prior to cancellation of the Pak-It
Note, the Pak-It Note matured on July 1, 2013 but remained unpaid by the Buyer. 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 (see Note 15). The final termination
payment of $200,000 was recorded as a bad debt recovery and included in income from discontinued operations for the nine months
ended September 30, 2014.
NOTE 7 – RESTRICTED CASH AND LETTER OF CREDIT
|
|
|
September 30, 2014 |
|
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
Restricted Cash securing $100,000 Letter of Credit |
|
$ |
100,197 |
|
|
$ |
100,122 |
|
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 held by this institution and was not utilized
at any point during the three or nine months periods ended September 30, 2014. Restricted cash consists of $100,000
plus interest earned on the balance.
NOTE 8 - INCOME TAXES
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. As of September 30, 2014 and 2013,
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 $4,243,554 pre-tax loss from continuing operations for the nine months ended September
30, 2014. The Company had no income tax expense on its $1,328,387 pre-tax loss from continuing operations for the three months
ended September 30, 2014 .
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 September 30, 2014, 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, 2011
through December 31, 2013 are open tax years.
NOTE 9 – LONG-TERM
DEBT, MORTGAGE PAYABLE AND CAPITAL LEASES
|
|
September 30, 2014 |
|
December 30,
2013 |
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. |
|
|
2,476 |
|
|
|
5,556 |
|
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. |
|
|
7,475 |
|
|
|
11,201 |
|
Equipment capital lease (provided by a related party) bears interest at 3.9% per annum, secured by the equipment and matures on May 10, 2015, repayable in monthly installments starting January 2015 approximately $3,800. |
|
|
18,822 |
|
|
|
18,140 |
|
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. (See Note 13) |
|
|
2,647,890 |
|
|
|
2,240,100 |
|
Unsecured Demand Promissory Note (provided by a related party) bearing interest of 4% per annum |
|
|
349,449 |
|
|
|
0 |
|
|
|
|
3,306,812 |
|
|
|
2,555,697 |
|
Less: current portion |
|
|
657,389 |
|
|
|
23,618 |
|
|
|
$ |
2,649,423 |
|
|
$ |
2,532,079 |
|
Continuity of Secured Promissory Notes |
|
September 31, 2014 |
|
December 31, 2013 |
Face value of August 29, 2013 secured note payable |
|
$ |
1,000,000 |
|
|
$ |
1,000,000 |
|
Face value of September 30, 2013 secured note payable |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Total face value of promissory notes payable |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
Discount on August 29, 2013 secured note payable |
|
|
(310,200 |
) |
|
|
(310,200 |
) |
Discount on September 30, 2013 secured note payable |
|
|
(600,400 |
) |
|
|
(600,400 |
) |
Accretion of discount on secured notes payable |
|
|
187,290 |
|
|
|
50,700 |
|
Interest on secured notes payable |
|
|
371,200 |
|
|
|
100,000 |
|
Carrying value of Secured Promissory Notes |
|
$ |
2,647,890 |
|
|
$ |
2,240,100 |
|
The following annual payments of principal
are required over the next five years in respect of these mortgages and capital leases:
Twelve Months Ended September 30, |
|
Annual Payments |
|
2015 |
|
|
$ |
657,389 |
|
|
2016 |
|
|
|
1,533 |
|
|
2017 |
|
|
|
— |
|
|
2018 |
|
|
|
2,647,890 |
|
|
|
|
|
|
|
|
|
Total repayments |
|
|
$ |
3,306,812 |
|
NOTE 10 – COMMITMENTS
AND CONTINGENCIES
Commitments
Plastic2Oil Marine, Inc., one of the
Company’s subsidiaries, which is currently not operating, is a party to a consulting services contract entered into in 2010
with a company owned by Mr. Richard Heddle, who was appointed CEO of the Company in August 2013. 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 September
30, 2014, there was no currently installed marine vessel processors under the terms of the contract.
As of September 30, 2014, the Company
has committed to purchase certain pieces of key machinery from vendors related to the future expansion of its 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 its premises in Thorold,
Ontario, which was previously used in the operation JBI (Canada), Inc. doing business as Regional Recycling of Niagara ("RRON").
As of September 30, 2014, 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 (see Note 15). 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 of 2013, the Company assessed its options
with the facility, including potential sublease, but determined that a sublease of the facility was not permitted by the lease
and decided to cease use of the premises as of September 30, 2013. Accordingly, the Company 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 $69,843 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 $143,509 for the nine-month period ended September
30, 2014 (See Note 17).
All future payments required under various
agreements are summarized below:
Fiscal year ending December 31, 2014 |
|
$ |
71,925 |
|
2015 |
|
|
95,900 |
|
2016 |
|
|
95,900 |
|
2017 |
|
|
95,900 |
|
2018 |
|
|
101,542 |
|
Thereafter |
|
|
1,303,117 |
|
Total |
|
$ |
1,764,285 |
|
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 September 30, 2014, 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. Additional briefing was submitted to the Court in support of the motion and, on August 14,
2014, the Court issued a second Order denying the motion. However, the Court has permitted further briefing to be submitted in
support of the motion, and that additional briefing has been submitted. It is anticipated that the Court will once again reconsider
its Order. The Company cannot predict the outcome of the class action litigation 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. Thereafter,
the Court granted plaintiff leave to amend his Complaint, and defendants Bordynuik and Baldwin have renewed their motion to dismiss.
The motion thus renewed 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. Mr. Bordynuik and the Company thereafter filed their Answer to the complaint.
The Company cannot predict the outcome of this matter at this time.
On
August 14, 2013, John Bordynuik, Inc, a Company not affiliated with Mr. J. Bordynuik, Chief of Technology. 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 2013 and October 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 .
As of September 30, 2014, 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
Common Stock and Additional Paid in Capital
A total of 2,204,100 Shares Series B
Convertible Preferred Stock was automatically converted into an aggregate of 15,428,700 shares of Common Stock during the nine-month
ended September 30, 2014.
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 is required to issue a commensurate number of warrants with a three year term
and an exercise price of $0.10. 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 fourteen 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 4.2
million shares of its common stock and warrants to purchase up to an additional 4.2 million shares of its common stock. The closings
occurred between March 17 and April 8, 2014. The purchase price per share was $0.10 and the gross proceeds of $420,000 to the Company
were received as of June 30, 2014. The warrants have a three-year term and an exercise price of $0.10 per share of common stock.
On March 13, 2014, the Company issued
60,000 shares of restricted common stock in satisfaction of $21,540, comprised of accrued and unpaid fees owed to a former consultant.
On May
15, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the
February 19, 2014 consulting agreement to Bespoke Growth Partner’s Inc., Brewer Group Inc., and Greentree Financial
Group Inc. respectively.
On May 16, 2014, the Company’s
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 its Articles of Incorporation to (i) change its 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. A charter amendment to increase the authorized shares of common stock was
filed in the State of Nevada on June 24, 2014. The charter amendment to effect the name change was filed on July 31, 2014.
On
July 11, 2014, the Company issued 25,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 250,000
shares of common stock. The exercise price of the warrants was $0.10 and the Company received $25,000.
On
August 14, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the
February 19, 2014 consulting agreement to Bespoke Growth Partner’s Inc., Brewer Group Inc., and Greentree Financial
Group Inc. respectively.
On August 20, 2014, the Company issued
15,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 150,000 shares of common stock. The exercise
price of the warrants was $0.10 and the Company received $15,000.
On August 26, 2014, the Company issued
17,300 shares of restricted common stock in satisfaction of $2,565, of accrued and unpaid fees owed to a former officer
of the Company.
On
August 26, 2014, the Company issued 13,289 shares of restricted common stock in satisfaction of $1,196, of accrued and
unpaid fees owed to a vendor.
Warrants
Details |
|
Warrant Number |
|
Weighted Average Exercise Price |
|
Weighted Average Remaining Term |
OUTSTANDING, DECEMBER 31, 2013 (i) |
|
|
3,143,500 |
|
|
$ |
0.61 |
|
|
|
3.79 |
|
Issued (ii) |
|
|
9,250,000 |
|
|
|
0.10 |
|
|
|
2.99 |
|
Exercised (iii) |
|
|
(400,000) |
|
|
|
0.10 |
|
|
|
- |
|
Expired (i) |
|
|
(143,500 |
) |
|
|
(2.0) |
|
|
|
-__ |
|
OUTSTANDING, SEPTEMBER 30, 2014 |
|
|
11,850,000 |
|
|
$ |
0.23 |
|
|
|
3.19 |
|
(i) 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
December 31, 2013, 1,854,000 warrants had expired. The remaining 143,500 outstanding warrants expired on February, 26,
2014.
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 per share to the holder of the secured debt (see Note 13). 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.
(ii) On February 19, 2014, and March
26, 2014, the Company entered into Subscription Agreements and Consulting Agreements with three investors in connection with a
private placement of shares of the Company’s common stock and warrants to purchase in aggregate 4.9 million shares of common
stock at $0.10. 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 in aggregate 4.350 million shares of common
stock at $0.10
As of September 30, 2014, the 9,250,000
warrants issued were determined to each have a fair value of $0.0710, totaling a fair value of $656,880. The Company
determined this valuation through use of a binomial pricing model. The assumptions in valuing these Warrants consisted of:
● |
Volatility – between 185.54,% and 176.81%, based on the Company’s historical stock price |
|
|
● |
Risk Free Rate – between 3.28% and 3.40% based on the long-term US Treasury rate |
(iii) On July 11, 2014, the Company issued 25,000 shares
of restricted common stock pursuant to the exercise of warrants to purchase 250,000 shares of common stock. The exercise price
of the warrants was $0.10 and the Company received $25,000.
On
August 20, 2014, the Company issued 15,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 150,000
shares of common stock. The exercise price of the warrants was $0.10 and the Company received $15,000 .
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
Stock Options
There were no options granted during the three and nine months
ended September 30, 2014.
A summary of stock option activity for the nine months ended
September 30, 2014 is as follows:
|
Options Outstanding Stock Options |
|
Weighted- Average Exercise Price |
|
Aggregate Intrinsic Value (1) |
|
Balance outstanding as of December 31, 2013 |
|
|
6,806,000 |
|
|
$ |
1.21 |
|
|
$ |
— |
|
|
Cancelled |
|
|
(650,000) |
|
|
$ |
1.50 |
|
|
$ |
— |
|
|
Expired |
|
|
(810,666 |
) |
|
$ |
0.38 |
|
|
$ |
— |
|
|
Balance outstanding as of September 30, 2014 |
|
|
5,345,334 |
|
|
$ |
1.30 |
|
|
$ |
— |
|
|
Exercisable as of September 30, 2014 |
|
|
2,895,334 |
|
|
$ |
1.25 |
|
|
$ |
— |
|
On May 9, 2014, the Company’s
Chief of Technology returned 650,000 unvested options to allocate more shares in the plan for future staff and directors. For the
three and nine months ended September 30, 2014, the Company recorded compensation (income) expense (included in selling, general
and administrative expense) of 180,337, and 168,237, respectively, related to stock options and restricted stock. The
cancellation of unvested stock options resulted in reversal of prior year’s stock compensation expenses. For the three and
nine months ended September 30, 2013, the Company recorded compensation expense (included in selling, general and administrative
expense) of $965,880 and $1,745,306 respectively, related to stock options and restricted stock.
NOTE 13 – 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, whereby, Mr. Heddle purchased 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 subscription agreement with Mr.
Heddle, for the purchase of a second note (a $2 million principal amount Note), and the issuance of 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.
From
June to October 2014, the Company’s Chief Executive Officer made a series of personal loans to the Company totaling $464,318
to be used for working capital purposes .
(See Note 9)
In June and August 2014, the Company’s
Chief Technology Officer John Bordynuik made payments on behalf of the Company totaling $15,750 for critical operating services.
In March 2013, the Company’s Chief
of Technology, as personal guarantor of a capital lease from Roynat Lease Finance, paid the outstanding obligation in the amount
of $19,928 and personally assumed the lease. (See Note 9)
NOTE 14 – SEGMENT REPORTING
The Company has two operating segments,
Plastic2Oil, or P2O, and Data Recovery & Migration. 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.
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 Significant Accounting Policies.” Intersegment sales are accounted
for at fair value as if sales were to third parties. The following tables show the operations of the Company’s reportable
segments:
Nine Months Ended September 30, 2014 |
|
|
|
Data Recovery & Migration |
|
|
|
P2O |
|
|
|
Total |
|
Sales |
|
$ |
8,042 |
|
|
$ |
59,672 |
|
|
$ |
67,714 |
|
Cost of Sales |
|
|
2,146 |
|
|
$ |
53,195 |
|
|
$ |
55,341 |
|
Total Operating Expenses |
|
$ |
— |
|
|
$ |
1,811,580 |
|
|
$ |
1,811,580 |
|
Income (Loss) from Operations |
|
|
5,896 |
|
|
$ |
(1,775,103) |
|
|
$ |
-
(1,769,207 |
) |
Other Income (Expense) |
|
$ |
— |
|
|
$ |
35,228 |
|
|
$ |
|
|
Net Income (Loss) from Continuing Operations |
|
|
5,896 |
|
|
$ |
(1,810,331) |
|
|
$ |
(1,804,435 |
) |
Total Assets |
|
$ |
— |
|
|
$ |
9,452,785 |
|
|
$ |
9,452,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
— |
|
|
$ |
110,793 |
|
|
$ |
110,793 |
|
Nine Months Ended September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Recovery & Migration |
|
|
Plastic2Oil |
|
|
Total |
|
Sales |
|
$ |
75,231 |
|
|
$ |
473,757 |
|
|
$ |
548,988 |
|
Cost of Sales |
|
$ |
27,384 |
|
|
$ |
514,350 |
|
|
$ |
541,734 |
|
Total Operating Expenses |
|
$ |
- |
|
|
$ |
7,808,660 |
|
|
$ |
7,808,660 |
|
Income (Loss) from Operations |
|
$ |
47,847 |
|
|
$ |
(7,849,253 |
) |
|
$ |
(7,801,406 |
) |
Other Income (Expense) |
|
$ |
- |
|
|
$ |
12,723 |
|
|
$ |
12,723 |
|
Net Income (Loss) from Continuing Operations |
|
$ |
47,847 |
|
|
$ |
(7,836,530 |
) |
|
$ |
(7,788,683 |
) |
Total Assets |
|
$ |
- |
|
|
$ |
12,830,799 |
|
|
$ |
12,830,799 |
|
Accounts Receivable |
|
$ |
- |
|
|
$ |
96,751 |
|
|
$ |
96,751 |
|
Inventories |
|
$ |
- |
|
|
$ |
208,572 |
|
|
$ |
208,572 |
|
Three Months Ended September 30, 2014 |
| |
| Data Recovery & Migration |
| P2O | | |
| Total | |
Sales | |
$ | 8,042 | | |
$ | 34,599 | | |
$ | 42,641 | |
Cost of Sales | |
$ | 2,017 | | |
$ | 29,391 | | |
$ | 31,408 | ) |
Total Operating Expenses | |
$ | — | | |
$ | 653,479 | | |
$ | 653,479 | |
Net Income (Loss) from Continuing Operations | |
$ | 6,025 | | |
$ | (648,271 | ) | |
| (642,246 | ) |
Three Months Ended September 30, 2013 |
|
|
|
Data Recovery & Migration |
|
P2O |
|
|
Total |
|
Sales |
|
$ |
24,999 |
|
|
$ |
277,276 |
|
$ |
302,275 |
|
Cost of Sales |
|
$ |
9,209 |
|
|
$ |
263,590 |
|
$ |
272,799 |
|
Total Operating Expenses |
|
$ |
— |
|
|
$ |
3,121,045 |
|
$ |
3,121,045 |
|
Income (Loss) from Operations |
|
$ |
15,790 |
|
|
|
(3,107,359) |
|
|
(3,091,569) |
|
Other Income (Expense) |
|
$ |
— |
|
|
$ |
(9,304) |
|
$ |
(9,304) |
|
Net Income (Loss) from Continuing Operations |
|
$ |
15,790 |
|
|
$ |
(3,116,663) |
|
$ |
(3,100,873 |
) |
All sales from the Data Recovery &
Migration business were recorded in the United States for the periods ended September 30, 2014 and 2013. The decrease
in fuel revenue in the three months ended September 30, 2014 as compared to the same period in 2013 is due to the Company’s
decision to shut down its production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers
and other components of our processors. For the periods ended September 30, 2014, P2O sales in the United States were $8,042 and
$8,042, respectively, and sales in Canada were $59,672 and $34,599, respectively. For the periods ended September 30,
2013, P2O sales in the United States were $76,576 and $30,420, respectively, and sales in Canada were $397,181 and $246,855, respectively.
P2O assets include intercompany accounts
receivables and the Company headquarters and various machinery and equipment used at the aforementioned sites and at the Niagara
Falls Facility. As of September 30, 2014, total long-lived assets of $5,511,201 and $353,714 were located in the United
States and Canada, respectively
NOTE 15 – DISCONTINUED OPERATIONS
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Javaco |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
PakIt – (Reserve) Recovery for Note Receivable |
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
$ |
(500,000 |
|
Regional Recycling of Niagara |
|
|
(82,040 |
) |
|
$ |
(952,057 |
) |
|
$ |
(138,531) |
|
|
$ |
(952,057 |
) |
Total income (loss) from discontinued operations |
|
$ |
(82,040 |
) |
|
$ |
(952,057 |
) |
|
$ |
61,469 |
|
|
$ |
(2,034,483 |
) |
Pak-It and Javaco
During the nine months ended September
30, 2014, the Company made an assessment of 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 collectability was not assured and the Company
has reserved for the full amount of the note receivable, $500,000 which has been recorded in the discontinued operations in the
condensed consolidated statements of operations.
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.
As of September 30, 2014 and December
31, 2013, no assets related to Javaco remained.
There are no operations of Javaco included
in the condensed consolidated financial statements for the three and nine months ended September 30, 2014.
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 (see 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 (see Note 5); |
● |
The pre-processing cost of plastic at Regional Recycling of Niagara was significant and was a hindrance in the Company becoming profitable on a cost per gallon of fuel basis. |
● |
The Company leases the JBI Recycling Facility in Thorold, Ontario, Canada with terms remaining of up to 17 years. (See Note 11). |
The results of operations from Regional
Recycling of Niagara for nine months ended September 30, 2014 and 2013 have been classified as discontinued operations and
are as follows:
Condensed Statements of Operations
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Revenue |
|
$ |
- |
|
|
$ |
9,978 |
|
|
$ |
- |
|
|
$ |
87,831 |
|
Cost of Sales |
|
|
- |
|
|
|
12,835 |
|
|
|
- |
|
|
|
51,693 |
|
Gross Profit (Loss) |
|
|
- |
|
|
|
(2857) |
|
|
|
- |
|
|
|
36,138 |
|
Operating Expenses |
|
|
82,040 |
|
|
|
63,832 |
|
|
|
138,531 |
|
|
|
684,725 |
|
Other Expense |
|
|
- |
|
|
|
4.855 |
|
|
|
- |
|
|
|
5,383 |
|
Inventory reserve (Note 4) |
|
|
- |
|
|
|
269,903 |
|
|
|
- |
|
|
|
269,903 |
|
Impairment loss on property, plant and equipment (Note 5) |
|
|
- |
|
|
|
173,681 |
|
|
|
- |
|
|
|
173,681 |
|
Lease liability expense (Note 11) |
|
|
- |
|
|
|
436,929 |
|
|
|
- |
|
|
|
436,929 |
|
Loss before Income Taxes |
|
|
(82,040 |
) |
|
|
(1,534,483 |
) |
|
|
(138,531 |
) |
|
|
(952,057 |
) |
Future income tax recovery |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Loss from discontinued operations, net of tax |
|
$ |
(82,040 |
) |
|
$ |
(1,534,483 |
) |
|
$ |
(138,531 |
) |
|
$ |
(952,057 |
) |
NOTE 16 – 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 nine months ended September
30, 2014 and 2013, 100%, and 92.4%, respectively, of total net revenues were generated from four customer and four customers. As
of September 30, 2014, and 2013, three customers, accounted for 100.0%, and 75.2% of accounts receivable. During
the three months ended September 30, 2014 and 2013, 100%, and 96.8%, respectively, of total net revenues were generated from three
customer and four customers.
For the nine month ended September 30,
2014 and 2013, the Company had approximately 35.8% and 33.4%, respectively, of its purchases from five vendors. For
the three month ended September 30, 2014 and 2013, the Company had approximately 50.8% and 33.6%, respectively, of its purchases
from five and three vendors respectively. As of September 30, 2014 and December 31, 2013, these five and three vendors
accounted for 8.0% and 23.5 % of accounts payable, respectively.
NOTE 17 – SUBSEQUENT EVENTS
The Company has evaluated subsequent
events occurring after the balance sheet date and has identified the following:
On October 28, 2014 the Company entered
into Subscription Agreements with two 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 1.25
million shares of its common stock and Warrants to purchase up to an additional 1.25 million shares of its common stock. The closings
occurred on October 28, 2014. The purchase price per share was $0.10 and the gross proceeds to the Company were $125,000. The Warrants
have a three year term, and an exercise price of $0.10 per share of common stock.
Item 2. Management’s Discussion
and Analysis of Financial Conditions and Results of Operations
The following management’s
discussion and analysis (the “MD&A”) of the results of financial condition and operations contains “forward
looking statements” within the meaning of applicable securities laws. Such statements include, but are not limited
to, statements with respect to our beliefs, plans, strategies, objectives, goals and expectations, including expectations about
our future financial or operating performance and our projects, capital expenditures, capital needs, government regulation of the
industry, environmental risks, limitations of insurance coverage, and the timing and possible outcome of regulatory matters, including
the granting of patents and permits. Words such as “expect”, “anticipate”, “intend”,
“attempt”, “may”, “will”, “plan”, “believe”, “seek”, “estimate”,
and variations of such words and similar expressions are intended to identify such forward looking information. These statements
are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.
These statements are based on and
were developed using a number of factors and assumptions including, but not limited to: stability in the U.S. and other foreign
economies; stability in the availability and pricing of raw materials, energy and supplies; stability in the competitive environment;
our continued ability to access cost effective capital when needed; and no unexpected or unforeseen events occurring that would
materially alter our current plans. All of these assumptions have been derived from statements currently available
to us including information obtained by us from third party sources. Although management believes that these assumptions are reasonable,
these assumptions may prove to be incorrect in whole or in part. As a result of these and other factors, actual results may differ
materially from those expressed, implied or forecasted in such forward looking statements, which reflect our expectations only
as of the date hereof.
Factors that could cause actual results
or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking statements include risks
associated with general business, economic, competitive, political and social uncertainties; risks associated with changes in project
parameters as plans continue to be refined; risks associated with failure of plant, equipment or processes to operate as anticipated;
risks associated with accidents or labor disputes; risks associated with delays in obtaining governmental approvals or financing,
or in the completion of development or construction activities; risks associated with financial leverage and the availability of
capital; risks associated with the price of commodities and our inability to control commodity prices; risks associated with the
regulatory environment within which we operate; risks associated with litigation including the availability of insurance; and risks
posed by competition. These and other factors that could cause actual results or outcomes to differ materially from the results
expressed, implied or forecasted by the forward looking statements are discussed in more detail in the section entitled “Risk
Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013
as filed with the Securities and Exchange Commission on June 4, 2014.
We do not intend to, and the Company
disclaims any obligation to, update any forward looking statements, whether written or oral, or whether as a result of new information,
future events or otherwise, except as required by law.
For financial reporting purposes,
we operate two business segments, which are our fuel production business using our P2O solution, and our Data Recovery & Migration
Business. Previously, we operated an electronic and video equipment distribution business, conducted by Javaco, Inc.
(“Javaco”). As of September 30, 2014, no assets related to Javaco remained on the books. For
the three and nine month periods ended September 30, 2014, the operations of Javaco have been classified as discontinued.
Our
P2O business has begun the transition from research and development to a commercial production business. We anticipate that
if we achieve adequate financing, this segment will continue to grow and ultimately will account for substantially all of our revenues
for the remainder of 2014 ,
and periods thereafter. Historically, however, our revenues have been derived primarily from our other segments
and products, including those noted above as discontinued operations.
Plastic2Oil Business
We manufacture processors that produce
fuel products mainly from unsorted, unwashed waste plastics for distribution across a number of markets. We continue to execute
on our business strategy with the goal of becoming a leading North American company that transforms waste plastic into ultra-clean,
ultra-low sulphur fuel.
Currently, we provide environmentally-friendly
solutions through our processors and technologies. Our primary offering is our Plastic2Oil®, or P2O®, solution, which is
our proprietary process that converts waste plastic into fuel through a series of chemical reactions (our “P2O business”).
We collect mainly mixed plastics from commercial and industrial enterprises that generate large amounts of waste plastic for use
in our process.
Generally, this waste plastic would
otherwise be sent to landfills and its disposal potentially can be quite costly for companies. We use this waste plastic as feedstock
to produce Fuel Oil No. 2, Naphtha, and Fuel Oil No. 6 for various uses by our customers. We own and operate our P2O processors
and have the capability to produce and store the fuels at, and ship from, our facilities in Niagara Falls, NY. We sell the fuels
we produce to customers through two main distribution channels, fuel wholesalers and directly to commercial and industrial end-users.
Our P2O processors have evolved into
a modular solution with the completion of processor #3 in 2013. We use third party contract manufacturers for the manufacture of
many of the key modular components of our processors, including the kilns and distillation towers as well as certain other key
components that require specialized machining and fabrication.
Our P2O process is proprietary and converts
waste plastic into fuel through a series of chemical reactions. We developed this process in 2009 and began very limited
commercial production in 2010 following our receipt of a consent order from the New York State Department of Environmental Conservation
(“NYSDEC”) allowing us to commercially operate our first large-scale P2O processor at our Niagara Falls, New York facility. Currently,
we have three fully-permitted operational P2O processors, which are capable of producing Naphtha, Fuel Oil No. 2 and Fuel Oil No.
6, all of which are fuels produced to the specifications published by ASTM. The fully-permitted P2O processor is dedicated
to Research & Development activities. We have two additional processors in the process of assembly offsite. Our P2O process
is capable of producing two by-products, an off-gas similar to natural gas and a petcoke carbon residue. We primarily
use our off-gas product in our operations to fuel the burners in our P2O processors. We sell our fuel products through
two main distribution channels comprised of fuel wholesalers and directly to commercial and industrial end-users.
The
Company had to shut down its production late in the fourth quarter of 2013 due to severe cold weather that caused damage to
condensers and other components of our processors. Management estimates that the repair of the processors will
require the expenditure of between $175,000 and $200,000. As of November 14, 2014 we still lacked the working capital or
access to bank credit to make these repairs. We are reviewing our financing options, including the sale of shares of our
common stock or other securities, in order to allow us to obtain sufficient funds to make the required repairs and resume
operation of our processors. Management currently anticipates that the processors will remain idle at least until the first
quarter of 2015 .
During the idle period, we significantly reduced our headcount by furloughing our operations personnel but retained a small
team to perform general repairs and maintenance on the processors. Once the processors are repaired, we expect a small
increase in our headcount in order to resume normal operations.
Our P2O process accepts mainly unsorted,
unwashed waste plastics. Although many sources of plastic waste are available, we have focused our feedstock sources
on primarily post-commercial and industrial waste plastic. Generally, we believe that this waste stream is more costly
for companies to dispose of, making it more readily available in large quantities and cheaper for us to acquire than other potential
types of feedstock. We believe our P2O process offers a cost-effective solution for businesses that currently
have to pay to dispose of these types of waste.
Currently, we understand that there
are several plastic-to-oil processes operational globally. These facilities employ a wide range of technologies and yield varying
purities of fuel output. We believe that our process has many advantages over other commercially available processes in that our
P2O solution requires a comparatively lesser initial capital investment and yields high-quality, ultra-low sulphur fuel, with no
need for further refinement. Additionally, our process uses comparatively little energy and physical space, which, in our view,
makes it better suited for high-volume production and expansion to multiple sites.
Processor Output
We are currently permitted to feed two
tons, or 4,000 pounds, of waste plastic per hour into each processor by a continuous conveyor belt where it is heated by a burner
that mainly burns off-gases produced from the P2O process. Plastic hydrocarbons are cracked into various shorter hydrocarbon chains
and exit in a gaseous state. Any residue, metals and or non-usable substances remain in the reactor and are periodically removed.
Through our proprietary process Fuel Oil No. 6, Fuel Oil No. 2, and Naphtha are condensed from the reactor through the remainder
of the process. The fuel output is then transferred to storage tanks automatically by the system. Our process is mainly operated
by an automated computer system that controls the conveyor feed rate, system temperatures, off-gas systems and the pumping out
of newly created fuel to storage tanks. The plastic to liquid fuel conversion is approximately 86% by weight. Therefore, 20 tons
of plastic would be processed into approximately 4,100 gallons of fuel. At November 14, 2014, we had three operational processors
at our Niagara Falls, NY facility. One processor was dedicated to Research & Development.
Fuel Produced: The
fuel produced in our processors is ultra-low sulfur fuel and is ready for end-users without the need for further refinement.
Off-gas: Approximately
8-10% of waste plastics fed into the processors are converted to a mixture of hydrogen, methane, ethane, butane and propane gas
(“off-gas”). Once our processors are in a state to begin the P2O process, they use their own off-gas to
fuel the burners in the process.
Residue: There is approximately
2-4% residue from our process, which is petroleum coke or carbon black (“petcoke”) that needs to be removed on a periodic
basis.
Feedstock
Our P2O process primarily uses post-commercial
and industrial waste plastic that might otherwise be sent to a landfill by the commercial and industrial producers of such waste
plastic. We believe that this can be costly for these producers due to the large volumes of plastic waste that they
generate. As such, our business model is premised on our ability to accept numerous types of waste plastics from such sources at
a relatively low cost. We believe that our ability to accept mainly mixed, unwashed waste plastics is a significant
advantage of our P2O process compared to similar operations in our industry.
Fuel Products
Our P2O process makes both light and
heavy fuel products which are; specifically Naphtha, Fuel Oil No. 2 and Fuel Oil No. 6, as defined by ASTM. Our process
also generates two main by-products, an off-gas similar to natural gas and a carbon residue known as petcoke.
Naphtha is a very light fuel product
that is used as a cutting component for both high and regular grade gasoline. Fuel Oil No. 2 is a mid-range fuel commonly known
as diesel and has numerous transportation, manufacturing and industrial uses. Fuel Oil No. 6 is a heavy fuel generally
used in industrial boilers and ships. Our process produces high quality, ultra-low sulphur fuels, without the need for
further refinement which enables us to sell our fuel directly from our processors to the end-user.
The off-gas that is produced by the
P2O process is used to fuel the burner that heats the entire processor.
P2O Facilities
We currently have one main operating
facility that we use in our P2O business, our P2O plant, as well as a second facility, our fuel blending site, for use in the future. These
are briefly described below.
Niagara Falls, NY facility: Our
Niagara Falls, NY facility currently has two buildings used in fuel production operations, a 10,000 square foot building that currently
houses one commercial-scale P2O processors, one P2O processor devoted to research & development activities, and a 7,200 square
foot building housing the third commercial-scale P2O processor. Our Niagara Falls operations are situated on eight acres
which can accommodate expansion of our operations. This facility also serves as the center of our research and development
operations and our administrative offices.
Blending Site: We own a 250,000
gallon fuel-blending facility in Thorold, Ontario, which, when in use, would allow us to blend and self-certify certain fuels that
are produced from our process to meet government specifications.
Sales and Distribution
We sell our fuel products through two
main channels: fuel brokers and direct to end-users. We have no long-term contracts for fuel sales; rather, we sell
our fuel through the issuance of routine purchase orders.
Suppliers
The principal goods that we require
for our P2O business are the waste plastic that we use as feedstock for production of our fuels. We collect waste plastics
from commercial and industrial businesses that generate large amounts of this waste stream. As of September 30, 2014 we had approximately
394,148 pounds of waste plastic and approximately 11,140 gallons of Heat Transfer Fluid available in inventory as feedstock, to
support the resumption of operations upon completion of the repairs mentioned above.
Licenses, Permits and Testing
We maintain the following permits and licenses in connection
with the operation of our P2O business.
License/Permit |
|
Issuing Authority |
|
Registration Number |
|
Issued |
Air Permit |
|
NYSDEC |
|
9-2911-00348/00002 |
|
06 /30/2014 |
Solid Waste Permit |
|
NYSDEC |
|
|
9-2911-00348/00003 |
|
|
06
/30/2014 |
|
|
Bulk Fuel Blending License |
|
Ontario Technical Standards & Safety Authority |
|
|
000184322 |
|
|
10/13/2014 |
|
|
Waste Disposal Site |
|
Ontario Ministry of the Environment |
|
|
A121029 |
|
|
Perpetual (subject to annual reviews) |
|
|
In 2010, our P2O process and processors
were tested by IsleChem, LLC, an independent chemical firm providing contract research and development, manufacturing and scale-up
services, using two small prototypes of our P2O processor. The IsleChem test results indicated that our process is both
repeatable and scalable. Following this testing, we assembled a large-scale P2O processor capable of processing at least 20 metric
tons of plastic per day. In September 2010, we had a Stack Test performed by Conestoga-Rovers & Associates (“CRA”),
an independent engineering and consulting firm, which concluded that, with a feed rate of 2,000 pounds of plastic per hour, our
processor’s emissions were below the maximum emissions levels allowed by the NYSDEC simple air permit, which is needed to
commercially operate the P2O processor at that location. We used the CRA test results to apply for the required operating
permits and in June 2011 we received an Air State Facility Permit (“Air Permit”) and Solid Waste Management Permit
(“Solid Waste Permit”) for up to three processors at the Niagara Falls, NY facility. In December 2011, we
had a second stack test performed by CRA for an increased rate of 4,000 pounds per hour. In January 2012, we received
a final emissions report from CRA confirming that emissions were considerably decreased with an increased feed rate. In
December 2012, we had a stack test performed on the second processor.
The emissions tests conducted by CRA on our processors are
summarized in the following table:
Emissions |
|
Units |
|
Original Stack Test
(2010) –
Processor #1 |
|
Final Stack Test
(Dec. 2011) – Processor #1 |
|
Stack Test
(Dec. 2012) – Processor #2 |
CO – Carbon Monoxide |
|
|
ppm |
|
|
|
3.16 |
|
|
|
3.1 |
|
|
|
3.7 |
|
SO 2 - Sulphur Dioxide |
|
|
ppm |
|
|
|
0.23 |
|
|
|
0.02 |
|
|
|
0.39 |
|
NOx – Oxides of Nitrogen |
|
|
ppm |
|
|
|
86.4 |
|
|
|
15.1 |
|
|
|
21.3 |
|
TNMHC – Total Non-Methane Hydrocarbons |
|
|
ppm |
|
|
|
0.25 |
|
|
|
3.92 |
|
|
|
0.62 |
|
PM – Particulate Matter |
|
|
Lbs./hr. |
|
|
|
0.016 |
|
|
|
0.002 |
|
|
|
0.012 |
|
Hexane |
|
|
Lbs./hr. |
|
|
|
Not tested |
|
|
|
0.00001 |
|
|
|
0.0013 |
|
Data Recovery & Migration
Business
In June 2009, we purchased certain assets
from John Bordynuik, Inc., a corporation founded by John Bordynuik, our former Chief Executive Officer and current Chief of Technology.
The assets acquired from John Bordynuik, Inc. included tape drives, computer hardware, servers and a mobile data recovery lab to
read and transfer data from magnetic tapes and these assets are used in our Data Recovery & Migration business.
Magnetic tapes were previously a primary
media for data storage. Because of its cost effectiveness, magnetic tape was widely used by government, scientific, educational
and commercial organizations for decades. Over time, these tapes can become vulnerable to deterioration when exposed to natural
elements, which can render the tapes difficult to read or unreadable using the original tape-reading equipment. Our
Data Recovery & Migration Business involves reading old magnetic tapes, interpreting and restoring the data where necessary
and transferring the recovered data to storage formats used in current systems. The recovered data is verified for accuracy and
returned to customers in the media storage format of their choice. Our process gives customers the ability to conveniently catalogue
and safely archive difficult-to-retrieve data on readily accessible, contemporary storage media. Users of these services generally
include businesses or organizations that have historically stored information on magnetic tape, such as government agencies, oil
and gas companies and academic institutions.
The process for data recovery was developed
and is very highly dependent on Mr. John Bordynuik. The Data Business’s reliance on Mr. Bordynuik is a key driver
to achieving revenue. In light of our business strategy focus on our P2O business, we anticipate that revenues and profits generated
from our Data Business operations will represent a decreasing share, if any, of our total revenues and profits in future reporting
periods.
Results of Operations
Nine and three months ended September 30, 2014 compared
to nine and three months ended September 30, 2013.
Revenue
Revenue is primarily derived from our
P2O business through the sale of our fuels. Additionally, from time to time, we are able to supplement this revenue
with revenue from our Data Business through reading and interpreting magnetic tape media, dependent on the time constraints of
our Chief of Technology, who possesses the relevant expertise. We generated $59,672 of revenues from P2O business during
the nine-months ended September 30, 2014, compared to revenues of $473,757 during the same period ended September 30, 2013. The
following table shows a breakdown of our revenues from these sources.
Revenue |
|
Nine Months ended September 30, 2014 |
|
Nine Months ended September 30, 2013 |
|
%
Change |
|
|
|
|
|
|
|
P2O Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuels |
|
$ |
59,672 |
|
|
$ |
473,757 |
|
|
|
|
|
(87%) |
|
Total P2O Revenue |
|
|
59,672 |
|
|
|
473,757 |
|
|
|
|
|
(87%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Business |
|
|
8,042 |
|
|
|
75,231 |
|
|
|
|
|
(89%) |
|
TOTAL REVENUE |
|
$ |
67,714 |
|
|
$ |
548,988 |
|
|
|
|
|
(88%) |
|
Fuel sales are based on either a set
pricing structure with our customers or the prevailing market rate for the specific type of fuel being sold. Our fuels
are sold under both long term sale contracts with specified pricing or through the issuance of purchase orders by our customers. Generally,
we are able to obtain a higher price per gallon for our Fuel Oil No. 2 as compared to Fuel Oil No. 6, and a significantly lower
price for our Naphtha. The decrease in fuel revenue in the nine months ended September 30, 2014, as compared to the
same period in 2013 was due to the Company’s decision to shut down its production late in the fourth quarter of 2013 due
to severe cold weather that caused damage to condensers and other components of our processors.
Revenues from the Data Business were
driven by the completion of open and outstanding purchase orders. We had revenues of $8,042 generated from the Data Business during
the nine-month period ended September 30, 2014, compared to revenues of $75,231 during the same period ended September 30, 2013.
The decrease was a result of the reduction of headcount by furloughing our operations personnel.
Revenue |
|
Three Months ended September 30, 2014 |
|
Three Months ended September 30, 2013 |
|
% Change |
|
|
|
|
|
|
|
P2O Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Fuels |
|
$ |
34,599 |
|
|
$ |
277,276 |
|
|
|
(88 |
%) |
Total P2O Revenue |
|
|
34,599 |
|
|
|
277,276 |
|
|
|
(88 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Business |
|
|
8,042 |
|
|
|
24,999 |
|
|
|
(68 |
%) |
TOTAL REVENUE |
|
$ |
42,641 |
|
|
$ |
302,275 |
|
|
|
(86 |
%) |
The decrease in fuel revenue in the
three months ended September 30, 2014, as compared to the same period in 2013 was due to the Company’s decision to shut down
its production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components
of our processors.
We had revenues of $8,042 generated from the Data Business
during the three-month period ended September 30, 2014, compared to revenues of $24,999 during the same period ended September
30, 2013. The decrease was a result of the reduction of headcount by furloughing our operations personnel.
Cost of Goods Sold
Our costs of goods sold consist of feedstock
procurement costs, overhead incurred at both our recycling facility in Thorold, Ontario and our Niagara Falls, NY facility
as well as the freight associated with the shipments of our plastics and fuels. The costs incurred at our recycling
facility are directly proportional to the amount of plastic that is processed at this facility as well as the costs incurred to
process waste paper fiber. Our feedstock procurement strategy is geared towards obtaining significant amounts
of high quality feedstock at the lowest pricing available. The following table provides a breakdown of the costs of
goods sold:
Cost of Goods Sold |
|
Nine Months ended
September 30,
2014 |
|
Nine Months ended
September 30,
2013 |
|
% Change |
P2O COGS |
|
|
|
|
|
|
Fuels |
|
$ |
53,195 |
|
|
$ |
514,350 |
|
|
|
(90 |
%) |
Total P2O COGS |
|
|
53,195 |
|
|
|
514,350 |
|
|
|
(90 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Business |
|
|
2,146 |
|
|
|
27,384 |
|
|
|
(92 |
%) |
TOTAL COGS |
|
$ |
55,341 |
|
|
$ |
541,734 |
|
|
|
(90 |
%) |
Cost of Goods Sold |
|
Three Months ended
September 30,
2014 |
|
Three Months ended
September 30,
2013 |
|
% Change |
P2O COGS |
|
|
|
|
|
|
Fuels |
|
$ |
29,391 |
|
|
$ |
263,590 |
|
|
|
(89 |
%) |
Total P2O COGS |
|
|
29,391 |
|
|
|
263,590 |
|
|
|
(89 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Business |
|
|
2,017 |
|
|
|
9,209 |
|
|
|
(78 |
%) |
TOTAL COGS |
|
$ |
31,408 |
|
|
$ |
272,799 |
|
|
|
(88 |
%) |
Cost
of goods sold decreased 90% and 89% for the nine and three
months ended September 30, 2014 as compared to same period of 2013 as a result of the Company’s decision to shut down its
production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components
of our processors.
The
cost of goods sold related to the Data Business relate to the direct labor incurred in the reading and interpreting of the
magnetic tape data. We had cost of goods of $2,146 and $2,017 generated from the Data Business during the nine and three
months ended September 30, 2014, respectively, compared to cost of goods of $27,384 and $9,209 during the nine and three months
ended September 30, 2013, respectively. The decrease was a result of the reduction of headcount by furloughing our operations
personnel.
Operating
Expenses
Operating Expenses |
|
Nine months
ended
September 30,
2014 ($) |
|
Nine months ended
September 30,
2013 ($) |
Selling, General and Administrative expenses- Professional Fees |
|
$ |
1,182,123 |
|
|
$ |
263,073 |
Selling, General and Administrative expenses- Compensation |
|
|
1,062,324 |
|
|
|
4,538,980 |
Selling, General and Administrative expenses- Other |
|
|
874,674 |
|
|
|
1,979,272 |
Depreciation & Accretion |
|
|
787,674 |
|
|
|
662,046 |
Research & Development |
|
|
20,999 |
|
|
|
365,289 |
Total Operating Expenses |
|
$ |
3,927,283 |
|
|
$ |
7,808,660 |
We incurred operating expenses of $3,927,283 during the nine
months ended September 30, 2014, compared to $7,808,660 for the period ended September 30, 2013. The major decreases
in the current period, mainly driven by a $2,306,049 in non-cash stock compensation decrease, $1,170,607 in wages expense decrease,
$566,734 decrease in repairs and maintenance expenses, $303,707 decrease of additional operation expenses, offset by a $919,049
non-cash professional fees increase. The company received a $700,000 insurance reimbursement for legal fees in the quarter ended
June 30, 2013.
Operating Expenses |
|
Three months ended
September 30,
2014 ($) |
|
Three months ended
September 30,
2013 ($) |
Selling, General and Administrative expenses- Professional Fees |
|
$ |
218,511 |
|
|
$ |
201,063 |
Selling, General and Administrative expenses- Compensation |
|
|
617,594 |
|
|
|
2,291,366 |
Selling, General and Administrative expenses- Other |
|
|
129,922 |
|
|
|
236,460 |
Depreciation & Accretion |
|
|
256,749 |
|
|
|
284,513 |
Research & Development |
|
|
4,654 |
|
|
|
107,643 |
Total Operating Expenses |
|
$ |
1,227,430 |
|
|
$ |
3,121,045 |
We incurred operating expenses of $1,227,430 during the three
months ended September 30, 2014, compared to $3,121,045 for the period ended September 30, 2013. The primary cause of
the decrease in the current period was, a $1,438,039 decrease in non-cash stock compensation, a $235,733 decrease in wages expense,
a $130,238 decrease in repairs and maintenance expenses, which were offset by a $373,602 increase in non-cash professional fees.
Non-Operating Expenses
Interest Expenses
For the nine months ended September
30, 2014, we had net interest expense of $306,107, mainly from the interest payments on the mortgage on our facility in Canada,
interest payments on our capital leases, and interest accrued on our long-term debt. This was compared to the nine
months ended September 30, 2013, where we recognized net interest expense of $10,803, mainly through interest payments on the
mortgage on our facility in Canada as well as interest payments on our capital leases, offset by recognition of interest income
on the note receivable from the sale of PakIt.
Net Loss
We incurred a net loss of $4,182,085
for the nine months ended September 30, 2014 compared to a net loss of $9,823,166 in the nine months ended September 30, 2013. These
losses consisted of losses from continuing operations of $4,243,554 and $7,788,683 for the nine months ended September 30, 2014
and 2013, respectively, and income of $61,469 and loss of $2,034,483 from discontinued operations for the nine months ended September
30, 2014 and 2013, respectively.
Liquidity and Capital Resources
As of September 30, 2014, the Company
had cash and cash equivalents of $20,391 on hand. The Company does not currently have a formal cash management policy
in place.
The Company’s cash flows for the nine months ended
September 30, 2014 and 2013 are summarized below:
|
|
2014 |
|
2013 |
Net Loss from Continuing Operations |
|
$ |
(4,243,554 |
) |
|
$ |
(7,788,683 |
) |
Net Loss from Discontinued Operations |
|
|
61,469 |
|
|
|
(2,034,483 |
) |
Net Loss |
|
|
(4,182,085 |
) |
|
|
(9,823,166 |
) |
Net Cash Used in Operating Activities |
|
|
(1,127,629) |
|
|
|
(6,632,685 |
) |
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
27,665 |
|
|
|
(2,189,789 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
916,406 |
|
|
|
6,998,292 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Year |
|
|
203,949 |
|
|
|
3,965,720 |
|
Cash and Cash Equivalents at End of Year |
|
|
$ 20,391 |
|
|
|
$ 2,141,538 |
|
We do not generate sufficient cash to
fund our operations and we have limited capital resources. To fund operations during our development, we have primarily relied
on net proceeds from the sale of equity or debt securities in private placement transactions, including investment by our officers
and directors. If we fail to raise additional capital as and when needed, then we may be forced to severely curtail or cease operations. There
can be no assurance that financing will be available on favorable terms or at all. If we raise additional capital through the sale
of equity or convertible debt securities, the issuance of such securities will result in dilution to existing stockholders.
In the short term, we expect to need
additional capital to fund and resume operations and will need to raise this additional capital in order to eventually achieve
cash flow positive results from our P2O processors. We expect that we will attempt to raise capital through the issuance
of long term notes, through private placements of our common and/ or preferred stock or through other financing efforts. Additionally,
we could enter into transactions with third parties in which we sell and potentially operate our P2O processors on their sites. We
expect that this would generate additional needed cash.
In the long term, we expect that we
will be able to fund our daily operations through the generation of sales of our fuels and P2O Processors. However,
we will require significant proceeds from the sale of our common stock, preferred stock, debt securities in order to fund the construction
of multiple processors.
Our limited capital resources and recurring
losses from operations raise substantial doubt about our ability to continue as a going concern and may adversely affect the ability
to raise additional capital. The audit report prepared by our independent registered public accounting firm relating to our consolidated
financial statements for the year ended December 31, 2013 includes an explanatory paragraph expressing substantial doubt about
our ability to continue as a going concern.
In the nine months ended September 30,
2014 and 2013, we had significant charges included in the reported Net Loss that had no effect on cash flows. In both
periods, these charges included depreciation of property, plant and equipment, allowances for uncollectible amounts, and stock
based compensation and stock issued for services.
Investing activities include the Company’s
cash investment in property, plant and equipment which amounted to $10,584 in the nine months ended September 30, 2014, as compared
to $2,189,789 in the nine months ended September 30, 2013. As we continue to grow and expand the number of processors,
potential P2O plant locations and make any necessary modifications to the processors, buildings housing the processors and other
enhancements, we expect to continue to make significant investment in property, plant and equipment in future periods.
Financing activities in the nine months
ended September 30, 2014 represented the cash received upon the sale of shares of common stock in private placements during the
period as compared to the nine months ended September 30, 2013, in which cash from financing activities represented cash received
from the sale of Series B Preferred Stock. We expect to rely upon proceeds from future private placements of equity
and debt securities to resume operations and implement our growth and construction plans and meet our liquidity needs going forward.
While we have been successful in securing
financing in sufficient amounts and suitable terms needed to meet our needs currently and in the past; there is no assurance that
it will be able to do so in the future.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet
arrangements other than those items listed in Note 11 to the condensed consolidated financial statements as Commitments.
Transactions with Related parties
From June to October 2014, the Company’s
Chief Executive Officer made several personal loans to the Company totaling $464,318 to be used for working capital purposes.
In June and July, 2014, the Company’s
Chief of Technology John Bordynuik made payments in behalf of the Company totaling $15,750 for critical operating services.
Critical Accounting Policies, Estimates
and Assumptions
The Company believes the following discussion
addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition
and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of
the need to make estimates about the effect of matters that are inherently uncertain.
The Company has disclosed its accounting
policies in “NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to the Condensed Consolidated
Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The
following accounting policies provide an update to those included under the same captions in the Company’s Annual Report
on Form 10-K.
Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include
amounts for impairment of property, plant and equipment, estimating reserves and determining accruals related to discontinued operations,
projecting future cash flows from property, plant and equipment, and carrying value of inventory, share based compensation, asset
retirement obligations, inventory obsolescence, accrued liabilities, valuation of the short term note receivable, accounts receivable
exposures, discount rate used in the determination of the fair value of the Senior Secured Notes for purposes of performing the
relative fair value calculation to allocate the proceeds between the Notes and the Warrants included in the subscription for the
Notes, and the discount rate used to calculate the present value of the accrued lease liability.
Accounts Receivable
Accounts receivable represent unsecured
obligations due from customers under terms requesting payments upon receipt of invoice up to thirty days, depending on the customer. Accounts
receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible
accounts. Customer balances with invoices beyond agreed upon terms are considered delinquent. Payments of accounts receivable are
allocated to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest unpaid
invoice.
The allowance for uncollectible
accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of
receivables and the credit standing of individual customers. Accounts receivable determined to be uncollectible are
recognized using the allowance method. The allowance for uncollectible accounts as of September 30, 2014 was $Nil and
December 31, 2013 was $91,710.
Inventories
Inventories consist of plastics, processing
costs and processed fuels and are stated at the lower of cost or market. The Company uses an average costing method for determining
cost (see Note 4). Inventories are periodically reviewed for use and obsolescence, and adjusted as necessary.
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.
Asset Retirement Obligations
The fair value of the estimated asset
retirement obligations 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 asset retirement costs are depreciated over the asset’s estimated
useful life and are included in depreciation and accretion expense on the consolidated statements of income. 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. The balance
of such asset retirement obligation is included in other long-term liabilities with balances of $30,988 and $30,306 as of September
30, 2014 and December 31, 2013, respectively.
Environmental Contingencies
We record environmental liabilities
at their undiscounted amounts on our balance sheet 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 sheet. No amounts for recovery have been accrued to date.
Revenue Recognition
We recognize revenue when it is realized
or realizable and collection is reasonably assured. We consider 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 issuance of a purchase order. We negotiate 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).
Subsequent Events
On October 28, 2014 the Company entered
into Subscription Agreements with two 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 1.25
million shares of its common stock and Warrants to purchase up to an additional 1.25 million shares of its common stock. The closings
occurred on October 28, 2014. The purchase price per share was $0.10 and the gross proceeds to the Company were $125,000. The Warrants
have a three year term, and an exercise price of $0.10 per share of common stock.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
Disclosures About Market Risk
We may be exposed to changes in financial
market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result
of movements in interest rates and equity prices. We currently do not use financial instruments in the normal course of business
that are subject to changes in financial market conditions.
Currency Fluctuations and Foreign
Currency Risk
The Company mainly operates in the
United States and Canada. Due to the relative stability of the Canadian Dollar in comparison to the U.S. Dollar, we
do not have significant foreign currency risk.
Interest Rate Risk
We deposit surplus funds with banks
earning daily interest. We do not invest in any instruments for trading purposes. All of our outstanding debt instruments carry
fixed rates of interests. The amount of current portion of capital leases outstanding as of September 30, 2014 and December 31,
2013 was $27,241 and $23,618, respectively. We are exposed to interest rate risk primarily with respect to our capital leases and
mortgage.
Management monitors the banks’
prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources
of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.
Credit Risk
We have not experienced significant
credit risk with our accounts receivable, as most of our customers are long-term customers with superior payment records. Our receivables
are monitored regularly by our credit managers. Currently, as noted in Note 6 to the condensed consolidated financial
statements, we have become aware of the uncertainty of the creditworthiness of the note holder related to Pak-It and have accordingly
reserved for the collectability of the note receivable related to that transaction.
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 nine months ended September
30, 2014 and 2013, 100%, and 92.4%, respectively, of total net revenues were generated from four customer and four customers. As
of September 30, 2014, and 2013, three customers, accounted for 100.0%, and 75.2% of accounts receivable. During
the three months ended September 30, 2014 and 2013, 100%, and 96.8%, respectively, of total net revenues were generated from three
customer and four customers.
For the nine month ended September 30,
2014 and 2013, the Company had approximately 35.8% and 33.4%, respectively, of its purchases from five vendors. For
the three month ended September 30, 2014 and 2013, the Company had approximately 50.8% and 33.6%, respectively, of its purchases
from five and three vendors respectively. As of September 30, 2014 and December 31, 2013, these five and three vendors
accounted for 8.0% and 23.5 % of accounts payable, respectively.
Inflation Risk
Inflationary factors such as increases
in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses
as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our chief executive officer (CEO) and chief financial officer (CFO), we conducted an evaluation of
our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2014. Based on this evaluation,
our CEO and CFO concluded that our disclosure controls and procedures are ineffective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure.
Changes in Internal Controls over
Financial Reporting
There were no changes in our internal
control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15
or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Management has reported to the Board of Directors material weaknesses described
under the heading “Management’s Report on Internal Control over Financial Reporting” in Section 9A of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of legal proceedings
affecting the Company, see the information in Footnote 10, “Commitments and Contingencies”, to the financial statements,
included in Part I of this Report.
Item 1A. Risk
Factors
In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors”
in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and operating results.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
On May
15, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the
February 19, 2014 consulting agreement to Bespoke Growth Partner’s Inc., Brewer Group Inc., and Greentree Financial
Group Inc. respectively.
On
July 11, 2014, the Company issued 250,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 250,000
shares of common stock. The exercise price of the warrants was $0.10 and the Company received $25,000 .
On
August 14, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the
February 19, 2014 consulting agreement to Bespoke Growth Partner’s Inc., Brewer Group Inc., and Greentree Financial
Group Inc. respectively.
On August 20, 2014, the Company issued 150,000 shares of
restricted common stock pursuant to the exercise of warrants to purchase 150,000 shares of common stock. The exercise price of
the warrants was $0.10 and the Company received $15,000.
On August 26, 2014, the Company issued 17,300 shares of restricted
common stock in satisfaction of $2,565, comprised of accrued and unpaid fees owed to aa former officer of the Company.
On
August 26, 2014, the Company issued 13,289 shares of restricted common stock in satisfaction of $1,196, comprised of accrued and
unpaid fees owed to a vendor.
In connection with each of the above transactions, such issuances were made in reliance on the exemption from registration provided
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”), and Regulation D promulgated thereunder
on the basis that the issuances did not involve a public offering and the recipients of the shares made certain representations
to the Company, including without limitation, that the recipient was an “accredited investors” as defined in Rule
501 under the Act.
Item 3. Defaults
upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other
Information
Item 6. Exhibits
(a) Exhibits
31.1 |
|
Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
32.1 |
|
Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
32.2 |
|
Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
PLASTIC2OIL, INC. |
|
|
Date: November 14, 2014 |
By: |
/s/
Richard Heddle |
|
|
Name: Richard Heddle |
|
|
Title: President and Chief Executive Officer
(Principal Executive Officer) |
Exhibit
31.1
CERTIFICATION
OF
PRINCIPAL EXECUTIVE
OFFICER
PURSUANT
TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I,
Richard Heddle, certify that:
1. |
I
have reviewed this quarterly report on Form 10-Q of Plastic2Oil, Inc. |
2. |
Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; |
3. |
Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report; |
4. |
The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
d) |
disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting, and; |
5. |
The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions): |
|
a) |
all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
b) |
any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 14, 2014 |
By: |
/s/
Richard Heddle |
|
|
|
Richard
Heddle |
|
|
|
President
and Chief Executive Officer |
Exhibit
31.2
CERTIFICATION
OF
PRINCIPAL FINANCIAL
OFFICER
PURSUANT
TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I,
Rahoul S Banerjea, certify that:
1. |
I
have reviewed this quarterly report on Form 10-Q of Plastic2Oil, Inc. |
2. |
Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; |
3. |
Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report; |
4. |
The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
d) |
disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting, and; |
5. |
The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions): |
|
a) |
all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
b) |
any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 14, 2014 |
By: |
/s/
Rahoul S. Banerjea |
|
|
|
Rahoul
S. Banerjea |
|
|
|
Chief
Financial Officer |
Exhibit
32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Quarterly Report on Form 10-Q of Plastic2Oil Inc. for the quarter ended September 30,
2014, I, Richard Heddle, President and Chief Executive Officer of Plastic2Oil Inc., hereby certify pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
1. |
Such
Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
|
|
2. |
The
information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2014, fairly presents,
in all material respects, the financial condition and results of operations of JBI Inc. |
Date:
November 14, 2014 |
By: |
/s/
Richard Heddle |
|
|
|
Richard
Heddle |
|
|
|
President
and Chief Executive Officer |
Exhibit
32.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
PURSUANT
TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Quarterly Report on Form 10-Q of Plastic2Oil Inc. for the quarter ended September 30,
2014, I, Rahoul S. Banerjea, Chief Financial Officer of Plastic2Oil Inc., hereby certify pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of my knowledge and belief, that:
1. |
Such
Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
|
|
2. |
The
information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2014, fairly presents,
in all material respects, the financial condition and results of operations of JBI Inc. |
Date:
November 14, 2014 |
By: |
/s/
Rahoul S Banerjea |
|
|
|
Rahoul
S Banerjea |
|
|
|
Chief
Financial Officer |
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